DBRS Comments on Impact of Suncor Energy’s Upgrader Fire

DBRS notes that Suncor Energy Inc. (Suncor or the Company) has completed its assessment and expected repair schedule for portions of an oil sands upgrader (U1) damaged by fire in early February. Repairs are currently underway and the Company expects the upgrader to return to production in early April. During the repair period, Suncor’s second upgrader (U2) is expected to continue normal operations. The scheduled repair is expected to result in the loss of combined production of synthetic crude oil and bitumen sold to the markets estimated by DBRS at approximately 13,000 b/d for 2010, or about 2% of production guidance of 644,000 b/d, before targeted divestitures.

The loss of the use of one of the two oil sands upgraders for a two-month period is expected to negatively affect cash flow as the Company does not expect insurance to play a significant role in mitigating losses from this incident. However, DBRS anticipates that the aforesaid incident will not have a material impact on the Company’s credit and operational metrics based on: the much enlarged and diverse production base after the merger with Petro-Canada in August 2009, the Company’s February 2, 2010 guidance on projected cash operating cost of $35 to $39 per barrel of bitumen production, and current crude oil prices. As this is the second upgrader fire in two months, DBRS expects the Company to step up its effort to rectify the oil sands operational issues. The Company plans to continue with its de-leveraging efforts to reduce net debt from the year-end 2009 level of $13.3 billion to approximately $10 billion by year-end 2010, using largely proceeds from divestitures in order to restore its financial profile within the parameters of the current credit ratings of A (low) and R-1 (low), both with Stable trends. The Company has completed two asset sales totalling approximately $900 million, closing by the end of the first quarter of 2010.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Oil & Gas Companies, which can be found on our website under Methodologies.