Q4 2019 Earnings Call
Fourth quarter 2019 financial results call.
This time all participant lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you would need to press Star then one on your telephone if you acquire any further assistance. Please press Star then zero I.
I'd now like the hand, the call so to your speaker today, Trevor Bell Vice President Investor Relations. Please go ahead.
Thank you.
Operator, and good morning, welcome to sort of course fourth quarter earnings call with me. This morning, our Mark Little President and Chief Executive Officer, and Alister Cowan Chief Financial Officer. Please note that today's comments.
Contain forward looking information actual results may differ materially from expected results because of various risk factors and assumptions that are described in our fourth quarter earnings release as well as in our annual information return and both of those are available on SEDAR guar and our website Suncor Dot com.
Certain financial measures referred to in there.
How much you're not prescribed by Canadian gap for a description of these financial measures. Please see our fourth quarter earnings release.
Following remarks, well open the call up to questions no handed over to Mark little for his comments.
Good morning, everybody and thanks for joining us today.
Even though the commodity market continued to be.
Hi, Alan 29 gene Suncor generated quarterly funds from operations up 2.6 billion.
Ended the year with $10.8 billion.
It's from operations, a new annual record.
Even with W.G.I. down nearly 12% year over year.
Last two years.
This demonstrates the resilience of some of course business 28 gene highlighting the strength of our integrated model through market volatility well 29, Jane built upon this foundation by focusing on value over volume as we operated production curtailed environment.
So for the second you're in a row, we generated annual funds from operations in excess of $10 billion.
We continue to deliver.
On our commitment to increase shareholder returns Suncor returned $1.1 billion in the fourth quarter and 4.9 billion.
29.
Dividends and share repurchases to shareholders. This represents approximately 45% of our annual funds from operations.
Our ongoing commitment to shareholder returns its demonstrated through the repurchase of over 9% of our outstanding common shares since.
May 27 gene and with our board of proving up 11% increase in our dividend Twentytwenty will be the 18th consecutive year of dividend increases.
The dividend increases supported by our strategy to grow a structural cash flow up our business by $2 billion annually by 20.
23, and our board has also extended the share buyback program by up to $2 billion over the next 12 months.
Now moving to operations.
Across our oil sands assets on a full year basis, we recorded the highest S. T O volumes in the company's history.
Which generated an additional $800 million of additional funds flow for suncor relative to 2018.
This is a result of our strategy to maximize value based plant at Syncrude as well as improved reliability seven occurred.
29 came with a third best.
Operating utilization that based plans in our history year over year production volumes were relatively flat. However, there was approximately 12% increase in.
C O production.
Although this is put pressure on our 2019 production volumes and cost per barrel metrics. The result of this.
Strategy as higher margins and cash flow.
At Syncrude remark the second best annual production in the assets history, which is quite something when you consider that there was it was in a year, where mandatory protection curtailments impacted the operations.
Performance supports our.
To your journey to 90% utilization and $30 per barrel costs at Syncrude.
Well syncrude aside its own challenges were increase or we're encouraged by the progress that Syncrude team has made and 29 came.
Four shows continued to.
Curtail.
In the quarter, which restricted its performance and its potential to 88000 barrels per day, thereby increasing the cast cost per barrel metric.
Offshore assets had a solid quarter with 116000 barrels per day of production Hibernia returned to normal operating levels while he.
Ron I know that both continued to ramp up partially offset by natural declines in the UK North Sea.
29, Jane marks a new annual record for downstream funds from operations up $3.9 billion. In fact, Q4 29 came marks the 10th consecutive quarter with financing.
Access of $750 million refinery operating expenditures continue to remain low at $5 per barrel, reflecting our focus on cost.
Despite all that we had two issues in the corridor as most of you are aware on December 19th we noted we were notified by.
The regulator and Newfoundland and Labrador the shut in Terra Nova.
This is our regulatory issue and we're working diligently with the regulator to get the issues satisfactorily resolved and only one that occurs do we expect the asset to return to operations.
I'll remind everyone that our van.
Well you safety.
Above all else is foundational to everything we do at Suncor and no time did we operate safely.
We did have an operational issue in the quarter related to Mci River, which is disappointing the facility has been out of service most of December.
And is currently shut in for repairs.
In light of the continued mandatory production curtailments in Alberta downtime is anticipated to have no material impact on our 2020 guidance.
With that I'll pass it along to Alastair to provide some additional financial context, including an overview.
If the impairment that we took in the quarter.
Thanks Mark.
You previously highlighted suncor was able to generate $2.6 billion of funds from operations and the quarter. Despite of the in part to continued monetary production curtailment planned maintenance downtime.
Uh huh.
These results demonstrate concerns of our integration on flexibility within our business model.
During the fourth quarter price realizations and oil sands were lower than the third quarter as differentials widen however, our integration mitigates the majority of sorts price volatility.
Our production cost cost.
Per Boe across oil so were impacted by monetary production curtailments are focused on high cost at higher volumes synthetic oil production on increasing natural gas prices and the courtroom.
Well the expected removal of curtailment twentytwenty and as embarked on how we operate a roster.
Yes, you can expect us to remain focused on driving down costs right or business.
Due to the decline in our forecasted heavy crude oil pricing.
On the increase in the capital cost estimate for the West where your Roes project, we recorded non cash asset impairments in the fourth quarter for four to.
Sales underweight rose up $2.8 billion on 400 million goals also talk suspects.
These assets continue to perform operationally and deliver free cash flow.
We continue to see significant upside value in our company shares we executed on our share buyback program during the.
<unk> spending approximately $450 million to repurchase 11.1 million shares.
As Mark said at 219 returned $4.9 billion to shareholders, including $2.3 billion on share buybacks rep repurchasing 3.5% overload.
Our ending shares at an average price of four to one goal for sure.
The philly or dividend to buyback program equated to a total shareholder return of nearly 80% using an average share price for the year.
Well the strong balance sheet, which includes over $400 million debt reduction and 29 too.
Sure.
Thank you to focus on increasing shareholder returns as evidenced by the 11% dividend increase on the extension of the buyback program as Mark mentioned earlier.
It's important you highlighted the strength of our shareholder returns.
For the last three years, we have returned approximately 14 billion.
Dole stores shareholders. This amounts to cumulative returns of $9 per share or approximately 20% over current share price. These returns are reflective of our strong financial position no near term requirement to pay down debt.
Resilience over a free funds flow.
I was really.
Forward the combination of this foundation on the 2 billion dollar increase in funds will go well set up the company to generate tremendous value and increase shareholder returns for years to calm submarket when you're talking about to you for some closing comments.
Perfect. Thanks Alastair.
As you would expect inline with our.
Our capital discipline principles were carefully evaluating future projects, we take into account the current environments, a volatile commodity prices market access challenges and government intervention and to crude markets well at the same time, we're making progress on new technology developments, which has the potential.
So just significantly reduce capital and operating costs greenhouse gas emissions and water use.
These factors in mind, we have decided and identified a number of opportunities to de bottleneck firebag, including the completion of our emotions handling project.
Year.
Integrated well pad development program and expanding our solvent Sag D program.
Our near term expectation is to have actual firebag annual production at nameplate capacity of 203000 barrels a day.
2020.
One assuming no production curtailments.
We have the potential to added another 20 to 30000 barrels a day of lower capital intensity.
Production by the time, we get to 2024 in 2025. Some of this is an execution and some of it is still being scope.
As a result of this opportunity we will differ Meadow Creek, and cichy replication shack sanctioning until 2023 at the earliest.
For downstream.
Given project economics, and the deferral of significant bitumen production growth, we have decided to know.
Longer progress the Coker project at Montreal refinery.
That said, we continue to look at alternative lower capital investments across our refineries to support our integration strategy.
Lastly, we expect to file a regulatory application in Q1 for the base mine.
Extension to potentially replace our base plant mines as they reach their end of life around 2035.
I want to emphasize this application that's not a project sanction and understand that the base mine extension is only one of many options under consideration.
Jason Wittes a final sanctioning decision approximately one decade away.
We feel that filing the 20 getting 2020 is prudent under the current regulatory process, including the effects of the new impact assessment Act to ensure adequate time as provided for the regulatory.
Yes.
Should we choose to extend the mine. The plan is expected to incorporate non aqueous extraction technology, which significantly reduces the cost and environmental impacts of mining oil sands versus our current operations.
Yes sanction.
Extension would say.
Difficultly contribute to our commitment to reduce the emissions from our operations and it's in line with Canada has got a global commitments and takes advantage of Canada's important strategic resource.
These decisions continue to advance our strategic priorities, while demonstrating capital.
And a deliberate approach to maximize shareholder returns from each of our investments.
Looking at the year ahead, we will remain focused on safety and reliably operating our assets, we will execute our plans to grow our free cash flow by $2 billion annually by 2023 well.
Continuing to make progress on our SG targets are 2020 plans include completing deployment of autonomous haul trucks at Fort Hills.
Beginning construction of the cogeneration units at baseline.
Continued deployment of our past tailings management technology.
Optimizing our supply and trading organization and completing the suncor and Syncrude long awaited.
Interconnecting pipeline.
In the second half of 2020.
And as part of our digital strategy, we have completed the planning for a data enabled enterprise wide.
Vessels that will improve the effectiveness and efficiency of our business. We expect this program to deliver approximately $250 million an annual benefits at a cost of approximately $450 million, which is included in our capital guidance sanctioned projects along with this initiative.
Currently represent approximately 1.5 billion or 75% of the 2 billion.
2023 funds flow goal.
We understand the need to provide more clarity on our commitment to achieve our 2 billion dollar target to accomplish this we will host an.
After showcase in Toronto on May 20-F to highlight the details and focus on our he SG targets and performance more information well follow on this half day events.
And as we move into the new decade, I'm excited and optimistic about the future were building at Suncor, we're focused on what is necessary.
Sorry for us to be profitable resilient and relevant over the long term.
We're making investments in high return projects in the core of our business, which will increase our cash flow in a sustained way without being dependent on oil prices or egress.
Our history of counter cyclical investments have funded.
Large and increasing shareholders returns as demonstrated by our 11% dividend increase and our extension of the 2 billion dollar buyback program. This year, while at the same time work continuing our multi decade history of being a leader in ESG and deepening our relationships with the.
Yes, and non indigenous communities, where we operate.
With that I hope you can appreciate why im optimistic about entering this new decades with that I'll turn it over to Trevor.
Great. Thank you Mark and Alastair I'll turn the call back to the operated take questions first from the analyst community and then if time permits from the media overtime.
Over to you operator.
Thank you as a reminder to ask a question you would need to press Star then one on your telephone to withdraw your question. Please press the pound King. Please standby, we compile the culinary roster.
Our first question comes from the line of Neil Mehta with.
But your line is now open.
Good morning team and a and thanks for taking the question. So the kick up question I have for you is your Capex range for 2020 is $5.4 billion to $6 billion. It's a it's a wide fairway in light of the the lower commodity price environment, we find ourselves.
Sales and today do you think there's a scenario where you could be on the lower end of that range and then as it relates to capex.
You made some comments around west White rose anything you can provide around that would be helpful as well.
Thanks Mail I appreciate the appreciate the question.
We.
There's no question that we're going to be lucky in that all aspects of the business around cash generation operating cost capital and such.
That said a lot of these like the Cogen project and the and the wind project and many of these projects where in the middle of execution.
We are committed and one thing we do know as to drive shareholder.
Holder value, we need to stay the course and one of the Joyce we have as a strong balance sheet to be able to allow us to when we initiate a project follow that through shutting these projects down to conserve cash although yet if you go back in our history, we did that a decade ago and suffered the consequences associated with it so.
One other things as well be looking to manage any discretionary investments in such associated with that we will be looking at our cost structure and and looking at maximizing cash flow of course.
But we don't expect it to be fundamentally different and I would expect you're still going to see us in.
They declared range that the fairway that we've heard that you described is consistent with the how we've done our capital forecast in the past and last year. If you'll recall, we ended up lowering the upper end of our capital range from five six to five floor in the second quarter and.
And then came in at the.
Higher end of the modified range and so and we'll look for opportunities to do the same thing as we go through 2020.
Perfect and then.
Oh, sorry.
Sorry, White Rose I think as as we've said before one of the challenges we had as we were not happy with how this project was getting.
But I think in the last quarter I said that although this was over spending this was not what we would consider normal overspending and.
And so that this was there was a substantial move outside of what we viewed was a reasonable range for project execution.
Thats a key.
Factor in driving the impairment on White Roes that said, we believe the operator has intervened and been able to put together a project execution plan that we believe that and and that this project is on track to get finished up based on the estimates and stuff that we've put in place so.
So.
So all of that was factored into how we position white rose and they impairment that we took.
Perfect and ER and the file follow up is that you're talking about a path to higher production of Firebag and.
Walking away from and from the Montreal Coker one of the things that's made some.
Core more defensive and differentiate over time is the degree of portfolio in yeah integration just talk about the importance of integration to Suncor and how do you how you manage that on a go forward basis.
Well, it's interesting because we've talked about our range of integration and such and we're sitting within that range where in the low.
He is now around the amount of volume that we have integrated into the portfolio. One of the reasons that we were looking at some of the bigger integration steps like Montreal that would take 40 to 50000 barrels a day of Benjamin into Montreal was the fact that we had a substantial investment program coming around replication with pushing that out.
Out we think that.
Shutting down the Coker project, we don't view this as a temporary staff. We see this is a permanent step in Montreal looking at all the various factors there and then we have other opportunities to integrate barrels. So we'll continue to work at but these are enhancements around the integration the range, we find ourselves in.
Where we are right now, we're very happy with how thats, playing out and and where we're positioned and.
Alright, guys. Thanks, so much.
Thank you. Our next question comes from the line of Greg Pardy.
RBC capital markets. Your line is now open.
Yes, thanks, good morning.
Mark Your base mining ROI is kind of come up as a question of late summer I'm glad you addressed that it's also been seen is kind of a motivating factor to potentially acquire and Meg is kind of come up in that mix, but could you maybe just elaborate a bit more in the game plan you've got in terms of resource runway and.
Then just how acquisitions may or may not fit into that strategy.
Yes.
It's interesting one thing I will tell us because if we're going into acquisition that won't be for resource. We have an enormous amount of resource that if you take all our contingent resource we have about at current production rates about 100 years of.
Of resource. So the reason that we would look at acquisitions is really for three key key reasons, one as a top quality resource and cost structure that would be better than actually building something.
Secondly, there would have to be synergies associated with that and and thirdly, and I think weve.
Proven this in a in the actions and investments that we've taken as we need to ensure and feel very comfortable were going to get a solid return for our shareholders.
But resorts like when we look at the resorts to put behind that we have a lot of resource and the resource we have is rate within proximity to our upgrading complex which is.
What's that by the mine today, so so we're not and so and if you look out at relative to the cost of the other options and stuff on the street, we view that buying resource through M&A right now is very expensive and it's one of the reasons that you know people have asked us for quite some.
Time about whether in Fort hills, or Syncrude, and such and transactions literally have been rumored for years and nothing's ever happened.
It's just a difference between valuation and how we look at it so our plan right now as we think especially with the technology advancements that we're making both in the and since you.
Side as well as in the mining side, we think that its firearm, it's going to be far better for our shareholders to pursue the path that were on at least at this stage.
Okay, Great and you talked about essentially de bottlenecking firebag. So I haven't heard about firebag five or six for some years now.
Is that can you solve unaided.
Sag D. Then essentially and would that be like just one one incremental phase of 20 or 30000 and how from are you on doing that.
Well, it's interesting Greg I'm glad you asked that question because I think maybe one other things iden described well as both in the mine replacement as well as at Firebag, we're leveraging a lot.
Of the existing assets that are on the ground. So it's it's not like what we did at Fort Hills, where you're building a fully independent mine at grassroots costs, we can leverage a lot of the existing assets from.
From NRG utilities infrastructure, tankage, and even some of the extraction facilities.
And with it so it's very different than what we did at Fort Hills.
In the mine that's Firebag, we're not talking about Firebag, five and six week those would be grassroots investment where most of the infrastructure, yes, we'd get a little bit on utilities and tanks and infrastructure, but those were.
Independent built what we're really talking about is enhancing the performance of the first four phases of firebag through de bottlenecking, the facilities and and those sorts of things. So one of the things. We're doing right now is improving the water handling capacity at Firebag as an example.
So.
So.
This would be substantially lower cost than what we what we would do if we were building firebag five or six.
Okay, and it's from or it's not from that you'll go ahead with that.
Well I, we feel very optimistic that we're going to make this work. Some of this activity is underway. So it's one of the reasons in 2021, we'll see our.
James creep up and I think what we will see ultimately and we need to get to a firmer plan in place, but you'll see our volumes start to drift up over time until we get into 20, 425, where you'll see the final steps up where we could we think we can get up to.
230 240.
Thousand barrels a day, so that's actually the past that were on right now and.
And so some of it as from some of it is still be scope and work, but we're optimistic enough that we pushed out.
The replication strategy, because we think that we'll be able to do it a lot more economically for.
The shareholder and a lot lower cost.
And obviously, we would want to do that before we spent grass roots to grow volumes.
Last one for me fill accommodate is you got a lot of stuff going on what what's the next capex, we should be thinking about between kind of 21 through 24 dislike.
On annual basis like are you going to be through a six or six in the quarter billion dollar number the number is going to be generally out or south of that.
We don't give multiyear guidance Greg.
Yes that would be fun, Mark I know away.
I know and I'm sure I'll get the question three more times to see mess it up.
But I think if you look.
Though that the range that we're in this year's kind of where we expect to be in that in the year ahead, and and I think it's a good proxy for how we move forward and obviously.
I think that a lot of the concern comes out around Oh, you take what we're doing them. Then you add on top of that replication. Then you add on top of at the Coca than all of this stuff when people go Wow. This.
As an affordable it's true we have to make some decisions and some of which I communicated this morning.
Okay terrific. Thanks all.
Thanks, Greg.
Thank you. Our next question comes from the line of Dennis Wong with Canaccord Genuity. Your line is now open.
Hi, good morning, and thanks for taking my questions.
The first one just maybe falls along lines of what Neil was kind of.
Maybe hinting at there.
You essentially moved away from the Montreal Coker project.
Is there still consideration around the had been in potential de bottlenecking, and so forth restaurants, Kona and how should I be thinking about that obviously.
In the context of.
If there is some optionality around mine life plan in the extension around the bank and potentially introducing we'll call it.
That you volumes as a potential replacement for some of the component out at the mine then obviously the level of integration isn't as required.
As much on a go forward basis, how should I be thinking about kind of Edmonton and how that plays into that that contract and I've got a follow up.
Thanks, So much Dennis for your comments and questions. It its interests as I see where you're going with this may be the maybe the best way to characterize.
I said and as talk about is.
We're always looking through our facilities to find de bottleneck and opportunities because if we can figure out how to enhance the volume or performance of the assets by.
Some amount at 25 cents on the dollar to Greenfield for sure we're going to do that and I think that and.
And quite frankly, I'd say some of the concern we see from the investors as Wow, you're going to cloud to billing customers into Montreal are you sure. We spent a lot of time thinking about that running all that analysis and concluded that actually wasn't the prudent investment for the shareholder.
But we have quite a significant complex and Ed.
We are looking for continued opportunities to de bottlenecking handset as we have at Fort Hills, and I've talked about Fort Hills before.
We can't really get to it until we can run the facility fall and we can't run the facility full because it curtailment. So so we've been delayed I thought we would have.
The plan at this point in time to de bottleneck.
Fort Hills, So now coming back to your other question about the mine R&D issue with technology as we see it is we've always considered mining technology to be in a certain type of resource and in such a technology to be a very different type of.
Ours.
But now when we're looking at things like radio wave technology, and and solvent with low pressure in such you recovery with in some cases some of the technologies. We're looking at have no steam at all associated with it so greenhouse gas emissions are fundamentally different 50% to 80%.
Lower than when you look at it that way.
A lot of this resource it's just switch technology should we applied to which resource the integration strategy. Yes. If you go back 50 years, when we started up the operation the upgrader was needed to be able to move the mine Benjamin.
But if you look at both the mining technology I talked about the non aqueous extraction.
Not only does that produce a barrel, but the wet but the way, we envision that technology and the way we're testing that as it's kind of like a Fort Hills is that we literally extract carbon from the barrel put it back in the ground. So the upgrader doesnt have the same.
Claiming requirement, but it has the same financial requirements. So really the integration strategy for us is maximizing the value of the barrel and being able to manage the commodity price risk of the light heavy spread so so the upgrader and the refineries are still needed.
Even if it's an instead you barrel or if it's using this new mining technology does that answer your question no I think so and I think the point is essentially utilizing.
Listing assets to be able to I guess round out the most value out of them.
For sure.
Good question is just around the.
Buyback in kind of the timing around the the board renewal essentially on the $2 billion kind of from March forward.
Well I know the discrepancy in timing is where you guys have sex approval up until I think mid may to complete the 5% there and how we should be thinking about the we'll call. It the.
I didn't have share buyback I know in the past your program has never really been robotic and has been definitely more opportunistic how should we be thinking about this over the next couple of months. Thanks.
Yeah, Thanks, Dennis I'll say, though when Fortunately I wouldn't say is you know where we're in the normal timing for when the board.
The book the derivative of the.
Okay.
We said it was on drill a sort of guidance and targets going forward. So that's really well the board has done a set for the next 12 months frequency as purchasing up to $2 billion overstock by box. So I would say about us. The key number you guys into Luca visit administered a precision.
You mentioned, the goes or run getting GA TSX approval to buy stock buyback voters purely on administrative exercise.
So don't think about is a different set of approvals that we started slightly different says it was due to a noted is a maybe a timeline.
The key thing for you guys to know and investments to though is what does the board authorized us to buy buckets, the 2 billion starting in.
Mark and they will review the TSX up of US as the just as I said, it and I was sort of on a cadence perspective, we are typically opportunistic.
You said.
We are now robotic we have a buying bonds.
Levels at lower levels Overstock, we will buy more box so.
Oil prices low as you saw in Q3 last year.
I will buy more buck.
So the slightly higher level, the pace slows down a bit better.
Overall, we are targeting divide up to 2 billion nearby.
Hey, thanks.
Thank you. Our next question comes from the line of Phil Gresh with JP Morgan. Your line is now open.
Yes, hi, good morning.
First question.
Just a follow up on the buyback question, just a slightly different way given the current oil prices are lower than.
And then your framework at $55 Wi Fi.
At the moment.
How do you think about buybacks versus balance sheet. If we if we are lower.
Price environment is this something our short term basis, you'd like to stay committed to the 2 billion.
Range that you just leverage the balance sheet, if necessary or is it yes is it something you want to be ratable each year on.
Now understanding opportunistically quarter to quarter. Thanks, Yeah. Thanks, Phil.
And if you looked at a investor deck of the the solar capital allocation.
Matrix that move leave a you know somewhere between 50 and $60 of Adobe CCI level, we say, we will spread between one and 2 billion goals of buybacks. So it is reasonable.
Compared to really all price is going to be for the years. Those no data move out we've always said, we'd like to target $2 billion.
You know all prices are extremely volatile today, where a 50 $51.
The goal rule headed over 60 so.
I don't think up.
At this point in time to call off where we think there's going to be and I still believe 2 billion is achievable.
Yeah sure understood Okay.
The second question is just on the CFO improvement opportunities Mark appreciate the additional color to the to the billion five number at this point.
I think it'll be rewind back to when you.
Initially laid out these targets the idea was that would be ratable at about 500 million per year from 2020 through 2023, and so as we look at the 2020 I think its slide six where you guys. Yes. So.
Expectation for the year at 55, WT I'm, just trying to understand some of the moving pieces behind that is there.
Some kind of embedded 500 million. The first 500 million is embedded in that guidance or.
Is it is it.
Some of these things a little bit later because of the timing of the.
The syncrude.
Pipeline or just any thoughts you have there on guidance. Thanks.
Thanks.
It's interesting because I would say, it's it's getting a little bit skewed. It's a little bit later I think you know the interconnecting pipeline as one thats now towards the end of this year. Originally we thought it would be at the start of this year. So we've got the full year benefit associated with it.
We continue to push forward on the autonomous trucks, although we're working.
To accelerate that and get it all the way Nx Fort Hills, and such so it's it's skewed a little bit towards the back from their original ratable $500 million here that we originally said sell but.
The thing that I really like about it as where we have real plans funded there in execution.
And it's moving forward and and the teams are really working that and I think to some degree you see it in the fourth quarter and capital once we approve the cogen in the wind farm. The teams, we're all over it and.
That's a couple of hundred million dollars spent in Q4, where projects that were approved in late.
Q3, and Q4. So you know the teams are moving forward to get this stuff executed, but it's a little later than anticipated.
Got it so so if we look at that guidance for 2020, FFO, It's basically looks to me like $2 lower on the price deck, but 5% higher in the production due to less curtailments.
And those and those are the domain moving pieces and better than there is that reasonable.
Yes, that's and so we havent modified our guidance.
And so yes, that's how we put it out.
Yes, okay. Thanks, a lot thanks.
Thank you. Our next question comes from the line of Binnie Wong with Morgan Stanley.
Your line is now open.
Hey, good morning, guys. Thanks for taking my question. My first one is on the results on the downstream.
Other margins, which I think includes supply marketing lubricants was a it's a bit weaker than we anticipated just want to get a sense of how much you think it. This is kinda attributed to the seasonal weakness.
We've been hearing that retail margins in Western Canada has been.
A bit under pressure from new entrants. So just wanted to get a sense of how how persistent just could be if at all.
Yes, we really see this is a seasonality a issue associated with it and so we think this is kind of normal course the downstream.
Really didnt had a great job there their focus on driving market.
And I really securing the market share and moving forward on some of that was really good.
That would they've done an excellent job of running the refineries second highest refinery utilization in the history of the company.
So it's you know they've done a really good job I'm proud of the team there and but this is just seasoned normal seasonality.
Okay.
Understood. Appreciate those thoughts my follow up is it looks like it goes or or putting a little more money into service to into ventures that little bit more sustainability focused like the wind.
And that you'd be charging station and equity interest in the biofuel. So just wanted to get your thoughts mark on on the long term strategy here.
Is there a long term mixer balance that makes sense to strive for and as you look at these projects how do you approach it and maybe a sense of what metrics you use when evaluating these projects I guess.
More conventional oil and gas opportunities or even.
Shareholder returns.
Yes, it's interesting because those I would put into some different categories associated with it because I think the one thing that's abundantly clear is that the world needs more energy 700 million people globally are still in extreme poverty and they need.
Good food and energy and medical support and such so so we need more energy, but we need a lot less emissions and so some of these are technology plays when we look at it to try and understand is this a technology that could be part of the future and so when you look at some of these little equity positions that we've taken as we explore some of these.
Technology pieces, when you get into the electric highway. Our view was is that the world's changing we can be a part of this and so we put that in to see how the response would be because one of the biggest challenges with an electric vehicle is can you drive long distances clearly people can drive short distances.
And we felt the electric highway across Canada, what's a real positive complementary to it but then the third one you mentioned was the wind farm and if you stand back and looked at that if you recall six years ago, we committed as a company to reduce our greenhouse gas.
City by 30% by the time, we've got to 2030, and and I think everybody knows that.
Yes, we might spend a bunch of time thinking about our goals, but when we set a goal and bring it forward, we're going to work on it and so when you look at it in the last eight months, we've made two investment decisions that will essentially.
Actually accomplish one third of that or 10%. So so far we've achieved 10 of the 30%. The next 10% as related to the Cogen investment and the wind farm that were in process of executing and the remaining 10% is still getting worked in scope doubt and and so I feel very comfortable.
Scribble that we're executing the plans that we committed to six years ago and the wind farm as part of that overall plan and so this is just normal course, where fulfilling the commitments that we've made.
As we go on our journey, what we do know though as.
2030 doesn't solve everything and and there's more.
More of that needs to be done. So some of these technology pieces are really exploring some of the options for the future.
Great. Thank you.
Thanks spending.
Thank you.
Comes from the line of.
As it then with Bank of America. Your line is now open.
Thanks, Good morning, everyone.
I just wanted to follow up on the earlier question Mark.
Well you up given some specific numbers on these clean energy investments.
40 miles when project $300 million, 25% spend and 19 and also on Enerkem 73 million.
In dollars. My question to you is these investments have clearly been a strategy at suncor, but could you frame for us how big.
In terms of Capex these projects could be on a reasonable bases and where do you see this going in a five year framework.
Yeah, Thanks a seat.
The real focus around it is and the focus as I just mentioned on this is trying to figure out how are we going to hit our our 2030 goal that we committed to six years ago.
So when you see it right now we have wits, though with the wind farm and the Cogen.
So we're now two thirds of the way.
Our we have an execution two thirds of what we had committed to so theres. Another third left so if you look at the Cogen was $1.4 billion than the wind farm was 300 million, it's $1.7 billion to achieve 10%.
But there is.
Obviously, there's a lot more to it because it wasn't just greenhouse gases. Both of these we think are going to drive good returns for our shareholders and there were both down in unique ways to be able to maximize that value for the shareholders. So in those cases were spending money on finding economic ways to achieve the environmental goal that we set out.
When you when you look at Entercom as an example, $73 million. It's a technology play we thought it was prudent to explore the future as we start thinking about what is the world of energy. If you go and look at it crude oil demand is growing about 1% to year. This year. It's.
So quite a few people with Corona virus believed that it will be negative this year.
So this isn't a market that's growing I think people are concerned about.
Lots of companies talking about growing oil production forever, we know that can happen. So so we're trying to explore the future to.
Massive money going into this certainly not into the future. Because these are technology plays if something becomes commercial and we're going to look at it as an investment then we would be able to lay out an investment path forward, but at this stage of the game, we don't see that as a huge part of it the wind farm is something that's unique because our emissions winner.
Our out in Alberta, we can use the credits from a wind farm in Alberta, but we don't see onshore wind at this stage being a significant part of our future.
Thanks for the details I appreciate it.
Ecstasy.
Thank you.
Our next question comes on line of money.
That with credit Suisse.
Your line is now open.
Hi, guys I have a little bit of a macro question then.
A few developments in the last week, which left.
Hey, good positive fall out of two of the pipeline still makes expansion has been this ambitious 90 I'm just trying to understand how do you view do you.
Developments do they make you more positive and what's your outlook for any of these pipelines to start them in the next two to three years.
Yes, Thanks, Manav I appreciate it.
I think we've been consistent.
For as long as the conversations have gone on.
We support these lines.
Nine three trans mountain as well as Keystone XL and so so we have been.
Supportive of these particular ones, we have always thought that they'll move ahead and get executed timelines or what we've spent most of our time talking and debating generally we've been.
Later than what the operators have been saying on these lines because we know that again in today's world. There isn't a straight line between two points trying to do some of those big infrastructure.
But now in saying that line three they have the approvals the Canadian portion is operating today. So we have.
100000 barrels a day of capacity on that on that line. So there's an incremental 270000 barrels a day to go with the latest hurdles getting cleared there's a chance we could see it by the end of this year.
But it maybe you don't get delayed further from our perspective, we're not.
We're certainly not betting any of our shareholders' money on any particular timelines Trans mountain really encouraging to see it moving ahead, we have appreciated the support that the federal governments been putting behind that and and it's nice to see that project under construction and the courts continue to reinforce and support that.
All that decision got appealed maybe at well when you know it was a unanimous decision by the court. So we're encouraged by that and they're on track to get this all executed I think thats going to take a little longer than what the operator says just for the challenges of of execution and and you know maybe there'll be some further court.
Challenges associated with it but again, we stand by our position that it gets done at ended just might be a little later than originally anticipated Keystone XL.
It's another one that's got some significant approvals recently and so we're encouraged by that it looks like enbridges getting ready to push ahead. So.
All of those proceeds.
Jack Keystone XL is probably the latest in that whole thing line three looks like it'll be person Trans mountain and the metal.
Thanks, guys and a quick follow up on the similar lines. We saw that you have stocked with looking on December the men peanut butter that was building all the need to take the 8 million. We believe it's come down about five 6 million.
In in the near Dumb do you see revamp, let's walk you mentioned on Enbridge.
Good day mentally mode, and control and paying down or do you see us an audio that it actually moved up and that shows the differentials.
No I think here I think you're going to see inventory continue to decline I saw another report last night that said it went down almost.
Another million barrels a week on week.
So we're making some progress there.
We will get some advantage as well when the daily win lending changes here, a little bit as we come into spring.
But that said the arbs open rails economic and so you're seeing quite a.
Better Liftings, we've seen some record volumes now on.
On the rail lines, moving oil, which I think is encouraging.
But you know to the extent that the spread comes and I would expect you're going to see a whole bunch of rail get laid down too. So that'll be interested to see how that plays out productions come up as rails gone out because of these.
Actual production allowances, either province, and we've been very thankful for their support and putting that program in place. So.
I think we're going to see inventories continue to decline slowly, but it wasn't that long ago that we were sub 30 million barrels on one pipeline issue took us to tank tops. So.
Things can change quickly.
Thank you for taking my questions.
Thanks now.
Thank you. Our next question comes from the line of Mike Dunn with Stifel First energy. Your line is now open.
Thank you good morning, everyone. Thanks for taking my questions.
If I could I'd like to just askable detail, but the mine.
Next question.
At the base mines, Mark is that should we think about those extensions of.
The north steep bank side and or the millennium side of the mine and is this on on lands already held.
By Suncor, not not considering any potential.
Pushing.
So onto the at least 29 boundaries.
And I have a second question after that.
Yes, the resource that we're talking about isn't is on the west side of the Rev. Her by where the upgrader is so that's that's actually the resource that we're talking about filing the application on it and I.
This just emphasizes the importance of what I said about hey, we're just filing an application to move this thing forward. We're a long ways from our project sanction on this because we filed this application over a decade ago.
As an expansion project as a growth project like Fort Hills was.
Now where.
Leading that's very much as I mentioned before this is just a sustaining project so the amount of investment the amount of.
Assets that are required to be able to produce this resource is significantly lower we see new technology that we're working on that would collapse the cost structure further along with the greenhouse gas emissions and such and also allow.
While us to alter the carbon content to the crude which would help with scope three emissions. So so there is some really exciting technology plays associated with it the resource we've had in our portfolio for us substantial period of time and so this is something that we the resource we control obviously the regulatory process we don't.
And that but we're allocating a substantial amount of time consistent with how we see.
Applications being processed were going to file conventional technology like we have at Fort Hills. The the reason we're doing that is because we have to provide the details and it's hard to do that on the new technology, but were outlining the.
New technology in the application to tell people, what we're trying to do.
So this is the boys yourself resource yes. It is okay.
And second question.
18 years of Street dividends.
Dividend increases.
I think in the past.
Folks may have.
Active talks to what you need for WT I pressed to fund.
To fund the dividend and sustaining capital.
What do you guys have a target for what you can what you can fund and and how does that.
If you do what is it and.
What does it relative to the dividend and not just half cycle, but full cycle sustaining capital.
Well.
Maybe I'll come back and clarify on sustaining capital, but it's 40 $45 WT <unk>. So what we look at is sustaining capital plus our dividend of $45, we should be able to fund.
And that's actually how we model it and so we look at the growth of the cash flow. If the company and then tested against this benchmark to ensure that we view that it would be affordable even at low prices. So that's the methodology. It really hasn't changed this is what we've been doing for quite some period of time, it's interesting.
When you say full cycle and sustaining capital in the same sense because.
One of the joys of our asset as we have very long cycles. So like Fort Hills. When we started up Fort Hills, we we believed that it would produce and it has a resource to produce for 50 years, which is very.
Different than if you look at them most short cycle capital in our and our business is shale and so essentially there to maintain your volumes and such you're playing a full cycle capital game, 100% of the time. So so one of the joys of it is weve with this capital is on the ground, but thats a very long cycle.
And we can set sustained me assets and continue to generate cash flow.
When you say full cycle I think about okay. So when the resource runs out at Firebag, which.
Honestly, we don't see happening for many many decades.
Is then you have to start thinking about okay. The fundamental cost of.
Placing that so even when you look at Voyager So within the example, we've talked about it's not even full cycle, although it's much higher.
And then what it would be in our normal sustaining where we're not building assets to open up a whole new ore body.
But we can do it at much lower costs why because we're leveraging all the.
A structure that still on the ground. So so our costs right now if you look at our sustaining capital we would view, but this is characteristic it will be a little higher in the 2030 plus period as we as we decide how we're going to put the resource in place to sustain the operation for the next.
Several decades to come but.
Right now our sustaining capital really is sitting in this three to 4 billion dollar range I'd say for when we get into the big turnaround years next year is a big turnaround here. This year. It gives them. So the sustaining capital can move around when we look at our $45. We're looking at kind.
Have a normalization of that so.
Okay, I guess, mark what I meant probably on full versus full cycle is.
Historically, you haven't really includes any capital for your MP business in your sustaining capital definition, Yes, I think it was last year that you started to.
Glued.
Drilling of any sustaining well pads at Sag D. From your definition, so combined I mean theres no perfect number for the but combined I would take those numbers that you know closer to a billion dollars a year.
Likely like over the medium term needed.
Hi, Mike Let me just correct.
Clarify something but clearly you that so I understood over there we do I should we include a while our definition and it's down a way for.
Assuming capital does improve the well pads. We do include them when we talk to either breakeven at 45 adults. So just to clarify it all the well pause.
Our available recovery before if I go broke even a wtvr you're absolutely correct, we don't exclude including NP.
It's a very lumpy business. So from a perspective that all economic no view, we either to folks do them or not to do so we don't really consider them to be sustaining capital.
Okay. Thanks for clearing that up.
That's all from me. Thank you for taking my questions.
Thank you. Our next question comes from the line of John Morrison.
Yeah, I BC capital markets. Your line is now open.
Morning, All can you just talk about the heavy capex spend in Q4 and whether.
It was purely a function of kind of pulling things from 2020 into Q4, given some of the unexpected outages like Fort Mci, where logistically would make sense to do that maintenance work since there was downtime anyways or was there any other major factors at play there.
John I think Theres really three factors that are driving that.
And what you're saying is okay. Mci there is a very little bit, but I would say it doesn't even show up in here. One is the fact that we approved some projects late in the year and started moving on them quickly. So you saw quite a bit of spend with the cogen and the wind turbines in the fourth quarter, which I don't think people fully appreciated the other issue with.
It is there were some things that got delayed in the year. So Unfortunately, a lot more capital got spent in Q4 of them. What was originally plan. This is an area that we're working with our organization because we need to it's much better for this to be ratable and that's an area that will be working with the organization going.
But it's really this some of the capital getting delayed on some of the projects for various reasons and then bringing the cogen in the wind turbines and that's why Q4. So high obviously, if you look at our range for next year than what we did in Q4 isn't characteristic of the quarters that we'll have going forward.
Would it be fair to assume that.
Q4, reshaped 2020 at all are largely the guidance that you put out.
Holds.
No no our guidance holds for sure on capital for on 2020.
Okay.
Alister any color on why you guys elected to take the Fort Hills write down of the quarter, where we didnt see that over to total and is that just a difference than accounting.
Standards price deck assumptions or are you being a little bit more conservative than kind of your forecasting STG is.
Well I'll I'll, maybe comment on that John and then handed over to Alastair to provide a few of the details but.
Part of the issue with it is when the price went down 2014, I don't think people realize that we literally.
We're going to go in a year for year end year. So when you looked at the way that we did the test for impairment previously our cost or the price of crude that we assumed when we did those tests was much higher so and now you look out and yes, the crude prices bouncing around in some fourq.
It's going up and some forecast, it's going down and back but when you look at it year over year, we're literally bouncing around but trading sideways and when we look at the markets. We think hey, we're sitting in the same range going forward for foreseeable future and our view was is let's go test Starbucks against that and it's really an adjusting the price.
Forecast down which is about a 10 dollar adjustment and and kind of the global crude price when we look at it that's where this impairment took place. So I don't know Alastair do you want to add to that yeah. The only thing I'd see Oh, it's really a price driven viewed as we look forward.
Confirming remarks.
I tried to make any common to our partners are well aware or why they're taking.
In the impairment see how little reviews from price and remember everybody has a different starting point from a capital perspective, when we bought in the high priced.
So it's up the two individual partners.
Let's see what we'd take or north to.
Okay I appreciate that.
Mark in terms of the diversification efforts that obviously, our new and they're part of the historical DNA, but.
Maybe your of growing importance do you have a different return thresholds for those projects maybe acts the entercom investment, which is a bit of different animal.
Well I would when you look at it you have to factor in all the various views around carbon pricing and all that kind of stuff associated so will we have different criteria on a risk basis I would say no. Although the risks are often very very different associated with it but you have to keep in mind that a lot of these technologies, whether its entercom or.
It's a jet or or sorry, lanzatech and such you'll find out that okay, but these I wouldn't consider them commercial technologies. We're just trying to understand how can we move forward and and find some of these solutions for the future, but when you look at commercial deployment of technology our.
Things are going to be very similar it's just that the risks that we factor into it are very different on some of these investments.
Perfect and maybe just a final one for me just clarification on the dividend bump that was announced is it fair to assume that.
It would have been the increase that would've happened independent or whether w. charges.
Oscillating at 50 or 60 as again, it's really just being calibrated on bottom of cycle pricing and you might have stated taking greater comfort.
And $60 level, the bump would've been the bump independent of where the prices coming into the decision.
Yes, we view. This is just this is what the expectation would be.
And it didn't really matter, where we were in the price range associated where were we view. This as part of the fundamentals of where we think the price is going to be.
Okay.
Sure the color ill turn it back.
Thank you. This concludes today's question and answer session.
I would now like to turn the call back to traveler Bell for closing remarks.
Great. Thank you operator, thanks, everyone for joining us today my teams around and I are around all day. So please.
If there were questions that we didnt get to please reach out to the team will be happy to do that otherwise everyone have a great Dane. Thank you.
They ladies and gentlemen.
This concludes today's conference call. Thank you for participating you may now disconnect.
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