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Suncor Energy Inc., Calgary, has announced that its board of directors has approved funding for the next phase in the company's oil sands growth strategy and its 2005 capital spending plan.

Suncor's board gave final approval to the expenditures required to construct a $2.1 billion upgrader expansion, which includes the addition of new coking facilities. To feed the expanded upgrader, Suncor also plans to spend an estimated $1.5 billion to boost bitumen production at the company's in-situ and mining and extraction facilities. Bitumen from third parties is also expected to supply the expanded upgrader. Final Board approval for some components of the bitumen production plan are still pending. Regulatory approval for the expansion was granted earlier in 2004.

The combined $3.6 billion investment in upgrading and bitumen production is expected to increase Suncor's oil sands production capacity to 350,000 barrels per day in 2008. Engineering for the project is approximately 50% complete. Preliminary fieldwork, foundation construction and the manufacture of major vessels and equipment are in progress. Cost projections include current estimates for material and labour costs.

"Increased oil sands production is central to our long-term strategy," said Rick George, president and chief executive officer. "With our staged approach to growth, we expect to expand production steadily, reliably and at a competitive cost."

This project, as well as other expansion projects currently being undertaken by Suncor, are key components of the company's Voyageur growth strategy - a multiphase plan to increase production to more than a half million barrels per day in the 2010 to 2012 time frame.

Capital Spending

In 2005, the company expects to spend $2.5 billion, an increase of approximately 47% over 2004 capital spending. Spending plans include:

- Approximately $1.5 billion to support oil sands development.

- Approximately $400 million in 2005 on Canadian downstream operations, with the majority directed toward meeting federal regulations for diesel desulphurization at the company's Sarnia refinery. Funds will also be directed toward plans to expand the refinery's throughput capacity and enable it to process approximately 40,000 barrels per day of oil sands sour crude blends. When all components of this project are completed in 2007, Suncor expects this project will cost a total of approximately $800 million.

- In Suncor's U.S. downstream operations, investment in clean fuels technology is also a priority. Capital spending of approximately $260 million (US$195 million) in 2005 will be used primarily to meet clean fuels regulations while also modifying the company's Denver refinery to accommodate approximately 10,000 to 15,000 barrels per day of oil sands sour crude blends. The total cost of this project is expected to be about US$300 million.

- Approximately $260 million will be invested to support the profitable growth of natural gas production.

- Approximately $15 million is planned to pursue renewable energy opportunities.

To support longer-term growth, Suncor expects its capital spending to average $2.3 billion to $2.5 billion per year. Suncor's plans target increasing oil sands production by an average 8% to 10% annually, while earning a 15% return on capital employed at US$28 WTI benchmark crude prices.

"Suncor's long-term capital investment plans remain squarely focused on our integrated business strategy - increasing oil sands production and earning a solid return on our investment," said George. "While we invest for future growth, Suncor will remain focused on managing debt and maintaining a strong balance sheet."

Cost estimates are, by their nature, uncertain and can be subject to wide variances as engineering is developed and even as construction progresses. Estimates are subject to revisions, which may be material.

Suncor Energy Inc. is an integrated energy company headquartered in Calgary, Alberta. Suncor's oil sands business, located near Fort McMurray, Alberta, extracts and upgrades oil sands and markets refinery feedstock and diesel fuel, while operations throughout Western Canada produce natural gas. Suncor operates a refining and marketing business in Ontario with retail distribution under the Sunoco brand. U.S.A. downstream assets include refining operations in Colorado and retail sales in the Denver area under the Phillips 66 brand. Suncor's common shares (symbol: SU) are listed on the Toronto and New York stock exchanges.

Sunoco in Canada is separate and unrelated to Sunoco in the United States, which is owned by Sunoco, Inc. of Philadelphia.

Background Information

There are various elements in Suncor's plan to increase oil sands production capacity to 500,000 to 550,000 barrels per day, from its current rate of about 225,000 barrels per day:

Step One: Production capacity is expected to increase to 260,000 barrels per day in late 2005, as a result of a $1 billion investment in both upgrading improvements and development of in-situ technology. This project is proceeding on budget and on schedule.

Step Two: Expand the existing upgrader to increase production capacity to 350,000 barrels per day in 2008. Expansion includes a new pair of coke drums, a sulphur recovery plant and other crude oil processing equipment. Bitumen supply for the expanded upgrader is expected to increase through further development of in-situ operations and mining/extraction. Bitumen from third parties is also expected to supply the expanded upgrader. The combined total cost of the project has been estimated at $3.6 billion and construction is currently under way.

Step Three: The construction of a third oil sands upgrader and the expansion of oil sands mining and in-situ development is the final phase of Suncor's plan to increase production capacity to 500,000 to 550,000 barrels of oil per day. Suncor is in the very early stages of planning for this phase of growth; details will be released as they are confirmed.

The economic benefits of achieving the half million barrel per day mark for production include:

- Increasing Suncor's production capacity equivalent to about 20% of Canada's current crude oil production.

- Multi-billion dollar investments in goods and services, primarily sourced from Canadian businesses.

- Generating the premium petroleum products the market demands - reliably, safely and in an environmentally responsible manner.

- Further enhancing North American energy security.

- Stimulating job creation.

As Suncor moves its growth strategy forward, the company will continue to consult with stakeholders on how best to manage the social and environmental impacts of growth.

As Suncor invests in oil sands growth, it continues to provide economic benefits to the Regional Municipality of Wood Buffalo, while supporting the communities where it operates.

For more information, call 403/269-8717 or visit
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Publication:Worldwide Energy
Geographic Code:1CANA
Date:Jan 1, 2005

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