EXHIBIT 99.1

Report to Shareholders for the first quarter ended March 31, 2021

All financial figures are unaudited and presented in Canadian dollars unless noted otherwise. Production volumes are presented on a working-interest basis, before royalties, except for production volumes from the company's Libya operations, which are presented on an economic basis. Certain financial measures in this document are not prescribed by Canadian generally accepted accounting principles (GAAP). For a description of these non-GAAP financial measures, see the Non-GAAP Financial Measures Advisory section of Suncor Energy Inc.'s (Suncor or the company) Management's Discussion and Analysis (MD&A) dated May 3, 2021. See also the Advisories section of the MD&A. References to Oil Sands operations exclude Suncor's interests in Fort Hills and Syncrude.

"Building on the previous quarter's operational momentum, Suncor generated $2.1 billion in funds from operations, far exceeding all of our capital expenditures and dividend commitments in the first quarter of 2021," said Mark Little, president and chief executive officer. "Strong operational performance, combined with the incremental free funds flow benefits from our strategic investments, have enabled us to make significant progress towards our annual debt reduction and share buyback targets. In fact, in the first quarter of 2021, we reduced our total debt by $1.1 billion and repurchased over $300 million in common shares, representing approximately 1% of our outstanding common shares."

•

Funds from operations(1) increased to $2.110 billion ($1.39 per common share) in the first quarter of 2021, which included an after-tax restructuring charge of $126 million ($0.08 per common share), compared to $1.001 billion ($0.66 per common share) in the prior year quarter. Funds from operations included a first-in, first-out (FIFO) inventory valuation gain of $373 million after-tax in the first quarter of 2021, compared to a FIFO inventory valuation loss of $446 million after-tax in the prior year quarter. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $2.345 billion ($1.54 per common share) in the first quarter of 2021, compared to $1.384 billion ($0.91 per common share) in the prior year quarter.

•

The company recorded operating earnings(1)(2) of $746 million ($0.49 per common share) in the first quarter of 2021, which included a FIFO inventory valuation gain of $373 million after-tax, compared to an operating loss of $421 million ($0.28 per common share) in the prior year quarter, which was impacted by a FIFO inventory valuation loss of $446 million after-tax. The company had net earnings of $821 million ($0.54 per common share) in the first quarter of 2021, compared to a net loss of $3.525 billion ($2.31 per common share) in the prior year quarter, which was impacted by $1.798 billion of non-cash after-tax asset impairment charges and a $1.021 billion unrealized after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt.

•

Suncor's total upstream production increased to 785,900 barrels of oil equivalent per day (boe/d) in the first quarter of 2021, compared to 739,800 boe/d in the prior year quarter, on combined upgrader utilization(3) of 97% and record In Situ production. Together, the fourth quarter of 2020 and first quarter of 2021 represent the best sequential synthetic crude oil (SCO) production performance in the company's history – another important step in Suncor's continued journey towards improved and sustained reliability.

•

In the first quarter of 2021, Oil Sands operations cash operating costs(1) per barrel decreased by approximately 20% to $23.30 and Syncrude cash operating costs(1) per barrel decreased by approximately 10% to $32.25 compared to the prior year quarter due to a combination of increased production and improved cost performance. Further cost reductions are anticipated via the implementation of digital technologies, which are currently underway, and the assumption of Syncrude operatorship on September 30, 2021.

•

Refining and Marketing (R&M) delivered funds from operations of $962 million, which included a FIFO inventory valuation gain of $373 million after-tax, compared to $224 million in the prior year quarter, which was impacted by a FIFO inventory valuation loss of $446 million after-tax. The company leveraged its marketing and logistics capabilities to achieve first quarter refinery utilization rates that continued to outperform the Canadian refining industry average by over 15%.(4)

•

During the first quarter of 2021, the company cancelled $2.8 billion in bi-lateral credit facilities, reduced short-term debt and repaid higher interest long-term debt. The company also issued US$750 million of 3.75% senior unsecured notes and $500 million of 3.95% senior unsecured medium term notes, both due in 2051. The company reduced total debt by $1.1 billion in the first quarter of 2021.

•

The company increased shareholder returns with $319 million in dividends paid and $318 million in shares repurchased, representing approximately 12 million shares, or approximately 1% of the total common shares outstanding.

•

As demonstrated this quarter, the company continues to execute on its previously announced 2021 commitment of allocating incremental free funds flow towards debt repayment and share buybacks. Management plans to allocate two-thirds of incremental free funds flow to further debt repayment and one-third to additional share buybacks.

(1)

Funds from operations, operating earnings (loss) and ROCE are non-GAAP financial measures. See page 6 for a reconciliation of net earnings (loss) to operating earnings (loss). See the Non-GAAP Financial Measures Advisory section of the MD&A.

(2)

Beginning in the first quarter of 2021, the company has revised its calculation of operating earnings, a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value to better align the earnings impact of the activity with the underlying items being risk managed. Prior period comparatives have been restated to reflect this change.

(3)

Includes the impacts of the Government of Alberta's mandatory production curtailments in 2020.

(4)

Includes the impacts of the COVID-19 pandemic for all periods presented.

(5)

Includes impairment charges of $3.352 billion after-tax related to the fourth quarter of 2019, $1.798 billion after-tax related to the first quarter of 2020 and $423 million after-tax related to the fourth quarter of 2020.

(6)

ROCE excluding impairments would have been 5.1% for the first quarter of 2020, excluding the impacts of the $1.116 billion deferred tax recovery for the Alberta corporate income tax rate change in the second quarter of 2019.

Financial Results

Operating Earnings (Loss)

Suncor's first quarter 2021 operating earnings were $746 million ($0.49 per common share), compared to an operating loss of $421 million ($0.28 per common share) in the prior year quarter. In the first quarter of 2021, crude oil and refined product realizations 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 and an increase in OPEC+ crude supply. The improving business environment in the first quarter of 2021 also resulted in a net inventory valuation gain, reflecting a FIFO gain as a result of the increasing value of refinery feedstock, partially offset by an increase in the elimination of intersegment profit in inventory. Operating earnings in the first quarter of 2021 also reflected the 46,100 boe/d increase in upstream production, compared to the prior year quarter, as well as lower depreciation, depletion and amortization (DD&A) and exploration expense.

2  2021 First Quarter   Suncor Energy Inc.

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

(1)

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

(2)

Beginning in the first quarter of 2021, the company has revised its calculation of operating earnings, a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value to better align the earnings impact of the activity with the underlying items being risk managed. Prior period comparatives have been restated to reflect this change.

(3)

The bridge factor for Inventory Valuation is comprised of changes in the FIFO inventory valuation and the realized portion of short-term commodity risk management activities reported in the R&M segment, and changes in the intersegment elimination of profit reported in the Corporate and Eliminations segment.

Net Earnings (Loss)

Suncor's net earnings were $821 million ($0.54 per common share) in the first quarter of 2021, compared to a net loss of $3.525 billion ($2.31 per common share) in the prior year quarter. In addition to the factors impacting operating earnings (loss) discussed above, net earnings for the first quarter of 2021 included a $181 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt, an after-tax restructuring charge of $126 million and a $20 million after-tax unrealized gain on risk management activities. The net loss in the prior year quarter included $1.798 billion of non-cash after-tax asset impairment charges, a $1.021 billion unrealized after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt, a $397 million after-tax hydrocarbon inventory write-down to net realizable value, and a $112 million after-tax unrealized gain on risk management activities.

Funds from Operations and Cash Flow Provided by Operating Activities

Funds from operations were $2.110 billion ($1.39 per common share) in the first quarter of 2021, which included an after-tax restructuring charge of $126 million ($0.08 per common share), compared to $1.001 billion ($0.66 per common share) in the first 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 $2.345 billion ($1.54 per common share) for the first quarter of 2021, compared to $1.384 billion ($0.91 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 source of cash associated with the company's working capital balances in both periods. The source of cash in the first quarter of 2021 was primarily due to an increase in accounts payable and accrued liabilities, including a restructuring charge associated with the continuation of the company's workforce reductions, partially offset by an increase in accounts receivable and inventory due to an increase in commodity prices through the quarter.

2021 First Quarter   Suncor Energy Inc.  3

Operating Results

Building on strong upstream exit rates in 2020, the company increased quarterly production in the first quarter of 2021, reflecting reliable performance across its assets. Suncor's total upstream production increased to 785,900 boe/d in the first quarter of 2021, compared to 739,800 boe/d in the prior year quarter, and included the second-best quarter of SCO production in the company's history.

The company's net SCO production increased to 519,900 barrels per day (bbls/d) in the first quarter of 2021 from 503,600 bbls/d in the first quarter of 2020, as a result of increased upgrader utilization. The Syncrude and Oil Sands operations upgraders achieved combined upgrader utilization of 97% in the first quarter of 2021, compared to 93% in the prior year quarter, despite coker annual planned maintenance at Oil Sands Base that commenced late in the first quarter of 2021 and was completed subsequent to the end of the quarter. SCO production in the first quarter of 2021 was further enhanced by the internal transfers from Oil Sands Base to Syncrude via the interconnecting pipelines, which increased the production of higher value SCO.

Together, the fourth quarter of 2020 and first quarter of 2021 represent the best sequential SCO production performance in the company's history – another important step in Suncor's continued journey towards improved and sustained reliability. To maintain this level of safe, reliable and efficient operations, the company will begin its five-year planned maintenance turnaround at Oil Sands Base plant Upgrader 2 as well as Syncrude's planned maintenance turnaround at its largest coker during the second quarter of 2021. The anticipated production impact of these planned maintenance events has been reflected in the company's 2021 guidance.

The company's non-upgraded bitumen production increased to 170,700 bbls/d in the first quarter of 2021 from 126,500 bbls/d in the prior year quarter, which included the best In Situ quarterly production in the company's history. Record performance at Firebag reflected the first full quarter of operations following completion of debottlenecking activities in late 2020. At MacKay River, production in the prior year quarter was impacted by an outage that occurred in late 2019.

The increase in non-upgraded bitumen production from In Situ was partially offset by lower production at Fort Hills following the decision to reduce production in 2020 due to lower oil prices and reflecting a change to the mining ramp up strategy. Under the revised ramp up strategy, Fort Hills will hold production to one primary extraction train while operating the full mine fleet in order to reduce operational volatility and operating costs. The asset is expected to transition to both primary extraction trains operating at normal rates in the third quarter of 2021 with no impact to the annual Fort Hills production guidance range.

Exploration and Production (E&P) production during the first quarter of 2021 decreased to 95,300 boe/d from 109,700 boe/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.

Refinery crude throughput was 428,400 bbls/d and refinery utilization was 92% in the first quarter of 2021, compared to refinery crude throughput of 439,500 bbls/d and refinery utilization of 95% in the prior year quarter. During the first quarter of 2021, the company maintained strong refinery utilization rates as a result of the company's marketing and logistics network, including the expansion of its Burrard product export terminal, which increases the optionality of the company's sales channels. Refined product sales in the first quarter of 2021 were 548,100 bbls/d, compared to 531,500 bbls/d in the prior year quarter, which reflects an increase of more than double the export sales volumes, compared to the prior year quarter, and a draw in product inventory in the current quarter, partially offset by lower retail gasoline sales. The company will begin planned maintenance activities in the downstream in the second quarter of 2021. The anticipated impact of these planned maintenance events has been reflected in the company's 2021 guidance.

"In the first quarter of 2021 we demonstrated our continued commitment to operational excellence through combined upgrader utilization of 97%, record In Situ production and improved cost performance in the upstream," said Little. "In our downstream business we continue to leverage our marketing and logistics network and optimized our inventory levels in advance of our spring turnarounds, which helped achieve average refinery utilization rates of 92% and deliver strong financial results in the quarter."

The company's total operating, selling and general expenses of $2.900 billion in the first quarter of 2021 were comparable with $2.936 billion in the prior year quarter despite higher production volumes, as improved Oil Sands cost performance as well as the benefits of the company's cost-reduction initiatives executed in 2020 were partially offset by a restructuring charge of $168 million incurred in the first quarter of 2021 associated with the continuation of the company's workforce reductions. Operating, selling and general expenses in the first quarter of 2021 included share-based compensation expense, compared to a share-based compensation recovery in the prior year quarter. The first quarter of 2020 was also impacted by a hydrocarbon inventory write-down to net realizable value as a result of the significant decline in benchmarks and demand for crude oil and refined products due to the impacts of the COVID-19 pandemic.

4  2021 First Quarter   Suncor Energy Inc.

Strategy Update

Since the outbreak of the COVID-19 pandemic, Suncor has worked diligently to keep its workforce and customers safe, maintain its financial resiliency, reduce its operating and capital costs, and lower its cash break-even while executing on key strategic initiatives. The company believes that it is well positioned to generate significant free funds flow in both the upstream and downstream as the deployment of vaccines leads to recovering economies and an expected increase in demand for crude oil and refined products.

Critically important to Suncor's strategy is the company's ability to execute on its near-term plans through operational excellence, which includes an unwavering commitment to operate in a safe, reliable, cost-efficient and environmentally responsible manner. In 2021, the company will continue to advance its digital transformation, implementing process and technology improvements to increase productivity and reliability, and build on the cost reductions achieved in 2020. The assumption of Syncrude operatorship will also be a focal point this year. In the first quarter of 2021, the Syncrude joint venture owners finalized the agreement for Suncor to take over as operator of the Syncrude asset on September 30, 2021, which is expected to generate annual synergies of approximately $300 million for the joint venture owners.

"Over the last year, we have continued to deliver on our strategy – we've met our operating and capital-reduction targets and executed on various key strategic initiatives," said Little. "In 2021, we'll focus on achieving our near-term plans, including the assumption of Syncrude operatorship and continuing our digital transformation, to further strengthen our cash flow generation capabilities while meeting our debt-reduction targets and increasing shareholder returns."

The company's 2021 capital expenditures will focus on the safety and reliability of the company's operations. The Oil Sands capital program is heavily weighted towards asset maintenance, which includes significant planned maintenance at both Oil Sands operations, including a five-year turnaround at Oil Sands Base plant Upgrader 2, and Syncrude, with a planned turnaround scheduled at its largest coker. Capital plans in the downstream will focus on ongoing sustainment and enhancement to refinery and retail operations.

Economic investment capital will be focused on production decline mitigation, digital investments, and the cogeneration project at Oil Sands Base and the Forty Mile Wind Power Project, both of which are expected to contribute to the company's environmental goals and the company's previously announced incremental annual $2 billion free funds flow⁽¹⁾ target by 2025.

During the first quarter of 2021, Suncor announced an equity investment in Svante Inc., a Canadian carbon capture company. With support from Suncor and other companies, Svante plans to continue developing its technology to capture CO₂ from industrial processes at reduced costs. Carbon capture is a strategic technology area for Suncor to reduce greenhouse gas emissions in Suncor's base business and produce blue hydrogen as an energy product.

The financial health and resiliency of the company continues to be a key focus for the company in 2021. Suncor will continue to follow its capital allocation framework, which is designed to reduce debt, increase shareholder returns and invest in long-term profitable growth. As demonstrated this quarter, the company continues to execute on its previously announced 2021 commitment of allocating incremental free funds flow towards debt and share buybacks. Management plans to allocate two-thirds of incremental free funds flow to further debt repayment and one-third to additional share buybacks.

During the first quarter of 2021, consistent with its debt management and reduction strategy, Suncor cancelled $2.8 billion in bi-lateral credit facilities that were entered into to ensure access to adequate financial resources in connection with the COVID-19 pandemic. In addition, Suncor also exercised the early redemption options on its outstanding US$220 million 9.40% senior unsecured notes and $750 million 3.10% medium term notes, both due in 2021. During the first quarter of 2021, the company also issued US$750 million of 3.75% senior unsecured notes and $500 million of 3.95% senior unsecured medium term notes, both due on March 4, 2051.

Overall the company was able to strengthen its balance sheet and reduce total debt by $1.1 billion through cash flow provided by operating activities in line with its previously announced debt-reduction target.

In the first quarter of 2021, the company increased shareholder returns with $319 million in dividends paid and $318 million in shares repurchased.

2021 First Quarter   Suncor Energy Inc.  5

Operating Earnings (Loss) Reconciliation⁽¹⁾

Corporate Guidance

Suncor has updated its Corporate Guidance for the full-year business environment outlook assumptions for Brent Sullom Voe from US$55.00/bbl to US$63.00/bbl, WTI at Cushing from US$52.00/bbl to US$60.00/bbl, WCS at Hardisty from US$39.00/bbl to US$48.00/bbl, New York Harbor 2-1-1 crack from US$15.00/bbl to US$17.00/bbl and the Cdn$/US$ exchange rate from 0.78 to 0.80, due to improvements 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 $300 million – $600 million to $1.0 billion – $1.3 billion.

Oil Sands operations Crown royalties have been updated from 1% – 3% to 4% – 6% and Syncrude Crown royalties have been updated from 2% – 4% to 9% – 12%, with the increase in royalty rates attributed to higher forecasted benchmark prices. As a result of the higher forecasted benchmark prices Firebag is forecasted to reach post-payout phase before the end of 2021.

For further details and advisories regarding Suncor's 2021 annual guidance, see www.suncor.com/guidance.

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 the MD&A.

6  2021 First Quarter   Suncor Energy Inc.

Management's Discussion and Analysis
May 3, 2021

Suncor 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 for the year ended December 31, 2020, dated February 24, 2021 (the 2020 annual MD&A).

This Management's Discussion and Analysis for the three months ended March 31, 2021 (MD&A) should be read in conjunction with Suncor's unaudited interim Consolidated Financial Statements for the three months ended March 31, 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

2021 First Quarter   Suncor Energy Inc.  7

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 has 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 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 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.

8  2021 First Quarter   Suncor Energy Inc.

2. First Quarter Highlights

•

First quarter financial results  

•

Suncor's first quarter 2021 operating earnings⁽¹⁾⁽²⁾ were $746 million ($0.49 per common share), compared to an operating loss of $421 million ($0.28 per common share) in the prior year quarter. In the first quarter of 2021, crude oil and refined product realizations 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 and an increase in OPEC+ crude supply. The improving business environment in the first quarter of 2021 also resulted in a net inventory valuation gain, reflecting a FIFO gain as a result of the increasing value of refinery feedstock, partially offset by an increase in the elimination of intersegment profit in inventory. Operating earnings in the first quarter of 2021 also reflected the 46,100 boe/d increase in upstream production, compared to the prior year quarter, as well as lower DD&A and exploration expense.

•

Suncor's net earnings were $821 million ($0.54 per common share) in the first quarter of 2021, compared to a net loss of $3.525 billion ($2.31 per common share) in the prior year quarter. In addition to the factors impacting operating earnings (loss) discussed above, net earnings for the first quarter of 2021 included a $181 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt, an after-tax restructuring charge of $126 million and a $20 million after-tax unrealized gain on risk management activities. The net loss in the prior year quarter included $1.798 billion of non-cash after-tax asset impairment charges, a $1.021 billion unrealized after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt, a $397 million after-tax hydrocarbon inventory write-down to net realizable value, and a $112 million after-tax unrealized gain on risk management activities.

•

Funds from operations⁽¹⁾ were $2.110 billion ($1.39 per common share) in the first quarter of 2021, which included an after-tax restructuring charge of $126 million ($0.08 per common share), compared to $1.001 billion ($0.66 per common share) in the first 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 $2.345 billion ($1.54 per common share) for the first quarter of 2021, compared to $1.384 billion ($0.91 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 source of cash associated with the company's working capital balances in both periods. The source of cash in the first quarter of 2021 was primarily due to an increase in accounts payable and accrued liabilities, including a restructuring charge associated with the continuation of the company's workforce reductions, partially offset by an increase in accounts receivable and inventory due to an increase in commodity prices through the quarter.

•

Building on strong operational momentum.  Suncor's total upstream production increased to 785,900 boe/d in the first quarter of 2021, compared to 739,800 boe/d in the prior year quarter, on combined upgrader utilization⁽³⁾ of 97% and record In Situ production. Together, the fourth quarter of 2020 and first quarter of 2021 represent the best sequential SCO production performance in the company's history – another important step in Suncor's continued journey towards improved and sustained reliability.

•

Further cost reductions.  In the first quarter of 2021, Oil Sands operations cash operating costs⁽¹⁾ per barrel decreased by approximately 20% to $23.30 and Syncrude cash operating costs⁽¹⁾ per barrel decreased by approximately 10% to $32.25 compared to the prior year quarter due to a combination of increased production and improved cost performance. Further cost reductions are anticipated via the implementation of digital technologies, which are currently underway, and the assumption of Syncrude operatorship on September 30, 2021.

•

Continued refinery utilization outperformance.  Refining and Marketing (R&M) delivered funds from operations of $962 million, which included a FIFO inventory valuation gain of $373 million after-tax, compared to $224 million in the prior year quarter, which was impacted by a FIFO inventory valuation loss of $446 million after-tax. The company leveraged its marketing and logistics capabilities to achieve first quarter refinery utilization rates that continued to outperform the Canadian refining industry average by over 15%.⁽⁴⁾

2021 First Quarter   Suncor Energy Inc.  9

•

Strengthened balance sheet.  During the first quarter of 2021, the company cancelled $2.8 billion in bi-lateral credit facilities, reduced short-term debt and repaid higher interest long-term debt. The company also issued US$750 million of 3.75% senior unsecured notes and $500 million of 3.95% senior unsecured medium term notes, both due in 2051. The company reduced total debt by $1.1 billion in the first quarter of 2021.

•

Disciplined capital allocation.  The company increased shareholder returns with $319 million in dividends paid and $318 million shares repurchased, representing approximately 12 million shares, or approximately 1% of the total common shares outstanding. As demonstrated this quarter, the company continues to execute on its previously announced 2021 commitment of allocating incremental free funds flow towards debt repayment and share buybacks. Management plans to allocate two-thirds of incremental free funds flow to further debt repayment and one-third to additional share buybacks.

3. Consolidated Financial Information

Financial Highlights

10  2021 First Quarter   Suncor Energy Inc.

Operating Highlights

Net Earnings (Loss)

Suncor's consolidated net earnings for the first quarter of 2021 were $821 million, compared to a net loss of $3.525 billion 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 gain on the revaluation of U.S. dollar denominated debt was $181 million for the first quarter of 2021, compared to a loss of $1.021 billion for the first quarter of 2020.

•

The after-tax unrealized gain on risk management activities was $20 million for the first quarter of 2021, compared to a gain of $112 million for the first quarter of 2020.

•

The after-tax restructuring charge was $126 million related to workforce reductions in the Corporate segment recorded in the first quarter of 2021.

•

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 first quarter of 2020, the company recorded an after-tax inventory write-down to net realizable value of $177 million in the Oil Sands segment and $220 million in the Refining and Marketing segment as a result of a significant decline in benchmarks and demand for crude oil and refined products due to the impacts of the COVID-19 pandemic.

2021 First Quarter   Suncor Energy Inc.  11

Operating Earnings (Loss) Reconciliation⁽¹⁾

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 has revised its calculation of operating earnings, a non-GAAP financial measure, to exclude unrealized (gains) losses on derivative financial instruments that are recorded at fair value to better align the earnings impact of the activity with the underlying items being risk-managed. Prior period comparatives have been restated to reflect this change.

(3)

The bridge factor for Inventory Valuation is comprised of changes in the FIFO inventory valuation and 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.

12  2021 First Quarter   Suncor Energy Inc.

Suncor's first quarter 2021 operating earnings were $746 million ($0.49 per common share), compared to an operating loss of $421 million ($0.28 per common share) in the prior year quarter. In the first quarter of 2021, crude oil and refined product realizations 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 and an increase in OPEC+ crude supply. The improving business environment in the first quarter of 2021 also resulted in a net inventory valuation gain, reflecting a FIFO gain as a result of the increasing value of refinery feedstock, partially offset by an increase in the elimination of intersegment profit in inventory. Operating earnings in the first quarter of 2021 also reflected the 46,100 boe/d increase in upstream production, compared to the prior year quarter, as well as lower DD&A and exploration expense.

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

The after-tax share-based compensation impact on results was an expense of $87 million during the first quarter of 2021, compared to a recovery of $62 million during the prior year quarter, as a result of an increase in the company's share price through the first quarter of 2021, compared to a decrease in the prior year quarter.

2021 First Quarter   Suncor Energy Inc.  13

Business Environment

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

In the first 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 and an increase in OPEC+ crude supply.

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 first quarter of 2021 reflected an increase in WTI at Cushing, which averaged US$57.80/bbl compared to US$46.10/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 $66.55/bbl in the first quarter of 2021 compared to $52.00/bbl in the prior year quarter, and prices for WCS at Hardisty increased to US$45.40/bbl in the first quarter of 2021, from US$25.60/bbl in the prior year quarter.

Bitumen production that Suncor does not upgrade is blended with diluent or SCO to facilitate delivery on 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 price realizations. Bitumen prices benefited from the narrowing of heavy crude oil differentials in the first 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$60.85/bbl in the first quarter of 2021, compared to US$50.15/bbl in the prior year quarter.

Suncor's refining and marketing 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 reflect the margins at

14  2021 First Quarter   Suncor Energy Inc.

a specific refinery. Suncor's realized refining and marketing 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.

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 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 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 first 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. The Suncor 5-2-2-1 index was US$24.50/bbl in the first quarter of 2021, compared to US$25.60/bbl in the first quarter of 2020, as the increase in benchmark crack spreads driving the product value were more than offset by the narrowing crude differentials.

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 $3.15/mcf in the first quarter of 2021, from $2.05/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 $95.45/MWh in the first quarter of 2021, compared to $67.05/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 first quarter of 2021, as the average exchange rate increased to US$0.79 per one Canadian dollar from US$0.74 per one Canadian dollar in the prior year quarter. This rate increase had a negative impact on price realizations for the company during the first quarter of 2021 when compared to the prior year quarter.

Suncor also has assets and liabilities, including approximately 65% 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 First Quarter   Suncor Energy Inc.  15

4. Segment Results and Analysis

Oil Sands

Financial Highlights

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 has 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.

16  2021 First Quarter   Suncor Energy Inc.

The Oil Sands segment had operating earnings of $299 million in the first quarter of 2021, compared to an operating loss of $448 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 and OPEC+ supply issues, increased production and lower operating expense, partially offset by higher royalties.

Production Volumes⁽¹⁾⁽²⁾

The company's net SCO production increased to 519,900 bbls/d in the first quarter of 2021 from 503,600 bbls/d in the first quarter of 2020, as a result of increased upgrader utilization. The Syncrude and Oil Sands operations upgraders achieved combined upgrader utilization of 97% in the first quarter of 2021, compared to 93% in the prior year quarter, despite coker annual planned maintenance at Oil Sands Base that commenced late in the first quarter of 2021 and was completed subsequent to the end of the quarter. SCO production in the first quarter of 2021 was further enhanced by the internal transfers from Oil Sands Base to Syncrude via the interconnecting pipelines, which increased the production of higher value SCO.

Together, the fourth quarter of 2020 and first quarter of 2021 represent the best sequential SCO production performance in the company's history – another important step in Suncor's continued journey towards improved and sustained reliability. To maintain this level of safe, reliable and efficient operations, the company will begin its five-year planned maintenance turnaround at Oil Sands Base plant Upgrader 2 as well as Syncrude's planned maintenance turnaround at its largest coker during the second quarter of 2021. The anticipated production impact of these planned maintenance events has been reflected in the company's 2021 guidance.

The company's non-upgraded bitumen production increased to 170,700 bbls/d in the first quarter of 2021 from 126,500 bbls/d in the prior year quarter, which included the best In Situ quarterly production in the company's history. Record performance at Firebag reflected the first full quarter of operations following completion of debottlenecking activities late in 2020. At MacKay River, production in the prior year quarter was impacted by an outage that occurred in late 2019.

The increase in non-upgraded bitumen production from In Situ was partially offset by lower production at Fort Hills following the decision to reduce production in 2020 due to lower oil prices and reflecting a change to the mining ramp up strategy. Under the revised ramp up strategy, Fort Hills will hold production to one primary extraction train while operating the full mine fleet in order to reduce operational volatility and operating costs. The asset is expected to transition to both primary extraction trains operating at normal rates in the third quarter of 2021 with no impact to the annual Fort Hills production guidance range.

2021 First Quarter   Suncor Energy Inc.  17

Sales Volumes⁽¹⁾

SCO and diesel sales volumes increased to 515,200 bbls/d in the first quarter of 2021, from 512,500 bbls/d in the prior year quarter, consistent with the increase in production.

Non-upgraded bitumen sales volumes were 180,200 bbls/d in the first quarter of 2021, compared to 127,500 bbls/d in the prior year quarter, and were influenced by the same factors that affected production volumes, discussed above, in addition to a draw in inventory in the first quarter of 2021.

Price Realizations⁽¹⁾

Oil Sands realizations increased in the first 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 and increased OPEC+ supply at the beginning of 2020. Price realizations have since stabilized as benchmarks 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 first quarter of 2021 compared to the prior year quarter, primarily due to higher crude price realizations and production volumes.

Expenses and Other Factors

Total Oil Sands operating and transportation expenses decreased in the first quarter of 2021 compared to the prior year quarter, as described in detail below. 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 decreased compared to the prior year quarter, primarily due to lower mine maintenance and tailings costs as well as cost-reduction initiatives, partially offset by an increase in natural gas prices. The first quarter of 2020 also included an inventory write-down to net realizable value as a result of a significant decline in benchmarks and demand for crude oil and refined products due to the impacts of the COVID-19 pandemic and OPEC+ supply issues.

At Fort Hills, operating costs in the first quarter of 2021 decreased when compared to the prior year quarter, primarily due to lower costs associated with operating at reduced capacity and improved cost-effectiveness through the optimization of the autonomous mine fleet and other cost-reduction initiatives. The first quarter of 2020 also included an inventory write-down to net realizable value as a result of a significant decline in benchmarks and demand for crude oil and refined products due to the impacts of the COVID-19 pandemic and OPEC+ supply issues.

18  2021 First Quarter   Suncor Energy Inc.

Suncor's share of Syncrude operating costs in the first quarter of 2021 was comparable with the prior year quarter, primarily due to lower maintenance costs on improved reliability and cost-reduction initiatives, which were offset by increased production.

DD&A expense for the first quarter of 2021 was lower compared to the prior year quarter, as the prior year included additional depreciation related to derecognition charges associated with the cancellation of projects due to the COVID-19 pandemic.

Cash Operating Costs

Oil Sands operations cash operating costs⁽¹⁾ per barrel decreased to $23.30 in the first quarter of 2021, compared to $29.45 in the prior year quarter, due to a combination of increased production and lower operating, selling and general expenses, as detailed above, driving the improved cost performance. Total Oil Sands operations cash operating costs decreased to $972 million from $1.039 billion in the prior year quarter.

(1)

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

2021 First Quarter   Suncor Energy Inc.  19

Oil Sands operations non-production costs, which are excluded from cash operating costs, were lower in the current quarter compared to the prior year quarter primarily due to lower safe-mode costs associated with the deferral of capital projects and additional costs incurred in response to the impacts of the COVID-19 pandemic. This decrease was partially offset by higher share-based compensation expenses in the current quarter compared to a share-based compensation recovery in the prior year quarter.

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

Oil Sands operations inventory changes in the prior year quarter reflected a hydrocarbon inventory write-down to net realizable value as a result of the significant decline in crude oil benchmarks and demand due to the impacts of the COVID-19 pandemic and OPEC+ supply issues and a draw of inventory volumes.

Fort Hills cash operating costs⁽¹⁾ per barrel were $37.05 in the first quarter of 2021, compared to $31.00 in the prior year quarter, primarily due to lower production associated with operating at reduced capacity, partially offset by a significant reduction in costs.

Inventory changes at Fort Hills in the prior year quarter reflected a hydrocarbon inventory write-down to net realizable value as a result of the significant decline in crude oil benchmarks and demand due to the impacts of the COVID-19 pandemic and increased OPEC+ supply.

Syncrude cash operating costs⁽¹⁾ per barrel decreased to $32.25 in the first quarter of 2021, compared to $36.65 in the prior year quarter, with the decrease primarily due to increased production volumes and lower maintenance costs on improved reliability as well as cost reduction initiatives. Non-production costs, which are excluded from Syncrude cash operating costs, were impacted by a share-based compensation expense in the current quarter compared to a share-based compensation recovery in the prior year quarter.

Planned Maintenance Update

Planned annual coker maintenance at Oil Sands Base Upgrader 1, which began in the first quarter of 2021, was completed in the second quarter. Planned maintenance at Syncrude's largest coker is scheduled for the second quarter of 2021 as is the five-year planned maintenance turnaround at Oil Sands Base Upgrader 2, which is expected to be completed in the third quarter of 2021. The anticipated impact of these maintenance events has been reflected in the company's 2021 guidance.

(1)

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

20  2021 First Quarter   Suncor Energy Inc.

Exploration and Production

Financial Highlights

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 first quarter of 2021 increased to $163 million, from an operating loss of $5 million in the prior year quarter, with the increase primarily due to higher realized crude prices, lower DD&A and exploration expense, partially offset by lower production volumes.

2021 First Quarter   Suncor Energy Inc.  21

Production Volumes⁽¹⁾

Production volumes for E&P Canada were 58,000 bbls/d in the first quarter of 2021, compared to 62,200 bbls/d in the prior year quarter. The decrease in the first quarter of 2021 reflected lower asset performance and natural production 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.

E&P International production was 37,300 boe/d in the first quarter of 2021, compared to 47,500 boe/d in the prior year quarter. Production volumes decreased in the first quarter of 2021 primarily due to natural production declines, partially offset by increased production from Golden Eagle as a result of new infill wells.

E&P sales volumes decreased to 84,200 boe/d in the first quarter of 2021, compared to 107,200 boe/d in the prior year quarter, due to the decrease in production as well as a larger inventory build at East Coast Canada associated with the timing of cargo sales.

Price Realizations

Price realizations at E&P Canada and E&P International increased in the first quarter of 2021 from the prior year quarter, in line with an 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 and increased OPEC+ supply at the beginning of 2020. Price realizations have since stabilized as benchmarks improved in line with increased demand, optimism relating to vaccine rollouts and OPEC+ supply management.

Royalties

E&P royalties in the first 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 first quarter of 2021 increased from the prior year quarter due to a one-time transportation provision recorded in the first quarter of 2021, partially offset by reduced operating activity in E&P Canada.

DD&A expense in the first quarter of 2021 decreased from the prior year quarter as a result of lower production and DD&A rates as compared to the prior period, lower depletion at White Rose as a result of impairment charges in the fourth quarter of 2020 and a reversal of a previous asset impairment charge relating to the future sale of the Golden Eagle Area Development asset.

Exploration expenses in the first quarter of 2021 were lower than the prior year quarter due to a decline in exploration activities. The prior period included exploration charges for non-commercial drilling in Norway and East Coast Canada.

Planned Maintenance Update for Operated Assets

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

22  2021 First Quarter   Suncor Energy Inc.

Refining and Marketing

Financial Highlights

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 has 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 first quarter of 2021 were $714 million, compared to $101 million in the prior year quarter. Operating earnings included a FIFO inventory valuation gain of $373 million after-tax on the increase in crude and refined product benchmarks in the first quarter of 2021, compared to a FIFO inventory valuation loss of $446 million after-tax in the prior year quarter. Operating earnings were unfavourably impacted by the decrease in refining and marketing margins, due to narrowing crude oil differentials partially offset by improved crack benchmarks, and lower crude throughput.

2021 First Quarter   Suncor Energy Inc.  23

Volumes

Refinery crude throughput was 428,400 bbls/d and refinery utilization was 92% in the first quarter of 2021, compared to refinery crude throughput of 439,500 bbls/d and refinery utilization of 95% in the prior year quarter. During the first quarter of 2021, the company maintained strong refinery utilization rates as a result of the company's marketing and logistics network, including the expansion of its Burrard product export terminal, which increases the optionality of the company's sales channels.

Refined product sales in the first quarter of 2021 were 548,100 bbls/d, compared to 531,500 bbls/d in the prior year quarter, which reflects an increase of more than double the export sales volumes, compared to the prior year quarter, and a draw in product inventory in the current quarter, partially offset by lower retail gasoline sales.

Refining and Marketing Margins

Refining and marketing margins were influenced by the following:

•

On a LIFO⁽¹⁾ basis, Suncor's refining and marketing margin decreased to $30.30/bbl in the first quarter of 2021, from $35.60/bbl in the prior year quarter, due to the narrowing crude oil differentials and weaker domestic demand due to the impacts of the COVID-19 pandemic, partially offset by improved benchmark crack spreads. Suncor's strategic investment in marketing and logistics enabled the company to increase export volumes during a period of weaker domestic demand which allowed the company to optimize refinery utilization rates and sales volumes. This resulted in higher overall funds flow despite lower per barrel margins. Suncor's refining and marketing margin also reflects Suncor's feedstock advantage which enables the company to process discounted heavier crude oil, its marketing and logistics capabilities, and strong sales channels within its integrated retail and wholesale network.

•

On a FIFO basis, Suncor's refining and marketing margin increased to $40.75/bbl in the first quarter of 2021, from $23.35/bbl in the prior year quarter due to the same factors noted above, in addition to FIFO inventory valuation impacts. In the first quarter of 2021, the FIFO method of inventory valuation, relative to an estimated LIFO⁽¹⁾ accounting method, resulted in an after-tax gain of $373 million. In the prior year quarter, FIFO resulted in an after-tax loss of $446 million, for a favourable quarter-over-quarter improvement of $682 million, after-tax, including the impact of short-term commodity risk management activities.

(1)

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.

24  2021 First Quarter   Suncor Energy Inc.

Expenses and Other Factors

Operating expenses and DD&A in the first quarter of 2021 decreased compared to the prior year quarter, primarily due to lower derecognition charges and the impact of the company's cost-reduction initiatives, partially offset by a higher share-based compensation expense and higher commodity input costs due to higher natural gas prices. Refining operating expense⁽¹⁾ per barrel was $5.75 in the first quarter of 2021, compared to $5.65 in the prior year quarter, with the increase due to lower crude throughput volumes in the current quarter.

Planned Maintenance

Planned maintenance is scheduled at the Edmonton, Montreal and Commerce City refineries in the second quarter of 2021. The anticipated impact of these maintenance events has been reflected in the company's 2021 guidance.

Corporate and Eliminations

Financial Highlights

Corporate incurred an operating loss of $338 million for the first quarter of 2021, compared to an operating loss of $211 million for the prior year quarter, with the increased loss attributable to a share-based compensation expense in the first quarter of 2021, as compared to a share-based compensation recovery incurred in the first quarter of 2020, and an operational foreign exchange loss, as compared to an operational foreign exchange gain in the prior year quarter. Suncor capitalized $31 million of its borrowing costs in the first quarter of 2021 as part of the cost of major development assets and construction projects in progress, compared to $38 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 first quarter of 2021, the company deferred $92 million of after-tax intersegment profit, compared to a realization of intersegment profit and elimination of unrealized losses of $142 million after-tax in the prior year quarter, which was driven by the increase in Oil Sands price realizations over the previous quarter, as lower margin crude refinery feedstock sourced internally from Oil Sands was sold and replaced by higher margin crude inventory.

Corporate and Eliminations funds used in operations were $537 million for the first quarter of 2021, compared to $87 million in the first quarter of 2020, and were influenced by the same factors impacting operating loss described 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, in addition to a smaller share-based compensation cash payout in the current quarter compared to the prior year quarter.

(1)

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

2021 First Quarter   Suncor Energy Inc.  25

5. Capital Investment Update

Capital and Exploration Expenditures by Segment

Capital and Exploration Expenditures by Type, Excluding Capitalized Interest

The company spent $772 million on capital expenditures, excluding capitalized interest, in the first quarter of 2021, a decrease from $1.282 billion in the prior year quarter. The reduction is primarily due to the company's increased focus on capital discipline and decreasing asset sustainment and maintenance capital, which was partially related to increased planned maintenance activities at Oil Sands Base and In Situ in the prior year quarter, as well as decreased In Situ and E&P economic investment capital.

26  2021 First Quarter   Suncor Energy Inc.

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

Oil Sands

Oil Sands Base capital expenditures were $266 million in the first quarter of 2021, and were primarily focused on asset sustainment and maintenance activities related to the company's planned maintenance program and economic investment to progress low-carbon power cogeneration to replace the coke-fired boilers.

In Situ capital expenditures were $96 million in the first quarter of 2021, and were primarily directed towards economic investment activities, including the continued investment in well pad projects.

Capital expenditures at Fort Hills were $37 million in the first quarter of 2021, primarily directed towards asset sustainment and maintenance activities in the mine and tailings development.

Syncrude capital expenditures were $119 million in the first 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 $62 million in the first quarter of 2021 relating to economic investment projects, including development drilling at Hebron and Golden Eagle, and limited development work on the Fenja project.

Refining and Marketing

R&M capital expenditures were $120 million in the first quarter of 2021 and were primarily related to asset sustainment and maintenance activities.

Corporate and Eliminations

Corporate capital expenditures were $72 million in the first quarter of 2021 and were primarily directed towards the company's digital transformation.

2021 First Quarter   Suncor Energy Inc.  27

6. Financial Condition and Liquidity

Indicators

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 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 March 31, 2021, cash and cash equivalents decreased to $1.762 billion, from $1.885 billion at December 31, 2020, with the uses of cash in respect of the company's capital and exploration expenditures, dividend payments, the purchase of $318 million of Suncor's own common shares under its normal course issuer bid (NCIB) and total debt reduction of $1.1 billion, inclusive of lease payments, marginally exceeding cash flow provided by operating activities.

As at March 31, 2021, the weighted average days to maturity of the company's short-term investment portfolio was approximately 17 days.

Available credit facilities for liquidity purposes at March 31, 2021, decreased to $4.432 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 that were entered into to ensure access to adequate financial resources in connection with the COVID-19 pandemic, partially offset by increased credit availability as a result of a lower commercial paper balance.

28  2021 First Quarter   Suncor Energy Inc.

In the first quarter of 2021, Standard & Poor's affirmed the company's long-term senior debt rating of BBB+ but revised its outlook to Negative from Stable as a result of revisions to the assessment of industry risk for the global oil and gas integrated sector.

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. We believe the disciplined actions around liquidity and capital spending the company has taken to address the recent economic downturn will help sustain the financial health of the company.

During the first quarter of 2021, Suncor exercised the early redemption options on its outstanding US$220 million 9.40% senior unsecured notes and $750 million 3.10% medium term notes, both due in 2021.

During the first quarter of 2021, the company also issued US$750 million of 3.75% senior unsecured notes and $500 million of 3.95% senior unsecured medium term notes, both due on March 4, 2051.

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 March 31, 2021, total debt to total debt plus shareholders' equity was 36.2% (December 31, 2020 – 37.8%). The company continues to be in compliance with all operating covenants under its debt agreements.

2021 First Quarter   Suncor Energy Inc.  29

Change in Debt

The company's total debt decreased in the first quarter of 2021 due to the significant reduction of short-term debt, the repayment of higher interest long-term debt, favourable foreign exchange rates on U.S. dollar denominated debt compared to December 31, 2020, and principal lease payments made during the first quarter of 2021, partially offset by the issuance of long-term debt, as noted above, and leases entered into during the period.

Common Shares

As at April 29, 2021, the total number of common shares outstanding was 1,506,484,194 and the total number of exercisable and non-exercisable common share options outstanding was 38,993,336. Once exercisable, each outstanding common share option is convertible into one common share.

Share Repurchases

In the first quarter of 2021, the Toronto Stock Exchange (TSX) accepted a notice filed by Suncor to commence a NCIB to purchase shares through the facilities of the TSX, New York Stock Exchange and/or alternative trading platforms. The notice provides that, beginning February 8, 2021, and ending February 7, 2022, Suncor may purchase for cancellation up to 44,000,000 common shares, which is equal to approximately 2.9% of Suncor's 1,525,150,794 issued and outstanding common shares as at January 31, 2021. Suncor security holders may obtain a copy of the notice, without charge, by contacting the company.

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 growth strategy.

30  2021 First Quarter   Suncor Energy Inc.

Contractual Obligations, Commitments, Guarantees and Off-Balance Sheet Arrangements

In the normal course of business, the company is obligated to make future payments, including contractual obligations and non-cancellable commitments. Suncor has included these items in the Financial Condition and Liquidity section of the 2020 annual MD&A. Suncor does not believe it has any guarantees or off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the company's financial performance or financial condition, results of operations, liquidity or capital expenditures.

2021 First Quarter   Suncor Energy Inc.  31

7. Quarterly Financial Data

Trends in Suncor's quarterly revenue, earnings and funds from operations are driven primarily by production volumes, which can be significantly impacted by major maintenance events, changes in commodity prices, including widening of crude differentials, refining crack spreads, foreign exchange rates and other significant events impacting operations, such as the COVID-19 pandemic beginning in the first quarter of 2020, operational incidents and the Government of Alberta's mandatory production curtailments that were implemented during 2019 and suspended effective December 2020.

Financial Summary