EX-99.3 4 a2220943zex-99_3.htm EXHIBIT 99.3
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EXHIBIT 99.3


Unaudited Consolidated Financial Statements for the second quarter ended June 30, 2014

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

    Three months ended
June 30		   Six months ended
June 30		    
($ millions)   2014   2013   2014   2013    
Revenues and Other Income                    
  Operating revenues, net of royalties (note 3)   10 446   9 648   20 788   19 491    
  Other income (note 4)   203   66   338   239    
    10 649   9 714   21 126   19 730    

Expenses
 
 
 
 
 
 
 
 
 
 
  Purchases of crude oil and products   4 649   4 439   8 350   8 498    
  Operating, selling and general   2 543   2 335   5 057   4 606    
  Transportation   201   208   428   368    
  Depreciation, depletion, amortization and impairment (note 5)   2 690   1 029   3 830   2 028    
  Exploration   131   79   257   209    
  Loss (gain) on disposal of assets   4   (1 ) 4   (1 )  
  Project start-up costs   1   9   1   10    
  Voyageur upgrader project charges (note 12)   —   —   —   176    
  Financing (income) expenses (note 8)   (158 ) 445   313   774    
    10 061   8 543   18 240   16 668    
Earnings before Income Taxes   588   1 171   2 886   3 062    

Income Taxes
 
 
 
 
 
 
 
 
 
 
  Current   649   352   1 460   892    
  Deferred   (272 ) 139   (270 ) 396    
    377   491   1 190   1 288    
Net Earnings   211   680   1 696   1 774    

Other Comprehensive (Loss) Income
 
 
 
 
 
 
 
 
 
 
Items that may be subsequently reclassified to earnings                    
  Foreign currency translation adjustment   (161 ) 172   31   191    
Items that will not be reclassified to earnings                    
  Actuarial gain (loss) on employee retirement benefit plans, net of income taxes   4   329   (56 ) 386    
Other Comprehensive (Loss) Income   (157 ) 501   (25 ) 577    

Total Comprehensive Income
 
54
 
1 181
 
1 671
 
2 351
 
 

Per Common Share (dollars) (note 10)
 
 
 
 
 
 
 
 
 
 
  Net earnings – basic   0.14   0.45   1.15   1.17    
  Net earnings – diluted   0.14   0.45   1.15   1.17    
  Cash dividends   0.23   0.20   0.46   0.33    

See accompanying notes to the interim consolidated financial statements.

SUNCOR ENERGY INC. 2014 SECOND QUARTER    43

CONSOLIDATED BALANCE SHEETS
(unaudited)

($ millions)   June 30
2014		   Dec 31
2013		  
Assets          
  Current assets          
    Cash and cash equivalents   4 932   5 202  
    Accounts receivable   5 629   5 254  
    Inventories   4 661   3 944  
    Income taxes receivable   673   294  
  Total current assets   15 895   14 694  
  Property, plant and equipment, net   57 758   57 270  
  Exploration and evaluation   2 190   2 772  
  Other assets   473   422  
  Goodwill and other intangible assets   3 086   3 092  
  Deferred income taxes   50   65  
Total assets   79 452   78 315  

Liabilities and Shareholders' Equity
 
 
 
 
 
  Current liabilities          
    Short-term debt   800   798  
    Current portion of long-term debt   460   457  
    Accounts payable and accrued liabilities   7 329   7 090  
    Current portion of provisions   756   998  
    Income taxes payable   1 395   1 263  
  Total current liabilities   10 740   10 606  
  Long-term debt   10 214   10 203  
  Other long-term liabilities   1 599   1 464  
  Provisions   4 484   4 078  
  Deferred income taxes   10 529   10 784  
  Shareholders' equity   41 886   41 180  
  Total liabilities and shareholders' equity   79 452   78 315  

See accompanying notes to the interim consolidated financial statements.

44   SUNCOR ENERGY INC. 2014 SECOND QUARTER

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

    Three months ended
June 30		   Six months ended
June 30		    
($ millions)   2014   2013   2014   2013    
Operating Activities                    
Net earnings   211   680   1 696   1 774    
Adjustments for:                    
  Depreciation, depletion, amortization and impairment   2 690   1 029   3 830   2 028    
  Deferred income taxes   (272 ) 139   (270 ) 396    
  Accretion   51   50   102   98    
  Unrealized foreign exchange (gain) loss on U.S. dollar denominated debt   (326 ) 290   31   458    
  Change in fair value of derivative contracts   (69 ) 28   (58 ) 88    
  Loss (gain) on disposal of assets   4   (1 ) 4   (1 )  
  Share-based compensation   209   55   155   (62 )  
  Exploration   58   14   80   51    
  Settlement of decommissioning and restoration liabilities   (88 ) (71 ) (198 ) (258 )  
  Other   (62 ) 37   (86 ) (38 )  
(Increase) decrease in non-cash working capital   (123 ) 420   (1 270 ) 710    
Cash flow provided by operating activities   2 283   2 670   4 016   5 244    
Investing Activities                    
Capital and exploration expenditures   (1 763 ) (1 980 ) (3 253 ) (3 465 )  
Acquisitions (note 12)   —   —   —   (515 )  
Proceeds from disposal of assets   14   2   30   6    
Other investments   (26 ) (2 ) (35 ) (6 )  
Decrease (increase) in non-cash working capital   85   (170 ) 100   (172 )  
Cash flow used in investing activities   (1 690 ) (2 150 ) (3 158 ) (4 152 )  
Financing Activities                    
Net change in short-term debt   (1 ) (176 ) (1 ) 14    
Net change in long-term debt   (5 ) 153   (10 ) 149    
Issuance of common shares under share option plans   150   3   203   44    
Purchase of common shares for cancellation (note 7)   (271 ) (294 ) (655 ) (699 )  
Dividends paid on common shares   (338 ) (302 ) (676 ) (499 )  
Cash flow used in financing activities   (465 ) (616 ) (1 139 ) (991 )  

Increase (decrease) in Cash and Cash Equivalents
 
128
 
(96
)
(281
)
101
 
 
Effect of foreign exchange on cash and cash equivalents   (42 ) 35   11   44    
Cash and cash equivalents at beginning of period   4 846   4 591   5 202   4 385    
Cash and Cash Equivalents at End of Period   4 932   4 530   4 932   4 530    

Supplementary Cash Flow Information
 
 
 
 
 
 
 
 
 
 
Interest paid   295   278   367   351    
Income taxes paid   543   127   1 668   684    

See accompanying notes to the interim consolidated financial statements.

SUNCOR ENERGY INC. 2014 SECOND QUARTER    45

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)

($ millions)   Share
Capital		   Contributed
Surplus		   Foreign
Currency
Translation		                                 Cash Flow
Hedges		                                 Retained
Earnings		   Total   Number of
Common
Shares
(thousands)		  
 
 
At December 31, 2012   19 945   579   (223 ) 13   18 901   39 215   1 523 057  
 
 
Net earnings   —   —   —   —   1 774   1 774   —  
 
 
Foreign currency translation adjustment   —   —   191   —   —   191   —  
 
 
Actuarial gain on employee
retirement benefit plans,
net of income taxes of $133		   —   —   —   —   386   386   —  
 
 
Total comprehensive income   —   —   191   —   2 160   2 351   —  
 
 
Issued under share option plans   80   (32 ) —   —   —   48   2 333  
 
 
Issued under dividend reinvestment plan   12   —   —   —   (12 ) —   —  
 
 
Purchase of common shares for cancellation   (295 ) —   —   —   (404 ) (699 ) (22 506 )
 
 
Change in liability for share purchase commitment   (88 ) —   —   —   (116 ) (204 ) —  
 
 
Share-based compensation   —   31   —   —   —   31   —  
 
 
Dividends paid on common shares   —   —   —   —   (499 ) (499 ) —  
 
 
At June 30, 2013   19 654   578   (32 ) 13   20 030   40 243   1 502 884  
 
 
                               
 
 
At December 31, 2013   19 395   598   102   13   21 072   41 180   1 478 315  
 
 
Net earnings   —   —   —   —   1 696   1 696   —  
 
 
Foreign currency translation adjustment   —   —   31   —   —   31   —  
 
 
Actuarial loss on employee
retirement benefit plans,
net of income taxes of $18		   —   —   —   —   (56 ) (56 ) —  
 
 
Total comprehensive income   —   —   31   —   1 640   1 671   —  
 
 
Issued under share option plans   264   (21 ) —   —   —   243   6 473  
 
 
Issued under dividend reinvestment plan   13   —   —   —   (13 ) —   —  
 
 
Purchase of common shares for cancellation (note 7)   (222 ) —   —   —   (433 ) (655 ) (16 919 )
 
 
Change in liability for share purchase commitment   47   —   —   —   49   96   —  
 
 
Share-based compensation   —   27   —   —   —   27   —  
 
 
Dividends paid on common shares   —   —   —   —   (676 ) (676 ) —  
 
 
At June 30, 2014   19 497   604   133   13   21 639   41 886   1 467 869  
 
 

See accompanying notes to the interim consolidated financial statements.

46   SUNCOR ENERGY INC. 2014 SECOND QUARTER

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 Canada. Suncor's operations include oil sands development and upgrading, onshore and offshore oil and gas production, petroleum refining, and product marketing primarily under the Petro-Canada brand. The consolidated financial statements of the company comprise the company and its subsidiaries and the company's interests in associates and jointly controlled entities.

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. 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 for the year ended December 31, 2013.

The policies applied in these condensed interim consolidated financial statements are based on IFRS issued and outstanding as at July 30, 2014, the date the Audit Committee approved these statements on behalf of the Board of Directors.

(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, 2013, except for the retrospective adoption of the following interpretation effective January 1, 2014:

International Financial Reporting Interpretation Committee 21 Levies clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. It also clarifies that a levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time, and that a liability should not be recognized before the specified minimum threshold to trigger that liability is reached. The adoption of this interpretation did not have an impact to the company's condensed interim consolidated financial statements.

(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 and Judgment

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, 2013.

SUNCOR ENERGY INC. 2014 SECOND QUARTER    47


 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 June 30                        Oil Sands                        Exploration and
                     Production		                        Refining and
                     Marketing		                           Corporate,
                        Energy Trading
                        and Eliminations		                        Total    
($ millions)   2014   2013   2014   2013   2014   2013   2014   2013   2014   2013    
Revenues and Other Income                                        
Gross revenues   2 861   1 971   1 183   1 682   6 772   6 395   23   28   10 839   10 076    
Intersegment revenues   1 017   734   60   —   36   54   (1 113 ) (788 ) —   —    
Less: Royalties   (252 ) (93 ) (141 ) (335 ) —   —   —   —   (393 ) (428 )  
Operating revenues, net of royalties   3 626   2 612   1 102   1 347   6 808   6 449   (1 090 ) (760 ) 10 446   9 648    
Other income (expenses)   (5 ) 6   178   7   4   4   26   49   203   66    
    3 621   2 618   1 280   1 354   6 812   6 453   (1 064 ) (711 ) 10 649   9 714    
Expenses                                            
Purchases of crude oil and products   106   54   132   123   5 526   5 099   (1 115 ) (837 ) 4 649   4 439    
Operating, selling and general   1 514   1 455   139   196   618   560   272   124   2 543   2 335    
Transportation   122   105   22   39   68   75   (11 ) (11 ) 201   208    
Depreciation, depletion, amortization and impairment   1 934   562   559   311   169   125   28   31   2 690   1 029    
Exploration   5   15   126   64   —   —   —   —   131   79    
Loss (gain) on disposal of assets   5   —   —   —   (1 ) (1 ) —   —   4   (1 )  
Project start-up costs   1   9   —   —   —   —   —   —   1   9    
Voyageur upgrader project charges   —   —   —   —   —   —   —   —   —   —    
Financing (income) expenses   33   34   8   27   4   (1 ) (203 ) 385   (158 ) 445    
    3 720   2 234   986   760   6 384   5 857   (1 029 ) (308 ) 10 061   8 543    
Earnings (Loss) before Income Taxes   (99 ) 384   294   594   428   596   (35 ) (403 ) 588   1 171    
Income Taxes                                            
Current   281   —   379   262   121   80   (132 ) 10   649   352    
Deferred   (304 ) 90   (48 ) 31   1   84   79   (66 ) (272 ) 139    
    (23 ) 90   331   293   122   164   (53 ) (56 ) 377   491    
Net Earnings (Loss)   (76 ) 294   (37 ) 301   306   432   18   (347 ) 211   680    
Capital and Exploration Expenditures   986   1 487   461   315   246   165   70   13   1 763   1 980    

48   SUNCOR ENERGY INC. 2014 SECOND QUARTER

Six months ended June 30                        Oil Sands                        Exploration and
                     Production		                        Refining and
                     Marketing		                           Corporate,
                        Energy Trading
                        and Eliminations		                        Total    
($ millions)   2014   2013   2014   2013   2014   2013   2014   2013   2014   2013    
Revenues and Other Income                                        
Gross revenues   5 561   4 093   2 412   3 338   13 514   12 916   49   59   21 536   20 406    
Intersegment revenues   2 207   1 655   272   116   54   114   (2 533 ) (1 885 ) —   —    
Less: Royalties   (444 ) (266 ) (304 ) (649 ) —   —   —   —   (748 ) (915 )  
Operating revenues, net of royalties   7 324   5 482   2 380   2 805   13 568   13 030   (2 484 ) (1 826 ) 20 788   19 491    
Other income   4   6   180   40   11   16   143   177   338   239    
    7 328   5 488   2 560   2 845   13 579   13 046   (2 341 ) (1 649 ) 21 126   19 730    
Expenses                                            
Purchases of crude oil and products   160   174   284   251   10 349   9 895   (2 443 ) (1 822 ) 8 350   8 498    
Operating, selling and general   3 043   2 852   292   357   1 257   1 103   465   294   5 057   4 606    
Transportation   262   190   48   68   139   132   (21 ) (22 ) 428   368    
Depreciation, depletion, amortization and impairment   2 603   1 107   858   615   321   245   48   61   3 830   2 028    
Exploration   80   89   177   120   —   —   —   —   257   209    
Loss (gain) on disposal of assets   5   —   —   —   (1 ) (1 ) —   —   4   (1 )  
Project start-up costs   1   10   —   —   —   —   —   —   1   10    
Voyageur upgrader project charges   —   176   —   —   —   —   —   —   —   176    
Financing expenses   61   66   17   34   6   —   229   674   313   774    
    6 215   4 664   1 676   1 445   12 071   11 374   (1 722 ) (815 ) 18 240   16 668    
Earnings (Loss) before Income Taxes   1 113   824   884   1 400   1 508   1 672   (619 ) (834 ) 2 886   3 062    
Income Taxes                                            
Current   579   1   707   682   406   184   (232 ) 25   1 460   892    
Deferred   (289 ) 203   (80 ) 63   9   274   90   (144 ) (270 ) 396    
    290   204   627   745   415   458   (142 ) (119 ) 1 190   1 288    
Net Earnings (Loss)   823   620   257   655   1 093   1 214   (477 ) (715 ) 1 696   1 774    
Capital and Exploration Expenditures   1 897   2 523   905   675   351   243   100   24   3 253   3 465    

SUNCOR ENERGY INC. 2014 SECOND QUARTER    49


 4. OTHER INCOME

Other income consists of the following:

    Three months ended
June 30		   Six months ended
June 30		    
($ millions)   2014   2013   2014   2013    
Energy trading activities                    
  Change in fair value of contracts   (6 ) 86   106   117    
  Gains (losses) on inventory valuation   6   (52 ) 11   35    
Risk management activities   (8 ) (2 ) (14 ) (3 )  
Reserves redetermination(1)   145   —   145   —    
Investment and interest income   35   15   62   40    
Renewable energy grants   11   17   17   24    
Change in value of pipeline commitments and other   20   2   11   26    
    203   66   338   239    
(1)
Other income of $145 million ($32 million after-tax) is for the reserves redetermination of 1.2 million barrels of oil receivable related to an interest in a Norwegian asset that Suncor previously owned.


5. ASSET IMPAIRMENT

Oil Sands

Joslyn Mining Project

During the second quarter of 2014, the company recognized an after-tax impairment charge of $718 million related to the company's interest in the project, charged against Property, Plant and Equipment ($318 million) and Exploration and Evaluation assets ($400 million).

Total E&P Canada Ltd. (Total E&P), the operator of the Joslyn mining project, together with the company and the other co-owners of the project, agreed to scale back certain development activities in order to focus on engineering studies to further optimize the project development plan. As a result of the company's assessment of expected future net cash flows and the uncertainty of the project, including the timing of the development plans, the company performed an impairment test using a fair value less cost of disposal methodology, with a discounted cash flow approach, based on the latest estimate of lease-wide contingent resources and a risk-adjusted discount rate of 9% (Level 3 fair value inputs). Relevant market transactions were also considered. The calculation of the recoverable amount is sensitive to the likelihood and timing of expected first oil, discount rate and capital construction costs.

Other

Following a review of repurpose options for assets that have been constructed for projects that have since been cancelled or deferred, the company recognized an after-tax impairment charge of $223 million during the second quarter of 2014 for certain Oil Sands assets, including a pipeline and related compressor, as well as steam generator components, as management does not anticipate using these assets in the manner initially intended.

Exploration and Production

Libya

During the second quarter of 2014, the company recognized an after-tax impairment charge of $297 million related to its Libyan assets, charged against Property, Plant and Equipment ($129 million) and Exploration and Evaluation assets ($168 million).

As a result of shut-in production due to the continued closure of certain Libyan export terminals and the company's production plans for the remaining term of the Exploration and Production Sharing Agreements, the company performed an impairment test on its Libyan assets using a fair value less cost of disposal methodology. An expected cash flow approach was used based on 2013 year-end reserves data updated for current price forecasts and the current production

50   SUNCOR ENERGY INC. 2014 SECOND QUARTER

plans, with three scenarios representing i) resumption of operations in six months, ii) resumption of operations in 18 months, and iii) suspension of all activity at the end of 2015. The first two scenarios were equally weighted at 45% each and the final scenario was assigned a weighting of 10%. All scenarios were present valued using a risk-adjusted discount rate of 17%, and an average price of approximately US$103.00 per barrel through 2016-2021 escalated at an average of 2% per year thereafter (Level 3 fair value inputs). The calculation of the recoverable amount is sensitive to the discount rate and prices. A 2% increase in discount rate and 5% decrease in price each would increase the after-tax impairment charge by approximately $65 million.

The remaining carrying value of the company's net assets in Libya as at June 30, 2014 was approximately $300 million.


6. SHARE-BASED COMPENSATION

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

    Three months ended
June 30		   Six months ended
June 30		  
($ millions)   2014   2013   2014   2013  
Equity-settled plans   9   10   27   31  
Cash-settled plans   227   47   328   67  
    236   57   355   98  


7. NORMAL COURSE ISSUER BID

On February 21, 2014, the company amended its Normal Course Issuer Bid that commenced on August 5, 2013 (the 2013 NCIB) to allow for an additional $1.0 billion worth of its common shares to be repurchased. Pursuant to the 2013 NCIB, Suncor is permitted to purchase for cancellation a total of approximately $2.8 billion worth of its common shares between August 5, 2013 and August 4, 2014. As at June 30, 2014, the company had repurchased a total of 41.3 million common shares for a total consideration of $1.5 billion.

In July 2014, the Toronto Stock Exchange (TSX) accepted a notice filed by the company of its intention to renew its normal course issuer bid (the 2014 NCIB) to continue to purchase shares under its previously announced buyback program, through the facilities of the TSX, New York Stock Exchange and/or alternative trading platforms. The notice provides that the company may purchase for cancellation up to approximately $1.1 billion worth of its common shares beginning August 5, 2014 and ending August 4, 2015.

The following table summarizes the share repurchase activities during the period:

    Three months ended
June 30		   Six months ended
June 30		  
($ millions, except as noted)   2014   2013   2014   2013  
Share repurchase activities (thousands of common shares)                  
  Shares repurchased   6 465   9 666   16 919   22 506  
Amounts charged to                  
  Share capital   85   127   222   295  
  Retained earnings   186   167   433   404  
Share repurchase cost   271   294   655   699  

SUNCOR ENERGY INC. 2014 SECOND QUARTER    51

Under an automatic repurchase plan agreement with an independent broker, the company has recorded the following liability for share repurchases that may take place during its internal blackout period:

($ millions)   Jun 30
2014		   Dec 31
2013		  
Amounts charged to          
  Share capital   61   108  
  Retained earnings   149   198  
Liability for share purchase commitment   210   306  


8. FINANCING (INCOME) EXPENSES

    Three months ended
June 30		   Six months ended
June 30		    
($ millions)   2014   2013   2014   2013    
Interest on debt   179   172   362   349    
Capitalized interest   (113 ) (104 ) (221 ) (200 )  
  Interest expense   66   68   141   149    
  Interest on pension and other post-retirement benefits   12   17   26   34    
  Accretion   51   50   102   98    
  Foreign exchange (gain) loss on U.S. dollar denominated debt   (326 ) 290   31   458    
  Foreign exchange and other   39   20   13   35    
    (158 ) 445   313   774    


9. INCOME TAXES

Pursuant to the previously disclosed 2013 proposal letter from the Canada Revenue Agency (CRA), the company received a Notice of Reassessment (NOR) from the CRA during the second quarter of 2014, regarding the income tax treatment of realized losses in 2007 on the settlement of certain derivative contracts. The total amount of the NOR including tax, penalty and interest was approximately $920 million. The company strongly disagrees with the CRA's position and continues to firmly believe it will be able to successfully defend its original filing position and will take the appropriate actions to resolve this matter.

The company has provided security to the CRA for $460 million (50% of the NOR amount).

The company also expects to receive NORs from certain provincial tax authorities related to this matter for approximately $280 million in the second half of 2014.

If the company is unsuccessful in defending its tax filing position, it could be subject to an earnings and cash impact of up to $1.2 billion.

52   SUNCOR ENERGY INC. 2014 SECOND QUARTER


 10. EARNINGS PER COMMON SHARE

    Three months ended
June 30		   Six months ended
June 30		    
($ millions)   2014   2013   2014   2013    
Net earnings   211   680   1 696   1 774    
Dilutive impact of accounting for awards as equity-settled(1)   —   —   —   (10 )  
Net earnings – diluted   211   680   1 696   1 764    

(millions of common shares)
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares   1 468   1 506   1 470   1 512    
Dilutive securities:                    
  Effect of share options   4   1   3   2    
Weighted average number of diluted common shares   1 472   1 507   1 473   1 514    

(dollars per common share)
 
 
 
 
 
 
 
 
 
 
Basic earnings per share   0.14   0.45   1.15   1.17    
Diluted earnings per share   0.14   0.45   1.15   1.17    
(1)
Cash payment alternatives are accounted for as cash-settled plans. As these awards can be exchanged for common shares of the company, they are considered potentially dilutive and are included in the calculation of the company's diluted net earnings per share if they have a dilutive impact in the period. Accounting for these awards as equity-settled was determined to have a dilutive impact for the six months ended June 30, 2013.


11. FINANCIAL INSTRUMENTS

Fair Value Hierarchy

The following table presents the company's financial instruments measured at fair value for each hierarchy level as at June 30, 2014.

($ millions)   Level 1   Level 2   Level 3   Total Fair
Value		    
Accounts receivable   314   35   —   349    
Accounts payable   (384 ) (47 ) —   (431 )  
    (70 ) (12 ) —   (82 )  

During the second quarter of 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

At June 30, 2014, the carrying value of fixed-term debt accounted for using the amortized cost method was $9.6 billion (December 31, 2013 – $9.6 billion) and the fair value was $11.7 billion (December 31, 2013 – $11.2 billion). The estimated fair value of long-term debt is based on pricing sourced from market data, which is considered Level 2 fair value inputs.


12. VOYAGEUR UPGRADER PROJECT

Effective March 27, 2013, the company acquired Total E&P's interest in Voyageur Upgrader Limited Partnership (VULP) for $515 million and gained full control over the partnership assets. The transaction was accounted for as a business combination.

As VULP was in the development stage and therefore had no revenues and the majority of costs were capitalized, no significant net earnings were generated.

SUNCOR ENERGY INC. 2014 SECOND QUARTER    53

The fair value of consideration transferred and the assets acquired and liabilities assumed at the date of acquisition are summarized below:

($ millions)        
Total purchase price   515    
Allocation of purchase price:        
Property, plant and equipment   374    
Deferred income taxes   312    
Decommissioning and restoration provisions   (81 )  
Contracts and liabilities acquired   (90 )  
Net assets acquired   515    

The fair value attributed to the property, plant and equipment acquired was based on an expected future cash flow approach for assets expected to be retained, with a risk-adjusted discount rate of 10%. For assets expected to be sold, the fair value was determined based on management's best estimate of the recoverable amount.

The fair value of the decommissioning and restoration provisions was determined based on management's best estimate of the costs to complete the reclamation activities, the timing of cash outflows, method of reclamation, the discount rate and management's anticipated use of the area in the future.

Following the acquisition, the company announced that it was not proceeding with the Voyageur upgrader project. The decision was a result of a joint strategic and economic review launched by the company and its co-owner, Total E&P, in response to a change in market conditions that challenged the economics of the project. As a result, a charge of $176 million was recorded to net earnings during the first quarter of 2013 related to not proceeding with the upgrading portion of the project. In the fourth quarter of 2013, an adjustment of $94 million was recorded to reduce the previously estimated costs, resulting in a net charge of $82 million for 2013.


13. SALE OF NATURAL GAS BUSINESS

During the third quarter of 2013, the company sold a significant portion of its natural gas business for $1.0 billion before closing adjustments and other closing costs. An after-tax gain of $130 million was recorded in the Exploration and Production segment upon closing of the sale.


14. COMMITMENTS

During the six months ended June 30, 2014, the company increased its commitments by approximately $1.1 billion in support of the company's market access strategy, activities to expand its storage and logistics network, and exploration drilling activities.


15. SUBSEQUENT EVENTS

On July 17, 2014, the company completed an acquisition of a sulphur extraction business for a purchase price of $120 million in its Refining and Marketing segment, subject to closing adjustments.

On July 30, 2014, the company's Board of Directors approved an increase to the company's quarterly dividend to $0.28 per common share beginning in the third quarter of 2014.

54   SUNCOR ENERGY INC. 2014 SECOND QUARTER



QuickLinks

Unaudited Consolidated Financial Statements for the second quarter ended June 30, 2014
1. REPORTING ENTITY AND DESCRIPTION OF THE BUSINESS
2. BASIS OF PREPARATION
3. SEGMENTED INFORMATION
4. OTHER INCOME
5. ASSET IMPAIRMENT
6. SHARE-BASED COMPENSATION
7. NORMAL COURSE ISSUER BID
8. FINANCING (INCOME) EXPENSES
9. INCOME TAXES
10. EARNINGS PER COMMON SHARE
11. FINANCIAL INSTRUMENTS
12. VOYAGEUR UPGRADER PROJECT
13. SALE OF NATURAL GAS BUSINESS
14. COMMITMENTS
15. SUBSEQUENT EVENTS