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

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the Debentures and Medium-Term Notes rating of Suncor Energy Inc. (Suncor or the Company) at A (low) and the Company’s Commercial Paper rating at R-1 (low). All trends are Stable. The ratings confirmation is reflective of Suncor’s highly integrated business model, which is benefiting from the improving market access for its growing oil sands production and is supported by a conservatively managed balance sheet.

Suncor’s business risk profile continues to be underpinned by its strong track record in steadily increasing its long-life oil sands production (33% increase since 2010) from both its mature mining and large in-situ projects. Its strong joint-venture partnership with Total S.A. lends additional support in mitigating the operational and financial risk in the development of highly complex oil sands projects. In addition, Suncor’s highly integrated and increasingly flexible downstream operations remain a stabilizing factor for the Company in periods of elevated price volatility.

Suncor continues to maintain a strong balance sheet, with all key credit metrics remaining within the minimum benchmarks for its current rating category. The Company’s move to low decline and long-life assets through significantly higher capital investment (capex) in the last three to four years has been funded by internally generated cash flows, while the Company maintains a healthy minimum cash balance. Any excess cash flow after funding the large capex program and proceeds from non-core conventional asset sales have primarily been used to fund share buybacks and steadily increasing dividends.

Since Suncor does not actively hedge its production, the current downturn in crude oil prices is likely to adversely affect the free cash flow generation of the Company. However, DBRS expects this impact to be largely offset by (1) tighter light-heavy differentials, (2) a weaker Canadian dollar, (3) natural hedge provided by Suncor’s downstream operations and (4) the flexibility in the Exploration and Production segment’s capex spend (approximately 25% of capex). DBRS also expects Suncor to continue to maintain fiscal discipline and maintain a healthy cash flow buffer in case the price downturn is prolonged. Overall, DBRS does not expect any material weakness in Suncor’s financial risk profile in the near term.

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 methodologies are Rating Companies in the Oil and Gas Industry and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on our website under Methodologies.

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