Consolidated Statements of Comprehensive Income(unaudited) |
| Three months ended |
| | March 31 |
($ millions) | 2023 | 2022 |
Revenues and Other Income |
Gross revenues (note 3) | | | 12 272 | 14 469 |
Less: royalties (note 3) | (358) | (1 132) |
Other income (note 4) | 342 | | | 14 |
| | | 12 256 | 13 351 |
Expenses |
Purchases of crude oil and products | 4 069 | 4 352 |
Operating, selling and general | 3 424 | 3 088 |
Transportation and distribution | 391 | 370 |
Depreciation, depletion, amortization and impairment | 1 516 | 1 471 |
Exploration | 42 | | | 39 |
Gain on disposal of assets (note 10) | (314) | | | (2) |
Financing expenses (note 6) | 414 | 185 |
| 9 542 | 9 503 |
Earnings before Income Taxes | 2 714 | 3 848 |
Income Tax Expense (Recovery) |
Current | 738 | 976 |
Deferred | (76) | (77) |
| 662 | 899 |
Net Earnings | 2 052 | 2 949 |
Other Comprehensive Income |
Items That May be Subsequently Reclassified to Earnings: |
| | | | | Foreign currency translation adjustment | 52 | (56) |
Items That Will Not be Reclassified to Earnings: |
| | | | | Actuarial gain on employee retirement benefit plans, net of income taxes | 42 | 392 |
Other Comprehensive Income | 94 | 336 |
Total Comprehensive Income | 2 146 | 3 285 |
Per Common Share (dollars) (note 7) |
Net earnings – basic and diluted | 1.54 | 2.06 |
Cash dividends | 0.52 | 0.42 |
See accompanying notes to the condensed interim consolidated financial statements. |
46 | 2023 First Quarter | | | | | | Suncor Energy Inc. |
Consolidated Balance Sheets(unaudited) |
| March 31 | December 31 |
($ millions) | 2023 | | 2022 |
Assets |
Current assets |
| | | | Cash and cash equivalents | 1 128 | | 1 980 |
| | | | Accounts receivable | 6 435 | | 6 068 |
| | | | Inventories | 5 230 | | 5 058 |
| | | | Income taxes receivable | 293 | | 244 |
| | | | Assets held for sale (note 11) | 799 | | 1 186 |
Total current assets | 13 885 | 14 536 |
Property, plant and equipment, net | 63 448 | 62 654 |
Exploration and evaluation | 1 995 | | 1 995 |
Other assets | 1 779 | | 1 766 |
Goodwill and other intangible assets | 3 565 | | 3 586 |
Deferred income taxes | | | | | 84 | 81 |
Total assets | 84 756 | 84 618 |
Liabilities and Shareholders’ Equity |
Current liabilities |
| | | | Short-term debt | 3 776 | | 2 807 |
| | | | Current portion of long-term lease liabilities | 357 | | 317 |
| | | | Accounts payable and accrued liabilities | 7 283 | | 8 167 |
| | | | Current portion of provisions | 588 | | 564 |
| | | | Income taxes payable | 193 | | 484 |
| | | | Liabilities associated with assets held for sale (note 11) | 340 | | 530 |
Total current liabilities | 12 537 | 12 869 |
Long-term debt (note 6) | 9 791 | | 9 800 |
Long-term lease liabilities | 2 918 | | 2 695 |
Other long-term liabilities | 1 244 | | 1 642 |
Provisions | 9 886 | | 9 800 |
Deferred income taxes | 8 431 | | 8 445 |
Equity | 39 949 | 39 367 |
Total liabilities and shareholders’ equity | 84 756 | 84 618 |
See accompanying notes to the condensed interim consolidated financial statements. |
| | | | | | 2023 First Quarter | Suncor Energy Inc. | 47 |
Consolidated Statements of Cash Flows(unaudited) |
| Three months ended |
| | March 31 |
($ millions) | 2023 | 2022 |
Operating Activities |
Net Earnings | 2 052 | 2 949 |
Adjustments for: |
Depreciation, depletion, amortization and impairment | 1 516 | 1 471 |
Deferred income tax recovery | (76) | (77) |
Accretion (note 6) | 133 | | 78 |
Unrealized foreign exchange loss (gain) on U.S. dollar denominated debt (note 6) | 3 | (146) |
Change in fair value of financial instruments and trading inventory | 30 | (74) |
Gain on disposal of assets (note 10) | (314) | | (2) |
Share-based compensation | (203) | | 56 |
Settlement of decommissioning and restoration liabilities | (133) | (91) |
Other | (6) | (70) |
Increase in non-cash working capital | (1 963) | (1 022) |
Cash flow provided by operating activities | 1 039 | 3 072 |
Investing Activities |
Capital and exploration expenditures | (1 086) | (1 011) |
Capital expenditures on assets held for sale | (42) | (19) |
Acquisitions (note 10) | (712) | | — |
Proceeds from disposal of assets (note 10) | 737 | | 2 |
Other investments and acquisitions (note 10) | (19) | (14) |
Increase in non-cash working capital | (119) | (31) |
Cash flow used in investing activities | (1 241) | (1 073) |
Financing Activities |
Net increase in short-term debt | 962 | | 71 |
Repayment of long-term debt (note 6) | (5) | (233) |
Lease liability payments | (82) | (84) |
Issuance of common shares under share option plans | 36 | | 79 |
Repurchase of common shares (note 8) | (874) | (827) |
Distributions relating to non-controlling interest | (4) | | (2) |
Dividends paid on common shares | (690) | (601) |
Cash flow used in financing activities | (657) | (1 597) |
(Decrease) Increase in Cash and Cash Equivalents | (859) | 402 |
Effect of foreign exchange on cash and cash equivalents | 7 | | (8) |
Cash and cash equivalents at beginning of period | 1 980 | 2 205 |
Cash and Cash Equivalents at End of Period | 1 128 | 2 599 |
Supplementary Cash Flow Information |
Interest paid | 159 | 141 |
Income taxes paid | 1 231 | 1 092 |
See accompanying notes to the condensed interim consolidated financial statements. |
48 | 2023 First Quarter | | | | Suncor Energy Inc. |
Consolidated Statements of Changes in Equity(unaudited) |
| | | Accumulated | | | | Number of |
| | | | Other | | | Common |
| Share | Contributed | Comprehensive | | Retained | | Shares |
($ millions) | Capital | Surplus | Income | | Earnings | Total | (thousands) |
At December 31, 2021 | 23 650 | | | | | | | 612 | 814 | 11 538 | 36 614 | 1 441 251 |
Net earnings | — | | | | | | | — | — | 2 949 | 2 949 | | | — |
Foreign currency translation adjustment | — | | | | | | | — | (56) | | | | | | — | (56) | | | — |
Actuarial gain on employee retirement benefitplans, net of income taxes of $123 |
| — | | | | | | | — | — | 392 | 392 | | | — |
Total comprehensive (loss) income | — | | | | | | | — | (56) | 3 341 | 3 285 | | | — |
Issued under share option plans | 91 | | | | | | | (11) | — | | | | | | — | 80 | 2 612 |
Repurchase of common shares for cancellation(note 8) |
| (358) | | | | | | | — | — | (469) | (827) | (21 698) |
Change in liability for share repurchasecommitment |
| (89) | | | | | | | — | — | (196) | (285) | | | — |
Share-based compensation | — | | | | | | | 8 | — | | | | | | — | 8 | | | — |
Dividends paid on common shares | — | | | | | | | — | — | (601) | (601) | | | — |
At March 31, 2022 | 23 294 | | | | | | | 609 | 758 | 13 613 | 38 274 | 1 422 165 |
At December 31, 2022 | 22 257 | | | | | | | 571 | 974 | 15 565 | 39 367 | 1 337 471 |
Net earnings | — | | | | | | | — | — | 2 052 | 2 052 | | | — |
Foreign currency translation adjustment | — | | | | | | | — | 52 | | | | | | — | 52 | | | — |
Actuarial gain on employee retirement benefitplans, net of income taxes of $12 |
| — | | | | | | | — | — | 42 | 42 | | | — |
Total comprehensive income | — | | | | | | | — | 52 | 2 094 | 2 146 | | | — |
Issued under share option plans | 35 | | | | | | | 1 | — | | | | | | — | 36 | | | 832 |
Repurchase of common shares for cancellation(note 8) |
| (334) | | | | | | | — | — | (540) | (874) | (19 936) |
Change in liability for share repurchasecommitment (note 8) |
| (20) | | | | | | | — | — | (21) | (41) | | | — |
Share-based compensation | — | | | | | | | 5 | — | | | | | | — | 5 | | | — |
Dividends paid on common shares | — | | | | | | | — | — | (690) | (690) | | | — |
At March 31, 2023 | 21 938 | | | | | | | 577 | 1 026 | 16 408 | 39 949 | 1 318 367 |
See accompanying notes to the condensed interim consolidated financial statements. |
| | | | 2023 First Quarter | | Suncor Energy Inc. | | | 49 |
Notes to the Consolidated Financial Statements(unaudited) |
1. Reporting Entity and Description of the Business |
Suncor Energy Inc. (Suncor or the company) is an integrated energy company headquartered in Calgary, Alberta. Suncor’soperations include oil sands development, production and upgrading; offshore oil and gas; petroleum refining in Canada andthe U.S.; and the company’s Petro-Canada retail and wholesale distribution networks (including Canada’s Electric Highway |
| TM, a |
coast-to-coast network of fast-charging electric vehicle stations). Suncor is developing petroleum resources while advancing thetransition to a low-emissions future through investment in power, renewable fuels and hydrogen. Suncor also conducts energytrading activities focused principally on the marketing and trading of crude oil, natural gas, byproducts, refined products andpower. Suncor has been recognized for its performance and transparent reporting on the Dow Jones Sustainability WorldIndex, FTSE4Good and CDP. Suncor’s common shares (symbol: SU) are listed on the Toronto Stock Exchange (TSX) and New YorkStock Exchange (NYSE). |
The address of the company’s registered office is 150 – 6th Avenue S.W., Calgary, Alberta, Canada, T2P 3E3. |
2. Basis of Preparation |
(a) Statement of Compliance |
These condensed interim consolidated financial statements are based on International Financial Reporting Standards as issuedby the International Accounting Standards Board, and have been prepared in accordance with International AccountingStandard 34 Interim Financial Reporting. They are condensed as they do not include all of the information required for full annualfinancial statements, and they should be read in conjunction with the audited consolidated financial statements of the companyfor the year ended December 31, 2022. |
(b) Basis of Measurement |
The consolidated financial statements are prepared on a historical cost basis except as detailed in the accounting policiesdisclosed in the company’s audited consolidated financial statements for the year ended December 31, 2022. |
(c) Functional Currency and Presentation Currency |
These consolidated financial statements are presented in Canadian dollars, which is the company’s functional currency. |
(d) Use of Estimates, Assumptions and Judgments |
The timely preparation of financial statements requires that management make estimates and assumptions and use judgment.Accordingly, actual results may differ from estimated amounts as future confirming events occur. Significant estimates andjudgment used in the preparation of the financial statements are described in the company’s audited consolidated financialstatements for the year ended December 31, 2022. |
(e) Income Taxes |
The company recognizes the impacts of income tax rate changes in earnings in the period that the applicable rate change isenacted or substantively enacted. |
50 | 2023 First Quarter | | Suncor Energy Inc. |
3. Segmented Information |
The company’s operating segments are reported based on the nature of their products and services and managementresponsibility. |
Intersegment sales of crude oil and natural gas are accounted for at market values and are included, for segmented reporting,in revenues of the segment making the transfer and expenses of the segment receiving the transfer. Intersegment amounts areeliminated on consolidation. |
| | Exploration and | Refining and | Corporate and |
Three months ended March 31 | Oil Sands | Production | Marketing | Eliminations | Total |
($ millions) | 2023 | | | | | 2022 | 2023 | | | | | 2022 | 2023 | | | | | 2022 | 2023 | | | | | 2022 | 2023 | | | | | 2022 |
Revenues and Other Income |
Gross revenues | | | | | | | | | | | (1) | 4 384 | 5 622 | 734 | | | | | 1 015 | 7 156 | | | | | 7 823 | (2) | | | | | 9 | | | 12 272 | 14 469 |
Intersegment revenues | | | | | | | | | | | | | (1) | 1 683 | 1 848 | — | | | | | — | 17 | | | | | 32 | (1 700) (1 880) | — | | | | | — |
Less: Royalties | (272) | | | | | (985) | (86) | | | | | (147) | — | | | | | — | — | | | | | — | (358) | (1 132) |
Operating revenues, net of royalties 5 795 | 6 485 | 648 | | | | | 868 | 7 173 | | | | | 7 855 | (1 702) (1 871) 11 914 | 13 337 |
Other income (loss) | 115 | 7 | 32 | | | | | 68 | 156 | | | | | (110) | 39 | | | | | 49 | 342 | | | | | 14 |
| 5 910 | 6 492 | 680 | | | | | 936 | 7 329 | | | | | 7 745 | (1 663) (1 822) 12 256 | 13 351 |
Expenses |
Purchases of crude oil and products | | | | | | | | | | | | | | (1) | 408 | | | | | 453 | — | | | | | — | 5 354 | | | | | 5 482 | (1 693) (1 583) | 4 069 | 4 352 |
Operating, selling and general | 2 421 | 2 212 | 133 | | | | | 108 | 650 | | | | | 559 | 220 | | | | | 209 | 3 424 | 3 088 |
Transportation and distribution | 270 | | | | | 293 | 21 | | | | | 23 | 109 | | | | | 63 | (9) | | | | | (9) | 391 | | | | | 370 |
Depreciation, depletion,amortization and impairment |
| 1 138 | 1 105 | 127 | | | | | 129 | 220 | | | | | 212 | 31 | | | | | 25 | 1 516 | 1 471 |
Exploration | 35 | 31 | 7 | | | | | 8 | — | | | | | — | — | | | | | — | 42 | | | | | 39 |
Gain on disposal of assets | — | (2) | (1) | | | | | — | (11) | | | | | — | (302) | | | | | — | (314) | | | | | (2) |
Financing expenses | 161 | 91 | 18 | | | | | 23 | 14 | | | | | 12 | 221 | | | | | 59 | 414 | | | | | 185 |
| 4 433 | 4 183 | 305 | | | | | 291 | 6 336 | | | | | 6 328 | (1 532) (1 299) | 9 542 | 9 503 |
Earnings (Loss) before IncomeTaxes |
| 1 477 | 2 309 | 375 | | | | | 645 | 993 | | | | | 1 417 | (131) | | | | | (523) | 2 714 | 3 848 |
Income Tax Expense (Recovery) |
Current———————— | 738 | | | | | 976 |
Deferred———————— | (76) | | | | | (77) |
| — | — | — | | | | | — | — | | | | | — | — | | | | | — | 662 | | | | | 899 |
Net Earnings | — | — | — | | | | | — | — | | | | | — | — | | | | | — | 2 052 | 2 949 |
Capital and ExplorationExpenditures |
| | | | | | | | | | | (2) | 810 | | | | | 668 | 138 | | | | | 83 | 125 | | | | | 132 | 13 | | | | | 128 | 1 086 | 1 011 |
(1) | Prior period amounts have been revised for certain gross revenues and purchases of crude oil and products. For the three months endedMarch 31, 2022, gross revenues and purchases of crude oil and products decreased by $150 million, with no effect on net earnings. |
(2) | Excludes capital expenditures related to assets held for sale of $42 million for the three months ended March 31, 2023 (March 31, 2022 – $19 million). |
| | | | 2023 First Quarter | | | | | Suncor Energy Inc. | 51 |
Notes to the Consolidated Financial Statements |
Disaggregation of Revenue from Contracts with Customers and Intersegment Revenue |
The company’s revenues are from the following major commodities and geographical regions: |
Three months ended March 31 | 2023 | 2022 |
($ millions) | | | North America | International | | | Total | North America | International | | | | Total |
Oil Sands |
Synthetic crude oil and diesel | | | | | | | (1) | 4 832 | — | 4 832 | | | | | | 5 688 | — | 5 688 |
Bitumen | | | | | | | | 1 235 | — | 1 235 | | | | | | 1 782 | — | 1 782 |
| | | | | | | | 6 067 | — | 6 067 | | | | | | 7 470 | — | 7 470 |
Exploration and Production |
Crude oil and natural gas liquids | | | | | | | | 458 | 271 | 729 | | | | | | 563 | 443 | 1 006 |
Natural gas | | | | | | | | — | 5 | 5 | | | | | | — | 9 | 9 |
| | | | | | | | 458 | 276 | 734 | | | | | | 563 | 452 | 1 015 |
Refining and Marketing |
Gasoline | | | | | | | | 2 818 | — | 2 818 | | | | | | 3 033 | — | 3 033 |
Distillate | | | | | | | | 3 786 | — | 3 786 | | | | | | 3 845 | — | 3 845 |
Other | | | | | | | | 569 | — | 569 | | | | | | 977 | — | 977 |
| | | | | | | | 7 173 | — | 7 173 | | | | | | 7 855 | — | 7 855 |
Corporate and Eliminations | | | | | | | (1) |
| | | | | | | | (1 702) | — | (1 702) | | | | | | (1 871) | — | (1 871) |
Total Revenue from Contracts withCustomers |
| | | | | | | | 11 996 | 276 | 12 272 | | | | | | 14 017 | 452 | 14 469 |
(1) | Prior period amounts have been revised for certain gross revenues and purchases of crude oil and products. For the three months endedMarch 31, 2022, gross revenues and purchases of crude oil and products decreased by $150 million, with no effect on net earnings. |
4. Other Income (Loss) |
Other income consists of the following: |
| | Three months ended |
| | | | | | March 31 |
($ millions) | | 2023 | | | | 2022 |
Energy trading and risk management | | 279 | | | | (93) |
Investment and interest income | | 59 | | | | 32 |
Other | | | | | | | | | | | | (1) | 4 | 75 |
| | 342 | | | | 14 |
(1) | The three months ended March 31, 2022, includes a US$50 million contingent consideration gain related to the sale of the company’s 26.69% workinginterest in the Golden Eagle Area Development in the fourth quarter of 2021, within the Exploration & Production segment, and an unrealizedgain on an equity investment, within the Corporate segment. |
52 | 2023 First Quarter | | | | | | | | | | | | | Suncor Energy Inc. |
5. Share-Based Compensation |
The following table summarizes the share-based compensation expense for all plans recorded within operating, selling andgeneral expense: |
| Three months ended |
| | March 31 |
($ millions) | 2023 | 2022 |
Equity-settled plans | 5 | | 8 |
Cash-settled plans | 96 | 198 |
| 101 | 206 |
6. Financing Expenses |
| Three months ended |
| | March 31 |
($ millions) | 2023 | 2022 |
Interest on debt | 197 | 195 |
Interest on lease liabilities | 46 | | 39 |
Capitalized interest | (58) | (37) |
Interest expense | 185 | 197 |
Interest on partnership liability | 12 | | 13 |
Interest on pension and other post-retirement benefits | 6 | | 10 |
Accretion | 133 | | 78 |
Foreign exchange loss (gain) on U.S. dollar denominated debt | 3 | (146) |
Operational foreign exchange and other | 75 | | 33 |
| 414 | 185 |
In the first quarter of 2022, the company completed an early redemption of its outstanding US$182 million 4.50% notes,originally scheduled to mature in the second quarter of 2022. |
7. Earnings per Common Share |
| Three months ended |
| | March 31 |
($ millions) | 2023 | 2022 |
Net earnings | 2 052 | 2 949 |
(millions of common shares) |
Weighted average number of common shares | 1 329 | 1 433 |
Dilutive securities: |
Effect of share options | 2 | | 2 |
Weighted average number of diluted common shares | 1 331 | 1 435 |
(dollars per common share) |
Basic and diluted earnings per share | 1.54 | 2.06 |
| | | | 2023 First Quarter | Suncor Energy Inc. | | 53 |
Notes to the Consolidated Financial Statements |
8. Normal Course Issuer Bid |
During the first quarter of 2023, the TSX accepted a notice filed by Suncor to renew its normal course issuer bid (NCIB) topurchase the company’s common shares through the facilities of the TSX, NYSE and/or alternative trading systems. The noticeprovided that, beginning February 17, 2023, and ending February 16, 2024, Suncor may purchase for cancellation up to132,900,000 common shares, which is equal to approximately 10% of Suncor’s public float (as defined in the TSX CompanyManual) as at February 3, 2023. As at February 3, 2023, Suncor had 1,330,006,760 common shares issued and outstanding. |
During the first quarter of 2023, the company repurchased 8.3 million common shares under the previous 2022 NCIB and11.6 million under the 2023 renewed NCIB at an average price of $43.85 per share, for a total repurchase cost of $874 million. |
During the first quarter of 2022, the TSX accepted a notice filed by Suncor to renew its NCIB to purchase the company’s commonshares through the facilities of the TSX, NYSE and/or alternative trading systems. The notice provided that, beginningFebruary 8, 2022, and ending February 7, 2023, Suncor may purchase for cancellation up to 71,650,000 common shares, whichwas equal to approximately 5% of Suncor’s issued and outstanding common shares. |
During the first quarter of 2022, the company repurchased 7.1 million common shares under the previous 2021 NCIB and14.6 million under the 2022 renewed NCIB at an average price of $38.12 per share, for a total repurchase cost of $827 million. |
The following table summarizes the share repurchase activities during the period: |
| Three months ended |
| | March 31 |
($ millions, except as noted) | | | 2023 | 2022 |
Share repurchase activities (thousands of common shares) |
Shares repurchased | | | 19 936 | 21 698 |
Amounts charged to: |
Share capital | | | 334 | 358 |
Retained earnings | | | 540 | 469 |
Share repurchase cost | | | 874 | 827 |
Under an automatic repurchase plan agreement with an independent broker, the company has recorded the following liabilityfor share repurchases that may take place during its internal blackout period: |
| | | March 31 | December 31 |
($ millions) | | | 2023 | 2022 |
Amounts charged to: |
Share capital | | | 156 | 136 |
Retained earnings | | | 235 | 214 |
Liability for share purchase commitment | | | 391 | 350 |
54 | 2023 First Quarter | | | | Suncor Energy Inc. |
9. Financial Instruments |
Derivative Financial Instruments |
(a) Non-Designated Derivative Financial Instruments |
The company uses derivative financial instruments, such as physical and financial contracts, to manage certain exposures tofluctuations in interest rates, commodity prices and foreign currency exchange rates, as part of its overall risk managementprogram, as well as for trading purposes. |
The changes in the fair value of non-designated derivatives are as follows: |
($ millions) | Total |
Fair value outstanding at December 31, 2022 | (65) |
Cash settlements – received during the year | (101) |
Changes in fair value recognized in earnings during the year | 62 |
Fair value outstanding at March 31, 2023 | (104) |
(b) Fair Value Hierarchy |
To estimate the fair value of derivatives, the company uses quoted market prices when available, or third-party models andvaluation methodologies that utilize observable market data. In addition to market information, the company incorporatestransaction-specific details that market participants would utilize in a fair value measurement, including the impact ofnon-performance risk. However, these fair value estimates may not necessarily be indicative of the amounts that could berealized or settled in a current market transaction. The company characterizes inputs used in determining fair value using ahierarchy that prioritizes inputs depending on the degree to which they are observable. The three levels of the fair value hierarchyare as follows: |
• | Level 1 consists of instruments with a fair value determined by an unadjusted quoted price in an active market for identicalassets or liabilities. An active market is characterized by readily and regularly available quoted prices where the prices arerepresentative of actual and regularly occurring market transactions to assure liquidity. |
• | Level 2 consists of instruments with a fair value that is determined by quoted prices in an inactive market, prices withobservable inputs or prices with insignificant non-observable inputs. The fair value of these positions is determined usingobservable inputs from exchanges, pricing services, third-party independent broker quotes and published transportationtolls. The observable inputs may be adjusted using certain methods, which include extrapolation over the quoted price termand quotes for comparable assets and liabilities. |
• | Level 3 consists of instruments with a fair value that is determined by prices with significant unobservable inputs. As atMarch 31, 2023, the company does not have any derivative instruments measured at fair value Level 3. |
In forming estimates, the company utilizes the most observable inputs available for valuation purposes. If a fair valuemeasurement reflects inputs of different levels within the hierarchy, the measurement is categorized based upon the lowestlevel of input that is significant to the fair value measurement. |
The following table presents the company’s derivative financial instruments measured at fair value for each hierarchy level as atMarch 31, 2023: |
($ millions) | | Level 1 | Level 2 | Level 3 | Total Fair Value |
Accounts receivable | | 45 | 45 | — | 90 |
Accounts payable | | (138) | (56) | — | (194) |
| | (93) | (11) | — | (104) |
During the first quarter of 2023, there were no transfers between Level 1 and Level 2 fair value measurements. |
Non-Derivative Financial Instruments |
At March 31, 2023, the carrying value of fixed-term debt accounted for under amortized cost was $9.8 billion (December 31,2022 – $9.8 billion) and the fair value was $9.8 billion (December 31, 2022 – $9.4 billion). The estimated fair value of long-termdebt is based on pricing sourced from market data. |
| | | | | | 2023 First Quarter | Suncor Energy Inc. | 55 |
Notes to the Consolidated Financial Statements |
10. Asset Transactions and Valuations |
Oil Sands |
Acquisition of Additional Ownership Interest in Fort Hills: |
On February 2, 2023, Suncor completed the acquisition of an additional 14.65% working interest in Fort Hills from Teck ResourcesLimited (Teck) for $712 million, bringing the company’s and its affiliate’s total aggregate working interest in Fort Hills to 68.76%.Under the governing agreements, Fort Hills remains under joint control between Suncor and TotalEnergies EP Canada Ltd.(TotalEnergies Canada). Suncor maintains its proportionate share of Fort Hills in the consolidated financial statements. |
The acquisition has been accounted for as a business combination using the acquisition method. The fair values of accountsreceivables and accounts payable approximate their carrying values due to the short-term maturity of the instruments. The fairvalue of materials and supplies inventory approximates book value due to short-term turnover rates. The fair values of property,plant and equipment and the decommissioning provision were determined using an expected future cash flow approach(Level 3 fair value inputs – note 9). Key assumptions used in the calculations were discount rates, future commodity prices andcosts, timing of development activities, projections of oil reserves, and cost estimates to abandon and reclaim the mine andfacilities. |
($ millions) |
Accounts receivable | 35 |
Inventory | 37 |
Property, plant and equipment | 1 149 |
Other assets | | (1) | 6 |
Total assets acquired | 1 227 |
Accounts payable and accrued liabilities | (102) |
Lease liabilities | (284) |
Decommissioning provision | (83) |
Deferred income taxes | (46) |
Total liabilities assumed | (515) |
Net assets acquired | 712 |
(1) | Other assets include $3 million of cash and cash equivalents. |
The additional working interest in Fort Hills contributed $52 million to gross revenues and a $35 million net loss to consolidatednet earnings from the acquisition date to March 31, 2023. |
Had the acquisition occurred on January 1, 2023, the additional working interest would have contributed an additional $20 millionto gross revenues and a $21 million net loss to consolidated net earnings, which would have resulted in gross revenues of$12.3 billion and consolidated net earnings of $2.0 billion for the three months ended March 31, 2023. |
Corporate |
Sale of Wind and Solar Assets: |
During the first quarter of 2023, the company completed the sale of its wind and solar assets for gross proceeds of $730 million,before closing adjustments and other closing costs, resulting in an after-tax gain on sale of approximately $260 million($302 million before tax). |
56 | 2023 First Quarter | | | Suncor Energy Inc. |
11. Assets Held For Sale |
In the first quarter of 2023, the company reached an agreement for the sale of its United Kingdom (U.K.) operations, includingits interests in Buzzard and Rosebank located in the U.K. sector of the North Sea, for gross proceeds of approximately $1.2 billion,including a contingent consideration of approximately $338 million, before closing adjustments and other closing costs. Thesale is pending regulatory approval and is expected to close in the second quarter of 2023. |
In the third quarter of 2022, the company reclassified the assets and liabilities related to its U.K. operations as assets held forsale. The U.K. operations are reported within the Exploration and Production segment. |
The table below details the assets and liabilities held for sale as at March 31, 2023: |
| March 31 |
($ millions) | 2023 |
Assets |
Current assets | 138 |
Property, plant and equipment, net | 372 |
Exploration and evaluation | 289 |
Total Assets | 799 |
Liabilities |
Current liabilities | (115) |
Provisions | (225) |
Total Liabilities | (340) |
Net Assets | 459 |
12. Subsequent Event |
Subsequent to the first quarter of 2023, Suncor entered into an agreement to purchase TotalEnergies’ Canadian operationsthrough the acquisition of TotalEnergies Canada, which holds a 31.23% working interest in Fort Hills, and a 50% working interestin the Surmont in situ asset (Surmont), as well as certain other associated assets. The acquisition is for cash consideration of$5.5 billion, before closing adjustments and other closing costs, with the potential for additional payments of up to an aggregatemaximum of $600 million, expiring after five years and conditional upon Western Canadian Select (WCS) benchmark pricingand certain production targets. Subject to closing, the transaction will have an effective date of April 1, 2023. The Surmont in situproject is operated by ConocoPhillips Canada, which holds the remaining 50% working interest. Under the terms of the Surmontjoint venture arrangements ConocoPhillips Canada has certain pre-emptive rights including a right of first refusal on the 50%Surmont working interest. Closing of the transaction is anticipated to occur in the third quarter of 2023 and is subject to waiverof the right of first refusal on the Surmont working interest and other customary closing conditions, including regulatory approvals. |
This transaction, together with the acquisition of the additional 14.65% interest in Fort Hills in the first quarter of 2023, wouldmake Suncor the sole owner and operator of Fort Hills. |
| | 2023 First Quarter | Suncor Energy Inc. | 57 |