Exhibit 99.1​

All financial figures are unaudited and presented in Canadian dollars unless noted otherwise. Production volumes are presented on a working-interest basis, before royalties, except for production volumes from 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 July 28, 2021. See also the Advisories section of the MD&A. References to Oil Sands operations exclude Suncor’s interests in Fort Hills and Syncrude.

“Suncor generated $2.4 billion in funds from operations in the quarter while also completing significant turnaround activities in the upstream and downstream businesses,” said Mark Little, president and chief executive officer. “The improved cash generation enabled us to increase shareholder returns to approximately $1.0 billion, representing approximately 40% of our funds from operations and we’re targeting further debt reduction in the latter half of the year in line with our previously announced capital allocation strategy.”

•

Funds from operations(1) increased to $2.362 billion ($1.57 per common share) in the second quarter of 2021, compared to $488 million ($0.32 per common share) in the prior year quarter. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $2.086 billion ($1.39 per common share) in the second quarter of 2021, compared to cash flow used in operating activities of  $768 million ($0.50 per common share) in the prior year quarter.

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•

The company recorded operating earnings(1)(2) of  $722 million ($0.48 per common share) in the second quarter of 2021 compared to an operating loss of  $1.345 billion ($0.88 per common share) in the prior year quarter. The company had net earnings of  $868 million ($0.58 per common share) in the second quarter of 2021, compared to a net loss of  $614 million ($0.40 per common share) in the prior year quarter.

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•

Suncor’s total upstream production increased to 699,700 barrels of oil equivalent per day (boe/d) in the second quarter of 2021, compared to 655,500 boe/d in the prior year quarter, due to strong Oil Sands operations production including record In Situ volumes, partially offset by the impact of planned turnaround maintenance at Syncrude.

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•

Significant turnaround activities were completed at Syncrude, Buzzard and across all of the company’s refineries during the second quarter of 2021. The company exited the quarter with refinery utilization of approximately 94%, and with Syncrude and Buzzard having returned to production, the company is set up for a strong second half of the year.

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•

Canadian gasoline and diesel demand in the second quarter of 2021 is estimated to be 13%(3) below the comparable pre-COVID-19 period in 2019, reflecting the continued COVID-19-related restrictions across Canada. With the lifting of many restrictions in July, gasoline and diesel demand is estimated to have improved to 6%(3) below the comparable 2019 levels.

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•

The company shared its updated strategy, which focuses on increasing shareholder returns while accelerating its greenhouse gas (GHG) emissions reduction targets, growing its business in low GHG fuels, electricity and hydrogen, sustaining and optimizing its base business and transforming its GHG footprint to be a net-zero company by 2050.

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•

Suncor, together with four industry partners representing 90% of Canada’s oil sands production, announced the Oil Sands Pathways to Net Zero alliance whose initiative is aimed at working collectively with the federal and Alberta governments to achieve net-zero GHG emissions from oil sands operations by 2050.

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•

In the second quarter of 2021, Suncor remained focused on maximizing the return to its shareholders through the repurchase of approximately 23 million common shares for $643 million under the company’s share repurchase program, and payment of  $315 million of dividends. Share repurchases in the quarter represent 1.5% of Suncor’s issued and outstanding common shares as at January 31, 2021. Since the start of the normal course issuer program (NCIB) in February 2021, the company has repurchased $961 million in common shares, representing approximately 35 million common shares at an average share price of  $27.47 per common share, or the equivalent of 2.3% of Suncor’s issued and outstanding common shares as at January 31, 2021.

​

•

Subsequent to the second quarter of 2021, Suncor’s Board of Directors (the Board) approved an increase to the company’s share repurchase program to approximately 5% of the company’s outstanding common shares as at January 31, 2021. Concurrently, the Toronto Stock Exchange (TSX) accepted a notice to increase the maximum number of common shares the company may repurchase pursuant to its NCIB to approximately 5%. The increase to the program demonstrates management’s confidence in the company’s ability to generate cash flow and its commitment to return cash to shareholders.

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(1)

Funds from operations and operating earnings (loss) 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.

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(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.

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(3)

Sources: IHS Markit and Statistics Canada.

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(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.

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(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.

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(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.

​

Financial Results

Operating Earnings (Loss)

Suncor’s second quarter 2021 operating earnings were $722 million ($0.48 per common share), compared to an operating loss of  $1.345 billion ($0.88 per common share) in the prior year quarter. In the second quarter of 2021, crude oil and refined product realizations increased significantly compared to the prior year quarter, which reflected the impact of the unprecedented decline in transportation fuel demand, due to the impacts of the COVID-19 pandemic, and the increase in OPEC+ crude supply. The improving business environment in the second quarter of 2021 also resulted in a net inventory valuation gain, reflecting a first-in, first-out (FIFO) gain as a result of the increasing value of refinery feedstock. Operating earnings were partially offset by an increase in royalties and operating expenses associated with Suncor’s increased production in the second quarter of 2021 and reflected lower costs in the prior year quarter related to specific measures taken by the company to reduce operating costs in response to the COVID-19 pandemic.

2   2021 Second Quarter   Suncor Energy Inc.

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 the MD&A.

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(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.

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(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 Refining and Marketing (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 $868 million ($0.58 per common share) in the second quarter of 2021, compared to a net loss of $614 million ($0.40 per common share) in the prior year quarter. In addition to the factors impacting operating earnings (loss) discussed above, net earnings for the second quarter of 2021 included a $156 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt and a $10 million after-tax unrealized loss on risk management activities. The net loss in the prior year quarter included a $478 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt and a $144 million after-tax unrealized loss on risk management activities.

Funds from Operations and Cash Flow Provided by (Used in) Operating Activities

Funds from operations were $2.362 billion ($1.57 per common share) in the second quarter of 2021, compared to $488 million ($0.32 per common share) in the second 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 $2.086 billion ($1.39 per common share) for the second quarter of 2021, compared to cash flow used in operating activities of  $768 million ($0.50 per common share) in the prior year quarter. In addition to the factors noted above, cash flow provided by operating activities was further impacted by a use of cash associated with the company’s working capital balances in both periods. The use of cash in the second quarter of 2021 was primarily due to an increase in production and commodity prices at the end of the quarter, resulting in an increase in accounts receivable and inventory balances, which was partially offset by a decrease in income tax receivable balances related to the receipt of a portion of the company’s 2020 income tax refund.

2021 Second Quarter   Suncor Energy Inc.   3

 

Operating Results

Suncor’s total upstream production increased to 699,700 boe/d in the second quarter of 2021, compared to 655,500 boe/d in the prior year quarter, reflecting strong Oil Sands operations production during the quarter, partially offset by the impact of planned turnaround maintenance at Syncrude. The prior year quarter was impacted by the significant decline in crude oil demand due to the impacts of the COVID-19 pandemic.

The company’s net synthetic crude oil production increased to 437,200 barrels per day (bbls/d) in the second quarter of 2021 from 436,600 bbls/d in the second quarter of 2020. Strong mining and upgrading performance at Oil Sands Base resulted in upgrader utilization of 96%, compared to 93% in the prior year quarter. At Syncrude, both periods were impacted by planned maintenance, and following the completion of planned turnaround activities in the second quarter of 2021, Syncrude ramped up to full operating rates subsequent to the end of the quarter. Due to the impacts of the COVID-19 pandemic in the Fort McMurray region, the company staggered its planned turnarounds at Oil Sands Base plant Upgrader 2 and Syncrude, resulting in the deferral of the Oil Sands Base turnaround to the third quarter of 2021. This decision supported the safe and efficient completion of the Syncrude turnaround activities and minimized the overlap between the two assets. The deferral of the turnaround activities at Oil Sands Base is not anticipated to impact annual production volumes and has been reflected in the company’s 2021 guidance. Suncor continues to work with the community of Fort McMurray, various levels of government and other industry stakeholders to accelerate rapid testing and vaccinations in the region.

The company’s non-upgraded bitumen production increased to 178,500 bbls/d in the second quarter of 2021 from 117,100 bbls/d in the prior year quarter, which, for the second quarter in a row, included the best In Situ quarterly production in the company’s history. During the quarter, the increase in non-upgraded production to market was further supported by strong mining performance at Oil Sands Base, which resulted in less Firebag volumes utilized at the upgrader and overall higher Oil Sands operations production volumes. At MacKay River, production in the prior year quarter was impacted by an outage that occurred in late 2019.

Production at Fort Hills during the quarter reflected the previously communicated change in the mine ramp up strategy. This strategy is principally focused on building ore inventory as appropriate ore inventory levels are required to operate the plant at 90% of nameplate capacity on a two-train operation. By the end of the quarter, ore inventory build was slower than expected with access to additional contract equipment and labour being more constrained than expected. Access to additional resources has increased and we anticipate being at expected contractor capacity by August 2021. Subsequent to the quarter, slope instability on the south side of the mine, which contains the majority of the exposed ore, will require overburden removal to occur earlier than expected to provide full access to the exposed ore and maintain slope integrity. This activity is underway and is expected to be completed by the end of 2021. As a result, Fort Hills plans to continue at the current production level for the remainder of the year, with a transition to both primary extraction trains beginning in late 2021 to enable full production in early 2022. 2021 annual guidance for Fort Hills production and Fort Hills cash operating costs have been updated to reflect these changes.

Exploration and Production (E&P) production during the second quarter of 2021 decreased to 84,000 boe/d from 101,800 boe/d in the prior year quarter, primarily due to planned turnaround activities at Buzzard and 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. During the second quarter of 2021, the company announced that the co-owners of the Terra Nova Floating, Production, Storage and Offloading facility and associated Terra Nova Field have reached an agreement, in principle, to restructure the project ownership and provide short-term funding towards continuing the development of the Asset Life Extension Project, with the intent to move to a sanction decision in the third quarter of 2021. The agreement is subject to finalized terms and approval from all parties to the agreement and is contingent upon the previously disclosed royalty and financial support from the Government of Newfoundland & Labrador.

Refinery crude throughput was 325,300 bbls/d and refinery utilization was 70% in the second quarter of 2021, compared to refinery crude throughput of 350,400 bbls/d and refinery utilization of 76% in the prior year quarter, reflecting planned turnaround activities in the current quarter and reduced rates in response to lower demand due to the COVID-19 pandemic in the prior year quarter. During the second quarter of 2021, the company completed turnaround activities for the year across all its refineries, enabling them to exit the quarter with a refinery utilization of approximately 94%. Refined product sales in the second quarter of 2021 increased to 463,300 bbls/d, compared to 438,800 bbls/d in the prior year quarter, due to improved refined product demand and a draw in product inventory as we strategically built inventory in support of significant planned turnaround activities and an improving business environment. With the completion of turnarounds across the company’s refineries and the phased lifting of COVID-19-related restrictions, the company is positioned to capture improved margins in the second half of the year as domestic demand continues to recover towards pre-pandemic levels.

“In the first half of 2021, we achieved strong Oil Sands Base mining and upgrading production and consecutive quarterly production records at In Situ leading to the best start to the year in the company’s history at Oil Sands operations,” said Little. “During the quarter we completed significant turnaround activities at Syncrude and across all our refineries. Following the quarter, we’ve ramped up our assets and are positioned for a strong second half of 2021.”

4   2021 Second Quarter   Suncor Energy Inc.

The company’s total operating, selling and general expenses increased to $2.720 billion in the second quarter of 2021 from $2.129 billion in the prior year quarter due to increased production at Oil Sands Base, and higher planned maintenance that was conducted at the same time as the planned turnaround activities at Syncrude. These expenses were partially offset by cost reductions related to digital technology and transformation initiatives. Increased production in the quarter resulted in higher absolute costs but lower cash operating costs per barrel(1) at Oil Sands operations, despite a significant increase in natural gas prices compared to the prior year quarter. The prior year quarter reflected lower costs related to specific measures taken by the company to reduce operating costs in response to the COVID-19 pandemic and was also favourably impacted by the Government of Canada’s Emergency Wage Subsidy.

Strategy Update

In May, Suncor held its investor day event to outline the company’s medium-term corporate outlook, provide an update on the progress made to date on its $2.15 billion incremental free funds flow(1) target and discuss other strategic objectives. In the near term the company expects to continue to execute its plans to structurally lower its cost base and improve productivity, including ensuring the smooth transition of Syncrude operatorship and continuing Suncor’s digital transformation. Once Syncrude operatorship is transferred, gross synergies of approximately $100 million are expected for the joint venture owners within the first six months with an additional $200 million through 2022-2023. Building on the achievements in 2020, which included debottlenecks and tailings management, initiatives in 2021 such as mine optimization and digital, process and technology projects are expected to contribute to the company’s $2.15 billion incremental free funds flow target.

Suncor also announced its new strategic objective to become a net-zero GHG emissions company by 2050 (on emissions produced from running its facilities, including those it has a working interest in) and to substantially contribute to society’s net- zero ambitions. While Suncor will continue to track and report emissions intensity, the company has set a more ambitious near- term goal to better align with its objective to reach net-zero emissions and to provide a clearer way to demonstrate progress: targeting annual emissions reductions of 10 megatonnes across its value chain by 2030. Suncor plans to achieve this by reducing its base business emissions, investing in profitable low emissions ventures and technologies, taking actions that reduce others’ emissions and investing in offsets outside its business. Additionally, Suncor, together with Canadian Natural Resources, Cenovus Energy, Imperial Oil and MEG Energy – who together operate 90% of oil sands production – announced the Oil Sands Pathways to Net Zero alliance. The goal of this alliance is to work collectively with the federal and Alberta governments to achieve net-zero GHG emissions from oil sands operations by 2050. The Pathways initiative will explore several parallel pathways to address GHG emissions, including the creation of a Carbon Capture, Utilization and Storage trunkline connected to a carbon sequestration hub to enable multi-sector ‘tie-in’ projects as well as the implementation of other next-generation technologies.

Suncor’s new strategic objectives and targets around absolute GHG emissions reductions will be supported by pragmatic and economic investments that are part of – or synergistic with – the company’s core capabilities. This includes investments in the cogeneration facility at Oil Sands and the Forty Mile Wind Power Project, which are expected to generate mid-teen returns. Additionally, during the second quarter of 2021, Suncor and ATCO Ltd. announced a partnership on a potential world-scale clean hydrogen project to be developed in Alberta, Canada. A sanctioning decision is expected in 2024 and the facility could be operational as early as 2028, provided it has the required regulatory and fiscal support to render it economic.

The company also recently released its 2021 Report on Sustainability and Climate Report, marking over 25 years of dedication to improve sustainability performance and increase transparency and reporting. The details of Suncor’s new GHG emissions reductions objectives can be accessed at sustainability.suncor.com.

“We continue to progress on our ambition to be Canada’s leading energy company – focusing on increasing shareholder returns while accelerating our GHG emissions reduction targets,” said Little. “Our strategy will optimize the value of our base business, improving its cost and capital efficiency, while supplementing it with economically robust energy expansion investments that will contribute to increasing free funds flow. This balance will be critical to increasing our shareholder returns, fortifying our balance sheet while significantly lowering GHG emissions by 2030 and progressing to net zero by 2050.”

The updated strategy and progress on the company’s GHG emissions reduction objectives will continue to be underpinned by capital discipline. The company has set an annual ceiling for total capital expenditures of  $5 billion, including lowered sustaining and economic capital, to sustain its base business while investing in energy expansion and building out its low-carbon business. Over the medium term, Suncor expects to allocate approximately 10% of its annual capital budget (approximately $500 million per year) on investments that are intended to advance its lower-carbon energy offering.

The company plans to allocate incremental funds to shareholder returns, in the form of dividends and share buybacks, as well as towards debt reduction, with the company targeting absolute net debt, inclusive of leases, of  $12 – $15 billion by 2025. Dividends are expected to increase in line with the $2.15 billion incremental free funds flow growth, with additional free funds flow being allocated to share buybacks.

(1)

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

​

2021 Second Quarter   Suncor Energy Inc.   5

 

To accelerate reaching these debt reduction targets, in 2021 the company plans to allocate two-thirds of its annual free funds flow, after its dividend, towards debt reductions and one-third toward shareholder cash returns through share buybacks. In the second quarter of 2021, the company returned $958 million to shareholders, including $643 million in common share repurchases and $315 million in dividends paid. Since the start of the NCIB program in February 2021, the company has repurchased $961 million in common shares, representing approximately 35 million common shares at an average share price of  $27.47 per common share, or the equivalent of 2.3% of Suncor’s issued and outstanding common shares as at January 31, 2021.

Subsequent to the second quarter of 2021, the Board approved an increase to the company’s share repurchase program to approximately 5% of the company’s outstanding common shares as at January 31, 2021. Concurrently, the TSX accepted a notice to increase the maximum number of common shares the company may repurchase pursuant to its NCIB to approximately 5%. The increase to the program demonstrates management’s confidence in the company’s ability to generate cash flow and its commitment to return cash to shareholders.

Subsequent to June 30, 2021, the agreement for the sale of Suncor’s 26.69% working interest in the Golden Eagle Area Development was approved by the purchaser’s shareholders with financing conditions met. The effective date of the sale is January 1, 2021 for gross proceeds of US$325 million and contingent consideration up to US$50 million before closing adjustments and other closing costs and is expected to close in the third quarter of 2021.

Operating Earnings (Loss) Reconciliation(1)

​

(1)

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

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(3)

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

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(4)

During the first quarter of 2020, the company recorded non-cash after-tax impairment charges of  $1.376 billion on its share of the Fort Hills assets, in the Oil Sands segment, and $422 million against its share of the White Rose and Terra Nova assets, in the E&P segment, due to a decline in forecasted crude oil prices as a result of decreased global demand due to the COVID-19 pandemic and changes to their respective capital, operating and production plans.

​

(5)

During the first quarter of 2020, the company recorded an after-tax hydrocarbon inventory write-down to net realizable value of  $177 million in the Oil Sands segment and $220 million in the R&M segment as a result of a significant decline in benchmarks and demand for crude oil and refined products due to COVID-19 mitigation efforts. The full hydrocarbon inventory write-down of  $397 million after-tax was excluded from operating earnings and funds from operations in the first quarter of 2020, and realized through operating earnings and funds from operations in the second quarter of 2020 when the product was sold.

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Corporate Guidance

Suncor has updated its full-year business environment outlook assumptions for Brent Sullom Voe from US$63.00/bbl to US$68.00/bbl, WTI at Cushing from US$60.00/bbl to US$65.00/bbl, WCS at Hardisty from US$48.00/bbl to US$52.00/bbl, New York Harbor 2-1-1 crack from US$17.00/bbl to US$18.00/bbl and AECO-C Spot from $2.50/GJ to $3.50/GJ, 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 $1.0 billion – $1.3 billion to $1.2 billion – $1.5 billion.

In addition, the production range for Fort Hills has been updated from 65,000 – 85,000 bbls/d to 45,000 – 55,000 bbls/d reflecting additional work required to maintain slope integrity on the south side of the mine. As a result, Fort Hills cash operating costs per barrel have been updated from $25.00 – $29.00 to $37.00 – $42.00.

6   2021 Second Quarter   Suncor Energy Inc.

Suncor has also modified its capital expenditure allocation between business areas to reflect lower spending at East Coast Canada projects in E&P, offset by increased scope of refinery turnaround activities in R&M. As a result, Upstream E&P capital expenditure guidance has been reduced from $350 – $450 million to $300 – $400 million, and Downstream capital expenditure guidance has been increased from $700 – $800 million to $750 – $850 million. The overall capital expenditure range for the company remains unchanged.

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

Normal Course Issuer Bid

Subsequent to the second quarter of 2021, Suncor received approval from the TSX to amend its existing NCIB effective as of the close of markets on July 30, 2021, to purchase common shares through the facilities of the TSX, New York Stock Exchange and/or alternative trading platforms. The notice provides that Suncor may increase the maximum number of common shares that may be repurchased in the period beginning February 8, 2021, and ending February 7, 2022, from 44,000,000 common shares, or approximately 2.9% of Suncor’s issued and outstanding common shares as at January 31, 2021, to 76,250,000 common shares, or approximately 5% of Suncor’s issued and outstanding common shares as at January 31, 2021. No other terms of the NCIB have been amended.

Between February 8, 2021, and July 26, 2021, and pursuant to the NCIB, Suncor has already repurchased approximately $1.142 billion of common shares on the open market, representing 41,501,992 common shares. Pursuant to the NCIB (as amended), Suncor has agreed that it will not purchase more than 76,250,000 common shares.

The actual number of common shares that may be purchased 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 that the decision to allocate cash to repurchase shares will affect its long-term growth strategy.

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.

2021 Second Quarter   Suncor Energy Inc.   7

Management’s Discussion and Analysis

July 28, 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 (MD&A) for the year ended December 31, 2020, dated February 24, 2021 (the 2020 annual MD&A).

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

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

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

Table of Contents

8   2021 Second Quarter   Suncor Energy Inc.

1. Advisories

Basis of Presentation

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

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

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

Beginning in the first quarter of 2021, the company 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 gross margin, refining operating expense, free funds flow, discretionary free funds flow (deficit), and last-in, first-out (LIFO) inventory valuation methodology and related per share or per barrel amounts − are not prescribed by GAAP. Operating earnings (loss) is defined in the Non-GAAP Financial Measures Advisory section of this MD&A and reconciled to the most directly comparable GAAP measures in the Consolidated Financial Information and Segment Results and Analysis sections of this MD&A. Oil Sands operations cash operating costs, Fort Hills cash operating costs, Syncrude cash operating costs and LIFO inventory valuation methodology are defined in the Non-GAAP Financial Measures Advisory section of this MD&A and reconciled to the most directly comparable GAAP measures in the Segment Results and Analysis section of this MD&A. Funds from (used in) operations, ROCE, free funds flow, discretionary free funds flow (deficit), refining and marketing gross margin, and refining operating expense are defined and reconciled, where applicable, to the most directly comparable GAAP measures in the Non-GAAP Financial Measures Advisory section of this MD&A.

Risk Factors and Forward-Looking Information

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

Measurement Conversions

Certain crude oil and natural gas liquids volumes have been converted to mcfe on the basis of one bbl to six mcf. Also, certain natural gas volumes have been converted to boe or mboe on the same basis. Any figure presented in mcfe, boe or mboe may be misleading, particularly if used in isolation. A conversion ratio of one bbl of crude oil or natural gas liquids to six mcf of natural gas is based on an energy-equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, conversion on a 6:1 basis may be misleading as an indication of value.

Common Abbreviations

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

2021 Second Quarter   Suncor Energy Inc.   9

Management’s Discussion and Analysis

2. Second Quarter Highlights

•

Second quarter financial results

​

•

Suncor’s second quarter 2021 operating earnings(1)(2) were $722 million ($0.48 per common share), compared to an operating loss of  $1.345 billion ($0.88 per common share) in the prior year quarter. In the second quarter of 2021, crude oil and refined product realizations increased significantly compared to the prior year quarter, which reflected the impact of the unprecedented decline in transportation fuel demand, due to the impacts of the COVID-19 pandemic, and the increase in OPEC+ crude supply. The improving business environment in the second quarter of 2021 also resulted in a net inventory valuation gain, reflecting a first-in, first-out (FIFO) gain as a result of the increasing value of refinery feedstock. Operating earnings were partially offset by an increase in royalties and operating expenses associated with Suncor’s increased production in the second quarter of 2021 and reflected lower costs in the prior year quarter related to specific measures taken by the company to reduce operating costs in response to the COVID-19 pandemic.

​

•

Suncor’s net earnings were $868 million ($0.58 per common share) in the second quarter of 2021, compared to a net loss of  $614 million ($0.40 per common share) in the prior year quarter. In addition to the factors impacting operating earnings (loss) discussed above, net earnings for the second quarter of 2021 included a $156 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt and a $10 million after-tax unrealized loss on risk management activities. The net loss in the prior year quarter included a $478 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt and a $144 million after-tax unrealized loss on risk management activities.

​

•

Funds from operations(1) were $2.362 billion ($1.57 per common share) in the second quarter of 2021, compared to $488 million ($0.32 per common share) in the second 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 $2.086 billion ($1.39 per common share) for the second quarter of 2021, compared to cash flow used in operating activities of  $768 million ($0.50 per common share) in the prior year quarter. In addition to the factors noted above, cash flow provided by operating activities was further impacted by a use of cash associated with the company’s working capital balances in both periods. The use of cash in the second quarter of 2021 was primarily due to an increase in production and commodity prices at the end of the quarter, resulting in an increase in accounts receivable and inventory balances, which was partially offset by a decrease in income tax receivable balances related to the receipt of a portion of the company’s 2020 income tax refund.

​

•

Record In Situ production. Suncor’s total upstream production increased to 699,700 barrels of oil equivalent per day (boe/d) in the second quarter of 2021, compared to 655,500 boe/d in the prior year quarter, due to strong Oil Sands operations production including record In Situ volumes, partially offset by the impact of planned turnaround maintenance at Syncrude.

​

•

Well positioned for strong second half of 2021. Significant turnaround activities were completed at Syncrude, Buzzard and across all of the company’s refineries during the second quarter of 2021.The company exited the quarter with refinery utilization of approximately 94%, and with Syncrude and Buzzard having returned to production, the company is set up for a strong second half of the year.

​

•

Improving downstream demand. Canadian gasoline and diesel demand in the second quarter of 2021 is estimated to be 13%(3) below the comparable pre-COVID period in 2019, reflecting the continued COVID-19-related restrictions across Canada. With the lifting of many restrictions in July, gasoline and diesel demand is estimated to have improved to 6%(3) below the comparable 2019 levels.

​

•

Outlined updated strategy. The company shared its updated strategy, which focuses on increasing shareholder returns while accelerating its greenhouse gas (GHG) emissions reduction targets, growing its business in low GHG fuels, electricity and hydrogen, sustaining and optimizing its base business and transforming its GHG footprint to be a net-zero company by 2050.

​

•

Announced alliance to achieve emissions reductions across Canada’s oil sands. Suncor, together with four industry partners representing 90% of Canada’s oil sands production, announced the Oil Sands Pathways to Net Zero alliance whose initiative is aimed at working collectively with the federal and Alberta governments to achieve net-zero GHG emissions from oil sands operations by 2050.

​

10   2021 Second Quarter   Suncor Energy Inc.

•

Maximized shareholder returns in the quarter. In the second quarter of 2021, Suncor remained focused on maximizing the return to its shareholders through the repurchase of approximately 23 million common shares for $643 million under the company’s share repurchase program, and payment of  $315 million of dividends. Share repurchases in the quarter represent 1.5% of Suncor’s issued and outstanding common shares as at January 31, 2021. Since the start of the normal course issuer program (NCIB) in February 2021, the company has repurchased $961 million in common shares, representing approximately 35 million common shares at an average share price of  $27.47 per common share, or the equivalent of 2.3% of Suncor’s issued and outstanding common shares as at January 31, 2021.

​

•

Commitment towards increased share repurchases. Subsequent to the second quarter of 2021, Suncor’s Board of Directors (the Board) approved an increase to the company’s share repurchase program to approximately 5% of the company’s outstanding common shares as at January 31, 2021. Concurrently, the Toronto Stock Exchange (TSX) accepted a notice to increase the maximum number of common shares the company may repurchase pursuant to its NCIB to approximately 5%. The increase to the program demonstrates management’s confidence in the company’s ability to generate cash flow and its commitment to return cash to shareholders.

​

2021 Second Quarter   Suncor Energy Inc.   11

Management’s Discussion and Analysis

3. Consolidated Financial Information

Financial Highlights

​

(1)

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

​

(2)

Beginning in the first quarter of 2021, the company 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)

Excludes capitalized interest of  $37 million in the second quarter of 2021 and $27 million in the second quarter of 2020.

​

12   2021 Second Quarter   Suncor Energy Inc.

Operating Highlights

Net Earnings (Loss)

Suncor’s consolidated net earnings for the second quarter of 2021 were $868 million, compared to a net loss of  $614 million for the prior year quarter. Net earnings were primarily caused by the same factors that resulted in the operating earnings described subsequently in this section of this MD&A.

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

•

The after-tax unrealized foreign exchange gain on the revaluation of U.S. dollar denominated debt was $156 million for the second quarter of 2021, compared to $478 million for the second quarter of 2020.

​

•

The after-tax unrealized loss on risk management activities was $10 million for the second quarter of 2021, compared to $144 million for the second quarter of 2020.

​

•

During the first quarter of 2020, the company recorded an after-tax hydrocarbon inventory write-down to net realizable value of  $177 million in the Oil Sands segment and $220 million in the Refining and Marketing (R&M) segment as a result of a significant decline in benchmarks and demand for crude oil and refined products due to COVID-19 mitigation efforts. The full hydrocarbon inventory write-down of  $397 million after-tax was included in net earnings but was excluded from operating earnings and funds from operations in the first quarter of 2020, and realized through operating earnings and funds from operations in the second quarter of 2020 when the product was sold.

​

2021 Second Quarter   Suncor Energy Inc.   13

Management’s Discussion and Analysis

Operating Earnings (Loss) Reconciliation(1)

​

(1)

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

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

​

(4)

During the first quarter of 2020, the company recorded non-cash after-tax impairment charges of  $1.376 billion on its share of the Fort Hills assets, in the Oil Sands segment, and $422 million against its share of the White Rose and Terra Nova assets, in the Exploration and Production (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.

​

(5)

During the first quarter of 2020, the company recorded an after-tax hydrocarbon inventory write-down to net realizable value of  $177 million in the Oil Sands segment and $220 million in the R&M segment as a result of a significant decline in benchmarks and demand for crude oil and refined products due to COVID-19 mitigation efforts. The full hydrocarbon inventory write-down of  $397 million after-tax was excluded from operating earnings and funds from operations in the first quarter of 2020, and realized through operating earnings and funds from operations in the second quarter of 2020 when the product was sold.

​

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.

​

14   2021 Second Quarter   Suncor Energy Inc.

Suncor’s second quarter 2021 operating earnings were $722 million ($0.48 per common share), compared to an operating loss of  $1.345 billion ($0.88 per common share) in the prior year quarter. In the second quarter of 2021, crude oil and refined product realizations increased significantly compared to the prior year quarter, which reflected the impact of the unprecedented decline in transportation fuel demand, due to the impacts of the COVID-19 pandemic, and the increase in OPEC+ crude supply. The improving business environment in the second 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. Operating earnings were partially offset by an increase in royalties and operating expenses associated with Suncor’s increased production in the second quarter of 2021 and reflected lower costs in the prior year quarter related to specific measures taken by the company to reduce operating costs in response to the COVID-19 pandemic.

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

The after-tax share-based compensation expense increased to $64 million during the second quarter of 2021, compared to an expense of  $30 million during the prior year quarter, as a result of a greater increase in the company’s share price through the period.

2021 Second Quarter   Suncor Energy Inc.   15

Management’s Discussion and Analysis

Business Environment

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

​

(1)

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

​

In the second 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 the 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 second quarter of 2021 reflected an increase in WTI at Cushing, which averaged US$66.05/bbl compared to US$27.85/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 $77.25/bbl in the second quarter of 2021 compared to $30.20/bbl in the prior year quarter, and prices for WCS at Hardisty increased to US$54.60/​bbl in the second quarter of 2021, from US$16.35/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 and sour SCO price realizations.

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$68.85/bbl in the second quarter of 2021, compared to US$29.20/bbl in the prior year quarter.

16   2021 Second Quarter   Suncor Energy Inc.

Suncor’s refining and marketing gross margins are primarily influenced by 2-1-1 benchmark crack spreads, which are industry indicators approximating the gross margin on a barrel of crude oil that is refined to produce gasoline and distillates. Market crack spreads are based on quoted near-month contracts for WTI and spot prices for gasoline and diesel and do not necessarily reflect the margins at a specific refinery. Suncor’s realized refining and marketing gross margins are influenced by actual crude oil feedstock costs, refinery configuration, product mix and realized market prices unique to Suncor’s refining and marketing business. In addition, the U.S. regulatory renewable blending obligations influence the benchmark cracks, which may increase their volatility, while the cost of regulatory compliance is not deducted in calculating the benchmark cracks.

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

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

In the second quarter of 2021, the New York Harbor 2-1-1 and Chicago 2-1-1 benchmark crack spreads increased compared to the prior year quarter due to increased demand for transportation fuels and to compensate for increased costs associated with renewable blending regulatory obligations. The Suncor 5-2-2-1 index was US$25.65/bbl in the second quarter of 2021, compared to US$19.00/bbl in the second quarter of 2020, primarily related to the increase in benchmark crack spreads.

The cost of natural gas used in Suncor’s Oil Sands and Refining operations is primarily referenced to Alberta spot prices at AECO. The average AECO benchmark increased to $3.10/mcf in the second quarter of 2021, from $2.00/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 $104.50/MWh in the second quarter of 2021, compared to $29.90/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 second quarter of 2021, as the average exchange rate increased to US$0.81 per one Canadian dollar from US$0.72 per one Canadian dollar in the prior year quarter. This rate increase had a negative impact on price realizations for the company during the second quarter of 2021 when compared to the prior year quarter.

Suncor also has assets and liabilities, including approximately 66% 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 Second Quarter   Suncor Energy Inc.   17

Management’s Discussion and Analysis

4. Segment Results and Analysis

Oil Sands

Financial Highlights

​

(1)

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.

​

(2)

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

​

(3)

During the first quarter of 2020, Oil Sands recorded an after-tax hydrocarbon inventory write-down to net realizable value of  $177 million as a result of a significant decline in benchmarks and demand for crude oil and refined products due to COVID-19 mitigation efforts. The hydrocarbon inventory write-down of  $177 million after-tax was excluded from operating earnings and funds from operations in the first quarter of 2020, and realized through operating earnings and funds from operations in the second quarter of 2020 when the product was sold.

​

(4)

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

​

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.

​

18   2021 Second Quarter   Suncor Energy Inc.

The Oil Sands segment had operating earnings of  $465 million in the second quarter of 2021, compared to an operating loss of $1.148 billion 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 and increased production. Operating earnings were partially offset by an increase in royalties and operating expenses associated with Suncor’s increased production in the second quarter of 2021 and reflected lower costs in the prior year quarter related to specific measures taken by the company to reduce operating costs in response to the COVID-19 pandemic.

Production Volumes(1)

​

(1)

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

​

(2)

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

​

(3)

Both Oil Sands operations and Syncrude produce diesel, which is internally consumed in mining operations, and Fort Hills and Syncrude use internally produced diesel from Oil Sands Base within their mining operations. In the second quarter of 2021, Oil Sands operations production volumes included 9,500 bbls/d of internally consumed diesel, of which 7,200 bbls/d was consumed at Oil Sands Base, 1,400 bbls/d was consumed at Fort Hills and 900 bbls/d was consumed at Syncrude. Syncrude production volumes included 2,400 bbls/d of internally consumed diesel.

​

(4)

Internal feedstock transfers between Oil Sands operations and Syncrude through the interconnecting pipelines are included in gross SCO and bitumen production volumes. In the second quarter of 2021, Oil Sands operations included 600 bbls/d of SCO that was transferred to Suncor’s share of Syncrude through the interconnecting pipelines. Syncrude production included 100 bbls/d of SCO and 800 bbls/d of bitumen that was transferred to Oil Sands Base through the interconnecting pipelines.

​

The company’s net SCO production increased to 437,200 bbls/d in the second quarter of 2021 from 436,600 bbls/d in the second quarter of 2020. Strong mining and upgrading performance at Oil Sands Base resulted in upgrader utilization of 96%, compared to 93% in the prior year quarter. At Syncrude, both periods were impacted by planned maintenance, and following the completion of planned turnaround activities in the second quarter of 2021, Syncrude ramped up to full operating rates subsequent to the end of the quarter. Due to the impacts of the COVID-19 pandemic in the Fort McMurray region, the company staggered its planned turnarounds at Oil Sands Base plant Upgrader 2 and Syncrude, resulting in the deferral of the Oil Sands Base turnaround to the third quarter of 2021. This decision supported the safe and efficient completion of the Syncrude turnaround activities and minimized the overlap between the two assets. The deferral of the turnaround activities at Oil Sands Base is not anticipated to impact annual production volumes and has been reflected in the company’s 2021 guidance. Suncor continues to work with the community of Fort McMurray, various levels of government and other industry stakeholders to accelerate rapid testing and vaccinations in the region.

The company’s non-upgraded bitumen production increased to 178,500 bbls/d in the second quarter of 2021 from 117,100 bbls/d in the prior year quarter, which, for the second quarter in a row, included the best In Situ quarterly production in the company’s history. During the quarter, the increase in non-upgraded production to market was further supported by strong mining performance at Oil Sands Base, which resulted in less Firebag volumes utilized at the upgrader and overall higher Oil Sands operations production volumes. At MacKay River, production in the prior year quarter was impacted by an outage that occurred in late 2019.

Production at Fort Hills during the quarter reflected the previously communicated change in the mine ramp up strategy. This strategy is principally focused on building ore inventory as appropriate ore inventory levels are required to operate the plant at 90% of nameplate capacity on a two-train operation. By the end of the quarter, ore inventory build was slower than expected with access to additional contract equipment and labour being more constrained than expected. Access to additional resources has increased and we anticipate being at expected contractor capacity by August 2021. Subsequent to the quarter, slope instability on the south side of the mine, which contains the majority of the exposed ore, will require overburden removal to occur earlier than expected to provide full access to the exposed ore and maintain slope integrity. This activity is underway and is expected to be completed by the end of 2021. As a result, Fort Hills plans to continue at the current production level for the remainder of

2021 Second Quarter   Suncor Energy Inc.   19

Management’s Discussion and Analysis

the year, with a transition to both primary extraction trains beginning in late 2021 to enable full production in early 2022. 2021 annual guidance for Fort Hills production and Fort Hills cash operating costs have been updated to reflect these changes.

Sales Volumes

SCO and diesel sales volumes decreased to 433,900 bbls/d in the second quarter of 2021, from 443,100 bbls/d in the prior year quarter, due to a build of inventory in the current quarter associated with the timing of sales compared to a draw from inventory in the prior year quarter.

Non-upgraded bitumen sales volumes were 183,500 bbls/d in the second quarter of 2021, compared to 116,400 bbls/d in the prior year quarter, and were influenced by the same factors that affected production volumes, discussed above.

Price Realizations(1)

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

Expenses and Other Factors

Total Oil Sands operating and transportation expenses increased in the second quarter of 2021 compared to the prior year quarter. See the reconciliation in the Cash Operating Costs section below for further details regarding cash operating costs and a breakdown of non-production costs by asset. In the second quarter of 2020, the relief provided under the Government of Canada’s Emergency Wage Subsidy (CEWS) program, in addition to safe-mode costs associated with the deferral of capital projects and additional costs incurred in response to the COVID-19 pandemic, have been included in operating and transportation expense by asset. These costs, however, have been excluded from cash operating costs per barrel for comparability purposes.

At Oil Sands operations, operating costs increased compared to the prior year quarter, primarily due to higher production and maintenance costs as well as higher natural gas prices, partially offset by cost-reduction initiatives.

At Fort Hills, operating costs in the second quarter of 2021 increased when compared to the prior year quarter, reflecting increased mine activity to increase ore inventory. The second quarter of 2020 reflected cost savings associated with the temporary transition to a one-train operation as a result of the decline in the business environment. Operating costs during the second quarter of 2021 were also impacted by higher maintenance and natural gas prices compared to the prior year quarter.

Suncor’s share of Syncrude operating costs in the second quarter of 2021 increased when compared with the prior year quarter, primarily due to higher planned maintenance that was conducted at the same time as the planned turnaround. In the second quarter of 2020, Syncrude reduced planned maintenance activities and revised the scope of work in support of operating cost reduction targets and to comply with COVID-19 safety measures.

DD&A expense for the second quarter of 2021 was comparable to the prior year quarter.

20   2021 Second Quarter   Suncor Energy Inc.

Cash Operating Costs

​

(1)

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

​

(2)

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

​

(3)

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

​

Oil Sands operations cash operating costs(1) per barrel decreased to $23.85 in the second quarter of 2021, compared to $25.80 in the prior year quarter, due to increased production, partially offset by higher operating, selling and general expenses, as detailed above.

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

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

Inventory changes in the second quarter of 2020 reflected changes to inventory valuation that are excluded from cash cost per barrel.

2021 Second Quarter   Suncor Energy Inc.   21

Management’s Discussion and Analysis

Fort Hills cash operating costs(1) per barrel were $41.35 in the second quarter of 2021, compared to $35.35 in the prior year quarter, reflecting increased mine activity to increase ore inventory. In the second quarter of 2021, non-production costs were higher compared to the prior year quarter, as the prior year quarter included CEWS, partially offset by additional costs incurred in response to the COVID-19 pandemic. In the second quarter of 2020, inventory changes at Fort Hills reflected changes to inventory valuation that are excluded from cash operating costs per barrel.

Syncrude cash operating costs(1) per barrel were $50.25 in the second quarter of 2021, compared to $38.35 in the prior year quarter, due to higher operating, selling and general expenses, as detailed above, and lower production due to planned maintenance. Syncrude non-production costs, which are excluded from cash operating costs, were higher in the current quarter compared to the prior year quarter, as the prior year quarter included CEWS, partially offset by additional costs incurred in response to the COVID-19 pandemic.

Results for the First Six Months of 2021

Oil Sands net earnings were $767 million for the first six months of 2021, compared to a net loss of  $2.972 billion in the prior year period. In addition to the factors impacting operating (loss) earnings explained below, net earnings for the first six months of 2021 included a $3 million after-tax unrealized gain on risk management activities. Net loss for the first six months of 2020 included $1.376 billion of non-cash after-tax asset impairment charges.

Oil Sands operating earnings for the first six months of 2021 were $764 million, compared to an operating loss of  $1.596 billion for the same period in 2020. The increase was primarily due to higher realized crude prices, as crude benchmarks were significantly impacted in the prior year quarter as a result of the COVID-19 pandemic and OPEC+ supply issues, and increased production, partially offset by higher royalties.

Funds from operations for the first six months of 2021 were $3.080 billion for the Oil Sands segment, compared to $701 million in the prior year period, with the increase primarily due to the same factors that influenced operating earnings noted above.

Oil Sands operations cash operating costs per barrel averaged $23.60 for the first six months of 2021, a decrease from an average of  $27.60 for the first six months of 2020 due to increased production on comparable cash operating costs resulting from cost savings initiatives, partially offset by higher natural gas prices.

Fort Hills cash operating costs per barrel averaged $39.05 for the first six months of 2021, compared to $32.60 for the same period of 2020, reflecting the change in mine ramp up strategy to increase the available ore inventory in order to provide a consistent feed to the two primary extraction trains at the plant while keeping current production flat. Higher production for the first six months of 2020 reflected Fort Hills operating on two primary extraction trains early in year. In response to the COVID-19 pandemic, the company managed production to keep pace with reduced downstream demand, temporarily transitioning to a one-train operation at Fort Hills in the second quarter of 2020.

Syncrude cash operating costs per barrel averaged $38.95 for the first six months of 2021, an increase compared to $37.30 in the first six months of 2020, primarily due to higher planned maintenance that was conducted at the same time as the planned turnaround, partially offset by an increase in production volumes. In the first six months of 2020, planned maintenance activities at Syncrude were revised to focus on strategic maintenance, to reduce the scope of work in support of cost-reduction targets and to comply with COVID-19 safety measures.

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 turnaround maintenance at Syncrude’s largest coker was also completed in the second quarter of 2021. During the quarter the company deferred its planned turnaround at Oil Sands Base plant Upgrader 2 into the third quarter, from the second quarter of 2021. The anticipated impact of these maintenance events has been reflected in the company’s 2021 guidance.

22   2021 Second Quarter   Suncor Energy Inc.

Exploration and Production

Financial Highlights

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(1)

Production, revenues and royalties from the company’s Libya operations have been presented in the E&P section of this MD&A on an economic basis and exclude an equal and offsetting gross up of revenues and royalties of  $135 million in the second quarter of 2021, which is required for presentation purposes in the company’s financial statements under the working-interest basis. In the second quarter of 2020, there were no Libya sales included in production, revenues or royalties.

​

(2)

During the first quarter of 2020, the company recorded non-cash after-tax impairment charges of  $422 million against its share of the White Rose and Terra Nova assets due to a decline in forecasted crude oil prices as a result of decreased global demand due to the COVID-19 pandemic and changes to their respective capital, operating and production plans.

​

(3)

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

​

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

(1)

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

​

Operating earnings for the E&P segment in the second quarter of 2021 increased to $250 million, from an operating loss of $51 million in the prior year quarter, with the increase primarily due to higher realized crude prices, partially offset by higher royalties and lower production volumes.

2021 Second Quarter   Suncor Energy Inc.   23

Management’s Discussion and Analysis

Production Volumes

Production volumes for E&P Canada were 57,500 bbls/d in the second quarter of 2021, compared to 62,300 bbls/d in the prior year quarter, primarily due to natural production declines in the second quarter of 2021. Both periods were impacted by the absence of production from Terra Nova as the asset has remained off-line since the fourth quarter of 2019. During the second quarter of 2021, the company announced that the co-owners of the Terra Nova Floating, Production, Storage and Offloading facility and associated Terra Nova Field have reached an agreement, in principle, to restructure the project ownership and provide short-term funding towards continuing the development of the Asset Life Extension Project, with the intent to move to a sanction decision in the third quarter of 2021. The agreement is subject to finalized terms and approval from all parties to the agreement and is contingent upon the previously disclosed royalty and financial support from the Government of Newfoundland & Labrador.

E&P International production was 26,500 boe/d in the second quarter of 2021, compared to 39,500 boe/d in the prior year quarter. Production volumes decreased in the current quarter primarily due to planned turnaround activities at Buzzard and natural declines, partially offset by liftings in Libya in the second quarter of 2021 compared to no liftings in the prior year quarter.

E&P sales volumes decreased to 103,800 boe/d in the second quarter of 2021, compared to 108,700 boe/d in the prior year quarter, due to the decrease in production that was offset by a draw of inventory at E&P Canada associated with the timing of cargo sales.

Price Realizations

​

(1)

E&P International price realizations exclude Libya.

​

Price realizations at E&P Canada and E&P International increased in the second 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 improved in line with increased demand, optimism relating to vaccine rollouts and OPEC+ supply management.

Royalties

E&P royalties in the second 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 second quarter of 2021 were comparable to the prior year quarter.

DD&A and exploration expense in the second quarter of 2021 decreased from the prior year quarter as a result of lower production and a decline in exploration activities.

Results for the First Six Months of 2021

Net earnings for E&P were $413 million for the first six months of 2021, compared to a net loss of  $478 million in the prior year period. In addition to the factors impacting operating earnings (loss) described below, net earnings for the first six months of 2020 included non-cash after-tax impairment charges of  $422 million against the company’s share of the White Rose and Terra Nova assets.

24   2021 Second Quarter   Suncor Energy Inc.

Operating earnings for E&P for the first six months of 2021 were $413 million, compared to an operating loss of  $56 million for the first six months of 2020. The increase was primarily due to higher realized crude prices as crude benchmarks were significantly impacted in the prior year period due to the impacts of the COVID-19 pandemic and OPEC+ supply issues as well as lower DD&A and exploration expense, partially offset by lower production volumes and higher royalties.

Funds from operations were $696 million for the first six months of 2021, compared to $482 million for the first six months of 2020, due to the same reasons noted in operating (loss) earnings above, excluding the impacts of DD&A and exploration expense.

Subsequent Event

Subsequent to June 30, 2021, the agreement for the sale of Suncor’s 26.69% working interest in the Golden Eagle Area Development was approved by the purchaser’s shareholders with financing conditions met. The effective date of the sale is January 1, 2021 for gross proceeds of US$325 million and contingent consideration up to US$50 million before closing adjustments and other closing costs and is expected to close in the third quarter of 2021.

Planned Maintenance Update for Operated Assets

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

Refining and Marketing

Financial Highlights

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(1)

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.

​

(2)

During the first quarter of 2020, the company recorded an after-tax inventory write-down to net realizable value of  $220 million 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.

​

(3)

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

​

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.

​

2021 Second Quarter   Suncor Energy Inc.   25

Management’s Discussion and Analysis

R&M operating earnings in the second quarter of 2021 were $361 million, compared to $145 million in the prior year quarter. Operating earnings included a FIFO inventory valuation gain of  $232 million after-tax on the increase in crude and refined product benchmarks in the second quarter of 2021, compared to a FIFO inventory valuation loss of  $146 million after-tax in the prior year quarter. Operating earnings were unfavourably impacted by lower crude throughput and increased operating expenses.

Volumes

​

(1)

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

​

(2)

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

​

(3)

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

​

Refinery crude throughput was 325,300 bbls/d and refinery utilization was 70% in the second quarter of 2021, compared to refinery crude throughput of 350,400 bbls/d and refinery utilization of 76% in the prior year quarter, reflecting planned turnaround activities in the current quarter and reduced rates in response to lower demand due to the COVID-19 pandemic in the prior year quarter. During the second quarter of 2021, the company completed turnaround activities for the year across all its refineries, enabling them to exit the quarter with a refinery utilization of approximately 94%.

Refined product sales in the second quarter of 2021 increased to 463,300 bbls/d, compared to 438,800 bbls/d in the prior year quarter, due to improved refined product demand and a draw in product inventory as we strategically built inventory in support of significant planned turnaround activities and an improving business environment. With the completion of turnarounds across the company’s refineries and the phased lifting of COVID-19-related restrictions, the company is positioned to capture improved margins in the second half of the year as domestic demand continues to recover towards pre-pandemic levels.

Refining and Marketing Gross Margins

Refining and marketing gross margins were influenced by the following:

•

On a LIFO(1) basis, Suncor’s refining and marketing gross margin increased to $29.05/bbl in the second quarter of 2021, from $28.55/bbl in the prior year quarter, due to improved crack spreads, partially offset by narrower crude feedstock advantage, the timing of biofuel blending activities and product mix related to planned turnaround activities. Suncor’s refining and marketing gross margin also reflects Suncor’s marketing and logistics capabilities and strong sales channels within its integrated retail and wholesale networks.

​

•

On a FIFO basis, Suncor’s refining and marketing gross margin increased to $38.00/bbl in the second quarter of 2021, from $20.95/bbl in the prior year quarter due to the same factors noted above, in addition to FIFO inventory valuation impacts. In the second quarter of 2021, the FIFO method of inventory valuation, relative to an estimated LIFO(1) accounting method, resulted in an after-tax gain of  $232 million. In the prior year quarter, FIFO resulted in an after-tax loss of  $146 million, for a favourable quarter-over-quarter improvement of  $280 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.

​

26   2021 Second Quarter   Suncor Energy Inc.

Expenses and Other Factors

Operating expenses and DD&A in the second quarter of 2021 increased compared to the prior year quarter, as the prior year period had lower variable selling costs and was favourably impacted by CEWS. Refining operating expense(1) per barrel was $6.65 in the second quarter of 2021, compared to $5.80 in the prior year quarter, primarily due to lower crude throughput volumes in the current quarter as a result of planned turnaround activities.

Results for the First Six Months of 2021

R&M’s net earnings were $1.082 billion for the first six months of 2021, compared to $214 million in the prior year period. In addition to the factors impacting operating earnings described below, net earnings for the first six months of 2021 included a $7 million after-tax unrealized gain on risk management activities, compared to a $32 million after-tax unrealized loss on risk management activities in the prior year period.

Operating earnings for R&M in the first six months of 2021 were $1.075 billion, compared to $246 million in the first six months of 2020, with the increase primarily due to a FIFO inventory valuation gain as a result of a significant increase in crude and refined product benchmarks compared to the prior year period, which included a FIFO inventory valuation loss. For the first six months of 2021, the impact of the FIFO method of inventory valuation, relative to an estimated LIFO method, had a positive impact to operating earnings and funds from operations of  $605 million after-tax, compared to a negative impact of  $592 million after-tax impact in the first six months of 2020.

Funds from operations were $1.543 billion in the first six months of 2021, compared to $699 million in the first six months of 2020, and increased primarily due to the same factors that influenced operating earnings described above.

Planned Maintenance

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

Corporate and Eliminations

Financial Highlights

​

(1)

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

​

(2)

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

​

Corporate incurred an operating loss of  $304 million for the second quarter of 2021, compared to an operating loss of  $240 million for the prior year quarter, with the increased loss attributable to an increase in share-based compensation expense in the second quarter of 2021 compared to the prior year quarter and the absence of CEWS in the current period which was included in the prior year quarter. Suncor capitalized $37 million of its borrowing costs in the second quarter of 2021 as part of the cost of major development assets and construction projects in progress, compared to $27 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. The elimination of profit in the second quarter of 2021 was comparable to the prior year quarter.

Corporate and Eliminations funds used in operations were $310 million for the second quarter of 2021, compared to $306 million in the second quarter of 2020, and were influenced by the same factors impacting operating loss described above, excluding the impact of non-cash share-based compensation expense.

(1)

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

​

2021 Second Quarter   Suncor Energy Inc.   27

Management’s Discussion and Analysis

Results for the First Six Months of 2021

The net loss for Corporate and Eliminations was $573 million for the first six months of 2021, compared to $903 million in the prior year period. In addition to the factors impacting operating loss described below, the net loss for the first six months of 2021 included a $337 million unrealized after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt and an after-tax restructuring charge of  $126 million related to workforce reductions recorded in the first quarter of 2021. The net loss in the prior year period included a $543 million unrealized after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt.

The operating loss for Corporate and Eliminations for the first six months of 2021 was $784 million, compared to $360 million in the first six months of 2020. The increased operating loss was attributed to an elimination of intercompany profit in the current year period compared to an elimination of an intercompany loss in the prior year period and a share-based compensation expense in the first six months of 2021, as compared to a share-based compensation recovery incurred in the first six months of 2020. The company capitalized $68 million of its borrowing costs in the first six months of 2021, compared with $65 million in the first six months of 2020.

Corporate and Eliminations funds used in operations for the first six months of 2021 were $847 million, compared to $393 million in the prior year period, and were influenced by the same factors impacting operating loss noted above, excluding the impact of share-based compensation expense. Funds used in operations were also impacted by the restructuring charge related to the workforce reductions recorded in the first quarter of 2021.

28   2021 Second Quarter   Suncor Energy Inc.

5. Capital Investment Update

Capital and Exploration Expenditures by Segment

Capital and Exploration Expenditures by Type, Excluding Capitalized Interest