Q4 2019 Earnings Call
A reminder city today's call is being recorded at this time all participants are in listen only mode. Following the presentation. We will conduct a question answer session. You can join the queue at any time by pressing star one members of the investment community will have the opportunity to ask questions first.
At the conclusion about such and members of the media Me then ask questions. Please be advised that this conference call may not be recorded or rebroadcast without the express consent Cenovus energy.
Like to turn the conference call over to machinery went director Investor Relations. Please go ahead Mr. went.
Thank you operator, and welcome everyone to our fourth quarter and full year 2019 results conference call.
I refer you to the advisories located at the end of today's news release.
He's advisories described the forward looking information non-GAAP measures and oil and gas terms referred to today and outline the risk factors and assumptions relevant to this discussion.
Additional information is available in our annual and DNA and our most recent annual information form and form 40 F.
The quarterly results have been presented in Canadian dollars and on a before well to use basis. We have also posted our results on our website at synovus Dot com.
Oh, it's per day will provide brief comments and then we will turn to the Q1 a portion of the call with Cenovus just leadership team.
We would ask analysts to hold off on any detailed modeling questions just follow up directly with our Investor Relations team. After the call. We would also ask that you keep to one question with the maximum maximum of one follow up question and then rejoin the queue for any other questions. Please go ahead.
Thanks, Sherry and good morning, everybody as always I'm going to keep my prepared remarks short and to the point I'm sure everybody seen our fourth quarter and full year financial and operating results are we released a few hours ago and most of you will recall or a news release from December 10th of last year, when we announced our budget for 2020.
Today I want to highlight the achievements over the past year and give some color around how we believe 2020 will shape up.
But first I want to thank our teams for continuing to run safe and reliable operations across our asset base.
Overall health and safety performance improve last year from 2018 due to our continued focus on risk management and asset integrity, and we achieved the second lowest recordable injury frequency in our history safety is fundamental to our business and the safety of our people and assets will continue to drive our perform.
[music].
2019, we continue to deliver on our commitments to our shareholders. We maintained our industry, leading low cost structure continued to exercise capital discipline strengthen our balance sheet increase market access and enhance shareholder value. We also exceeded an important milestone in our crude by rail business.
Last year, moving more than 100000 barrels of oil per day by the end of 2019, we set an ambitious goal to grow our rail capacity from essentially zero to 100000 barrels of oil per day by December and I'm happy to report we exceeded that goal.
Our rail program as an important part of our strategy to improve market access. So we can achieve greater exposure to global oil pricing through the recently announced special production allowance sore spot program rail also allows us to exceed the government of Alberta is mandated production curtailment levels I'm extremely proud of the.
Our teams did to successfully build our rail program and 29 team. This year, we will continue to optimize our rail operations to maximize value. This could mean shipping more or less than 100000 barrels a day in any given month for example in January we loaded approximately 120.
Thousand barrels a day from our Bruderheim energy terminal and the Hardisty, Alberta terminal combined.
As a result of the spot program and our increase rail shipping capacity, we've returned to unconstrained oil sands production, which allows us to bring on volumes from our Christina Lake Phase G expansion the ramp up of Christina Lake Phase G is expected to occur over the next six to 12 months.
Looking at the financial highlights for the fourth quarter of 2019 in the full year I want to point to the continuing cost discipline, we demonstrated even well under mandatory curtailments.
Our oil sands operating costs were $8 in six cents per barrel in the last quarter of 2019, essentially flat with the same period a year earlier full year per barrel operating cost rose, 7% from 2018, primarily due to lower volumes as a result of mandated curtailment and allow.
Just ever turnaround at Christina Lake completed in the second quarter. We also continued to see progress on the deep basin with full year total operating costs declined 16% from 2018.
In addition in 2019, we continue to achieve further reductions in our oil sands sustaining capital costs, which declined 10% to approximately $4 per barrel of capacity from the previous here.
All this is a testament to the grey work our teams have been doing to keep our costs under control, while managing crude oil production levels under mandatory curtailment, we're confident that the majority of our cost improvements over the last few years, our structural in nature and our sustainable.
Fourth quarter oil sands volumes averaged more than 374000 barrels per day up from approximately 355000 barrels per day in the third quarter of 2019.
Well mandatory curtailment reduced our overall production volumes in 2019, it helped keep light heavy oil price differentials from reaching the record highs we saw at the end of 2018.
This resulted in a substantial benefit for Alberta was significantly higher royalty payments to the province, Synovus alone contributed more than $1.1 billion in royalties to the provincial government more than double the amount of royalties. We paid in 2018 to put that into context synovus account.
It's for roughly one fifth of all royalties paid to the province, when you think back on the fourth quarter of 2018, when differentials rose as high as $50 per barrel and synovus was in a net royalty credit position. It was our view that mandatory curtailment would play a significant role in correcting the embed.
Once in the market. Our current view is that a market imbalance still exists and their production curtailment is still necessary to ensure Alberta receives fair value for its oil to achieve fair value. We believe the government should manage the W. T.
WCS price differential at hardisty to approximately U.S. $10 per barrel or essential are essentially the crude quality difference plus the cost of pipeline transport from Alberta to the Gulf coast any differential higher than that means that Alberta is transferring value to the downstream buyers.
De leveraging remains a top priority for synovus as we continue to pursue our net debt target of $5 billion. We made significant progress towards this goal in 2019, reducing net debt to 6.5 billion by year end from 8.4 billion at the start of 2019.
At a net debt level of 5 billion, we anticipate being in a position to maintain a target ratio of less than two times net debt to adjusted EBITDA at bottom of the cycle commodity prices as a result of our low cost structure and focus on maintaining capital discipline and balance sheet strength, we continue to damage.
Straight strong financial performance in 2019.
We generated adjusted funds flow of more than $670 million in the fourth quarter, bringing total adjusted funds flow for 2019 to approximately $3.7 billion more than double the adjusted funds flow generated in the previous year, our full year upstream results benefited from a significant net.
Growing of the differential between W. tea and WCS as well as increased sales of locations outside of Alberta, where we were able to achieve higher realized prices refining margins were lower compared with 2018, primarily due to reduced crude cost advantage as heavy and medium sour crude oil.
Charles narrowed.
With the actions we have taken over the past several years, we've built a business. We believe is resilient and sustainable even at bottom of the cycle commodity prices of around $45 W. tie our business plan includes significant capacity to generate free funds flow across the cycle will also continue.
I mean to increase returns to shareholders.
Based on these achievements I'm confident we can be very optimistic about the future prospects for our company.
We will continue to work with the government on a reasonable and responsible Canadian energy policy. We believe the best path forward to improve global emissions is to support a vibrant Canadian energy sector that can affect invest in emissions, reducing technologies, while continuing to make a strong contribution to.
The national economy create jobs invest in local communities and support indigenous businesses unemployment as you will have noticed just last month, we announced ambitious a new targets and for environmental social and governance focus areas climate and greenhouse gas emissions indigenous engagement landed.
In wildlife and water stewardship.
These targets include a goal to reduce our upstream GHG emissions and intensity by another 30% and keep the absolute emissions flat by 2030 as well as a 2050 aspiration of net zero emissions.
Our commitment to advancing performance and our four SSG focus areas reflects the continued integration of sustainability indoor strategy and business plan to help foster long term resilience. In addition on January Thirtyth of this year, we announced a commitment to spend $10 million per year for at least five.
Here is to build much needed new homes on six first nation Umeighty communities located close to oral sense operation in Northern Alberta, We see this initiative as an important way to contribute to reconciliation with indigenous peoples investing in indigenous communities near our operations and ensuring that they share on the Ben.
Fits of resource development have always been part of how we do business with the housing initiative, we are acting on an opportunity to step up and do more.
Just before we take questions I would like to introduce Norrie Ramsey, who as you know on January Onest officially took on the role of executive Vice President upstream as you know drew Zieglgansberger has moved into his new role as SVP strategy and corporate development, while Kam sandhar as transition to senior VP.
Basin, So welcome Norrie and with that why do we get straight to your questions.
Ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing star. One we will now begin the question answer session and go to the first caller. Your first question comes from Greg Pardy with RBC capital.
Thanks, Good morning couple of questions for maybe the first one is just having to deal with the volatility in oil prices that we've seen here over the last couple of months.
How are you now thinking about your your hedging policy.
Thanks, Greg It's John and this is a question that often comes up.
As we kind of trend into the bottom of the commodity cycle, but.
I think we've been really clear on how we think about hedging we have said.
Adequately the balance sheets, the right way to manage commodity price volatility.
We still believe that we don't believe that hedge program is the right way to handle commodity price volatility, but certainly not the right way to manage and balance sheet.
So we will continue to put the balance sheet in a condition, where it can withstand bottom of the cycle pricing to large degree world. We're we're probably getting closer and closer to the point.
I think we've also said that we don't have any fundamental objection to hedging, but we do recognize that drive bitumen.
It's very difficult if not impossible product of edge perfectly so that all being said you know we do it time step into the market at a limited way.
Take some minor positions on Wi Fi and the differential the WCS Dolby CCI differential.
I would see that continuing through time, but the reality is.
The financial model is predicated on the strong balance sheet, the ability to withstand commodity price fluctuations notwithstanding the fact that we do or we'll look at doing some of this opportunistic.
Okay, Great and then maybe just shifting gears.
Coming back to your or I guess kind of just thinking about your investigation of the D. R. U. So there were there were some pieces that were outstanding there and I'm, just curious where you're at in terms of determining what the price uplift might be on dry bit versus dilbit Nicole.
Conceivably Backhauling Napa and Delbert.
And then separate but related is if you do go ahead with the D.R. you would you contemplate something where you are using third party funding or what have you.
Thanks, Greg It's Keith there were still.
In the investigation stages of the deal you we've talked about trying to get this.
Decision.
To a point, where we could make an f. idea at the back half of this year and I would say, we're still on that path.
So everything that we've been doing with regards to the research around this project and discussions with.
Refineries and the rail companies is lining up that we do actually think Theres. There is a potential project here.
Yes, when we look at it obviously, removing the condensate.
In Alberta is very helpful. When you consider the amount of condensate we consume when we look at the valuation of need bit relative to drill bit.
And the fact that heavy barrels have really disappeared from the market down in the U.S. Gulf coast and additional light barrels of come into production through shale.
Plays we do think that certain refineries are seeing or would see kind of that value uplift from from that need bit and those conversations are progressing and I would say I would say, they're progressing pretty well I think the other component that that's going to be critical to to making this project economic though is around the freight and transport.
Cost and we are working with our rail partners. Obviously, we've built a rail program over the past year in a bit and have good partnerships with those those service providers and working with them because this structure the changes that business model for them and and drives to a multiyear multi decade type business model.
So so they're very interested in this model, but it would take all those pieces kind of coming together.
To kind of drive an economic decision and like I said, we'd be looking at that at the back and ended the year with regards to the back call of condensate that is something that we will evaluate we don't see it as as critical for this decision really what we're looking for.
On the on the F.I.D. decision in a congested market where pipelines don't progress. This this project makes a lot of sense and then in a market where its unconstrained you have all the pipeline access and progress out of the province, we're really trying to make sure that this project project.
Sustainable to that type of environment as well.
Hey, Greg.
Sorry, Greg It's Alex I was just going to add.
One one other comment and I think a lot of people have heard me say this but.
We are very much intending to bring the same kind of capital discipline to this decision is I think we're trying to show on all of our other decisions, but I do think it's important to remember that.
We don't tend to think of this as growth capital.
Hi, I look at it is as risk reduction capital, we're going to be very very cognizant of what market access where it's going and in a world if market access we're in our view to be remain constrained and we had an opportunity to execute on a project that could take basically.
You know a quarter of our production and remove it from the vagaries of the Alberta market.
And differentials no thats something were just going to be thoughtful about anyway with that I'll turn it back.
Okay and last quick one for me is yes, 70 million dollar exploration expense I think in the fourth quarter was that just a write down in the deep basin or where would that have been.
Yes, Hi, Greg It's John again, the vast majority of that was in the deep basin and it's in the DNA accounts. So as part of every year, we reevaluate all of our plans in each of the different businesses.
And it really reflects as our new development plan or continued development plan in the deep basin in and how we think about those opportunities. Okay terrific. Thanks very much.
Next question comes from Emirates, Yang with Goldman Sachs.
Hi, good morning.
First question I have here is just around the cost.
Right.
In particular with respect to transportation costs blending in fuel cost.
How that change quarter over quarter on aside from the impact of higher volumes in 2020.
Any do you see the trajectory of 33 components trending.
Hi, I'm only it's John again.
Theres Theres really two components to the one is the condensate costs and the other is the transportation cost to get.
Our oil out of Alberta, and down into the marketing hubs in Chicago and.
The Gulf Coast.
And what we saw on an annual basis is actually the price of condensate or the cost of condensate came down year over year.
But in the fourth quarter. It it did increase in what we have seen again through the year.
As we move more and more of our volumes to the Gulf Coast from Alberta that unit cost is going up. So if you were thinking about modeling this.
Q4's, probably a good run rate going forward.
Got it. Thank you and then my second question is just around Christina Lake Phase H. and Foster Creek Phase age.
Yeah.
Before we can start thinking about whether or not these get sanctioned in the second half.
Thank you.
Hi, its noted ramzi here.
We obviously will retain our capital discipline and ultimately the decision will be driven by Iguess access.
We are we've been working.
Over this last year, there's there's very little capital required for both phases in preparation for sanctioned but it'll be a later in the year decision and it will be subject to confidence in the regress.
Great. Thanks.
Next question comes from Phil Gresh with JP Morgan.
My first question is I think some somewhat similar to last.
Question.
In the sense that if you are to move forward with that the are you.
And you're still thinking about future phases of FCCL from a capital spending perspective is there way you're thinking about.
Balancing.
Multiple projects at once and it would there be a.
Sometimes constraints I guess or limit on the amount of capital you'd want to spend if you move forward with that scenario just going back to the analyst day in and the questions around that or is there a lot of nuances to the plan. So any additional color would be helpful.
Yes, Hi, Phil as John again.
Thanks for the question and you're right and Nothing's really changed since Investor Day. If you looked at the capital plan that we gave you we didnt have any capital for the de are you in that plant and we will come to that as Keith said in the fourth quarter.
What we're really trying to balance is the capital program to the balance sheet to market access.
You know when afford via the market, that's that's going to overlay that so as all of those things come together, what I would say.
It is once we do F.I.D. These projects it would be our intention to finish them. We don't want to put ourselves in a position, we're removing them up and down but we've been really clear that any kind of growth. So we would see it FCCL is contingent on our view of transportation as well as where we are where their balance sheet.
Hey, Phil its Alex and just I mean, I, maybe that maybe this doesn't need saying, but it's probably were saying when when we came up with that five year plan.
It wasn't coincidental that the number one focus we said was balance sheet.
Improvement and that continues to be a priority for us and we're always coin, we're always going to assess though these other initiatives in the context of making sure we deliver on that aspect of the plant.
Sure Okay.
And then.
Well I guess.
Just to follow up on I mean is there a scenario where you would do multiple phases of FCCL at the same time as did the are you.
Hey, Phil it's drew here so.
Maybe another piece of context here is that.
We think about the D or you and we think about that project itself. It really doesn't look that materially different than in oil sands fees as far as the actual kit and whatnot actually the and I would argue it might even.
Look a little simpler.
But when we come to a decision around a de are you and to capital I mean, there's a number of different financing options to consider that and so as we laid out in the five year plan at Investor Day, We we didnt have the D or you capital in explicitly because we have different options in order to do that but as we think about the two FCCL phase.
Yes.
We still have the internal capability to do those.
Foster Creek is not as intense from and loading standpoint, as Christina H. would be.
There is about a two year gap up when each of them would come on in 23 or 25, so we can spread our manpower quite.
Effectively over that and if we think about the timing of when and if the do you went.
We don't have a lot of concern there either as far as been able to manage that out of the major projects team that we still have in the company. So I.
I think there's still a lot of flexibility to join in Alex's point about how we consider balancing that in the timing standpoint, with the balance sheet, but as far as the risk of executing and looking to what these different projects are we don't see that as a significant risk or strain to the company.
Okay, Phil just as Johnny just just to add to that.
And then take jurors point on.
Organizational capability being one restriction that we think.
We obviously consider but we think we've got well in and the other thing I would say is we're not going to put ourselves in a position where we go cash flow negative to get these things down or free cash flow negative we've talked at length about the value of having free cash flow and options and liquidity in this market most priority still stand.
Okay.
My follow up I was just.
On the rail situation.
I presume you would have made some comments if you had signed up for any of the recent.
Government contracts, but maybe you could just.
From that or.
Give your stance on it thanks.
Yeah, Phil It's Keith there you know in January we were able to move about 120000 barrels a day I just want to reiterate that was on our existing contracts that we had through that time.
We're pleased with the governments policy announcement around the supplemental production announce allowance that basically allows us to unconstrained our program, but we're also happy with the current size of our rail program. So.
We obviously had a look.
But.
But we're happy with where we're out right now.
Okay. Thank you.
Next question comes from Phil Skolnick with a capital.
Yes. Thanks.
A couple of questions just first just back on that.
But I guess, what ultimate deciding factor there.
Yes.
Your first started all saying.
Fair enough pipe.
In a situation where that you guys, it's still not completely there on pipe.
Thing makes a lot of sensitive Bennett satellite as if you're in a situation, where we do have enough pipe capacity. The project still is what you want to make sense is that is that how you're looking at that.
Trying to to make this thing work all around.
No I mean.
Phil its Alex I like maybe I should have made myself a little Claire.
Yes, we think of the D.R. you as a strategy related.
Two alleviating market access issues.
We're not looking to spend unnecessary capital. So if we're in a world where we see some subset of the pipeline. The development pipelines going ahead, and we can achieve those kind of if we can achieve pipeline differentials in getting our our oil to market.
Then I would see relatively little need for for a de are you if on the other hand, we look to be in it.
And then era, where we're going to be continuously are largely constrained getting out of the province, and that is driving why diffs and we can lock up pipeline type differentials through a combination of de are you in rail then that that would be a very important.
Milestone for us and how we think about this but we're not we're not looking to build a D.R. you for the purpose of building of the are you.
Okay that sounds good just my other question as you read 106000 barrels a day in December.
And you have 100000 capacity right now is that that that extra six is that due to efficiencies or did you use third party rail and if it was due to efficiencies than what does that mean in terms of your overall rail cost per barrel.
Yeah, Phil it's Keith there so.
During the 6000 barrels in December 120000 barrels a day in in January. So we spent a lot of time in 29 team building the program getting all the cars. We now have all of the capacity.
And what you're seeing is basically cycle time reduction.
When we put our plan together, we had forecasted that it would take US 24 days.
Down and back on a cycle time per unit train.
We've optimized that program, we're now down below 20 days, where we're sitting right around 18 days, we've extended the length of the trains added more cars to the train. So so we are seeing those efficiencies that allow our program to flex.
The flex up and down and 2020 will really be a year of optimizing so as we see value from moving additional barrels down to the Gulf Coast, We can flex up if we see.
Value and slowing down the program that we can do that as well. So so we're really working to optimize the program through 2020 and some of that is exactly your back into your question with regards to maximizing the value and and keeping our cost as low as Pos.
Alright, Thanks, that's it for me.
I think.
Question comes from Matt Murphy with Tudor Pickering.
Good morning, just wondering if you could address the extent to which you see the the recent announcements by some of the rail operators to create I guess a bit more of a process around handling hazardous product project products, such as crude dissolved speed reduction limits.
And your ability to move barrels where it seems like obviously excuse me differentials have tightened up.
It is WCS Houston quite recently thanks.
Okay.
Yeah, Matt its its keep their again you know obviously during situations like this we're in almost daily contact with the railroads.
The railroads are have demonstrated very good capability of moving product and commodities.
Over the years safely and obviously they are very focused on on looking at these recent incidents and learning from them I would tell you that.
The recent embargoes put in.
For US moving unit trains has has limited impact.
We've seen a little bit of a slowdown but not material to this point what I would say is some of the the blockade so could potentially jeopardize some of the the movements.
Across across Canada.
So we are obviously Barry.
Active in monitoring the situation.
Currently limited impact to our business.
Thats helpful. Thanks.
Unrelated note.
Wondering if you could offer your thoughts on the potential for disclosures and targets on emissions to one day approach scope. Three for example versus your currently laid out targets you've seen number of your larger peers in Europe. For example, laying out some targets through that lens I certainly don't want to downplay.
Targets that you've laid out there just curious on any thoughts on scope three.
Yes, Matt its outreach.
We that's not something that we're looking at doing today, what we put out was targets.
That really look to reduce the emissions that we manage and we control.
And that's where we're comfortable today.
Certainly.
Some of the some other operators have put on scopes re targets, but they have a missions that they manage over a larger scope of the of the whole value chain and for us.
It's really limited to what we manage and that's what we're comfortable with today.
Okay Thats helpful. Thanks, very much.
Next question comes from then with Bank of America.
Thanks, Good morning, two quick ones first on slide seven.
We'll stand sustaining capex increase in 2020 due to deferral of sustaining Capex in 2019 could you remind us how big that component was.
Yes, It did said drew here so.
You're right I mean, we looked at 2019 due to some.
Curtailment, obviously, but also just the team really kind of optimizing how we're managing both the production, but also just the recovery of the well current well pairs in the assets, we've been able to bring that down substantially and obviously is about $4 just under portals a barrel last year.
So.
As an already talked earlier, we're looking at the the H. phases, which we have to take into account over a two three year period.
You know the different.
In each asset how much capital is required and bringing pads on at a certain time to.
Obviously maintain the production in the even allow phase G to ramp up.
As this year kind of goes so.
This year, it's up a little bit as you look at our budget, it's about 70% of our capital budget is to sustain.
In the organization so our level right now in oil sands is in the six to 700 million range of that.
And but let me we're still in that four to $5 range to maintain our production, which is still extremely low and the teams continue to find good synergies of cost savings as the keep looking for sustaining capital. So.
You have to remember, though that the timing of when we need pads on any given year is going to slightly fluctuate on any given calendar year.
How you should really continue to look at it is just what we've done on a per barrel basis in that four to five and you might even have a year, where it goes to $6 per barrel, but thats, just purely because of timing and sequencing of when pads are needed. So.
Got it very helpful. Thanks for the color and then.
Not to belabor disappointed, but as you look further to increase your exposure to the us Gulf coast and options being rail D. R U and let's see Enbridge mainline when youre evaluating dad and thinking about the macro is it fair to say it up at a low bottom the cycle of price.
$45 barrel that you stressed as youre.
Outlook.
Pipelines become more.
Favorable.
You know I see the way, we kind of look at this today is yeah. When you look at the pipeline costs and transport costs are you us Gulf Coast, we're really looking at a portfolio of options.
You know what we're trying to do with the D or you those make it competitive against that pipeline option. So that it can compete in that world.
But what I would.
What I would offer up is that with regards to the supplemental production allowance program. The swap program and rail economics, we really look at it differently.
So we think that the government could actually manage curtailment to drive a differential for the approximately 3 million barrels that move on pipe and manage that differential to us Gulf coast pricing plus a $10 transport cost and then they have the rail barrels that would move under the supply.
Metal production allowance, which make up somewhere in the 400 to 550000 barrels a day that people the way they would look at that those economics would be can I have produced the bear the barrel kind of transported at rail costs and my my netback that I get from selling it in the Gulf Coast. So, we really see them as as separate.
Good economic decisions because with the spot program. It's basically a barrel that you can produce that you weren't able to produce without the rail program in place.
Thank you.
Next question comes from say lead with Odlum Brown.
Hi here.
Just a question for Alex.
With respect to your greenhouse gas emission targets I'm just wondering.
Comment a bit about your confidence around achieving their target and the key milestones add that have to.
Yes, you have to reach in order to reach the targets.
Also related that question I'm just wondering what.
Sure So simo targets mean with respect to.
Your production beyond that the 2% to 3% production growth that you're you have in your five year plan.
Thanks.
Sure if I.
I've been right right off the bat talking about that 30% reduction in GHG intensity over over 10 years. I mean this is I think it's really important to to remind people that this is this is just a continuation of what cenovus has been doing for for many many years and.
And as I'm sure you're aware over the past debt over the past 12, or 15 years, we've already reduced our emission intensity by around 30%. So we see this is just sort of a further.
Further movement, along that path of improving our environmental footprint and.
About a year about probably over a year ago. We realize that this was something we wanted to dig a real hard look at committing to we put in a solid year of work with our both our internal experts and a number of leading global experts outside of the company.
And the plan that we came up with an obviously, there's going to be more to come about the specific leavers that that we intend to pull but we are we're quite confident that we have leavers in the business that will allow us to reach those targets.
Over 10 years, we think we can do that.
Largely if not entirely within.
That five year plan, we delivered to the market towards the end of the year, but to give you an idea I mean I'll just think of a few things that are in our are sort of plan.
Continuously improving our production processes.
And as I said there'll be more to come about that but I think thats an area that we actually see it at relatively little to no capital costs, we can actually drive quite meaningful GHG.
Intensity improvements.
We already have cogen in our facilities nobody should be surprised.
To potentially see more cogens in the plan going forward.
We've been working on solvent technology for many many years.
And was probably something that we were planning on on rolling out that would obviously be a b a big component of the of the strategy and then there's a bunch of other things like.
We've been working on reducing our methane emissions out of the deep basin.
That is going to be that's going to be a part of it.
Just and other I would just say, there's a broad suite of other things even things like increased use of data analytics. We think there's there's actually a significant price there in terms of improving our our GHG efficiency. So.
Let me just to put it in a nutshell, we're highly confident that we do have a set of tools that can get us there and can get us in there within the realm of of the capital programs that we've been considering.
I have communicated to the market and our plan is over the next year. So we'll as we formalized those will be will be coming out to the market, giving more more color on on them.
And in terms of the production are there any assumptions about production growth beyond the five year plan like to hold production flat continued right, 2% to 3% or are there any assumptions built around.
The target.
Right right now the targets that we would be nice that we have set are contemplating just that that growth that said that we have right now.
That we've communicated in that plan.
But but and we would obviously have to take a look at that and as as you. As you also saw we've committed to a 30% intensity reduction then also keeping our absolute emissions flat and that is predicated on a view of of the the opportunities on the projects we communicated at our investor.
Good day.
Okay. Thank you.
No worse next question comes from Dan Healy with the Canadian Press.
Taking my question.
It sounds as though.
Cenovus did not.
Take part in the Alberta governments.
Sale of its of its rail contract.
But can you verify that and also I'm curious why you wouldn't have taken part in it since it sounds like.
There are the government's taking but have a loss on it would suggest there might have been some good deals.
Hey, Dan its Alex.
As Keith said, we look at everything.
And.
Given our involvement in the rail business in the province, I think it's a safe bet to consider that we took a pretty hard look at it but but I think as Keith also said, we're pretty we're pretty comfortable with the the rail program that we have right now so an off.
Order for us.
You know to look at something it would have to be pretty compelling. So I mean, we were we were very happy to see that those contracts or in the hands of industry I think thats better long term for everybody and you know its.
I think we just gone from here.
Okay. Thanks.
Next question comes from Jim Morrison, John Morrison with the RBC capital markets.
Morning, all up just a point of clarification, if you get to a point, where the are you makes economic sense, but you aren't overly comfortable with a margin of error on your cash flow coverage to one continue the deleveraging plan that you guys have laid out and to fund the development program that you put on at the Investor Day is it entirely.
Logical to assume that it probably goes forward, but maybe you look at third party partnership or ownership models at that stage as kind of any potential concerns or the market of flying to close to the sign just starting in any playbook on the horizon within the company.
Hi, John It's John I think thats reasonable to assume we have we have a lot of options. If we chose to go ahead with the are you as to how we might choose to finance it.
What I would say is we've put a lot of work into getting our balance sheet into the condition that it's in and we're not going to jeopardize it for growth projects that all being said, we think that when we get to the end of the year.
The D. R U looks compelling in terms of its economics, you know, we'll work hard to make sure we have financial capacity to do that.
That's the direction, which used to go.
And is the feed work continues on idea you is there anything shaking kind of the original goal posts that you put out there of 800 million to a billion of 180 inlet volumes and 120 need but.
None of that has changed that's still the scope and cost estimates that we're looking at.
Okay, maybe just a final.
Clarification point, Keith you talked about the increased throughput and both December in January but just to point of clarification is did you need to use any other companies loading slots at the export terminals to achieve that throughput or.
Hypothetically you could achieve a similar number go forward if there isn't downstream bottlenecks on the system.
Yes, John.
As people may be aware, we own.
Rail loading facility, we've spent some capital through 2019 to Debottleneck that facility.
We have the capacity to load.
Two plus unit trains a day out of that facility. So so the combination of kind of efficiencies.
In utilizing our fleet of cars as well as working with the freight contractors and the other operator of the loading facility were able to kind of flex up and down that program.
Okay. Appreciate the color I'll turn it back.
And at this time ill turn the call over to Mr. Kirby.
Well I think Thats I think thats all the questions I just want to thank everybody for joining us today and the call is complete and everybody enjoy their day. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.