Page 131 - Suncor AR English

Directors, meets regularly to monitor limits on risk exposures, review policy compliance and validate risk-related

methodologies and procedures.

The nature of the risks faced by the company and its policies for managing such risks remains unchanged from
December 31, 2012.

1) Market Risk

Market risk is the risk or uncertainty arising from possible market price movements and their impact on the future
performance of the business. The market price movements that could adversely affect the value of the company’s financial

assets, liabilities and expected future cash flows include commodity price risk, foreign currency exchange risk and interest
rate risk.

(a) Commodity Price Risk

Suncor’s financial performance is closely linked to crude oil prices (including pricing differentials for various product types)
and, to a lesser extent, natural gas and refined product prices. The company may reduce its exposure to commodity price

risk through a number of strategies. These strategies include committing a portion of expected crude oil production to
fixed price contracts and entering into option contracts to limit exposure to changes in crude oil prices.

An increase of US$1.00 per barrel of crude oil as at December 31, 2013 would decrease pre-tax earnings for the

company’s outstanding derivative financial instruments by approximately $2 million.

(b) Foreign Currency Exchange Risk
The company is exposed to foreign currency exchange risk on revenues, capital expenditures, or financial instruments that

are denominated in a currency other than the company’s functional currency (Canadian dollars). As crude oil is priced in
U.S. dollars, fluctuations in US$/Cdn$ exchange rates may have a significant impact on revenues. This exposure is partially

offset through the issuance of U.S. dollar denominated debt. A 1% strengthening in the Cdn$ relative to the US$ as at
December 31, 2013 would decrease pre-tax earnings by approximately $90 million.

The company also has foreign operations whose functional currency is different than the company’s functional currency.

The main exposures relate to foreign operations whose functional currencies are in U.S. dollars, euros (c) or pound
sterling (£). A 1% strengthening in the Cdn$ relative to the US$, c and £ as at December 31, 2013 would decrease

Other Comprehensive Income by approximately $43 million, $26 million and $21 million, respectively.

(c) Interest Rate Risk
The company is exposed to interest rate risk as changes in interest rates may affect future cash flows and the fair values

of its financial instruments. The primary exposure is related to its revolving-term debt of commercial papers.

To manage the company’s exposure to interest rate volatility, the company may periodically enter into interest rate swap
contracts. The objective of entering into these contracts is to reduce the company’s cost of borrowing by managing the

mix of fixed and floating interest rate debt. The proportion of floating interest rate exposure at December 31, 2013 was
7.6% of total debt outstanding. The weighted average interest rate on total debt for the year ended December 31, 2013
was 6.3%.

The company’s net earnings are sensitive to changes in interest rates on the floating rate portion of the company’s debt.

To the extent interest expense is not capitalized, if interest rates applicable to floating rate instruments increased by 1%, it
is estimated that the company’s pre-tax earnings would decrease by approximately $8 million. This assumes that the

amount and mix of fixed and floating rate debt remains unchanged from December 31, 2013, and that the change in
interest rates is effective from the beginning of the year.

2) Liquidity Risk

Liquidity risk is the risk that Suncor will not be able to meet its financial obligations when due. The company mitigates
this risk by forecasting spending requirements and maintaining sufficient cash and credit facilities to meet these

requirements. Suncor’s cash and cash equivalents and total credit facilities at December 31, 2013 were $5.2 billion and
$6.2 billion, respectively.

Surplus cash is invested into a range of short-dated money market securities. Investments are only permitted in high credit

quality government or corporate securities. Diversification of these investments is maintained through counterparty
credit limits.

SUNCOR ENERGY INC. ANNUAL REPORT 2013 127