Page 62 - AIF - English

INDUSTRY CONDITIONS

The oil and natural gas industry is subject to extensive 30,000 m3/d or less for a term of two to 20 years, must be
controls and regulations governing its operations (including made pursuant to an NEB order. The Government of

land tenure, exploration, environmental, development, Alberta also regulates the volume of natural gas that may
production, refining, transportation and marketing) be removed from the province for consumption elsewhere

imposed by legislation enacted by various levels of based on such factors as reserves availability, transportation
government, and, with respect to export and taxation of oil arrangements, and market considerations.

and natural gas, by agreements among the governments of Internationally, prices for crude oil and natural gas fluctuate
Canada and Alberta, among others, as well as the
in response to changes in the supply of and demand for
governments of the United States and other foreign crude oil and natural gas, market uncertainty and a variety
jurisdictions in which we operate, all of which should be
of other factors beyond Suncor’s control. These factors
carefully considered by investors in the oil and gas industry. include, but are not limited to, the actions of OPEC, world
All current legislation is a matter of public record, and the
economic conditions, government regulation, political
company is unable to predict what additional legislation or developments, the foreign supply of oil, the price of
amendments may be enacted. All governments have the
foreign imports, the availability of alternate fuel sources
ability to change legislation. Suncor may engage in the and weather conditions.
discussion on proposed changes to ensure Suncor’s

interests are recognized. The following discussion outlines Pipeline Capacity
some of the principal aspects of legislation, regulations and
Although pipeline expansions are ongoing, the
agreements governing Suncor’s operations.
apportionment of capacity on pipeline systems can occur

from time-to-time, due to pipeline and downstream
Pricing, Marketing and Exporting Crude Oil and operating problems, affecting the ability to market crude
Natural Gas
oil and natural gas. Most of the current apportionments,
The producers of oil are entitled to negotiate sales and however, are due to significant demand which far exceeds
purchase agreements directly with oil purchasers. Most
current pipeline capacity. Oil and natural gas producers in
agreements are linked to global oil prices. Global oil prices North America and, particularly in Canada, currently receive
are set by daily, weekly and monthly physical and financial
discounted prices for their production relative to certain
transactions for crude oil around the world. Those prices international prices, due to constraints on the ability to
are primarily based on worldwide fundamentals of supply
transport and sell such products to international markets.
and demand. Specific prices depend in part on oil quality,
prices of competing fuels, distance to the markets, the Recently, pipeline capacity to support the growth of the oil
and natural gas industry in Canada has been the subject of
value of refined products, the supply/demand balance, and
other contractual terms. In Canada, oil exporters are also political and environmental debate. Suncor supports the
entitled to enter into export contracts. If the term of an responsible development of additional pipeline

export contract exceeds one year for light crude oil or infrastructure that would open access to other markets.
exceeds two years for heavy crude oil (to a maximum of

25 years), the exporter is required to obtain an export Royalties, Incentives and Income Taxes
licence from the National Energy Board (NEB). If the term
Canada
of an export contract does not exceed one year for light In addition to federal regulation, each province has
crude oil or does not exceed two years for heavy crude oil,
legislation and regulations governing land tenure, royalties,
the exporter is required to obtain an order approving such production rates, environmental protection, and other
export from the NEB.
matters. The royalty regime is a significant factor in the

The price of natural gas is also determined by negotiation profitability of SCO, bitumen, crude oil, NGL and natural
gas production. Royalties on production from lands other
between buyers and sellers. Natural gas exported from
Canada is subject to regulation by the NEB and the than Crown lands are determined by negotiations between
the mineral freehold owner and the lessee, although
Government of Canada. Exporters are free to negotiate
prices and other terms with purchasers, provided that the production from such lands may be subject to certain
provincial taxes. Crown royalties are determined by
export contracts continue to meet certain other criteria
prescribed by the NEB and the Government of Canada. governmental regulation, which are subject to change as a
result of numerous factors, including political
Natural gas export contracts with a term that exceeds two
years (to a maximum of 25 years) require the exporter to considerations, and are generally calculated as a
percentage of revenues received from the value of the
obtain an export licence from the NEB. Natural gas (other
than propane, butane and ethane) export contracts for gross production. The royalty rate generally depends in part
on prescribed reference prices, well productivity,
volumes of more than 30,000 m3/d with a term that does
not exceed two years, or export contracts for volumes of
geographical location, field discovery date, method of

60 SUNCOR ENERGY INC. ANNUAL INFORMATION FORM 2014