Q3 2020 Imperial Oil Ltd Earnings Call

October 30, 2020

[music] ladies.

Gentlemen, thank you for standing by and welcome to the Imperial oil third quarter 2020, <unk> earnings Conference call. At this time, all participant lines on a listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone.

And if you require any further assistance please press star zero on a.

I'd like to hand, the conference to your Speaker today, Dave Hughes, Vice President of Investor Relations. Please go ahead Sir.

Thank you operator, and good morning, everybody. Thank you for joining us on our third quarter earnings call a start off I'm going to introduce a the senior management, we out here in our virtual room.

Brad Courson, Chairman, President and CEO, Dan Lyons, Senior Vice President Finance and administration Teresa Redburn Senior Vice President of commercial and corporate development and Simon younger senior Vice President of the upstream.

As usual I'm going to start with the cautionary statement and note that today's comments may contain forward looking information any forward looking information is not a guarantee of future performance and actual future financial and operating results can differ materially depending on a number of factors and assumptions forward.

Forward looking information and the risk factors and assumptions are described in further detail on our second quarter earnings press release that we are sorry third quarter earnings press release that we issued this morning as well as our most recent form 10-K and all these documents are available on SEDAR Edgar and on our web site. So please refer to those.

Our format is going to follow our usual format I will start with some opening remarks, and Brad and then Dan will take us through the financial results and then we go back to Brad for an operational update and once that's done. We'll then move to the Q and eight so that I will turn it over to Brad Alright. Thank you Dave.

Well good morning, everybody and welcome to our third quarter 2020 earnings call I hope each of you and your families are continuing to stay healthy as we continue to manage through these challenging times.

While the third quarter continued to present challenges related to the current pandemic and overall economic environment we.

We certainly saw material improvement over the second quarter and Im pleased to say that we continue to demonstrate our ability to adapt to the changed environment and deliver significantly improved results.

Testament to the resilience of our company.

Our strong balance sheet and level of integration coupled with the significant progress we've made towards delivering on our expense and capital spending reductions has underpinned our performance over the past several months performance that continues to improve month over month.

As I've said before the company is well positioned to capture the value of improving market conditions going forward.

The health and safety of our employees and contractor workforce continues to be our top priority.

And as we've been doing since the this global pandemic began we continue to take co bid 19 mitigation steps at all of our operating facilities and office locations.

And finally I'd also also like to take this opportunity to once again express our deep deep appreciation and gratitude for all those working on the front lines of this global pandemic, we can't thank them enough for the sacrifices they are making to keep us all safe and provide us with our essential services.

So now let's talk about the third quarter results.

While ongoing lower than normal global demand continues to impact crude oil and product prices. We did see demands improved materially through the quarter and that improvement coupled with the steps, we're taking to reduce our expenses and reduce our capital program resulted in significantly better financed.

Actual results versus the second quarter.

Earnings for the quarter were $3 million, which represents an increase of $529 million versus the second quarter of this year, reflecting improvement in all of our business segments.

With the improving market conditions, and our continuing focus on reducing costs and driving efficiencies across the organization. We were able to achieve positive earnings in what continues to be a challenging environment.

And this was despite being impacted by substantial turnaround activities in the quarter.

And a two week unplanned outage of a third party pipelines supplying bill you want to Carl.

And while 3 million may not seem like a big number it's.

It's a positive number and that speaks volumes in this business environment.

And as you will see the organization continues to make excellent progress towards identifying and delivering even more efficiencies.

At the end of March we committed to delivering spending reductions totaling $1 billion, which included a 500 million reduction in capital spending as well as $500 million in lower expenses.

As of the end of the quarter, our production and manufacturing expenses are down $813 million versus the first nine months of 2019.

Helping us to surpass our expense reduction target.

And our capital spending is down over 50%.

Savings of over $700 million versus the first nine months of 2019.

Both of these results show, we are significantly outpacing these targets.

And given this progress we are now further lowering our latest annual capex guidance to about $900 million.

A reduction of around 250 million from the mid point of our previous guidance of $1.1 billion to $1.2 billion.

Moving to operations as I mentioned, we did see demand start to recover in the quarter.

And as a result, we saw improvement in both our upstream and downstream production and throughput volumes.

I would remind you that in the quarter. We also made conscious decisions to advance and extend planned turnarounds to better align volumes with demand challenges and to protect the health and safety of our workforce.

As in the second quarter I'm pleased to tell you that the organization was able to complete the significant planned turnaround activity safely and at lower costs.

Now that our major planned maintenance for the year is behind us and both the upstream and downstream we are well positioned to capitalize on any further recovery as the fourth quarter unfolds.

And a special note is the performance at hurdle.

Despite the added challenge of a two week outage of inter pipelines Polaris system, which supplies deal you into the site curls performance was nothing short of outstanding.

But more on that in just a few minutes.

Cash generated from operating activities in the quarter was $875 million, an increase of almost $1.7 billion versus the second quarter.

After the first nine months of the year Imperial has generated nearly $500 million of cash from operating activities.

Our capital expenditures were $141 million in the quarter and as you May know, we declared a quarterly dividend. This morning of 22 cents per share.

Which is unchanged versus the last quarter.

I think it's important to highlight that even as we continued to manage through a challenging market environment, our financial resilience operational strength and flexibility and focus on cost reduction opportunities allowed us to cover our capital spending and our dividend with our operating cash flow, both pre and post working.

Capital.

All in we saw an increase of almost 600 million of cash on hand, and we ended the quarter with $817 million of cash on the balance sheet.

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

Thanks, Brad our third quarter net income was $3 million compared to net income of $424 million in the third quarter of 2019. The decrease was driven by lower crude prices lower refining margins and lower volumes associated with COVID-19. These negative impacts were partially offset by this.

Stan to reductions in production and manufacturing expenses mentioned by Brad.

Looking sequentially.

Results improved $529 million from the second quarter of 2020, which included a noncash gain of $281 million associated with the reversal of an inventory write down we took in the first quarter of 2020, excluding this noncash item, we saw sequential quarter improvement of 810 million.

In dollars driven by improved market conditions across all our businesses and supported by sustained cost reductions.

Looking at performance by business line upstream recorded a net loss of $74 million in the third quarter of 2020 up $370 million compared to a net loss of $444 million in the second quarter or an increase of about $600 million, excluding the non cash.

Gain of about $230 million in the upstream associated with the reversal of an inventory valuation charge in the second quarter.

Higher realizations improved results by about $530 million and higher volumes added about $90 million.

Turning to the downstream net income of $77 million in the third quarter was up about $110 million compared to a net loss of $32 million in the second quarter again, excluding the noncash gain in the second quarter of about $50 million for the downstream results improved about 106.

The million dollars sequentially.

The increase was mainly driven by higher margins and volumes and finally, our chemicals business continued its positive contribution, earning $27 million in the third quarter of 2020 compared to $7 million in the second quarter. This increase was primary primarily driven by stronger margins.

Looking at cash flow.

As Brad noted sequentially cash generated from operating activities improved almost $1.7 billion from the second quarter 2020 to the third quarter cash generated from operating activities was $875 million in the third quarter compared to cash used in operating activities of eight.

Hundred $16 million in the second quarter second quarter cash generation had a negative working capital impact of $170 million, while third quarter cash generation included a favorable working capital impact of $485 million.

With this strong performance our debt balance remained stable, while our cash balance grew by $600 million as we ended the quarter with $817 million of cash on hand.

Beyond our cash balance Imperials liquidity continues to be supported by substantial undrawn credit facilities and industry, leading credit rating and ready access to commercial paper and term debt markets.

Moving on to Capex.

Capital expenditures in the third quarter totaled $141 million down about $60 million from the second quarter year to date capital expenditures totaled $679 million down 720 million from the same period of 2019, well ahead of our commitment to reduce capex by $500 million.

As Brad noted.

We expect our full year capex spend to be around $900 million down from our previous guidance of $1.1 billion to $1.2 billion right.

Reduced year to date spending compared to last year is associated with the completion of the CRO pressures lower unconventional capex the suspension of the Aspen project and lower spending in the downstream.

Regarding dividends in the third quarter, we paid $162 million in dividends at 22 cents, a share compared to $169 million at 22 cents per share in the third quarter of 2019 as Brad mentioned earlier today, we announced a fourth quarter dividend of 22 cents per share.

Now I'll turn it back to Brad.

All right. Thanks, Dan.

So now lets move on and talk about operational performance for the quarter starting with production.

Upstream production averaged 365000 oil equivalent barrels a day in the third quarter and while volumes were down 42000 barrels per day versus the third quarter of 2019. This was mainly due to the advancement and extension of the second curled turnaround.

As well as the third party diluent pipeline outage I mentioned earlier.

And I'll talk more about that in a minute.

These results also reflect a production increase of 18000 oil equivalent barrels per day versus the second quarter of this year and once again, we took the opportunity to optimize our maintenance plans in the current environment by advancing and extending the work both at Carole and Syncrude.

So now lets move on and talk about each asset specifically starting with Carl.

In the third quarter, we produced 189000 barrels a day on a gross basis at Kearl down from 224000 barrels per day in the third quarter of 2019, but essentially flat with the second quarter of this year.

Last year as has been typical we carried out our second planned turnaround in late September was only a couple of weeks impacting the third quarter production.

This year, however, given the business environment, we opted to advance this turnaround and extended taking approximately six weeks to complete the work, but entirely within the third quarter. This allowed us to better manage the health and safety of our workforce through appropriate physical distancing, but it also allowed us to complete the work.

At a significantly lower cost.

Also impacting hurdle in the quarter as I mentioned was the outage on the pipeline that supplies Bill you want to curl, which occurred at the end of August.

Certainly after the outage, we were forced to shut down production operations at Kearl Ulta.

Ultimately the line was put back in service after the installation of a temporary bypass around two weeks after it was for shutdown.

Upon commissioning of the bypass we were able to get curtailed back up to full rates quite quickly.

In fact, I'd like to highlight the extraordinary efforts the imperial team took to mitigate the impacts of the outage.

They very quickly activated alternative diluent supply options for the site and were able to establish a level of supply that allowed us to restart one of the trains at minimal levels. During the outage. These actions ultimately limited.

The impact on Kearl production for the quarter to around 41000 barrels per day on a gross basis.

I would also note that in the absence of the pipeline outage, we would've delivered our strongest quarter of 2020 at Kearl.

I commented earlier that our third quarter production accrual was flat versus the second quarter. Despite the fact of the site experience to still you with pipeline outage.

You may be asking if we did our math correctly, but I will assure you that we had we have done it correctly. If you recall back on the second quarter earnings call I commented on how well the asset performed in the window between the two turnarounds averaging over 300000 barrels per day.

I'm pleased to say that this performance has continued since the pipeline was put back in service.

This helped us to offset the production loss due to the pipeline issue.

I also mentioned on the second quarter call that despite the significant extension of our planned turnaround hurdle was still able to deliver a first half production record.

I can tell you now that post the pipeline outage curl continues to set new production records delivering an average production rate of 313000 barrels a day over the four week period from restart until mid October.

And through the month of October we have delivered average production of around 300000 barrels per day.

With this performance in mind and despite the unexpected pipeline challenges we are reiterating our annual production guidance of around 220000 barrels per day for Kearl.

And now that Weve successfully completed our planned maintenance work at curdle, we have the opportunity to finish the year strong.

I can't tell you just how excited I am to see what Carol can do over an extended period of time and Weve gotten a window of that in October.

And I'm, particularly pleased to see that the government of Alberta has lifted production quotas for the month of December.

And hopefully forever.

As that removes the potential obstacle to demonstrating corrals true performance potential.

And finally with Carl and update on operating costs, which is another great story.

Unit production and manufacturing expenses at the site are down about 25% versus the same period in 2019.

We continue to track well ahead of the $4 per barrel reduction we committed to for 2020 and are within striking distance of the $20 per barrel us dollar per barrel future target we previously communicated.

We'll talk more specifically about that next step in our cost journey at our upcoming investment day, but I'm very excited by the potential here.

Now moving on to Cold Lake production at Cold Lake was 130000 barrels per day for the quarter.

Which is up 8000 barrels per day versus the second quarter.

When we had planned turnaround work at our Mohican plant.

This work carried into early July.

Year to date production and manufacturing expenses at Cold Lake are down around 5% as a result of the cost efficiencies we've been focusing on there.

And at the end of the second quarter, we guided full year production at Cold Lake would be around 135000 barrels per day and we still view. This is about where we will talk to you.

At Syncrude.

We saw an average production of 67000 barrels per day.

In terms of imperial share in the third quarter, which was similar to the same quarter last year and 17000 barrels per day higher than the second quarter of this year the.

The increase versus the second quarter reflects the completion of planned maintenance work at this facility.

You will recall that the site started the majority of their turnaround work in the second quarter, but extended some of that work tool late September.

The asset continued to move forward with the bidirectional pipeline and construction was nearly complete at the end of the third quarter commissioning will take place in the fourth quarter and as you know this project will provide improved operational flexibility for syncrude supporting increased reliability and utilization.

So now let's move to the downstream.

We refined an average of 341000 barrels a day in the quarter, which was up significantly from the 278000 barrels a day for.

For the second quarter of this year.

The 63000 barrels per day improvement was driven primarily by improving product demands and reduced planned maintenance in the third quarter.

The throughput of 341000 barrels per day equates to a utilization of around 81%, which.

Which is fairly consistent with what the Canadian industry was seeing in the quarter.

We also completed significant turnaround work in the quarter related to the Coker at Sarnia. This work was predominantly in the second quarter, but did carry over into the third quarter.

All of it in an environment, a fairly narrow light heavy spreads.

With the completion of this turnaround work, we remain well positioned to respond to improving product demands and potentially some widening of light heavy spreads.

As we discussed last quarter the adjustments, we made to our 2020 plan maintenance schedules and scopes of work have contributed to the cost efficiencies. The downstream has been able to deliver.

Year to date production and manufacturing expenses are down around 17% versus the first three quarters of 2019.

While I've commented on the improvements we saw in the demand for petroleum products.

It's important to note that demands are still not completely back to normal.

This continued uncertainty makes it difficult to forecast utilization for the fourth quarter.

Im also pleased to announce that our Cogen project that stressed Kona is now complete with commissioning starting in late September and the unit is now fully online.

The Cogen unit will produce 41 megawatts of power enough to meet approximately 75% to 80% of stressed homeowners' needs and will significantly decrease energy consumption from the Alberta grid.

Not only will this deliver operating cost reductions, but environmental benefits as well, reducing province wide greenhouse gas emissions by approximately 112 112000 tonnes per year equivalent to removing around 24000 vehicles from the road.

Consistent with what we saw in refinery utilization in the quarter.

Petroleum product sales increased 92000 barrels per day versus the second quarter and came in at 449000 barrels per day.

Again this reflects a level of demand recovery for these products, but demands are still not back to what we would consider normal levels.

So now a bit more on industry demands for the various products, we make and sell.

As a reminder, on the first quarter call at the end of April I mentioned, we were seeing demand reductions in the range of 56% to 60% on motor gasoline, 20% to 30% on diesel and 80% to 90% on jet.

Today, I would say that across the country. We are seeing total industry demand for both motor gasoline and diesel much closer to normal levels, although the ongoing challenges due to COVID-19 are certainly driving some volatility.

However, jet demand continues to lag significantly although.

Although it is experiencing a slow recovery at.

At this point I would estimate jet demand to be around 50% of normal.

Our chemical business saw improved earnings in the quarter.

With $27 million of earnings.

This business continues to be profitable in the current market with the third quarter being the strongest so far this year volumes improved versus the second quarter and continue to track very closely with 2019 as co bid related impacts have not been significant.

Margins continue to be tight, but we did see material improvement versus the second quarter of this year.

And just before I wrap up I'd like to take the opportunity to recognize that 2020 represents the 140 eightth anniversary of Imperial oil.

In fact on September eight.

18, 80, 16 oil refiners in Ontario joined forces to create the company and since then we have been delivering first in the industry. In fact, the first service station. The industry's first petroleum research Department and a decades long Association with hockey.

Including sponsoring the first radio broadcast of Hockey night in Canada, and sponsoring the NHL three stars.

Both of those starting in 1936.

Imperial continues to be a leader in applying technology and innovation to responsibly develop and deliver Canada's energy resources.

I want to recognize and thank all of the employees of Imperial oil.

For the last 140 years.

It's their creativity determination and resilience that help has allowed imperial to manage through significant changes and challenges over the decades be that world wars, changing consumer requirements or pandemics, but always coming out stronger.

And I'd also like to thank our business partners and customers, who have been with us the whole way, we look forward to a strong and prosperous future together.

So to wrap up another tough quarter, but once again, our financial strength and resilience supported improved earnings and cash flow and we delivered strong operational results most notably occur.

We've also surpassed the capital and expense reduction commitments. We made earlier this year as the entire organization continues to rise to the challenge but.

But we aren't done yet we're going to continue to find more.

And as in the second quarter, we continue to demonstrate our commitment to shareholder returns by maintaining our dividend in the quarter.

So when you add all that up coupled with the fact that our key turnaround activities for the year behind us Imperial has substantial momentum as we approach the end of the year.

We are well positioned to take advantage of any further recovery in the fourth quarter.

So I'll pause, there and I'll turn it over to Dave to facilitate the Q and a session.

Okay. Thanks, Brad operator.

We'll take the first question now.

All right as a reminder, ladies and gentlemen asked the question you need to press star one on your telephone.

Our first question will cost line of Neil Mehta from Goldman Sachs You may begin.

Yes.

Good morning team. Thanks for doing this said the first question.

I had was just around capital intensity in spend.

It was exceptionally.

Low in the quarter.

In capital intensity was was very good here.

And I would imagine that's not a run rate paper.

Capex number can you just kind of help us understand.

What was it that drove and lower and then give US an early preview of what 2021 spend could look like recognizing.

Yes on the analyst day here in a couple of days.

And Neal Thanks for that question well.

In terms of the current spend rate I think thats very much reflective of both the proactive steps we have taken to manage capital.

To ensure we're focused on the most.

That's the highest priority projects the highest value projects.

At the same time be selective recognizing.

Recognizing the business environment that we are in today.

We have been focused on our sustaining capital.

But also limiting our focus on growth, but being mindful that we want to be well positioned for an eventual recovery in the market.

Capital expenditures has also been impacted by our ability to execute work, we want to ensure the safety and health of all of our workforce employees and contractors and that in many cases dictates how quickly we can execute work how many.

Workers, we can have on site at any one time, what sort of distancing is appropriate and all that impacts pace of activity.

So it's really a combination of that selectivity.

Capital discipline, but also execution pace that is driving the levels. We see today, we're quite comfortable with those levels.

And that's the reason for our revised guidance.

So that we can reflect that to the market.

As we look ahead to next year I would expect.

Some increase in in levels of capital spending versus that $900 million, which will be driven both by our view that we will be able to improve execution pace as we move out of this.

This pandemic, but.

But at the same time you know there are some some key activities that that we will resume and continue to focus on in in 2021.

So I hope that's helpful. For you and then said we host our Investor day coming up and we will give you much more more clarity on that plan.

Number.

No that's really helpful and I don't want.

You you to preview too much here, but if you just think at a very high level two.

2020 versus 2021, what are the incremental projects that are at the top.

Top of the queue for you, where you would think that that that would reduce the spend higher end and why do you think those are good projects that that would track with turns higher over time.

Well deal I think a lot of the projects are a continuation of things we already have in the portfolio. One that we're already working on so it's continued advancement of those projects.

We do have some some additional projects on the horizon, but I.

I think I'd, rather wait until Investor day, So we can get into those into more detail with you and be able to fully describes the benefits and how they fit into our strategic work plan.

Great. Thanks.

Okay sneak one more in here.

Which is just your thoughts on on the refining environment and particularly.

Utilization.

At Imperial which was certainly better than a lot of your US peers talk about how you think the downstream plays out in Canada, Europe, and then also talk about crude and feedstock and.

Weather.

The profitability of those assets in an environment, where were light crude, particularly syncrude can be pretty tight.

Yeah well.

To describe the outlook for for refining its really driven by demand.

And.

So where are we with demand as I described for for gasoline and diesel we have seen significant recovery versus where we were kind of at the.

The lowest point in the second quarter.

We're still short of historical demands.

By a few percentage points for for each of those products and then of course as Jeff as I mentioned, you know we are far below historical demand. So.

The real driver for refinery utilization for us is going to be what happens with demand going forward.

We had been on a.

Trajectory of pretty steady demand improvements across all those products you know through.

Through the end of the third quarter, but in now as we.

Find ourselves in the fourth quarter and very unfortunately as were experiencing in Canada, but also in the us and in key countries around the world.

There is a significant increase in in cold cases.

And so that is causing.

Change in behaviors again.

So the question is you know what what impact will that have and how long will it last and we just don't know that.

Where we're obviously hopeful that we'll see demand continue that will allow us to.

To achieve these sort of utilization rates if not higher.

But it'd be premature to commit to that.

In terms of crude and feedstock.

Our Canadian refineries are well positioned to take advantage of lower costs.

Crude streams, you know here in Canada that gives us an advantage often versus us refineries.

We also have some level of integration with our own production operations and that also gives us some advantages so.

So with that integration you know.

We continue to be optimistic about about the future for our downstream business.

Thanks, Brent Thanks, Dave.

Thank you. Our next question on South Carolina asset Sen from Bank of America.

You may begin.

Thanks, Good morning.

So just following up on your commentary on Capex.

Brad Youve gone through all the major turnarounds that are now behind you and then with all these impressive costs and efficiency gains, particularly at Carole.

How how would you characterize your sustaining capex as we get into 2021, how would you characterize that.

[music].

Well I think to the sustaining capex, we're looking at in 2021 is going to be.

Comparable to to what we've seen in historic levels.

And I don't.

I have that number off the top my head.

Maybe I'll, let Dan kind of chime in with some more specifics but.

[music].

We see those those sustaining capex levels as being quite appropriate to maintain the viability of the business and allow us to continue to deliver these these strong.

Reliability and.

And overall.

Overall performance results.

So I don't know if that answers. Your question. If you are looking for more quantification as we move to next year.

Again.

I don't really want to share need any new targets and until we get to Investor day.

Okay. That's fair, Brian and then a bigger picture question and we were seeing.

A lot of changes.

In the industry, but in the U.S. and.

In Canada, and your thoughts on M&A and how do you see.

Opportunities as it relates to imperial and.

What do you see as the potential impediments do this.

Well consolidation that we're seeing right now.

Well, you're exactly right there is a lot of activity in that space.

Recently, both both in the US and of course, Canada.

For for Imperial as I've said before and it's it's really no no change we continue to keep the aperture open up.

For any.

Select.

Uniquely accretive and strategic opportunities.

That may be available, but honestly our focus right now is maximizing.

The profitability of our existing portfolio of assets and so that's what we're doing.

Highlighted.

Some of the activities and payroll as an example of that.

You talked about stress Kona the cogen.

Completing all the turnaround activities and all these.

Structural improvements in operating costs and our discipline around capital all that is fundamentally lowering the breakeven.

Of of our existing assets and and allows us to increase our cash flows.

And we think that is critically important.

This business environment, So that's our priority.

But again, we we've got an eye on.

The aperture is open for for any potential M&A, but but thats not our priority.

And we don't we don't need to M&A.

You know given we've got a deep portfolio of future growth projects as well.

[music].

But.

The market is evolving and and that is causing.

New assets to to come into play and so it's important to keep an eye on it.

In terms of impediments I think it comes down to.

What I've talked about before and that is it.

Our potential sellers and potential buyers able to align on value and future views of what the market will be.

[music].

And you know fundamentally due to the bottom potential buyers have the financial strength to take on more assets and and so today. You know there is probably a limited pool of potential buyers.

Appreciate the color thanks, Brett.

Thank you guys.

Thank you.

Our next question will come from Ryan Greg Pardy from RBC capital markets. You may begin. Thanks. Thanks. Thanks, good morning.

Brad with with Alberta, now lifting curtailment as you.

As you pointed towards.

Im just wondering what that means for occur all but as opposed to a broad question because I know in the entire rates, but could you remind us maybe just on not so much the calendar steam capacity because that I think thats 240000, but may be just what daily capacity rates are in and even perhaps what some of the highest.

Rates that you've achieved even if over short periods of time, just trying to get an understanding as to whether.

The assets certainly sounds like its operating extremely well and I'm wondering if that to 40 is going to begin to glide up with time.

It's a great great question, Greg and so first.

Let me start with a comment about curtailment.

Certainly we are delighted.

And quite pleased that the Alberta government has.

Kind of lifted the.

Quotas for December.

We think thats a very.

Necessary step a prudent step.

I would argue an overdue step up but but very pleased to see that they have taken that step.

I do view it as a partial remedy.

Remedy, though I very much would like to see the government.

Proceed with eliminating curtailment altogether.

Because I think you know even wallet suspended it creates this.

Overhang of uncertainty for the industry as it relates to future growth investments and so I think in order to fully address that going forward.

It would it would be quite appropriate for the government to to remove that.

That requirement altogether.

But I am pleased with the first step.

And so then as we think about how does that affect us.

Not having a quota in December and looking forward for for curls performance.

You know as as I described.

Carl has has performed extremely well since mid September.

In the last four weeks of running record of 313000 barrels a day I think thats, a strong indication of the potential of Kearl.

For the month of October as I mentioned, we'll probably see something more like 300000. So we clearly have the potential to exceed 280000 barrels a day that we've indicated in the past.

The question of course is how all that kind of lines out over the course of the year, where we have seasonal variations, we have turnarounds and other maintenance activities that we have to account for and that will be I think a key topic for us at Investor day to share with you what our latest profiles.

Look like but.

But needless to say, we continue to feel very encouraged and optimistic about hurdles capability and so I expect you will see us continue to raise our our views.

And targets for that asset.

Okay. Okay. Good to know thanks to that so weve done let's go from kind of the best to maybe an asset that's still not.

Meeting its objectives, so with Syncrude.

The bi directional pipeline as you mentioned tier is teed up that's great from a redundancy feeds.

Feedstock redundancy standpoint.

Curious as to whether you think the bidirectional pipeline puts you in better stead than two achieved the 90% utilization rate, but at the same time.

From an operating cost perspective is it going to be enough or is this a situation where you really need to begin to take absolute cost side of the equation.

Well a couple of comments on on Syncrude.

First of all I do think the bidirectional pipeline is a significant enabler for that asset.

Having that capability.

Provides additional flexibility.

For the asset.

You know allows greater utilization I think is really important of both to volumes performance, but also cost unit cost performance. So I'm really excited about getting that line.

Commissioned and started up by the end of the year.

Is it enough to achieve.

Our volumes and cost targets I would say no.

You know, it's certainly a contributor.

But we need syncrude to continue.

To look for ways to drive their cost structure, lower and continue to look for other ways to to improve their their utilization.

2019, I think was a really good year for Syncrude and I think demonstrated what is potential.

Obviously, a lot of unfortunate circumstances this year.

It has hindered that asset.

Hopefully once we get past.

The co bid implications get passed this year get the bi directional pipeline on continued support from from all of the owners to ensure we're we're leveraging our individual experiences in bringing.

Asset hopefully all those things together will will get us back on a path of continued.

Performance continued cost efficiency.

That's critically important for that asset.

Okay last one for me and I'm going to sneak it in like Neil did.

Do you think syncrude recognizes that its.

80% owned by.

Suncor and imperial.

Or is it still because it's just your reference to Syncrude has to kind of do this but the end of the day you two guys own. It you think theres the recognition internally at that organization that it's now an operating asset.

I think very much. It's recognized you know, we we have a joint owners committee.

That works very closely with Syncrude I think there's clear recognition of of everybody's role and and there.

Commitment to achieve our mission together so.

It's been a hard road, but but everybody recognises what the potential is and they're all working together to achieve that.

Terrific. Thanks, a lot Brad thanks.

Thanks, Greg.

Thank you.

And our next question will come from the line of Benny Wong from Morgan Stanley You may begin.

Hey, good morning team. Thanks for taking my question just wanted to follow up around the cost reductions, which looks like you've exceeded your your target of $500 million.

You provide any color or thoughts of where maybe your initiatives exceeded your original expectations and any thoughts on what number that will ultimately be by year end.

And any early thoughts in terms of how we think about the potential for more than 2021, I think you mentioned the Cogen unit with the cost savings that that b piece something incremental that shows up next year.

It's a great question, Benny and you know.

I'm quite proud of the organization and what what they've achieved.

Since the beginning of the year and since we set that target of $500 million.

We are far outpacing that target you know as I mentioned.

For for operating costs were were already 813 million below where we were in 2019.

And I honestly, it's difficult to point out one specific place because it's really across the board.

Every single asset is demonstrating lower costs this year and likewise in our in our corporate Uh Huh.

Headquarters were also delivering lower cost so so everybody is.

To that success.

You know I highlighted the Kuril unit cost just as an example of where we may just just great improvements and and.

So there we had indicated we're going to try to achieve $4 per barrel reduction this year.

We're already well ahead of that and close to achieving our 2000 dollar per barrel a longer term goal.

But what's driving that all these efficiencies all these cost savings you know, it's a combination of of selectivity of what we work on its a combination of of applying technology.

You know, it's making smart choices.

We have had.

Reductions in our in our contractor workforce and that's contributing so it's a wide variety of things, but most importantly, its across all assets and and we expect to carry a significant amount of those savings into next year.

Great. That's very helpful. Brian. Thank you my.

Follow up is just wanted to get your thoughts I looked thoughts around.

The recent headline news that weve seen around synovus acquiring husky, what do you. What do you think that means word industry and if you think that is an indication that we could see some more oil sands M&A or is that more of a very unique situation between those two companies. Thank you.

Well I think you know, we all woke up to a little bit of a surprise on that Sunday morning was when it was announced.

I have no clue as to how long they've been talking to each other.

I'm not surprised that we are starting to see some M&A you know weve.

We have been at relatively.

Stable prices you know for the last.

For months now probably and as I've said in the past you know the biggest challenges.

[music].

Buyers and sellers aligning on price, but when price stabilizes that helps to converge.

[music].

You know I think every transaction is unique and I don't think you should read too much into one transaction as to to what it means for other other transactions.

You know that there may be more there there may be may not be.

Especially now as prices have have fallen the.

A couple of dollars a barrel that may cause people to step back and think more about it.

So so time time will tell but any.

Great. Thanks, Brad.

Thank you.

And we have another question from the line of Mike Dunn from Stifel first energy.

You may begin.

Thank you Mike.

My question is on Cote Lake.

I'm just wondering if.

The Q3 volumes were impacted negatively at all bye bye.

Hi, curtailments.

Perhaps as you ramped up curl in September and whether or not that's.

Going to be an issue for you in Q4, if you if you try to shoot the lights. So.

Colonel in at least in October and November well personal curtailments in place.

Just by my math, I think you need to get closer to 150 for Q4 to curl to two.

Your annual guidance I think you talked just kinda down to Uh huh.

Third and 40, usher or lower per year is that.

Current outlook.

Yeah for for Cold Lake in the third quarter, we did not have any curtailment impacts.

You know and we deliver that 131000 barrels per day for the quarter, which was up from the second quarter second quarter, we had our turnaround.

At one of our key play.

Plants, there that he can plant.

As I recall, there might have been some additional minor maintenance that carried into the third quarter were currently producing at volumes.

Notably higher than that 131, and really more in line with our prior guidance, we have given of of around 135000 barrels a day and we still feel still feel good about that guidance for the rest of the year.

And.

And are not concerned about about curtailment.

In the month of November and then of course, the quota goes away in December.

Right Okay.

Okay. Thanks, Brad that's all from me appreciate.

Thanks, Mike.

Okay, and Brad we did have a couple of questions come in ahead of time, which I'll I'll read out. The first one comes from Matt Murphy from Tudor Pickering Holt.

Seeing a number of renewable biodiesel projects picking up around the world and in the U.S. Appreciate the part of this is largely a function of less profitability, but can you speak to these projects as a potential opportunity for imperial in Canada, whether that be from an economics perspective or through any instruments.

Thanks for that question Matt.

We're always looking for projects that can efficiently deliver value to our shareholders and there are a number of different ways with that we can participate in renewable fuels. In fact, we already blend ethanol and renewable diesel at a number of our terminals and as you may be aware we offer products.

Like our synergy gasoline.

And diesel efficient that allow our customers to improve their fuel efficiency and reduce emissions. So so this is clearly a focus for us.

And we continue to look at other opportunities that can maximize our renewables volumes to reduce emissions. We're focusing on areas that are aligned with our our corporate competencies I would say as well as you know the asset portfolio that we have and the businesses that that.

We have in place.

We're currently pursuing a number of renewable fuel initiatives across our downstream that will allow us to deliver more renewable fuel to our customers and really in an expanded set of markets.

And if you look a little bit longer term little bit further out there is even some larger initiatives that we're currently evaluating.

But decisions on those are still very dependent on what happens with evolving regulations like the clean fuel standard as well as market conditions, but but clearly this is a focus area for us. So I appreciate the question.

Okay and the second question from Manav Gupta from Credit Suisse can you talk about benefits of PFT technology at Kearl and how it allows you get higher pricing relative to pitchman.

Yeah. Thanks for that question Manav and.

And it's exciting to talk about PFP Imperial was the first to deploy PFT technology commercially.

And of course that is at our peril operation.

The PFP technology technology allows us to produce bitumen at a lower cost and a much lower carbon intensity than other oil sands technologies.

And as you may be aware and this contributes to the advantages, but it eliminates the need for an upgrader and that of course significantly reduces capital requirements at the front end, but also operating costs as we go forward and.

And so once curled bitumen is produced at the site.

It of course still needs to be blended would deal you went before being shipped via pipeline or rail, but then is sold directly to the market and and can be run straight in the refineries.

So that allows us to achieve prices in line with with WCS.

So again, a very favorable technology for us to use occur.

Okay, operator, any other questions on the line.

And our last question will come from the line of Dennis strong from CA Deasy you May you may begin.

Hi, good morning, and thanks for taking my question. It's just really the crux of the question really just focus is around the removal removal excuse me of the Alberta government curtailment policy and so I was just more so curious as to how you how you're thinking about managing or balancing the thought process of ramping up volumes.

On your various oil sands facilities versus what could eventually become.

TV capacity on on the grass and the potential impacts around.

Local pricing, specifically on widening differentials and how you're planning to moderate or mitigate or balance the thought process of ramping up volumes versus.

Versus transporting them to the various demand markets. Thanks.

Yeah. Thanks for that question Dennis.

Our thought process is very much focused on how do we maximize value.

For all of our products and.

And what market, we direct those those products to is driven by.

What's what's the value add at the destination, coupled with what's the cost of transportation to get it there.

And for US we've been able to manage all of the grass.

For our for our for our products.

I mean, mainly our heavy oil and.

And so the Alberta government, removing the curtailment quota.

This ensures there's there's no other obstacle or limitation to us maximizing production so.

Our thought process is very much how do we maximize production from the existing assets.

And then given that potential.

What are the most economic outlets to place them and what's the most cost efficient way to get the product to those locations whether that be a choice of pipelines or of course, our old rail terminal and so all of those gives us.

Bandages and opportunities to optimize and as we look forward down the road.

We are encouraged by progress that's being made on the pipelines that will.

Over time and provide even more capacity for shipments.

Between Canada, and the us and we're obviously very supportive of that.

So.

We don't really see any constraints, but it's all about how do we optimize around it.

Thanks for that question Dennis Great.

Great. Thanks.

Thank you and not seeing any further questions at this time.

Alright.

Well. Thank you everybody for joining us this morning as always if you have any follow up questions or would like any follow up discussion don't hesitate to reach out to the IR team here at Imperial and.

And we look forward to talking again at our upcoming IR day, which is on November 19th at eight o'clock Mountain 10 o'clock eastern thanks, everybody.

Yeah.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[noise].

[music].

Ladies and gentlemen, thank you for standing by and welcome to <unk> third quarter 2020 earnings Conference call.

This time, all participant lines on a listen only mode.

After the speaker's presentation, there will be a question answer session to ask a question does especially when you need to press star one on your telephone.

And if you require any further assistance please press star zero on.

I'd like to hand, the call first your speaker today, Dave Hughes, Vice President Investor Relations. Please go ahead Sir.

Thank you operator, and good morning, everybody. Thank you for joining us on our third quarter earnings call a start off I'm going to introduce the senior management, we out here in our virtual real where Brad Coarsened, Chairman, President and CEO, Dan Lyons Senior Vice President Finance and administration.

Research Redburn senior Vice President of commercial corporate development, and Simon younger senior Vice President of the upstream.

As well as our most recent form 10-K and all these documents are available on SEDAR Edgar and on our web site. So please refer to those.

Our format is going to follow our usual format well I will start with some opening remarks from Brad and then Dan will take us through the financial results and then go back to Brad for an operational update once that's done. We'll then move to the Q and <unk>. So that I will turn it over to Brad Alright, Thank you Dave well.

While the third quarter continued to present challenges related to the current pandemic and overall economic environment we.

We certainly saw material improvement over the second quarter and I'm pleased to say that we continue to demonstrate our ability to adapt to the changed environment and deliver significantly improved results.

Testament to the resilience of our company.

I've said before the company is well positioned to capture the value of improving market conditions going forward.

The health and safety of our employees and contractor workforce continues to be our top priority.

And as we've been doing since the <unk>. This global pandemic began we continue to take COVID-19 mitigation steps at all of our operating facilities and office locations.

So now let's talk about the third quarter results.

While ongoing lower than normal global demand continues to impact crude oil and product prices, we did see demands improve materially through the quarter and that improvement coupled with the steps, we're taking to reduce our expenses and reduce our capital program resulted in significantly better financial.

Results versus the second quarter.

Earnings for the quarter were $3 million, which represents an increase of 529 million versus the second quarter of this year, reflecting improvement in all of our business segments.

With the improving market conditions, and our continuing focus on reducing costs and driving efficiencies across the organization. We were able to achieve positive earnings and what continues to be a challenging environment.

And this was despite being impacted by substantial turnaround activities in the quarter.

And a two week unplanned outage of a third party pipelines supplying bill you went to Carl.

And while 3 million may not seem like a big number.

It's a positive number and that speaks volumes and this business environment.

And as you will see the organization continues to make excellent progress towards identifying and delivering even more efficiencies.

At the end of March we committed to delivering spending reductions totaling $1 billion, which included a 500 million reduction in capital spending as well as $500 million in lower expenses.

As of the end of the quarter, our production and manufacturing expenses are down $813 million versus the first nine months of 2019.

Helping us to surpass our expense reduction target.

And our capital spending is down over 50%.

A savings of over 700 million versus the first nine months of 2019.

Both of these results show, we are significantly outpacing these targets.

And given this progress we are now further lowering our latest annual capex guidance to about 900 million.

A reduction of around $250 million from the midpoint of our previous guidance of 1.1 to 1.2 billion.

Moving to operations as I mentioned, we did see demand start to recover in the quarter.

And as a result, we saw improvement in both our upstream and downstream production and throughput volumes.

I would remind you that in the quarter. We also made conscious decisions to advance and extended plant turnarounds to better align volumes with demand challenges and to protect the health and safety of our workforce.

As in the second quarter I'm pleased to tell you that the organization was able to complete the significant planned turnaround activity safely and at lower costs.

Now that our major planned maintenance for the year is behind us and both the upstream and downstream we are well positioned to capitalize on any further recovery as the fourth quarter unfolds.

Kind of special note is the performance that Carl.

Despite the added challenge of a two week outage of inter pipelines Polaris system, which supplies still you went to the site curls performance was nothing short of outstanding.

But more on that in just a few minutes.

Cash generated from operating activities in the quarter was $875 million, an increase of almost 1.7 billion versus the second quarter.

After the first nine months of the year Imperial has generated nearly 500 million of cash from operating activities.

Our capital expenditures were $141 million in the quarter and as you May know, we declared a quarterly dividend. This morning of 22 cents per share which.

Which is unchanged versus the last quarter.

I think it's important to highlight that even as we continue to manage through a challenging market environment, our financial resilience operational strength and flexibility and focus on cost reduction opportunities allowed us to cover our capital spending and our dividend with our operating cash flow, both pre and post working cap.

Capital all.

All in we saw an increase of almost 600 million of cash on hand, and we ended the quarter with $817 million of cash on the balance sheet.

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

Actual reductions in production and manufacturing expenses mentioned by Brad.

Looking sequentially.

Results improved $529 million from the second quarter of 2020, which included a non cash gain of $281 million associated with the reversal of an inventory write down we took in the first quarter of 2012, excluding this non cash item, we saw sequential quarter improvement of 810 million.

In dollars driven by improved market conditions across all our businesses and supported by sustained cost reductions.

Gain of about $230 million in the upstream associated with the reversal of an inventory valuation charge in the second quarter higher realizations improved results by about $530 million and higher volumes added about $90 million.

Turning to the downstream net income of $77 million in the third quarter was up about $110 million compared to a net loss of $32 million in the second quarter again, excluding the non cash gain in the second quarter of about $50 million for the downstream results improved about 106.

$80 million sequentially.

Looking at cash flow.

As Brian noted sequentially cash generated from operating activities improved almost $1.7 billion from the second quarter of 2020 to the third quarter cash generated from operating activities was $875 million in the third quarter compared to cash used in operating activities of eight.

Hundred $16 million in the second quarter second quarter cash generation had a negative working capital impact of a $170 million, while third quarter cash generation included a favorable working capital impact of $485 million.

With this strong performance our debt balance remained stable, while our cash balance grew by $600 million as we ended the quarter with $817 million of cash on hand.

Moving on to Capex.

As Brad noted.

We expect our full year capex spend to be around $900 million down from our previous guidance of $1.1 billion to $1.2 billion reduced year to date spending compared to last year is associated with the completion of the CRO pressures lower unconventional capex the suspension of the Aspen project and lower spending.

In the downstream.

Now I'll turn it back to Brad.

All right. Thanks, Dan.

So now lets move on and talk about operational performance for the quarter, starting with production upstream.

As well as the third party diluent pipeline outage I mentioned earlier.

And I will talk more about that in a minute.

So now lets move on and talk about each assets, specifically starting with Carl.

Last year as has been typical we carried out our second planned turnarounds in late September with only a couple of weeks impacting the third quarter production.

At a significantly lower cost.

Also impacting hurdle in the quarter as I mentioned was the outage on the pipeline that supplies Bill you want to curl, which occurred at the end of August.

Shortly after the outage, we were forced to shut down production operations at Kearl.

Ultimately the line was put back in service after the installation of a temporary bypass around two weeks. After it was first shutdown.

Upon commissioning of the bypass we were able to get curtailed back up to full rates quite quickly.

In fact, I'd like to highlight the extraordinary efforts the imperial team took to mitigate the impacts of the outage.

The impact on Kearl production for the quarter to around 41000 barrels per day on a gross basis.

I would also note that in the absence of the pipeline outage, we would have delivered our strongest quarter of 2020 at Kearl.

I commented earlier that our third quarter production accrual was flat versus the second quarter. Despite the fact of the site experience. This still you with pipeline outage.

As you may be asking if we did our math correctly, but I will assure you that we had we have done it correctly. If you recall back on the second quarter earnings call I commented about how well the asset performed in the window between the two turnarounds averaging over 300000 barrels per day.

I'm pleased to say that this performance has continued since the pipeline was put back in service.

This helped us to offset the production loss due to the pipeline issue.

I also mentioned on the second quarter call that despite the significant extension of our planned turnaround hurdle was still able to deliver a first half production record.

I can tell you now that post the pipeline outage hurdle continues to set new production records delivering an average production rate of 313000 barrels a day over the four week period from restart until mid October.

And through the month of October we have delivered average production of around 300000 barrels per day.

With this performance in mind and despite the unexpected pipeline challenges we are reiterating our annual production guidance of around 220000 barrels per day for Carl.

And now that Weve successfully completed our planned maintenance work at Kearl, we have the opportunity to finish the year strong I.

I can't tell you just how excited I am to see what Carol can do over an extended period of time and Weve gotten a window of that in October.

And I'm, particularly pleased to see that the government of Alberta has lifted production quotas for the month of December.

And hopefully forever.

As that removes the potential obstacle to demonstrating curls true performance potential.

And finally with Carl and update on operating costs, which is another great story.

Unit production and manufacturing expenses at the site are down about 25% versus the same period in 2019.

We continue to track well ahead of the $4 per barrel reduction we committed to for 2020 and are within striking distance of the $20 per barrel U.S. dollar per barrel future target, we previously communicated.

We'll talk more specifically about that next step in our cost journey at our upcoming investment day, but I'm very excited by the potential here.

Now moving on to Cold Lake production at Cold Lake was 130000 barrels per day for the quarter.

Which is up 8000 barrels per day versus the second quarter.

When we had planned turnaround work at our Mexican plant.

This work carried into early July.

Year to date production and manufacturing expenses at Cold Lake are down around 5% as a result of the cost efficiencies we've been focusing on there.

And at the end of the second quarter, we guided full year production to cold Lake would be around 135000 barrels per day and we still view. This is about where we will talk to you.

At Syncrude, we saw an average production of 67000 barrels per day.

In terms of imperial share in the third quarter, which was similar to the same quarter last year and 17000 barrels per day higher than the second quarter of this year.

The increase versus the second quarter reflects the completion of planned maintenance work at this facility.

You will recall that the site started the majority of their turnaround work in the second quarter, but extended some of that work tool late September.

The asset continued to move forward with the bi directional pipeline and construction was nearly complete at the end of the third quarter commissioning will take place in the fourth quarter and as you know this project will provide improved operational flexibility for syncrude supporting increased reliability and utilization.

So now let's move to the downstream.

We refined an average of 341000 barrels a day in the quarter, which was up significantly from the 278000 barrels a day.

For the second quarter of this year.

The 63000 barrels per day improvement was driven primarily by improving product demands and reduce planned maintenance in the third quarter.

The throughput of 341000 barrels per day equates to a utilization of around 81%.

Which is fairly consistent with what the Canadian industry, we're seeing in the quarter.

We also completed significant turnaround work in the quarter related to the coker at Sarnia.

This work was predominately in the second quarter, but did carry over into the third quarter.

All of it in an environment, a fairly narrow light heavy spreads.

With the completion of this turnaround work, we remain well positioned to respond to improving product demands and potentially some widening of light heavy spreads.

As we discussed last quarter the adjustments, we made to our 2020 plan maintenance schedules and scopes of work have contributed to the cost efficiencies that downstream has been able to deliver.

Year to date production and manufacturing expenses are down around 17% versus the first three quarters of 2019.

Well I've commented on the improvements we saw in the demand for petroleum products.

It's important to note that demands are still not completely back to normal.

This continued uncertainty makes it difficult to forecast utilization for the fourth quarter.

I'm also pleased to announce that our Cogen project that stress Kona is now complete with commissioning starting in late September and the unit is now fully online.

The Cogen unit will produce 41 megawatts of power enough to meet approximately 75% to 80% of stressed homeowners' needs and will significantly decrease energy consumption from the Alberta grid.

Not only will this deliver operating cost reductions, but environmental benefits as well, reducing province wide greenhouse gas emissions by approximately 112 112000 tons per year.

Evolent to removing around 24000 vehicles from the road.

Consistent with what we saw in refinery utilization in the quarter.

Petroleum product sales increased 92000 barrels per day versus the second quarter and came in at 449000 barrels per day again. This reflects a level of demand recovery for these products, but demands are still not back to what we would consider normal levels.

So now a bit more on industry demands for the various products we make itself.

As a reminder, on the first quarter call at the end of April I mentioned, we were seeing demand reductions in the range of 56% to 60% on motor gasoline, 20% to 30% on diesel and 80% to 90% on jet.

However, jet demand continues to lag significantly.

Although it is experiencing a slow recovery.

At this point I would estimate jet demand to be around 50% of normal.

Our chemical business saw improved earnings in the quarter.

With $27 million of earnings.

Margins continue to be tight, but we did see material improvement versus the second quarter of this year.

And just before I wrap up I'd like to take the opportunity to recognize that 2020 represents the 145th anniversary of Imperial oil.

In fact on September eight.

18, 80, 16 oil refiners in Ontario, joining forces to create the company and since then we have been delivering firsts in the industry. In fact, the first service station the industry's first petroleum research Department and a decades long Association with Hock.

Including sponsoring the first radio broadcast of Hockey night in Canada and sponsored the NHL three stars both of those starting in 1936.

Imperial continues to be a leader in applying technology and innovation to responsibly develop and deliver Canada's energy resources.

I want to recognize and thank all of the employees of Imperial oil.

For the last 140 years.

And I'd also like to thank our business partners and customers, who have been with us the whole way, we look forward to a strong and prosperous future together.

So to wrap up another tough quarter, but once again, our financial strength and resilience supported improved earnings and cash flow and we delivered strong operational results most notably occur.

We've also surpassed the capital and expense reduction commitments. We made earlier this year as the entire organization continues to rise to the challenge.

But we aren't done yet we're going to continue to find more.

And as in the second quarter, we continue to demonstrate our commitment to shareholder returns by maintaining our dividend in the quarter.

So when you add all that up coupled with the fact that our key turnaround activities for the year behind us Imperial has substantial momentum as we approach the end of the year.

We are well positioned to take advantage of any further recovery in the fourth quarter.

So I'll pause, there and I'll turn it over to Dave to facilitate the Q and a session.

Okay. Thanks, Brad operator, we'll take the first question now.

All right as a reminder, ladies and gentlemen asked the question you need to press star one on your telephone.

Our first question will come from Ryan Neil Mehta from Goldman Sachs You May.

Again.

Yes.

Good morning, Tim Thanks for doing that said the first question.

I had was just around capital intensity in spend.

It was exceptionally.

Low in the quarter.

In capital intensity was was very good here.

I would imagine that's not a run rate pappas.

Capex number can you just kind of help us understand why.

What was it that that gross spend lower and then give us an early preview of what 2021 spend could look like recognizing.

You got the analyst day here in a couple of days.

Yeah, Neal thanks for that question well.

In terms of the current spend rate I think thats very much reflective of both the proactive steps we have taken to manage capital.

To ensure we're focused on the most.

The highest priority projects the highest value projects, but at the same time be selective.

Recognizing the business environment that we are in today.

We have been focused on our sustaining capital but.

But also limiting our focus on growth, but being mindful that we want to be well positioned for an eventual recovery in the market.

Capital expenditures has also been impacted by our ability to execute work, we want to ensure the safety and health of all of our workforce employees and contractors and that in many cases dictates.

How quickly we can execute work how many.

Workers, we can have on site at any one time, what sort of distancing as appropriate and all that impacts pace of activity.

So it's really a combination of that selectivity.

Capital discipline, but also execution pace that is driving the levels. We see today, we're quite comfortable with those levels.

And that's the reason for our revised guidance.

So that we can reflect that to the market.

As we look ahead to next year I would expect.

Some increase in and levels of capital spending versus that 900 million, which will be driven both by our.

View that we will be able to improve execution pace as we move out of this.

This pandemic, but.

But at the same time you know there are some some key activities that that we will resume and continue to focus on in in 2021.

So I hope that's helpful for you at our Investor day, coming up and we'll give you much more more clarity on that plan.

Number.

No that's really helpful and I don't want.

You you to previous too much here, but if you just think at a very high level 2020 versus 2021, what are the incremental projects that are at the top of it.

Look the queue for you, where you would think that that that would bridge the spend higher end and why do you think those are good projects that.

Tracker turns higher over time.

Well Neal I think a lot of the projects are a continuation of things we already have.

In the portfolio and that we're already working on so it's continued advancement of those projects.

We do have some some additional projects on the horizon, but I think I'd, rather wait until Investor day. So we can get into those in more detail with you and be able to fully describes the benefits and how they fit into our strategic work plan.

Great and I think one more in here.

Which is just your thoughts on on the refining environment and particularly.

Utilization.

At Imperial which was certainly better than a lot of your US peers talk about how you think the downstream plays out in Canada from here and then also talk about crude and feedstock and.

Weather.

The profitability of those assets in an environment, where we are light crude, particularly syncrude can be pretty tight.

Yes, well.

It took to describe the outlook for for refining its really driven by demand.

And.

So where are we with demand as I described for for gasoline and diesel we have seen significant recovery versus where we were kind of at the.

The lowest point in the second quarter.

We're still short of historical demands.

By a few percentage points for for each of those products and then of course as Jeff as I mentioned, you know we are far below historical demand. So.

The real driver for refinery utilization for us is going to be what happens with demand going forward.

We had been on a.

Trajectory of pretty steady demand improvements across all those products.

Through the end of the third quarter, but are now as we.

Find ourselves in the fourth quarter and very unfortunately, as we are experiencing in Canada, but also in the us and she countries around the world.

There is a significant increase in coal the cases.

And so that is causing.

Change in behaviors again.

So the question is you don't know what what impact will that have and how long will it last and we just don't know that.

We're obviously hopeful that we'll see demand continue that will allow us to.

To achieve these sort of utilization rates if not higher.

But it'd be premature to commit to that.

In terms of crude and feedstock.

Our Canadian refineries are well positioned to take advantage of.

Lower costs.

Crude streams, you know here in Canada that gives us an advantage often versus us refineries.

We also have some level of integration with our own production operations and that also gives us some advantages so.

So with that integration.

[music].

We continue to be optimistic about about the future for our downstream business.

Thanks, Brian Thanks, Dave.

Thank you. Our next question comes from China asset Sen from Bank of America.

You may begin.

Thanks, Good morning.

So just following up on your commentary on Capex.

Right.

You've gone through all the major turnarounds that are now behind you and then with all these impressive cost and efficiency gains, particularly at Carl.

How would you characterize your sustaining capex as we get into 2021.

How would you characterize that.

[music].

Well I think to the sustaining capex. We're looking at in 2021 is going to be comparable to to what we've seen in historic levels.

I don't.

Have that number off the top my head.

Maybe I'll, let Dan kind of chime in with some more specifics but.

[music].

You know, we see those those sustaining capex levels as being quite appropriate to maintain the viability of the business and allow us to continue to deliver the strong role.

Reliability and.

And overall.

Overall performance results.

So I don't know if that answers. Your question. If you are looking for more quantification as we move to next year.

Again.

I don't really want to share any any new targets and until we get to Investor day.

Okay. That's fair, Brett and then a bigger picture question and we were seeing.

Lot of changes.

In the industry, but in the U.S. and.

And the Canada and your thoughts on M&A and how do you see.

Opportunities as it relates to imperial and.

What do you see as the potential impediments do this wave of consolidation that we have.

Seeing right now.

When you're exactly right there is a lot of activity in that space.

We recently, both both in the US and of course, Canada.

For for Imperial as I've said before and it's really no no change we continue to keep the aperture open.

For any.

You know select.

Uniquely accretive and strategic opportunities.

That that may be available, but honestly our focus right now is maximizing.

The profitability of our existing portfolio of assets. So.

Thats what were doing.

Highlighted.

Some of the activities that payroll as an example of that.

Talked about stress Kona the cogen.

Completing all the turnaround activities and all these.

Structural improvements in operating costs and our discipline around capital all that is fundamentally lowering the breakeven of of our existing assets and and allows us to increase our cash flows.

And we think that is critically important.

This business environment, So that's our priority.

But again, we we've got an eye on.

The aperture is open for for any potential M&A, but but thats not our priority.

And we don't we don't need to M&A.

You know given that we've got a deep portfolio of future growth projects as well.

[music].

But you know the.

The market is evolving and and that is causing.

New assets to come into play and so it's important to keep an eye on it.

No in terms of impediments I think it comes down to.

What I've talked about before and that is it.

Our potential sellers and potential buyers able to align on value and future views of what the market will be.

[music].

And you know fundamentally do the bot potential buyers have the financial strength to take on more assets.

And and so today, we have elds.

So probably a limited pool of potential buyers.

Appreciate the color thanks, Brett.

Yes, Thank you guys.

Okay.

Thank you.

Our next question will come from Brian Greg Pardy from RBC capital markets. You may begin. Thanks. Thanks. Thanks, good morning.

Brad with with Alberta, now lifting curtailment as you.

As you pointed towards.

I'm, just wondering what that means for curl, but as opposed to a broad question because I know it means higher rates, but could you remind us maybe just on not so much the calendar stream capacity, because I think thats 240000, but maybe just what daily capacity rates are and even perhaps what some of the highest.

Rates that you've achieved even if over short periods of time, just trying to get an understanding as to whether.

Now that the assets certainly sounds like its operating extremely well and I'm wondering if that to 40 is going to begin to glide up with time.

It's a great great question, Greg and so first.

Let's start with a comment about curtailment.

Certainly we are delighted.

And quite pleased that the Alberta government has.

Kind of lifted.

Quotas for December.

We think thats a very.

Necessary step a prudent step.

I would argue an overdue step up but but very pleased to see that they have taken that step.

I do view it as a partial revenue.

Remedy, though I very much would like to see the government.

Proceed with eliminating curtailment altogether.

Because I think.

Now even wallet suspended it creates this.

Overhang of uncertainty for the industry as it relates to future growth investments and so I think in order to fully address that go for it.

It would it would be quite appropriate for the government to to remove that.

That requirement altogether.

But I am pleased with the first step.

And so then as we think about how does that affect us.

Not having a quota in December looking forward for for curls performance.

You know as I described.

Carl has has performed extremely well since mid September.

Hi.

Key dates for wheat.

Rodney record of 313000 barrels a day.

I think thats, a strong indication of the potential of Carl.

For the month of October as I mentioned.

We will probably see something more like 300000.

So we clearly have the potential to exceed 280000 barrels a day that we've indicated in the past the.

And that will be I think a key topic for us at Investor day to share with you what our latest profiles look like but.

But needless to say, we continue to feel very encouraged and optimistic about curls capability and so I expect you will see us continue to raise our our views.

And targets for that asset.

Okay. Okay. Good to know thanks for that so weve done, let's go from kind of the best to make an asset that's still not.

Meeting its objectives, so with Syncrude.

The bi directional pipeline is dimensions here is teed up that's great from a redundancy and.

Feedstock redundancy standpoint.

Curious as to whether you think the bidirectional pipeline puts you in better stead than two achieved the 90% utilization rate, but at the same time.

From an operating cost perspective is it going to be enough or is this a situation where you really need to begin to take absolute cost side of the equation.

Well a couple of comments on on Syncrude.

First of all I do think the bi directional pipeline is a significant enabler for that asset.

Having that capability.

That provides additional flexibility.

For that asset.

You know allows greater utilization I think is really important both to volumes performance, but also cost unit cost performance. So I'm really excited.

Cited about getting that line.

Commission that started up by the end of the year.

Is it enough to achieve.

Our volumes and cost targets I would say no.

You know, it's certainly a contributor.

But we need syncrude to continue.

To look for ways to drive their cost structure, lower and continue to look for other ways to.

To improve their their utilization.

2019, I think was a really good year for Syncrude and I think.

Demonstrated what is potential.

Obviously, a lot of unfortunate circumstances this year.

That has hindered that asset.

But hopefully once we get past.

The co bid applications get passed this year get the bi directional pipeline on continued support from.

From all of the owners to ensure we're we're leveraging our individual experiences and bringing that to the asset hopefully all those things together will will get us back on a path of continued.

Performance continued cost efficiency.

That's critically important for that asset.

Okay last one for me and I'm going to sneak it in like Neil did.

Do you think syncrude recognizes that its 80.

80% owned by.

Suncor and imperial.

Or is it still because it's just your reference to Syncrude has to kind of do this by the end of the day you guys own it.

Do you think theres the recognition internally at that organization that it's now an operating asset.

I think very much. It's recognized you know we have a joint owners committee.

That works very closely with Syncrude I think there's clear recognition of of everybody's role and add there.

Our commitment to achieve our mission together so.

It's been a hard road, but but everybody recognises what the potential is and they're all working together to achieve that.

Terrific. Thanks, a lot Brad.

Thanks, Greg.

Thank you.

And our next question comes from the line of.

Danny long from Morgan Stanley you may begin.

Hey, good morning team. Thanks for taking my question just wanted to follow up around the cost reductions.

It looks like you've exceeded your your target of $500 million.

Can you provide any color thoughts of where maybe your initiatives exceeded your original expectations.

Any thoughts on what number that will ultimately be by year end and any early thoughts in terms of how we think about the potential for more than 2021, I think you mentioned the Cogen unit with the cost savings that that b piece something incremental that shows up next year.

It's a great question, Benny and you know.

I'm quite proud of the organization and what what they've achieved sales.

Since the beginning of the year and since we set that target of $500 million.

We are far outpacing that target as I mentioned.

For for operating costs were were already $813 million below where we were in 2019.

And I honestly, it's difficult to pointing out one specific place because it's really across the board.

Every single asset is demonstrating lower costs this year.

And likewise in our in our corporate head.

Headquarters were also delivering lower cost. So so everybody is clear.

To that success.

You know I highlighted the Kearl unit cost just as an example of where we may just just great improvements.

And and.

So there we had indicated we're going to try to achieve $4 per barrel reduction this year.

We're already well ahead of that and close to achieving our 2000 dollar per barrel a longer term goal.

But what's driving that all these efficiencies all these cost savings you know, it's a combination of of selectivity of what we work on its a combination of of applying technology.

You know, it's making smart choices.

We have had.

Great Thats very helpful. Brian Thank you.

It was just wanted to get your thoughts high level thoughts around the recent headline news that weve seen around synovus acquiring husky, what do you. What do you think that means heard industry and if you think that is the indication that we could see some more oil sands M&A or is that more of a very unique situation between those two comp.

Thank you.

Well I think you know, we all woke up to a little bit of a surprise on that Sunday morning was when it was announced.

I have no clue as to how long they've been talking to each other.

Im not surprised that we are starting to see some M&A you know we have been at relatively soon.

Stable prices you know for the last.

For months now probably and as I've said in the past you know the biggest challenges.

[music].

Buyers and sellers aligning on price, but when price stabilizes that helps to converge.

You know I think every transaction is unique and I don't think you should read too much into one transaction as to to what it means for other other transactions.

Yeah.

There may be more there there may be may not be.

Especially now as prices have have fallen the.

Couple of dollars a barrel that may cause people to step back and think more about it.

So so time time will tell Denny.

Great. Thanks, Brad.

Thank you.

And we have another question from the line now Mike Dunn from Stifel first energy.

You may begin.

Thank you.

My question is on Cold Lake.

I'm just wondering.

The Q3 volumes were impacted negatively at all bye bye.

Hi, curtailments.

Perhaps your ramped up curl in September and whether or not that's.

I was going to be an issue for you in Q4, if you if you try to shoot the lights. So.

Hi, Carol.

Carol in at least in October and November well Theyre personal curtailments in place.

Just by my math, I think you need to.

Closer to 150 for Q4.

Correct so too.

Your annual guidance I think you guys talk just kind of down to 140, usher or lower per year.

Current outlook.

Yes for for Cold Lake in the third quarter, we did not have any curtailment impacts.

You know and we deliver that 131000 barrels per day for the quarter, which was up from the second quarter second quarter, we had our turnaround.

At one of our key.

Plants, there that you can plant.

As I recall, there might have been some additional minor maintenance that carried into the third quarter were currently producing at volumes.

And.

And are not concerned about about curtailment you know in the month of November and that of course, the quota goes away in December.

Right Okay.

Okay. Thanks, Brad that's all from me appreciate.

Thanks, Mike.

Okay, and Brad we did have a couple of questions come in ahead of time, which I'll read out. The first one comes from Matt Murphy from Tudor Pickering Holt.

Thanks for that question Matt.

Like our synergy gasoline.

And diesel efficient that allow our customers to improve their fuel efficiency and reduce emissions. So so this is clearly a focus for us.

We have in place.

We're currently pursuing a number of renewable fuel initiatives across our downstream that will allow us to deliver more renewable fuel to our customers and really in an expanded set of markets.

And if you look a little bit longer term little bit further out there was even some larger initiatives that we're currently evaluating.

Okay and then the second question from Manav Gupta from Credit Suisse can you talk about benefits of PST technology at Kearl and how it allows you get higher pricing relative to pitchman.

Yes, thanks for that question Manav and.

And it's exciting to talk about PFT Imperial was the first to deploy PFT technology commercially.

And of course that is that our curl operation.

The PFP technology technology allows us to produce bitumen at a lower cost and a much lower carbon intensity than other oil sands technologies.

And as you may be aware of and this contributes to the advantages, but it eliminates the need for an upgrader and that of course significantly reduces capital requirements at the front end, but also operating costs as we go forward and.

And so once curled bitumen is produced at the site.

It of course still needs to be blended would deal you went before being shipped via pipeline or rail, but then is sold directly to the market and and couldn't be run straight in the refineries.

So that allows us to achieve prices in line with with WCS.

So so again, a very favorable technology for us to use occur.

Okay, operator, any other questions on the line.

And our last question will come from line of Dennis Fung from CA Deasy, you May you may begin.

Hi, good morning, and thanks for taking my question is just really the crux of the question really just focus is around.

The removal removal excuse me of the Alberta government curtailment policy and so I was just more so curious as to how you how you're thinking about managing or balancing the thought process of ramping up volumes on your various oil sands facilities versus what could eventually become.

The capacity on on the grass and the potential impacts around.

Local pricing, specifically on widening differentials and how you're planning to moderate or mitigate or balance the thought process of ramping up volumes versus.

Versus transporting them to the various demand markets. Thanks.

Yes, thanks for that question Dennis.

Our thought process is very much focused on how do we maximize value.

For all of our products and.

And what market, we direct those those products to is driven by.

What's what's the value add at the destination, coupled with what's the cost of transportation to get it there.

And for US we have been able to manage all of the grass.

For our for our for our products.

I mean, mainly our heavy oil and.

And so the Alberta government, removing the curtailment quota.

This ensures there's there's no other obstacle or limitation to us maximizing production so.

Our thought process is very much how do we maximize production from the existing assets.

And then given that potential.

What are the most economic outlets to place them.

And what's the most cost efficient way to get the product to those locations whether that be a choice of pipelines or of course, our old rail terminal and so all of those gives US you know Ed.

Bandages and opportunities to optimize and as we look forward down the road.

We are encouraged by the progress that's being made on the pipelines that will.

Over time provide even more capacity for shipments.

Between Canada, and the us and we're obviously very supportive of that.

So.

We don't really see any constraints, but it's all about how do we optimize around it.

Thanks for that question Dennis Great.

Great. Thanks.

Thank you and last thing any further questions at this time.

Alright.

And we look forward to talking again at our upcoming IR day, which is on November 19th at eight o'clock Mountain 10 o'clock eastern.

Hi, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2020 Imperial Oil Ltd Earnings Call

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