EX-99.1 2 a07-2367_1ex99d1.htm PRESS RELEASE INCLUDING 2007 OUTLOOK AND FOURTH QUARTER INTERIM UNAUDITED FINANCIALS

EXHIBIT 99.1

Press Release Including 2007 Outlook and Interim Unaudited Financial Statements of Suncor Energy Inc. for the fourth fiscal quarter ended December 31, 2006.




 

Record production and strong commodity prices contribute to solid 2006 financial results for Suncor Energy

All financial figures are unaudited and in Canadian dollars unless noted otherwise. Certain prior period amounts have been restated to conform to the current year’s presentation. Certain financial measures referred to in this document, including return on capital employed and cash operating costs, are not prescribed by Canadian generally accepted accounting principles (GAAP). For a description of these measures, see “Non GAAP Financial Measures” in this document. This document makes reference to barrels of oil equivalent (boe). A boe conversion ratio of six thousand cubic feet of natural gas: one barrel of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Accordingly, boe measures may be misleading, particularly if used in isolation. 

 

Calgary, Alberta (January 25, 2007) – Suncor Energy Inc. today reported 2006 net earnings of $2.971 billion ($6.47 per common share), an increase from $1.158 billion ($2.54 per common share) in 2005. Excluding the effects of insurance proceeds, the reduction of federal and Alberta income tax rates and unrealized foreign exchange gains on the company’s U.S. dollar denominated long-term debt, 2006 net earnings were $2.320 billion ($5.05 per common share) compared to $834 million ($1.83 per common share) in 2005. Cash flow from operations in 2006 was $4.533 billion compared to $2.476 billion in 2005.

 

The increase in both net earnings and cash flow from operations primarily reflects higher crude oil production and higher crude oil prices in 2006. In 2005, Suncor’s operational and financial performance was impacted by a fire that cut production rates approximately in half for close to eight months, while in 2006, Suncor also benefited from an expansion project that resulted in increased production capacity. 

 

“After a difficult year in 2005, we came back strong and went on to achieve a record level of production in 2006,” said Rick George, president and chief executive officer. “The focus now is on the fundamentals – steady, safe and reliable operations as we continue to build the foundation for future growth.”

 

2006 Overview

·                  Combined oil sands and natural gas production in 2006 was 294,800 barrels of oil equivalent (boe) per day, compared to 206,100 boe per day in 2005. Oil sands production averaged 260,000 barrels per day (bpd) in 2006 (253,800 bpd of synthetic crude oil and 6,200 bpd of bitumen sold directly to the market), compared to 171,300 bpd in 2005. Natural gas production averaged 191 million cubic feet (mmcf) per day, compared to an average 190 mmcf per day in 2005. 

·                  Oil sands cash operating costs averaged $21.70 per barrel during 2006 compared to $24.55 per barrel in 2005. The decrease in 2006 was primarily due to fixed operating costs being spread over higher production volumes, as well as lower natural gas costs.

Suncor Energy Inc.
P.O. Box 38, 112 4 Avenue S.W., Calgary, Alberta  T2P 2V5
Website: www.suncor.com




·                  Suncor continued to make progress on the expansion of Upgrader 2. Engineering work on the project, which is expected to increase production capacity to 350,000 bpd in 2008, is substantially complete and construction is 69% complete. The project remains on schedule and within budget.

·      Average daily in-situ bitumen production from Suncor’s Firebag facilities increased to 33,700 bpd from 19,100 bpd in 2005.

·                  Plans for Suncor’s next major stage of oil sands growth were also advanced in 2006 with receipt of regulatory approval for a planned third upgrader and extension of the Steepbank Mine, two key components in the company’s plan to increase production to 500,000 to 550,000 bpd in 2010 to 2012.

·                  In its U.S. downstream operations, Suncor completed modifications in June to the company’s Commerce City (Denver) refining operation that enabled the production of ultra low sulphur diesel fuel and the integration of up to 10,000 to 15,000 bpd of oil sands sour crude into the refinery’s feedstock.

·                  In Suncor’s Canadian downstream operations, modifications were completed in July to enable the company’s Sarnia refinery to meet ultra low sulphur diesel requirements. The second stage of this project, slated for completion in the fourth quarter of 2007, is planned to integrate up to 40,000 bpd of oil sands sour crude into the facility’s feedstock and to improve the economic performance of the refinery. 

·                  While continuing to expand its integrated oil sands and downstream refining and marketing businesses, Suncor also made advances in its renewable energy strategy with the opening of Canada’s largest ethanol plant and the commissioning of its third wind farm. Further investment in ethanol-based biofuels and a fourth wind farm are planned for 2007.  

·                  Maintaining a strong balance sheet remained a priority in 2006. Suncor’s net debt (including cash and cash equivalents) at December 31, 2006 was $1.9 billion (approximately 0.4 times cash flow from operations). Year-end net debt in 2005 was $2.9 billion (approximately 1.2 times cash flow from operations).

·      Suncor achieved a company-wide return on capital employed of 40.6% in 2006 (excluding capitalized costs for major projects in progress), compared to 19.7% in 2005.

Fourth Quarter 2006

Suncor’s net earnings for the fourth quarter of 2006 were $358 million ($0.78 per common share) compared to $693 million ($1.52 per common share) in the fourth quarter of 2005. Excluding the effects of insurance proceeds and unrealized foreign exchange gains on the company’s U.S. dollar denominated long-term debt, fourth quarter net earnings were $374 million ($0.81 per common share) compared to $599 million ($1.31 per common share) during the fourth quarter of 2005. Cash flow from operations for the fourth quarter of 2006 was $746 million, compared to $1.226 billion in the fourth quarter of 2005.

 

2




The decrease in net earnings primarily reflects higher oil sands operating costs as a result of increased levels of maintenance activity and higher labour expenses during the fourth quarter. Company-wide fourth quarter net earnings were also negatively impacted by lower earnings in the Natural Gas business and the impact of maintenance activities in Suncor’s downstream operations. The decrease in cash flow from operations in the fourth quarter of 2006 compared to the fourth quarter of 2005 was due to the same factors that impacted net earnings during this period.

Suncor’s combined oil sands and natural gas production for the fourth quarter was 301,100 boe per day, compared to 302,700 boe per day in the same period of 2005. Natural gas production averaged 192 mmcf per day in the fourth quarter of 2006, relatively steady compared to the 193 mmcf per day recorded in the fourth quarter of 2005. Oil sands production in the fourth quarter of 2006 averaged 266,400 bpd, consisting of 256,700 bpd of synthetic crude oil and 9,700 bpd of bitumen sold directly to the market. Oil sands production in the fourth quarter of 2005 averaged 267,700 bpd, consisting of 260,500 bpd of synthetic crude oil and 7,200 bpd of bitumen sold directly to the market. 

Fourth quarter 2006 oil sands cash operating costs were $25.65 per barrel, compared to $20.90 per barrel in the same period of 2005. Cash operating costs per barrel were higher in 2006 primarily as the result of the same factors impacting total oil sands operating costs, as noted above.

In Suncor’s Canadian downstream operations, a shutdown of the Sarnia refinery to tie-in modified facilities was completed on December 22. The work, which began in early September, was undertaken in stages to allow the facility to continue production at reduced rates. 

As part of the company’s long-range planning, Suncor elected in late 2006 to transition to the Government of Alberta’s generic bitumen-based royalty in 2009. 

Outlook

Suncor’s outlook provides management’s targets for 2007 in certain key areas of the company’s business. Outlook forecasts, which are updated quarterly, are subject to change.

 

 

2007 Full Year Outlook

Oil Sands

 

Production (bpd) (1)

260,000 to 270,000

Diesel

10%

Sweet

42%

Sour

43%

Bitumen

5%

Realization on crude sales basket

WTI @ Cushing less
Cdn$7.50 to $8.50 per barrel

Cash operating costs (2)

$21.50 to $22.50 per barrel

Natural Gas

 

Natural gas (3)
(mmcf equivalent per day)

215 to 220

 

3





(1)   The 2007 oil sands production target includes approximately 5% non-upgraded bitumen sold directly to the market. In 2006, the production target referred only to synthetic crude oil production.

(2)   Cash operating cost estimates are based on the following assumptions: i) production of 260,000 to 270,000 bpd; ii) a production sales mix as described in the chart above; and iii) a natural gas price of US$7.60 per thousand cubic feet (mcf) at Henry Hub. Cash operating costs per barrel are not prescribed by Generally Accepted Accounting Principles (GAAP). This non-GAAP financial measure does not have any standardized meaning and therefore is unlikely to be comparable to similar measures presented by other companies. Suncor includes this non-GAAP financial measure because investors may use this information to analyze operating performance. This information should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures”. 

(3)   The 2007 production target includes natural gas liquids (NGL) and crude oil converted into mmcf equivalent at a ratio of one barrel of NGL/crude oil: six thousand cubic feet of natural gas. This mmcf equivalent may be misleading, particularly if used in isolation. A conversion ratio of one barrel of NGL/crude oil: six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Factors that could potentially impact Suncor’s financial performance include:

·      Crude oil hedges. Suncor has hedging agreements for 60,000 bpd in 2007. These costless collar hedges have an average floor of approximately US$51.64 per barrel while allowing participation in higher crude oil prices with an average ceiling of approximately US$93.26 per barrel. The company will consider future costless collars up to 30% of annual planned crude oil production if strategic opportunities are available.

·      Scheduled tie-ins of modified facilities at Suncor’s oil sands operation are planned during 2007. Upgrader 2 is expected to be shut down for approximately 50 days in the second quarter while this work is under way. During the outage, Upgrader 1 is expected to continue normal production. Although this shutdown is reflected in operational targets for the year, production estimates could be impacted if the work takes longer than planned or is impacted by labour or material supply issues. The tie-in work is required to enable production capacity to be increased to a planned 350,000 bpd in 2008. 

·      Scheduled tie-ins of modified facilities at Suncor’s refineries. Suncor plans to begin a shutdown of the Sarnia refinery in the third quarter of 2007 (with completion scheduled in the fourth quarter of 2007) to tie-in modified facilities that are expected to enable the facility to process up to 40,000 bpd of oil sands sour crude. 

 

Further discussion of the risks, uncertainties and other factors that could affect these plans, and any actual results, is included in Suncor’s annual report to shareholders and other documents filed with regulatory authorities.

Net Earnings Components

This table sets forth some of the factors impacting Suncor’s net earnings. For comparability purposes, readers should rely on the reported net earnings that are presented in the company’s consolidated financial statements and notes in accordance with Canadian GAAP. The company’s fourth quarter financial statements (unaudited) can be obtained at www.suncor.com or by calling 1-800-558-9071.

4




 

($ millions after tax)

 

Fourth Quarter

 

Years ended December 31

 

(unaudited)

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Net earnings before the following items

 

374

 

603

 

2 333

 

838

 

Firebag Stage 2 start-up costs

 

 

(4

)

(13

)

(4

)

Oil Sands fire accrued insurance proceeds (1)

 

27

 

98

 

232

 

293

 

Impact of income tax rate reductions on opening future income tax
liabilities (2)

 

 

 

419

 

 

Unrealized foreign exchange gain (loss) on U.S. dollar denominated long-term debt

 

(43

)

(4

)

 

31

 

Net earnings as reported

 

358

 

693

 

2 971

 

1 158

 

Net earnings per share attributable to common shareholders as reported

 

$

0.78

 

$

1.52

 

$

6.47

 

$

2.54

 

 


(1) Net accrued property loss and business interruption proceeds net of income taxes and Alberta Crown Royalties.

(2) Impacts of the Federal and Alberta income tax rate changes enacted in the second quarter of 2006.

 

Non GAAP Financial Measures

Suncor includes cash and total operating cost per barrel data, return on capital employed (ROCE) and cash flow from operations because investors may use this information to analyze operating performance, leverage and liquidity. The additional information may not be comparable to similar measures presented by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Cash flow from operations is expressed before changes in non-cash working capital. A reconciliation of net earnings to cash flow from operations is provided in the schedules of segmented data, which are an integral part of the company’s fourth quarter financial statements.

The following table outlines the reconciliation of oil sands cash and total operating costs to expenses included in the schedules of segmented data in the company’s fourth quarter 2006 financial statements. 

5




Oil Sands Operating Costs - Total Operations

 

 

 

 

 

 

Fourth Quarter  

 

Years ended December 31

 

 

 

 

 

2006 

 

2005 

 

2006 

 

2005 

 

 

 

 

 

$ millions

 

$/barrel

 

$ millions

 

$/barrel

 

$ millions

 

$/barrel

 

$ millions

 

$/barrel

 

Operating, selling and general expenses

 

 

 

675

 

 

 

466

 

 

 

2 149

 

 

 

1 432

 

 

 

Less: natural gas costs and inventory changes

 

 

 

(113

)

 

 

(80

)

 

 

(312

)

 

 

(258

)

 

 

Less: non-monetary transactions

 

 

 

(22

)

 

 

 

 

 

(126

)

 

 

 

 

 

Accretion of asset retirement obligations

 

 

 

7

 

 

 

6

 

 

 

28

 

 

 

24

 

 

 

Taxes other than income taxes

 

 

 

8

 

 

 

7

 

 

 

36

 

 

 

29

 

 

 

Cash costs

 

 

 

555

 

22.65

 

399

 

16.20

 

1 775

 

18.70

 

1 227

 

19.60

 

Natural gas

 

 

 

74

 

3.00

 

115

 

4.65

 

276

 

2.90

 

307

 

4.90

 

Imported bitumen (net of other reported product purchases)

 

 

 

 

 

1

 

0.05

 

6

 

0.10

 

2

 

0.05

 

Total cash operating costs

 

A

 

629

 

25.65

 

515

 

20.90

 

2 057

 

21.70

 

1 536

 

24.55

 

In-situ (Firebag) start-up costs

 

B

 

 

 

7

 

0.30

 

21

 

0.20

 

7

 

0.10

 

Total cash operating costs after start-up costs

 

A+B

 

629

 

25.65

 

522

 

21.20

 

2 078

 

21.90

 

1 543

 

24.65

 

Depreciation, depletion and amortization

 

 

 

104

 

4.25

 

89

 

3.60

 

385

 

4.05

 

330

 

5.30

 

Total operating costs

 

 

 

733

 

29.90

 

611

 

24.80

 

2 463

 

25.95

 

1 873

 

29.95

 

Production (thousands of barrels per day)

 

 

 

266.4

 

 

 

267.7

 

 

 

260.0

 

 

 

171.3

 

 

 

 

Oil Sands Operating Costs - In-situ Bitumen Production Only

 

 

 

 

 

Fourth Quarter  

 

Years ended December 31

 

 

 

 

 

2006 

 

2005 (1)

 

2006 

 

2005 (1) 

 

 

 

 

 

$ millions

 

$/barrel

 

$ millions

 

$/barrel

 

$ millions

 

$/barrel

 

$ millions

 

$/barrel

 

Operating, selling and general expenses

 

 

 

57

 

 

 

49

 

 

 

209

 

 

 

155

 

 

 

Less: natural gas costs and inventory changes

 

 

 

(32

)

 

 

(33

)

 

 

(103

)

 

 

(91

)

 

 

Taxes other than income taxes

 

 

 

1

 

 

 

 

 

 

4

 

 

 

 

 

 

Cash costs

 

 

 

26

 

8.05

 

16

 

6.70

 

110

 

8.95

 

64

 

9.15

 

Natural gas

 

 

 

32

 

9.90

 

33

 

13.80

 

103

 

8.35

 

91

 

13.05

 

Cash operating costs

 

A

 

58

 

17.95

 

49

 

20.50

 

213

 

17.30

 

155

 

22.20

 

In-situ (Firebag) start-up costs

 

B

 

 

 

7

 

2.90

 

21

 

1.70

 

7

 

1.00

 

Total cash operating costs after start-up costs

 

A+B

 

58

 

17.95

 

56

 

23.40

 

234

 

19.00

 

162

 

23.20

 

Depreciation, depletion and amortization

 

 

 

20

 

6.20

 

11

 

4.60

 

68

 

5.55

 

34

 

4.90

 

Total operating costs

 

 

 

78

 

24.15

 

67

 

28.00

 

302

 

24.55

 

196

 

28.10

 

Production (thousands of barrels per day)

 

 

 

35.1

 

 

 

26.0

 

 

 

33.7

 

 

 

19.1

 

 

 

 


(1) Firebag start-up costs have not been seperately identified in past quarterly Reports to Shareholders. We have segregated these costs for comparable information puposes to provide additional detail to the individual components of cash costs.

 

Return on Capital Employed

Net earnings adjusted for after-tax financing expenses (2006 – $26 million; 2005 – income of $16 million) for the twelve month period ended (2006 – $2.997 billion; 2005 – $1.142 billion); divided by average capital employed (2006 – $7.379 billion; 2005 – $5.786 billion). Average capital employed is the sum of shareholders’ equity and short-term debt plus long-term debt less cash and cash equivalents, at the beginning and end of the year, divided by two, less average annual capitalized costs related to major projects in progress (as applicable).  For more detail on how ROCE is calculated, see page 56 of Suncor’s 2005 Annual Report.

 

Reconciliation of cash flow from operations on a per share basis
(unaudited)

 

 

 

 

 

Fourth Quarter

 

Years ended December 31

 

 

 

 

 

2006

 

2005

 

2006

 

2005

 

Cash flow from operations ($ millions)

 

A

 

746

 

1 226

 

4 533

 

2 476

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic (millions of shares)

 

B

 

460

 

457

 

459

 

456

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from operations - basic (per share)

 

A/B

 

1.62

 

2.68

 

9.87

 

5.43

 

 

6




Suncor Energy Inc. is an integrated energy company headquartered in Calgary, Alberta. Suncor’s oil sands business, located near Fort McMurray, Alberta, extracts and upgrades oil sands and markets refinery feedstock and diesel fuel, while operations throughout Western Canada produce natural gas. Suncor operates a refining and marketing business in Ontario with retail distribution under the Sunoco brand. U.S.A. downstream assets include refining operations in Colorado and retail sales in the Denver area under the Phillips 66 brand. Suncor’s common shares (symbol: SU) are listed on the Toronto and New York stock exchanges.

Suncor Energy (U.S.A.) Inc. is an authorized licensee of the Phillips 66 brand and marks in the state of Colorado. Sunoco in Canada is separate and unrelated to Sunoco in the United States, which is owned by Sunoco, Inc. of Philadelphia.

This document contains forward-looking statements that address goals, expectations or projections about the future. These statements are based on Suncor’s current goals, expectations, estimates, projections and assumptions, as well as its current budgets and plans for capital expenditures. Some of the forward-looking statements may be identified by words like “planned”, outlook”, “target”, “expect”, “intends”, “will consider”, “could”,  “may”, “slated”, “scheduled” and similar expressions. These statements are not guarantees of future performance. Actual results could differ materially, as a result of factors, risks and uncertainties, known and unknown, to which Suncor’s business is subject. These could include: changes in general economic, market and business conditions; potential labour and material supply issues; fluctuations in supply and demand for Suncor’s products; fluctuations in commodity prices and currency exchange rates; the impact of stakeholder consultation; the regulatory process; technical issues; environmental issues; technological capabilities; new legislation; the occurrence of unexpected events; Suncor’s capability to execute and implement its future plans; and changes in current plans. Further discussion of the risks, uncertainties and other factors that could affect these plans, and any actual results, is included in Suncor’s annual report to shareholders, Annual Information Form/Form 40-F and other documents filed with regulatory authorities. Suncor disclaims any intentions or obligations to update or reuse any forward-looking statements whether as a result of new information, future events or otherwise.

 

Investor inquiries

Media inquiries

John Rogers

Brad Bellows

tel: 403-269-8670

tel: 403-269-8717

 

7




Suncor Energy Inc.
Consolidated Statements of Earnings

(unaudited)

 

 

 

Fourth Quarter

 

Years ended Dec 31

 

($ millions) 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

(restated)
(note 2)

 

 

 

(restated)
(note 2)

 

REVENUES

 

3 787

 

3 521

 

15 829

 

11 129

 

EXPENSES

 

 

 

 

 

 

 

 

 

Purchases of crude oil and products

 

1 067

 

1 018

 

4 723

 

4 184

 

Operating, selling and general (notes 2 and 6)

 

916

 

735

 

2 998

 

2 417

 

Energy marketing and trading activities (note 3)

 

498

 

191

 

1 541

 

789

 

Transportation and other costs

 

60

 

50

 

212

 

152

 

Depreciation, depletion and amortization (note 2)

 

191

 

149

 

695

 

568

 

Accretion of asset retirement obligations

 

8

 

7

 

34

 

30

 

Exploration

 

24

 

8

 

104

 

56

 

Royalties (note 10)

 

267

 

145

 

1 038

 

555

 

Taxes other than income taxes

 

157

 

123

 

595

 

529

 

Loss (gain) on disposal of assets

 

4

 

(12

)

(1

)

(13

)

Project start-up costs

 

6

 

12

 

45

 

25

 

Financing expenses (income) (note 4)

 

52

 

15

 

39

 

(15

)

 

 

3 250

 

2 441

 

12 023

 

9 277

 

EARNINGS BEFORE INCOME TAXES

 

537

 

1 080

 

3 806

 

1 852

 

PROVISION FOR INCOME TAXES (notes 2 and 9)

 

 

 

 

 

 

 

 

 

Current

 

31

 

2

 

20

 

39

 

Future

 

148

 

385

 

815

 

655

 

 

 

179

 

387

 

835

 

694

 

NET EARNINGS

 

358

 

693

 

2 971

 

1 158

 

 

 

 

 

 

 

 

 

 

 

PER COMMON SHARE (dollars), (note 5)

 

 

 

 

 

 

 

 

 

- Basic

 

0.78

 

1.52

 

6.47

 

2.54

 

- Diluted

 

0.76

 

1.48

 

6.32

 

2.48

 

Cash dividends

 

0.08

 

0.06

 

0.30

 

0.24

 

 

See accompanying notes.

8




Suncor Energy Inc.
Consolidated Balance Sheets

(unaudited)

 

($ millions)

 

 

 

December 31
2006

 

 

 

December 31
2005

 

 

 

 

 

 

 

 

 

(restated)
(note 2)

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

521

 

 

 

165

 

Accounts receivable

 

 

 

1 050

 

 

 

1 139

 

Inventories

 

 

 

589

 

 

 

523

 

Income taxes receivable

 

 

 

33

 

 

 

6

 

Future income taxes

 

 

 

109

 

 

 

83

 

Total current assets

 

 

 

2 302

 

 

 

1 916

 

Property, plant and equipment, net

 

 

 

16 189

 

 

 

12 966

 

Deferred charges and other (note 2)

 

 

 

290

 

 

 

267

 

Total assets

 

 

 

18 781

 

 

 

15 149

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Short-term debt

 

 

 

7

 

 

 

49

 

Accounts payable and accrued liabilities (note 10)

 

 

 

2 111

 

 

 

1 830

 

Taxes other than income taxes

 

 

 

40

 

 

 

56

 

Total current liabilities

 

 

 

2 158

 

 

 

1 935

 

Long-term debt (note 11)

 

 

 

2 385

 

 

 

3 007

 

Accrued liabilities and other

 

 

 

1 214

 

 

 

1 005

 

Future income taxes (notes 2 and 9)

 

 

 

4 072

 

 

 

3 206

 

Shareholders’ equity (see below)

 

 

 

8 952

 

 

 

5 996

 

Total liabilities and shareholders’ equity

 

 

 

18 781

 

 

 

15 149

 

 

SHAREHOLDERS’ EQUITY

 

 

 

Number

 

 

 

Number

 

 

 

 

 

(thousands)

 

 

 

(thousands)

 

 

 

Share capital

 

459 944

 

794

 

457 665

 

732

 

Contributed surplus

 

 

 

100

 

 

 

50

 

Cumulative foreign currency translation

 

 

 

(71

)

 

 

(81

)

Retained earnings (note 2)

 

 

 

8 129

 

 

 

5 295

 

 

 

 

 

8 952

 

 

 

5 996

 

 

See accompanying notes.

 

9




Suncor Energy Inc.
Consolidated Statements of Cash Flows
(unaudited)

 

 

 

Fourth Quarter

 

Years ended Dec 31

 

($ millions)

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

(restated)
(note 2)

 

 

 

(restated)
(note 2)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

Cash flow from operations

 

746

 

1 226

 

4 533

 

2 476

 

Decrease (increase) in operating working capital

 

 

 

 

 

 

 

 

 

Accounts receivable

 

153

 

127

 

53

 

(477

)

Inventories

 

59

 

(67

)

(66

)

(63

)

Accounts payable and accrued liabilities

 

234

 

(34

)

87

 

435

 

Taxes payable

 

(28

)

24

 

(43

)

(23

)

Cash flow from operating activities

 

1 164

 

1 276

 

4 564

 

2 348

 

CASH USED IN INVESTING ACTIVITIES

 

(1 169

)

(897

)

(3 489

)

(3 113

)

NET CASH SURPLUS (DEFICIENCY) BEFORE FINANCING ACTIVITIES

 

(5

)

379

 

1 075

 

(765

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Increase (decrease) in short-term debt

 

(1

)

45

 

(42

)

19

 

Net increase (decrease) in other long-term debt

 

264

 

(333

)

(622

)

808

 

Issuance of common shares under stock option plan

 

5

 

7

 

45

 

69

 

Dividends paid on common shares

 

(35

)

(25

)

(127

)

(102

)

Deferred revenue

 

 

9

 

27

 

50

 

Cash provided by (used in) financing activities

 

233

 

(297

)

(719

)

844

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

228

 

82

 

356

 

79

 

EFFECT OF FOREIGN EXCHANGE ON CASH AND CASH EQUIVALENTS

 

3

 

(2

)

 

(2

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

290

 

85

 

165

 

88

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

521

 

165

 

521

 

165

 

 

See accompanying notes.

10




Suncor Energy Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)

 

($ millions)

 

Share
Capital

 

Contributed
Surplus

 

Cumulative
Foreign
Currency
Translation

 

Retained
Earnings

 

At December 31, 2004, as previously reported

 

651

 

32

 

(55

)

4 293

 

Retroactive adjustment for change in accounting policy, net of tax (note 2)

 

 

 

 

(47

)

At December 31, 2004, as restated

 

651

 

32

 

(55

)

4 246

 

Net earnings

 

 

 

 

1 158

 

Dividends paid on common shares

 

 

 

 

(102

)

Issued for cash under stock option plan

 

74

 

(5

)

 

 

Issued under dividend reinvestment plan

 

7

 

 

 

(7

)

Stock-based compensation expense

 

 

23

 

 

 

Foreign currency translation adjustment

 

 

 

(26

)

 

At December 31, 2005, as restated

 

732

 

50

 

(81

)

5 295

 

Net earnings

 

 

 

 

2 971

 

Dividends paid on common shares

 

 

 

 

(127

)

Issued for cash under stock option plan

 

52

 

(7

)

 

 

Issued under dividend reinvestment plan

 

10

 

 

 

(10

)

Stock-based compensation expense

 

 

53

 

 

 

Foreign currency translation adjustment

 

 

 

10

 

 

Income tax benefit of stock option deductions in the U.S.

 

 

4

 

 

 

At December 31, 2006

 

794

 

100

 

(71

)

8 129

 

 

See accompanying notes.

11




Suncor Energy Inc.
Schedules of Segmented Data
(unaudited)

 

Fourth Quarter

 

 

 

 

 

 

 

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and

 

Refining and

 

 

 

 

 

 

 

 

 

 

 

Refining -

 

Marketing -

 

Corporate and

 

 

 

 

 

Oil Sands

 

Natural Gas

 

Canada

 

U.S.A.

 

Eliminations

 

Total

 

($ millions)

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

1 494

 

1 302

 

134

 

221

 

896

 

902

 

698

 

709

 

 

2

 

3 222

 

3 136

 

Energy marketing and trading activities

 

 

 

 

 

510

 

199

 

 

 

 

 

510

 

199

 

Net insurance proceeds

 

51

 

185

 

 

 

 

 

 

 

 

 

51

 

185

 

Intersegment revenues

 

131

 

139

 

 

10

 

 

 

 

 

(131

)

(149

)

 

 

Interest

 

 

 

 

 

 

 

2

 

1

 

2

 

 

4

 

1

 

 

 

1 676

 

1 626

 

134

 

231

 

1 406

 

1 101

 

700

 

710

 

(129

)

(147

)

3 787

 

3 521

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of crude oil and products

 

1

 

3

 

 

 

670

 

626

 

537

 

535

 

(141

)

(146

)

1 067

 

1 018

 

Operating, selling and general

 

675

 

466

 

27

 

24

 

117

 

145

 

42

 

48

 

55

 

52

 

916

 

735

 

Energy marketing and trading activities

 

 

 

 

 

500

 

194

 

 

 

(2

)

(3

)

498

 

191

 

Transportation and other costs

 

48

 

36

 

8

 

6

 

1

 

2

 

3

 

6

 

 

 

60

 

50

 

Depreciation, depletion and amortization

 

104

 

89

 

42

 

33

 

25

 

19

 

13

 

5

 

7

 

3

 

191

 

149

 

Accretion of asset retirement obligations

 

7

 

6

 

1

 

1

 

 

 

 

 

 

 

8

 

7

 

Exploration

 

 

 

24

 

8

 

 

 

 

 

 

 

24

 

8

 

Royalties (note 10)

 

229

 

89

 

38

 

56

 

 

 

 

 

 

 

267

 

145

 

Taxes other than income taxes

 

17

 

17

 

 

1

 

103

 

80

 

37

 

25

 

 

 

157

 

123

 

Loss (gain) on disposal of assets

 

 

 

1

 

(12

)

3

 

 

 

 

 

 

4

 

(12

)

Project start-up costs

 

6

 

12

 

 

 

 

 

 

 

 

 

6

 

12

 

Financing expenses

 

 

 

 

 

 

 

 

 

52

 

15

 

52

 

15

 

 

 

1 087

 

718

 

141

 

117

 

1 419

 

1 066

 

632

 

619

 

(29

)

(79

)

3 250

 

2 441

 

Earnings (loss) before income taxes

 

589

 

908

 

(7

)

114

 

(13

)

35

 

68

 

91

 

(100

)

(68

)

537

 

1 080

 

Income taxes

 

(177

)

(325

)

2

 

(36

)

1

 

(13

)

(25

)

(36

)

20

 

23

 

(179

)

(387

)

Net earnings (loss)

 

412

 

583

 

(5

)

78

 

(12

)

22

 

43

 

55

 

(80

)

(45

)

358

 

693

 

 

12




 

Suncor Energy Inc.
Schedules of Segmented Data (continued)
(unaudited)

 

Fourth Quarter

 

 

 

 

 

 

 

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and

 

Refining and

 

 

 

 

 

 

 

 

 

 

 

Refining -

 

Marketing -

 

Corporate and

 

 

 

 

 

Oil Sands

 

Natural Gas

 

Canada

 

U.S.A.

 

Eliminations

 

Total

 

($ millions)

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW BEFORE
FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from (used in) operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

412

 

583

 

(5

)

78

 

(12

)

22

 

43

 

55

 

(80

)

(45

)

358

 

693

 

Exploration expenses

 

 

 

12

 

8

 

 

 

 

 

 

 

12

 

8

 

Non-cash items included in earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

104

 

89

 

42

 

33

 

25

 

19

 

13

 

5

 

7

 

3

 

191

 

149

 

Income taxes

 

177

 

325

 

(2

)

36

 

(1

)

13

 

25

 

36

 

(51

)

(25

)

148

 

385

 

Loss (gain) on disposal of assets

 

 

 

1

 

(12

)

3

 

 

 

 

 

 

4

 

(12

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

22

 

7

 

22

 

7

 

Other

 

(20

)

(14

)

 

1

 

(1

)

6

 

(14

)

(1

)

51

 

(6

)

16

 

(14

)

Increase (decrease) in deferred credits and other

 

(5

)

(4

)

 

 

(1

)

 

 

 

1

 

14

 

(5

)

10

 

Total cash flow from (used in) operations

 

668

 

979

 

48

 

144

 

13

 

60

 

67

 

95

 

(50

)

(52

)

746

 

1 226

 

Decrease (increase) in operating working capital

 

721

 

(69

)

(21

)

36

 

(22

)

(18

)

(35

)

(28

)

(225

)

129

 

418

 

50

 

Total cash flow from (used in) operating activities

 

1 389

 

910

 

27

 

180

 

(9

)

42

 

32

 

67

 

(275

)

77

 

1 164

 

1 276

 

Cash from (used in) investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and exploration expenditures

 

(916

)

(505

)

(117

)

(122

)

(164

)

(136

)

 

(79

)

(4

)

(22

)

(1 201)

 

(864

)

Property loss insurance proceeds

 

7

 

 

 

 

 

 

 

 

 

 

7

 

 

Deferred maintenance shutdown expenditures

 

 

(1

)

 

1

 

(24

)

 

 

(6

)

 

 

(24

)

(6

)

Deferred outlays and other investments

 

 

 

 

 

 

4

 

 

1

 

3

 

(7

)

3

 

(2

)

Proceeds from disposals

 

1

 

20

 

2

 

19

 

1

 

1

 

 

 

 

 

4

 

40

 

Decrease (Increase) in investing working capital

 

43

 

(44

)

 

 

(1

)

(15

)

 

(6

)

 

 

42

 

(65

)

Total cash (used in) investing activities

 

(865

)

(530

)

(115

)

(102

)

(188

)

(146

)

 

(90

)

(1

)

(29

)

(1 169)

 

(897

)

Net cash surplus (deficiency) before financing activities

 

524

 

380

 

(88

)

78

 

(197

)

(104

)

32

 

(23

)

(276

)

48

 

(5

)

379

 

 

13




Suncor Energy Inc.
Schedules of Segmented Data
(unaudited)

 

Years ended December 31

 

 

 

 

 

 

 

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and

 

Refining and

 

 

 

 

 

 

 

 

 

 

 

Refining -

 

Marketing -

 

Corporate and

 

 

 

 

 

Oil Sands

 

Natural Gas

 

Canada

 

U.S.A.

 

Eliminations

 

Total

 

($ millions)

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

 2006 

 

 2005 

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

6 259

 

2 938

 

554

 

632

 

3 858

 

3 536

 

3 123

 

2 619

 

4

 

3

 

13 798

 

9 728

 

Energy marketing and trading activities

 

 

 

 

 

1 607

 

827

 

 

 

(25

)

 

1 582

 

827

 

Net insurance proceeds

 

436

 

572

 

 

 

 

 

 

 

 

 

436

 

572

 

Intersegment revenues

 

712

 

455

 

23

 

47

 

 

 

 

 

(735

)

(502

)

 

 

Interest

 

 

 

1

 

 

 

 

5

 

2

 

7

 

 

13

 

2

 

 

 

7 407

 

3 965

 

578

 

679

 

5 465

 

4 363

 

3 128

 

2 621

 

(749

)

(499

)

15 829

 

11 129

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of crude oil and products

 

89

 

32

 

 

 

2 876

 

2 585

 

2 477

 

2 048

 

(719

)

(481

)

4 723

 

4 184

 

Operating, selling and general

 

2 149

 

1 432

 

107

 

93

 

432

 

484

 

170

 

167

 

140

 

241

 

2 998

 

2 417

 

Energy marketing and trading activities

 

 

 

 

 

1 572

 

810

 

 

 

(31

)

(21

)

1 541

 

789

 

Transportation and other costs

 

162

 

104

 

25

 

22

 

6

 

6

 

19

 

20

 

 

 

212

 

152

 

Depreciation, depletion and amortization

 

385

 

330

 

152

 

130

 

94

 

73

 

38

 

23

 

26

 

12

 

695

 

568

 

Accretion of asset retirement obligations

 

28

 

24

 

5

 

5

 

1

 

1

 

 

 

 

 

34

 

30

 

Exploration

 

22

 

10

 

82

 

46

 

 

 

 

 

 

 

104

 

56

 

Royalties (note 10)

 

911

 

406

 

127

 

149

 

 

 

 

 

 

 

1 038

 

555

 

Taxes other than income taxes

 

75

 

51

 

3

 

3

 

359

 

338

 

157

 

137

 

1

 

 

595

 

529

 

Loss (gain) on disposal of assets

 

 

 

(4

)

(12

)

3

 

(1

)

 

 

 

 

(1

)

(13

)

Project start-up costs

 

38

 

25

 

 

 

2

 

 

5

 

 

 

 

45

 

25

 

Financing expenses (income)

 

 

 

 

 

 

 

 

 

39

 

(15

)

39

 

(15

)

 

 

3 859

 

2 414

 

497

 

436

 

5 345

 

4 296

 

2 866

 

2 395

 

(544

)

(264

)

12 023

 

9 277

 

Earnings (loss) before income taxes

 

3 548

 

1 551

 

81

 

243

 

120

 

67

 

262

 

226

 

(205

)

(235

)

3 806

 

1 852

 

Income taxes

 

(724

)

(575

)

28

 

(88

)

(34

)

(26

)

(94

)

(84

)

(11

)

79

 

(835

)

(694

)

Net earnings (loss)

 

2 824

 

976

 

109

 

155

 

86

 

41

 

168

 

142

 

(216

)

(156

)

2 971

 

1 158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

13 692

 

11 648

 

1 503

 

1 307

 

2 829

 

1 955

 

1 379

 

1 235

 

(622

)

(996

)

18 781

 

15 149

 

 

14




Suncor Energy Inc.
Schedules of Segmented Data (continued)
(unaudited)

 

Years ended December 31

 

 

 

 

 

 

 

 

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and

 

Refining and

 

 

 

 

 

 

 

 

 

 

 

Refining -

 

Marketing -

 

Corporate and

 

 

 

 

 

Oil Sands

 

Natural Gas

 

Canada

 

U.S.A.

 

Eliminations

 

Total

 

($ millions)

 

2006

 

2005

 

2006

 

2005

 

 2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW BEFORE FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from (used in) operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

2 824

 

976

 

109

 

155

 

86

 

41

 

168

 

142

 

(216

)

(156

)

2 971

 

1 158

 

Exploration expenses

 

 

 

52

 

46

 

 

 

 

 

 

 

52

 

46

 

Non-cash items included in earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

385

 

330

 

152

 

130

 

94

 

73

 

38

 

23

 

26

 

12

 

695

 

568

 

Income taxes

 

724

 

575

 

(28

)

88

 

34

 

26

 

94

 

84

 

(9

)

(118

)

815

 

655

 

Loss (gain) on disposal of assets

 

 

 

(4

)

(12

)

3

 

(1

)

 

 

 

 

(1

)

(13

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

53

 

23

 

53

 

23

 

Other

 

(10

)

11

 

 

5

 

 

13

 

(16

)

(2

)

12

 

(60

)

(14

)

(33

)

Increase (decrease) in deferred credits and other

 

(21

)

(14

)

 

 

 

 

(3

)

 

(14

)

86

 

(38

)

72

 

Total cash flow from (used in) operations

 

3 902

 

1 878

 

281

 

412

 

217

 

152

 

281

 

247

 

(148

)

(213

)

4 533

 

2 476

 

Decrease (increase) in operating working capital

 

426

 

(270

)

(27

)

(5

)

(87

)

(47

)

(15

)

17

 

(266

)

177

 

31

 

(128

)

Total cash flow from (used in) operating activities

 

4 328

 

1 608

 

254

 

407

 

130

 

105

 

266

 

264

 

(414

)

(36

)

4 564

 

2 348

 

Cash from (used in) investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and exploration expenditures

 

(2 463

)

(1 948

)

(458

)

(363

)

(487

)

(442

)

(178

)

(337

)

(27

)

(63

)

(3 613)

 

(3 153

)

Acquisition of Denver refinery and related assets

 

 

 

 

 

 

 

 

(62

)

 

 

 

(62

)

Property loss insurance proceeds

 

36

 

44

 

 

 

 

 

 

 

 

 

36

 

44

 

Deferred maintenance shutdown expenditures

 

 

(65

)

 

(2

)

(29

)

 

(51

)

(10

)

 

 

(80

)

(77

)

Deferred outlays and other investments

 

(2

)

(1

)

 

 

1

 

3

 

6

 

1

 

(2

)

(6

)

3

 

(3

)

Proceeds from disposals

 

2

 

41

 

15

 

21

 

4

 

3

 

 

 

 

 

21

 

65

 

Decrease (Increase) in investing working capital

 

197

 

47

 

 

 

(1

)

3

 

(52

)

23

 

 

 

144

 

73

 

Total cash (used in) investing activities

 

(2 230)

 

(1 882)

 

(443

)

(344

)

(512

)

(433

)

(275

)

(385

)

(29

)

(69

)

(3 489)

 

(3 113

)

Net cash surplus (deficiency) before financing activities

 

2 098

 

(274

)

(189

)

63

 

(382

)

(328

)

(9

)

(121

)

(443

)

(105

)

1 075

 

(765

)

 

15




Suncor Energy Inc.
Highlights
(unaudited)

 

 

 

2006

 

2005

 

CASH FLOW FROM OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

For the quarters ended December 31

 

 

 

 

 

Cash flow from operations (1), (dollars per common share - basic)

 

1.62

 

2.68

 

 

 

 

 

 

 

For the years ended December 31

 

 

 

 

 

Cash flow from operations (1), (dollars per common share - basic)

 

9.87

 

5.43

 

 

 

 

 

 

 

RATIOS

 

 

 

 

 

For the years ended December 31

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (%) (2)

 

40.6

 

19.7

 

 

 

 

 

 

 

Return on capital employed (%) (3)

 

30.4

 

14.3

 

 

 

 

 

 

 

Net debt to cash flow from operations (times) (4)

 

0.4

 

1.2

 

Interest coverage on long-term debt (times)

 

 

 

 

 

Net earnings (5)

 

25.5

 

12.5

 

Cash flow from operations (6)

 

30.5

 

16.9

 

 

 

 

 

 

 

As at December 31

 

 

 

 

 

Debt to debt plus shareholders’ equity (%) (7)

 

21.1

 

33.8

 

 

 

 

 

 

 

COMMON SHARE INFORMATION

 

 

 

 

 

As at December 31

 

 

 

 

 

 

 

 

 

 

 

Share price at end of trading

 

 

 

 

 

Toronto Stock Exchange

- Cdn$

 

91.79

 

73.32

 

New York Stock Exchange

- US$

 

78.91

 

63.13

 

 

 

 

 

 

 

Common share options outstanding (thousands)

 

19 810

 

19 202

 

 

 

 

 

 

 

For the years ended December 31

 

 

 

 

 

Average number outstanding, weighted monthly (thousands)

 

459 069

 

456 312

 

 

Refer to the Quarterly Operating Summary for a discussion of financial measures not prepared in accordance with Canadian generally accepted accounting principles (GAAP).


(1) Cash flow from operations for the period; divided by the weighted average number of common shares outstanding during the period.

 

(2) Net earnings adjusted for after-tax financing expenses (2006 - $26 million; 2005 - income of $16 million) for the twelve month period ended (2006 - $2,997 million; 2005 - $1,142 million); divided by average capital employed (2006 - $7,379 million; 2005 - $5,786 million). Average capital employed is the sum of shareholders’ equity and short-term debt plus long-term debt less cash and cash equivalents, at the beginning and end of the year, divided by two, less average capitalized costs related to major projects in progress (as applicable). Return on capital employed (ROCE) for Suncor operating segments as presented in the Quarterly Operating Summary is calculated in a manner consistent with consolidated ROCE. For a detailed reconciliation of ROCE prepared on an annual basis, see page 56 of Suncor’s 2005 Annual Report to Shareholders.

 

(3) If capital employed were to include capitalized costs related to major projects in progress (average capital employed including major projects in progress: 2006 -$9,856 million; 2005 - $7,961 million), the return on capital employed would be as stated on this line.

 

(4) Short-term debt plus long-term debt less cash and cash equivalents, divided by cash flow from operations for the twelve month period then ended.

 

(5) Net earnings plus income taxes and interest expense, divided by the sum of interest expense and capitalized interest.

 

(6) Cash flow from operations plus current income taxes and interest expense; divided by the sum of interest expense and capitalized interest.

 

(7) Short-term debt plus long-term debt; divided by the sum of short-term debt, long-term debt and shareholders’ equity.

 

 

16




Suncor Energy Inc.
Quarterly Operating Summary
(unaudited)

 

 

 

For the quarter ended

 

Years ended

 

 

 

Dec 31

 

Sept 30

 

June 30

 

Mar 31

 

Dec 31

 

Dec 31

 

Dec 31

 

 

 

2006

 

2006

 

2006

 

2006

 

2005

 

2006

 

2005

 

OIL SANDS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production (1), (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total production

 

266.4

 

242.8

 

267.3

 

264.4

 

267.7

 

260.0

 

171.3

 

Firebag

 

35.1

 

37.2

 

35.0

 

27.4

 

26.0

 

33.7

 

19.1

 

Sales (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light sweet crude oil

 

113.7

 

84.9

 

124.7

 

119.2

 

108.6

 

110.5

 

73.3

 

Diesel

 

24.0

 

20.7

 

32.9

 

35.1

 

30.7

 

28.2

 

15.6

 

Light sour crude oil

 

126.8

 

125.8

 

99.2

 

121.0

 

104.2

 

118.2

 

59.8

 

Bitumen

 

9.7

 

6.6

 

8.5

 

 

7.2

 

6.2

 

16.6

 

Total sales

 

274.2

 

238.0

 

265.3

 

275.3

 

250.7

 

263.1

 

165.3

 

Average sales price (2), (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light sweet crude oil

 

64.51

 

78.11

 

78.27

 

69.00

 

55.96

 

71.98

 

49.93

 

Other (diesel, light sour crude oil and bitumen)

 

57.91

 

68.60

 

72.75

 

63.28

 

63.84

 

65.17

 

56.90

 

Total

 

60.65

 

71.99

 

75.34

 

65.75

 

60.42

 

68.03

 

53.81

 

Total *

 

60.65

 

71.99

 

75.34

 

65.75

 

66.68

 

68.03

 

62.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash operating costs and Total operating costs - Total operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash costs

 

22.65

 

21.00

 

15.65

 

15.55

 

16.20

 

18.70

 

19.60

 

Natural gas

 

3.00

 

2.60

 

2.55

 

3.45

 

4.65

 

2.90

 

4.90

 

Imported bitumen

 

 

0.10

 

0.10

 

0.05

 

0.05

 

0.10

 

0.05

 

Cash operating costs (3),(c)

 

25.65

 

23.70

 

18.30

 

19.05

 

20.90

 

21.70

 

24.55

 

Firebag start-up costs

 

 

 

 

0.90

 

0.30

 

0.20

 

0.10

 

Total cash operating costs (4),(c)

 

25.65

 

23.70

 

18.30

 

19.95

 

21.20

 

21.90

 

24.65

 

Depreciation, depletion and amortization

 

4.25

 

4.30

 

3.80

 

3.90

 

3.60

 

4.05

 

5.30

 

Total operating costs (5),(c)

 

29.90

 

28.00

 

22.10

 

23.85

 

24.80

 

25.95

 

29.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash operating costs and Total operating costs - In-situ bitumen production only

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash costs

 

8.05

 

5.55

 

8.50

 

5.70

 

6.70

 

8.95

 

9.15

 

Natural gas

 

9.90

 

7.60

 

8.15

 

7.70

 

13.80

 

8.35

 

13.05

 

Cash operating costs (6),(c)

 

17.95

 

13.15

 

16.65

 

13.40

 

20.50

 

17.30

 

22.20

 

Firebag start-up costs

 

 

 

 

8.50

 

2.90

 

1.70

 

1.00

 

Total cash operating costs (7),(c)

 

17.95

 

13.15

 

16.65

 

21.90

 

23.40

 

19.00

 

23.20

 

Depreciation, depletion and amortization

 

6.20

 

5.55

 

3.75

 

6.90

 

4.60

 

5.55

 

4.90

 

Total operating costs (8),(c)

 

24.15

 

18.70

 

20.40

 

28.80

 

28.00

 

24.55

 

28.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the period ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital employed (h)

 

5 092

 

5 550

 

5 544

 

5 450

 

4 472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the twelve months ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (i)

 

53.7

 

57.7

 

53.8

 

35.5

 

22.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (i) ****

 

40.4

 

43.7

 

40.5

 

26.3

 

16.3

 

 

 

 

 

 

17




 

Suncor Energy Inc.
Quarterly Operating Summary (continued)
(unaudited)

 

 

 

For the quarter ended

 

Years ended

 

 

 

Dec 31

 

Sept 30

 

June 30

 

Mar 31

 

Dec 31

 

Dec 31

 

Dec 31

 

 

 

2006

 

2006

 

2006

 

2006

 

2005

 

2006

 

2005

 

NATURAL GAS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross production **

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas (d)

 

192

 

191

 

189

 

196

 

193

 

191

 

190

 

Natural gas liquids (a)

 

2.1

 

2.1

 

2.6

 

2.4

 

2.3

 

2.3

 

2.4

 

Crude oil (a)

 

0.5

 

0.7

 

0.9

 

0.8

 

0.6

 

0.7

 

0.8

 

Total gross production (e)

 

34.7

 

34.6

 

35.1

 

35.9

 

35.0

 

34.8

 

34.8

 

Average sales price (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas (f)

 

6.55

 

6.33

 

6.38

 

9.03

 

11.66

 

7.15

 

8.57

 

Natural gas (f) *

 

6.40

 

6.13

 

6.22

 

8.75

 

11.83

 

6.95

 

8.59

 

Natural gas liquids (b)

 

44.20

 

53.11

 

60.14

 

51.75

 

57.85

 

44.96

 

50.70

 

Crude oil - conventional (b)

 

51.20

 

84.95

 

74.18

 

60.30

 

72.60

 

74.83

 

64.85

 

Net wells drilled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conventional - exploratory ***

 

4

 

1

 

1

 

5

 

3

 

11

 

12

 

- development

 

6

 

6

 

2

 

4

 

13

 

18

 

22

 

 

 

10

 

7

 

3

 

9

 

16

 

29

 

34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the period ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital employed (h)

 

861

 

778

 

770

 

590

 

563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the twelve months ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (i)

 

15.3

 

27.9

 

30.6

 

31.7

 

30.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ENERGY MARKETING AND REFINING — CANADA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refined product sales (g)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation fuels

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gasoline - retail

 

4.8

 

4.6

 

4.6

 

4.4

 

4.5

 

4.6

 

4.5

 

- other

 

4.1

 

3.8

 

3.9

 

3.6

 

3.3

 

3.8

 

3.9

 

Jet fuel

 

0.6

 

0.7

 

0.8

 

0.7

 

0.8

 

0.7

 

0.9

 

Diesel

 

3.3

 

3.0

 

3.5

 

3.2

 

3.4

 

3.2

 

3.3

 

Total transportation fuel sales

 

12.8

 

12.1

 

12.8

 

11.9

 

12.0

 

12.3

 

12.6

 

Petrochemicals

 

0.4

 

1.0

 

0.9

 

1.2

 

0.4

 

0.9

 

0.7

 

Heating oils

 

0.5

 

0.4

 

0.4

 

0.6

 

0.5

 

0.5

 

0.4

 

Heavy fuel oils

 

0.8

 

0.9

 

0.7

 

0.9

 

0.9

 

0.8

 

1.0

 

Other

 

0.4

 

0.8

 

0.6

 

0.7

 

0.5

 

0.6

 

0.5

 

Total refined product sales

 

14.9

 

15.2

 

15.4

 

15.3

 

14.3

 

15.1

 

15.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil supply and refining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processed at Sarnia refinery (g)

 

5.7

 

9.4

 

9.9

 

9.6

 

10.6

 

8.6

 

10.6

 

Utilization of refining capacity (j)

 

51

 

85

 

89

 

86

 

95

 

78

 

95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the period ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital employed (h)

 

1 023

 

847

 

490

 

535

 

486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the twelve months ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (i)

 

12.5

 

21.0

 

23.9

 

11.5

 

8.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (i) ****

 

7.4

 

11.4

 

12.4

 

6.8

 

5.2

 

 

 

 

 

 

18




Suncor Energy Inc.
Quarterly Operating Summary (continued)
(unaudited)

 

 

 

For the quarter ended

 

Years ended

 

 

 

Dec 31

 

Sept 30 

 

June 30 

 

Mar 31

 

Dec 31

 

Dec 31

 

Dec 31

 

 

 

2006

 

2006

 

2006 

 

2006

 

2005

 

2006

 

2005

 

REFINING AND MARKETING — U.S.A.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refined product sales (g)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation fuels

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gasoline - retail

 

0.7

 

0.7

 

0.7

 

0.7

 

0.7

 

0.7

 

0.7

 

- other

 

6.9

 

7.6

 

8.0

 

5.3

 

7.1

 

6.8

 

6.2

 

Jet fuel

 

1.2

 

1.0

 

0.9

 

0.8

 

0.9

 

1.0

 

0.8

 

Diesel

 

3.7

 

3.8

 

3.8

 

3.2

 

3.6

 

3.6

 

3.3

 

Total transportation fuel sales

 

12.5

 

13.1

 

13.4

 

10.0

 

12.3

 

12.1

 

11.0

 

Asphalt

 

0.8

 

1.6

 

1.3

 

1.0

 

1.2

 

1.2

 

1.6

 

Other

 

0.9

 

1.5

 

1.5

 

0.3

 

1.0

 

1.1

 

1.1

 

Total refined product sales

 

14.2

 

16.2

 

16.2

 

11.3

 

14.5

 

14.4

 

13.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil supply and refining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processed at Denver refinery (g)

 

13.7

 

14.8

 

14.6

 

9.2

 

13.0

 

13.1

 

12.1

 

Utilization of refining capacity (i)

 

96

 

104

 

102

 

65

 

91

 

92

 

98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the period ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital employed (h)

 

831

 

810

 

340

 

341

 

327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the twelve months ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (i)

 

34.2

 

44.4

 

45.7

 

42.2

 

49.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (i) ****

 

22.6

 

25.4

 

23.1

 

22.7

 

28.9

 

 

 

 

 

 

19




Suncor Energy Inc.
Quarterly Operating Summary (continued)
(unaudited)

 

Non GAAP Financial Measures

Certain financial measures referred to in the Highlights and Quarterly Operating Summary are not prescribed by Canadian generally accepted accounting principles (GAAP). Suncor includes cash flow from operations, return on capital employed and cash and total operating costs per barrel data because investors may use this information to analyze operating performance, leverage and liquidity. The additional information should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Definitions

(1) Total operations production

 

Total operations production includes total production from both mining and in-situ operations.

 

 

 

(2) Average sales price

 

This operating statistic is calculated before royalties and net of related transportation costs (including or excluding the impact of hedging activities as noted).

 

 

 

(3) Cash operating costs - Total operations

 

Include cash costs that are defined as operating, selling and general expenses (excluding inventory changes), accretion expense, taxes other than income taxes and the cost of bitumen imported from third parties. Per barrel amounts are based on total production volumes.

 

 

 

(4) Total cash operating costs - Total operations

 

Include cash operating costs - Total operations as defined above and cash start-up costs for in-situ operations. Per barrel amounts are based on total production volumes.

 

 

 

(5) Total operating costs - Total operations

 

Include total cash operating costs - Total operations as defined above and non-cash operating costs. Per barrel amounts are based on total production volumes.

 

 

 

(6) Cash operating costs - In-situ bitumen production

 

Include cash costs that are defined as operating, selling and general expenses (excluding inventory changes), accretion expense and taxes other than income taxes. Per barrel amounts are based on in-situ production volumes only.

 

 

 

(7) Total cash operating costs - In-situ bitumen production

 

Include cash operating costs - In-situ bitumen production as defined above and cash start-up operating costs. Per barrel amounts are based on in-situ production volumes only.

 

 

 

(8) Total operating costs - In-situ bitumen production

 

Include total cash operating costs - In-situ bitumen production as defined above and non-cash operating costs. Per barrel amounts are based on in-situ production volumes only.

 

Explanatory Notes

*

 

Excludes the impact of hedging activities.

**

 

Currently Natural Gas production is located in the Western Canada Sedimentary Basin.

***

 

Excludes exploratory wells in progress.

****

 

If capital employed were to include capitalized costs related to major projects in progress, the return on capital employed would be as stated on this line.

 

(a)

 

thousands of barrels per day

 

(d)

 

millions of cubic feet per day

 

(g)

 

thousands of cubic metres  per day

(b)

 

dollars per barrel

 

(e)

 

thousands of barrels of oil

 

(h)

 

$ millions

(c)

 

dollars per barrel rounded to

 

 

 

equivalent per day

 

(i)

 

percentage

 

 

the nearest $0.05

 

(f)

 

dollars per thousand cubic feet

 

 

 

 

 

Metric conversion

Crude oil, refined products, etc.

 

1m3 (cubic metre) = approx. 6.29 barrels

 

20




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – DRAFT
(unaudited)

1. Accounting Policies

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual financial statements, except for the accounting policy changes as described in note 2, Changes in Accounting Policies.

In the opinion of management, these interim consolidated financial statements contain all adjustments of a normal and recurring nature necessary to present fairly Suncor Energy Inc.’s (Suncor) financial position at December 31, 2006 and the results of its operations and cash flows for the three and twelve month periods ended December 31, 2006 and 2005.

Certain prior period comparative figures have been reclassified to conform to the current period presentation.

2. Changes in Accounting Policies

(a) Overburden Removal Costs

On January 1, 2006, the company retroactively adopted EIC 160 “Stripping Costs Incurred in the Production Phase of a Mining Operation”. Under the new standard, overburden removal costs should be deferred and amortized only in instances where the activity benefits future periods, otherwise the costs should be charged to earnings in the period incurred. At Suncor, overburden removal precedes mining of the oil sands deposit within the normal operating cycle, and is related to current production. In accordance with the new standard, overburden removal costs are treated as variable production costs and expensed as incurred. Previously overburden removal was deferred and amortized on a life-of-mine approach. The impact of adopting this accounting standard is as follows:

Change in Consolidated Balance Sheets 

 

 

As at December 31 

 

($ millions, (decrease))

 

2006

 

2005

 

 

 

 

 

 

 

Deferred charges and other

 

(230

)

(202

)

Total assets

 

(230

)

(202

)

 

 

 

 

 

 

Future income tax liabilities

 

(77

)

(68

)

Retained earnings

 

(153

)

(134

)

Total liabilities and shareholders’ equity

 

(230

)

(202

)

 

21




Change in Consolidated Statements of Earnings

 

 

Fourth quarter

 

Years ended December 31

 

($ millions, increase/(decrease)) 

 

2006 

 

 2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Operating, selling and general

 

98

 

67

 

337

 

287

 

Depreciation, depletion and amortization

 

(101

)

(64

)

(309

)

(152

)

Future income taxes

 

1

 

(2

)

(9

)

(48

)

Net earnings

 

2

 

(1

)

(19

)

(87

)

 

 

 

 

 

 

 

 

 

 

Per common share – basic (dollars)

 

 

 

(0.04

)

(0.19

)

Per common share – diluted (dollars)

 

 

 

(0.04

)

(0.19

)

 

(b) Non-monetary Transactions

On January 1, 2006, the company prospectively adopted CICA Handbook section 3831 “Non-monetary Transactions”. The standard requires all non-monetary transactions to be measured at fair value (if determinable) unless future cash flows are not expected to change significantly as a result of a transaction or the transaction is an exchange of a product held for sale in the ordinary course of business. The company was required to record the effects of an existing contract at Oil Sands that exchanges off-gas produced as a by-product of the upgrading operations for natural gas. An equal amount of revenues for the sale of the off-gas, and purchases of crude oil and products for the purchase of the natural gas are recorded. The amount of the gross-up of revenues and purchases of crude oil and products for the three and twelve month periods ending December 31, 2006 was $22 million and $126 million respectively.

3. Energy Marketing and Trading Activities

The company uses physical and financial energy contracts, including swaps, forwards and options to earn trading and marketing revenues. The Financial trading activities are accounted for using the mark-to-market method and as such all financial instruments are recorded at fair value at each balance sheet date. The results of these activities are reported as revenue and as energy marketing and trading expenses in the Consolidated Statements of Earnings.

Physical energy marketing contracts involve activities intended to enhance prices and satisfy physical deliveries to customers. For the quarter ended December 31, 2006, these activities resulted in net pretax earnings of $11 million (2005 – net pretax earnings of $5 million). For the year ended December 31, 2006, physical energy marketing contracts resulted in net pretax earnings of $41 million (2005 – net pretax earnings of $15 million).

In addition to the financial derivatives used for hedging activities, the company also enters into various financial energy contracts for trading activities. The following information presents all positions for the financial instruments only. For the quarter ended December 31, 2006, there were no net pretax earnings (2005 – net pretax earnings of $1 million) resulting from the settlement and revaluation of the financial energy contracts. For the year ended December 31, 2006, a net pretax loss of $3 million (2005 – net pretax earnings of $5 million) was recorded.

The above amounts do not include the impact of related general and administrative costs.

22




 

The fair value of unsettled (unrealized) energy trading assets and liabilities as at December 31 are as follows:

 

($ millions)

 

2006

 

2005

 

 

 

 

 

 

 

Energy trading assets

 

16

 

82

 

Energy trading liabilities

 

13

 

70

 

Net energy trading assets

 

3

 

12

 

 

Change in Fair Value of Net Assets

 

($ millions)

 

2006

 

Fair value of contracts outstanding at December 31, 2005

 

12

 

Fair value of contracts realized during 2006

 

(6

)

Fair value of contracts entered into during the period

 

2

 

Changes in values attributable to market price and other market changes

 

(5

)

Fair value of contracts outstanding at December 31, 2006

 

3

 

 

The source of the valuations of the above contracts is based on actively quoted prices and/or internal model valuations.

4. Financing Expenses (Income)

 

 

Fourth Quarter

 

Years ended December 31

 

($ millions)

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Interest on debt

 

38

 

41

 

150

 

151

 

Capitalized interest

 

(35

)

(28

)

(129

)

(119

)

Net interest expense

 

3

 

13

 

21

 

32

 

Foreign exchange (gain) loss on long-term debt

 

51

 

5

 

 

(37

)

Other foreign exchange (gain) loss

 

(2

)

(3

)

18

 

(10

)

Total financing expenses (income)

 

52

 

15

 

39

 

(15

)

 

23




5. Reconciliation of Basic and Diluted Net Earnings Per Common Share

 

 

Fourth Quarter

 

Years ended December 31

 

($ millions)

 

2006

 

2005

 

2006

 

2005

 

Net earnings

 

358

 

693

 

2 971

 

1 158

 

 

 

 

 

 

 

 

 

 

 

(millions of common shares)

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares

 

460

 

457

 

459

 

456

 

Options issued under stock-based compensation plans

 

11

 

11

 

11

 

10

 

Weighted-average number of diluted common shares

 

471

 

468

 

470

 

466

 

 

 

 

 

 

 

 

 

 

 

(dollars per common share)

 

 

 

 

 

 

 

 

 

Basic earnings per share (a)

 

0.78

 

1.52

 

6.47

 

2.54

 

Diluted earnings per share (b)

 

0.76

 

1.48

 

6.32

 

2.48

 

 


Note: An option will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the option.

(a) Basic earnings per share is net earnings divided by the weighted-average number of common shares.

(b) Diluted earnings per share is the net earnings divided by the weighted-average number of diluted common shares.

6. Stock-based Compensation

A common share option gives the holder the right, but not the obligation, to purchase common shares at a predetermined price over a specified period of time.

After the date of grant, employees that hold options must earn the right to exercise them. This is done by the employee fulfilling a time requirement for service to the company, and with respect to certain options, is subject to accelerated vesting should the company meet predetermined performance criterion. Once this right has been earned, these options are considered vested.

The predetermined price at which an option can be exercised is equal to or greater than the market price of the common shares on the date the option is granted.

A performance vesting share unit is an award entitling employees to receive cash to varying degrees contingent upon Suncor’s shareholder return relative to a peer group of companies.

(a) Stock option plans

Under the SunShare long-term incentive plan, the company granted 405,000 options to new and existing employees in the fourth quarter of 2006, for a total of 1,637,000 options granted in the year ended December 31, 2006 (262,000 options granted during the fourth quarter of 2005; 1,253,000 options granted in the year ended December 31, 2005).

On April 30, 2008, 50% of the outstanding, unvested SunShare options will vest. The remaining 50% of the outstanding, unvested SunShare options may vest on April 30, 2008 if the final predetermined performance criterion is met. If the performance criteria is not met, the unvested

24




options that have not previously expired or been cancelled, will automatically vest on January 1, 2012. Management believes that it is highly likely the final performance criterion will be met and that all unvested SunShare options at April 30, 2008 will vest. During the fourth quarter of 2006, stock-based compensation expense was adjusted to reflect this assumption.

Under the company’s other plans, 6,000 options were granted in the fourth quarter of 2006, for a total of 1,588,000 options granted in the year ended December 31, 2006 (1,000 options granted during the fourth quarter of 2005; 1,419,000 granted in the year ended December 31, 2005).

The fair values of all common share options granted during the period are estimated as at the grant date using the Black-Scholes option-pricing model. The weighted-average fair values of the options granted during the various periods and the weighted-average assumptions used in their determination are as noted below:

 

 

Fourth Quarter

 

Years ended December 31

 

 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Quarterly dividend per share

 

$

0.08

 

$

0.06

 

$

0.08

*

$

0.06

 

Risk-free interest rate

 

3.88

%

3.77

%

4.08

%

3.69

%

Expected life

 

3 years

 

5 years

 

5 years

 

6 years

 

Expected volatility

 

29

%

29

%

29

%

28

%

Weighted-average fair value per option

 

$

22.39

 

$

20.47

 

$

29.17

 

$

15.42

 

 


* In 2006, a quarterly dividend of $0.06 per share was paid in the first quarter, and quarterly dividends of $0.08 per share were paid in the second, third and fourth quarters.

Stock-based compensation expense recognized in the fourth quarter of 2006 related to stock options plans was $22 million (2005 - $7 million). For the year ended December 31, 2006 stock-based compensation expense recognized was $53 million (2005 - $23 million).

Common share options granted prior to January 1, 2003 are not recognized as compensation expense in the Consolidated Statements of Earnings. The company’s reported net earnings attributable to common shareholders and earnings per share prepared in accordance with the fair value method of accounting for stock-based compensation would have been reduced for all common share options granted prior to 2003 to the pro forma amounts stated below:

 

 

Fourth Quarter

 

Years ended December 31

 

($ millions, except per share amounts)

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Net earnings - as reported

 

358

 

693

 

2 971

 

1 158

 

Less: compensation cost under the fair value method for pre-2003 options

 

8

 

2

 

15

 

13

 

Pro forma net earnings

 

350

 

691

 

2 956

 

1 145

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

 

 

 

 

 

 

 

 

As reported

 

0.78

 

1.52

 

6.47

 

2.54

 

Pro forma

 

0.76

 

1.51

 

6.44

 

2.51

 

Diluted earnings per share

 

 

 

 

 

 

 

 

 

As reported

 

0.76

 

1.48

 

6.32

 

2.48

 

Pro forma

 

0.74

 

1.48

 

6.29

 

2.46

 

 

25




(b) Performance share units (PSUs)

In the fourth quarter of 2006 the company issued 2,000 PSUs (2005 – 2,000). For the year ended December 31, 2006, the company issued 397,000 PSUs (2005 – 453,000). Expense recognized in the fourth quarter of 2006 was $17 million (2005 – $5 million). Expense recognized for the year ended December 31, 2006 was $42 million (2005 – $21 million).

7. Employee Future Benefits Liability

The company’s pension plans and other post-retirement benefits programs are described in note 8 of the company’s 2005 Annual Report. The following is the status of the net periodic benefit cost for the fourth quarter and the twelve months ended December 31.

 

 

Pension Benefits

 

 

 

Fourth quarter

 

Years ended December 31

 

($ millions)

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Current service costs

 

11

 

8

 

44

 

32

 

Interest costs

 

10

 

9

 

40

 

38

 

Expected return on plan assets

 

(8

)

(7

)

(32

)

(28

)

Amortization of net actuarial loss

 

7

 

6

 

28

 

21

 

 

 

 

 

 

 

 

 

 

 

Net periodic benefit cost

 

20

 

16

 

80

 

63

 

 

 

 

Other Post-retirement Benefits 

 

 

 

Fourth quarter 

 

Years ended December 31 

 

($ millions)

 

2006

 

2005

 

2005 

 

2006 

 

Current service costs

 

1

 

 

5

 

5

 

Interest costs

 

2

 

1

 

8

 

6

 

Amortization of net actuarial loss

 

 

 

1

 

1

 

 

 

 

 

 

 

 

 

 

 

Net periodic benefit cost

 

3

 

1

 

14

 

12

 

 

8. Supplemental Information

 

 

Fourth Quarter

 

Years ended December 31

 

($ millions)

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

23

 

27

 

146

 

149

 

Income taxes paid

 

29

 

16

 

34

 

77

 

 

26




Revenue Hedges

Strategic Crude Oil

 

Quantity

 

Average Price

 

Revenue
Hedged

 

Hedge
Period (c)

 

 

 

(bpd)

 

(US$/bbl)(a)

 

(Cdn$ millions)(b)

 

 

 

As at December 31, 2006

 

 

 

 

 

 

 

 

 

Costless collars

 

60 000

 

51.64 – 93.26

 

1 318 – 2 380

 

2007

 

Costless collars

 

10 000

 

59.85 – 101.06

 

255 – 431

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas

 

Quantity

 

Average Price

 

Revenue
Hedged

 

Hedge
Period 
(c)

 

 

 

(GJ/day)

 

(Cdn$/GJ)

 

(Cdn$millions)

 

 

 

As at December 31, 2006

 

 

 

 

 

 

 

 

 

Swaps

 

4 000

 

6.11

 

9

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Dollars

 

Hedge

 

Foreign Currency Hedges

 

Notional

 

Forward Rate

 

Hedged

 

Period (c)

 

 

 

(Euro Millions)

 

 

 

(Cdn$millions)

 

 

 

As at December 31, 2006

 

 

 

 

 

 

 

 

 

Euro/Cdn forward

 

20.6

 

1.41

 

29

 

2007

(d)


(a) Average price for crude oil costless collars is US$ WTI per barrel at Cushing, Oklahoma.

(b) The revenue and margin hedged is translated to Cdn$ at the respective year-end exchange rate for convenience purposes.

(c) Original hedge term is for the full year unless otherwise noted.

(d) Settlement for applicable forwards occurring within the period April to September 2007.

9. Income Taxes

During the second quarter of 2006 the federal government substantively enacted a 3.1% reduction to its federal corporate tax rates. Accordingly, the company recognized a reduction in future income tax expense of $292 million related to the revaluation of its opening future income tax balances.

As well, the provincial government of Alberta substantively enacted a 1.5% reduction to its provincial corporate tax rates during the second quarter of 2006. Accordingly, the company recognized a reduction in future income tax expense of $127 million related to the revaluation of its opening future income tax balances.

10. Alberta Crown Royalties

Alberta Crown royalties in effect for each Oil Sands project require payments to the Government of Alberta based on annual gross revenues less related transportation costs (R) less allowable costs (C), including the deduction of certain capital expenditures (the 25% R-C royalty), subject to a minimum payment of 1% of R. Firebag is being treated by the Government of Alberta as a separate project from the rest of the Oil Sands operations for royalty purposes.

27




In February 2006, we advised the Government of Alberta we would not proceed with a July 2004 claim we filed against the Crown where we were seeking to overturn the government’s decision on the royalty treatment of our Firebag in-situ operations.

Royalty expense for the company’s Oil Sands operations for the fourth quarter was $229 million (2005 - $89 million). For the year ended December 31, 2006, Crown royalty expense was $911 million (2005 - $406 million).

During the fourth quarter of 2006, Suncor exercised its option to move our Oil Sands operations to the bitumen-based royalty regime effective January 1, 2009.

11. Credit Facilities

During the second quarter, a $1.5 billion credit facility agreement was renegotiated and extended by two years, to have a five year term maturing in June 2011. The credit limit of this facility was also increased by $500 million to $2 billion. In addition, a $200 million credit facility agreement was renegotiated and increased by $100 million to $300 million. As well, a $600 million credit facility agreement matured during the second quarter and was not renewed. At December 31, 2006, the company had available facilities as follows:

 

($millions)

 

 

 

 

 

Facility that is fully revolving for 364 days, has a term period of one year and expires in 2008

 

300

Facility that is fully revolving for a period of five years and expires in 2011

 

2 000

Facilities that can be terminated at any time at the option of the lenders

 

30

 

 

 

Total available credit facilities

 

2 330

 

As at December 31, 2006, the Company issued $237 million in letters of credit to various third parties and outstanding commercial paper of $280 million, leaving undrawn lines of credit were approximately $1,813 million.

28