Q1 2020 Earnings Call

[music].

Ladies and gentlemen, thank you for standing by welcome to the Imperial oil Q1, 2020 earnings Conference call.

This time, all participants' lines ARNA listen only mode.

After the speakers presentation, there will be a question and answer session.

To ask a question during the session you will need a press star one on your telephone.

Please be advised that today's conference maybe recorded.

If you require any further assistance please press star zero I.

I would now like to hand, the conference over to your Speaker today Mr., Dave Hughes VP Investor Relations. Thank you. Please go ahead Sir.

Thank you Daniel good morning, everybody. Thanks for joining us on our first quarter earnings call I'm going to start by introducing you to the senior management, we have here in our virtual room or we have Brad horsemen, Carson Chairman, President and CEO, Dan Lions, Senior Vice President Finance and administration, John Whalen Senior Vice.

President of the upstream and Teresa Redburn, Senior Vice President of commercial and corporate development.

Before we start I'm going to start by noting that today's comments may contain forward looking information any forward looking information is not a guarantee of future performance and actual future financial and operating results could differ materially depending on a number of factors and assumptions forward looking information and the risk factors and assumptions are described in further detail in our first quarter.

Earnings press release that we issued this morning as well as are most recent form 10-K and all these documents are available on SEDAR Edgar and on our website. So what assets you please refer to them.

We're going to follow our usual format.

Brad is going to offer some opening remarks, and then Dan will give a financial overview of the first quarter.

Then ill go back to Brad for some more color on the operating performance and then we will get to the Q M&A.

As I'm sure everyone is aware we have our annual general meeting today at 10, 30 Mountain time. So I just want to note that we will need to end the Q in a at 10 o'clock sharp, but if there are any outstanding questions. We will certainly follow up directly with you after the AG.

And I. Thank you in advance for your understanding so with that I'll turn it over to Brad.

Good morning, everyone and welcome to our first quarter 2020 earnings call I Hope you are all doing well and stay healthy.

Before we get started with reviewing the first quarter financial and operating results on behalf of the employees of Imperial oil I'd like to take this opportunity to express our deep appreciation and gratitude for all those working on the front lines of this global pandemic.

We can't think them enough for the sacrifices they are making to keep us all safe and provide us with our essentials.

Our industry as you know is considered essential and so imperial is working hard to ensure ongoing reliable supply of the energy Society requires while at the same time, managing the health and safety of our workforce.

But our teams are also doing everything they can to support our communities and keep them safe and resilient during this unprecedented time.

The company has recently announced a promotion to provide up to $2 million worth of free fuel to the real heroes in this the frontline healthcare workers.

The company is also donating 60 tons of ice appropriate alcohol to help meet the significant increase in demand for this ingredient, which is used in applications like hand, sanitizer medical wipes and rumbling alcohol.

We also raised our matching dollars two to one for donations by employees to community charities and not for profit organizations through its employee, giving and volunteer program.

Also in order to support online learning and to help meet high demand for technology devices. While classrooms remained close the company is donating 500 laptops to the electronic recycling Association in support of the Calgary Board of Educations education matters campaign.

We recognized the need is great and I'm very very proud of how our employees and neighbors have come together to donate critical supplies and funding what is needed the most.

So now, let's turn to the first quarter.

Certainly what started out as a pretty typical quarter turned out to be anything but typical.

The combination of demand reductions brought on by the coded 19 pandemic and the supply shock, resulting from the OPEC plus actions was truly unprecedented.

And resulted in a challenging business environment by the time the quarter ended.

Significantly lower global demand had a material impact on crude oil and product prices, which in turn impacted our reported financial results.

We have taken a number of steps to reduce spending and modify our business plans.

DAP to these challenges.

We communicated some of these in our March 30, Onest press release, and we will provide more details throughout the discussion.

However from an operations perspective, I'm very proud of our first quarter performance upstream production volumes were quite strong in fact near at 25 year high for the first quarter at 419000 barrels of oil equivalent per day.

This included record Q1 production at curled demonstrating the positive impact that the curls supplemental crushers have had this thus far.

We also had strong results in the downstream, including record first quarter throughput at our stress Kona refinery, which continues to demonstrate the value of our integration.

Putting it all together I believe we delivered a solid quarter.

While we reported a loss of 188 million in the quarter. When you back out the noncash charges that are primarily related to market prices for inventory at quarter end earnings were a positive $113 million on an adjusted basis ahead of analyst expectations.

We also generated 423 million of cash from operations in the quarter and this included an unfavorable working capital effect of $179 million.

This resulted in a cash balance at the end of the quarter of $1.4 billion.

The value of our integration and balance was demonstrated as we achieve strong financial results in our downstream business.

Further while today's crude prices present, a substantial challenge for our upstream business in April we have seen some lower prices for light crude which will support our downstream business profitability in the second quarter.

We continue to return cash to our shareholders in the quarter with over 400 million return through dividends and share buybacks.

While we have suspended the buyback in this environment, we continue to pay a dividend and this morning declared a second quarter dividend of 22 cents per share unchanged from the prior quarter.

Our financial strength combined with the actions taken to reduce spending and costs provide us with the confidence to support the dividend despite the challenging circumstances.

Our longer term outlook for our assets and competitive position lens further confidence.

So at this point and I'm going to pause and turn it over to Dan to go through our financial performance for the quarter.

Thanks, Brad.

Our first quarter net loss was 188 million down 481 million from earnings of 293 million in the first quarter of 19.

The first quarter results in 2020 include non cash charges of 301 million, mainly associated with the revaluation ever our crude inventory to market value at quarter end.

Excluding these non cash charges as Brad noted earnings would have been a 113 million compared to 293 million in the same period last year with the drop mainly driven by the decline in commodity prices on a sequential basis and excluding noncash charges, we were down 158 million from the.

Sure of 2019.

Looking at our performance by business line upstream recorded a net loss of 608 million compared to net income of 96 million in the fourth quarter of 2019, reflecting noncash charges of around 250 million and the impact of lower realizations.

The downstream recorded net income of 402 million up from 225 million in the fourth quarter of 2019 as crude runs increased with the completion of turnaround activities at Sarnia Nantucket open the restoration of the damage tower at Sarnia. We also benefited from record first quarter crude runs at Stratcom.

Brad, noting chemicals earned 21 million in the first quarter up 23 million from a loss of 2 million in the fourth quarter of 2019 as margins and volumes increased I'll now discuss cash generation.

Cash generated from operating activities was 423 million in the first quarter compared to just over 1 billion in the fourth quarter of last year.

Cash flow was impacted by lower earnings and unfavorable working capital impacts as Brad noted we ended the quarter with $1.4 billion in cash.

Our strong liquidity position is supported not only by our cash on hand, but also by our industry, leading balance sheet and credit rating, which provide imperial with advantage access to debt markets.

Moving on to Capex.

Capital expenditures in the first quarter totaled 331 million Upstreaming expenditures of 231 million represent about 70% of the total in the quarter.

Reduce spending compared to last year is associated with the ramp down of the Aspen project as well as completion in startup of the curl supplemental crushers.

On March 30, Onest in response to co bid 19 and market conditions, we provided updated guidance, reducing our capital spending outlook by 500 million to the range of 1.1 to 1.2 billion for full year 2020.

We also indicated that we plan to reduce our operating expenses by 500 million compared to 2019 spending levels as we build on our ongoing opex efficiency plans.

Our spending will focus on ensuring ongoing safe and reliable operations of our assets and paced investments to continue work on key projects at a level reflective of the current challenges presented by Cobot 19 end the business environment, now I'll discuss dividends and share buybacks.

In the first quarter, we paid 164 million in dividends at 22 cents per share an increase from 149 million at 19 cents per share in the first quarter of 2019.

We also continued share buybacks in the first quarter totaling 274 million or 9.8 million shares consistent with their arc Toronto stock exchange approved NC IB program.

Well, we suspended our share purchases as of April 1st we continue to view our share purchase program as a flexible way to return surplus cash to shareholders. The company will continue to evaluate its share purchase program. The context of its overall cash flow and capital activities going forward.

As Brad noted earlier, we announced the second quarter dividend of 22 cents per share today, maintaining our dividend in this challenging period for the industry reflects our strong balance sheet in our confidence in the long term outlook for our business I'll now turn it back to Brad to cover our operational performance.

Thanks, Dan So moving on to operating results as noted earlier upstream production averaged 419000 oil equivalent barrels a day in the first quarter of this represents an 8% increase over the first quarter of 2019 and includes record Q1 production rates from.

Hurdle as production benefited from our new supplemental crushers, which I will talk more about in a couple of minutes.

We expect upstream production volumes to be negatively impacted in the second quarter as we deal with an unprecedented drop in demand as Canada, along with the rest of the world deals with the necessary travel restrictions self isolation and social distancing measures to address the global pandemic.

I will talk more about how each asset is impacted but it's at this point, it's too early to determine what the annualized impact of this demand and price reduction will be.

Now I'll comment on the individual assets starting with Carl.

We've had some very positive performance occur in the first quarter.

On a gross basis, we produced 226000 barrels a day up from 208000 barrels per day in the fourth quarter of 2019 and up from 180000 barrels a day versus the first quarter 2019.

I would also note in the month of March we achieved a rate of 248000 barrels a day for the month.

Now back in January in the fourth quarter call I expressed how pleased we were with the completion and commissioning of our supplemental crushers at Carol and how well they were performing.

Im excited to announce at this first quarter result reflects the continuation of this strong performance. These new crushers are performing as well if not better than expected.

As you are likely aware the first quarter has historically been a lower production quarter for hurdle as we deal was a cold weather and associated operating challenges. However, the availability of the supplemental crushers allowed us to compensate for what has historically been this period of lower productivity.

I would also tell you that in consideration of the health and safety of our workforce, we have been looking for opportunities to manage workloads that are sites to better support physical distancing.

One of the areas. We mentioned we were looking at was the scheduling and scopes of the various turnarounds we had planned for this year.

With this in mind, we have opted to advance as well as extend our typical second quarter turnaround at Kearl to roughly eight weeks.

So it will now begin in early May.

Literally within just a few days and continue to late June or early July.

This allows us to progress work at a more measured pace and greatly reduce the number of people we have working at site at any given time.

And without affecting the overall scope.

It also allows us to execute the turnaround during a period of likely low demand and prices. So we can have the asset fully up and running as and when prices do recover.

As a result.

We currently see second quarter production at Kuril running at approximately 150000 barrels per day.

I'd like to take of.

A few minutes now to talk about our employees and contractor partners that are hurdle asset.

By now you've likely seen the reports of several confirm coal.

Cases of Kobin 19 that the curl site.

This news is naturally concerning for Imperials leadership team.

Our employees the public and of course, the members of our extended curl family.

The safety and health of our people and the communities where we operate.

His are very top priority.

We've taken several steps to protect the curdle workforce, including reducing capacity on flights and buses.

In order to leave open seats and ensure physical distancing.

As well as providing cost face coverings to all workers for use during bus and flight travel.

As well as at the Khamsin work sites.

These measures are in addition to the extensive list of preventative steps that have been in place for over a month that kearl, such as enhanced health screening and cleaning practices at all sites.

And the implementation of temperature monitoring.

We are ensuring our workforce has all the proper personnel protective equipment needed such as masks.

And to ensure we are meeting the guidelines for physical distancing, we have reduced our on site workforce to essential workers only.

Out of an abundance of caution and in coordination with Alberta Health services.

Imperial made voluntary coven 19 testing available to all employees and contractors at Kearl, regardless of whether they were showing any symptoms.

The information gathered through this testing will help us better protect our workforce.

To date, approximately 1900 of the curl workforce have been tested and most results have been received.

As we have seen another process provinces. When testing has expanded there's often an increase in confirmed cases.

And as we conducted this widespread testing at hurdle. This was certainly the case.

Now as of yesterday.

And since our very first case, a few weeks ago. We have now confirmed a total of 83 cases of co bid 19 within our hurdle workforce, both onsite and Offsite.

Of these 83.

22 have now fully recovered.

And 61 are still being actively monitored and treated as necessary.

We continue to manage the situation very carefully and in close coordination with Alberta Health services.

We are in contact with those cases, who had earlier tested positive to ensure they have the full support of their imperial family.

And of course, our thoughts are with these individuals and hope they make a full recovery.

I would also point out that we are taking Copeland 19 mitigation steps at all of our facilities across Canada.

So now moving on to cold late.

Production was 140000 barrels a day in the quarter.

Similar to the fourth quarter of 29 team.

And consistent with what was communicated at our Investor Day last November.

And at this point, we continue to expect production for the year to be around 140000 barrels a day.

As I mentioned on the fourth quarter call, we have a turnaround at them. He can plant in the second quarter, which is now scheduled to run from early may to the end of June.

In order to reduce onsite workforce the scope of work has been scaled back and the timeline extended.

We're still in the process of finalizing revised production estimates.

And at Syncrude Imperial share of production was 73000 barrels per day in the quarter up from 66000 barrels per day in the fourth quarter and consistent with earlier guidance.

In January I told you about a coker turnaround at Syncrude that was scheduled for the second quarter with an expected duration of about two months.

However, in our March 2020 press release, we indicated that this turnaround had been deferred into the third quarter.

Since then however.

The ownership of Syncrude the partners.

Have continue to look at options and have now decided given this environment of co bid 19, low demands and low prices to go ahead with that scheduled work at this time.

The intent is to manage these efforts as a number of smaller discrete scopes of work, which can be completed by smaller workforce, enabling appropriate physical distancing.

The plan would have the work running from now through October.

It will also provide flexibility around production levels, depending on changes to market conditions.

Based on this current outlook and execution plan second quarter production is now estimated to be.

Between 45, and 50000 barrels a day.

With respect to utilization of our Edmonton rail term terminal, which I know is always have interest in late January I indicated that rail volumes for the month were just over 100000 barrels per day.

They then increased slightly in February.

But as you know crude by rail economics are very volatile and given the significant declines we are seeing and global demand and reduced production rates across the industry pipelines are now running with spare capacity, leading to a narrowing of transportation differentials and mark and making rail uneconomic.

Given this and our ability to be quite responsive to these economics, we began to ramp down our rail terminal throughput in March.

And ended the quarter, averaging 97000 barrels per day.

Our April shipments are down substantially and were around 10000 barrels per day.

Now shifting to the downstream.

We refined an average of 383000 barrels a day in the quarter, which was well above the fourth quarter 2019 throughput.

But slightly below the guidance we provided in January of 400000 barrels per day target.

The difference is mainly due to reduced runs associated with Covance 19 related demand decline at the end of the quarter.

Now despite coal bed related sparing.

We nonetheless achieved a couple of records in the quarter.

As a result of the expansion completed at the end of 2019.

Which added about 6000 barrels a day of additional cold Lake crude processing capability, our stress Kona refinery achieved record first quarter throughput at 192000 barrels per day for the quarter and also said an asphalt production record.

As we look ahead through 2020.

Our original downstream maintenance plans, while lower than 29 team.

We're still substantial.

However, as part of our efforts to manage our operations in the current environment. We have made some changes to these plans as well.

The turnaround at Sarnia refinery, which started in early April.

Has seen a scope reduction and now only the coker will be taken offline for maintenance maintenance with the duration being expanded due to reduced onsite personnel.

And given current crude differentials the incentive to run heavy crude is limited in the near term mitigating the impact of the coker being offline.

As I noted earlier, given that we run mostly light crudes.

Our refineries are benefiting from the current narrow heavy light crude spreads in the market.

We had also plan to execute a significant turnaround at the Sarnia chemical plant this year.

But have deferred the majority of that work to later years and are now evaluating a much smaller scope of work at the facility for this year.

Our stress Kona turnaround originally scheduled for a late third quarter start has been deferred beyond this year.

However, we will conduct some some minor maintenance at the site in the month of June.

And similarly, the turnaround at Manucho.

Has been deferred to 2021 with a more limited scope of work being conducted in the fall altogether, the limiting of scope and extension of duration for these turnarounds and the planned maintenance work enables us to reduce the number of people on our sites supporting improved physical distancing and rich.

Dues costs, while better aligning crude runs with demand levels.

However, I want to be very clear that all business critical work.

We will be completed as planned to ensure optimum operation once things return to normal.

None of the work being deferred will impact the safe and reliable operations of these assets.

I mentioned that the lower first quarter refining throughput was driven by the demand reductions. We are we're seeing as a result of coal the 19 impacts and given the current uncertainty and volatility in the marketplace. We're not in a position to offer updated throughput guidance at this time as our activities will continue.

To adjust and adapt as demand and market conditions change.

On the sale side petroleum product sales were 462000 barrels a day in the first quarter up slightly from the fourth quarter.

Again, the demand impacts due to covert 19 have resulted in volumes that are lower than we would have initially expected for the quarter to give you an idea of the type of demand impacts we are experiencing.

As an industry recent reports show material demand reductions across.

Many products with motor gasoline down 50% to 60%.

Jet demand down, 80% or more and diesel demand down 20% to 30%.

With these types of numbers there is no doubt our petroleum products sales will continue to be impacted in the second quarter.

Although the volumes and earnings impacts are still unknown at this time.

Our chemical business had a solid quarter with earnings of $21 million stronger than the fourth quarter of 29 team.

This was due to seasonal volume growth and the absence of turnaround activity, but as we talked about quite a bit on the fourth quarter earnings call chemical earnings continue to be impact.

By recent industry capacity additions, which have resulted in a down cycle.

In the market.

And finally changing gears a bit.

Im excited to mention that earlier this year, we released our new and enhanced sustainability report.

As a responsible corporate citizen environmental social and governance matters are a key priority on everything we do.

This new or underscores our commitment to keep improving in the area VSP and provides a significant amount of detail on these topics.

I encourage you to go to our website and have a look.

Now to wrap up as I commented earlier I believe we delivered solid results for the first quarter.

We are currently in a more difficult period was significantly lower near term demand and depressed prices.

And while we do expect an eventual recovery the pace and magnitude are inherently difficult to predict right now.

As Dan outlined in detail, we've taken actions to reduce our spending and cost to align with the current environment.

However, it's important to note that we havent taken our eye off of the future and are still progressing work that will enable us to adapt quickly as markets change as well as select strategic initiatives that will enhance our competitive position long term.

As a company, we've always prided ourselves on the value and stability provided by our integrated business the strength of our balance sheet and our priority on delivering shareholder value.

With these actions we've taken and are taking we're confident that we are well positioned to weather the storm and leave ourselves well positioned to benefit during the recovery.

So with that I'll turn it over to Dave to facilitate the QNX session.

Okay, we're going to start with a couple of pre submitted questions and then we'll switch over to the life Q and a line. So the first question comes from Mike done at Stifel can you quantify recent in Q2 plans for output at Carlin Cold Lake and how those levels have been impacted by the drop in prices and demand and could you.

To provide an estimate for the approximate WCS price required for revenues to cover variable costs in each of the assets.

Thanks for your question Mike.

In terms of production outlooks.

As I just mentioned Karl outlook is 150000 barrels a day for for the second quarter.

In terms of Cold Lake looking long term.

We're still targeting 140.

Thousand barrels a day for the year.

But there will be some impacts in the second quarter, but we haven't fully quantified those yet.

We normally don't talk specifically about.

Breakevens.

At the asset level.

Both what I will tell you is that you know as we look at.

The external environment and the economics of production.

What we're very focused on is ensuring that the current value that we will realize in the marketplace for our products.

More than.

Off offsets or or exceeds our variable operating costs.

And and while the overall total cost of many of our assets.

Can be higher.

Variable costs tend to be very low and without again getting into the details I would say they are generally.

Kind of mid single digit type type numbers. So so in that regard you know we are routinely assessing the market conditions and comparing them to the variable costs at each of our operations and that's what's guiding our decisions on.

On trying to optimize the timing of these turnarounds and take full advantage of if you will discuss this lower price environment to reduce production complete critical turnaround work and be ready to take full advantage of the market when spots.

Okay. Our next question comes from John Morrison at CBC is there any potential that the extended curled downtime could be pulled into the third quarter of 2020, depending on crude pricing and how are you thinking about the decision to run lower throughput at the two trains at Carl versus shutting one of the trains down for long.

After post the expended extended turnaround that we talked about.

Thanks. Thanks for your question John of let me comment that from from a couple of perspectives first of all the team has spent a lot of time.

Planning the duration.

And approach to.

Turnaround that I just mentioned that is about to start in a couple of days and in order to ensure the safety and health of our workforce and and provide.

Proper distancing and minimal size cruise we've concluded that the best way forward is to undertake that work over and approximate two month timeframe.

Well, we're just moving into that work.

We believe we have a good plan for it.

But I would also say that the approaches were taking and the measures.

To apply.

As a result of coded 19 continue to be very much a a learning process for us and as such.

Time will tell in the first few weeks, if we're able to achieve the productivity.

That that we expect to but but at this point, we believe we will be able to complete all that work.

With within the two month timeframe.

Now once we complete all that work.

And we find ourselves the end of June or early July.

The market, we hope will look much different than it does today.

And and we want to be positioned to to restart that train and resume our path.

To continued production records that Carl.

But we will need to reassess that and it's very difficult to predict as we sit here today, what those economic conditions will will look like.

At that period of time.

No.

Okay, and John did have a follow up to that went into.

That's related now that we're through the peak of winter would you say its mechanically easier to have curl largely offline for three to six months without major overhaul work needed for restart does idling curled become more of an economic question now that you're in the spring versus the mechanical economic in Q.

Thank you want.

Well.

Certainly the operations in the winter months are more challenging.

But but I would say relative to other.

Assets in our portfolio as well as in general assets and industry. We do have a fair amount of a flexibility with the ramping up in ramping down hurdle really at any time of year and Thats one of the the benefits of have in that.

Type of asset in our portfolio in this and this economic condition is we can make adjustments pretty quickly as needed and thats a bit different than in situ operations, which are very dependent on pressure maintenance and long steam so cycles aware.

It's more difficult to dial them.

Up or down quickly.

Okay, now operator will switch over to the lives Q and a line. Please.

As a reminder to ask a question over the phone line, you'll need to press star one on your telephone.

Withdraw your question press the pound key.

In the interest of time, we ask that you. Please limit yourself to one question and one follow up.

Our first question comes from Manav Gupta with Credit Suisse. Your line is now open.

Hi, guys quick question, you talked about this supplemental crushers and how they have 10 appeal would that production side can you tell us on light on how the supplemental crushers have helped you on the updating cost, but bad on site I mean that it wasn't understanding that as these pemex cautious come online David It hit you know.

The breakeven to up the project so any light you put shade on that but we they had foot.

Yes, thanks, Thanks for that question and.

As I mentioned, we're very pleased with the results of the crushers. They they did allow us to achieve record production in the first quarter.

And I would just say that in conjunction with that we are seeing a proportional reduction in operating costs.

I think in prior calls and at our Investor Day.

What we indicated was an objective.

To to reduce $4 per barrel us.

Out of.

The unit operating costs for Karl and so far everything we have seen suggests that is achievable and again the supplemental crushers are a key element of of achieving that.

What we've also said is long term our goal is to drive that unit costs down to $20, a barrel us kind of all in and and again the supplemental crushers are key to that.

And I'm very encouraged by the progress we're making.

A quick sticking on up your refining. It is also very strong clearly there is a benefit of that light light crude differentiated lightning out in Canada can you talk about some of the benefit that you got refineries that uniquely position when it comes take spiking that late night benefit up in Canada.

Yes.

Very good question.

And as I mentioned I think we we are those in good position with some of these wider differentials and when you look at our refinery configuration, we are definitely balance more towards running.

Light crude slates versus heavy.

So on balance as a company were a net seller of heavies and and a net buyer of lights and so at times like this we're well positioned.

I would also say the location of our refineries is advantageous.

You know we have two refineries.

On the eastern side of of the country near Ontario, where there's historically high demand for product price for products that we produce.

And then and then likewise, we also have the largest refinery.

In Alberta, which is strap Kona and as I mentioned, we're seeing kind of a record throughput at that facility as well. So I think we're well positioned said.

We do let leverage our crew.

Our our equity crude where it makes sense to us.

But we also are in the market and and acquiring light crudes at discounted prices and that's helping our our economics.

Thank you for taking my question.

Thank you. Our next question comes from Menno Hulshof with TD Securities. Your line is now.

Thanks, and good morning, I'll start with a question on inventories and storage clearly there's a widely held view that we had tank tops out here within the next several weeks and closer to the end of May in the U.S. So my question is do you share that view and and the more important follow up here is what does imperial look.

Like a few weeks into that scenario on one or the leveraged that could get pulled to to mitigate that risk.

No doubt everybody's Watson inventories very carefully right now which are directly impacted by this.

Significant reduction in demand that occurred in April.

Kind of record precipitous reductions down almost 30 million barrels a day globally and obviously that had.

A significant impacted in North America, and and Canada, specifically likewise.

The initial supply increases.

From from the OPEC plus countries also exacerbate exacerbated that.

That balance and so.

Whereas kind of the supply demand balance supply demand balances coming kind of more into check it's going to take a long while to get there and in the meantime inventories are building as refineries across North America have have reduced.

Have reduced their there.

Utilization and run rates and.

Fewer products being produced and less demand for crude so.

Inventories are building.

My impression is the build is.

Much more extreme and in the US you know as we monitor inventory levels in in Canada.

The builds have been I would say more moderate.

I think the latest Gen skate data shows something.

30, 31 million barrels in Canada.

With which still is about.

20% or so below a tank tops, if you will as as we look at our all in.

Yeah.

Our own crude production.

The demand from our refineries the outlets for sales to third parties.

Oh, we're pretty well balanced at this point, we're not concerned with not having a storage.

Capacity or or logistics to move our crew. So so we feel quite confident about that at this point.

Okay. Thanks for that and then my follow up question is on downstream, where do you stand on.

Refinery utilization today, and what can we expect that to look like across your portfolio for Q2.

Well as I mentioned, we have one of our refineries as is undergoing a turnaround right now.

The the other two.

Our undoubtedly experiencing reduced throughput.

I'm hesitant to quote any numbers because those throughputs are.

Our.

Being adjusted kind of everyday as we see changes in demand.

I mentioned, what some of the overall product demand scenarios look like with significantly reduced low gas significantly reduce jet.

[music].

Moderate reductions in diesel.

All of those are impacting our refinery utilization just just like others in industry, but we're trying to take full advantage of the markets we're in and.

And and maximize the Throughputs, where it makes economic sense.

Perfect. Thanks, Brad that's it for me thanks.

Thank you.

Thank you. Our next question comes from Benny Wong with Morgan Stanley. Your line is now open.

Thanks, everyone. Thanks for taking my question I hope everybody on the line is.

Staying safe and healthy I'm, just kind of a follow up on your comments on product demand and appreciate that color. Both super helpful. Just given your perspective on downstream oil and integrated model. Just just wondering how you see any signs on the falling demand slowing or even getting quite the stabilization and.

Is there any observable differences, you're seeing on the eastern and western markets of Canada.

Yes, if anything thanks for the question and good to hear from you.

[music].

We are starting to see a recovery.

Albeit.

Still pretty slow and measured.

You know over the last week or two as we monitor traffic data and and utilization you know in the major metropolitan centers, we are starting to see a gradual increase and so that is starting to.

Starting to benefit mode gas demand.

Still very very depressed the hope overall, but the trend seems to be moving in the directs the right direction seems like seems like we have bottomed out there and now making recovery.

On on the diesel side I would say the reductions were a little bit slower to occur.

In fact for the last several weeks you know.

We were only experiencing maybe a 5% to 10% reduction in diesel that seems to now have increased to maybe more like 15, 20%.

But again I think that's stabilized and we'll start to recovery diesel was not as impact as severely impacted just because there was a lot of transportation.

For essential goods that continued as well as some manufacturing in agriculture that continue we're optimistic that that diesel will revise down pretty quickly now as we get into warmer weather and and the agricultural demand starts starts to.

Pickup.

You know obviously the.

The big.

The real big impact is to jet fuel as I've mentioned, it's down 80 plus percent and and.

No that won't change until so health restrictions are lifted and and people start flying again, both domestically and internationally.

So that'll probably be the slowest to pick back up.

You know east versus west.

There are some changes there you know I think early on we saw rader reductions in the east than the west.

But as I said theyre, both starting to to respond positively at this point.

Thanks, Brad that's Super helpful. LIFO question is thinking about your Capex, obviously, a very low level. This year, but again thinking low further out into next year is the 1.21 0.1 to 1.2 is that sustainable if we continue to be.

Depressed oil price environment or is there a little bit of incremental spending denny's the acquired or things like some of the deferred maintenance you mentioned earlier.

Yes, that's a good question.

Benny.

To be honest, we we haven't fully updated our plans to look.

In the future years, where we were last year.

As we put together our plans you know we expected to be in that.

161718 range, you know for for the coming multiple years.

We've scaled that back of course to 1.1 to 1.2 kind of reflective of both the the co bid.

19 response as well as the economic conditions that level of spending one one to one too is above our sustaining capital by probably 100 billion, maybe 200 million.

So if we found ourselves in.

A very extended period of low pricing that warranted.

Continued reductions in Capex I think that is sustainable.

Because we would be able to complete all the.

The safety critical work, if you will and reliability critical work. So I think that is that is achievable, but I would say that's that's not our current outlook. You know we believe the reductions were taking for this year are very prudent for this year, but but we would expect to return.

To more normal levels once once we get to next year and we'll be updating those plans later in the year and I'm sure when when we find ourselves at our annual Investor Day, we'll be in a good position to talk about.

Ill kind of in the rear view mirror the the impacts of Coven 19, and this you need.

Supply demand situation, we're in but also hopefully at that point, where we're well on the path of recovery things returning to normal and then we can have a more I think realistic view.

What the future looks like.

Thanks, Brad Super helpful.

Thank you.

Thank you. Our next question comes from Greg Pardy with RBC capital markets. Your line is now open.

Thanks, Good morning, Hey, Hey, Brad. Thanks, so much for the run down most of my questions have been answered just the only one I'd have free is that that mohican planet at coal Lake what would the rough capacity be there.

Yes, Thanks, Greg and appreciate you calling in.

You know at Cold Lake, we have I think four major plants.

But he can is.

Kind of one of the smaller ones.

I've got John Whalen here, the senior Vice President the upstream and I'll ask him to answer that so he gives you kind of the exact number.

Yeah I think.

Probably but you're really looking I think but you're trying to figure out as you know what do we think the second quarter is going to be because we don't have the full plant offline.

Okay.

But I would say enogen relief in over 140 for the year. We have this turnaround in the second quarter, it's not as big as the turnaround we did last year, but you're kind of in 15 KBB offline for the quarter something like that that kind of range.

Okay.

Terrific. Thanks, Thanks very much.

Thank you. Our next question comes from US It sound with Bank of America. Your line is now open.

Thanks, Good morning hybrid Hawaii.

Good Thanks, Hey, it just thanks for the detailed on on crude by rail and a good to see that you guys have trend I'm ramp down significantly in April just wondering if you could share your views on the medium longer term.

How rail plays out as more and more pipeline capacity looks like it's going to be available and any updated thoughts on.

Pipeline projects, particularly on on kick sell announcement, if you could share your views.

Yeah.

In terms of rail when when we made the investment in the Edmonton Rail terminal.

It was it was very purposeful that that would serve as an alternative rigorous mess method for us and somewhat of a backstop. If you will if pipeline capacity was not available to us and certainly you know over the over the last couple of years, we've been able.

Well to take good advantage of that and we have adapted quite.

Rapidly to the prevailing economics and there's been several months that the economics were very strong and we moved a lot of volume by rail and and was advantageous, especially if pipeline capacity was not available to us, but there were other times, you know and we're seeing that right now.

While we saw.

Late last year, where the ARPAD completely closed it makes sense and so we very quickly kind of.

Shut it down or scale that way back and and I see that continuing you know the.

The base egress for US is certainly pipeline and we use this as a bit of a flywheel you know where we're economic support it and and we don't have better alternatives.

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Looking to the future.

You know we are optimistic with the progress that has been made on some of the key pipeline projects.

In Canada and of course moving into the U.S.

Some some very positive announcements on Keystone recently with the Alberta government, taking a stake in that project and providing financial support.

Such that the project could move for construction.

Has started.

One of the key things to work on was was the crossing the border and in my understanding is that's that's far advanced if not completed.

There has been in the press you know some some announcement of of some setbacks in Montana, where it was so permits have been challenged and withdrawn.

I don't know the very latest on that but but I do know that that the project is moving forward and I think thats a very positive sign.

And likewise you know.

We are seeing positive progress for for trends bound for Enbridge. You know all those things are very important projects for the industry and were very glad to see Ford and you know will be a shipper on on many if not all those as well so it's good for us.

Thanks, Brad for that and my follow up is.

On on your asset portfolio.

I don't to cycle offers challenges as villas opportunities. So when you're thinking about you know bottom of cycle opportunities any thoughts and be if you've seen that in prior cycles any thoughts on M&A.

Particularly in D., how you're thinking about your unconventional portfolio tactically in 2020 or perhaps particularly.

Yes, that's a really good question and clearly something that that is on our mine.

You know obviously there there are a lot of assets that unfortunately, our distressed.

Given these economic conditions.

So we always keep the aperture open a evaluating whether there are strategic opportunities for us to expand our portfolio or change our portfolio.

And this time is no different so so we continue to refresh our analysis.

That regard I would say, though that you know my experience in in M&A is that at at these extreme points in the cycle.

It could be very difficult to transact because.

Buyers and sellers expectations become very different and view of what recovery might look like and the timing for that.

Is often very different different so it's difficult to transact, but that doesn't discourage us from continuing to evaluate potential opportunities and see if there. If there is something that makes good strategic sense for us.

So so that that work continues.

Thanks, Brett appreciate the color.

Thank you and our next question comes from Neil Mehta with Goldman Sachs. Your line is now open.

Hi, there, it's a Emily Chang on behalf Neil Yeah.

Okay, and the time that my first question and around that the operating cost reductions at $500 million that you haven't now.

How injectable can we think this 500 million dollar reduction and shrinks Apple watch how well can you give a sense of what percentage is associated with deferred activity back into what is an actual.

Cost efficiencies that leasing that please.

Thanks for your question Emily.

Okay.

You know as we as we approach these efficiencies we're looking at all things and.

Theres Theres no doubt there are structural efficiencies that that we're pursuing and that we would expect to capture and that would would give us long term sustainable benefits. There are other steps, we're taking that you know no doubt our deferrals and.

And some expenditures are being impacted by pace of activity.

I don't have a good per cent split between.

Structural forces.

For all of but but I would tell you that you know our.

Our ongoing objective is to maximize those structural improvements and continue to drive down the unit operating costs. So of all of our of all of our assets and you know I'm quite proud of asset team.

And what they've demonstrated just in the last two three months that to be honest I'm optimistic that we're going to see more cost reductions at 500 by the time, we cut to the into the year.

Got it thanks, and just one real quick quantify match how quickly can you think you think that kellen thinks they can be ramps back up to full capacity one sat demand Stockton pick up again I'll leave it at that thank you.

Yes. Thanks.

To be honest the you know.

Something like hurdle, where we are taking one train down now to.

Undertake the turnaround.

As I mentioned, we expect to complete that work by the end of June and we will have it ramped back up you know with within a week.

You know.

It's very responsive.

I appreciate it thanks.

Yeah.

Thank you.

Not showing any further questions at this time I'll now turn the call back over to date Hughes VP Investor relations for any closing remarks.

Okay. Thank you Daniel.

It is 10 o'clock as I mentioned we.

We are going to have to end the call now to move onto our annual general meeting.

We do have a couple of pre submitted questions that as I promised we will follow up today directly.

So I just like to thank everybody for joining us this morning, and as always if you have any follow up questions or want some further discussion don't hesitate to reach out to the IR team here and I just wish everybody all the best win in now what could only really be considered as some pretty challenging times. Thank you very much.

Okay.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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Ladies and gentlemen, thank you for standing by welcome to the Imperial oil Q1, 2020 earnings Conference call.

At this time, all participants' lines Arnaud, what's the only.

After the speakers presentation, there will be a question and answer session.

You asked a question during the session you will need a press star one on your telephone.

Please be advised that today's conference maybe recorded.

If you require any further assistance please press star zero.

I'd now like to hand, the conference over to your Speaker today Mr. gave Hughes VP Investor Relations. Thank you. Please go ahead Sir.

Thank you Daniel good morning, everybody. Thanks for joining us on our first quarter earnings call.

To start by introducing you to the senior manager we have here in our virtual rail.

Yes, Brad Horsemen course in chairman, President and CEO Dandelions, Senior Vice President Finance and administration, John Whalen Senior Vice President of the upstream Teresa Redburn Senior Vice President of commercial on corporate development.

Before we start I can start by noting that today's comments may contain forward looking information any forward looking information that's not a guarantee of future performance and actual future financial and operating results could differ materially depending on a number of factors and assumptions forward looking information on the risk factors and assumptions are described in further detail in our first quarter.

Earnings press release that we issued this morning as well as her most recent form 10-K and all these documents are available on SEDAR and Edgar and on our website, so without such a please refer to them.

We're going to follow our usual format.

Well that's got for some opening remarks, and then Dan will give a financial overview of the first quarter. A then I'll go back to Brad for some more color on the operating performance and then we'll get to the Q anyway.

As I'm sure everyone is aware we have our annual general meeting today at 10, 30 mountain or time. So I just want to know that we will need to end the coupon at 10 o'clock sharp, but if there are any outstanding questions. We will certainly follow up directly with you after the AG.

And I. Thank you and that's for your understanding so with that I'll turn it over to Brad.

Good morning, everyone and welcome to our first quarter 2020 earnings call I Hope you are all doing well and staying healthy.

Before we get started with reviewing the first quarter financial and operating results on behalf of the employees of Imperial oil I'd like to take this opportunity to express our deep appreciation and gratitude for all those working on the front lines of this global pandemic.

We can't thank them enough for the sacrifices they are making to keep us all safe and provide us with our essentials.

Our industry as you know is considered essential and so imperial is working hard to ensure ongoing reliable supply of the energy Society requires while at the same time, managing the health and safety of our workforce.

But our teams are also doing everything they can to support our communities and keep them safe and resilient during this unprecedented time.

The company has recently announced a promotion to provide up to $2 million worth of free fuel to the real heroes and this the frontline healthcare workers.

The company is also donating 60 tons of ice appropriate alcohol to help meet the significant increase in demand for this ingredient, which is used in applications like hand, sanitizer medical wipes and rubber alcohol.

We also raised our matching dollars two to one for donations by employees to community charities and not for profit organizations through its employee, giving a volunteer program.

Also in order to support online learning and to help meet high demand for technology devices. While classrooms remained close the company is donating 500 laptops to the electronic recycling Association in support of the Calgary Board of Educations education matters campaign.

We recognize the need is great and I'm very very proud of how our employees a neighbors have come together to donate critical supplies and funding, whereas as needed the most.

So now, let's turn to the first quarter.

Certainly what started out as a pretty typical quarter turned out to be anything but typical.

The combination of demand reductions brought on by the coal that 19 pandemic and the supply shock, resulting from the OPUC plus actions was truly unprecedented.

And resulted in a challenging business environment by the time the quarter ended.

Significantly lower global demand had immaterial impact on crude oil and product prices, which in turn impacted our reported financial results.

We have taken a number of steps to reduce spending and modify our business plans.

DAP to these challenges.

We communicated some of these in our March 31st press release, and we will provide more details throughout the discussion.

However from an operations perspective, I'm very proud of our first quarter performance upstream production volumes were quite strong in fact near at 25 year high for the first quarter at 419000 barrels of oil equivalent per day.

This included record Q1 production that Carl demonstrating the positive impact that the curls supplemental crushers have had this thus far.

We also had strong results in the downstream, including record first quarter throughput at our stress toner refinery, which continues to demonstrate the value of our integration.

Putting it altogether I believe we delivered a solid quarter.

While we reported a loss of 188 million in the quarter. When you back out the noncash charges that are primarily related to market prices for inventory at quarter end earnings were a positive $113 million on an adjusted basis ahead of analyst expectations.

We also generated 423 million of cash from operations in the quarter and this included an unfavorable working capital effect of $179 million.

This resulted in a cash balance at the end of the quarter of $1.4 billion.

The value of our integration and balance was demonstrated as we achieved strong financial results in our downstream business.

Further while today's crude prices present, a substantial challenge for our upstream business in April we have seen some lower prices for light crude which will support our downstream business profitability in the second quarter.

We continue to return cash to our shareholders in the quarter with over 400 million return through dividends and share buybacks.

While we have suspended the buyback in this environment, we continue to pay a dividend and this morning declared a second quarter dividend of 22 cents per share unchanged from the prior quarter.

Our financial strength combined with the actions taken to reduce spending in costs provide us with the confidence to support the dividend. Despite the challenging circumstances, our longer term outlook for our assets and competitive position lens further confidence.

So at this point and I'm going to turn it over to Dan to go through our financial performance for the quarter.

Thanks, Brad.

Our first quarter net loss was 188 million the 8 million down 481 million from earnings of 293 million in the first quarter of 19.

First quarter results in 2020 include non cash charges of 301 million, mainly associated with the revaluation ever our crude inventory to market value at quarter end.

Excluding these non cash charges as Brad noted earnings would have been a 113 million compared to 293 million in the same period last year with the drop mainly driven by the decline in commodity prices.

On a sequential basis and excluding non cash charges, we were down a 158 million from the fourth quarter of 2019.

Looking at our performance by business line upstream recorded a net loss of 608 million compared to net income of 96 million in the fourth quarter of 2019, reflecting noncash charges of around 250 million and the impact of lower realizations.

Downstream recorded net income of 402 million up from 225 million in the fourth quarter of 2019 as crude runs increased with the completion of turnaround activities at Sarnia Nancy coking the restoration of the damage tower at starting.

We also benefited from record first quarter crude runs at Stratcom and as Brad noted chemicals earned 21 million in the first quarter up 23 million from a loss of 2 million in the fourth quarter of 2019 as margins and volumes increased I'll now discuss cash generation.

Cash generated from operating activities was 423 million in the first quarter compared to just over 1 billion in the fourth quarter of last year cash flow was impacted by lower earnings and unfavorable working capital impacts as Brad noted we ended the quarter with 1.4 billion in cash.

Our strong liquidity position is supported not only by our cash on hand, but also by our industry, leading balance sheet and credit rating, which provide imperial with advantage access to debt markets.

Moving on to Capex.

Capital expenditures in the first quarter totaled 331 million Upstreaming expenditures of 231 million represent about 70% of the total in the quarter.

Reduce spending compared to last year is associated with the ramp down of the Aspen project as well as completion and startup of the curl supplemental crushers.

On March 30, Onest in response to Cobot 19, and market conditions, we provided updated guidance, reducing our capital spending outlook by 500 million to the range of 1.1 to 1.2 billion for full year 2020.

We also indicated that we plan to reduce your operating expenses by 500 million compared to 2019 spending levels as we build on our ongoing opex efficiency plans.

Our spending will focus on ensuring ongoing safe and reliable operations of our assets and paced investments to continue work on key projects at a level reflective of the current challenges presented by Cobot 19 end the business environment, now I'll discuss dividends and share buybacks.

In the first quarter, we paid 164 million in dividends at 22 cents per share an increase from a 149 million at 19 cents per share in the first quarter of 29 team.

We also continued share buybacks in the first quarter totaling 274 million or 9.8 million shares consistent with our Toronto stock exchange to approve NC IB program.

Well, we suspended our share purchases as of April 1st we continue to view our share purchase program as a flexible way to return surplus cash to shareholders. The company will continue to evaluate and share purchase program. The context of its overall cash flow and capital activities going forward.

As Brad noted earlier, we announced the second quarter dividend of 22 cents per share today, maintaining our dividend in this challenging period for the industry reflects our strong balance sheet in our confidence in the long term outlook for our business I'll now turn it back to Brad to cover our operational performance.

Thanks, Dan So moving on to operating results as noted earlier upstream production averaged 419000 oil equivalent barrels a day in the first quarter. This represents an 8% increase over the first quarter of 2019 and includes record Q1 production rates from.

Well as production benefited from our new supplemental crushers, which I will talk more about in a couple of minutes.

We expect upstream production volumes to be negatively impacted in the second quarter as we deal with an unprecedented drop in demand as Canada, along with the rest of the world deals with the necessary travel restrictions self isolation and social distancing measures to address the global pandemic.

I will talk more about how each asset is impacted but at this point, it's too early to determine what the annualized impact of this demand and price reduction will be.

Now I'll comment on the individual assets starting with Carl.

We've had some very positive performance occur in the first quarter.

On a gross basis, we produced 226000 barrels a day up from 208000 barrels per day in the fourth quarter of 2019 and up from 180000 barrels a day versus the first quarter.

Team.

I would also note in the month of March we achieved a rate of 248000 barrels a day for the month.

Now back in January on the fourth quarter call I expressed how pleased we were with the completion and commissioning of our supplemental crushers accrual and how well they were performing.

Im excited to announce at this first quarter result reflects the continuation of this strong performance. These new crushers are performing as well if not better than expected.

As you are likely aware the first quarter has historically been a lower production quarter for hurdle as we deal was a cold weather and associated operating challenges. However, the availability of the supplemental crushers allowed us to compensate for what has historically been this period of lower productivity.

I would also tell you that in consideration of the health and safety of our workforce, we have been looking for opportunities to manage workloads that are sites to better support physical distancing.

One of the areas. We mentioned we were looking at was the scheduling and scopes of the various turnarounds we had planned for this year.

With this in mind, we have opted to advance as well as extend our typical second quarter turnaround at hurdle to roughly eight weeks.

So it will now begin in early May.

Literally within just a few days and continue to late June or early July.

This allows us to progress work at a more measured pace and greatly reduced the number of people we have working at site at any given time.

And without affecting the overall scope.

It also allows us to execute the turnaround during a period of likely low demand and prices. So we can have the asset fully up and running as and when prices do recover.

As a result.

We currently see second quarter production at hurdle running at approximately 150000 barrels per day.

I'd like to take of.

A few minutes now to talk about our employees and contractor partners at our hurdle asset.

By now you've likely seeing the reports of several confirm coal.

Leases of Coven 19 that the curl site.

This news is naturally concerning for Imperials leadership team.

Our employees the public and of course, the members of our extended curl family.

The safety and health of our people and the communities where we operate.

His are very top priority.

We have taken several steps to protect the curdle workforce, including reducing capacity on flights and buses.

In order to leave open seats and ensure physical distancing.

As well as providing cost base coverings to all workers for use during bus and flight travel.

As well as at the camp Sunworks sites.

These measures are in addition to the extensive list of preventative steps that have been in place for over a month that Carl such as enhanced health screening and cleaning practices at all sites.

And the implementation of temperature monitoring.

We are ensuring our workforce has all the proper personnel protective equipment needed such as masks.

And to ensure we are meeting the guidelines for physical distancing, we have reduced our on site workforce to essential workers only.

Out of an abundance of caution and in coordination with Alberta Health services.

Imperial made voluntary coven 19 testing available to all employees and contractors at Kearl, regardless of whether they were showing any symptoms.

The information gathered through this testing will help us better protect our workforce.

So today approximately 1900 of the Carl workforce have been tested and most results have been received.

As we have seen another process provinces. When testing has expanded there's often an increase in confirmed cases.

And as we conducted this widespread testing a hurdle this was certainly the case.

Now as of yesterday.

And since our very first case, a few weeks ago, we have now.

From day total of 83 cases of co bid 19 within our hurdle workforce.

Both onsite and Offsite.

Of these a these three.

22 have now fully recovered.

And 61 are still being actively monitored and treated as necessary.

We continue to manage the situation very carefully and in close coordination with Alberta Health services.

We are in contact with those cases, who had earlier tested positive to ensure they have the full support of their imperial family.

And of course, our thoughts are with these individuals and hope they make a full recovery.

I would also point out that we are taking coated 19 mitigation steps at all of our facilities across Canada.

So now moving on to Coldlight.

Production was 140000 barrels a day in the quarter.

Similar to the fourth quarter of 2019.

Consistent with what was communicated at our Investor Day last November.

And at this point, we continue to expect production for the year to be around 140000 barrels a day.

As I mentioned on the fourth quarter call, we heavy turnaround at them. He can plant in the second quarter, which is now scheduled to run from early may to the end of June.

In order to reduce onsite workforce the scope of work has been scaled back and the timeline extended.

We're still in the process of finalizing revised production estimates.

And at Syncrude Imperial share of production was 73000 barrels per day in the quarter up from 66000 barrels per day in the fourth quarter and consistent with earlier guidance.

In January I told you about a coker turnaround at Syncrude that was scheduled for the second quarter with an expected duration of about two months.

However, in our March 2020 press release, we indicated that this turnaround had been deferred into the third quarter.

Since then however.

The ownership of Syncrude the partners.

Have continue to look at options and have now decided given this environment of Kobin 19, low demands and low prices to go ahead with that scheduled work at this time.

The intent is to manage these efforts as a number of smaller discrete scopes of work, which can be completed by smaller workforce, enabling appropriate physical distancing.

Plan would have the work running from now through October, but will also provide flexibility around production levels, depending on changes to market conditions.

Based on this current outlook and execution plan second quarter production is now estimated to be.

Between 45 at 50000 barrels a day.

With respect to utilization of our Edmonton rail term terminal, which I know is always have interest in late January I indicated that rail volumes for the month were just over 100000 barrels per day.

They then increased slightly in February.

But as you know crude by rail economics are very volatile and given the significant declines we're seeing in global demand and reduced production rates across the industry pipelines are now running with spare capacity, leading to a narrowing of transportation differentials and mark and making rail uneconomic.

Given this and our ability to be quite responsive to these economics, we began to ramp down our rail terminal throughput in March.

And ended the quarter, averaging 97000 barrels per day.

Our April shipments are down substantially and were around 10000 barrels per day.

Now shifting to the downstream.

We refined an average of 383000 barrels a day in the quarter.

Which was well above the fourth quarter 2019 throughput.

But slightly below the guidance we provided in January of 400000 barrels per day target.

The difference is mainly due to reduced runs associated with Covance 19 related demand decline at the end of the quarter.

Now despite coal bed related Sperry.

We nonetheless achieved a couple of records in the quarter.

As a result of the expansion completed at the end of 2019.

Which added about 6000 barrels a day of additional coal light crude processing capability are stressed Kona refinery achieved record first quarter throughput at 192000 barrels per day for the quarter and also set an asphalt production record.

As we look ahead through 2020.

Our original downstream maintenance plans, while lower than 29 team.

We're still substantial.

However, as part of our efforts to manage our operations in the current environment. We have made some changes to these plans as well.

The turnaround at Sarnia refinery, which started in early April.

Has seen a scope reduction and now only the coker will be taken offline for maintenance maintenance with the duration being expanded due to reduced onsite personnel.

And given current crude differentials the incentive to run heavy crude is limited in the near term mitigating the impact of the coker be offline.

As I noted earlier, given that we run mostly light crudes, our refineries are benefiting from the current narrow heavy light crude spreads in the market.

We had also plan to execute a significant turnaround at the Sarnia chemical plant this year.

But have deferred the majority of that work to later years and are now evaluating a much smaller scope of work at the facility for this year.

Our stress toner turnaround originally scheduled for a late third quarter start has been deferred beyond this year. However, we will conduct some some minor maintenance at the site in the month of June.

And similarly, the turnaround at Nana coat.

Has been deferred to 2021 with a more limited scope of work being conducted in the fall.

Altogether, the limiting of scope an extension of the duration.

For these turnarounds and the planned maintenance work enables us to reduce the number of people on our sites supporting improved physical distancing and reduce costs, while better aligning crude runs with demand levels.

However, I want to be very clear that all business critical work.

We will be completed as planned to ensure optimal operation once things return to normal.

None of the work being deferred will impact the safe and reliable operations of these assets.

I mentioned that the lower first quarter refining throughput was driven by the demand reductions. We are we're seeing as a result of cold that 19 impacts and given the current uncertainty and volatility in the marketplace. We're not in a position to offer updated throughput guidance at this time as our activities will continue.

Due to adjust and adapt as demand and market conditions change.

On the sale side petroleum product sales were 462000 barrels a day in the first quarter up slightly from the fourth quarter.

Again, the demand impacts due to cope and 19 have resulted in volumes that are lower than we would have initially expected for the quarter to give you an idea of the type of demand impacts we are experiencing.

As an industry recent reports show material demand reductions across many products with motor gasoline down 50% to 60%.

Demand down, 80% or more and diesel demand down 20% to 30%.

With these types of numbers there is no doubt our petroleum product sales will continue to be impacted in the second quarter.

Although the volumes and earnings impacts are still unknown at this time.

Our chemical business had a solid quarter with earnings of $21 million stronger than the fourth quarter of 29 team.

This was due to seasonal volume growth and the absence of turnaround activity, but as we talked about quite a bit on the fourth quarter earnings call chemical earnings continue to be impact.

Recent industry capacity additions, which have resulted in a down cycle.

In the market.

And finally changing gears a bit.

Excited dimension that earlier this year, we released our new and enhanced sustainability report.

As a responsible corporate citizen environmental social and governance matters are a key priority on everything we do.

This new or underscores our commitment to keep improving in the area vs cheese and provides a significant amount of detail on these topics I.

I encourage you to go to our website and have a look.

Now to wrap up as I commented earlier I believe we delivered solid results for the first quarter.

We are currently in a more difficult period was significantly lower near term demand and depressed prices.

And while we do expect an eventual recovery the pace and magnitude are inherently difficult to predict right now.

As Dan outlined in detail, we've taken actions to reduce our spending and cost to align with the current environment.

However, it's important to note that we havent taken our eye off of the future and are still progressing work that will enable us to adapt quickly as markets change as well as select strategic initiatives that will enhance our competitive position long term.

As a company, we've always prided ourselves on the value and stability provided by our integrated business the strength of our balance sheet and our priority on delivering shareholder value.

With these actions we've taken and are taking we're confident that we are well positioned to weather the storm and leave ourselves well positioned to benefit during the recovery.

So with that I'll turn it over to Dave to facilitate the QNX session.

Okay, we're going to start with a couple of pre submitted questions and then we'll switch over to the life DNA line. So the first question comes from Mike done at Stifel can you quantify recent in Q2 plans for output at Carlin Cold Lake and how those levels have been impacted by the drop in prices and demand and could you provide an.

Estimate for the approximate WCS price required for revenues to cover variable cost at each of the assets.

Thanks for your question Mike.

In terms of production outlooks.

As I just mentioned Karl outlook is 150000 barrels a day for for the second quarter.

In terms of Cold Lake looking long term.

We're still targeting 140.

Thousand barrels a day for the year.

But there will be some impacts in the second quarter, but we haven't fully quantified those yet.

We normally don't talk specifically about.

Breakevens.

At the asset level.

But what I will tell you is that.

As we look at.

The external environment and the economics of production.

What we're very focused on is ensuring that the current value that we will realize in the marketplace for our products.

More than.

Offsets or or exceeds our variable operating costs.

And and while the overall total costs of many of our assets.

Can be higher.

Variable costs tend to be very low.

And without again getting into the details I would say they are generally.

Kind of mid single digit type type numbers. So so in that regard.

We are routinely assessing the market conditions and comparing them to the variable costs at each of our operations and that's what's guiding our decisions on.

On trying to optimize the timing of these turnarounds and take full advantage of if you will discuss this lower price environment to reduce production complete critical turnaround work and be ready to take full advantage of the market response.

Our next question comes from John Morrison CNBC is there any potential that the extended Carl downtime could be pulled into the third quarter of 2020, depending on crude pricing and how are you thinking about the decision to run lower throughput at the two trains at Carl versus shutting one of the trains down for longer.

The extended extended turnaround that we talked about.

Thanks. Thanks for your question John of let me comment that from from a couple of perspectives first of all the team has spent a lot of time.

Planning the duration.

And approach to.

The turnaround that I just mentioned that is about to start in a couple of days.

And in order to ensure the safety and health of our workforce and and provide proper distancing and minimal size cruise. We've concluded that the best way forward is to undertake that work over an approximate two month timeframe.

Well, we're just moving into that work.

We believe we have a good plan for it.

But I would also say that the approaches were taking and the measures.

To apply.

As a result of co midnight team continued to be very much a a learning process for us and as such.

Time will tell in the first few weeks, if we're able to achieve the productivity.

That that we expect to but but at this point, we believe we will be able to complete all that work.

With within the two month timeframe.

Now once we complete all that work.

And we find ourselves.

End of June or early July.

The market, we hope will look much different than it does today.

And and we want to be positioned to to restart that train and resume our path.

To continue production records that Carl.

But we will need to reassess that and it's very difficult to predict as we sit here today, what those economic conditions will will look like.

At that period of time.

Okay, and John did have a follow up to that when it too.

VIX related now that we're through the peak winter would you say its mechanically easier to have curl largely offline for three to six months without major overhaul work needed for restart does idling curl become more of an economic question now that you're in the spring versus the mechanical economic in Q.

In Q1.

Well.

Certainly the operations in the winter months are more challenging.

But but I would say relative to other.

Assets in our portfolio as well as in general assets and industry, we do have a fair amount of.

A flexibility with the ramping up in ramping down Carol really at any time of year and Thats one of the the benefits of have and that type of asset in our portfolio. In this and this economic condition is we can make adjustments pretty quickly as needed.

And that's a bit different than in situ operations, which are very dependent on pressure maintenance long steam so cycles of where it's more difficult to dial them.

Up or down quickly.

Okay, now operator will switch over to the lives Q and a line. Please.

As a reminder to ask the question over the phone line, you'll need to press star one on your telephone to withdraw your question press the pound key.

In the interest of time, we ask that you. Please limit yourself to one question and one follow up.

Our first question comes from Manav Gupta with Credit Suisse. Your line is now open.

Hi, guys quick question, you talked about this supplemental crushers and how do you have to appeal with the production side can you tell us on light on how the supplemental crushers has helped you on the operating costs, but bad on site. I mean, there was an understanding that as these pemex discussion come online even hit you know.

The breakeven to up the project so any light you put shade on that but we they have.

Yes, thanks, Thanks for that question.

As I mentioned, we're very pleased with the results of the crushers. They they did allow us to achieve record production in the first quarter.

And I would just say that in conjunction with that we are seeing a proportional reduction in operating costs.

I think in prior calls and at our Investor Day.

We indicated was an objective.

To to reduce $4 per barrel us.

Out of the unit operating costs for Karl and so far everything we have seen suggests that is achievable and again the supplemental crushers are a key element of of achieving that what we've also said is long term our goal is to draw.

Hi that unit costs down to $20, a barrel allow us kind of all in.

And and again the supplemental crushers are key to that.

And I'm very encouraged by the progress we're making.

A quick sticking on up you have in finding there is also very strong clearly that is the benefit of light light no differentiated lightning out in Canada can you talk about some of the benefit that you got refineries that uniquely position when it comes take spiking that light light benefit up in Canada.

Yes.

That's very good question.

And as I mentioned I think we are in good position with some of these wider differentials and when you look at our refinery configuration.

We are definitely balance more towards running.

Light crude slates versus heavy.

So on balance as a company, where our net seller of heavies and at a net buyer of lights and so at times like this we're well positioned.

I would also say the location of our refineries is advantageous.

You know we have two refineries.

On the eastern side of the country near Ontario, where there's.

Historically high demand for product price for products.

That we produce.

And then and then likewise, we also have the largest refinery.

In Alberta, which is strep Kona and as I mentioned, we're seeing kind of record throughput at that facility as well. So I think we're well positioned said.

We do let leverage our crew.

Our our equity crude where it makes sense to us.

But we also are in the market and and acquiring light crudes at discounted prices in that Thats, helping our our economics.

Thank you for taking my question.

Thank you.

Our next question comes from Menno Hulshof with TD Securities. Your line is now open.

Hi, Thanks, and good morning, I'll start with a question on inventories and storage clearly there is a widely held view that we had tank tops out here within the next several weeks in closer to the end of May in the U.S. So my question is do you share that view and and the more important follow up here is what does imperial look like.

Few weeks into that scenario and what are the leveraged that could get pulled to to mitigate that risk.

No doubt everybody's Watson inventories very carefully right now which are directly impacted by this.

Significant reduction in demand that occurred in April.

Kind of record precipitous reductions down almost 30 million barrels a day globally and obviously that had.

A significant impacted in North America, and <unk> and Canada specifically.

Likewise.

The initial supply increases.

From from the OPEC plus countries also exacerbate exacerbated that.

That balance and so.

Whereas kind of the supply demand balance supply demand balances coming kind of more into check it's going to take a long while to get there and in the meantime inventories are building as refineries across North America have have reduced.

Have reduced are there.

Utilization and run rates.

And fewer products being produced and less demand for crude so.

Inventories are building.

My impression is the build is.

Much more extreme in the US you know as we monitor inventory levels in Canada.

The builds have been I would say more moderate.

I think the latest Gen skate data shows something.

30, 31 million barrels and in Canada.

Which still is about.

20% or so below tank tops, if you will as we look at our all in.

Yeah.

Our own crude production.

The demand from our refineries the outlets for sales to third parties.

So we're pretty well balanced at this point, we're not concerned with not having.

Storage.

Capacity or or logistics to move our crew. So so we feel quite confident about that at this point.

Okay. Thanks for that and then my follow up question is on downstream, where do you stand on refinery utilization today and what can we expect that to look like across your portfolio for Q2.

Well as I mentioned, we have one of our refineries as is undergoing a turnaround right now.

The other two.

Our undoubtedly experiencing reduced throughput.

I'm hesitant to quote any numbers because those throughputs are.

Our.

Being adjusted kind of everyday as we see changes in demand I mentioned, what some of the overall.

Product demand scenarios look like with.

Significantly reduced low gas significantly reduce jed.

[music].

Moderate reductions in diesel.

All of those are impacting our refinery utilization just just like others in industry, but we're trying to take full advantage of the markets we're in and.

And maximize the Throughputs, where it makes economic sense.

Perfect. Thanks, Brad that's it for me thanks.

Thank you.

Thank you. Our next question comes from Benny Wong with Morgan Stanley. Your line is now open.

Thanks, everyone. Thanks for taking my question and I hope everybody on the line is.

Staying safe and healthy.

A follow up on your comments on product demand and appreciate that color Super helpful. Just given your perspective on downstream oil and integrated model. Just wondering how you see any signs of the falling demand slowing or even getting lots of stabilization and is there any observable differences you're seeing.

On the eastern and western markets of Canada.

Yes, Ben Thanks, Thanks for the question and good to hear from you.

[music].

We are starting to see a recovery.

Albeit.

Still pretty slow and measured.

You know over the last week or two as we monitor traffic data.

And utilization in the major Metropolitan centers, we are starting to see a gradual increase and so that is starting to.

Starting to benefit mode gas.

Man.

Still very very depressed hope overall, but the trend seems to be moving in the directs the right direction seems like seems like we have bottomed out there and now making recovery.

Yeah.

On on the diesel side I would say the reductions were a little bit slower to occur.

In fact for the last several weeks you know.

We were only experiencing maybe a 5% to 10% reduction in diesel that seems to now have increased to maybe more like 15, 20%.

But again, I think thats stabilized and we'll start to recovery.

So was not as impact as severely impacted just because there was a lot of transportation.

For essential goods that continued as well as some manufacturing in agriculture that continue.

We're optimistic that that D.. So we'll revise down pretty quickly now as we get into warmer weather and and the agricultural demand starts starts to pick up.

Obviously the.

The big.

The real big impact is to jet fuel.

As I mentioned, it's down 80, plus percent and and.

You know that won't change until.

Yeah, So health restrictions are lifted and and people start flying again, both domestic and and internationally.

So that'll probably the slowest to pick back up.

[music].

You know east versus west.

[music].

There are some changes there you know I think early on we saw greater reductions in the east than the west.

As I said theyre, both starting to to respond positively at this point.

Thanks, Brad that's Super helpful. LIFO question is thinking about your Capex.

Obviously, a very low level this year, but as I am thinking low further out into next year.

The 1.21 0.1 to 1.2 is that sustainable if we continue to be.

The press oil price environment or is there a little bit of incremental spending denny's they acquired.

Things like some of the field maintenance you mentioned earlier.

Yes, that's a good question.

Benny.

To be honest, we we haven't fully updated our plans to look.

In the future years, where we were last year.

As we put together our plans you know we expected to be in that.

161718 range, you know for for the coming multiple years.

We've scaled that back of course to 1.1 to 1.2 kind of reflective of both the the co bid.

19 response as well as the economic conditions that level of spending one one to one too is above our sustaining capital by probably 100 billion, maybe 200 million.

So if we found ourselves in.

A very extended period of low pricing that warranted.

Continued reductions in Capex I think that is sustainable.

Because we would be able to complete all the.

The safety critical work, if you will and reliability critical work. So I think that is that is achievable, but I would say that's that's not our current outlook.

We believe the reductions were taking for this year are very prudent for this year, but but we would expect to return to more normal levels. Once once we get to next year and we'll be updating those plans later in the year and I'm sure when when we find ourselves at our annual Investor Day, we'll be in a good position to.

Talk about you know kind of in the rear view mirror the impacts of coated 19, and this you'd be.

Supply demand situation, we're in but also hopefully at that point, where we're well on the path of recovery things returning to normal and then we can have a more I think realistic view of what the future looks like.

Thanks, Brad Super helpful.

Thank you.

Thank you. Our next question comes from Greg Pardy with RBC capital markets. Your line is now open.

Thanks, Good morning, Hey, Hey, Brad. Thanks, so much for the run down most of my questions have been answered just the only one I'd have free is that that mohican planet at coal Lake what would the rough capacity be there.

Yes, Thanks, Greg I appreciate you calling in.

It's cold Lake, we have I think four major plants.

They seek in is.

Kind of one of the smaller ones.

I've got John Whalen here, the senior Vice President the upstream and I'll ask him to answer that so he gives you kind of the exact number.

Yes, I think.

Probably but you're really looking I think what you're trying to figure out as you know what do we think the second quarter is going to be because we don't have the full plant offline.

And.

But I would say generally in over 140 for the year. We have this turnaround in the second quarter, it's not as big as the turnaround we did last year, but you are kind of in that 15 kb offline for the quarter something like that that kind of range.

Okay.

Terrific. Thanks, Thanks very much.

Thank you. Our next question comes from offset sand with Bank of America. Your line is now open.

Thanks, Good morning hybrid Hawaii.

Good thanks.

Hey, it's thanks for the detailed on on crude by rail and good to see that you guys a trend ramp down significantly in April just wondering if you could share your views on the medium longer term.

How rail plays out as more and more pipeline capacity looks like it's going to be available and any updated thoughts on.

Pipeline projects, particularly on on kick sell announcement, if future your views.

Yeah.

In terms of rail when when we made the investment in the Edmonton Rail terminal.

It was it was very purposeful that that would serve as an alternative Christmas method for us and somewhat of a backstop if you will.

Pipeline capacity was not available to us and certainly.

Over the over the last couple of years, we've been able to take good advantage of that and we have adapted quite.

Rapidly to the prevailing economics and there's been several months that the economics were very strong and we moved a lot of volume by rail.

And and was advantageous, especially if pipeline capacity was not available to us, but there were other times and we're seeing that right now we saw.

Late last year, where the ARPAD completely closed it makes sense and so we very quickly kind of.

Shut it down or scale that way back and and I see that continuing.

No.

The base egress for US is certainly pipeline and we use this as a bit of a flywheel, where we're economic supported and and we don't have better alternatives.

Yeah.

Looking to the future.

You know we are optimistic with the progress that has been made on some of the key pipeline projects.

In Canada and of course moving into the us.

Some some very positive announcements on Keystone recently with the Alberta government, taking a stake in that project and providing financial support.

Such that the project could move for construction.

Has started.

One of the key things to work on was was the crossing the border and in my understanding is.

That are advanced if not completed.

[music].

There has been in the press so some announcement.

Some setbacks some setbacks in Montana, where it was so permits have been challenged in withdrawn.

I don't know the very latest on that.

But but I do know that that that the project is moving forward and I think thats, a very positive sign and likewise you know.

We are seeing positive progress for for trends bound for Enbridge. All those things are very important projects for the industry and were very glad to see Ford and you know will will be a shipper on on many if not all those as well so it's good for us.

Thanks, Brad for that and my follow up is.

On your asset portfolio.

On the cycle offers challenges as well as opportunities so when you're thinking about bottom of cycle opportunities.

Any thoughts on me, if you've seen that in prior cycles any thoughts on M&A.

Typically in D., how you're thinking about sure unconventional portfolio tactically in 2020 or perhaps strategically.

Yes, that's a really good question and clearly something that that is on our mine.

You know.

Obviously, there there are a lot of assets that unfortunately, our distressed.

Given these economic conditions.

So we always keep the aperture open.

Evaluating whether there are strategic opportunities for us to expand our portfolio or change our portfolio.

And this time is no different.

So so we continue to refresh our analysis.

In that regard I would say, though that down.

Experience in in M&A is that at at these extreme points in the cycle.

It could be very difficult to transact because.

Buyers and sellers expectations become very different.

And view of what recovery might look like and the timing for that.

It is often very different different so it's difficult to transact.

But that doesn't discourage us from continuing to evaluate potential opportunities and see if there. If there is something that makes good strategic sense for us.

So that that work continues.

Thanks, Brent appreciate the color.

Thank you and our next question comes from Neil Mehta with Goldman Sachs. Your line is now open.

Hi, there to emulate Shang on behalf Neil.

Thanks for taking the time today. My first question is around that the operating cost reductions at $500 million that you had.

How injectable can we think this 500 million dollar reduction and shrinks Apple watch.

Can you give incentive what percentage is associated with deferred activity, but what is an actual.

Cost efficiencies that leasing that please.

Thanks for your question Emily.

Okay.

You know as we as we approach these efficiencies we're looking at all things and.

Theres Theres no doubt there are structural efficiencies that that we're pursuing and that we would expect to capture and that would would give us long term sustainable benefits.

There are other steps, we're taking that you know no doubt our deferrals and.

And and some expenditures are being impacted by pace of activity.

I don't have a good per cent split between.

Structural forces.

Overall.

But I would tell you that.

Our.

Our ongoing objective is to maximize those structural improvements and continue to drive down the unit operating cost so of all of our of all of our assets and.

I'm quite proud of the asset team.

What they've demonstrated just on the last two three months that to be honest I'm optimistic that we're going to see more cost reductions in that 500 by the time, we cut to the into the year.

Got it thanks, and just one real quick quantify match how quickly can you think you think that Kelly can be ramps back up to full capacity, one sat down and thats can pick up again, not only that that thank you.

Yes. Thanks.

To be honest.

Something like hurdle, where we are taking one train down now too.

Undertake the turnaround.

As I mentioned, we expect to complete that work by the end of June and we will have it ramped back up with within a week.

You know.

It's very responsive.

I appreciate it thanks.

Thank you.

Im not showing any further questions at this time I'll now turn the call back over to date Hughes VP Investor relations for any closing remarks.

Okay. Thank you Daniel It is 10 o'clock as I mentioned.

We are going to have to end the call now to move onto our annual general meeting.

We do have a couple of pre submitted questions that as I promised we will follow up today directly.

So I just like to thank everybody for joining us this morning, and as always if you have any follow up questions or want some further discussion don't hesitate to reach out to the IR team here and I just wish everybody all the best twin in now what could only really be considered as some pretty challenging times. Thank you very much.

Okay.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.