EX-2 3 a17-24965_7ex2.htm EX-2

EXHIBIT 2

 

SUPPLEMENTARY OIL AND GAS DISCLOSURE (unaudited)

 

The following disclosures are presented in accordance with United States Financial Accounting Standards Board (“FASB”) Topic 932 — “Extractive Activities — Oil and Gas” and Subpart 1200 of Regulation S-K (“Subpart 1200”) of the United States Securities and Exchange Commission. Disclosures pertaining to the audited consolidated financial statements as at and for the year ended December 31, 2016 (the “2016 Financial Statements”) of Suncor Energy Inc. (“Suncor” or the “Company”) were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and Canadian generally accepted accounting principles contained within Part 1 of the Chartered Professional Accountants Canada Handbook, which differ in material respects from financial statements prepared in accordance with United States generally accepted accounting principles. The 2016 Financial Statements are attached as Exhibit 99.1 to Suncor’s annual report on Form 40-F for the year ended December 31, 2016 (the “Form 40-F”).

 

Reserves Data

 

Reserves data included herein are estimates only and can be significantly impacted by a variety of internal and external factors. For more information on the risks involved when estimating reserves, see the discussion in the “Statement of Reserves Data and Other Oil and Gas Information — Significant Risk Factors and Uncertainties Affecting Reserves” section in Suncor’s 2016 Annual Information Form (the “2016 AIF”), which is contained in the Form 40-F. Readers should also see Suncor’s Management’s Discussion and Analysis for the year ended December 31, 2016, which is attached as Exhibit 99.2 to the Form 40-F (the “2016 Management’s Discussion and Analysis”).

 

The reserves data presented herein may differ in relation to the format and the basis from which volumes are economically determined under Subpart 1200 and National Instrument 51-101 — “Standards of Disclosure for Oil and Gas Activities” (“NI 51-101”), as disclosed in the 2016 AIF. Subpart 1200 requires disclosure of net proved reserves, after royalties, using the average of the first-day-of-the-month prices for the twelve month period prior to the end of the reporting period, whereas NI 51-101 requires disclosure of gross and net reserves, estimated using forecast prices and costs. For Suncor’s Fort Hills oil sands mining project, the application of constant pricing results in this project being uneconomic such that no reserves are attributed to this property herein. However, when utilizing forecast pricing, as permitted by NI 51-101, this project is economic, and therefore the applicable reserves are attributed thereto as outlined in the 2016 AIF. Similarly, proved undeveloped volumes associated with Suncor’s Hebron offshore project are only economic and qualify as proved undeveloped reserves under forecast pricing, as outlined in the 2016 AIF, and uneconomic using constant pricing and therefore these volumes are not attributed as reserves herein.

 

Net Proved Oil and Gas Reserves(1)(2)

 

The majority of Suncor’s oil and gas reserves are in Canada. In order to align with the Company’s segmented information in the 2016 Financial Statements, the 2016 Management’s Discussion and Analysis and the 2016 AIF, the company presents the following supplementary oil and gas disclosures by showing amounts associated with its Oil Sands segment, which are exclusively in Canada and produce synthetic crude oil (“SCO”) and bitumen, separate from other Canadian operations, which are aggregated with Suncor’s international operations (collectively, “Exploration and Production”) and

 


 

produce crude oil, natural gas and natural gas liquids (“NGLs”). Exploration and Production reserves are in onshore and offshore Canada and offshore UK.

 

At December 31, (net reserves, constant

 

SCO
(mmbbls)

 

Bitumen
(mmbbls)

 

Crude Oil
and NGLs(3)
(mmbbls)

 

Natural Gas
(bcf)

 

Total
(mmboe)

 

prices and costs)

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

Proved Developed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil Sands

 

2 468

 

1 823

 

102

 

99

 

—

 

—

 

—

 

—

 

2 570

 

1 922

 

Exploration and Production

 

—

 

—

 

—

 

—

 

106

 

120

 

11

 

21

 

108

 

124

 

 

 

2 468

 

1 823

 

102

 

99

 

106

 

120

 

11

 

21

 

2 678

 

2 046

 

Proved Undeveloped

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil Sands

 

572

 

567

 

431

 

454

 

—

 

—

 

—

 

—

 

1 003

 

1 022

 

Exploration and Production

 

—

 

—

 

—

 

—

 

9

 

32

 

—

 

1

 

9

 

32

 

 

 

572

 

567

 

431

 

454

 

9

 

32

 

—

 

1

 

1 013

 

1 054

 

Proved

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil Sands

 

3 040

 

2 390

 

533

 

554

 

—

 

—

 

—

 

—

 

3 573

 

2 944

 

Exploration and Production

 

—

 

—

 

—

 

—

 

115

 

153

 

11

 

21

 

117

 

156

 

 

 

3 040

 

2 390

 

533

 

554

 

115

 

153

 

11

 

21

 

3 690

 

3 100

 

 

Reconciliation of Net Proved Oil and Gas Reserves

 

(net reserves,
constant prices and costs)

 

Balance
December 31
2014

 

Revisions of
Previous
Estimates(4)

 

Improved
Recovery

 

Acquisitions

 

Extensions
and
Discoveries(5)

 

Production

 

Dispositions

 

Balance
December 31
2015

 

Oil Sands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCO (mmbbls)

 

2 152

 

361

 

—

 

—

 

—

 

(124

)

—

 

2 390

 

Bitumen (mmbbls)

 

1 588

 

(993

)

—

 

—

 

—

 

(41

)

—

 

554

 

Exploration and Production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil and NGLs(3) (mmbbls)

 

234

 

(45

)

—

 

—

 

—

 

(37

)

—

 

152

 

Natural gas (bcf)

 

37

 

(7

)

—

 

—

 

—

 

(9

)

—

 

21

 

Total (mmboe)

 

3 981

 

(678

)

—

 

—

 

—

 

(203

)

—

 

3 100

 

 

(net reserves,
constant prices and costs)

 

Balance
December 31
2015

 

Revisions of
Previous
Estimates(4)

 

Improved
Recovery

 

Acquisitions

 

Extensions
and
Discoveries(5)

 

Production

 

Dispositions

 

Balance
December 31
2016

 

Oil Sands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCO (mmbbls)

 

2 390

 

61

 

—

 

726

 

5

 

(141

)

—

 

3 040

 

Bitumen (mmbbls)

 

554

 

22

 

—

 

—

 

—

 

(42

)

—

 

533

 

Exploration and Production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil and NGLs(3) (mmbbls)

 

152

 

1

 

—

 

—

 

—

 

(38

)

—

 

115

 

Natural gas (bcf)

 

21

 

(2

)

—

 

—

 

—

 

(9

)

—

 

11

 

Total (mmboe)

 

3 100

 

84

 

—

 

726

 

5

 

(224

)

—

 

3 690

 

 

Notes to Reserve Data:

 

(1)                                     Definitions

 

a.                                          Net reserves, in relation to Suncor’s production and reserves, represents the company’s working interest share after deduction of royalty obligations, plus the company’s royalty interests in production and reserves.

 

b.                                         Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible, from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations.

 

c.                                          Proved developed oil and gas reserves are those quantities that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and can be expected to be recovered through extraction equipment and

 


 

infrastructure installed and operational at the time of the reserves estimate for projects that extract oil and gas by means not involving a well.

 

d.                                         Proved undeveloped oil and gas reserves are those quantities that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

 

(2)                                     Reserve data tables may not add due to rounding.

 

(3)                                     Natural gas liquids reserves are not significant and have been presented in combination with crude oil reserves.

 

(4)                                     Revisions of previous estimates include changes to proved reserves, resulting from new information (except for an increase in proved acreage) normally obtained from development drilling and production history or resulting from a change in economic factors, such as changes in constant prices used for the reserve evaluation.

 

(5)                                     Extensions and discoveries are additions to proved reserves from proved acreage of previously discovered reservoirs through additional drilling in periods subsequent to discovery or discovery of new fields with proved reserves or of new reservoirs of proved reserves in old fields.

 

Capitalized Costs

 

 

 

At December 31, 2016

 

At December 31, 2015

 

($ millions)

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Exploration and evaluation assets(1)

 

1 893

 

145

 

2 038

 

1 198

 

483

 

1 681

 

Oil and gas properties(2)

 

16 312

 

19 021

 

35 333

 

13 387

 

19 248

 

32 635

 

Plant and equipment(2)

 

58 688

 

1 109

 

59 797

 

45 571

 

1 221

 

46 792

 

— accumulated provision(2)

 

(20 459

)

(12 092

)

(32 551

)

(15 991

)

(11 810

)

(27 801

)

Total

 

56 434

 

8 183

 

64 617

 

44 165

 

9 142

 

53 307

 

 

(1)                                 Exploration and evaluation assets largely represent amounts associated with unproved properties, but may include properties with proved reserves for which Suncor’s Board of Directors have not sanctioned development. See note 19 of the 2016 Financial Statements.

 

(2)                                 Oil and Gas Properties, Plant and Equipment and the accumulated provision largely represent amounts associated with proved properties. See note 18 of the 2016 Financial Statements.

 

Costs Incurred for Property Acquisition, Exploration and Development Activities

 

 

 

Year ended December 31, 2016

 

Year ended December 31, 2015

 

($ millions)

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Unproved property acquisition

 

684

 

68

 

752

 

18

 

1

 

19

 

Proved property acquisition

 

10 806

 

—

 

10 806

 

360

 

—

 

360

 

Exploration(1)

 

45

 

212

 

257

 

157

 

400

 

557

 

Development(2)

 

4 272

 

831

 

5 103

 

3 553

 

1 028

 

4 581

 

Total

 

15 807

 

1 111

 

16 918

 

4 088

 

1 429

 

5 517

 

 

(1)                                 Includes amounts capitalized to Exploration and Evaluation as well as those charged to Exploration Expense on the Consolidated Balance Sheets and the Consolidated Statements of Comprehensive Income, respectively, of the 2016 Financial Statements.

 

(2)                                 Includes amounts capitalized to Property, Plant and Equipment on the Consolidated Balance Sheets of the 2016 Financial Statements that relate to the Company’s decommissioning and restoration activities.

 


 

Results of Operations for Oil- and Gas-Producing Activities

 

 

 

Year ended December 31, 2016

 

Year ended December 31, 2015

 

($ millions)

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Operating revenues, net of royalties

 

9 470

 

2 231

 

11 701

 

9 218

 

2 345

 

11 563

 

Other Income

 

26

 

45

 

71

 

146

 

150

 

296

 

 

 

9 496

 

2 276

 

11 772

 

9 364

 

2 495

 

11 859

 

Purchases of crude oil and products

 

548

 

—

 

548

 

319

 

3

 

322

 

Operating, selling and general

 

5 777

 

483

 

6 260

 

5 220

 

502

 

5 722

 

Transportation

 

666

 

86

 

752

 

645

 

98

 

743

 

Depreciation, depletion, amortization and impairment

 

3 864

 

1 381

 

5 245

 

3 583

 

3 106

 

6 689

 

Exploration

 

30

 

259

 

289

 

120

 

358

 

478

 

(Gain) Loss on disposal of assets

 

(33

)

—

 

(33

)

8

 

(5

)

3

 

Finance expenses

 

234

 

82

 

316

 

150

 

82

 

232

 

(Loss) Earnings before Income Taxes

 

(1 590

)

(15

)

(1 605

)

(681

)

(1 649

)

(2 330

)

Income taxes

 

(441

)

(205

)

(646

)

175

 

(891

)

(716

)

Net (Loss) Earnings

 

(1 149

)

190

 

(959

)

(856

)

(758

)

(1 614

)

 

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

 

The standardized measure of discounted future net cash flows relating to Suncor’s proved oil and gas reserves are calculated in accordance with FASB Topic 932 — “Extractive Activities — Oil and Gas”. Future cash inflows are estimated using the trailing twelve-month average price, which are also used in estimating the entity’s proved oil and gas reserves. Future development and production costs, including the associated decommissioning and restoration activities, are calculated by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. The appropriate year-end statutory tax rates, with consideration of future tax rates already legislated, were applied to the future pretax net cash flows, less the tax basis of the properties involved. A prescribed rate of 10% is applied to discount the future net cash flows.

 

The calculation of the standardized measure of discounted future net cash flows is based upon information prepared by the Company’s independent qualified reserves evaluators, and adjusted for decommissioning and restoration activities and future income taxes.

 

It should not be assumed that the estimates of future net cash flows presented in the tables below represent the fair market value of the reserves. There is no assurance that the price and cost assumptions will be attained and variances could be material. Future changes to income tax, royalty and environmental regulations could also have a significant impact on the respective assumptions. There is no guarantee that the estimates for SCO, bitumen, crude oil and NGLs, and natural gas reserves provided herein will be recovered. Actual SCO, bitumen, crude oil and NGLs, and natural gas reserves may be greater than or less than the estimates provided herein.

 

The following twelve-month average prices were used to calculate the standardized measure of discounted future net cash flows:

 

Year

 

Brent
North Sea

 

WTI
Cushing
Oklahoma

 

WCS
Hardisty
Alberta

 

Light
Sweet
Edmonton
Alberta

 

Pentanes Plus
Edmonton
Alberta

 

AECO
Gas

 

B.C. Gas
Westcoast
Station 2

 

National
Balancing
Point
North Sea

 

 

 

US$/bbl

 

US$/bbl

 

Cdn$/bbl

 

Cdn$/bbl

 

Cdn$/bbl

 

Cdn$/mmbtu

 

Cdn$/mmbtu

 

Cdn$/mmbtu

 

2016

 

42.82

 

42.75

 

39.77

 

53.67

 

57.02

 

2.18

 

1.63

 

6.42

 

2015

 

54.17

 

50.28

 

48.82

 

61.20

 

64.19

 

2.66

 

1.92

 

8.42

 

 


 

 

 

At December 31, 2016

 

At December 31, 2015

 

($ millions)

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Future cash inflows

 

179 213

 

6 240

 

185 453

 

170 803

 

10 330

 

181 133

 

Future production costs

 

(116 271

)

(2 632

)

(118 904

)

(99 211

)

(4 050

)

(103 261

)

Future development costs

 

(58 540

)

(1 858

)

(60 398

)

(54 936

)

(4 231

)

(59 167

)

Future income tax expenses

 

(2 095

)

(680

)

(2 775

)

(4 423

)

(982

)

(5 405

)

Future net cash flows

 

2 307

 

1 070

 

3 377

 

12 233

 

1 067

 

13 300

 

10% Discount Factor

 

4 197

 

206

 

4 403

 

(6 560

)

264

 

(6 296

)

Standardized measure of discounted future net cash flows

 

6 504

 

1 276

 

7 780

 

5 673

 

1 331

 

7 004

 

 

Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

 

($ millions)

 

2016

 

2015

 

Standardized measure of discounted future net cash flows — beginning of year

 

7 004

 

28 018

 

Sales and transfers of oil and gas produced

 

(4 689

)

(9 701

)

Net change in sales prices and operating costs related to future production

 

(8 192

)

(32 402

)

Net change due to extensions, discoveries and improved recovery

 

32

 

—

 

Net change due to acquisitions and dispositions

 

5 063

 

—

 

Net change due to revisions in quantity estimates

 

1 404

 

1 287

 

Previously estimated development costs incurred during the period

 

2 156

 

2 533

 

Changes in estimated future development costs

 

3 035

 

3 283

 

Accretion of discount

 

638

 

2 564

 

Net change in income taxes

 

1 329

 

11 422

 

Standardized measure of discounted future net cash flows — end of year

 

7 780

 

7 004