Page 96 - Suncor AR English

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

If the company or any of its entities dispose of its entire interest in a foreign operation, or loses control, joint control, or

significant influence over a foreign operation, the accumulated foreign currency translation gains or losses related to the
foreign operation are recognized in net earnings.

(c) Revenues

Revenue from the sale of crude oil, natural gas, natural gas liquids, purchased products and refined petroleum products is
recorded when title passes to the customer and collection is reasonably assured. Revenue from properties in which the

company has an interest with other producers is recognized on the basis of the company’s net working interest. For
operations not pursuant to production sharing contracts (PSCs), crude oil and natural gas sold below or above the

company’s working interest share of production results in production underlifts or overlifts, respectively. Underlifts are
recorded as a receivable at market value with a corresponding increase to revenues, while overlifts are recorded as a

payable at market value with a corresponding decrease to revenues. Revenue from oil and natural gas production is
recorded net of royalty expense.

International operations conducted pursuant to PSCs are reflected in the consolidated financial statements based on the

company’s working interest. Each PSC establishes the exploration, development and operating costs the company is
required to fund and establishes specific terms for the company to recover these costs (Cost Recovery Oil) and to share in

the production profits (Profit Oil). Cost Recovery Oil is determined in accordance with a formula that is generally limited to
a specified percentage of production during each fiscal year. Profit Oil is that portion of production remaining after

deducting Cost Recovery Oil and is shared between the company and the respective government. Cost Recovery Oil and
Profit Oil are reported as revenue when the sale of product to a third party occurs. Revenue also includes income taxes
paid on our behalf by our government joint venture partners.

(d) Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash in banks, term deposits, certificates of deposit and all other highly

liquid investments at the time of purchase.

(e) Inventories
Inventories of crude oil and refined products, other than inventories held for trading purposes, are valued at the lower of

cost, using the first-in, first-out method, and net realizable value. Costs include direct and indirect expenditures incurred in
bringing an item or product to its existing condition and location. Materials and supplies are valued at the lower of
average cost and net realizable value.

Inventories held for trading purposes in the company’s energy trading operations are carried at fair value less costs of

disposal, and any changes in fair value are recognized within Other Income.

(f) Exploration and Evaluation Assets
The costs to acquire non-producing oil and gas properties or licences to explore, drill exploratory wells and the costs to

evaluate the commercial potential of underlying resources, including related borrowing costs, are initially capitalized as
Exploration and Evaluation assets. Certain exploration costs, including geological, geophysical, seismic, and delineation on

oil sands properties, are charged to Exploration expense as incurred.

Exploration and evaluation assets are subject to technical, commercial and management review to confirm the continued
intent to develop and extract the underlying resources. If an area or exploration well is no longer considered commercially

viable, the related capitalized costs are charged to Exploration expense.

When management determines with reasonable certainty that an exploration and evaluation asset will be developed, as
evidenced by the classification of proved or probable reserves and the appropriate internal and external approvals, the

asset is transferred to Property, Plant and Equipment.

(g) Property, Plant and Equipment
Property, Plant and Equipment are recorded at cost.

The costs to acquire developed or producing oil and gas properties, and to develop oil and gas properties, including

completing geological and geophysical surveys and drilling development wells, and the costs to construct and install
development infrastructure, such as wellhead equipment, well platforms, well pairs, offshore platforms and subsea

structures, are capitalized as oil and gas properties within Property, Plant and Equipment.

92 SUNCOR ENERGY INC. ANNUAL REPORT 2013