Mr. Steve Williams reports

SUNCOR ENERGY REPORTS SECOND QUARTER RESULTS

"We continue to generate strong cash flow quarter after quarter," said Steve Williams, Suncor Energy Inc. president and chief executive officer. "In the second quarter, we took advantage of strong upstream pricing to generate $2.4-billion of cash flow from operations. We also reduced our cash operating costs per barrel at oil sands operations by 27 per cent from the second quarter of 2013, thanks to a strong ramp-up of Firebag production and our commitment to cost management."

Financial results

(Unless otherwise noted, all financial figures are unaudited, presented in Canadian dollars and have been prepared in accordance with international financial reporting standards, specifically international accounting standard 34 (interim financial reporting) as issued by the International Accounting Standards Board. Production volumes are presented on a working interest basis, before royalties, unless noted otherwise.)

Suncor delivered solid financial results in the second quarter of 2014, including operating earnings of $1,135-million (77 cents per common share) and cash flow from operations of $2,406-million ($1.64 per common share), compared with $934-million (62 cents per common share) and $2.25-billion ($1.49 per common share), respectively, in the prior-year quarter. Current quarter results were led by increased production at oil sands and strong upstream price realizations, partially offset by lower production volumes in exploration and production, as well as higher share-based compensation expense and natural gas input costs. For the 12 months ended June 30, 2014, free cash flow increased to $3,599-million, compared with $2,167-million for the 12 months ended June 30, 2013.

Net earnings were $211-million (14 cents per common share) for the second quarter of 2014, compared with net earnings of $680-million (45 cents per common share) for the prior-year quarter. Net earnings for the second quarter of 2014 were negatively impacted by after-tax impairment charges of $718-million on the company's interest in the Joslyn mining project, $297-million against the company's Libyan assets and $223-million in oil sands following a review of certain assets that no longer fit with Suncor's previously revised growth strategies and which could not be repurposed or otherwise deployed. These factors were partially offset by after-tax earnings of $32-million related to a reserves redetermination in the exploration and production segment and the impact of an after-tax foreign exchange gain on the revaluation of U.S.-dollar-denominated debt of $282-million, compared with an after-tax foreign exchange loss of $254-million in the prior-year quarter.

Operating results

"Before we outline our operating results, I want to affirm our ongoing commitment to safety," said Mr. Williams. "I am deeply saddened by the fatalities in the first half of the year. Our entire organization is engaged in improving our safety performance. Safety is our No. 1 value and a critical part of operational excellence."

Suncor's current quarterly results continued to benefit from a profitable portfolio comprising nearly 100-per-cent-crude-oil-weighted production, compared with 91 per cent in the prior-year quarter. Suncor's total upstream production was 518,400 barrels of oil equivalent per day in the second quarter of 2014, an increase from 500,100 boe per day in the prior-year quarter, reflecting higher production volumes in oil sands, partially offset by the sale of the conventional natural gas business and negligible production in Libya.

Production volumes for oil sands operations increased to an average of 378,800 barrels per day in the second quarter of 2014, compared with 276,600 bbl per day in the prior-year quarter, primarily due to lower planned and unplanned maintenance in the current-year quarter compared with the prior-year quarter, which included the impacts of the Upgrader 1 turnaround. Production in the current-year quarter included the successful ramp-up of Firebag, following the commissioning of the hot bitumen infrastructure assets in the third quarter of 2013. Production in the current-year quarter further benefited from strong Firebag infill well performance, which was partially offset by planned and unplanned maintenance events in upgrading and extraction, as well as a third party pipeline outage, which decreased takeaway capacity.

Cash operating costs per barrel for oil sands operations decreased in the second quarter of 2014 to an average of $34.10 per bbl, compared with $46.55 per bbl in the prior-year quarter, primarily due to higher production volumes. Total cash operating costs remained consistent with the prior year, despite the increase in production and higher natural gas input costs.

Suncor's share of Syncrude production decreased to 24,300 bbl per day in the second quarter of 2014 from 32,800 bbl per day in the prior-year quarter, due primarily to planned and unplanned coker maintenance.

Production volumes for the exploration and production segment decreased to 115,300 boe per day in the second quarter of 2014, compared with 190,700 boe per day in the prior-year quarter, primarily due to the sale of the company's conventional natural gas business and negligible production in Libya due to continued political unrest.

During the second quarter of 2014, refining and marketing completed a five-week planned maintenance event at the Montreal refinery and a seven-week planned maintenance event at the Edmonton refinery, resulting in a decrease in average refinery utilization to 85 per cent compared with 90 per cent in the prior-year quarter.

Update

The company allocates its capital according to a clear set of priorities: ensuring sustainable and reliable operations, investing in profitable growth, and delivering strong returns to shareholders through dividends and share repurchases. In the second quarter of 2014, Suncor delivered value to shareholders through $338-million in dividends (23 cents per common share) and $271-million in share repurchases, demonstrating the company's continuing commitment to deliver cash to shareholders through dividends and value-driven share repurchases.

Further delivering on this commitment, subsequent to the quarter, Suncor's board of directors approved a quarterly dividend of 28 cents per common share, a 22-per-cent increase over the previous dividend.

"We continue to focus squarely on profitable growth. This means we're disciplined with our capital and invest wisely in high-return projects," said Mr. Williams. "This prudent approach and our cash-generating ability have enabled us to increase our quarterly dividend to shareholders."

Investing in integration and market access

Suncor's solid financial quarter was in part due to further integration and market access initiatives that ramped up in the second quarter of 2014. Refining and marketing increased rail shipments of inland-priced crudes to the Montreal refinery to 36,000 bbl per day in the second quarter of 2014 and continued marine shipments of lower-priced crudes from the U.S. gulf coast to the Montreal refinery when market conditions were favourable. In July, 2014, the company completed the acquisition of a sulphur recovery facility for approximately $120-million that will be integrated into the Montreal refinery operations and is expected to secure the refinery's long-term sulphur recovery needs.

The company also continued to transport crude on TransCanada's gulf coast pipeline, which has provided more than 70,000 bbl per day of increased access to U.S. gulf coast pricing for both light and heavy crudes. The company's integrated model and strong market access position resulted in Suncor capturing global-based pricing on volumes equivalent to nearly 100 per cent of its upstream production in the second quarter of 2014.

Oil sands operations

Suncor continues to focus on investments in its tailings management and water management strategies. As part of the water management strategy, Suncor commissioned a water treatment plant in the second quarter of 2014, which is expected to increase the reuse and recycling of waste water and reduce freshwater withdrawal. During the second quarter of 2014, Suncor, along with five other project partners, also approved the construction of a water technology development centre scheduled to become operational in early 2017. The WTDC will connect to Suncor's Firebag operations, providing an environment to test water treatment and recycling technologies without affecting production at the in situ facility.

The company reached a milestone in the second quarter by achieving first steam on the well pads associated with the MacKay River facility debottleneck project, with first oil expected in the third quarter of 2014. The debottleneck project is intended to increase production capacity by approximately 20 per cent, for total capacity of 38,000 bbl per day by the end of 2015. Suncor also continues to work toward a 2014 sanction decision on the MacKay River expansion project, which is targeted to have an initial design capacity of approximately 20,000 bbl per day. In addition, Suncor continues to advance further debottlenecking initiatives in logistics infrastructure and at the Firebag facilities.

Oil sands ventures

Fort Hills mining project activities continue to focus on detailed engineering, procurement and the ramp-up of field construction activities. Detailed engineering work was approximately 40 per cent complete by the end of the second quarter. Key construction activities during the quarter included foundation concrete pours and commencing with construction of primary extraction separation cells. The project is expected to provide Suncor with approximately 73,000 bbl per day of bitumen, with first oil expected in the fourth quarter of 2017 and reaching 90 per cent of its planned capacity within 12 months thereafter.

In May, 2014, Total E&P Canada Ltd., the operator of the Joslyn mining project, together with Suncor and the other co-owners of the project, agreed to scale back certain development activities to focus on engineering studies to further optimize the project development plan. As a result of Suncor's assessment of expected future net cash flows and the uncertainty of the project, including the timing of the development plans, Suncor recorded an after-tax charge to net earnings of $718-million against its interest in the project. Suncor continues to believe that Joslyn is a quality resource with development potential given the right design and execution strategy and continues to work with Total E&P and the other co-owners to explore ways to further optimize the project development plan.

Exploration and production

A significant milestone was reached at the Golden Eagle project in the second quarter with the successful installation of key offshore facilities. Drilling activities continued in the quarter, and the project remains on track to achieve first oil in late 2014 or early 2015. At the Hebron project, construction of the gravity-based structure and topsides continued in the second quarter of 2014, with the project expected to achieve first oil in 2017. In addition, the company signed a farm-in agreement with Shell Canada to acquire a 20-per-cent interest in a deepwater exploration opportunity in the Shelburne basin, offshore Nova Scotia.

The company has a number of extension projects in east coast Canada, which leverage existing facilities and infrastructure. Following the completion of subsea installation for the Hibernia southern extension unit in 2013, drilling activities continued in the second quarter of 2014. The second phase of the South White Rose extension project continued in the second quarter of 2014. The Hibernia southern extension unit and South White Rose extension projects are expected to increase overall production starting in 2015 and extend the productive life of the existing fields. A financing decision for further development of the Ben Nevis-Avalon reservoir at Hibernia is expected in the third quarter of 2014. A sanction decision for further expansion into the West White Rose field is targeted for late 2014.

Political unrest that impacted the Libyan export terminal operations in the second half of 2013 continued into the first half of 2014. In July, 2014, the last two affected terminals were reopened, and the Libya National Oil Company announced the lifting of force majeure on oil exports from these terminals. However, the region remains volatile, and the timing of oil sales and the company's ability to return to normal production levels remain uncertain. As a result, Suncor recorded an after-tax charge to net earnings of $297-million against its assets in Libya.

                  OPERATING EARNINGS RECONCILIATION
                              ($ millions)

                                     Three months ended      Six months ended
                                           June 30,               June 30,
                                       2014        2013      2014        2013

Net earnings                           $211        $680    $1,696      $1,774
Unrealized foreign exchange
(gain) loss on U.S.-dollar-
denominated debt                       (282)        254        26         400
Impairments                           1,238          --     1,238          --
Reserves redetermination                (32)         --       (32)         --
Net impact of not proceeding
with the Voyageur upgrader
project                                  --          --        --         127
Operating earnings                    1,135         934     2,928       2,301

Corporate guidance

Suncor has updated its 2014 corporate guidance previously issued on April 28, 2014. The key changes to the company's guidance are presented herein.

The outlook for capital expenditures has been lowered from $7.8-billion to $6.8-billion, consistent with the company's continuing commitment to capital discipline. The forecasted capital reduction includes deferred spending on presanction growth projects to optimize project economics, cancellation of sustaining capital projects that are not critical for safe and reliable operations, delays in offshore exploratory drilling programs, and suspension of activities in Libya.

Capital expenditures:

• The range for current income taxes has been adjusted to $2.2-billion to $2.7-billion from $1.7-billion to $2.3-billion, and the range for oil sands Crown royalty rates has been adjusted to 5 per cent to 8 per cent from 4 per cent to 7 per cent, primarily due to observed price realizations for the year to date and assumptions for the second half of 2014.
• Due to observed commodity prices for the year to date, the following commodity price assumptions have been adjusted for the rest of 2014: Brent, Sullom Voe, from $100 (U.S.) per barrel previously to $105 (U.S.) per bbl; West Texas Intermediate crude oil at Cushing from $93 (U.S.) per bbl previously to $98 (U.S.) per bbl; and Western Canadian Select at Hardisty from $70 (U.S.) per bbl previously to $75 (U.S.) per bbl.

For further details and advisories regarding Suncor's 2014 revised corporate guidance, see the company's website.

Normal course issuer bid

Subsequent to June 30, 2014, the Toronto Stock Exchange accepted a notice filed by Suncor of its intention to renew its normal course issuer bid to continue to purchase shares under its previously announced buyback program through the facilities of the TSX, the New York Stock Exchange and/or alternative trading platforms. The notice provides that Suncor may purchase for cancellation up to approximately $1.1-billion worth of its common shares beginning Aug. 5, 2014, and ending Aug. 4, 2015.

The actual number of common shares that may be purchased and the timing of any such purchases will be determined by Suncor. Suncor believes that, depending on the trading price of its common shares and other relevant factors, purchasing its own shares represents an attractive investment opportunity and is in the best interests of the company and its shareholders. Between July 23, 2013, and July 23, 2014, and pursuant to Suncor's previously announced normal course issuer bids, Suncor completed the purchase of approximately $1.7-billion worth of its common shares (44,877,773), at a weighted-average price of $37.85 per common share. As at July 23, 2014, Suncor had 1,465,260,522 common shares issued and outstanding. Pursuant to the NCIB, Suncor has agreed that it will not purchase more than 44,045,388 common shares, which are equal to approximately 3 per cent of Suncor's issued and outstanding common shares.

Subject to the block purchase exemption that is available to Suncor for regular open market purchases under the NCIB, Suncor will limit daily purchases of Suncor common shares on the TSX in connection with the NCIB to no more than 25 per cent (604,298) of the average daily trading volume of Suncor's common shares on the TSX during any trading day. In the future, Suncor may enter into an automatic share purchase plan in relation to purchases made in connection with the NCIB.

Amendments and additions to bylaws, including advance notice

To meet recommended good governance practices, Suncor's board of directors has approved an amendment to Suncor's general operating bylaw to: (i) change the quorum for shareholder meetings to 25 per cent from 10 per cent; and (ii) remove the casting vote previously granted to the chair of director and shareholder meetings.

In addition, the board has approved an advance notice bylaw (bylaw No. 2) for Suncor. Among other things, bylaw No. 2 fixes a deadline by which shareholders must submit a notice of director nominations to Suncor prior to any annual or special meeting of shareholders, where directors are to be elected, and sets forth the information that a shareholder must include in the notice for it to be valid. Advance notice bylaws benefit shareholders by facilitating an orderly and efficient meeting process, ensuring that all shareholders receive adequate notice of director nominations and sufficient information with respect to all nominees. This allows Suncor and shareholders to evaluate each nominee's qualifications and suitability as a director of Suncor so shareholders can cast an informed vote.

The amended bylaw No. 1 and bylaw No. 2 are effective immediately, subject to confirmation and ratification by the shareholders. At the next meeting of shareholders of Suncor, shareholders will be asked to confirm and ratify the amended bylaw No. 1 and bylaw No. 2. The full text of each of the amended bylaw No. 1 and bylaw No. 2 has been filed under Suncor's profile at SEDAR and posted on Suncor's website.

Measurement conversions

Certain crude oil and natural gas liquids volumes in this report to shareholders have been converted to thousand cubic feet equivalent on the basis of one bbl to 6,000 cubic feet. Also, certain natural gas volumes have been converted to boe or thousand boe on the same basis. See the measurement conversions section of management's discussion and analysis.

We seek Safe Harbor.