EX-2 3 a20-15101_6ex2.htm EX-2

Exhibit 2

 

Supplementary Oil and Gas Disclosures (unaudited)

 

The following disclosures are presented in accordance with United States Financial Accounting Standards Board (“FASB”) Topic 932 — “Extractive Activities — Oil and Gas” and Subpart 1200 of Regulation S-K (“Subpart 1200”) of the United States Securities and Exchange Commission. Disclosures pertaining to the audited consolidated financial statements as at and for the year ended December 31, 2019 (the “2019 Consolidated Financial Statements”) of Suncor Energy Inc. (“Suncor” or the “company”) were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and Canadian generally accepted accounting principles contained within Part 1 of the Chartered Professional Accountants Canada Handbook, which differ in material respects from financial statements prepared in accordance with United States generally accepted accounting principles. The 2019 Consolidated Financial Statements are attached as Exhibit 99.1 to Suncor’s annual report on Form 40-F for the year ended December 31, 2019 (the “Form 40-F”).

 

Reserves Data

 

Reserves data included herein are estimates only and can be significantly impacted by a variety of internal and external factors. For more information on the risks involved when estimating reserves, see the discussion in the “Statement of Reserves Data and Other Oil and Gas Information — Significant Risk Factors and Uncertainties Affecting Reserves” section in Suncor’s 2019 Annual Information Form (the “2019 AIF”), which is contained in the Form 40-F. Readers should also see Suncor’s Management’s Discussion and Analysis for the year ended December 31, 2019, which is attached as Exhibit 99.2 to the Form 40-F (the “2019 Management’s Discussion and Analysis”).

 

The reserves data presented herein, with an effective date of December 31, 2019, may differ in relation to the format and the basis from which volumes are economically determined under National Instrument 51-101 — “Standards of Disclosure for Oil and Gas Activities” (“NI 51-101”), as disclosed in the 2019 AIF. Subpart 1200 requires disclosure of net proved reserves, after royalties, using the average of the first-day-of-the-month prices for the twelve-month period prior to the end of the reporting period, whereas NI 51-101 requires disclosure of gross and net reserves, estimated using forecast prices and costs.

 

Net Proved Oil and Gas Reserves(1)(2)

 

The majority of Suncor’s oil and gas reserves are in Canada. In order to align with the company’s segmented information in the 2019 Consolidated Financial Statements, the 2019 Management’s Discussion and Analysis and the 2019 AIF, the company presents the following supplementary oil and gas disclosures by showing amounts associated with its Oil Sands segment, which are exclusively in Canada and produce synthetic crude oil (“SCO”) and bitumen, separate from other Canadian operations, which are aggregated with Suncor’s international operations (collectively, “Exploration and Production”) and produce crude oil, natural gas and natural gas liquids (“NGLs”). Exploration and Production reserves are in offshore Canada, offshore UK, and offshore Norway.

 

 

At December 31, (net reserves,

 

SCO
(mmbbls)

 

Bitumen
(mmbbls)

 

Crude Oil(3)
(mmbbls)

 

Natural Gas
(bcf)

 

Total
(mmboe)

 

constant prices and costs)

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

Proved Developed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil Sands

 

2,032

 

2,183

 

951

 

1,003

 

—

 

—

 

—

 

—

 

2,984

 

3,186

 

Exploration and Production

 

—

 

—

 

—

 

—

 

110

 

91

 

1

 

1

 

111

 

91

 

 

 

2,032

 

2,183

 

951

 

1,003

 

110

 

91

 

1

 

1

 

3,094

 

3,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proved Undeveloped

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil Sands

 

542

 

522

 

581

 

602

 

—

 

—

 

—

 

—

 

1,123

 

1,123

 

Exploration and Production

 

—

 

—

 

—

 

—

 

49

 

67

 

9

 

10

 

51

 

69

 

 

 

542

 

522

 

581

 

602

 

49

 

67

 

9

 

10

 

1,173

 

1,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proved

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil Sands

 

2,574

 

2,704

 

1,532

 

1,605

 

—

 

—

 

—

 

—

 

4,106

 

4,309

 

Exploration and Production

 

—

 

—

 

—

 

—

 

160

 

158

 

11

 

11

 

161

 

160

 

 

 

2,574

 

2,704

 

1,532

 

1,605

 

160

 

158

 

11

 

11

 

4,267

 

4,469

 

 

Reconciliation of Net Proved Oil and Gas Reserves

 

(net reserves,
constant prices and costs)

 

Balance at
December 31
2017

 

Revisions of
Previous
Estimates(4)

 

Improved
Recovery

 

Acquisitions

 

Extensions
and
Discoveries(5)

 

Production

 

Dispositions(6)

 

Balance at
December 31
2018

 

Oil Sands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCO (mmbbls)

 

2,737

 

52

 

—

 

71

 

 

 

(156

)

—

 

2,704

 

Bitumen

 

1,640

 

12

 

—

 

18

 

 

 

(65

)

—

 

1,605

 

Exploration and Production

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil(3) (mmbbls)

 

140

 

16

 

—

 

7

 

27

 

(33

)

—

 

158

 

Natural gas (bcf)

 

6

 

1

 

—

 

10

 

—

 

(3

)

(3

)

11

 

Total (mmboe)

 

4,519

 

80

 

—

 

98

 

28

 

(254

)

(1

)

4,469

 

 

(net reserves,
constant prices and costs)

 

Balance at
December 31
2018

 

Revisions of
Previous
Estimates(4)

 

Improved
Recovery

 

Acquisitions

 

Extensions
and
Discoveries(5)

 

Production

 

Dispositions

 

Balance at
December 31
2019

 

Oil Sands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCO (mmbbls)

 

2,704

 

33

 

—

 

—

 

—

 

(164

)

—

 

2,574

 

Bitumen

 

1,605

 

(6

)

2

 

—

 

—

 

(68

)

—

 

1,532

 

Exploration and Production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil(3) (mmbbls)

 

158

 

30

 

1

 

—

 

5

 

(35

)

—

 

160

 

Natural gas (bcf)

 

11

 

1

 

—

 

—

 

1

 

(2

)

—

 

11

 

Total (mmboe)

 

4,469

 

57

 

2

 

—

 

5

 

(267

)

—

 

4,267

 

 

Notes to Reserves Data:

 

(1)

Definitions

 

 

 

a.

Net reserves, in relation to Suncor’s production and reserves, represents the company’s working interest share after deduction of royalty obligations, plus the company’s royalty interests in production and reserves.

 

 

 

 

b.

Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty (at least a 90% probability that the quantities actually recovered will equal or exceed the estimate) to be economically producible, from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations.

 

 

 

 

c.

Proved developed oil and gas reserves are those quantities that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and can be expected to be recovered through extraction equipment and infrastructure installed and operational at the time of the reserves estimate for projects that extract oil and gas by means not involving a well.

 

 

 

 

d.

Proved undeveloped oil and gas reserves are those quantities that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

 

 

(2)

Reserve data tables may not add due to rounding.

 

 

(3)

Natural gas liquids reserves are not significant and have been presented in combination with crude oil reserves.

 

 

(4)

Revisions of previous estimates include changes to proved reserves, resulting from new information (except for an increase in proved acreage) normally obtained from development drilling and production history or resulting from a change in economic factors, such as changes in constant prices used for the reserve evaluation.

 

 

(5)

Extensions and discoveries are additions to proved reserves from proved acreage of previously discovered reservoirs through additional drilling in periods subsequent to discovery or discovery of new fields with proved reserves or of new reservoirs of proved reserves in old fields.

 

 

(6)

Dispositions are reductions in reserves estimates as a result of selling all or a portion of an interest in oil and gas properties. During 2018, the company disposed of its northeast B.C. mineral landholdings, including associated production.

 

Capitalized Costs

 

 

 

At December 31, 2019

 

At December 31, 2018

 

($ millions)

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Exploration and evaluation assets(1)

 

2,178

 

250

 

2,428

 

2,100

 

219

 

2,319

 

Oil and gas properties(2)(3)

 

18,795

 

21,801

 

40,596

 

17,083

 

20,763

 

37,846

 

Plant and equipment(2)(3)

 

66,451

 

1,074

 

67,525

 

63,213

 

1,104

 

64,317

 

— accumulated provision(2)

 

(30,581

)

(15,298

)

(45,879

)

(22,654

)

(14,075

)

(36,729

)

Total

 

56,843

 

7,827

 

64,670

 

59,742

 

8,011

 

67,753

 

 

(1)

Exploration and evaluation assets largely represent amounts associated with unproved properties, but may include properties with proved reserves for which Suncor’s Board of Directors have not sanctioned development. See note 17 of the 2019 Consolidated Financial Statements.

 

 

(2)

Oil and Gas Properties, Plant and Equipment and the accumulated provision largely represent amounts associated with proved properties. See note 15 of the 2019 Consolidated Financial Statements. Includes amounts capitalized to Property, Plant and Equipment on the Consolidated Balance Sheets of the 2019 Consolidated Financial Statements that relate to the company’s right-of-use assets under IFRS 16. See note 16 of the 2019 Consolidated Financial Statements.

 

 

(3)

Includes amounts capitalized to Property, Plant and Equipment on the Consolidated Balance Sheets of the 2019 Consolidated Financial Statements that relate to the company’s decommissioning and restoration activities.

 

Costs Incurred for Property Acquisition, Exploration and Development Activities

 

 

 

Year ended December 31, 2019

 

Year ended December 31, 2018

 

($ millions)

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Unproved property acquisition

 

—

 

—

 

—

 

—

 

32

 

32

 

Proved property acquisition

 

—

 

—

 

—

 

1,143

 

82

 

1,225

 

Exploration(1)

 

204

 

248

 

452

 

73

 

179

 

252

 

Development(2)

 

3,580

 

992

 

4,572

 

3,398

 

800

 

4,198

 

Total

 

3,784

 

1,240

 

5,024

 

4,614

 

1,093

 

5,707

 

 

(1)

Includes amounts capitalized to Exploration and Evaluation on the Consolidated Balance Sheets as well as those charged to Exploration Expense on the Consolidated Statements of Comprehensive Income, of the 2019 Consolidated Financial Statements.

 

 

(2)

Includes amounts capitalized to Property, Plant and Equipment on the Consolidated Balance Sheets of the 2019 Consolidated Financial Statements that relate to the company’s decommissioning and restoration activities.

 

 

Results of Operations for Oil and Gas Producing Activities(1)(2)

 

 

 

Year ended December 31, 2019

 

Year ended December 31, 2018

 

($ millions)

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Operating revenues, net of royalties

 

17,430

 

3,070

 

20,500

 

15,345

 

3,217

 

18,562

 

Other income (loss)

 

172

 

430

 

602

 

387

 

(68

)

319

 

 

 

17,602

 

3,500

 

21,102

 

15,732

 

3,149

 

18,881

 

Purchases of crude oil and products

 

1,407

 

—

 

1,407

 

1,563

 

—

 

1,563

 

Operating, selling and general

 

8,027

 

525

 

8,552

 

7,577

 

507

 

8,084

 

Transportation

 

1,293

 

80

 

1,373

 

1,144

 

85

 

1,229

 

Depreciation, depletion, amortization and impairment

 

8,170

 

1,505

 

9,675

 

4,024

 

967

 

4,991

 

Exploration

 

127

 

129

 

256

 

44

 

78

 

122

 

(Gain) loss on disposal of assets

 

(14

)

(228

)

(242

)

(108

)

91

 

(17

)

Finance expenses

 

318

 

73

 

391

 

320

 

46

 

366

 

(Loss) earnings before income taxes

 

(1,726

)

1,416

 

(310

)

1,168

 

1,375

 

2,543

 

Income taxes — (recovery) expense

 

(1,299

)

411

 

(888

)

223

 

568

 

791

 

Net (loss) earnings

 

(427

)

1,005

 

578

 

945

 

807

 

1,752

 

 

(1)

Beginning in 2019, results from the company’s Energy Trading business are included within each of the respective operating business segments to which the respective trading activity relates. The Energy Trading business was previously reported within the Corporate, Energy Trading and Eliminations segment. Prior periods have been restated to reflect this change.

 

 

(2)

The company adopted IFRS 16 on January 1, 2019 using the modified retrospective transition approach and, therefore, prior periods have not been restated. See note 5 of the 2019 Consolidated Financial Statements for further information.

 

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

 

The standardized measure of discounted future net cash flows relating to Suncor’s proved oil and gas reserves are calculated in accordance with FASB Topic 932 — “Extractive Activities — Oil and Gas”. Future cash inflows are estimated using the trailing twelve-month average price, which are also used in estimating the entity’s proved oil and gas reserves. Future development and production costs, including the associated decommissioning and restoration activities, are calculated by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. The appropriate year-end statutory tax rates, with consideration of future tax rates already legislated, were applied to the future pretax net cash flows, less the tax basis of the properties involved. A prescribed rate of 10% is applied to discount the future net cash flows.

 

The calculation of the standardized measure of discounted future net cash flows is based upon information prepared by the company’s independent qualified reserves evaluators (which includes decommissioning and restoration activities), and adjusted for future income taxes.

 

It should not be assumed that the estimates of future net cash flows presented in the tables below represent the fair market value of the reserves. There is no assurance that the price and cost assumptions will be attained and variances could be material. Future changes to income tax, royalty and environmental regulations could also have a significant impact on the respective assumptions. There is no guarantee that the estimates for SCO, bitumen, crude oil, and natural gas reserves provided herein will be recovered. Actual SCO, bitumen, crude oil, and natural gas reserves may be greater than or less than the estimates provided herein.

 

 

The following twelve-month average prices were used to calculate the standardized measure of discounted future net cash flows:

 

 

 

Brent
North Sea

 

WTI
Cushing
Oklahoma

 

WCS
Hardisty
Alberta

 

Light
Sweet
Edmonton
Alberta

 

Pentanes Plus
Edmonton
Alberta

 

AECO
Gas

 

National
Balancing
Point
North Sea

 

Year 

 

US$/bbl

 

US$/bbl

 

Cdn$/bbl

 

Cdn$/bbl

 

Cdn$/bbl

 

Cdn$/mmbtu

 

Cdn$/mmbtu

 

2019

 

63.15

 

55.69

 

57.22

 

67.66

 

68.70

 

1.66

 

6.69

 

2018

 

71.54

 

65.56

 

50.44

 

70.07

 

79.39

 

1.46

 

10.03

 

 

 

 

At December 31, 2019

 

At December 31, 2018

 

($ millions)

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Oil Sands

 

Exploration
and
Production

 

Total

 

Future cash inflows

 

251,040

 

13,218

 

264,258

 

247,927

 

14,259

 

262,186

 

Future production costs

 

(145,374

)

(3,960

)

(149,334

)

(132,241

)

(3,446

)

(135,687

)

Future development costs

 

(52,917

)

(3,287

)

(56,204

)

(56,071

)

(3,175

)

(59,246

)

Future income tax expenses

 

(10,716

)

(1,764

)

(12,480

)

(14,491

)

(1,988

)

(16,479

)

Future net cash flows

 

42,033

 

4,207

 

46,240

 

45,124

 

5,650

 

50,774

 

10% Discount Factor

 

(22,655

)

(308

)

(22,963

)

(23,280

)

(1,227

)

(24,507

)

Standardized measure of discounted future net cash flows

 

19,378

 

3,899

 

23,277

 

21,844

 

4,423

 

26,267

 

 

Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

 

($ millions)

 

2019

 

2018

 

Standardized measure of discounted future net cash flows — beginning of year

 

26,267

 

21,831

 

Sales and transfers of oil and gas produced

 

(8,005

)

(6,998

)

Net changes in sales prices and operating costs related to future production

 

(5,673

)

6,277

 

Net change due to extensions, discoveries and improved recovery

 

2,632

 

3,923

 

Net change due to acquisition and dispositions

 

—

 

1,228

 

Net change due to revisions in quantity estimates

 

(834

)

1,630

 

Previously estimated development costs incurred during the period

 

4,077

 

3,805

 

Changes in estimated future development costs

 

(314

)

(6,010

)

Accretion of discount

 

2,773

 

2,210

 

Net change in income taxes

 

2,353

 

(1,629

)

Standardized measure of discounted future net cash flows — end of year

 

23,277

 

26,267