Q4 2019 Earnings Call
Thank you for standing by this is the conference operator, welcome to the Husky energy fourth quarter and annual 2019 conference call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
To join the question Q you May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over two dozen Cuthbertson director of Investor Relations. Please go ahead Mr. cuthbertson.
Hello, and thanks for joining us on the call. This morning.
Rob Peabody CEO, Rob Simon CFO, Jeff Heart and other members of our management team are here to discuss our fourth quarter and annual result, and then we will take your question.
Today's call has forward looking information and non-GAAP measures the identification of forward looking information and non-GAAP measures the risk factors and assumptions pertaining to the forward looking information and additional information pertaining to the non-GAAP measures are in this morning's news release and in our annual filings on SEDAR and Edgar.
All numbers are in Canadian currency and before royalties unless stated otherwise a reminder to please save your specific modeling questions for our Investor Relations team to answer following the call. Thanks, very much and now Rob Peabody won't begin the review.
Hi, Dan and good morning.
As you saw from our news release, a sporting this was a tough quarter.
Funds from operations were 469 million at a normal run rate and with our Investor day pricing assumptions, we could have delivered almost twice that amount.
Well, our upstream operations ran to blend the biggest scout present, our U.S. downstream Russell.
Shutdown at the lime a refinery to complete the crude oil flexibility project lasted almost the entire corner with an impact of about 180 million on our funds from operations about hundred 80 million about 90 million of this was expected due to the planned.
A planned shutdown and well 90 million was due to the extension a shutdown.
You as crack spreads were also very weak, resulting in an impact of about 120 million.
Keystone pipeline outage in November and narrower location differentials negatively affected our infrastructure and marketing segment by about 50 million.
And we also incurred 74 million in severance costs related to staff reductions that took place in October.
Looking at the annual result, we wrote off 2.3 billion, an after tax impairments and other charges in the fourth quarter and Jeff will address this in a little more detail in his section.
On the operations front, we made good progress in 2019 on safety.
This included reductions in our total recordable and lost time injuries and tier one process safety incidents. This will drive more consistent operational performance as we accelerate our transformation to a high reliability organization.
We have set a target to become a talk to become talk core tile in process and occupational safety by the end of 2022 as measured against global benchmark.
The progress we made on these metrics in 2019 gives us confidence that we are well on our way to achieving that goal.
And at the safety focused employer and as.
And as a business with operations in China, I'd like to talk about how we're responding to the virus outbreak.
After the extended break for the Chinese new year, our workers are workers have returned to their offices, our Asia Pacific facilities have continued to operate under strict helped protocols throughout this period.
And we are continuing to monitor developments in all regions in which husky offerings to ensure the well being of our staff and their families.
In terms of how this is impacting our Asia Pacific volumes typically our buyers take reduced volumes from the Li one gas project and this time of year due to lower demand related to the Chinese new year. This shortfall is usually offset later in the year when they take more than their contracted rate.
However, given the extended holiday because at the precaution surrounding the virus demand for Li one gas was lower for longer than usual.
The past few days, however, we've seen an uptick in demand to full rates.
Overall, we are May we made good progress in 2019 on the critical business milestones that we set out for the year.
This was despite headwinds created by the government mandated curtailments, Alberta, and a slower than anticipated returned to full volumes in the Atlantic region.
Production of 290000 barrels of oil equivalent per day was at the bottom end of our guidance.
Annual capital expenditures were also at the low end of our guidance and we maintain the strength of our balance sheet and stayed within our debt targets.
Annual funds from operations were 3.3 billion compared to 4 billion. In 2018. This reduction is due to the following factors the extended maintenance outages at the partner operated Toledo refinery.
Attended shutdown at Lima that I spoke about earlier the slow start up of to see rose in the Atlantic region, which is now at full rates.
The Alberta quotas and of course, lower cost commodity prices when compared to 2018.
Touching on a few project highlights from 2019, starting with the integrated corridor.
Our latest Lloyd thermal project at the Valley came online ahead of schedule in the third quarter and we continue to advance three near term thermal developments spruce like central and spruce like North will start up later this year spruce slight east will follow in 2021.
All three projects are making good progress on our on schedule and on budget.
In the downstream at lime off all the units are now running and we expect to ramp up to full crude rates by March heavy crude processing capacity has increased to 40000 barrels a day up from 10000 barrels a day, providing the crude supply optionality at will lead to improved margins or time we.
We also closed the sale of the Prince George refinery in the fourth quarter, which is further focused our integrated corridor business in the offshore business starting with the Atlantic production at the three White Rose drill centers was restarted in the first half of the year and the remaining two drill centers were brought online in August the way.
Yes White Rose project is now 57% complete and we're continuing to see good project execution and productivity with first oil by the end of 2022.
In Asia construction of the 29, one field at least one continues to progress and we are on pace for first gas in the fourth quarter of this year.
As these projects come on stream they'll further grow our funds from operations at the same time their completion allows us to reduce our capital spend.
When we.
When we released our capital guidance a couple of months ago. We said, we would reduce spending by 100 million in 2020, and a further $400 million in 2021 compared to our previous plan that we had set out at Investor day earlier that year.
Remain committed to maintaining this capital discipline with a priority on returning value to our shareholders through a strong dividend while investing for margin growth.
We're also advancing our work on carbon targets and well update you on these later this year.
Now I'll turn the call over to Jeff to review, our Q4 financial results.
Thanks, Rob I'll start with the asset impairments and other charges that we booked in Q4.
The impairments were largely driven by lower commodity price assumptions and a reduction of future capital investments in the Canadian upstream business and the primarily impacted the book value of our upstream assets, including Sunrise, the White rose field and gas resource plays in Western Canada.
The other charges included asset Derecognition at the Lima refinery associated with redundant equipment. Following the completion of the crude oil flexibility project.
Excluding the impairments and other charges, we had net earnings of 5 million in the quarter.
In regards to net debt, we exited the year at 3.7 billion.
Total liquidity is now 5.7 billion in cash and unused credit facilities.
In terms of reserves.
Total proved reserves before royalties at the end of 2019 were 1.4 billion view about the same as the previous year.
And with a deferral of capital programs at Sunrise and and so we had a probable reserves reduction of 395 million Boe.
The average three year proved reserves replacement ratio was 166% excluding economic factors and the proved reserves like index remains at 13 at half years.
Turning now to the fourth quarter.
Funds from operations were 469 million compared to 583 million in the year ago period.
This was mostly due to the lower U.S. crack spreads and the extended Lima shutdown.
Our operating costs at the refinery are largely fixed and there was little revenue contribution in the quarter.
As a result.
Yes, refining segment had a negative operating margin of about 170 million Canadian.
For context, the U.S. refining segment posted an average operating margin of 190 million Canadian per quarter in the first three quarters of 29 team.
This means that delta in the quarter was with both 360 million.
And as mentioned earlier, we booked 74 million in severance costs.
Turning to upstream operations overall production was 311000 BOE per day in Q4 compared to just over 304000 Boe per day in Q4 of last year.
These barrels received an average realized price for both $46 per Boe.
Compared to about $25.50 in the prior year quarter.
The upstream operating netback averaged $27.48 per Boe.
Compared to $9.42, a year ago, reflecting higher realized pricing for heavy oil.
Upstream per unit operating costs were $15.25 per Boe.
Compared to $13.75 per BOE at this time last year due in part to higher energy costs and lower production.
The offshore business delivered an operating netback of $61 per Boe.
The operating margin in the infrastructure and marketing segment was 12 million.
Compared to 175 million in Q4 2018.
And this was largely because of the tighter location differentials and the Keystone pipeline outage in Q4 2019.
The U.S. refining Mark and marketing margin was $7, an 85 cents us per barrel of crude throughput, which included a negative pre tax spiteful impact of 24 cents us per barrel.
We also realized 116 billion a pre tax insurance proceeds related to business interruption at the superior refinery.
Capital spending in Q4 was 894 million compared to $1.3 billion at this time last year.
This includes rebuilt costs and superior 48 million, which are expected to be largely recovered from insurance.
Looking forward. This year is expected to market step change in our five year capital program by the end of this year. We'll we will have started up to 29, one field and the spruce like north and spruce Lake Central thermal projects.
In addition, the bulk of our spending at west weight rose will be behind us as the project advances towards first production around the end of 2022.
However, we expect a few headwinds in Q1.
This includes the potential for a slow recovery in gas demand in China related to the virus and then Lima, we had an average throughput of 105000 barrels per day in January we're now at about 140000 barrels today as we continue to run off intermediates.
We expect throughput to increase but we will still run off intermediates through March.
Also production at the partner operated tear and over half the ASO remain suspended.
Just a reminder, that beginning next quarter, we will be adjusting the way we report our financial results to reflect the integrated corridor in offshore segments.
This will better align our reporting to the two businesses and provide for greater transparency and he is modeling.
Finally, our priority remains maintaining capital discipline, and returning value to our shell or shareholders through sustainable dividend increases.
We are maintaining the strength of our balance sheet.
On top of that we're continuing our strategic review of the commercial yields and retail business.
We're also continuing to pursue other opportunities to further reduce capital and expenses.
This will see us through to next year, when we expect to reach a positive free cash flow inflection point.
For this quarter. The forward is maintaining the current level of dividend at 12.5 cents per common share.
Thanks, and I'll pass the call over to Rob sites.
Thanks, Jeff.
Overall thermal production from Sunrise Tucker Lloyd averaged about 138000 barrels a day net to husky in Q4.
This compares to 133000 barrels a day in the same period last year.
We have set a target to reach 90000 barrels a day of Lloyds thermal production by the end of 2019, and we met with.
For the December average of 92000 barrels per day.
In the area of thermal operating costs and emissions intensity, we've been active on several fronts.
Artificial intelligence pilot program to enhance steam utilization that the Sandell project has been successful.
We've seen reductions in steam requirements of approximately 10% concurrently production has improved around 2%, meaning greater operating profitability with less environmental intensity.
This program is now being extended to eat down.
Plans to roll it out to all while producing projects is discussion later this year.
We also have pilots underway at Sunrise, and Pikes peak, south that use non condensing gases to lower steam oil ratios.
As we expand these programs they will provide for increased production through the redeployment of the steam that is being freed up further reducing the environmental footprint of our operations.
Another big milestone and 29 team was the start up of the Aberfeldy facility.
This is our first full fuel polymer injection projects in Scotland and will increase oil recovery from this heavy oil field.
It's also the first of several potential longer term lower cost geoeye applications across our heavy all business as we move forward from our legacy Chubb production.
In the downstream overall upgrading and refining Throughputs in Q4 averaged just over 203000 barrels a day compared to 287000 barrels a day in Q4 2018.
This included 79600 barrels a day to light upgrader 28200 barrels a day at the Ashwell refinery.
In the US we saw combined volumes at Lima, and Toledo with 91700 barrels a day.
This takes into account to full shutdown at Lima, that's what I was extended maintenance at the partner operated Toledo refinery.
With Lyman not one line overall downstream processing capacity is 355000 barrels per day, including 195000 barrels a day of heavy oil upgrading and conversion capacity.
Overall capacity will grow to 400000 barrels a day and superior comes back online around the end of 2021.
Total heavy processing capacity of 220000 barrels per day.
In Western Canada during the fourth quarter, we started up six liquid rich wells in the moderately formation at Wembley.
Can you offshore business.
Construction of the 29, one field at Lumwana is about 80% complete and remains on track to start up in Q4.
Full seven wells have been drilled and completed and the subsea flow lines have been installed.
Book is now underway offshore again next up is the installation of the control system connecting and de ordering to various flow lines.
Fully ramped up this field will add about 9000 BOE is a day to our Asia production.
Well sure Indonesia, the BD project. The FPSO is taken offline for two weeks in January for maintenance, but is now back producing at full rates.
In the Atlantic overall net production was about 24000 barrels a day in the quarter.
Also for the impact of the partner operated turnover shutdown that occurred in December.
The West White Rose project is now 57% complete and remains on schedule.
General and final quadrant of the concrete grab the base was completed ahead of schedule in the fourth quarter.
We're preparing now for the main shop slipped full which will start in the second quarter of this year.
And it Ingleside, Texas stacking of the individual decks is now underway. This was a major milestone that would allow the topsides construction to continue its up with progress.
Combined average net production for Asia, and the Atlantic in Q4 with 70000 to be always a day husky working interest up from about 64000 barrels a day a year ago.
As for our planned 2020 turnarounds along with Kartell, we will be completing a project in the second quarter for Lloyd upgraded to increase our digital capacity to almost 10000 barrels a day. This will take about six weeks.
Other operated turnover F. FPSO, which we have a 13% working interest is currently scheduled to be offline for up to seven months.
We also have regular maintenance schedules that we won and sunrise in the second quarter and on the C rose in the third quarter.
The details of all of these are available on our website.
Now turning the call back to the operator for questions.
Thank you we will now begin the analyst question and answer session any analyst who wishes to ask a question May press star and one on their Touchtone phone you will hear a tone to indicate you are in the Q4 participants using a speaker phone it may be necessary to pick up your handset before pressing any.
Keith.
If you wish to remove yourself from the question Q you May press star until one moment when we pull for questions.
Our first question comes from Greg Pardy of RBC capital markets.
Thanks, Good morning, and three quick ones for you I guess the first is just on the.
On the severance charges, how much will that reduce your run rate DNA in in 2020.
Yes, Thanks, Greg as Jeff your.
I think is we split but about $50 million to $60 million will be in ESG and then we'll have savings in the other cost categories in the piano and that will total about 75 million, we'd expect an ongoing savings on a run rate basis, that's kind of and then here have you back on the charge. Okay. Okay. Okay. So it's an it's an annual number okay great.
When you.
When you take down the upgrade or I guess, it Rob was mentioning it whatever is six weeks or so.
That'll just be a partial shutdown.
Or is it more is it more dramatic.
I'll, let Jeff Rinker answer that Hi, Greg This is Jeff.
We're taking the whole upgrader down we take the full up were down once every four years and we take one of the Hydrocrackers done every second years as will be a full full shutdown.
Okay, Great and the last question is just on the reduced capital spend and so forth and then just the impact on reserve is on a on both the one piano Tupi basis could you dig into that a little bit about where those changes were made in and then what the implications are if any yes, I know in all breakout.
Two categories will talk to the proved reserves and then just probable impacts.
Look at proved as the impacts really on on the side is that reductions are really in the gas business and it's really reducing capital on an annual and catwalk NAS really driven by price in us cutting back to capital frame.
Summarizing free cash flow and and on the probable side. It is again and if you look at the gas. Besides the same thing and so on catwalk and then you'll see the say a similar impact or an impact in our bitumen product line and Thats really cutting back future phases on sunrise and focusing on free cash flow as well. So it's really in those two areas and it's really capital.
Reductions, yes, the only thing I'd add to that Craig is again as we know those barrels have not really gone anywhere. It's just that under the reserve recognition rules, if you're not spending capital in the next sort of five years you have to do you recognize them. So that's that's the driver of course and then once you do recognize them that flows back in.
To your impairment calculations, and how you value those reserves.
Okay terrific, yes, thanks very much.
Our next question comes from Benny Wong of Morgan Stanley.
Hi, Good morning, Thanks for taking my question, Rob one of the thank you for adult Dave in your prepared remarks around.
And then the krona virus.
There seems to be quite a bit of concern around your natural gas pricing contract in the region, just given where regional gas an LNG prices have been moving can you maybe provide some perspective around that and if the perceived risk is warranted in curious if you're if you've had some dialogue will see nook around the situation.
So Benny I think clearly.
Clearly looking at the whole situation in Asia at the moment, although it does seem to be kind of spreading across the world. There. There are issues with total gas demand, although as I said earlier in the call. We're actually almost pleasantly surprised at the moment that they have now ramped up to kind of full rates, even a little higher than normal full rates.
So we are seeing a bounce back in those volumes at the moment.
Again the history here is we have a very strong relationship with seen dock.
And we.
The last time, we got involved with seen knock on a.
On on discussions around this contract on there were major differences I think both sides walked away feeling they got what they needed which was we needed to preserve value. When we were able to do that in those negotiations. We did at the time agree a small decrease in the gas price over time, but in return. They all also offered us something.
Things like extensions around when Chang and things like that so so value was preserved under the nature of the contracts.
At the moment.
We're just continuing to deliver the gas and we haven't really heard much from them.
Great appreciate those thoughts.
The second one is more around your retail sale process suffer the board Theres, a big refinery that selling their retail business as well and there has been recent headlines of interest of overseas buyer just curious.
Just in general how your prices going and if you're seeing the same interest as well our understanding that the business asset might be a little bit different.
Yeah, I guess, what I'd say there is we've run an extensive process. We certainly did see interests from from buyers from a wide range of buyers including overseas buyers.
We believe until until things are signed we believe we're in the relatively late stages of that process, but and we'll update you sort of when we have something specific to say.
Great. Thanks, and just my final question in this related really to just prepared remarks. I think you mentioned you guys are looking at opportunities to further reduce capital just wondering if you see what's implied some kind of early sense of what you're looking at an extensive magnitude that we're should we should be thinking about.
Well, let me put that I'll, let Jeff if he wants to add in a second but let me just give you the kind of overall context first just clearly when we put out our guidance at the end of last year, we did actually reduce our capex guidance relative to what we had said we were going to do at the Investor day earlier in that year, we took a 100 million out.
2020, and 400 million for next year end kind of again, indicating that we would expect that the run rate capital level will draw on a more sustaining basis beyond 2021, and so we've already baked that into the plan.
We are we are course, I know im sure most of our calling firms out there will be looking at capital programs again, given given you know what we're seeing with oil prices and margins given kind of.
The virus outbreak in all these things going on so what I apologize I assure you as we've done enough to understand we do have more capital flexibility. There is more room that we can reduce capex. This year, we havent finalized those plans but were.
Our our fingers over the trigger I guess you consider.
If they're required and then in terms of at the back of all this I think theres always going to be a little bit of concerns when things turn very south in the industry.
Around the dividend, but but we're still feeling very good about our ability to sustain the dividend hence the boards.
Decision to continue to pay the dividend at current levels. That's that's on the back of a balance sheet that is still very strong.
In terms of the industry overall.
Potential retail sale I spoke about earlier and of course. This idea that we do have some potential additional capital flexibility to go that way in the year.
Understood.
Thanks, Rob.
Our next question comes from Prashant Rao Citigroup.
Hi, good morning, Thanks for taking the question.
Rob what did touch back on companies out there about the dividend program.
Appreciating that theres been a levers you can pull for further capex reduction.
The balance sheet still fairly solid.
How do you think about debt leverage levels from here, especially given that I'm trying to repurpose and with the.
The impairments, which obviously reflect.
Lowered a more conservative commodity price outlook is there room to lever to take a little bit more incremental leverage what's your comfort level as you sort of move towards your targeted free cash flow positive inflection point in sort of next year, what could we see that go in and how should we think about that with respect to the strengthening of the dividend. That's that's.
Im going to let Jeff.
So we finished the quarter here at around 3.7 billion in no way to think about our target is as we always say two times debt net debt debt before the bottom of cycle and I'm kind of that triangulate now with what we can generated $40 sizable four and a half billion.
In net debt and so that's where we're comfortable well kind of manage around that because we don't want to do anything and prudent to the business.
And obviously, we've got the retail process.
Going as well and so we feel we've got the auctions there and we've got a few hundred million half a billion or little bit more in room.
In the balance sheet, so that's where we're thinking about it and we will manage in and around that I think the only thing I'd add to Jeff's remarks is of course and as we outlined at Investor Day next year I mean as you go through this year. We finished the cough project all written now which was a which was a substantial spender on capex, we're going to finished two more thermals as well.
Go through the year, one about the middle of the year in one towards the back ended the year. So those will be up 29, one in China will be finished so all those turn from net capital consumers now to actually revenue generators and.
And then and if you look at the White West White Rose project next year is a much next year in the year after much less heavy spending years, because assembly I kind of think of them as assembly years, we largely have built all the major components and then in 2021, they're all assemble them and 22, they're deployed in the field.
So those are much less spending years. So we still see this inflection point in kind of capital spending where that is going to draw very significantly as we go from this year next year. So I'd say I think we have some additional capital flexibility. We can pull this year, we too, but but in any case, we're going to see a big inflection down in capital as we go.
Into next year, and we have and between all those projects. We've got about another 30000 barrels a day of production coming on stream effectively by the end of year and we also have the cough project in line up and running so it gives us more flexibility better opportunity to drive higher Mark.
John and I guess, the one other project that we didn't mention explicitly but as part of the upgrade or turn around of course, we're going to finish the work on the on the diesel enhancement project that takes our diesel rates up at the upgrader from about 6000 to just under 10000 barrels a day and actually incrementally adds a little bit of capacity.
To the greater throughput as well so so all those things are kind of moving into right direction. So I just want to give you a sense as we the board thinking about the dividend now they're also saying look we've got all these levers as we manage this year and actually as we go to next year, we actually see a very big inflection point driven by lower capital.
Turning plus all this additional production and margin enhancement.
Projects coming on stream to Rob's point as you're looking nine to 10 months got to thermals on 29, one and so you really stepping down that capital so the risk profiles.
Okay.
The detailed let me answer from from all of you.
Next question, there and what sort of related.
Touched on the commodity price outlook change.
As it relates to the impairment.
Hi, Rob you talked already about some of the Derecognition process in terms of.
Yours.
And how that works, but the other two big levers here one is commodity price when we think it doesn't impairment write the others.
Discount rate, but supply and sort of except that you could talk about it give some color like to now you know how much of the impairments are purely a function of commodity price environment do you how much could be potentially.
The auditors, even looking at a discount rate assumptions.
Out some of these projects we go out ahead, particularly like outside.
Yes, it's Jeff your I'll talk to that and broadly speaking.
Ill get into David's vast majority of the the impairments are really driven by commodity price. Obviously as you go through your process you.
The third party dash like but that's really the drive and Thats the way people should be thinking and bonuses the revision down in the long term price lines.
We saw in third parties in the light so I would the discount rate theres a bunch of accounting.
Things that go on with that to make sure that you know, what's a reasonable rate and reflects the cash flows of yet the individual assets, but broadly speaking is the way you should be thinking what was the vast majority is price.
Okay, Great and just one last one from me.
The crude oil flexibility impairment it looks like there were some redundant equipment.
The that's really Paramount once you've come out of that now.
Part of that.
I have known that you might have some redundancies there was kind of discovery, but as you went through that process now talk that you as you go through and obviously this quarter. We did a lot youre doing work on not or this past quarter distillation at quarter end and yes, what I'd say is individual small sub components of the major units and as you're going through and pulling that out is is that points to deal.
Recognizing there is nothing to read into that other than just you can't have two sets of pipe on the book in the like in their all kind of sub components of the major units.
Okay. That's great. Thanks, Thanks, Rich I appreciate it will turn it over.
Our next question comes from Phil Gresh of JP Morgan.
Yes, hi, good morning.
First question just on superior in light of so the recent news flow.
Around the tower there.
It sounds like you're still confident in the 2021 and a 2021 timing, but maybe you could just.
Frame, what what happened there and how you feel how confident you are in that and that timing still.
And just where you are the process a little bit little bit more on that thank you.
So I'll get Jeff were incurred answer that.
That last few days.
Yes, Hi, Bill. Thanks for the question, Yes, those are just what happened.
Last Thursday, the construction workers are working and the project Curtis loud noise that came from the FCC staff at the site and these are construction workers that are that are experienced not really normally effected by noises that it was a serious.
And we we took it seriously we.
Evacuated the Erie around the stack until we had a chance to inspected and find out if there was anything wrong with the with the stack subsequently we've done visual inspection we've done.
Measuring the movement of the stack, we don't see anything at all wrong with the stack, but we are going to complete a thorough mechanical inspection of the stack and make sure that theres absolutely sure Theres nothing nothing wrong with.
Thats going on we did pull the workers away from the the site around this debt lose about a week of time in the field on this is not going to affect the overall project schedule, though because the critical path right now is it in the field. The critical path is with fabrication of long lead equipment and detailed engineering, which is happening in shops and offices around the around the country.
So we'll have we'll be back to work at the same soon as soon as we have the deck secured with the crane.
And we don't expect to lose any time on the projects were still on track for late 2021 startup of the refinery.
Okay, all right. Thanks.
And then my second question I guess, Rob Im looking at the analyst day slides here from last year and just some of the 2020 specific data points in the guidance that you.
Yes that you've provided back in December.
If I look at the production and the cash flow.
More the CFO, obviously, you've changed your capex, but thinking about more of the production CFO.
And in light of the 29 team performance in the fourth quarter shortfall at me is there anything from your perspective that you.
Would be carrying through to 2020 or reading through 2020.
As result of 2019 or is it this is mostly onetime.
Transitory factors just any.
Thanks.
Thanks for the question I mean, I see almost everything that happened in Fourq you as onetime factors that departed from the norm, Hence as I said bridge what are the things that is an obvious question for me to ask as well as I'm going through all this so at one of things I wanted to be clear in my mind was if you bridge back to normalized.
Sort of levels of.
Funds flow from operation and that what is the bridge and the bridge was really around the alignment downtime as I said, we had planned for 90 million of that we've got an extra 90 million because there was extended.
And then the lower U.S. crack spread was about 120 million.
A moment crack spreads they come up off the bottom, but they're certainly going up and down with this.
Different views of the virus situation, but.
I don't think it's too early to call the view that that they're going to be lower throughout the year or something.
Severance costs were all one off items and.
And the Keystone outage, the course measure on the Keystone pipeline I'm, hoping we don't see that again as well the other little thing that was in for Q that we didnt explicitly bridge to in the previous call. It was just that Theres always a time lag as we see the differential narrowing.
Or expanding in our operations the way the integrated corridor works and this case, we saw that differential expanding so we lost some of the income from the upstream but of course, it didnt get replaced in the downstream.
In addition, because of the Keystone pipeline outage, but even where in some of that will flow through some of that will flow through in the first quarter. We estimated that in light of around $20 million would have been larger except for the Keystone issue, but but so so those all felt like sort of one off sort of issues and.
I look back at the guidance for this year I think.
It's really comes down to price and margin at the moment that has a potential.
There is the Terra Nova off station, which we budgeted in the in the plan is budgeted for about seven months. So it is quite extensive in the budget for this year.
We didnt expected to be shutdown for the first month or two here prior to going off station. So we'll see if the operators able to reach a little bit about but we're only 13% of that project. So it isn't a major impact one way or another so so I guess the answer your question is there isn't any it's really about price.
And we'll see how that plays out as we go through the year.
Right and then.
It really helpful. And then I guess, obviously you called out some first quarter headwinds but.
From your perspective, it sounds like.
Nothing that would.
Make you uncomfortable with the full year.
Outlook or guidance on production.
Yes, no I think on the on the fundamentals like on on the Controllables I'm feeling pretty good I wish the year started a little bit better on the pricing front, but.
But we'll see how that plays out.
Okay. Thank you.
Our next question comes from Emily Chang of Goldman Sachs.
Hi, guys. Thanks for taking the time.
Just maybe coming back to the Capex piece of the equation before and just wanted to dig a little deeper into west flat right. I believe when this is sanctioned was about $2.2 billion pre Jack net husky can you remind us exactly where we stand in terms of spend so far and how much maybe we should be budgeting say 20.
21, and 22, given that I think we should be coming to the tail end of spend that please.
Yes, so actually what we what we've done here like let me first say one thing the price of that project hasn't changed in since our Investor day last year. So the at it hasn't act it hasn't changed in over a year, but it hasn't changed since the Investor day last year in fact, it's been tracking if anything slightly better than.
What we set out at the Investor Day last year. So all the capital that we included all the capital we put in in Investor Day.
That we outlined at our Investor Day last year included the full cost of West White Rose as you know along with the current estimates so none of those estimates change on the back of sort of anything to do Westwood with West White Rose and when we said in our guidance call. This year that we were going to bring capital down from the.
Those levels by 100 million and 400 million next year.
I'd also reflected the current status of west White grows. So all those numbers are still current and as I said, we are still we believe and we'll look as though.
The pricing environment. This year, we know we have further capital flexibility if we need to pull up this year in order to just to ensure we can kind of preserve the funds from operations in order to sort of bridge the dividend payments and maintain our debt levels as we move into next year when we should see.
Much much more room around the the extra free funds from operation them happy to support an eminent.
Got it that's helpful. Thanks.
Just one follow up and might be a little chickie at a time so that just on the I'm at the high end to end segment can you quantify how much of the mix might have been due to the Keystone out each passes the differential.
Do you have that Jeff I think.
Yes, I'll, it's Jeff Harte Hanks, we did aspect.
Yes, you would have that I don't have this specific numbers after that but basically what you think it was the vast majority of it really is the quarter versus quarters, the narrow location differential.
Order of magnitude day.
Rich did cost us money, but it really is the way to think about it is the location differential primarily.
And that was compounded by the outage.
Got it that's helpful. Thank you.
Our next question comes from Mike Dunn of Stifel first energy.
Hi, Thanks, everyone.
Two questions from me.
And apologies if I I missed the details in the prepared remarks, but regarding the impairment at west White Rose.
Just looking for a bit more detail on that folks.
Your partner had recorded an apparent on the asset.
In their Q4 report a few weeks ago.
I believe what I understood from that was it was.
An increase to the post startup.
Cost assumptions for the project.
And I know that the impairment was based on Threepi reserves.
Oh, the or the impairment tests is based on Threepi reserves. The possibles aren't disclose so just just wondering if there's any changes to the to the.
The outlook for Mr rate rose.
Yes, so it's Jeff your is take the color on eyes is the majority of it really is price I can't.
Every will have their company has their own process, they run but for us I inclusive of so wipros I'll remind you. This not just westway roses, the existing Lance everything that runs through this the Roes that yes. So so you can't look at it in isolation and and viewed as just Westway rose. It really is the entire Wayne rose.
And the way to think about it really is price related in price driven and we havent. This you're seeing substantial movement in the reserves.
He either any approved or the bright young reserves right, they're all very.
Very similar.
Okay. Thank you and then secondly, I'm just wondering.
If you could provide an update I mean, I don't have much of an update.
With regards to the status of Jushi taxes in Scotland.
In any you know with the federal governments.
Trying to apply those I mean any sense of what they might be for your company. If let's see if there were so similar policy to alternatives.
I think you're you're not paying those yet but.
Maybe if you can just.
Provide an update there.
Hi out the OLED Janet.
Free fence around that we can always get back to you with more detail.
Yes, hi, its Janet anniversary here. If there was discussion has a large emitters program very similar to Alberta.
And our facilities are covered under this large emitters program as we'd be very glad to follow up with you I don't have did the quantum carbon taxes that that we're paying if that's your question that we can certainly walk you through the methodology that is applied.
Yes.
Okay, Great and then generated these.
This these payments just start this year or were you subject to them prior to this year to date to start this year okay.
Okay, Yeah, I'll follow up with somebody later thank you.
Our next question comes from Matt Murphy of Tudor Pickering Holt.
Hi, Thanks, Good morning, I'm, just wondering on the 29, one extension if you could you remind us.
One I guess, if the pricing structure has been settled what sort of area code that it that it shook out in or if perhaps it's still under negotiation any comments on where we should be thinking relative to existing pricing.
This is Ron so 29 one.
The pricing is fixed I believe we up we put that out to you a little but a lot of about 10% less than the numbers that you see from the existing contracts.
And it is set at sign.
No issue from a perspective.
Okay. Thank you and I guess on Li one as a whole you remind us when the current price contract or just general contract is due to and I think 2021 is the timeframe if I'm not mistaken.
And just any thoughts on any discussions that you've held thus far with with the operator that project on potentially extending that that contract longer term. Thanks.
So that contract is a life of field contract.
There is as you note a.
Price reset point in 20, I believe the end of 2021.
When we will go into a color the arrangement I think again, what we've talked about historically is you should think about and it's based on one Dong City gate as Guangdong floats, we will go down no more than $2 and we will go up no more than $2.
Great. Thanks very much.
This concludes the analyst question and answer portion of today's call. We will now take questions from members of the media as a reminder, please press star and one on your Touchtone phone to ask a question. If you wish to remove yourself from the question Q Press Star and.
Two we will pause for a moment as colors join the queue.
Our first question comes from Alex Bill of Aloe, Newfoundland and Labrador.
Hi, there somebody asked.
Hey, Westlake Rose impairment charge question earlier, but I'm wondering if you can provide more details on reductions in capital investment in Atlantic, Canada has mentioned in the and DNA.
Hi, Alex this is Rob.
The I think the only so clearly we're moving ahead with west White Rose.
And so there's no significant reductions associated with that.
As we move as we move as we went through last year. We did have some capital invested in a potential sort of northwest white grow. Some early work around that we actually pull that back with the kind of commodity price assumptions. We were looking at the moment, so but the major capital investment we're rolling forward with.
Continues to is continuing.
And my other question it onto regard the question. These statements from your partner on Westlake Rose made earlier this month.
Regarding concerns over overspending at West weight Rose is that something you feel it's been addressed from the switch to sort of aggressive schedule basis to this cost efficiency basis or would you kind of content. The overspending description well I think actually even our partner actually said they were satisfied that this was now.
Progressing very well in fact, they went yes. So they they said and I think their message was consistent with our message which was there was early days of the project. There was some low productivity in that which we address when we kind of re rework the schedule and and since then we've been seeing actually excellent product.
For the by the workforce out in new from land, we've been very happy with the crew on site and the progress we've been seeing and I think our I know our partner shares that view as well so.
So that's where we are now and as I've said earlier, the the kind of cost estimate for the project hasn't changed in over a year and from a husky point of view, we've been in all our analyst presentations and everything we've been we've been using the same price forecast for over a year.
Okay. Thank you.
[laughter].
Our next question comes from Rod nickel routers.
Yes, hi, Thanks for taking my question Robin just wondering if you can flesh out a little bit more about some why husky has I.
I guess more pessimistic view of oil prices being lower for longer than it did before.
And then just secondly.
Chemo and of course with some concerns this week abode, some they're being unresolved debate between climate change concerns and energy growth. So wondering if you can maybe give us a your thoughts on that issue that they raised so for okay, well I think in terms of oil price I'd, just say that we don't have a crystal ball.
And in this industry a lot of years almost whenever everybody has a consensus view of oil price it always turns out to be wrong.
I guess the good news there is everybody's consensus view is low at the moment. So maybe that will eventually solved in the past low prices tend to be the solution to low prices.
And we might be going through that again, but all we do with oil price is when we set the numbers. We basically look at the forward strip and Thats. All we did when we looked at our guidance for this year, we looked at the forward strip and at the time that was consistent with a long term flat Brent price of around 60 Bucks and.
And.
Long term WT ATI flat price of about $55 and so that's what we use but I wouldn't want anybody attaching to much importance to our view of it because.
Seen much fidelity in anybody's views of being able to predict this stuff.
In terms of the Tech decision I think the only comments I'd make there is you know companies cannot control of commodity prices, but regulatory processes. There in the government's control and government should make every effort to ensure that companies in any industry don't invest significant dollars in a project in project applications only to be de rail.
By policy or political uncertainty at the very last moment than we've seen a whole string of projects here to some extent in the U.S., but worse in Canada, where people have proponents of spend $1 billion are more with before before they get a negative decision from the government to go forward that certainly is a situation that has.
To be rectified people want projects to move ahead, and and I think the other comment I'd make specifically more to Canada than even the U.S. is that we absolutely expect expected large projects need to undergo detailed regulatory reviews to ensure they meet hired ventral and.
Our mental standards.
And certainly the tech project seem to do that well, creating jobs taxes and other benefits that really net benefit Canadians and and the country.
And I think what we see in Canada is a regulatory process that just takes so so long and it has an unpredictable lane and that's that's what we have to get on top of because as anybody who's.
And is very close to business you know all you got to do.
Two frustrate.
Frustrate large project investment is if you make the regulatory process take longer than sort of five years say as a nominal point.
The stars that need to align for businesses that often have partners that also have to be aligned on the idea of a large investment.
Stars rarely aligned for more than four or five years. So you know I have some people kind of like they try to point fingers ultimately in the tech process is what killed tech well what killed Tech ultimately was a regulatory process that just went on and on and on and off had that process concluded in a in a.
Sensible timeframe I am sure we'd have a tech project under construction today, because there were proponents that were set and keen to move forward with that project, but if you wait long enough.
But that's sort of.
Coalescence on the idea of spending that sort of money eventually unravels and that's what we're seeing so I think the number one thing we need to address is ultimately is around the regulatory process to tighten up time frames and to put more certainty in it well not not.
Not giving away any of the requirements of projects have to meet very high standards and be in the interest in the country.
Thanks very much.
Our next question comes from Dan healing of the Canadian Press.
Good morning, Thanks for taking my question I was just wondering about the real blockades I realized husky doesn't use the rail to move up a lot of.
Oil, but I worry or what kind of impact how are you seeing on that front and also in being able to access.
Products that you need for your operations.
Yes, I can I I'll, just answer that at a high level.
We we don't use the rail very much.
Because because we have good pipeline access.
As of our history of investments and commitments on pipeline. So it's not a big issue for us as a company.
And but that said you know eventually we have asphalt to move on rail later on in the year and things like that when we would certainly hope that.
The government takes the required actions to ensure that the infrastructure in Canada works properly.
And that's kind of where we are.
Okay I just had a follow up question on tech.
In view of the situation, there and you're saying that it's related to the regulatory process. Do you think that means that large oil sands projects can be built in Canada right now.
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I'd hate to draw that conclusion necessarily I actually think the issue is far more about all projects in Canada and I think people are attaching this detect but I think building major highways building pipelines building.
Building major infrastructure projects around cities and things like that I think this applies to everything and so I wouldn't draw the conclusion that it's really an oil sands issue certainly certainly it is concerned I think when you think about the renewable energy agenda, because renewable energy requires things like wind farm.
Arms at also contribute also are quite controversy Olin types hydro projects, which are which are a key part of Canada as energy picture I mean, we actually generate more power from renewable sources. The most countries in the world because of a huge hydro positions we have.
And and as we've seen in this country. If you want to increase the size of outsourcing. Our that's also a big issue. So.
I think it. This is interesting was tack it was an oil sands projects, but I think it's just endemic of a much bigger problem.
Okay. Thank you.
This concludes the question and answer session I would like to turn the conference back over to Mr. Rob Peabody for any closing remarks.
Well, thanks, everybody for taking the time today and thanks for your questions I will release, our 2021st quarter results on Wednesday April 29th and following the call will hold our annual.
Meeting of shareholders in Calgary, So thanks again for calling in today.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day <unk>.
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Uh huh.
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