EX-99.3 4 a2226338zex-99_3.htm EX-99.3
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EXHIBIT 99.3

Unaudited Consolidated Financial Statements for the third quarter ended September 30, 2015

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

    Three months ended
September 30		   Nine months ended
September 30		    
($ millions)   2015   2014   2015   2014    
Revenues and Other Income                    
  Operating revenues, net of royalties (note 3)   7 485   10 175   22 709   30 963    
  Other income (note 4)   72   98   378   436    
    7 557   10 273   23 087   31 399    

Expenses
 
 
 
 
 
 
 
 
 
 
  Purchases of crude oil and products   3 084   4 664   8 917   13 069    
  Operating, selling and general   2 053   2 297   6 384   7 248    
  Transportation   295   226   807   706    
  Depreciation, depletion, amortization and impairment   1 333   1 110   3 971   4 940    
  Exploration   55   57   411   314    
  Gain on disposal of assets (notes 15 and 16)   (3 ) (84 ) (105 ) (80 )  
  Financing expenses (note 8)   953   571   2 061   884    
    7 770   8 841   22 446   27 081    
(Loss) Earnings before Income Taxes   (213 ) 1 432   641   4 318    

Income Taxes (note 9)
 
 
 
 
 
 
 
 
 
 
  Current   226   518   818   1 978    
  Deferred   (63 ) (5 ) (189 ) (275 )  
    163   513   629   1 703    
Net (Loss) Earnings   (376 ) 919   12   2 615    

Other Comprehensive Income
 
 
 
 
 
 
 
 
 
 
Items reclassified to earnings                    
  Realized gain on disposal of assets available for sale, net of income taxes of $13 (note 15)   —   —   (85 ) —    
Items that may be subsequently reclassified to earnings                    
  Foreign currency translation adjustment   335   176   715   207    
  Unrealized gain on disposal of assets available for sale, net of income taxes of $13 (note 15)   —   85   —   85    
Items that will not be reclassified to earnings                    
  Actuarial (loss) gain on employee retirement benefit plans, net of income taxes   —   (166 ) 55   (222 )  
Other Comprehensive Income   335   95   685   70    

Total Comprehensive (Loss) Income
 
(41
)
1 014
 
697
 
2 685
 
 

Per Common Share (dollars) (note 10)
 
 
 
 
 
 
 
 
 
 
  Net (loss) earnings – basic   (0.26 ) 0.63   0.01   1.78    
  Net (loss) earnings – diluted   (0.26 ) 0.62   0.01   1.78    
  Cash dividends   0.29   0.28   0.85   0.74    

See accompanying notes to the interim consolidated financial statements.

SUNCOR ENERGY INC. 2015 THIRD QUARTER    41

CONSOLIDATED BALANCE SHEETS
(unaudited)

($ millions)   September 30
2015		   December 31
2014		  
Assets          
  Current assets          
    Cash and cash equivalents   5 409   5 495  
    Accounts receivable   4 101   4 275  
    Inventories   3 067   3 466  
    Income taxes receivable   493   680  
  Total current assets   13 070   13 916  
  Property, plant and equipment, net   61 194   59 800  
  Exploration and evaluation   2 227   2 248  
  Other assets   1 148   598  
  Goodwill and other intangible assets   3 079   3 083  
  Deferred income taxes   13   26  
Total assets   80 731   79 671  

Liabilities and Shareholders' Equity
 
 
 
 
 
  Current liabilities          
    Short-term debt   750   806  
    Current portion of long-term debt   69   34  
    Accounts payable and accrued liabilities   5 365   5 704  
    Current portion of provisions   765   752  
    Income taxes payable   1 201   1 058  
  Total current liabilities   8 150   8 354  
  Long-term debt   14 141   12 489  
  Other long-term liabilities   1 782   1 787  
  Provisions   4 920   4 895  
  Deferred income taxes   10 590   10 543  
  Shareholders' equity   41 148   41 603  
Total liabilities and shareholders' equity   80 731   79 671  

See accompanying notes to the interim consolidated financial statements.

42   SUNCOR ENERGY INC. 2015 THIRD QUARTER

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

    Three months ended
September 30		   Nine months ended
September 30		    
($ millions)   2015   2014   2015   2014    
Operating Activities                    
Net (loss) earnings   (376 ) 919   12   2 615    
Adjustments for:                    
  Depreciation, depletion, amortization and impairment   1 333   1 110   3 971   4 940    
  Deferred income taxes   (63 ) (5 ) (189 ) (275 )  
  Accretion   49   49   146   151    
  Unrealized foreign exchange loss on U.S. dollar
denominated debt		   800   456   1 581   487    
  Change in fair value of derivative contracts   47   (56 ) 120   (114 )  
  Gain on disposal of assets   (3 ) (84 ) (105 ) (80 )  
  Share-based compensation   95   (37 ) (52 ) 118    
  Exploration   16   16   214   96    
  Settlement of decommissioning and restoration liabilities   (53 ) (83 ) (255 ) (281 )  
  Other   37   (5 ) 69   (91 )  
Decrease (increase) in non-cash working capital   889   625   (71 ) (645 )  
Cash flow provided by operating activities   2 771   2 905   5 441   6 921    
Investing Activities                    
Capital and exploration expenditures   (1 736 ) (1 808 ) (4 637 ) (5 061 )  
Acquisitions (note 14)   —   (121 ) —   (121 )  
Proceeds from disposal of assets   2   180   271   210    
Other investments   (3 ) (13 ) (11 ) (48 )  
Decrease in non-cash working capital   63   109   23   209    
Cash flow used in investing activities   (1 674 ) (1 653 ) (4 354 ) (4 811 )  
Financing Activities                    
Net change in debt   (269 ) (3 ) (217 ) (14 )  
Issuance of common shares under share option plans   27   34   76   237    
Purchase of common shares for cancellation (note 7)   (40 ) (523 ) (40 ) (1 178 )  
Dividends paid on common shares   (419 ) (409 ) (1 229 ) (1 085 )  
Cash flow used in financing activities   (701 ) (901 ) (1 410 ) (2 040 )  

Increase (decrease) in Cash and Cash Equivalents
 
396
 
351
 
(323
)
70
 
 
Effect of foreign exchange on cash and cash equivalents   121   68   237   79    
Cash and cash equivalents at beginning of period   4 892   4 932   5 495   5 202    
Cash and Cash Equivalents at End of Period   5 409   5 351   5 409   5 351    

Supplementary Cash Flow Information
 
 
 
 
 
 
 
 
 
 
Interest paid   83   72   507   439    
Income taxes paid   310   604   1 312   2 272    

See accompanying notes to the interim consolidated financial statements.

SUNCOR ENERGY INC. 2015 THIRD QUARTER    43

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)

($ millions)   Share
Capital		   Contributed
Surplus		   Accumulated
Other
Comprehensive
Income		                                 Retained
Earnings		   Total   Number of
Common
Shares
(thousands)		  
 
 
At December 31, 2013   19 395   598   115   21 072   41 180   1 478 315  
 
 
Net earnings   —   —   —   2 615   2 615   —  
 
 
Foreign currency translation adjustment   —   —   207   —   207   —  
 
 
Unrealized gain on assets available for sale, net of income taxes of $13   —   —   85   —   85   —  
 
 
Actuarial loss on employee retirement benefit plans, net of income taxes
of $76		   —   —   —   (222 ) (222 ) —  
 
 
Total comprehensive income   —   —   292   2 393   2 685   —  
 
 
Issued under share option plans   313   (28 ) —   —   285   7 515  
 
 
Issued under dividend reinvestment plan   25   —   —   (25 ) —   —  
 
 
Purchase of common shares for cancellation   (382 ) —   —   (796 ) (1 178 ) (28 911 )
 
 
Change in liability for share purchase commitment   28   —   —   33   61   —  
 
 
Share-based compensation   —   35   —   —   35   —  
 
 
Dividends paid on common shares   —   —   —   (1 085 ) (1 085 ) —  
 
 
At September 30, 2014   19 379   605   407   21 592   41 983   1 456 919  
 
 
                           
 
 
At December 31, 2014   19 311   609   504   21 179   41 603   1 444 119  
 
 
Net earnings   —   —   —   12   12   —  
 
 
Foreign currency translation adjustment   —   —   715   —   715   —  
 
 
Realized gain on disposal of assets available for sale, net of income taxes of $13 (note 15)   —   —   (85 ) —   (85 ) —  
 
 
Actuarial gain on employee retirement benefit plans, net of income taxes of $21   —   —   —   55   55   —  
 
 
Total comprehensive income   —   —   630   67   697   —  
 
 
Issued under share option plans   99   (15 ) —   —   84   2 487  
 
 
Issued under dividend reinvestment plan   32   —   —   (32 ) —   —  
 
 
Purchase of common shares for cancellation (note 7)   (15 ) —   —   (25 ) (40 ) (1 160 )
 
 
Change in liability for share purchase commitment (note 7)   (1 ) —   —   (2 ) (3 ) —  
 
 
Share-based compensation   —   36   —   —   36   —  
 
 
Dividends paid on common shares   —   —   —   (1 229 ) (1 229 ) —  
 
 
At September 30, 2015   19 426   630   1 134   19 958   41 148   1 445 446  
 
 

See accompanying notes to the interim consolidated financial statements.

44   SUNCOR ENERGY INC. 2015 THIRD 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 joint arrangements.

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, 2014.

The policies applied in these condensed interim consolidated financial statements are based on IFRS issued and outstanding as at December 31, 2014.

Comparative figures have been reclassified to conform to the current year financial statement presentation for certain gas purchases consumed in the secondary upgrading process in the Oil Sands segment, which are now classified as Purchases rather than Operating, Selling and General, and shipping-related charges in the Refining and Marketing segment, which are now classified as Transportation rather than Operating, Selling and General.

(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, 2014.

(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, 2014.

(e) Income taxes

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

SUNCOR ENERGY INC. 2015 THIRD QUARTER    45


 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 September 30                        Oil Sands                        Exploration and
                     Production		                        Refining and
                     Marketing		                        Corporate,
                     Energy Trading
                     and Eliminations		                        Total    
($ millions)   2015   2014   2015   2014   2015   2014   2015   2014   2015   2014    
Revenues and Other Income                                        
Gross revenues   1 618   2 943   558   858   5 345   6 951   24   19   7 545   10 771    
Intersegment revenues   654   1 012   —   95   7   52   (661 ) (1 159 ) —   —    
Less: Royalties   (48 ) (431 ) (12 ) (165 ) —   —   —   —   (60 ) (596 )  
Operating revenues, net of royalties   2 224   3 524   546   788   5 352   7 003   (637 ) (1 140 ) 7 485   10 175    
Other income   33   37   24   4   24   43   (9 ) 14   72   98    
    2 257   3 561   570   792   5 376   7 046   (646 ) (1 126 ) 7 557   10 273    
Expenses                                            
Purchases of crude oil and products   60   72   1   119   3 729   5 659   (706 ) (1 186 ) 3 084   4 664    
Operating, selling and general   1 246   1 500   116   140   538   550   153   107   2 053   2 297    
Transportation   182   117   25   18   99   101   (11 ) (10 ) 295   226    
Depreciation, depletion, amortization and impairment   790   723   340   194   170   152   33   41   1 333   1 110    
Exploration   3   2   52   55   —   —   —   —   55   57    
(Gain) loss on disposal of assets   1   (2 ) —   (82 ) (4 ) —   —   —   (3 ) (84 )  
Financing expenses (income)   36   52   26   27   (6 ) (4 ) 897   496   953   571    
    2 318   2 464   560   471   4 526   6 458   366   (552 ) 7 770   8 841    
(Loss) earnings before Income Taxes   (61 ) 1 097   10   321   850   588   (1 012 ) (574 ) (213 ) 1 432    
Income Taxes                                            
Current   (41 ) 258   117   75   257   204   (107 ) (19 ) 226   518    
Deferred   30   66   (106 ) 48   (20 ) (42 ) 33   (77 ) (63 ) (5 )  
    (11 ) 324   11   123   237   162   (74 ) (96 ) 163   513    
Net (Loss) Earnings   (50 ) 773   (1 ) 198   613   426   (938 ) (478 ) (376 ) 919    
Capital and Exploration Expenditures   1 136   975   332   465   209   291   59   77   1 736   1 808    

46   SUNCOR ENERGY INC. 2015 THIRD QUARTER

 
Nine months ended September 30                        Oil Sands                        Exploration and
                     Production		                        Refining and
                     Marketing		                        Corporate,
                     Energy Trading
                     and Eliminations		                        Total    
($ millions)   2015   2014   2015   2014   2015   2014   2015   2014   2015   2014    
Revenues and Other Income                                        
Gross revenues   5 599   8 504   2 019   3 270   15 354   20 465   75   68   23 047   32 307    
Intersegment revenues   1 716   3 219   88   367   30   106   (1 834 ) (3 692 ) —   —    
Less: Royalties   (104 ) (875 ) (234 ) (469 ) —   —   —   —   (338 ) (1 344 )  
Operating revenues, net of royalties   7 211   10 848   1 873   3 168   15 384   20 571   (1 759 ) (3 624 ) 22 709   30 963    
Other income   78   41   136   184   15   54   149   157   378   436    
    7 289   10 889   2 009   3 352   15 399   20 625   (1 610 ) (3 467 ) 23 087   31 399    
Expenses                                            
Purchases of crude oil and products   183   287   3   403   10 599   16 008   (1 868 ) (3 629 ) 8 917   13 069    
Operating, selling and general   3 903   4 489   376   432   1 617   1 755   488   572   6 384   7 248    
Transportation   475   379   76   66   287   292   (31 ) (31 ) 807   706    
Depreciation, depletion, amortization and impairment   2 323   3 326   1 043   1 052   502   473   103   89   3 971   4 940    
Exploration   112   82   299   232   —   —   —   —   411   314    
(Gain) loss on disposal of assets   8   3   (5 ) (82 ) (105 ) (1 ) (3 ) —   (105 ) (80 )  
Financing expenses (income)   114   113   60   44   (13 ) 2   1 900   725   2 061   884    
    7 118   8 679   1 852   2 147   12 887   18 529   589   (2 274 ) 22 446   27 081    
Earnings (Loss) before Income Taxes   171   2 210   157   1 205   2 512   2 096   (2 199 ) (1 193 ) 641   4 318    
Income Taxes                                            
Current   65   837   308   782   729   610   (284 ) (251 ) 818   1 978    
Deferred   346   (223 ) (656 ) (32 ) 15   (33 ) 106   13   (189 ) (275 )  
    411   614   (348 ) 750   744   577   (178 ) (238 ) 629   1 703    
Net Earnings (Loss)   (240 ) 1 596   505   455   1 768   1 519   (2 021 ) (955 ) 12   2 615    
Capital and Exploration Expenditures   2 914   2 872   1 084   1 370   465   642   174   177   4 637   5 061    

SUNCOR ENERGY INC. 2015 THIRD QUARTER    47


 4. OTHER INCOME

Other income consists of the following:

    Three months ended
September 30		   Nine months ended
September 30		  
($ millions)   2015   2014   2015   2014  
Energy trading activities                  
  Change in fair value of contracts   6   (2 ) 6   104  
  Gains on inventory valuation   6   15   70   26  
Risk management activities(1)   6   47   52   33  
Reserves redetermination(2)   —   —   —   145  
Investment and interest income   9   16   51   78  
Renewable energy grants   11   8   25   25  
Risk mitigation and insurance proceeds(3)   17   —   121   —  
Change in value of transportation commitments and other   17   14   53   25  
    72   98   378   436  
(1)
Includes fair value changes related to short-term derivative contracts in the Oil Sands and Refining and Marketing segments and long-term forward starting interest rate swaps in the Corporate segment.

(2)
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.

(3)
Includes insurance proceeds on assets in the Exploration and Production segment.


5. ASSET IMPAIRMENT

Oil Sands

Joslyn Mining Project

During the second quarter of 2014, the company recognized an impairment charge of $718 million (net of taxes of $248 million) related to the company's interest in the Joslyn mining project, charged against Property, Plant and Equipment ($318 million) and Exploration and Evaluation assets ($400 million). 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 at June 30, 2014 using a fair value less cost of disposal methodology, with a discounted cash flow approach.

The remaining carrying value of the company's share of the Joslyn mining project as at September 30, 2015 was $400 million.

Other

In the second quarter of 2014, the company recorded an impairment charge of $223 million (net of taxes of $77 million) in the Oil Sands segment following a review of certain assets that no longer fit with Suncor's previously revised growth strategies and which could not be repurposed or otherwise deployed. Such assets included a pipeline and related compressor, as well as steam generator components.

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 at June 30, 2014 using a fair value less cost of disposal methodology, with a discounted cash flow approach.

48   SUNCOR ENERGY INC. 2015 THIRD QUARTER

The remaining carrying value of the company's net assets in Libya as at September 30, 2015 was approximately $375 million.


6. SHARE-BASED COMPENSATION

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

    Three months ended
September 30		   Nine months ended
September 30		  
($ millions)   2015   2014   2015   2014  
Equity-settled plans   8   8   36   35  
Cash-settled plans   90   (43 ) 185   285  
    98   (35 ) 221   320  


7. NORMAL COURSE ISSUER BID

Subject to the offer to Canadian Oil Sands Limited (COS) shareholders (note 18), the company may repurchase shares pursuant to a normal course issuer bid (NCIB) through the facilities of the Toronto Stock Exchange, New York Stock Exchange and/or alternative trading platforms. Under its current NCIB, the company may purchase for cancellation up to approximately $500 million worth of its common shares beginning August 5, 2015 and ending August 4, 2016.

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

    Three months ended
September 30		   Nine months ended
September 30		  
($ millions, except as noted)   2015   2014   2015   2014  
Share repurchase activities (thousands of common shares)                  
  Shares repurchased   1 160   11 992   1 160   28 991  
Amounts charged to                  
  Share capital   15   159   15   382  
  Retained earnings   25   364   25   796  
Share repurchase cost   40   523   40   1 178  

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

($ millions)   Sep 30
2015		   Dec 31
2014		  
Amounts charged to          
  Share capital   1   —  
  Retained earnings   2   —  
Liability for share purchase commitment   3   —  

In accordance with applicable securities laws, repurchases under the program were suspended on October 5, 2015, as a result of the offer to the shareholders of COS. Suncor intends to resume repurchases once the offer is completed, withdrawn or expires, subject to market conditions.

SUNCOR ENERGY INC. 2015 THIRD QUARTER    49


 8. FINANCING EXPENSES

    Three months ended
September 30		   Nine months ended
September 30		    
($ millions)   2015   2014   2015   2014    
Interest on debt   220   181   644   543    
Capitalized interest   (115 ) (103 ) (318 ) (324 )  
  Interest expense   105   78   326   219    
  Interest on pension and other post-retirement benefits   13   15   39   41    
  Accretion   49   49   146   151    
  Foreign exchange loss on U.S. dollar denominated debt   800   456   1 581   487    
  Foreign exchange and other   (14 ) (27 ) (31 ) (14 )  
    953   571   2 061   884    


9. INCOME TAXES

In the second quarter of 2015, the Government of Alberta enacted an increase in the corporate income tax rate from 10% to 12% effective July 1, 2015. As a result, the company revalued its deferred income tax balances, resulting in a deferred income tax expense of $423 million.

In the first quarter of 2015, the United Kingdom (U.K.) government enacted a decrease in the supplementary charge rate on oil and gas profits in the North Sea that reduced the statutory tax rate on Suncor's earnings in the U.K. from 62% to 50%. The company revalued its deferred income tax balances, resulting in a one-time decrease to deferred income taxes of $406 million.

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. In addition to the above, the company has:

•
Received NORs related to the derivative contracts from the Provinces of Alberta, Ontario and Quebec for approximately $124 million, $100 million and $42 million, respectively;

•
Provided security to the CRA and the Provinces of Quebec and Ontario for approximately $635 million;

•
Filed Notices of Objection with the CRA and the Provinces of Alberta, Ontario and Quebec; and

•
Filed a Notice of Appeal with the Tax Court of Canada in November 2014 and is now pursuing its Appeal to that Court.

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.

50   SUNCOR ENERGY INC. 2015 THIRD QUARTER


 10. EARNINGS (LOSS) PER COMMON SHARE

    Three months ended
September 30		   Nine months ended
September 30		  
($ millions)   2015   2014   2015   2014  
Net (loss) earnings   (376 ) 919   12   2 615  
Dilutive impact of accounting for awards as equity-settled(1)   —   (13 ) (1 ) —  
Net (loss) earnings – diluted   (376 ) 906   11   2 615  

(millions of common shares)
 
 
 
 
 
 
 
 
 
Weighted average number of common shares   1 446   1 461   1 446   1 467  
Dilutive securities:                  
Effect of share options   —   5   1   3  
Weighted average number of diluted common shares   1 446   1 466   1 447   1 470  

(dollars per common share)
 
 
 
 
 
 
 
 
 
Basic (loss) earnings per share   (0.26 ) 0.63   0.01   1.78  
Diluted (loss) earnings per share   (0.26 ) 0.62   0.01   1.78  
(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 an anti-dilutive impact for the three months and a dilutive effect for the nine months ended September 30, 2015.


11. FINANCIAL INSTRUMENTS

Derivative Financial Instruments

(a) Non-Designated Derivative Financial Instruments

The following table presents the company's non-designated Energy Trading, Risk Management and Available for Sale derivatives measured at fair value as at September 30, 2015.

($ millions)   Energy
Trading		   Risk
Management		   Assets
Available for
Sale(1)		   Total    
Fair value outstanding at December 31, 2014   20   110   183   313    
  Fair value realized in earnings   (19 ) (158 ) (183 ) (360 )  
  Changes in fair value (note 4)   6   52   —   58    
Fair value outstanding at September 30, 2015   7   4   —   11    
(1)
Assets Available for Sale related to the company's investment in Pioneer Energy, which the company sold during the second quarter of 2015 (note 15).

The company uses forward starting interest rate swaps to mitigate its exposure to the effect of future interest rate movements on future debt issuances. As at September 30, 2015, the company had executed $1.1 billion in forward swaps.

SUNCOR ENERGY INC. 2015 THIRD QUARTER    51


(b) Fair Value Hierarchy

The following table presents the company's financial instruments measured at fair value for each hierarchy level as at September 30, 2015.

($ millions)   Level 1   Level 2   Level 3   Total Fair
Value		    
  Accounts receivable   30   51   —   81    
  Accounts payable   (6 ) (64 ) —   (70 )  
    24   (13 ) —   11    

During the third quarter of 2015, 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.

Non-Derivative Financial Instruments

At September 30, 2015, the carrying value of fixed-term debt accounted for under amortized cost was $13 billion (December 31, 2014 – $11.5 billion) and the fair value was $14.9 billion (December 31, 2014 – $13.5 billion). The estimated fair value of long-term debt is based on pricing sourced from market data.


12. OIL SANDS ASSET SWAP

On August 31, 2015, Suncor completed an exchange of assets with TransAlta Corporation (TransAlta). Suncor exchanged Kent Breeze and its share of the Wintering Hills wind power facilities for TransAlta's Poplar Creek cogeneration facilities, which provide steam and power for Suncor's Oil Sands operations. The acquisition of the Poplar Creek cogeneration facilities is expected to enhance the reliability and efficiency of Suncor's Oil Sands operations.

As part of the agreement, Suncor entered into a 15-year lease with TransAlta to finance the difference between the fair value of the cogeneration facilities and the fair value of the wind farms. The leased assets consist of two gas turbine generators and heat recovery steam generators. Ownership of these assets will automatically transfer to Suncor at the end of the term for a nominal amount.

The acquisition of the Poplar Creek assets was treated as a business combination, whereby the assets and liabilities acquired were recorded at their fair value. The fair value was calculated using an expected future cash flow approach with a risk-adjusted discount rate of 8%. Key assumptions used in the calculation were discount rate, power price and natural gas price.

Purchase consideration

($ millions)      
Fair value of wind assets   124  
Fair value of deferred financing arrangement   303  
Total purchase consideration   427  

Purchase price allocation

The preliminary purchase price allocation is based on management's best estimates of the fair value of the acquired assets and assumed liabilities. Upon finalization, adjustments to the initial estimates may be required.

($ millions)        
Working capital   36    
Property, plant and equipment   393    
Decommissioning provision   (2 )  
Net assets acquired   427    

52   SUNCOR ENERGY INC. 2015 THIRD QUARTER


 13. ACQUISITION OF ADDITIONAL OWNERSHIP IN FORT HILLS

On September 21, 2015, Suncor announced that it has agreed to purchase an additional 10% working interest in the Fort Hills oil sands project from Total E&P Canada Ltd. for total aggregate consideration of $310 million, subject to closing adjustments. The transaction is anticipated to close by the end of the year. Upon closing, Suncor's share in the project will increase to 50.8%.

As a result of the planned acquisition, which was below the implied carrying value of the project, in addition to a further decline in the current crude price environment, the company performed an impairment test on the project as at September 30, 2015. The impairment test was performed using a fair value less cost of disposal methodology, and no impairment was noted. An expected cash flow approach was used based on 2014 year-end reserves data, with the following assumptions:

•
WCS price forecasts of $60/bbl starting in 2017, $65/bbl in 2018, $70/bbl in 2019 (expressed in nominal dollars), escalating at 2% per year thereafter and adjusted for asset-specific location and quality differentials,

•
risk-adjusted discount rate of 8.0%,

•
production of approximately 91,000 barrels per day following a 12 month ramp-up period starting in the fourth quarter of 2017, and

•
go-forward capital of $3.8 billion, which includes the planned acquisition of an additional 10% in the project.

Based on the above assumptions, the estimated recoverable amount in respect of the company's interest in Fort Hills exceeds the carrying value. The recoverable amount is sensitive to changes in the key assumptions. Future changes in these assumptions, individually or in combination, could result in the recoverable amount being less than the carrying value and an impairment adjustment. A 5% decrease in the assumed realized prices would decrease the recoverable amount by approximately $1.1 billion. A 1% increase in the discount rate would decrease the recoverable amount by approximately $1.2 billion, and a 10% increase in our assumed share of the remaining development capital would decrease the recoverable amount by $0.4 billion (sensitivities are after-tax).

The carrying value of the company's share of the Fort Hills project at September 30, 2015 was $4.4 billion, including amounts allocated to the project at the time of the company's merger with Petro-Canada.

Oil Sands Assets

Management also performed impairment tests on Oils Sands cash generating units as at September 30, 2015 and noted no impairment. The tests were performed using a fair value less cost of disposal methodology, using the same assumptions as above and a WCS price of $55/bbl in 2016.

Exploration and Production Assets

Management also performed impairment tests on certain assets in the Exploration and Production segment as at September 30, 2105 due to the decline in the crude price environment. The tests were performed using a fair value less cost of disposal methodology. An expected cash flow approach was used based on 2014 year-end reserves data updated for production incurred, with the following assumptions:

•
Brent price forecasts of US$60/bbl in 2016, US$65/bbl in 2017, and US$70/bbl in 2018 (all expressed in nominal dollars), escalating at 2% per year thereafter and adjusted for asset-specific location and quality differentials, and

•
Risk-adjusted discount rate of 9.0%.

No impairments were noted from these tests; however, the company's share of the Golden Eagle asset's carrying value approximated its fair value. The recoverable amount is sensitive to changes in the key assumptions. Future changes in these assumptions, individually or in combination, could result in the recoverable amount being less than the carrying value and an impairment adjustment. A 5% decrease in the assumed realized prices would decrease the Golden Eagle recoverable amount by approximately $60 million. A 1% increase in the discount rate would decrease the recoverable amount by approximately $25 million (sensitivities are after-tax).

The carrying value of the company's share of the Golden Eagle project at September 30, 2015 was $1.8 billion.

SUNCOR ENERGY INC. 2015 THIRD QUARTER    53


 14. ACQUISITION OF A SULPHUR FACILITY

On July 17, 2014, the company completed a business combination of a sulphur recovery facility in its Refining and Marketing segment.

The purchase price allocation is based on management's best estimates of the fair value of the acquired assets and assumed liabilities. Upon finalization, adjustments to the initial estimates may be required.

The fair value of consideration transferred and the assets acquired and liabilities assumed at the date of acquisition were as follows:

($ millions)        
Total purchase price   121    
Purchase price allocation        
Property, plant and equipment   161    
Net working capital   (1 )  
Deferred tax liabilities   (39 )  
Net assets acquired   121    

All acquisition and transaction costs for this asset acquisition were expensed.


15. PIONEER DISPOSITION

During the third quarter of 2014, the company announced that, along with The Pioneer Group Inc., it had reached an agreement to sell the assets of Pioneer Energy, including retail gas stations in Ontario and Manitoba. The transaction closed in the second quarter of 2015 and the company received $183 million for its 50% share of Pioneer Energy and realized an after-tax gain of $68 million in the Refining and Marketing segment.


16. NATURAL GAS DISPOSITIONS

During the third quarter of 2014, the company sold its Wilson Creek assets in central Alberta for $168.5 million before closing adjustments and other closing costs, with an effective date of July 1, 2014 and a closing date of September 30, 2014. The sale of these assets resulted in an after-tax gain of $61 million in the Exploration and Production segment.


17. COMMITMENTS

During the nine months ended September 30, 2015, the company increased its commitments by approximately $4.9 billion primarily due to certain pipelines receiving regulatory approval. These commitments will support the company's market access strategy, and activities to expand its storage and logistics network.


18. SUBSEQUENT EVENT

On October 5, 2015, Suncor announced that it has commenced an unsolicited offer to COS shareholders to acquire all of the outstanding shares of COS for share consideration of approximately $4.3 billion. Including COS' outstanding net debt of $2.3 billion as at June 30, 2015, the total transaction value was approximately $6.6 billion at the time of the announcement. The offer will be open for acceptance until December 4, 2015, unless extended or withdrawn.

54   SUNCOR ENERGY INC. 2015 THIRD QUARTER



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EXHIBIT 99.3 Unaudited Consolidated Financial Statements for the third quarter ended September 30, 2015
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 EXPENSES
9. INCOME TAXES
10. EARNINGS (LOSS) PER COMMON SHARE
11. FINANCIAL INSTRUMENTS
12. OIL SANDS ASSET SWAP
13. ACQUISITION OF ADDITIONAL OWNERSHIP IN FORT HILLS
14. ACQUISITION OF A SULPHUR FACILITY
15. PIONEER DISPOSITION
16. NATURAL GAS DISPOSITIONS
17. COMMITMENTS
18. SUBSEQUENT EVENT