Suncor Energy Inc. -- Moody's rates Suncor's notes offering Baa1

Rating Action: Moody's rates Suncor's notes offering Baa1Global Credit Research - 02 Mar 2021Toronto, March 02, 2021 -- Moody's Investors Service (Moody's) rated Suncor Energy Inc.'s (Suncor) senior unsecured notes offering Baa1. The proceeds of the US$750 million and C$350 million senior unsecured notes offering will be used to repay short-term indebtedness and for general corporate purposes. Suncor's Baa1 senior unsecured rating, Prime-2 commercial paper rating and stable outlook are unchanged.Assignments:..Issuer: Suncor Energy Inc.....Senior Unsecured Regular Bond/Debenture, Assigned Baa1RATINGS RATIONALESuncor Baa1 rating is supported by: 1) its sizable production base (about 750,000 boe/day); 2) long-lived proved developed reserves (approximately 11 years); 3) a downstream integrated business model that mitigates the volatility from light-heavy differentials; and 4) good liquidity. Suncor is challenged by 1) its concentration in Canadian oil sands (85% of production) and reliance on two co-located upgraders for more than half of total oil sands production; 2) weak retained cash flow to debt in 2020 but will trend to around 30% in 2021; 3) operational challenges at the Syncrude JV mine and upgrader; and (4) risks to long-term growth in the oil sands industry tied to restricted pipeline takeaway capacity.Suncor's liquidity is good. On a pro forma basis for the new notes, the revolver early termination and at December 31, 2020, Suncor had about C$11.4 billion of liquidity sources and C$3.6 billion of uses through 2021. Suncor had C$1.9 billion of cash, full availability under its C$6.7 billion (equiv.) committed revolving credit facilities (includes a US$2.5 billion tranche due April 2022, and a C$3.5 billion tranche due April 2023). Moody's expects around C$1.5 billion of positive free cash flow through 2021. Suncor has a Canadian market CP program (unrated) and a US market CP program (P-2). The combined outstanding amount under the CP programs cannot exceed C$5.0 billion. As of December 31, 2020, Suncor had C$3.6 billion equivalent CP outstanding. Suncor will be well in compliance with its sole financial covenant (debt to capitalization less than 65%).The stable outlook reflects our expectation that Suncor's credit metrics will remain in-line for the rating in 2021.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if retained cash flow to debt is sustained above 40% (14% as of LTM Q3 2020) and debt to production reduces towards US$12,000/bbl (US$20,759/bbl as of LTM Q3 2020).The ratings could be downgraded if retained cash flow to debt appears likely to decline below 20% (14% as of LTM Q3 2020) or if debt to production rises towards US$22,000/bbl (US$20,759/bbl as of LTM Q3 2020).Based in Calgary, Alberta, Suncor owns large integrated mining and SAGD oil sands assets in Alberta, conventional exploration & production assets and downstream refining operations.The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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