Q2 2020 Husky Energy Inc Earnings Call
[music].
Thank you for standing by that's just a conference operator welcome to the Husky Energy's second quarter 2020 conference call and bad cast.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation therell be an opportunity to ask questions to join the question Q you made press Star then one on your telephone keypad.
Did you need assistance during the conference call you May say, no not greater by pressing star and zero.
I would now let's turn the conference over to Dan Dickson Director Investor Relations. Please go ahead.
Hello, and welcome to our second quarter Conference call.
Joe Rob Peabody CFO, John Hart and other members of our senior management team are here to review our second quarter results and take your question today's call as forward looking information and include non-GAAP measures.
Application of the forward looking information and non-GAAP measures the risk factors and assumptions pertaining to the forward looking information and additional information pertaining to the non-GAAP measures are in this morning's news release and in our annual filings on SEDAR and Edgar.
Unless stated otherwise all numbers are in Canadian currency and before royalties. We invite you to save your specific modeling questions for our Investor Relations team. After the call Rob will now begin the review.
Thanks, Dan Good morning, and thanks for joining us today.
In the second quarter, we saw the full impact of the demand shock caused by the cobot 19 pandemic.
Races in margins were impacted across North America with extreme volatility at times.
In light of the deteriorating macro environment, we moved swiftly to stabilize the business by matching our cash outflows with our inflows. This will maintain the strength of our balance sheet in what could be an extended low price environment.
The actions we took included cutting 2020 capital spending in half by 1.7 billion targeting about 150 million in cost efficiencies.
Reducing capital spending at the superior refinery and in conjunction with the board lowering the dividend.
With these actions we were able to reduce our total 2020 projected cash outlays by about 2.5 billion compared to with the original plan.
We also improved our liquidity position with a 500 million dollar term loan ending the second quarter with liquidity of 4.6 billion. In addition, we suspended production that was generating negative cash margins and we made full use of our refining storage and midstream facilities.
To avoid selling distressed production.
Oil prices are ultimately driven by the demand for refined products and with the integrated corridor business, we had a clear window on end use dynamics.
As the code Red 19 related shutdowns began to impact us refined product demand in the first quarter, we adapted our operations by reducing our refinery rates in tandem oil production was reduced to remain balanced with for downstream demand pull.
We also moved early to drawdown, our own inventories to create extra space to manage the supply demand imbalances, we could see we're going to emerge.
Throughout this period, we have remain disciplined in managing the value chain.
The collaboration between the upstream and downstream operations in our integrated corridor business has been virtually seamless and allowed us to maximize available value capture as market opportunities arose for example.
By cutting our production to a low level in the second half of March we avoided negative heavy crude sales.
At the very low April contract prices. We then entered may at a low production rate limiting sales at the unfavorable may index price.
And as the May spot contract prices improve we were able to substantially increase production and sell into this rising spot market capturing the widespread between the mace between may spot and index pricing.
More recently demand for refined products has been recovering.
We've responded accordingly by increasing and optimizing refinery throughput will also increasing upstream production.
We also recently started steaming the 10000 barrels per day spruce like central thermal project.
First oil is expected later in the third quarter.
We will continue to be disciplined and matching production with refined product demand.
Our agility allows us to make ongoing adjustments in response to market and price signals.
In this challenging environment, we are maintaining our focus on safety and reliability across our operations.
This includes a systematic and controlled approach to safety in all areas of our business and we remain on track to achieve our key process and occupational safety targets in 2020.
Year to date, we have recorded a 38% reduction in tier one and two process safety events compared to this period in 2019 and 2019 as you'll recall was a big improvement over 2018.
The total recordable injury rate is lower by 31% this year.
The 20% reduction in lost time incidents.
Now looking at the second quarter.
In the integrated corridor, approximately 80000 barrels per day of upstream production was shut in at the start of the second quarter.
These were primarily heavy oil barrels in our cold conventional and thermal segments.
With demand for refined products recovery.
Current production from the integrated corridor business is around 190000 barrels per day.
Approximately 30000 barrels a day remained shut in and the levers are in place to ramp up more in the third quarter of course dependent on market conditions.
While throughput volumes at the Lloydminster upgrader were reduced early in the second quarter. They have since been ramp back up in line with increased demand and at the Lloydminster asphalt refinery operations remained at full rates over the whole quarter due to strong Nashville pricing.
Our us refineries have also returned to the two higher levels of throughput.
Throughput at lime is in the range of 145 to 155000 barrels a day with utilization at both Lima at both the Lima, and Toledo refinery at about 85%.
We are being cautious not outstrip physical demand and continue to pace, our throughput with our product Liftings, we expect the path forward to be bumpy and we'll continue to respond rapidly.
In the offshore our average overall net production was 71100 barrels of oil equivalent per day with an operating margin of $265 million in Asia. Overall production was 518 million cubic feet per day of natural gas or 2200 46 million cube.
Feet per Huskies working interest.
Associated liquids sales were 223500 barrels per day, which is just over 11000 barrels a day net the husky.
Looking forward the 29, one natural gas field at the Li One gas project is now mechanically complete commissioning work is starting and first production is on schedule for the fourth quarter. Once ramped up the project will add about 9000 barrels per day of production net to husky.
She is moving to ESG and SSG initiatives.
We plan to release, our latest CSG report, which will include climate targets next week.
Now I'll turn the call over to Jeff to review, our Q2 numbers. Thanks, Rob.
Production and cash flow in the second quarter reflected the severe drop in commodity prices the shut in of cash negative production.
And the deferral of major projects, including Westway Rose and superior.
Funds from operations were 18 million. This included a negative impact from the realization of 274 million aftertax inventory losses that were recorded in our first quarter to quarter results.
As well as a first in first owed by April after tax loss of 3 million.
Cash flow from operating activities, including changes in noncash working call capital was a loss of 10 million.
Net debt at the ended the quarter was 5.1 billion up from 4.6 billion in Q1 importantly, net debt has been stable for the past two months.
Oil prices and market demand improved we will prioritize cash towards the balance sheet to reduce net debt levels.
Liquidity at the ended the quarter was 4.6 billion, which was reinforced by the previously announced 500 million dollar term loan in Q2.
In addition, husky is maintained investment grade credit ratings S&P recently reaffirmed our triple B rating and DBRS Morningstar move husky to Triple B high which is still well within investment grade parameters.
As Rob mentioned, we've now stabilized our business in this low price environment by matching our cash inflows outflows.
Capex in the second quarter was 310 million.
This included 63 million related to the superior rebuild which is expected to be largely covered by property damage insurance.
Capex will be significantly lower for the remainder of the year.
Turning to the first half as major construction has wrapped up it seems like central and the 29, one field at least one.
As previously announced the West weight Rose project has been suspended.
We expect Q3 capex to be in the range of 400 to 450 million, excluding superior rebuild costs with Q4 Capex between 270 320 million.
Moreover, we have the flexibility should it be required to reduce our annual capital spending to a range of 1.2 to 1.4 billion in 2021, excluding superior rebuild cost.
This is enough to sustain our current downstream throughput capacity 355000 barrels a day and hold upstream production at around 260000 Boe per day, allowing the lowest margin production to decline.
We'll come out with our 2021 guidance December but broadly speaking our capital priorities are focused on our downstream and thermal operations with about $1 billion earmarked for the integrated quarter.
Looking forward our number one financial priority in the coming months is to maintain the strength of the balance sheet.
Additionally, we are continuing to work on lowering operating costs and ongoing sustaining capital requirements and have identified approximately $150 million in cost efficiencies to be.
In terms of upcoming turnarounds. The Lloyd Upgrader has will begin to scheduled six week turnaround in Q3.
Which will include increasing diesel capacity from 6000 barrels per day to nearly 10000 barrels a day.
And a reminder, that this work has been deferred from the second quarter.
Tucker will start a four week turnaround at the end of the third quarter.
And in the Atlantic region. The C. Rose is now offline for its regular 15 day maintenance period.
Finally, the board of directors has approved of dividend.
1.25 cents per common share.
Thanks, and now I'll turn the call back to the operator for questions.
Thank you.
I will begin the analysts question and answer session.
Analysts' questions to ask a question May press star and one on the touched on fountain.
Turning to indicate Q.
Ladies and gents using a speaker phone and maybe necessary pick up your handset pricing any keys do mixture and those yourself and your question can you make press star and Tim.
One moment, please probably pull for questions.
The first question is from Greg Pardy of RBC capital markets. Please go ahead.
Yes. Thanks. Thanks, Good morning, Thanks, guys for the run down.
Yes, Jeff I wanted to come back to the to the to the billion to 2 billion for number and thanks for the some clarity there, but I guess the question is how realistic is this kind of capital number next year I hear your interests protecting the balance sheet, but obviously, there's there's also the business to run as you get into 2000.
22, so any any any color you guys could maybe add around that would be great.
Yes.
I'll start and then let Jeff chime in.
What I'd say, Greg is it's it's very realistic for next year to to operate at those levels now what it does involve is that that covers that capital covers all the money we need in the downstream in order to keep all facilities running staples and well maintained and then in the upstream focus then on the capital would be.
Actually on things like sustaining pads for existing thermal projects. The one of the advantages. We have next year of course is that we have finished 29 one on the.
In China and out and in addition of course on the production side in terms of supporting production at that sort of capital level. We have bought both 29, one ends Bruce like central that are just coming on stream at that time, So we've kind of put together in.
The model for that year and it looks like we can we could run at that sort of level of capital and with with production sustained at close to close to current levels, a little bit down and around say maybe around two to 60 years something thousand barrels a day.
And that would take us through 21, and we think we could also continued to sustain that into 2022 of course at some point here, we want to move to a different mode. When the environment supports it which is which is first and foremost as you know our first priority is always the.
Balance sheet, so just maintaining.
Maintaining the strong balance sheet, and and ensuring ourselves that sustainable going forward and then and then of course, we want to allocate money to restoring what I would call a competitive dividend for our shareholders. And then you know that opens the door for additional capital spending that could drive growth and fuel.
Two years again.
Yes, great any of the way to think about that.
One two to one for is think of it as a call off on capital and think of it in blocks is really the focus there is on.
Last but it turned the core of the corridor, so you really maintaining downstream operations.
Doing a sustainable you have sustainable thermal business and then from there there's decisions and Thats really if you look at it like Rob talked about in Asia, where we're at 29, one mean being complete mechanically complete that's really focusing on a sustainable integrated quarter and then from there.
There's further decision so yes it is sustainable.
Okay. So a big chunk this comes out as a result.
Capital Anyways coming out because you've laid down less weight rose what would be the earliest that you'd look at resurrecting Westpoint roads.
Yeah, great Yeah, great were so so we have and we continue to have work suspended westway grows we're over the course of the third quarter, we're going to be examining the future plans for the project and and what our game plans going to be around it and we'll provide an update when we finish that work.
Okay.
Just as a follow up with switching gears you guys are adding a million barrels the storage I guess it.
Hardisty on at year end, just curious as to whether that's that's commercial and then I know you've got another 4.4 million barrels between Hardisty and Lloyd is all of that operating or commercial Im just trying to get a sense as to the thinking behind adding the capacity and Greg I'm, assuming you're talking to the projects we referenced in the midstream partnership.
And data in so really that's the that's not all just that's that's the through the joint venture it's not all husky dedicated storage so.
Yes, there is third party storage and that is well in there so.
I Wouldnt look at it is all incremental the husky and.
With round about.
It's about half, but I'll go back, but effectively it's the infrastructure investing operational storage to support us and third party commitments.
Okay. So its operating as opposed to commercial.
You did kind of you can do it if we can with operational inventory any storage, obviously, we can be commercial decisions around and off okay. Okay.
And maybe just kind of or this is a request or just an observation I know in the last quarter.
You had made the switch in terms of disclosure and so forth. So so here's the request because I can say our model is in less than ideal shape right now and the thing we really really need as we boiled through everything has is just basically the net netback for your bitumen and heavy oil dri basis that drive barrel basis.
Dilbit.
It is causing US no no lack of frustration to try and get the numbers working.
So anything you you guys could do there.
You much appreciated no actually did you take that will take that and obviously, obviously was a big change I think for everyone. Both internally and out in the market to realign to get everything to the corridor and offshore but definitely will take that feedback that we put some enhancements in this quarter.
And we have the information so we'll take a look at that Greg and make sure. We cycle back is want to make sure that everyone getting the proper information. So this is contiguous us and we'll continue to continue to move before.
Okay. So if and just specifically for Twoq, we had certain questions around just basic stuff comments did you get prevention and how much yet for heavy oil can identify that in the IR and get an answer for this quarter absolutely, yes, you're rockstar. Thanks, so much appreciate it guys.
Okay.
The next question is from emulate Shang as Goldman Sachs. Please go ahead.
Good morning, guys. My first question is just around.
Dan for the the next couple of years into capital spend outlook, and then try to grab that.
I guess your 29 pain in back today by growth plan.
I know.
Lastly, on we haven't had the analyst day at yes, but.
Capex is obviously expected to be instead of the 3 billion dollar plus type of the range now a lot lower and I think the production goal at the end of the five years, then with 400000 Boes per day, maybe can you just provide some color what changed.
Between those two data points, then is that still with the goal to reach that 400 or from higher level of production.
Anytime.
Thanks, Thanks, Emily I, you know the way I would think about that again is of course, what change was Covance 19, I think and and the outlook for product demand and of course oil and gas prices and.
Husky has always been a company that is going to prioritize its balance sheet in tough times, because we want to ensure we always and maintain our investment grade.
Credit rating and we always are in good shape for when these conditions eventually pass.
What I'd say in terms of production goal and kind of the way to think about production at the moment is.
We did have a goal we said look.
Against the $60 sort of price assumptions, we have the resource space. We don't we don't see a problem with the resource base in order to continue to deliver projects and growth options to get to 400000 barrels a day, however, with the lower pricing again, we we prioritize the balance.
And again I'd, just say the way Im looking at this rate now is that we're going to ensure that the balance sheet remains stable and strong and and that's going to be the first use of all cash coming into the company and then you know I think as we go forward from there will strongly priority.
Ties sort of making sure the dividend becomes.
More more competitive with not I now more competitive so much in our industry since the whole industries dividends are dropping a lot, but more more competitive with what you know.
I always say look where a mature industry, we should be paying a dividend and it should be a good dividend and we'd like to get back to that and then as pricing allows then we would start bringing back those options to start increasing production again.
So thats the way, we're thinking about that.
Great that's typically out and just one follow up is.
Just around from the operational cost savings that you've seen today.
Relative to expectations anyway, you guys get a lot about on the Opex front, how much of this can we carry forward and how much is more onetime in nature.
Yes, no families. Jeff Your AG, we are cognizant that the 150 that we're putting out there as we really view that is sustainable savings here.
There's other things that we're working through on the obviously deferrals and interim pieces, but in a way to broadly think about that is.
I see a third is really focused on our onshore upstream in the integrated corridor really realigning and getting efficiencies on how we operate in cold in Western Canada, and streamlining that on the corporate side also just about a quarter of it of those overall savings it really come from optimizing our is infrastructure rate reductions and just getting efficient there and make sure we get.
It's dollar out of our I asked in corporate corporate dollars and then the remainder is really spread through Atlantic in downstream on rate reductions efficiencies and logistics in the like so we do view it as sustainable and we'll continue to work it.
Perfect I appreciate the color.
The next question is from Benny Wong of Morgan Stanley. Please go ahead.
Hey, good morning, guys. Thanks, Thanks for taking my question being.
My first question is really around.
The iron and part of the business I think historically, you've broken it out now going forward you have an embedded within your operations just wanted to get a sense in terms of how much of that part of the business contributed results, which came in a little bit better than what we're anticipating and if you were able to two parcel odell how much did that kind of are you call.
Supply that benefit for the quarter.
Yes, if any will come back with the details on you, but with you, but when you think about it broadly is obviously with the with the heavy Dx that.
That we saw in Western Canada, obviously, the margins on Keystone wouldn't have been impacted by that just simply because the Canadian heavy differential was fairly tight so.
Obviously that was that more value attributed to obviously into the Lloyd value chain is more of that value was generated in the in basin in essence I'd be much the same with our export capacity on and on the natural gas out of Western Canada, and you'll see that really both of those in the marketing and other in those two in those segments and so the way I think most of that.
Values really driven by our export value and differentials between Canada into us and all the ultimate end markets and really I'd say, we're we're not a big drive value given we saw production come in and actually more the basin differentials tightened up and so most of that value was actually in basin and look at that marketing and other and really that's where we have our inventory.
Valuations and and the trading or the export pipeline.
Going to add anything to that great.
Okay.
Great. Thanks, Thanks for the color there was very helpful.
Second question is really more of a strategic longer term question. Just obviously as we are emerging from this kind of coal that downturn just curious in terms of how you're thinking about how you might run the company low different legal afford you know I think I think a lot of that will probably be related to the operational side, but also curious in terms of how you might think about.
Financial side, as well and just trying to get a sense, if theres any incremental challenges or even even opportunities that come out of those going forward.
Well.
Good question, Hey, rather broad question.
I mean, one thing we're going to do is we're going to capitalize on all the learnings that we've gotten through again another.
Like kind of stress test of the business and that you know and we had an earlier question about retaining cost savings. So a big big focus is going to be on how do we make sure. These remain structural cost savings and we don't go backwards and some of the things that we've been doing which are pretty fundamental on the operational side.
It is we've looked really hard at.
Especially our more remote operations, if you think about.
The C rose up if you think about our oil sands projects, where we have certain amount of operating staff that are that are housed on site. The logistics of getting them back and forth is quite expensive the allowances that need to be provided to those people are quite high and so so.
We have been able to fairly radically reduced the number of people on site in these operations and provide much more service from the center.
So that that is something that.
It actually were yields quite material cost savings and I don't think we'll be going backwards on any of those things. So those us on the operational lessons. We also in the cold heavy oil business put a whole new different operating model in place with a lot more central control of everything that goes on in that operation and again.
It really made a step change in the costs in that business and so again, I think that structural and we won't be going back on that so so the first thing is is to do that of course, I think us along with almost every other business in the world is learning there may be some additional savings can be achieved through.
The new technology that allows people to work from home or work from various locations still quite efficiently.
So again, we're one of the things will be doing in the next quarter is we're kind of evaluating exactly what the lessons that we're learning there are to see if theres, a lower cost model as well going forward.
In terms of efficiencies. So those are some of the things were looking at going forward.
There's probably more to your question than that but that's probably what I would offer at the moment.
Thanks sort of thoughts just curious on the financial side.
Is it.
Isn't worth to me thinking in terms of wasn't more appropriate leverage level cash usage things like that.
Is there any thoughts on that side of the wall.
I think you know Jeff good broadly answer there's more fully than me, but I'd say look where.
You know our.
Our kind of our focus has for years and years always been on maintaining investment grade credit ratings and interestingly enough I guess my takeaway on that I'd say is in this industry those.
Having an investment grade credit rating is is very important and particularly in the businesses. We're in so you know I think thats still is going to remain our focus it's been it served us incredibly well over decades.
Since we've really started focusing on that and it ensures you're always a survivor at the end of these things and you can come back.
And one of the things that's going on here in the background as painful as all this is is ultimately you know the competitive dynamics in the industry are improving its unfortunately, it's happening through a lot of pain and companies disappearing and things like that but coming out of this.
I'm still absolutely convinced them the numbers tell you there will still be substantial hydrocarbon demand for quite a number of years, but the number of players in the industry is going to reduce and the competitive intensity. I think is ultimately kind of dropping which I think are good signs for the remaining companies into.
Terms of their ability to be profitable long term.
Thanks, Rob share your thoughts.
Okay.
The next question is from still Gresh of JP Morgan. Please go ahead.
Yes, Hey, good morning, I apologize if cases.
Maybe somewhat we've done that hopefully not.
Top in between calls but.
The commentary around the Capex for next year.
Is that essentially contingent on a $40 type of share price scenario that we're seeing today and.
They were lower or higher.
Is there any thinking as to how you would potentially engine staff and give you those cases or is that because it needs a floor level in prices go up you tried to.
Use any excess cash so for the balance sheet or something else.
I'd I'd say broadly speaking answering that question I'd, just say look is that capital number we put out there is kind of for an environment that looks a lot like today are a lot like the last quarter I think is the way I would describe it.
And if if we saw substantially higher prices than we have great opportunities is ploy. Some additional capital although again I put that in the context that first we want to ensure we've got the sustainable balance sheet and second do you know we were conscious that it'd be nice to give our shareholders a little bit more money back.
Every quarter.
But there are things we could invest in there in terms of.
In terms of if the prices lower of course, you can take capital lower than that for short periods of time, but you will see the impact on production going forward.
As you take it even further down from that number.
Okay, and then and then the higher scenario I guess fair to say it would be more.
Charter cycle thermal.
And that you need to see a more significant or sustained price recovery for less right Roes are.
Yes, I mean, what Io, yes, I think actually as you look across the portfolio now, especially with the completion of 29, one most of the capital that we spend is going into relatively short cycle projects with.
The only real exception being west white grows although.
It is got a certain.
It is about.
60% or so complete so it's not like you're starting from square one so it's not a long long cycle projects. However, as I said earlier in the call we're going to be doing work in this quarter to understand what our game plan is going to be around that project.
Sure. Okay last question, just if you could remind me.
With that Asia gas contracts.
There's price reopener potential in 2021, I think maybe later in the year begin to remind me how that structurally works and what the possible.
Guess range of adjustments could be I think it's only a certain range of potential price adjustment.
Yes, it's Jeff Yuri Yes, I wouldn't classify it really is a reopener. It's just it's just the pricing opens up to a small small range in color after kind of as this five year frame. So it's not as not a reopener and you've got to think is right now you're probably in and around ballpark like $11 and you're kind of range between nine and 13 at the pace.
Point of this so it's not a reopener you're living within a small band and it just is standard in what we have in the agreement.
Yes, okay. Thank you.
The next question is from cash on trial of Citigroup. Please go ahead.
Hi, good morning, Thanks for taking the question.
A couple of specific ones there if you don't mind.
Lloyd heavy value chain.
Yes, the op costs of course, our cost across the board you've brought down quite a bit puts a step down there.
Seem to be fairly material and I just wanted to make sure given the.
Reorder the restructuring of the reporting structure.
And I get a sense of how much of that was organic versus could possibly with any of that potentially reclassification just as we sort of think about carrying forward.
Some of that strengthen the segment in terms cost reductions in particularly strong in the quarter. So any color there would be helpful. So also I'll start and in Andrew and Jeff can further opined, but yeah. The Lloyd value chain is there's I'd say, there's a few things in there number one is is realignment and reassessing.
All of our cold the heavy oil production.
We changed our operating model really centralized and just streamlined it and that that savings are you really started to crystallize here in Q2 and to refocus and and then on top of that the one thing to as we as we discussed.
In ours as we went through the script here is effectively we did cut back production in our thermal operations. So you'll see a little bit of that thats, a little bit of transitory as you're bringing down the production and and we also just adjusted the upgrade rate down a little bit in the Q as well, but we lot of those are sustainable some of them will come.
Back with that with production as we as we ramp on the thermal.
But the unit on a unit basis, they should be varies yes, yes, yes, absolutely and maybe I missed this underselling speaking just had a little bit of color for example, and cold talk to.
The benefits of the stepping it up change we've made I mean, if you go back to last year unit operating cost to build a ropes unit operating cost in our coal business was in excess of $30 per barrel. The step change. We've now made in this operating model has taken our operating cost at the moment down to about $25 a barrel and we're out looking sort of around the mid Twentys and go forward operate.
In costs pretty much reinforcing jeffs message that these costs are our structural on their sustainable.
Okay. That's very helpful. Thank you and just a quick follow up.
The price realizations in the offshore.
Obviously price realizations were weaker on a year over year basis, but seemed to hold up a bit more resiliently.
Versus our expectations, so again trying to gauge.
The strength, there and what how much to read into sort of what were how much of that continued into threeq you.
Any color as to what could be structural on answer to that market and what you're getting price realizations.
Thank you Theres nothing structural what you saw in the quarter much like we saw.
You know the crack environment and some of the discounted pricing in the University quarter for the upstream is we did see the realization that come off of Brent a little bit just in this environment. Because obviously there was an excess of production is that as the market was rebalancing, but nothing structural I'd expect.
At our realizations relative on the liquid side to continue back to where they were line historical trends with Brent.
Yeah, and then and if you look at the overall realized price I mean, they did benefit by strong liftings in the Asia Pacific region, and where we do get very good pricing there and so.
The so and so the high volumes kind of flow through and helped realizations in that part of the business.
Okay Thats clear. Thank you very much I'll turn it over.
The next question is from non ask US as credit Suisse. Please go ahead.
Hey, guys I say oil can be addressed this I just wanted a quick clarification when I look at all in science and the diluted bitumen.
Operating margin improved almost $20.
Slowed down what this basically a function of oil condensate bar scene has lagged which kicked in we cannot do you have been move on the operating margin quarter over quarter, although the bench mom declined over there.
Okay.
Yes.
Hi, Matt. This is Jeff can you hear me okay.
Yes.
This is the Jeffrey Andreson, maybe I'll just speak that a little bit we did talk earlier about the the.
Form Ryan them segment, which is now embedded into the integrated corridor and I think it is important to recognize that part of the reason why we had quite good realizations on the heavy oil in the integrated corridor of this quarter was because of performance across the whole integrated value change of course brings netback back to the effect of the heavy oil.
And as the just because you don't see items split out separately anymore, there's still quite a lot of.
Good activity going along going on along that value chain and in particular the in the second quarter, we saw quite a lot of.
So it's an understatement as they we saw quite a lot of volatility there was tremendous volatility in the condensate prices you mentioned in the flat price and all of the differentials and spreads that we deal with and that did create for us some opportunities along the corridor. So I think if you just look at if you modeled only.
The the flat price the indexes and the spreads you would come to a lower net back and what we actually realize and some of the reason we we we improved on that or we did better than that is because we were able to make some storage plays some swap plays some changing of crude to be shipped on the pipeline and really you.
Use our integrated value chain assets, along the way to to add to the net backs that we received for the heavy oil.
Tom.
That's very helpful. Second question, it Didnt Youre refining system.
One thing you seeing in terms of demanded the specific it relates to the areas, where you are selling product or what's the kind of plan was to take you lets us do what kind of improvement I you see Pluggable date list as the last quarter.
Yes event. This is Jeff again, so we I think when I look at the statistics for the overall motor fuels demand and in.
The U.S. lower 48.
We were pretty lucky in our location of our refineries that the U.S. Midwest was never suffered quite as deep the demand destruction I think as the coast did it into the depth of the trough back in April and May.
Still we had our refineries turned down to the 60% the level for a time.
Since then we've come back we're now running in the 80% to 90% utilization rate, which I think is a bit on the high side for the overall us refining complex right now and and for third quarter minute on your guess is as good as mine were watching very very closely the of the try.
Perfect patterns in the U.S. traffic patterns in our markets.
We seem to be right now kind of stalled in that 80, 90% range of we're hoping demand continues to recover but we're very were really very closely watching demand, we're going to calibrate the whole the refinery throughputs and really the throughput of the whole integrated value chain to to where demand is and not get ahead of ourselves. So we get caught with.
We stopped bills that we can't that we can't please economically.
And the last question on last I guess.
When you are running your intermodal marlboro's.
Yes, as you will assuming a puppy dollar TPI and whatever essential.
How confident are you have generating a second best free cash flow, including 21 at this point of time.
I think it.
They've done a little bit of that I think the answer is if if the forward strips.
Play out then we're quite confident.
Yes, I know a.
Yes.
Thank you thank you that.
Thanks.
This concludes the analysts Q and a portion of today's call. We will now take questions from members of the media.
As a reminder, please press star and one on your Touchtone phone to ask a question. If you wish to remove yourself from the question Q, you May press Star and Tim.
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Our first maybe a question is from Chris Sarcoma Calgary Herald. Please go ahead.
Chris Your line is open.
Hi, I have two questions Rob the first one deals with the 30000 barrels a day that it's still set in what do you need to see in order to bring that oil output back on line and when do you expect that might happen and then.
Currently from that these are concerned with all the oil coming back online here in North America that it's going to start to impact prices look Thats My first question.
Well the at the answer as to be.
In general on the 30000 barrels per day, I mean that shut in because if we brought it on right now it's a bit of a combination it's mostly because we with the price with the price. We're seeing right now most of that would not contribute cash positive free cash flows to us if we brought it on so we're just do those calculations on an ongoing basis.
That's that's the basis, we make and on top of that the other consideration as I say is just as Jeff actually said earlier is looking at end use product demand, even if they're even in the short term. If we think we could generate an extra amount of ash side. The margin on some of those barrels if we think that the market.
It is not going to be able to absorb them well then based on our what we're seeing in the downstream.
Then, we'll we'll hold them and keep them and keep them.
Shut in for up.
For for until until we're more comfortable that the market and absorb them in a good way.
Yes.
Second question has to do with I guess I'm wondering what signal you think its ending this week when you hear the news of Deutsche Bank Senior no longer going to fund the oil sand or even the news yesterday that the hotel taken a large write down and believes that its Canadian oil sands production at Surmont import yields of stranded I guess, what kind of signal do you think that sending to the market.
And to the industry.
Well first let me just say I certainly was debt disappointed with Deutsche Bank physician and again.
Probably like the Premier I think it ignores the facts and it ignores all the tremendous work that's going on in the industry to lower emissions intensity as well as our aspirations as an industry, which I think we're making great progress on to ensure that the.
The oil from the oil Sands is just as the.
As competitive from a carbon intensity, but put point of view the up any other sort of supplies that you can get after.
At a very specifically it doesn't affect husky, we don't do any business with Deutsche Bank.
At the moment and Haven for a long time.
And and the other thing I'd just point you to as Husky is going to be releasing it CSG report I think next week now it's going to contained our targets for lowering emissions intensity going forward also some other other targets around.
Diversity and and then cover the whole spectrum is the SG issues and again.
Remind everybody that well people talk about DSG and people get focused on climate intensity, our carbon intensity.
Almost all other U.S.G. metrics Canadian production is light years ahead of most production around the world. It benchmarks at the very tall of SG metrics. So.
So so certainly we'd like to invite you know all all lenders investors stakeholders end the media to review the USG performance report when it comes out to next week and let US let us know what they think.
But more broadly does incentive it gets a negative signal do you think about people looking to invest in the hands. When you see things like what hotel did yesterday.
I can't really speak the totality in particular.
From a very.
From a very parochial viewpoint I guess I immediate look look at it is less come competition in the sector and good for us in the long term in terms of profitability.
And I guess, if other people see that as a negative sector that will only add to that.
That sentiment.
Thank you.
This concludes today's question and answer session I would like to turn the conference back over term Mr. Rob Peabody for any closing remarks.
So thanks, everyone for your questions really appreciate your participation today I'll sum up by saying that we continue to focus on improving our resilience in what are really unprecedented times and we're working to further improve the sustainability of our base business and this includes you know staying disciplined in the.
Integrated corridor to keep upstream production in step with product demand and take advantage of optimization opportunities as they arise and just a reminder, that we have two new projects coming on stream in the second half of the year spruce like central and the 29, one feel that Lee won both of these broad.
Our next at current pricing will contribute to free cash flow will add to free cash flow further enhancing our resilience altogether were maintaining our capital disciplined and preserving our financial strength, which will position us well for an eventual recovery of the global economy. Thanks again for calling in today.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yes.
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Mm.