DBRS Confirms Suncor Energy Inc. at A (low) and R-1 (low), Stable Trends

DBRS has today confirmed the ratings of Suncor Energy Inc. (Suncor or the Company) at A (low) and R-1 (low), with Stable trends. The rating confirmations reflect the Company’s ability to grow its future production while still maintaining slightly above average financial metrics for its current ratings.

Suncor’s business risk profile is considered A (low), supported by its significant production levels (>500,000 barrels of oil equivalent per day (boe/d) (gross)), long reserve life index (approximately 20 years) and integrated operations. In addition, the Company’s financial risk profile is indicative of an “A” credit rating, based on (1) adjusted debt-to-capital (DBRS estimate) of 25% (25% to 35% is required for an “A” rated entity), (2) debt-to-cash flow of 1.22 times (x) (1.0x to 1.5x required) and (3) EBIT interest coverage of 10.68x (10x to 20x required).

DBRS expects Suncor to remain free cash flow positive in 2014 with any excess cash to be used for share buybacks. This is based on capex spending increasing from $6.8 billion in 2013 to $7.8 billion in 2014 to fund production expansion (Fort Hills, Golden Eagle and Hebron primarily), with dividends increasing modestly. As a result, key metrics are expected to remain at or near current levels in 2014.

Suncor’s business risk profile is impacted by its extensive exposure to oil sands and a consequent higher cost of doing business from both an operations and a capital investment perspective compared to its global peers. While the Company is an industry leader in the execution of mega oil sands projects and has a successful track record, the capital-intensive nature of these projects lends itself to cost overruns and project delays, which could strain cash flows during the long gestation periods in reaching first production and subsequent ramp-ups. To help mitigate some of this risk, Suncor has entered into various joint-venture agreements with highly rated companies to diversify its risk in developing these projects. The Company is also focusing on debottlenecking its integrated downstream operations to reduce its exposure to heavy oil differentials and, at the same time, improving its access to U.S. coastal markets.

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

Suncor Energy Inc.’s Commercial Paper and Debentures and Medium-Term Notes are guaranteed by Suncor Energy Oil Sands Limited Partnership (SEOSLP).

PC Financial Partnership’s Senior Notes are guaranteed by Suncor Energy Inc. and SEOSLP.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.