EX-99.3 4 a04-12063_1ex99d3.htm EX-99.3

Exhibit 99.3

 

Consolidated Statements of Earnings

(Unaudited)

 

 

 

Third quarter

 

Nine months ended Sept 30

 

($ millions)

 

2004

 

2003

 

2004

 

2003

 

REVENUES

 

2 315

 

1 788

 

6 311

 

4 873

 

EXPENSES

 

 

 

 

 

 

 

 

 

Purchases of crude oil and products

 

806

 

530

 

2 114

 

1 282

 

Operating, selling and general (notes 2 and 6)

 

396

 

341

 

1 241

 

1 037

 

Energy marketing and trading activities (note 3)

 

118

 

89

 

295

 

226

 

Transportation and other costs

 

40

 

29

 

96

 

99

 

Depreciation, depletion and amortization (note 2)

 

183

 

156

 

534

 

457

 

Accretion of asset retirement obligations (note 2)

 

6

 

8

 

19

 

20

 

Exploration

 

10

 

8

 

48

 

41

 

Royalties (note 12)

 

153

 

32

 

381

 

112

 

Taxes other than income taxes

 

129

 

124

 

371

 

304

 

(Gain) loss on disposal of assets

 

3

 

(2

)

3

 

(4

)

Project start-up costs

 

1

 

7

 

23

 

12

 

Financing expenses (income) (note 4)

 

(47

)

7

 

50

 

(46

)

 

 

1 798

 

1 329

 

5 175

 

3 540

 

EARNINGS BEFORE INCOME TAXES

 

517

 

459

 

1 136

 

1 333

 

PROVISION FOR INCOME TAXES (notes 2 and 9)

 

 

 

 

 

 

 

 

 

Current

 

19

 

—

 

43

 

42

 

Future

 

161

 

168

 

326

 

518

 

 

 

180

 

168

 

369

 

560

 

NET EARNINGS

 

337

 

291

 

767

 

773

 

Dividends on preferred securities, net of tax (note 11)

 

—

 

(7

)

(6

)

(20

)

Revaluation of US$ preferred securities, net of tax (note 11)

 

—

 

1

 

(6

)

30

 

Net earnings attributable to common shareholders

 

337

 

285

 

755

 

783

 

 

 

 

 

 

 

 

 

 

 

PER COMMON SHARE (dollars)

 

 

 

 

 

 

 

 

 

Net earnings attributable to common shareholders (note 5)

 

 

 

 

 

 

 

 

 

Basic

 

0.74

 

0.63

 

1.67

 

1.74

 

Diluted

 

0.73

 

0.61

 

1.64

 

1.63

 

Cash dividends

 

0.06

 

0.05

 

0.17

 

0.1425

 

 

See accompanying notes.

 

1


 

Consolidated Balance Sheets

(Unaudited)

 

($ millions)

 

September 30
2004

 

December 31
2003

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

135

 

388

 

Accounts receivable

 

682

 

505

 

Inventories (note 13)

 

438

 

371

 

Future income taxes

 

63

 

15

 

Total current assets

 

1 318

 

1 279

 

Property, plant and equipment, net (note 2)

 

9 725

 

8 936

 

Deferred charges and other

 

319

 

286

 

Total assets

 

11 362

 

10 501

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Short-term debt

 

12

 

31

 

Accounts payable and accrued liabilities (note 12)

 

1 269

 

970

 

Income taxes payable

 

15

 

9

 

Taxes other than income taxes

 

48

 

49

 

Future income taxes

 

1

 

1

 

Total current liabilities

 

1 345

 

1 060

 

Long-term debt (note 10)

 

2 335

 

2 448

 

Accrued liabilities and other (note 2)

 

697

 

616

 

Future income taxes (note 2)

 

2 397

 

2 022

 

Shareholders’ equity (see below)

 

4 588

 

4 355

 

Total liabilities and shareholders’ equity

 

11 362

 

10 501

 

 

SHAREHOLDERS’ EQUITY

 

 

 

Number

 

 

 

Number

 

 

 

 

 

(thousands)

 

 

 

(thousands)

 

 

 

Preferred securities (note 11)

 

—

 

—

 

17 540

 

476

 

Share capital

 

453 421

 

636

 

451 184

 

604

 

Contributed surplus

 

 

 

26

 

 

 

7

 

Cumulative foreign currency translation

 

 

 

(36

)

 

 

(26

)

Retained earnings (note 2)

 

 

 

3 962

 

 

 

3 294

 

 

 

 

 

4 588

 

 

 

4 355

 

 

See accompanying notes.

 

2


 

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Third quarter

 

Nine months ended Sept 30

 

($ millions)

 

2004

 

2003

 

2004

 

2003

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

Cash flow from operations

 

585

 

584

 

1 497

 

1 555

 

Decrease (increase) in operating working capital

 

 

 

 

 

 

 

 

 

Accounts receivable

 

43

 

(123

)

(176

)

(88

)

Inventories

 

37

 

31

 

(66

)

(2

)

Accounts payable and accrued liabilities

 

47

 

(14

)

301

 

76

 

Taxes payable

 

9

 

32

 

6

 

22

 

Cash flow from operating activities

 

721

 

510

 

1 562

 

1 563

 

CASH USED IN INVESTING ACTIVITIES

 

(478

)

(583

)

(1 174

)

(1 237

)

NET CASH SURPLUS (DEFICIENCY) BEFORE FINANCING ACTIVITIES

 

243

 

(73

)

388

 

326

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Increase (decrease) in short-term debt

 

(25

)

6

 

(19

)

7

 

Net increase (decrease) in other long-term debt

 

(109

)

159

 

(84

)

(200

)

Redemption of preferred securities (note 11)

 

—

 

—

 

(493

)

—

 

Issuance of common shares under stock option plan

 

7

 

4

 

27

 

10

 

Dividends paid on preferred securities

 

—

 

(11

)

(9

)

(34

)

Dividends paid on common shares

 

(27

)

(21

)

(72

)

(60

)

Deferred revenue

 

11

 

—

 

11

 

—

 

Cash (used in) provided by financing activities

 

(143

)

137

 

(639

)

(277

)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

100

 

64

 

(251

)

49

 

EFFECT OF FOREIGN EXCHANGE ON CASH AND CASH EQUIVALENTS

 

(2

)

(2

)

(2

)

(2

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

37

 

—

 

388

 

15

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

135

 

62

 

135

 

62

 

 

See accompanying notes.

 

3


 

Consolidated Statements of Changes in Shareholders’ Equity

(unaudited) 

 

($ millions)

 

Preferred
Securities

 

Share
Capital

 

Contributed
Surplus

 

Cumulative
Foreign
Currency
Translation

 

Retained
Earnings

 

At December 31, 2002, as previously reported

 

523

 

578

 

—

 

—

 

2 357

 

Retroactive adjustment for change in accounting policy, net of tax (note 2)

 

—

 

—

 

—

 

—

 

(61

)

At December 31, 2002, as restated

 

523

 

578

 

—

 

—

 

2 296

 

Net earnings

 

—

 

—

 

—

 

—

 

773

 

Dividends paid on preferred securities, net of tax

 

—

 

—

 

—

 

—

 

(20

)

Dividends paid on common shares

 

—

 

—

 

—

 

—

 

(60

)

Issued for cash under stock option plan

 

—

 

10

 

—

 

—

 

—

 

Issued under dividend reinvestment plan

 

—

 

4

 

—

 

—

 

(4

)

Stock-based compensation expense

 

—

 

—

 

5

 

—

 

—

 

Foreign currency translation adjustment

 

—

 

—

 

—

 

(12

)

—

 

Revaluation of US$ preferred securities

 

(38

)

—

 

—

 

—

 

30

 

At September 30, 2003

 

485

 

592

 

5

 

(12

)

3 015

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2003, as previously reported

 

476

 

604

 

7

 

(26

)

3 364

 

Retroactive adjustment for change in accounting policy, net of tax (note 2)

 

—

 

—

 

—

 

—

 

(70

)

At December 31, 2003, as restated

 

476

 

604

 

7

 

(26

)

3 294

 

Net earnings

 

—

 

—

 

—

 

—

 

767

 

Dividends paid on preferred securities, net of tax

 

—

 

—

 

—

 

—

 

(6

)

Dividends paid on common shares

 

—

 

—

 

—

 

—

 

(72

)

Issued for cash under stock option plan

 

—

 

27

 

—

 

—

 

—

 

Issued under dividend reinvestment plan

 

—

 

5

 

—

 

—

 

(5

)

Stock-based compensation expense

 

—

 

—

 

19

 

—

 

—

 

Foreign currency translation adjustment

 

—

 

—

 

—

 

(10

)

—

 

Revaluation of US$ preferred securities

 

7

 

—

 

—

 

—

 

(6

)

Reclassification of issue costs for preferred securities

 

10

 

—

 

—

 

—

 

(10

)

Redemption of preferred securities (note 11)

 

(493

)

—

 

—

 

—

 

—

 

At September 30, 2004

 

—

 

636

 

26

 

(36

)

3 962

 

 

See accompanying notes.

 

4


 

Schedules of Segmented Data

(unaudited)

 

 

 

Oil Sands

 

Natural Gas

 

Energy Marketing
and Refining –
Canada

 

Refining and
Marketing –
U.S.A.

 

Corporate and
Eliminations

 

 

 

Third quarter

Total

($ millions)

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

836

 

681

 

135

 

127

 

785

 

661

 

437

 

228

 

—

 

1

 

2 193

 

1 698

 

Energy marketing and trading activities

 

—

 

—

 

—

 

—

 

121

 

90

 

—

 

—

 

—

 

—

 

121

 

90

 

Intersegment revenues

 

110

 

75

 

5

 

2

 

—

 

—

 

—

 

—

 

(115

)

(77

)

—

 

—

 

Interest

 

—

 

—

 

—

 

—

 

—

 

—

 

1

 

—

 

—

 

—

 

1

 

—

 

 

 

946

 

756

 

140

 

129

 

906

 

751

 

438

 

228

 

(115

)

(76

)

2 315

 

1 788

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of crude oil and products

 

33

 

8

 

—

 

—

 

533

 

452

 

353

 

150

 

(113

)

(80

)

806

 

530

 

Operating, selling and general

 

193

 

186

 

22

 

18

 

105

 

92

 

23

 

20

 

53

 

25

 

396

 

341

 

Energy marketing and trading activities

 

—

 

—

 

—

 

—

 

118

 

89

 

—

 

—

 

—

 

—

 

118

 

89

 

Transportation and other costs

 

27

 

19

 

5

 

7

 

1

 

1

 

7

 

2

 

—

 

—

 

40

 

29

 

Depreciation, depletion and amortization

 

126

 

113

 

29

 

25

 

18

 

15

 

9

 

2

 

1

 

1

 

183

 

156

 

Accretion of asset retirement obligations

 

5

 

6

 

1

 

1

 

—

 

1

 

—

 

—

 

—

 

—

 

6

 

8

 

Exploration

 

—

 

1

 

10

 

7

 

—

 

—

 

—

 

—

 

—

 

—

 

10

 

8

 

Royalties

 

122

 

9

 

31

 

23

 

—

 

—

 

—

 

—

 

—

 

—

 

153

 

32

 

Taxes other than income taxes

 

7

 

6

 

—

 

1

 

90

 

90

 

32

 

27

 

—

 

—

 

129

 

124

 

(Gain) loss on disposal of assets

 

4

 

—

 

—

 

—

 

(1

)

(2

)

—

 

—

 

—

 

—

 

3

 

(2

)

Project start-up costs

 

1

 

3

 

—

 

—

 

—

 

—

 

—

 

4

 

—

 

—

 

1

 

7

 

Financing expenses (income)

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(47

)

7

 

(47

)

7

 

 

 

518

 

351

 

98

 

82

 

864

 

738

 

424

 

205

 

(106

)

(47

)

1 798

 

1 329

 

Earnings (loss) before income taxes

 

428

 

405

 

42

 

47

 

42

 

13

 

14

 

23

 

(9

)

(29

)

517

 

459

 

Income taxes

 

(165

)

(146

)

(19

)

(21

)

(13

)

(4

)

1

 

(9

)

16

 

12

 

(180

)

(168

)

Net earnings (loss)

 

263

 

259

 

23

 

26

 

29

 

9

 

15

 

14

 

7

 

(17

)

337

 

291

 

 

5


 

 

 

Oil Sands

 

Natural Gas

 

Energy Marketing
and Refining –
Canada

 

Refining and
Marketing –
U.S.A.

 

Corporate and
Eliminations

 

 

 

Third quarter

Total

($ millions)

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

CASH FLOW BEFORE  FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from (used in)  operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from  (used in) operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

263

 

259

 

23

 

26

 

29

 

9

 

15

 

14

 

7

 

(17

)

337

 

291

 

Exploration expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

—

 

—

 

2

 

2

 

—

 

—

 

—

 

—

 

—

 

—

 

2

 

2

 

Dry hole costs

 

—

 

—

 

8

 

5

 

—

 

—

 

—

 

—

 

—

 

—

 

8

 

5

 

Non-cash items included  in earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion  and amortization

 

126

 

113

 

29

 

25

 

18

 

15

 

9

 

2

 

1

 

1

 

183

 

156

 

Future income taxes

 

162

 

144

 

18

 

20

 

2

 

11

 

4

 

5

 

(25

)

(12

)

161

 

168

 

Current income tax provision  allocated to Corporate

 

3

 

2

 

1

 

1

 

11

 

(7

)

(5

)

4

 

(10

)

—

 

—

 

—

 

(Gain) loss on disposal of assets

 

4

 

—

 

—

 

—

 

(1

)

(2

)

—

 

—

 

—

 

—

 

3

 

(2

)

Stock-based compensation  expense

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

10

 

2

 

10

 

2

 

Other

 

(5

)

3

 

(2

)

1

 

2

 

2

 

(1

)

—

 

(70

)

(9

)

(76

)

(3

)

Overburden removal outlays

 

(51

)

(35

)

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(51

)

(35

)

Increase (decrease) in  deferred credits and other

 

7

 

2

 

1

 

—

 

(9

)

(1

)

(1

)

—

 

10

 

(1

)

8

 

—

 

Total cash flow from  (used in) operations

 

509

 

488

 

80

 

80

 

52

 

27

 

21

 

25

 

(77

)

(36

)

585

 

584

 

Decrease (increase) in operating  working capital

 

18

 

(87

)

26

 

15

 

(9

)

(2

)

82

 

44

 

19

 

(44

)

136

 

(74

)

Total cash flow from (used in)  operating activities

 

527

 

401

 

106

 

95

 

43

 

25

 

103

 

69

 

(58

)

(80

)

721

 

510

 

Cash from (used in)  investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and exploration  expenditures

 

(305

)

(212

)

(53

)

(49

)

(67

)

(31

)

(52

)

(8

)

(8

)

(5

)

(485

)

(305

)

Acquisition of Denver refinery  and related assets

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(272

)

—

 

—

 

—

 

(272

)

Deferred maintenance  shutdown expenditures

 

(1

)

(8

)

—

 

—

 

4

 

(3

)

(1

)

—

 

—

 

—

 

2

 

(11

)

Deferred outlays and  other investments

 

—

 

—

 

—

 

—

 

—

 

1

 

—

 

—

 

—

 

(1

)

—

 

—

 

Proceeds from disposals

 

2

 

—

 

3

 

3

 

—

 

2

 

—

 

—

 

—

 

—

 

5

 

5

 

Total cash (used in)  investing activities

 

(304

)

(220

)

(50

)

(46

)

(63

)

(31

)

(53

)

(280

)

(8

)

(6

)

(478

)

(583

)

Net cash surplus (deficiency)  before financing activities

 

223

 

181

 

56

 

49

 

(20

)

(6

)

50

 

(211

)

(66

)

(86

)

243

 

(73

)

 

6


 

 

 

Oil Sands

 

Natural Gas

 

Energy Marketing
and Refining –
Canada

 

Refining and
Marketing –
U.S.A.

 

Nine months ended September 30

 

Corporate and
Eliminations

 

Total

($ millions)

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

2 317

 

1 991

 

358

 

383

 

2 227

 

2 043

 

1 098

 

228

 

1

 

2

 

6 001

 

4 647

 

Energy marketing and  trading activities

 

—

 

—

 

—

 

—

 

316

 

225

 

—

 

—

 

(8

)

—

 

308

 

225

 

Intersegment revenues

 

302

 

264

 

63

 

14

 

—

 

—

 

—

 

—

 

(365

)

(278

)

—

 

—

 

Interest

 

—

 

—

 

—

 

—

 

—

 

—

 

1

 

—

 

1

 

1

 

2

 

1

 

 

 

2 619

 

2 255

 

421

 

397

 

2 543

 

2 268

 

1 099

 

228

 

(371

)

(275

)

6 311

 

4 873

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of crude  oil and products

 

75

 

12

 

—

 

—

 

1 544

 

1 398

 

859

 

150

 

(364

)

(278

)

2 114

 

1 282

 

Operating, selling  and general

 

657

 

620

 

61

 

55

 

297

 

274

 

94

 

20

 

132

 

68

 

1 241

 

1 037

 

Energy marketing and  trading activities

 

—

 

—

 

—

 

—

 

303

 

226

 

—

 

—

 

(8

)

—

 

295

 

226

 

Transportation and  other costs

 

63

 

77

 

16

 

19

 

2

 

1

 

15

 

2

 

—

 

—

 

96

 

99

 

Depreciation, depletion  and amortization

 

376

 

341

 

86

 

67

 

51

 

44

 

16

 

2

 

5

 

3

 

534

 

457

 

Accretion of asset  retirement obligations

 

15

 

16

 

3

 

3

 

1

 

1

 

—

 

—

 

—

 

—

 

19

 

20

 

Exploration

 

15

 

10

 

33

 

31

 

—

 

—

 

—

 

—

 

—

 

—

 

48

 

41

 

Royalties

 

289

 

24

 

92

 

88

 

—

 

—

 

—

 

—

 

—

 

—

 

381

 

112

 

Taxes other than  income taxes

 

21

 

18

 

2

 

2

 

260

 

257

 

88

 

27

 

—

 

—

 

371

 

304

 

(Gain) loss on disposal of assets

 

7

 

—

 

(3

)

—

 

(1

)

(4

)

—

 

—

 

—

 

—

 

3

 

(4

)

Project start-up costs

 

23

 

8

 

—

 

—

 

—

 

—

 

—

 

4

 

—

 

—

 

23

 

12

 

Financing expenses (income)

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

50

 

(46

)

50

 

(46

)

 

 

1 541

 

1 126

 

290

 

265

 

2 457

 

2 197

 

1 072

 

205

 

(185

)

(253

)

5 175

 

3 540

 

Earnings (loss) before  income taxes

 

1 078

 

1 129

 

131

 

132

 

86

 

71

 

27

 

23

 

(186

)

(22

)

1 136

 

1 333

 

Income taxes

 

(345

)

(495

)

(51

)

(51

)

(30

)

(24

)

(3

)

(9

)

60

 

19

 

(369

)

(560

)

Net earnings (loss)

 

733

 

634

 

80

 

81

 

56

 

47

 

24

 

14

 

(126

)

(3

)

767

 

773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at September 30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

8 708

 

7 677

 

817

 

756

 

1 274

 

1 025

 

549

 

480

 

14

 

35

 

11 362

 

9 973

 

CAPITAL EMPLOYED (1)

 

4 182

 

4 163

 

410

 

373

 

528

 

523

 

241

 

290

 

211

 

87

 

5 572

 

5 436

 

 

(1) Excludes capitalized costs related to major projects in progress.

 

7


 

 

 

Oil Sands

 

Natural Gas

 

Energy Marketing
and Refining –
Canada

 

Refining and
Marketing
U.S.A.

 

Nine months ended September 30

 

Corporate and
Eliminations

 

Total

($ millions)

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

2004

 

2003

 

CASH FLOW BEFORE FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from (used in) operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

733

 

634

 

80

 

81

 

56

 

47

 

24

 

14

 

(126

)

(3

)

767

 

773

 

Exploration expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

—

 

—

 

13

 

7

 

—

 

—

 

—

 

—

 

—

 

—

 

13

 

7

 

Dry hole costs

 

—

 

—

 

20

 

24

 

—

 

—

 

—

 

—

 

—

 

—

 

20

 

24

 

Non-cash items included in earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

376

 

341

 

86

 

67

 

51

 

44

 

16

 

2

 

5

 

3

 

534

 

457

 

Future income taxes

 

335

 

486

 

46

 

49

 

2

 

4

 

10

 

5

 

(67

)

(26

)

326

 

518

 

Current income tax provision allocated to Corporate

 

10

 

9

 

5

 

2

 

28

 

20

 

(7

)

4

 

(36

)

(35

)

—

 

—

 

(Gain) loss on disposal of assets

 

7

 

—

 

(3

)

—

 

(1

)

(4

)

—

 

—

 

—

 

—

 

3

 

(4

)

Stock-based compensation expense

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

19

 

5

 

19

 

5

 

Other

 

(13

)

6

 

6

 

4

 

(5

)

7

 

(9

)

—

 

(26

)

(117

)

(47

)

(100

)

Overburden removal outlays

 

(163

)

(132

)

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(163

)

(132

)

Increase (decrease) in deferred credits and other

 

10

 

6

 

—

 

—

 

—

 

(1

)

2

 

—

 

13

 

2

 

25

 

7

 

Total cash flow from (used in) operations

 

1 295

 

1 350

 

253

 

234

 

131

 

117

 

36

 

25

 

(218

)

(171

)

1 497

 

1 555

 

Decrease (increase) in operating working capital

 

25

 

4

 

(11

)

18

 

—

 

2

 

38

 

44

 

13

 

(60

)

65

 

8

 

Total cash flow from (used in) operating activities

 

1 320

 

1 354

 

242

 

252

 

131

 

119

 

74

 

69

 

(205

)

(231

)

1 562

 

1 563

 

Cash from (used in) investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and exploration expenditures

 

(778

)

(641

)

(160

)

(125

)

(132

)

(69

)

(97

)

(8

)

(25

)

(15

)

(1 192

)

(858

)

Acquisition of Denver refinery and related assets

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(272

)

—

 

—

 

—

 

(272

)

Deferred maintenance shutdown expenditures

 

(1

)

(100

)

—

 

—

 

(21

)

(5

)

(7

)

—

 

—

 

—

 

(29

)

(105

)

Deferred outlays and other investments

 

(3

)

(9

)

—

 

—

 

(12

)

—

 

—

 

—

 

8

 

(2

)

(7

)

(11

)

Proceeds from disposals

 

42

 

—

 

10

 

5

 

2

 

4

 

—

 

—

 

—

 

—

 

54

 

9

 

Total cash (used in) investing activities

 

(740

)

(750

)

(150

)

(120

)

(163

)

(70

)

(104

)

(280

)

(17

)

(17

)

(1174

)

(1237

)

Net cash surplus (deficiency) before financing activities

 

580

 

604

 

92

 

132

 

(32

)

49

 

(30

)

(211

)

(222

)

(248

)

388

 

326

 

 

8


 

>>                Notes to the Consolidated Financial Statements

(unaudited)

 

1. ACCOUNTING POLICIES

 

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual financial statements, except for the accounting policy change as described in note 2, Asset Retirement Obligations.

 

In the opinion of management, these interim consolidated financial statements contain all adjustments of a normal and recurring nature necessary to present fairly Suncor Energy Inc.’s (Suncor) financial position at September 30, 2004 and the results of its operations and cash flows for the three and nine month periods ended September 30, 2004 and 2003.

 

Certain prior period comparative figures have been reclassified to conform to the current period presentation.

 

2. ASSET RETIREMENT OBLIGATIONS

 

On January 1, 2004, the company retroactively adopted the new Canadian accounting standard related to “Asset Retirement Obligations” (ARO). Under the new standard a liability is recognized for the future retirement obligations associated with the company’s property, plant and equipment. The fair value of the ARO is recorded on a discounted basis. This amount is capitalized as part of the cost of the related asset and amortized to expense over its useful life. The liability accretes until the company settles the obligation. The 2003 and estimated 2004 impact of adopting this standard compared to the previous standard is:

 

CHANGE IN CONSOLIDATED BALANCE SHEETS

 

 

 

As at September 30

 

($ millions, increase/(decrease))

 

2004

 

2003

 

Property, plant and equipment

 

204

 

213

 

Future income tax assets

 

34

 

38

 

Total assets

 

238

 

251

 

 

 

 

 

 

 

Accrued liabilities and other

 

305

 

323

 

Retained earnings

 

(67

)

(72

)

Total liabilities and shareholders’ equity

 

238

 

251

 

 

CHANGE IN CONSOLIDATED STATEMENTS OF EARNINGS

 

 

 

Third Quarter

 

Nine months ended September 30

 

($ millions, increase/(decrease))

 

2004

 

2003

 

2004

 

2003

 

Depreciation, depletion and amortization

 

3

 

2

 

7

 

5

 

Accretion of asset retirement obligations

 

6

 

8

 

19

 

20

 

Operating, selling and general expenses

 

(11

)

(6

)

(32

)

(17

)

Future income taxes

 

—

 

—

 

3

 

3

 

Net earnings

 

2

 

(4

)

3

 

(11

)

Per common share – basic (dollars)

 

—

 

(0.01

)

0.01

 

(0.02

)

Per common share – diluted (dollars)

 

—

 

(0.01

)

0.01

 

(0.02

)

 

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligations associated with the retirement of property, plant and equipment.

 

 

 

As at September 30

 

($ millions)

 

2004

 

2003

 

Asset retirement obligations, beginning of year

 

401

 

400

 

Liabilities incurred

 

—

 

—

 

Liabilities settled

 

(21

)

(18

)

Accretion of asset retirement obligations

 

19

 

20

 

Asset retirement obligations, end of period

 

399

 

402

 

 

9


 

The total undiscounted amount of estimated cash flows required to settle the obligations is approximately $1 billion for each of 2003 and 2004, and has been discounted using a credit-adjusted risk free rate of 6%. Payments to settle the ARO occur on an ongoing basis and will continue over the lives of the operating assets, which can exceed 35 years.

 

A significant portion of the company’s assets have retirement obligations for which the fair value cannot be reasonably determined because the assets currently have an indeterminate life. The asset retirement obligation for these assets will be recorded in the first period in which the lives of the assets are determinable.

 

3. ENERGY MARKETING AND TRADING ACTIVITIES

 

In addition to those financial derivatives used for hedging activities, the company also uses energy derivatives, including physical and financial swaps, forwards and options to gain market information and earn trading revenues. These energy trading activities are accounted for using the mark-to-market method and as such physical and financial energy contracts are recorded at fair value at each balance sheet date. For the quarter ended September 30, 2004, a net pretax gain of $3 million (2003 – $nil) from the settlement and revaluation of financial contracts was reported as energy marketing and trading activities in the Consolidated Statements of Earnings. In the third quarter the settlement of physical trading activities also resulted in a net pretax gain of $2 million (2003 – pretax gain of $1 million). For the nine month period ended September 30, 2004 a pretax gain of $9 million was recorded on financial contracts (2003 – pretax loss of $3 million). Year-to-date settlement of physical trading activities resulted in a net pretax gain $7 million (2003 – pretax gain of $4 million). The above amounts do not include the impact of related general and administrative costs. The fair value of unsettled (unrealized) energy trading assets and liabilities are as follows:

 

($ millions)

 

September 30
2004

 

December 31
2003

 

Energy trading assets

 

20

 

5

 

Energy trading liabilities

 

9

 

5

 

 

The source of the valuations of the above contracts is based on actively quoted prices and internal model valuations.

 

4. FINANCING EXPENSES (INCOME)

 

 

 

Third quarter

 

Nine months ended September 30

 

($ millions)

 

2004

 

2003

 

2004

 

2003

 

Interest on debt

 

36

 

35

 

112

 

103

 

Capitalized interest

 

(17

)

(15

)

(39

)

(38

)

Net interest expense

 

19

 

20

 

73

 

65

 

Foreign exchange (gain) on long-term debt

 

(77

)

(11

)

(29

)

(123

)

Other foreign exchange (gain) loss

 

11

 

(2

)

6

 

12

 

Total financing expenses (income)

 

(47

)

7

 

50

 

(46

)

 

5. RECONCILIATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE

 

 

 

Third quarter

 

Nine months ended September 30

 

($ millions)

 

2004

 

2003

 

2004

 

2003

 

Net earnings attributable to common shareholders

 

337

 

285

 

755

 

783

 

Dividends on preferred securities, net of tax

 

—

(a)

7

 

—

(a)

20

 

Revaluation of US$ preferred securities, net of tax

 

—

(a)

(1

)

—

(a)

(30

)

Adjusted net earnings attributable to common shareholders

 

337

 

291

 

755

 

773

 

 

 

 

 

 

 

 

 

 

 

(millions of common shares)

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares

 

453

 

450

 

453

 

449

 

Dilutive securities:

 

 

 

 

 

 

 

 

 

Options issued under stock-based compensation plans

 

7

 

5

 

9

 

5

 

Redemption of preferred securities by the issuance of common shares

 

—

(a)

20

 

—

(a)

22

 

Weighted-average number of diluted common shares

 

460

 

475

 

462

 

476

 

 

 

 

 

 

 

 

 

 

 

(dollars per common share)

 

 

 

 

 

 

 

 

 

Basic earnings per share (b)

 

0.74

 

0.63

 

1.67

 

1.74

 

Diluted earnings per share (c)

 

0.73

 

0.61

 

1.64

 

1.63

 

 

Note: An option will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the option.

 

(a)          For the nine months ended September 30, 2004, diluted earnings per share is the net earnings attributable to common shareholders divided by the weighted-average number of diluted common shares. Dividends on preferred securities, the revaluation of US$ preferred securities and the redemption of preferred securities by the issuance of common shares have an anti-dilutive impact, therefore they are not included in the calculation of diluted earnings per share. The company redeemed its preferred securities in the first quarter of 2004 and accordingly, no revaluations or dividends were recorded in the third quarter of 2004.

 

(b)         Basic earnings per share is the net earnings attributable to common shareholders divided by the weighted-average number of common shares.

 

(c)          Diluted earnings per share is the adjusted net earnings attributable to common shareholders, divided by the weighted-average number of diluted common shares.

 

10


 

6. STOCK-BASED COMPENSATION

 

A common share option gives the holder the right, but not the obligation, to purchase common shares at a predetermined price over a specified period of time.

 

After the date of grant, employees and directors that hold options must earn the right to exercise them. This is done by the employee or director fulfilling a time requirement for service to the company, and with respect to certain options, is subject to accelerated vesting should the company meet predetermined performance criteria. Once this right has been earned, these options are considered vested.

 

The predetermined price at which an option can be exercised is equal to or greater than the market price of the common shares on the date the option is granted.

 

A performance vesting share unit is an award entitling employees to receive cash to varying degrees contingent upon Suncor’s shareholder return relative to a peer group of companies.

 

(a) Stock Option Plans

 

Under the SunShare long-term incentive plan, the company granted 256,000 options in the third quarter of 2004, for a total of 1,452,000 options granted in the nine months ended September 30, 2004 (491,000 options granted during the third quarter of 2003; 1,087,000 granted in the nine months ended September 30, 2003).

 

During October 2004, Suncor met the predetermined performance criteria for the accelerated vesting of 2,097,000 common share options to executive and non-executive employees. The vested options represent approximately 20% of the outstanding common share options granted under the SunShare Performance Stock Option Plan. In the third quarter, the company recognized an additional $5 million of stock-based compensation expense related to the vesting of these options.

 

Under the company’s other plans, 1,000 options were granted in the third quarter of 2004, for a total of 1,285,000 options granted in the nine months ended September 30, 2004 (55,000 options granted during the third quarter of 2003; 1,898,000 granted in the nine months ended September 30, 2003).

 

The fair values of all common share options granted during the period are estimated as at the grant date using the Black-Scholes option-pricing model. The weighted-average fair values of the options granted during the various periods and the weighted-average assumptions used in their determination are as noted below:

 

 

 

Third quarter

 

Nine months ended September 30

 

 

 

2004

 

2003

 

2004

 

2003

 

Quarterly dividend per share

 

$

0.06

 

$

0.05

 

$

0.06

*

$

0.05

*

Risk-free interest rate

 

4.12

%

4.40

%

3.76

%

4.41

%

Expected life

 

6 years

 

8 years

 

6 years

 

7 years

 

Expected volatility

 

29

%

29

%

29

%

32

%

Weighted-average fair value per option

 

$

12.50

 

$

9.65

 

$

11.84

 

$

9.98

 

 

*            In 2004, a quarterly dividend of $0.05 per share was paid in the first quarter, and quarterly dividends of $0.06 were paid in the second and third quarters. In 2003, a quarterly dividend of $0.0425 per share was paid in the first quarter, and quarterly dividends of $0.05 were paid in the second and third quarters.

 

Stock-based compensation expense recognized in the third quarter of 2004 related to stock option plans was $10 million (2003 – $2 million). For the nine months ended September 30, 2004 stock-based compensation expense recognized was $19 million (2003 – $5 million).

 

Common share options granted prior to January 1, 2003 are not recognized as compensation expense in the Consolidated Statements of Earnings. The company’s reported net earnings attributable to common shareholders and earnings per share prepared in accordance with the fair value method of accounting for stock-based compensation would have been reduced for all common share options granted prior to 2003 to the pro forma amounts stated below:

 

 

 

Third quarter

 

Nine months ended September 30

 

($ millions, except per share amounts)

 

2004

 

2003

 

2004

 

2003

 

Net earnings attributable to common shareholders – as reported

 

337

 

285

 

755

 

783

 

Less: compensation cost under the fair value method for pre-2003 options

 

20

 

5

 

41

 

24

 

Pro forma net earnings attributable to common shareholders for pre-2003 options

 

317

 

280

 

714

 

759

 

Basic earnings per share

 

 

 

 

 

 

 

 

 

As reported

 

0.74

 

0.63

 

1.67

 

1.74

 

Pro forma

 

0.70

 

0.62

 

1.58

 

1.69

 

Diluted earnings per share

 

 

 

 

 

 

 

 

 

As reported

 

0.73

 

0.61

 

1.64

 

1.63

 

Pro forma

 

0.69

 

0.60

 

1.55

 

1.58

 

 

11


 

(b) Performance share units (PSUs)

 

In the third quarter of 2004 the company did not issue any PSUs under its employee incentive compensation plan (353,000 PSUs issued for the nine months ended September 30, 2004). PSUs granted replace the remuneration value of reduced grants under the company’s stock option plans. PSUs vest and are settled in cash approximately three years after the grant date to varying degrees (0%, 50%, 100% and 150%) contingent upon Suncor’s performance. Performance is measured by reference to the company’s total shareholder return (stock price appreciation and dividend income) relative to a peer group of companies. Expense related to the PSUs is accrued based on the price of common shares at the end of the period and the probability of vesting. This expense is recognized on a straight-line basis over the term of the grant. Pretax expense recognized for PSUs in the third quarter of 2004 was $1 million ($3 million for the nine months ended September 30, 2004).

 

7. EMPLOYEE FUTURE BENEFITS LIABILITY

 

The company’s pension plans are described in the notes to the 2003 Consolidated Financial Statements. The following is the status of the net periodic benefit cost for the third quarter and the nine months ended September 30.

 

 

 

Pension Benefits

 

 

 

Third quarter

 

Nine months ended September 30

 

 

 

2004

 

2003

 

2004

 

2003

 

Current service costs

 

6

 

5

 

18

 

14

 

Interest costs

 

8

 

8

 

25

 

24

 

Expected return on plan assets

 

(6

)

(5

)

(18

)

(15

)

Amortization of net actuarial loss

 

5

 

5

 

14

 

16

 

Net periodic benefit cost

 

13

 

13

 

39

 

39

 

 

 

 

Other Post-retirement Benefits

 

 

 

Third quarter

 

Nine months ended September 30

 

 

 

2004

 

2003

 

2004

 

2003

 

Current service costs

 

1

 

1

 

4

 

2

 

Interest costs

 

2

 

2

 

5

 

5

 

Amortization of net actuarial loss

 

—

 

—

 

1

 

1

 

Net periodic benefit cost

 

3

 

3

 

10

 

8

 

 

8. SUPPLEMENTAL INFORMATION

 

 

 

Third quarter

 

Nine months ended September 30

 

($ millions)

 

2004

 

2003

 

2004

 

2003

 

Interest paid

 

47

 

59

 

125

 

130

 

Income taxes paid

 

6

 

4

 

38

 

39

 

 

STRATEGIC CRUDE OIL HEDGES AT SEPTEMBER 30, 2004

 

 

 

Quantity
(bbl/day)

 

Average Price
(US$/bbl) (a)

 

Revenue Hedged
(Cdn$ millions) (b)

 

Hedge
Period (c)

 

Swaps

 

68 000

 

23.93

 

189

 

2004

 

Costless collars

 

11 000

 

21.00 – 23.65

 

27 – 30

 

2004

 

Swaps

 

36 000

 

22.77

 

378

 

2005

 

 

MARGIN HEDGES AT SEPTEMBER 30, 2004

 

 

 

Quantity
(bbl/day)

 

Average Margin
(US$/bbl)

 

Margin Hedged
(Cdn$ millions) (b)

 

Hedge
Period

 

Refined product and crude swaps

 

19 000

 

6.86

 

15

 

2004

(d)

 

12


 

NATURAL GAS HEDGES AT SEPTEMBER 30, 2004

 

 

 

Quantity
(GJ/day)

 

Average Price
(Cdn$/GJ)

 

Revenue Hedged
(Cdn$ millions)

 

Hedge
Period

 

Swaps

 

30 000

 

5.95

 

6

 

2004

(e)

Costless collars

 

10 000

 

7.50 – 9.04

 

11 – 14

 

2004

(f)

 

(a)          Average price for crude oil swaps is WTI per barrel at Cushing, Oklahoma.

 

(b)         The revenue and margin hedged is translated to Cdn$ at the September 30, 2004 exchange rate and is subject to change as the Cdn$/US$ exchange rate fluctuates during the hedge period.

 

(c)          Original hedge term is for the full year unless otherwise noted.

 

(d)         For the period October to December 2004, inclusive.

 

(e)          For the month of October 2004.

 

(f)            For the period November 2004 to March 2005 inclusive.

 

9. INCOME TAXES

 

During the first quarter of 2004 the province of Alberta substantively enacted a 1% reduction to its provincial corporate tax rates. Accordingly, the company recognized a reduction in future income tax expense of $53 million related to the revaluation of its opening future income tax balances.

 

10. LONG-TERM DEBT

 

In February, 2004 the company retired all of its then outstanding 7.4% Debentures for $125 million. During the third quarter, the company renewed $1.7 billion of its available credit and term loan facilities. At September 30, 2004 the company had available facilities as follows:

 

($ millions)

 

 

 

Facility that is fully revolving for a period of three years and expires in 2007

 

1 500

 

Facility that is fully revolving for 364 days, has a term period of one year and expires in 2006

 

200

 

Facilities that can be terminated at any time at the option of the lenders

 

30

 

Total available credit facilities

 

1 730

 

 

11. PREFERRED SECURITIES

 

On March 15, 2004 the company redeemed all of its then outstanding 9.05% and 9.125% preferred securities for total cash consideration of $493 million.

 

12. ROYALTY ESTIMATE MEASUREMENT UNCERTAINTY

 

Alberta Crown royalties in effect for each Oil Sands Project are based on annual gross revenues less related transportation costs (R) less allowable costs (C), including the deduction of capital expenditures (the 25% R-C royalty) for each project, subject to a minimum payment of 1% of R. Firebag is being treated by the government of Alberta as a separate Project from the rest of the Oil Sands operations for royalty purposes. The 2004 calendar year is a transitional year for Oil Sands as the remaining amount of prior years’ allowable costs carried forward of approximately $600 million would be claimed before the 25% R-C royalty applies to current year results.

 

Absolute royalties that may be payable in 2004 are highly sensitive to, among other factors, changes in crude oil and natural gas pricing, foreign exchange rates and total capital and operating costs for each Project. Oil Sands pretax Alberta Crown royalty estimate was $289 million ($186 million after tax) for the first nine months of 2004. The annualized estimate of $425 million ($272 million after tax) was based on nine months of actual results, together with 2004 forward crude oil pricing as at September 30, 2004, current forecasts of capital and operating costs for the remainder of 2004, and a Canadian/US foreign exchange rate of $0.76. Accordingly, actual results will differ, and these differences may be material.

 

13. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

 

In 2003 Canadian Accounting Guideline 15 (AcG 15), “Consolidation of Variable Interest Entities” (VIEs) was issued. Effective January 1, 2005 AcG 15 requires consolidation of a VIE where the company will absorb a majority of a VIE’s losses, receive a majority of its returns, or both. The company will be required to consolidate the VIE related to the sale of equipment as described in note 10(c) on page 78 of the company’s 2003 Annual Report. The company does not expect a significant impact on net income upon consolidation of the equipment VIE. The impact on the balance sheet upon adoption in 2005 will be an increase to property, plant and equipment and an increase to liabilities of approximately $20 million. The accounts receivable securitization program, as currently structured, does not meet the AcG 15 criteria for consolidation by Suncor.

 

The VIE involving the sale of crude oil inventory terminated on June 25, 2004, prior to the effective date of AcG 15. The crude oil inventory was purchased by the company at its fair value of $107 million, resulting in a permanent increase in inventory volumes of 2.1 million barrels.

 

13


 

Highlights

(unaudited)

 

 

 

2004

 

2003

 

CASH FLOW FROM OPERATIONS

 

 

 

 

 

(dollars per common share)

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended September 30

 

 

 

 

 

Cash flow from operations (1)

 

1.29

 

1.30

 

Dividends paid on preferred securities (pretax) (2)

 

—

 

0.03

 

Cash flow from operations after deducting dividends paid on preferred securities (3)

 

1.29

 

1.27

 

 

 

 

 

 

 

For the nine months ended September 30

 

 

 

 

 

Cash flow from operations (1)

 

3.31

 

3.46

 

Dividends paid on preferred securities (pretax) (2)

 

0.02

 

0.08

 

Cash flow from operations after deducting dividends paid on preferred securities (3)

 

3.29

 

3.38

 

 

 

 

 

 

 

RATIOS

 

 

 

 

 

For the twelve months ended September 30

 

 

 

 

 

Return on capital employed (%) (4)

 

18.9

 

17.8

 

Return on capital employed (%) (5)

 

16.3

 

15.9

 

 

 

 

 

 

 

Net debt to cash flow from operations (times) (6)

 

1.1

 

1.1

 

Interest coverage on long-term debt (times)

 

 

 

 

 

Net earnings (7)

 

11.4

 

12.8

 

Cash flow from operations (8)

 

14.4

 

15.4

 

 

 

 

 

 

 

As at September 30

 

 

 

 

 

Debt to debt plus shareholders’ equity (%) (9)

 

33.8

 

34.9

 

 

 

 

 

 

 

COMMON SHARE INFORMATION

 

 

 

 

 

As at September 30

 

 

 

 

 

Share price at end of trading

 

 

 

 

 

Toronto Stock Exchange – Cdn$

 

40.40

 

24.93

 

New York Stock Exchange – US$

 

32.01

 

18.55

 

Common share options outstanding (thousands)

 

21 279

 

22 129

 

 

 

 

 

 

 

For the nine months ended September 30

 

 

 

 

 

Average number outstanding, weighted monthly (thousands)

 

452 565

 

449 474

 

 

Refer to the Quarterly Operating Summary for a discussion of financial measures not prepared in accordance with generally accepted accounting principles (GAAP).

 

(1)          Cash flow from operations for the period; divided by the weighted average number of common shares outstanding during the period.

 

(2)          Dividends paid on preferred securities for the period, before income taxes; divided by the weighted-average number of common shares outstanding during the period.

 

(3)          Cash flow from operations minus pretax dividends paid on preferred securities, for the period; divided by the weighted-average number of common shares outstanding for the period.

 

(4)          Net earnings (2004 – $1,069 million; 2003 – $995 million) adjusted for after tax financing expenses (2004 – expense of $7 million; 2003 – income of $34 million) for the twelve month period ended; divided by average capital employed (2004 – $5,701 million; 2003 – $5,592 million). Average capital employed is the sum of shareholders’ equity and short-term debt plus long-term debt less cash and cash equivalents, at the beginning and end of the year, divided by two, less average capitalized costs related to major projects in progress (as applicable). Return on capital employed (ROCE) for Suncor operating segments as presented in the Quarterly Operating Summary is calculated in a manner consistent with consolidated ROCE. For a detailed reconciliation of ROCE prepared on an annual basis, see page 50 of Suncor’s 2003 Annual Report to Shareholders.

 

(5)          If capital employed were to include capitalized costs related to major projects in progress (average capital employed including major projects in progress: 2004 – $6,594 million; 2003 – $6,259 million), the return on capital employed would be as stated on this line.

 

(6)          Short-term debt plus long-term debt less cash and cash equivalents, divided by cash flow from operations for the twelve month period then ended.

 

(7)          Net earnings plus income taxes and interest expense, divided by the sum of interest expense and capitalized interest.

 

(8)          Cash flow from operations plus current income taxes and interest expense; divided by the sum of interest expense and capitalized interest.

 

(9)          Short-term debt plus long-term debt; divided by the sum of short-term debt, long-term debt and shareholders’ equity.

 

14


 

Quarterly Operating Summary

(unaudited)

 

 

 

 

 

For the quarter ended

 

 

 

Nine months ended

 

Total year

 

 

 

Sept 30
2004

 

June 30
2004

 

Mar 31
2004

 

Dec 31
2003

 

Sept 30
2003

 

Sept 30
2004

 

Sept 30
2003

 

Dec 31
2003

 

OIL SANDS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base operations

 

230.2

 

210.8

 

213.9

 

235.2

 

231.5

 

218.4

 

210.3

 

216.6

 

Firebag

 

7.3

 

15.1

 

5.9

 

—

 

—

 

9.4

 

—

 

—

 

Total production

 

237.5

 

225.9

 

219.8

 

235.2

 

231.5

 

227.8

 

210.3

 

216.6

 

Sales (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light sweet crude oil

 

113.5

 

118.7

 

112.2

 

132.7

 

109.0

 

114.5

 

105.3

 

112.3

 

Diesel

 

28.7

 

29.7

 

27.5

 

27.2

 

24.8

 

28.6

 

25.9

 

26.3

 

Light sour crude oil

 

76.3

 

68.9

 

74.3

 

81.3

 

77.5

 

73.2

 

70.7

 

73.3

 

Bitumen

 

7.9

 

14.5

 

—

 

8.3

 

16.1

 

7.8

 

5.8

 

6.4

 

Total sales

 

226.4

 

231.8

 

214.0

 

249.5

 

227.4

 

224.1

 

207.7

 

218.3

 

Average sales price (1), (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light sweet crude oil

 

46.03

 

45.70

 

40.26

 

36.67

 

37.96

 

43.98

 

41.78

 

40.26

 

Other (diesel, light sour crude oil and bitumen)

 

42.29

 

38.28

 

35.85

 

30.72

 

32.92

 

38.96

 

35.17

 

33.93

 

Total

 

44.08

 

41.88

 

38.16

 

33.89

 

35.34

 

41.45

 

38.52

 

37.19

 

Total *

 

52.72

 

48.18

 

43.28

 

36.63

 

38.05

 

48.17

 

41.67

 

40.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH OPERATING COSTS AND TOTAL OPERATING COSTS – BASE OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash costs

 

9.00

 

9.75

 

9.65

 

9.25

 

8.20

 

9.45

 

9.30

 

9.25

 

Natural gas

 

1.40

 

2.30

 

2.10

 

1.60

 

1.65

 

1.90

 

2.35

 

2.15

 

Imported bitumen

 

0.10

 

0.05

 

0.40

 

—

 

—

 

0.20

 

0.05

 

0.05

 

Cash operating costs (2),(c)

 

10.50

 

12.10

 

12.15

 

10.85

 

9.85

 

11.55

 

11.70

 

11.45

 

Firebag start-up costs

 

—

 

—

 

1.20

 

—

 

—

 

0.40

 

—

 

—

 

Total cash operating costs (3),(c)

 

10.50

 

12.10

 

13.35

 

10.85

 

9.85

 

11.95

 

11.70

 

11.45

 

Depreciation, depletion and amortization

 

5.70

 

6.15

 

6.20

 

5.40

 

5.30

 

6.00

 

5.95

 

5.80

 

Total operating costs (4),(c)

 

16.20

 

18.25

 

19.55

 

16.25

 

15.15

 

17.95

 

17.65

 

17.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH OPERATING COSTS AND TOTAL OPERATING COSTS – FIREBAG

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash costs

 

14.90

 

6.55

 

—

 

—

 

—

 

9.30

 

—

 

—

 

Natural gas

 

11.90

 

11.65

 

—

 

—

 

—

 

11.70

 

—

 

—

 

Cash operating costs (5),(c)

 

26.80

 

18.20

 

—

 

—

 

—

 

21.00

 

—

 

—

 

Depreciation, depletion and amortization

 

7.45

 

5.80

 

—

 

—

 

—

 

6.35

 

—

 

—

 

Total operating costs (6),(c)

 

34.25

 

24.00

 

—

 

—

 

—

 

27.35

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the period ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital employed (i)

 

4 182

 

4 525

 

4 725

 

4 050

 

4 163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the twelve months ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (j)

 

22.8

 

22.6

 

18.1

 

20.8

 

19.8

 

 

 

 

 

 

 

Return on capital employed (j) ****

 

19.0

 

19.2

 

16.0

 

17.4

 

17.2

 

 

 

 

 

 

 

 

15


 

 

 

 

 

For the quarter ended

 

 

 

Nine months ended

 

Total year

 

 

 

Sept 30
2004

 

June 30
2004

 

Mar 31
2004

 

Dec 31
2003

 

Sept 30
2003

 

Sept 30
2004

 

Sept 30
2003

 

Dec 31
2003

 

NATURAL GAS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross production **

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas (d)

 

201

 

209

 

197

 

194

 

194

 

203

 

184

 

187

 

Natural gas liquids (a)

 

2.6

 

2.2

 

2.2

 

2.4

 

2.5

 

2.3

 

2.3

 

2.3

 

Crude oil (a)

 

1.0

 

1.1

 

0.9

 

1.0

 

1.6

 

1.0

 

1.5

 

1.4

 

Total gross production (e)

 

37.1

 

38.1

 

35.9

 

35.7

 

36.4

 

37.1

 

34.5

 

34.9

 

Average sales price (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas (f)

 

6.49

 

6.77

 

6.54

 

5.53

 

6.07

 

6.60

 

6.73

 

6.42

 

Natural gas (f) *

 

6.53

 

6.84

 

6.59

 

5.51

 

6.04

 

6.66

 

6.74

 

6.42

 

Natural gas liquids (b)

 

42.06

 

43.53

 

38.13

 

35.45

 

33.50

 

41.31

 

36.29

 

36.08

 

Crude oil – conventional (b)

 

55.43

 

47.08

 

44.14

 

36.91

 

38.31

 

48.85

 

41.02

 

40.29

 

Net wells drilled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conventional

– Exploratory ***

 

3

 

3

 

4

 

5

 

1

 

10

 

28

 

33

 

 

– Development

 

3

 

—

 

8

 

6

 

9

 

11

 

15

 

21

 

 

 

6

 

3

 

12

 

11

 

10

 

21

 

43

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the period ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital employed (i)

 

410

 

421

 

418

 

400

 

373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the twelve months ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (j)

 

30.4

 

29.9

 

27.7

 

29.2

 

24.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ENERGY MARKETING AND REFINING – CANADA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refined product sales (g)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation fuels

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gasoline

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

4.6

 

4.5

 

4.2

 

4.4

 

4.3

 

4.5

 

4.4

 

4.4

 

Other

 

4.3

 

4.1

 

4.0

 

3.9

 

4.5

 

4.1

 

3.9

 

4.2

 

Jet fuel

 

1.0

 

0.7

 

1.0

 

0.7

 

0.8

 

0.9

 

0.7

 

0.7

 

Diesel

 

3.0

 

3.1

 

2.9

 

3.1

 

2.8

 

3.0

 

2.7

 

3.0

 

Total transportation fuel sales

 

12.9

 

12.4

 

12.1

 

12.1

 

12.4

 

12.5

 

11.7

 

12.3

 

Petrochemicals

 

0.7

 

0.6

 

0.9

 

0.7

 

0.6

 

0.8

 

0.8

 

0.8

 

Heating oils

 

0.2

 

0.3

 

0.8

 

0.5

 

0.2

 

0.4

 

0.4

 

0.5

 

Heavy fuel oils

 

0.5

 

0.7

 

0.8

 

0.5

 

1.4

 

0.7

 

0.9

 

0.8

 

Other

 

1.0

 

1.5

 

0.6

 

0.4

 

0.6

 

1.0

 

0.8

 

0.6

 

Total refined product sales

 

15.3

 

15.5

 

15.2

 

14.2

 

15.2

 

15.4

 

14.6

 

15.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Margins (h)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refining (7)

 

8.8

 

7.4

 

7.8

 

7.0

 

6.5

 

8.1

 

6.3

 

6.5

 

Refining (7) *

 

8.8

 

8.0

 

7.8

 

6.9

 

6.4

 

8.3

 

6.2

 

6.4

 

Retail (8)

 

3.7

 

4.3

 

5.0

 

6.3

 

7.0

 

4.3

 

6.7

 

6.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil supply and refining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processed at Sarnia refinery (g)

 

11.6

 

9.5

 

12.0

 

9.6

 

10.1

 

11.0

 

10.9

 

10.5

 

Utilization of refining capacity (j)

 

104

 

85

 

108

 

86

 

91

 

99

 

98

 

95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the period ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital employed (i)

 

528

 

587

 

567

 

551

 

523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the twelve months ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (j)

 

11.2

 

7.8

 

11.8

 

10.3

 

11.0

 

 

 

 

 

 

 

Return on capital employed (j)****

 

10.8

 

7.8

 

11.8

 

10.3

 

11.0

 

 

 

 

 

 

 

 

16


 

 

 

 

 

For the quarter ended

 

 

 

Nine months ended

 

Total year

 

 

 

Sept 30
2004

 

June 30
2004

 

Mar 31
2004

 

Dec 31
2003

 

Sept 30
2003

 

Sept 30
2004

 

Sept 30
2003

 

Dec 31
2003

 

REFINING AND MARKETING – U.S.A. *****

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refined product sales (g)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation fuels

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gasoline

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

0.7

 

0.6

 

0.7

 

0.7

 

0.7

 

0.7

 

0.7

 

0.7

 

Other

 

4.3

 

3.6

 

3.4

 

3.4

 

3.5

 

3.7

 

3.5

 

3.5

 

Jet fuel

 

0.7

 

0.5

 

0.4

 

0.5

 

0.6

 

0.5

 

0.6

 

0.5

 

Diesel

 

2.5

 

1.9

 

2.2

 

2.3

 

2.3

 

2.2

 

2.3

 

2.3

 

Total transportation fuel sales

 

8.2

 

6.6

 

6.7

 

6.9

 

7.1

 

7.1

 

7.1

 

7.0

 

Asphalt

 

1.9

 

1.8

 

1.2

 

1.4

 

2.1

 

1.6

 

2.1

 

1.7

 

Other

 

0.8

 

0.5

 

0.2

 

0.3

 

0.6

 

0.5

 

0.6

 

0.4

 

Total refined product sales

 

10.9

 

8.9

 

8.1

 

8.6

 

9.8

 

9.2

 

9.8

 

9.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Margins (h)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refining (7)

 

5.1

 

9.0

 

5.0

 

4.6

 

7.9

 

6.4

 

7.9

 

5.9

 

Refining (7) *

 

5.3

 

9.3

 

5.0

 

4.6

 

7.9

 

6.6

 

7.9

 

5.9

 

Retail (8)

 

4.2

 

6.2

 

5.0

 

4.8

 

6.4

 

5.1

 

6.4

 

5.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil supply and refining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processed at Denver refinery (g)

 

9.5

 

8.2

 

8.1

 

9.2

 

9.6

 

8.6

 

9.6

 

9.4

 

Utilization of refining capacity (j)

 

99

 

86

 

85

 

96

 

101

 

90

 

101

 

98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the period ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital employed (i)

 

241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(for the twelve months ended)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (j)

 

10.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on capital employed (j)****

 

9.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17


 

Non-GAAP Financial Measures

 

Certain financial measures referred to in the Highlights and Quarterly Operating Summary are not prescribed by generally accepted accounting principles (GAAP). Suncor includes cash flow from operations, return on capital employed and cash and total operating costs per barrel data because investors may use this information to analyze operating performance, leverage and liquidity. The additional information should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

 

Definitions

 

 

 

 

 

(1)   Average sales price

 

•      This operating statistic is calculated before royalties and net of related transportation costs (including or excluding the impact of hedging activities as noted).

 

 

 

(2)   Cash operating costs – Base operations

 

•       Include cash costs that are defined as operating, selling and general expenses (excluding inventory changes), accretion expense, taxes other than income taxes and the cost of bitumen imported from third parties. Per barrel amounts are based on production volumes. For a reconciliation of this non GAAP financial measure see Management’s Discussion and Analysis.

 

 

 

(3)   Total cash operating costs – Base operations

 

•       Include cash operating costs – Base operations as defined above and cash start-up costs for in-situ operations. Per barrel amounts are based on mining production volumes.

 

 

 

(4)   Total operating costs – Base operations

 

•       Include total cash operating costs – Base operations as defined above and non-cash operating costs. Per barrel amounts are based on mining production volumes.

 

 

 

(5)   Cash operating costs – Firebag

 

•       Include cash costs that are defined as operating, selling and general expenses (excluding inventory changes), accretion expense and taxes other than income taxes. Per barrel amounts are based on in-situ production volumes.

 

 

 

(6)   Total operating costs – Firebag

 

•       Include cash operating costs – Firebag as defined above and non-cash operating costs. Per barrel amounts are based on in-situ production volumes.

 

 

 

(7)   Refining margin

 

•       This operating statistic is calculated as the average wholesale unit price from all products less average unit cost of crude oil.

 

 

 

(8)   Retail margin

 

•       This operating statistic is calculated as the average street price of Sunoco (Energy, Marketing and Refining – Canada) and Phillips 66-branded (Refining and Marketing – U.S.A.) retail gasoline net of federal excise tax and other adjustments, less refining gasoline transfer price.

 

Explanatory Notes

 

*                                         Excludes the impact of hedging activities.

 

**                                  Currently all Natural Gas production is located in the Western Canada Sedimentary Basin.

 

***                           Excludes exploratory wells in progress.

 

****                    If capital employed were to include capitalized costs related to major projects in progress, the return on capital employed would be as stated on this line.

 

*****             Refining and Marketing — U.S.A. reflects the results of operations since acquisition on August 1, 2003.

 

(a)   thousands of barrels per day

 

(e)   thousands of barrels of oil equivalent per day

 

(i)    $millions

(b)   dollars per barrel

 

(f)    dollars per thousand cubic feet

 

(j)    percentage

(c)   dollars per barrel rounded to the nearest $0.05

 

(g)   thousands of cubic metres per day

 

 

(d)   millions of cubic feet per day

 

(h)   cents per litre

 

 

 

 

 

 

 

Metric conversion

 

 

 

 

 

 

 

 

 

Crude oil, refined products, etc.

 

1m3 (cubic metre) = approx. 6.29 barrels

 

 

 

18