JRE300 Assignment 1

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University of Toronto *

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300

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Finance

Date

Jan 9, 2024

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JRE300H1S– Foundations of Accounting and Finance –Project Part I First Name Mohammad Hasan Last Name Zahir Student # 1008994199 Section: 101 First Name Affan Last Name Amir Student # 1008909585 Section: 101 First Name Valeria Last Name Gordillo del Cid Student # 1009559906 Section: 101 First Name Last Name Student # Section: Project part 1:

A: I. Suncor Energy Inc. (referred to as “Suncor” within this report) is a Canadian integrated (value chain-wide) Oil and Gas company that provides energy through oil refinement. The business primarily deals with the extraction, refinement, production, and development of Canadian Oil Sands, inclined towards the Canadian southwest and based in Calgary, Alberta. (SUNCOR ENERGY Inc, 2023,p17) Additional operations include offshore oil and gas ventures and using their nationwide wholesale distribution network, incorporating Canada’s Electric Highway TM and Petro-Canada TM . Suncor’s main business activities come from the purchasing and selling of natural gas and production-related by-products. Suncor is a publicly traded company (symbol: SU) listed on both the New York Stock Exchange and the Toronto Stock Exchange. (SUNCOR ENERGY Inc, 2023, p17) II. Suncor is Canada’s largest integrated oil and gas company and maintains prominence by being the fifth-largest North American Energy Company. Its corporate and business strategy focuses on the optimization of existing large-scale, small-scale, and industry-specific production assets as well as its position within the industry itself. It leverages its large portfolio in both the extraction and refinement sectors as well as its large stake in commercialized distribution networks. The company establishes itself in the secure, long-running oil and gas sector with dedicated and trusted revenue channels. Additionally, it focuses on both high-return investments that maximize long-term sustainable capitalization including hydrogen-based energy production and other renewable fuels in its slow transition towards net-zero greenhouse gasses by 2050. (SUNCOR ENERGY Inc, 2023, p 18) Suncor’s customer base includes a mid-to-large range of commercial and industrial consumers. Its integrated whole distribution network affords it a long reach over market share as a leading competitor in the consumer-level front-facing diesel and fuel-selling business. Suncor primarily focuses on large-scale project-specific goods supplies as asset procurement and general value chain processes are internally maintained. Primary suppliers provide industrial metal and stainless steel equipment including wiring from companies like Posco, Ningbo Metals & Wire Rope Fittings, and Nation Long Industries Co,.Ltd among others based in Europe and Asia. (S&P Global, n,d) Famous market competitors include other large stakeholders in the Oil and Gas business including Enbridge Inc., Imperial Oil Ltd., Canadian Natural Resources Ltd., and others. (Chaudry, 2022) These companies own both value-chain-wide monopolies and large sectors of national and international business. A noticeable change mentioned within the annual report important to investors is a $70 million non-cash impairment charge in its Norwegian assets due to a long-term signing contract in addition to a $3.397 billion non-cash impairment held against its subsidiary Fort Hills’ assets within the Oil Sands sector. (SUNCOR ENERGY Inc, 2023, p 21) III. From net earnings information within the annual report, non-cash impairments on long-term and high-risk investments lead to greater net loss and a poor reflection on investment practices within the business. This may lead to a reduction in general goodwill, possibly reflecting common share prices. They are susceptible to industry-wide issues including financial risks due to volatile pricing ranges and oil’s inherent sensitivity to prospective trends in technology and development. In 2020, the company recorded a non-cash impairment of $1.821 billion due to the financial impacts of COVID-19. (SUNCOR ENERGY Inc, 2023, p 29) Suncor's Environmental and safety liabilities include the emission of greenhouse gasses, leaks, and faults in infrastructure. Failures in management systems may

lead to catastrophic financial, global, and social repercussions. As stated in the Risk Management Section, they incur substantial credit risk due to the position of oil and gas through industry standards, as well as liquidity risk. Suncor allocates a certain portion of its earnings through predictable estimates of debt issued, current market position, and other factors to ensure that necessary short-term and long-term arrangements are met. The company generally invests its surplus cash into securities ranging from one to five years. (SUNCOR ENERGY Inc, 2023, p 17) Recording low net operating income may be reflected poorly in dividend yields, cash(SUNCOR ENERGY Inc, 2023, p 21) total debt coverage, and other sectors. Suncor addresses market risks, including the volatility of commodity pricing and its sensitivity to ongoing events as well as foreign currency exchange risk. Suncor primarily operates under standard Canadian currency (CAD) while its debt denomination and exchange of goods with the United States is dependent on current exchange rates, thus fluctuating net earnings. Suncor is susceptible to interest rate differentials and volatile industry standards, to mitigate this, they regularly swap contracts to ensure a stable interest rate. They are exposed to fluctuating interest on the floating rate portion of Suncor’s debt. (SUNCOR ENERGY Inc, 2023, p 21) In 2022, Suncor reported a loss of $729 million due to the revaluation of U.S. dollar denominational debt. Volatile pricing leads to unstable gains and losses on commercialized products from quarter to quarter, additionally, a loss of equipment or degradation of assets is reflected in its net realizable value, decreasing its effectiveness and gains from selling it. A surplus of gas and general inventory, as seen in the 2020 COVID-19 crisis, generally reflects poorly across all financial statements due to the propagating effects of low net revenue. IV. Suncor’s objective is to provide useful, accurate, and relevant financial information based on their management of assets, methods of operation, and position within the industry to inform potential stakeholders, including lenders, investors, and general creditors, of the company’s financial viability and returns from future operations. In this respect, it is beneficial for Suncor to be as conciliatory as possible, however, they are praised for their transparent and impartial reporting standard industry-wide. Suncor states they operate their business with the intent of prioritizing and maximizing shareholder returns. Key stakeholders include investors and shareholders- among them are sizable Mutual Funds and Asset Management Corporations - as well as current and future creditors. (CNN BUSINESS, 2023) The main concern of stakeholders includes their return on investment and dividend yields. Suncor does not provide preferred dividends to its shareholders. They increase value for shareholders by increasing the number of common shares repurchased ($5.1 billion in 2022) and dividends paid ($2.6 billion in 2022). Shareholders are interested in the increase in common shares, reflected from funds of operation and the potential for further gains through information on future operating procedures and prospective earnings. A typical indicator of increased earnings year over year is the increase in the price of a single barrel of crude oil (US$/bbl) to different customers globally. (SUNCOR ENERGY Inc, 2023, p 24) The 2022 annual report demonstrates a significant increase in prices worldwide over the last two years. An additional advantage of financial statements is that they provide stakeholders with an overview of operational activities. V. Throughout the annual report (i.e. Pages 29, 88, 101..etc), all values within financial statements are units mentioned in ($ millions) or ($ billion) units unless otherwise specified. This is in accordance with the monetary unit assumption, which states financial statements

only include measurable monetary units. Additional information, if necessary, is provided in appendices or notes relating to individual respective values. On page 29 of the annual report (Figure 1), Suncor illustrates the Financial Highlights for the year ended December 31. To display accurate information and demonstrate clarity in its assumptions and statement, important monetary values are provided from annual periods running from 2020 through 2022 for ease of comparability. An example of notary clarification is indicated through subnote (3), Assets Impairment. The amount indicated in the 2020 financial report fo $1,821 billion dollars is clarified to be a result of a worldwide global crisis, providing relevant and important information to financial statement users. These are all examples of faithful representation prevalent throughout the annual report Page 14 (Figure 2) demonstrates understandability by providing a Financial Summary covering the major income statement, statement of retained earnings, and balance sheet values clearly. Items are listed clearly and in order of revenues, earnings, cash from operating activities, dividends paid, retained earnings, and total assets and liabilities among others. Any reasonably informed individual could extract pertinent information from this statement and utilize it to predict future earnings, calculate ratios, and comprehend it fully. Any esoteric information or clarifications are provided through notes such as sub-note (1) to further expand on any unclear values or labels. The conceptual framework principle of Periodicity is also exemplified in Quarterly Financial Data reports provided on page 44 of the annual report.

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