Q4 2020 Suncor Energy Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to Suncor Energy fourth quarter 2020 financial results call. At this time, all participant lines on a listen only mode.
After the speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need to press star one on your telephone.
You require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Trevor Bell Vice President of Investor Relations. Thank you. Please go ahead Sir.
Thank you operator, and good morning, everyone. Welcome to Suncor is fourth quarter earnings call with me. This morning are Mark Little President and Chief Executive Officer, and Alister Cowan Chief Financial Officer.
Please note that today's comments contain forward looking information actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our fourth quarter earnings release.
As well as in our annual information for them and both of those are available on SEDAR, Edgar and our website for Suncor Dot com certain financial measures referred to in these comments are not prescribed by Canadian GAAP for a description of these financial measures. Please see our fourth quarter earnings release following formal remarks, we'll open.
And up to call on the questions now I'll hand, it over to Mark for his comments.
Good morning, and thanks for joining us during the third quarter call at the end of October I noted that the recent operational performance did not reflect our focus on operational excellence.
Committed to operate our assets safely and reliably.
Well I'll discuss reliability a little later in the spirit of our value of safety above all else I wanted to address safety first and the recent incidents at our two sites.
In a matter of weeks, we've had two tragic safety incidents.
In which three of our contractors lost their lives.
Taylor.
Lastly, Miller.
And Patrick points right.
After the incident.
Net with the people involved in the operations.
Those involved in the response and recovery efforts.
Suncor leadership has also engaged with the families.
As devastating as this has been for all of us.
I can't even comprehend how difficult this is on the families and loved ones.
People, whose lives are changed for ever.
And I'll tell you on behalf of myself and the Suncor leadership team on.
Our heartfelt condolences and thoughts and prayers go out to tailor lastly.
Patrick's families friend.
Friends and co workers.
We're gravely concerned about the tragic events, which occurred despite suncor is commitment to a strong safety culture and safety standards protocols.
Protocols and practices.
This performance is unacceptable.
To us.
Our employees and our contractors and our shareholders.
We expect better of ourselves.
The executive leadership team and I are committed to making sure we have a safe workplace.
So we've taken action with the following measures.
We're investigating to understand how these incidents occurred and most importantly, what must be done to prevent them from ever happening again.
Our investigations are rigorous.
We will work closely with our contractor organizations and implement the changes required.
We have initiated a third party review of our safety procedures and specifically in the mining area.
These incidents occurred.
This is expected to be completed by the end of the first quarter.
Our executive team has mapped with the Suncor senior leaders from across the entire organization to review the incidents discussed the concerns and recommit to our safety journey.
This is a critical part of our focus on operational excellence.
And we've also held a series of safety stand downs across the company to refocus on recommit ourselves for.
Free workplace.
Yeah.
And carrying for each other.
The most recent one we just held on Monday this week.
Which over 6000 of our personnel attended.
We are committed to sales.
Safety, and and a safe workplace and insist that every employee and contractor share this commitment.
Let me assure you.
We are taking all appropriate actions to ensure safe and reliable operations.
All of our assets.
As we've stated in our values.
And safety above all else.
I would ask that you join me on taking a brief moment of silence to remember Taylor Lastly, and Patrick.
Yeah.
Thank you.
I would now like to change gears and talk about Suncor fourth quarter results.
Which clearly demonstrate the value of our physically integrated model we.
We delivered strong operational results, reflecting reliable performance across our assets.
We achieved 95% utilization in the downstream on industry best that outpace Canadian peers, I almost 20%.
Throughout the volatility of 2020, our downstream business continued to outperform its peers.
Demonstrating that global access and competitiveness of our asset base and the benefits of integration with our connection for the customer.
As we indicated on our last quarterly call. We completed the work at base plant and made the tough decision to take our maintenance outage at fire bag to address some operational issues and complete the debottleneck of the facility.
Well, that's created variability and fourth in the fourth quarter. The average performance was quite strong with our upstream business producing 769000 barrels a day despite completing the significant maintenance in October.
Combined the base plant on Syncrude operators produced over 514000 barrels a day of synthetic crude oil.
Our second best quarterly synthetic production in.
Our history.
Supporting our continued value over volume strategy and maximizing the value of each barrel.
Oil Sands base plant achieved 91% utilization, despite the maintenance which concluded in October.
Syncrude also had an excellent quarter with 101% utilization and cash cost of almost $28 a barrel one of the lowest unit quarters in some time.
As planned Fort Hills recorded over 62000 barrels a day of production net to Suncor.
As the second train ramped up with continued focus on cost discipline on.
Current guidance reflects average gross production of 120 to 130000 barrels a day for the first half of 2021 ramping to full rates by the end of the year.
I believe a better indication of our solid performance, though is the production volumes for the two month period from November and December once maintenance activities were completed.
During this period, we averaged 846000 barrels of production, which is an all time two months production record for the company.
This level of operating performance has continued in January.
One other contributing factors for this production, what's the capacity upgrade at fire bag for 215000 barrels a day so our timing on that was very good.
We continued to deliver strong cost performance in the quarter exceeding our targets for operating cost reductions and ended the year towards the low end of our unit cost guidance range for all of our assets.
For the year, our total operating costs were $9 9 billion compared to 11 2 billion in 2019, a reduction of one 3 billion, which exceeded our target reduction by $300 million.
In the downstream, we had another quarter of reliable operations, which we leveraged through our marketing and logistics expertise and in fact, despite the market volatility we averaged 95% utilization for the quarter.
Lastly, we completed several highly accretive investments, including the berard BC storage terminal expansion, increasing our flexibility and global access capacity.
We commissioned the interconnecting pipeline between Suncor oil sands base plant and Syncrude.
Increased the nameplate capacity at fire bag by 6%, we increase the nameplate capacity of Edmonton refinery by 3% and we deployed autonomous haul trucks at Fort Hills.
Throughout 2020, we continued to invest in projects to drive increased funds flow rather than reducing our capital program for sustaining capital levels or below.
As a result, we expect these and other completed investments to generate $400 million of incremental free funds flow in 2021 as part of the $1 billion incremental annual cash flow target by 2023 and $2 billion by 2025.
Looking to 2021, we've restarted construction of the Covid co Gen facility at base plant and the 40 mile Wind project, which is already accounted for within our current capital guidance.
That said, despite the commodity price outlook will be well.
Despite the commodity price outlook being well above our planning basis for 2021, I can assure you that we will not increase our 2021 capital guidance above our current range.
Let me say that again, we will not increase our 2021 capital guidance above the current range and in fact, we continue to target the middle of our capital range.
I am confident in the value that our co Gen and wind investments will add to Suncor is annual free funds flow and the long term value to our shareholders. While also making some material steps in addressing our greenhouse gas emissions.
Continuing to prudently invest in these types of projects strengthen some cores.
In an increasingly volatile environment.
Now I'll hand, it over to Alister to go through our financial highlights.
Thanks, Mark and the for.
Fourth quarter Suncor generated $1 4 billion of funds flow from operations. Despite the main zone. So the beginning of the quarter.
Now this excludes the onetime provision for future payment of $186 million related to a box. So guarantee provided in 2018 and two thirds of the 19 for the Keystone XL pipeline can you share the continued to progress on time.
These results demonstrate solid performance across the portfolio on the volume over physically and reputed model in the world with volatile commodity prices.
Generated $300 million of cash flow after all sustaining capital on dividends.
Our price realizations remained strong during the fourth quarter, we saw bitumen price realization improved by $4 60 per Boe Canadian.
Benchmark crude prices improved by only $1 per Boe Canadian.
<unk> recorded $450 million of operating funds flow.
Lighting seasonally weaker headline cracks on lower margins on higher volumes of exports at bottles.
This also reflected a smaller playful lift uplift as compared to Q3.
Driven by relatively flat benchmark pricing for Q4.
Adjusting for utilization with BOE bolstered by taking advantage of our broad terminal expansion that Mark mentioned.
In Q4 was seasonally weaker demand on in advance of our 2021 planned maintenance, we leverage the fixed cost nature of our business on story.
Build refined product inventory.
Recall that we successfully implemented this strategy for the Edmonton refinery turnarounds in 2018, we expect to capture maximum value for this inventory will be sold into the summer driving season, and an improving economic environment.
As Mark said, our full year operating expenses of $9 $9 billion came in the lower target. This is a reduction of $1 $3 billion from 2019.
300 million or 30% more than our previously communicated target.
Similarly for 2020 capital spend was comfortably within our guidance range, which removed $1 $9 billion in capital from the midpoint of our original guidance range for 2020.
We achieved these reductions while continuing to prudently invest in future cash flow growth completing several highly economic free initiatives.
As highlighted.
As you saw on our December guidance, we had estimated at that time.
We pay at least 500 million to 1 billion barrels a day on may $500 million of share repurchases.
But as for lower commodity prices on today's levels.
We all know the macro pricing environment has improved since our guidance release.
Should this be sustained or allocation of incremental funds flow will be to debt reduction on further increasing the buyback.
I'll reiterate Mark's comment the other okay.
Capital guidance range will not increase with higher commodity price.
Let me address shareholder returns.
At this time, we will not increase the dividend.
Adding to use of funds flow to increase the share buyback as we believe our stock is deeply discounting both on an absolute and relative soon.
We remain committed to providing our shareholders with a 68% on your cash return.
Dividends remain a big part of our shareholder returns on does reduce costs and enhance margins from the existing asset base. This will provide the foundation to increase the dividend going forward.
So for clarity on our updated range is our current commodity prices.
For debt repayment or one to $1 5 billion in share buybacks 500 million for $1 billion.
No I do recognize the many analysts and investors use that oil and commodity price assumption.
So for sure.
Should commodity prices increase further we expect additional funds flow to be allocated approximately two thirds to debt repayment on <unk>.
One third two share buybacks again as Marc said on I have said, we will not increase our capital from our current guidance range.
Market when it hand, it back to you to talk about EBIT.
Thanks Alastair.
I'd like to emphasize an important point bolt I'll start and I have made as prices improve and cash flow increases we will allocate those patents for the balance sheet and shareholder returns.
I don't think I need to say that our capital program will not change, but it won't.
Reflecting on the 2020 performance.
Across all of our assets it did not necessarily meet our expectations nor that of the shareholders.
Further crude price weakness on a collapse in consumer demand unusually impacted both sides of our physically integrated model our share price and its relative underperformance to peers reflects these challenges the management team and I are committed to restoring our performance to not only historic levels, but to.
Further strengthening by delivering on the $2 billion cash flow commitment we made previously.
In fact, I am very encouraged by the progress, we're making to become a stronger more resilient organization.
Since the completion of maintenance on October our asset performance has been extremely strong and January upstream production and downstream utilization was consistent with the performance in November and December reflecting the best three months production period in the company's history.
Several actions taken in 2020, we will have a positive impact to cash flow in 'twenty, one and beyond including lowering our cash breakeven to maintain financial health and committing to significantly reduce our operating costs on capital spend we successfully exceeded these targets in 2020 and we will.
Continue to structurally lower costs this year and going forward.
Changes, we made to operate Fort Hills resulted in significant cost reductions.
The increasing production from the second train, which is focused on ramping up the mine capacity will continue with cost discipline in order to maximize the value of this asset.
Fire bag maintenance and capacity upgrade were carried out sharing base planned upgrade or maintenance to fully realized the new infrastructure and achieve higher production rates.
As I stated in Q3, we believe the timing was right as we expected the price going forward would be higher than what it would be in October.
This was the right call.
Following the brief maintenance activity the asset has been operating at over 210000 barrels a day or 98% utilization capturing the full potential of the asset and higher pricing in late 2020 and into this year.
The announcement of Suncor, taking over as operator of Syn crude in Q4 of 2021. This is a very significant step forward for the asset and in fact, it'll be the most significant cupboard governance change in the history of Syncrude.
Similarly for the.
Our structure.
For the structure enroll this operator is Fort hills, so it's very similar to that.
So well operate syncrude in a very similar way.
It is anticipated to generate approximately $300 million of incremental cash flow on an annual basis for syncrude by capitalizing on the collective advantages of our regional operations.
We're looking forward to realizing this value by building on the increased reliability of the asset over the past few years and lastly.
And this is unique for Suncor, we continue to invest in high return economic projects successfully completing several initiatives initiatives that I mentioned earlier.
This not only focused on generating positive returns for our investors, but it will also help us drive down the carbon footprint of our business restarting the co Gen investment and a 40 mile Wind farm are great. Examples of this as we work to deliver on our commitment to add $1 billion of incremental cash flow by 2018.
Three growing this for $2 billion, a year by 2025, and reducing our carbon intensity by 30% by 2030.
As consumer demand and pricing steadily improve and gained momentum we have significant tailwind to both our downstream and upstream businesses. In fact, I can't think of being in a better position than we are as we come into 2021 day.
Free funds flow generation capability of our business remains intact and in fact was enhanced during 2020.
I'm confident that we'll deliver on our plans, namely significantly better safety and operational performance strengthened financial position and increasing shareholder returns and with that Trevor I'll turn it back to you.
Thank you Mark and Alastair I'll turn the call back to the operator to take some questions. Operator. Thank you Sir as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A Q&A roster.
Again that is star one if you'd like to ask a question.
And our first question comes from Neil Mehta from Goldman Sachs. Your line is now open.
Thanks, guys and appreciate the opening remarks here on safety, maybe that's a good place to kick off on just the operational reliability.
20 market, you said was a tough year, where there was a lot of lost opportunity profit across asset by asset.
But on a go forward basis that could represent an opportunity. If you can capture back some of that debt cash flow. So can you go through each of the core assets.
And what you're doing to drive operational improvement and any quantification of that upside would be great.
Yes, thanks for the question Neil.
Clearly and we've spent a lot of time in the last month or two talking about our priority for me and the leadership team on the entire organization is operational excellence, we're committed to safety above all else and delivering on the reliability that's consistent across the entire platform.
Form and all of the assets.
Including Syn crude.
And so in each situation, where something's gone wrong, we focused our attention on how do we move forward and improve the asset performance and structurally integrate that so that we learned from things that have gone wrong. We are very encouraged by the progress that we're making.
Can see it in our results in November and December and January and even at Syncrude you've seen there.
Reliability in 2019 was the second best in their history, and we have additional steps that we're taking to improve it further so it's whether it's at Fort Hills, where we're now in the process of working with all the owners to ramping up to full rates or whether it's capturing the $300 million.
Gross savings for the partnership at Syncrude or delivering on the reliability and production expectations at base plant.
Our focus is exactly the same.
Number one priority for the company and and that is where our attention will be.
Alright, I'm sure there'll be more questions on that I guess the follow up is just the framework around cash flow. So in 'twenty 2019, you produced $10 $8 billion of cash flow in a $57 wpri environment today were sitting plus minus that price and I know 2021 is a noisy year, but as you.
Out to 2022, you've got at least $6 million to $700 million of cost savings. It seems to us that are going to flow through and then you have another couple of hundred million dollars of upside from Syncrude and even if you back out FX and weaker refining margins sensitivities would suggest $11 billion for cash flow.
And around that same oil price does any of that math seem off to you and then.
Of course, you know I'm not asking for a hard number but just a framework around published sensitivities and to the extent you get back to those 2019 levels of cash flow that $11 billion number.
Is it fair to assume that Capex will stay in that $5 billion range is that or do you do you see that biased higher.
I'll, let you take it wherever you want to with that.
Yeah, Thanks, Neil I'll talk to that one.
You know, we don't were not going to guide you to cash flow, but if you think about the assumptions Julia day there.
I don't think that for an unreasonable.
<unk>.
We have as Mark said structurally improved the operating costs of the business.
We will drive additional cash flow as we go forward on obviously.
As we ramp up for oil to fill rates, but will also help.
What I would say on on the allocation of our we've been very clear.
Repayment sensing the balance sheet and return on cost for the shareholders is there a priority here.
Do I think that capital is going to increase materially from the levels. You said for 'twenty one no I don't think it'll be.
Pretty consistent with those levels that youre seeing at this point in time. So I think your assumptions would be for a very positive 22, and I wouldn't draw for them.
Thanks, guys.
And thank you and our next question comes from Greg Pardy from RBC Capital. Your line is now open.
Yeah. Thanks, good morning, and I'll Echo, what Neil seeing Mark I know how much you care about your about your workers and so for US. So appreciate you addressing the safety issues head on because they are so important.
I wanted to I wanted to take that you've kind of opened opened up the door. There on syncrude I was going to ask about that anyway.
But it kind of gives you a bit of a forum what is the past.
Two success looks like for Syncrude dimension, the operator ship, which is being into this year you've done a bi directional pipeline, but you're also starting to open up on governance and I'm just curious as to how what those changes are and then what you would see coming from them.
Yeah.
Yeah, Thanks, Greg I appreciate it.
With syn crude.
The.
Original structure of it had a entire separate corporation.
Oversee it because none of the owners actually did anything around oil sands mining or running up graders from oil sands mine material.
Both of which are somewhat unique.
And now over 80% of the ownership with ourselves and Imperial where the owners are directly mining oil sands and for US. We're also upgrading the material.
So after a long extensive assessment by the owners we concluded that the best way to maximize the net present value of that asset to all of the owners was to collapse the overhead structure and integrated and eliminate the duplication of the overhead there in the Corp.
Rate structure with.
Suncor and eliminate that duplication and just extract a lot more cash out of the asset than we would if we had all that duplication.
So this is the first major structural change for it by far the most significant since it was originally constituted back in the seventies and so this is a substantial change and as I mentioned now it will look a lot like how Fort Hills looks and the way that it's managed in governance.
Okay, I'm going to ask a follow up because I want to ask anything on other assets, but then so the decision, making just correct me if I'm wrong that under the JV structure was in essence did you have to get to unanimous decisions. Despite.
Some owners owning relatively little.
And as a result of this thing or are you much more on the driver's seat then too you know what.
Between yourselves and I know that kind of drive the decision, making and the timing that youre looking for.
There's really three different categories. There are certain decisions that we could take unilaterally and just move forward to operate the asset. There is other decisions that require three of the owners on 51% of the ownership to get through and there is other decisions that require unanimous.
Pork from all of the owners.
Most of the ones that require unanimous support are actually quite small so a lot of these decision, making havent hasnt changed but it allows us to drive.
Day to day decisions inflammation implementation that technology alignment around how the functional support and decision, making leveraging supply chain and business support. This is why it generates.
Significant value without actually having to build any new assets or create a massive transaction associated with it. So we're very optimistic about it. This is just about.
Getting far more effective and efficient management structure for the organization and I'm Super encouraged by how the Syncrude team has been responding and all the great progress they've made in the last couple of years. So we're very optimistic about this step.
Okay terrific, thanks very much.
And thank you and our next question comes from Manav Gupta from Credit Suisse. Your line is now open.
Hey, guys. So I wanted to focus on and then I think on the filings.
Utilization went up liquidity.
But the actual product sales was down I think on understand was this a decision taken because you saw the vaccine announcements and you talked probably let's hold back some on lengthy so you'll get much better prices in one Q and this was on other reasons. You also saw a little bit of looking capex. The headwind this will all day.
And obviously the commodity prices are high and so the volume has actually already look but I'm just trying to understand was this thought process of holding back some inventory.
Yeah.
I mean, maybe I'd just say, there's two factors that are driving the increase in working capital one was inventory I'll come to that in a minute and the other is the fact that just commodity prices went up when commodity prices go up our receivables go up our working capital goes up.
So.
In many ways, we would say that's a very good thing.
On the inventory side, you know, there's a couple of pieces to it. Some is just cargo timing, but we're getting ready for some fairly significant work in the upstream.
In the upstream organization, we actually have.
The most significant turnarounds, we ever have so and.
Are you two upgrader at base plant, which is two thirds of our capacity at base plant is going into turnaround for the first time in five years and Syncrude is also taking their big Coker offline. This year as well for for a turnaround and then we also have a bunch of turnarounds in the.
Some of which we pushed from last year.
And so as a result of that we felt inventory if you go back and look at how we dealt with this in 2018, we built inventory leveraged our entire asset base to use our own assets to build the inventory versus pushing net onto our competitors' assets and increasing their utilization. When you think this is just prudent management.
We're expecting to draw down this inventory in the first and second quarter as we move forward here and we are very optimistic that we'll be selling a lot of the product inventory into the primary driving season as we get towards the summer.
So it makes perfect sense.
Quick follow up on the debt production target I'm trying to understand is this one to one five from Indian debt production target basically be on organic disagree.
Discretionary cash flow generation, because as I understand as you talked about just looking capital of 400 live their lives you would have guessed get probably 200 million in asset sales proceeds from Golden Eagle and then you have won over $1 billion coming in from tax receivables. So theres. This additional one five to 2 billion in cash coming.
And on top of the free cash flow generating so I'm just trying to understand is the guidance of one to one five.
<unk> purely based on the organic free cash flow.
Yeah, Thanks for that I'll take that.
Yeah.
What I would say.
Our commitment to the market and obviously based on I think lower commodity prices on many of Youre using which is why I gave you the.
The two thirds to debt reduction and one focused on buybacks. If you have a higher commodity price.
When we're looking at that we look at it from cash flow from operations I recognize you have a tax repayment coming.
In Q4 on obviously, we just announced the sale of Golden Eagle. The use of additional cash flows that will come in on will be allocated in the same monitors index.
<unk>.
Thank you so much for taking my questions.
Thank you and our next question comes from <unk> Sen from Bank of America. Your line is now open.
Thanks, and good morning, everyone. Marc you mentioned investments in midstream opportunities and highlighted broad terminal just wondering if you could elaborate on the strategy, how you're thinking about synergies investments on value at.
Anything incremental.
Yes, thanks for seat.
You know it's interesting because part of the issue with it is we have highly competitive assets.
In the downstream side, so you're and you're seeing that right now is that despite the fact that product markets are oversupplied some refineries on a temporary shutdown some of actually permanently shut down.
We've been using some of this export infrastructure both off the off the west coast, essentially and the east coast to be able to export some product and and be able to keep our utilization high and we're doing that and making money off of the exports and so obviously the returns are lower but.
That's actually we see that as very positive. If you look at the New York Harbor crack strength were up.
$2 a barrel higher than we were in the November and December timeframe. So we're very optimistic that one as we built inventory. It's a good position to be able to sell at high prices as we go forward into the driving season and.
Two we're expecting strong recoveries associated with vaccines and such an easing of the lockdown. So so our view is that this infrastructure is an important way of managing the long term profitability of these assets, having the flexibility and it's allowing to stay stronger in a relatively weak market.
Because we have such a competitive downstream. So that's why we think it's been a very good investment for us.
That's very helpful. Thanks, Mark.
Also wanted to get your thought process on this north sea asset sales, which was which was nice.
Just wondering if you could touch upon the strategic rationale.
Valuation consideration and further opportunities in the region, given a stronger macro how you're thinking about the entire portfolio.
Yes, the thing with Golden Eagle is for every one of our assets we have an end of life.
Right.
We view that we kind of time out because we're not really an end of life player in all of this and so we've this has just been very disciplined with what we've always said.
We're kind of in early two to make life, but not end of life player and so if we felt that Golden Eagle. We've talked about this before that we would be exiting the asset or looking to exit the asset around this time.
It could've been a little sooner it could have been a little later, we like the transaction, we feel that it doesn't sell at distressed prices that we would've seen last year and so this is just disciplined in following our normal course there.
<unk> for US is this is actually all about making the right economic decisions for the shareholder.
And whether our reserves go up and down on all that kind of stuff it doesn't really matter to us.
We've always said E&P, it's about driving cash flow for the shareholder and that's why we're exiting golden Eagle versus just disciplined execution of our strategy.
Very clear thank you Mark.
And thank you and our next question comes from Phil Greece from J P. Morgan. Your line is now open.
Hey, good morning, how are you.
Very good thanks Bill.
First question I know theres been a lot of questions on costs.
I hate to be redundant, but you.
You know a lot of energy companies through the downturn took a temporary cost actions.
And I was just curious how should we think about the structural cost reduction actions that you're taking.
Moving forward relative to potentially the return of any of these are you know.
More transitory.
Cost actions that you took.
Yeah.
Thanks, Phil I'll take that one yes. We are you know as you as you saw we exceeded a brilliant target by 30%. So we reduce their costs by one point from billion compared to 2019 levels. You talked initially although we thought about a third for those who are really structural reductions.
On the rest would go back on overtime.
As you've gone through the year I would say that more of a 50% no I would say our structural reductions in total cost.
Being able to significantly improve on those.
So as we go forward.
The other 50% of Inc will take some time and come back in over the next two to three years.
The other thing as we go forward youre going to Youre, starting to see the execution on the implementation.
<unk>.
Two 2 billion barrels of additional cash flow some of which is obviously further cost reductions across our business on the next couple of years some of which are margin additions and then some of which are your business such as the investment and co Gen.
40 mile Wind project, which will come in from 25, so you're beginning to see the real execution on the delivery of the benefits of our strategy.
Well, then Alastair maybe I would just add to that is as you look on 2021, we have several initiatives underway to continue to increase the structural change associated with it and this is part of the Suncor for point of a strategy implementing.
Company wide processes to drive further efficiencies and structurally drive down the.
On the cost structure, which is exactly what elster said, it's part of the $1 billion of incremental cash flow by 2023. So so we continue to increase the structural cost changes here even in the ear.
Even in this calendar year.
No. That's helpful. If I think about other times in the past when you've talked about let's say a $20 per barrel opex target for oil sands at Fort Hills, and I think a $30 a barrel or lower targeted at syncrude.
How would you calibrate those targets today relative to the to the 2 billion net of cash flow improvements you've talked about in terms of timeline.
Yeah.
Interest and we see these as basically incorporated in these targets that we've set around structurally changing it.
Syncrude as an example, we said 90% and $30.
We think we basically have the capability to deliver on 90%. This year at the high end of our range on that asset shows the 90% utilization, although it's a big turnaround year and we still have some challenges associated with executing big work with COVID-19, but the cost structures lagged associated with it and.
This decision around changing the governance structure of Syncrude. We think is the final piece that's required to deliver on it at base plant.
A lot of this is incorporated in these decisions that we've made which also includes driving down the overhead structure in the company. So so the $2 billion helps us in actually achieving these cost targets that you mentioned.
Sure.
One for al or just on on the commentary you made around the dividends.
How should we think about whether it's like maintaining a certain breakeven target or an eventual return to growth on the dividend just any more color as to how youre thinking about that obviously very clear on the debt reduction versus the buyback piece.
Yeah. Thanks, Phil.
You know, we are where we reset last year, we said to a Saturday probably go Adobe Ti breakeven to cover our sustaining capital on the dividend.
We are executing on our cost reduction and productivity plums, we're driving down the cost side of the business.
So the other ones is within the 75 goal Adobe Gi break even to increase the dividend. So the breakeven will stay the same but driving down operating costs driving game sustaining capital gives us the scope to increase the dividend as we move forward and we're very confident about our capability on.
The execution of.
Okay. Thank you.
Thank you and our next question comes from Dennis Fong from CIBC World Markets. Your line is now open.
Thank you and good morning, and thanks for taking my questions.
First maybe relates a little bit too I guess, Neal and Phil's question I know you've been very specific about it talking about the restart of both a cogent and the wind farm project not impacting this years capital spending expectations.
How should we be thinking about the balancing act of improving cost structure, both from a cash cost and capex savings component of things associated with and counterbalanced I guess with the increased spending associated with the restart of both of these projects.
This year and going forward through the completion of both projects and I've got a follow up as well. Thanks.
Well.
Dennis on this particular case I mean, what other reasons that we did just plow ahead with them as we wanted to make sure when we announced our guidance last year is we wanted to make sure that if we moved forward with these projects two things were true one is we weren't going to stop again, because it's very disruptive to have that happen and then.
Secondly, we wanted to ensure that we could deliver on the capital guidance. So there's been a lot of focus on optimizing capital even since we released guidance, we feel comfortable now that we can deliver these projects.
We're targeting and continue to drive to the middle of the range of the capital targets, we've put out there and we feel very confident that these are great value adds for our shareholders. So.
We're excited about moving forward on these.
Okay great.
That's great color for for this year and just just to make sure is.
I would presume that also curious for the subsequent years as some of that spending increases in we'll call. It 'twenty two 'twenty three.
In terms of free cash flow improvements.
Via kind of savings on the cost structure of the business, which could maybe potentially offset some of the impacts of the increased levels of spending just from a free cash flow basis for the company.
Yes, I mean, if you're referring to these two investments specifically that sales kind of peak spending on these two assets.
As we move things forward. So so we're really we have about $1 1 billion left on the co Gen, but just generally associated with it one other things we're setting up for and that's why I feel like we're very well positioned as despite the weak stock price, we positioned ourselves to generate significantly.
Higher free cash flow than even where we were in 2019.
The commodity prices and stop support it and as a result of that we can actually pay down on the data as Alastair mentioned two thirds go into that on the and the rest go into share buybacks. We think at this point in time, particularly given the relative and absolute weakness for the share price. This is a great way to allocate cash flow as we go forward.
Our expectation is to be very disciplined on how we manage the cash as well.
So that we can keep this going and keep very strong free cash flow as we go forward.
Great Great and sorry.
Follow up is really on on the operational side with respect to the bi directional pipeline.
Obviously, there is a significant amount of turnaround activity that is being driven by I guess, both of you on Youtube and the Syncrude facility.
In Q2, how should we be thinking about the actual utilization of the pipeline.
Through that turnaround period, I guess, unfortunately, just the timing of these turnarounds happens to be significant.
What are some debt that I guess testing measures or kind of.
Our performance metrics that Youre looking for out of this bidirectional pipeline and how are you planning to integrate that into existing operations and maybe just trying to understand.
What the net benefit happens to be for this year and what the puts and takes happen to be obviously, giving an outlier year with respect to maintenance.
Yes.
Good question I mean, it's interesting because of the complexity of this is an almost allows us this as almost like running a linear program on a refinery we expect the utilization to capture every economic opportunity that presents itself to be able to optimize between the two sites and in fact as soon as we started.
On the line, we started moving sour synthetics from base plant into Syncrude for hydro treat them and sell them as sweet synthetics and capture the spread.
And so depending on the situation around our.
Mine throughput refinery utilized or upgrading utilizations hydro treating utilizations and such.
The focus is maximizing the value of this line on every opportunity that exists. So we will do it just like we do our other assets what was the economic opportunity and what percentage of it did you capture and up and so that's what we're looking for and that's and it significantly improves the flexibility of syncrude to maximize the value of the exam.
We've used in the past is we've literally been selling bitumen at a discount when the upgrader at Syncrude is running below utilization because they've had some mining problem for a period of time.
It's crazy when you on both and these assets are essentially side by side now we have the opportunity to capture that.
Relatively significant volumes, that's our focus and this is what drives value for the shareholder.
Great. Thank you.
Thank you.
And our next question comes from Mono hold shelf from TD Securities. Your line is now open.
Good morning, everyone and thanks for taking my questions I'll just.
Start things off with a with a follow up on on low carbon energy. If we if we look beyond co Gen and 40 mile you have for other opportunity buckets, including.
Biofuels enhanced extraction renewables and energy efficiency so of those for where are we most likely to see the the biggest push from a.
Capital allocation perspective, and can we reasonably expect that low carbon wedge to to increase overtime.
Yeah. It's interesting this year like if you take the midpoint of our guidance we're spending about on on these initiatives that we just talked about about 10% of our total capital between co Gen and the wind farm and such.
So that's actually where we're at.
And and you know I would say that that's probably in the ballpark we were still working through our strategy. We have a we're planning on a virtual investor conference coming up in May where we're going to walk through this in some level of detail and where are the areas that we think we could play I mean, obviously it's fairly.
Early days.
But in the electrical markets, we already use co gen export it to the market to drive down coal power generation in the province of Alberta, which is the target of this investment we're already in Biofuels with the ethanol plants that we have and playing in that so and energy efficiency is.
One that pays all day long for the shareholders. If you have an economic return obviously, that's going to be a key area. So I think it's it's a we will get into a little bit more detail when we get to me.
Menno.
Okay. Thanks, Martin just to quickly.
Just I guess the follow up question would be related to some market access or are you seeing any notable developments on line five at the moment and how confident argue that debt on streaming up line three replacement is still a year on the debt.
Well, it's interesting on line three I mean, clearly just in the last couple of weeks more permits have been issued and it's moving ahead. So.
Then our confidence on and that continues to increase and we feel really good about that whether it happens exactly at year end or not I don't think it's all that relevant.
But we think it's on track for around that timeframe with line five we believe shutdown is a very low probability event the pipeline.
The safe or very safe on that system and it serves many consumers both in central Canada, Quebec, and Ontario, as well as Michigan and Ohio. So we think it's very important for those economies.
Enbridge mainline.
And their focus on so that we use that to get product into Ontario, and such but one other things. We have is we have this portland pipeline, which we now own exclusively that allows us to bring waterborne crudes into Montreal. So if it turns out that we had at rents we think we're better positioned.
And then anybody on this market to keep our refineries moving forward and get crude to them either through waterborne crudes coming into Montreal or using what pipeline capacity, we have with outlined five getting into Ontario. So.
We think where we.
We're a much stronger position than anybody else on that market and as a result of that if they constrain the market, we think that will get more than enough from the market to be able to pay for any efficiency or or squeeze that you get on the crude side going into the refineries. So.
We feel that we have a very good risk management position, there, even though we see it as a very low probability event.
Okay. Thanks for the color Mark.
Thanks, Megan and thank you and our next question comes from Chris Tillett from Barclays.
Your line is now open.
Hey, guys. Good morning, Thanks for taking my call most of my questions actually already been asked but just I was just kind of wanted to revisit.
Some of the comments on capital allocation appreciate the messaging there has been very clear about.
Priorities towards two thirds debt reduction one third buybacks just curious.
Maybe to take a step deeper there is that sort of regardless of where.
You sit in terms of debt to cap ratio or is that something that you could potentially revisit once you get back inside the 20% to 35% long term range that you guys had talked about.
Yeah, Chris I'll take on things so for the question no let me be very clear for <unk>.
'twenty 'twenty, one if there's additional cash flow generated keeping capital floor within the range as Mark said.
I mean, there's no cash flow will go to two thirds to debt reduction in working for one vote to the buy box.
Okay.
<unk> that that was it for me thanks, guys.
And thank you.
I would now like to turn the call back over to Trevor Bell for closing remarks.
Alright, Thank you operator, and thanks, everyone for joining us. This morning. Appreciate you taking the time to listen in and my team and I are around all day should you have any follow ups. Please reach out to us and we'd be happy to chat, thanks, everyone and stay safe.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.
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