Q1 2021 Canadian Natural Resources Ltd Earnings Call
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Okay.
Good morning, we would like to welcome everyone to the Canadian Natural resources first quarter 2021 earnings conference call and webcast presentation slides are available to view with the webcast and in PDF format at W. W. W. P.
C N R. L dot com after the presentation, we will conduct the question and answer session and instructions will be given at that time.
Please note that this call is being recorded today may six 2021 at nine a M mountain to the time I would now like to turn the meeting over to your host for today's call Corey Bieber Executive advisor. Please go ahead Mr. Bieber.
Thank you operator, and good morning, everyone and welcome to Canadian Natural's first quarter 2021, corporate update conference call.
As mentioned to facilitate today's call you'll find a copy of the presentation slides on our website, which I'd encourage you to download now in order to follow along.
Canadian natural had a strong first quarter financially and operationally our asset base is unique amongst our peer group underpinned by long life low decline assets complemented by our conventional assets that allow us significant flexibility and all of which can generate significant free cash flow.
And our robust asset base. There is of corporate strategy that focuses on generating real returns for shareholders and of driven management team and of corporate culture that focuses on being effective and efficient.
Over the years Canadian natural has demonstrated the robustness sustainability and the strength of its business plan for 2021 and beyond I believe we are one of the.
Few companies capable of delivering meaningful economic growth, increasing returns to shareholders and reducing absolute debt in a responsible manner.
For today's call Tim Mckay, our President will first provide of corporate update Marc <unk>, Our Chief Financial Officer will then provide an update on our financial debt.
'twenty, one financial outlook as well as our strong financial position.
Jim will then provide a summary prior to opening up for questions.
Before we kick off I'd like to remind you of our forward looking statements shown on slide three and our reporting disclosures shown on slide four of note in our reporting disclosures is that everything will be in Canadian dollars, unless otherwise stated and as well we reported our reserves and production before royalties I would also suggest you review of our call.
Rents on non-GAAP disclosures, so with that I'll turn it over to you Tim. Thank you Cori. Good morning, everyone, starting with slide five Canadian natural is in the very strong position, we have great assets operating excellence and with our capital of this.
The ability to strengthen our balance sheet and deliver returns to our shareholders.
Also applies to environmental social and governance side of the business ESG.
Where we are delivering industry, leading performance across the board of significant factor in our long term sustainability.
Canadian natural picks of long term view on ESG aimed at creating long term value, ensuring we identify assess quantify adopt kind of align ourselves and then execute.
We are developing plans to address these risks by applying technology and innovation. So we can continuously improve our performance in the near mid and long term always ensuring it's adding value move.
Moving to slide six.
If you look at the overall ESG performance in terms of investment priority, it's very clear the Canada as a world leader and scores the highest in every category and should be an investment priority.
Slide seven a few weeks ago, our federal government had two announcements. The first on April 19th was the federal budget, which recognizes the carbon capture utilization and storage Cc U S.
He is an important pathway for Canada to achieve its environmental goals.
Well a few days later, the federal government announced the account it will be increasing its gulf from 40% to 45% reduction in <unk> emissions by 2030.
Of the federal government budget announcement, we will participate in the consultation process with respect to <unk> U S.
As well, we will work to align with these new goals.
Next slide.
Natural and the Canadian.
Canada's oil and gas sector recognize the need to reduce ghd emissions and we've been able to leverage technology and Canadian ingenuity to deliver impressive results Canadian.
Natural has invested approximately $3 9 billion in R&D since 2009.
Using this investment to reduce the environmental footprint unlock reserves and drive ever more effective and efficient operations investing now to do even better in the future.
Slide as can be seen on slide nine.
The third party has reviewed our oil sands emissions and determined that per scope, one emissions Canadian natural was 35% lower than our peer average well. This is a good starting point, we are still progressing project that will continue to drive our GHT intensity down.
<unk> 10 for Cc U S.
Canadian natural is using state of the art carbon capture reduction technologies and as the leader in the oil and gas industry in the world with the cents per structure in place, we can leverage them to capture more C O two.
These three facilities are currently operating and are capturing approximately two 7 million tonnes of cotwo per year equivalent to taking approximately 576000 cars off the road.
Next slide.
Other promising technology of solvents, and both Sag D and the potential at Primrose and the steam flood area of Kirby South of the pilot continues to point of performed well with ghd intensity reduction of approximately 45% within the targeted range and we'll continue to monitor performance and 2021 the P.
Highlight at Primrose as target for commencement in Q4, 2021, and similar to Kirby South It will take a few years to evaluate the performance in both cases. This technology can be applied to similar properties and can reduce our GHT intensity up to 50% and.
And have targeted operating cost savings from approximate dollar per barrel moving.
Moving to slide 12, getting the net zero takes the ability to leverage technology be innovative using Canadian into Chile.
Well, we have defined actions in the near mid and long term.
<unk> natural has a huge technology funnel with just a few of those activities listed here as we progress our journey to net zero.
Slide 13, we have a track record of continuously improving our GHT intensity since 2012 with methodically and proof of GHT intensity by 32%.
Equivalent to taking one approximately $1 9 million cars off the road annually and we are progressing projects to continue that trend of reducing our ghd intensity moving.
Moving to the next slide in summary.
Natural is delivering.
ESG performance, our long life low decline assets are advantaged, because we can leverage technology innovation and continuous improvement to deliver ever improving environmental performance delivering results over the long term with the pathway to attaining net zero in the oil sands as we worked with governments, it's clear that Canadian natural.
Should be an ESG investment priority move.
Moving to our corporate update slide 16, Canadian natural continues to deliver strong operational results and we are focused on delivering value for our shareholders in the first quarter. We delivered record production of approximately one to $4 6 million Boe East.
Record liquids production of approximately 979000 barrels a day, an increase of 6% and 4% respectively over Q1 'twenty.
Primarily as a result of our record oil sands mining SCO production of approximately 468800 barrels a day and strong North American E&P production, including thermal of approximately 478700 barrels a day are.
Our natural gas production was strong at approximately one six bcf.
11% increase over Q1 'twenty.
Operating performance all areas with strong with the oil sands mining being top tier at $19 82 per barrel Canadian.
5% lower than a year ago, and if you look at it from a macro perspective, it's even more more impressive compared to a year ago grew about 41000 barrels a day higher than when you exclude the cost of natural gas. The absolute dollar basis is very comparable to Q1 2020 of <unk>.
Great job done by our close hence the mining team.
Slide 17 day.
The natural has robust economic long life low decline assets and relative to most of our peers the ability to enhance the margins and grow production.
Results in more long term value.
We are of a diversified asset base with value enhancement plan for every product and basin. We operate this is driven by our effective and efficient operations our area of knowledge ownership and operator ship of infrastructure.
Canadian natural has a history of capital discipline, which includes a flexible and effective capital allocation and our ability to be nimble the capture opportunities. We continue to simply optimize capital allocation to maximize value for our shareholders. We're ensuring we maintain a strong balance sheet.
With our low maintenance capital and a culture of leveraging technology innovation driving continuous improvement throughout the company gives us ever improving operations. It's for these reasons Canadian natural has a leading free cash flow generation.
Next slide.
Many of natural has a balanced and diverse product mix with approximately 48% and its high value light crude oil SCO NGL on a Boe basis, limiting our exposure to one product the liquids production approximately 81% from long life low decline assets, which requires less maintenance capital than our peers as well we have one.
Six approximately one six bcf of natural gas production of approximately 22% of our <unk> is well positioned to capture additional value as natural gas prices strengthen.
Slide 19.
As a result of our unique asset base Canadian natural corporate decline is low at approximately 10%.
With approximately 63% of our production being long life low decline or zero decline production.
Because of this we require less maintenance capital to maintain production than our peers.
Next slide.
We are executing our 2021 budget. The total budget of $3 2 billion of which only $200 million is for growth capital and we're growing our production by approximately 5%.
<unk> performance given that Canadian natural has over 1 million Boe's a day.
With the first quarter behind US we are on track and we will continue to be disciplined in 2021 with improved pricing that we're seeing today, we will generate significant free cash flow and pay down our debt very quickly.
Slide 21, Canadian natural one P reserves are world class, among our global peers, which concludes the supermajors.
A strong indicator of the strength and depth of our assets with approximately 30 year Reserve life index of which approximately 61% represents long life no decline SCO reserves.
That has lower execution risk the many of our peers as.
As well I remind you that 100% of Canadian natural reserves are externally evaluated reviewed by independent qualified reserves evaluated.
Moving to the next slide when you look at net debt to one P reserves the low.
The among global peers.
As well as you saw earlier with two thirds being long life no decline SCO reserves, we have a lower cost structure and reserve risk.
As you can see here on slide 23, Canadian natural has the highest free cash flow yield among our global appeals and indicator of the strength of our assets, our effective and efficient operations and low maintenance capital.
The 24 net debt to cash flow, we are well positioned compared to our global peers with less debt to cash to cash flow than our peer average.
The only it's coming down very quickly given our free cash flow profile for 2021.
Slide 25, there are many positive factors ahead for the Canadian oil and gas industry and in our opinion the discount the global peers should disappear.
<unk> is improving heavy oil differentials are back to historical levels in the low 20% ESG as a priority and kind of being a leader will be recognized Canadian natural has much lower operating and maintenance capital of compared to the global peers and should not be undervalued when compared to these peers.
It is for these reasons, it's clear Canadian natural should be an investment opportunity, we have a sustainable business model.
Growing sustainable dividend track record of 21 years at a 20% CAGR, which is top tier compared to our global peers.
Slide 26.
Canadian natural because of World class investment opportunity, we have world class reserves much of it being long life low decline assets gives us the low decline of approximately 10%, meaning low maintenance capital as compared to our peers.
Our top tier effective and efficient operations and our drive for continuous improvement will ensure our balance sheet will strengthen very quickly in 2021 as Mark will show you here. Shortly as you saw earlier this gives us the largest of free cash flow yield percentage nearly double our global peer average finally, we are focused on.
The value creation as we have grown our sustainable dividend for 21 years, 20% CAGR impressive when compared to our global peers I will now turn it over to Mark for a financial review.
Thanks, Tim and good morning, everyone I'll start on slide 28, with the Q1 financial highlights.
Q1 was the very strong financial quarter as effective and efficient operations, along with the improved commodity price backdrop led to adjusted funds flow over $2 7 billion the free.
Free cash flow generated was over $1 4 billion after the prudent capital program and dividends in the quarter.
This led to substantial balance sheet deleveraging as absolute debt was reduced by $1 4 billion compared to Q4 'twenty levels.
This represents $2 9 billion of debt reduction since June of 2020 further underscoring the ability of our long life low decline assets combined with safe effective and efficient operations to generate leading free cash flow.
The sustainability of our funds flow allows for consistent and increasing returns to shareholders. In March of this year, we increased our quarterly dividend by 11% to <unk> 47 per share, which contributed to a year to date shareholder return of about $1 1 billion.
This year's dividend increase represents the 20 <unk> consecutive year of dividend increases at Canadian natural.
Canadian Natural's balanced approach to capital allocation, coupled with our sustainable free cash flow allows for increasing returns to shareholders, while paying down absolute debt and growing our diverse asset base something that sets Canadian natural apart.
This can be seen on slide 29.
The ability to deliver significant and sustainable free cash flow.
As you can see in 2020, we generated strong free cash flow and the lower commodity price environment.
Now with the economic rebound and increased demand in pricing for commodities at approximately U S $60 <unk> Canadian natural is targeted to deliver substantial free cash flow in the range of $5 seven to $6 2 billion after budgeted capital and dividends.
And as Tim mentioned, our free cash flow yields are tracking higher than global peers.
Our long life low decline low risk assets continue to demonstrate why <unk> should be an investment priority.
On Slide 30, you can see the results and the forecast showing the impact of our free cash flow generation.
At strip pricing of our absolute debt is targeted to decline significantly while returns to shareholders over the same period are targeted to be approximately $3 2 billion.
Few peers, if any have the ability to generate and balance of this level of free cash flow and create long term shareholder value.
The impact of leverage metrics as shown on slide 31.
Debt to EBITDA is targeted to exit 2021 at one one times and debt to book capital is targeted to be under 30%.
With the purposeful maturity profile the facilitates paying down absolute debt you can see that so far in 2021, we have repaid and canceled over $1 6 billion of non revolving facilities.
Our history and commitment to balanced free cash flow allocation as seen on slide 32.
Notwithstanding the challenging commodity environment in 2020, our assets and business model delivered.
We were able to essentially maintain our net debt levels through the year, while executing an accretive natural gas acquisition.
Maintained our March 2020 dividend increase followed by a further 11% increase in March 2021.
The repurchase shares and increased both reserves and production.
These are top tier results improve the resilience of the Canadian natural business model and our commitment to financial discipline.
Okay.
On Slide 33, you can see the sustainability of the dividend of Canadian natural.
Dividend levels are continually evaluated against internal forecasts for cash flow capital free cash flow generation and our ability to remain nimble and adjust our plans if conditions warrant.
This results in a business that can support of sustainable and increasing dividend over time and creates consistent value for shareholders over the long term.
Slide 34 shows the five year compound annual change in our dividend compared to global peers.
Yes.
Slide 35 displays this growth over 10 years.
And slide 36 shows this growth over a 20 year timeframe.
All of these slides illustrate the sustainability of our free cash flow generation and the company's priority to ensure ever increasing returns to shareholders, including sustainable and growing dividends.
As well as the prudent capital allocation of Canadian natural.
Slide 37 displays the history of dividend increases as you can see increases have vary depending on our position as it relates to cash flow capital flexibility to at any point in time with the focus on sustainable increases.
So in summary on slide 38, Canadian natural has built an asset base that is unique and sustainable and has developed a resilient business model that is flexible and can quickly adapt to changing environments. The.
The assets and business model provides protection in challenging environments like we saw in 2020.
Additionally, we are positioned to benefit exponentially when commodity prices end markets are more favorable like what we're seeing now in 2021.
Our emphasis on balancing our four pillars, our enviable and diverse asset base and our execution focus teams with the history of strong results are all focused on driving long term and increasing shareholder value.
With that I'll turn it back to you Tim Thanks.
Thanks, Mark in summary, slide 40, Canadian natural's ability to deliver significant free cash flow in today's environment starts with our large reserve base of which 83% being long life low decline.
Of our approximately one to $4 6 million Boe's a day.
Long life low decline assets.
Asset face makeup approximately 770000 barrels a day of which approximately 455000 barrels a day is no decline high value SCO production.
We have a diversified product and assets.
That of driven by our effective efficient operations our area.
The knowledge ownership and operator ship of infrastructure and we have a low sustainable maintenance capital.
We have one six bcf of natural gas and with our diverse assets ability to add low cost production.
We have flexible and effective capital allocation and our ability to be nimble the capture opportunities, we simply optimize capital allocation to maximize value for our shareholders. Our culture of continuous improvement is unique among our peers as our teams are focused on delivering safe reliable effective and efficient operations.
Across our asset base.
Next slide.
With oil at approximately $60 U S per barrel.
In 2021, Canadian natural can deliver leading free cash flow generation of approximately five 7% to six 2 billion.
Which supports our sustainable growing dividend of 21 years.
The significant debt reduction improving.
All of our already strong balance sheet finally across the company. Our teams are focused on reducing our environmental footprint through technology and innovation and we look forward to participating in the federal government consultation period with that I'll turn it over for questions. Thank you.
Yeah.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of metal of wholesale from TD Securities. Your line is open.
Thanks, and thanks for taking my question of good morning, I'll start with a question on the at the balance sheet.
Your debt metrics as you talked about Theyre coming down really quickly and you've made it very clear that the the balance sheet will continue to attract the the vast majority of free cash flow over the the.
The near term. So my question is what is the endgame in terms of the.
The leveraging process pre COVID-19 I believe you were targeting one five times and <unk>.
$15 billion of total debt so do those targets still apply and at what point can we reasonably expect buybacks to ramp back up again.
Yeah, Hey, mental thanks, good morning, it's mark.
I think that when you look at the free cash flow generation. There is lots of optionality going forward here.
As you have recognized the focus though is going to be on the balance sheet or on absolute debt repayment in the near term.
We evaluate this all the time and we'll continue to the go forward.
As far as the buyback right now where we're looking at really just offsetting our dilution.
Through the rest of this year and Thats the target today.
Okay. Thanks, Mark and then my follow up would be on a day.
<unk>, maybe we could just get your thoughts on the <unk>.
On current market access, including any any thoughts on abortion mentioned.
Inventories and how that is <unk>.
Impacting your very early thoughts I suppose on pure maintenance versus growth into into 2022.
Boy, there's a lot of speculation on that line because there's a lot of.
Different items go into the news here to the.
But I think what.
We'll just going to step through it.
We expect the egress to continued to improve.
The online three looks like it will be Q.
Q4, <unk>, maybe a little late but still moving forward.
Obviously, there are issues with the line five and potentially the <unk>.
Dakota access but.
It's too early to speculate.
If you look at in Alberta today.
The light oil side has zero of parchment and.
So it's.
It's hard to speculate what that impact of the.
Of those two items will be obviously, it will hurt Alberta to some extent if there is a portion of 10 of discount.
And as well with the Dakota access again.
If oil starts to come back in through Cromer.
Or may not impact us because I would suspect the people that are on the Dakota access are making their own arrangements.
Ahead of time, if the need to so it's just really there's a lot of different issues there.
I'm still very bullish in terms of the.
A lot of these egress issues will continue to move forward.
So fair to say debt picture in a holding pattern through the through the end of the year.
While we're not changing our capital.
Basically just staying with the status quo.
Perfect. Thanks, Dan.
Yep.
Your next question comes from the line of Greg Pardy from RBC capital markets. Your line is open.
Thanks. Thanks, Good morning, Thanks for the rundown guys.
Jim just in your I guess it was pouring in the opening remarks.
Talked about sort of solvents, and so forth, but I'm just wondering if you can maybe give us an update on where you'd expect to apply.
The solve the technology and then just anything you might have to stay on.
In pit extraction, and then also just potentially on the autonomous haul trucks, just interested where youre going with that technology.
Sure so for the solid some of.
Obviously the pilot at Kirby South is very advanced and if we look across our asset base.
Both of the Kirby sites and the jackfish sites could be very amenable to that technology, So where we are.
We're very happy with the results today and now it's just trying to.
Work out of plan of going forward in terms of Primrose East steam flood area, that's a little more experimental.
We obviously have the pilot it for a couple of years to see if that can be applied to the primrose area and the steam flood pieces, so too early to say of Primrose.
I'd say for the Sag D. It looks very promising.
We continue to events our commercial engineering.
It's.
There is a lot of benefits type, but theres also a lot of capital costs upfront. So our teams are still evaluating it and we hope to have something this year to say, whether we're moving forward with it or not to it obviously.
As a leading technology, but again one of the things we pride ourselves on is doing the detailed work and ensuring that the capital forecast that we use is correct.
And then.
I guess what was the last question there Greg.
One of the Salt trucks I was thrown everything in there all of the true.
Yeah.
The autonomous trucks.
Some operators have more benefit.
Because of the way they operate to net and we have less benefit, but having said that I mean, our teams are looking at.
The electric and hydrogen technologies as well.
To reduce the environmental footprint, that's probably the biggest.
We see for our benefit.
Is reducing our <unk> and how to do it with either of electric or hydrogen.
The economist trucks.
There is a bit of cost piece, there to that and it really depends how efficient you are and our teams do a great job day.
They measure.
Our performance down to the second so.
I'm really proud of the way our teams of operate in the oil sands.
Okay and just the second question you touched on carbon capture storage.
You guys have done this very early on I think with horizon.
The ryzen and obviously you've mentioned the AOSP.
In the northwest upgrader, as well, but maybe just focusing on.
Horizon for a moment.
Thank you.
Cash and short term right off of the hydrogen plant.
Would there be scope for you to increase.
How much of the C O two you're capturing off of that.
The ryzen facility overall or are you doing much of that just trying to get a sense for.
Sure what we did early on and part of it was the question the <unk> and the tailings.
So off of one of the hydrogen plants, we have capture it's not fully utilized because there's only so much of cotwo that we can put into the tailings and so there is available capacity there as well as on the second hydrogen union debt.
We could expand capture and obviously increase.
More seo to capture it tracks and so there is of those opportunities for share.
Okay terrific. Thanks, very much thanks.
Thanks, Greg.
Your next question comes from the line of Dennis Fong from CIBC World markets. Your line is open.
Hi, Good morning, and thank you for taking my question.
The first maybe just to follow along with the evolving strategy I appreciate that and you kind of give us a little bit more context as to the stage of development or your work at Primrose vs. The Sag D component of things and obviously you guys have been doing quite a bit in terms of lowering your jixi intensity as well I'm just curious as to how much of the <unk>.
<unk> of <unk>.
So all of in technology at Kirby and Jackfish are currently potentially within your 2025 goals of reducing jixi intensity across your platform and secondarily, how much do you think could be.
Incremental to that with the successful pilot out of the Primrose.
Yes, I would say.
It depends on obviously on how aggressive you want a P.
On the target so you know.
If you look at it just the normal approval of building and that Youre, probably looking in that 2025.
The timeframe.
For something like the safety piece here.
To really start to get into service, but.
That would be in my mind pretty aggressive.
Obviously I think the best thing for our company is to step through it.
And make sure that.
We do the right homework, but.
Just from a construction point of view.
<unk> net we're basically halfway through 2021 that would be in my mind kind of on the aggressive site.
Two.
To start to book, we would have to start to almost a day to to get it in place by 2025.
So the idea then would be that any of the use technologies could provide incremental benefit versus your existing 2025 goal of jixi intensity reduction.
I E. The.
The benefits are not currently kind of included in your goals out of it yet.
Yes, that's correct.
If you look at.
There's a number of technologies, we're working on obviously in the meantime, there's a lot of other work being done to reduce <unk> emissions, but yes, the carbon capture.
The solvents are all future technologies at the same with the molten fuel carbonate sales, they're all future technologies that will actually help us to reduce the absolute C O two emissions.
Okay and then just following on to from the Meadows question. There just around capital allocation. Obviously, the primary focus here is around reducing the absolute debt number and getting to a lower leverage situation. How should we be thinking about kind of the longer term strategy, obviously balancing between the <unk>.
The pillars.
Thinking about returning value back to shareholders, but also there are a number of projects.
That are fairly low capital intensity, you can actually have a fairly significant economic upside how should we be thinking about maybe some of the criteria from a leverage perspective that you would consider before as well as egress before you would consider moving forward on things like iPad, obviously versus what.
You kind of described before we're even debottlenecking projects at horizon or some of the other low cost projects that you've just kind of discuss the AOSP as well.
Alright.
A very.
The hard part of that is true.
We would have to kind of speculate and uncertain conditions, whether it's <unk> or pricing.
And it's really difficult to say what I can say is if you look out I can't see us doing a major project in terms of capital expenditure in terms of of horizon expansion.
If we do anything I suspect it will be very small will leverage off of our.
Our facilities were doing the drill to fill in the.
On the gas side.
With the oil side it would be essentially.
The brownfield the small developments I, just don't see really any industry anybody in the industry really getting aggressive on any of any kind of major capital program.
Perfect. Thank you.
Okay.
Your next question comes from the line of Neil Mehta from Goldman Sachs. Your line is open.
Thank you. So much you guys have proven out our M&A is a core competency for your business.
Tim I just wanted your perspective on.
How youre seeing the A&D market at this point, yeah, and the other attractive opportunities either to buy or the cell.
Yeah.
What we see in that market today is debt.
A lot of the the smaller entities are.
Our doing deals emerging.
And that and I think they need to.
On the bigger scale I really don't see anything.
If I look at ourselves we have no gaps.
We have lots of opportunities within our own portfolio today.
So I just what I see is there will probably be a little more consolidation, but it will still continue with the at the smaller companies level.
Okay. That's helpful.
You guys did the paint the Pony acquisition, you're a large natural gas producer I'm just curious what your thoughts are on the echo market here and any comments on how the natural gas part of your business is contributing to the cash flow in 2021.
Well the.
The painted pony assets with the.
Really an opportunistic acquisition about a year ago.
Gas prices were obviously.
Quite a bit different and even the forecast was quite a bit different at that time and.
With it.
Gas prices have strengthened.
I think everybody is being for the most part Steve.
Difficulty more capital disciplined.
Now than they ever have been and so I don't see any.
Big concerns on the egress here in the short term but.
I think people are getting their balance sheets in order and.
The April prices is looking strong in our budget.
We had about a $2 50, I think around 270, maybe $2 75 for the year now so it's a little bit stronger but it's.
Obviously.
And with our gas program.
Yes.
Okay.
It seems to be holding in.
Thanks, guys.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Phil Gresh from J P. Morgan Your line is open.
Yes, hi, good morning.
Wanted to try just of the balance sheet follow up question, maybe just worded a little bit of of a different way.
The one five times leverage target has historically correlated to the something around 15 billion of of net debt.
On your target for the end of the year of these prices would be below that looked like closer to $14 billion.
So I was just curious if.
Has the has the net debt target hasn't gone through COVID-19 and things like that.
Longer term target changed at all in your view do you still think of it.
Our bogey for us to be thinking about recognizing that even moving forward.
If you shifted the mix debt.
There'd still be a debt pay down of element to it I would think.
Yes, I mean, when we were going into 2020, we were obviously forecasting some large debt reductions and that that year things change a little bit we were able to kind of enter and exit pretty much flat and do that acquisition at the end of the year, which was strong and that now as we go into 2021, we're just back on that track of paying down the <unk>.
<unk> debt.
As I mentioned was that maturity profile to actually facilitate being able to do that on an absolute basis. So I think yes, we track down lower theres always going to be opportunity too.
Look at that free cash flow and the Optionality there too to balance of the four pillars, but just here in the near term we're focused on that absolute debt reduction.
Okay.
My second question is just around the.
The sustaining capex of the business.
Coming into the.
Downturn I think it was around the $3 7 billion.
Forecast net.
3.0.
And I was just wondering how much of that in retrospect do you view as a.
Cyclical versus structural factors that you would just improve the.
Costs out of.
And just with your updates here around around G. H D D.
I think that there will be incremental.
Capital spending required.
To achieve these objectives that maybe it would be considered sustaining capital.
Hello, Phil.
Yes, the sustained capital I mean, obviously, there's a lot of factors that change from year to year, obviously the cost the.
The absolute cost of doing business changes.
The cost of steel and everything else. So today, we're at the $3 billion. It's.
Based on our balance of pretty much.
The oil and gas growth so to me it.
It depends on what kind of program, we do in the future.
A lot of times it depends on the.
You know, where our sustaining capital would be.
In terms of the GHT piece.
Too early to say in terms of what debt capital profile would be.
Obviously.
A big part of it is going to come out of what the federal government has in mind. After this consultation period and so.
Today, I think we will just look at it.
The participated in that debt.
The process and then we will figure out.
Where.
What the capital profile could look like obviously.
Carbon capture.
The way they had it obviously lends itself very good for the bigger facilities, whether theyre cement plants or oil sands plants or fertilizer companies.
It seems to be targeting some of the larger a minute or so.
We'll have to see what the.
That pool.
The program looks like here in the future.
Okay. Thank you.
The.
There are no further questions at this time I'll turn the call back to management for closing remarks.
Thank you operator, and that wraps up our formal presentations I'd like to thank all of you for your participation. This morning. If you do have any questions or follow ups. Please don't hesitate to give us the showed at the IR team. Thank you very much.
Sure.
That concludes today's conference call. Thank you everybody for joining you may now disconnect.