Q2 2020 Suncor Energy Inc Earnings Call
Somewhat participants' lines are in listen only mode. After the speakers presentation there'll be a question and answer session to ask a question. During this session me to press star one of the telephone.
Good morning further assistance, please press star zero.
I'd now like down the conference or what your speaker today, Trevor Bell Vice President of Investor Relations thinking. Please go ahead Sir.
Thank you operator, and good morning, welcome to some course second quarter earnings call with me. This morning, our Mark Little President Chief Executive Officer, and Alister Cowan Chief Financial Officer.
Please note that today's comments contain forward looking information actual results may differ materially from expected results because of various risk factors and assumptions that are described in our second quarter's earnings release as well as our current annual information form and both of those are available on SEDAR and guar and our website Suncor Dot com.
Certain financial measures referred to in these comments are not prescribed by Canadian gap for a description of these financial measures. Please see our second quarter earnings release, Oh, My formal remarks, well open up the call the questions no handed over to Mark for his comments.
Good morning, everybody and thanks for joining us during our first quarter earnings call. In early May we knew that the second quarter wouldn't be particularly challenging certainly the most challenging and our modern history.
Drastic measures to minimize the impact of global Cobot pandemic were implemented.
And in line with our expectations. The second Mark a corridor was marked by the unprecedented scale and severity of market volatility that affected both upstream and downstream.
In our markets gasoline diesel and jet fuel demand declined by approximately 50%, 25% and over 80% respectively. During a four week period between Medmarc and mid April.
W.T.I. futures trade at a cross at an 80 dollar U.S. per barrel range from negative to positive $40 U.S. a barrel.
And suite differentials bill nearly $20 a barrel within the span of a model.
Plus $2 in April to minus $15, an eye returning to par in June but.
About three basis, we have focused on positioning the company for a long term success and by remaining agile, taking decisive action and capturing value through our integrated model.
On our Q1 call we outlined a number of measures taken in response to the unprecedented market environment, including a 33% or 1.9 billion dollar reduction in capital spend.
1 billion dollar or 10% reduction in operating costs, and a 55% reduction in our dividends.
Through the second quarter other actions were taken to adapt to the rapidly evolving market conditions generating positive funds flow for the quarter.
We continue to enhance cobot 19 safety measures and ensure that health and protection of our employees.
Summers and communities.
We maintain flexibility in our maintenance schedules, while protecting the health and safety of our employees.
We adjusted the utilization of our refineries well flexing the product mix for enhanced margin.
We captured value by providing.
Provided by our integrated model, especially within our midstream assets and we maximize physical integration by ensuring our upstream production pace demand avoiding unnecessary and inventory builds.
The value realized from these activities reinforces once again that our physical integrated model as brighter than some of our parts.
Alister I'll provide more details in a minute, but I first wanted to recognize and thank all of our employees.
They did an amazing job [laughter] very difficult circumstances, I mean, certainly demonstrated how agile and decisive we couldn't be one responding to extreme extremely volatile markets.
Starting with actions taken in the upstream we captured better than the industry average realized pricing across our products brought to market and.
In a quarter, where FCO differentials were highly volatile as I previously mentioned, we successfully captured the full value of index pricing.
On bedroom and sales, we realized approximately 35% higher pricing than the hardisty benchmark due to our marketing and logistics expertise.
For all of our assets in the Oilsands region, including Syncrude, we swiftly lowered our capex to $422 million on the corridor, which was less than half of what we got the capital that we spent into first quarter.
We safely executed our planned maintenance activities and continued cash flow improvements projects, such as the Syncrude interconnecting pipeline and the Fort Hills autonomy truck employment.
In the downstream, we achieved 76% utilization above our previously guided second quarter range expectations.
This utilization was made possible by having real time access to consumers, allowing us to rapidly.
Just to evolving market conditions.
Our retail and wholesale channels were able to secure customers for refined products, allowing our refineries to pace ahead of industry average utilization.
We also flagstar refineries can meet diesel demand early in the part of it in the first part of the quarter and as consumer demand increased in the latter part of the corridor, we shifted to increase gasoline production.
Our Canadian refineries averaged 80% utilization and the second quarter, which was more than 15% above the Canadian industry average.
This advantage combined with our sophisticated marketing and logistics capabilities, and our retail and wholesale consumer channels.
Ueps the downstream portion of our business to lead the overall recovery of our funds flow in the second half a year and into 2021.
As we exited the second quarter <unk> refineries were operating at an overall utilization rate of approximately 85%.
We connect the upstream and downstream business units.
With our trading and marketing expertise and widespread logistics assets, we placed Maxim equity volumes through our refineries and carefully managed inventory levels to take advantage of the price volatility during the quarter.
Since 2017, we've been strengthening the capabilities of our training and marketing organization investing in technology infrastructure and expertise, we continue to make investments advancing initiatives to significantly improve our ability to manage our products.
The current environment highlights the strategic importance of these investments through strong realized pricing in our upstream increased equity feedstock into our refineries and optimization of our production and inventory levels.
I would also like to mention that just last week, we continued to build on 26 years of sustainability reporting.
Basing our 2019 annual report on sustainability on our fourth climate report. This track record continue to highlight our longstanding commitment to transparency disclosure and progress Army SG.
I'll now pass it off to Alister to go through our quarterly financial highlights.
Thanks Mark.
As Mark highlighted the unprecedented scale of volatile to across the business. This quarter was like none other than some towards more than this.
It was impacted by all the demand and supply side.
Pardon speed and scale.
This quarter the resilience of our integrated model will stand with fast.
Despite a 540 million dollar negative cash impact a onetime inventory and pfeifle losses in the quarter due to the rothman moved between crude price, we're still able to generate approximately 500 million of funds flow from offerings.
Thank you Jamie maximize price realizations.
Approximately 80% of the company results product mix moving towards late you could.
It's another 45% refining the repeats no.
Physically integrated Regazzi production.
Brian product mix was weighted 40% definitely at 42% diesel.
As Mark said this mix.
Jim We started the corporate accounts through margin consumer demand shift.
The engine parts remains to 1 billion dollar reduction through or operating costs and 2020 to bring if it's going to 19 and during the quarter, we made progress towards achieving target.
Our absolute cost Butte wondering $11 million lower than Q1 next year and $643 million Juergen Q2 lawsuit.
We remain confident and his old vehicle or.
Equal to deliver the $1 billion of operating cost savings and 220 relative to 29.
On the capital say, we spend $671 million into 2000 reduction and 611 million or 30%.
For Q1.
I use it any capital spend of 1.9 billion businesses as well to do Illumina capital plan and the 2.6 to 4 billion dollar range and that will be 1.9 billion dollar reduction from our original 2020 type.
Within this reduced capital game continues to make economic capital investment.
The first in CF the business.
As future operating and sustaining cost capital cost and drive through $2 billion an incremental.
Free funds flow that target on 2025.
Just wanted to reiterate that approximately 100 million over to Q2 capital spend 15% was invested in these initiatives.
What I'm trying to achieve 1 billion of those costs will target bye bye.
By 2023, and that's no $2 billion 2024.
These initiatives to support increasing shareholder returns in the future.
The majority of the two building adults refunds will benefit as a result, instructional cost and productivity changes in our business and were largely dependent of commodity price.
We remain committed to returning value to shareholders, while maintaining our financial strength.
During the second quarter, we returned over $300 million shareholders.
Ended the quarter.
The debt to total comp ratio will be added 7.5% within its wanting to emphasize includes all our leases.
The slightly I tell you to target ratio of 20% to 75%.
The significant reductions in costs capital spending on the dividend.
Most critical preservation O'connor limiting that increases and preserving the financial resilience deals have been.
Well, we did build that of approximately $2 billion during the quarter not included a working capital build of approximately 1.3 billion a significant portion which is made up a one income tax cash receivable. We just received by the end of mix.
On a current strip pricing, we don't expect John any further debt for the remainder of media and without a positive mark to Mark discussed.
Less than 2020.
Great. Thanks Alastair.
I said on arc, our last call. Our view is that recovery will be led by the downstream as product demand improves and refinery margins strength and which we fully understand differs from the general view of refining outside of Canada.
Based on our second quarter operating financial results and the Prince market dynamics that we're currently observing we maintain this view.
During the second half of 2020, we see continued strengthening of downstream demanding gasoline and diesel to more seasonal levels by the end of the year.
And given the high level of global crude inventories and the return of production, which was shut in during the second quarter, we expect upstream pricing and crude spread volatility to remain through 2020, although obviously not as extreme as we saw in the second quarter.
We'll continue to pace upstream production with overall downstream demand to manage our crude inventories.
The pace of demand recovery will be influenced by a number of factors, including the timing and pace and restarted the north American and global economies.
Secondly, the impacts of any government stimulus such as infrastructure spending or other fiscal stimulus and third the potential for a second wave of cobot 19, and any medical advancements in the area of testing tracing treatments bar back scenes for covert 19.
In other words uncertainty remains very high.
And we will take the necessary actions within our model to generate additional value, including evaluating with our partners the option to resume at two train operation at Fort Hills.
We generate free funds flow in excess of our capital and dividend commitments well look to bring our total debt to capitalization back ended the top end of our range.
Once were at or below our 35% we will continue to follow our capital allocation framework with a combination of future debt repayments, increasing shareholder returns and making measured investments and economic projects.
Going forward, there's upside imbalance between supply and demand.
Action shutdowns and restarts across the globe against the backdrop of starting and stopping and restarting economies.
Situation will continue to evolve and highlights the importance of our cash breakeven to cover sustaining capital and divot and which we reset in Q1 to $35 you SWT Guy.
This ensures our ability to maintain the financial health and deliver strong cash flow through these continued volatile times said another way, we won't that the financial health of our company on the pace of recovery, which is outside of our control.
Although volatility continues we wrap up this quarter well positioned across the business. There's no doubt that the pandemic as an evolving situation, but we will continue to remain agile and the execution of our strategy leveraging the flexibility and strength of our unique business model assets and expertise.
Yes.
Our company strategy remains unchanged and in fact, these circumstances of reinforce that our focus on safety operational excellence financial strength.
Surplus capital allocation shareholder returns and leadership any SG, hence the path to create long term value for the company and our shareholders and with that I'll turn it back to Trevor.
Thank you Mark and Alister I'll turn the call back to the operator to take some questions.
Thank you.
And ladies and gentlemen, as a reminder to ask a question lead to pressed on one or telephone.
Withdraw your question. Please press the pound key please standby, we can pop acuity roster.
And our first question comes from the line Manav Gupta with Credit Suisse. Your line is now open.
Oh. Thank you for taking my question I have a simple question just updating it seems expenses actually went from 2.96 billion to 2.156 billion in a single quarter. That's quite an achievement I'm just trying to understand can you help us quantified the buckets, how you achieved.
Such quick cost reductions and how much of this has been people thought CQ. Thank you.
Thanks, but all of a also here yeah, I put a significant reduction in one quarter I think really if you look out and refocus our on scoping work they want Lucerne show.
Jason.
His position.
Yeah.
Positions contracts was across the organization you obviously as you know we said Joel.
Maintenance and some of those costs will likely come in in the third quarter, but not all of.
The key buckets, so what we were able to achieve but on the call thing.
And second quick follow up is starting to pick about that but generally what you've seen the refining spaces.
Utilization dropped 20% auditing drops 40% lucky to achieve Bliss, then remarkably the utilization dropped 20 listening, but the opening since like funds from operation went from about two plentiful almost 600, if you take into account the people impact. So if you could highlight how you would you. Please.
This will soon enough.
Yes.
Manav, it's mark.
So if I if I caught all that.
You know a lot of this is just leveraging 100% the expertise to the integrated model and making sure that were maximizing the value and such I call. It tile market, where we talked about the spreads in the tax changing so much and shifting from gasoline to diesel I, 100% of our focus was cost.
Currently pivoting to where the value wise and the value shifted in many different dimensions through the entire quarters. So it's not just.
On average with the way that the market changed every single month every single week.
Thank you.
And our next question comes from the line of Neil Mehta with Goldman Sachs. Your line is now open.
Great can you hear me okay.
Mark.
Operator can you hear us.
Yes, we can all or you know.
Okay, if anybody on the line so we can get to questions.
Yes.
If you didn't get a chance to ask your question. Please press star one in rig connect.
Our next question comes from the line of Phil Gresh with JP Morgan. Your line is now open.
Hey, Good morning can you hear me all right.
Yes, we can sell Oh, great [laughter].
[laughter] of Goodbye.
The first question.
Had would be for Alister you made a comment about.
I'm not adding any additional debt in the second half and and Mark you talked about 35 dollar reiterated $35 breakeven. So I assume it's a bit of a nuance question, but it seems like you guys actually be generating positive free cash flow Nexus as a dividend actually chunks of the leveraging the back half given your commentary on refer.
Finding that seems.
Reasonably positive so any additional color you could provide on that.
Well well that fell I think a than regarding what we'd be assuming prices are going to be or the second half a year and I know that many of you. There are much higher price forecast for the second I'm 2020 than we are reaffirming the embedded consistent with up every five dollar government GR level.
Yeah, I wouldn't <unk> potential.
And maybe just to add to that felt you know part of the issue with that as uncertainties high you see Ned and all sorts of across North America economies, starting and stopping restarting so.
I think the jury's still out and there's a lot of things that have to get resolved before we get back to what we thought was normal and so.
Our whole focus is to maintain flexibility and as I stated.
Let's see it before we start trying to figure out what we're going to do with the additional cash.
No I understood.
It is going on at the strip.
You had made.
Second question would be just on capital spending.
I think most people are kind of wondering.
Where where their companies are headed as we look out to 2021 relative to 2020, and whether you would continue to keep spending at current levels or where if you view the need for any particular reason for for spending to go higher and.
Just given what we've seen so far is there any view around sustaining capital needs of those changed at all based on what's happened over these past few months.
Well, what we've said about sustaining capital as we expected to be between 2.75 and $3.75 billion. Each year were below about this year because we we shut in some of the projects that we would consider to be sustaining capital the entire.
Our focus was to maintain financial strength of the balance sheet through this period of time.
And so assuming that the price was $35 next year, you would expect that our focus would be continuing to keep the company in the same situation around capital and operating costs and Sach now that might sound very conservative I think we'll find out in towards the fourth quarter, but our.
Our specific views on 2021 will be published with our guidance that will send out in December as per our normal process.
Okay.
Last question just on the working capital elsewhere, you mentioned the tax element.
Just any further color you could provide on the rest of the working capital headwinds in the quarter is there any chance in the second half of the year that any of that would reverse or is that more of a onetime.
Impact specifically to two kids thanks.
A lot of a most of the rights is related to.
More a current pheromones, which is a reflection of the significant reduction in operating cost and capital that we have in the quarter. So you know to extend.
Some point into teacher.
We began to increase the either of those you'll see a above we've actually but I wouldn't expect reverse for the rest of the mixture.
Got it okay. Thank you very much.
Thank you enter next question comes from the line of Neil Mehta with Goldman Sachs. Your line is now.
Hi, Tim can you hear me okay.
Yes, we can deal with welcome back [laughter]. Thank you sorry, sorry about that differ so I guess the first question for you just around the billion dollar target you had made some comments in the release about it but just how do you think about the glide path to achieve.
Dr Guide I should say that cash flow target the cheap ability of that what's in the bag.
And what are the milestones we should be watching.
Yes, Thanks, Neal and often times for the technical issues, we had this morning.
Yes, having an agile Q2 call fits with an agile corridor, but.
Yeah.
Well $1 billion. So our focus right now it's been narrowed to deliver the $1 billion by 2023, new projects that are making up that it had condiments haul trucks system, which we expect to have fully deployed at Fort Hills. This year ahead of schedule and then we'll go back to based flat we're still working on.
The Syncrude Suncor pipeline interconnect, which were anticipating to commission before the end of this year. We're doing continued investment in our supply and trading as an example, our where we're still working on our enterprise wide processes, which were expecting to habit in place right at the end of next year. So these are the things that are.
Driving our 1 billion dollar cash flow improvement by time, he got to 2023, our confidence in that is very high all of these.
Items are underway now and.
Several of them are well advanced.
As you know we took some decisive action to slow down and defer that cogen and the wind farm and then some of our other digital.
Programs, which is why the second billion dollar got pushed out to 2025 were these are great projects, we talked about the cogen at length for great returns.
Very positive and driving down greenhouse gas emissions by two and a half mega trends and such so theres a lot of great attributes to that obviously, it's a high priority for us we just need to financial.
Market conditions to improve before we restart that project, we certainly don't want to restart it and then have to stop it again. So that's now scheduled for 2025 and our confidence again as is very high.
Yeah, that's that's great and the follow up it is just there's so much in the news around pipelines.
There has been to last couple of years feels like it's been particularly acute for in 2020, let's just step back and talk about some of the individual projects in your perspective on them and a couple of come to mind right. So one is is where we stand with line size.
At the Dakota access and what it could mean for person to light crudes in your system and then the long longer term long haul pipelines, whether that's trans mountain or Keystone. So.
There's a lot there, but if he can pack because these individual projects and how you get comfort around you Chris.
Thanks, Neil I think you covered off the waterfront on pipelines there so.
Let me touch base on it.
Line side, we think is a low probability banter that line getting shot and.
We really think that theres, some really good work going on around how to manage that and an improved the path forward. It and this is something that's critical to.
Haul central Canada in Michigan markets, and so to the extent that gets threat that shut down it's a real threat to the consumers that are relying on those products to be able to keep the economy's go in and moving forward. So.
And so our view is we think it's been well manage we think it's a low probability event, but we do have contingency plans in place and that we have the ability to be able to move crude into Montreal and use the dock there for waterborne crudes coming up a Saint Lawrence and we also have the Portland.
Main pipeline that allows us to bring crudes into eastern Canada as well remember that when line nine went the other way the entire central Canadian market was essentially provided by waterborne crudes. So we have some flexibility there, which we think thats a great contingency so and then.
When you get onto doubtful, we don't move any crude on the Apple we do end up by using some of the Bakken and light crudes into our eastern Canadian refineries and we don't see this is having a significant impact on Canadian differentials. We think it's more of a regional issue and that there's adequate.
Assays, so it's basically a hit to those producers in the Bakken then on the other three lines Trans mountain Yeah, it's clear that spinal cord case, we think thats in good shape, there constructions moving forward as they're talking about it being on late 2022, you know if it's 22 area.
It's a 23.
Oh to mid 23.
It's in good shape.
Line three where.
Optimistic about there is a process going on with the Minnesota Public Utilities Commission to reapproved that route and such associated with that and we're expecting a decision in late 2020. So we're expecting that line to show up and say mid 21.
Or or towards the end of 21, but we still think it happens so and then Keystone XL I don't know seems like it's becoming a significant part of the the discussion on the politics side and so now they're working through these latest court rulings. So it's delayed any of the construction across the water.
Her ways, but I think if you go and talk to TC There Theres still plowing ahead, and and working hard to make this thing happened. So there's lots of resolve their to keep going so yeah. We're we're still optimistic about the lines, but you're absolutely right theres been there has been more activity on the pipelines for a long time.
That said Trans mountain is looking better than us.
Ever has.
Thanks Mark.
Thank you and then next question comes from the line of Greg A party with RBC capital markets. Your line is now open.
Yeah. Thanks, Thanks, good morning.
Couple of questions free maybe maybe just to start it.
At Fort Hills, So you.
We went to one and a half to one trains, but I guess whats, peaking my interest there little bit is just with the progress that you've made with the upon himself trucks.
What's the game plan at Fort Hills is it is it to move.
Back to wanted to have towards the ended the year or do you think you probably remain running that at one train.
Yes, great question, Greg Thanks for that.
Our focus on Fort Hills is like with all of our assets is to maximize value.
Early in the second quarter when prices were so low we decided to park one train because we couldn't efficiently use that.
And so when you look at it there's three things we're trying to accomplish at Fort Hills first of all we're trying to make sure that if we bring it on we think that's where you're going to have us relatively stable price environment. So that this thing will be able to perform and generate good cash flow. The second thing is it's.
Curtailment as a bit of an issue because as you know what the second train if we started up we can't run it at full utilization. So that's a bit of a challenge and then the third one which is where we're putting on an enormous amount of our attention is to restructure that cost structure that business. When we originally started it up we overstaff that with the aspect.
When we started up get into full rates and maintain at for a year and then lean outdoor organization, we haven't been able to do that because a curtailment. So now were in the process of doing that without having run it for a significant period of time. So we're doing that so when we park that we thought we would have it down.
Potentially to the end of 21, the price environment now would would incentives to bring it back on this is a debate that's going on with the owner. So no decisions have been made and it requires that the a alignment to be owners to be able to move forward on it.
With that said at some point here, we're gonna have to go into a substantial cost around winterizing net if we're not going to radnet. So I think theres, a reasonable chance that it'll be back online by the ended the year.
But again no decisions have been made and this is what we continue to work with the owners.
That's that's that's a really through my answer.
And I know just the knowledge. This question that at the beginning just on the downstream, but maybe to to be a bit more specific.
In terms of the performance and it did it certainly surprised us just given all the headwinds, but did did retail or.
Marketing logistics player.
Big rule, there I can I can see a big smile and Mark families spaces. He probably took advantage of all kinds of things in terms of the volatility referring to the wood and I know in the first quarter you guys I think it talked about the value brought from.
Supply logistics was that was that a big driver here.
Yes, Greg I I'd say this is a huge driver as we've emphasized suit us being able to see exactly what's happening at the retail consumer and at the wholesale level.
And being able to pivot to make sure that we're managing our inventories and yet providing the product to the end consumers.
It's been a huge strength and that goes all the way through our crude logistics and such that a mark Townley shop managers and such and so you know we're very happy this is where the the strength of our supply and trading in the marketing organization really shines and then the agility of both the upstream.
Downstream to be able to keep adjusting the operations to chase the value and so.
I think the whole focus on agility, but the logistics piece of that in supply and trading has been a huge part of it to be able to constantly optimize between the upstream and downstream.
Just to ours at a very great, but you know from a cost perspective no.
If youve any cost reduction across the business, including that earns through both to help them in the quarter as well.
Okay.
Okay. Thanks, very much guys.
Thanks, Greg.
Thank you.
Our next question comes from the line of assisting with Bank of America. Your line is now open.
Thanks, Good morning, everyone a mark.
Appreciate all the details on a pipeline use and just wanted to dig a little deeper the second lovelier as crude spreads.
WCS spreads have been well behaved just wondering if you could share.
Kind of your outlook on spreads over the next 12 to 18 months given all the volatility just well pipes for says underutilized pipes currently where says you know whether you see crude by rail resurgence at some point, what's what's your outlook here.
Okay.
Yes, you can see as Canadian crudes coming back on and you can see that in and you'll hear it. So over the next 10 days, there's lots of Canadian crudes coming back on so we're starting to see the pipeline still up again and I would expect that thankfully our inventory positions in western Canada in pretty good shape, but.
You look at the forward forecast on WCS, you'll see spreads coming out as we head towards the they ended the year here. So we're fully expecting that several operators will start re initiating their railbike crude by rail associated with it we've seen rail movements now are kind of getting down.
Alan to the low low is here with very little crude moving by rail, but we are expecting not to ramp up as we get towards.
The ended the year and that all assumes that we don't have another significant ur cobot outbreak and and lots parts lots of parts of economy have to shut down again. So so we do expect bits to start getting back to where we were last winter maybe not to the same extreme.
And just because of our inventory positions and some crude being a little slower to come back but by the time you got to be ended the year. If we don't have this upset with a second cobot outbreak, we expect essentially all crude and in western Canada to be back online.
Great and just shifting to renewable investments Mark.
Yes, you have you had steady strategy up any details on the lends a jet equity investment and how does it fixed fit into the Enerkem investment that you made recently.
Well.
Lands that Jack is coming out of.
Out of the same company, that's lens attack and so, but specifically around bio jet fuel, but it also can make a hydro treated renewable diesel product. So we committed to join as an equity partner and build this.
Pilot commercial demonstration facility essentially in the United States. The good thing about it is that we will take possession of a bunch of that product. This hydrotreater renewable diesel and use that to manage our blending commitments such that we have in Canada.
Lanzatech technology, where we're looking to see whether there's an opportunity around.
Using that in conjunction with potentially be Enerkem technology, that's all getting work, whether whether that happens or not that hasn't been.
Fully started out, but we think that there could be a relationship between the two of them buttons and Ah. That's currently getting thought about.
Thank you.
Thank you and our next question comes from the line of Binnie Wong with Morgan Stanley. Your line is now open.
Hey, good morning, guys. Thanks for taking my question just had a follow up on.
Prior question from and all but not on Opex reduction.
We were fairly impressed with the cost showing up in a meaningful way in the quarter.
Just wanted to give some color and apologies if you already addressed this I might have missed it when the line Canal was how do you guys think about how much a structural and how much is potentially coming back in a more normal environment and if there's some areas where you could potentially see some upside there.
And the second part of that question is is in relations to the billion dollar free cash for you guys are partying targeting by 2023.
How much of that billion dollars is embedded within there, especially the structural part where it or is any of that incrementals to that billion dollar free cash flow by 2023.
Okay I'll figure out one I'll answer the second part of the question first since an immaterial amount of these cost reductions in the building girls and cost will be introducing to the nine months it off billion dollar welfare.
Reductions that were targeting this year is suitable pulls 2020, we've talked about it being roughly 30 a third.
Start to grow the third is kind of one time and then another third is probably searching for a couple of years.
And obviously beyond the we seek to major long term, but that's kind of roughly split about.
Got it thanks out there appreciate the detail.
A question. It was really second question is around your bitumen realization in the quarter.
It was was relatively strong relative to expectations and in the benchmark just hoping if he can provide some color in what drove that and can we expect this trend to continue going forward or is this more of an isolated that in the second quarter.
In ticking batches from our opportunities.
Yes, I mean, maybe I'll start alster can chime in on it.
It's interesting band aid that.
Some of this is just showing the agility of it is and it's kinda like when I was saying as we're constantly looking to figure out where where can we make money in this super volatile environment. So at points in time, where Benjamin prices were very low we tried to minimize the amount of pitchman, we are producing and maximize.
The value of our logistics associated with it and and then when it was strong Benjamin pricing, we sold more Benjamin then and work to be able to maximize that so between the logistics and managing bad and being very agile and and leveraging that to the maximum extend awesome.
Oh, and and constantly shifting what products were sending to market.
That's actually widest comes out quite differently than the average did you want to add to that Alster, yeah. Our into food shows the strong done ahead of.
Stenson midstream draining or marketing expertise resolve the logistics for grew Bobby.
Over the last several years.
Being able to access the for Mark because we don't have the girl cold I mean, it's a clear differentiator for us compared for any company selling only at harvested.
Yes, we are more cost for you can see be absolutely Bali bothered by being able to be much more on zone flexible there, where we sell our product.
Being a price taken at harvesting.
Thanks for a detailed guys appreciate it.
Thanks.
Thank you.
And our next question comes from the line of Mike Dunn with Stifel First energy. Your line is now open.
Thank you.
Feldman with the Syncrude bidirectional pipeline or soon to be Onstream here.
I don't believe you saw in the past.
Okay.
Zach numbers on the margin or throughput improvements.
As you might expect I'm, just wondering if you can.
Add some additional color there im sure you must have run some numbers internally.
Looking at.
What what the Syncrude and Suncor margins.
Might have been in years past had the system.
Online so.
I'm wondering if you can provide more color as we get pretty close to.
So I guess this long anticipated project getting done.
Yes, Mike. Thanks for your question. This this is the complicated when I'd say the simple answer associated with it is when we put this investment in our calculations show that we could generate $200 million of incremental cash flow per year and some of that.
I will show up in the Syncrude investments some of that will show up in the oil sands base investments.
And and so and this is on an investment that's a couple hundred million dollars and but it's it's difficult to answer your question because in some cases that allows additional crude when at syncrude when they're doing maintenance on the upgrader. So that we can take it and use our logistics and our oil sand.
Inside and our downstream logistics to be able to keep the crude grind.
And moving forward it could be like in some cases, that's moving sour product from our site into Syncrude. So that we could use idle hydrotreating capacity associated with it.
And the beauty of it as it provides the foundation and flexibility to be able to pivot to all of these types of examples that I'm, saying based on market conditions in real time.
Kind of like what you're seeing what the entire platform that alister just highlighted.
For us in the second quarter. So on specific details in some cases that can be additional production in some cases its margin improvement in some cases were taking product from one and moving it to another so that the other site picks up another piece of the margin. So it's difficult to answer your question, but the simple thing is.
$200 million, a year and improved cash flow and we're confident that it will generate that cash that's part of our $1 billion by 2023.
Thanks, Mark that's helpful.
Can you provide any numbers around I guess.
Capacity to transport.
Sour crudes that Sherman.
And then any other product that can move in between.
I am my quite a we dig out all flame and Uh huh.
Okay.
Thanks.
However on the team will give you recall.
Great. Thank you.
Thanks, Mike Thank you.
Thank you and one last question comes on line of Roger read with Wells Fargo. Your line is now open.
No. Thanks for sneaking in here guys.
Sneakers Roger.
Right there [laughter].
Got asked that question awareness calls earlier.
Yeah, just one thing I'd like to clarify on the working capital and then the other question I'm going to have is on.
Thinking about spending on the Capex side being honored sustainable level, yes that word 10, and 2021, where should we think about that having the impacts.
I guess from a volume side right here I would that be more yeah. He would we see that across the oil sands, just curious and then to specify on the working capital Alister just it sounds like very little recovery from this tax issue or anything else and killer T. One or two to next year.
Right way to think about it and there.
Sure the debt to capital improvements accordingly.
Yeah I'll onto the targets one given the way the.
Doug filings work doing Canada, you don't bio until Q2, you will hear your money back to Q4 over next year.
Anyone.
Okay. Thanks.
And then remarks try to answer your first part yeah, Roger on the volume impacts associated with sustaining capital.
Maybe the best way to say it is if it was $35 next year, we expect across the platform to look a lot like this year.
And so our production would be similar to what we have this year as well we fully recognize.
And I think people are seeing that is in the second quarter. The challenge you have is if you don't shot things down quickly you you spend a bunch of money you can't get it back and so we kind of describe it as two feet on the breaks through this whole process thankfully, we're able to shut it down quickly we're now going back.
When evaluating okay do we like office things that were shut down and like take an example link firebag. So it firebag, we shut down some of the sustaining pad investments.
Now, we're going in and kind of financing that and realizing okay, well, we probably should move some of these things forward. So.
Obviously right now if you just doubled our capital investment between now and the ended the year, we would still be within our range, but we had a very high corridor and a very low quarter that made up the first half of the year. I think you will see kind of more middle ground on our capital in the third and fourth quarter and we are going to stay.
Some of this work and be able to move that forward next year. If we end up at $35 in a similar capital range, you will see a much higher percentage of that the sustaining capital and less on the economic side Oh. We next year is a big turnaround year. So we have a lot going on as well.
So but right now we would say on on the volume side. You know next year is more likely to look a lot like this year and then some of it will just depend on what we end up restarting for 22 wouldn't be on so that's kind of where we're out.
Thanks for your question. Thank you.
Thanks Roger.
Thank you.
And this does conclude today's question and answer session I would now let's turn the call back to Trevor Bell for any closing remarks.
Great.
Thank you everyone for attending the call. If you have any follow up questions. Please email myself for the team and as we're obviously working a bunch of us remotely, but the cobot situation and we'll get back to you today. So thanks again for joining.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
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