OIL SECTOR REPORT

ON
SUNOCO
(The Sun Company Inc. and its subsidiaries)
Oil Industry Overview:

Oil Industry is generally categorized into upstream industry, midstream industry and downstream
industry.

The upstream industry finds and produces crude oil and natural gas. The midstream industry processes,
stores, markets and transports commodities such as crude oil, natural gas, natural gas liquids (NGLs,
mainly ethane, propane and butane) and sulphur. The downstream industry includes oil refineries,
petrochemical plants, petroleum products distributors, retail outlets and natural gas distribution
companies. The Canadian upstream petroleum industry has attained an international reputation for
excellence in many areas.

Crude oil: Normally known as oil, is a fluid found inside the Earth involved hydrocarbons, natural mixes
and little measures of metal. While hydrocarbons are normally the essential part of unrefined
petroleum, their piece can fluctuate from half 97% relying upon the sort of raw petroleum and how it is
removed. Natural mixes like nitrogen, oxygen, and sulfur ordinarily make-up between 6%-10% of
unrefined petroleum while metals, for example, copper, nickel, vanadium and iron record for under 1%
of the aggregate organization.

Natural gas: It is a normally happening hydrocarbon gas blend comprising principally of methane,
however generally including differing measures of other higher alkanes, and once in a while a little rate
of carbon dioxide, nitrogen, hydrogen sulfide, or helium. It is shaped when layers of breaking down plant
and creature matter are presented to extraordinary warmth and weight under the surface of the Earth
more than a huge number of years. The vitality that the plants initially gotten from the sun is put away
as substance bonds in the gas.

Canadas Oil Industry overview:

Canada is the worlds fifth-largest oil producer and has the worlds third-largest proven oil reserves.
Canada is a major supplier of secure, reliable crude oil to international markets, producing nearly 3.8
million barrels per day (mb/d) of crude oil in 2014. Canada also holds one of the worlds largest oil
reserves in the world, surpassed only by Saudi Arabia and Venezuela. Canada has 171 billion barrels of
proven oil reserves, of which 166.3 billion barrels are in the form of oil sands.

Canada is the worlds fourth largest crude oil exporter.

Suncor Overview:

Sunoco was formerly known as The Sun Company Inc.

Suncor Energy is a Canadian integrated energy company based in Calgary, Alberta. It specializes in
production of synthetic crude from oil sands. Suncor ranks number 134 in the Forbes Global 2000 list.

It is a publicly traded oil and gas company, founded in Montreal in 1919 with its headquarters in Calgary,
Alberta and with CAD 29.68 Billion revenues in 2015. It has a net income of CAD 1.99 Billion in 2015 and
with 13, 026 employees working according to 2011 statistics and company reports.
In 1979, Sun formed Suncor by merging its Canadian refining and retailing interests; Great Canadian Oil
Sands (a majority-owned subsidiary, which constructed and operated the first commercial plant to
develop Canada's Athabasca oil sands and went on production in 1967); and its conventional oil and gas
interests.

On March 23, 2009, Suncor announced the acquisition of Petro-Canada.

As we have mentioned in the slides for presentation, the Sun Company Inc. history and timeline of
monumental activities have been compiled as under:
Looking at why Suncor and Petro Canada merged becomes an interesting point of analysis for the
following reasons:

One of the assets of Petro- Canada is that it has an all-stock offer of $19 Billion- a $43 Billion company
with a $50 Billion market cap. When Suncor acquired Petro-Canada, Petro Canadas shareholders get
40% of the new company and Suncor shareholders get 60%. Suncor has been more than 100 years
worth of reserves and has Canadian Oil Sands centric strategy. It had $300 M/Y in the cost savings and
$1B in capital efficiencies.

The reason why we discuss the Sun Company Inc. (SUNOCO) and all three subsidiaries of the Sun
Company Inc. all-together is because Oil sectors often undergo huge mergers and acquisitions,
often form huge conglomerates or cartels and often have monopolistic approaches to massive
gain market penetration, knocking out any competition from their rival counterparts.

Petro-Canada was established in 1975 as a Crown Corporation. It was privatized in 1991 and the final
government stake sold in September 2004.

Petro Canada is one of Canadas largest integrated oil and gas companies.

Whereas, Canadian Oil Sands acts as middleman between oil producers and pipeline operators. It takes
possession of the oil and markets it to pipelines.
Above are the subsidiaries of The Sun Company Inc (SUNOCO).

MARKET STRUCTURE:

Prior to deregulation and pipeline bundling, the parent company had the following marketing structure.

While the following represents simplified structure after pipeline bundling. As we can see, the simplified
structure introduces marketers along with other components.
In North America, Suncor develops and produces oil and natural gas in Western Canada, Colorado, and
offshore drilling in eastern Canada. Its international efforts include offshore developments in the North
Sea, and conventional, land-based efforts in Libya, Syria, and Trinidad and Tobago. Suncor operates
refineries in Edmonton, Alberta; Sarnia, Ontario; Montreal, Quebec and Commerce City, Colorado. These
refineries supply industrial, retail and commercial consumers. The company is also one of the largest
Canadian retailers of petroleum products.

Suncor is the world's largest producer of bitumen, and owns and operates an oil sands upgrading plant
near Fort McMurray, Alberta, Canada.

Originally developed by Great Canadian Oil Sands, a majority-owned subsidiary of Sun Oil, it is now
wholly owned by the independent Suncor.

Suncor operated retail fuel operations under the brand names of Sunoco exclusively in Ontario until the
merger of Petro-Canada and Suncor Energy or under Husky names. In the United States, it operates
retail outlets in Colorado as Shell and Phillips 66, under license from Shell Oil Company (the United
States subsidiary of Royal Dutch Shell).

Crude Oil and Natural Gas Analysis:

Technological Improvements:

Technological Improvements in Oil and Gas Industry followed by The Sun Company Inc. and its
subsidiaries are as follows:

SAGD (Steam Assisted Gravity Drainage)

Horizontal Drilling
Hydraulic Fracturing

Steam Assisted Gravity Drainage (SAGD) is an enhanced oil recovery technology for producing heavy
crude oil and bitumen. It is an advanced form of steam stimulation in which a pair of horizontal wells is
drilled into the oil reservoir, one a few meters above the other. High pressure steam is continuously
injected into the upper wellbore to heat the oil and reduce its viscosity, causing the heated oil to drain
into the lower wellbore, where it is pumped out.
Horizontal drilling is a drilling process in which the well is turned horizontally at depth. It is normally
used to extract energy from a source that itself runs horizontally, such as a layer of shale rock.
Horizontal drilling is a common was of extracting gas from the Marcellus Shale Formation.

Hydraulic fracturing is the process where millions of gallons of water, sand and chemicals are pumped
underground to break apart the rock and release the gas.

JURISDICTION AND LEGAL ASPECTS IN CANADA CONCERNING OIL SECTOR

Provincial Governments have prime jurisdiction over oil and gas by virtue of:

Property and Civil Rights in the Province. (92.13)

Local works and undertakings (92.10)
Exploration for non-renewable natural resources in the Province. (92A.1). This was added by
Constitutional amendment in 1982.

Three Constitutional Powers result in Provinces being the primary owner and regulator of oil and gas
activities in Canada. The Provinces are responsible for:

Mineral land tenure (Crown and Freehold)

Surface Land Tenure (Crown and Freehold)
Land Titles and Land Registry legislations for privately held fee simple lands.
General regulations and licensing of Oil and gas companies and activities.

Federal Jurisdiction:

The Federal Crown (Parliament of Canada) has exclusive jurisdiction over certain important matters that
impact oil and gas:
 Trade and Commerce (91.2) Interprovincial and International Commerce
Navigation and Shipping (91.10)
Sea Coast and Inland Fisheries (91.12)
Indians and Lands reserved for the Indians (91.24)

Regulations:

Oil and Natural Gas sector often encounters various regulations, some of which are enlisted below:

It has regulations on four intertwining levels: Municipal, provincial, national and international.
Constitution Act 1982 gives jurisdiction to provinces over natural resources.
Natural Energy Board (Fed Body) has control over movements of oil and gas, taxation and tariffs.
Department of energy collects royalties on behalf of province.
Companies must adhere to applicable provincial, environmental acts and involve the public in
process.
There are extraction limits set by the government.
OSC requires companies to declare their reserve levels every 90 days.
Controls to reduce emissions Kyoto Accord.
September 11 called for increasing security of pipelines.

Factors that affect financials:

Ongoing volatility of CDN/ US exchange rates.

Ongoing volatility of global and North American oil markets.
New introduction of crude oil supply to North America
Ongoing variability in refining and rail margins.
Unscheduled maintenance shutdowns.
Oil Sands Alberta Crown Royalties
Ability to compete for projects
Extreme cold weather in 4Q- Cannot produce in cold temperatures.
If it chooses to sell in the middle-east, one of its biggest rival will be OPEC. OPEC's expressed mission is
"to facilitate and bring together the oil strategies of its part nations and guarantee the adjustment of oil
markets, to secure a proficient, monetary and normal supply of oil to purchasers, a relentless wage to
makers, and a reasonable profit for capital for those putting resources into the oil industry. OPEC's
individuals are Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria,
Qatar, Saudi Arabia (the true pioneer), United Arab Emirates, and Venezuela, while Indonesia is a
previous part.

Investment in financial securities:

If you are planning to invest or trade in stocks of Sunoco and its subsidiaries, we highly suggest to buy
Petro-Canada, Suncor Energy or Canadian Oil Sands. Following considerations should be kept in mind
while investing.
Competition Act: The reason for this act is to keep up and empower rivalry in Canada so as to advance
the productivity and versatility of the Canadian economy, to extend open doors for Canadian
cooperation in world markets while in the meantime perceiving the part of outside rivalry in Canada, so
as to guarantee that little and medium-sized ventures have an impartial chance to take an interest in the
Canadian economy and so as to give shoppers aggressive costs and item decisions. This Act is
authoritative on and applies to a specialist of Her Majesty in right of Canada or a region that is an
enterprise, in regard of business exercises occupied with by the partnership in rivalry, regardless of
whether genuine or potential, with different people to the degree that it would apply if the operator
were not a specialist of Her Majesty.
References:

Wikipedia

Forbes Magazine

Fortune

Investopedia