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  Exhibit 4.6    
    









 





  





MANAGEMENT'S DISCUSSION AND ANALYSIS
  April 28, 2014 




Suncor is an integrated energy company headquartered in Calgary, Alberta, Canada. We are strategically focused on developing one of the world's largest petroleum resource
basins – Canada's Athabasca oil sands. In addition, we explore for, acquire, develop, produce and market crude oil and natural gas in Canada and internationally;
we transport and refine crude oil, and we market petroleum and petrochemical products primarily in Canada. Periodically we market third-party petroleum products. We also conduct energy trading
activities focused principally on the marketing and trading of crude oil, natural gas and byproducts. 


For
a description of Suncor's segments, refer to Suncor's Management's Discussion and Analysis for the year ended December 31, 2013 (the 2013 annual MD&A). References to E&P Canada
include Suncor's offshore operations in East Coast Canada and onshore operations in North America Onshore. References to E&P International include the properties formerly referred to as
International. 


This
Management's Discussion and Analysis (MD&A) should be read in conjunction with Suncor's unaudited interim Consolidated Financial Statements for the three-month period ended March 31, 2014,
Suncor's audited Consolidated Financial Statements for the year ended December 31, 2013 and the 2013 annual MD&A. 


Additional
information about Suncor filed with Canadian securities regulatory authorities and the United States Securities and Exchange Commission (SEC), including quarterly and annual reports
and Suncor's Annual Information Form dated February 28, 2014 (the 2013 AIF), which is also filed with the SEC under cover of Form 40-F, is available online at www.sedar.com,
www.sec.gov and our website www.suncor.com. Information contained in or otherwise accessible through our website does not form part of this MD&A, and is not incorporated into this MD&A
by reference. 


References
to "we", "our", "Suncor", or "the company" mean Suncor Energy Inc., and the company's subsidiaries and interests in associates and jointly controlled entities, unless the context
otherwise requires. 








 Table of Contents



	1.	Advisories	 	5	 
	2.	First Quarter Highlights	 	7	 
	3.	Consolidated Financial Information	 	8	 
	4.	Segment Results and Analysis	 	12	 
	5.	Capital Investment Update	 	23	 
	6.	Financial Condition and Liquidity	 	25	 
	7.	Quarterly Financial Data	 	27	 
	8.	Other Items	 	29	 
	9.	Non-GAAP Financial Measures Advisory	 	30	 
	10.	Common Abbreviations	 	33	 
	11.	Forward-Looking Information	 	34	 











1. ADVISORIES









 Basis of Presentation


Unless otherwise noted, all financial information has been prepared in accordance with Canadian generally accepted accounting principles (GAAP), specifically International
Accounting Standard (IAS) 34 Interim Financial Reporting as issued by the International Accounting Standards Board, which is within the framework of
International Financial Reporting Standards (IFRS). Effective January 1, 2013, Suncor adopted new and amended accounting standards. Comparative figures presented in this MD&A pertaining to
Suncor's 2012 results have been restated in accordance with the respective transitional provisions of the new and amended standards. 



All
financial information is reported in Canadian dollars, unless otherwise noted. Production volumes are presented on a working-interest basis, before royalties, unless otherwise noted. Certain prior
year amounts in the Consolidated Statements of Comprehensive Income have been reclassified to conform to the current year's presentation. 








SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





 5







 









Non-GAAP Financial Measures


Certain financial measures in this MD&A – namely operating earnings, cash flow from operations, free cash flow, return on capital employed
(ROCE), Oil Sands cash operating costs and last-in, first-out (LIFO) – are not prescribed by GAAP. Operating earnings, Oil Sands cash operating costs and LIFO are
defined in the Non-GAAP Financial Measures Advisory section of this MD&A and reconciled to GAAP measures in the Segment Results and Analysis section of this MD&A. Cash flow from operations, free cash
flow and ROCE are defined and reconciled to GAAP measures in the Non-GAAP Financial Measures Advisory section of this MD&A. 


These
non-GAAP financial measures are included because management uses this information to analyze operating performance, leverage and liquidity. These non-GAAP financial measures do not have any
standardized meaning and, therefore, are unlikely to be comparable to similar measures presented by other companies and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. 








 Risk Factors and Forward-Looking Information


The company's financial and operational performance is potentially affected by a number of factors, including, but not limited to: the volatility of commodity prices and
exchange rate fluctuations; operational outages and major environmental or safety incidents, project execution; cost management; government policy, including changes to royalty and income tax
legislation; environmental regulation, including changes to climate change and reclamation legislation; skills and resources shortages; change capacity; and other factors described within the
Forward-Looking Information section of this document. A more detailed discussion of the risk factors affecting the company is presented in the Risk Factors section of the 2013 annual MD&A. 


This
document contains forward-looking information based on Suncor's current expectations, estimates, projections and assumptions. This information is subject to a number of risks and uncertainties,
including those discussed in this document and Suncor's other disclosure documents, many of which are beyond the company's control. Users of this information are cautioned that actual results may
differ materially. Refer to the Forward-Looking Information section of this document for information on the material risk factors and assumptions underlying our forward-looking information. 









 Measurement Conversions


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








Common Abbreviations


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









 6   SUNCOR ENERGY
INC. 2014 FIRST QUARTER









 





  






 2. FIRST QUARTER HIGHLIGHTS


	•
	Record first quarter financial results.  



	•
	Net
earnings for the first quarter of 2014 were $1.485 billion, compared to $1.094 billion for the first quarter of 2013. Net earnings for the quarter were
impacted by the inclusion of an after-tax foreign exchange loss on the revaluation of U.S. denominated debt of $308 million, compared to $146 million in the prior year quarter, in
addition to the factors that affected operating earnings. Net earnings for the first quarter of 2013 also included an after-tax charge of $127 million as a result of not proceeding with the
Voyageur upgrader project.



	•
	Suncor
delivered record operating earnings(1) for the first quarter of 2014 of $1.793 billion, compared to $1.367 billion for the first quarter
of 2013, due to strong upstream price realizations driven in part by favourable foreign exchange and increased inland crude pricing, and strong realized refining margins. In addition, increased
operational flexibility and upgrader reliability contributed to record SCO production and a favourable product mix. These factors were partially offset by an increase in operating costs and lower
production in the Exploration and Production segment.



	•
	Cash
flow from operations(1) was $2.880 billion for the first quarter of 2014, compared to $2.284 billion for the first quarter of 2013, and was
impacted by the same factors that affected operating earnings. Free cash flow(1) increased to $3.226 billion for the twelve months ended March 31, 2014, compared to
$2.638 billion for the twelve months ended March 31, 2013.



	•
	ROCE(1)
(excluding major projects in progress) increased to 12.6% for the twelve months ended March 31, 2014, compared to 7.1% for the twelve months
ended March 31, 2013.






	•
	Strong upgrader and refinery reliability.  Suncor achieved record upgrader reliability and strong refinery
utilization, all while performing planned coker maintenance at Upgrader 2 and a four-week planned maintenance event at the Commerce City refinery.



	•
	Suncor maximized profitability on each barrel of production.  The company leveraged its
operational flexibility
in the first quarter of 2014 by diverting In Situ bitumen to upgrading during unplanned maintenance in extraction to produce record SCO volumes with a strong mix of sweet product. Record refining
margins were positively impacted by an increasing crude price environment, where feedstock purchased during periods of lower crude prices was processed and sold during the quarter, and strong refining
margins in Western North America, despite lower benchmark crack spreads in the first quarter of 2014.



	•
	Increased market access contributes to strong results.  Crude by rail shipments to the
company's Montreal
refinery averaged 20,000 bbls/d in the first quarter of 2014 and are expected to reach 35,000 bbls/d in the second quarter of 2014. The company also started transporting heavy crude on
TransCanada's Gulf Coast pipeline in the quarter, which has provided more than 70,000 bbls/d of additional access to global-based pricing.



	•
	Montreal positioned to receive a full slate of inland crudes.  Regulatory approval for the
reversal of Enbridge's
Line 9 pipeline was granted in the quarter. The reversal of Line 9 is expected to further increase Suncor's ability to refine inland priced crude, including some Oil Sands crude
production. The anticipated reversal of Line 9 combined with increased rail access to the East is expected to provide the company with the flexibility to supply its Montreal refinery with a
full slate of inland priced crude in 2015.



	•
	Suncor continues to deliver cash to shareholders.  During the quarter, Suncor returned
$384 million
through share repurchases and $338 million to shareholders through dividends, reflecting an increase of over 70% in dividends paid in the prior year quarter.  




	(1)
	Operating
earnings, cash flow from operations, free cash flow and ROCE are non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A. 








SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





 7







 








 3. CONSOLIDATED FINANCIAL INFORMATION








 Financial Highlights



	 	 	





 Three months ended

March 31	 	 
	





($ millions)	 	





2014	 	





2013	 	 
	








	Net earnings (loss)	 	 	 	 	 	 
	








	 	Oil Sands	 	899	 	326	 	 
	








	 	Exploration and Production	 	294	 	354	 	 
	








	 	Refining and Marketing	 	787	 	782	 	 
	








	 	Corporate, Energy Trading and Eliminations	 	(495	)	(368	)	 
	








	Total	 	1 485	 	1 094	 	 
	








	Operating earnings (loss)(1)	 	 	 	 	 	 
	








	 	Oil Sands	 	899	 	453	 	 
	








	 	Exploration and Production	 	294	 	354	 	 
	








	 	Refining and Marketing	 	787	 	782	 	 
	








	 	Corporate, Energy Trading and Eliminations	 	(187	)	(222	)	 
	








	Total	 	1 793	 	1 367	 	 
	








	Cash flow from (used in) operations(1)	 	 	 	 	 	 
	








	 	Oil Sands	 	1 469	 	848	 	 
	








	 	Exploration and Production	 	600	 	690	 	 
	








	 	Refining and Marketing	 	930	 	1 067	 	 
	









	 	Corporate, Energy Trading and Eliminations	 	(119	)	(321	)	 
	








	Total	 	2 880	 	2 284	 	 
	








	Capital and Exploration Expenditures(2)	 	 	 	 	 	 
	








	 	Sustaining	 	647	 	730	 	 
	








	 	Growth	 	735	 	659	 	 
	








	Total	 	1 382	 	1 389	 	 
	













	 	 	





 Twelve months ended

March 31	 
	





($ millions)	 	






2014	 	





2013	 
	








	Free Cash Flow(1)	 	3 226	 	2 638	 
	












	(1)
	Non-GAAP
financial measures. Operating earnings are reconciled to net earnings below. See the Non-GAAP Financial Measures Advisory section of this MD&A.



	(2)
	Excludes
capitalized interest. 









Operating Highlights



	 	 	





 Three months ended

March 31	 
	





 	 	






2014	 	





2013	 
	








	Production volumes by segment	 	 	 	 	 
	








	 	Oil Sands (mbbls/d)	 	424.4	 	389.0	 
	








	 	Exploration and Production (mboe/d)	 	120.9	 	207.1	 
	









	Total	 	545.3	 	596.1	 
	








	Production mix	 	 	 	 	 
	








	 	Crude oil and liquids / natural gas (%)	 	99/1	 	92/8	 
	








	Refinery utilization (%)	 	96	 	96	 
	








	Refinery crude oil processed (mbbls/d)	 	442.0	 	443.0	 
	



















8   SUNCOR ENERGY
INC. 2014 FIRST QUARTER









 





  





Net Earnings


Suncor's consolidated net earnings for the first quarter of 2014 were $1.485 billion, compared to $1.094 billion for the first quarter of 2013. Net earnings were
primarily affected by the same factors that influenced operating earnings described subsequently in this section of the MD&A. Other items affecting net earnings over these periods include: 


	•
	The
after-tax unrealized foreign exchange loss on the revaluation of U.S. dollar denominated debt was $308 million for the first quarter of 2014, compared to a
loss of $146 million in the first quarter of 2013.



	•
	In
the first quarter of 2013, the company recorded an after-tax charge of $127 million as a result of not proceeding with the Voyageur upgrader project, which
included costs related to decommissioning and restoration of the Voyageur site, and contract cancellations. 









 Operating Earnings



	 	 	





 Three months ended

March 31	 
	





($ millions)	 	






2014	 	





2013	 
	








	Net earnings	 	1 485	 	1 094	 
	








	Unrealized foreign exchange loss on U.S. dollar denominated debt	 	308	 	146	 
	








	Net impact of not proceeding with the Voyageur upgrader project	 	—	 	127	 
	








	Operating earnings(1)	 	1 793	 	1 367	 
	












	(1)
	Operating
earnings is a non-GAAP financial measure. All reconciling items are presented on an after-tax basis. See the Non-GAAP Financial Measures Advisory section of
this MD&A. 





  


	(1)
	For
an explanation of the construction of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of this MD&A. 



Suncor's consolidated operating earnings for the first quarter of 2014 were $1.793 billion, compared to $1.367 billion in the first quarter of
2013. The increase in operating earnings was primarily due to strong upstream price realizations driven by the favourable impact of a weakening Canadian dollar relative to the U.S. dollar,
accompanied by higher inland crude pricing, and higher refining margins in Western North America, including the positive impacts of an increasing crude price environment where feedstock purchased
during periods of lower crude prices was processed and sold in the quarter. Larger draws on inventory in Oil Sands and Exploration and Production resulted in increased sales volumes
contributing to the increase in operating earnings. Increased Oil Sands production volumes also had a positive impact on operating earnings, primarily due to the completion of Firebag ramp-up
and hot bitumen infrastructure which, combined with strong reliability and operational flexibility at Oil Sands, contributed to record SCO production and a favourable product mix. These factors
were partially offset by lower production volumes in Exploration and Production, due to the sale of the 








 SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





 9







 

conventional
natural gas business in 2013 and the continued shut-in of production in Libya, and an increase in operating costs, including the impact of higher natural gas prices. 



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



	 	 	





 Three months ended

March 31	 	 
	





($ millions)	 	





2014	 	





2013	 	 
	








	Oil Sands	 	26	 	(8	)	 
	








	Exploration and Production	 	4	 	6	 	 
	








	Refining and Marketing	 	14	 	5	 	 
	








	Corporate, Energy Trading and Eliminations	 	50	 	33	 	 
	








	Total share-based compensation expense	 	94	 	36	 	 
	



















Cash Flow from Operations


Consolidated cash flow from operations was $2.880 billion for the first quarter of 2014 compared to $2.284 billion for the first quarter of 2013. Cash flow from
operations was impacted by the factors discussed above that affected operating earnings. 








 Business Environment


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



	





 Average for the three months ended March 31 (except as noted)	 	





2014	 	





2013	 
	








	WTI crude oil at Cushing	 	US$/bbl	 	98.70	 	94.35	 
	








	Dated Brent crude oil at Sullom Voe	 	US$/bbl	 	107.80	 	112.65	 
	








	Dated Brent/Maya crude oil FOB price differential	 	US$/bbl	 	18.45	 	10.60	 
	








	MSW at Edmonton	 	Cdn$/bbl	 	90.70	 	88.45	 
	








	WCS at Hardisty	 	US$/bbl	 	75.55	 	62.40	 
	








	Light/heavy differential for WTI at Cushing less WCS at Hardisty	 	US$/bbl	 	23.15	 	31.95	 
	








	Condensate at Edmonton	 	US$/bbl	 	102.65	 	107.20	 
	








	Natural gas (Alberta spot) at AECO	 	Cdn$/mcf	 	5.70	 	3.20	 
	








	New York Harbor 3-2-1 crack(1)	 	US$/bbl	 	20.40	 	31.20	 
	








	Chicago 3-2-1 crack(1)	 	US$/bbl	 	18.35	 	27.10	 
	








	Portland 3-2-1 crack(1)	 	US$/bbl	 	17.40	 	30.55	 
	








	Gulf Coast 3-2-1 crack(1)	 	US$/bbl	 	17.15	 	28.80	 
	








	Exchange rate	 	US$/Cdn$	 	0.91	 	0.99	 
	








	Exchange rate (end of period)	 	US$/Cdn$	 	0.90	 	0.98	 
	












	(1)
	3-2-1 crack
spreads are indicators of the refining margin generated by converting three barrels of WTI into two barrels of gasoline and one barrel of diesel. The crack spreads
presented here generally approximate the regions into which the company sells refined products through retail and wholesale channels. 



Suncor's sweet SCO price realizations are influenced primarily by the price of WTI at Cushing and by the supply and demand of sweet SCO from Western Canada.
Price realizations for sweet SCO were positively impacted by an increase in the price for WTI to US$98.70/bbl in the first quarter of 2014, compared to US$94.35/bbl in the prior year quarter. Stronger
price realizations for sweet SCO also reflected increased takeaway capacity from Cushing to the U.S. Gulf Coast as a result of the Gulf Coast pipeline that came into service in the first
quarter of 2014. 


Suncor
produces a specific grade of sour SCO, the price realizations for which are influenced by various crude benchmarks including, but not limited to: MSW at Edmonton and WCS at Hardisty, and which
can also be affected by 









 10   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 



prices
negotiated for spot sales. Prices for MSW at Edmonton and WCS at Hardisty increased in the first quarter of 2014 compared to the prior year quarter, resulting in higher price realizations for
sour SCO. 


Bitumen
production that Suncor does not upgrade is blended with diluent to facilitate delivery on pipeline systems. Net bitumen price realizations are, therefore, influenced by both prices for
Canadian heavy crude oil (WCS at Hardisty is a common reference) and prices for diluent (Condensate at Edmonton and SCO). Bitumen price realizations can also be affected by bitumen quality and
spot sales. Average prices for WCS at Hardisty increased, while Condensate at Edmonton decreased in the first quarter of 2014 compared to the prior year quarter, resulting in higher price realizations
for bitumen. 


Suncor's
price realizations for crude oil production from Exploration and Production are influenced primarily by the price for Brent crude. Brent crude pricing decreased to US$107.80/bbl in the first
quarter of 2014, compared to US$112.65/bbl in the first quarter of 2013. 



In
addition to the benchmark locations described above, upstream production may be sold into other markets where relative pricing may differ based on local supply and demand factors and the costs of
transportation. Suncor's price realizations are net of transportation costs. 


Suncor's
price realizations for natural gas production from Exploration and Production are primarily referenced to Alberta spot at AECO. Natural gas is also used in the company's Oil Sands and
Refining operations. The average AECO benchmark increased to $5.70/mcf in the first quarter of 2014, from $3.20/mcf in the first quarter of 2013. 


Suncor's
refining margins are influenced by 3-2-1 crack spreads, which are industry indicators approximating the gross margin on a barrel of crude oil that is refined to produce gasoline and
distillates, and by light/heavy and light/sour crude differentials. More complex refineries can earn greater margins by processing less expensive, heavier crudes. Crack spreads do not necessarily
reflect the margins of a specific refinery. Crack spreads are based on current crude feedstock prices whereas actual refining margins are based on first-in, first-out inventory accounting (FIFO),
where a delay exists between the time that feedstock is purchased and when it is processed and sold to a third party. Specific refinery margins are further impacted by actual crude purchase costs,
refinery configuration and refined products sales markets unique to that refinery. In the first quarter of 2014, crack spreads declined significantly, resulting in a negative impact to refining
margins; however, the impact of FIFO and strong refining margins in Western North America contributed to an overall increase in refining margins. 



The
majority of Suncor's revenues from the sale of oil and natural gas commodities is based on prices that are determined by, or referenced to, U.S. dollar benchmark prices. The majority of
Suncor's expenditures are realized in Canadian dollars. An increase in the value of the Canadian dollar relative to the U.S. dollar will decrease revenue received from the sale of commodities.
A decrease in the value of the Canadian dollar relative to the U.S. dollar will increase the revenues received from the sale of commodities. 


In
the first quarter of 2014, the Canadian dollar weakened in relation to the U.S. dollar as the average exchange rate decreased to 0.91 from 0.99, which had a positive impact on price
realizations for the company during the quarter. 


Conversely,
many of Suncor's assets and liabilities, notably most of the company's debt, are denominated in U.S. dollars and translated to Suncor's reporting currency (Canadian dollars) at each
balance sheet date. A decrease in the value of the Canadian dollar relative to the U.S. dollar from the previous balance sheet date increases the amount of Canadian dollars required to settle
U.S. dollar denominated obligations. 








SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





 11







 








 4. SEGMENT RESULTS AND ANALYSIS








 OIL SANDS








Financial Highlights



	 	 	





 Three months ended

March 31	 	 
	





($ millions)	 	





2014	 	





2013	 	 
	








	Gross revenues	 	3 890	 	3 043	 	 
	








	Less: Royalties	 	(192	)	(173	)	 
	








	Operating revenues, net of royalties	 	3 698	 	2 870	 	 
	








	Net earnings	 	899	 	326	 	 
	








	 	Adjusted for: Net impact of not proceeding with the Voyageur upgrader project	 	—	 	127	 	 
	








	Operating earnings(1)	 	899	 	453	 	 
	








	 	Oil Sands operations	 	849	 	411	 	 
	








	 	Oil Sands ventures	 	50	 	42	 	 
	








	Cash flow from operations(1)	 	1 469	 	848	 	 
	












	(1)
	Non-GAAP
financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A. 





  


	(1)
	For
an explanation of the construction of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of this MD&A. 



Operating earnings for Oil Sands operations were $849 million compared to $411 million in the prior year quarter, and increased primarily due to
higher average price realizations that included the impacts of a weakening Canadian dollar relative to the U.S. dollar, higher overall production volumes, including record SCO production
volumes and a strong sweet mix, partially offset by higher operating expenses and DD&A. Operating earnings for Oil Sands ventures increased for the first quarter of 2014 to $50 million compared
to $42 million in the first quarter of 2013, primarily due to higher price realizations and higher production, partially offset by an increase in operating expenses. 








12   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 



Production Volumes(1) 



	 	 	





 Three months ended

March 31	 
	





(mbbls/d)	 	






2014	 	





2013	 
	








	Upgraded product (SCO and diesel)	 	312.2	 	308.6	 
	








	Non-upgraded bitumen	 	77.1	 	49.2	 
	








	 	Oil Sands operations	 	389.3	 	357.8	 
	








	 	Oil Sands ventures	 	35.1	 	31.2	 
	








	Total	 	424.4	 	389.0	 
	












	(1)
	Bitumen
production from Oil Sands Base operations is upgraded, while bitumen production from In Situ operations is either upgraded or sold directly to customers, including Suncor's
own refineries. Yields of SCO and diesel from Suncor's upgrading process are approximately 79% of bitumen feedstock input. 



Production volumes for Oil Sands operations increased to 389,300 bbls/d in the first quarter of 2014, compared to 357,800 bbls/d in the prior year
quarter, primarily due to the ramp up of Firebag and commissioning of hot bitumen infrastructure assets that enabled the company to unlock previously constrained mining capacity. Strong upgrading
reliability in the quarter resulted in a quarterly SCO production record of 312,200 bbls/d in the first quarter of 2014, compared to 308,600 bbls/d in the prior year quarter, and an
increase in sweet SCO production. The increase in upgraded production over the prior year quarter was partially offset by the impacts of a six-week planned coker maintenance that commenced
in March. 


Bitumen Production  



	 	 	





 Three months ended

March 31	 
	





 	 	






2014	 	





2013	 
	








	Oil Sands Base	 	 	 	 	 
	








	 	Bitumen production (mbbls/d)	 	290.6	 	278.9	 
	








	 	Bitumen ore mined (thousands of tonnes per day)	 	435.7	 	430.6	 
	








	 	Bitumen ore grade quality (bbls/tonne)	 	0.67	 	0.65	 
	








	In Situ	 	 	 	 	 
	








	 	Bitumen production – Firebag (mbbls/d)	 	164.1	 	137.0	 
	








	 	Bitumen production – MacKay River (mbbls/d)	 	23.0	 	28.5	 
	








	 	Total In Situ bitumen production	 	187.1	 	165.5	 
	








	 	Steam-to-oil ratio – Firebag	 	3.1	 	3.4	 
	








	 	Steam-to-oil ratio – MacKay River	 	2.7	 	2.5	 
	













Oil Sands Base bitumen production from mining and extraction activities increased to an average of 290,600 bbls/d in the first quarter of 2014 from
278,900 bbls/d in the first quarter of 2013. Mining output was higher than in the first quarter of 2013 as a result of the hot bitumen infrastructure which allowed an increase in mining
production that had previously been constrained. This was partially offset by unplanned maintenance in mining and extraction which was compounded by cold weather. 


In
Situ bitumen production averaged 187,100 bbls/d in the first quarter of 2014, compared to 165,500 bbls/d in the first quarter of 2013, primarily due to the completion of the Firebag
ramp up, partially offset by unplanned maintenance at MacKay River. Production at Firebag was nominally impacted in the quarter by continued third-party natural gas curtailments that started in the
fourth quarter of 2013. Intermittent curtailments of natural gas supply are expected to continue throughout the second quarter of 2014 while the third-party pipeline operator completes its
investigation and restoration activities; however, it is not expected to have a significant impact to Suncor. MacKay River production volumes decreased to 23,000 bbls/d in the first quarter of
2014, compared to 28,500 bbls/d in the first quarter of 2013, due to unplanned maintenance activities that were completed by the end of the quarter. 








 SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





13







 

Suncor's
share of Syncrude production increased to 35,100 bbls/d in the first quarter of 2014 from 31,200 bbls/d in the first quarter of 2013, due to improved reliability. 


Sales Volumes and Mix  



	 	 	





 Three months ended

March 31	 
	





(mbbls/d)	 	






2014	 	





2013	 
	








	Oil Sands operations sales volumes	 	 	 	 	 
	








	 	Sweet SCO	 	123.0	 	112.7	 
	








	 	Diesel	 	31.7	 	9.0	 
	








	 	Sour SCO	 	167.8	 	190.6	 
	








	Upgraded product	 	322.5	 	312.3	 
	








	Non-upgraded bitumen	 	70.3	 	47.1	 
	








	Total	 	392.8	 	359.4	 
	













Sales volumes for Oil Sands operations increased to an average of 392,800 bbls/d in the first quarter of 2014 from 359,400 bbls/d in the first
quarter of 2013, primarily due to increased production volumes and a larger drawdown of inventory relative to the prior year quarter. Sales volumes of sweet SCO and diesel increased significantly
compared to the first quarter of 2013 due to stronger upgrading reliability. 



Inventory  


Inventory was drawn down in the first quarter of 2014 in response to planned maintenance that began in March, compared to a smaller drawdown in the prior year quarter.
Inventory drawn and sold in the first quarter of 2014 received higher pricing relative to the prior year quarter, further contributing to operating earnings. 


Price Realizations  



	





 Net of transportation costs, but before royalties	 	





Three months ended

March 31	 	 
	






($/bbl)	 	





2014	 	





2013	 	 
	








	Oil Sands operations	 	 	 	 	 	 
	








	 	Sweet SCO and diesel	 	115.11	 	97.70	 	 
	








	 	Sour SCO and bitumen	 	79.62	 	68.52	 	 
	








	 	Crude sales basket (all products)	 	93.63	 	78.41	 	 
	








	 	Crude sales basket, relative to WTI	 	(15.27	)	(16.80	)	 
	








	Oil Sands ventures	 	 	 	 	 	 
	








	 	Syncrude – Sweet SCO	 	105.93	 	95.51	 	 
	








	 	Syncrude, relative to WTI	 	(2.97	)	0.30	 	 
	













Average price realizations for sales from Oil Sands operations increased to $93.63/bbl in the first quarter of 2014 from $78.41/bbl in the first quarter of
2013, due mainly to the impact of a weaker Canadian dollar, higher prices for WTI, and narrowing light/heavy differentials, complemented by a favourable sales mix. In the first quarter of 2014,
average price realizations for sweet SCO were impacted by price pressure resulting from higher industry supply of sweet SCO volumes due to steady production by large producers; however, this factor
was more than offset by favourable foreign exchange and higher WTI. Average price realizations for sour SCO and bitumen increased in the first quarter of 2014 and sold at
smaller discounts relative to WTI over the prior year quarter, primarily due to higher demand for bitumen and increased takeaway capacity. 


Royalties  


Royalties for the Oil Sands segment were higher in the first quarter of 2014 than in the same period in 2013. The increase was mainly due to higher bitumen prices and higher
production. 









 14   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 

Expenses and Other Factors  


Operating and transportation expenses for the first quarter of 2014 were higher than the first quarter of 2013. See the Cash Operating Costs Reconciliation section below for
further details regarding cash operating costs and non-production costs. Transportation expense for the first quarter of 2014 was higher than the prior year quarter, primarily due to increased sales
volumes, including incremental costs associated with higher diluent imports and increased pipeline access. 


Operating
expenses at Syncrude were higher in the first quarter of 2014 than in the first quarter of 2013, due primarily to higher production, routine maintenance costs, and higher natural gas prices
and consumption. 


DD&A
expense for the first quarter of 2014 was higher than in the same period of 2013, due mainly to a larger asset base as a result of Firebag well pads and associated hot bitumen assets commissioned
in the latter half of 2013, and the Upgrader 1 turnaround in 2013. 


Cash Operating Costs Reconciliation(1) 



	 	 	





 Three months ended

March 31	 	 
	





 	 	





2014	 	





2013	 	 
	








	Operating, selling and general expense (OS&G)	 	1 529	 	1 397	 	 
	








	 	Syncrude OS&G	 	(160	)	(125	)	 
	








	 	Non-production costs(2)	 	(95	)	(74	)	 
	








	 	Other(3)	 	(24	)	(78	)	 
	








	Oil Sands cash operating costs ($ millions)	 	1 250	 	1 120	 	 
	








	Oil Sands cash operating costs ($/bbl)	 	35.60	 	34.80	 	 
	












	(1)
	Cash
operating costs and cash operating costs per barrel are non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.



	(2)
	Significant
non-production costs include, but are not limited to, share-based compensation adjustments, research, the expense recorded as part of a non-monetary arrangement involving
a third-party processor and feedstock costs for natural gas used to create hydrogen for secondary upgrading processes.



	(3)
	Other
includes the impacts of changes in inventory valuation and operating revenues associated with excess power from cogeneration units. 



Cash operating costs per barrel for Oil Sands operations in the first quarter of 2014 increased to an average of $35.60/bbl compared to $34.80/bbl in the first
quarter of 2013, primarily due to a $2.10/bbl increase in natural gas costs which was partially offset by higher production volumes. 


Non-production
costs, which are excluded from cash operating costs, increased primarily due to higher share-based compensation expense in the first quarter of 2014 compared to the prior year quarter,
higher feedstock costs impacting the secondary upgrading process, and an increase in costs associated with research and future growth activities. 








Planned Maintenance


The company plans to complete coker maintenance at Upgrader 1 in the third and fourth quarters of 2014. The estimated impact of this maintenance has been reflected in
the company's 2014 guidance. 








 SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





15







 








 EXPLORATION AND PRODUCTION








 Financial Highlights



	 	 	





 Three months ended

March 31	 	 
	





($ millions)	 	





2014	 	





2013	 	 
	








	Gross revenues	 	1 441	 	1 772	 	 
	








	Less: Royalties	 	(163	)	(314	)	 
	








	Operating revenues, net of royalties	 	1 278	 	1 458	 	 
	








	Net earnings	 	294	 	354	 	 
	








	Operating earnings(1)	 	294	 	354	 	 
	








	 	E&P Canada	 	190	 	157	 	 
	








	 	E&P International	 	104	 	197	 	 
	








	Cash flow from operations(1)	 	600	 	690	 	 
	












	(1)
	Non-GAAP
financial measures. See also the Non-GAAP Financial Measures Advisory section of this MD&A.






  


	(1)
	For
an explanation of the construction of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of this MD&A. 



Exploration and Production operating earnings were $294 million in the first quarter of 2014, compared to $354 million in the first quarter of
2013. Operating earnings of $190 million for E&P Canada increased primarily due to an increase in sales volumes, as inventory levels were drawn down in the quarter compared to a build in the
prior year quarter, and higher price realizations due to foreign exchange, partially offset by lower natural gas production as a result of the sale of the conventional natural gas business that closed
in 2013. Operating earnings of $104 million for E&P International decreased primarily due to the continued shut-in of production in Libya and costs related to exploration and certain field
activities. 








16   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 

Production Volumes  



	 	 	





 Three months ended

March 31	 
	





 	 	






2014	 	





2013	 
	








	E&P Canada	 	 	 	 	 
	








	 	Terra Nova (mbbls/d)	 	18.2	 	14.2	 
	








	 	Hibernia (mbbls/d)	 	25.2	 	27.8	 
	








	 	White Rose (mbbls/d)	 	16.5	 	16.4	 
	








	 	North America Onshore (mboe/d)	 	4.3	 	51.5	 
	








	 	 	64.2	 	109.9	 
	








	E&P International	 	 	 	 	 
	








	 	Buzzard (mboe/d)	 	56.5	 	55.3	 
	








	 	Libya (mbbls/d)	 	0.2	 	41.9	 
	








	 	 	56.7	 	97.2	 
	








	Total Production (mboe/d)	 	120.9	 	207.1	 
	








	Production mix (liquids/gas) (%)	 	96/4	 	78/22	 
	













For E&P Canada, production averaged 64,200 boe/d in the first quarter of 2014, compared to 109,900 boe/d in the first quarter of 2013, and
decreased primarily due to the sale of the conventional natural gas business offset by slightly higher production in East Coast Canada, as the prior year quarter included maintenance on two of three
drill centres at Terra Nova. 


For
E&P International, production averaged 56,700 boe/d in the first quarter of 2014, compared to 97,200 boe/d in the first quarter of 2013, and decreased primarily due to the continued
shut-in of production in Libya. The political unrest that impacted the Libyan export terminal operations in the second half of 2013 continued throughout the quarter. 


Price Realizations  



	 	 	





 Three months ended

March 31	 
	





Net of transportation costs, but before royalties	 	






2014	 	





2013	 
	








	Exploration and Production	 	 	 	 	 
	








	 	E&P Canada – Crude oil and natural gas liquids ($/bbl)	 	117.75	 	109.14	 
	








	 	E&P Canada – Natural gas ($/mcfe)	 	5.30	 	3.02	 
	








	 	E&P International ($/boe)	 	111.55	 	110.69	 
	













Although benchmark prices for Brent crude decreased from the first quarter of 2013, price realizations increased due to the weakening of the Canadian dollar
relative to the U.S. dollar. Price realizations for natural gas were higher due to higher benchmark prices for natural gas. 


Royalties  


Royalties for Exploration and Production were lower in the first quarter of 2014, compared with the prior year quarter, due primarily to the shut-in of production in Libya and
the sale of the conventional natural gas business, partially offset by higher price realizations and royalty rates in East Coast Canada. 








SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





17







 

Inventory  


During the first quarter of 2014, the company drew down on inventories that were built at the end of the fourth quarter of 2013 due to timing of shuttle tankers in East Coast
Canada, compared to an inventory build in the first quarter of 2013. 


Expenses and Other Factors  


Operating and transportation expenses decreased in the first quarter of 2014 relative to the first quarter of 2013, primarily due to the sale of the conventional natural gas
business, partially offset by higher incremental costs associated with a drawdown of inventory in East Coast Canada. 



DD&A
and exploration expenses were lower in the first quarter of 2014 than in the first quarter of 2013 due to the sale of the conventional natural gas business and the continued shut-in of production
in Libya, partially offset by higher sales volumes in East Coast Canada. Exploration expense included charges for non-commercial wells in both quarters, primarily relating to two Libyan exploration
wells in the first quarter of 2014 and the Romeo exploration well in the U.K. in the prior year quarter. 


Financing
Expense and Other Income included a gain recorded in the prior year quarter relating to a change in estimate of a provision for future commitments of unutilized capacity on certain natural
gas pipelines. 








 Planned Maintenance


Planned maintenance has been scheduled for Terra Nova, White Rose and Buzzard in the third quarter of 2014. In addition, Buzzard will be impacted by planned maintenance
affecting the third-party pipeline system in the second quarter of 2014. The estimated impact of this maintenance has been reflected in the company's 2014 guidance. 









 18   SUNCOR ENERGY
INC. 2014 FIRST QUARTER









 





  





 REFINING AND MARKETING








 Financial Highlights



	 	 	





 Three months ended

March 31	 
	





($ millions)	 	






2014	 	





2013	 
	








	Operating revenues	 	6 760	 	6 581	 
	








	Net earnings	 	787	 	782	 
	








	Operating earnings(1)	 	787	 	782	 
	








	 	Refining and Supply	 	709	 	713	 
	








	 	Marketing	 	78	 	69	 
	








	Cash flow from operations(1)	 	930	 	1 067	 
	












	(1)
	Non-GAAP
financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.






  


	(1)
	For
an explanation of the construction of this bridge analysis, see the Non-GAAP Financial Measures Advisory section of this MD&A. 



Refining and Marketing achieved record operating earnings of $787 million in the first quarter of 2014, compared to $782 million in the prior year
quarter. The increase was primarily due to a larger positive impact of processing cheaper feedstock relative to the prior year quarter, the positive impact of the weakening Canadian dollar, strong
refining margins in Western North America relative to the benchmarks, and lower feedstock costs at the Montreal refinery due to the ramp up of rail shipments. These factors were partially offset by
lower benchmark crack spreads resulting from the narrowing of the WTI to Brent differential, and an increase in operating and transportation expenses. 


Marketing
activities contributed $78 million to operating earnings in the first quarter of 2014, an increase over the prior year quarter due primarily to strong retail volumes and margins, in
addition to higher lubricants margins. 








SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





 19







 



Volumes  



	 	 	





 Three months ended

March 31	 
	 	 	






2014	 	





2013	 
	








	Crude oil processed (mbbls/d)	 	 	 	 	 
	








	 	Eastern North America	 	210.3	 	205.7	 
	








	 	Western North America	 	231.7	 	237.3	 
	








	Total	 	442.0	 	443.0	 
	








	Refinery utilization(1)(2) (%)	 	 	 	 	 
	








	 	Eastern North America	 	95	 	93	 
	








	 	Western North America	 	97	 	100	 
	








	Average	 	96	 	96	 
	








	Refined product sales (mbbls/d)	 	 	 	 	 
	








	 	Gasoline	 	230.7	 	247.8	 
	








	 	Distillate	 	207.1	 	214.5	 
	








	 	Other	 	77.5	 	79.9	 
	








	Total	 	515.3	 	542.2	 
	












	(1)
	Effective
January 1, 2014, the company increased the nameplate capacity of the Edmonton refinery from 140,000 bbls/d to 142,000 bbls/d. Prior quarter utilization
rates have not been recalculated and reflect the lower nameplate capacity.



	(2)
	Refinery
utilization is the amount of crude oil and natural gas plant liquids run through crude distillation units, expressed as a percentage of the capacity of these units. 




Refinery crude throughput remained strong in the first quarter of 2014, resulting in an average refinery utilization of 96%, consistent with the first quarter
of 2013. In Eastern North America, average crude oil processed increased to 210,300 bbls/d in the first quarter of 2014 from 205,700 bbls/d in the prior year quarter due to strong
reliability at both the Sarnia and Montreal refineries. Average crude oil processed in Western North America decreased to 231,700 bbls/d in the first quarter of 2014 from 237,300 bbls/d
in the prior year quarter, primarily due to higher planned maintenance activity in the first quarter of 2014, including a four-week planned maintenance event at the Commerce City refinery. 



Total
sales decreased to 515,300 bbls/d in the first quarter of 2014, compared to 542,200 bbls/d in the first quarter of 2013, due to a build in inventory volumes in preparation for
planned maintenance activities in the second quarter of 2014 at the Montreal and Edmonton refineries. 


Prices and Margins  


For Refining and Supply, refined product margins were higher in the first quarter of 2014 than in the prior year quarter due to the following factors: 


	•
	Refining
margins were positively impacted by the increasing crude price environment where feedstock purchased during periods of lower crude prices was processed and sold in
the quarter. In the first quarter of 2014, the impact of the FIFO method of inventory valuation, as used by the company, relative to an estimated LIFO(1) method, had a positive impact to
net earnings of approximately $200 million after-tax, compared to $117 million in the first quarter of 2013.



	•
	The
narrowing differential between Brent and WTI was reflected in lower benchmark crack spreads for the first quarter of 2014 and had a negative impact on refining margins.
Benchmark crack spreads were significantly lower across all regions into which the company sells refined product compared to the prior year quarter; however, this was partially offset by the impact of
the weakening Canadian dollar and strong refining margins in Western North America relative to the benchmarks.



	•
	Narrowing
light/heavy crude differentials for inland crudes resulted in higher feedstock costs; however, the impact was partially mitigated by the ramp up of rail shipments
to the Montreal refinery, which enabled Suncor to take advantage of price differentials between inland and Brent crudes. Crude by rail shipments averaged 20,000 bbls/d in the first quarter of
2014 and are expected to reach 35,000 bbls/d in the second quarter of 2014.  




	(1)
	LIFO
is a Non-GAAP measure. See the Non-GAAP Financial Measures Advisory section of this MD&A. 









20   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 

Marketing margins from the first quarter of 2014 were higher than margins in the prior year quarter, due primarily to higher retail, wholesale and lubricants
margins. 


Expenses and Other Factors  


Operating and transportation expenses were higher in the first quarter of 2014 compared to the first quarter of 2013, primarily due to higher energy prices, higher
transportation costs primarily due to higher finished product delivery rates, higher maintenance costs and increased share-based compensation expense. DD&A expense increased in the first quarter of
2014 due to asset additions since the prior year quarter, including costs associated with planned maintenance events in 2013. 








 Planned Maintenance


The Edmonton refinery has a seven-week planned maintenance event in the second quarter of 2014 as well as a four-week planned maintenance event in the third quarter of 2014.
The Montreal refinery has a five-week planned maintenance event in the second quarter of 2014 as well as a nine-week planned maintenance event beginning late in the third quarter of 2014. The
estimated impact of this maintenance has been reflected in the company's 2014 guidance. 








 CORPORATE, ENERGY TRADING AND ELIMINATIONS








Financial Highlights



	 	 	





 Three months ended

March 31	 	 
	





($ millions)	 	





2014	 	





2013	 	 
	








	Net loss	 	(495	)	(368	)	 
	








	 	Adjusted for:	 	 	 	 	 	 
	








	 	Unrealized foreign exchange loss on U.S. dollar denominated debt	 	308	 	146	 	 
	








	Operating loss(1)	 	(187	)	(222	)	 
	








	 	Renewable Energy	 	21	 	12	 	 
	








	 	Energy Trading	 	78	 	78	 	 
	








	 	Corporate	 	(215	)	(243	)	 
	








	 	Group Eliminations	 	(71	)	(69	)	 
	








	Cash flow used in operations(1)	 	(119	)	(321	)	 
	












	(1)
	Non-GAAP
financial measures. Operating earnings are reconciled to net earnings below. See also the Non-GAAP Financial Measures Advisory section of this MD&A. 



Renewable Energy  



	 	 	





 Three months ended

March 31	 
	 	 	






2014	 	





2013	 
	








	Power generation marketed (gigawatt hours)	 	125	 	127	 
	








	Ethanol production (millions of litres)	 	103	 	109	 
	













Renewable Energy operating earnings increased to $21 million in the first quarter of 2014 from $12 million in the first quarter of 2013, due
primarily to stronger ethanol margins driven by lower feedstock costs, partially offset by lower production. Power prices and production held constant from the prior year quarter. 


Energy Trading  



Energy Trading operating earnings were $78 million, consistent with the prior year quarter. Higher gains on natural gas trading strategies due to natural gas price
strength were offset by lower gains on Canadian and U.S. heavy crude trading strategies as a result of narrowing differentials. 








SUNCOR ENERGY INC. 2014 FIRST
QUARTER   






 21







 

Corporate  


The Corporate operating loss was $215 million for the first quarter of 2014, compared with an operating loss of $243 million for the first quarter of 2013. The
decrease in operating loss was primarily due to operational foreign exchange gains, lower depreciation expense as system conversion projects were fully depreciated in the previous year and higher
capitalized interest, partially offset by higher share-based compensation expense. The company capitalized $108 million of its borrowing costs in the first quarter of 2014 as part of the cost
of major development assets and construction projects, compared to $96 million in the prior year quarter. 


Group Eliminations  


Group Eliminations reflect the elimination of profit on crude oil sales from Oil Sands and East Coast Canada to Refining and Product Supply. Consolidated profits are only
realized when the refined products produced from internal purchases of crude feedstock have been sold to third parties. During the first quarter of 2014, the company eliminated $71 million of
after-tax intersegment profit, compared to $69 million in the prior year quarter. 








5. CAPITAL INVESTMENT UPDATE








 Capital and Exploration Expenditures by Segment



	 	 	





 Three months ended

March 31	 	 
	





($ millions)	 	





2014	 	





2013	 	 
	








	Oil Sands	 	911	 	1 036	 	 
	








	Exploration and Production	 	444	 	360	 	 
	








	Refining and Marketing	 	105	 	78	 	 
	








	Corporate, Energy Trading and Eliminations	 	30	 	11	 	 
	








	Total capital and exploration expenditures	 	1 490	 	1 485	 	 
	








	Less: capitalized interest on debt	 	(108	)	(96	)	 
	








	 	 	1 382	 	1 389	 	 
	



















Capital and Exploration Expenditures by
Type(1)(2)(3)



	 	 	





 Three months ended March 31, 2014	 
	





($ millions)	 	






Sustaining	 	





Growth	 	





Total	 
	








	Oil Sands	 	534	 	303	 	837	 
	








	 	Oil Sands Base	 	225	 	51	 	276	 
	








	 	In Situ	 	246	 	45	 	291	 
	








	 	Oil Sands ventures	 	63	 	207	 	270	 
	








	Exploration and Production	 	15	 	401	 	416	 
	








	Refining and Marketing	 	80	 	26	 	106	 
	








	Corporate, Energy Trading and Eliminations	 	18	 	5	 	23	 
	








	 	 	647	 	735	 	1 382	 
	












	(1)
	Capital
expenditures in this table exclude capitalized interest on debt.



	(2)
	Growth
capital expenditures include capital investments that result in i) an increase in production levels at existing Oil Sands operations and Refining and Marketing
operations; ii) new facilities or operations that increase overall production; iii) new infrastructure that is required to support higher production levels; iv) new reserves or a
positive change in the company's reserves profile in Exploration and Production operations; or v) margin improvement, by increasing revenues or reducing costs.



	(3)
	Sustaining
capital expenditures include capital investments that i) ensure compliance or maintain relations with regulators and other stakeholders; ii) improve
efficiency and reliability of operations or maintain productive capacity by replacing component assets at the end of their useful lives; iii) deliver existing proved developed reserves for
Exploration and Production operations; or iv) maintain current production capacities at existing Oil Sands operations and Refining and Marketing operations. 









 22   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 

In the first quarter of 2014, total capital and exploration expenditures were $1.382 billion (excluding capitalized interest). Activity in the first
quarter of 2014 included the following: 


Oil Sands  








Oil Sands Base


Oil Sands Base capital and exploration expenditures were $276 million in the first quarter of 2014, of which $225 million and $51 million were directed
towards sustaining and growth activities, respectively. The company continued to progress reliability and sustainment projects, including the construction of assets to support the tailings management
process and activities aimed at reducing freshwater use, including the construction of a water treatment plant that is expected to be commissioned in the second quarter of 2014. Capital expenditures
also included costs associated with planned coker maintenance at Upgrader 2, which began in March. 








In Situ


In Situ capital and exploration expenditures were $291 million, of which $45 million was directed towards growth projects. In April 2014, the company
reached a milestone by achieving first steam on the well pads associated with the MacKay River facility debottlenecking project. The project is intended to increase production capacity by
approximately 20% for a total capacity of 38,000 bbls/d by the end of 2015. First oil from this project is expected in the third quarter of 2014. 


Sustaining
capital expenditures of $246 million were directed towards ongoing design, engineering, procurement and construction of new well pads that are expected to maintain existing
production levels at Firebag and MacKay River in future years. Capital expenditures were also directed towards the infill well program at Firebag. 









 Oil Sands ventures


Oil Sands ventures capital and exploration expenditures were $270 million, of which $207 million was directed to growth capital and $63 million to
sustaining capital. Growth capital expenditures reflected a ramp up of spending for the Fort Hills project and continued to focus on detailed engineering, procurement of long-lead items and ramp up of
field construction activities. 


Suncor's
share of capital expenditures for the Syncrude joint venture was $63 million, which included expenditures for the mine train replacement at the Mildred Lake mining area and the
construction of a centrifuge plant for tailings management. 


Exploration and Production  


Exploration and Production incurred $416 million in capital and exploration expenditures in the first quarter of 2014. At the Golden Eagle project, spending
related primarily to ongoing activities relating to offshore facilities and the commencement of development drilling, with first oil anticipated in late 2014 or early 2015. Expenditures for the Hebron
project related to detailed engineering and early construction of the gravity-based structure and topsides; the project is expected to achieve first oil in 2017. Growth spending also included
development drilling activities at the Hibernia Southern Extension Unit and the fabrication for the second phase of the South White Rose Extension project, which is expected to be completed in the
third quarter of 2014. Collectively, these projects are expected to increase overall production and extend the productive life of the existing fields starting in 2015. Activities to prepare for a
sanction decision of the development of the West White Rose field are ongoing; a sanction decision is targeted for late 2014. 


Refining and Marketing  


Capital expenditures of $106 million related primarily to the ongoing sustainment of operations and planned maintenance activities at the Commerce City refinery, and
preparation activities for the planned maintenance scheduled for the second quarter at the Edmonton refinery. Growth spending in the Refining and Marketing segment continues to focus on preparing the
Montreal refinery to receive inland crudes, including a project at the refinery to modify the hydrocracking unit. 








SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





23







 







 6. FINANCIAL CONDITION AND LIQUIDITY








Indicators



	 	 	





 Twelve months ended

March 31	 
	 	 	






2014	 	





2013	 
	








	Return on Capital Employed(1) (%)	 	 	 	 	 
	








	 	Excluding major projects in progress	 	12.6	 	7.1	 
	








	 	Including major projects in progress	 	10.9	 	5.7	 
	








	Net debt to cash flow from operations(2) (times)	 	0.7	 	0.7	 
	








	Interest coverage on long-term debt (times)	 	 	 	 	 
	








	 	Earnings basis(3)	 	10.0	 	7.2	 
	








	 	Cash flow from operations basis(2)(4)	 	17.9	 	17.2	 
	












	(1)
	Non-GAAP
financial measure. ROCE is reconciled in the Non-GAAP Financial Measures Advisory section of this MD&A.



	(2)
	Cash
flow from operations and metrics that use cash flow from operations are non-GAAP financial measures. See the Non-GAAP Financial Measures Advisory section of this MD&A.



	(3)
	Net
earnings plus income taxes and interest expense, divided by the sum of interest expense and capitalized interest on debt.



	(4)
	Cash
flow from operations plus current income taxes and interest expense, divided by the sum of interest expense and capitalized interest on debt. 









Capital Resources


Suncor's capital resources consist primarily of cash flow from operations, cash and cash equivalents, and available lines of credit. Suncor's management believes the company
will have the capital resources to fund the remainder of its planned 2014 capital spending program of $7.8 billion and meet current and future working capital requirements through existing cash
balances and short-term investments, cash flow from operations for the remainder of 2014, available committed credit facilities, issuing commercial paper and/or long-term notes or debentures. The
company's cash flow from operations depends on a number of factors, including commodity prices, production and sales volumes, refining and marketing margins, operating expenses, taxes, royalties and
foreign exchange rates. If additional capital is required, Suncor's management believes adequate additional financing will be available in debt capital markets at commercial terms and rates. 



The
company has invested excess cash in short-term financial instruments that are presented as cash and cash equivalents. The objectives of the company's short-term investment portfolio are to ensure
the preservation of capital, maintain adequate liquidity to meet Suncor's cash flow requirements and deliver competitive returns consistent with the quality and diversification of investments within
acceptable risk parameters. The maximum weighted average term to maturity of the short-term investment portfolio is not expected to exceed six months, and all investments will be with counterparties
with investment grade debt ratings. 









 Available Sources of Liquidity


Cash and cash equivalents decreased to $4.846 billion during the first three months of 2014 from $5.202 billion at December 31, 2013 due primarily to
capital and exploration expenditures, income tax payments, royalty payments, dividends and share repurchases. 


As
at March 31, 2014, the weighted average term to maturity of the short-term investment portfolio was approximately 34 days. 


Financing Activities  


Management of debt levels continues to be a priority for Suncor given the company's long-term growth plans. Suncor's management believes a phased and flexible approach to
existing and future growth projects should assist Suncor in maintaining its ability to manage project costs and debt levels. 


Unutilized
lines of credit at March 31, 2014 were $4.450 billion, compared to $4.536 billion at December 31, 2013. 








24   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 



Total Debt to Total Debt Plus Shareholders' Equity  


Suncor is subject to financial and operating covenants related to its bank debt and public market debt. Failure to meet the terms of one or more of these covenants may
constitute an Event of Default as defined in the respective debt agreements, potentially resulting in accelerated repayment of one or more of the debt obligations. The company is in compliance with
its financial covenant that requires total debt to not exceed 65% of its total debt plus shareholders' equity. At March 31, 2014, total debt to total debt plus shareholders' equity was 22%
(December 31, 2013 – 22%). The company is also currently in compliance with all operating covenants. 



	





 ($ millions, except as noted)	 	





March 31

2014	 	





December 31

2013	 
	








	 	Short-term debt	 	829	 	798	 
	








	 	Current portion of long-term debt	 	475	 	457	 
	








	 	Long-term debt	 	10 504	 	10 203	 
	








	Total debt	 	11 808	 	11 458	 
	








	 	Less: Cash and cash equivalents	 	4 846	 	5 202	 
	








	Net debt	 	6 962	 	6 256	 
	








	Shareholders' equity	 	42 258	 	41 180	 
	








	Total debt plus shareholders' equity	 	54 066	 	52 638	 
	








	Total debt to total debt plus shareholders' equity (%)	 	22	 	22	 
	













Change in Net Debt  



	





 Three months ended March 31, 2014 ($ millions)	 	 	 	 
	








	Net debt – December 31, 2013	 	6 256	 	 
	








	Increase in net debt	 	706	 	 
	








	Net debt – March 31, 2014	 	6 962	 	 
	









	Increase in net debt	 	 	 	 
	








	 	Cash flow from operations	 	2 880	 	 
	








	 	Capital and exploration expenditures and other investments	 	(1 499	)	 
	









	 	Proceeds from disposal of assets	 	16	 	 
	








	 	Dividends less proceeds from exercise of share options	 	(285	)	 
	








	 	Repurchase of common shares	 	(384	)	 
	








	 	Change in non-cash working capital	 	(1 132	)	 
	








	 	Foreign exchange on cash, debt and other balances	 	(302	)	 
	








	 	 	(706	)	 
	













At March 31, 2014, Suncor's net debt was $6.962 billion, compared to $6.256 billion at December 31, 2013. Over the first three
months of 2014, net debt increased by $706 million, largely due to a decrease in working capital primarily due to income tax and royalty payments, share repurchase, dividends, and unrealized
foreign exchange losses on U.S. dollar denominated debt, partially offset by cash flow from operations that exceeded capital and exploration expenditures. 



For
the twelve months ended March 31, 2014, the company's net debt to cash flow from operations measure was 0.7 times, which met management's limit of less than 2.0 times. 








SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





25








 







 Common Shares


Outstanding Shares  



	





 March 31, 2014 (thousands)	 	 	 
	








	Common shares	 	1 469 601	 
	








	Common share options – exercisable	 	28 756	 
	








	Common share options – non-exercisable	 	9 684	 
	













As at April 21, 2014, the total number of common shares outstanding was 1,468,377,722 and the total number of exercisable and non-exercisable common
share options outstanding was 37,410,872. Once exercisable, each outstanding common share option is convertible into one common share. 


Share Repurchases  


On February 21, 2014, Suncor amended its Normal Course Issuer Bid (the NCIB) that commenced on August 5, 2013 to allow for an additional
$1.0 billion worth of its common shares to be repurchased. Pursuant to the NCIB, Suncor is permitted to purchase for cancellation a total of approximately $2.8 billion worth of its
common shares between August 5, 2013 and August 4, 2014. In the first quarter of 2014, the company had repurchased 10,453,616 common shares under the NCIB at an average price of
$36.71 per share, for a total repurchase cost of $384 million. 


Subsequent
to the first quarter, and as at April 21, 2014, the company had repurchased an additional 2,105,700 common shares under the NCIB at an average price of $39.46 per share, for a
total repurchase cost of $83 million. 



	 	 	





 Three months ended

March 31, 2014	 	





Twelve months ended

December 31, 2013	 
	








	Shares repurchased (thousands of common shares)	 	10 454	 	49 492	 
	








	Share repurchase cost ($ millions)	 	384	 	1 675	 
	








	Weighted average repurchase price per share (dollars per share)	 	36.71	 	33.84	 
	



















Contractual Obligations, Commitments, Guarantees, and Off-Balance Sheet
Arrangements


In the normal course of business, the company is obligated to make future payments, including contractual obligations and non-cancellable commitments. Suncor has included these
items in the Financial Condition and Liquidity section of its 2013 annual MD&A, which section is herein incorporated by reference. The company does not believe that it has any guarantees or
off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the company's financial performance or financial condition, results of operations,
liquidity or capital expenditures. During the first three months of 2014, Suncor increased its commitments by approximately $0.9 billion in support of the company's market access strategy and
activities to expand its storage and logistics network. The contract
terms for the majority of these commitments range between three and ten years, with payments commencing as early as the fourth quarter of 2014. 









 26   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 







7. QUARTERLY FINANCIAL DATA


Trends in Suncor's quarterly earnings and cash flow from operations are driven primarily by production volumes, which can be significantly impacted by major
maintenance events – such as the maintenance that occurred in Oil Sands and Refining and Marketing in the second and third quarters of 2013 and at many
Exploration and Production assets in the third quarter of 2012 – and unplanned maintenance outages, such as the one that occurred at Upgrader 2 in the
second quarter of 2013 and the first half of 2012. Trends in Suncor's quarterly earnings and cash flow from operations are also affected by changes in commodity prices, refining crack spreads and
foreign exchange rates. 








Financial Summary



	





 Three months ended

($ millions, unless otherwise noted)	 	





Mar 31

2014	 	





Dec 31

2013	 	





Sept 30

2013	 	





June 30

2013	 	





Mar 31

2013	 	






Dec 31

2012	 	





Sept 30

2012	 	





June 30

2012	 
	








	Total production (mboe/d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	








	 	Oil Sands	 	424.4	 	446.5	 	423.6	 	309.4	 	389.0	 	378.7	 	378.9	 	337.8	 
	








	 	Exploration and Production	 	120.9	 	111.6	 	171.4	 	190.7	 	207.1	 	177.8	 	156.4	 	204.6	 
	








	 	 	545.3	 	558.1	 	595.0	 	500.1	 	596.1	 	556.5	 	535.3	 	542.4	 
	








	Revenues and other income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	








	 	Operating revenues, net of royalties	 	10 342	 	9 814	 	10 288	 	9 648	 	9 843	 	9 396	 	9 488	 	9 584	 
	








	 	Other income	 	135	 	380	 	85	 	66	 	173	 	92	 	88	 	123	 
	








	 	 	10 477	 	10 194	 	10 373	 	9 714	 	10 016	 	9 488	 	9 576	 	9 707	 
	








	Net earnings (loss)	 	1 485	 	443	 	1 694	 	680	 	1 094	 	(574	)	1 544	 	324	 
	









	 	per common share – basic (dollars)	 	1.01	 	0.30	 	1.13	 	0.45	 	0.72	 	(0.38	)	1.01	 	0.21	 
	








	 	per common share – diluted (dollars)	 	1.01	 	0.30	 	1.13	 	0.45	 	0.71	 	(0.38	)	1.00	 	0.20	 
	








	Operating earnings(1)	 	1 793	 	973	 	1 426	 	934	 	1 367	 	988	 	1 292	 	1 249	 
	








	 	per common share – basic(1) (dollars)	 	1.22	 	0.66	 	0.95	 	0.62	 	0.90	 	0.65	 	0.84	 	0.80	 
	








	Cash flow from operations(1)	 	2 880	 	2 350	 	2 528	 	2 250	 	2 284	 	2 228	 	2 743	 	2 347	 
	








	 	per common share – basic(1) (dollars)	 	1.96	 	1.58	 	1.69	 	1.49	 	1.50	 	1.46	 	1.79	 	1.51	 
	








	ROCE(1) (%) for the twelve months ended	 	12.6	 	11.5	 	8.6	 	8.1	 	7.1	 	7.2	 	12.4	 	14.2	 
	








	Common share information (dollars)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	








	 	Dividend per common share	 	0.23	 	0.20	 	0.20	 	0.20	 	0.13	 	0.13	 	0.13	 	0.13	 
	








	 	Share price at the end of trading	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	








	 	 	Toronto Stock Exchange (Cdn$)	 	38.61	 	37.24	 	36.83	 	31.00	 	30.44	 	32.71	 	32.34	 	29.44	 
	









	 	 	New York Stock Exchange (US$)	 	34.96	 	35.05	 	35.78	 	29.49	 	30.01	 	32.98	 	32.85	 	28.95	 
	












	(1)
	Non-GAAP
financial measures. Operating earnings, cash flow from operations and ROCE for each applicable quarter is defined and reconciled in the Non-GAAP Financial Measures Advisory
section of Suncor's MD&A for the applicable period. ROCE excludes capitalized costs related to major projects in progress. 








 SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





 27







 







Business Environment



	





 Three months ended

(average for the period ended, except as noted)	 	 	 	





Mar 31

2014	 	





Dec 31

2013	 	





Sept 30

2013	 	





June 30

2013	 	






Mar 31

2013	 	





Dec 31

2012	 	





Sept 30

2012	 	





June 30

2012	 
	








	WTI crude oil at Cushing	 	US$/bbl	 	98.70	 	97.45	 	105.85	 	94.20	 	94.35	 	88.20	 	92.20	 	93.50	 
	








	Dated Brent crude oil at Sullom Voe	 	US$/bbl	 	107.80	 	109.35	 	109.70	 	103.35	 	112.65	 	110.10	 	109.50	 	108.90	 
	








	Dated Brent/Maya FOB price differential	 	US$/bbl	 	18.45	 	20.05	 	10.35	 	5.50	 	10.60	 	17.30	 	11.90	 	9.85	 
	








	MSW at Edmonton	 	Cdn$/bbl	 	90.70	 	89.05	 	105.25	 	92.90	 	88.45	 	84.35	 	84.70	 	84.45	 
	








	WCS at Hardisty	 	US$/bbl	 	75.55	 	65.25	 	88.35	 	75.05	 	62.40	 	70.05	 	70.45	 	70.60	 
	








	Light/heavy crude oil differential for WTI at Cushing less WCS at Hardisty	 	US$/bbl	 	23.15	 	32.20	 	17.50	 	19.15	 	31.95	 	18.15	 	21.75	 	22.90	 
	








	Condensate at Edmonton	 	US$/bbl	 	102.65	 	94.20	 	103.80	 	103.30	 	107.20	 	98.10	 	96.00	 	99.40	 
	








	Natural gas (Alberta spot) at AECO	 	Cdn$/mcf	 	5.70	 	3.50	 	3.00	 	3.50	 	3.20	 	3.20	 	2.30	 	1.90	 
	








	New York Harbor 3-2-1 crack(1)	 	US$/bbl	 	20.40	 	19.60	 	19.25	 	25.60	 	31.20	 	35.95	 	37.80	 	31.95	 
	








	Chicago 3-2-1 crack(1)	 	US$/bbl	 	18.35	 	12.00	 	15.80	 	30.70	 	27.10	 	27.85	 	35.15	 	27.85	 
	








	Portland 3-2-1 crack(1)	 	US$/bbl	 	17.40	 	15.35	 	19.60	 	30.60	 	30.55	 	29.85	 	38.15	 	37.90	 
	








	Gulf Coast 3-2-1 crack(1)	 	US$/bbl	 	17.15	 	13.45	 	15.95	 	24.00	 	28.80	 	27.35	 	33.95	 	29.30	 
	








	Exchange rate	 	US$/Cdn$	 	0.91	 	0.95	 	0.96	 	0.98	 	0.99	 	1.00	 	1.00	 	0.99	 
	








	Exchange rate (end of period)	 	US$/Cdn$	 	0.90	 	0.94	 	0.97	 	0.95	 	0.98	 	1.01	 	1.02	 	0.98	 
	












	(1)
	3-2-1 crack
spreads are indicators of the refining margin generated by converting three barrels of WTI into two barrels of gasoline and one barrel of diesel. The crack spreads
presented here generally approximate the regions into which the company sells refined products through retail and wholesale channels. 









Significant or Unusual Items Impacting Net Earnings


In addition to the impacts of changes in production volumes and business environment, net earnings over the last eight quarters were affected by the following events or
one-time adjustments: 


	•
	The
fourth quarter of 2013 included after-tax impairment charges of $563 million in the Exploration and Production segment against assets in Syria, Libya and North
America Onshore. Concurrent with the impairment of the Syrian assets, the company recognized after-tax risk mitigation proceeds of $223 million, previously recorded as a long-term provision.



	•
	The
first and fourth quarters of 2013 included a net after-tax charge of $58 million as a result of not proceeding with the Voyageur upgrader project, which included
costs related to decommissioning and restoration of the Voyageur site and contract cancellations.



	•
	The
third quarter of 2013 included an after-tax gain of $130 million relating to the sale of the company's conventional natural gas business.



	•
	The
fourth quarter of 2012 included an after-tax impairment charge of $1.487 billion relating to the Voyageur upgrader project. Given Suncor's view of the challenging
economic environment, the company performed an impairment test based on an assessment of expected future net cash flows.



	•
	The
fourth quarter of 2012 included an after-tax impairment reversal of $177 million of the impairment charges recorded against the company's assets in Syria in the
second quarter of 2012, due to a revised assessment of the net recoverable value of the underlying assets following the receipt of risk mitigation proceeds.



	•
	The
fourth quarter of 2012 included total after-tax impairment charges of $172 million for certain exploration, development and production assets in the Exploration
and Production segment, and a provision in North America Onshore for estimated future commitments relating to unutilized pipeline capacity.



	•
	The
second quarter of 2012 included after-tax impairment charges and write-offs of $694 million against assets in Syria, which reflected the shut-in of production due
to political unrest and international sanctions. The company ceased recording all production and revenue from its Syrian assets in the fourth quarter of 2011. 









 28   SUNCOR ENERGY
INC. 2014 FIRST QUARTER









 





  





 8. OTHER ITEMS








 Accounting Policies


Suncor's significant accounting policies and a summary of recently announced accounting standards are described in notes 3 and 5, respectively, to the audited
Consolidated Financial Statements for the year ended December 31, 2013. 









 Adoption of New Accounting Standards


Effective January 1, 2014, the company retrospectively adopted International Financial Reporting Interpretation Committee (IFRIC) 21  Levies which clarifies that an entity recognizes a liability for a levy when the activity that triggers payment occurs. For a levy that is triggered
upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the minimum threshold is reached. The adoption of this interpretation did not have an
impact to the company's condensed interim Consolidated Financial Statements. 








 Critical Accounting Estimates


The preparation of financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect reported assets, liabilities,
revenues and expenses, gains and losses, and disclosures of contingencies. These estimates and assumptions are subject to change based on experience and new information. Critical accounting estimates
are those that require management to make assumptions about matters that are highly uncertain at the time the estimate is made. Critical accounting estimates are also those estimates which, where a
different estimate could have been used or where changes in the estimate that are reasonably likely to occur, would have a material impact on the company's financial condition, changes in financial
condition or financial performance. Critical accounting estimates and judgments are reviewed annually by the Audit Committee of the Board of Directors. A detailed description of Suncor's critical
accounting estimates is provided in note 4 to the audited Consolidated Financial Statements for the year ended December 31, 2013. 









 Financial Instruments


Suncor periodically enters into derivative contracts such as forwards, futures, swaps, options and costless collars to manage exposure to fluctuations in commodity prices and
foreign exchange rates, and to optimize the company's position with respect to interest payments. The company also uses physical and financial energy derivatives to earn trading profits. For more
information on Suncor's financial instruments and the related financial risk factors, see note 27 of the audited Consolidated Financial Statements for the year ended December 31, 2013,
and note 9 to the unaudited interim Consolidated Financial Statements for the three months ended March 31, 2014. 









 Canada Revenue Agency Proposal Letter


The company continues to work with the Canada Revenue Agency (CRA) regarding the 2013 proposal letter relating to the income tax treatment of realized losses in 2007 on the
settlement of certain derivative contracts. The company strongly disagrees with the CRA's position and firmly believes it will be able to successfully defend its original filing position should it
receive a Notice of Reassessment. 









 Control Environment


Based on their evaluation as at March 31, 2014, Suncor's Chief Executive Officer and Interim Chief Financial Officer concluded that the company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the United States Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to
ensure that information required to be disclosed by the company in reports that are filed or submitted to Canadian and U.S. securities authorities is recorded, processed, summarized and
reported within the time periods specified in Canadian and U.S. securities laws. In addition, as at March 31, 2014, there were no changes in the internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the three-month period ended March 31, 2014 that have materially affected, or are reasonably
likely to materially affect, the company's internal control over financial reporting. Management will continue to periodically evaluate the company's disclosure controls and procedures and internal
control over financial reporting and will make any modifications from time to time as deemed necessary. 


As
a result of current events in Syria, Suncor is not able to monitor the status of all of its assets in the country, including whether certain facilities have suffered damages. Suncor has assessed
and is continually monitoring the control 








 SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





29







 

environment
in the country and does not consider the changes to have a material impact on the company's overall internal control over financial reporting. 


Based
on their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements, and even those controls determined to be
effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 








Corporate Guidance


Suncor has updated its previously issued 2014 corporate guidance to revise its assumption for natural gas price (AECO-C spot) to Cdn$4.50/gigajoule from Cdn$3.86/gigajoule.
Suncor's press release dated April 28, 2014, which is also available on www.sedar.com, provides this update to its corporate guidance as well as assumptions and risk factors around
its guidance. 








9. NON-GAAP FINANCIAL MEASURES ADVISORY


Certain financial measures in this MD&A – namely operating earnings, ROCE, cash flow from operations, free cash flow, Oil
Sands cash operating costs and LIFO – are not prescribed by GAAP. These non-GAAP financial measures are included because management uses the information to
analyze operating performance, leverage and liquidity. These non-GAAP financial measures do not have any standardized meaning and, therefore, are unlikely to be comparable to similar measures
presented by other companies. Therefore, these non-GAAP financial measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Except
as otherwise indicated, these non-GAAP measures are calculated and disclosed on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods. 









 Operating Earnings


Operating earnings is a non-GAAP financial measure that adjusts net earnings for significant items that are not indicative of operating performance. Management uses operating
earnings to evaluate operating performance because management believes it provides better comparability between periods. Operating earnings are reconciled to net earnings in the Consolidated Financial
Information section of this document. 


Bridge Analyses of Operating Earnings  


Throughout this MD&A, the company presents charts that illustrate the change in operating earnings from the comparative period through key variance factors. These factors are
analyzed in the Operating Earnings narratives following the bridge analyses in a particular section of the MD&A. These bridge analyses are presented because management uses this presentation to
evaluate performance. 


	•
	The
factor for Volumes and Mix is calculated based on production volumes and mix for the Oil Sands and Exploration and Production segments and throughput volumes and mix for
the Refining and Marketing segment.



	•
	The
factor for Price, Margin and Other Revenue includes upstream price realizations before royalties, refining and marketing margins, other operating revenues, and the net
impacts of sales and purchases of third-party crude, including product purchased for use as diluent in the company's Oil Sands operations and subsequently sold as part of diluted bitumen.



	•
	The
factor for Royalties includes royalties in Libya that represent the difference between gross revenues, which is based on the company's working-interest share of
production, and the net revenue attributable to Suncor under the terms of the respective contracts.



	•
	The
factor for Inventory reflects the opportunity cost of building production volumes in inventory or the additional margin earned by drawing down inventory produced in
previous periods. The calculation of the Inventory factor in a bridge analysis permits the company to present the factor for Volumes and Mix based on production volumes, rather than based on
sales volumes.



	•
	The
factor for Operating and Transportation Expense includes project start-up costs, operating, selling and general expense (adjusted for impacts of changes in inventory),
and transportation expense. 









30   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 
	•
	The
factor for Financing Expense and Other Income includes financing expenses, other income, operational foreign exchange gains and losses, changes in gains and losses on
disposal of assets that are not operating earnings adjustments, changes in statutory income tax rates, and other income tax adjustments. 









 Return on Capital Employed (ROCE)


ROCE is a non-GAAP financial measure that management uses to analyze operating performance and the efficiency of Suncor's capital allocation process. Average capital employed
is calculated as a thirteen-month average of the capital employed balance at the beginning of the twelve-month period and the month-end capital employed balances throughout the remainder of the
twelve-month period. Figures for capital employed at the beginning and end of the twelve-month period are presented to show the changes in the components of the calculation over the twelve-month
period. 


The
company presents two ROCE calculations – one including and one excluding the impacts on capital employed of major projects in progress. Major projects in
progress includes accumulated capital expenditures and capitalized interest for significant projects still under construction or in the process of being commissioned, and acquired assets that are
still being evaluated. Management uses ROCE excluding the impacts of major projects in progress on capital employed to assess performance of operating assets. 



	





 For the twelve months ended March 31

($ millions, except as noted)	 	 	 	





2014	 	





2013	 
	








	Adjustments to net earnings	 	 	 	 	 	 	 
	








	 	Net earnings	 	 	 	4 302	 	2 391	 
	








	 	Add after-tax amounts for:	 	 	 	 	 	 	 
	








	 	 	Unrealized foreign exchange loss on U.S. dollar denominated debt	 	 	 	688	 	116	 
	








	 	 	Net interest expense	 	 	 	223	 	99	 
	








	 	 	A	 	5 213	 	2 606	 
	








	Capital employed – beginning of twelve-month period	 	 	 	 	 	 	 
	








	 	Net debt	 	 	 	6 786	 	5 973	 
	








	 	Shareholders' equity	 	 	 	39 796	 	39 684	 
	








	 	 	 	 	46 582	 	45 657	 
	








	Capital employed – end of twelve-month period	 	 	 	 	 	 	 
	








	 	Net debt	 	 	 	6 962	 	6 786	 
	








	 	Shareholders' equity	 	 	 	42 258	 	39 796	 
	








	 	 	 	 	49 220	 	46 582	 
	








	Average capital employed	 	B	 	47 645	 	45 573	 
	








	ROCE – including major projects in progress (%)	 	A/B	 	10.9	 	5.7	 
	








	Average capitalized costs related to major projects in progress	 	C	 	6 325	 	8 736	 
	








	ROCE – excluding major projects in progress (%)	 	A/(B-C)	 	12.6	 	7.1	 
	


















SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





31








 







 Cash Flow from Operations


Cash flow from operations is a non-GAAP financial measure that adjusts a GAAP measure – cash flow provided by operating
activities – for changes in non-cash working capital, which management uses to analyze operating performance and liquidity. Changes to non-cash working capital
can include, among other factors, the timing of offshore feedstock purchases and payments for fuel and income taxes, which management believes reduces comparability between periods. 



Cash
flow from operations in this MD&A for the twelve month ended periods are the sum of cash flow from operations for the particular quarter ended March 31 and each of the three preceding
quarters, each separately defined and reconciled to GAAP measures in the Non-GAAP Financial Measures Advisory section of each respective MD&A for the applicable quarter. 



	





 Three months ended March 31	 	





Oil Sands	 	





Exploration and

Production	 	





Refining and

Marketing	 	





Corporate,

Energy

Trading and

Eliminations	 	





Total	 	 
	





($ millions)	 	





2014	 	





2013	 	





2014	 	





2013	 	





2014	 	





2013	 	





2014	 	





2013	 	





2014	 	





2013	 	 
	








	Net earnings (loss)	 	899	 	326	 	294	 	354	 	787	 	782	 	(495	)	(368	)	1 485	 	1 094	 	 
	








	Adjustments for:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	








	 	Depreciation, depletion, amortization and impairment	 	669	 	545	 	299	 	304	 	152	 	120	 	20	 	30	 	1 140	 	999	 	 
	








	 	Deferred income taxes	 	15	 	113	 	(32	)	32	 	8	 	190	 	11	 	(78	)	2	 	257	 	 
	








	 	Accretion of liabilities	 	36	 	27	 	11	 	17	 	1	 	—	 	3	 	4	 	51	 	48	 	 
	








	 	Unrealized foreign exchange loss on U.S. dollar denominated debt	 	—	 	—	 	—	 	—	 	—	 	—	 	357	 	168	 	357	 	168	 	 
	








	 	Change in fair value of derivative contracts	 	1	 	—	 	—	 	1	 	4	 	1	 	6	 	58	 	11	 	60	 	 
	








	 	Share-based compensation	 	(21	)	(48	)	1	 	(4	)	(14	)	(19	)	(20	)	(46	)	(54	)	(117	)	 
	








	 	Exploration expenses	 	—	 	—	 	22	 	37	 	—	 	—	 	—	 	—	 	22	 	37	 	 
	









	 	Settlement of decommissioning and restoration liabilities	 	(107	)	(177	)	(1	)	(8	)	(2	)	(2	)	—	 	—	 	(110	)	(187	)	 
	








	 	Other	 	(23	)	62	 	6	 	(43	)	(6	)	(5	)	(1	)	(89	)	(24	)	(75	)	 
	








	Cash flow from (used in) operations	 	1 469	 	848	 	600	 	690	 	930	 	1 067	 	(119	)	(321	)	2 880	 	2 284	 	 
	








	Decrease (increase) in non-cash working capital	 	28	 	1 906	 	(216	)	14	 	(676	)	(120	)	(283	)	(1 510	)	(1 147	)	290	 	 
	








	Cash flow provided by (used in) operating activities	 	1 497	 	2 754	 	384	 	704	 	254	 	947	 	(402	)	(1 831	)	1 733	 	2 574	 	 
	



















Free Cash Flow


Free cash flow is a non-GAAP financial measure that is calculated by deducting capital and exploration expenditures for the twelve-month period from cash flow from operations
for the same period. Free cash flow reflects cash available for distribution to shareholders and to fund financing activities. Management uses free cash flow to measure financial performance and
liquidity. 



	





  	 	





Twelve months ended

March 31	 	 
	





($ millions)	 	





2014	 	





2013	 	 
	








	Cash flow from operations	 	10 008	 	9 602	 	 
	








	Less: Capital and exploration expenditures	 	(6 782	)	(6 964	)	 
	








	Free Cash Flow	 	3 226	 	2 638	 	 
	



















32   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 







Oil Sands Cash Operating Costs


Oil Sands cash operating costs and cash operating costs per barrel are non-GAAP financial measures, which are calculated by adjusting Oil Sands segment operating, selling and
general expense (a GAAP measure based on sales volumes) for i) costs pertaining to Syncrude operations; ii) non-production costs that management believes do not relate to the
production performance of Oil Sands operations, including, but not limited to, share-based compensation adjustments, research, the expense recorded as part of a non-monetary arrangement involving a
third-party processor, and feedstock costs for natural gas used to create hydrogen for secondary upgrading processes; iii) excess power generated and sold that is recorded in operating revenue;
and iv) the impacts of changes in inventory levels, such that the company is able to present cost information based on production volumes. Oil Sands cash operating costs are reconciled in the
Segment Results and Analysis – Oil Sands section of the MD&A. 








Impact of First-in, First-out Inventory Valuation on Refining and Marketing
Net Earnings


GAAP requires the use of a FIFO inventory valuation methodology. For Suncor, this results in a disconnect between the sales prices for refined products, which reflects current
market conditions, and the amount recorded as the cost of sale for the related refinery feedstock, which reflect market conditions at the time when the feedstock was purchased. This lag between
purchase and sale can be anywhere from several weeks to several months, and is influenced by the time to receive crude after purchase (which can be several weeks for foreign offshore crude purchases),
regional crude inventory
levels, the completion of refining processes, transportation time to distribution channels, and regional refined product inventory levels. 


Suncor
prepares and presents an estimate of the impact of using a FIFO inventory valuation methodology compared to a LIFO methodology, because management uses the information to analyze operating
performance and compare itself against refining peers that are permitted to use LIFO inventory valuation under United States GAAP (U.S. GAAP). 


The
company's estimate is not derived from a standardized calculation and, therefore, may not be directly comparable to similar measures presented by other companies, and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance with GAAP or U.S. GAAP. 









 10. COMMON ABBREVIATIONS


The following is a list of abbreviations that may be used in this MD&A: 



	Measurement
	 	 	 
	bbl	 	barrel
	bbls/d	 	barrels per day
	mbbls/d	 	thousands of barrels per day
	 	 	 
	boe	 	barrels of oil equivalent
	boe/d	 	barrels of oil equivalent per day
	mboe	 	thousands of barrels of oil equivalent
	mboe/d	 	thousands of barrels of oil equivalent per day
	 	 	 
	mcf	 	thousands of cubic feet of natural gas
	mcfe	 	thousands of cubic feet of natural gas equivalent
	mmcf	 	millions of cubic feet of natural gas
	mmcf/d	 	millions of cubic feet of natural gas per day
	mmcfe	 	millions of cubic feet of natural gas equivalent
	mmcfe/d	 	millions of cubic feet of natural gas equivalent per day
	 	 	 
	MW	 	megawatts
	
Places and Currencies
	 	 	 
	U.S.	 	United States
	U.K.	 	United Kingdom
	 	 	 
	$ or Cdn$	 	Canadian dollars
	US$	 	United States dollars
	
Financial and Business Environment
	 	 	 
	Q1	 	Three months ended March 31
	DD&A	 	Depreciation, depletion and amortization
	WTI	 	West Texas Intermediate
	WCS	 	Western Canadian Select
	SCO	 	Synthetic crude oil
	MSW	 	Mixed Sweet Blend
	NYMEX	 	New York Mercantile Exchange










SUNCOR ENERGY INC. 2014 FIRST
QUARTER   





 33









 





  





11. FORWARD-LOOKING INFORMATION


The document contains certain forward-looking information and forward-looking statements (collectively referred to herein as
"forward-looking statements") within the meaning of applicable Canadian and U.S. securities laws. Forward-looking statements and other information is based on Suncor's current expectations,
estimates, projections and assumptions that were made by the company in light of information available at the time the statement was made and consider Suncor's experience and its perception of
historical trends, including expectations and assumptions concerning: the accuracy of reserves and resources estimates; commodity prices and interest and foreign exchange rates; capital efficiencies
and cost-savings; applicable royalty rates and tax laws; future production rates; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of
labour and services; and the receipt, in a timely manner, of regulatory and third-party approvals. In addition, all other statements and other information that address expectations or projections
about the future, and other statements and information about Suncor's strategy for growth, expected and future expenditures or investment decisions, commodity prices, costs, schedules, production
volumes, operating and financial results, future financing and capital activities, and the expected impact of future commitments are forward-looking statements. Some of the forward-looking statements
and information may be identified by words like "expects", "anticipates", "will", "estimates", "plans", "scheduled", "intends", "believes", "projects", "indicates", "could", "focus", "vision", "goal",
"outlook", "proposed", "target", "objective", "continue", "should", "may" and similar expressions.



Forward-looking statements in the document include references to:


The anticipated duration and impact of planned maintenance events, including:


	•
	The company plans to complete the coker maintenance at Upgrader 2 in six weeks;



	•
	The company plans to complete coker maintenance at Upgrader 1 in the third and fourth quarters of 2014;



	•
	The company expects planned maintenance at Oil Sands to be minimal in comparison to previous years, with a focus on sustaining and steadily
improving
upgrader reliability in 2014;



	•
	The company's plans to complete maintenance for Terra Nova, White Rose and Buzzard in the third quarter of 2014. In addition, Buzzard will be
impacted by planned maintenance affecting the third-party pipeline system in the second quarter of 2014;  



	•
	The company plans to complete a maintenance event at the Montreal refinery in the second quarter of 2014 with an expected duration of five
weeks as
well as a nine-week planned maintenance event late in the third quarter of 2014; and



	•
	The company plans to complete a maintenance event at the Edmonton refinery in the second quarter of 2014 with an expected duration of seven
weeks as
well as a four-week planned maintenance event in the third quarter of 2014.



Suncor's expectations about capital expenditures, and growth and other projects, including:


	•
	The company's plans to continue to focus on reliability improvements at its extraction operations and across its full suite of assets to drive
additional value;



	•
	The company's capital allocation plans and its clear set of priorities around same;



	•
	Rail shipments of inland crudes to the company's Montreal refinery are expected to reach capacity of approximately 35,000 bbls/d in the
second
quarter of 2014;



	•
	The anticipated reversal of Enbridge's Line 9 pipeline, combined with increased rail access to the East, is expected to increase the
profitability of the Montreal refinery by increasing the company's flexibility to supply the Montreal refinery with a full slate of inland priced crude in 2015;



	•
	The company expects to commission a water treatment plant at Oil Sands Base in the second quarter of 2014, which is expected to reduce
freshwater
withdrawal, increasing the reuse and recycling of waste water;



	•
	The debottlenecking project at the MacKay River facilities is expected to increase production capacity by approximately 20% by the end of 2015
for a
total capacity of 38,000 bbls/d, with first oil expected in the third quarter of 2014;



	•
	The company expects to continue to work towards a 2014 sanction decision of the MacKay River expansion project, which is targeted to have an
initial
design capacity of approximately 20,000 bbls/d with first oil in 2017;









34   SUNCOR ENERGY
INC. 2014 FIRST QUARTER







 
	•
	The expectation that the Fort Hills project will provide Suncor with approximately 73,000 bbls/d of bitumen, with first oil expected in
the fourth quarter of 2017 and 90% of its planned capacity achieved within twelve months;



	•
	The design and construction of new well pads at Firebag and MacKay River are expected to maintain existing production levels in
future years;



	•
	The Golden Eagle project is expected to achieve first oil in late 2014 or early 2015;



	•
	The Hebron project is expected to achieve first oil in 2017;



	•
	The Hibernia Southern Extension Unit and South White Rose extension project are expected to increase the overall production and extend the
productive
life of the existing fields starting in 2015;



	•
	The South White Rose Extension project is expected to be completed in the third quarter of 2014;



	•
	A sanction decision for further expansion into the West White Rose field is targeted for late 2014; and



	•
	Suncor management believes the company will have the capital resources to fund the remainder of its planned 2014 capital spending program of
$7.8 billion and meet current and future working capital requirements through existing cash balances and short-term investments, cash flow from operations for the remainder of 2014, available
committed credit facilities, issuing commercial paper and/or long-term notes or debentures. If additional capital is required, management believes adequate additional financing will be available in
debt capital markets at commercial terms and rates.



Also:  


	•
	The company's position in respect of the proposal letter received from the CRA relating to the income tax treatment of realized losses in 2007 on the
settlement of certain derivative contracts and that it will be able to successfully defend its original filing position should it receive a Notice of Reassessment;



	•
	The company's belief that it does not have any guarantees or off-balance sheet arrangements that have, or are reasonably likely to have, a
current or
future material effect on the company's financial condition or results of operations, liquidity or capital expenditures;



	•
	The continued intermittent curtailments of natural gas supply are expected to continue throughout the second quarter of 2014, but are not
expected to
have a significant impact on the company; and



	•
	Suncor management believes that a phased and flexible approach to existing and future growth projects should assist the company in maintaining
its
ability to manage project costs and debt levels.



Forward-looking statements and information are not guarantees of future performance and involve a number of risks and uncertainties, some that are similar to other oil and gas
companies and some that are unique to Suncor. Suncor's actual results may differ materially from those expressed or implied by its forward-looking statements, so readers are cautioned not to place
undue reliance on them.


The financial and operating performance of the company's reportable operating segments, specifically Oil Sands, Exploration and Production, and Refining and Marketing, may be
affected by a number of factors.


Factors that affect our Oil Sands segment include, but are not limited to, volatility in the prices for crude oil and other production, and the related impacts of fluctuating
light/heavy and sweet/sour crude oil differentials; changes in the demand for refinery feedstock and diesel fuel, including the possibility that refiners that process our proprietary production will
be closed, experience equipment failure or other accidents; our ability to operate our Oil Sands facilities reliably in order to meet production targets; the output of newly commissioned facilities,
the performance of which may be difficult to predict during initial operations; the possibility that completed maintenance activities may not improve operational performance or the output of related
facilities; our dependence on pipeline capacity and other logistical constraints, which may affect our ability to distribute our products to market; our ability to finance Oil Sands growth and
sustaining capital expenditures; the availability of bitumen feedstock for upgrading operations, which can be negatively affected by poor ore grade quality, unplanned mine equipment and extraction
plant maintenance, tailings storage, and in situ reservoir and equipment performance, or the unavailability of third-party bitumen; inflationary pressures on operating costs, including labour, natural
gas and other energy sources used in oil sands processes; our ability to complete projects, including planned maintenance events, both on time and on budget, which could be impacted by competition
from other projects (including other oil sands projects) for goods and services and demands on infrastructure in Alberta's Wood Buffalo region and the surrounding area (including housing, roads and
schools); risks and uncertainties associated with obtaining regulatory and stakeholder approval for exploration and development activities; changes to royalty and tax  








 SUNCOR ENERGY INC. 2014 FIRST
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 35







 



 legislation and related agreements that could impact our business; the potential for disruptions to operations and construction projects as a result of our relationships with labour unions that
represent employees at our facilities; and changes to environmental regulations or legislation.



Factors that affect our Exploration and Production segment include, but are not limited to, volatility in crude oil and natural gas prices; operational risks and uncertainties
associated with oil and gas activities, including unexpected formations or pressures, premature declines of reservoirs, fires, blow-outs, equipment failures and other accidents, uncontrollable flows
of crude oil, natural gas or well fluids, and pollution and other environmental risks; the possibility that completed maintenance activities may not improve operational performance or the output of
related facilities; adverse weather conditions, which could disrupt output from producing assets or impact drilling programs, resulting in increased costs and/or delays in bringing on new production;
political, economic and socio-economic risks associated with Suncor's foreign operations, including the unpredictability of operating in Libya and that operations in Syria continue to be impacted by
sanctions or political unrest; risks and uncertainties associated with obtaining regulatory and stakeholder approval for exploration and development activities; the potential for disruptions to
operations and construction projects as a result of our relationships with labour unions that represent employees at our facilities; and market demand for mineral rights and producing properties,
potentially leading to losses on disposition or increased property acquisition costs.


Factors that affect our Refining and Marketing segment include, but are not limited to, fluctuations in demand and supply for refined products that impact the company's
margins; market competition, including potential new market entrants; our ability to reliably operate refining and marketing facilities in order to meet production or sales targets; the possibility
that completed maintenance activities may not improve operational performance or the output of related facilities; risks and uncertainties affecting construction or planned maintenance schedules,
including the availability of labour and other impacts of competing projects drawing on the same resources during the same time period; and the potential for disruptions to operations and construction
projects as a result of our relationships with labour unions or employee associations that represent employees at our refineries and distribution facilities.


Additional risks, uncertainties and other factors that could influence the financial and operating performance of all of Suncor's operating segments and activities include, but
are not limited to, changes in general economic, market and business conditions, such as commodity prices, interest rates and currency exchange rates; fluctuations in supply and demand for Suncor's
products; the successful and timely implementation of capital projects, including growth projects and regulatory projects; competitive actions of other companies, including increased competition from
other oil and gas companies or from companies that provide alternative sources of energy; labour and material shortages; actions by government authorities, including the imposition or reassessment of
taxes or changes to fees and royalties, such as Suncor's current disagreement with the Canada Revenue Agency relating to the settlement of certain derivative contracts,
including the risk that Suncor may not be able to successfully defend its original filing position if it is reassessed and ultimately be required to pay increased taxes as a result; changes in
environmental and other regulations; the ability and willingness of parties with whom we have material relationships to perform their obligations to us; outages to third-party infrastructure that
could cause disruptions to production; the occurrence of unexpected events such as fires, equipment failures and other similar events affecting Suncor or other parties whose operations or assets
directly or indirectly affect Suncor; the potential for security breaches of Suncor's information systems by computer hackers or cyberterrorists, and the unavailability or failure of such systems to
perform as anticipated as a result of such breaches; our ability to find new oil and gas reserves that can be developed economically; the accuracy of Suncor's reserves, resources and future production
estimates; market instability affecting Suncor's ability to borrow in the capital debt markets at acceptable rates; maintaining an optimal debt to cash flow ratio; the success of the company's risk
management activities using derivatives and other financial instruments; the cost of compliance with current and future environmental laws; risks and uncertainties associated with closing a
transaction for the purchase or sale of an oil and gas property, including estimates of the final consideration to be paid or received, the ability of counterparties to comply with their obligations
in a timely manner and the receipt of any required regulatory or other third-party approvals outside of Suncor's control that are customary to transactions of this nature; and the accuracy of cost
estimates, some of which are provided at the conceptual or other preliminary stage of projects and prior to commencement or conception of the detailed engineering that is needed to reduce the margin
of error and increase the level of accuracy. The foregoing important factors are not exhaustive.


Many of these risk factors and other assumptions related to Suncor's forward-looking statements and information are discussed in further detail throughout this MD&A, including
under the heading Risk Factors and Forward-Looking Information, and the company's 2013 AIF dated February 28, 2014 and Form 40-F on file with Canadian securities commissions at
www.sedar.com and the United States Securities and Exchange Commission at www.sec.gov. Readers are also referred to the risk factors and assumptions described in other documents that Suncor
files from time to time with securities regulatory authorities. Copies of these documents are available without charge from the company.








 36   SUNCOR ENERGY
INC. 2014 FIRST QUARTER











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