EXHIBIT 99.1

Report to Shareholders for the third quarter ended September 30, 2020

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 October 28, 2020. See also the Advisories section of the MD&A. References to Oil Sands operations exclude Suncor's interests in Fort Hills and Syncrude.

"We remain steadfast in our commitment to the safety and reliability of our operations as we continue to navigate the impact of the COVID-19 pandemic," said Mark Little, president and chief executive officer. "Although the pandemic continues to have adverse impacts on our industry, we remain focused on items within our control, including the safety of our workforce and communities, and structural changes that lower our cost base, preserve the financial resiliency of the company and set the foundation for long-term value creation."

•

Funds from operations⁽¹⁾ increased to $1.166 billion ($0.76 per common share) in the third quarter of 2020, from $488 million ($0.32 per common share) in the second quarter of 2020. Funds from operations were $2.675 billion ($1.72 per common share) in the prior year quarter. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $1.245 billion ($0.82 per common share) in the third quarter of 2020, compared to $3.136 billion ($2.02 per common share) in the prior year quarter.

•

The company recorded an operating loss⁽¹⁾ of $302 million ($0.20 per common share) in the third quarter of 2020, compared to $1.489 billion ($0.98 per common share) in the second quarter of 2020 and operating earnings of $1.114 billion ($0.72 per common share) in the prior year quarter. The company had a net loss of $12 million ($0.01 per common share) in the third quarter of 2020, compared to net earnings of $1.035 billion ($0.67 per common share) in the prior year quarter.

•

The company continued to reduce operating and capital costs in the third quarter of 2020 relative to the prior year quarter and remains on track to achieve its previously announced $1 billion operating cost reduction target and $1.9 billion capital cost reduction target.

•

The company undertook significant maintenance activities across its upstream and downstream assets in the third quarter of 2020, which resulted in lower production volumes and refinery utilization. Total upstream production decreased to 616,200 barrels of oil equivalent per day (boe/d) during the third quarter of 2020, from 762,300 boe/d in the prior year quarter, and refinery utilization averaged 87% in the third quarter of 2020 compared to 100% in the prior year quarter. Substantially all maintenance activities were completed during or subsequent to the third quarter of 2020, including repairs at Oil Sands Base Plant, enabling all assets to return to normal operating rates by early November 2020.

•

The company's ability to react rapidly to changing market conditions enabled the company to exit the quarter with refinery utilization of approximately 97%.

•

During the third quarter of 2020, Suncor began the restart of the second primary extraction train at Fort Hills. In October 2020, the restart was completed with Fort Hills now on track to achieve its updated gross production guidance of between 120,000 and 130,000 barrels per day (bbls/d) in the fourth quarter of 2020.

•

The accelerated maintenance at Firebag, which allows the company to integrate and fully utilize the additional steam and water treatment assets has been substantially completed subsequent to the third quarter of 2020. Firebag is in the process of commissioning and ramping up the facility to its new nameplate capacity of 215,000 bbls/d.

•

The interconnecting pipelines between Suncor's Oil Sands Base Plant and Syncrude are nearing completion of construction, and will be commissioned in the fourth quarter of 2020. The bi-directional pipelines are expected to enhance integration between these assets and provide increased operational flexibility.

(1)

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

(1)

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

(2)

Includes the impacts of the Government of Alberta's mandatory production curtailments for all periods presented and the impacts of the significant decline in commodity prices due to the COVID-19 pandemic in 2020.

(3)

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

(4)

ROCE excluding major projects in progress and impairments would have been 8.0%, 8.6% and 5.4% for the third quarter of 2019, fourth quarter of 2019 and first quarter of 2020, respectively, 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 (Loss) Earnings

Suncor's third quarter 2020 operating loss was $302 million ($0.20 per common share), compared to operating earnings of $1.114 billion ($0.72 per common share) in the prior year quarter. In the third quarter of 2020, crude oil and refined product realizations decreased significantly from the prior year quarter, with crude oil and crack spread benchmarks declining by more than 25%, primarily due to the impacts of the COVID-19 pandemic. Upstream production decreased as the company experienced an operational incident at Oil Sands Base Plant and Fort Hills continued operating on one primary extraction train. Refinery crude throughput decreased compared to the prior year quarter due to planned maintenance activities and lower demand for transportation fuels as a result of the COVID-19 pandemic. Operating losses in the third quarter of 2020 were minimized by the decrease in operating, selling and general expenses associated with lower production and the continued execution of the company's cost reduction initiatives.

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

(1)

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

(2)

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

Net (Loss) Earnings

Suncor's net loss was $12 million ($0.01 per common share) in the third quarter of 2020, compared to net earnings of $1.035 billion ($0.67 per common share) in the prior year quarter. In addition to the factors impacting operating (loss) earnings discussed above, the net loss for the third quarter of 2020 included a $290 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt. Net earnings in the prior year quarter included a $127 million unrealized after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt and an after-tax gain of $48 million in the Exploration and Production (E&P) segment related to the sale of certain non-core assets.

Funds from Operations and Cash Flow Provided By Operating Activities

Funds from operations were $1.166 billion ($0.76 per common share) in the third quarter of 2020, compared to $2.675 billion ($1.72 per common share) in the third quarter of 2019, and were influenced by the same factors impacting operating (loss) earnings noted above.

Cash flow provided by operating activities, which includes changes in non-cash working capital, was $1.245 billion ($0.82 per common share) for the third quarter of 2020, compared to $3.136 billion ($2.02 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 lower source of cash associated with the company's working capital balances in the third quarter of 2020 compared to the prior year quarter. The source of cash was primarily due to an increase in accrued liabilities relative to the second quarter of 2020, partially offset by an increase in income taxes receivable due to tax losses incurred, which are expected to be received in 2021.

Operating Results

Suncor's total upstream production was 616,200 boe/d during the third quarter of 2020, compared to 762,300 boe/d in the prior year quarter. Synthetic crude oil (SCO) production decreased to 410,800 bbls/d in the third quarter of 2020 from 479,300 bbls/d in the third quarter of 2019, resulting in combined upgrader utilization rates of 75% and 87%, respectively, with both periods impacted by planned maintenance at Oil Sands operations and Syncrude and, in the third quarter of 2020, by an operational incident at the secondary extraction facilities at Oil Sands Base Plant. Production was restored to 165,000 bbls/d of mined bitumen, within approximately two weeks of the incident, as production was restricted to manage bitumen quality into the upgraders. Subsequent to the third quarter of 2020, repairs were substantially completed and production is anticipated to ramp up to full rates by early November 2020. To mitigate the impact of this event, the company diverted bitumen production from Firebag to the upgraders to maximize the production of higher value SCO barrels. As a result, overall Oil Sands production was also reduced by the yield loss associated with upgrading In Situ bitumen to SCO.

Non-upgraded bitumen production decreased to 108,200 bbls/d in the third quarter of 2020 from 190,700 bbls/d in the third quarter of 2019, as bitumen production from Firebag was diverted to the upgrader to maximize value over volume and as Fort Hills continued operating on one primary extraction train throughout the third quarter of 2020. At the end of the third quarter of 2020, the company also accelerated a portion of Firebag maintenance originally scheduled for 2022, to expand the capacity of the facility through the installation of new incremental emulsion handling and steam infrastructure and also address plant restrictions that developed during the quarter. This maintenance was substantially completed subsequent to the third quarter of 2020.

At Fort Hills, the second primary extraction train was restarted in the third quarter of 2020. Subsequent to the third quarter of 2020, the restart was completed with Fort Hills now on track to achieve its updated gross production guidance of between 120,000 and 130,000 bbls/d in the fourth quarter of 2020. This lays the foundation for improved cost effectiveness through optimization of the mine fleet and includes the completion of the full deployment of autonomous haul trucks by the end of 2020. At this initial production level, Suncor expects to retain approximately 90% of the estimated cost reductions.

"We are disappointed with our recent operational performance so we are strengthening our focus on the company's commitment to reliability," said Little. "We remain focused on operational excellence and on continuing to make the right long-term decisions to advance our asset sustainment and strategic initiatives aimed at improving reliability, increasing margins and reducing operating costs across our assets."

E&P production during the third quarter of 2020 increased to 97,200 boe/d from 92,300 boe/d in the prior year quarter, primarily due to improved reliability at Hibernia, and increased production at Hebron as six new production wells have come online since the third quarter of 2019, partially offset by Terra Nova, which remained offline, and natural declines in the United Kingdom.

Refinery crude throughput was 399,700 bbls/d and refinery utilization was 87% in the third quarter of 2020, compared to refinery crude throughput of 463,700 bbls/d and refinery utilization of 100% in the prior year quarter, with the decline due to the completion of the eight-week planned maintenance event at the Edmonton refinery and lower demand for refined products during the third quarter of 2020. Refined product sales decreased in the third quarter of 2020 to 534,000 bbls/d, compared to 572,000 bbls/d in the prior year quarter, as a result of the COVID-19 pandemic.

The company's total operating, selling and general expenses decreased to $2.275 billion in the third quarter of 2020 from $2.793 billion in the prior year quarter, primarily due to lower overall upstream and downstream sales volumes, continued cost reduction initiatives executed in 2020, as well as a share-based compensation recovery incurred in the third quarter of 2020, as compared to a share-based compensation expense in the prior year quarter. Operating, selling and general expenses for the nine months ended September 30, 2020 decreased by approximately $1 billion compared to the prior year period.

"Suncor continues to reduce operating and capital costs across our business," said Little. "Building on our commitment to reliability, the work at our Oil Sands Base Plant, Firebag and Fort Hills operations is substantially complete and the facilities are in the process of ramping up to normal operating rates by early November. With our full complement of refinery assets back on stream after planned maintenance, the company is positioned for strong performance exiting 2020."

Strategy Update

In response to the COVID-19 pandemic and global supply imbalances, the company took decisive action to lower production to meet demand, lower operating costs and capital, and preserve its financial strength while laying the foundation to deliver long-term value in support of increasing shareholder returns. This approach is underpinned by Suncor's commitment to operational excellence, including its unwavering commitment to operate in a safe, reliable, cost-efficient and environmentally responsible manner.

Suncor has made progress in reducing operating costs across the company and remains on track to achieve the previously announced $1 billion operating cost reduction target by the end of 2020. In 2020, the company has achieved savings through base business reductions, enhancements to our supply chain model and reductions in costs as Fort Hills temporarily transitioned to one primary extraction train. In addition to the progress Suncor has made thus far on reducing operating and capital costs, the company has made the decision to accelerate structural reductions to its workforce over the next 18 months by approximately 10 to 15%, which were anticipated as part of the company's transformation and $2 billion incremental free funds flow⁽¹⁾ target.

The company also remains on track to achieve its $1.9 billion capital reduction target by the end of 2020, shifting the focus to sustaining projects designed to maintain safe and reliable operations, while advancing select projects in the core of our business that are expected to provide near-term returns and result in structural reductions to operating costs. Suncor continues to exercise capital discipline, carefully evaluating future projects and being disciplined in the deployment of capital in a constrained environment. This includes reducing spending across various E&P assets, including at Terra Nova, West White Rose and Fenja. The operator of the West White Rose Project has announced the cancellation of the 2021 construction season and is moving the project into safekeeping mode. The company is exercising capital discipline by undertaking activities to safely preserve the Terra Nova floating production storage and offloading unit quayside and deferring the asset life extension (ALE) project until an economically viable path forward with a safe and reliable return to operations can be determined. The ALE project is currently being evaluated with all stakeholders to determine the best option to recover remaining resources from the Terra Nova field.

In the third quarter of 2020, the company continued to advance the transition to its Autonomous Haulage System (AHS) at Fort Hills, which is expected to result in enhanced safety, environmental and operating performance, and lower operating costs. The company anticipates that the AHS truck fleet at Fort Hills will be fully operational in the fourth quarter of 2020. Starting late in the third quarter of 2020, Firebag In-Situ production rates were reduced to 110,000 bbls/d to enable Suncor to expand the capacity of the facility by fully integrating the new incremental emulsion handling and steam infrastructure. Following completion of this work, Firebag nameplate capacity will increase by 12,000 bbls/d to 215,000 bbls/d. The interconnecting pipelines between Suncor's Oil Sands Base Plant and Syncrude are nearing completion of construction, and will be commissioned in the fourth quarter of 2020. The bi-directional pipelines are expected to enhance integration between these assets and provide increased operational flexibility.

These initiatives are anticipated to deliver structural, sustained free funds flow growth through margin improvements, operating and sustaining capital cost reductions, and production growth from existing assets, which will contribute to Suncor's $2 billion free funds flow target. Technology investments in the company's marketing and trading business and the advancement of supply chain optimization initiatives are also expected to contribute towards this target while unlocking value that is largely independent of commodity prices. These projects will be underscored by digital technology adoption as the company continues to accelerate its digital transformation strategy aimed at improving the reliability, safety and environmental performance of its operations and which the company anticipates will enable operational efficiencies that will provide further structural cost savings.

"Through our integrated model and the value-driven projects we've advanced, including the AHS at Fort Hills and the Syncrude interconnecting pipelines, we believe Suncor is well positioned to add incremental and sustainable free funds flow in 2021," said Little. "We are confident that the steps we have taken this year will contribute to creating long-term value for our shareholders."

While the focus in 2020 has been on maintaining the financial strength and resiliency of the balance sheet through this period of volatile market conditions, the company remains committed to returning value to our shareholders and, in the third quarter of 2020, the company paid $321 million in dividends. As the company continues to execute on its plan to add sustainable annual free funds flow, the company plans to follow its capital allocation framework with a combination of future debt repayments, increasing shareholder returns and measured investments in economic projects.

(1)

Free funds flow is a non-GAAP financial measure. See the Non-GAAP Financial Measures Advisory section of the MD&A.

Operating (Loss) Earnings Reconciliation⁽¹⁾

Corporate Guidance

Suncor has updated its Corporate Guidance for the full year business environment outlook assumptions previously updated on September 7, 2020 for Brent Sullom Voe from US$43.00/bbl to US$41.00/bbl, WTI at Cushing from US$40.00/bbl to US$38.00/bbl, WCS at Hardisty from US$26.00/bbl to US$25.00/bbl and AECO-C Spot from $2.25/GJ to $2.00/GJ, due to declines in key forward curve pricing for the remainder of the year. As a result of these updates, the full year current income tax recovery assumptions have changed from $500 million – $800 million to $650 million – $950 million.

For further details and advisories regarding Suncor's 2020 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS
October 28, 2020

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, 2019, dated February 26, 2020 (the 2019 annual MD&A).

This Management's Discussion and Analysis (MD&A) should be read in conjunction with Suncor's unaudited interim Consolidated Financial Statements for the three and nine months ended September 30, 2020, Suncor's audited Consolidated Financial Statements for the year ended December 31, 2019 and the 2019 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 26, 2020 (the 2019 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 (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.

Table of Contents

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.

Non-GAAP Financial Measures

Certain financial measures in this MD&A – namely operating (loss) earnings, 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 (loss) earnings 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 below and 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 2019 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.

Continued Impact of the COVID-19 Pandemic

Suncor's business, financial condition and results of operations could be materially and adversely affected by the outbreak of epidemics, pandemics and other public health crises in geographic areas in which we have operations, suppliers, customers or employees, including the COVID-19 pandemic and the ongoing uncertainty as to the extent and duration of the pandemic. The ongoing COVID-19 pandemic, and actions that have and may be taken by governmental authorities in response thereto, has resulted, and may continue to result in, among other things: increased volatility in financial markets and foreign currency exchange rates; disruptions to global supply chains; labour shortages; reductions in trade volumes; temporary operational restrictions and restrictions on gatherings greater than a certain number of individuals, shelter-in-place declarations and quarantine orders, business closures and travel bans; an overall slowdown in the global economy; political and economic instability; and civil unrest. In particular, the COVID-19 pandemic has resulted in, and may continue to result in, a reduction in the demand for, and prices of, commodities that are closely linked to Suncor's financial performance, including crude oil, refined petroleum products (such as jet fuel and gasoline), natural gas and electricity, and also increases the risk that storage for crude oil and refined petroleum products could reach capacity in certain geographic locations in which we operate. The recent resurgence of COVID-19 cases in certain geographic areas, and the possibility that a resurgence may occur in other areas, has resulted in the re-imposition of certain restrictions noted above by local authorities. This further increases the risk and uncertainty as to the extent and duration of the COVID-19 pandemic and the resultant impact on commodity demand and prices. A prolonged period of decreased demand for, and prices of, these commodities, and any applicable storage constraints, could also result in us voluntarily curtailing or shutting in production and a decrease in our refined product

volumes and refinery utilization rates, which could adversely impact our business, financial condition and results of operations. Suncor is also subject to risks relating to the health and safety of our people, as well as the potential for a slowdown or temporary suspension of our operations in locations impacted by an outbreak, increased labour and fuel costs, and regulatory changes. Such a suspension in operations could also be mandated by governmental authorities in response to the COVID-19 pandemic. This could negatively impact Suncor's production or refined product volumes and refinery utilization rates for a sustained period of time, which would adversely impact our business, financial condition and results of operations.

Continued Weakness and Volatility in Commodity and Petroleum Products Prices

Recent market events and conditions, including excess global crude oil and petroleum products supply as a result of decreased global demand due to the COVID-19 pandemic, have caused significant weakness and volatility in commodity and petroleum products prices. Commodity prices could remain under pressure for a prolonged period and which could cause continued weakness and volatility. This could result in reduced utilization and/or the suspension of operations at certain of our facilities, buyers of our products declaring force majeure or bankruptcy, the unavailability of storage, and disruptions of pipeline and other transportation systems for our products, which would further negatively impact Suncor's production or refined product volumes, and could adversely impact our business, financial condition and results of operations.

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.

2. THIRD QUARTER HIGHLIGHTS

•

Third quarter financial results  

•

Suncor's third quarter 2020 operating loss⁽¹⁾ was $302 million ($0.20 per common share), compared to operating earnings of $1.114 billion ($0.72 per common share) in the prior year quarter. In the third quarter of 2020, crude oil and refined product realizations decreased significantly from the prior year quarter, with crude oil and crack spread benchmarks declining by more than 25%, primarily due to the impacts of the COVID-19 pandemic. Upstream production decreased as the company experienced an operational incident at Oil Sands Base Plant and Fort Hills continued operating on one primary extraction train. Refinery crude throughput decreased compared to the prior year quarter due to planned maintenance activities and lower demand for transportation fuels as a result of the COVID-19 pandemic. Operating losses in the third quarter of 2020 were minimized by the decrease in operating, selling and general costs associated with lower production and the continued execution of the company's cost reduction initiatives.

•

Suncor's net loss was $12 million ($0.01 per common share) in the third quarter of 2020, compared to net earnings of $1.035 billion ($0.67 per common share) in the prior year quarter. In addition to the factors impacting operating (loss) earnings discussed above, the net loss for the third quarter of 2020 included a $290 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt. Net earnings in the prior year quarter included a $127 million unrealized after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt and an after-tax gain of $48 million in the Exploration and Production (E&P) segment related to the sale of certain non-core assets.

•

Funds from operations⁽¹⁾ were $1.166 billion ($0.76 per common share) in the third quarter of 2020, compared to $2.675 billion ($1.72 per common share) in the third quarter of 2019, and were influenced by the same factors impacting operating (loss) earnings noted above. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $1.245 billion ($0.82 per common share) for the third quarter of 2020, compared to $3.136 billion ($2.02 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 lower source of cash associated with the company's working capital balances in the third quarter of 2020 compared to the prior year quarter. The source of cash was primarily due to an increase in accrued liabilities relative to the second quarter of 2020, partially offset by an increase in income taxes receivable due to tax losses incurred, which are expected to be received in 2021.

•

Continued focus on structural cost reductions. The company continued to reduce operating and capital costs in the third quarter of 2020 relative to the prior year quarter and remains on track to achieve its previously announced $1 billion operating cost reduction target and $1.9 billion capital cost reduction target.

•

Completion of major maintenance. The company undertook significant maintenance activities across its upstream and downstream assets in the third quarter of 2020, which resulted in lower production volumes and refinery utilization. Total upstream production decreased to 616,200 boe/d during the third quarter of 2020, from 762,300 boe/d in the prior year quarter, and refinery utilization averaged 87% in the third quarter of 2020 compared to 100% in the prior year quarter. Substantially all maintenance activities were completed during or subsequent to the third quarter of 2020, including repairs at Oil Sands Base Plant, enabling all assets to return to normal operating rates by early November 2020.

•

Refining and Marketing (R&M) funds from operations increased from the second quarter of 2020. R&M funds from operations increased to $594 million in the third quarter of 2020 compared to $475 million in the second quarter of 2020, despite the impact of planned maintenance. The company's ability to react rapidly to changing market conditions enabled the company to exit the third quarter of 2020 with refinery utilization of approximately 97%.

•

Fort Hills ramping up second primary extraction train. During the third quarter of 2020, Suncor began the restart of the second primary extraction train at Fort Hills. In October 2020, the restart was completed with Fort Hills now on track to achieve its updated gross production guidance of between 120,000 and 130,000 barrels per day (bbls/d) in the fourth quarter of 2020.

•

Execution of Firebag debottlenecking activities. The accelerated maintenance at Firebag, which allows the company to integrate and fully utilize the additional steam and water treatment assets, has been substantially completed subsequent to the third quarter of 2020. Firebag is in the process of commissioning and ramping up the facility to its new nameplate capacity of 215,000 bbls/d.

(1)

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

•

Advancement of select projects aimed at $2 billion free funds flow⁽¹⁾ target. In the third quarter of 2020, the company continued to advance the transition to its Autonomous Haulage System (AHS) at Fort Hills, anticipating the fleet to be operating fully autonomously in the fourth quarter of 2020. The interconnecting pipelines between Suncor's Oil Sands Base Plant and Syncrude are nearing completion of construction, and will be commissioned in the fourth quarter of 2020. The bi-directional pipelines are expected to enhance integration between these assets and provide increased operational flexibility.

•

Returning value to shareholders. The company remains committed to returning value to our shareholders, and in the third quarter of 2020, the company paid $321 million in dividends.

3. CONSOLIDATED FINANCIAL INFORMATION

Financial Highlights

Operating Highlights

Net (Loss) Earnings

Suncor's consolidated net loss for the third quarter of 2020 was $12 million, compared to net earnings of $1.035 billion for the prior year quarter. The net loss was primarily caused by the same factors that resulted in the operating loss described subsequently in this section of this MD&A.

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

•

The after-tax unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt was $290 million for the third quarter of 2020, compared to a loss of $127 million for the third quarter of 2019.

•

The third quarter of 2019 included an after-tax gain of $48 million in the E&P segment related to the sale of certain non-core assets.

Operating (Loss) Earnings Reconciliation⁽¹⁾

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

(1)

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

(2)

The bridge factor for Inventory Valuation is comprised of changes in the first-in, first out (FIFO) inventory valuation and 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.

Suncor's third quarter 2020 operating loss was $302 million ($0.20 per common share), compared to operating earnings of $1.114 billion ($0.72 per common share) in the prior year quarter. In the third quarter of 2020, crude oil and refined product realizations decreased significantly from the prior year quarter, with crude oil and crack spread benchmarks declining by more than 25%, primarily due to the impacts of the COVID-19 pandemic. Upstream production decreased as the company experienced an operational incident at Oil Sands Base Plant and Fort Hills continued operating on one primary extraction train. Refinery crude throughput decreased compared to the prior year quarter due to planned maintenance activities and lower demand for transportation fuels as a result of the COVID-19 pandemic. Operating losses in the third quarter of 2020 were minimized by the decrease in operating, selling and general expenses associated with lower production and the continued execution of the company's cost reduction initiatives.

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

The after-tax share-based compensation impact on results was a recovery of $31 million during the third quarter of 2020, compared to an expense of $52 million during the prior year quarter, as a result of a decrease in the company's share price through the current quarter, compared to an increase in the prior year quarter.

Business Environment

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

The COVID-19 pandemic has significantly lowered demand for crude oil and refined products, resulting in a decrease in crude oil and crack spread benchmarks of more than 25% compared to the prior year quarter.

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 2020 reflected a significant decrease in WTI at Cushing, which averaged US$40.95/bbl, compared to US$56.45/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 decreased to $51.30/bbl in the third quarter of 2020 compared to $68.35/bbl in the prior year quarter, and prices for WCS at Hardisty decreased to an average of US$31.90/bbl in the third quarter of 2020, from US$44.20/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 third quarter of 2020.

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 decreased to US$43.00/bbl in the third quarter of 2020, compared to US$61.90/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 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 third quarter of 2020, the 2-1-1 benchmark crack spreads declined significantly compared to the prior year quarter due to decreased demand for transportation fuels. The Suncor 5-2-2-1 index was US$16.80/bbl in the third quarter of 2020, compared to US$24.40/bbl in the third quarter of 2019, impacted by lower benchmark cracking margins and 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 $2.25/mcf in the third quarter of 2020, from $0.95/mcf in the prior year quarter.

Excess electricity produced in Suncor's Oil Sands operations and at Fort Hills is sold to the Alberta Electric System Operator, with the proceeds netted against the cash operating cost per barrel metric. The Alberta power pool price decreased to an average of $43.85/MWh in the third quarter of 2020, compared to $46.85/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 weakened in relation to the U.S. dollar in the third quarter of 2020, as the average exchange rate decreased to US$0.75 per one Canadian dollar from US$0.76 per one Canadian dollar in the prior year quarter. This rate decrease had a positive impact on price realizations for the company during the third quarter of 2020 when compared to the prior year quarter.

Suncor also has assets and liabilities, including approximately 64% 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.

4. SEGMENT RESULTS AND ANALYSIS

OIL SANDS

Financial Highlights

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

(1)

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

The Oil Sands segment had an operating loss of $531 million in the third quarter of 2020, compared to operating earnings of $505 million in the prior year quarter. The decrease was primarily due to lower realized crude prices, as crude benchmarks decreased by approximately 25% compared to the prior year quarter as a result of the COVID-19 pandemic, lower production volumes, due to an operational incident at Oil Sands Base Plant and Fort Hills continuing to operate on one primary extraction train, as well as higher DD&A. These factors were partially offset by the decrease in operating, selling and general expenses, associated with lower production and the company's continued cost reduction initiatives, and lower royalties.

Production Volumes⁽¹⁾⁽²⁾

SCO production decreased to 410,800 bbls/d in the third quarter of 2020 from 479,300 bbls/d in the third quarter of 2019, resulting in combined upgrader utilization rates of 75% and 87%, respectively, with both periods impacted by planned maintenance at Oil Sands operations and Syncrude and, in the third quarter of 2020, by an operational incident at the secondary extraction facilities at Oil Sands Base Plant. Production was restored to 165,000 bbls/d of mined bitumen within approximately two weeks of the incident, as production was restricted to manage bitumen quality into the upgraders. Subsequent to the third quarter of 2020, repairs were substantially completed and production is anticipated to ramp up to full rates by early November 2020. To mitigate the impact of this event, the company diverted bitumen production from Firebag to the upgraders to maximize the production of higher value SCO barrels. As a result, overall Oil Sands production was also reduced by the yield loss associated with upgrading In Situ bitumen to SCO.

Non-upgraded bitumen production decreased to 108,200 bbls/d in the third quarter of 2020 from 190,700 bbls/d in the third quarter of 2019, as bitumen production from Firebag was diverted to the upgrader to maximize value over volume and as Fort Hills continued operating on one primary extraction train throughout the third quarter of 2020. At the end of the third quarter of 2020, the company also accelerated a portion of Firebag maintenance originally scheduled for 2022, to expand the capacity of the facility through the installation of new incremental emulsion handling and steam infrastructure and also address plant restrictions that developed during the quarter. This maintenance was substantially completed subsequent to the third quarter of 2020.

At Fort Hills, the second primary extraction train was restarted in the third quarter of 2020. Subsequent to the third quarter of 2020, the restart was completed with Fort Hills now on track to achieve its updated gross production guidance of between 120,000 and 130,000 bbls/d in the fourth quarter of 2020. This lays the foundation for improved cost effectiveness through optimization of the mine fleet and includes the completion of the full deployment of autonomous haul trucks by the end of 2020. At this initial production level, Suncor expects to retain approximately 90% of the estimated cost reductions.

Sales Volumes⁽¹⁾

SCO and diesel sales volumes decreased to 420,100 bbls/d, in the third quarter of 2020, from 483,100 bbls/d in the prior year quarter, consistent with the decrease in production, partially offset by a draw in inventory.

Non-upgraded bitumen sales volumes were 119,100 bbls/d in the third quarter of 2020, compared to 201,800 bbls/d in the prior year quarter, and were influenced by the same factors influencing production, partially offset by a draw in inventory.

Price Realizations⁽¹⁾

In the third quarter of 2020, Oil Sands price realizations continued to be impacted by the decline in demand due to the impacts of the COVID-19 pandemic.

Royalties

Royalties for the Oil Sands segment were lower in the third quarter of 2020 compared to the prior year quarter, primarily due to lower crude price realizations and lower overall sales volumes.

Expenses and Other Factors

Total Oil Sands operating and transportation expenses decreased significantly in the third quarter of 2020 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.

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 recoveries and costs, however, have been excluded from cash operating costs per barrel for comparability purposes.

At Oil Sands operations, operating costs decreased compared to the prior year quarter, primarily due to lower sales volumes, cost reduction initiatives and lower planned maintenance costs, partially offset by an increase in natural gas prices.

At Fort Hills, operating costs in the third quarter of 2020 decreased when compared to the prior year quarter, primarily due to cost savings associated with the transition to one primary extraction train.

Suncor's share of Syncrude operating costs in the third quarter of 2020 decreased compared to the prior year quarter, primarily due to cost reduction initiatives and lower planned maintenance costs.

DD&A expense for the third quarter of 2020 was higher compared to the prior year quarter due to higher derecognition charges of property, plant and equipment and exploration and evaluation assets in the third quarter of 2020.

Cash Operating Costs

Oil Sands operations cash operating costs⁽¹⁾ per barrel increased to $31.75 in the third quarter of 2020, compared to $26.60 in the prior year quarter, primarily due to lower production volumes, higher natural gas costs as well as costs related to a product mix more weighted towards higher value but higher cost SCO sales, partially offset by lower maintenance costs and cost reductions. In the third quarter, non-production costs, which are excluded from Oil Sands operations cash operating costs, were lower than the prior year quarter, primarily due to CEWS, partially offset by safe-mode and COVID-19 response costs.

Fort Hills cash operating costs⁽¹⁾ per barrel were $35.20 in the third quarter of 2020, compared to $24.25 in the prior year quarter, reflecting lower production as Fort Hills continued to operate on one primary extraction train, partially offset by a significant reduction in costs. Non-production costs were lower primarily due to CEWS, partially offset by additional costs incurred in response to the COVID-19 pandemic.

Syncrude cash operating costs⁽¹⁾ per barrel were $34.35 in the third quarter of 2020, compared to $39.65 in the prior year quarter, with the decrease primarily due to cost reduction initiatives and lower maintenance costs. Non-production costs were lower primarily due to CEWS.

Results for the First Nine Months of 2020

Oil Sands net loss was $3.503 billion for the first nine months of 2020, compared to net earnings of $2.255 billion in the prior year period. In addition to the factors impacting operating (loss) earnings discussed below, the net loss for the first nine months of 2020 included $1.376 billion of non-cash after-tax asset impairment charges. Net earnings in the prior year quarter included a one-time deferred income tax recovery of $910 million associated with a staged reduction to the Alberta corporate income tax rate from 12% to 8% from 2019 to 2022.

Oil Sands operating loss for the first nine months of 2020 was $2.127 billion, compared to operating earnings of $1.345 billion for the same period in 2019. Oil Sands operating loss for the first nine months of 2020 was primarily a result of significantly lower crude price realizations, lower production volumes and higher DD&A, partially offset by a decrease in operating, selling and general expense, as detailed below, transportation expense and royalties. The decrease in realized crude prices and production volumes was driven by declining crude oil demand due to the COVID-19 pandemic and supply issues driven by OPEC+ decisions earlier in 2020.

Funds from operations for the first nine months of 2020 were $1.257 billion for the Oil Sands segment, compared to $4.656 billion in the prior year period, with the decrease primarily due to the same factors that influenced operating earnings noted above.

Oil Sands operations cash operating costs per barrel averaged $28.80 for the first nine months of 2020, compared to an average of $28.10 for the first nine months of 2019, reflecting lower production volumes and higher natural gas costs, partially offset by lower maintenance costs and other cost savings initiatives. Both periods reflected the impact of optimizing the product mix to higher value but higher cost SCO barrels relative to lower cost but lower value bitumen production.

Fort Hills cash operating costs per barrel averaged $33.25 for the first nine months of 2020, compared to $25.30 for the same period of 2019, with the current period reflecting lower production due to the temporary transition to one primary extraction train, partially offset by a reduction in costs. The prior year period reflected fully ramped up operations, although production was limited by the Government of Alberta's mandatory production curtailments.

Syncrude cash operating costs per barrel of $36.25 for the first nine months of 2020 was comparable to $36.15 in the first nine months of 2019.

Planned Maintenance Update

Planned maintenance activity in the fourth quarter of 2020 includes maintenance events at Oil Sands operations Upgrader 1 and maintenance at Firebag originally scheduled for 2022 that has been accelerated to coincide with the installation of incremental emulsion handling and steam infrastructure. Subsequent to the third quarter of 2020, maintenance at Firebag and repairs at Oil Sands Base Plant were substantially complete with production anticipated to ramp up to normal operating rates by early November 2020. The anticipated production impact of these maintenance events has been reflected in the company's 2020 guidance.

(1)

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

EXPLORATION AND PRODUCTION

Financial Highlights