OREANDA-NEWS. Unless otherwise noted, all financial figures are unaudited, presented in Canadian dollars (CdnUSD ), 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, Oil Sands cash operating costs, return on capital employed (ROCE), and free cash flow) 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.

"Suncor has built a strong balance sheet in preparation for a lower crude price environment," said Steve Williams, president and chief executive officer. "Our focus on capital discipline has been integral to our financial strength. Most recently, we finished the year USD 300 million below our revised 2014 capital guidance of USD 6.8 billion, and we followed that up with an announcement to reduce our 2015 capital program by USD 1 billion in response to lower crude oil pricing. We have demonstrated our ability to spend within our means and plan on doing so through this downturn."

Operating earnings of USD 386 million (USD 0.27 per common share) and net earnings of USD 84 million (USD 0.06 per common share).

Cash flow from operations of USD 1.492 billion (USD 1.03 per common share).

Continued focus on operational discipline and cost management enabled Oil Sands operations to decrease its cash operating costs per barrel to USD 34.45 for the quarter as compared to USD 36.85 in the prior year quarter.

Record Firebag production during the fourth quarter, with production levels above nameplate capacity of 180,000 barrels per day (bbls/d).

Achieved first oil at the Golden Eagle project in the U.K. North Sea, which is anticipated to ramp up to its peak production rate of approximately 18,000 barrels of oil equivalent per day (boe/d) (net) during 2015.

Outlook for 2015 capital expenditures reduced by USD 1 billion to USD 6.2 to USD 6.8 billion, in addition to operating cost reduction targets in response to a lower crude price environment.

Successful issuance of USD 750 million of U.S. dollar debt and USD 750 million of Canadian dollar debt, further improving the company's liquidity and better positioning Suncor during the price downturn.

Financial Results

Suncor Energy Inc. recorded fourth quarter 2014 operating earnings of USD 386 million (USD 0.27 per common share) and cash flow from operations of USD 1.492 billion (USD 1.03 per common share), compared to USD 973 million (USD 0.66 per common share) and USD 2.350 billion (USD 1.58 per common share), respectively, in the prior year quarter, reflecting a significantly lower crude price environment. Highlights of the fourth quarter included record Firebag production and high refinery utilization at Refining and Marketing despite planned maintenance. The decrease in operating earnings and cash flow from operations from the prior year quarter was driven by significantly lower upstream benchmark prices and a less favourable downstream business environment, partially offset by favourable foreign exchange rates. The decrease was also due to lower production volumes at Oil Sands Base operations, partially offset by higher Oil Sands In Situ production, higher production in Exploration and Production, due in part to the temporary ramp up of production in Libya, which has since been substantially shut in by the end of the fourth quarter and a recovery in share-based compensation expense.

For the twelve months ended December 31, 2014, free cash flow decreased to USD 2.097 billion, compared to USD 2.635 billion for the twelve months ended December 31, 2013.

Net earnings were USD 84 million (USD 0.06 per common share) for the fourth quarter of 2014, compared with net earnings of USD 443 million (USD 0.30 per common share) for the prior year quarter. Net earnings for the fourth quarter of 2014 were impacted by the same factors that influenced operating earnings described above and also included the impact of an after-tax foreign exchange loss on the revaluation of U.S. dollar denominated debt of USD 302 million, compared to an after-tax foreign exchange loss of USD 259 million in the prior year quarter. In comparison, net earnings for the fourth quarter of 2013 included after-tax impairment charges, net of related provisions, of USD 340 million against assets in Exploration and Production and an after-tax recovery of USD 69 million related to the decision to not proceed with the Voyageur upgrader project.

Operating Results

Suncor's total upstream production was 557,600 boe/d in the fourth quarter of 2014, consistent with 558,100 boe/d in the prior year quarter, as increased maintenance in Oil Sands operations was offset by higher production in Exploration and Production.

Oil Sands operations production was 384,200 bbls/d in the fourth quarter of 2014, a decrease from 409,600 bbls/d in the prior year quarter, primarily due to unplanned maintenance at Upgrader 2, partially offset by record production of 182,200 bbls/d at Firebag.

Cash operating costs per barrel for Oil Sands operations decreased in the fourth quarter of 2014 to an average of USD 34.45/bbl, compared to USD 36.85/bbl in the prior year quarter due to lower cash operating costs in mining operations and maintenance activities, partially offset by higher natural gas input costs relative to the prior year quarter.

"Our continued dedication to cost management is delivering results. We reduced cash operating costs per barrel to USD 34.45 in the fourth quarter of 2014 despite higher natural gas input costs," said Williams. "We will continue to execute on our cost management strategies and, as reflected in our 2015 guidance, anticipate a further reduction of Oil Sands cash operating costs per barrel."

Suncor's share of Syncrude production decreased to 35,100 bbls/d in the fourth quarter of 2014 from 36,900 bbls/d in the prior year quarter, primarily due to unplanned maintenance.

Production volumes in Exploration and Production increased to 138,300 boe/d in the fourth quarter of 2014, compared to 111,600 boe/d in the prior year quarter, primarily due to temporary production from Libya and higher production at Terra Nova as a result of a ten-week off-station maintenance program in the fourth quarter of 2013. Production in Libya temporarily ramped up in the fourth quarter; however, further political unrest in December resulted in the Libya National Oil Company declaring force majeure on oil exports from two terminals, resulting in the company having to substantially shut in its operations by the end of the fourth quarter. The timing of a return to normal production levels remains uncertain.

During the fourth quarter of 2014, Refining and Marketing completed planned maintenance at the Montreal, Sarnia and Edmonton refineries. Average refinery utilization remained strong at 95%, despite this maintenance in the fourth quarter, compared to 91% in the prior year quarter. Modifications to the hydrocracking unit at the Montreal refinery were also completed in the quarter, which is expected to improve overall refinery yields.

Strategy Update

The current lower crude pricing environment has underscored the importance of our focus on capital discipline, operational excellence and long-term profitable growth. The company has reduced its 2015 guidance by USD 1 billion in its capital spending program to USD 6.2 to USD 6.8 billion, as well as implemented plans to reduce operating expenses by USD 600 million to USD 800 million over two years. As a result, Suncor will defer some projects that have not been sanctioned, without impacting projects critical to the company's continued safety, reliability and environmental performance. Suncor's strong balance sheet has positioned the company to move forward on both the Fort Hills and Hebron projects as planned, allowing the company to take advantage of the current economic environment. These projects are expected to produce first oil in 2017.

"Our commitment to capital discipline has put us in a better position to weather the price downturn," said Williams. "These efforts will also allow us to continue to advance long-life growth projects such as Fort Hills and Hebron."

In the fourth quarter of 2014, Suncor continued to deliver value to shareholders through USD 405 million in dividends (USD 0.28 per common share) and USD 493 million in share repurchases. Further repurchases have been suspended in response to the lower crude price environment.

Investing in Integration and Market Access

Suncor continued to focus on market access to optimize the company's value chain and increase the company's flexibility to take advantage of fluctuating market prices. Investments made during the quarter included increasing storage capacity near the U.S. Gulf Coast. During the fourth quarter, the company completed its first marine shipment of crude oil to the U.S. Gulf Coast and continued to transport inland crudes by rail to the Montreal refinery.

The company's integrated model and strong market access position resulted in Suncor capturing global-based pricing on volumes equivalent to 98% of its upstream production in the fourth quarter of 2014.

Oil Sands Operations

In the fourth quarter of 2014, Suncor completed planned coker maintenance at Upgrader 1 and further well pad development associated with the MacKay River facility debottleneck project as it continues to ramp up. A sanction decision on the MacKay River expansion project has been deferred as a result of the current lower crude price environment.

The 2015 capital budget in Oil Sands operations will be directed to projects focused on safety, environmental and reliability performance. The projects include reliability initiatives that improve the efficiencies of existing operations, in addition to planned maintenance and well pad start-up.

Oil Sands Ventures

Suncor has allocated approximately USD 1.6 billion of its revised 2015 capital budget to the Fort Hills mining project. Project activities in 2015 are expected to focus on completion of detailed engineering and continued ramp up of procurement and construction across all areas.

All critical milestones set for 2014 have been achieved on the Fort Hills mining project. In the fourth quarter of 2014, project activities remained focused on detailed engineering, procurement and field construction activities. The majority of long-lead procurement orders have been placed and fabrication is progressing as planned with components starting to be delivered to site. Detailed engineering activities were approximately 65% complete by the end of the fourth quarter. The project is expected to deliver approximately 73,000 bbls/d of bitumen to Suncor's operations, with first oil expected in the fourth quarter of 2017 and 90% of its planned capacity being reached within twelve months thereafter.

Exploration and Production

Suncor has allocated nearly half of its 2015 growth capital budget towards advancing projects within Exploration and Production. The growth capital is concentrated on the Hebron, Golden Eagle and East Coast Canada extension projects. The company will continue to evaluate exploration opportunities in East Coast Canada, Norway and the U.K. as part of its long-term growth strategy.

The Golden Eagle project achieved first oil in late October ahead of schedule and is anticipated to ramp up to its peak production rate of approximately 18,000 boe/d (net) during 2015 as development drilling activities continue. The Hebron project remains on target for first oil in 2017 with the continuation of construction of the gravity-based structure and topsides in the fourth quarter of 2014 and into 2015.

The company has multiple field extension projects underway which leverage existing facilities and infrastructure. The Hibernia South Extension Unit (HSEU) project commenced water injection in the fourth quarter of 2014 with production expected to ramp up in the last half of 2015. Following the completion of subsea facilities for the South White Rose Extension (SWRX) project, drilling is expected to continue in 2015 with first oil anticipated in the second quarter of 2015. The HSEU and SWRX projects are expected to provide incremental production and extend the productive life of the existing fields. The co-owners of the White Rose Extension Project (WREP) have agreed to defer the project sanction decision in light of the current lower crude price environment.

During the fourth quarter, Suncor was a successful joint bidder for exploration licences off the east coast of Newfoundland. The successful bid comes with a commitment on exploration spending over the next six to nine years, with no significant spend planned in 2015.