EX-99.3 4 a2241526zex-99_3.htm EX-99.3
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EXHIBIT 99.3

Unaudited Consolidated Financial Statements for the first quarter ended March 31, 2020

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(unaudited)

  Three months ended
March 31		    

($ millions)

   2020   2019    

​

​ ​ ​ ​ ​ ​

Revenues and Other Income

            
​

Operating revenues, net of royalties (note 3)

   7 391   8 983    
​

Other income (note 4)

   365   414    
​ ​ ​ ​ ​ ​ ​

  7 756   9 397    
​ ​ ​ ​ ​ ​ ​

Expenses

            
​

Purchases of crude oil and products

   3 180   2 621    
​

Operating, selling and general

   2 967   2 832    
​

Transportation

   336   336    
​

Depreciation, depletion, amortization and impairment (note 11)

   4 146   1 462    
​

Exploration

   139   113    
​

Gain on disposal of assets

   (4 ) (5 )  
​

Financing expenses (note 6)

   1 342   32    
​ ​ ​ ​ ​ ​ ​

  12 106   7 391    
​ ​ ​ ​ ​ ​ ​

(Loss) Earnings before Income Taxes

   (4 350 ) 2 006    
​ ​ ​ ​ ​ ​ ​

Income Tax (Recovery) Expense

  
 		  
 		  
 
​

Current

   (305 ) 533    
​

Deferred

   (520 ) 3    
​ ​ ​ ​ ​ ​ ​

  (825 ) 536    
​ ​ ​ ​ ​ ​ ​

Net (Loss) Earnings

   (3 525 ) 1 470    
​ ​ ​ ​ ​ ​ ​

Other Comprehensive Income (Loss)

  
 		  
 		  
 
​

Items That May be Subsequently Reclassified to Earnings:

            
​

Foreign currency translation adjustment

   241   (68 )  
​

Items That Will Not be Reclassified to Earnings:

            
​

Actuarial gain (loss) on employee retirement benefit plans, net of income taxes

   13   (136 )  
​ ​ ​ ​ ​ ​ ​

Other Comprehensive Income (Loss)

   254   (204 )  
​ ​ ​ ​ ​ ​ ​

Total Comprehensive (Loss) Income

  
(3 271
)
1 266		  
 
​ ​ ​ ​ ​ ​ ​

Per Common Share (dollars) (note 7)

 
 		  
 		  
 
​

Net (loss) earnings – basic and diluted

   (2.31 ) 0.93    
​

Cash dividends

   0.47   0.42    

​

​ ​ ​ ​ ​ ​

See accompanying notes to the condensed interim consolidated financial statements.

  
 		  
 		  
 
​ 46  2020 FIRST QUARTER   Suncor Energy Inc. ​ ​

CONSOLIDATED BALANCE SHEETS
(unaudited)

($ millions)

   March 31
2020		   December 31
2019		    

​

​ ​ ​ ​ ​ ​

Assets

            
​

Current assets

            
​

Cash and cash equivalents

   2 226   1 960    
​

Accounts receivable

   2 994   4 052    
​

Inventories (note 10)

   2 725   3 761    
​

Income taxes receivable

   334   133    
​ ​ ​ ​ ​ ​ ​

Total current assets

   8 279   9 906    
​

Property, plant and equipment, net (note 11)

   70 077   72 640    
​

Exploration and evaluation

   2 426   2 428    
​

Other assets

   1 298   1 194    
​

Goodwill and other intangible assets

   3 057   3 058    
​

Deferred income taxes

   129   209    
​ ​ ​ ​ ​ ​ ​

Total assets

   85 266   89 435    
​ ​ ​ ​ ​ ​ ​

Liabilities and Shareholders' Equity

  
 		  
 		  
 
​

Current liabilities

            
​

Short-term debt

   3 756   2 155    
​

Current portion of long-term lease liabilities

   302   310    
​

Accounts payable and accrued liabilities

   5 481   6 555    
​

Current portion of provisions

   634   631    
​

Income taxes payable

   34   886    
​ ​ ​ ​ ​ ​ ​

Total current liabilities

   10 207   10 537    
​

Long-term debt

   13 765   12 884    
​

Long-term lease liabilities

   2 615   2 621    
​

Other long-term liabilities

   2 399   2 499    
​

Provisions

   8 708   8 676    
​

Deferred income taxes

   9 607   10 176    
​

Equity

   37 965   42 042    
​ ​ ​ ​ ​ ​ ​

Total liabilities and shareholders' equity

   85 266   89 435    

​

​ ​ ​ ​ ​ ​

See accompanying notes to the condensed interim consolidated financial statements.

  
 		  
 		  
 
​ ​ ​ 2020 FIRST QUARTER   Suncor Energy Inc.  47

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

  Three months ended
March 31		    

($ millions)

   2020   2019    

​

​ ​ ​ ​ ​ ​

Operating Activities

            
​

Net (Loss) Earnings

   (3 525 ) 1 470    
​

Adjustments for:

            
​

Depreciation, depletion, amortization and impairment (note 11)

   4 146   1 462    
​

Deferred income tax (recovery) expense

   (520 ) 3    
​

Accretion

   69   71    
​

Unrealized foreign exchange loss (gain) on U.S. dollar denominated debt (note 6)

   1 096   (280 )  
​

Change in fair value of financial instruments and inventory

   125   72    
​

Gain on disposal of assets

   (4 ) (5 )  
​

Share-based compensation

   (326 ) (109 )  
​

Exploration

   70   2    
​

Settlement of decommissioning and restoration liabilities

   (106 ) (114 )  
​

Other

   (24 ) 13    
​

Decrease (increase) in non-cash working capital

   383   (1 037 )  
​ ​ ​ ​ ​ ​ ​

Cash flow provided by operating activities

   1 384   1 548    
​ ​ ​ ​ ​ ​ ​

Investing Activities

            
​

Capital and exploration expenditures

   (1 320 ) (903 )  
​

Other investments

   (16 ) (50 )  
​

(Increase) decrease in non-cash working capital

   (180 ) (34 )  
​ ​ ​ ​ ​ ​ ​

Cash flow used in investing activities

   (1 516 ) (987 )  
​ ​ ​ ​ ​ ​ ​

Financing Activities

            
​

Net increase in short-term debt

   1 386   326    
​

Lease liability payments

   (82 ) (70 )  
​

Issuance of common shares under share option plans

   29   35    
​

Repurchase of common shares (note 8)

   (307 ) (514 )  
​

Distributions relating to non-controlling interest

   (2 ) (2 )  
​

Dividends paid on common shares

   (709 ) (662 )  
​ ​ ​ ​ ​ ​ ​

Cash flow provided by (used in) financing activities

   315   (887 )  
​ ​ ​ ​ ​ ​ ​

Increase (Decrease) in Cash and Cash Equivalents

   183   (326 )  
​

Effect of foreign exchange on cash and cash equivalents

   83   (20 )  
​

Cash and cash equivalents at beginning of period

   1 960   2 221    
​ ​ ​ ​ ​ ​ ​

Cash and Cash Equivalents at End of Period

   2 226   1 875    
​ ​ ​ ​ ​ ​ ​

Supplementary Cash Flow Information

            
​

Interest paid

   147   154    
​

Income taxes paid

   751   116    

​

​ ​ ​ ​ ​ ​

See accompanying notes to the condensed interim consolidated financial statements.

  
 		  
 		  
 
​ 48  2020 FIRST QUARTER   Suncor Energy Inc. ​ ​

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited)

($ millions)

   Share
Capital		   Contributed
Surplus		   Accumulated
Other
Comprehensive
Income		   Retained
Earnings		   Total   Number of
Common
Shares
(thousands)		    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

At December 31, 2018

   25 910   540   1 076   16 479   44 005   1 584 484    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adoption of IFRS 16 impact

   —   —   —   14   14   —    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

At January 1, 2019, adjusted

   25 910   540   1 076   16 493   44 019   1 584 484    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net earnings

   —   —   —   1 470   1 470   —    
​ ​ ​

Foreign currency translation adjustment

   —   —   (68 ) —   (68 ) —    
​ ​ ​

Actuarial loss on employee retirement benefit plans, net of income taxes of $50

   —   —   —   (136 ) (136 ) —    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total comprehensive (loss) income

   —   —   (68 ) 1 334   1 266   —    
​ ​ ​

Issued under share option plans

   46   (10 ) —   —   36   1 025    
​ ​ ​

Repurchase of common shares for cancellation (note 8)

   (193 ) —   —   (321 ) (514 ) (11 951 )  
​ ​ ​

Change in liability for share repurchase commitment

   48   —   —   45   93   —    
​ ​ ​

Share-based compensation

   —   24   —   —   24   —    
​ ​ ​

Dividends paid on common shares

   —   —   —   (662 ) (662 ) —    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

At March 31, 2019

   25 811   554   1 008   16 889   44 262   1 573 558    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

At December 31, 2019

   25 167   566   899   15 410   42 042   1 531 874    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net loss

   —   —   —   (3 525 ) (3 525 ) —    
​ ​ ​

Foreign currency translation adjustment

   —   —   241   —   241   —    
​ ​ ​

Actuarial gain on employee retirement benefit plans, net of income taxes of $5

   —   —   —   13   13   —    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total comprehensive income (loss)

   —   —   241   (3 512 ) (3 271 ) —    
​ ​ ​

Issued under share option plans

   36   (7 ) —   —   29   804    
​ ​ ​

Repurchase of common shares for cancellation (note 8)

   (124 ) —   —   (183 ) (307 ) (7 527 )  
​ ​ ​

Change in liability for share repurchase commitment

   65   —   —   103   168   —    
​ ​ ​

Share-based compensation

   —   13   —   —   13   —    
​ ​ ​

Dividends paid on common shares

   —   —   —   (709 ) (709 ) —    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

At March 31, 2020

   25 144   572   1 140   11 109   37 965   1 525 151    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

See accompanying notes to the condensed interim consolidated financial statements.

  
 		  
 		  
 		  
 
​ ​ ​ 2020 FIRST QUARTER   Suncor Energy Inc.  49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. REPORTING ENTITY AND DESCRIPTION OF THE BUSINESS

Suncor Energy Inc. (Suncor or the company) is an integrated energy company headquartered in Calgary, Alberta. The company is focused on developing one of the world's largest petroleum resource basins – Canada's Athabasca oil sands. In addition, the company explores for, acquires, develops, produces and markets crude oil in Canada and internationally, transports and refines crude oil, and markets petroleum and petrochemical products primarily in Canada. The company also operates a renewable energy business and conducts energy trading activities focused principally on the marketing and trading of crude oil, natural gas, byproducts, refined products, and power.

The address of the company's registered office is 150 – 6th Avenue S.W., Calgary, Alberta, Canada, T2P 3E3.

2. BASIS OF PREPARATION

(a) Statement of Compliance

These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), specifically International Accounting Standard (IAS) 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB). They are condensed as they do not include all of the information required for full annual financial statements, and they should be read in conjunction with the consolidated financial statements of the company for the year ended December 31, 2019.

(b) Basis of Measurement

The consolidated financial statements are prepared on a historical cost basis except as detailed in the accounting policies disclosed in the company's consolidated financial statements for the year ended December 31, 2019.

(c) Functional Currency and Presentation Currency

These consolidated financial statements are presented in Canadian dollars, which is the company's functional currency.

(d) Use of Estimates, Assumptions and Judgments

The timely preparation of financial statements requires that management make estimates and assumptions and use judgment. Accordingly, actual results may differ from estimated amounts as future confirming events occur. Significant estimates and judgment used in the preparation of the financial statements are described in the company's consolidated financial statements for the year ended December 31, 2019.

On January 30, 2020, the World Health Organization declared the Coronavirus disease (COVID-19) outbreak a Public Health Emergency of International Concern and, on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. These measures have caused, and will continue to cause significant disruption to business operations and a significant increase in economic uncertainty, with reduced demand for commodities leading to volatile prices and currency exchange rates, and a decline in long-term interest rates. Our operations and business are particularly sensitive to a reduction in the demand for, and prices of, commodities that are closely linked to Suncor's financial performance, including crude oil, refined petroleum products (such as jet fuel and gasoline), natural gas and electricity. The potential direct and indirect impacts of the economic downturn have been considered in management's estimates, and assumptions at period end have been reflected in our results with any significant changes described in the relevant financial statement note.

The COVID-19 pandemic is an evolving situation that will continue to have widespread implications for our business environment, operations and financial condition. Management cannot reasonably estimate the length or severity of this pandemic, or the extent to which the disruption may materially impact our consolidated statements of comprehensive (loss) income, consolidated balance sheets and consolidated statements of cash flows in fiscal 2020.

(e) Income taxes

The company recognizes the impacts of income tax rate changes in earnings in the period that the applicable rate change is enacted or substantively enacted.

​ 50  2020 FIRST QUARTER   Suncor Energy Inc. ​ ​


(f) Adoption of New IFRS Standards

Definition of a Business

In October 2018, the IASB issued Definition of a Business (Amendments to IFRS 3). The amendments narrowed and clarified the definition of a business. The amendments include an election to use a concentration test. This is a simplified assessment that results in treatment of an acquisition as an asset acquisition if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. If an election to use a concentration test is not made, or the test failed, then the assessment focuses on the existence of a substantive process. One important distinction is that "goodwill" can only be recognized as a result of acquiring a business, but not as a result of an asset acquisition. The company adopted the amendments prospectively on the effective date of January 1, 2020, and there was no impact to the company's consolidated financial statements as a result of the initial application.

3. SEGMENTED INFORMATION

The company's operating segments are reported based on the nature of their products and services and management responsibility.

Intersegment sales of crude oil and natural gas are accounted for at market values and are included, for segmented reporting, in revenues of the segment making the transfer and expenses of the segment receiving the transfer. Intersegment amounts are eliminated on consolidation.

Three months ended March 31        Oil Sands
 		           Exploration
       and Production
 		       Refining and
   Marketing
 		           Corporate and
       Eliminations
 		           Total
 		   
($ millions)     2020     2019     2020     2019     2020     2019     2020     2019     2020     2019    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Revenues and Other Income

                                                          
​

Gross revenues

     2 327     3 219     539     937     4 563     5 190     9     8     7 438     9 354    
​

Intersegment revenues

     990     962     —     —     24     14     (1 014 )   (976 )   —     —    
​

Less: Royalties

     (25 )   (198 )   (22 )   (173 )   —     —     —     —     (47 )   (371 )  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating revenues, net of royalties

     3 292     3 983     517     764     4 587     5 204     (1 005 )   (968 )   7 391     8 983    
​

Other income (loss)

     248     10     33     386     86     15     (2 )   3     365     414    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

    3 540     3 993     550     1 150     4 673     5 219     (1 007 )   (965 )   7 756     9 397    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Expenses

                                                                
​

Purchases of crude oil and products

     407     273     —     —     3 958     3 064     (1 185 )   (716 )   3 180     2 621    
​

Operating, selling and general

     2 252     1 973     133     148     511     536     71     175     2 967     2 832    
​

Transportation

     289     298     23     19     36     29     (12 )   (10 )   336     336    
​

Depreciation, depletion, amortization and impairment

     3 065     992     828     247     232     203     21     20     4 146     1 462    
​

Exploration

     57     102     82     11     —     —     —     —     139     113    
​

Gain on asset exchange and disposals

     (1 )   (4 )   —     —     (3 )   (1 )   —     —     (4 )   (5 )  
​

Financing expenses (income)

     81     69     3     14     —     13     1 258     (64 )   1 342     32    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

    6 150     3 703     1 069     439     4 734     3 844     153     (595 )   12 106     7 391    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(Loss) Earnings before Income Taxes

     (2 610 )   290     (519 )   711     (61 )   1 375     (1 160 )   (370 )   (4 350 )   2 006    
​

Income Tax (Recovery) Expense

                                                                
​

Current

     (213 )   41     36     252     4     361     (132 )   (121 )   (305 )   533    
​

Deferred

     (444 )   60     (128 )   (33 )   (10 )   5     62     (29 )   (520 )   3    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

    (657 )   101     (92 )   219     (6 )   366     (70 )   (150 )   (825 )   536    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net (Loss) Earnings

     (1 953 )   189     (427 )   492     (55 )   1 009     (1 090 )   (220 )   (3 525 )   1 470    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Capital and Exploration Expenditures

     1 010     584     179     228     92     82     39     9     1 320     903    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ 2020 FIRST QUARTER   Suncor Energy Inc.  51

Disaggregation of Revenue from Contracts with Customers and Intersegment Revenue

The company derives revenue from the transfer of goods mainly at a point in time in the following major commodities, revenue streams and geographical regions:

Three months ended March 31

   2020
   2019
 		   

($ millions)

   North America   International   Total   North America   International   Total    

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Oil Sands

                            
​

SCO and diesel

   2 758   —   2 758   3 278   —   3 278    
​

Bitumen

   559   —   559   903   —   903    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  3 317   —   3 317   4 181   —   4 181    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Exploration and Production

                            
​

Crude oil and natural gas liquids

   319   219   538   491   444   935    
​

Natural gas

   —   1   1   —   2   2    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  319   220   539   491   446   937    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Refining and Marketing

                            
​

Gasoline

   1 894   —   1 894   2 106   —   2 106    
​

Distillate

   2 116   —   2 116   2 383   —   2 383    
​

Other

   577   —   577   715   —   715    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  4 587   —   4 587   5 204   —   5 204    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Corporate and Eliminations

                            
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  (1 005 ) —   (1 005 ) (968 ) —   (968 )  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Revenue from Contracts with Customers

   7 218   220   7 438   8 908   446   9 354    

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

4. OTHER INCOME

Other income consists of the following:

  Three months ended
March 31		    

($ millions)

   2020   2019    

​

​ ​ ​ ​ ​ ​

Risk management and trading activities(1)

   324   15    
​

Investment and interest income

   36   50    
​

Insurance proceeds(2)

   —   363    
​

Other

   5   (14 )  
​ ​ ​ ​ ​ ​ ​

  365   414    

​

​ ​ ​ ​ ​ ​
(1)
Risk management and trading activities include a gain of $421 million (March 31, 2019 – $38 million) related to derivative contracts and a loss of $97 million (March 31, 2019 – $23 million) related to the valuation of trading inventory.

(2)
Three months ended March 31, 2019 include insurance proceeds for Libyan assets within the Exploration and Production segment.
​ 52  2020 FIRST QUARTER   Suncor Energy Inc. ​ ​

5. SHARE-BASED COMPENSATION

The following table summarizes the share-based compensation (recovery) expense for all plans recorded within Operating, Selling and General expense:

  Three months ended
March 31		    

($ millions)

   2020   2019    

​

​ ​ ​ ​ ​ ​

Equity-settled plans

   13   24    
​

Cash-settled plans

   (100 ) 138    
​ ​ ​ ​ ​ ​ ​

  (87 ) 162    

​

​ ​ ​ ​ ​ ​

6. FINANCING EXPENSES

   Three months ended
March 31		    

($ millions)

   2020   2019    

​

​ ​ ​ ​ ​ ​

Interest on debt

   216   210    
​

Interest on lease liabilities

   42   45    
​

Capitalized interest

   (38 ) (28 )  
​ ​ ​ ​ ​ ​ ​

Interest expense

   220   227    
​

Interest on partnership liability

   13   14    
​

Interest on pension and other post-retirement benefits

   14   15    
​

Accretion

   69   71    
​

Foreign exchange loss (gain) on U.S. dollar denominated debt

   1 096   (280 )  
​

Operational foreign exchange and other

   (70 ) (15 )  
​ ​ ​ ​ ​ ​ ​

  1 342   32    

​

​ ​ ​ ​ ​ ​

During the first quarter of 2020, the company secured an additional $2.5 billion of credit facilities with its key banking partners under a new agreement. This agreement has the same terms and covenants as our existing credit facilities. Also, subsequent to March 31, 2020, the company issued $1.25 billion of senior unsecured Series 7 Medium Term Notes and secured an additional $300 million in credit facilities (note 12).

7. (LOSS) EARNINGS PER COMMON SHARE

   Three months ended
March 31		    

($ millions)

   2020   2019    

​

​ ​ ​ ​ ​ ​

Net (loss) earnings

   (3 525 ) 1 470    

​

​ ​ ​ ​ ​ ​

(millions of common shares)

  
 		  
 		  
 

​

​ ​ ​ ​ ​ ​

Weighted average number of common shares

   1 528   1 579    
​

Dilutive securities:

            
​

Effect of share options

   1   3    
​ ​ ​ ​ ​ ​ ​

Weighted average number of diluted common shares

   1 529   1 582    

​

​ ​ ​ ​ ​ ​

(dollars per common share)

  
 		  
 		  
 

​

​ ​ ​ ​ ​ ​

Basic and diluted (loss) earnings per share

   (2.31 ) 0.93    

​

​ ​ ​ ​ ​ ​
​ ​ ​ 2020 FIRST QUARTER   Suncor Energy Inc.  53

8. NORMAL COURSE ISSUER BID

On May 1, 2019, the company announced its intention to renew its existing normal course issuer bid (the 2019 NCIB) to continue to repurchase shares under its previously announced buyback program through the facilities of the Toronto Stock Exchange, the New York Stock Exchange and/or alternative trading platforms. Pursuant to the 2019 NCIB, the company is permitted to purchase for cancellation up to 50,252,231 of its common shares between May 6, 2019 and May 5, 2020. On December 23, 2019, Suncor announced an amendment to the 2019 NCIB, effective as of December 30, 2019, which allows the company to increase the maximum number of common shares that may be repurchased between May 6, 2019 and May 5, 2020 to 78,549,178. In the first quarter of 2020, Suncor's Board of Directors approved a further share repurchase program of up to $2.0 billion beginning March 2020. The COVID-19 pandemic has created significant uncertainly in the business environment and, consistent with our capital allocation strategy, the share buyback program has been suspended.

During the first quarter of 2020, the company repurchased 7.5 million common shares under the 2019 NCIB at an average price of $40.83 per share, for a total repurchase cost of $307 million. The following table summarizes the share repurchase activities during the period:

  Three months ended
March 31		    

($ millions, except as noted)

   2020   2019    

​

​ ​ ​ ​ ​ ​

Share repurchase activities (thousands of common shares)

            
​

Shares repurchased

   7 527   11 951    
​ ​ ​ ​ ​ ​ ​

Amounts charged to

            
​

Share capital

   124   193    
​

Retained earnings

   183   321    
​ ​ ​ ​ ​ ​ ​

Share repurchase cost

   307   514    

​

​ ​ ​ ​ ​ ​

9. FINANCIAL INSTRUMENTS

Derivative Financial Instruments

(a) Non-Designated Derivative Financial Instruments

The company uses derivative financial instruments, such as physical and financial contracts, to manage certain exposures to fluctuations in interest rates, commodity prices and foreign currency exchange rates, as part of its overall risk management program, as well as for trading purposes.

The changes in the fair value of non-designated derivatives are as follows:

($ millions)

   Total    

​

​ ​ ​ ​

Fair value outstanding at December 31, 2019

   (39 )  
​

Cash Settlements – received during the year

   (52 )  
​

Changes in fair value recognized in earnings during the year (note 4)

   421    
​ ​ ​ ​ ​

Fair value outstanding at March 31, 2020

   330    

​

​ ​ ​ ​

(b) Fair Value Hierarchy

To estimate the fair value of derivatives, the company uses quoted market prices when available, or third-party models and valuation methodologies that utilize observable market data. In addition to market information, the company incorporates transaction-specific details that market participants would utilize in a fair value measurement, including the impact of non-performance risk. However, these fair value estimates may not necessarily be indicative of the amounts that could be realized or settled in a current market transaction. The company characterizes inputs used in determining fair value using a

​ 54  2020 FIRST QUARTER   Suncor Energy Inc. ​ ​

hierarchy that prioritizes inputs depending on the degree to which they are observable. The three levels of the fair value hierarchy are as follows:

•
Level 1 consists of instruments with a fair value determined by an unadjusted quoted price in an active market for identical assets or liabilities. An active market is characterized by readily and regularly available quoted prices where the prices are representative of actual and regularly occurring market transactions to assure liquidity.

•
Level 2 consists of instruments with a fair value that is determined by quoted prices in an inactive market, prices with observable inputs, or prices with insignificant non-observable inputs. The fair value of these positions is determined using observable inputs from exchanges, pricing services, third-party independent broker quotes, and published transportation tolls. The observable inputs may be adjusted using certain methods, which include extrapolation over the quoted price term and quotes for comparable assets and liabilities.

•
Level 3 consists of instruments with a fair value that is determined by prices with significant unobservable inputs. As at March 31, 2020, the company does not have any derivative instruments measured at fair value Level 3.

In forming estimates, the company utilizes the most observable inputs available for valuation purposes. If a fair value measurement reflects inputs of different levels within the hierarchy, the measurement is categorized based upon the lowest level of input that is significant to the fair value measurement.

The following table presents the company's non-designated derivative financial instruments measured at fair value for each hierarchy level as at March 31, 2020:

($ millions) ​ Level 1 ​ Level 2 ​ Level 3 ​ Total Fair Value ​  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Accounts receivable

 ​ 276 ​ 418 ​ — ​ 694 ​  
​

Accounts payable

 ​ (45 ) (319 ) — ​ (364 )  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ 231 ​ 99 ​ — ​ 330 ​  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

During the first quarter of 2020, there were no transfers between Level 1 and Level 2 fair value measurements.

A substantial portion of the company's accounts receivable are with customers in the oil and gas industry and are subject to normal industry credit risk. While the industry has experienced credit downgrades due to the COVID-19 pandemic combined with the actions of Organization of the Petroleum Exporting Countries to increase production, Suncor has not been significantly affected as the majority of Suncor's customers are large and established downstream companies with investment grade credit ratings.

Non-Derivative Financial Instruments

At March 31, 2020, the carrying value of fixed-term debt accounted for under amortized cost was $13.8 billion (December 31, 2019 – $12.9 billion) and the fair value was $14.1 billion (December 31, 2019 – $16.1 billion). The decrease in fair value of debt is mainly due to an increase in the company's short-term credit spread. The estimated fair value of long-term debt is based on pricing sourced from market data.

10. INVENTORIES

($ millions)

   March 31
2020		   December 31
2019		    

​

​ ​ ​ ​ ​ ​

Crude Oil(1)

   1 111   1 689    
​

Refined products

   803   1 290    
​

Materials, supplies and merchandise

   811   782    
​ ​ ​ ​ ​ ​ ​

  2 725   3 761    

​

​ ​ ​ ​ ​ ​
(1)
Includes $151 million of inventories held for trading purposes (December 31, 2019 – $210 million) which are measured at fair value less costs of disposal based on Level 1 and Level 2 fair value inputs.

As a result of a decline in crude oil and refined products prices, the company recorded a $310 million ($229 million after-tax) write-down of crude oil inventories and a write-down of $226 million ($168 million after-tax) of refined products inventories

​ ​ ​ 2020 FIRST QUARTER   Suncor Energy Inc.  55

to their respective net realizable values as at March 31, 2020 within purchases of crude oil products, operating, selling and general and depreciation, depletion, amortization and impairment expenses.

11. ASSET IMPAIRMENT

The COVID-19 pandemic has resulted in a significant decrease in global demand for crude oil and commodity prices. In response, the company announced plans to reduce capital and operating costs. As a result of these events, the company performed asset impairment tests on certain cash generating units (CGUs) in its Oil Sands and Exploration and Production segments as at March 31, 2020 as the recoverable amounts of these CGUs were most sensitive to the combined reduction in crude oil prices and changes to their respective capital and operating plans. The impairment tests were performed using recoverable amounts based on the fair value less cost of disposal. An expected cash flow approach was used with the key assumptions discussed below (Level 3 fair value inputs):

Oil Sands

As a result of the impairment test, the company recorded an impairment of $1.38 billion (net of taxes of $0.44 billion) on its share of the Fort Hills project in the Oil Sands segment using the following asset-specific assumptions:

•
WCS price forecast of US$9.00/bbl for the remainder of 2020, US$13.60/bbl in 2021, US$32.00/bbl in 2022, US$51.55/bbl in 2023 and US$52.90/bbl in 2024, escalating at 2% per year thereafter over the life of the project up to 2061, adjusted for asset-specific location and quality differentials;

•
the company's share of production at 47,000 bbls/d while the Fort Hills project operates on one primary extraction train for the remainder of 2020 through to 2021, and ramping up to two primary extraction trains during 2022 and then ranging from 96,000 to 106,000 bbls/d over the remaining life of the project;

•
cash operating costs averaging $32.00/bbl to $37.00/bbl while the Fort Hills project operates on one primary extraction train for the remainder of 2020 through to 2021, and ranging from $22.00/bbl to $24.00/bbl thereafter, as the project returns to two primary extraction trains over the remaining life of the project (expressed in real dollars). Cash operating costs reflect operating, selling and general expense adjusted for non-production costs, including share-based compensation, research costs, and excess power revenue; and

•
risk-adjusted discount rate of 7.5% (after-tax).

The recoverable amount of the Fort Hills CGU is $6.4 billion as at March 31, 2020. The recoverable amount estimate is most sensitive to price and discount rate. A 5% average decrease in price over the life of the project would have resulted in an increase to the impairment charge of approximately $1.1 billion (after-tax) on the company's share of the Fort Hills assets. A 1% increase in the discount rate would have resulted in an increase to the impairment charge of approximately $1.1 billion (after-tax) on the company's share of the Fort Hills assets.

Exploration and Production

As a result of the impairment tests, the company recorded an impairment of $285 million (net of taxes of $93 million) on its share of the Terra Nova assets and $137 million (net of taxes of $45 million) on its share of the White Rose assets in the Exploration and Production segment using the following asset-specific assumptions:

Terra Nova assets:

•
Brent price forecast of US$30.00/bbl for the remainder of 2020, US$35.00/bbl in 2021, US$50.00/bbl in 2022 and US$69.00/bbl in 2023, escalating at 2% per year thereafter over the life of the project to 2031 and adjusted for asset-specific location and quality differentials;

•
the company's share of production of approximately 6,200 bbls/d over the life of the project, including the benefit of the asset life extension project; and

•
risk-adjusted discount rate of 9.0% (after-tax).

The recoverable amount of the Terra Nova CGU is $24 million as at March 31, 2020.

White Rose assets:

•
Brent price forecast of US$30.00/bbl for the remainder of 2020, US$35.00/bbl in 2021, US$50.00/bbl in 2022 and US$69.00/bbl in 2023, escalating at 2% per year thereafter over the life of the project to 2036 and adjusted for asset-specific location and quality differentials;
​ 56  2020 FIRST QUARTER   Suncor Energy Inc. ​ ​

•
the company's share of production of approximately 9,800 bbls/d over the life of the project;

•
the company's share of future capital expenditures of $1.435 billion, including the West White Rose expansion; and

•
risk-adjusted discount rate of 9.0% (after-tax).

The recoverable amount of the White Rose CGU is $185 million as at March 31, 2020. The recoverable amount estimate is most sensitive to price and discount rate. A 5% average decrease in price over the life of the project would have resulted in an increase to the impairment charge of approximately $83 million (after-tax) on the company's share of the White Rose assets. A 1% increase in the discount rate would have resulted in an increase to the impairment charge of approximately $45 million (after-tax) on the company's share of the White Rose assets.

12. SUBSEQUENT EVENTS

Subsequent to March 31, 2020, the company issued $1.25 billion of senior unsecured Series 7 Medium Term Notes maturing on April 9, 2030. The Series 7 Medium Term Notes have a coupon of 5.00% and were priced at $99.697 per $100 principal amount for an effective yield of 5.039%. Interest is paid semi-annually. Also, the company has secured an additional $300 million of credit facilities with its key banking partners under a new agreement. This agreement has the same terms and covenants as our existing credit facilities.

On May 5, 2020, Suncor's Board of Directors approved a reduction in the company's quarterly dividend to $0.21 per common share from $0.465 per common share.

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EXHIBIT 99.3