Exhibit 99.1​

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 this document. See also the Advisories section of this document. References to Oil Sands operations exclude Suncor’s interests in Fort Hills and Syncrude.

“Suncor generated $3.1 billion, or $2.17 per common share, in adjusted funds from operations during the fourth quarter of 2021, despite operational challenges late in the quarter. These results represent the highest quarterly adjusted funds from operations in the company’s history and an 11% increase on a per common share basis compared to the last per share quarterly record,” said Mark Little, president and chief executive officer. “Our increased cash flows in 2021 enabled us to exceed our shareholder return targets for the year through increased dividends and accelerated share repurchases, while at the same time strengthening our balance sheet through accelerated debt reduction.”

•

Adjusted funds from operations(1)(2) increased to $3.144 billion ($2.17 per common share) in the fourth quarter of 2021, compared to $1.221 billion ($0.80 per common share) in the prior year quarter. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $2.615 billion ($1.80 per common share) in the fourth quarter of 2021, compared to $814 million ($0.53 per common share) in the prior year quarter.

​

•

The company recorded adjusted operating earnings(1)(2)(3) of  $1.294 billion ($0.89 per common share) in the fourth quarter of 2021, compared to an adjusted operating loss of  $109 million ($0.07 per common share) in the prior year quarter. The company had net earnings of  $1.553 billion ($1.07 per common share) in the fourth quarter of 2021, compared to a net loss of  $168 million ($0.11 per common share) in the prior year quarter.

​

•

Suncor’s total upstream production was 743,300 barrels of oil equivalent per day (boe/d) in the fourth quarter of 2021, compared to 769,200 boe/d in the prior year quarter, with the decrease primarily due to decreased production from the company’s Exploration and Production (E&P) assets, including the absence of production from the Golden Eagle Area Development, as the sale of the asset was completed early in the fourth quarter of 2021. The company’s synthetic crude oil (SCO) production was 515,000 barrels per day (bbls/d) in the fourth quarter of 2021, comparable to 514,300 bbls/d in the fourth quarter of 2020, driven by combined upgrader utilization of 96%.

​

•

Fort Hills resumed two-train operations late in the fourth quarter of 2021. The company is on track to operate the Fort Hills asset at average utilization rates of 90% throughout 2022.

​

•

Buzzard Phase 2, which is expected to extend production life of the existing Buzzard field, achieved first oil in the fourth quarter of 2021. Buzzard Phase 2 is expected to reach its peak production in 2022, adding approximately 12,000 boe/d gross (approximately 3,500 boe/d net to Suncor) to existing Buzzard production.

​

•

Refining and Marketing (R&M) delivered $765 million in adjusted funds from operations in the fourth quarter of 2021, compared to $415 million in the prior year quarter, including a first-in, first-out (FIFO) inventory valuation gain of  $106 million after-tax in the current period compared to a gain of  $44 million after-tax in the prior year quarter. Refinery utilization averaged 96% and crude throughput was 447,000 bbls/d in the current quarter, compared to 95% and 438,000 bbls/d respectively in the prior year quarter. The company’s Canadian refineries continued to outperform the national refining industry average by approximately 15%.(4)

​

•

In 2021, Suncor executed on its net debt(1) reduction targets, reducing debt at the highest ever annual pace, resulting in a reduction of net debt by $3.7 billion to $16.1 billion, returning to 2019 net debt levels. The company continues to reduce its debt, and subsequent to the fourth quarter of 2021, completed an early redemption of its outstanding US$182 million 4.50% notes, originally scheduled to mature in the second quarter of 2022.

​

•

Suncor returned $3.9 billion to shareholders in 2021 through $2.3 billion in share repurchases and $1.6 billion in dividends paid, including an increased dividend in the fourth quarter of 2021, returning it to 2019 levels. Since the start of its current normal course issuer bid program (NCIB) in February 2021, the company has repurchased approximately 84 million of its common shares at an average price of  $27.45 per common share, or the equivalent of 5.5% of Suncor’s public float as at January 31, 2021.

​

•

Subsequent to the fourth quarter of 2021, Suncor’s Board of Directors (the Board) approved a renewal of the company’s NCIB for the repurchase of approximately 5% of Suncor’s issued and outstanding common shares as at January 31, 2022, over a twelve-month period, and concurrently, the Toronto Stock Exchange (TSX) accepted a notice filed by Suncor to renew its NCIB in respect of the repurchase of such shares.

​

(1)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document and the Adjusted Operating Earnings (Loss) Reconciliation below for a reconciliation of net earnings (loss) to adjusted operating earnings (loss).

​

(2)

Beginning in the fourth quarter of 2021, the company revised the label of operating earnings (loss) and funds from (used in) operations to adjusted operating earnings (loss) and adjusted funds from (used in) operations, respectively, to better distinguish the non-GAAP financial measures from the comparable GAAP measures and better reflect the purpose of the measures. The composition of the measures remains unchanged and therefore no prior periods were restated.

​

(3)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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.

​

(4)

Source: Canada Energy Regulator – https://www.cer-rec.gc.ca/en/data-analysis/energy-commodities/crude-oil-petroleum-products/statistics/weekly-
crude-run-summary-data/index.html.

​

 

(1)

Non-GAAP financial measures or contains non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document and the Adjusted Operating Earnings (Loss) Reconciliation below for a reconciliation of net earnings (loss) to adjusted operating earnings (loss).

​

(2)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings, a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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 COVID-19 pandemic for all periods presented.

​

(4)

Includes impairment charges of  $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.

​

2   2021 Fourth Quarter   Suncor Energy Inc.

Financial Results

Adjusted Operating Earnings (Loss)

Suncor’s adjusted operating earnings increased to $1.294 billion ($0.89 per common share) in the fourth quarter of 2021, from an adjusted operating loss of  $109 million ($0.07 per common share) in the prior year quarter. The increase in adjusted operating earnings was primarily related to higher crude oil and refined product realizations reflecting the improved business environment. Adjusted operating earnings were partially offset by an increase in royalties associated with higher crude price realizations and increased operating costs. The prior year quarter adjusted operating earnings were negatively impacted by the significant decline in transportation fuel demand, which led to lower price realizations, partially offset by lower operating costs.

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

(1)

For an explanation of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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 $1.553 billion ($1.07 per common share) in the fourth quarter of 2021, compared to a net loss of $168 million ($0.11 per common share) in the prior year quarter. In addition to the factors impacting adjusted operating earnings (loss) discussed above, net earnings for the fourth quarter of 2021 included a $25 million ($21 million after-tax) unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt recorded in financing expenses, a $227 million ($227 million after-tax) gain on the sale of the company’s interest in the Golden Eagle Area Development and a $14 million ($11 million after-tax) unrealized gain on risk management activities recorded in other income (loss). The net loss in the prior year quarter included a $559 million ($423 million after-tax) non-cash asset impairment charge against the White Rose assets, a $186 million ($142 million after-tax) transportation provision related to the Keystone XL pipeline project and a $44 million ($33 million after-tax) unrealized loss on risk management activities recorded in other income (loss), partially offset by a $602 million ($539 million after-tax) unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt recorded in financing expenses.

2021 Fourth Quarter   Suncor Energy Inc.   3

 

Adjusted Operating Earnings (Loss) Reconciliation(1)(2)

​

(1)

Adjusted operating earnings (loss) is a non-GAAP financial measure. All reconciling items are presented on an after-tax basis. See the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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)

Restructuring charge of  $168 million before-tax recorded in operating, selling and general expenses in the Corporate and Eliminations segment in the first quarter of 2021.

​

(4)

During the third quarter of 2021, the company recorded a non-cash impairment reversal of  $221 million ($168 million after-tax) on its share of the Terra Nova assets, in the E&P segment, as a result of the Asset Life Extension Project moving forward and the benefit of royalty and financial support from the Government of Newfoundland and Labrador. During the first quarter of 2020, the company recorded non-cash impairment charges of $1.821 billion ($1.376 billion after-tax) on its share of the Fort Hills assets, in the Oil Sands segment, and $560 million ($422 million after-tax) against its share of the White Rose and Terra Nova assets, in the E&P segment, due to a decline in forecasted crude oil prices as a result of decreased global demand due to the COVID-19 pandemic and changes to their respective capital, operating and production plans. During the fourth quarter of 2020, the company recorded non-cash impairment charges of  $559 million ($423 million after-tax) against its share of the White Rose assets, in the E&P segment, as a result of the high degree of uncertainty surrounding the future of the West White Rose Project.

​

(5)

Charges of  $80 million before-tax recorded in financing expenses associated with the early repayment of debt in the third quarter of 2021, recorded in the Corporate and Eliminations segment.

​

(6)

During the fourth quarter of 2021, the company recorded a $227 million ($227 million after-tax) gain on the sale of the company’s interest in the Golden Eagle Area Development in the E&P segment.

​

(7)

In the fourth quarter of 2020, the company recorded a provision to transportation expense for $186 million ($142 million after-tax) in the Oil Sands segment related to the Keystone XL pipeline project.

​

Adjusted Funds from Operations and Cash Flow Provided by Operating Activities

Adjusted funds from operations were $3.144 billion ($2.17 per common share) in the fourth quarter of 2021, compared to $1.221 billion ($0.80 per common share) in the fourth quarter of 2020. Adjusted funds from operations were influenced by the same factors impacting adjusted operating earnings (loss) noted above.

Cash flow provided by operating activities, which includes changes in non-cash working capital, was $2.615 billion ($1.80 per common share) for the fourth quarter of 2021, compared to $814 million ($0.53 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 use of cash associated with the company’s working capital balances in both periods. The use of cash in the fourth quarter of 2021 was primarily due to an increase in accounts receivable related to increased sales and an increase in crude oil price realizations during the quarter, and a decrease in accounts payable and accrued liabilities, partially offset by an increase in taxes payable related to the company’s 2021 income tax expense, which is payable in early 2022.

4   2021 Fourth Quarter   Suncor Energy Inc.

Operating Results

Suncor’s total upstream production was 743,300 boe/d in the fourth quarter of 2021, compared to 769,200 boe/d in the prior year quarter.

The company’s net SCO production of 515,000 bbls/d in the fourth quarter of 2021 was comparable to 514,300 bbls/d in the prior year quarter, resulting in a combined upgrader utilization rate of 96% in the fourth quarter of 2021 compared to 95% in the prior year quarter. Increased SCO production at Oil Sands Base, with increased In Situ bitumen production being diverted to upgrading to maximize higher value SCO production, was largely offset by lower production at Syncrude due to unplanned maintenance, which was completed subsequent to the quarter. Production in the prior year quarter was impacted by planned maintenance at Oil Sands Base, which was completed early in the quarter.

The company’s non-upgraded bitumen production was 150,900 bbls/d in the fourth quarter of 2021, compared to 157,200 bbls/d in the prior year quarter, with the decrease primarily due to lower production at Fort Hills, which resumed two-train operations late in the fourth quarter of 2021. The company is on track to operate the Fort Hills asset at average utilization rates of 90% throughout 2022.

In the fourth quarter of 2021, non-upgraded bitumen production from the company’s In Situ assets was comparable to the prior year quarter, with an overall increase in production volumes being offset by increased Firebag bitumen production being diverted to upgrading. The fourth quarter of 2021 was impacted by fewer maintenance activities at Firebag compared to the prior year quarter.

E&P produced 77,400 boe/d during the fourth quarter of 2021, compared to 97,700 boe/d in the prior year quarter. The decreased production was primarily due to natural declines and the absence of production from the Golden Eagle Area Development, as the sale of the asset was completed early in the fourth quarter of 2021. Both periods were impacted by the absence of production from Terra Nova.

Refinery crude throughput increased to 447,000 bbls/d and refinery utilization was 96% in the fourth quarter of 2021, compared to refinery crude throughput of 438,000 bbls/d and refinery utilization of 95% in the prior year quarter, reflecting strong utilizations across all refineries. Refined product sales in the fourth quarter of 2021 increased to 550,100 bbls/d, compared to 508,800 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.

“In the fourth quarter of 2021, we achieved combined upgrader utilization of 96%, maximizing the value of our barrels, and continued to deliver industry-leading downstream refinery utilizations of 96%,” said Little. “At Fort Hills, we restarted our second primary extraction train at the end of the quarter and are now operating at planned production rates.”

The company’s total operating, selling and general expenses were $2.978 billion in the fourth quarter of 2021, compared to $2.494 billion in the prior year quarter. The increase was primarily due to a significant increase in natural gas prices and increased maintenance in the current quarter, and cost reductions in response to the COVID-19 pandemic in the prior year quarter. The increase was partially offset by cost reductions related to the company’s strategic initiatives. The company’s exposure to higher natural gas costs is partially mitigated by increased revenue from power sales.

Strategy Update

In 2021, Suncor exceeded its return to shareholder targets for the year, repurchasing the company’s common shares at the highest annual rate in the company’s history and increasing the dividend by 100% during the fourth quarter, while reducing debt at the highest annual pace in the company’s history. During the year, the company returned a total of  $3.9 billion to shareholders through $1.6 billion in dividends paid and, since the start of its NCIB in February 2021, $2.3 billion in share repurchases, representing 5.5% of Suncor’s public float as at January 31, 2021. The company also reduced net debt by $3.7 billion to $16.1 billion, accelerating its initial goal to return to 2019 net debt levels.

In the fourth quarter, the company paid $607 million of dividends, representing the increased quarterly dividend of  $0.42 per share which was doubled and reinstated back to 2019 levels. In addition, the company repurchased approximately 21 million common shares for $639 million under its NCIB, representing 1.4% of Suncor’s public float as at January 31, 2021, while reducing its net debt by $522 million.

Subsequent to the fourth quarter of 2021, the company completed an early redemption of its outstanding US$182 million 4.50% notes, originally scheduled to mature in the second quarter of 2022. In addition, the Board approved a renewal of the company’s NCIB for the repurchase of approximately 5% of Suncor’s issued and outstanding common shares as at January 31, 2022, over a twelve month period, and concurrently, the TSX accepted a notice filed by Suncor to renew its NCIB in respect of the repurchase of such shares. The company continues to make progress towards its 2025 targeted net debt range of  $12–$15 billion and its shareholder return targets demonstrating its commitment to fortifying the balance sheet and returning cash to shareholders.

“In 2021, we reduced our debt at the highest annual pace in the company’s history and maximized the returns to our shareholders through accelerated share repurchases and dividends, including the doubling of our dividend in the fourth quarter,” said Little.

2021 Fourth Quarter   Suncor Energy Inc.   5

 

“The execution of this strategy has allowed us to exit the year with a strengthened balance sheet, and we are well positioned to execute on our 2022 strategic initiatives, which are focused on operational excellence, shareholder returns and optimizing our existing base business while progressing the reduction of carbon emissions across our value chain.”

Suncor’s value of safety above all else and its focus on operational excellence, underpinned by asset reliability, operating cost and capital discipline, remains its top priority. The company remains focused on maximizing upgrader utilization at Syncrude and Oil Sands operations, capturing the higher margin on SCO production by capitalizing on the regional strength of our Oil Sands assets, and leveraging the flexibility of the integrated model to optimize refinery throughput. With the completion of the largest annual maintenance program in the company’s history in 2021, Fort Hills resuming two-train operations, and the industry-leading refinery utilizations in the downstream supported by secured sales channels, the company is positioned to increase production and refined product sales in 2022.

Looking forward, the company is committed to a focus on capital and operating cost discipline, and lowering the cash operating costs per barrel by continuing to progress its strategic initiatives and planned synergies. In the fourth quarter, as operator at Syncrude, the company continued to make progress towards the realization of synergies for the joint venture owners and is on track to achieve the expected $100 million of annual gross synergies by early 2022, with an additional $200 million expected in 2022–2023.

The company’s 2021 capital expenditures were heavily focused on the safety, long-term reliability and efficiency of the company’s operating assets. Looking ahead, enabled by efficiencies achieved across the business and the company’s commitment to capital discipline, in 2022 the company expects to achieve capital expenditures of  $4.7 billion, or $300 million (6%) lower than the previously announced ceiling of  $5.0 billion, with a program largely focused on sustaining capital including planned maintenance and tailings optimizations. Economic capital spend will continue to be focused on advancing projects and investments that are expected to enhance value within our existing integrated asset base, and incrementally and sustainably grow annual free funds flow.(1)

The company continued to execute its incremental free funds flow initiatives in 2021, resulting in increased revenue and margin, and increased productivity of tailings management spend, achieving incremental free funds flow of approximately $465 million. The company continues to advance a number of strategic initiatives that are expected to contribute to the company’s incremental free funds flow, including digital mine optimization, the cogeneration facility at Oil Sands Base plant, the Forty Mile Wind Power Project and investments in technology for our core business systems aimed at improving operational efficiencies. Suncor believes the implementation of digital technologies will bolster operational excellence and drive additional value for the company. As the company continues to advance its initiatives to increase free funds flow, it plans to allocate incremental funds to increasing shareholder returns.

Within the offshore business in the E&P segment, the company continued to focus on strategic production growth of existing assets including developing step-out opportunities and asset extensions. In the U.K., Buzzard Phase 2, which is expected to extend production life of the existing Buzzard field, achieved first oil in the fourth quarter of 2021. Buzzard Phase 2 is expected to reach its peak production in 2022, adding approximately 12,000 boe/d gross (approximately 3,500 boe/d net to Suncor) to existing Buzzard production. The Terra Nova Floating, Production, Storage and Offloading facility is dry docked in Spain undergoing maintenance work and is expected to sail back to Canada and return to operations before the end of 2022. The Terra Nova Asset Life Extension Project, which extends the life of the Terra Nova field by approximately a decade, is expected to provide significant returns to Suncor. During the fourth quarter of 2021, the company completed the sale of its 26.69% working interest in the Golden Eagle Area Development for gross proceeds of US$250 million net of closing adjustments and other closing costs, in addition to future contingent consideration of up to US$50 million. The effective date of the sale was January 1, 2021.

Suncor continues to expand its low-emissions energy business, practicing capital discipline by pursuing strategic investments that complement its existing business and leverage core capabilities. In the fourth quarter of 2021, Suncor increased its investment in the Varennes Carbon Recycling facility, a biofuel plant in Varennes, Quebec, that is designed to convert commercial and industrial non-recyclable waste into biofuels and renewable chemicals. Suncor believes this investment complements its existing biofuels business, and the increased investment further demonstrates Suncor’s commitment to being a leader in the global energy expansion.

The company also owns an equity investment in LanzaJet, Inc., a company working to bring sustainable aviation fuel and renewable diesel to the commercial market. Fabrication of a commercial biorefinery plant near Soperton, Georgia, is well underway and is expected to be on-stream in late-2022, and will allow Suncor to supply sustainable low-emissions aviation fuel to customers.

   

(1)

Non-GAAP financial measure. See Non-GAAP Financial Measures Advisory section of this document.

​

6   2021 Fourth Quarter   Suncor Energy Inc.

Corporate Guidance

Suncor has updated its full-year business environment outlook assumptions for Brent Sullom Voe from US$73.00/bbl to US$84.00/bbl, WTI at Cushing from US$70.00/bbl to US$80.00/bbl, WCS at Hardisty from US$55.00/bbl to US$68.00/bbl, New York Harbor 2-1-1 crack from US$21.00/bbl to US$24.00/bbl and AECO-C Spot from $3.80/GJ to $3.75/GJ due to changes in key forward curve pricing for the remainder of the year. As a result of these updates, the full-year current income tax expense range has increased from $1.4 billion–$1.7 billion to $2.1 billion–$2.4 billion.

In addition, Oil Sands operations Crown royalties have been updated from 9%–12% to 13%–16%, Fort Hills Crown royalties from 2%–4% to 3%–5%, Syncrude Crown royalties have been updated from 10%–13% to 16%–19% and East Coast Canada Crown royalties have been updated from 11%–15% to 12%–16%, with the increase in royalty rates attributed to higher forecasted benchmark prices.

For further details and advisories regarding Suncor’s 2022 corporate guidance, see www.suncor.com/guidance.

Normal Course Issuer Bid

Subsequent to the fourth quarter of 2021, the TSX accepted a notice filed by Suncor to renew its NCIB to purchase the company’s common shares through the facilities of the TSX, New York Stock Exchange and/or alternative trading systems. The notice provides that, beginning February 8, 2022, and ending February 7, 2023, Suncor may purchase for cancellation up to 71,650,000 common shares, which is equal to approximately 5% of Suncor’s issued and outstanding common shares as at the date hereof. As at January 31, 2022, Suncor had 1,435,748,494 common shares issued and outstanding.

The actual number of common shares that may be purchased under the NCIB and the timing of any such purchases will be determined by Suncor. Suncor believes that, depending on the trading price of its common shares and other relevant factors, purchasing its own shares represents an attractive investment opportunity and is in the best interests of the company and its shareholders. The company does not expect the decision to allocate cash to repurchase shares will affect its long-term strategy.

Pursuant to Suncor’s previous NCIB, as amended on October 29, 2021, Suncor agreed that it would not purchase more than 106,700,000 common shares between February 8, 2021, and February 7, 2022. Between February 8, 2021, and January 31, 2022, and pursuant to Suncor’s previous NCIB (as amended), Suncor repurchased 89,703,156 shares on the open market for approximately $2.504 billion, at a weighted average price of $27.92 per share.

Subject to the block purchase exemption that is available to Suncor for regular open market purchases under the NCIB, Suncor will limit daily purchases of Suncor common shares on the TSX in connection with the NCIB to no more than 25% (2,483,448 common shares) of the average daily trading volume of Suncor’s common shares on the TSX during the previous six-month period (9,933,793 common shares). Purchases under the NCIB will be made through open market purchases at market price, as well as by other means as may be permitted by securities regulatory authorities. Suncor expects to enter into an automatic share purchase plan in relation to purchases made in connection with the NCIB on February 8, 2022.

Measurement Conversions

Certain natural gas volumes in this report to shareholders have been converted to boe on the basis of one bbl to six mcf. See the Advisories section of this document.

2021 Fourth Quarter   Suncor Energy Inc.   7

Fourth Quarter Discussion

February 2, 2022

Suncor Energy Inc. (Suncor or the company) is an integrated energy company headquartered in Calgary, Alberta, Canada. We are strategically focused on developing one of the world’s largest petroleum resource basins – Canada’s Athabasca oil sands. In addition, we explore for, acquire, develop, produce and market crude oil in Canada and internationally; we transport and refine crude oil; and we market petroleum and petrochemical products primarily in Canada. We also operate a renewable energy business and conduct energy trading activities focused principally on the marketing and trading of crude oil, natural gas, byproducts, refined products and power.

Additional information about Suncor filed with Canadian securities regulatory authorities and the United States Securities and Exchange Commission (SEC), including quarterly and annual reports and Suncor’s Annual Information Form dated February 24, 2021 (the 2020 AIF), which is also filed with the SEC under cover of Form 40-F, is available online at www.sedar.com, www.sec.gov and our website www.suncor.com. Information contained in or otherwise accessible through our website does not form part of this document, and is not incorporated into this document by reference.

Suncor Energy Inc. has numerous direct and indirect subsidiaries, partnerships and joint arrangements (collectively, affiliates), which own and operate assets and conduct activities in different jurisdictions. The terms “we”, “our”, “Suncor”, or “the company” are used herein for simplicity of communication and only mean there is an affiliation with Suncor Energy Inc., without necessarily identifying the specific nature of the affiliation. The use of such terms in any statement herein does not mean they apply to Suncor Energy Inc. or any particular affiliate, and does not waive the corporate separateness of any affiliate. For further clarity, Suncor Energy Inc. does not directly operate or own assets in the U.S.

Table of Contents

8   2021 Fourth Quarter   Suncor Energy Inc.

1. Advisories

Basis of Presentation

Unless otherwise noted, all financial information has been prepared in accordance with Canadian generally accepted accounting principles (GAAP), specifically International Accounting Standard (IAS) 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB), which is within the framework of International Financial Reporting Standards (IFRS) as issued by the IASB.

All financial information is reported in Canadian dollars, unless otherwise noted. Production volumes are presented on a working-interest basis, before royalties, except for production volumes from the company’s Libya operations, which is on an economic basis.

References to Oil Sands operations exclude Suncor’s interests in Fort Hills and Syncrude.

Beginning in the first quarter of 2021, the company revised the presentation of its expenses from “transportation” to “transportation and distribution” and reclassified certain operating, selling and general expenses to transportation and distribution to better reflect the nature of these expenses. There is no impact to net earnings (loss) and comparative periods have been restated to reflect this change.

Non-GAAP Financial Measures

Certain financial measures in this document – namely adjusted operating earnings (loss), adjusted funds from (used in) operations, measures contained in return on capital employed (ROCE) and ROCE excluding impairments, price realizations, Oil Sands operations cash operating costs, Fort Hills cash operating costs, Syncrude cash operating costs, refining and marketing gross margin, refining operating expense, free funds flow, discretionary free funds flow (deficit), net debt, total debt, last-in, first-out (LIFO) inventory valuation methodology and related per share or per barrel amounts or metrics that contain such measures – are not prescribed by GAAP. Adjusted operating earnings (loss) is defined in the Non-GAAP Financial Measures Advisory section of this document and reconciled to the most directly comparable GAAP measures in the Consolidated Financial Information and Segment Results and Analysis sections of this document. Oil Sands operations cash operating costs, Fort Hills cash operating costs, Syncrude cash operating costs and LIFO inventory valuation methodology are defined in the Non-GAAP Financial Measures Advisory section of this document and reconciled to the most directly comparable GAAP measures in the Segment Results and Analysis section of this document. Adjusted funds from (used in) operations, ROCE, ROCE excluding impairments, price realizations, free funds flow, discretionary free funds flow (deficit), net debt, total debt, refining and marketing gross margin and refining operating expense are defined and reconciled, where applicable, to the most directly comparable GAAP measures in the Non-GAAP Financial Measures Advisory section of this document.

Beginning in the fourth quarter of 2021, the company changed the label of operating earnings (loss) and funds from (used in) operations to adjusted operating earnings (loss) and adjusted funds from (used in) operations, respectively, to better distinguish the non-GAAP financial measures from the comparable GAAP measures and better reflect the purpose of the measures. The composition of the measures remains unchanged and therefore no prior periods were restated.

Risk Factors and Forward-Looking Information

The company’s business, reserves, financial condition and results of operations may be affected by a number of factors, including, but not limited to, the factors described within the Forward-Looking Information section of this document. This document contains forward-looking information based on Suncor’s current expectations, estimates, projections and assumptions. This information is subject to a number of risks and uncertainties, including those discussed in this document, Management’s Discussion and Analysis for the year ended December 31, 2020 (the 2020 annual MD&A), and Suncor’s other disclosure documents filed with Canadian securities regulatory authorities and the SEC, many of which are beyond the company’s control. Users of this information are cautioned that actual results may differ materially. Refer to the Forward-Looking Information section of this document for information on the material risk factors and assumptions underlying our forward-looking information contained in this document.

Measurement Conversions

Certain crude oil and natural gas liquids volumes have been converted to mcfe on the basis of one bbl to six mcf. Also, certain natural gas volumes have been converted to boe or mboe on the same basis. Any figure presented in mcfe, boe or mboe may be misleading, particularly if used in isolation. A conversion ratio of one bbl of crude oil or natural gas liquids to six mcf 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, conversion on a 6:1 basis may be misleading as an indication of value.

Common Abbreviations

For a list of abbreviations that may be used in this document, refer to the Common Abbreviations section of this document.

2021 Fourth Quarter   Suncor Energy Inc.   9

Fourth Quarter Discussion

2. Fourth Quarter Highlights

•

Fourth quarter financial results

​

•

Suncor’s adjusted operating earnings(1)(2)(3) increased to $1.294 billion ($0.89 per common share) in the fourth quarter of 2021, from an adjusted operating loss of  $109 million ($0.07 per common share) in the prior year quarter. The increase in adjusted operating earnings was primarily related to higher crude oil and refined product realizations reflecting the improved business environment. Adjusted operating earnings were partially offset by an increase in royalties associated with higher crude price realizations and increased operating costs. The prior year quarter adjusted operating earnings were negatively impacted by the significant decline in transportation fuel demand, which led to lower price realizations, partially offset by lower operating costs.

​

•

Suncor’s net earnings were $1.553 billion ($1.07 per common share) in the fourth quarter of 2021, compared to a net loss of  $168 million ($0.11 per common share) in the prior year quarter. In addition to the factors impacting adjusted operating earnings (loss) discussed above, net earnings for the fourth quarter of 2021 included a $25 million ($21 million after-tax) unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt recorded in financing expenses, a $227 million ($227 million after-tax) gain on the sale of the company’s interest in the Golden Eagle Area Development and a $14 million ($11 million after-tax) unrealized gain on risk management activities recorded in other income (loss). The net loss in the prior year quarter included a $559 million ($423 million after-tax) non-cash asset impairment charge against the White Rose assets, a $186 million ($142 million after-tax) transportation provision related to the Keystone XL pipeline project and a $44 million ($33 million after-tax) unrealized loss on risk management activities recorded in other income (loss), partially offset by a $602 million ($539 million after-tax) unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt recorded in financing expenses.

​

•

Adjusted funds from operations(1)(2) were $3.144 billion ($2.17 per common share) in the fourth quarter of 2021, compared to $1.221 billion ($0.80 per common share) in the fourth quarter of 2020. Adjusted funds from operations were influenced by the same factors impacting adjusted operating earnings (loss) noted above. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $2.615 billion ($1.80 per common share) for the fourth quarter of 2021, compared to $814 million ($0.53 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 use of cash associated with the company’s working capital balances in both periods. The use of cash in the fourth quarter of 2021 was primarily due to an increase in accounts receivable related to increased sales and an increase in crude oil price realizations during the quarter, and a decrease in accounts payable and accrued liabilities, partially offset by an increase in taxes payable related to the company’s 2021 income tax expense, which is payable in early 2022.

​

•

Upstream achieved upgrader utilization of 96%. Suncor’s total upstream production was 743,300 boe/d in the fourth quarter of 2021, compared to 769,200 boe/d in the prior year quarter, with the decrease primarily due to decreased production from the company’s Exploration and Production (E&P) assets, including the absence of production from the Golden Eagle Area Development, as the sale of the asset was completed early in the fourth quarter of 2021. The company’s SCO production was 515,000 bbls/d in the fourth quarter of 2021, comparable to 514,300 bbls/d in the fourth quarter of 2020, driven by combined upgrader utilization of 96%.

​

•

Fort Hills resumes two-train operations. Fort Hills resumed two-train operations late in the fourth quarter of 2021. The company is on track to operate the Fort Hills asset at average utilization rates of 90% throughout 2022.

​

•

First oil at Buzzard Phase 2. Buzzard Phase 2, which is expected to extend production life of the existing Buzzard field, achieved first oil in the fourth quarter of 2021. Buzzard Phase 2 is expected to reach its peak production in 2022, adding approximately 12,000 boe/d gross (approximately 3,500 boe/d net to Suncor) to existing Buzzard production.

​

(1)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

Beginning in the fourth quarter of 2021, the company revised the label of operating earnings (loss) and funds from (used in) operations to adjusted operating earnings (loss) and adjusted funds from (used in) operations, respectively, to better distinguish the non-GAAP financial measures from the comparable GAAP measures and better reflect the purpose of the measures. The composition of the measures remains unchanged and therefore no prior periods were restated.

​

(3)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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.

​

10   2021 Fourth Quarter   Suncor Energy Inc.

•

Continued industry-leading refinery utilizations. Refining and Marketing (R&M) delivered $765 million in adjusted funds from operations in the fourth quarter of 2021, compared to $415 million in the prior year quarter, including a first-in, first-out (FIFO) inventory valuation gain of  $106 million after-tax in the current period compared to a gain of  $44 million after-tax in the prior year quarter. Refinery utilization averaged 96% and crude throughput was 447,000 bbls/d in the current quarter, compared to 95% and 438,000 bbls/d respectively in the prior year quarter. The company’s Canadian refineries continued to outperform the national refining industry average by approximately 15%(1).

​

•

Strengthened balance sheet. In 2021, Suncor executed on its net debt(2) reduction targets, reducing debt at the highest ever annual pace, resulting in a reduction of net debt by $3.7 billion to $16.1 billion, returning to 2019 net debt levels. The company continues to reduce its debt, and subsequent to the fourth quarter of 2021, completed an early redemption of its outstanding US$182 million 4.50% notes, originally scheduled to mature in the second quarter of 2022.

​

•

Maximized shareholder returns. Suncor returned $3.9 billion to shareholders in 2021 through $2.3 billion in share repurchases and $1.6 billion in dividends paid, including an increased dividend in the fourth quarter of 2021, returning it to 2019 levels. Since the start of its current normal course issuer bid program (NCIB) in February 2021, the company has repurchased approximately 84 million of its common shares at an average price of  $27.45 per common share, or the equivalent of 5.5% of Suncor’s public float as at January 31, 2021.

​

•

Renewal of share repurchase program. Subsequent to the fourth quarter of 2021, Suncor’s Board of Directors (the Board) approved a renewal of the company’s NCIB for the repurchase of approximately 5% of Suncor’s issued and outstanding common shares as at January 31, 2022, over a twelve-month period, and concurrently, the Toronto Stock Exchange (TSX) accepted a notice filed by Suncor to renew its NCIB in respect of the repurchase of such shares.

​

(1)

Source: Canada Energy Regulator – https://www.cer-rec.gc.ca/en/data-analysis/energy-commodities/crude-oil-petroleum-products/statistics/weekly-
crude-run-summary-data/index.html.

​

(2)

Non-GAAP financial measure. See the Non-GAAP Financial Measures Advisory section of this document.

​

2021 Fourth Quarter   Suncor Energy Inc.   11

Fourth Quarter Discussion

3. Consolidated Financial Information

Financial Highlights

​

(1)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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)

Excludes capitalized interest of  $38 million in the fourth quarter of 2021 and $26 million in the fourth quarter of 2020.

​

12   2021 Fourth Quarter   Suncor Energy Inc.

Operating Highlights

Net Earnings (Loss)

Suncor’s consolidated net earnings for the fourth quarter of 2021 were $1.553 billion, compared to a net loss of  $168 million for the prior year quarter. Net earnings were primarily influenced by the same factors that impacted adjusted operating earnings described subsequently in this section.

Other items affecting net earnings (loss) over these periods included:

•

The unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt recorded in financing expenses was $25 million ($21 million after-tax) for the fourth quarter of 2021, compared to a gain of  $602 million ($539 million after-tax) for the fourth quarter of 2020.

​

•

The unrealized gain on risk management activities recorded in other income (loss) was $14 million ($11 million after-tax) for the fourth quarter of 2021, compared to a $44 million ($33 million after-tax) loss for the fourth quarter of 2020.

​

•

The gain of  $227 million ($227 million after-tax) on the sale of the company’s interest in the Golden Eagle Area Development, which was completed early in the fourth quarter of 2021 and recorded in the E&P segment.

​

•

During the fourth quarter of 2020, the company recorded non-cash impairment charges of  $559 million ($423 million after-tax) against its share of the White Rose assets, in the E&P segment, as a result of the high degree of uncertainty surrounding the future of the West White Rose Project.

​

•

In the fourth quarter of 2020, the company recorded a provision to transportation expense for $186 million ($142 million after-tax) related to the Keystone XL pipeline project in the Oil Sands segment.

​

2021 Fourth Quarter   Suncor Energy Inc.   13

Fourth Quarter Discussion

Adjusted Operating Earnings (Loss) Reconciliation(1)(2)

​

(1)

Adjusted operating earnings (loss) is a non-GAAP financial measure. All reconciling items are presented on an after-tax basis. See the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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)

Restructuring charge of  $168 million before-tax recorded in operating, selling and general expenses in the Corporate and Eliminations segment in the first quarter of 2021.

​

(4)

During the third quarter of 2021, the company recorded a non-cash impairment reversal of  $221 million ($168 million after-tax) on its share of the Terra Nova assets, in the E&P segment, as a result of the Asset Life Extension Project moving forward and the benefit of royalty and financial support from the Government of Newfoundland and Labrador. During the first quarter of 2020, the company recorded non-cash impairment charges of $1.821 billion ($1.376 billion after-tax) on its share of the Fort Hills assets, in the Oil Sands segment, and $560 million ($422 million after-tax) against its share of the White Rose and Terra Nova assets, in the E&P segment, due to a decline in forecasted crude oil prices as a result of decreased global demand due to the COVID-19 pandemic and changes to their respective capital, operating and production plans. During the fourth quarter of 2020, the company recorded non-cash impairment charges of  $559 million ($423 million after-tax) against its share of the White Rose assets, in the E&P segment, as a result of the high degree of uncertainty surrounding the future of the West White Rose Project.

​

(5)

Charges of  $80 million before-tax recorded in financing expenses associated with the early repayment of debt in the third quarter of 2021 recorded in the Corporate and Eliminations segment.

​

(6)

During the fourth quarter of 2021, the company recorded a $227 million ($227 million after-tax) gain on the sale of the company’s interest in the Golden Eagle Area Development in the E&P segment.

​

(7)

In the fourth quarter of 2020, the company recorded a provision to transportation expense for $186 million ($142 million after-tax) in the Oil Sands segment related to the Keystone XL pipeline project.

​

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

(1)

For an explanation of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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 realized 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.

​

14   2021 Fourth Quarter   Suncor Energy Inc.

Suncor’s adjusted operating earnings increased to $1.294 billion ($0.89 per common share) in the fourth quarter of 2021, from an adjusted operating loss of  $109 million ($0.07 per common share) in the prior year quarter. The increase in adjusted operating earnings was primarily related to higher crude oil and refined product realizations reflecting the improved business environment. Adjusted operating earnings were partially offset by an increase in royalties associated with higher crude price realizations and increased operating costs. The prior year quarter adjusted operating earnings were negatively impacted by the significant decline in transportation fuel demand, which led to lower price realizations, partially offset by lower operating costs.

After-Tax Share-Based Compensation Expense by Segment

The after-tax share-based compensation expense increased to $96 million during the fourth quarter of 2021, compared to $74 million during the prior year quarter, as a result of an increase in the company’s share price through the fourth quarter of 2021, compared to the prior year quarter.

2021 Fourth Quarter   Suncor Energy Inc.   15

Fourth Quarter Discussion

Business Environment

Commodity prices, refining crack spreads and foreign exchange rates are important factors that affect the results of Suncor’s operations.

​

(1)

2-1-1 crack spreads are indicators of the refining margin generated by converting two barrels of WTI into one barrel of gasoline and one barrel of diesel. The crack spreads presented here generally approximate the regions into which the company sells refined products through retail and wholesale channels.

​

In the fourth quarter of 2021, crude oil and crack spread benchmarks improved compared to the prior year quarter, which was significantly impacted by lower demand for crude oil and refined products due to the impacts of the COVID-19 pandemic.

Suncor’s sweet SCO price realizations are influenced primarily by the price of WTI at Cushing and by the supply and demand for sweet SCO from Western Canada. Sweet SCO price realizations in the fourth quarter of 2021 reflected an increase in WTI at Cushing, which averaged US$77.15/bbl compared to US$42.65/bbl in the prior year quarter. Suncor also produces sour SCO, the price of which is influenced by various crude benchmarks, including, but not limited to, MSW at Edmonton and WCS at Hardisty, and which can also be affected by prices negotiated for spot sales. Prices for MSW at Edmonton increased to $93.25/bbl in the fourth quarter of 2021 compared to $50.25/bbl in the prior year quarter, and prices for WCS at Hardisty increased to US$62.50/bbl in the fourth quarter of 2021, from US$33.35/bbl in the prior year quarter.

Bitumen production that Suncor does not upgrade is blended with diluent or SCO to facilitate delivery through pipeline systems. Net bitumen price realizations are, therefore, influenced by both prices for Canadian heavy crude oil (WCS at Hardisty is a common reference), prices for diluent (Condensate at Edmonton) and SCO. Bitumen price realizations can also be affected by bitumen quality premiums and discounts and spot sales, and the price differential between Hardisty, Alberta, and U.S. Gulf Coast benchmarks.

The company leverages the expertise of its marketing and logistics business to optimize midstream capacity to the U.S. Gulf Coast and this is reflected in bitumen and sour SCO price realizations. Bitumen prices were unfavourably impacted by the widening of heavy crude oil differentials in the fourth quarter of 2021, but were higher than the prior year on an absolute basis due to the increase in WTI prices.

Suncor’s price realizations for production from E&P Canada and E&P International assets are influenced primarily by the price for Brent crude, which increased to US$79.70/bbl in the fourth quarter of 2021 compared to US$44.20/bbl in the prior year quarter.

Suncor’s refining and marketing gross margins are primarily influenced by 2-1-1 benchmark crack spreads, which are industry indicators approximating the gross margin on a barrel of crude oil that is refined to produce gasoline and distillates. Market crack

16   2021 Fourth Quarter   Suncor Energy Inc.

spreads are based on quoted near-month contracts for WTI and spot prices for gasoline and diesel and do not necessarily reflect the margins at a specific refinery. Suncor’s realized refining and marketing gross margins are influenced by actual crude oil feedstock costs, refinery configuration, product mix and realized market prices unique to Suncor’s refining and marketing business. In addition, the U.S. regulatory renewable blending obligations influence the benchmark cracks, which may increase their volatility, while the cost of regulatory compliance is not deducted in calculating the benchmark cracks.

Suncor has developed an indicative 5-2-2-1 index based on publicly available pricing data to more accurately reflect Suncor’s realized refining and marketing gross margin. This internal index is a single value calculated based on a notional five barrels of crude oil of varying grades refined to produce two barrels each of gasoline and distillate and one barrel of secondary product to approximate Suncor’s unique set of refinery configurations; overall crude slate and product mix; and the benefit of its location, quality and grade differentials, and marketing margins. The internal index is calculated by taking the product value of refined products less the crude value of refinery feedstock excluding the impact of FIFO inventory accounting methodology. The product value incorporates the New York Harbor 2-1-1 crack, Chicago 2-1-1 crack, WTI benchmarks and seasonal factors. The seasonal factor applies an incremental US$6.50/bbl in the first and fourth quarters and US$5.00/bbl in the second and third quarters and reflects the location, quality and grade differentials for refined products sold in the company’s core markets during the winter and summer months, respectively. The crude value incorporates the SYN, WCS and WTI benchmarks.

Crack spreads are based on current crude feedstock prices, whereas actual earnings are accounted for on a FIFO basis in accordance with IFRS where a delay exists between the time that feedstock is purchased and when it is processed and when products are sold to a third party. A FIFO loss normally reflects a declining price environment for crude oil and finished products, whereas FIFO gains reflect an increasing price environment for crude oil and finished products. The company’s realized refining and marketing gross margins are also presented on a LIFO basis, which is consistent with how industry benchmarks and the Suncor 5-2-2-1 index are calculated and with how management evaluates performance.

In the fourth quarter of 2021, the New York Harbor 2-1-1 and Chicago 2-1-1 benchmark crack spreads increased compared to the prior year quarter due to increased demand for transportation fuels and to compensate for increased costs associated with renewable blending regulatory obligations. The Suncor 5-2-2-1 index was US$28.05/bbl in the fourth quarter of 2021 compared to US$18.55/bbl in the fourth quarter of 2020, primarily related to the increase in benchmark crack spreads.

The cost of natural gas used in Suncor’s Oil Sands and Refining operations is primarily referenced to Alberta spot prices at AECO. The average AECO benchmark increased to $4.70/mcf in the fourth quarter of 2021, from $2.65/mcf in the prior year quarter.

Excess electricity produced at Suncor’s Oil Sands assets is sold to the Alberta Electric System Operator, with the proceeds netted against the applicable cash operating cost per barrel metric. The Alberta power pool price increased to an average of $107.30/MWh in the fourth quarter of 2021 compared to $46.15/MWh in the prior year quarter.

The majority of Suncor’s revenues from the sale of oil and natural gas commodities are based on prices that are determined by or referenced to U.S. dollar benchmark prices, while the majority of Suncor’s expenditures are realized in Canadian dollars. The Canadian dollar strengthened in relation to the U.S. dollar in the fourth quarter of 2021, as the average exchange rate increased to US$0.79 per one Canadian dollar from US$0.77 per one Canadian dollar in the prior year quarter. This rate increase had a negative impact on price realizations for the company during the fourth quarter of 2021 when compared to the prior year quarter.

Suncor also has assets and liabilities, including approximately 60% of the company’s debt, that are denominated in U.S. dollars and translated to Suncor’s reporting currency (Canadian dollars) at each balance sheet date. A decrease in the value of the Canadian dollar, relative to the U.S. dollar, from the previous balance sheet date increases the amount of Canadian dollars required to settle U.S. dollar denominated obligations, while an increase in the value of the Canadian dollar, relative to the U.S. dollar, decreases the amount of Canadian dollars required to settle U.S. dollar denominated obligations.

2021 Fourth Quarter   Suncor Energy Inc.   17

Fourth Quarter Discussion

4. Segment Results and Analysis

Oil Sands

Financial Highlights

​

(1)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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.

​

(2)

During the first quarter of 2020, the company recorded non-cash impairment charges of  $1.821 billion ($1.376 billion after-tax) on its share of the Fort Hills assets due to a decline in forecasted crude oil prices as a result of decreased global demand due to the COVID-19 pandemic and changes to its respective capital, operating and production plans.

​

(3)

In the fourth quarter of 2020, the company recorded a provision to transportation expense for $186 million ($142 million after-tax) related to the Keystone XL pipeline project.

​

(4)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

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

(1)

For an explanation of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings (loss), a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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.

​

The Oil Sands segment had adjusted operating earnings of  $898 million in the fourth quarter of 2021, compared to an adjusted operating loss of  $130 million in the prior year quarter. The increase was primarily due to higher realized crude prices, as crude benchmarks were lower in the prior year quarter as a result of the COVID-19 pandemic, partially offset by an increase in royalties and operating expenses.

18   2021 Fourth Quarter   Suncor Energy Inc.

Production Volumes(1)

​

(1)

Bitumen production from Oil Sands Base is upgraded, while bitumen production from In Situ operations is either upgraded or sold directly to customers, including Suncor’s own refineries, with SCO and diesel yields of approximately 79% of bitumen feedstock input. Fort Hills finished bitumen is sold directly to customers, including Suncor’s own refineries. Essentially all of the bitumen produced at Syncrude is upgraded to sweet SCO and a small amount of diesel, at an approximate yield of 85%.

​

(2)

Combined upgrader utilization rates are calculated using total upgraded production, inclusive of internally consumed diesel and internal transfers.

​

(3)

Both Oil Sands operations and Syncrude produce diesel, which is internally consumed in mining operations, and Fort Hills and Syncrude use internally produced diesel from Oil Sands Base within their mining operations. In the fourth quarter of 2021, Oil Sands operations production volumes included 10,500 bbls/d of internallyconsumed diesel, of which 7,700 bbls/d was consumed at Oil Sands Base, 1,900 bbls/d was consumed at Fort Hills and 900 bbls/d was consumed at Syncrude. Syncrude production volumes included 2,600 bbls/d of internally consumed diesel.

​

(4)

Internal feedstock transfers between Oil Sands operations and Syncrude through the interconnecting pipelines are included in gross SCO and bitumen production volumes. In the fourth quarter of 2021, Oil Sands operations included 4,000 bbls/d of SCO that were transferred to Suncor’s share of Syncrude through the interconnecting pipelines. Syncrude production included 300bbls/d of SCO and 6,400 bbls/d of bitumen that were transferred to Oil Sands Base through the interconnecting pipelines.

​

The company’s net SCO production of 515,000 bbls/d in the fourth quarter of 2021 was comparable to 514,300 bbls/d in the prior year quarter, resulting in a combined upgrader utilization rate of 96% in the fourth quarter of 2021 compared to 95% in the prior year quarter. Increased SCO production at Oil Sands Base, with increased In Situ bitumen production being diverted to upgrading to maximize higher value SCO production, was largely offset by lower production at Syncrude due to unplanned maintenance, which was completed subsequent to the quarter. Production in the prior year quarter was impacted by planned maintenance at Oil Sands Base, which was completed early in the quarter.

The company’s non-upgraded bitumen production was 150,900 bbls/d in the fourth quarter of 2021, compared to 157,200 bbls/d in the prior year quarter, with the decrease primarily due to lower production at Fort Hills, which resumed two-train operations late in the fourth quarter of 2021. The company is on track to operate the Fort Hills asset at average utilization rates of 90% throughout 2022.

In the fourth quarter of 2021, non-upgraded bitumen production from the company’s In Situ assets was comparable to the prior year quarter, with an overall increase in production volumes being offset by increased Firebag bitumen production being diverted to upgrading. The fourth quarter of 2021 was impacted by fewer maintenance activities at Firebag compared to the prior year quarter.

Sales Volumes

SCO and diesel sales volumes were 496,100 bbls/d in the fourth quarter of 2021, compared to 495,600 bbls/d in the prior year quarter, consistent with the increase in upgraded production.

Non-upgraded bitumen sales volumes increased to 176,700 bbls/d in the fourth quarter of 2021, compared to 139,600 bbls/d in the prior year quarter, due to a draw in inventory in the fourth quarter of 2021 compared to a build of inventory in the prior year quarter, partially offset by the decrease in production in the current quarter.

2021 Fourth Quarter   Suncor Energy Inc.   19

Fourth Quarter Discussion

Price Realizations(1)

​

(1)

Contains non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

Oil Sands price realizations increased in the fourth quarter of 2021 from the prior year quarter, in line with the improved commodity price environment. The prior period was impacted by the decline in demand due to the impacts of the COVID-19 pandemic. Price realizations have improved in line with increased demand, optimism relating to vaccine rollouts and OPEC+ supply management.

Royalties

Royalties for the Oil Sands segment were higher in the fourth quarter of 2021 compared to the prior year quarter, primarily due to higher crude price realizations and increased sales volumes in the current period compared to the prior year quarter.

Expenses and Other Factors

Total Oil Sands operating and transportation expenses increased in the fourth quarter of 2021 compared to the prior year quarter. See the reconciliation in the Cash Operating Costs section below for further details regarding cash operating costs and a breakdown of non-production costs by asset.

At Oil Sands operations, operating costs increased compared to the prior year quarter, primarily due to increased natural gas prices and maintenance costs.

At Fort Hills, operating costs in the fourth quarter of 2021 increased when compared to the prior year quarter, reflecting increased overburden mining activity in the quarter in preparation for the transition back to a two-train operation late in the quarter and increased natural gas prices.

Suncor’s share of Syncrude operating costs in the fourth quarter of 2021 increased when compared with the prior year quarter, primarily due to increased maintenance costs and natural gas prices.

DD&A expense for the fourth quarter of 2021 was higher compared to the prior year quarter, as the current year quarter included higher derecognition charges of property, plant and equipment.

20   2021 Fourth Quarter   Suncor Energy Inc.

Cash Operating Costs

​

(1)

Non-GAAP financial measures. Related per barrel amounts contain non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

Significant non-production costs include, but are not limited to, share-based compensation adjustments, research costs, project startup costs and adjustments to reflect the cost of internal transfers in the receiving asset at the cost of production. In addition, non-production costs include safe-mode costs associated with the deferral of capital projects and additional costs incurred in response to the COVID-19 pandemic. Non-production costs for 2020 include the relief provided under the Government of Canada’s Emergency Wage Subsidy (CEWS) program. Non-production costs at Fort Hills and Syncrude also include, but are not limited to, excess power revenue from cogeneration units and an adjustment to reflect internally produced diesel from Oil Sands operations at the cost of production.

​

(3)

Oil Sands operations excess power capacity and other includes, but is not limited to, the operational revenue impacts of excess power from cogeneration units and the natural gas expense recorded as part of a non-monetary arrangement involving a third-party processor.

​

Oil Sands operations cash operating costs per barrel(1) were $28.10 in the fourth quarter of 2021, compared to $26.50 in the prior year quarter, due to higher operating, selling and general expenses, as detailed above, partially offset by increased production.

Excess power capacity and other costs at Oil Sands operations for the fourth quarter of 2021 were higher than the prior year quarter, due mainly to an increase in excess power revenues resulting from higher power prices.

Oil Sands operations inventory changes in the fourth quarter of 2021 reflect a build of higher-cost SCO inventory, partially offset by a draw of lower-cost bitumen inventory, compared to a build of inventory in the prior year quarter.

   

(1)

Contains non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

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2021 Fourth Quarter   Suncor Energy Inc.   21

Fourth Quarter Discussion

Fort Hills cash operating costs per barrel(1) were $45.55 in the fourth quarter of 2021, compared to $31.55 in the prior year quarter, reflecting higher operating, selling and general expenses, as detailed above, and decreased production, partially offset by excess power revenues resulting from higher power prices. In the fourth quarter of 2021, non-production costs were higher compared to the prior year quarter mainly due to a larger adjustment for internally sourced diesel, which is adjusted to reflect internally produced diesel from Oil Sands operations at the cost of production, and an increase in excess power revenues resulting from higher power prices. Inventory changes in the fourth quarter of 2021 reflect changes to inventory valuation, compared to a build of inventory in the prior year quarter.

Syncrude cash operating costs per barrel(1) were $33.50 in the fourth quarter of 2021, compared to $28.45 in the prior year quarter, due to higher operating, selling and general expenses, as detailed above, and decreased production.

Planned Maintenance Update

Planned maintenance at Syncrude is scheduled to commence late in the first quarter of 2022. The impact of this maintenance event has been reflected in the company’s 2022 guidance.

(1)

Contains non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

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22   2021 Fourth Quarter   Suncor Energy Inc.

Exploration and Production

Financial Highlights

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(1)

Production, revenues and royalties from the company’s Libya operations have been presented in the E&P section of this document on an economic basis and exclude an equal and offsetting gross-up of revenues and royalties of  $54 million in the fourth quarter of 2021 and $242 million in the twelve months ended December 31, 2021, which is required for presentation purposes in the company’s financial statements under the working-interest basis. The fourth quarter of 2020 and twelve months ended December 31, 2020, exclude an equal and offsetting gross-up of revenues and royalties of  $48 million.

​

(2)

During the third quarter of 2021, the company recorded a non-cash impairment reversal of  $221 million ($168 million after-tax) on its share of the Terra Nova assets as a result of the Asset Life Extension Project moving forward and the benefit of royalty and financial support from the Government of Newfoundland and Labrador. During the first quarter of 2020, the company recorded non-cash impairment charges of  $560 million ($422 million after-tax) against its share of the White Rose and Terra Nova assets due to a decline in forecasted crude oil prices as a result of decreased global demand due to the COVID-19 pandemic and changes to their respective capital, operating and production plans. During the fourth quarter of 2020, the company recorded non-cash impairment charges of  $559 million ($423 million after-tax) against its share of the White Rose assets, as a result of the high degree of uncertainty surrounding the future of the West White Rose Project.

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(3)

During the fourth quarter of 2021, the company recorded a $227 million ($227 million after-tax) gain on the sale of the company’s interest in the Golden Eagle Area Development.

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(4)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

Bridge Analysis of Adjusted Operating Earnings ($ millions)(1)

(1)

For an explanation of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of this document.

​

Adjusted operating earnings for the E&P segment in the fourth quarter of 2021 increased to $238 million compared to $44 million in the prior year quarter, with the increase primarily due to higher realized crude prices and lower DD&A, partially offset by lower sales volumes.

2021 Fourth Quarter   Suncor Energy Inc.   23

Fourth Quarter Discussion

Volumes

Production volumes for E&P Canada were 47,600 bbls/d in the fourth quarter of 2021, compared to 56,800 bbls/d in the prior year quarter, primarily due to natural declines. Both periods were impacted by the absence of production from Terra Nova as the asset has remained off-line since the fourth quarter of 2019. The Terra Nova Floating, Production, Storage and Offloading facility is dry docked in Spain undergoing maintenance work and is expected to sail back to Canada and return to operations before the end of 2022.

E&P International production was 29,800 boe/d in the fourth quarter of 2021, compared to 40,900 boe/d in the prior year quarter. Production volumes decreased in the current quarter primarily due to the absence of production from the Golden Eagle Area Development, as the sale of the asset was completed early in the fourth quarter of 2021, and natural declines.

E&P sales volumes decreased to 67,200 boe/d in the fourth quarter of 2021, compared to 98,800 boe/d in the prior year quarter, due to the decrease in production and a build of inventory at E&P Canada associated with the timing of cargo sales at year-end.

Price Realizations(1)

​

(1)

Contains non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

E&P International price realizations exclude Libya.

​

Price realizations at E&P Canada and E&P International increased in the fourth quarter of 2021 from the prior year quarter, in line with the improved commodity price environment. The prior period was impacted by the significant decline in transportation fuel demand due to the impacts of the COVID-19 pandemic. Price realizations have improved in line with increased demand, optimism relating to vaccine rollouts and OPEC+ supply management.

Royalties

E&P royalties in the fourth quarter of 2021 were higher than the prior year quarter primarily due to the increase in price realizations.

Expenses and Other Factors

Operating and transportation expenses for the fourth quarter of 2021 decreased from the prior year quarter, primarily due to the decrease in production and sales volumes.

DD&A and exploration expense in the fourth quarter of 2021 decreased from the prior year quarter as a result of lower sales volumes and the absence of DD&A on the Golden Eagle Area Development in the fourth quarter of 2021 as a result of the sale of the asset.

Planned Maintenance Update for Operated Assets

There are no significant maintenance events scheduled for the first quarter of 2022.

24   2021 Fourth Quarter   Suncor Energy Inc.

Refining and Marketing

Financial Highlights

​

(1)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings, a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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.

​

(2)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

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

(1)

For an explanation of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of this document.

​

(2)

Beginning in the first quarter of 2021, the company revised its calculation of adjusted operating earnings, a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value in other income (loss) 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.

​

R&M adjusted operating earnings in the fourth quarter of 2021 increased to $437 million from $280 million in the prior year quarter. The increase was primarily due to higher refining and marketing margins as a result of significantly higher crack spread benchmarks in the fourth quarter of 2021 compared to the prior year quarter. Adjusted operating earnings included a FIFO inventory valuation gain of  $106 million after-tax on the increase in crude and refined product benchmarks in the fourth quarter of 2021, compared to a $44 million after-tax gain in the prior year quarter. Adjusted operating earnings were unfavourably impacted by increased operating expenses in the fourth quarter of 2021 compared to the prior year quarter.

2021 Fourth Quarter   Suncor Energy Inc.   25

Fourth Quarter Discussion

Volumes

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(1)

Refinery utilization is the amount of crude oil and natural gas plant liquids run through crude distillation units, expressed as a percentage of the capacity of these units.

​

(2)

The Edmonton refinery crude processing capacity has increased to 146,000 bbls/d in 2021 from 142,000 bbls/d in 2020.

​

(3)

Contains non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

Refinery crude throughput increased to 447,000 bbls/d and refinery utilization was 96% in the fourth quarter of 2021, compared to refinery crude throughput of 438,000 bbls/d and refinery utilization of 95% in the prior year quarter, reflecting strong utilizations across all refineries. Refined product sales in the fourth quarter of 2021 increased to 550,100 bbls/d, compared to 508,800 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.

Refining and Marketing Gross Margins(1)

Refining and marketing gross margins were influenced by the following:

•

On a LIFO(2) basis, Suncor’s refining and marketing gross margin increased to $30.00/bbl in the fourth quarter of 2021, from $25.05/bbl in the prior year quarter, due to improved benchmark crack spreads, increased demand and the widening of heavy crude oil differentials. Suncor’s refining and marketing gross margin also reflects Suncor’s feedstock advantage, which enables the company to process heavier crude oil, marketing and logistics capabilities and strong sales channels within its integrated retail and wholesale networks.

​

•

On a FIFO basis, Suncor’s refining and marketing gross margin increased to $33.60/bbl in the fourth quarter of 2021, from $25.75/bbl in the prior year quarter, due to the same factors noted above, in addition to FIFO inventory valuation impacts. In the fourth quarter of 2021, the FIFO method of inventory valuation, relative to an estimated LIFO(2) accounting method, resulted in an after-tax gain of  $106 million. In the prior year quarter, FIFO resulted in an after-tax gain of $44 million, for a favourable quarter-over-quarter impact of  $43 million, after-tax, including the impact of short-term commodity risk management activities.

​

   

(1)

Contains non-GAAP financial measures. See the non-GAAP Financial Measures Advisory section of this document.

​

(2)

The estimated impact of the LIFO method is a non-GAAP financial measure. See the Non-GAAP Financial Measures Advisory section of this document.

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26   2021 Fourth Quarter   Suncor Energy Inc.

Expenses and Other Factors

Operating expenses and DD&A in the fourth quarter of 2021 increased compared to the prior year quarter, primarily due to increased natural gas prices, power prices and throughput in the current period, and cost reductions in response to the COVID-19 pandemic in the prior year quarter. Refining operating expense per barrel(1) was $6.10 in the fourth quarter of 2021, compared to $5.20 in the prior year quarter, due to increased operating expenses partially offset by increased throughput.

Planned Maintenance

There are no significant planned maintenance events scheduled for the first quarter of 2022.

Corporate and Eliminations

Financial Highlights

​

(1)

During the first quarter of 2021, the company recorded a $168 million before-tax restructuring charge in operating, selling and general expenses related to the previously announced workforce reductions.

​

(2)

Charges of  $80 million before-tax recorded in financing expenses associated with the early repayment of debt during the third quarter of 2021.

​

(3)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this document.

​

Corporate incurred an adjusted operating loss of  $304 million for the fourth quarter of 2021, compared to an adjusted operating loss of  $282 million for the prior year quarter, with the increased loss attributable to favourable tax settlements in the prior year quarter, partially offset by a decrease in interest expense on long-term debt as a result of debt repayments that occurred throughout 2021. Suncor capitalized $38 million of its borrowing costs in the fourth quarter of 2021 as part of the cost of major development assets and construction projects in progress, compared to $26 million in the prior year quarter.

Eliminations reflect the deferral or realization of profit or loss on crude oil sales from Oil Sands to Suncor’s refineries. Consolidated profits and losses are only realized when the refined products produced from internal purchases of crude feedstock have been sold to third parties. During the fourth quarter of 2021, the company realized $25 million of after-tax intersegment profit compared to a deferral of  $21 million of after-tax intersegment profit in the prior year quarter.

Corporate and Eliminations adjusted funds used in operations were $221 million for the fourth quarter of 2021, compared to $235 million in the fourth quarter of 2020, and were influenced by the same factors impacting adjusted operating loss described above.

   

(1)

Contains non-GAAP financial measures. See the non-GAAP Financial Measures Advisory section of this document.

​

2021 Fourth Quarter   Suncor Energy Inc.   27

Fourth Quarter Discussion

5. Capital Investment Update

Capital and Exploration Expenditures by Segment

Capital and Exploration Expenditures by Type, Excluding Capitalized Interest