Suncor Energy 2021 third quarter results (PDF, 76 pp., 450 KB)

Report to Shareholders

for the Third Quarter of 2021

All financial figures are unaudited and presented in Canadian dollars unless noted otherwise. Production volumes are presented on a working-interest basis, before royalties, except for production volumes from Suncor Energy Inc.'s (Suncor or the company) Libya operations, which are presented on an economic basis. Certain financial measures in this document are not prescribed by Canadian generally accepted accounting principles (GAAP). For a description of these non-GAAP financial measures, see the Non-GAAP Financial Measures Advisory section of Suncor's Management's Discussion and Analysis (MD&A) dated October 27, 2021. See also the Advisories section of the MD&A. References to Oil Sands operations exclude Suncor's interests in Fort Hills and Syncrude.

"In the third quarter of 2021, Suncor generated funds from operations of $2.6 billion, underpinned by strong results from the Refining & Marketing business and including the significant planned turnaround at Oil Sands Base," said Mark Little, president and chief executive officer. "Since the start of 2021, we have returned $2.6 billion to our shareholders through share repurchases and dividends and have reduced net debt by $3.1 billion, demonstrating significant progress towards fortifying our balance sheet and meeting our capital allocation targets for the year."

• Funds from operations(1) increased to $2.641 billion ($1.79 per common share) in the third quarter of 2021, compared to $1.166 billion ($0.76 per common share) in the prior year quarter. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $4.718 billion ($3.19 per common share) in the third quarter of 2021, compared to $1.245 billion ($0.82 per common share) in the prior year quarter.
• The company recorded operating earnings(1)(2) of $1.043 billion ($0.71 per common share) in the third quarter of 2021, compared to an operating loss of $338 million ($0.22 per common share) in the prior year quarter. The company had net earnings of $877 million ($0.59 per common share) in the third quarter of 2021, compared to a net loss of $12 million ($0.01 per common share) in the prior year quarter.
• Refining and Marketing (R&M) delivered $947 million in funds from operations in the current period, marking the third highest results for third quarter funds from operations on record. The increase in funds from operations in the third quarter of 2021, compared to $594 million in the prior year quarter, was a result of the improving business environment and strong refinery utilizations of 99%, and was achieved despite Canadian gasoline and diesel demand estimated to be 7%(3) below the comparable period in 2019. R&M funds from operations included a first-in,first-out (FIFO) inventory valuation gain of $84 million after-tax in the third quarter of 2021, compared to $164 million in the prior year quarter.
• Suncor's total upstream production increased to 698,600 barrels of oil equivalent per day (boe/d) in the third quarter of 2021, compared to 616,200 boe/d in the prior year quarter, due to continued strong performance from the company's In Situ assets and increased production volumes at Syncrude, partially offset by the impact of the significant planned turnaround at Oil Sands Base plant Upgrader 2 and planned maintenance at Firebag, which was completed in the quarter.
• Suncor successfully assumed the role of operator of the Syncrude asset on September 30, 2021, a critical step towards driving greater integration, efficiencies and competitiveness across all Suncor-operated assets in the region.
• Suncor and the co-owners of the Terra Nova project finalized an agreement to restructure the project ownership and move forward with the Asset Life Extension (ALE) project, which is expected to extend production life by approximately 10 years.
• Suncor, together with eight Indigenous communities, announced the formation of Astisiy Limited Partnership (Astisiy), which has signed agreements to acquire a 15% equity interest in the Northern Courier Pipeline. The pipeline, which connects the Fort Hills asset to Suncor's East Tank Farm, will be operated by Suncor and is expected to provide the eight Indigenous communities with reliable income for decades.
• In the third quarter of 2021, the company returned $1.0 billion to its shareholders through $704 million in share repurchases and payment of $309 million of dividends, and reduced net debt(4) by $2.0 billion.
• Since the beginning of 2021, Suncor has reduced net debt by $3.1 billion and repurchased $1.7 billion of its common shares since the start of its normal course issuer bid program (NCIB) in February 2021, representing approximately 63 million common shares at an average price of $26.39 per common share, or the equivalent of 4.1% of Suncor's issued and outstanding common shares as at January 31, 2021. The company is on track to exceed its previously communicated debt reduction and share repurchase targets for the year.
• Subsequent to the third quarter of 2021, the company completed the sale of its 26.69% working interest in the Golden Eagle Area Development for after-tax proceeds of US$250 million net of closing adjustments and other closing costs, and future contingent consideration of up to US$50 million. The effective date of the sale was January 1, 2021.
• Subsequent to the third quarter of 2021, Suncor's Board of Directors (the Board) approved a quarterly dividend of $0.42 per share, which represents an increase of 100% over the prior quarter dividend, reinstating the dividend to the 2019 level. The Board also approved an increase to the company's share repurchase program to approximately 7% of Suncor's public float as at January 31, 2021 and concurrently, the Toronto Stock Exchange (TSX) accepted a notice to increase the maximum number of common shares the company may repurchase pursuant to its NCIB to 7% of the company's public float. The acceleration of share repurchases, dividend increase and expected net debt reductions, compared to the company's previously announced targets demonstrate the progress made during the year and management's confidence in the company's ability to generate cash flow and its commitment to increased shareholder returns.

1. Funds from operations and operating earnings (loss) are non-GAAP financial measures. See page 6 for a reconciliation of net earnings (loss) to operating earnings (loss). See the Non-GAAP Financial Measures Advisory section of the MD&A.
2. Beginning in the first quarter of 2021, the company revised its calculation of operating earnings, a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value to better align the earnings impact of the activity with the underlying items being risk-managed. Prior period comparatives have been restated to reflect this change.
3. Sources: IHS Markit and Statistics Canada.
4. Net debt is equal to total debt less cash and cash equivalents.

Net (Loss) Earnings and Operating (Loss) Earnings(1)(2) by Quarter

($ millions)

2020(3)(4)	2021(4)		2020(3)(4)	2021(4)
Q3 Q4	Q1 Q2 Q3	Funds from Operations(1)	Q3 Q4	Q1 Q2 Q3
		and Capital Expenditures by
		Quarter

($ millions)

														Funds from operations(1)
	Net (loss) earnings	(12)	(168)	821	868	877		Capital and exploration expenditures
	Operating (loss) earnings(1)(2)	(338)	(109)	746	722	1 043		Asset sustainment capital and dividends
		2020(3)(4)								2021(4)
Production by Quarter	Q3		Q4	Q1	Q2		Q3	Return on Capital
(thousands of boe/d)												Employed(1) (ROCE)
													by Quarter

(%)

for the twelve months ended

1 166	1 221	2 110	2 362	2 641
912	941	772	1 310	1 183
987	911	808	1 346	1 145
2020(3)(4)			2021(4)
Q3	Q4	Q1	Q2	Q3

Exploration and Production	97.2	97.7	95.3	84.0	93.5
Oil Sands - Bitumen	108.2	157.2	170.7	178.5	199.6		ROCE(1)(5)	(10.2)	(6.9)	(1.4)	1.9	4.5
Oil Sands - SCO	410.8	514.3	519.9	437.2	405.5
	ROCE excluding impairments
Total	616.2	769.2	785.9	699.7	698.6		(1.3)	(2.9)	(0.6)	2.6	4.9
	and impairment reversals(1)

1. Funds from operations, operating earnings (loss) and ROCE are non-GAAP financial measures. See page 6 for a reconciliation of net earnings (loss) to operating earnings (loss). See the Non-GAAP Financial Measures Advisory section of the MD&A.
2. Beginning in the first quarter of 2021, the company revised its calculation of operating earnings, a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value to better align the earnings impact of the activity with the underlying items being risk-managed. Prior period comparatives have been restated to reflect this change.
3. Includes the impacts of the Government of Alberta's mandatory production curtailments in 2020.
4. Includes the impacts of the COVID-19 pandemic for all periods presented.
5. Includes impairment charges of $3.352 billion after-tax related to the fourth quarter of 2019, $1.798 billion after-tax related to the first quarter of 2020, $423 million after-tax related to the fourth quarter of 2020 and an impairment reversal of $168 million after-tax related to the third quarter of 2021.

Financial Results

Operating Earnings (Loss)

Suncor's operating earnings increased to $1.043 billion ($0.71 per common share) in the third quarter of 2021, from an operating loss of $338 million ($0.22 per common share) in the prior year quarter. The increase in operating earnings was primarily related to higher crude oil and refined product realizations reflecting the improved business environment, higher crude production and refinery crude throughput, and lower depreciation, depletion and amortization (DD&A) and exploration expenses. Operating earnings were partially offset by an increase in operating expenses and royalties associated with Suncor's increased production in the third quarter of 2021. The prior year quarter operating earnings were negatively impacted by the unprecedented decline in transportation fuel demand, partially offset by lower operating costs.

2 2021 Third Quarter Suncor Energy Inc.

Bridge Analysis of Operating (Loss) Earnings ($ millions)(1)(2)

(338)	335	1 611	(325)	(84)	(401)	172	73	1 043
Q3	Sales	Price, Margin	Royalties	Inventory	Operating and	DD&A and	Financing	Q3
2020	Volumes	and Other		Valuation(3)	Transportation	Exploration	Expense and	2021
	and Mix	Revenue			Expense	Expense	Other

1. For an explanation of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of the MD&A.
2. Beginning in the first quarter of 2021, the company revised its calculation of operating earnings, a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value to better align the earnings impact of the activity with the underlying items being risk-managed. Prior period comparatives have been restated to reflect this change.
3. The bridge factor for Inventory Valuation is comprised of changes in the FIFO inventory valuation and the realized portion of short-term commodity risk management activities reported in the R&M segment, and changes in the intersegment elimination of profit reported in the Corporate and Eliminations segment.

Net Earnings (Loss)

Suncor's net earnings were $877 million ($0.59 per common share) in the third quarter of 2021, compared to a net loss of $12 million ($0.01 per common share) in the prior year quarter. In addition to the factors impacting operating earnings (loss) discussed above, net earnings for the third quarter of 2021 were impacted by a $257 million unrealized after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt, a non-cashafter-tax impairment reversal of $168 million against the Terra Nova assets, a $60 million after-tax loss for early repayment of long-term debt and a $17 million after-tax unrealized loss on risk management activities. The net loss in the prior year quarter included a $290 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt and a $36 million after-tax unrealized gain on risk management activities.

Funds from Operations and Cash Flow Provided by Operating Activities

Funds from operations were $2.641 billion ($1.79 per common share) in the third quarter of 2021, compared to $1.166 billion ($0.76 per common share) in the third quarter of 2020. Funds from operations were influenced by the same factors impacting operating earnings (loss) noted above.

Cash flow provided by operating activities, which includes changes in non-cash working capital, was $4.718 billion ($3.19 per common share) for the third quarter of 2021, compared to $1.245 billion ($0.82 per common share) in the prior year quarter. In addition to the factors noted above, cash flow provided by operating activities was further impacted by a greater source of cash associated with the company's working capital balances in the current period compared to the prior year quarter. The source of cash in the third quarter of 2021 was primarily due to an increase in accounts payable and accrued liabilities and the receipt of the company's 2020 federal income tax refund.

2021 Third Quarter Suncor Energy Inc. 3

Operating Results

Suncor's total upstream production increased to 698,600 boe/d in the third quarter of 2021, compared to 616,200 boe/d in the prior year quarter, reflecting continued strong performance from the company's In Situ assets and increased production volumes at Syncrude, partially offset by the impact of the significant planned turnaround at Oil Sands Base plant Upgrader 2 and planned maintenance at Firebag, which was completed in the quarter.

The company's net synthetic crude oil production was 405,500 barrels per day (bbls/d) in the third quarter of 2021 compared to 410,800 bbls/d in the prior year quarter. In the third quarter of 2021, the company completed its five-year planned turnaround at Oil Sands Base plant Upgrader 2, and subsequent to the quarter the asset ramped up to normal operating rates. Syncrude upgrader utilization was 91% in the third quarter of 2021, compared to 78% in the prior year quarter. The prior year quarter was impacted by planned turnaround maintenance at both Oil Sands operations and Syncrude, and an operational incident at the secondary extraction facilities at Oil Sands Base plant.

The company's non-upgraded bitumen production increased to 199,600 bbls/d in the third quarter of 2021 from 108,200 bbls/d in the prior year quarter due to continued strong performance from the company's In Situ assets and the impact of the significant planned turnaround at Oil Sands Base plant Upgrader 2, resulting in less Firebag volumes being processed at the upgrader and therefore increased non-upgraded bitumen being sold to market. The increase in production was partially offset by planned maintenance at Firebag in the third quarter of 2021. Production at Fort Hills increased during the third quarter of 2021, compared to the prior year quarter. During the third quarter of 2021, significant progress on the mine ramp up strategy was achieved and Fort Hills continued to manage overburden removal and build ore inventory according to plan. Fort Hills is expected to transition to a two-train operation and operate at full production rates by the end of the year.

Exploration and Production (E&P) produced 93,500 boe/d during the third quarter of 2021, compared to 97,200 boe/d in the prior year quarter. The decrease was primarily due to natural production declines, partially offset by higher production at the Golden Eagle Area Development and liftings in Libya in the third quarter of 2021 compared to no liftings in the prior year quarter.

Refinery crude throughput increased to 460,300 bbls/d and refinery utilization was 99% in the third quarter of 2021, compared to refinery crude throughput of 399,700 bbls/d and refinery utilization of 87% in the prior year quarter, reflecting strong utilizations across all refineries comparable to the same periods in 2018 and 2019, despite Canadian gasoline and diesel demand estimated to be 7%(1) below the comparable period in 2019. The prior year quarter reflected reduced rates due to the completion of an eight-week planned turnaround at the Edmonton refinery and lower demand for refined products.

Refined product sales in the third quarter of 2021 increased to 551,500 bbls/d, compared to 534,000 bbls/d in the prior year quarter. Strong utilizations during the quarter, increased demand and secured sales channels positioned the company to capture the improved business environment.

"We continue to execute on our commitment to operational excellence across our assets. During the third quarter of 2021, Suncor once again outperformed the Canadian refining average, achieving 99% utilization at our refineries, and capturing funds from operations that exceeded the comparable 2019 levels in the downstream business," said Little. "In 2021, we completed the largest annual maintenance program in the company's history, including the completion of the significant turnaround at Oil Sands Base and planned maintenance at Firebag during the quarter, enabling us to return to normal production rates across our asset base in the fourth quarter."

The company's total operating, selling and general expenses were $2.768 billion in the third quarter of 2021, compared to $2.235 billion in the prior year quarter. The increase was primarily due to higher crude production and refinery crude throughput, a significant increase in natural gas prices and lower costs in the prior year quarter. The increase was partially offset by cost reductions related to the company's strategic initiatives. Increased production in the quarter resulted in higher absolute costs but lower cash operating costs per barrel(2) at Oil Sands operations and Syncrude. The prior year quarter reflected lower costs related to specific measures taken by the company to reduce operating costs in response to the COVID-19 pandemic.

In the first nine months of 2021, the company's total operating, selling and general expenses were $8.388 billion, which included one-time costs associated with restructuring and integration charges. While the company has made progress on its cost reduction initiatives, it currently estimates that fourth quarter operating, selling, and general expenses will be in line with the year- to-date run rate due to the planned increase in upstream production volumes in the fourth quarter and the expected increase in natural gas input prices. The company's exposure to higher natural gas costs is partially mitigated by increased revenue from power sales.

1. Sources: IHS Markit and Statistics Canada.
2. Non-GAAPfinancial measures. See Non-GAAP Financial Measures Advisory section of the MD&A.

4 2021 Third Quarter Suncor Energy Inc.

Strategy Update

Suncor remains focused on operational excellence and its capital allocation strategy; fortifying the balance sheet through debt reductions and increasing the return to its shareholders in the form of accelerated share repurchases and increased dividends. In the third quarter of 2021, the company continued to make meaningful progress towards its debt reduction strategy by exercising the early redemption option on its outstanding US$750 million 3.60% notes, originally maturing in December 2024, as well as reducing short-term debt by approximately $1.1 billion, contributing to a reduction in net debt of approximately $2.0 billion. Since the start of 2021, Suncor has reduced net debt by $3.1 billion and the company expects to return to 2019 net debt levels during the fourth quarter and be within its 2025 targeted net debt range by the end of the year.

In the third quarter of 2021, the company repurchased approximately 28 million common shares for $704 million under its NCIB and paid $309 million of dividends. Share repurchases in the quarter represent 1.8% of Suncor's issued and outstanding common shares as at January 31, 2021, and were purchased at an average price of $25.05 per common share. Since the start of its NCIB in February 2021, the company has repurchased $1.7 billion in common shares, representing approximately 63 million common shares at an average price of $26.39 per common share, or the equivalent of 4.1% of Suncor's issued and outstanding common shares as at January 31, 2021. Since the beginning of 2021, the company has returned approximately $2.6 billion to shareholders, including $1.7 billion in common share repurchases and $943 million in dividends paid, demonstrating its commitment to shareholder returns.

Subsequent to the third quarter of 2021, the Board approved a quarterly dividend of $0.42 per share, which represents an increase of 100% over the prior quarter dividend, as well as an increase to the company's share repurchase program to approximately 7% of Suncor's public float as at January 31, 2021. Concurrently, the TSX accepted a notice to increase the maximum number of common shares the company may repurchase pursuant to its NCIB to 7% of the company's public float. The acceleration of the share repurchases, dividend increase and expected net debt reductions, compared to the company's previously announced targets demonstrate the progress made during the year and management's confidence in the company's ability to generate cash flow and its commitment to increased shareholder returns.

On September 30, 2021, Suncor successfully assumed the role of operator of the Syncrude asset, a critical step towards driving greater efficiencies and competitiveness across all Suncor-operated assets in the region. Suncor assuming operatorship reflects the company's confidence in the Syncrude asset and Suncor expects to improve operational performance, efficiency and competitiveness and capture increased value by capitalizing on the collective strength of all of the Suncor-operated assets in the region. The change in operatorship is expected to generate annual gross synergies for the joint venture owners of $100 million in the first six months, with an additional $200 million through 2022-2023.

In E&P, Suncor, together with the co-owners of the Terra Nova project, finalized an agreement to restructure the project ownership and move forward with the ALE project. As a result of the agreement, Suncor increased its ownership in the project by approximately 10% to 48% in exchange for a cash payment from the exiting owners, and the agreement includes the previously disclosed royalty and financial support from the Government of Newfoundland and Labrador. Proceeds from the acquisition will be used to partially fund future capital expenditures for the ALE project. Maintenance work on the Floating, Production, Storage and Offloading (FPSO) facility commenced late in the quarter and the FPSO is expected to sail to dry dock in Ferrol, Spain, later in 2021. A safe return to operations is anticipated before the end of 2022. The ALE project is expected to extend the production life by approximately 10 years, provide an additional 70 million barrels of resource for the partnership and provide many benefits to the Newfoundland and Labrador and Canadian economies in the form of taxes, royalties and employment.

Suncor also entered into a conditional agreement to increase its interest in the White Rose asset subject to an economic restart decision for the West White Rose project by mid-2022. Should the decision to restart occur, Suncor has agreed to increase its interest in the White Rose asset by 12.5% to approximately 40% in exchange for a cash payment by the operator to Suncor.

"We continue to deliver on capital discipline and our strategy of optimizing our base business while focusing on high-margin, low- capital projects that deliver significant returns, cash flow and long-term value generation for our shareholders," said Little. "In the third quarter of 2021, we successfully assumed the role of operator of the Syncrude asset, announced that we are progressing the Terra Nova Asset Life Extension project and, subsequent to the quarter, completed the sale of our working interest in the Golden Eagle Area Development."

Suncor's strategy is underpinned by the company's principles of capital discipline and operational excellence. The company's 2021 capital expenditures have been heavily focused on the safety and reliability of the company's operations, which included the completion of the significant planned turnaround at Oil Sands Base plant Upgrader 2 and planned maintenance at Firebag in the third quarter, and significant turnaround activities at Syncrude, Buzzard and across all of the company's refineries in the second quarter. All significant planned maintenance has been safely completed for 2021, reinforcing the decision to stagger the company's planned turnarounds at Oil Sands Base plant Upgrader 2 and Syncrude in response to the impacts of the COVID-19 pandemic in the Fort McMurray region.

2021 Third Quarter Suncor Energy Inc. 5