Revenue Recognition Accounting Policy
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 Suncor has an interest with other producers is recognized on the basis of Suncor's net working interest. Crude oil and natural gas sold below or above Suncor's working interest share of production results in production underlifts or overlifts. 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 exploration and production sharing agreements (EPSAs) are reflected in the consolidated financial statements based on Suncor's working interest. Under the EPSAs, Suncor and other non-governmental partners, if any, pay all exploration costs and a pro-rata share of costs to develop and operate the concessions. Each EPSA establishes specific terms for Suncor 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 joint venture partners and the respective government. Cost Recovery Oil and Profit Oil are reported as sales revenue. Income tax amounts that Suncor would pay under the laws of the respective countries are paid by Suncor's governmental joint venture partners on Suncor's behalf, and Suncor reports these amounts as sales revenues. All other government stakes are considered to be royalty interests.
Physical and financial contracts entered into for trading purposes are considered derivative financial instruments, and any changes in fair value are recorded on a net basis in Other Income.
Source: Suncor Energy Inc., Annual Report
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