Q3 2020 Suncor Energy Inc Earnings Call
[music].
On your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Trevor about Trump rebel.
Vice President of Investor Relations. Please go ahead Sir.
Thank you operator, and good morning, welcome to Suncor is third quarter earnings call with me. This morning are Mark Little President and Chief Executive Officer, and Alister Cowan Chief Financial Officer. Please note that todays comments contain forward looking information the actual results may differ materially from the expected results because.
Various risk factors and assumptions that are described in our third quarter earnings release as well as our current annual information form and both can be that are available and can be found at sea CR 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 third quarter earnings release following formal remarks, we'll open up the call to some questions now I'll hand, it over to Mark for his comments.
Great. Thanks, Trevor and good morning, everybody thanks for joining us.
On our call last quarter I expressed confidence in the momentum of our business and the decisions we made to lower our cash breakeven costs, our ability to maintain financial health and deliver strong cash flow through these continued volatile times.
The resilience of our physically integrated model was demonstrated again in the third quarter as we exited with over 95% refinery utilization our downstream business delivered solid results and we're confident that the momentum and performance of the downstream for the remainder of this year and into 2021.
Across the company, our cost and capital spend is tracking very well with our revised guidance. Despite the operational challenges our model allowed us to fully fund our capital our dividend and reduce debt in the quarter.
Moving to operations.
From the outset, let me say, our third quarter operational performance does not reflect our commitment to operational excellence and Indians and the incident at base plant was extremely disappointing to all of us.
But as you will hear in this quarterly update our team is focused and committed to operating our assets safely and reliably and we're well along the path to improved reliability.
At base plant our work to ensure that our response to the August fire was grounded in operational excellence.
We restored the full Benjamin production capacity of the plant within a few weeks, but decided to constrain the plan to ensure that we're not putting too much sentiment or fine sand particles into the upgrader.
This decision prioritizes reliability and capital discipline by protecting the long term health and value of our assets I'm pleased to say that all the repairs are substantially complete and we expect to be operating at full mining rates of approximately 300000 barrels a day by early November.
Earlier this year, we outlined plans to increase Firebag production by 30 to 40000 barrels a day by 2025.
Capital efficient plans to de bottleneck the asset.
In September we provided an update on the work being completed to realize the initial portion of these incremental volumes we've.
We've accelerated some maintenance originally scheduled for 2022, allowing us to fully leverage the new additional emulsion handling and steam infrastructure.
With this work completed this week the asset is ramping up to nameplate capacity, which has been increased by 12000 barrels a day or 6% to 215000 barrels a day.
It's important to note that both the repairs that base plants and capacity increase at Firebag are included in our full year capital and production guidance, which remains unchanged from our September release.
At Fort Hills in September the partners fully supported the decision to restart the second mine train of production reduce structural cost of the assets and fully deploy autonomous haul truck systems throughout the mine by year end.
The phase ramp up at Fort Hills introduces new volumes at a very low incremental operating costs and lays the foundation for further cost structure improvements.
The second train has been in operation throughout October and the asset is now on track to achieve our Q4 targeted guidance of 120000 230000 barrels a day.
As a result of our cost reduction initiatives, the sustaining capital and operating costs required to operate at this level remains essentially unchanged from when we were only operating one train.
We plan to increase the production of the second trade in 2021 guided by achieving and maintaining the overall reduced.
Structural costs associated with any increase production.
The economics and also driven by commodity prices. This continues to be worked.
The owners.
Last week, the Alberta government made the decision to suspend monthly limits on production.
Of planned maintenance at our largest refinery in Edmonton.
In addition, our trading expertise and investment in logistics assets meant we continued to capture significant value in crude and refined products.
This is evident in our refining margins that are significantly higher than benchmark crack spreads.
Despite continued COVID-19 pandemic restrictions, resulting in lower demand and challenging cracking margins our downstream business. Once again proved that strain contributing nearly $600 million of funds flow from operations in the quarter.
As we exit October we're expecting to have base plant back to full rates firebag ramping up to its new nameplate Fort hills, increasing capacity by bringing on the second mining train and Syncrude moving forward.
Now that planned maintenance is fully complete in addition, with downstream utilization continuing to build pre cove at 19 levels. We expect strong Q4 operating performance, which positions us very well for 2021.
I'll now hand, it over to Alister to go through our quarterly financial results.
Thanks, Mark the end of March you'll recall, we announced a 1 billion dollar reduction to our operating costs and 22, I mean compared to $22 million team.
As youve seen during the quarter, we continue to progress towards this goal as evidenced by our increase in cost guidance for both Fort Hills, and Syncrude, all of which we would share than our September of the release.
Our absolute cash costs across the company are troughing analyzing whether 1 billion dollar reduction target.
On capital spending with a significant planned maintenance activities and approximately 910 million goals.
Quarter, our year to date capital spending of 2.9 billion.
Those positions us well to deliver to capital plus on the current guidance range of $3.64 billion within this reduced capital guidance range. We continue to invest in our efforts to improve the efficiency of our business reduce future operating and sustaining capital cost and drive towards that.
$2 billion incremental free funds flow target by 2020 by.
The incremental free funds flow target includes suncor syncrude interconnected pipelines that Mark previously mentioned.
These initiatives are expected to contribute to increasing shareholder returns in the future as the vast majority of the 2 billion goal for your funds flow benefit is as a result of structural cost and productivity changes in their business and is largely independent of commodity prices.
During the third quarter, we generated $1.25 billion of cash flow provided by operating activities was covered all capital expenses and dividends. We achieved this despite the operational performance issues that Mark discussed that based upon some significant planned maintenance on before we will ramp up the volumes at four.
Sales and Firebag that Mark mentioned.
We recorded an operating loss of $300 million than the quarter of which approximately half is related to higher derecognition charges of property plant and equipment and exploration and evaluation process. These higher derecognition charges, just some detail over largely related to the incident response.
On the surrender of the frontier carbon.
Our commitment to returning value to shareholders, while maintaining our financial strength remains in fact during the third quarter, we returned over $320 million to shareholders. Even after investing cash flow growth projects, we were able to de leverage the balance sheet and ended the quarter with total debt to capital.
The second race.
The ratio of 36.8%. So just to emphasize that does include all our capital lease obligations of approximately $3 billion and doesn't know net cash position of $1.5 billion.
But it also includes the impact of the income tax refunds for the cash taxes previously paid which we do expect to receive as cash in late 2021 and that amount is currently estimated to be approximately $800 million.
So let's get the debt metrics as the main will review our EPS. When we received a refund in 2021 and that would take a ratio down close to 35%.
And as I look at day going forward I'm looking out over the next 12 to 24 months and our trajectory of cash flow debt level than the accounting impacts.
Transactions, such as impairments on debt metrics.
All of these combine as we make decisions on future capital allocation over the next 12 to 24 months and methodically pass it back to Mark.
Good.
Great. Thanks Alastair.
In October we shared where suncor employees plans to reduce our overall workforce by 10% to 15% throughout the next 18 months, we did not take this decision lightly EPS. We know this has real impacts on our employees, who have worked hard to contribute to the strength of the company.
However, we are making decisions that take into account the long term health and sustainability of Suncor, which is pivotal for our future success.
These reductions are primarily associated with process and technology improvements and will occur with the implementation of these improvements across the business and are part of our progress to achieving our $2 billion of free funds flow from operation initiatives, but covanta has accelerated.
Certain aspects of these changes.
These technology investments reduce manual work standardized processes increase efficiency and clerical accuracy, while reducing the need for supervision and review.
It also includes expanding our autonomous haul truck fleet in our minds.
Further benefits are seen through reduce management layers, improving communication enhancing flexibility and decision, making and better engaging employees on the front line.
We communicated internally on Monday that most positions and our downstream business currently located in Mississauga note sale will now be based at our headquarters in Calgary and will result in workforce reductions, which is part of the overall company reductions. These transition is expected to.
To largely be completed in 2021, although we will adjust accordingly to make sure our employees stay safe during this uncertain time.
As we head into the final quarter of 2020 with over 95% refinery utilization, we have confidence that the strong performance of our downstream business will continue to lead the recovery.
We believe our downstream business as best in class, while we recognize the challenges to refining complexes across North America, our business through physical integration has a significant advantage due to its geographic location as therefore positioned to disproportionately deliver impressive results we.
Remained firmly confident in its ability to deliver pre pandemic levels of free funds flow with easing lockdowns and normalizing demand as we move into 2021 and beyond.
We've also noted a shift in market commentary this year, where investors are encouraging companies to live within their means and focus on returns rather than just production growth.
As you're aware Suncor has long embraced this philosophy, which we continue to describe as value over volume.
The industry has moved from an environment of resource scarcity to one of resource abundance and therefore, an environment of extreme price volatility.
An energy producer can still thrive in this environment with an emphasis on capital discipline cost management consistent generation of free funds flow and returning the cash to shareholders.
Our reset cost and capital structure low decline asset base and physically integrated model along with our continued investment in making our business more efficient through this downturn will contribute to growing our free funds flow in the years to come.
I've been virtually on the road recently meeting with many investors and I'd like to address three themes that just keep coming up and all these conversations.
As we move into 2021, we remain extremely disciplined.
On our capital spend.
We've said in the past calls at our 35 dollar WT price, we would expect a similar capital profile to 2021 as 2020.
Assuming W.T.I. pricing in the low Fortys, we anticipate a mater capital increase next year of approximately 10% to 15%.
And and part of this is in because of the scheduled five year turnaround next year.
We also anticipate a 10% increase in 2021 production.
As you are aware, we and our joint venture partners like most of the industry have restricted investment across many of our assets. This year, resulting in a more moderate production outlook than what was communicated pre pandemic at the beginning of 2020.
We're working on finalizing our 2021 budgets and plans consistent with prior years, we expect to release the 2021 corporate guidance later in Q4.
With M&A starting to take off I want to also be clear we remain steadfast in our three criteria that must exist for M&A to occur.
One high quality assets, and secondly synergies that can be achieved by combining the asset state to increase shareholder value and thirdly, the transaction must be accretive for our shareholders I can't overstate. It enough, we did not cut our capital budget operating costs and reduce our dividends.
And to leverage up our balance sheet to do M&A.
We're also getting asked a lot about NRG transition and our investment approach going forward either organically or inorganically.
I'd like to point out that we've been participating in energy transition for a significant period of time, we've allocated billions of dollars in capital towards advancing bitumen treatment technologies at Fort Hills, with resulting greenhouse gas emissions in line with the average crude barrel refined in the us on a wells to wheels basis.
Okay.
Further we own Canada's largest ethanol plant and generate power through efficient cogentix and wind farms, which allow us to export approximately 600 megawatts of power to the grid displacing higher sources like coal.
In our portfolio today, our projects like our sanctioned 800 megawatt cogen at base plant or 200 megawatt 40 mile Wind project as well as several other biofuels investments like Enerkem in Lanza jet and interestingly just very recently in the last couple of weeks in Edmonton.
Enter Cam just made there one millionth leader of ethanol from municipal garbage.
So thats an exciting milestone.
Our investments in any form of energy are always governed by our ability to fund the projects to generate competitive returns on capital and contribute to our EPS GE targets, specifically, our 2030 goal of reducing greenhouse gas emissions intensity by 30%.
We will not invest in energy transmission projects that don't meet our corporate hurdle rates or projects in areas, where we do not bring some expertise to the table and add the disproportionate value.
Cleaner energy from our operations and cleaner energy for our customers are two areas, where we can and will bring our expertise to the energy transition.
In the meantime, we fully expect to continue to leverage our investments and produce oil resources for many decades to come with better and better SG results.
As we've stated our purpose is to provide trusted energy, while enhancing people's lives, while caring for each other in the Earth and team Suncor is doing this with vigor.
To summarize our near term primary focus is on the safe and reliable operations of our assets doing this allows us to strengthen our financial advantage meet our target of returning 6% to 8% cash returns to shareholders and to grow the cash flow of the company by 5% a year, but just.
Visions Weve made this year give us the ability to advance all of these areas in 2021, rather than being forced to choose amongst them we.
We expect to make significant progress on all of these important areas in 2021 and with that I'll turn it back to Trevor.
Great. Thank you Mark and Alister I'll turn the call back to the operator now to take some questions operator.
Yes, Sir and at this time, if you would like to ask a question. Please press star one on your telephone keypad.
And your first question is from Greg Pardy with RBC capital markets.
Thanks, Good morning, and thanks for the rundown.
Couple of questions, maybe the first one mark is just to pick up on the bi directional pipeline.
Just curious how close that it's going to get you think to the objectives. We laid out a few years back which would then sort of a.
30, dollar Opex and 90% utilization rates is that going to do it or do you think there is a lot more work to do there.
Well, it's interesting Greg and thanks for your question, Yes, It's we've made a lot of great progress and this the Syncrude team in 2019 delivered their second best ever utilization. So on the reliability side, our target of 90% I think where this will actually give us.
The infrastructure, we need to be able to deliver it on the cost side, we said $30. We have more work to do the owners have been working hard to figure out how to get collapse the cost structure to get to that $30 and so there is lots of discussion going on amongst the owners and quite frankly.
Really encouraged with it with some of the stuff that's going on recently and hopefully, we'll make some progress and get that across the goal line.
Okay terrific and then the second thing is that I just wanted to pick up in the integration. The physical integration you guys have in the business.
It's really extends into the you know the 1600 retail sites you have.
So in the in the World in which we're living in whereby you want to take your debt down and so on how critical is that that you would own all of those stations are or would it suffice to have control over them and curious a few years ago sold retail stations off for a huge price just curious how you think about that now.
Well I think it's important to note that.
Half of those stations, we don't own so we only own about half of them and but one of the things. We're finding Greg is and you see it in the downstream results when were 15% above the Canadian market. We think this direct connection to the consumer and seeing the change in consumer behavior habits and behaviors and stuff.
He has been a real advantage in being able to deliver the downstream results. So at least in the near term we don't see this as a priority.
Okay terrific, thanks very much.
Your next question is from Neil Mehta with Goldman Sachs.
Great. Thanks, guys for taking the question.
Hi, the first question is just on refining you guys came out with a few a couple of months go they think.
Southwest were skeptical of that now.
Will it be sitting here at $35 and that refining your refining utilization would be inflecting and I guess that Wilson here $35 in refining utilization was 80 present can you just talk about.
Durability.
That refining utilization as you see it.
Given how challenged most of North America refining is right now.
Whether or whether you see you can yes.
Sales sustain that as you get through 2021.
Yes, Neil Great question, I mean, nobody really knows the the second wave of Cove, it as a bit of a challenge I think the relative performance of us relative to the market. We are extremely confident and because of the physical integration you talk about the the good thing about it is we're seeing right now.
In the markets gasolines off something like 5% and North America.
Probably 5% to 10% on the distillate side jets off 50%. So how could this software and if we get a big wave and everybody shut everything down I think that could do I see it going back to where we were in the second quarter I don't because lots of governments are working very hard to keep their economies going I think it's far more.
Parent now that we're really balancing three challenges the cove and physical health issues, the mental health issues and then the economic issues and the economic issues are very significant as you know.
Very clear that at.
Mark you said it said in the press release, but I think.
A lot of sense agree that the operations. This year has been not.
Not where you want them to be.
Obviously had some volume guidance and some of your peers have been outperforming you from an upstream performance perspective.
How do you when you do that.
When you do the look back.
What's gone wrong.
What do you think is the core of that and how do you think about the pace of inflecting going into 2021.
Yes, Great question, Neil part of the issue is anytime an incident occurs you look back and find something where we didn't have the discipline that we needed to be able to do it we could literally sit and look at the last decade, where we've made I think huge progress on improving the operational excellence and.
Execution of the company wasn't perfect no it hasn't been because we had these incidents, but it's amazing how when we go and look at other fundamental indicators like right now we're on track probably to have the best safety year in the history of the company. So there's lots of positives that are happening yes. This incident happened.
That's just needs to be 24 hours, a day 365 days a year a relentless focus by our operating organization. That's the conversation that asset as a leadership team and I have been having with all the operational leaders in the company and and it has our 100% focus too.
Deliver and meet the expectations of our shareholders.
Thanks Mark.
Thanks Sam.
Your next question is from the line of men.
Who sat with credit Suisse.
Hi, guys. Thank you for taking my question in Boston, you have highlighted some of the issues of ramping up at Fort Hills because of the production curtailments now that these things have gone and you talked about earlier in the call do you actually see fortyth performing upbeat expectations as to.
It can run the Li Yu designed initially would be split section click business, given we were getting and will help you out at Fort Hills.
Yes, manav. Thanks for the question I mean, essentially we fully expect Fort hills to get to full rates, it's and and perform as originally designed the question is how fast will we get there and part of the issue with it is we've shed an enormous amount of cost through this we took $200 million out of Opex.
On a $100 million out of Capex. This year, so by bringing on the second train and going to a 120 to 130000 barrels a day, we essentially retain that benefit we and so we're not spending that money and and what we're wanting to do is ensure that as we step up its done in a disciplined way so that work.
Lapsing the cost structure Thats, what we need to focus on in 21, so so quite frankly, I am not really expecting it to get there in 21, but this is an area that we're continuing to work with our owners and and we'll let you know as we gotta with guidance.
A second quick follow up is you guys actually get they get about 400 million in free cash in refining, which I don't think any defined that outdated able to match up but you also have a unique perspective, you are updating both in Canada and in U.S. and I guess wondering will understand is that a big difference in the refining margin.
GAAP should indicate median assets versus the U.S. assets, because most us refiners are really struggling on the FICO Nashville front and us as a company, we're able to make about $400 million and see cash intake. So I'm just trying to understand what's driving that.
Well, it's interesting because after Manav every customer every refinery actually has its unique segment share because it's that crude that runs on the market dynamics and those sorts of things all of our refineries actually good performing refineries and so it depends like our Edmonton rough.
Hi, Henry tends to be a little stronger, but partly because it runs very heavy crude and fault physically integrated with the oil sands, that's not true of Denver as an example, so it's not nearly as good as in Denver as what we would see in western Canada, but but denver's competitive with some of what we see in eastern coal.
Canada. So it just depends on crude slates market dynamics market competition.
But you know Denver is doing fine.
Thank you for taking my questions.
Your next question is from the line of Phil Gresh with Jpmorgan.
Yes, hi, good morning.
His question.
On the workforce reductions and the expectation that they will contribute to the cost savings initiatives that you've laid out how much.
Hi, guys. If I missed it did you quantify how much you expect that to contribute say.
Starting I would think in 2021.
Yes in 21, it's a little hard to say fell like when you go and look at it. We said we were going to increase our cash generation capability by a billion dollars. If you look at the cost reductions we have from headcount right now it would add something like $3 million to $400 million of struck.
Actual change in our cost structure and and then even some of the implementations that we did this year, we think about 30% to 40% of that structural so if you take our head count reductions what's the structural cost reductions. We ended up getting this year you are getting very close to our 2023 target, but some of these reductions.
This won't happen until early 22, so it's going to be a little noisy.
As we go through some of these changes you will see part of this and in 21, but some of that May just get offset with restructuring charges and such that we would expect to show up.
Right Okay.
And with respect to the comments you made about the turnaround scheduled to every five year turnaround scheduled for next year.
How do we think it with a 10% increase in the production that's coming how do we think about.
The mix of that in terms of where the turnarounds are and how much is.
Upgraded.
Production growth versus.
Not an upgraded.
Well.
We when we go down because were taken our bag upgrader at oil sands offline for its one in five year turnaround and when we go down with that a bunch of the mine production will go down at the same time. So I think you will see stronger relative upgrading performance next year versus this year.
Just because of this incident that we've had and and it's one of the reasons that our productions only up 10% because if it wasn't for the turnaround we'd be up further.
Right right. Okay, and then just one last question on the balance sheet I mean, how do you how are you thinking today about.
The longer term target leverage level, whether it's the debt to cap commentary initially.
Or debt to EBITDA, just what do you think is the right level to be at all if it's oils in the fortys.
Yes, I mean to have growth also I would assume there were very close.
To the level.
We are able to.
Going forward, we started to increase both shareholder returns and capital investment.
Im very comfortable with where we are for the particularly if we're in the sort of low quality of golar.
Oil price level and those lots of noise going on around the the metric, particularly when you sell through some of the impairments we've taken some of the timing issue.
Really.
Good cash flow or EBITDA metric the one.
It was really critical here, but as I said I'm pretty comfortable with where we are today running low $40 oil prices and I think.
Capacity to be able to so to look at what we want to do and shareholder returns as we move into 2021.
Great. Thanks, Alastair thanks for the time.
Your next question comes from the line of question Ryan with Citigroup.
Hi, good morning, Thanks for taking the question.
I wanted to touch back on the downstream I know it's been asked.
About already a couple of times on the call, but your margin capture has been quite.
Quite strong, particularly versus your sort of.
Suggested indicator all year, even stronger than it was it was in 2018 and 29 team and I think we have some of the pieces in the answers that you've given here, but I sort of just wanted to ask it another way if we were to bridge the moving parts how would you think about the how.
How much is sort of let's say.
At the refinery itself in terms of.
How you're operating the assets versus the midstream and logistics.
And the retail pieces that are also part of that segment I think we all.
They don't have a have struggled to appreciate the contributions from from.
Different components, there so any color would be helpful, particularly with reference to sort of this quarter and this year really.
Yeah. Thanks for the question you know it's interesting because we tend to look at the integrated margin, we will pull it apart to look at the performance of each segment of that but but not necessarily on a quarterly basis associated with that one thing I would tell you though is if you look at risk.
Finding as an example.
It's a very substantial fixed cost business and so part of the issue with that is if you can't get your utilization so like notionally, 80%, although we were below that and generated cash in the second quarter, but it's very difficult to get these machines to actually make any money. So utilization is super important so the integration.
And with the retail consumer and our ability to get our utilization rates up above the market is super important for us to be able to generate cash flow. So you know I I don't have a great answer for you.
But.
The focus is really around that that entire system operating at higher utilization rates is one of the key reasons why this this set of assets is generating cash.
Okay. Thanks, I appreciate that Mark and then just to follow up on the upstream.
Just sort of looking at the.
You on key movement in oil sands.
Volumes were down 6%, obviously had some operational issues that you've come out is now, but you managed to keep your cost per barrel fairly controlled.
I sort of wanted to be picked down a little bit into.
Broadly speaking across the oil sands asset base.
Could you give us more color on what drove this and specifically if we should be thinking about elements here keep in mind as we think about Q4 and going forward maybe.
Upgrading costs were last or if there's other things that you were able to lever as you were able to pull it but maybe a little bit a ratable as we go forward here.
I'll take that one moment.
I think just the general focus across all parts of our business not just all phones, but then in the downstream and then the CARPROOF around mix issue. There, we only spend what we need to spend.
Looking harder at everything.
Going out the door and a real focus on reducing that as we go forward and we felt that it really as part of a 1 billion dollar Opex reduction that we announced in March and we're making great progress on them.
So that was really my overall onto that as we look forward into 2021 weve among some additional structural reduction, but as Mark said some of the benefit will be offset by.
Restructuring charges, but we are changing the underlying cross talk to this business and I will be consistent with a 35 dollar a breakeven costs.
And maybe the one thing I would add to that is it's interesting because we've been talking about this now for I don't know a couple of years, where we've been talking about generating this incremental $2 billion and such and I think to some degree that conversation has been relatively abstract now we're seeing the implications of it as we start to restructure that.
Company, we were reducing our headcounts and such.
And so these are real structural changes that are fully driven by our journey around Suncor 4.0, and such some of the timing just getting adjusted based on co led and but we're very excited about that change going forward. Despite the fact that we know how challenging this has on our people.
So.
Oh, sorry, Mark.
Mark Thank you very much for the time I appreciate it.
Thanks.
Your next question comes from the line of sales.
Then with bank of America.
[music].
Thanks, Good morning, Mark. Thank you for the little bit of a peek into 2021 capital spending scenarios.
Just about sustaining capital I think in the past you have highlighted.
A number of between 2.75 and 3.75 billion each year, how should we think about that number in 2021, given Fort Hills. So.
Other changes thats, taking place in the portfolio as well as cost cuts.
Well, we fully expected to be in that range, it's going to be higher in that range rate. This year in 2020 with the cuts that we did we win below that range. I think we are sitting somewhere between 2.2 at $2.4 billion. This year. You know next year I think it's going to be in the mid threes we.
We have not only do we have our largest upgrader turnaround syncrude has their big Coker offline next year as well so you know.
Theres a lot going on next year, but so so our capital mix is actually changing quite a bit as we go into next year, but it will be in that range.
Got it thanks, and then Mark Suncor has a significant offshore asset base is there a scope to rationalize some of these.
Portfolio, whether it's in Nazi or east coast of Canada.
Well, it's interesting because.
I guess the question is is the asset base getting rationalize right now like you heard that you heard husky talk a little bit about.
Through this merger and such talk about the plans for West White Rose, we really have no money in there.
Associated with it but I at all points in time as we're looking at our asset base and trying to figure out can we get more out of that than than we would if we just carried on the current Carson path. So.
Did you or can you address.
Yes, the root cause of the of the of the incident there in in in August and you know it taught maybe talk about if if you have to implement changes.
Since then and I've got a couple of follow ups.
Yeah, I I mean part of the issue with it as we had some vapor accident tank that ignited and that was the cause of the incident. It should not have happened with all the standards and such that are in place and so for for sure. Every single time, we have an incident and we go through and try and understand how could this happen.
With all the controls and processes, we have in place.
We then trying to understand okay, well what happened then we go and look at well where are we doing this or across the rest of the company and do we have the proper standards in place to ensure that what we learn from this incident is factored in so it doesn't happen again.
And so we're going through that process now and and like I said every single time. They are we we don't use the word or try not to use the word accident, because we know that with proper controls all of this can be done and done safely. So that's the process we're into now.
Okay and then.
Do you recall I guess earlier this year when when you and all your other peers.
You know kind of change the.
To modify your I guess, you're you're workplaces for Covid and whatnot.
There were questions that came up about whether or not not any of that would lead to operational.
Interruptions or or mistakes.
Do you think that had anything to do with with the system.
No not at all.
It's interesting because in so many aspects of our operations. Your same the operating disciplined strengths sending through this period of time, which is very interesting as I mentioned in my tax this will be the best safety performance in the history of the company at least that's where it's at today. So the diligence we're seeing in the operating Oregon.
Ization is excellent.
Understood.
If I could move onto the downstream.
No certainly appreciating your your your clearly explained views on the strategic importance of your.
You retail network.
Just wanted to clarify on comments you and your colleagues have made about the the real time feedback I guess you're getting.
Uhm, that's helping you plan your your final utilization.
I do understand that if you didn't own half of your your retail stations that would be diminished is that a fair way to think about it.
We think that if we didn't own the stations the cash generation capability would be impaired beyond what you would just think of a retail station yes.
Okay.
Okay. That's all for me I appreciate that thanks Martin.
Thanks.
Your next question comes from the line of Chris Tillett with Barclays.
Hi, guys. Good morning, just one question for me if you don't mind, if I look at the your cashflow on the corner net of Capex and dividend it was effectively zero.
And you guys reported average W. T I in the during the period of just north of $40. So.
Just wondering if you could help us bridge the gap between kind of that breakeven that you reported.
This quarter at roughly $40 versus the typical 35 dollar level that you talk about you know with that due to some of the outages and incidents in the period or are there other factors, we should be considering.
Yeah, Chris I'll take that one.
<unk> I would say that I have three things clearly a production was done and the quota.
The movie to assume that is a Saturday five alright, the cracks were lower as you would have seen the nothing we was assuming 12 dollar cracks in a $35.
And then the exchange rate was significantly higher.
The Canadian dollar has always been experiencing quite a bit in the last few months. So those would be the three key things that are why it's higher than the thirty-five dollars I'd also I would say crib, you're assuming you're taking into all okay. All the capital that we spend.
$85 has just don't sustaining capital of the dividend noted Rudolph we're spending significant dollars on growth capital related to driving cash flow growth going forward.
Mm okay understood the.
That's fair.
For me then thank you.
Your next question comes from the line of Mineau, how shop with TB security.
Good morning, everyone I just have one point of clarification, you talked about a.
10% bump on production into 2021, despite the five year.
You too turnaround. So my question is are there any other turnarounds embedded in that 10% year over year increase and then as a follow up to that maybe you can just remind us of the scope and duration of the five year turnaround itself. Thanks.
Yeah, I mean, we're just trying to get this all finalize so that when he wasn't intended as a guidance comment is just directionally correct. If if you look at it well we'll provide some of this when we get into guidance mental as we go forward here.
But when you look at it yes that like Semcrude is offline with their big Coker next year. So that that's actually the biggest event that they have is when the big Coker goes off and you to like I said is the biggest event that we have an oil sands. When we go through this of those are the two big ones and then you have to.
Remember that like we have Terra Nova our assumption next year is at this stage of the game is that it doesn't return to service. So we were not showing any production from there. So there's a there's a few other contributing factors to that.
Perfect. Thanks Martin.
Thank you.
Your next question, if some William Lacey with ATB capital.
Oh and I just wanted to step back for a second you talked about how you liked the diversification of the international in the offshore assets in terms of your cash flow and generally diversifications. Good thing you guys are a very material consumer of natural gas and obviously, we've seen that market shift pretty materially.
The upside what are your views in terms of having potentially a bit more of a balance to your overall production profile in terms of inputs for the oil sands operations.
Well at this stage of the game.
Right natural gas prices are strengthened through this period of time, we think this is somewhat temporary that.
Over the next 18 months or so as we go through Covid and such because essentially all shale.
And associated gas associated with the incremental drilling has been shut down. So we think this is a bit of a temporary phenomena, we understand the risk management associated with it a one dollar change in the natural gas price is about $230 million of cash flow, but at this stage of the game, we don't see ourselves <unk>.
James products that we mix or getting into a different line of business.
Okay fair enough. Thanks.
There are no further questions about you Mister Bill I would like to turn to call back over to you for any closing remarks.
Great. Thank you operator, and thanks, everyone for attending the call I know, it's a busy earnings day today. So I appreciate it and I in our team will be around all day. If you have further questions. Please reach out. Thank you again for attending.
Ladies and gentlemen that concludes today's call you may now disconnect.
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