Suncor Energy : Strength and resiliency in volatile times

Remarks by

Mark Little
President and CEO
Suncor Energy Inc.

Barclays CEO Energy/Power Conference
September 4, 2019

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Thank you and good morning everyone. It's great to be in New York and taking part in this important annual conference. Suncor has attended this event for a number of years and as the company's new President and CEO, I'm very pleased to be with you today.

Before I dive into the focus of my discussion, I wanted to provide a quick primer on Suncor for those who may not be familiar with us. We are Canada's leading integrated energy company, and a supplier of energy that reliably generates cash flow and is a leader in ESG. The vast majority of this energy comes from long-life, low-decline oil sands. The mid-point of our 2019 production guidance is 800,000 bbls/day with a 100% weighting in oil.

We have a uniquely integrated, high-quality portfolio of assets, which includes:

• Long life, low decline oil sands mining and in situ production and upgrading;
• Exploration & Production operations off the east coast of Canada and in the North Sea;
• A midstream and marketing business which connects our upstream production with our industry-leading refinery business located in both Canada and the United States;
• Investments in renewable energy that includes wind power as well as owning and operating Canada's largest ethanol facility; and
• A leading retail marketing business, with our Petro-Canada service stations comprising about 20% of the Canadian market.

The key takeaway for any investor is that we are - at our core - an Oil Sands business. The nature and location of this resource comes with increased complexity. So we have strategically structured and integrated our business. This enables us to mitigate risk and capture the entire resource value, resulting in higher value per barrel and lower cash flow volatility.

As a result we can reliably generate cash in numerous market scenarios, evidenced by a long history of strong shareholder returns.

Change - and resilience - are a big part of what I want to talk about today. We are living in an era of transformation - for the world, the industry, and as a company.

Energy is the lifeblood of modern society. It heats and powers our homes, schools and hospitals. It enables mobility. It offers meaningful jobs, provides governments with revenues that help fund critical services and infrastructure, and helps feed a growing world population.

Reliable and affordable energy is critical to our quality of life - in fact it's critical to life expectancy. Consider the many advances that have increased the average human life span by roughly 25% since I was born. This would not have occurred without the availability of reliable and affordable energy.

With the global population expected to increase by nearly two billion in the next two decades, and hundreds of millions more coming out of poverty - global energy demand will continue to grow significantly.

Every credible forecast points to oil continuing to have a sizable role in the future global energy portfolio. But to meet growing global demand, we will need to responsibly harness all forms of energy.

There are those who believe we need to eliminate fossil fuel consumption and that energy companies do not see climate change as a global priority or threat. Suncor's position - a position we've publicly stated for many years is that climate change is a real and pressing global challenge. We all have an obligation to reduce our carbon footprint by addressing our energy use and its associated emissions. Providing the energy the world needs while dealing with climate change is an enormous challenge.
The focus of my remarks today will be on how Canada, the oil sands, and Suncor, in particular, are positioned to be a responsible supplier of the energy the world continues to demand and as a result, a high quality, long term energy investment for your portfolio.

Here's why I'm confident about Suncor's future and value creation for decades to come:

• Our exceptional resource base and integrated business model allows us to reliably and profitably develop the resource for the benefit of our shareholders and other stakeholders in all market cycles;
• Our long-term investment horizon and focus on a sustainable business model enables us to continue to grow free cash flow from our low decline multi-decade resource base;
• Technology and - a critical part of our DNA - have made us more competitive, setting Suncor up for long-term success in an environment where the investment community is becoming ever more cost and ESG focused.

While oil sands exist in several locations around the globe, the deposits in northern Alberta are the largest and the most technologically advanced in terms of production.

Unlike conventional oil fields, which peak early and then decline, Canada's oil sands are a well-defined reservoir containing a century or more of potential production.

Developing the oil sands is more akin to a manufacturing enterprise than traditional oil exploration and production. Our oil sands exploration risks and costs are virtually zero. We only spend approximately 30-40% of our annual operating cash flow to sustain our business, whereas in conventional oil and gas development this number is significantly higher.

Because reserve replacement is not a concern, we've been able to concentrate on reducing costs and increasing reliability and productivity, while continuously improving our environmental and social performance.

Having our core resource in one geographic location is noteworthy. During this decade we've made great strides in improving reliability and reducing operating cash costs at our Base Plant, which have decreased from $36 US per barrel in 2008, to less than $20 US per barrel in 2018. This represents a reduction of more than 45%. Bear in mind, these cost reductions have been realized over a timeframe spanning a full economic cycle. This highlights the consistency and resiliency of our operations and capital deployment strategy. And we're not done. We're working hard to get these costs even lower - targeting less than $15 US per barrel.

A key driver of our success to date was the construction of a pipeline from our Firebag in situ operation to our upgrader, which has provided greater feedstock flexibility. We expect a similar step change in performance as we build an essential pipeline link between the Syncrude asset and our Base Plant in 2020. We are confident that by working with our partners we can reduce the operating cash costs at Syncrude to $22.50 US per barrel.

Location and quality differentials will always present volatility in realized prices given the resource is landlocked and bitumen requires more upgrading or refining. With this in mind, we have successfully developed our core resource through a tightly, physically integrated business model. This way, we can leverage our upstream oil sands operations with our upgrading, refining, and marketing assets to capture the full value of our upstream production. Integration mitigates location and quality differentials that have affected other oil sands producers in western Canada.

We believe our integrated business model and deep understanding of bitumen value gives us a significant competitive edge within our industry.

For example, the strength of our company was evident in 2018 when Canada's oil sector faced widening differentials and Suncor underwent the largest maintenance turnaround program in its history. Despite this, we continued to grow production by 7% and generated a record $10.2 billion Canadian funds from operations - returning over $5.4 billion Canadian, or more than 50% of that cash flow, to our shareholders through dividends and buybacks.

In response to the widening oil differentials, the Alberta government implemented mandatory industry-wide production curtailments, or quotas, in 2019, through 2020. Through this, we've illustrated the resiliency of our strategy by operating our assets safely, reliably and profitably.

With a regional base and asset flexibility, we've been able to transfer production quotas among our Oil Sands assets to maximize value. As a result, we set new second quarter records for both total upstream production and funds from operations - generating $3 billion Canadian of cash flow and demonstrating once again that we can create substantial value for shareholders, under a wide variety of market conditions.

Operational excellence, capital discipline, our integrated business model and longstanding focus on sustainability have been central to our success. We understand that the environmental and economic dimensions of energy are deeply intertwined - our perspective is success in one area cannot be achieved without success in the other.

In July, we built on 25 years of sustainability disclosure releasing our latest Report on Sustainability. We also released our third annual Climate Risk and Resilience Report, providing disclosure on why we believe our business strategies are resilient and will continue to deliver value in a carbon-constrained world.

We know transparency and disclosure are important for our investors. We also believe it can help differentiate Canadian energy for what it is - some of the most responsible and trusted energy on the planet.

Our ambitions are reflected in our sustainability goal to reduce total greenhouse gas (or GHG) emissions intensity of our oil and petroleum products by 30% by 2030. We've already made strides by reducing 10% of the GHG emissions intensity of our operations since 2014 - and we will continue to keep this momentum going.

A part of the intensity reduction to date was a result of the technology employed at our Fort Hills operation, which came on stream in 2018. This asset employs a secondary processing technology that results in barrels with a GHG intensity on par with the average barrel refined in the United States. We do this by extracting carbon from the barrel, before it enters the atmosphere. No other oil-producing jurisdiction in the world that I know of is doing this.

We are investing in next-generation in situ technologies using solvents and waterless extraction methods. These technologies have the potential to reduce GHG emissions intensity of our operations by up to 70%. These advances are not decades away, they are already on the horizon and being commercially piloted today. In addition, we believe these technologies can also reduce our operating and capital costs by more than 20%.

Technology and innovation will continue to be critical in achieving our environmental, operational and financial goals. Companies who fail to embed technology in their business will struggle to remain competitive. We have an extensive history of innovation and technology deployment, including moving from bucket wheel to truck and shovel, implementing in situ projects and advancing tailings reclamation.

More recently, we've stepped into the digital world through the deployment of autonomous haul systems, robotics, artificial intelligence, and remote sensing technologies.

This phase in our company's evolution, which I refer to as Suncor 4.0, is about creating a corporate strategy to not only continue to leverage our existing strengths, but also by unleashing the full potential of our workforce by harnessing emerging technology and new digital capabilities. This work is necessary to grow our competitive advantage and achieve half of our projected $2B increase in free funds flow by 2023.

In 2018 alone, we invested $635 million in technology development and deployment, driving progressive solutions throughout our business, including:

• implementing a new tailings treatment process that's accelerating our reclamation efforts and addressing one of our biggest sustainability challenges, while at the same time reducing the overall cost of reclamation. In 2018, we treated 165% of tailings production. This is the first time in our 50 year history where tailings treatment exceeded production.
• opening the $145 million water technology development centre where Suncor and our partners can simultaneously evaluate multiple water technologies, sharing risks and costs of development;
• a significant focus on harnessing digital technologies, such as improved data analytics, artificial intelligence, and automation, making our operations and workplace more reliable, efficient, connected, and cost-effective. The opportunity in this area seems very significant and is expected to make up approximately half of the 2 B$.

Much of the industry's technology advancement and performance improvements can be attributed to an unprecedented level of collaboration. Through Canada's Oil Sands Innovation Alliance (or COSIA), Suncor and several of our peers share proprietary Research & Development findings in an effort to accelerate improvement in environmental performance.

Again, I would point out there is simply no other industry collaboration like COSIA anywhere else in the world - though it's a model I believe is well worth emulating if we are to work together to reduce environmental impacts.

In addition to environmental performance goals, Suncor's other key long-term sustainability goal is working collaboratively with Canada's Indigenous Peoples, to partner with them in the benefits and opportunities of resource development; this is an area I'm personally passionate about.

Our partnership with the Fort McKay and Mikisew Cree First Nations on the East Tank Farm - a key hub for our Fort Hills operations - is an example of this kind of innovation in action. These two First Nations acquired a 49% equity ownership in the East Tank Farm at a value of approximately $500 million - the largest First Nations business investment to date in Canada. This investment will annually generate them over $20 M Canadian that they will use to invest in infrastructure, education, elder care, etc. to grow their economic and social well-being.

The three pillars of Suncor have been, and continue to be, environmental, social and financial performance to drive and maintain a sustainable business, in every sense of the word. Success in each facet ensures Suncor remains economically robust and resilient for decades to come.

Being a low-cost producer is critical for any commodity business. And, contrary to some popular thought, oil sands development is a full cycle, low cost commodity business.

Part of this goes back to the long-life, low-decline nature of the resource itself. Yes, a project like Fort Hills requires significant up-front capital investment. But, once operational, Fort Hills - which has an expected 50-year life span - is a reliable source of low-risk, high-return production, with minimal decline.

Beyond the resource base, execution matters. As many of you know, Suncor has been on a multi-year journey towards operational excellence with a relentless focus on safety, reliability, cost management and capital discipline. Our approach is straight-forward: don't spend a dollar unless it's absolutely going to drive value.

By remaining disciplined in our capital allocation, improving reliability and steadily taking costs out of our business, we've created a strong balance sheet that, in and of itself, represents a distinct competitive advantage.

We continue to generate sufficient funds from operations to cover our sustaining capital and our dividend at a WTI price of $45 US dollars. This level of sustainability is highly competitive on a global scale.

Our prudent approach to cost, debt management, and integration served us well during the significant oil price decline five years ago, when many predicted high-cost, heavy oil producers would be the first to fall away.

During this challenging period, Suncor consistently out-performed our peer group. While many competitors retreated or withdrew, we grew production, reduced costs and increased returns to shareholders through dividends and share buybacks.

Over the past seven years, Suncor has increased its annual dividend by approximately 20% per year and has bought back more than $10 billion of our stock. In recent years, our Return on Capital Employed has increased significantly, comparing favorably to our peers, as a result of this same focused and disciplined strategy.

That kind of resilience and performance doesn't simply happen by chance. Suncor made strategic decisions many years ago to invest in value-added upgrading and refining capacity in Alberta. We also invested in obtaining pipeline capacity for all of our production, including Fort Hills barrels.

With large capital projects behind us, we're planning for profitable growth at a low capital cost in the medium term.

While many long term production growth opportunities exist in our portfolio, our current focus is on increasing cash flow and generating returns from our existing assets, without significant production increases.

I mentioned earlier that we are working to incrementally grow our annual net fund flows by an additional $2 billion Canadian by 2023. Achieving this target would represent a 20% increase in funds flow compared to 2018. Approximately half from technology and the other half is through high-return margin improvement projects as well as opex and sustaining capital savings.

Most of these projects are independent of crude oil market conditions or egress challenges. For example, expanding deployment of cogeneration power. This project, reaching a decision later this year, replaces GHG-intensive coke-fired boilers with natural gas fired cogen at our Base Plant. Not only will this reduce emissions and costs within our own operations, it allows us to export lower-carbon energy to Alberta's electricity grid. This helps reduce higher carbon intensity coal-based power, while providing security of supply in an environment of growing demand.

Longer term, beyond 2024, we see the potential for significant production growth with a number of in situ projects. However, before we proceed, we need greater certainty on pipelines and market access.

We believe improved market access needs to be a priority - and not just because of the economic and social benefits that all Canadians would reap through jobs, royalties and taxes by capturing full value for their resources.

We believe Canada, with its commitment to environmental performance and social well-being, and as one of only two democratic nations with vast oil resources, is firmly positioned to lead in delivering the energy the world needs in a responsible and sustainable way.

In a time of growing global demand, the energy challenge of the 21st Century is not about limiting our energy options, but expanding them. It's about looking at all existing and emerging energy sources and learning how to develop and use them more wisely, efficiently, and sustainably.

Canada, the oil sands and Suncor have a pivotal role to play in responsibly producing the energy the world needs while moving towards a low-carbon economy. Suncor is an investment in our shared energy future that's sound, secure, sustainable and profitable.

Our integrated oil sands model is deliberately structured to not only sustain, but thrive, in times of volatility. We have demonstrated our ability throughout the last decade, and its full economic cycle, to consistently deliver shareholder returns while maintaining a strong balance sheet. This business model enabled us to return more than 50% of our operating cash flow to shareholders through dividends and buybacks in 2018.

While the markets may be volatile, our strategy is unwavering. Our asset base is multi-decade and as such, our focus on capital discipline, operational excellence, and financial pragmatism all run in parallel and must continue.

With this strategy, we will continue to generate incremental cash flow, grow dividends, buy back stock and invest in our business to ensure Suncor will continue to prosper.

Thank you for your time today and I'd be happy to answer any questions you may have.