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. 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, free cash flow, Oil Sands cash operating costs, and return on capital employed (ROCE)) are not prescribed by Canadian generally accepted accounting principles (GAAP). See the Non-GAAP Financial Measures section of this news release. References to Oil Sands operations, production and cash operating costs exclude Suncor's interest in Syncrude's operations.

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

• Operating earnings of USD 1.135 billion (USD 0.77 per common share) and net earnings of USD 211 million (USD 0.14 per common share). Net earnings included after-tax impairment charges of USD 718 million against the company's interest in the Joslyn mining project, USD 297 million against the company's Libyan assets, and USD 223 million related to other Oil Sands assets.

• Quarterly cash flow from operations of USD 2.406 billion (USD 1.64 per common share), and a 66% increase in free cash flow to USD 3.599 billion for the twelve months ended June 30, 2014, over the prior year period.

• Increased production at Firebag, combined with the company's continued focus on cost management, enabled Suncor to achieve cash operating costs per barrel of USD 34.10 for Oil Sands operations.

• Decision made to scale back certain development activities at the Joslyn mining project, reinforcing Suncor's disciplined approach to capital allocation and commitment to driving higher returns.

• Outlook for 2014 capital expenditures reduced to USD 6.8 billion from USD 7.8 billion, demonstrating Suncor's ongoing commitment to capital discipline.

• Suncor's Board of Directors has approved a dividend of USD 0.28 per common share, a 22% increase over the previous quarter dividend, reinforcing the company's commitment and ability to return cash to shareholders.

Financial Results

Suncor Energy Inc. delivered solid financial results in the second quarter of 2014, including operating earnings of USD 1.135 billion (USD 0.77 per common share) and cash flow from operations of USD 2.406 billion (USD 1.64 per common share), compared to USD 934 million (USD 0.62 per common share) and USD 2.250 billion (USD 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 twelve months ended June 30, 2014, free cash flow increased to USD 3.599 billion, compared to USD 2.167 billion for the twelve months ended June 30, 2013.

Net earnings were USD 211 million (USD 0.14 per common share) for the second quarter of 2014, compared with net earnings of USD 680 million (USD 0.45 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 USD 718 million on the company's interest in the Joslyn mining project, USD 297 million against the company's Libyan assets, and USD 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 USD 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 USD 282 million, compared to an after-tax foreign exchange loss of USD 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 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 number one value and a critical part of operational excellence."

Suncor's current quarterly results continued to benefit from a profitable portfolio comprising nearly 100% crude-oil weighted production, compared to 91% in the prior year quarter. Suncor's total upstream production was 518,400 barrels of oil equivalent per day (boe/d) in the second quarter of 2014, an increase from 500,100 boe/d 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 (bbls/d) in the second quarter of 2014, compared to 276,600 bbls/d in the prior year quarter, primarily due to lower planned and unplanned maintenance in the current year quarter compared to 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 USD 34.10/bbl, compared to USD 46.55/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 bbls/d in the second quarter of 2014 from 32,800 bbls/d 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/d in the second quarter of 2014, compared to 190,700 boe/d 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 successfully 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% compared to 90% in the prior year quarter.

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. In the second quarter of 2014, Suncor delivered value to shareholders through USD 338 million in dividends (USD 0.23 per common share) and USD 271 million in share repurchases, demonstrating the company's ongoing 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 USD 0.28 per common share, a 22% 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 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 bbls/d 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 USD 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 bbls/d 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% 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 (WTDC) 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%, for total capacity of 38,000 bbls/d by the end of 2015. Suncor also continues to work towards a 2014 sanction decision on the MacKay River expansion project, which is targeted to have an initial design capacity of approximately 20,000 bbls/d. 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% 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 bbls/d of bitumen, with first oil expected in the fourth quarter of 2017 and reaching 90% of its planned capacity within twelve months thereafter.

In May 2014, Total E&P Canada Ltd. (Total E&P), 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 in order to focus on engineering studies to further optimize the project development plan. As a result of Suncor's assessment of expected future net cashflows and the uncertainty of the project, including the timing of the development plans, Suncor recorded an after-tax charge to net earnings of USD 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% 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 funding 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 remains uncertain. As a result, Suncor recorded an after-tax charge to net earnings of USD 297 million against its assets in Libya.