Exhibit 99.1​

Management’s Discussion and Analysis

October 27, 2021

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.

For a description of Suncor’s segments, refer to Suncor’s Management’s Discussion and Analysis (MD&A) for the year ended December 31, 2020, dated February 24, 2021 (the 2020 annual MD&A).

This MD&A, for the three and nine months ended September 30, 2021, should be read in conjunction with Suncor’s unaudited interim Consolidated Financial Statements for the three and nine months ended September 30, 2021, Suncor’s audited Consolidated Financial Statements for the year ended December 31, 2020, and the 2020 annual MD&A.

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 MD&A, 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 Third 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 MD&A – namely operating earnings (loss), funds from (used in) operations, return on capital employed (ROCE), 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), and last-in, first-out (LIFO) inventory valuation methodology and related per share or per barrel amounts − are not prescribed by GAAP. Operating earnings (loss) is defined in the Non-GAAP Financial Measures Advisory section of this MD&A and reconciled to the most directly comparable GAAP measures in the Consolidated Financial Information and Segment Results and Analysis sections of this MD&A. 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 MD&A and reconciled to the most directly comparable GAAP measures in the Segment Results and Analysis section of this MD&A. Funds from (used in) operations, ROCE, free funds flow, discretionary free funds flow (deficit), 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 MD&A.

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 MD&A. This MD&A 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 MD&A, 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 MD&A for information on the material risk factors and assumptions underlying our forward-looking information contained in this MD&A.

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 MD&A, refer to the Common Abbreviations section of this MD&A.

2021 Third Quarter   Suncor Energy Inc.   9

Management’s Discussion and Analysis

2. Third Quarter Highlights

•

Third quarter financial results

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•

Suncor’s operating earnings(1)(2) 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 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.

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•

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-cash after-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.

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•

Funds from operations(1) 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.

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•

R&M delivered strong results. 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.

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•

Strong upstream performance and completion of a planned turnaround. 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, 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.

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•

Suncor assumes operatorship of Syncrude. 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.

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•

Terra Nova Asset Life Extension project moving forward. 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.

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(1)

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

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(3)

Sources: IHS Markit and Statistics Canada.

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10   2021 Third Quarter   Suncor Energy Inc.

•

Historic partnership with Indigenous Communities. Suncor, together with eight Indigenous communities, announced the formation of Astisiy Limited Partnership, 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.

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•

Maximized shareholder returns and fortified the balance sheet. 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(1) by $2.0 billion.

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•

On track to reach debt reduction and capital allocation targets. 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.

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•

Completed sale of the Golden Eagle Area Development. 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.

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•

Reinstatement of the 2019 dividend and acceleration of the share repurchase program. 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.

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(1)

Net debt is equal to total debt less cash and cash equivalents.

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2021 Third Quarter   Suncor Energy Inc.   11

Management’s Discussion and Analysis

3. Consolidated Financial Information

Financial Highlights

​

(1)

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

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(3)

Excludes capitalized interest of  $38 million in the third quarter of 2021 and $29 million in the third quarter of 2020.

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12   2021 Third Quarter   Suncor Energy Inc.

Operating Highlights

Net Earnings (Loss)

Suncor’s consolidated net earnings for the third quarter of 2021 were $877 million, compared to a net loss of  $12 million for the prior year quarter. Net earnings were primarily caused by the same factors that resulted in the operating earnings described subsequently in this section of this MD&A.

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

•

The after-tax unrealized foreign exchange loss on the revaluation of U.S. dollar denominated debt was $257 million for the third quarter of 2021, compared to a gain of  $290 million for the third quarter of 2020.

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•

During the third quarter of 2021, the company recorded a non-cash after-tax impairment reversal of  $168 million against its share of the Terra Nova assets, in the Exploration and Production (E&P) segment, as a result of the ALE project moving forward and the benefit of royalty and financial support from the Government of Newfoundland and Labrador.

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•

During the third quarter of 2021, the company recorded an after-tax loss of  $60 million for early repayment of long-term debt, in the Corporate segment.

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•

The after-tax unrealized loss on risk management activities was $17 million for the third quarter of 2021, compared to a gain of  $36 million for the third quarter of 2020.

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2021 Third Quarter   Suncor Energy Inc.   13

Management’s Discussion and Analysis

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

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(1)

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 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)

Restructuring charge in the Corporate segment recorded in the first quarter of 2021.

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(4)

During the first quarter of 2020, the company recorded non-cash after-tax impairment charges of  $1.376 billion on its share of the Fort Hills assets, in the Oil Sands segment, and $422 million 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 third quarter of 2021, the company recorded a non-cash after-tax impairment reversal of  $168 million on its share of the Terra Nova assets, in the E&P segment, as a result of the ALE project moving forward and the benefit of royalty and financial support from the Government of Newfoundland and Labrador.

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(5)

Charges associated with the early repayment of debt in the Corporate segment.

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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 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.

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(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.

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14   2021 Third Quarter   Suncor Energy Inc.

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 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.

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.

After-Tax Share-Based Compensation Expense (Recovery) by Segment

The after-tax share-based compensation impact on results was an expense of  $2 million during the third quarter of 2021, compared to a recovery of  $31 million during the prior year quarter, as a result of a smaller change in share price during the current period when compared to the share price decrease in the prior year quarter.

2021 Third Quarter   Suncor Energy Inc.   15

Management’s Discussion and Analysis

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 third quarter of 2021, crude oil and crack spread benchmarks improved compared to the prior year quarter, which was significantly impacted by an unprecedented decline in transportation fuel demand 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 third quarter of 2021 reflected an increase in WTI at Cushing, which averaged US$70.55/bbl compared to US$40.95/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 $83.75/bbl in the third quarter of 2021 compared to $51.30/bbl in the prior year quarter, and prices for WCS at Hardisty increased to US$56.95/bbl in the third quarter of 2021, from US$31.90/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 and spot sales, and the price variance between Hardisty, Alberta, and U.S. Gulf Coast heavy pricing.

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 third quarter of 2021.

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$73.45/bbl in the third quarter of 2021 compared to US$43.00/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 spreads are based on quoted near-month contracts for WTI and spot prices for gasoline and diesel and do not necessarily

16   2021 Third Quarter   Suncor Energy Inc.

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 third 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$27.60/bbl in the third quarter of 2021 compared to US$16.80/bbl in the third 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 $3.60/mcf in the third quarter of 2021, from $2.25/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 $100.35/MWh in the third quarter of 2021 compared to $43.85/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 third quarter of 2021, as the average exchange rate increased to US$0.79 per one Canadian dollar from US$0.75 per one Canadian dollar in the prior year quarter. This rate increase had a negative impact on price realizations for the company during the third quarter of 2021 when compared to the prior year quarter.

Suncor also has assets and liabilities, including approximately 63% 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 Third Quarter   Suncor Energy Inc.   17

Management’s Discussion and Analysis

4. Segment Results and Analysis

Oil Sands

Financial Highlights

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(1)

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.

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(2)

During the first quarter of 2020, the company recorded non-cash after-tax impairment charges of  $1.376 billion 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.

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(3)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.

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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 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.

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18   2021 Third Quarter   Suncor Energy Inc.

The Oil Sands segment had operating earnings of  $489 million in the third quarter of 2021, compared to an operating loss of $539 million in the prior year quarter. The increase was primarily due to higher realized crude prices, as crude benchmarks were significantly impacted in the prior year quarter as a result of the COVID-19 pandemic, increased production and lower DD&A expenses. Operating earnings were partially offset by an increase in royalties and operating expenses associated with Suncor’s increased production in the third quarter of 2021.

Production Volumes(1)

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(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%.

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(2)

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

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(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 third quarter of 2021, Oil Sands operations production volumes included 8,400 bbls/d of internallyconsumed diesel, of which 6,300 bbls/d was consumed at Oil Sands Base, 1,600 bbls/d was consumed at Fort Hills and 500 bbls/d was consumed at Syncrude. Syncrude production volumes included 2,700 bbls/d of internally consumed diesel.

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(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 third quarter of 2021, Oil Sands operations included 2,000 bbls/d of SCO and 1,500 bbls/d of bitumen that was transferred to Suncor’s share of Syncrude through the interconnecting pipelines. Syncrude production included 200 bbls/d of SCO and 2,800 bbls/d of bitumen that was transferred to Oil Sands Base through the interconnecting pipelines.

​

The company’s net SCO production was 405,500 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.

Sales Volumes

SCO and diesel sales volumes were 418,600 bbls/d in the third quarter of 2021, compared to 420,100 bbls/d in the prior year quarter, consistent with the decrease in upgraded production.

2021 Third Quarter   Suncor Energy Inc.   19

Management’s Discussion and Analysis

Non-upgraded bitumen sales volumes increased to 194,400 bbls/d in the third quarter of 2021, compared to 119,100 bbls/d in the prior year quarter, and were influenced by the same factors that affected production volumes, discussed above, partially offset by a build of inventory in the current period.

Price Realizations

Oil Sands price realizations increased in the third 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

Royalties for the Oil Sands segment were higher in the third quarter of 2021 compared to the prior year quarter, primarily due to increased royalties for In Situ operations due to Firebag being in the higher post-payout phase of its royalty agreement, higher crude price realizations and increased production volumes.

Expenses and Other Factors

Total Oil Sands operating and transportation expenses increased in the third 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. In the third quarter of 2020, the relief provided under the Government of Canada’s Emergency Wage Subsidy (CEWS) program, in addition to safe-mode costs associated with the deferral of capital projects and additional costs incurred in response to the COVID-19 pandemic, have been included in operating and transportation expense by asset. These costs, however, have been excluded from cash operating costs per barrel for comparability purposes.

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

At Fort Hills, operating costs in the third quarter of 2021 increased when compared to the prior year quarter, reflecting increased mine activity to remove overburden and increase ore inventory in preparation for the transition back to a two-train operation in the fourth quarter. The third quarter of 2020 reflected reduced costs associated with a one-train operation as a result of the decline in the business environment. Operating costs during the third quarter of 2021 were also impacted by increased natural gas prices compared to the prior year quarter.

Suncor’s share of Syncrude operating costs in the third quarter of 2021 increased when compared with the prior year quarter, primarily due to higher production and increased natural gas prices, partially offset by decreased maintenance costs.

DD&A expense for the third quarter of 2021 was lower compared to the prior year quarter, as the prior year quarter included higher derecognition charges of property, plant and equipment and exploration and evaluation assets.

20   2021 Third Quarter   Suncor Energy Inc.

Cash Operating Costs

​

(1)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

(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 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(1) per barrel decreased to $29.05 in the third quarter of 2021, compared to $31.75 in the prior year quarter, due to increased production, partially offset by higher operating, selling and general expenses, as detailed above.

Oil Sands operations non-production costs, which are excluded from cash operating costs, were higher in the current quarter compared to the prior year quarter, as the prior year quarter included CEWS, partially offset by safe-mode and COVID-19 response costs.

Oil Sands operations inventory changes reflect a draw of inventory in the current period.

Fort Hills cash operating costs(1) per barrel were $40.90 in the third quarter of 2021, compared to $35.20 in the prior year quarter, reflecting increased mine activity to remove overburden and increase ore inventory associated with the planned transition to a two-train operation, partially offset by higher production. In the third quarter of 2021, non-production costs were higher compared to the prior year quarter, as the prior year quarter included CEWS, partially offset by additional costs incurred

   

(1)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

2021 Third Quarter   Suncor Energy Inc.   21

Management’s Discussion and Analysis

in response to the COVID-19 pandemic. Inventory changes in the third quarter of 2021 reflect a draw of inventory, compared to a change in inventory valuation, partially offset by a draw of inventory in the prior year quarter.

Syncrude cash operating costs(1) per barrel decreased to $31.05 in the third quarter of 2021, compared to $34.35 in the prior year quarter, due to higher production, partially offset by higher operating, selling and general expenses, as detailed above. Syncrude non-production costs, which are excluded from cash operating costs, were higher in the current quarter compared to the prior year quarter, as the prior year quarter included CEWS.

Results for the First Nine Months of 2021

Oil Sands net earnings were $1.251 billion for the first nine months of 2021 compared to a net loss of  $3.503 billion in the prior year period. In addition to the factors impacting operating (loss) earnings explained below, net earnings for the first nine months of 2021 included a $2 million after-tax unrealized loss on risk management activities. Net loss for the first nine months of 2020 included $1.376 billion of non-cash after-tax asset impairment charges and an after-tax unrealized gain on risk management activities of  $8 million.

Oil Sands operating earnings for the first nine months of 2021 were $1.253 billion compared to an operating loss of  $2.135 billion for the same period in 2020. The increase was primarily due to higher realized crude prices, as crude benchmarks were significantly impacted in the prior year period as a result of the COVID-19 pandemic and OPEC+ supply issues, and increased production, partially offset by higher royalties and operating expenses.

Funds from operations for the first nine months of 2021 were $4.671 billion for the Oil Sands segment, compared to $1.257 billion in the prior year period, with the increase primarily due to the same factors that influenced operating earnings noted above.

Oil Sands operations cash operating costs per barrel averaged $25.20 for the first nine months of 2021, a decrease from an average of  $28.80 for the first nine months of 2020, due to increased production, partially offset by higher natural gas prices.

Fort Hills cash operating costs per barrel averaged $39.70 for the first nine months of 2021, compared to $33.25 for the same period of 2020, reflecting increased mine activity to increase ore inventory in preparation for the transition to a two-train operation. Higher production for the first nine months of 2020 reflected Fort Hills operating on two primary extraction trains early in the year. The company managed production to keep pace with reduced downstream demand as a result of the COVID-19 pandemic, temporarily transitioning to a one-train operation at Fort Hills in the second quarter of 2020.

Syncrude cash operating costs per barrel averaged $35.90 for the first nine months of 2021, a decrease compared to $36.25 in the first nine months of 2020, primarily due to an increase in production volumes, partially offset by higher planned maintenance and increased natural gas prices.

Planned Maintenance Update

There are no significant maintenance events scheduled for the fourth quarter of 2021. In the third quarter of 2021, the significant planned turnaround at Oil Sands Base plant Upgrader 2 was completed, as well as planned maintenance at Firebag.

(1)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

22   2021 Third Quarter   Suncor Energy Inc.

Exploration and Production

Financial Highlights

​

(1)

Production, revenues and royalties from the company’s Libya operations have been presented in the E&P section of this MD&A on an economic basis and exclude an equal and offsetting gross-up of revenues and royalties of  $53 million in the third quarter of 2021 and $188 million in the first nine months of 2021, which is required for presentation purposes in the company’s financial statements under the working-interest basis. In the first nine months of 2020, there were no Libya sales included in production, revenues or royalties.

​

(2)

During the first quarter of 2020, the company recorded non-cash after-tax impairment charges of  $422 million 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 third quarter of 2021, the company recorded a non-cash after-tax impairment reversal of  $168 million on its share of the Terra Nova assets as a result of the ALE project moving forward and the benefit of royalty and financial support from the Government of Newfoundland and Labrador.

​

(3)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

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

(1)

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

​

Operating earnings for the E&P segment in the third quarter of 2021 increased to $239 million compared to $25 million in the prior year quarter, with the increase primarily due to higher realized crude prices and lower DD&A and exploration expense, partially offset by lower sales volumes and higher royalties.

2021 Third Quarter   Suncor Energy Inc.   23

Management’s Discussion and Analysis

Production Volumes

Production volumes for E&P Canada were 54,400 bbls/d in the third quarter of 2021, compared to 57,100 bbls/d in the prior year quarter, primarily due to natural declines and lower asset performance. 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. During the third quarter of 2021, Suncor and the co-owners of the Terra Nova project finalized an agreement to restructure the project ownership and move forward with the ALE project. The agreement increased the company’s working interest to 48% (previously approximately 38%) in exchange for a cash payment from the exiting owners, and includes the previously disclosed royalty and financial support from the Government of Newfoundland and Labrador. The company received $26 million (net of taxes of  $8 million) in cash consideration to acquire the additional 10% working interest in the Terra Nova project, which will be used to partially fund the 2022 capital spend of the project. In mid-September, maintenance work commenced on the Terra Nova Floating, Production, Storage and Offloading facility and upon completion the facility is expected to sail to dry dock in Ferrol, Spain later this year, with a safe return to operations anticipated before the end of 2022.

E&P International production was 39,100 boe/d in the third quarter of 2021, compared to 40,100 boe/d in the prior year quarter. Production volumes decreased in the current quarter primarily due to natural 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.

E&P sales volumes decreased to 76,300 boe/d in the third quarter of 2021, compared to 96,000 boe/d in the prior year quarter, due to a build of inventory at E&P International associated with the timing of cargo sales.

Price Realizations

​

(1)

E&P International price realizations exclude Libya.

​

Price realizations at E&P Canada and E&P International increased in the third 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 third 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 third quarter of 2021 were comparable to the prior year quarter.

DD&A and exploration expense in the third quarter of 2021 decreased from the prior year quarter as a result of lower sales volumes, the absence of DD&A on the company’s White Rose assets as a result of impairment charges in the fourth quarter of 2020 and on the Golden Eagle Area Development asset as a result of the asset classified as held for sale in the third quarter of 2021.

Non-Cash Asset Impairment Reversal

During the third quarter of 2021, the company recorded a non-cash impairment reversal of  $168 million (net of taxes of $53 million) on its share of the Terra Nova assets as a result of the ALE project moving forward and the benefit of royalty and financial support from the Government of Newfoundland and Labrador.

24   2021 Third Quarter   Suncor Energy Inc.

Results for the First Nine Months of 2021

Net earnings for E&P were $820 million for the first nine months of 2021 compared to a net loss of  $453 million in the prior year period. In addition to the factors impacting operating earnings (loss) described below, net earnings for the first nine months of 2021 included a non-cash after-tax impairment reversal of  $168 million against the company’s share of the Terra Nova assets. Net earnings for the first nine months of 2020 included non-cash after-tax impairment charges of  $422 million against the company’s share of the White Rose and Terra Nova assets.

Operating earnings for E&P for the first nine months of 2021 were $652 million compared to an operating loss of  $31 million for the first nine months of 2020. The increase was primarily due to higher realized crude prices as crude benchmarks were significantly impacted in the prior year period due to the impacts of the COVID-19 pandemic and OPEC+ supply issues as well as lower DD&A and exploration expense, partially offset by lower production volumes and higher royalties.

Funds from operations were $1.053 billion for the first nine months of 2021, compared to $742 million for the first nine months of 2020, due to the same reasons noted in operating (loss) earnings above, excluding the impacts of DD&A and exploration expense.

Subsequent Event

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, resulting in an estimated after-tax gain on sale of approximately $235 million. The company completed the sale on October 22, 2021 with an effective date of January 1, 2021.

Planned Maintenance Update for Operated Assets

There are no significant maintenance events scheduled for the fourth quarter of 2021.

Refining and Marketing

Financial Highlights

​

(1)

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.

​

(2)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

2021 Third Quarter   Suncor Energy Inc.   25

Management’s Discussion and Analysis

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

(1)

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

​

R&M operating earnings in the third quarter of 2021 increased to $658 million from $356 million in the prior year quarter, primarily due to higher refining and marketing margins as a result of significantly higher crack spread benchmarks and higher crude throughput and refined product sales in the third quarter of 2021 compared to the prior year quarter.

Volumes

​

(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)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

26   2021 Third Quarter   Suncor Energy Inc.

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.

Refining and Marketing Gross Margins

Refining and marketing gross margins were influenced by the following:

•

On a LIFO(2) basis, Suncor’s refining and marketing gross margin increased to $33.80/bbl in the third quarter of 2021, from $25.00/bbl in the prior year quarter, due to improved market crack spreads and 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 $35.75/bbl in the third quarter of 2021, from $30.75/bbl in the prior year quarter, due to the same factors noted above, in addition to FIFO inventory valuation impacts. In the third quarter of 2021, the FIFO method of inventory valuation, relative to an estimated LIFO(2) accounting method, resulted in an after-tax gain of  $84 million. In the prior year quarter, FIFO resulted in an after-tax gain of  $164 million, for an unfavourable quarter-over-quarter impact of  $34 million, after-tax, including the impact of short-term commodity risk management activities.

​

Expenses and Other Factors

Operating expenses and DD&A in the third quarter of 2021 increased compared to the prior year quarter, primarily due to an increase in throughput and higher commodity prices in the current period and the prior year period being favourably impacted by CEWS. Refining operating expense(3) per barrel was $5.45 in the third quarter of 2021, comparable to $5.40 in the prior year quarter.

Results for the First Nine Months of 2021

R&M’s net earnings were $1.728 billion for the first nine months of 2021 compared to $598 million in the prior year period. In addition to the factors impacting operating earnings described below, net earnings for the first nine months of 2021 included a $5 million after-tax unrealized loss on risk management activities, compared to a $4 million loss in the prior year period.

Operating earnings for R&M in the first nine months of 2021 were $1.733 billion, compared to $602 million in the first nine months of 2020, with the increase primarily due to a FIFO inventory valuation gain as a result of a significant increase in crude and refined product benchmarks compared to the prior year period, which included a FIFO inventory valuation loss. For the first nine months of 2021, the impact of the FIFO method of inventory valuation, relative to an estimated LIFO method, had a positive impact to operating earnings and funds from operations of  $689 million after-tax, compared to a negative after-tax impact of $428 million in the first nine months of 2020.

Funds from operations were $2.490 billion in the first nine months of 2021, compared to $1.293 billion in the first nine months of 2020, and increased primarily due to the same factors that influenced operating earnings described above.

Planned Maintenance

The company has completed all major planned refinery maintenance for 2021.

(1)

Sources: IHS Markit and Statistics Canada.

​

(2)

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

​

(3)

Refining operating expense is a non-GAAP financial measure. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

2021 Third Quarter   Suncor Energy Inc.   27

Management’s Discussion and Analysis

Corporate and Eliminations

Financial Highlights

​

(1)

During the first quarter of 2021, the company recorded a restructuring charge related to the previously announced workforce reductions.

​

(2)

Charges associated with the early repayment of debt.

​

(3)

Non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

Corporate incurred an operating loss of  $316 million for the third quarter of 2021, compared to an operating loss of  $203 million for the prior year quarter, with the increased loss attributable to costs associated with digital and technology improvements and the impact of tax settlements, partially offset by an operational foreign exchange gain in the current year quarter, as compared to an operational foreign exchange loss in the prior year quarter. The third quarter of 2021 was also impacted by a lower share-based compensation recovery compared to the prior year quarter. Suncor capitalized $38 million of its borrowing costs in the third quarter of 2021 as part of the cost of major development assets and construction projects in progress, compared to $29 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 third quarter of 2021, the company deferred $27 million of after-tax intersegment profit, compared to a realization of intersegment profit and elimination of unrealized losses of  $23 million after-tax in the prior year quarter. The deferral of profit in the third quarter of 2021 was driven by a strengthening in benchmark pricing compared to a weakening in benchmark pricing in the third quarter of 2020.

Corporate and Eliminations funds used in operations were $254 million for the third quarter of 2021, compared to $244 million in the third quarter of 2020, and were influenced by the same factors impacting operating loss described above, excluding the impact of tax settlements and share-based compensation.

Results for the First Nine Months of 2021

The net loss for Corporate and Eliminations was $1.233 billion for the first nine months of 2021, compared to $793 million in the prior year period. In addition to the factors impacting operating loss described below, the net loss for the first nine months of 2021 included an after-tax restructuring charge of  $126 million related to workforce reductions recorded in the first quarter of 2021, an $80 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt, and a $60 million after-tax loss for early repayment of long-term debt in the third quarter of 2021. The net loss in the prior year period included a $253 million unrealized after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt.

The operating loss for Corporate and Eliminations for the first nine months of 2021 was $1.127 billion compared to $540 million in the first nine months of 2020. The increased operating loss was attributed to a share-based compensation expense in the first nine months of 2021, as compared to a share-based compensation recovery incurred in the first nine months of 2020, costs associated with digital and technology improvements in the first nine months of 2021 and an elimination of intercompany profit in the current year period compared to an elimination of an intercompany loss in the prior year period. The company capitalized $106 million of its borrowing costs in the first nine months of 2021 compared with $94 million in the first nine months of 2020.

Corporate and Eliminations funds used in operations for the first nine months of 2021 were $1.101 billion, compared to $637 million in the prior year period, and were influenced by the same factors impacting operating loss noted above, excluding the impact of share-based compensation expense. Funds used in operations were also impacted by the restructuring charge related to the workforce reductions recorded in the first quarter of 2021.

28   2021 Third Quarter   Suncor Energy Inc.

5. Capital Investment Update

Capital and Exploration Expenditures by Segment

Capital and Exploration Expenditures by Type, Excluding Capitalized Interest

​

(1)

Asset sustainment and maintenance capital expenditures include capital investments that deliver on existing value by ensuring compliance or maintaining relations with regulators and other stakeholders, maintaining current processing capacity and delivering existing developed reserves.

​

(2)

Economic investment capital expenditures include capital investments that result in an increase in value through adding reserves, improving processing capacity, utilization, cost or margin, including associated infrastructure.

​

The company’s 2021 capital expenditures are focused on the safety and reliability of the company’s operations, heavily weighted towards asset sustainment and maintenance, which includes significant planned turnaround activities across all of its refineries, at Oil Sands operations, including a significant planned turnaround at Oil Sands Base plant Upgrader 2, and a planned turnaround at Syncrude’s largest coker. All significant planned maintenance has been completed for 2021 and there are no significant planned maintenance events scheduled for the fourth quarter of 2021.

During the third quarter of 2021, the company spent $1.183 billion on capital expenditures, excluding capitalized interest, compared to $912 million in the prior year quarter. In 2020, due to the impacts of the COVID-19 pandemic, the company deferred, suspended and cancelled certain capital projects or changed the scope of work to reduce costs and to comply with COVID-19 safety measures.

2021 Third Quarter   Suncor Energy Inc.   29

Management’s Discussion and Analysis

Activity in the third quarter of 2021 is summarized by business unit below.

Oil Sands

Oil Sands Base capital expenditures were $566 million in the third quarter of 2021 and were primarily focused on asset sustainment and maintenance activities including the significant planned turnaround at Oil Sands Base plant Upgrader 2, as well as economic investment to progress low-carbon power cogeneration to replace the coke-fired boilers.

In Situ capital expenditures were $119 million in the third quarter of 2021 and were primarily directed towards economic investment activities, including the continued investment in well pad projects, and asset sustainment and maintenance activities including planned maintenance at Firebag.

Capital expenditures at Fort Hills were $87 million in the third quarter of 2021, primarily directed towards asset sustainment and maintenance activities in mine and tailings development.

Syncrude capital expenditures were $136 million in the third quarter of 2021, the majority of which were for asset sustainment and maintenance expenditures.

Exploration and Production

Capital and exploration expenditures at E&P were $57 million in the third quarter of 2021 and were related to economic investment projects, including development drilling at Hebron and development work at Buzzard and the Fenja project.

In the third quarter of 2021, the co-owners of the Terra Nova project finalized an agreement to restructure the project ownership and move forward with the ALE project. The finalization of this agreement has no impact on Suncor’s 2021 capital guidance.

Refining and Marketing

R&M capital expenditures were $142 million in the third quarter of 2021 and were primarily related to asset sustainment and maintenance activities.

Corporate and Eliminations

Corporate capital expenditures were $76 million in the third quarter of 2021 and were primarily directed towards the company’s digital transformation and the Forty Mile Wind Power Project.

30   2021 Third Quarter   Suncor Energy Inc.

6. Financial Condition and Liquidity

Indicators

​

(1)

Non-GAAP financial measure. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

(2)

ROCE would have been 4.9% for the twelve months ended September 30, 2021, excluding the impact of impairments of  $423 million after-tax in the fourth quarter of 2020 and the impact of the impairment reversal of  $168 million after-tax in the third quarter of 2021. ROCE would have been (1.3%) for the twelve months ended September 30, 2020, excluding the impact of impairments of  $1.798 billion after-tax in the first quarter of 2020 and the impacts of impairments of  $3.352 billion after-tax in the fourth quarter of 2019.

​

(3)

Net debt is equal to total debt less cash and cash equivalents.

​

(4)

Funds from operations and metrics that use funds from operations are non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.

​

(5)

Equal to net earnings plus income taxes and interest expense, divided by the sum of interest expense and capitalized interest on debt.

​

(6)

Equal to funds from operations plus current income taxes and interest expense, divided by the sum of interest expense and capitalized interest on debt.

​

(7)

Beginning in the first quarter of 2021, the company has added two supplemental debt metrics that reflect additional information that management uses to evaluate capital management.

​

Capital Resources

Suncor’s capital resources consist primarily of cash flow provided by operating activities, cash and cash equivalents, and available lines of credit. Suncor’s management believes the company will have the capital resources to fund its planned 2021 capital spending program of  $3.8 billion to $4.5 billion and to meet current and future working capital requirements, through cash and cash equivalents balances, cash flow provided by operating activities, available committed credit facilities, issuing commercial paper and, if needed, accessing capital markets. The company’s cash flow provided by operating activities depends on a number of factors, including commodity prices, production and sales volumes, refining and marketing gross margins, operating expenses, taxes, royalties and foreign exchange rates.

The company has invested cash in short-term financial instruments that are presented as cash and cash equivalents. The objectives of the company’s short-term investment portfolio are to ensure the preservation of capital, maintain adequate liquidity to meet Suncor’s cash flow requirements and deliver competitive returns derived from the quality and diversification of investments within acceptable risk parameters. The maximum weighted average term to maturity of the short-term investment portfolio is not expected to exceed six months, and all investments will be with counterparties with investment grade debt ratings.

Available Sources of Liquidity

For the three months ended September 30, 2021, cash and cash equivalents increased to $2.309 billion from $2.035 billion at June 30, 2021, due to cash flow from operating activities exceeding the company’s capital and exploration expenditures, debt reduction, dividend payments and the repurchase of Suncor’s own shares under its NCIB in the third quarter of 2021.

For the nine months ended September 30, 2021, cash and cash equivalents increased relative to $1.885 billion at December 31, 2020, due to cash flow from operating activities exceeding the company’s capital and exploration expenditures, debt reduction, dividend payments and the repurchase of Suncor’s own shares under its NCIB.

As at September 30, 2021, the weighted average days to maturity of the company’s short-term investment portfolio was approximately 22 days.

Available credit facilities for liquidity purposes at September 30, 2021, decreased to $4.050 billion, compared to $6.043 billion at December 31, 2020. The decrease in liquidity was primarily due to the cancellation of  $2.8 billion in bi-lateral credit facilities

2021 Third Quarter   Suncor Energy Inc.   31

Management’s Discussion and Analysis

that were entered into in March and April of 2020 to ensure access to adequate financial resources in connection with the COVID-19 pandemic, and a reduction in the size of the company’s syndicated credit facilities. The decrease was partially offset by increased credit availability as a result of a lower commercial paper balance.

Financing Activities

Management of debt levels and liquidity continues to be a priority for Suncor given the company’s long-term plans and future expected volatility in the current business environment. Suncor believes a phased and flexible approach to existing and future projects should assist the company in maintaining its ability to manage project costs and debt levels.

During the third quarter of 2021, Suncor exercised the early redemption option on its outstanding US$750 million 3.60% senior unsecured notes, originally maturing on December 1, 2024. A premium was paid to redeem the debt early, with future interest savings expected to more than offset this amount.

Total Debt to Total Debt Plus Shareholders’ Equity

Suncor is subject to financial and operating covenants related to its bank debt and public market debt. Failure to meet the terms of one or more of these covenants may constitute an “event of default” as defined in the respective debt agreements, potentially resulting in accelerated repayment of one or more of the debt obligations. The company is in compliance with its financial covenant that requires total debt to not exceed 65% of its total debt plus shareholders’ equity. At September 30, 2021, total debt to total debt plus shareholders’ equity was 34.3% (December 31, 2020 – 37.8%). The company continues to be in compliance with all operating covenants under its debt agreements.