Q1 2021 Imperial Oil Ltd Earnings Call
[music].
Ladies and gentlemen, thank.
For standing by and welcome to the Imperial oil fourth quarter 2021 earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this time you will need to press star one on your telephone keypad.
Also if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Mr. Dave Hughes VP of Investor Relations. Thank you. Please go ahead.
Thank you, Jeff and good morning, everybody. Thanks for joining us on our first quarter earnings call.
With me today is our senior management and that includes Brad Corson, Chairman, President and CEO, Dan Lyons Senior Vice President of Finance and administration.
Simon younger senior Vice President of the upstream John Wet Moore, Vice President of the downstream and share even as vice president of commercial and corporate development.
First thing I'm going to do is read the cautionary statement todays comments include reference to non-GAAP financial measures definitions and reconciliations of these measures can be found in attachment six of our most recent press release and available on our website with pulling through this conference call. Today's comments May also contain forward looking information any forward looking information is not a guarantee.
<unk> future performance and actual future financial and operating results can differ materially depending on a number of factors and assumptions forward looking information and the risk factors and assumptions are described in further detail in our first quarter earnings press release that we issued this morning as well as our most recent form 10-K all of those documents are available on SEDAR.
Edgar and on our website. So please refer to those.
As you will format will start out with Brad offering. Some opening remarks, then Dan will provide a financial update and then Brad again with an operational update and after the opening remarks, we will move to the Q&A, so with that I'll turn it over to Brad.
Well good morning, everybody and welcome to our first quarter 2021 earnings call I hope each of you and your families are doing well and continuing to stay healthy.
Now last time I spoke to you back in early February we discussed what was a very challenging year for our industry, but one in which imperial delivered very solid business results in the face of both the global pandemic and the associated economic challenges I also noted Imperial's Foundation.
Improvements, including increased production capacity and a reduced cost structure.
Over the past year, we have emphasized the priority that we were placing on making sure that we remain well positioned for the eventual recovery as we were taking steps to respond to the business environment.
I am pleased to tell you that the very positive note.
We ended 2020 on has continued through the first quarter of 2021. Despite the continued challenges brought on by the pandemic.
Over the next few minutes, Dan and I will detail the results of what was a very strong first quarter.
So now let's talk about those first quarter results.
Since we entered 2021, we have been facing lower than normal product demand.
I have seen commodity prices and product margin strengthened.
The improved market environment, coupled with our continued strong operational and cost performance resulted in us delivering our highest quarterly earnings since the third quarter of 2019, and the highest first quarter since 2018.
Earnings for the quarter were $392 million, an improvement of over $1 5 billion versus the fourth quarter, but recall that the fourth quarter results reflected an impairment of close to $1 2 billion related to our unconventional assets.
Without this impairment our earnings excluding identified items have still improved by over $360 million versus the fourth quarter.
I'd also highlight that all of our business lines all of the business lines delivered positive earnings this quarter, which is great to see.
The first quarter also delivered significant cash flow from operating activities of over $1 billion, reflecting strong operational performance, including the highest first quarter upstream production in 30 years and an ongoing focus on cost.
<unk> and efficiencies.
These efforts drove significant benefits in 2020, such as production and manufacturing expense reductions of around $1 billion and while not all of this was structural we are committed to finding more efficiencies to offset those savings that werent structural.
And we're seeing this good progress on cost reductions continue into 2021.
And to put that in perspective, our cash operating costs in the first quarter, we're almost $70 million lower than in the first quarter of 2020.
We've talked a lot over the past year about our financial resilience, our operational strength flexibility and integration and I Hope you will agree that our first quarter results are indicative of those strengths and provide a reason for confidence in the companys performance moving forward.
Our continued strong operational performance and cash generation not only supported our ability to once again declare a dividend for the quarter, but to significantly increase that dividend.
We have paid a dividend reliably for over 100 consecutive years now.
<unk> grown at each of the last 26 years. This morning, we announced a dividend of 27 per share, which represents a five cent per share increase or close to 23% increase. Additionally.
Additionally, we announced an amendment to our current and CIB program to allow us to repurchase up to 4% of the outstanding shares of Imperial by the end of June 2021, so over the next two months.
Last year, we were very proud of the fact that we were able to keep paying a stable reliable dividend and a very tough time.
Today's announcements just continue to underscore not just our strong financial position and our confidence in the future, but also clearly demonstrates our ongoing commitment to returning cash to our shareholders.
I will now turn it over to Dan to go through our financial performance for the quarter in more detail. Thanks, Brad before getting into the numbers I wanted to highlight as Dave did at the very beginning that we are releasing some added information this quarter and this is by popular demand I think in fact from a number of you on this call. This.
This quarter, we began publishing five additional non-GAAP measures you will find these in attachment six at the back of the press release.
The measures our cash flow from operating activities, excluding working capital free cash flow net income excluding identified items cash operating costs.
Net cash cost for the upstream and by major upstream asset being curl Cold Lake and Syncrude, We hope you'll find this added disclosure useful.
Refer to these measures as appropriate going forward getting back to the numbers. Our net our net income for the first quarter was $392 million up $580 million from the first quarter of 2020 or up almost $300 million when looking at earnings excluding identified items as Brad noted looking so.
<unk>, our first quarter net income of $392 million is up just over $1 billion $5 from the fourth quarter and earnings excluding identified items are up about $360 million driven by improved results across all of our business lines looking at performance by business line the upstream recorded net.
Income of $79 million in the first quarter of 2021 compared to a net loss of $1 billion $192 million in the fourth quarter of 2020.
Again, excluding the noncash impairment charges of $1 billion $171 million in the fourth quarter. We saw improved results of about $100 million driven by higher realizations, partly offset by lower seasonal volumes.
Turning to the downstream downstream net income of $292 million in the first quarter was up $186 million compared to the fourth quarter's net income of $106 million, mainly driven by improved margins. Our chemical business also demonstrated strong performance, earning <unk> 67.
<unk> million dollars in the first quarter of 2021 compared to $23 million in the fourth quarter of 2020, driven primarily by higher margins.
Finally, before looking at cash flow I wanted to mention that our financial statements for the quarter reflect the impact of the termination of agreements associated with the Keystone XL pipeline project.
As a result of the termination of these agreements we recognized a liability of $62 million as of March 31, 2021, which resulted in an after tax charge of $47 million to our first quarter 2021 earnings.
At the same time, there was a corresponding decrease in our long term commitment to reducing our other long term purchase agreements by $2 $9 billion.
Looking at cash flow.
Cash generated from operating activities was $1 $45 million in the first quarter up 660, sorry $622 million from the same period last year and up $729 million from the fourth quarter.
Our free cash flow in the first quarter was $898 million up $783 million from the first quarter of 2020.
Finally, with these strong cash flows our cash on hand increased from about $800 million at the end of the year almost one $5 billion at the end of the first quarter.
Moving on to Capex.
Capital expenditures in the first quarter total to $163 million down $32 million from the fourth quarter.
Consistent with our previous guidance, we continue to expect capital expenditures of approximately $1 $2 billion for 2021 with spending focused on the in pit tailings project and Debottlenecking and efficiency projects at Kearl volume Sustainment at Cold Lake and the Sarnia products pipeline in the downstream.
Shifting to shareholder distributions in the first quarter, we paid $162 million in dividends at <unk> 22 per share compared to $164 million in the first quarter of 2020.
As Brad noted earlier today, we announced our second quarter 2021 dividend payable in July of 2007, <unk> per share an increase of five or nearly 23% from the first quarter.
And as Brad also indicated we plan to purchase up to 4% of our common shares outstanding over the next two months consistent with our robust free cash flow at.
At a share price of $34. This would represent up to about $1 billion in purchases commencing next Wednesday, and finishing by June 28 2021.
Both of these actions are consistent with our strong financial performance low capital requirements confidence in the future and our long standing commitment to return cash to shareholders now I'll turn it back to Brad to discuss our operational performance.
Thanks, Dan.
I'll now take a few minutes to talk about operational performance in the first quarter.
Upstream production averaged 432000 oil equivalent barrels a day in the first quarter, which was up 13000 barrels per day versus the first quarter of 2020 and represents our highest first quarter production in 30 years. This excellent performance was driven by.
<unk> strong production at all three of our major upstream assets, Carl Cold Lake and Syncrude.
Production was down 28000 oil equivalent barrels per day versus the fourth quarter of 2020 in large part due to lower production at curl and syn crude.
This is typical and was expected as the first quarter can provide some real challenges due to winter weather, particularly in our mining operations.
And while we did see a very mild start to the year. The typical northern Alberta Winter finally arrived in early February.
But the impact was managed exceptionally well by our operations organizations.
So now I'll talk in more detail about each assets starting with Kearl.
I commented on last quarter's earnings call, what a great year 2020 was for Carl.
And here we go again.
I am pleased to say that <unk> strong performance continued through the first quarter.
While gross production of 251000 barrels per day was down 33000 barrels per day versus the fourth quarter of 2020. This was still hurdles best ever first quarter production.
In fact, it is the second best quarter ever at Pearl behind the fourth quarter of 2020.
This is especially notable given the first quarter is traditionally the lowest production quarter of the year given the challenges winter weather can introduce as I just noted.
And each month delivered record production.
So just to be clear it was our best ever January apparel, our best ever February and our best ever March apparel building.
On our best ever October our best ever in November and our best ever December that I reported last quarter. This is just a great start to the year for Carl.
And that positive momentum continues into April April has also been a strong production months any barrel averaging over 270000 barrels per day, so far this month.
However, as you are aware, we also have a planned turnaround on one of the trains in the second quarter.
That is scheduled to begin in early may and lasting until the end of May.
This is consistent with our past turnaround scheduling and is expected to have an estimated production impact of around 42000 barrels per day in the quarter.
That being said with.
With current strong performance year to date, we are well on track to achieve our previous guidance of 255000 barrels per day for 2021.
Now, let's talk about Cold Lake.
<unk> also delivered strong results from the first quarter with production, averaging 140000 barrels per day. This is up 4000 barrels per day versus the fourth quarter and flat versus the first quarter of 2020.
This is the result of the ongoing steady and reliable operations at Cold Lake as well as some well optimizations that we've implemented.
We have a relatively light turnaround schedule planned for the second quarter, which will cover some routine maintenance and as such we expect a minimal production impact in the quarter.
Also of note in the quarter is the successful startup of our laser technology at the Cold Lake.
<unk> plant.
Laser stands for liquid edition two steam for enhanced recovery.
And as a technology developed by Imperial and first commercially deployed at our Cold Lake.
He can plant a few years ago.
This is really exciting is not only is it expected to increase production over time, but the use of solvent technologies is a key part of our commitment to reducing the greenhouse gas intensity at our operated oil sands facilities.
This technology is expected to enable up to a 25% greenhouse gas intensity reduction at <unk> and is a key part of our pathway to a net zero future.
Imperial's share of Syncrude average production was 79000 barrels per day in the first quarter, which was down 8000 barrels per day versus the fourth quarter, but up 6000 barrels per day versus the first quarter of 2020.
The drop from the fourth quarter was again expected given the seasonality of the production.
While the increase versus the first quarter of 2020.
Helps to highlight the improvements we have been seen with respect to overall reliability of the Syncrude operations.
Now looking to the second quarter Syncrude has a major planned turnaround that began in early April.
The work is expected to last until mid June and involves taking one of the three kocur's offline for routine maintenance after a normal run.
And has a production impact in the second quarter of 33000 barrels per day imperial share.
However, as I am sure you are aware there is currently a COVID-19 related state of emergency in the municipality of Wood Buffalo.
This situation is still evolving but in light of this and the challenges currently facing the area in the city of Fort Mcmurray Syncrude is currently taking steps to reduce the size of the workforce on site, but still with the objective of preserving overall schedule of the turnaround.
Now with respect to the bidirectional pipelines. Both are now in service and we're actually put to use in the first quarter, allowing syncrude to produce an incremental 2000 barrels per day imperial share of Syncrude, sweet premium or SSP from imported product.
With respect to the status of the transfer of operator ship to Suncor. The agreement was finalized in the first quarter and the owners are expecting the transition to be complete by the end of the third quarter of this year.
And again, we remain confident in the $300 million of synergies. This change is expected to delivered to the partnership.
Now, let's move to the downstream.
We refined an average of 364000 barrels per day in the first quarter, which was up 5000 barrels a day versus the fourth quarter.
But down 19000 barrels a day versus the first quarter of last year, Utah.
Utilization in the quarter was 85%.
Which was flat versus fourth quarter and down from 91% in the first quarter of 2020.
The lower utilization versus the first quarter of last year is indicative of the ongoing demand softness we have been seeing since the outset of the pandemic.
And as we continue to experience volatility in the Lockdowns in reopening efforts.
Demands continue to be variable and somewhat uncertain.
Although it does appear that the vaccination program in Canada is gaining momentum now which is quite positive.
Looking to the second quarter, we have a planned maintenance turnaround at our stress Kona refinery that started in early April and is expected to run through the end of May.
With the turnaround such as this the entire facility does not get shut down. So the site is still able to produce at a reduced rate.
We expect the impact to be around 80000 barrels per day in the quarter or.
For a rounded 18% impact on overall refinery utilization.
But as is typical for downstream turnarounds, we were able to plan well in advance and minimized product supply impacts. So we would not expect to see a significant decrease in product sales, even though we will see this lower utilization.
2021 is a fairly light turnaround year for our downstream and the stress Kona turnaround represents the most significant one of the year. So having this behind us sets us up quite well for the potential demand recovery over the remainder of the year.
Trolling and product sales in the first quarter were 414000 barrels per day, roughly flat with the fourth quarter of 2020.
But down 48000 barrels per day versus the first quarter of 2020.
Again, the year on year reduction is reflective of the impact the pandemic has had on fuel demands.
As a reminder, on the fourth quarter call in February.
I mentioned that in January we were seeing industry demands more in the 70% to 75% of normal range for gasoline and 35% to 40% for jet.
Diesel was close to historical levels.
The rest of the quarter played out pretty consistent with those demand levels with maybe the exception of a bit of strengthening on motor gasoline demand, which now sits around 80% of historical.
Looking for we expect to continue to experience near term demand volatility as provincial and federal health care measures and travel restrictions evolve, but we remain confident in the broader recovery over time.
Despite these volatile and challenging conditions, our downstream business continues to deliver very strong financial results with earnings of $292 million in the quarter compared with $106 million in the fourth quarter of 2020.
Even as demand continued to lag normal levels, we experience some strengthening of margins compared to the fourth quarter, which contributed to another very profitable quarter for the downstream business.
And our chemical business delivered an impressive $67 million in earnings in the first quarter, a significant increase of $44 million versus the fourth quarter of 2020 and $46 million higher than the first quarter of last year.
<unk>.
This performance was driven by strong volumes and margins some of which resulted from tightened supply in Texas.
And while we continue to see some fairly healthy margin so far in the second quarter. We do expect these to return to more typical levels in the second half of 2021 as a Gulf coast operations returned to normal.
So as we wrap up I'd like to highlight just a couple of items, which are also noteworthy.
First Imperial recently released its updated corporate sustainability report.
As you will see this as a significant document that provides a lot of detail on what we view as the key dimensions of sustainability and how we are approaching the risks of climate change.
Of particular note is the introduction of reporting scope three emissions estimates and the actions we are taking to identify and progress viable pathways to net zero.
The second item I want to mention is our health care Heroes program.
You may recall that back in 2020 at the outset of the pandemic, we donated $2 million in free fuel to 80000 health care workers across Canada.
And in the first quarter of this year essentially at the one year anniversary of the pandemic, we launched a similar second campaign donating an additional $2 5 million and free fuel.
This is our way of recognizing and thanking.
The many health care workers that have now been on the front lines of this pandemic for over a year. We are so grateful for their service.
Dan mentioned the steps we are taking regarding shareholder returns.
I just wanted to conclude by saying how pleased I am that the strength the resilience and the confidence we have in our integrated business that collectively support our stated commitment to drive shareholder value and deliver meaningful returns to our shareholders.
I believe this dividends, which by the way represents the largest increase in our history, coupled with the resumption of share buybacks does just that.
And finally I'd like to once again, thank our employees, our contractors and our business partners for their resilience their determination and commitment to supporting us and working through what has been a very difficult time over the last 12 months to 15 months.
They all play critical roles in material success.
So with that I'll turn it over to Dave for the Q&A session. Thank you.
Hey, Thanks, Brad.
<unk> had a few questions pre submitted so I think we'll start with addressing questions from a couple of those analysts and then we will move to the live Q&A line.
So Brad the first first couple of questions come from Phil Gresh at J P. Morgan and I'll ask them, both theyre, both kind of related imperial guided to $1 $5 billion of normalized downstream and chemicals cash flow from operations at Investor Day.
What is the breakdown between the two segments and do you think the normalized cash from ops is reasonable to expect in 2021.
Thanks for your question Phil.
If you look at our average looking back from 2009 to 2019 are generally our downstream generated about $1 6 billion per year in cash flow from operating activities and chemicals was around another $200 million.
So I would suggest this split can also be applied to.
The forward looking one 5 billion average that we discussed at Investor day.
And now with respect to your second question, our company generated over $1 billion in cash from operating activities in the first quarter and our downstream and chemicals business combined for about half of that amount.
So that gets us about a third of the way to the $1 5 billion the.
We referenced at Investor day.
So it's certainly possible to reach it given our full year utilization guidance of 89% and continued increase vaccination rates.
But admittedly there is still some uncertainty but on balance we remain confident.
Those targets.
Now notwithstanding demand impacts our downstream and chemical business continues to benefit from structural advantages in Canada that support ongoing profitability. So we're still comfortable with that with that guidance. We provided hope that answers your question Phil.
Okay next for.
Well, let's see it ATB.
With the increased focus on carbon by government investors have you quantified the potential cost implications to the base business under the proposed carbon pricing mechanisms specifically at $170 a ton.
Yes, thanks for that question will.
First I just want to highlight that imperial supports an economy wide carbon tax and has long operated in jurisdictions with carbon pricing.
So we've actually been incorporating the cost of carbon emissions in our plans for a while now.
We believe our stable carbon pricing policy provides certainty to our industry.
But also accelerates innovation technology and investment.
And really play to our strength and technological leadership as we continue to work on pathways to net zero.
We are quite well positioned to operate and compete in a low carbon future. So thanks for that question.
So a bit of a.
Kind of a follow up on that one is further with discussion of the proposed tax incentives that the federal government discussed regarding carbon capture utilization and storage how many this influence your thoughts on capital related to this have you discuss this in more detail with exxonmobil and their global initiatives.
Yeah.
Thanks for that follow up question will.
In its recent budget the federal government announced a substantial funding program for carbon capture and storage.
A technology that we view as integral to enabling net zero emissions.
There's still a lot to be defined.
In those budget details, but we very much look forward to working with the federal government and also along with the government of Alberta, and our industry colleagues on the best design for that program in the coming months, but this is an encouraging step to support industry efforts to advanced technology to reduce greenhouse.
Gas emissions.
And imperial is well positioned as I noted earlier to capture those opportunities arising from energy transition.
And with regard to Exxonmobil as you may be aware Exxonmobil announced in February 2021 that they have created a new business to commercialize its extensive low carbon technology portfolio that business called Exxonmobil low carbon solutions will initially.
<unk> focus on carbon capture and storage.
One of the critical technologies required to achieve net zero emissions and the climate goals outlined in the Paris agreement.
And through Imperial's relationship with Exxonmobil, we have access to industry leading technologies.
As we develop pathways to support net zero future, we will certainly be.
Leveraging that relationship and access from Exxonmobil.
We truly believe that technology is critical to enable production growth and emission reduction and we are exploring those net next generation technologies, which when paired with carbon capture and storage could result in incremental production with net zero emissions.
So it's our view that Ccs has the potential to be even more commercially viable through the convergence of advanced technologies, but also with supportive Canadian policy.
Thanks for that question.
Brian We had just one final one from will and then we'll go over to the light Q&A any comments on the implications for operations as a result of the COVID-19 challenges in the wood Buffalo region.
Yes, I'm glad you asked that question and first I would just.
Out how how very unfortunate.
The situation is in the wood Buffalo region and.
Our thoughts and prayers go out to all those individuals affected.
Our focus has always been continues to be first and foremost the health and safety of our workforce and the communities in which we operate.
We've been maintaining our strict site protocols to prevent the risk of transmission of COVID-19, and we continue to follow all the government and health authority guidance.
You heard me comment on Syncrude operations earlier in the call already but in regards to curl.
And it certainly acknowledging that there is an escalating situation and the oil sands region around Fort Mcmurray.
We have been successfully managing and really mitigating the transmission so far.
Without any impact to our operations and no impact to our turnaround plans at this time.
The plans that.
That we are progressing were developed.
With full consideration for COVID-19 safety precautions and.
I would point out that we've been applying learnings.
From safely executing turnarounds in 2020, and we're not only leveraging those it curl, but I also mentioned the strength Kona turnaround.
One one addition of note though relative.
Relative to our turnarounds last year, we've now deployed rapid COVID-19 testing for our workforce prior to them boarding planes and buses used to travel to site.
So this gives us one other mechanism to.
To identify and manage any potential transmission of COVID-19.
So there have been no impacts again to our operations at Kearl and had no impact to our current schedule for the upcoming turnaround, but we're going to continue to monitor that situation and adjust our plans as needed.
Okay. Operator can we go over to the live Q&A line now please.
Secondly, at this time I would like to remind everyone in order to ask your question Press Star then the number one on your telephone keypad.
Again, Thats star 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 Greg Pardy from RBC capital markets. Your line is open.
Thank you thanks, and good morning, everybody.
I guess first off.
Thanks for the enhanced disclosure.
We're definitely looking for that.
Great step forward.
Couple of questions.
I guess the first one is just on the buyback.
Is there an almost fastest in the negative is there any reason not to assume that huge a renew the buyback post June 29th and secondly.
I think about repurchase seeing a similar order of magnitude shares like call it 5% or so just trying to get just trying to better understand your thinking.
From that perspective.
Yes, thanks for the question Greg and.
And first I appreciate your recognition of the disclosures that we've added.
As Dan pointed out.
That has been in direct response to the feedback we've heard from from you and many analysts so pleased that we could take those steps.
To support your request there.
In terms of the buyback and our strategy going forward.
Bolton, both Dan and I commented.
We find ourself.
And a very strong financial position.
Very much driven by kind of the underlying quality of our assets the strong.
Fundamentals associated with those and especially the improvements we've made over the last year.
<unk>.
In production capacity and operating expenses and when you take that combined with the strength we've seen in the commodity market.
That puts us in a favorable position with very strong cash flow generation and as as we said in Investor day, and I've repeated on many occasions.
We are very committed to returning cash to our shareholders and that underpinned our announcements today around a very material.
The.
Increase in our dividend and reef.
And amending the share buyback program from last year.
For up to 4%, which I think is something like 290 million shares.
Just over the next two months $29 4 million or 29 right.
And and and so that is.
A strong indication of the pathway, we are on and so as we look to the next share buyback timeframe.
We will be clearly evaluating that but I think it's.
It's a fair assumption that if we continue to see the strength that we will continue to proceed with share buybacks.
Even after this this current program expires.
Okay. That's helpful.
And the second question is little bit jumbled town I'm going to ask you, but if you look at the Imperial model pre Carl sanctioning back in 2009, It was limited capex.
Buybacks as you've just trained and then.
And dividend growth.
And what I'm wondering is is essentially is that has that model now come full circle.
Or when signals are appropriate is there.
Hope to resume upstream growth I'm, just trying to get an understanding of how youre sort of thinking about reinvesting in the business versus <unk>.
Distributions.
Yeah, well it's a.
Good question and I think it does build on some of our discussions at Investor Day, where we highlighted that our our priority focus in the near term.
As maximizing value from our existing assets.
And that's why we have been so.
Laser focused on improving reliability improving production.
Past city.
<unk> operating expenses applying capital discipline, all of those things are allowing us to two.
To generate significant value.
But I'd also point out that integral there too is that capacity growth and if you take curl as an example.
Prior to implementing the supplemental crushers.
We were at volume.
At or below 200000 barrels a day.
Last year, we saw an increase.
Substantially.
<unk>.
Above that this year, we're now indicating 255000 barrels a day.
We have a pathway to 280, so over just a few years' time, we will grow production from 200 to 280000 barrels a day, so an 80000 barrel a day increase which.
As on par too.
For several growth opportunities in our portfolio like Aspen I think.
<unk> was targeted at about 75000 barrels a day. So we are achieving similar gross but at a much lower cost and that is delivering significant value. So we want to make sure we progressed that strategy.
And maximize the value from it.
We will continue to look for growth opportunities.
Giving priority to those.
That generate the highest return.
And we do see continued.
The bottlenecking opportunities at Kearl and other sites.
Longer term, we will continue to.
We visit broader gross strategies.
As we look at as we look at the market as we look at.
<unk>.
Other other considerations with.
Supportive government policy.
Competitiveness solve those things.
We have a deep inventory as you know with projects like Aspen.
And others, and we always keep an eye to.
M&A opportunities as well.
Should we see some particularly unique strategic accretive opportunities there.
Very good thanks very much.
Thanks, Greg.
Your next question comes from the line of Neil Mehta from Goldman Sachs. Your line is open.
Hi, Good morning. This is Carly Davenport on for Neil Congrats on a good quarter.
The first question was just around the downstream you highlighted reduced demand due to COVID-19, that's driving the sequentially lower sales during the quarter. So can you just talk about your outlook for the demand recovery in Canada, maybe what Youre seeing real time on the ground and then are there any key milestones to look out for there.
Yes, thanks for the questions Karli.
I would frame that response by really pointing to the volatility that we've been seeing.
I noted some of.
The current.
Demands that that we're seeing.
No.
Diesel demand is mostly in line.
With.
With where we were back pre pandemic levels.
But we still see a softening in gasoline motor gasoline.
Currently in that 80% of normal demand.
And thats very much reflective of just.
Personal mobility.
Around the country, which has been very impacted by this third wave of COVID-19 cases across all of the country.
And so that is having an impact.
And then most severely impacted has been jet fuel demand, which is currently only 35% to 40% of normal levels and I would I would contrast, what we're seeing in the U S.
And Canada is starkly different than the U S.
In the U S P.
Personal mobility is as in many cases, returning to more normal levels.
There's a lot of domestic travel.
In the airports in the U S, but in Canada very different situation with COVID-19.
Because of this third wave reintroduce reintroduction of of restrictions in many of the provinces all of that is restricting mobility impacting demand we do expect.
That that demand will recover as the year progresses cash.
<unk>.
Yes.
Actively.
Progressing vaccination campaigns across the country, we see the momentum picking up and we believe that coupled with.
Good behaviors and restrictions will allow those COVID-19 cases to significantly reduce over time, allowing mobility to resume.
To more typical levels and that will allow demand to grow again.
Back to pre pandemic levels, especially in motor gasoline and.
Jet demand will probably take even longer.
Depending on.
Kind of how businesses react and how business travel return.
For long haul flights.
So continued I think volatility continued uncertainty, but we do see a pathway for for demand recovery over time as the year progresses.
Great. That's helpful context, and then the follow up is just a housekeeping item.
When youre looking at the cash flow for the quarter. It looks like the cash flow statement shows the $125 million inflow from kind of in other items could you just walk through what items are reflected there.
Yes, thanks for that I'm going to let Dan answer that question, Yes, currently this quarter kind.
What I talked about earlier with these non-GAAP measures, including cash.
Cash flow from operating activities, excluding working capital in the past and our.
In our press release, and the attachments, we've sort of lumped working capital and some other things together and this quarter.
Going forward, we split them out and we put working capital on a separate line because you're obviously working capital is it's quite volatile it can swing a lot quarter to quarter. The other items or other things that flow through the income statement that are non cash.
A good example would be pension related expenses that we run through net income but are not are not cash. So that's an example of what's in that other line, but there's a number of items in there, but there are obviously things that run through income that aren't cash that arent working capital we thought working capital.
Just on the feedback we've gotten.
Folks want to call out separately, so that's what we've done.
Great. Thanks for taking the questions.
Your next question comes from the line of Menno <unk> from TD Securities. Your line is open.
Thanks for taking my question and good morning, everyone. I just have one you touched on the laser project at Cold Lake, but could you just elaborate on where things stand operationally and what the next couple of years could look like for.
Laser specifically and I guess my follow up there would be whether there is anything that could drive your 25% intensity reduction target higher over over time.
Yeah. Thanks for that question Menno.
As I mentioned on the call. We have now started up laser at.
And <unk>, we're quite excited about that.
That's been a multi year initiative for us as I mentioned previously deployed that Mahican now Mckee system.
It's part of our.
Cyclic steam.
Steam cycling program.
So it <unk>.
Takes multiple years to achieve kind of full benefits from it and so over that period, we're going to continue to evaluate its effectiveness, we're going to continue to look for.
Further deployment opportunities.
And.
That that gives us lineup.
Line of sight to to what's the optimum applications.
For laser but equally important is the.
The fact that we're continuing to develop.
And and look for application of other solvent technologies that also provide the potential for not just <unk>.
Up to 25%.
A reduction in greenhouse gas intensity, but some technologies, we're looking at could achieve up to 90% reduction so again.
This is very much kind of an evolving.
Effort.
By our by our.
Technologists, but also are our operations teams to take all the steps we can to further reduce greenhouse gas intensity.
We we've achieved as you may be aware already 20% reduction in our greenhouse gas intensity.
Since 2013.
And we have a stated objective of commitment to reduce our greenhouse gas intensity by another 10% by.
By 2023, and as I mentioned, we're continuing to look for what are the further steps even beyond that that ultimately allow us.
Two to progress our net zero pathway.
Thanks, a lot Brian.
Thanks Benno.
Your next question comes from the line of Chris Tillett from Barclays. Your line is open.
Hi, guys good morning.
Thanks for taking my call I guess first for me would be.
On the cost breakout for the upstream assets.
We will provide any color I guess, specifically it curl.
How much of that.
Like $35 million year over year.
As you know.
What you would classify as sustainable or just.
Otherwise due to operational changes.
Yes, thanks for the question Greg.
I don't have that detail.
In front of me, but what I would tell you about curls expenses of course, we see.
Some seasonality in those costs.
As I mentioned.
Due to weather considerations as.
As we move into the second quarter there'll be turnaround considerations, so youll see some volatility from from quarter to quarter in those.
And those asset level metrics, but I think most importantly is to talk about the pathway that we're on for significant reductions in curls operating costs.
And over and over.
The last you go back to 2019 curls unit operating costs were around 28.
<unk> per barrel.
On a U S oil.
All in basis.
We've made significant improvements in that last year driving it down.
Two something in the $22 range and what we laid out at Investor Day was a commitment and a plan to achieve $20 a barrel this year.
So, whereas you may see some some noise in those numbers from quarter to quarter. What's most important is the pathway, we're on and the commitment.
Made to achieve $20.
Annual average for this year.
Okay, and I guess, maybe just to clarify.
Do you expect that 'twenty to be an annual average and not just sort of a benchmark.
Benchmark you might hit by the end of the year.
Correct annual average.
Got it okay. Thanks for that and then maybe just turning downstream for a second here.
Thanks for the commentary thus far on the.
The outage at Kona.
I guess just in terms of the product sales there.
There that are occurring while the asset is under maintenance.
From a mixed perspective, how much of that is already locked in.
I guess in other words is it fair to assume that the product mix there during the during the maintenance period will be similar to the sort of what we've seen through the first quarter so far.
Yeah.
Whereas as I commented one of the advantages of <unk>.
Our downstream.
Kind of program as we plan these turnarounds many months in advance.
And through that we will.
We will build inventory that will allow us to maintain our product supply commitments because.
Those relationships are critically important to us.
And so in the case of stress Kona, we've taken those same steps and hence we'll be able to fulfill all our supply commitments.
I don't have readily available.
How much of that is already locked in versus might be variable in an opportunistic in nature, but I think largely it's going to follow a pattern <unk> seen in the past.
So kind of looking to this quarter.
And last year.
Okay.
Thanks for that and then just last for me.
Okay.
I appreciate all the commentary.
From the prior question in reference to buybacks.
I guess would just be curious to hear your thoughts or I understand where your heads are at in terms of.
To the extent that there may or may not be.
Secondary offering coming is that something that.
May be interested in or would the preference be.
More sort of open market purchases.
Dan do you want to comment on that yes.
Yes look.
For the market through the NCI via our go to move it's very efficient.
Wei.
To repurchase shares but look.
Prices are strong they could get stronger.
Obviously our.
Our intention is as we've said for for a long time or to return surplus cash to shareholders. We have a reliable and growing dividend beyond that share buyback is the next tool so to the extent the <unk> tapped out.
For in that situation and the cash flows are strong we'll certainly look at other options.
Understood Okay.
Okay very helpful guys. Thank you very much.
Thank you.
There are no more questions at this time for centers you may continue.
Okay. Thank you operator, we did have two more questions pre submitted that I guess, we can wrap up with they came from Manav group that credit Suisse. Now I mean thats. The first question is with respect to refined product demand in Canada, and Brad I think you answered that question response to Carly Davenport question, a few minutes ago. So maybe we will.
Just to wrap up with <unk> second question.
There is a gain excuse me there is again some noise on Enbridge line five do you think the line can continue to operate.
Yeah, well that's a good question Manav and I know, it's something we've talked about on.
On prior occasions.
Obviously, it's a situation we're watching very closely.
Line five is a critical piece of infrastructure.
Supplying.
Kind of the entire Ontario Eastern region of Canada.
Canada, but also with implications to the U S specifically for imperial.
We move crude.
To Sarnia and nanticoke through that line.
I think as I mentioned on the last call.
Have put contingency plans in place to address a scenario of aligned five shutdown.
And we continue to refresh those scenarios.
But I would say and most importantly, we consider that to be a low probability.
That infrastructure is so critical and when you look at.
The underlying.
Kind of legal case around shutting it down.
Don't see that that is supportive bowl.
And we.
We think kind of cooler minds will prevail and that line will stay in service.
We're quite pleased to see that.
That the Canadian government has recognized the value of that line and are clearly engaging with governmental.
Kind of counterparts in the U S.
To ensure that that supply security is maintained.
So again, we view that as a low probability but.
Should it happen we will be prepared.
Alright, thats it for the questions.
So I guess on that note.
Behalf for the management team here with us I'd like to thank everybody for joining us this morning.
As always if you have any further questions or want to have any follow up discussions. Please don't hesitate to reach out to the IR team here and with that I wish everybody a good weekend and stay safe.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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