Suncor Energy Inc. Business Information, Profile, and History

Company Perspectives:

Suncor Energy is a unique and sustainable energy company dedicated to vigorous growth in worldwide markets through meeting or exceeding the changing expectations of our current and future stakeholders. We will actively dialogue and create congruence with our colleagues, investors, customers, partners and communities. We will involve them in our opportunities, processes and issues with the goal of creating long lasting and mutually beneficial relationships. Our values and beliefs will be demonstrated in all our decisions and actions.

History of Suncor Energy Inc.

Suncor Energy Inc. is an energy products company involved in the exploration, development, and marketing of oil and natural gas. Suncor also operates a refining and marketing business in Ontario, selling its products under the Sunoco brand, and develops alternative energy sources. Much of the company's business involves mining and extraction of crude oil from oil sands deposits. Bitumen is extracted from oil sands, then subjected to a heavy oil upgrading process, which converts bitumen into light crude products. A pioneer in oil sands production, Suncor conducts its oil sands activities in northern Alberta at a plant near Fort McMurray, where the company produces roughly 85 percent of its crude oil.

Origins

Although not formally established until 1979, Suncor traces its corporate roots to Sun Company Inc., a company that started operating in Canada in 1917. Initially, Sun Company supplied lubricating oils, spirits, and kerosene to facilities in Montreal that were aiding in the prosecution of World War I. After establishing an office in Montreal in 1919--the company's first physical presence--Sun Company added new products the following year, when it began selling fuel oil and gasoline imported by rail from the United States. Throughout much of the 1920s, the company sold two brands of gasoline, Yale Hi-Test and Sunoco Anti-Nox. In 1927, the company introduced Blue Sunoco gasoline, a single grade, no-lead product that replaced the two existing brands. In 1930, the company opened the first Sunoco service stations in Toronto, Montreal, and Quebec City, marking the beginning of what would develop into a vast network of gas stations. That same year, the company built a grease and lubricating oil storage plant, establishing the facility in Toronto.

Suncor's business at the end of the 20th century included the retail operations represented by the Sunoco service stations and two other important facets, oil and natural gas exploration and, most important, oil sands development. These two began to flower during the second half of the 20th century, although the seeds for their development were planted during the final years of World War II. In 1944, Sun Company's management considered developing the Athabasca oil sands--the site of the company's future oil sands development. Negotiations were conducted with Lloyd R. Champion, a Montreal businessman who was producing 450 barrels of oil per day, but the talks stalled without any deal being struck. The following year, the company made its first attempt to strike oil. A well was drilled in Nova Scotia that failed to find any oil. In 1949, interest in developing the Athabasca oil sands was renewed. Company officials began looking for a site for a future plant, but the investigative work stopped there, with no formal commitment made. The year also marked the establishment of the Canadian Production Division, which was situated in Calgary.

As Sun Company entered the 1950s, success began to come the company's way, enabling it to develop into a legitimate, multifaceted oil company. The company scored its first success on the development front, when it struck an oil-producing well in New Norway, Alberta, in 1950. The first year of the decade also saw the company acquire Lease 86, which represented the site of the company's oil sands operation at the century's end. Sun Company's development into an integrated petroleum products enterprise took an important step forward in 1952, when construction began on a refinery in Sarnia at roughly the same time Great Canadian Oil Sands Ltd. was incorporated. Approximately a decade later, in 1963, the company, then known as Sun Oil Company, invested nearly $250 million in the Great Canadian Oil Sands project, a bold gamble on a mostly unproven method of extracting oil that ranked as the largest single private investment in Canada at the time. As the investment of nearly a quarter billion dollars indicated, Sun Oil was committed to oil sands development being a part of its future. In the coming years, the foundation was created for the company's pioneering involvement in oil sands development.

Oil Sands Development Beginning in the 1960s

Oil sands development eventually would account for 85 percent of the company's crude oil, but when Sun Oil began building its presence in the business during the mid-1960s the field was regarded as experimental, its financial viability in dispute. Nevertheless, the company committed its resources to the business, beginning construction of the Great Canadian Oil Sands plant at Fort McMurray in 1964. The 45,000-barrel-a-day plant was finished five days ahead of schedule, its opening in 1967 heralding the debut of the first commercial-scale oil sands processing facility.

The evolution of Sun Oil into Suncor occurred during the decade following the opening of the Fort McMurray plant. Several important developments occurred during the interim. In 1971, the company formed Sunoco Exploration & Production Limited, its mission to explore Canada's sparsely populated frontier areas for oil. An expansion project at the Sarnia refinery the following year increased capacity to 85,000 barrels, providing tangible evidence of the growing might of the Toronto-based enterprise. In 1978, Ross A. Hennigar was appointed president of Sun Oil at the same time he was elected as deputy chairman of Great Canadian Oil Sands Limited. The creation of Suncor occurred under Hennigar's leadership, an event that represented the consolidation of the assets that had operated side by side for years. In 1979, the Canadian operations of Sun Company were combined with Great Canadian Oil Sands Limited, creating Suncor Inc., a company headed by Hennigar, who served as the newly christened company's president and chief executive officer. In 1981, Sun Company sold 25 percent of the company to the Province of Ontario, beginning a relationship that would last for more than a decade.

Hennigar's era of leadership over the newly amalgamated company was cut short tragically. In 1983, while traveling on an executive jet, Hennigar's plane crashed north of Toronto, killing the company's president and chief executive officer. William H. Loar filled the void created by Hennigar's death, but Loar served as president and chief executive officer for only two years. Thomas H. Thomson was selected as Loar's replacement, his arrival occurring one year before Suncor's oil sands business, for the first time, produced more than 20 million barrels of oil. Thomson's tenure lasted for six years, its end paving the way for the appointment of the single most influential person in the development of Suncor during the late 20th century.

Richard George Era Beginning in 1991

Raised in Brush, Colorado, Richard George starting working in the oil industry at the beginning of his professional career. In the Denver-Julesburg Basin, which surrounded his hometown, George worked as an oilfield hand and student engineer for a Unocal subsidiary, using the money he made to pay his tuition at nearby Colorado State University. George left Colorado State University in 1973 armed with an undergraduate degree in civil engineering. At the time of his matriculation, the oil business was growing rapidly, providing every incentive for George to continue working in the industry. He moved to Houston, where he went to work for Texaco, starting out as a project engineer before working as a negotiator for the company's international contracts. In his spare time, George attended the University of Houston, where he earned a law degree. After a seven-year stay at Texaco, George joined Pennsylvania-based Sun Company, Suncor's principal shareholder. While at Sun Company, George worked on project planning, production planning, and international exploration. In his spare time, he attended the program for management development at Harvard Business School. After 11 years at Sun Company, George was selected to lead Suncor, appointed president and chief executive officer in 1991.

When George joined Suncor, the company, according to various accounts, was having a difficult time determining its future course. Strategically, the company was rudderless, an opinion held by George when he assumed the reins of command. George, during his first decade of control, lent a sharpened focus to the company's operations and, equally as important, he spearheaded prolific growth at the company. At the outset of the George era of leadership, Suncor produced approximately 45,000 barrels of oil per day from its oil sands operations in northern Alberta. By the end of the decade, daily production would dwarf the figures recorded in 1991, with the company setting its sights on a total ten times greater.

In the years leading up to the unprecedented growth achieved during George's tenure, Suncor gained its independence. In March 1992, the company completed its initial public offering. The following year, the Ontario government divested its interest in Suncor, concurrent with the decision by Sun Company to reduce its holdings in the company to 55 percent. In 1995, Sun Company sold its remaining 55 percent stake in Suncor.

At the time of the 1993 divestitures by the Province of Ontario and Sun Company, George began looking at expansion in earnest. A strategic study was launched in 1993, its aim to increase Suncor's earnings and cash flow without capital investment of any sizable amount. The strategic study led to a three- year period of restructuring, the conclusion of which in 1996 was signaled by the transfer of 127 service stations in Quebec to Ultramar Canada Inc. In exchange for the stations, Suncor received 88 service stations in Ontario and total control over a distribution terminal in Ontario that the two companies had owned jointly. Once the restructuring was completed, George was ready to invest capital and begin expanding. The scale of his expansion program was numbing, entailing the allocation of massive amounts of financial resources.

Bold Plans for the Late 1990s

In 1997, the 30th anniversary of the company's oil sands operations, George left no doubt expansion was his highest priority. In mid-1997, the company and IPL Energy Inc. announced plans for a $236 million, 30-inch pipeline to be built by IPL Energy and operated by Suncor. The pipeline, designed to carry 500,000 barrels of product per day, was expected to transport crude oil from Fort McMurray into IPL Energy's system of pipelines, which was capable of transporting crude oil into the midwestern United States and into eastern Canada. The joint venture represented only a fraction of George's ambitious intentions. In July 1997, Suncor announced Project Millennium, a $1.6 billion expansion aimed at increasing capacity at the Fort McMurray plant to 210,000 barrels per day by 2002.

Part of a marketing and strategic plan designed to position Suncor for the 21st century, Project Millennium represented a prodigious investment of time and resources, on a scale that would not have made financial sense a decade earlier. New technologies and operating efficiencies had emerged, making the project feasible but no less daunting in its scope. The initial stage of Project Millennium required a $600 million investment, an expenditure that would enable Suncor to increase upgrading capacity at Fort McMurray to 105,000 barrels per day by 1999. The second stage of the project, requiring an additional $190 million investment, was expected to lift capacity to 130,000 barrels per day by 2001, followed by the leap to 210,000 barrels per day by 2002.

As work began on Project Millennium, George demonstrated further commitment to the company's oil sands operation. At the beginning of 2000, he announced his intention to invest $535 million in the company's Fort McMurray operations, a sum separate from the resources allocated to Project Millennium. The expansion, dubbed Project Firebug, was slated to increase production capacity to as much as 450,000 barrels per day by 2008.

As Suncor endeavored to make good on its promises of dramatically increasing production capacity, some if its proposals had become reality. In 2001, Project Millennium completed a significant evolutional step, moving from the construction phase to the production phase. The year also marked the announcement of yet another large-scale expansion project. Called Project Voyageur, the expansion project was expected to increase oil sands production capacity to 550,000 barrels per day by 2012. With exhaustive long-term goals to pursue in the future, the company had set its course, having thoroughly thrown aside any accusations of lacking strategic focus. Whether that focus proved to be a financial success remained to be determined, but important steps toward expansion were being completed. In 2002, the company increased production to 239,000 barrels per day. In the coming years, that total promised to increase substantially, spurred by the anticipated completion of Project Millennium, Project Firebug, and Project Voyageur.

Principal Subsidiaries: Suncor Energy Products Inc.

Principal Competitors: Imperial Oil Limited; Petro-Canada; Shell Canada Limited.

Chronology

• Key Dates:
• 1917: Sun Company begins operating in Montreal.
• 1930: The first Sunoco service stations are opened in Toronto, Montreal, and Quebec City.
• 1950: Lease 86 is acquired, the site of future oil sands development.
• 1953: Great Canadian Oil Sands Ltd. is incorporated.
• 1967: Construction of the first commercial-scale oil sands processing facility is completed.
• 1979: Canadian operations of Sun Company are combined with Great Canadian Oil Sands, creating Suncor Inc.
• 1991: Richard George is appointed Suncor's president and chief executive officer.
• 1992: Suncor completes its initial public offering of stock.
• 1997: Plans are announced for a massive expansion program called Project Millennium.
• 2001: Project Millennium moves from construction phase to production phase.
• 2002: Project Voyageur is expected to increase production to 550,000 barrels per day by 2012.