OREANDA-NEWS. Unless otherwise noted, all financial figures are unaudited, presented in Canadian dollars (CAD), and have been prepared in accordance with International Financial Reporting Standards (IFRS), specifically International Accounting Standard (IAS) 34 Interim Financial Reporting as issued by the International Accounting Standards Board. Effective January 1, 2013, Suncor adopted new and amended accounting standards, described in the Other Items section of Suncor's Management's Discussion and Analysis dated July 31, 2013 (the MD&A). Comparative figures presented in this news release pertaining to Suncor's 2012 results have been restated in accordance with the respective transitional provisions of the new and amended standards. Production volumes are presented on a working-interest basis, before royalties, unless noted otherwise. Certain financial measures referred to in this document (operating earnings, cash flow from operations, return on capital employed (ROCE) and Oil Sands cash operating costs) are not prescribed by Canadian generally accepted accounting principles (GAAP). References to Oil Sands operations exclude Suncor's interest in Syncrude.

"Suncor's integrated model enabled the company to generate solid cash flow from operations once again this quarter," said Steve Williams, president and chief executive officer. "I am proud of our team's success in safely completing a series of coordinated planned maintenance events across our operations and delivering a number of projects to increase both our takeaway capacity and market access. These activities have added strength and flexibility to our asset base, which leaves us well positioned for strong results going forward."

• Operating earnings of CAD 934 million (CAD 0.62 per common share) and net earnings of CAD 680 million (CAD 0.45 per common share).

• Cash flow from operations of CAD 2.250 billion (CAD 1.49 per common share).

• Quarterly production of 276,600 barrels per day (bbls/d) in Oil Sands operations, reflecting the impacts of the Upgrader 1 turnaround and unplanned third-party outages in the quarter.

• Completion of maintenance events at Upgrader 1, Firebag and the Edmonton refinery, which were planned and executed to minimize the impact on Suncor's integrated operations. The company has transitioned to a five-year upgrader turnaround cycle at Oil Sands and anticipates the next major turnaround to occur in 2016 at Upgrader 2.

• Excellent progress on increasing takeaway capacity out of the Fort McMurray region and securing market access to global prices for both current production and future growth.

Financial Results

Suncor Energy Inc. recorded second quarter 2013 operating earnings of CAD 934 million (CAD 0.62 per common share), compared to CAD 1.249 billion (CAD 0.80 per common share) for the second quarter of 2012. Operating earnings were impacted by planned maintenance events in Oil Sands and Refining and Marketing, and additional production constraints in Oil Sands due to unplanned third-party outages, including the precautionary shutdown of third-party pipelines in response to flooding in northern Alberta. Other factors include incremental operating costs associated with the company's growing production assets, which were offset by an increase in price realizations across all crude baskets in Oil Sands due to narrowing price differentials on western Canadian crude oil.

Cash flow from operations was CAD 2.250 billion (CAD 1.49 per common share) for the second quarter of 2013, compared to CAD 2.347 billion (CAD 1.51 per common share) for the second quarter of 2012, and decreased primarily due to the same factors that impacted operating earnings, discussed above.

Net earnings were CAD 680 million (CAD 0.45 per common share) for the second quarter of 2013, compared with net earnings of CAD 324 million (CAD 0.21 per common share) for the second quarter of 2012, and were impacted by the same factors that affected operating earnings. Second quarter 2012 net earnings also included an after-tax impairment charge on the company's Syrian assets of CAD 694 million, partially offset by a smaller foreign exchange loss on the revaluation of U.S. dollar denominated debt in the second quarter of 2012. ROCE (excluding major projects in progress) for the twelve months ended June 30, 2013 was 8.1%, compared to 14.2% for the twelve months ended June 30, 2012. ROCE for the twelve months ended June 30, 2013 was reduced by 4.4% due to an after-tax impairment charge of CAD 1.487 billion relating to the Voyageur upgrader project recorded in the fourth quarter of 2012, in addition to an after-tax charge of CAD 127 million in the first quarter of 2013 as a result of not proceeding with the project.

Operating Results

Suncor's total upstream production was 500,100 boe/d in the second quarter of 2013, compared to 542,400 boe/d in the second quarter of 2012.

Production volumes for Oil Sands operations averaged 276,600 bbls/d in the second quarter of 2013, compared to 309,200 bbls/d in the prior year quarter. Production was impacted by the seven-week planned turnaround at Upgrader 1 and unplanned third-party outages. Third-party outages reduced production in the quarter by approximately 36,000 bbls/d. A third-party cogeneration outage in early May resulted in a three-day outage of Upgrader 2 and a subsequent ramp-up period, which limited the production of Synthetic crude oil (SCO) and constrained diluent availability for blending with bitumen production until early June. In late June, a precautionary shutdown of third-party pipelines in response to flooding in northern Alberta further reduced production. Suncor worked to mitigate the impact using existing storage capacity and continuing to transport product on its proprietary pipeline.

"Following these events, production at our Oil Sands operations has been restored, and we are currently seeing strong performance," said Williams. "Production levels today reflect reliability improvements from the Upgrader 1 turnaround and the progress we have made on increasing takeaway capacity, including the completion of hot bitumen infrastructure and securing additional storage and pipeline capacity to enable diluent imports."

Consistent with the company's expectations, cash operating costs per barrel for Oil Sands operations increased in the second quarter of 2013. The increase to CAD 46.55 per barrel, compared to CAD 39.00 per barrel in the second quarter of 2012, was due primarily to lower production volumes and an increase in total cash operating costs. Total cash operating costs increased over the prior year quarter due to incremental costs associated with larger operations, higher natural gas prices and higher maintenance activities in mining, partially offset by the net benefit of increased power sales and lower contract mining costs associated with reduced mining output.

Suncor's share of Syncrude production increased to 32,800 bbls/d in the second quarter of 2013 from 28,600 bbls/d in the second quarter of 2012. The increase in production in the second quarter of 2013 was primarily due to a two-month planned maintenance event in the second quarter of 2012. The current quarter was impacted by unplanned boiler outages that required a shutdown of one of three cokers. Consequently, the decision was made to advance the eight-week planned maintenance event of the coker to early June from its scheduled time in the latter half of 2013.

The Exploration and Production segment contributed 190,700 boe/d of production in the second quarter of 2013, compared to 204,600 boe/d in the same period of 2012. The decrease in production was primarily due to lower production in Libya, partially offset by higher production at White Rose and Terra Nova due to planned off-station maintenance programs in the prior year quarter. Production in Libya returned to normal rates in July after a field was shut-in throughout the second quarter of 2013 to facilitate the establishment of field security. In late July, labour issues started to impact terminal operations that may reduce production and liftings in the third quarter of 2013. Suncor continues to monitor its production and exploration activity as the country continues to go through a difficult transition towards a more stable environment. Operating safely in Libya remains Suncor's primary concern. During the quarter, a routine inspection of the Terra Nova facility indicated that one of nine mooring chains was damaged. Consequently, the company has extended the previously planned four-week maintenance event to 11 weeks in order to repair the mooring chain and perform preventive maintenance on the remaining eight chains. There will be no production from Terra Nova during this maintenance period, which is expected to commence in September.

In the company's Refining and Marketing segment, total refinery crude throughput averaged 414,500 bbls/d during the second quarter of 2013, compared to 427,200 bbls/d in the second quarter of 2012, resulting in average refinery utilization of 90% and 94%, respectively. The decrease in refinery utilization was due primarily to lower utilization at the Edmonton refinery, partially offset by stronger utilizations across all other refineries. At the Edmonton refinery, the company completed a four-week planned maintenance event of the heavy sour crude train and unplanned maintenance of the main flare gas line. All maintenance at the Edmonton refinery was completed by the end of May.

Strategy 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. Suncor continued to deliver value to shareholders through CAD 302 million in dividends (CAD 0.20 per common share) and share repurchases of CAD 294 million in the second quarter of 2013.

Investing in Integration and Market Access

Suncor's integrated model has enabled the company to capture Brent-based pricing on the majority of its Oil Sands production through its refining operations. As Suncor's upstream production continues to grow, enhancing integration within the company's operations and securing market access are key to operational flexibility and maximizing profitability.

Suncor continues activities to increase market access into Canadian and United States coastal markets. The company expects to start shipping on the Keystone South pipeline by early 2014, which will transport heavy crude to the U.S. Gulf Coast. During the quarter, the company made substantial progress on projects to transport inland crudes to the company's Montreal refinery by the end of 2013.

"With more than 600,000 bbls/d of existing and planned transportation capacity, we're strategically positioned to capture global prices on both our current production and future growth," said Williams. "We're largely sheltered from market access challenges confronting our industry due to our integrated model, augmented by the transportation arrangements we've made and the infrastructure developments we've progressed. The result - we have considerable operational flexibility, which allows us to capitalize on market opportunities as they arise."

Oil Sands Operations

Investing in reliable and sustainable operations remains a priority. During the quarter, the company completed its planned seven-week turnaround of Upgrader 1, which is expected to improve reliability and contribute to the company's overall upgrader performance targets. The company also completed the 14-week planned maintenance of the Upgrader 1 hydrogen plant and hydrotreating units. A four- to five-week planned maintenance event of the Upgrader 2 vacuum tower is scheduled for the third quarter of 2013. The progress the company has made on operational excellence has allowed Suncor to transition to a five-year upgrader turnaround cycle, with the next major turnaround anticipated to occur in 2016 at Upgrader 2.

The company continues to advance projects that are focused on discrete growth through low-cost investments in optimizing existing assets, including debottlenecking projects across Oil Sands base and in situ assets, and expansions in In Situ. Collectively, these projects are expected to contribute approximately 100,000 bbls/d of incremental production over the next five years. One of the early projects is expected to increase the production capacity of the company's MacKay River facility by approximately 20% over the next two years for a total capacity of 38,000 bbls/d. In further support of this strategy, the company continued to work towards a 2014 sanction decision of the MacKay River expansion project, which is expected to have a design capacity of approximately 20,000 bbls/d and first oil production in 2017.

Suncor made excellent progress on increasing takeaway capacity through the completion of hot bitumen infrastructure, including the insulated bitumen pipeline from Firebag to Suncor's Athabasca terminal and the associated cooling and blending facilities. The company also secured pipeline and storage capacity to import up to 20,000 bbls/d of diluent. These assets were placed into service in July, enabling the continued ramp up of Firebag and the transportation of increased volumes of bitumen out of the Fort McMurray region. The completion of these assets has unlocked constrained production capacity, provided greater operating flexibility and is expected to optimize the company's sales mix going forward.

Oil Sands Ventures

The company plans to present the Fort Hills project for a sanction decision to project co-owners in the fourth quarter of 2013. Capital expenditures in the second quarter of 2013 continued to focus on design engineering, site preparation and early activity related to long-lead items. Regarding the Joslyn mining area, Suncor and the project co-owners continue to focus on design engineering and regulatory work of the Joslyn mining area and plan to provide an update on the targeted timing for a sanction decision on the project when available.

Exploration and Production

On April 15, 2013, Suncor announced it had reached an agreement to sell a significant portion of its natural gas business in Western Canada for CAD 1 billion, subject to closing adjustments on an economic basis, with an effective date of January 1, 2013. The transaction is expected to close during the third quarter of 2013 and is subject to closing conditions and regulatory approvals. The company expects to recognize a gain upon close of this transaction. Production from these assets was 43,000 boe/d in the second quarter of 2013, of which 90% was natural gas. Net earnings and cash flow from operations for the second quarter of 2013 from these assets was approximately CAD 26 million and CAD 33 million, respectively. Excluded from the sale are the majority of Suncor's unconventional natural gas properties in the Kobes region of British Columbia and unconventional oil assets in the Wilson Creek area of central Alberta.

The Golden Eagle project reached a major milestone in the quarter with the installation of the wellhead jacket into the field location. Design completion was achieved for topsides and subsea facilities, and the project is on target to reach first oil in late 2014 or early 2015. Detailed engineering and construction of the gravity-based structure continued and topsides fabrication began for the Hebron project in the second quarter of 2013; the project is expected to achieve first oil in 2017. Detailed engineering and procurement activities continued for the Hibernia Southern Extension and the South White Rose Extension projects.