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

DBRS Limited (DBRS) confirmed the Issuer Rating and Debentures and Medium-Term Notes rating of Suncor Energy Inc. (Suncor or the Company) at A (low) and Suncor’s Commercial Paper rating at R-1 (low), all with Stable trends. Furthermore, the Senior Notes rating of PC Financial Partnership was confirmed at A (low) with a Stable trend. DBRS notes that PC Financial Partnership was amalgamated with Suncor in late 2014; however, the Senior Notes continue to remain outstanding. Suncor Energy Oil Sands Limited Partnership (SEOSLP) holds the majority of Suncor’s interests in its oil sands assets and is indirectly a wholly owned subsidiary of the Company. Since the Commercial Paper and Debentures and Medium-Term Notes of Suncor are guaranteed by SEOSLP and the Senior Notes issued by PC Financial Partnership are guaranteed by both the Company and SEOSLP, DBRS evaluates the credit quality of all ratings for Suncor on a consolidated basis.

The rating confirmations reflect the Company’s size; highly integrated business model; long-life, low-decline oil sands assets; and capital and operational flexibility. DBRS highlights that the Company’s capital flexibility has improved considerably with the recent completion and commencement of the Fort Hills oil sands mining project and the Hebron oil development located offshore Newfoundland. Also, operational flexibility has been enhanced as a result of the Company’s continued efforts to reduce costs and improve the level of reliability at its key oil sands operations.

The Company’s financial profile has strengthened along with the recovering oil prices, higher production levels and lower unit costs. In 2017, the Company generated a free cash flow surplus (cash flow after dividends and capital expenditures (capex)) of close to $0.5 billion, the first such surplus since 2014. Consequently, the Company’s key credit metrics have recovered materially. Suncor’s lease-adjusted debt-to-cash flow ratio in 2017 improved to 1.80 times (x) from 3.06x in 2016 and the net debt-to-cash flow ratio improved to 1.41x from 2.41x. However, the lease-adjusted debt-to-cash flow ratio remains outside the “A” range. Based on the Company’s planned capex program of $4.5 billion to $5.0 billion in 2018 and a West Texas Intermediate oil price estimate of USD 55/barrel, DBRS anticipates that the Company should be able to produce a free cash flow surplus this year in excess of $1.0 billion. DBRS notes the Company plans to employ the surplus to pay for acquisitions ($1.05 billion announced year to date), fund a share buyback program, and reduce indebtedness. With continued oil price support, higher production volumes and improving unit costs, DBRS anticipates the Company’s financial profile in 2018 and 2019 improving further to support the Company’s A (low) ratings. The ratings also account for Suncor’s favourable liquidity profile ($2.7 billion of cash plus $4.5 billion of available credit facilities as at December 31, 2017).

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

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 under Related Documents or by contacting us at info@dbrs.com.

The Commercial Paper and Debentures and Medium-Term Notes are guaranteed by SEOSLP, and PC Financial Partnership’s Senior Notes are guaranteed by Suncor and SEOSLP.

The principal methodologies are Rating Companies in the Oil and Gas and Oilfield Services Industries (August 2017), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (March 2017) and DBRS Criteria: Guarantees and Other Forms of Support (January 2018), which can be found on www.dbrs.com under Methodologies.

The rated entity and its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity and its related entities in connection with the rating action

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.