Q3 2019 Earnings Call
Bring value to our shareholders through a sustainable cash dividend.
The investments, we are making will reduce.
So our cost structure.
Sure and grow our margins.
Which further improves.
A resilient.
Yeah.
Wrapping up our larger.
Thanks in Asia and in the Atlantic, we expect to reach a positive free cash flow in one may 21, as we outlined at our Investor day.
Finally, you will have seen made some workforce reductions earlier this week.
So.
It was to align our a lower level of.
Larry.
Earlier this year.
'cause.
Portfolio, we have following our divestments and transformation programs over the last few years I'm confident these changes will never easy will give us a productive and efficient business and put us in the best position to achieve our goals now I'll turn the call over to Jeff to review our Q3.
<unk> financial results. Thanks, Rob.
Funds from operations were just over 1 billion in the third quarter compared to 1.3 billion in a year ago period and up from 800 million last quarter.
Cash flow from operating activities, including changes in noncash working capital was 800 million.
Fair to 1.3 billion in Q3 2018.
This reflects increased production following the completion of a large number of turnarounds in Q2.
The ramp up of the new D. Valley thermal project in Scotland, and the ridge turn to full production in the Atlantic region in late August .
Net earnings were 273 million compared to 545 million in the year ago period.
This was primarily due to the impact of lower crude oil prices, coupled with lower U.S. refining margins.
While downstream operational performance was solid we felt the impact so we are frac spreads.
The overall downstream EBITDA was 410 million, which includes 132 million in pre tax insurance proceeds related to business interruption at the superior refinery.
This compares to the same time last year, when we saw 580 million in downstream EBITDA, which included 110 million in pre tax impacts primarily relate into property damage insurance that superior.
Meanwhile, upstream production averaged around 295000 Boe per day compared to 268000 Boe per day last quarter.
The average upstream realized price for this quarter was $47.54 per barrel down about 6% from Q3 2018.
Upstream operating costs and 14 83 per view, we were in line with what we saw this time last year.
They were lower compared to the previous quarter due to increased production and the completion of our planned turnarounds.
The upstream operating netback averaged $29.31 per Boe.
This included a net back of $62.59 per Boe in Asia and for the $1.64 cents per barrel planting region.
Anniversaried realized net earnings of 34 million compared to 149 million in Q3, 2018, mostly reflecting the tighter heavy oil location differentials.
Due to our integrated nature, we captured part of this difference in the upstream business.
Capital spending was 868 million compared to 968 million in Q3 last year, our capital guidance for 2019 remains on changed at 3.3 to 3.5 billion.
Net debt at the ended the quarter was 3.9 billion or 1.1 times trailing 12 months funds from operations.
Net debt has been impacted by higher working capital investments, mostly due to the increase in receivables in the corner, which includes the timing of business interruption insurance proceeds and crude oil liftings in Atlanta.
Net debt does not yet include any proceeds from the sale of the Prince George refinery, which is expected to close in the fourth quarter.
Total liquidity was approximately 6.5 billion.
Alluding to point 3 billion in cash and 4.2 billion in all unused credit facilities.
Finally, our board has approved the quarterly dividend of 12.5 cents per common share.
Thanks, and I'll pass the call over to Rob assignments for more detail on our third quarter operations. Thanks, Jeff.
Today's for October overall upstream production is running over 300000 barrels equivalent per day.
In the integrated covered all the devalued thermal project came on strong which is typical for this type of develop.
As Rob mentioned, we reached nameplate in September and I cannot tell you that we've recently seen production over 11000 barrels per day.
As a result, we expect to meet our target 90000 barrels a day of overall Scotsman total production by the end of this year.
I remind you that arthroscopy through production is not subject to government corridors.
Elsewhere in the heavy oil portfolio, we started up our first polymer injection project at the Aberfeldy field Scotsman.
This technology is helping increase all recovery, while using existing infrastructure, leading to lower operating costs.
We're also using machine learning models to improve our steam oil ratios at the sandell and economies thermal project.
Field trials are underway and we're seeing good results with improved production.
And at Sunrise, we're working towards in November startup of an unconventional gas pilot program, which should also ultimately help us to reduce steam oil ratios.
In the downstream total throughput of the upgrader and refineries was 356000 barrels per day.
At the Lima refinery, we started the final tie in of the crude oil flexibility project and it is now about 95% complete.
As was included in our plan. This requires a full shutdown that will last until the back half of November so you'll see that reflected in our Q4 throughput numbers.
Following a stage startup, we'll be able to process up to 40000 barrels day of heavy crude.
Which is up from the 10000 barrels today that we can currently run.
And this will allow and enhanced margin capture.
That's a superior refinery three build is underway.
Substantial amount of the cost is expected to be recovered through property damage insurance.
We will be using best available control technology to provide for even greater safety and efficiency.
Once completed the refinery will run into continuous mode, averaging 45000 barrels a day of throughput compared to our previous run rate of 40000 barrels.
We're also increasing our heavy processing capacity from 20000 barrels a day to 25000 barrels.
Turning now to the offshore business.
Overall average total production for Asia in the Atlantic in the quarter was 62700 BOE a day husky working interest.
This is up from 54400 in the last quarter.
Our share of gas production from Luann averaged 158 million standard cubic feet today in Q3, which is comparable to the previous quarter.
At least was 29, one which is a third field Whitley won all seven sub C wells have been drilled and a final completions of being in store.
Overall project to tie in 29, one is now about 65% complete and we're on schedule for first gas by the end of next year.
Once ramped up in 2021, it will deliver around 9000 via we use a day net to husky.
In the Atlantic region, the West White Rose project is progressing to plan and is now more than halfway complete.
We finished the third quadrant circuit court concrete gravity structure in Q3.
We plan to finished the fourth and final section next year. However, thanks to the strong productivity. So we've seen on the project we've been able to complete the final quadrant quadrant. This year. In fact, it was finished last week, thanks, and now I'll turn the call back to the operator for questions.
Thank you we will now begin the analysts question and answer session.
Any analysts to wishes to ask a question May press star and one on their Touchtone phone you will hear Tom to indicate you are in the Q4 participants using a speaker phone it may be necessary to pick up your handset before pressing any teas. If you wish to remove yourself from the question Q you May Press Star then too.
One moment, well, we pull for questions.
Our first question comes from Benny Wong of Morgan Stanley .
<unk>.
Hi, good morning, guys.
Just wondering if I can give an update in terms of the process of your the sale of your Canadian retail a few distribution business.
And any indication of interest there and any color you can provide in terms of how that stacking up versus what you guys are hoping for we're expecting.
Sure absolutely. This is Rob Peabody just on the retail sale you know just point out that I just do first baby just a quick update on P.G., we're expecting that to close in the next week or two so that's that's gone route rather well and then.
As we say they the ongoing strategic review of that business is underway as we said before we've had good interest in the business from from many parties.
And we'll we'll update you as soon as you know, we we have something a fine dining seal they don't want to comment on current negotiations, but but overall, we feel pretty good about the process.
Right. Thanks, and just wondering if you can maybe give us some early thoughts about how you guys think about next year about your budgets and I think in previous.
Conferences or or events, you've kind of mentioned you thinking about potentially possibility around raising the dividend if the proceeds of the non core sales come in line or even better than expected just any further thoughts around that would be helpful. Thanks.
Sure I guess will we can kind of Oh I'll talk a minute then I'll turn it over to Jeff The C CFO .
Basically we set out to our plan a in may of last year, we still feel were essentially on that plan in terms of delivery and you know in terms of the free cash flow inflection we see at the end of next year and that's really coming I clearly you know as we bring on 30000 barrels a day of new production into the two new.
Thermals plus of course, the up the project in and satellite development of Ugly won so those will those helped on the enhancing cash flow, but on the flip side of that we're also seeing capital really falling off as we get towards the end of next year as again, we're seeing some big broad.
Checks out you know come to the end of their Ah, they're big spend period, including cough, which of course is finished at the end of this year and then as as we go into next year 29, one ramps down some of those thermals ramped down and the West White Rose project, we were coming out of the heaviest.
And part of that project, a well that project doesn't come on until the back end of 2022, the last year's always really hook up and much much less intensive from a cost standpoint, a than where we are now and as we said earlier that project seems to be going as well or better than sort of what the assumptions that we put in.
Around Investor day in.
In may so so we still see that cash inflection point coming we still see.
The balance sheet still in good shape, one thing I should point out is when you look at the data at the end of this quarter. The debt does not yet reflect the proceeds of the Prince George sale that was still up to come in and and also well we've got business interruption insurance payments agreed with the insurers in the quarter and book Cosan.
The quarter the actual cash still is coming in the next few weeks. So there's about you know somewhere in the order of three and 350.
Billion, plus that's kind of not in the end of quarter debt number that is kind of in the mail I guess, you could say, Jeff yet on that until that point on in that dad. We've learned receivables increased by about 300 million Canadian in the quarter.
Q2, and that's really driven by the business interruption insurance proceeds and we have some crude oil and things on the east coast that were in the process of collecting just so for that color and I think just add on to the midpoint on David engine in proceeds are returning cash to shareholders. As you know we laid on the plant in Investor day, our priority is.
Executing and safe and reliable operations, and then generating cash returned to shareholders that is our bias and priority and Rob talked to the inflection point on cash flow will be prudent about returning cash to shareholders and will bounce next year.
And and making sure that a you know we're going through through next year, but our priority is as proceeds come in how we're comfortable with the commodity environment into like and we seem to cash flow inflection point getting closer it does theres some out of catalyst there through the year.
Great. Thanks, guys. Thanks.
Our next question comes from Emily Chang of Goldman Sachs.
Thanks, guys can you talk about some of the mall slightly more onetime type of items that impacted earnings. This quarter. So just thinking about the higher than expected business interruption insurance payment and also the timing made ability of that $113 million of equity distribution from the as you can make the Asia business that please.
Yeah, I know it at all talk to that so I'll start with the distributions from the equity investments.
I wouldn't view it as a one time, although I. We do we did have I'd say, a true up and distributions in the quarter, but I would expect the distributions on a regular quarterly basis ongoing which is really your operating castles less any capex in the venture.
And so that was a little bit of.
You will be a regular occurrence, but this was a what I'd say the larger true up number two on the business interruption, a we've collected about 225 U.S. <unk> dollars to date.
Time of the incident.
Yeah, it's a really whereas with the differentials where they were last year. The cracks in the light I, we're still in the process of collecting via the L.P. calculations with our insurance providers. So I would expect that on a on a regular basis. We have coverage through to April next year, and so expect that and it's really based off market metrics.
And the LP model. So it's really reflective of the operating cash flows as if the refinery were up and running.
Yes, they only thing I would add to Jeff's comments on that is that at the nature of doing the calculations agreeing with them with insurance companies and then getting the payment means that you know in reality, we're kind of Bill you know your these are delayed payments. If you think of it that way so well now weve now that we've oh.
Absorb the delay at the start of the incident, what you'll see is at the end when the business insured interruption insurance runs out in April you'll still see payments come in probably Twoq, you and I wouldn't even be surprised a bit in threeq you as we kind of collect the money that was really owed to us from you know the early days of the incident.
Got it makes sense and just one more question. Please.
Around production guidance for 2019, I guess, what confidence do you have in reaching the bottom end of that that target does this require all operations go exactly to plan or is there any room for error. Both Dan. Thanks, Rob do you want to talk to that yeah. This is Rob Simons I mean, clearly having significant amount of production under a quarter in Alberta.
As putting some pressure on on our totals.
That's certainly right now it doesn't everything does not have to run perfectly obviously, we can have a major problem anyway.
So right now, yes, we remain confident we're going to get to happen towards the bottom end of the range.
Our next question comes from Phil Gresh of JP Morgan.
Hi, there.
First question just on the downstream side I know you've talked about the business interruption proceeds so that was helpful.
You have guided to a specific level of operating costs that any into U.S. specifically.
Excludes the costs of superior, but obviously, if we look at PML. The total cost per barrel are quite a bit higher and so I'm just trying to understand how you expect that the cost side an equation to progress.
And how much of the I guess, one time headwind, we're seeing from from the superior costs and the operating line item.
Yeah and also as you know what Weve said a couple of factors. So the dollar per barrel throughput is obviously negatively impacted as you have ongoing costs and superior. So that is what I'd say is more one time from not metric as we're still incurring that.
And so I would view that as more one time, we get up to normal operations. Your Darla dollar per meal, we with adding or per barrel will normalize from there and then it really gets in I think in prep work and some reliability integrity work and the other assets in the pass over to Jeff for further comments [laughter].
Hi. This is this is Jeff Brinker <unk>.
Aside from the B.
Curier is Jeff just mentioned I think the biggest Jerry we've seen unexpectedly high operating costs. This year was at their Toledo joint venture leader has had some.
And the turnaround the went much longer than we had planned its two ends of the a deep maintenance costs, there were higher and especially maintenance costs per barrel were higher than expected I think across our are operated assets are operating costs are largely where we expected them to beef and I mean, obviously toledo backup running full rates of running reliably so I don't expect.
It was something that higher cost of we sought to lido to continue either.
Yeah, I guess, if I take your guidance seems I think 720 to 770 per barrel for this year and I think a run rate being closer to 10. So is it fair to say you're tracking a bit above the 770, but the rest of that its superior cost.
Thats a fair summer.
Okay.
Got it.
Well I guess.
The broader question as we look at 2020 the guidance from the analyst day is that capital spending will be up a little bit versus 2019.
And I know there are still several thermal projects you have in the docket here to grow production, but is there any is there any I guess contemplation of.
As I guess Westway grows is continuing to have the spending ramp that you would consider.
Maybe slowing that production trajectory to generate more free cash flow.
And less of a capex headwind next year or is this is this something you're pretty committed to and and just in general is our capital spending flexibility I guess the broader question. Thanks.
Yeah, Let me address that then then if Jeff has any other things that we'll I'll turn it over him, but a essentially you know capex in 2020 is relatively a clear I think what you will see and we'll come back to this when we put out our our guidance in December is.
That you'll see some impacts a further capital efficiency. So I think so I think we think we can we can actually deliver what we're planning to deliver with a little lower cost as as we look forward and we'll update you on that in December .
And then further out of course as you go further out.
There is a little more flexibility and there's a little bit more of an opportunity to do a little bit of trade off on volumes versus versus capital and we're looking at that and again, we'll update that in in December I think our you know what I'd say is that the growth that we're planning to deliver a.
Of course cough will you know the the crude oil flexibility project is finished the 29 ones actually in a fairly advanced state and those two thermal projects that are doing being delivered next year old towards the end of the their capital spending program. So I don't think it's going to affect.
Production growth in the near term very much and it just may be a little bit of trade off with that the total scale. The capital program over the five year. So if you recall when we did our Investor day, we brought down the five year capital spending I think we took about 1.2 billion or so out of the capital spending at least that number in the back from my.
Mine.
When we did that I think as we look at it going into this coming year between capital efficiency and a little bit more up looking at that trade off I think we think theres, a little bit more room to bring down that a five year capital a number and we'll and as I say, we'll update you on that in December when we kind of just put.
I would our guidance for next year, Jan just add a little bit of color, where there is some flexibility in the capital a is really in our onshore space and you know your western Canada's Vsan and ER and our coal production assets, but it's probably just will come up with guidance and but our priority really is no. Those those projects that we just highlighted in executing through and and.
Ultimately returning cash to shareholders and I guess, the only thing I'd highlight on that is again with the plan last year of course, we had a big positive free cash flow inflection you know going into 2021, which feels like a good place to be in and hopefully well we know that these changes will only.
Improve on that kind of picture that we set out.
Okay. Thank you.
Our next question comes from enough Gupta of credit Suisse.
Oh, Hey, guys I'm trying on Sundays as these men you did touch on coming down by 10000 bottom and I'm bought in December , but again like how would the production Lady between Sunrise stuck or well since youre jobs like when would you be looking to ramp up some I'll bring down some.
Management on these loans.
Yeah, Yeah, sorry, if I understand the question correctly privates about sort of how do we prioritize where we take all quoted cuts.
Right so.
So clearly for us would be too there's a number of criteria that go into that the predominately it's about a about the best Netbacks. So we've historically been cutting back our heavy oil coal production assets, then sunrise and Tucker have both been impacted I'm right now we are.
Looking to to bring up Sunrise Sunrise is quite capable still running over 60000 barrels a day at that nameplate kinda piece and as you've seen we've been running that below so thats. The predominant area now the other two areas over the last year, we haven't been investing and so that they didn't renew some decay.
Client in those assets and so you haven't got a lot of extra capacity. So sunrise is the predominant we would go to.
Second question is more on the macro site. When do you think the government defense, but kind of announcing something on the real D.. We had been heading for a long time normal people are optimistic it would happen. It's just what's the possibly timeline on this study to look or Desmond deals.
Is Rob Peabody again, yes, I certainly was optimistic I amongst the other people as well, but we haven't really heard anything I hear rumors again that we're going to hear something but.
So predicting these political outcomes it seems to be getting more and more difficult.
Frankly, and you know I think the main thing about that is that I just to emphasize you know our strategy is still you know has all our production growth is in really coming in cat in Western Canada is coming from scratch won so it doesn't so it doesn't you know it's it's not hurt.
By levels of quotas in curtailments and the other thing I'd just add to that I think is that you know unfortunately because of.
You know because quotas have held back a lot of people, making investments in Alberta.
Including ourselves.
You know the capacity as Rob alludes to that you can immediately bring on it.
Quotas went went away starts becoming less and at the same time the pipeline companies have actually been doing a pretty good job of creeping capacity in their pipelines I mean by the end of this year I think the number that I've been told is they'll have about 270000 barrels of additional capacity on compared to prior when.
They went into a when quotas were first introduced so between those two things there's actually I think the quotas are fighting less hard on most producers and where we see that is in the kind of secondary market around quotas. So if you want to buy them.
Some months or a little tighter than others, but we've been through a couple of months here, where there was lots of a quota just available to go a purchase so again I think I think the problem is becoming less acute but part of the reason is becoming less acute is because the quotas have been on long enough they've affected investment enough that its reducing.
The total amount of capacity, that's kind of being held up.
And the last question then one Enbridge moving do you know.
In fact at capacity number of produces high double digit, including Husky, Oh I'm just trying to understand we are being that process. So how do you see back in time process playing out at this stage.
Let Jeff were incurred after that.
This is this is Jeff Francoeur <unk>, Yeah, we're not we were among a number of other shippers on the pipeline that were concerned about the process of converting the pipe to the contract capacity. We expressed those concerns I I'm happy to do to be energy regulator decided to to step in and have a review of the process.
For a full continuing with the open season, I think Thats a welcome sign and goal will will participate in that review along with the rest of in of industry, I, suppose and and I don't know anything more about the timeline of that some of the regulator has said.
Thank you so much.
Our next question comes from Prashant Rao of Citigroup.
Hi, Thanks for taking the question you moderate a little bit more specific here I was wondering I'm on the corporate segment income line.
It looks like you know there were some some benefit there in the quarter to AFFO and Tonight income just you know there's moving parts there and so just wanted to get a sense of how much you've got it may be reasonable the read forward.
Looking at a lower corporate expense going on how does it fit into kind of your thoughts on your previous coming from capital framework ahead.
Yeah, So a couple of things.
We are within where we'd expect it but there's a couple of longer term what I see benefits is obviously, we'll have cost a cost reductions here through the coming year dark becoming period with that some of the changes. We've just recently made a number one and the only thing that I'd highlight just really is.
In the corporate segment up for this quarter is just really the stock based compensation is the only thing that really kind of moved I think everything else is within expectation, but we'd expect savings might see longer term through the coming years with some of the recent things that have occurred.
Okay. Thanks, and then the just a quick follow up on a superior now that construction has begun could you maybe give us a little bit more color on.
What needs to what it sort of the stages of construction there like what are some of the longer lead items that are on site.
As much as you can just goes we've all done on what are the units maybe that need to be rebuilt. So that we can just kind of get a sense of how much cash needs. We put in before we get operational in 2021.
Yeah, and general answer that if things drive yet yeah. The we're really happy that we got the construction permits issued to us at the end of September and that was that we said before that we were hopeful we get them by the fourth quarter is that was actually even a little bit better than we had we'd hope to get them get them in hand.
So now we're in construction phase, we're doing Earth works on site.
Demolition is largely complete we've got a couple of more items of demolition to get done but that will be well done by the end of this year, we expect.
And the in also within a month or so we'll be starting to do piling and civil work and that the site. So really we're working.
Right right into construction.
The units that were most affected by the incident, where the crude units in the FCC and that's where most of the construction of effort is focused of course, although we are doing as well some of them safety and reliability enhancements and some other units, especially the alkylation unit at the site.
And yeah we.
We have a major equipment ordered will have major equipment starting to show up on this later on the ended the year beginning of next year and you'll start to see the landscape of the refinery change in a positive direction construction will be heavy all of next year and we'll be in commissioning and startup sometime in 2021.
Okay. Thank you very much that's very helpful color I'll turn it over thanks again.
Thanks.
Our next question comes from Dennis phone of Canaccord Genuity.
Hi, good morning, Thanks for taking my questions, maybe just a bit of a follow on to the superior reconstruction or one of the questions that I had was just around you were talking about a few upgrade both within the context the safety as well as expansion of the throughput I was just wondering if those traditionally not covered within engine.
The proceeds so how should I be thinking about the cost or Capex do you guys and how that shouldn't we be look out over the years rebuilt.
Yeah, I know you're right on that on his perspective of the insurance covers or.
The rebuild portion kind of replace like in kind.
New technology, basically, but you know that enhancements or you know you're you're probably in the 100 do you know 200 range give or take a and obviously those are economic but that's kind of a ballpark to have on it.
That does this is rob just a bit more detail on that indeed, I mean the.
Component, that's not covered R&D those things that it making a refinery better. So we're moving from 40000, because you'll recall, we kind of swung refinery between heavy and light once were redundant, we're running 45 and be able to run full heavy.
Insurance is clearly not going to do that Jeff's point, though that's very economic and that's what you should think off and it is in our plan and it's been in appliances Investor day is somewhere in that 100 to 200 Canadian required for husky to put into the refinery.
Okay. Perfect thing My second question here is just with respect to your thermal projects you've been traditionally running a kind of three simultaneously plus or minus projects on on an ongoing basis I think as you get into the late stages of when as you complete projects that kind.
It falls to kind of two two and a half given kind of the restructure of your workforce and so forth should we not expect kind of that run rate three three and a half type of projects on a go forward basis from the thermal thermal side of things.
[noise] Yeah. This is Rob Navy to try and.
Can you some clarity here if you recall two years ago, we had.
A process of running two projects here in terms of coming on stream. So that means there's a number that mean train at any given time to your point as we highlighted at Investor Day, we are coming down from two a year or two three every two years. So one of the hot so indeed, the number in train will start to decline and that was what was in Investor day and.
The the staffing decisions that were made up consistent with that so but we will continue running at that three every two years.
Okay, Okay, great perfect.
And then.
Final one here is initially the proceeds from Youre, the P.D. asset sale and potentially this retail gas vision at work should frankly first go to the balance sheet. Obviously, that's in a fairly good shape right now how should I be thinking about capital allocation decisions like on a year for type of Uh huh.
Vision and open it back thank.
Yeah, I know, it's Jeff here is a you know you're absolutely right is will balance out a nor balance sheets and in good shape as the proceeds come in a you know well balanced.
Valves that the balance sheet for lack of outerwear DAF with returns to cash to shareholders that those are two ultimate priorities and you know as we hit the cash flow inflection point in 2021, and we have a you know we're closer that will be we'll look to a you know hopefully a enhanced returns to shareholders, but we'll balance that through the coming period just to make sure that that were good through here.
Sure Hi through the execution, we bring on these two thermals next year in 29 one.
So that's the way to think about what it is balance sheet and returns cash to shareholders are the by some priorities.
Great. Thank you.
Our next question comes from John Morrison see RBC capital markets.
[noise] O'neil.
Jeff just to clarify modeling superior is if it was running on a three month lag basis is read what you believe is the most realistic way of trying to match the insurance proceeds versus modeling alone alive or non like basis is that correct. There just wondering if you're right I think that's a fair a fair look I you know clearly on the start here as you go.
Oh through and you know you do the Validations you work through the L.P. model with your counterparts on the insurance side, it's a little bit lumpier and irregular from that but that's you know that's where we'd like to get to you and I think that that's not a bad assumption.
[laughter] price realizations in both Western Canada, and Atlantic seemed a little bit strong in the quarter was was there anything specific that drove that we should be aware of.
I'm not really and we'll have the you know we can have a in detail. The IR team follow up with you after as well.
Okay.
Just on the superior rebuild I realize that you're now on the construction phase and gearing towards 2021 from delivery perspective, but is there anything from a regulatory or permitting perspective, either at the state or municipal level that could delay.
Delivery date at this point or is it really just your traditional construction risks that you face or sort of differently I guess do construction permits equal all permits. This is Jeff. We we have all the permits you need to construct and operate the refinery.
Okay.
Maybe this isn't a good one for you as well, Jeff, but any additional color you could give around.
Helping us quantify the magnitude of the enhanced margin capture as you think about completing the the Lima crude flexibility project heading into 2020.
Yeah, Okay. The.
The main thing that we're accomplishing for the that grew up Accidently project, obviously as being able to go up to 40000 barrels a day of heavy processing, that's where we're doing so much work at the coke or newco, New mean fractionator and some really a lot of work on the corporate.
One of the more maybe less heavily advertised and in a positive aspects of the call project has also been just higher overall throughput and reliability across the whole refinery and you'll notice that two years ago refinery nameplate capacity or kind of advertised Max capacity that refinery was 160000 barrels a day.
This year, we've been running consistently 175000 barrels a day all your better things 175.3 is the throughput through three quarters and that's that is because of cough project investments that have been done in equipment that we've replaced exchangers furnaces that sort of thing. So we've been able to reliably run that refinery at a much higher.
Great actually than we were ready to do advertise and actually I was even a little bit higher than we'd expected there were very positively surprised by that.
And that so so there's really two economic benefits of cough, one is higher reliable throughput and the second one is going to be a course of up to 40000 barrels a day, we probably will run 40000 heavy all the time unless heavy differentials are really attractive, but we'll have the flexibility to do that when it makes sense.
Then dingy I'd also point out that Jim.
Extra 50000 barrels a day on this is 1.51 0.25, Prince George refineries, so even with the divestment of Rins, Georgia refining capacity is actually going up.
Perfect. That's a that's very helpful.
Rob you talked about the organizational changes and staffing reductions and release, but is there anything more you can share around what you're trying to accomplish their where those as simple as simple as largely project based rules are you trying to just round with a lower headcount or was there any structural changes in the business units and how they operate and how your process work flow within the organization.
Yeah, I mean, let me let me touch on that I mean first of all these word to reaction is word sort of a short term reaction to any sort of recent political developments or anything like that I, just I see some of that stuff from people cost be Twitter I still don't have a Twitter account, but but a you know.
So that that's all sort of Oh, the be yes, it's probably the best way to refer to that I mean, we this is old round. The strategy, we laid out at Investor day, which which clearly involved focusing the portfolio over time lowering the capital expenditure overtime and of course at.
One of the so what we really have done now and it was always in the plan was to then okay. Let's go back to the organization and make sure. This organization is.
Yes configured to deliver that plan and not configured to deliver some big upside if oil went to you know much higher priced let's let's focus the organization. So it's it's quick to deliver that plan very efficiently and that's what we did so your comments about the way we work and how we work that's absolutely.
The correct a one of the things that over the last little while it's happened of course is work has reduced the capital program came down you know we would often take some very good people and put them into other groups, which resulted over time with spans of control getting narrower than you would like to see and.
So one of the things we did as we went through the organization rigorously and made sure that spans of control were correct in there weren't extra layers in the organization and all these things so so and again Unfortunately, what that meant as a lot of you know very good people who've done a lot of great workforce, but you know you know there just wasn't a position for.
I mean that organization anymore, and and certainly I, thank them for their contribution to their company and a it and it's always unfortunate when you have to do these things, but but I think we're now positioned in a really good place to deliver this plan I'm actually I think the long term affected the organizational be very positive.
Because you know people how much more full jobs to do and ER and you know we can get on and deliver.
But so that's really helpful. Maybe if I could squeeze one were in actually just a I realize that you have solid market access.
If we were to see a real above curtailment of program announced earlier this week or next does that change your desire to have any exposure to rail.
Versus your current stance of really not needing it if all of a sudden you could produce an extra two or 3% more than you otherwise would be able to any unconstrained world.
Yeah, I just say on that you know we don't have a major export capacity issue at all I mean, frankly, we have a quota issue [laughter] not not an extra week everything we can move we can move without rail on our existing pipeline commitments and everything like that which is helpful. Because that's the cheapest way to move stuff and.
So so as I say I think in short I'd, just say, we don't have a we don't have a.
I did issue with export capacity, we haven't had an issue with quotas. So your point is which is quite right is if you link quote goes to export would that give us more incentive to put something on on a on rail in the answer that is at the margin potentially but we would just have to work through the economics and do.
I think what you wouldn't see us being one of the leaders in taking long term rail capacity in order to meet that sort of requirements. Because we there's just not enough in it for us I don't think.
That's very helpful. Appreciate the color I'll turn it back.
Our next question comes from Mike Dunn of T. M. P first energy.
Thanks, everybody.
Good morning, a question I guess, probably for Jeff, but you do have some expensive coupon notes maturing here.
Earlier this year are those.
I presume that or is it right to presume that that's not necessarily gonna get paid down from a.
From a from cash on hand, and an asset sales I'm, sorry, I'm, just I'm expecting I guess either through credit facilities or.
Term note of new notes that would be a largely refinanced yeah. I know, it's also I think theres. The U.S. dollar Ah notes coming due here in Q4, we've got a you know that's 750 U.S. called him doing Canadian we've got over 2 billion in cash we refinanced 750 U.S. dollars earlier this year at a lower rate.
So I know you know I'd look to obviously these these notes will pay down and then we'll evaluate market conditions. We do have a you know maturities coming due on the Canadian side next year, and we'll evaluate where the market is with that and I looked at valves liquidity in the overall capital needs. So the existing notes on the U.S. dollar side, that's coming do we work you know.
Okay and then.
Regarding corporate costs, I mean should we be building in some severance costs here in the next quarter or too.
Two or a into our estimates yeah I know I know you would you would see this really manifest itself. It's it gets a Q4 items. So I think that's a that's a prudent thing to do.
And we'll give you again in December we'll give a bit more color just again, so that you have some guidance enough.
Okay. That's it for me thanks. Thanks.
Our next question comes from a seat Sen of Bank of America Merrill Lynch.
Thanks, Good morning.
Two quick ones first robin sustaining capex with the changes in your portfolio, both upstream and downstream and further efficiency gains how do we think about sustaining capex versus I think would you guys. If I outlined in the 1.8 billion dollar level in coming years.
If there's you know I don't think they'll be a major change to the 1.8, we'll go back and look look at that again and if theres any changes to that we'll we'll we'll talk about that in December as well, but I wouldn't I wouldn't rush out to model anything because you know basically the program of projects is essentially the same but.
Got it and on I'm, just thinking about your.
Your analyst day in the 20.3, a plan and could you remind us would the cumulative growth capital in that.
Plan was to be skis plan was and you.
<unk>.
Perhaps the sustained low oil price environment, Let's say 40, 45 dollar world how does that change philosophically conceptually.
You want it yeah. It's all talk you know I think the growth Capex a is about 11 billion over five years. They you know when the way to think about a you know a lower price world and all of that we really reduce capital through that Investor day in and we talked about the inflection point here in 2021 the balance sheet.
The strong I, we're working through you know obviously the PG disposition weeks local was this a expects to close this quarter and warm we're well at bats, and working through the retail review as well. So you know waiting for US is once you want to hit that cash flow inflection point, we're through a 29 won the two thermals. We're in a good place in will balance of these pro.
It was he's returns to shareholders in the balance sheet over the coming at 12 months.
I appreciate the color. Thank you.
This concludes the analyst question and answer portion of today's call. We'll now take questions from members of the media.
As a reminder, please press star and one on your Touchtone phone to ask a question. If you wish to remove yourself from the Q you May Press Star then too.
Our first question comes from Dan healing of the Canadian Press.
Good morning, guys. Thanks for taking my question I had a I had a question concerning the a the layoffs. This week, there's been tons of speculation some saying there are dozens laid off something there were 100.
Never understood why companies want to indicate why what the.
With the size of of these things are recognizing that it's an unpleasant thing can you give us any indication to all of of what even the percentage.
I might have been.
Oh, well, we don't we don't we make a policy of not commenting on the the exact numbers around layoffs, but.
You know so so you know that what I do want to say about the layoffs because again some of the others speculation that that I've seen a there is that these were in any way you know roughly reflective of its a recent political developments either either federally or provincially.
You know we continue as a company we work with whatever company whatever governments, we haven't we worked constructively with them and you know like I guess any any company, we like some things governments do and other things were not so pleased with where we continue to work to try to get them to do things that we think are good for good for jobs and.
For returns to shareholders and you know so our ability for pensions and things like that so so so I I just want to say again, you know we set out a plan it had their investor day in May last year, which and involve less capital spending a and a lot of that of course has to go back you have to go back to.
Things like just oil price and you know the general oil price in the world and things like that and so that that was a prudent thing to do but eventually when you spend less you're going to you you need less people to spend that money as efficiently and so that's what the so that's what these job cuts where if I.
Okay, and as a follow up the NDP and some others charging this week that husky is benefiting from lower corporate taxes in Alberta, and yet you're reducing people and given what you're saying about how.
You're spending less obviously paying out last as well and shouldn't that support more jobs.
Yeah, I you know so and so let's just backing up a little bit lets say you know where overall our capital spending program is one of the strongest in the industry relative to our company a and that's because Ah you know I again, our core part of our strategy is about reducing the but the.
Brent price that we need to breakeven as a company and make the company more resilient now we would love to spend more money in Alberta, but unfortunately in Alberta, which is a very specific case very different systems catch while where we're still spending at very high levels Derrick.
Quotas in place that mean that we could spend to develop crude oil, but then they wouldn't let us sell so that doesn't make any sense either so we really appreciate the tax changes and I think they are the right policy I really believe that the premier is on the right path with that and certainly they will incur.
Kurt just to make whatever investments weekend, but we are in oil company and so you know producing with what we produce is actually quite important to us and so so that's just a short I'm, hoping that still a short term issue I know you know and I'm not trying to second guess all the judgments he had to make in making that decision.
Isn't there there could be very good arguments are we've had conversations about that but but for us at the moment that restricts us from being able to invest in Alberta, but I do want to emphasize we are continuing to invest strongly in Saskatchewan very strongly in new Finland, a and we are invest.
Staying very strongly in the United States in our refining system.
Okay. Thanks very much.
This concludes the question and answer sessions I'd like to turn the conference back over to Mr. Rob Peabody for any closing remarks.
Okay. Thanks, very much for everybody who participated in the call really appreciated and really appreciate the questions as well just drop off you know we made good progress in Q3, and delivering our plan milestones safely and reliably and we maintain we really remain on track for the rest of the.
Year, particularly with the you know with the goals, we set out at our Investor Day earlier. This year in May. We also look forward to updating you on our 2020 plans at our guidance call in early December . So just thanks again for joining us today.
This concludes today's conference call you may disconnect your lines, thanks for participating and have a pleasant day.