DBRS Comments on Impact of Sanctioning of Fort Hills Project on Suncor

DBRS notes that on October 30, 2013, Suncor Energy Inc. (Suncor or the Company; rated A (low), Stable), together with its joint venture co-owners Total E&P Canada Ltd., a subsidiary of Total S.A. (Total; Commercial Paper rated R-1 (middle), Stable), and Teck Resources Limited (Teck; rated BBB, Stable), announced that it has voted to proceed with the Fort Hills oil sands mining project (the Project). Based on DBRS’s review of the Project and Suncor’s financial profile within the context of the Company’s overall risk profile, the Project is not expected to have a material impact on Suncor’s credit quality. From a financial risk perspective, DBRS expects the Project to have a modest impact on Suncor’s key credit metrics given its strong operating cash flows before non-cash working capital changes ($9.3 billion for the last 12 months ended September 30, 2013) and sufficient cash on its balance sheet ($5.34 billion as at September 30, 2013). From a business risk perspective, although the Project is expected to provide sizable production growth (estimated at approximately 10% at full capacity) for Suncor, challenges include potential cost overruns, delays and negative changes in market fundamentals. However, DBRS expects any significant unforeseen costs or cash shortfalls to be funded in a prudent manner to maintain key credit metrics in line with the rating category.

The Project has an estimated capital investment of $13.5 billion ($5.5 billion net to Suncor) and is expected to represent approximately 15% of Suncor’s capex budget ($7 billion to $8 billion) per year. Suncor owns 40.8% of the Project, while Total and Teck own 39.2% and 20%, respectively. First production from the Project is expected in the fourth quarter of 2017 and will likely reach 90% of its planned production capacity of 180,000 barrels per day within 12 months. At the current planned production rate, the mine life is expected to be over 50 years.

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

The applicable methodology is Rating Companies in the Oil and Gas Industry (July 2013), which can be found on our website under Methodologies.