MESSAGE TO SHAREHOLDERS

Transcription

1 MESSAGE TO SHAREHOLDERS There s no doubt Canada s energy industry has been tested by the lower for longer oil price environment of the past three years. For Suncor, however, this period proved to be not just a challenge, but an opportunity. With our integrated business model, strong balance sheet and our focus on capital discipline and operational excellence, Suncor has emerged stronger than ever. As a result, we are now well positioned to continue to grow the company safely, reliably and profitably for many years to come. STEVE WILLIAMS 17FEB We have been on a multi-year path to improve reliability, As we marked our 50 th year in the oil sands in 2017, it seemed reduce costs across our business and more prudently manage fitting that Suncor started production at the Fort Hills project, capital allocation. This journey began well before the oil price which is poised to provide energy and returns for investors downturn, but has served us well through volatile times. While for the next 50 years. With another major growth project, many competitors retreated or withdrew, we grew production, Hebron, achieving first oil in 2017, we have further reason to reduced costs, increased returns to shareholders by increasing look forward with a sense of confidence and optimism. dividends and buying shares back, all while maintaining a strong balance sheet. Through it all, we stayed true to another key part of our business strategy being a leader in sustainability. We I believe we are still in the early innings of reaping the benefits of our business model and understand that the economic, environmental and social strategy. As we continue on the path of capital dimensions of energy development are deeply integrated and discipline, cost management and operational success in one cannot be achieved without success in all. By outperforming our peer group through a very challenging price cycle, we ve earned investors confidence. We re also proving that our oil sands business can be cost and increasingly carbon competitive on a global basis, underscoring our aspiration to be a long-term energy provider of choice. excellence, we are on very sound footing for the next steps in Suncor s future journey. 17FEB ANNUAL REPORT Suncor Energy Inc.

2 17FEB : STRENGTH THROUGH INTEGRATION Through another volatile year for the global energy industry, Suncor continued to grow and create shareholder value. Suncor s total upstream production was 685,300 barrels of oil equivalent per day (boe/d), a 10% increase from We generated $9.1 billion in funds from operations, easily covering our sustaining capital and dividend requirement of $5.1 billion, while still leaving some $4.1 billion in discretionary free funds flow. $9.1 billion 2017 FUNDS FROM OPERATIONS 24FEB We also strengthened our balance sheet in 2017 through the early repayment of long-term debt. Our net debt to funds flow decreased to less than two times, while our debt to capitalization fell to 25.6%. We will continue to manage the balance sheet conservatively as a strategic asset. We saw record Oil Sands production in 2017 while also realizing the lowest Oil Sands operations cash operating costs in a decade $23.80 per barrel (which is less than $US18.35 per barrel), a 10% reduction from Exploration and Production (E&P) cash operating costs declined by 14%, with average operating costs below $11.50 per barrel on the East Coast and $5.00 in the North Sea again, that s in Canadian dollars. The bulk of the cost savings came from productivity improvements and streamlined operations. The bottom line is: we re focused on moving the entire company towards a sustainably lower cost base, while continuing to grow production. Diversification of cash flow is important. E&P remained a reliable and highly profitable source of low-cost oil production and cash flow. In addition, our downstream refinery utilization rates continued to exceed industry averages. In fact, in a year when many expected refining and marketing results to decline, Suncor s downstream operations generated increased earnings and funds flow. Taken together, these results again demonstrated the value of Suncor s integrated business model. We are one of very few energy companies to operate across the value chain, including resource extraction, upgrading, refining and marketing, as well as midstream logistics. In 2017, this model continued to help us mitigate the impact of crude price differentials, generate profit to grow the company and return value to shareholders. We ve further strengthened our business through a series of strategic and counter-cyclical divestments and acquisitions. In 2017, we completed the sale of our Petro-Canada lubricants business and sold a combined 49% interest in our East Tank Farm Development to two First Nations partners. This followed moves in 2015 and 2016 to advantageously expand investment in our core business during a lower price environment by acquiring an additional 10% working interest in Fort Hills and increasing our ownership in Syncrude to a 54% majority position. 150% IN THE PAST FIVE YEARS, OUR DIVIDEND HAS INCREASED BY ALMOST 150% 20FEB Positive trend lines Suncor s strong performance in 2017 is particularly encouraging in the context of what we ve achieved during a very challenging time for our industry. Our growth, cash generation and balance sheet stand out when compared to industry peers. One key to our strong performance has been our disciplined cost management over the past few years. In 2017, Suncor s total operating, selling and general expenses were below 2014 levels, even as we grew production by almost 30% over the same period. Our strong funds flow generation allowed us to continue to increase returns to shareholders. Suncor s annual dividend increased for the 15 th consecutive year in 2017; in the past five years alone, our dividend has increased by almost 150%. We also repurchased and cancelled approximately 2% of outstanding shares in Suncor s position on dividends and share repurchases remains clear and consistent. We are committed to a competitive, sustainable dividend that will grow in line with the structural growth of our free funds flow and we will continue to return cash to shareholders through opportunistic repurchases, acting when market conditions are favourable. Managing profitable growth In a period when many companies in our sector were forced to shelve growth plans 2017 ANNUAL REPORT Suncor Energy Inc. 5

3 because of low oil prices, Suncor completed Syncrude reduced Suncor s share of Market access two major growth projects Fort Hills and production by over 100,000 bbls/d in the Suncor welcomed the approval of new key Hebron. second quarter of pipeline expansions in We continue to At Fort Hills, we conducted carefully staged This outage only furthered our collective support other safe and environmentally test runs in 2017 to de-risk production ramp resolve to continue working together with sound pipeline options to move Canadian up. By the end of 2018, we expect to achieve the operator and the other owners to oil and refined products around the world. 90% of the planned production capacity of continue to improve the reliability of the Pipelines are critical infrastructure and 194,000 barrels per day (bbls/d). One of the Syncrude assets. These efforts are already while Suncor currently has adequate best oil sands mining assets in the region, paying off with stronger performance at pipeline capacity for our production, Fort Hills is poised to generate substantial the asset in the latter two quarters of the including Fort Hills volumes, we believe profitability and shareholder returns for year. I m confident we can achieve our market access is in the national interest. In a decades to come. targets of driving utilization rates above resource-based economy like Canada s, we Production also commenced ahead of 90% and Syncrude cash operating costs need to ensure we are getting full value for schedule at Hebron, off Canada s east coast. below $30 per barrel by our production to enable investment in At peak capacity, Hebron is expected to jobs, education, health care and improving One of the reasons for acquiring a majority produce more than 30,000 bbls/d of our environmental performance. interest in Syncrude was to tap into low-cost oil net to Suncor. synergies of core assets in close geographic Syncrude: setbacks and synergies proximity and apply our oil sands expertise The road towards operational excellence to improve reliability, drive down costs and comes with its share of bends and curves. add value for our shareholders. I m firmly Planned and unplanned outages at convinced we will do just that. 27FEB LOOKING AHEAD: AN OIL SANDS ADVANTAGE I ve been interested to read recent market commentary suggesting investors increasingly next-generation in situ technologies have want companies to live within their means and focus on returns rather than just growth. the potential to not only reduce costs, but This is an approach Suncor embraced during the high oil price environment of 2011 to also dramatically lower the carbon 2014, when others were making unsustainable spending decisions and leveraging up. We footprint of in situ production. believed it prudent to prepare financially for the inevitable downturn in prices and the We ve already seen what taking costs out of profitable growth opportunities that would emerge. the business and improving operational What s been reinforced in the intervening years is that strong capital discipline and cost reliability can achieve. Suncor is now at a management actually enable sustainable and profitable growth, rather than limit it. With point where we can generate sufficient both Fort Hills and Hebron now in production, we are planning to reduce capital spending funds from operations at a US$40 to $45 per for 2018 by as much as $1.0 billion as compared to 2017, while still increasing production barrel oil price to cover our sustaining by more than 10%. capital and our dividend. There aren t Suncor s 2018 capital spending program is largely focused on sustaining capital, given many companies globally that can make major planned maintenance and the need to invest in safe, reliable and efficient that claim. operations. But going forward, we also have a wealth of growth opportunities, many Put that together with step-change imorganic in nature. These range from near-term integration projects at our oil sands assets provements in environmental performance and step-out production opportunities in the offshore, to greenfield developments like and you can see the outlines of what I d call the Lewis and Meadow Creek in situ projects and Rosebank in the U.K. North Sea. an oil sands advantage a low-decline, We know the main focus for the next phase of growth will be our in situ sites. Suncor was long-life reserve base that, far from the first energy company to receive approval for multiple in situ developments under a generating marginal barrels, is globally streamlined trial regulatory submission process that reduces delays and provides greater competitive on both cost and carbon. certainty for applicants and stakeholders alike. We are now better positioned to reliably To fully realize that advantage, we will need grow production while meeting or exceeding the environmental standards set by to maintain an unwavering focus on what regulators. we can control, including capital discipline, It s important to note that new and future growth projects promise to be more cost management, operational excellence competitive, both in terms of economics and environmental performance. For example, and sustainability. on a well-to-tank basis, the greenhouse gas (GHG) emissions intensity of production at Fort Hills is expected to be about 4% lower than the North American average. Similarly, ANNUAL REPORT Suncor Energy Inc.

4 17FEB SUSTAINABILITY: THE TIE THAT BINDS Suncor has been an industry leader in sustainability for two decades. Going forward, our commitment to continually improve our environmental, social and economic performance will be more critical than ever. As the world transitions to a lowcarbon economy, we intend to be a progressive, cost-efficient Our technology strategy includes investments in nextand carbon-competitive energy provider of choice. Climate Change Climate change is one of the defining challenges of our time and, as a company, we are moving forward on several fronts both internally and externally to tackle this challenge head-on. Suncor is pursuing an ambitious sustainability goal to reduce the GHG emissions intensity of our oil and petroleum production by 30% by We believe this target, together with our ongoing commitment to technology and innovation, puts us on the path to ultimately bending the curve on our absolute GHG emissions as well. 30% SUNCOR WILL REDUCE GHG EMISSIONS INTENSITY BY 30% BY FEB In 2017, we released our first stand-alone climate report, representing a transparent disclosure on why we believe our strategy is resilient through a range of forward-looking scenarios all of them transitioning to a lower carbon future. Suncor continues to support climate change policy that encourages improved performance while preserving the competitiveness of the Canadian energy sector. We also continue to work collaboratively with organizations like the Carbon Pricing Leadership Coalition, Ecofiscal Commission and Energy Futures Lab to support an effective and efficient transition to a lower-carbon economy. Technology Throughout the recent oil price downturn, Suncor continued to invest approximately $200 million annually on technology development and, in 2017, we also invested almost $350 million on development and deployment of new technology. That s because technology is key to achieving our climate change strategies as well as other environmental and cost-reduction goals. $200 million SPENT ANNUALLY ON TECHNOLOGY DEVELOPMENT 17FEB generation in situ extraction processes that could dramatically reduce water and energy requirements, costs and GHG emissions. We re currently evaluating the potential to advance these in situ technologies at commercial scale. In 2018, we re also preparing to deploy new commercially ready technology designed to advance tailings reclamation. Suncor continues to collaborate with peer companies and external partners through organizations like Canada s Oil Sands Innovation Alliance (COSIA) and Evok Innovations on clean technology solutions that will help us thrive in tomorrow s economy. One example is Evok-funded HARBO Technologies which is the world s smallest and lightest containment system for marine oil spills. The system can be stored onboard vessels and if needed rapidly deploy boom material to prevent marine oil spills from spreading. Aboriginal Partnerships Suncor s socially-focused sustainability goal targets the increased participation of Canada s Aboriginal Peoples in resource development. It s about changing the way we think and act and working with Aboriginal Peoples to create opportunities for economic and social reconciliation. We took a significant step forward in 2017 when the Fort McKay and Mikisew Cree First Nations completed an acquisition of a 49% partnership interest in Suncor s East Tank Farm Development the largest business investment to date by a First Nation entity in Canada also saw Suncor purchase a 41% equity interest in PetroNor, a Quebec-based petroleum products distributor owned and operated by the James Bay Cree. Recognizing Suncor s efforts, the Canadian Council of Aboriginal Business (CCAB) certified the company in 2017 at gold-level status in the CCAB s Progressive Aboriginal Relations (PAR) program. While honoured by this recognition, we also know there is much more work to be done to earn the trust and support of Aboriginal Peoples and communities ANNUAL REPORT Suncor Energy Inc. 7

5 24FEB THE SUNCOR TEAM Suncor s success through a challenging oil price cycle is rooted in the hard work, talent and ingenuity of Suncor s employees. We are also indebted to our Board of Directors, whose wise guidance keeps us strategically focused on long-term objectives. We lost a titan in our industry in 2017 with the passing of Rick George, who served for 21 years as Suncor s chief executive officer. Rick helped transform Suncor from a struggling oil sands pioneer into Canada s largest integrated energy company. He guided the company in adopting game-changing technologies to improve environmental performance, profitability and competitiveness. Rick was instrumental in bringing me to Suncor and I quickly came to share his passion for the oil sands. He understood that progress in this industry is about having a laser focus on tomorrow s challenges and opportunities. Keeping with that Suncor tradition, we made two key executive leadership changes in 2017 that I believe will serve us well going forward. Mark Little, formerly President, Upstream, was appointed Chief Operating Officer. Eric Axford, formerly Executive Vice President (EVP), Business Services, became EVP and Chief Sustainability Officer. In their respective positions, Mark and Eric will help ensure Suncor continues to lead in operational excellence and sustainable energy development. As we move forward, one value will continue to stand above all the rest safety first. Suncor is committed to eliminating all workplace injuries, a goal reflected in our Journey to Zero safety program. While we continued to reduce lost time injuries and recordable injury frequencies across the company in 2017, we won t rest until that number reaches and remains at zero. Regardless of where commodity prices go from here, Suncor plans to continue to allocate capital in a disciplined manner, reduce operational costs and demonstrate that we can be globally cost and increasingly carbon competitive. In so doing, we believe we will provide the increasing returns shareholders have come to expect from us while delivering the energy the world needs. Steve Williams President and Chief Executive Officer 24FEB ANNUAL REPORT Suncor Energy Inc.