Q4 2020 Imperial Oil Ltd Earnings Call

February 2, 2021

To ask a question during the session you will need of press star one on your telephone. Please be advised the today's conference may be recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to one of your speakers today, Mr. Dave Hughes VP of Investor Relations. Sir. Please go ahead.

Thank you good morning, everybody and thanks for joining us on our fourth quarter earnings call I will start off by introducing the senior management, we have on the call. This morning, We've got Brad Corson, Chairman, President and CEO, Dan Lyons Senior Vice President Finance and administration, Simon younger senior Vice President of the upstream John Whitmore, Vice President of the downstream of <unk>.

Jerry <unk>, Vice president of commercial and corporate development.

As usual I'm going to start with the cautionary statements. 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 looking information on the risk factors and assumptions of described in further detail on our fourth.

The quarter earnings press release that we issued this morning as well as our most recent form 10-K and all of those documents are available on SEDAR Edgar and on our website. So I would ask you to please refer to those.

We're going to follow our usual format. This morning will start with opening remarks from Brad and then went down will take us through the financial results and then Brad will take us through an operational update and once we're done that will move to the Q&A, so with that I'll turn it over to Brad.

Alright. Thank you Dave good morning, everybody kind of belated happy new year.

Welcome to our fourth quarter 2020 earnings call.

I hope each of you and your families are continuing to stay healthy as we continue to manage through these very challenging times.

While 2020 was quite a year I would say.

I'm sure it was not at all what anyone expected back at the start of the year.

The challenges we were faced with as a society as an industry and as a company we're certainly unprecedented.

So I'm sure no one is sad to see 2020 behind us now.

Yes.

The year presented us with some extreme challenges and as a result, we unfortunately experienced an earnings loss for the year, although a large part of the loss was driven by the write down we took on a portion of our unconventional assets.

However, I want to express just how proud I am with how imperial responded.

And with the results, we were able to deliver for those things that were within our control, particularly as it pertains to our operations.

And our financial results.

We're relatively good as well considering the economic environment.

We'll talk more about that in a few minutes.

I commented last quarter on how we have seen improvement in the economic environment versus the second quarter.

I think it's fair to say, though that the pace of improvement slowed in the fourth quarter as Canada started to deal with the second wave of COVID-19.

However, we continued to deliver strong results both on our operations and in our commitment to deliver material expense and capital spending reductions.

I would also like to mention our workforce and.

Ensuring the health and safety of our workforce is always our top priority and our most important responsibility.

But even more so during a global healthcare crisis.

I am proud of how the organization continues to respond to these health challenges.

Watching out for each other and the communities in which we operate.

We had a number of opportunities to partner with our communities throughout the year and help them address some of their challenges and as always our employees, where there was strong support.

And just before we continue on.

I'd like to take the opportunity to highlight the fact that imperial was named one of Canada's top 100 employers for 2021.

We also received recognition as a top employer for young people and also top marks as in Alberta employer.

I'm, especially proud of this recognition after the challenging year.

And also that this award recognizes areas such as the company's training and skills development as well as community involvement to name just a few which we will continue to maintain as we go forward.

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

Ongoing lower than normal global demand continued to impact crude oil and product prices.

And we did see the pace of demand recovery in the third quarter tempered somewhat in the fourth.

Earnings for the quarter were a loss of $1 1 billion.

But that included a noncash impairment charge of $1 2 billion.

This impairment related to our decision to not develop a portion of our unconventional portfolio.

This is consistent with our strategy of focusing our resources and capital spending on high return projects in our existing oil sands assets and only the most attractive portions of our unconventional portfolio.

And does not impact our current operations.

Not included in this impairment are the high value liquids rich portion of the company's unconventional assets portfolio, which we still plan to develop.

Therefore, this has no impact on the production estimates we of pre fees previously communicated.

Excluding this impairment our fourth quarter earnings improved from the third quarter and we also saw positive cash flow of over $300 million inclusive.

Inclusive of a working capital headwind of just over $200 million.

These positive results were underpinned by a record production quarter in our upstream in fact, the highest in 30 years.

Which in turn was driven by an all time quarterly production record at Kearl.

<unk> continues to be a great story.

And I'll talk further about it shortly.

Our downstream and chemical businesses also continued to perform well and both delivered positive earnings in the quarter.

Our commitment to delivering on our cost reduction targets did not waiver through the year and we were able to deliver reductions of close to $2 billion versus 2019 levels well in excess of those initial commitments.

Production and manufacturing expenses were down nearly $1 billion or 15% versus 2019.

And you will recall that in March.

We've set of Capex reduction target of $500 million versus our initial guidance of one 6% of one 7 billion.

As of the end of the third quarter, our progress supported us reducing capital spending even more and we communicated updated guidance of around $900 million.

We ended the year in line with this most recent guidance.

Which I would note is around half of what we initially planned to spend for the year and $940 million lower than 2019.

Our focus for 2021 is on continuing to deliver lower cost and more efficient spending.

Our strong operational performance and cash generation supported our ability to once again declare a dividend for the quarter, which we announced this morning at 22 per share.

Which is unchanged versus the last quarter and reflects our commitment to returning cash to our shareholders.

I know I've said this before but I think it's.

<unk> to again highlight that even as we continued to manage through a challenging market environment.

Our financial resilience operational strength, our flexibility and integration along with a laser focus on cost reduction opportunities.

<unk> us to once again deliver strong results and meet our commitments to shareholders.

Is maintaining our dividend without increasing our debt.

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.

For the full year, we recorded a loss of $1 $857 million, reflecting the global oversupply of crude oil coupled with COVID-19 related reductions in product demand as Brad noted our 2020 earnings also reflect a onetime noncash impairment of $1 billion 171.

Millions of dollars.

While these results are disappointing our actions to substantially reduce costs.

On a significantly adjust operations serve to mitigate these losses. It is also worth noting that EBIT in this challenging environment, our downstream and chemical businesses generated positive full year earnings of $553 million in $7 million to $8 million respectively.

Looking at our fourth quarter, 2020 results and including the noncash impairment of $1 billion $171 million, we recorded a net loss of $1 billion $146 million compared to net income of $271 million in the fourth quarter of 19 looking sequentially.

The net loss in the fourth quarter of $1 billion $146 million is down from net earnings of $3 million in the third quarter. However.

Excluding the one time impairment charge I, just mentioned results improved versus the third quarter, driven primarily by higher production in the upstream.

Looking at performance by business line upstream recorded a net loss of $1 billion $192 million in the fourth quarter of 2020 compared to a net loss of $74 million in the third quarter again, excluding the noncash impairment charge, we saw improved results driven by higher production most notably at current.

<unk>.

Turning to the downstream downstream net income of $106 million in the fourth quarter was up around 20 $29 million compared to net income of $77 million in the third quarter, mainly driven by higher margins and finally, our chemicals business continued to generate profits, earning $23 million in the <unk>.

Fourth quarter of 2020 compared to $27 million in the third quarter.

Looking at cash flow.

Full year 2020 cash generated from operating activities was $798 million, including unfavorable working capital impacts of $82 million.

This cash generation, coupled with our strong starting cash position allowed us to finance, our capex maintain our dividend and returned $274 million to shareholders through share repurchases, while maintaining our debt at $5 2 billion.

Looking at the fourth quarter cash generated from operating activities was $316 million compared to cash generated from operating activities of $875 million in the third quarter of 2020, however versus the third quarter cash generated from operating activities in the fourth quarter was <unk>.

<unk> by unfavorable working capital effects of around $700 million.

Excluding working capital impacts cash flow improved sequentially.

Versus the fourth quarter of 2019 cash generated from operations were down just over $700 million, reflecting unfavorable working capital effects of $464 million.

Despite negative working capital impacts we ended the quarter with $771 million of cash on hand.

Moving on to Capex.

Capital expenditures in the fourth quarter totaled of $195 million up $54 million from the third quarter full year capital expenditure totaled $874 million down $940 million from 2019 in line with our revised guidance of about $900 million.

Reduced spending compared to last year is associated with completion of the curl crushers lower unconventional capex the suspension of the Aspen project lower pipeline spending and smaller amounts across a number of other areas as we discussed at Investor Day in November 2021.

Capital expenditures are expected to be approximately $1 $2 billion.

Turning to dividends.

We paid dividends of 88 per share during 2020, marking the 26th consecutive year of annual dividend payment increases by the company.

In the fourth quarter, we paid $161 million on dividends of 22, a share compared to $166 million at 22 per share in the fourth quarter of 2019 going forward, we remain committed to returning cash to shareholders via dividends as Brad noted earlier today, we announced the first.

<unk> 2021 dividend of <unk> 22 per share payable on April one now I'll turn it back to Brad to discuss our operational performance.

Yes.

Thanks, Dan So now let's move on and talk about operational performance for the quarter and I'll start with production.

Upstream production averaged 460000 oil equivalent barrels a day in the fourth quarter, which was up 62000 barrels per day versus the fourth quarter of 2019.

And most importantly represents the highest quarterly production in 30 years.

This excellent performance was driven by record production at Kearl.

But we also saw a strong performance in the fourth quarter at both both cold Lake and Syncrude.

These results also reflect a production increase of 95000 oil equivalent barrels per day versus the third quarter of 2020.

This material increase was driven not only by the very strong performance at Kearl, but also by the lack of planned turnaround activities as those were executed in the third quarter at both Karl and Syncrude.

As a reminder, we took the opportunity to optimize our turnaround plans in the quarter or in the current environment by advancing at curdle and extending the work, enabling us to to run unconstrained in the fourth quarter.

So now let's move on and talk about each assets, specifically starting with Carl.

2020.

Was just a great year for Carl.

It seems like each quarter, we've been able to talk about new production records at Kearl has delivered.

In the fourth quarter is no different in.

In the quarter, we produced 284000 barrels a day on a gross basis of hurdle, which is an all time quarterly record for the asset.

This is 95000 barrels per day higher than the third quarter and 76000 barrels per day better than the fourth quarter of 2019.

We also saw the highest month on record in October at 301000 barrels per day.

We started the year with the new supplemental crushers at Kearl.

Which have exceeded our expectations.

And as you know, we also opted to advance and extend regular planned turnarounds on both trains. This year in response to the market environment, which left us well positioned to deliver superior performance in the latter part of the year.

And as you can see from the fourth quarter performance we delivered.

Our full year production of 222000 barrels per day was slightly ahead of our revised guidance of 220000 barrels per day.

But admittedly short of our original guidance of 240000 barrels per day from Investor day, a year ago. The.

The difference can be attributed to the decision we made to modify our maintenance plans and extend our turnarounds with reduced staffing to manage COVID-19 risks.

In addition, the planned the unplanned outage on the third party Polaris line resulted in a 10000 barrel per day impact and the absence of these two factors, we would have expected to meet or exceed our original guidance.

Production performance at <unk> has remained strong into the early part of 2021 and in fact, the asset has just now set another production record with the highest January production in its history.

We expect January production to come in above 250000 barrels per day.

And was supportive commodity prices and the absence of mandated production curtailment, we're very encouraged by the path, we're on and the momentum we have built.

Now with respect the operating costs Simon mentioned at our Investor Day, we were sitting around the U.

U S $20 per barrel Mark in November.

Unit production and manufacturing expenses have continued to track at this lower level as we continue to focus on structural improvements by leveraging technology ongoing implementation of all the economists haul trucks just to mention a few key items.

For the full year production and manufacturing expenses at curdle, where almost 20% lower than 2019.

Combining this cost reduction with <unk> increased production.

We see that curls unit production and manufacturing expenses were down over 25% from 2019.

Based on this performance we are very confident in our ability to deliver on our U S $20 per barrel guidance for.

This year of 2021.

So now let's talk about co life production at Cold Lake was 136000 barrels per day for the quarter up 5000 barrels per day versus the third quarter.

And down 4000 barrels per day versus the fourth quarter of 2019.

Near term, we remain focused on base performance at Cold Lake and continue to expand to expect volumes will average of 130000 barrels per day in the near term, which is our guidance for 2021.

Our focus on optimizing the base operations and driving reliability enhancements resulted in the best monthly unscheduled downtime performance in December since 2016.

In addition.

It's around well work optimization provided 3000 barrels per day uplift.

In 2020.

The operations continues to work on other opportunities to drive value, including steam schedule optimization and the rollout of digital initiatives.

Now, let's move to Syncrude Syncrude average production of 87000 barrels per day, our share in the fourth quarter was the highest quarter of 2020.

Up 20000 barrels per day versus the third quarter due to the absence of the turnaround activity executed in the third quarter of this year.

This production level is also up 20000 barrels per day versus the fourth quarter of 2019 also due to the absence of turnaround activity. We saw in the fourth quarter of 2019.

You will recall that the site performed the majority of its major turnaround work in the second and third quarters of 2020.

I'm also pleased to say that construction work on the bi directional pipelines was completed in the fourth quarter and the venture started to transfer products in December so the assets is already seeing benefits as.

As you know this project will provide improved operational flexibility for syncrude supporting increased reliability and utilization.

As Youre aware the Syncrude owners reached an agreement in principle for suncor to take over operations at Syncrude.

The owners are currently working through their internal approval processes and imperial is fully aligned with the change in operator ship that is expected to happen later this year.

And we are confident it will further enhance the venture's ability to deliver material efficiencies and synergies Suncor has communicated synergies of around $300 million per year, and we are very aligned with that estimate.

Now, let's move to the downstream.

We refined an average of 359000 barrels a day in the quarter, which was up 18000 barrels a day versus the third quarter and up 38000 barrels a day versus the fourth quarter of 2019.

Utilization in the quarter was 85% versus 81% in the third quarter and 76% in the fourth quarter of 2019.

The improvement over 2019 was due largely.

To the absence of some too.

2019, net nanticoke turnaround activity. Although this was also slightly offset by continued weaker demand due to the pandemic.

The sequential improvement was due to increased diluent manufacturing of stress Kona and replacing purchase product with our own refined products.

As we discussed last quarter the adjustments, we made to our 2020 planned turnaround schedules and scopes of work were very successful in reducing cost and margin impacts of the turnarounds amidst the market conditions created by the pandemic.

In addition, our refineries and midstream assets, we're able to find further cost reductions and efficiencies enabled by these same market conditions and as a result full year production and manufacturing expenses for the year are down around $360 million or 20% versus.

2019.

While the third quarter of 2020 showed significant demand improvement that.

Of that recovery was somewhat tempered in the fourth quarter.

Demand continued to be challenged by the ongoing pandemic and we are now seeing the impact of new community Lockdowns in certain parts of Canada, particularly Ontario and Quebec.

This continued uncertainty makes it difficult to forecast refinery utilization in the near term.

Petroleum products sales in the fourth quarter were 416000 barrels per day.

41000 barrels per day lower than the fourth quarter of 2019, and 33000 barrels per day lower than the third quarter largely due to pandemic impacts on fuel demands.

As a reminder, on the first quarter call at the end of April I mentioned, we were seeing demand reductions in the range of 50% to 60% from motor gasoline, 20% to 30% for diesel and 80% to 90% for jet.

In the third quarter, we saw that across the country's total industry demand for both motor gasoline and diesel were approaching to much closer to normal historic levels.

I also mentioned at the time that we were continuing to see volatility however, and in January we are now seeing industry demands more in the 70% to 75% of normal range for gasoline.

And 35% to 40% for jet with diesel.

More closely approaching historic levels.

Looking forward there continues to be a high degree of uncertainty due to the various provincial and federal lockdowns as well as travel restrictions.

Despite these volatile and challenging conditions, our downstream business set new annual records for asphalt sales.

As well as the amount of equity.

Hurdle crude we can process at our Sarnia refinery.

We successfully expanded our marine fuels offer and Vancouver, and established imperial as the market leader in the port of Vancouver.

Our integrated business showed unique strength when we built an alternative diluent supply chain for <unk> and just a few days following the shutdown of the players pipeline.

And the strength of our integration continues today as we set new records in December for the amount of diluent, we produce the stress Kona, which is then shipped to our cold Lake site.

So we continue to see improvements and new performance records. Despite these challenging market conditions.

Our downstream business remained profitable in the fourth quarter, while many U S downstream competitors were unprofitable.

This speaks to the structural advantages in the Canadian industry and for our assets that we discussed.

Our recent Investor day.

Those include resilient margins built from low cost crude and import parity rec pricing proprietary terminals on logistics and unique routes to market.

Our branded resellers and wholesalers.

All of which are significantly more profitable than similar business lines in the U S. We believe our Canadian business is well positioned to continue to compete favorably in 2021.

Moving to chemicals, our chemical business saw a slight drop in earnings in the fourth quarter at 23 million.

The down $4 million versus the third quarter.

This decrease was driven by lower volumes and higher expenses associated with planned maintenance activity at our Sarnia chemical facility in the quarter.

However.

Earnings were $21 million higher than the fourth quarter of 2019, as we saw improved sales volumes and favorable impacts of ongoing cost reduction efforts.

Given the structural advantages the business enjoys through the integration on location of our facility our chemical business continues to be profitable in the current market delivering positive earnings each quarter of this year.

I'd like to wrap up by highlighting what I see as some pretty noteworthy accomplishments for imperial in 2020.

First and foremost, we managed our capital and cost structure to preserve financial strength in a very challenging demand and business environment.

We took that decisive action at the onset of the pandemic back in March.

And with full year results out now.

<unk> exceeded the commitment we made to reduce spending by $1 billion in fact, our production and manufacturing costs alone are down almost $1 billion on a year over year basis and in addition, our capital is down over $750 million versus the midpoint of our original <unk>.

Guidance.

So versus 2019. This represents a reduction of close to $2 billion for both production and manufacturing costs and capital expenditures combined.

<unk> performance in 2020 was nothing short of outstanding.

New supplemental crushing capacity was a highlight and supported operations throughout the year as did many other enhancement initiatives, including autonomous haul trucks for example.

Although our original production guidance for <unk> was 240000 barrels per day, we revised this down during the year as we chose to take prudent actions to address the challenges of the year presented.

Our total volume met.

Net this revised annual guidance of 220000 barrels per day, even after having to shut down for a third party until you on pipeline outage in the third quarter.

We ended the year strong producing over 280000 barrels per day in the fourth quarter and are well positioned to deliver on our 255000.

Barrel a day guidance for 2021 for Carl.

Equally cost performance has been excellent with production and operating expenses down materially by around 19% versus 2019, and so far in 2021, we are sustaining these lower cost levels, helping us significantly reduce our breakeven costs and further enhancing our resilience to the <unk>.

Downside, while at the same time positioning us well to benefit when oil prices increase.

I believe the strength of our Canadian based downstream, including chemicals became very apparent 2020.

Our downstream was profitable three out of four quarters.

Last year in our chemical segment was profitable in all four.

As Dan noted despite the challenging business environment, we earned $553 million on the downstream and $78 million in chemicals in 2020.

This result reflects the structural advantages.

Debt, we have in relation to crude supply and logistics in the product markets we compete in.

Integration within our downstream and chemicals assets also supports relatively strong margins. We spoke at length about these advantages at Investor day, but I think our financial results provide the tangible evidence and underscore the profitable nature of our downstream segments, our integrated business model provided resilience.

During 2020, supporting our ability to generate cash from operating activities of about $800 million.

We place a high priority on the dividend and chose to maintain it throughout 2020, despite a highly uncertain environment.

That decision speaks to the high degree of confidence management and the board has in our existing portfolio of assets, our financial position and the plans we have for further improvement.

And with our strategy and a lower corporate breakeven such as we outlined at Investor Day, we're well positioned to continue to return cash to shareholders through dividend growth and share buybacks over time.

The pandemic has presented a number of challenges to the organization not the least of which is managing the health and safety of our workforce.

The adjusted major planned turnaround activities in 2020, which was no easy task in order to accommodate fewer workers on site and COVID-19 protocols.

And at the same time, we were able to complete those turnarounds with more of our own personnel, which reduce costs.

Finally, we adjusted the timing of turnarounds to better align with the demand environment.

So that meant pulling forward activities, so we'd be operating at higher rate higher rates when demand started to recover as it did in the second half.

I am proud of the organization for both the decisions, we took with respect of turnarounds and the way in which we executed on those adjusted plans.

So when you add all of that up.

Really some pretty impressive achievements on a year that presented unprecedented challenges.

And it also adds up to imperial being very well positioned to continue to deliver value through 2021.

And as many of you are aware 2020 marks the 140 <unk> anniversary of Imperial oil over the past 140 years Imperial has built a proud reputation for hard work innovation and meeting some of the candidates toughest energy challenges.

In 2020 was no different.

So with that I'll turn it over to Dave for the Q&A session. Thank you.

Thanks, Brad we had a few questions submitted ahead of time, so we'll start out by addressing a couple of those and then we'll move over to the Q&A line.

So Brad the first question comes from William Lacey from ATB capital markets.

Capital for the quarter was unusually low below low end of expectations, specifically upstream capital was just the $107 million based on the current state of operations. What do you estimate your sustaining capital requirements look like going forward.

Thanks for your question William.

In the first quarter of 2020 as I mentioned, we committed to an aggressive plan to control capital and expense costs for the year.

Which was in direct response to the market conditions, we were experiencing so what you saw on the fourth quarter was really a continuation of that program, which brought our total capital expenditure for the year to $874 million.

Which was less than 50% of <unk>.

2019 and in line with our updated guidance, we gave late in 2020.

And so looking ahead as we've guided previously at our Investor Day, we do expect to see a moderate increase in our sustaining capital in the coming years as we invest of progress those key projects that are key to the future of the company.

And for next year, we've indicated of total capital guidance of $1 2 billion.

And so we're going to continue to benefit from our low sustaining capital needs, which equate to about $5 per barrel.

Which is about $1 $1 billion average over the next few years.

So bit of an increase over 2020.

As we showed you at Investor day, but also noteworthy as we look at our five year plan for capital expenditures.

We expect to be down about 30% versus what we had laid out a year ago at Investor day at the same facts.

So again I think we've taken very prudent steps to manage capex consistent with the external market conditions, but balanced with what we think are critical sustaining.

Capital requirements for the future.

Included in our plans are also some selective growth opportunities.

Debt yield high return.

And so together.

We're going to continue to manage all of our expenses, both capital and production and manufacturing expenses with a high degree of scrutiny selectivity, gaining further efficiencies that ensure our competitiveness going forward. Thanks.

Thanks again.

Okay, and William had a follow up the announcement by Exxonmobil last night was an interesting one with respect to their <unk> initiatives what synergies do you expect to garner from this with your relationship with Exxonmobil and do you see some investments happening specifically as it pertains to your assets in the next three to five years.

I think this is a really exciting announcements by Exxonmobil last night I think we're all still.

Working to understand the details of that but I think it does demonstrate the increasing importance of progressing low carbon growth opportunities and technology.

And this is an increasing area of focus for ourselves at Imperial and obviously exxonmobil as we both work to reduce our carbon intensity going forward.

In terms of.

Our ability to garner benefits from that synergies as I've talked on on multiple occasions, one of the distinct advantages.

Of the partnership we have with Exxonmobil as our majority shareholder is that we are able to access.

Many of.

There.

Systems their processes their experience.

And their technology and I would view this as just one more example of that where we will be able to learn from their advances in this area, especially carbon capture and sequestration, which I think is of critical component for our industry.

And certainly society.

As we all look to define a path to net zero.

And achieve the goals of the Paris accord.

So I am very excited about Exxon mobil's announcement, I look forward to engaging them further as as they put their organization in place and.

And identify key opportunities for pursuit.

Okay and with that operator can we go to the live Q&A line. Please.

Sure Kian. Thank you, ladies and gentlemen of you have the question at this time. Please press Star then one on your Touchtone telephone if you wish to remove yourself of your question has been answered. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute on your question has been stated our first question comes from the line of assets and with Bank of America.

Your line is open. Please go ahead.

Thanks, Good morning, everyone, Brad you've been Crystal clear about your sustaining capex and multiyear growth project outlook, just wanted to flesh out a little bit more on that you are talking about $1 2 billion Capex in 2021, and I think at the analyst day, you talked about of $200 million to $300 million per year.

On an average growth project given any improvement in operating environment now there are a lot of uncertainties there.

Should we expect growth projects to be.

Moving forward or you are kind of pretty much done in a $1 $2 billion of Capex for this year.

Yes, thanks for that question.

I think it is important to continue to reflect on the current and business environment and and as I've talked in the past.

Yeah.

Our ability to adapt.

Is quite critical as we go forward.

As we sit here today.

We're certainly encouraged by the.

The price environment that we see.

The growth we've seen in commodity pricing over the last couple of weeks.

Certainly that May tempt you.

The two to increase your capital and growth.

Graeme for the year, but as we reflect on it honestly.

We're going to keep.

Keep focused at that one to bill.

<unk> target level.

We've seen.

As we reflected on the portfolio of projects, we think that's the prudent level not just at <unk>.

Pricing back in the fourth quarter of last year, but also.

As we sit here today.

We have a five year <unk>.

Plan that we laid out in Investor day, and in the $1 $2 billion is very consistent with that.

So I see of staying the course, we're going to continue to look for more efficiencies and we're going to continue to.

Judge whether it makes sense to to adjust those plans in any way but.

Kind of given the robustness of those plans given the uncertainty of the external environment I think it makes sense to stay the course for now thanks.

Thanks, Brett My follow up is on.

The <unk> sale of cancellation and just wanted to get your.

Broader thoughts on what it means for the industry and what it means for imperial.

I know you guys have.

Ill.

The advantage in terms of midstream terminals and logistics, but just wanted to get your updated thoughts.

Yes, obviously of a.

Very important announcement.

Guess of weeks or so ago, I would say very very disappointing.

For the industry and I would just say from my perspective very disappointing for the country.

I think it is in our best interest.

As an industry and as the country to ensure that there is sufficient egress opportunity.

For the crude that is produced here.

I think it's important to have optionality in the market.

Or the producers so the cancellation.

Of the pipeline permits is quite quite unfortunate.

Because of the limitations it will cause <unk>.

Of the jobs that is effects.

And so I'm I'm hopeful we continue to find a positive way forward I would say for imperial.

Again, we obviously strongly supportive of the pipeline.

We do have some capacity reserved on that pipeline Fortunately for us we do see enough other options that we don't feel like this will cause us any constraints.

But nonetheless, we.

We prefer to maximize flexibility and so the fact that this has been cancelled is quite unfortunate.

I appreciate the color thanks Brent.

Thank you.

Thank you and our next question comes from the line of Greg Pardy with RBC capital markets. Your line is open. Please go ahead.

Yeah. Thanks, Thanks, good morning.

You've made Brad.

Made tremendous strides within the organization from the standpoint of reducing costs youre talking about essentially of about $1 billion down year over year.

Could you comment about syncrude in the bi directional pipeline is in place now.

Great utilization rate in the fourth quarter Whats the game plan of Syncrude.

From a cost perspective in 2021 and beyond.

Well thanks for your question, Greg and good to hear from you.

And first I'd say just thanks for acknowledging the progress we've made as an organization here on <unk>.

Quite proud of the entire imperial workforce for what we've been able to deliver under some very challenging circumstances.

As I look at Syncrude. This is obviously, a very key asset for us.

And as we've talked on other occasions.

<unk>.

There is a significant opportunity to fully leverage the owners expertise.

And.

In the case of the joint venture we have worked very closely with suncor and the other owners.

On to identify and further plans for suncor to become the operator, which as I mentioned and Suncor has mentioned, we believe we'll will yield significant operational and cost benefits.

To the tune of $300 million per year.

In addition to that broad strategy change in terms of operator ship.

Yes.

Specific investments like the bidirectional pipeline, which has now been completed.

We will also add significant value to that venture.

And.

The advantage of the bi directional pipeline.

Is that.

It will provide more flexibility.

To the Syncrude at periods, where they have impacts to their mining operations or the coker.

On.

So.

Broadly.

We expect to see.

Strong improvement in cost performance and reliability performance, an upgrader utilization.

And there'll also be synergies that debt Syncor suncor will bring to the party as well.

So again, we look forward to 2021 as we work through the transition details.

And I look forward the reporting progress on those in future quarters.

Thanks, Greg terrific.

And maybe just a quick one here, but a broader question like you have kind of a ton of flexibility financially you could build cash you could raise your dividend you could.

You can repurchase shares.

Just wondering what your appetite is these days for for buybacks versus pursuing a more conservative strategy, where you're replenishing cash just sort of given the year, we've just gone through.

Well thanks for that question Greg.

As we've talked at Investor day, and on other occasions.

Certainly a key priority of ours is to maximize the the.

The cash generation the potential of our existing assets.

And that has been our focus in the 2020 that will continue to be in it.

Huge area of focus in 2021.

As we shared at Investor day.

Given the current price environment and really across a wide range of price environments, we do see our ability to grow our cash position.

And again, that's driven by the strong operational performance and and and.

And cost performance that we've demonstrated and we built into our plans for this year 2021.

<unk>.

And so then that.

Will will likely leave us with the.

With some.

The favorable choices to make about how we allocate.

That cash that capital across a range of opportunities.

On certainly.

Our priority is to return that cash to shareholders.

And so as is often the case, we will be evaluating.

The options around increasing the dividend as we've done for now over 26 years.

Oil will be weighing that against the buyback opportunities.

And longer term against other.

Capital investments in <unk>.

Projects, but but in the near term I think it's our focus will be on returning that cash to the shareholders in the form of dividends and buybacks.

Terrific. Thanks Pat.

Thanks, Chris.

Thank you and our next question comes from the line of Dennis Fong with CIBC World markets. Your line is open. Please go ahead.

Thank you good morning, everyone and thanks for taking my questions on the first one is maybe a bit of a follow on to Greg.

The question.

You mentioned, obviously, a large focus around returning value back to shareholders via dividends and buybacks.

Obviously this is the very kind of.

Volatile and constantly changing environment and you mentioned.

Kind of.

Our focus on flexibility. So what are some of the key I guess signs of Andrew or conditions that could drive we'll call it adjustments to your existing five year plan on.

Are there any kind of major catalysts that you're focusing in on that wood.

Allow you to focus a little bit more on growth projects versus returning value to shareholders and what comfort levels kind of surround that that situation going on.

So on thank you.

Yeah.

Alright that might as Dan to the comment a bit on that.

Yes, I would say we are.

We are committed as we talked about at Investor day, the capital discipline and pursuing.

Sure Debottleneck high return of relatively low cost projects on our existing assets. So I think thats our focus now obviously we have.

Our stable of projects that we could advance larger projects.

That's not really our focus at this moment, we'll always keep our eyes open, but I think for the receivable future, we're looking to generate cash return it to shareholders.

We're not looking to advance major step out projects on.

Obviously, we will keep our eyes open whether it's.

Organic or inorganic if there is an opportunity we will be open to that but thats on our focus at this time and I cant say theres the magic formula on oil.

Or whenever we start investing in those large projects I think that's not really our focus now we're looking to generate cash return to shareholders of what we have when we see a lot of opportunity for further growth.

Growth in as well and volumes as well as expense reductions that will increase our cash flows.

Okay.

If I might I would just add to Dan's comments.

Again.

In the near term for the next the next few years.

We want to continue to focus on our existing assets, we see that there is significant value there.

And so for that reason.

We're being very conscious about not project not progressing.

Major new projects, new Greenfield projects.

We think that's prudent in this environment and again, we see that there is significant value that can be captured from from the existing assets.

We do have opportunities for for smaller select growth opportunities.

And that's what we've been doing at assets like <unk>.

<unk> in Cold Lake and there's examples in the downstream as well and so that'll be our focus for the next few years.

Thanks, Thanks for your of really good segue to my follow up there so.

Obviously, you guys have performed very well.

Total through January and Q4.

And given the strong performance on hand.

Should we be thinking about you mentioned that there are a lot of the kind of cost savings initiatives that you believe will provide some resilience to the lower unit opex that you've seen at the facility can you talk a little bit of round what was the driving factor.

Or the division of the driving factors between kind of of the higher throughput versus kind of on some of the projects that you have been working on and then can you also discuss a little bit around some of the smaller economic project that you referred to you how could those potentially contribute to extending the timing between turnarounds <unk> improving the uptime.

On an annual basis that Carl Thank you.

Well thanks, Thanks for that question.

I like talking about Karl it's such a positive story.

When I think about the expense reductions we've made there.

We've reduced unit costs by by about 25% this year.

And we've got an intense focus on.

Continuing that pathway too.

$20 per barrel U S cost and and I'm hopeful that we'll continue to do even better.

That regard.

And as I think about whats continue what's contributed to higher production rates, what's contributed to lower expenses.

There's a wide range of things.

Certainly the supplemental crushers have had a big impact on improving our reliability.

But on top of that we broad intense focus to every dollar we spend at that site.

To ensure that it is necessary it is value accretive we're employing technology.

Through things like autonomous haul trucks.

Debt reduce our costs by up to $1 per barrel.

We're also using other technology around.

Drones for example assignments talked about that at Investor day allows us to be more cost effective and efficient with many inspections.

So those are just a few.

But.

It's really the collection of a lot of things that allow us to deliver those higher volumes in the unit cost and the good news is we're not done.

We have a whole inventory of additional smaller scale projects.

Smaller cost lower cost initiatives that I believe will continue to contribute to higher volumes and lower costs.

In addition.

We are looking.

Right.

Closely at moving to a single plant turnarounds per year by.

By 2022.

That again is another example of being able to.

Extend the run time between turnarounds, which will.

Increase our volume and productivity and also lower annual costs.

And then of course, there continues to be other debottlenecking activities that we'll look to and as we've stated.

What we're really working towards longer term is 280000 barrels per day annual average so our guidance for this year was to for 2021 is 255000 barrels a day. So we saw the ways to go to get the $2 80.

But we are of whole inventory of projects to get US there. So I'm confident we will achieve that with time.

Brian we're going to go back to a couple of the pre submitted questions now.

First of all comes from Manav Gupta from credit Suisse.

<unk> mentioned this in the opening remarks, but maybe just to reiterate can you talk about the performance of Syncrude during the quarter as the bidirectional project complete and how does the benefit the assets.

Yes, Thanks for that question Manav, and I think maybe between my remarks and <unk>.

One of the recent questions.

Probably answered most of that but just to reiterate.

The construction work on the bidirectional pipeline was completed in the fourth quarter and we have started to transfer product.

In the pipeline as as needed.

So we are starting to see some benefits from that and the way we derive benefit from that.

May recall theres actually two pipelines.

One that that handles bitumen the other that have handles.

Our fluids and so.

The one that handles bitumen supports us by giving us flexibility to import of bitumen during periods of mind downtime.

But also gives us the flexibility to export bitumen when the Coker is down and then and then the sour fluids pipeline will allow us to import.

Fluids, when our coker is down.

So again, just having that flexibility during periods of both scheduled and unscheduled downtime will ultimately increase the reliability of the throughput and profitability of of of.

Of Syncrude, so we're quite excited about it.

Okay.

I had a follow up are you impacted in any way of the Dakota access pipeline is forced to shut down.

Yes.

Yes, it's a good question.

We're not.

Directly impacted.

If if dapple were to shutdown because we don't transport any crude on that pipeline to feed our refineries.

However.

There could be indirect implications because of the shutdown could force.

Bakken producers to seek other egress alternatives, which could impact.

Regional light crude oil differentials and.

On under most scenarios you would probably a.

Imagine.

Debt that those differentials would widen and that would benefit.

Our refineries because we do run predominantly light.

Crude feedstocks. So we're obviously keeping a close look on look at this as we have for the last many months as there has been some uncertainty around this pipeline.

Alright, and the question from Benny Wong of Morgan Stanley. How do you think about imperial's competitive position today with increased market supply and demand volatility intense ESG focus on consolidating Canadian energy and oil sands space.

How is this going to evolve and what will differentiate the imperial story in your mind versus peers also focused on the same.

Well.

In summary, I would say, we're highly confident in our ability to compete in this marketplace.

And thats driven by.

By a wide range of factors it starts with our assets the quality of those assets.

As I have talked on many occasions, we benefit by a high level of integration and our ability to capture synergies with that integration.

On the relationship with Exxonmobil I think provides us the competitive advantage.

And then when you think about what we've achieved this year.

In terms of.

Cost reductions capital discipline all in.

And production enhancements.

Which all together have allowed us to significantly lower our breakeven costs and so that's what ultimately will allow us to compete and win I believe.

Alright, and Thats it for the pre submitted questions. So operator, we'll go back in and.

Take the life.

And our next question on the phone line will come from the line of Neil Mehta with Goldman Sachs. Your line is open. Please go ahead.

Hi, This is Carly Davenport on from Neil Thanks for taking the questions.

My first of all is just around <unk>.

Bob I appreciate the color earlier on dapple are there any thoughts you can provide around how you expect the process to shake out and also any contingency plans EBIT, marking on in the event of Shannon.

Yes, Carlos Thanks, Thanks for that question.

Very different from from Dapple, obviously line five is a.

The.

Critical piece of infrastructure for us.

We continue to watch those developments very closely.

While we think a shutdown of that pipeline is very low probability.

We are developing appropriate contingency plans.

That would allow us to test.

Supply our refineries in Ontario that be in Sarnia, and nanticoke with with alternate sources of crude oil.

Both.

Through the CE way as well as two other other pipelines and rail alternatives.

Net are available. So again, we are watching it very closely.

We are.

Optimistic there won't be any impacts we just saw in the news yesterday, where there were some permits approved.

For the new line that will be constructed over the next few years to replace the line in question.

So we're watching that very carefully but.

But we are ensuring we've got adequate contingency plans in place as well.

Great. Thanks for that and then the follow up is just a quick one on on crude by rail.

The differentials have been kind of bouncing around the 13 to $14 not 100 <unk>. So can you just talk about your views on the economics of rail at current levels on how you see Imperial Israel program trending throughout the year.

Well I think as we look at.

Those those differentials.

It's in the range of being <unk>.

The economic for some increase in rail movements.

As you look back at last year, obviously, there's been a lot of volatility in the rail movements.

Yeah, no from highs maybe earlier last year of.

I don't know of 300000 barrels a day or something for industry.

Almost two 220 or de Minimis levels.

In the in the third and fourth quarter, but with the differentials widening I think we are starting to see increased.

Movements by rail.

Have the.

The current industry number, but I think it's probably a 150 175000 barrels per day in that range.

For Imperial.

We also are starting to ramp up.

Some movements on rail.

In the near term.

We're probably at the.

The 30 to 40000 barrel a day range.

And obviously, we'll continue to assess the economics of that going forward.

No.

As we look at inventory levels in.

In Canada, we have seen builds and inventory.

Over over the last few months.

As production has been restored and most turnarounds completed.

But even even currently we're still at very manageable levels.

Something probably just shy of <unk> of 30 million barrels whereas.

We've seen as an industry highs of like 37 million barrels last year.

So theres a lot of flexibility around.

Rail around storage around pipelines.

And so that's I think keeping the system well in balance and I think has also.

Reinforce the decision by the government to remove curtailment, which we're very supportive of.

Okay.

Great. Thank you.

Thank you and our next question comes from the line of Mena hub off with TD Securities. Your line is open. Please go ahead.

Thanks for taking taking my question. So just to just a two part follow up to William's question on Exxon's low carbon pushed through Ccs. So first off can you comment on whether Canada is on Exxon's list of 20, Ccs opportunities globally and I'm talking about the <unk>. The list of 20 of that was talked about it in the press.

Release, and then to take it back to you Imperial can you just give us a quick refresh on the top one or two priorities in driving down your own.

Carbon intensity and where do you think you could surprise the at the market on that front in the in the coming years.

Yes, Thanks for that question and as I said at the outset quite excited by that announcement.

I have not seen the explicit list of 20 project opportunities that were cited so I can't comment specifically.

What I can share with you though is.

From an imperial per.

Perspective.

We do see that.

That Ccs is an integral part of <unk>.

Our pathway to net zero.

And so it is something that is certainly.

On our radar screen something that that we are evaluating.

Teresa talked about this at our last Investor day So.

As you would expect in the coming weeks and months, we'll be engaging exxonmobil to further understand what their priority projects are and how any of our Canadian opportunities may fit into that.

On.

Yeah.

In the near term our focus is very much on reducing the greenhouse gas intensity of our operations.

We have a very clear goal and commitment in place to reduce that intensity of our oil sands.

By a further 10% by 2023, we've already achieved a 20% reduction.

Relative to where we were 2013 and now we are planning an additional 10% by the time, we get to 2023.

And we're doing that.

Through <unk>.

Both enhanced technologies around in situ operations.

But also.

Looking at ways to reduce.

The emissions from our from our operations, including.

Including boiler flue gas <unk>.

Projects.

And then more broadly for imperial.

As you are aware, we recently completed.

Our cogeneration project that stress Kona.

We already have bio fuels.

As a component of our products slate and our refining operations.

But clearly as we look at the impacts of the recently announced government.

Clean fuel standard or clean fuel regulation, we are going to continue to further technologies that will allow us to achieve those those objectives.

And again.

Partnering with Exxonmobil.

See what what benefit we can derive from their initiatives will be of part of our.

Forward.

Thanks, a lot Brian.

Thank you thanks.

Thank you and I'm showing no further questions on the phone lines and I would like to turn the conference back over to Mr. Dave Hughes for any further remarks.

Thanks, operator, so that includes our call this morning.

As always if you have any follow up questions or want to have any further discussion. Please don't hesitate to reach out to the IR team.

And with that I'll conclude by thanking everybody for joining us this morning.

Ladies and gentlemen. This concludes today's program. Thank you for participating you may all disconnect everyone have a great day.

[music].

Okay.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Imperial fourth quarter 2020 earnings conference call at the time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you'll need of press star one on your telephone please be advised.

Today's conference May be recorded if you require any further assistance. Please press Star then zero I would now like day on the conference over to one of your speakers today, Mr. Dave Hughes VP of Investor Relations. Sir. Please go ahead.

Thank you good morning, everybody and thanks for joining us on our fourth quarter earnings call.

Start off by introducing the senior management, we have on the call. This morning, We've got Brad Corson, Chairman, President and CEO, Dan Lyons Senior Vice President Finance and administration, Simon younger senior Vice President of the upstream John Whitmore, Vice President of the downstream and share of <unk>, Vice president of commercial and corporate development.

Our earnings press release that we issued this morning as well as our most recent form 10-K and all of those documents are available on SEDAR Edgar and on our website. So I would ask you to please refer to those.

We're going to follow our usual format. This morning will start with opening remarks from Brad and then Mcdonnell take us through the financial results and then Brad will take us through an operational update and once we're done that will move to the Q&A, so with that I'll turn it over to Brad.

Alright, Thank you, Dave well good morning, everybody kind of bladed happy new year.

Welcome to our fourth quarter 2020 earnings call.

I hope each of you and your families are continuing to stay healthy as we continue to manage through these very challenging times.

Well of 2020 was quite a year I would say.

I'm sure it was not at all what anyone expected back at the start of the year.

The challenges we were faced with as a society as an industry and as a company we're certainly unprecedented.

So I'm sure no one is sad to see 2020 behind us now.

However, I want to express just how proud I am with how imperial responded.

And with the results, we were able to deliver for those things that were within our control, particularly as it pertains to our operations.

And our financial results.

We're relatively good as well considering the economic environment.

We'll talk more about that in a few minutes.

I commented last quarter on how we have seen improvement on the economic environment versus the second quarter.

I think it's fair to say, though that the pace of improvement slowed in the fourth quarter as Canada started to deal with the second wave of COVID-19.

However, we continue to deliver strong results both on our operations and in our commitment to deliver material expense and capital spending reductions.

I would also like to mention our workforce.

Ensuring the health and safety of our workforce is always our top priority and our most important responsibility.

But even more so during a global health care crisis.

I am proud of how the organization continues to respond to these health challenges.

Watching out for each other and the communities in which we operate.

We had a number of opportunities to partner with our communities throughout the year and help them address some of their challenges and as always our employees, where there was strong support.

And just before we continue on.

I'd like to take the opportunity to highlight the fact that imperial was named one of Canada's top 100 employers for 2021.

We also received recognition as a top employer for young people and also top marks as in Alberta employer.

I'm, especially proud of this recognition after the challenging year.

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

Ongoing lower than normal global demand continued to impact crude oil and product prices.

And we did see the pace of demand recovery in the third quarter tempered somewhat in the fourth.

Earnings for the quarter were a loss of $1 $1 billion.

But that included a noncash impairment charge of $1 $2 billion.

This impairment related to our decision to not develop a portion of our unconventional portfolio.

And does not impact our current operations.

Not included in this impairment are the high value liquids rich portion of the company's unconventional assets portfolio, which we still plan to develop.

Therefore, this has no impact on the production estimates we of pre fees previously communicated.

Excluding this impairment our fourth quarter earnings improved from the third quarter and we also saw positive cash flow of over $300 million in.

Inclusive of a working capital headwind of just over $200 million.

These positive results were underpinned by a record production quarter in our upstream in fact, the highest in 30 years.

Which in turn was driven by an all time quarterly production record at Kearl.

<unk> continues to be a great story.

And I'll talk further about it shortly.

Our downstream and chemical businesses also continued to perform well and both delivered positive earnings in the quarter.

Production and manufacturing expenses were down nearly $1 billion or 15% versus 2019.

And you will recall that in March.

We've set of Capex reduction target of $500 million versus our initial guidance of one 6% of one 7 billion.

As of the end of the third quarter, our progress supported us reducing capital spending even more and we communicated updated guidance of around $900 million.

We ended the year in line with this most recent guidance.

Which I would note is around half of what we initially planned to spend for the year and $940 million lower than 2019.

Our focus for 2021 is I am continuing to deliver lower cost and more efficient spending.

Our strong operational performance and cash generation supported our ability to once again declare a dividend for the quarter, which we announced this morning at 22 per share.

Which is unchanged versus the last quarter and reflects our commitment to returning cash to our shareholders.

I know I've said this before but I think it's important to again highlight that even as we continued to manage through a challenging market environment, our financial resilience operational strength, our flexibility and integration along with a laser focus on cost.

Reduction opportunities allowed us to once again deliver strong results and meet our commitments to shareholders such as maintaining our dividend without increasing our debt.

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 for the full year, we recorded a loss of $1 $857 million, reflecting.

The global oversupply of crude oil coupled with COVID-19 related reductions in product demand as Brad noted our 2020 earnings also reflect a one time noncash impairment of $1 billion $171 million. While these results are disappointing our actions to substantially reduce cost at <unk>.

Typically adjust operations serve to mitigate these losses. It is also worth noting that EBIT in this challenging environment, our downstream and chemical businesses generated positive full year earnings of $553 million in $7 million to $8 million respectively.

Actually the net loss in the fourth quarter of $1 billion $146 million is down from net earnings of $3 million in the third quarter. However.

Excluding the one time impairment charge I, just mentioned results improved versus the third quarter, driven primarily by higher production in the upstream.

In the fourth quarter of 2020 compared to $27 million in the third quarter.

Looking at cash flow.

Full year 2020 cash generated from operating activities was $798 million, including unfavorable working capital impacts of $82 million.

Looking at the fourth quarter cash generated from operating activities was $316 million compared to cash generated from operating activities of $875 million in the third quarter of 2020. However.

This is the third quarter cash generated from operating activities in the fourth quarter was impacted by unfavorable working capital effects of around $700 million exclude.

Excluding working capital impacts cash flow improved sequentially.

Versus the fourth quarter of 2019 cash generated from operations were down just over $700 million, reflecting unfavorable working capital effects of $464 million.

Despite negative working capital impacts we ended the quarter with $771 million of cash on hand.

Moving on to Capex.

Capital expenditures in the fourth quarter total of $195 million up $54 million from the third quarter full year capital expenditure totaled $874 million down $940 million from 2019 in line with our revised guidance of about $900 million.

The reduced spending compared to last year is associated with completion of the current crushers lower unconventional capex the suspension of the Aspen project lower pipeline spending and smaller amounts across a number of other areas as we discussed at Investor Day in November 2021.

Capital expenditures are expected to be approximately $1 $2 billion.

Turning to dividends.

We paid dividends of 88 per share during 2020, marking the 26th consecutive year of annual dividend payment increases by the company in the fourth quarter, we paid $161 million on dividends of 22 cents a share compared to $166 million 22 per share in the fourth.

<unk> of 2019 going forward, we remain committed to returning cash to shareholders via dividends as Brad noted earlier today, we announced the first quarter 2021 dividend of <unk> 22 per share payable on April one now I'll turn it back to Brad to discuss our operational performance.

Thanks, Dan So now let's move on and talk about operational performance for the quarter and I'll start with production.

Upstream production averaged 460000 oil equivalent barrels a day in the fourth quarter, which was up 62000 barrels per day versus the fourth quarter of 2019.

And most importantly represents the highest quarterly production in 30 years.

This excellent performance was driven by record production at Kearl.

But we also saw a strong performance in the fourth quarter at both both cold Lake and Syncrude.

These results also reflect a production increase of 95000 oil equivalent barrels per day versus the third quarter of 2020.

As a reminder, we took the opportunity to optimize our turnaround plans in the quarter or in the current environment by advancing of curl and extending the work, enabling us to to run unconstrained in the fourth quarter.

So now let's move on and talk about each assets, specifically starting with Carl.

2020.

Was just a great year for Carol.

It seems like each quarter, we've been able to talk about new production records at Kearl has delivered.

In the fourth quarter is no different in.

In the quarter, we produced 284000 barrels a day on a gross basis of curl, which is an all time quarterly record for the asset.

This is 95000 barrels per day higher than the third quarter and 76000 barrels per day better than the fourth quarter of 2019.

We also saw the highest month on record in October at 301000 barrels per day.

We started the year with the new supplemental crushers at Kearl.

Which have exceeded our expectations.

And as you can see from the fourth quarter performance we delivered.

Our full year production of 222000 barrels per day was slightly ahead of our revised guidance of 220000 barrels per day.

But admittedly short of our original guidance of 240000 barrels per day from Investor day, a year ago. The.

The difference can be attributed to the decision we made to modify our maintenance plans and extend our turnarounds with reduced staffing to manage COVID-19 risks.

Production performance of Curdle has remained strong into the early part of 2021 and in fact the assets has just now set another production record with the highest January production in its history.

We expect January production to come in above 250000 barrels per day.

And we're supportive commodity prices and the absence of mandated production curtailment, we're very encouraged by the path, we're on and the momentum we have built.

Now with respect the operating costs Simon mentioned at our Investor Day, we were sitting around the U.

U S $20 per barrel Mark in November.

Unit production and manufacturing expenses have continued to track at this lower level as we continue to focus on structural improvements by leveraging technology ongoing implementation of all of the economists haul trucks just to mention a few key items.

For the full year production and manufacturing expenses at curdle, where almost 20% lower than 2019.

Combining this cost reduction with turtles increased production.

We see that curls unit production and manufacturing expenses were down over 25% from 2019.

Based on this performance we are very confident in our ability to deliver on our U S $20 per barrel guidance for this.

This year of 2021.

So now let's talk about Cold Lake production at Cold Lake was 136000 barrels per day for the quarter up 5000 barrels per day versus the third quarter.

And down 4000 barrels per day versus the fourth quarter of 2019.

Near term, we remain focused on base performance at Cold Lake and continue to expand to expect volumes will average of 130000 barrels per day in the near term, which is our guidance for 2021.

Our focus on optimizing the base operations and driving reliability enhancements resulted in the best monthly unscheduled downtime performance in December since 2016.

In addition.

<unk> around well work optimization provided 3000 barrels per day uplift.

In 2020.

The operations continues to work on other opportunities to drive value, including steam schedule optimization and the rollout of digital initiatives.

Now, let's move to Syncrude Syncrude average production of 87000 barrels per day, our share in the fourth quarter was the highest quarter of 2020.

Up 20000 barrels per day versus the third quarter due to the absence of the turnaround activity executed in the third quarter of this year.

This production level is also up 20000 barrels per day versus the fourth quarter of 2019 also due to the absence of turnaround activity. We saw in the fourth quarter of 2019.

You will recall that the site performed the majority of its major turnaround work in the second and third quarters of 2020.

As you know this project will provide improved operational flexibility for syncrude supporting increased reliability and utilization.

As you are aware the Syncrude owners reached an agreement in principle for suncor to take over operations at Syncrude.

The owners are currently working through their internal approval processes and imperial is fully aligned with the change in operator ship that is expected to happen later this year.

Now, let's move to the downstream.

We refined an average of 359000 barrels a day in the quarter, which was up 18000 barrels a day versus the third quarter and up 38000 barrels a day versus the fourth quarter of 2019, Utah.

The utilization in the quarter was 85% versus 81% in the third quarter and 76% in the fourth quarter of 2019.

The improvement over 2019 was due largely.

To the absence of some.

2019, NAND nanticoke turnaround activity. Although this was also slightly offset by continued weaker demand due to the pandemic.

The sequential improvement was due to increased diluent manufacturing of stress Kona and replacing purchase product with our own refined products.

19.

While the third quarter of 2000, Twenty's showed significant demand improvement.

That recovery was somewhat tempered in the fourth quarter.

The demands continue to be challenged by the ongoing pandemic and we are now seeing the impact of new community Lockdowns in certain parts of Canada, particularly Ontario and Quebec.

This continued uncertainty makes it difficult to forecast refinery utilization in the near term.

Petroleum products sales in the fourth quarter were 416000 barrels per day.

41000 barrels per day lower than the fourth quarter of 2019, and 33000 barrels per day lower than the third quarter largely due to pandemic impacts on fuel demands.

In the third quarter, we saw that across the country's total industry demand for both motor gasoline and diesel were approaching to much closer to normal historic levels.

I also mentioned at the time that we were continuing to see volatility however, and in January we are now seeing industry demands more in the 70% to 75% of normal range for gasoline.

And 35% to 40% for jet with diesel.

More closely approaching historic levels.

Looking forward there continues to be a high degree of uncertainty due to the various provincial and federal lockdowns as well as travel restrictions.

Despite these volatile and challenging conditions, our downstream business set new annual records for asphalt sales.

As well as the amount of equity.

Current crude we can process at our Sarnia refinery.

We successfully expanded our marine fuels offer and Vancouver, and established imperial as the market leader in the port of Vancouver.

Our integrated business showed unique strength when we built an alternative diluent supply chain for curl in just a few days following the shutdown of the players pipeline.

And the strength of our integration continues today as we set new records in December for the amount of diluent, we produced the stress Kona, which is then shipped to our cold Lake site.

So we continue to see improvements and new performance records. Despite these challenging market conditions.

Our downstream business remained profitable in the fourth quarter, while many of us downstream competitors were unprofitable.

This speaks to the structural advantages in the Canadian industry and for our assets that we discussed at our recent Investor day.

Those include resilient margins built from low cost crude and import parity rec pricing proprietary terminals on logistics and unique routes to market.

Our branded resellers and wholesalers.

All of which are significantly more profitable than similar business lines in the U S. We believe our Canadian business is well positioned to continue to compete favorably in 2021.

Moving to chemicals, our chemical business saw a slight drop in earnings in the fourth quarter at $23 million.

Down $4 million versus the third quarter.

This decrease was driven by lower volumes and higher expenses associated with planned maintenance activity at our Sarnia chemical facility in the quarter.

However.

Earnings were $21 million higher than the fourth quarter of 2019, as we saw improved sales volumes and favorable impacts of ongoing cost reduction efforts given the structural advantages the business enjoys through the integration on location of our facility our chemical business continues to be profitable on the.

Current market delivering positive earnings each quarter of this year.

I'd like to wrap up by highlighting what I see as some pretty noteworthy accomplishments for imperial in 2020.

First and foremost, we managed our capital and cost structure to preserve financial strength in a very challenging demand and business environment.

We took that decisive action at the onset of the pandemic back in March.

And with full year results out now.

<unk> exceeded the commitment we made to reduce spending by $1 billion.

In fact, our production and manufacturing costs alone are down almost $1 billion on a year over year basis and in addition, our capital is down over $750 million versus the midpoint of our original guidance.

So versus 2019. This represents a reduction of close to $2 billion for both production and manufacturing costs.

And capital expenditures combined.

<unk> performance in 2020 was nothing short of outstanding.

New supplemental crushing capacity was a highlight and supported operations throughout the year as did many other enhancement initiatives, including autonomous haul trucks for example.

Although our original production guidance for crude oil was 240000 barrels per day, we revised this down during the year as we chose to take prudent actions to address the challenges of the year presented.

Our total volume met.

Met this revised annual guidance of 220000 barrels per day, even after having to shut down for a third party until you on pipeline outage in the third quarter.

We ended the year strong producing over 280000 barrels per day in the fourth quarter and are well positioned to deliver on our 255000.

Barrel a day guidance for 2021 for Carl.

Downside, while at the same time positioning us well to benefit when oil prices increase.

I believe the strength of our Canadian based downstream, including chemicals became very apparent 2020.

Our downstream was profitable three out of four quarters.

Last year in our chemical segment was profitable in all four.

As Dan noted despite the challenging business environment, we earned $553 million on the downstream and $78 million in chemicals in 2020.

This result reflects the structural advantages.

Debt, we have in relation to crude supply and logistics in the product markets we compete in.

During 2020, supporting our ability to generate cash from operating activities of about $800 million.

We place a high priority on the dividend and chose to maintain it throughout 2020, despite a highly uncertain environment.

That decision speaks to the high degree of confidence management and the board has in our existing portfolio of assets, our financial position and the plans we have for further improvement.

And with our strategy and a lower corporate breakeven such as we outlined at Investor Day, we are well positioned to continue to return cash to shareholders through dividend growth and share buybacks over time.

The pandemic has presented a number of challenges to the organization.

Not the least of which is managing the health and safety of our workforce.

The adjusted major planned turnaround activities in 2020, which was no easy task in order to accommodate fewer workers on site and COVID-19 protocols.

And at the same time, we were able to complete those turnarounds with more of our own personnel, which reduce costs.

Finally, we adjusted the timing of turnarounds to better align with the demand environment.

So that meant pulling forward activities, so we'd be operating at higher rate higher rates when demand started to recover as it did in the second half.

I am proud of the organization for both the decisions, we took with respect the turnarounds and the way in which we executed on those adjusted plans.

So when you add all of that up.

Really some pretty impressive achievements on a year that presented unprecedented challenges.

And it also adds up to imperial being very well positioned to continue to deliver value through 2021.

And as many of you are aware 2020 marks the 140 <unk> anniversary of the Imperial oil.

Over the past 140 years Imperial has built a proud reputation for hard work innovation and meeting some of the candidates toughest energy challenges.

In 2020 was no different.

So with that I'll turn it over to Dave for the Q&A session. Thank you.

Thanks, Brad we had a few questions submitted ahead of time, so we'll start out by addressing a couple of those and then we'll move over to the Q&A line.

So Brad the first question comes from William Lacey from ATB capital markets.

The capital for the quarter was unusually low below low end of expectations, specifically upstream capital was just the $107 million based on the current state of operations. What do you estimate your sustaining capital requirements look like going forward.

Yes.

Thanks for your question William.

In the first quarter of 2020 as I mentioned, we committed to an aggressive plan to control capital and expense costs for the year.

Which was in direct response to the market conditions, we were experiencing.

So what you saw on the fourth quarter was really a continuation of that program, which brought our total capital expenditure for the year to $874 million.

Which was less than 50% of.

2019 and in line with our updated guidance, we gave late in 2020.

And so looking ahead as we've guided previously at our Investor Day, we do expect to see a moderate increase in our sustaining capital in the coming years as we invest the progress those key projects that are key to the future of the company.

<unk>.

And for next year, we've indicated of total capital guidance of $1 $2 billion.

Yeah.

And so we're going to continue to benefit from our low sustaining capital needs, which equate to about $5 per barrel.

Which is about $1 $1 billion average over the next few years.

So bit of an increase over 2020.

As we showed you at Investor day, but also noteworthy as we look at our five year plan for capital expenditures, we expect to be down about 30% versus what we had laid out a year ago at investor day, but at the same factor.

So again I think we've taken very prudent steps to manage capex consistent with the external market conditions, but balanced with what we think are critical sustaining.

Capital requirements for the future <unk>.

Included in our plans are also some selective growth opportunities.

Debt yield high return.

And so together.

Thanks again.

I think this is a really exciting announcements by Exxonmobil last night I think we're all still.

Working to understand the details of that but I think it does demonstrate.

The increasing importance of progressing low carbon gross opportunities in technology.

And this is an increasing area of focus for ourselves at Imperial and obviously exxonmobil as we both work to reduce our carbon intensity going forward.

In terms of.

Our ability to to garner benefits from that synergies as I've talked on on multiple occasions, one of the distinct advantages.

The partnership we have with Exxonmobil as our majority shareholder is that we are able to access.

Many of.

There.

Systems the processes their experience.

And their technology.

And I would view this as just one more example of that where we will be able to learn from their advances in this area, especially carbon capture and sequestration, which I think is of critical component.

For our industry and certainly society.

As we all look to define a path to net zero.

And achieve the goals of the Paris accord.

So I'm very excited about Exxon mobil's announcements I look forward to engaging them further as as they put their organization in place and and identify key opportunities for pursuit.

Okay.

Okay and with that operator can we go to the live Q&A line. Please.

Sure Kian. Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone if you wish to remove yourself. If youre. An question has been answered. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated.

Our first question comes from the line of assets Sam with Bank of America. Your line is open. Please go ahead.

Thanks, Good morning, everyone, Brad you've been Crystal clear about your sustaining capex and multiyear growth project outlook, just wanted to flush out a little bit more on that Youre talking about $1 2 billion Capex in 2021, and I think at the analyst day, you talked about of $200 million to $300 million per year.

On an average growth project given any improvement in operating environment. Now there are some there are a lot of uncertainties there.

Should we expect growth projects to be.

Moving forward or you are kind of pretty much done in a $1 $2 billion of Capex for this year.

Yes, thanks for that question.

I think it is important to continue to reflect on the current and business environment and and as I've talked in the past.

Our ability to adapt.

Is quite critical as we go forward.

As we sit here today.

We're certainly encouraged by the.

The price environment that we see.

On the growth we've seen in commodity pricing over the last couple of weeks.

Certainly that May tempt you on.

Two to increase your capital and growth program.

Program for the year, but as we reflect on it honestly.

We're going on.

Keep focused at that $1 $2 billion target level.

Are we seeing.

We've reflected on the portfolio of projects, we think that's the prudent level not just add.

On our pricing back in the fourth quarter of last year, but also as we sit here today.

Okay.

We have a five year plan that we laid out at Investor day and in the $1 2 billion is very consistent with that.

So I see of staying the course, we're going to continue to look for more efficiencies and we're going to continue to.

Judge whether it makes sense to to adjust those plans in any way but.

The kind of given the robustness of those plans given the uncertainty of the external environment I think it makes sense to stay the course for now.

My follow up is on.

The <unk> sale of cancellation and just wanted to get your.

The broader thoughts on what it means for the industry and what it means for imperial.

You guys have.

All of it.

Advantage in terms of midstream terminals and logistics, but just wanted to get your updated thoughts.

Yes, obviously.

Very important announcement.

So of weeks or so ago, I would say very very disappointing.

For the industry and I would just say from my perspective very disappointing for the country.

I think it is in our best interest.

As an industry and as the country to ensure that there is.

Sufficient.

Gross opportunities.

For the crude that is produced here.

I think it's important to have optionality in the market.

For the producers so the cancellation.

Of the pipeline permits is quite quite unfortunate.

Because of the limitations it will cause <unk>.

Of the jobs that is effects.

And so I'm I'm.

I am hopeful we continue to find a positive way forward I would say for imperial.

Again, we obviously strongly supportive of the pipeline.

We do have some capacity reserved on that pipeline Fortunately for us we do see enough other options that we don't feel like this will cause us any constraints.

<unk>.

But nonetheless, we prefer to maximize flexibility and so the fact that this has been cancelled is quite unfortunate.

I appreciate the color thanks Brent.

Thank you.

Thank you and our next question comes from the line of Greg Pardy with RBC capital markets. Your line is open. Please go ahead.

Yeah. Thanks, Thanks, good morning.

You've made.

Made tremendous strides within the organization from the standpoint of reducing costs youre talking about essentially about $1 billion down year over year.

Could you comment about syncrude in the bi directional pipeline is in place now.

Utilization rate in the fourth quarter Whats the game plan at Syncrude from.

From a cost perspective in 2021 would be on.

Well thanks for your question, Greg and good to hear from you.

And first I'd say just thanks for acknowledging the progress we've made as an organization here I'm quite proud of the.

The entire imperial workforce for what we've been able to deliver under some very challenging circumstances.

As I look at Syncrude. This is obviously, a very key asset for us.

And as we've talked on other occasions.

<unk>.

There is a significant opportunity to fully leverage the owners expertise in.

In the case of the joint venture.

Work very closely with Suncor and the other owners.

Two identify and further plans for suncor to become the operator.

As I mentioned and Suncor has mentioned, we believe we'll will yield significant operational and cost benefits.

To the tune of $300 million per year.

In addition to that broad.

Strategy change in terms of operator ship.

Yeah.

Specific investments like the bi directional pipeline, which has now been completed.

I think we will also add significant value to that venture.

And the.

On the advantage of the bi directional pipeline is that it will provide more flexibility.

Two of Syncrude at periods, where they have impacts to their mining operations or the coker.

So broad.

Broadly.

<unk>.

We expect to see.

The strong improvement in cost performance and reliability performance, an upgrader utilization.

And there will also be synergies that debt Syncor suncor will bring to the party as well.

So again, we look forward to 2021 as we work through the transition details.

And I look forward the reporting progress on those in future quarters.

Thanks, Greg terrific.

And maybe just a quick one here, but a broader question like you kind of a ton of flexibility financially you could build cash you could raise your dividend you could.

You can repurchase shares.

Just wondering what your appetite is these days for for buybacks versus pursuing a more conservative strategy, where you're replenishing cash just sort of given the year, we've just gone through.

Well thanks for that question Greg.

As we've talked at Investor day, and on other occasions, certainly a key priority of ours is to maximize the.

The cash generation the potential of our existing assets.

And that has been our focus in the 2020 that will continue to be key.

Cute area of focus in 2021.

As we shared at Investor day.

Given the current price environment and really across a wide range of price environments, we do see our ability to grow our cash position.

And again Thats, driven by the strong operational performance and and and.

And cost performance that we've demonstrated and we built into our plans for for this year of 2021.

And so then that.

Will will likely leave us with the.

With some.

The favorable choices to make about how we allocate.

That cash that capital across a range of opportunities.

Certainly.

Our priority is to return that cash to shareholders.

And so as is often the case, we will be evaluating.

The options around increasing the dividend as we've done for now over 26 years.

We'll be weighing that against the buyback opportunities.

And longer term against other.

Capital investments in <unk>.

<unk> projects, but but in the near term I think it's our focus will be on returning that cash to the shareholders in the form of dividends and buybacks.

Terrific. Thanks, Brett.

Thanks, Chris.

Thank you and our next question comes from the line of Dennis Fong with CIBC World markets. Your line is open. Please go ahead.

Thank you good morning, everyone and thanks for taking my questions on the first one is maybe a bit of a follow on to Greg in his question.

You mentioned, obviously, a large focus around returning value back to shareholders via dividends and buybacks.

Obviously this is the very kind of.

Volatile and constantly changing environment and you mentioned.

Kind of.

The focus on flexibility. So what are some of the key I guess signs of Android conditions that could drive we'll call it adjustments to your existing five year plan.

Are there any kind of major catalysts that you're focusing in on that wood.

Allow you to focus a little bit more on growth projects versus returning value to shareholders and what comfort level as kind of surround that that situation and I'm going to follow on thank you.

Yeah.

Alright, I might ask Dan to the comment a bit on that.

Yes, I would say.

Our committed as we talked about at Investor day, the capital discipline and pursuing.

Sure de bottlenecks.

The return of relatively low cost projects on our existing assets. So I think thats our focus now obviously we have.

Our stable of projects that we could advance larger projects.

But that's not really our focus at this moment, we'll always keep our eyes open, but I think for the foreseeable future, we're looking to generate cash return it to shareholders.

We're not looking to advance major step out projects.

Obviously, we will keep our eyes open whether it's on.

Organic or inorganic if theres, an opportunity will be open to that but that kind of focus at this time and I cant say there is the magic formula of oil <unk>.

<unk> or whenever we start investing in those large projects I think that's not really our focus now we're looking to generate cash returns to shareholders of what we have when we see a lot of opportunity for further growth as well and volumes as well as expense reductions that will increase our cash flows.

Okay, and I would just debt.

If I might I would just add to Dan's comments.

Again.

In the near term for the next.

The next few years.

We want to continue to focus on our existing assets, we see that there is significant value there.

And so for that reason.

We're being very conscious about non.

<unk> project not progressing.

The major new projects, new Greenfield projects.

We think that's prudent in this environment and again, we see that there is significant value that can be captured from from the existing assets.

We do have opportunities for for smaller select growth opportunities and.

And that's what we've been doing at assets like <unk>.

<unk> in Cold Lake and there's examples in the downstream as well and so that'll be our focus for the next few years.

Thanks, that's actually a really good segue to my follow up there so.

Obviously, you guys have performed very well.

Through January and Q4.

And given the strong performance hub.

Should we be thinking about you mentioned that there are a lot of kind of cost savings initiatives that you believe will provide some resilience to the lower unit opex that you've seen at the facility can you talk a little bit of around what was the driving factor.

Or the division of the driving factors between kind of of the higher throughput versus kind of on some of the projects that you have been working on and then can you also discuss a little bit of around some of the smaller economic projects that you referred to you how could those potentially contribute to extending the timing between turnarounds <unk> improving the uptime.

On an annual basis at Carl Thank you.

Well thanks, Thanks for that question.

I like talking about Karl it's such a positive story.

On.

When I think about the expense reductions we've made there.

We've reduced unit costs by by about 25% this year.

And we've got an intense focus on.

Continuing that pathway too.

$20 per barrel U S cost and and I'm hopeful that we'll continue to do even better in that regard.

And as I think about whats continue what's contributed to higher production rates, what's contributed to lower expenses.

There's a wide range of things.

Certainly the supplemental crushers have had the impact on improving our reliability.

But on top of that we broad intense focus to every dollar we spend at that site.

To ensure that it is necessary it is value accretive we're employing technology.

Through things like autonomous haul trucks.

Debt reduce our costs by up to $1 per barrel.

We're also using other technology around.

Drones for example, Simon has talked about that at Investor day allows us to be more cost effective and efficient with many inspections.

So those are just a few.

But.

It's really the collection of a lot of things that allow us to deliver those higher volumes in the unit cost and the good news is we're not done.

We have a whole inventory of additional smaller scale projects.

Smaller cost lower cost initiatives that I believe will continue to contribute to higher volumes and lower costs.

In addition.

We are looking.

Right.

Closely at moving to a single plant turnarounds per year.

By 2022.

That again is another example of being able to.

Extend the run time between turnarounds, which will.

Increase our volume and productivity and also lower annual costs.

And then of course, there continues to be other debottlenecking on activities that will look to and as we've stated.

To get US there so I'm confident we will achieve that with time.

Brian we're going to go back to a couple of the pre submitted questions now the first one comes from Manav Gupta from credit Suisse.

Had mentioned this in the opening remarks, but maybe just to reiterate can you talk about the performance of Syncrude during the quarter as the bidirectional project complete and how does the benefit the assets.

Yes, Thanks for that question Manav, and I think maybe between my remarks and <unk>.

One of the recent questions.

Probably answered most of that but just to reiterate.

The construction work on the bidirectional pipeline was completed in the fourth quarter and we have started to transfer product.

In the pipeline as as needed.

So we are starting to see some benefits from that and the way we derive benefit from that.

May recall theres actually two pipelines.

One that that handles bitumen the other that have handles.

Our fluids and so.

The one that handles bitumen supports us by giving us flexibility to import bitumen during periods of mind downtime.

But also gives us the flexibility to export pitch them in when the Coker is down and then and then the sour fluids pipeline will allow us to import.

Fluids, when our coker is down.

So again, just having that flexibility during periods of both scheduled and unscheduled downtime will ultimately increase the reliability of the throughput and profitability of of of Syncrude. So we're quite excited about it.

Okay and on that had a follow up are you impacted in any way of the Dakota access pipeline has forced the shutdown.

Yes, it's a good question.

We're not.

Directly impacted.

If if dapple were to shutdown because we don't transport any crude on that pipeline to feed our refineries.

However.

There could be indirect implications because of the shutdown could force.

Bakken producers to seek other egress alternatives, which could impact.

Regional light crude oil differentials and.

On the.

Under most scenarios you would probably.

Imagine.

Debt that those differentials would widen and.

That would benefit.

Our refineries because we do run predominantly light.

<unk> crude feedstocks. So we're obviously keeping a close look on look at this as we have for the last many months as theres been some uncertainty around this pipeline.

How is this going to evolve and what will differentiate the imperial story in your mind versus peers also focused on the same.

Well.

In summary, I would say we are highly confident in our ability to compete in this marketplace.

And thats driven by.

By a wide range of factors it starts with our assets the quality of those assets.

As I talked on many occasions, we benefit by a high level of integration and our ability to capture synergies with that integration.

The relationship with Exxonmobil.

Think provides us the competitive advantage.

And then when you think about what we've achieved this year.

In terms of.

Cost reductions capital discipline all in.

And production.

<unk>.

Which all together have allowed us to significantly lower our breakeven costs and so that's what ultimately will.

Q4 2020 Imperial Oil Ltd Earnings Call

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