Page 82 - Suncor AR English

ADVISORIES

non-monetary arrangement involving a third-party processor, and feedstock costs for natural gas used to create hydrogen

for secondary upgrading processes; iii) excess power generated and sold that is recorded in operating revenue; and iv) the
impacts of changes in inventory levels, such that the company is able to present cost information based on production

volumes.

Effective 2012, the calculation of Oil Sands cash operating costs has been updated to better reflect the ongoing cash cost
of production, and prior period figures have been redetermined. The cost of natural gas feedstock for secondary

upgrading processes, the cost of diluent purchased for transportation of product to markets, and non-cash costs related
to the accretion of liabilities for decommissioning and restoration provisions are no longer included in cash operating

costs. Certain cash costs relating to safety programs, which were previously considered non-production costs, are included
in cash operating costs. The following table reconciles amounts previously reported to those presented in this MD&A:

Year ended December 31 ($ millions) 2011

Cash operating costs, as previously reported 4 479
.......................................................................................................................................................................................................................................................
Elements added to cash operating costs definition:
.......................................................................................................................................................................................................................................................
Safety programs 33
.......................................................................................................................................................................................................................................................
Elements removed from cash operating costs definition:
.......................................................................................................................................................................................................................................................
Natural gas feedstock for secondary upgrading processes (53)
.......................................................................................................................................................................................................................................................
Accretion of liabilities (64)
.......................................................................................................................................................................................................................................................
Purchased diluent
(40)

Cash operating costs, as restated in this MD&A
4 355
Cash operating costs, as previously reported ($/bbl)
40.20
.......................................................................................................................................................................................................................................................
Cash operating costs, as restated in this MD&A ($/bbl) 39.05

Impact of First-in, First-out Inventory Valuation on Refining and Marketing Net Earnings
GAAP requires the use of a FIFO valuation methodology. For Suncor, this results in a disconnect between the sales prices

for refined products, which reflect current market conditions, and the amount recorded as the cost of sale for the related
refinery feedstock, which reflect market conditions at the time when the feedstock was purchased. This lag between

purchase and sale can be anywhere from several weeks to several months, and is influenced by the time to receive crude
after purchase (which can be several weeks for foreign offshore crude purchases), regional crude inventory levels, the

completion of refining processes, transportation time to distribution channels, and regional refined products inventory
levels.

Suncor prepares and presents an estimate of the impact of using a FIFO inventory valuation methodology compared to a

LIFO methodology, because management uses the information to analyze operating performance and compare itself
against refining peers that are permitted to use LIFO inventory valuation under United States GAAP (U.S. GAAP).

The company’s estimate is not derived from a standardized calculation and, therefore, may not be directly comparable to

similar measures presented by other companies, and should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with GAAP or U.S. GAAP.

Measurement Conversions

Certain crude oil and natural gas liquids volumes have been converted to mcfe or mmcfe on the basis of one bbl to six
mcf. Also, certain natural gas volumes have been converted to boe or mboe on the same basis. Any figure presented in

mcfe, mmcfe, boe or mboe may be misleading, particularly if used in isolation. A conversion ratio of one bbl of crude oil
or natural gas liquids to six mcf of natural gas is based on an energy equivalency conversion method primarily applicable

at the burner tip and does not necessarily represent value equivalency at the wellhead. Given that the value ratio based
on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1,

conversion on a 6:1 basis may be misleading as an indication of value.

78 SUNCOR ENERGY INC. ANNUAL REPORT 2013