Q2 2021 Cenovus Energy Inc. Earnings Conference Call

July 29, 2021

Members of the investment Community will have the opportunity to ask questions. First, at the conclusion of that session members of the media, May then ask questions, please be advised that this conference call may not be recorded or rebroadcast. Without the express consent of cenovus energy. I would now like to turn the conference over to miss Sherry, went vice president investor relations. Please go ahead miss 1.

Operator: Members of the investment community will have the opportunity to ask questions first. At the conclusion of that session, members of the media may then ask questions. Please be advised that this conference call may not be recorded or rebroadcast without the express consent of Cenovus Energy. I would now like to turn the conference over to Ms. Sherry Wendt, Vice President, Investor Relations. Please go ahead, Ms. Wendt.

and,

Sherry Wendt: Thank you, operator, and welcome everyone to Cenovus' 2021 Q2 results conference call. I'll refer you to the advisories located at the end of today's news release. These describe the forward-looking information, non-GAAP measures, and oil and gas terms referred to today and outline the risk factors and assumptions relevant to this discussion. Additional information is available in Cenovus' annual MD&A and our most recent annual information form and Form 40-F. All figures are presented in Canadian dollars and before royalties, unless otherwise stated. You'll find our updated guidance posted on cenovus.com under Investors. Alex Pourbaix, our President and Chief Executive Officer, will provide brief comments, and then we will take your questions. We ask that you please hold off on any detailed modeling questions and instead follow up on those directly with our investor relations team after the call.

To form and form 40s. All figures are presented in Canadian dollars and before royalties, unless otherwise stated, you'll find our updated guidance posted on cenovus.com under investors.

Sherry Wendt: All figures are presented in Canadian dollars and before royalties, unless otherwise stated. You'll find our updated guidance posted on cenovus.com under Investors. Alex Pourbaix, our President and Chief Executive Officer, will provide brief comments, and then we will take your questions. We ask that you please hold off on any detailed modeling questions and instead follow up on those directly with our investor relations team after the call. If you could please keep to one question with a maximum of one follow-up. You can rejoin the queue for any other questions. Alex, please go ahead.

Alex poor Bay, our president and chief executive officer will provide brief comments and then we will take your questions. We ask that you please hold off on any detailed, modelling questions. And instead follow up on those directly with our investor relations team after the call. And if you could, please keep to 1 question with a maximum of 1 follow-up. You can rejoin the queue for any other questions. Alex, please go ahead.

Sherry Wendt: If you could please keep to one question with a maximum of one follow-up. You can rejoin the queue for any other questions. Alex, please go ahead.

Thanks Sherry and good morning everyone. First off, let me see. Say how great it is to see vaccination rates continue to rise in Alberta and across Canada. However, we know that COVID-19 hasn't gone away and I assure you at cenovus, we're not letting our guard down with restrictions easing. I know. I'm looking forward to life getting back closer to normal and the health and well-being of our Workforce and our communities remain..2 companies priority as we modify protocols, that are

Alex Pourbaix: Thanks, Sherry, and good morning, everyone. First off, let me say how great it is to see vaccination rates continue to rise in Alberta and across Canada. However, we know that COVID-19 hasn't gone away, and I assure you at Cenovus, we're not letting our guard down. With restrictions easing, I know I'm looking forward to life getting back closer to normal and the health and well-being of our workforce and our communities remains the company's priority. As we modify protocols at our operations, we'll continue to follow public health guidance and to work closely with governments, health authorities, and industry to protect our people. Safety is foundational to how we operate. We're working diligently to finish integrating our safety systems after closing the Husky transaction at the beginning of this year.

Operations will continue to follow Public Health guidance, and to work closely, with governments Health, authorities and Industry to protect our people. Safety is foundational to how we operate. We're working diligently to finish integrating our safety systems, after closing, the Husky transaction at the beginning of this year. Our goal is for cenovus to be a top-tier safety performer and to achieve this. We prioritize safety Above All Else.

Alex Pourbaix: Our goal is for Cenovus to be a top-tier safety performer, and to achieve this, we prioritize safety above all else. Turning to the Q2, we continued to build on our Q1 results with strong operations delivering even better financial performance. If you heard our last conference call, we communicated that if you added back the transaction-related costs that impacted adjusted funds flow in the Q1, our adjusted funds flow would have been nearly CAD 1.5 billion and free funds flow nearly CAD 1 billion. Now, in the Q2, that performance has more than played out, with our adjusted funds flow hitting CAD 1.8 billion and free funds flow of CAD 1.3 billion.

So turning to the second quarter, we continue to build on our first quarter results with strong operations, delivering even better financial performance. If you've heard our last conference call we communicated. That if you added back the transaction related costs, that impacted adjusted funds flow in the first quarter are adjusted funds. Flow would have been nearly 1.5 billion and free funds flow. Nearly 1 billion. Now in the second quarter that performance is more than Play-Doh,

With our adjusted fun.

Low hitting 1.8 billion and free funds flow of 1.3 billion establishing this cash, generating power of the combined company and only our second combined reporting period. I think reinforces the strength of the combined portfolio, and we expect this to continue in the second half of the Year. Assuming forward curves. Hold looking at net, debt and deleveraging we reduced net debt by almost 1 billion dollars in the quarter. And we expect an accelerated.

Alex Pourbaix: Establishing this cash-generating power of the combined company in only our second combined reporting period, I think reinforces the strength of the combined portfolio, and we expect this to continue in H2, assuming forward curves hold. Looking at net debt and deleveraging, we reduced net debt by almost CAD 1 billion in the quarter, and we expect an accelerated pace of deleveraging in Q3 and through H2, again, assuming commodity prices and foreign exchange rates continue to hold. The CAD 1.3 billion in free funds flow went towards the balance sheet, and we also had the benefit of an unrealized foreign exchange gain on US-denominated debt. However, this was partially offset by a change in working capital of about CAD 389 million.

A pace of deleveraging in the third quarter and through the back half of the Year, again, assuming commodity prices and foreign exchange rates, continue to hold the 1.3 billion in free funds flow, went towards a balance sheet, and we also had the benefit of an unrealized foreign exchange gain on us, denominated death. However, this was partially offset by a change in working capital of about 389 million dollars.

The working capital build was driven mainly by the impact of higher commodity and refined product prices on inventory and accounts receivable as well as increased inventory volumes, the accounts receivable at the end of June will benefit July cash flow which had helped accelerate deleveraging and Q3 speaking to the inventory build. Now as us Refinery utilization ramped up in the second quarter based on higher refined product demand in

Alex Pourbaix: The working capital build was driven mainly by the impact of higher commodity and refined product prices on inventory and accounts receivable, as well as increased inventory volumes. The accounts receivable at the end of June will benefit July cash flow, which should help accelerate deleveraging in Q3. Speaking to the inventory build now, as US refinery utilization ramped up in Q2 based on higher refined product demand in Q3, downstream inventory volumes increased. We also utilized our midstream storage capacity in the quarter to capture higher prices in Q3 rather than take discounted pricing resulting from apportionment on the Enbridge Mainline in June. We've ramped up our rail program in Q3 to capture more attractive pricing in the US Gulf Coast. Asset sales will also accelerate, reaching CAD 10 billion in net debt.

The third quarter Downstream inventory volumes increased. We also utilized our Midstream storage capacity in the quarter to capture higher prices in the third quarter rather than take discounted pricing resulting from apportionment on the in Bridge Main Line in June, we've ramped up our rail program in Q3 to capture more attractive pricing in the US Gulf Coast. Asset sales, will also accelerate reaching 10 billion in that debt during the second.

After we closed our sale of the Martin Hills Gore for a hundred million dollars in June and July, we reach to other agreements to sell asset packages and conventional for additional proceeds of a hundred and 10 million which will appear in the third quarter. We also have another a number of other potential asset sales we're working in Earnest. We continue to expect cumulative asset sales proceeds in the many hundreds of millions of dollars in 2021 assuming the for

Alex Pourbaix: During Q2, we closed our sale of the Marten Hills GORR for CAD 100 million. In June and July, we reached two other agreements to sell asset packages and conventional for additional proceeds of CAD 110 million, which will appear in Q3. We also have another, a number of other potential asset sales we're working in earnest. We continue to expect cumulative asset sales proceeds in the many hundreds of millions of dollars in 2021. Assuming the forward curves play out, we have our net debt target of CAD 10 billion or under CAD 10 billion well within sight in 2021. Once we're in range of that CAD 10 billion mark, there will be room to consider other forms of capital allocation, including increase in shareholder returns.

Edward curves play out, we have our net debt Target of 10 billion or under 10 billion. Well, within sight in 2021 and once we're in range of that 10 billion Mark, there will be room to consider other forms of capital allocation including increase in shareholder returns. And I just want to make the point that we very much recognize that our share price is in a Range that would represent compelling value for potential share repurchases.

Alex Pourbaix: I just wanna make the point that we very much recognize that our share price is in a range that would represent compelling value for potential share repurchases. I'll turn now to the operating results this quarter. In the Upstream segment, we continued the production strength established in Q1. Overall production was about 766,000 BOE per day, nearly in line with Q1. That's even with turnarounds at Foster Creek, Sunrise, 8 of the 11 Lloydminster thermal projects, and 3 of our conventional natural gas processing plants in the quarter. Foster Creek production was down in Q2 due to the turnaround already mentioned and unplanned operational events as a result of some treating issues at the plants. This impacted production into July. However, the teams quickly incorporated learnings to adjust, and Foster Creek has been back to running at full rates since mid-July.

Oscar. Now to the operating results, this quarter in the Upstream segment, we continue the production strength established in the first quarter. Overall production was about 7 hundred and sixty-six thousand Boe per day. Nearly in line with q1, and that's even with turnarounds at Foster Creek Sunrise, 8 of the eleven Lloydminster thermal projects and 3 of our conventional natural gas processing plants in the quarter.

Foster Creek production was down in Q2 due to the turnaround already mentioned. And unplanned operational events as a result of some treating issues at the plants, this is impacted production into July. However, the team's quickly Incorporated learnings to adjust and Foster Creek has been back to running at full rates since mid-july and it, I think it's really worth pointing out that this production includes for new. Well, pads with some of the highest production rates we've ever seen.

Alex Pourbaix: I think it's really worth pointing out that this production includes 4 new well pads with some of the highest production rates we've ever seen at Foster Creek. Basically, if you think about that treating issue we had, we basically had to adjust for bringing in larger volumes than we've ever had before at Foster Creek, which I think is actually a pretty nice issue to have. Christina Lake exceeded its own solid and steady operating performance, delivering over 230,000 barrels per day of production. That's almost 3.5% higher than its already strong Q1 production, with the increase reflecting new wells coming online in the quarter.

Foster Creek. And basically, if you think about that, too,

We had we basically had to adjust for bringing in larger volumes than we've ever had before it Foster Creek, which I think is actually a pretty nice issue to have Christina Lake exceeded, its own solid and steady operating performance delivering over 230,000 barrels per day of production, that's almost 3.5 percent higher than is already strong first quarter production with the increased reflecting new wells, coming online in the quarter.

Turning to the Lloydminster thermal projects not only were the turnarounds, their well executed. We also beat the record quarterly average production rate. We achieved in the first quarter averaging over all almost ninety, 8 thousand barrels per day. And yeah, I would just make the point that, you know, overall coming out of the turnarounds, you know, we're seeing Upstream production now. Consistently exceeding 800,000 barrels of oil.

Alex Pourbaix: Turning to the Lloydminster thermal projects, not only were the turnarounds there well executed, we also beat the record quarterly average production rate we achieved in Q1, averaging overall almost 98,000 barrels per day. You know, I would just make the point that, you know, overall, coming out of the turnarounds, you know, we're seeing upstream production now consistently exceeding 800,000 barrels of oil equivalent per day. I think that's a pretty good testament to how the assets are operating. Driving the company's CAD 2.1 billion total operating margin for the quarter was a CAD 1.4 billion contribution from Oil Sands, reflecting strong realized pricing. Oil Sands operating costs increased somewhat relative to Q1, mainly due to the turnarounds I mentioned and increases in AECO pricing, and other commodity-linked costs.

Equivalent per day and I think that's pretty good Testament to how they assets are operating driving the company's 2.1 billion. Total operating margin for the quarter was the 1 point 4 billion contribution from oil sands, reflecting strong realized pricing oil. Sands operating costs increased somewhat relative to the first quarter mainly due to the turnaround. So I mentioned and increases in a CO pricing and other commodity linked cost.

It's looking at conventional production was also up about 3.5 percent relative to the first quarter. This reflected the addition of new wells coming online in the second quarter and included production. Impacts of the 3 turnarounds mentioned earlier.

Alex Pourbaix: Looking at conventional, production was also up about 3.5% relative to Q1. This reflected the addition of new wells coming online in Q2 and included production impacts of the three turnarounds mentioned earlier. Our offshore operations were a really strong contributor to free funds flow, delivering operating margins of CAD 340 million in the quarter, with operating margin totaling almost CAD 700 million so far this year. That roughly translates to about CAD 600 million in free funds flow from the offshore business so far this year, a really significant contributor to our deleveraging efforts from that high net back production. Moving to downstream segments, in Canadian manufacturing, the Lloydminster upgrader and asphalt refinery continued to deliver reliable operating performance with an average utilization of 94%.

Far offshore operations, where a really strong contributor to free funds flow through, delivering operating margins of 340 million in the quarter with operating margin totally and almost 700 million dollars. So far this year that roughly translates to about 600 million in free funds flow from the offshore business. So far this year, a really significant contributor to our deleveraging efforts from that high net back production, moving to Downstream.

It's in Canadian manufacturing. The Lloydminster upgrader and asphalt Refinery continue to deliver reliable operating performance with an apps with an average utilization of 94% Canadian manufacturing operating margin of a hundred and eighty 9 million in the quarter was more than twice. The segment's operating margin in the first quarter, this reflected a much stronger, average refining margin of nearly $30 per barrel. In the second quarter with asphalt Refinery sales in

Alex Pourbaix: Canadian manufacturing operating margin of CAD 189 million in the quarter was more than twice the segment's operating margin in Q1. This reflected a much stronger average refining margin of nearly $30 per barrel in Q2, with asphalt refinery sales increasing alongside the start of paving season. The increased operating margin also included CAD 55 million in revenue for settlement of a customer contract at the Bruderheim crude by rail terminal. In US manufacturing, demand for refined products continued to rebound and so too utilization, averaging 87% in the quarter, recovering another 15% from Q1. This increased utilization included turnarounds and other outages at a few of our US refineries during the quarter.

Racine alongside the start of Paving season, The increased operating margin also included 55 million in revenue for settlement of a customer contract at the bruderheim crude by rail terminal.

And US manufacturing to find demand for refined products continue to rebound. And so to utilisation averaging, 87% in the quarter, we're covering another 15% from the first quarter. This increase, utilization included, turnarounds and other outages at a few of our us refineries during the quarter. Well, through puts were stronger and Market. Crack spreads were higher operating margin of 96 million in the second quarter was only slightly higher than the first.

Alex Pourbaix: While throughputs were stronger and market crack spreads were higher, operating margin of CAD 96 million in Q2 was only slightly higher than Q1 of this year. This was mainly due to the average cost of RINs increasing about 45% to over $8 per barrel quarter over quarter, hindering net crack capture and higher feedstock costs due to the increased WTI benchmark price. We expect stronger results from US manufacturing in H2 of the year as the demand recovery for refined products continues and utilizations continue to increase. Building on the strength of upstream production in H1 of the year, we've updated our 2021 guidance, increasing total production guidance by about 2% at the midpoint while holding our total capital budget to the CAD 2.3 billion to 2.7 billion range announced in January.

of this year, this was mainly due to the average cost of

Increasing about 45 percent to over 8 dollars per barrel. Quarter-over-quarter hindering net, crack capture and higher feedstock cost due to the increased WTI Benchmark price. We expect stronger results from us manufacturing and the second half of the year as Adam and recovery for refined products continues and utilizations continue to increase.

Building on the strengths of Upstream production in the first half of the year. We've updated our 2021 guidance. Increasing total production guidance by about 2% of the midpoint while holding our total capital budget to the 2.3 billion to 2.7 billion range announced in January since coming out of the turn around. So that the oil sands assets, as I said earlier, we've seen many days where company-wide production has been over 800,000 be a we per day.

Alex Pourbaix: Since coming out of the turnarounds at the oil sands assets, as I said earlier, we've seen many days where company-wide production has been over 800,000 BOE per day. We expect production performance for the H2 to be stronger than the H1, and this is reflected in our updated guidance range of 750 to 790 thousand barrels per day. Reflecting our confidence in the value we've been able to add at the Lloydminster thermal projects so far this year, we've included an additional 10,000 barrels per day of expected production from the Lloydminster thermals for the year.

We expect production performance for the second half of the year to be stronger than the first half and this is reflected in our updated guidance range of 750 to 790,000 barrels per day and reflecting our confidence in the value. We've been able to add at the Lloydminster thermal project so far this year, we've included an additional 10,000 barrels per day of expected, production from the Lloydminster, thermals for the year.

Our updated Capital guidance includes an additional hundred million dollars of capital allocated to the oil sands, primarily for accelerating, some of the work we've been doing at the Lloydminster thermals including Capital allocated towards a completion of Spruce Lake North as well as carrying out some Redevelopment Wells, at Christina Lake. We've made an offsetting Capital reduction in the downstream segment, which reflects efficiencies identified across the portfolio. We've slightly

Alex Pourbaix: Our updated capital guidance includes an additional CAD 100 million of capital allocated to the Oil Sands, primarily for accelerating some of the work we've been doing at the Lloydminster Thermals, including capital allocated towards a completion of Spruce Lake North, as well as carrying out some redevelopment wells at Christina Lake. We've made an offsetting capital reduction in the Downstream segment, which reflects efficiencies identified across the portfolio. We've slightly increased our guidance ranges for operating costs at Oil Sands assets this year, including Foster Creek and Christina Lake. These changes reflect increases in AECO pricing and other commodity-linked costs with our non-fuel OpEx remaining on track to our original guidance. While operating costs for the Lloyd Thermal Projects will have these same impacts, they have been more than offset by the efficiencies we've achieved there through application of Cenovus' operating strategies and related SOR reductions.

Prestart guidance ranges for operating costs and oil sands assets this year, including Foster Creek and Christina Lake. These changes reflect increases in a CO pricing and other commodity linked cost with our non-fuel Opex remaining on track to our original guidance. Well, operating costs for the Lloyd thermal projects will have these same impacts. They have been more than offset by the efficiencies. We've achieved their through application of cenovus is operating strategies and

Elated Sor reductions as a result. We've brought operating cost, guidance down for the Lloydminster thermals we've also reduced our operating costs range for conventional reflecting. Some efficiencies, we've been able to achieve their and asset sales. I'll take the opportunity to know today, that we have a major turnaround planned at the Lima, Refinery. This fault. This is a once in every 5 years event that we've planned for and was always included in our full-year guidance, but something to keep in mind,

Alex Pourbaix: As a result, we've brought operating cost guidance down for the Lloydminster Thermals. We've also reduced our operating cost range for conventional, reflecting some efficiencies we've been able to achieve there and asset sales. I'll take the opportunity to note today that we have a major turnaround planned at the Lima Refinery this fall. This is a once in every five years event that we've planned for and was always included in our full year guidance. Something to keep in mind is it will impact Lima in late Q3 and into Q4. Returning to the guidance updates, we've also reduced our integration cost guidance by CAD 100 million for 2021.

Is it will impact Lima in Lakeview 3. And in the queue, for returning to the guidance updates, we've also reduced our integration costs guidance by a hundred million for 2021. Well, we still expect total integration costs related to the Husky transaction in the range of 500 million. To 550 million over 20.21 and 20.22. We've adjusted timing such that the remainder is now expected to be spent in early 2022.

Alex Pourbaix: While we still expect total integration costs related to the Husky transaction in the range of CAD 500 million to 550 million over 2021 and 2022, we've adjusted timing such that the remainder is now expected to be spent in early 2022. This doesn't impact our forecast pace of synergies capture. We remain on track to realize at least CAD 1 billion of synergies in 2021 and to reach the annual run rate target of CAD 1.2 billion by the end of 2021. The only change is that we're just spending a little less than we expected this year to do it. On the ESG front, we're continuing to take bold action to address emissions.

To, this doesn't impact our forecast. Pace of synergies.

Capture. We remain on track to realize at least 1 billion of synergies in 2021 and to reach the annual run rate target of 1.2 billion by the end of 2020..1. The only change is that we're just spending a little less than we expected this year to do it.

It on the ESG front. We're continuing to take bold action to address emissions. Last week we announced will be buying solar power produced electricity and the associated emissions offsets from a partnership between the Cold Lake First Nations and Elemental energy. This power purchase agreement will put a hundred and fifty Mega watts into Alberta's electricity Grid in Southern Alberta and help mitigate our scope to emissions. It also reinforces our long-standing business relationship.

Alex Pourbaix: Last week, we announced we'll be buying solar power-produced electricity and the associated emissions offsets from a partnership between the Cold Lake First Nations and Elemental Energy. This power purchase agreement will put 150MW into Alberta's electricity grid in southern Alberta and help mitigate our Scope 2 emissions. It also reinforces our long-standing business relationship with the Cold Lake First Nations. Last month, we were one of five oil sands companies that launched the Oil Sands Pathways to Net Zero initiative. Our goal is achieving net zero emissions from our operations in by 2050, while supporting Canada's efforts to meet its Paris Agreement commitments and net zero aspirations. We continue to work with the federal and provincial governments to advance the funding and policy support needed to implement the emerging technologies that will enable zero emission oil sands production.

With a cold lake First Nations and last month, we are 1 of 5 oil sands companies that launched the oil sands Pathways to Net Zero initiative. Our goal is achieving net zero emissions from our operations and by 2050 well supporting Canada's efforts to meet as Paris agreement, commitments and Net Zero aspirations. We continue to work with the federal and provincial governments to advance the funding and policy support needed to implement the emerging technologies that

Will enable zero-emission oil sands production as a company, we're committed to Global Climate leadership later. This year will be reducing the new targets for our combined companies, Focus areas climate and ghg Emissions, water stewardship, biodiversity indigenous, reconciliation and inclusion and diversity. I look forward to sharing those with you. So in closing, I think this quarter is again. Demonstrated the operating strength of the combined portfolio and

Alex Pourbaix: As a company, we're committed to global climate leadership. Later this year, we'll be reducing the new targets for our combined company's focus areas, climate and GHG emissions, water stewardship, biodiversity, indigenous reconciliation, and inclusion and diversity. I look forward to sharing those with you. In closing, I think this quarter has again demonstrated the operating strength of the combined portfolio and the free funds flow capacity of this business moving through the year at current strip. As these results reinforce, we have the benefit of best-in-class assets, and we're building on our track record of asset reliability and low cost structure. With the H1 2021 behind us, we're even more confident that we will deliver at least CAD 1 billion in synergies this year and reach our targeted CAD 1.2 billion in annual run rate synergies by the end of this year.

3 funds flow capacity of this business. Moving through the year at current strip as these results reinforced, we have the benefit of best-in-class assets and we're building on our track record of asset, reliability, and low cost structure, with the first half of 2021 behind us. We're even more confident, that we will deliver at least 1 billion in synergies this year and reach our targeted..1.2 billion in annual run rate synergies by the end of this year.

We're running a lot more balanced business since a husky transaction along with expanded Market access. We have greater stability of cash flows through the cycle. Lower breakevens and less risk on our deleveraging track and on the path to enhance shareholder returns. We're within range of our interim, net debt, Target within 2021. We expect increase our Pace, a deleveraging in the third quarter, and we believe there are clear opportunities to do so.

Alex Pourbaix: We're running a lot more balanced business since the Husky transaction, along with expanded market access. We have greater stability of cash flows through the cycle, lower breakevens, and less risk on our deleveraging track and on the path to enhanced shareholder returns. We're within range of our interim net debt target within 2021, and we expect to increase our pace of deleveraging in Q3, and we believe there are clear opportunities to do so. With that, I'm happy to take your questions.

So with that, I'm happy to take your questions.

And ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing star 1. We will now begin the question and answer session and go to the first caller. Your first question comes from Neil babba, from Goldman Sachs Neal, please go ahead. Yeah, good morning team. Congrats, you're on a good quarter, the Cadence of debt reduction and Alex. Maybe you could talk about your confidence interval and achieving the 10.

Operator: Ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing star one. We will now begin the question and answer session and go to the first caller. Your first question comes from Neil Mehta from Goldman Sachs. Neil, please go ahead.

Neil Mehta: Yeah. Good morning, team. Congrats here on a good quarter. I want to talk about the cadence of debt reduction. Alex, maybe you could talk about your confidence interval in achieving the CAD 10 billion level by the end of the year based on what you can see in the business. Talk a little bit about the working capital side of the equation. It was a drag last quarter, a little bit of drag this quarter. How do you see that unwinding here, and can that help you get to that level?

million dollar level by the end of the

Pierre based on what you can see in the business and talk a little bit about the working capital side of the equation was dragged last quarter, little bit of drag this quarter. How do you see that on winding here and can that help you get to that level? Yeah, Neil happy to, to do. So, I mean, you know, when, when, when we think about about net debt and we talked about that 10 billion Target being being within range. You know, I what I would tell you is, is when we look at this,

Alex Pourbaix: Yeah, Neil, happy to do so. I mean, you know, when we think about net debt and we talk about that CAD 10 billion target being within range, you know, what I would tell you is when we look at this business for the balance of the year, just on our base business, you know, once again, assuming that the strip remains more or less in place. We are highly confident that we should hit that CAD 10 billion target within the end of the year. I would say that completely ignores the impact of further asset sales. I've said it before on these calls and with investors, we are really laser focused on those non-core divestitures, and I expect that they will continue to accelerate that pace.

Business for for the balance of the year just on our base business. You know, once again assuming that the strip remains more or less in place, we are highly confident that we should hit that 10 billion Target within the end of the year and and I would say that completely ignores the impact of further asset sales, and I've said it before on these calls and with investors, we are really laser.

Alex Pourbaix: I would say that completely ignores the impact of further asset sales. I've said it before on these calls and with investors, we are really laser focused on those non-core divestitures, and I expect that they will continue to accelerate that pace. Our confidence on the CAD 10 billion is really strong. You know, with respect to the working capital, maybe I'll hand that over to Jeff, and he can give a little bit of color. Jon may wanna jump in, too.

Focused on those 9 core divestitures and I expect that they will continue to accelerate that pace. So so our confidence on the 10 billion is is really strong. You know, with with respect to the working capital, maybe I'll hand that over to Jeff and he can give a little bit of color. John me want to jump into. Yeah, no I morning the oh and I think the confidence here and if you look at the, the working capital build for the Q, which is about 400 million. And you think primarily

Alex Pourbaix: Our confidence on the CAD 10 billion is really strong. You know, with respect to the working capital, maybe I'll hand that over to Jeff, and he can give a little bit of color. Jon may wanna jump in, too.

Kam Sandhar: Yeah, no. Good morning, Neil. I think the confidence here, and if you look at the working capital build for the Q, which is about CAD 400 million, and you think primarily, that's largely price related as we saw the price impacts here in oil rise, getting WTI kind of from a, you know, month average March to month average June by about $10 a barrel. So we saw an investment in inventory. We also built volumes in and around the US refining, which gets to the utilization increases that Alex was talking about, as well as building in and around upstream, given the portion we could build inventories and you know, optimize commercially throughout our infrastructure. I think that reinforces our confidence to getting to under CAD 10 billion.

Jeff Hart: Yeah, no. Good morning, Neil. I think the confidence here, and if you look at the working capital build for the Q, which is about CAD 400 million, and you think primarily, that's largely price related as we saw the price impacts here in oil rise, getting WTI kind of from a, you know, month average March to month average June by about $10 a barrel. So we saw an investment in inventory.

Lilly that's largely price related. As we saw the price impact here and a whale rise. Getting WTI. Kind of permit, you know, month average March 2 month. Average human Bible, $10 a barrel. So we saw an investment in in inventory and we also built very volumes in and around the u.s. refining, which gets to the utilization increases that Alex was talking about, as well as building in and around Upstream, given the apportionment, we could build inventories and and, you know, optimize commercially throughout our infrastructure.

Jeff Hart: We also built volumes in and around the US refining, which gets to the utilization increases that Alex was talking about, as well as building in and around upstream, given the portion we could build inventories and you know, optimize commercially throughout our infrastructure. I think that reinforces our confidence to getting to under CAD 10 billion. I think it sets up and reinforces the utilizations running up in the refineries, the integration benefits, and you can start to see it really in the realizations coming through next quarter. We're quite confident. I think the inventory build and working capital build reinforces that confidence.

I think that reinforces our confidence to getting 210 billion and it gets up and reinforces the utilizations running up in the refineries the integration benefits and you can start to see it really in in the realizations coming through next quarter. And so we're quite confident, I think the inventory build and working capital build reinforces that confidence.

Jon McKenzie: I think it sets up and reinforces the utilizations running up in the refineries, the integration benefits, and you can start to see it really in the realizations coming through next quarter. We're quite confident. I think the inventory build and working capital build reinforces that confidence.

All right, thanks chaps and Alex's. Follow-up is just on asset. Monetization the 2 comments there, 1 day, think about liwan in the context of it. Obviously, that is the biggest nut there, but it's been a really profitable asset. And we would argue that Alan G Council was pretty tight and Asian. So there's a lot of value in that asset and then the couple hundred million dollars a smaller, you know, singles and doubles talk a little bit about what are the logical.

Neil Mehta: All right. Thanks, Jeff and Alex. The follow-up is just on asset monetization. Two comments there. One, how do you think about Liwan in the context of it? Obviously, that is the biggest nut there, but it's been a really profitable asset, and we would argue the LNG balances look pretty tight in Asia, so there's a lot of value in that asset. The couple hundred million dollars of smaller, you know, singles and doubles. Talk a little bit about what are the logical assets around that, and how should we think about the timing there?

Assets around that. And how should we think about the time again? Sure. You know when when you talk about a asia-pac and and Neil I think you're quite right to kind of draw attention to the the free cash flow generating capability of of that asset. It's been performing very well for us. I think it's also fair to say is we get to know that business better. You know, we are seeing some opportunities to actually continue to add

Alex Pourbaix: Sure. You know, when you talk about Asia Pacific, and Neil, I think you're quite right to kind of draw attention to the free cash flow generating capability of that asset. It's been performing very well for us. I think it's also fair to say as we get to know that business better, you know, we are seeing some opportunities to actually continue to add value. You know, as I've said in the past, I don't think, you know, when you think about asset divestitures, my kind of guidance to the market is, you know, as I said, we are really focused on this, but I think people should think about divestitures largely, though not entirely, coming out of the conventional business and being North American-focused.

value. And, and yeah, as I've as I've said in the past, I don't think, you know, when you think about asset divestitures, my, my kind of guidance to the market is, you know, as I said, we are really focused on this, but I think people should think about divestitures largely though. Not entirely coming out of the conventional business and being North American focused. You know, the the the asia-pac business

Alex Pourbaix: You know, the Asia Pacific business for us is something that we really wanna spend a good amount of time with, really get to know our partners in the situation there, so I don't see it as something where we would be considering in the short term. With respect to the kind of singles and doubles, maybe Kam might wanna give a little bit of color on that.

for us is something that that we really

To spend a good good amount of time with really get to know our partners and the situation there. So I don't see it as something where we would be considering and in in the short term with respect to the the kind of singles and doubles, maybe cam might want to give a little bit of color on them.

Thanks Alex. So, you know, I think Alex kind of touched on this already, but we are largely focusing most of our efforts in the conventional space and I would say, you know, it's really about assets that aren't competing for Capital inside of our portfolio. You know assets that have slightly higher operating costs and assets. Just really aren't going to receive the funding. So I think as you go through that portfolio I think that's probably the way to think about, you know, pieces that don't fit. You know, Alex did allude to this but there are

Kam Sandhar: Thanks, Alex. Neil, I think Alex has kind of touched on this already, but, you know, we are largely focusing most of our efforts in the conventional space. I would say, you know, it's really about assets that aren't competing for capital inside of our portfolio, you know, assets that have slightly higher operating costs, and assets just really aren't gonna receive the funding. I think as you go through that portfolio, I think that's probably the way to think about, you know, pieces that don't fit. You know, Alex did allude to this, but there are, we are looking at other, parts of the portfolio too, not necessarily solely focused on the conventional business.

Kam Sandhar: You know, Alex did allude to this, but there are, we are looking at other, parts of the portfolio too, not necessarily solely focused on the conventional business. You know, just for good reasons, we won't be giving details around what those specifics are, but you shouldn't be surprised to see other areas that we're also focused on and looking at asset divestitures going through 2021.

We are looking at other parts of the portfolio to not necessary solely focused on the conventional business. So you know, just for, for good reasons, we won't be giving details around what those specifics are but you shouldn't be surprised to see other areas that were also focused on and looking at asset divestitures going through 2021.

Kam Sandhar: You know, just for good reasons, we won't be giving details around what those specifics are, but you shouldn't be surprised to see other areas that we're also focused on and looking at asset divestitures going through 2021.

Sixteen.

Neil Mehta: Thanks, team.

Your next question comes from Craig party from RBC Capital markets, Greg, please go ahead. Yeah, thanks. Good morning. Could you frame maybe the role that you see Beloit thermals playing in the years ahead. And I'm also interested in just other areas of of, either the Upstream of the downstream portfolio where there's low hanging fruit, that would benefit from, you know, just operational Improvement.

Operator: Your next question comes from Greg Pardy from RBC Capital Markets. Greg, please go ahead.

Greg Pardy: Yeah. Thanks. Good morning. Could you frame maybe the role that you see the Lloyd Thermals playing in the years ahead? I'm also interested in just other areas of either the upstream or the downstream portfolio where there's low-hanging fruit that would benefit from, you know, just operational improvement.

Alex Pourbaix: Sure.

Morning, Greg gets its John.

Jon McKenzie: Morning, Greg. It's Jon. You know, your question is a really good one, and it's something that we've been actively working on, you know, prior to the merger and then in real earnest thereafter. I think one of the things that we think with Lloydminster Thermals is there is still opportunity there for future growth, and there's still opportunity there to improve the operating metrics in that area. What you'll notice, I think, through the rest of the year is we'll spend, you know, CAD 200 million there. In the background, we've been working on mapping those assets, making sure we fully understand the reservoir. Coming into next year, you'll see a fully baked capital plan together with a production forecast that goes with it.

You know, your question is a really good 1 and it's something that we've been actively working on, you know, prior to the merger. And then in real Earnest thereafter and I think 1 of the things that we think with Lloydminster thermals who's there is still opportunity there for future growth and there's still opportunity there to improve the operating metrics in that area. And what you'll notice, I think through the rest of the years will spend, you know, a couple hundred million

But in the background, we've been working on mapping those assets. Making sure we fully understand the reservoir. And then coming into next year, you'll see a fully baked Capital plan together with a production forecast that goes with it, but we think that those are very economic and highly prospective assets. They were 1 of the things that we had our eye on. We think that you know, long-term those assets will produce over a hundred thousand barrels a day in generate.

Neil Mehta: We think that those are very economic and highly prospective assets. They were one of the things that we had our eye on. We think that, you know, long term, those assets will produce over 100,000 barrels a day and generate significant free cash flow. You know, the other areas that we have been working on in the background would include Sunrise, Tucker, Cold EOR on the thermal, SAGD side, as well as Cold EOR. In those assets, we haven't put any capital into them this year. I think the cumulative capital would be about CAD 5 million between the three assets, but we've kept production flat to growing there. Again, in the background, we've been working on mapping those reservoirs and building out our development plans and asset plans around that.

Jon McKenzie: We think that those are very economic and highly prospective assets. They were one of the things that we had our eye on. We think that, you know, long term, those assets will produce over 100,000 barrels a day and generate significant free cash flow. You know, the other areas that we have been working on in the background would include Sunrise, Tucker, Cold EOR on the thermal, SAGD side, as well as Cold EOR. In those assets, we haven't put any capital into them this year. I think the cumulative capital would be about CAD 5 million between the three assets, but we've kept production flat to growing there. Again, in the background, we've been working on mapping those reservoirs and building out our development plans and asset plans around that.

Significant free cash flow. You know the other areas that we have been working on in the background would include Sunrise, Tucker Cole, dor on the thermal sag decide as well as coal dor and in those assets, we haven't put any Capital into them this year. I think the cumulative Capital would be about 5 million dollars between the 3 assets, but we've kept production flat to Growing there. But again, in the background we've been working on mapping those reservoirs and building out our

Our development plans and asked.

Plans around that. And I think what you'll see going into 2022 is those assets as well, are very economic assets at the bottom of the cycle and very perspective in terms of production and operating metrics. We're really, really pleased with the suite of assets that we've got from Husky and on the SAG decide, you know, similarly, on the conventional side, we've been working in areas like an so we think there are opportunities there to improve.

Neil Mehta: I think what you'll see going into 2022 is those assets as well are very economic assets at the bottom of the cycle and very prospective in terms of production and operating metrics. We're really pleased with the suite of assets that we've got from Husky on the SAGD side. You know, similarly on the conventional side, we've been working in areas like Ansell. We think there are opportunities there to improve the operating metrics as well as future prospectivity. You'll see that again going into 2022 with the budget that we're put forward. You know, the other area that I think is of kind of interesting for us, and we haven't talked a lot about, Alex has kind of tweaked on it, is Asia Pacific.

Jon McKenzie: I think what you'll see going into 2022 is those assets as well are very economic assets at the bottom of the cycle and very prospective in terms of production and operating metrics. We're really pleased with the suite of assets that we've got from Husky on the SAGD side. You know, similarly on the conventional side, we've been working in areas like Ansell. We think there are opportunities there to improve the operating metrics as well as future prospectivity. You'll see that again going into 2022 with the budget that we're put forward. You know, the other area that I think is of kind of interesting for us, and we haven't talked a lot about, Alex has kind of tweaked on it, is Asia Pacific.

Move the operating metrics as well as feature prospectivity and you'll see that again, going into 2022 with the budget that were put forward. You know, the other area that I think is a kind of interesting for us. We haven't talked a lot about how Alex is kind of tweaked on. It is asia-pacific and we see lots of opportunity there to increase gas supply, going into mainland China in our social China Sea assets there.

Neil Mehta: We see lots of opportunity there to increase gas supply going into Mainland China in our South China Sea assets there. You know, we are actively building out the Madura Strait in Indonesia as well. We think those are very profitable assets going forward as well. When we kind of look at sort of the suite of assets that we acquired from Husky, we think that, you know, a lot of these assets, we would say, are tier one assets, and a lot of these assets are gonna be core part of the assets of this company going forward, all cash flow, you know, positive at the bottom of the cycle.

Jon McKenzie: We see lots of opportunity there to increase gas supply going into Mainland China in our South China Sea assets there. You know, we are actively building out the Madura Strait in Indonesia as well. We think those are very profitable assets going forward as well. When we kind of look at sort of the suite of assets that we acquired from Husky, we think that, you know, a lot of these assets, we would say, are tier one assets, and a lot of these assets are gonna be core part of the assets of this company going forward, all cash flow, you know, positive at the bottom of the cycle.

And you know, we are actively building out the Madeira straight and Indonesia as well. We think those are very profitable assets going forward as well. So when we kind of look at sort of The Suite of assets that we acquired from husky, we think that, you know, a lot of these assets we would say our Tier 1 assets and a lot of these assets are going to be core part of the assets of this company. Going forward, all cash flow, you know, positive at the bar

Okay, that's good. Run down maybe just as a follow-up, you know, your Downstream is more fractionalized, you know, you got pieces bits and pieces all over the place. How are you thinking about maybe streamlining and consolidating some of those areas?

Greg Pardy: Okay. That's a good rundown. Maybe just as a follow-up, you know, your downstream is more fractionalized. You know, you've got pieces, bits and pieces all over the place. How are you thinking about maybe streamlining and consolidating some of those areas?

Please.

Jon McKenzie: Yeah. You know, similar to what I said before, you know, some of the assets that we acquired from Husky, like the Lloydminster upgrader and Lloydminster refiner are absolutely gem assets. You know, we think that there's a lot of opportunity in the other assets that we've got in the US, like Lima. You know, one of the things we've been really clear about is that we think that this acquisition of Husky probably gives us the opportunity to rethink some of our non-operated joint ventures and rethink how we wanna consolidate or hold our refining portfolio. We like the assets that we've got. You know, sometimes we just question whether or not they're held within the right vehicle.

you know, you know, some of the assets that we

You know Refinery absolutely Jam assets. And then you know we think that there's a lot of opportunity and in the other assets that we've got in the u.s. like lima you know, 1 of the things we've been really clear about is that we think that this acquisition of husky probably gives us the opportunity to rethink some of our non operated joint ventures and rethink how we want to consolidate or hold are refining portfolio. We like the assets that we've got

You know, sometimes we just question whether or not they're held within the right vehicle but I think, you know, all of this, you know, activity and this acquisition really gives us the ability to rethink that and address it in the near and medium-term. Alright, thanks very much.

Neil Mehta: I think, you know, all of this, you know, activity and this acquisition really gives us the ability to rethink that and address it in the near and medium term.

Greg Pardy: All right. Thanks very much.

Thanks for your next quit. Your next question comes from Phil gresh from JP Morgan. Phil. Please go ahead.

Jon McKenzie: Thanks, Greg.

Operator: Thanks, Greg. Your next question comes from Phil Gresh from JPMorgan. Phil, please go ahead.

Jon McKenzie: Your next question comes from Phil Gresh from JPMorgan. Phil, please go ahead.

Ed, yes. Hey, good morning. As we look ahead, just a little further out given the oil price environment and in the past from the 10 billion of debt had 8 billion of debt in 2022. How do you think about that balance between quickly, getting to the 8 billion versus potential to buy back shares offset? Some of the effects of Congo continue to sell down and door.

Phil Gresh: Yes. Hey, good morning. As we look ahead, just a little further out, given the oil price environment and the path from the CAD 10 billion of debt to the CAD 8 billion of debt, in 2022, how do you think about that balance between quickly getting to the CAD 8 billion versus the potential to buy back shares to offset some of the effects of ConocoPhillips continuing to sell down and/or some of these CapEx opportunities?

Capex opportunities.

Yeah, I know it's it's it's it's a, a good questions Bill and II, you know, I mean, I think we've said it a million times that, you know on our path down to 10 a hundred percent of free cash flow is going to the balance sheet. But, you know, once we hit 10 and with the pace of deleveraging, that that we see possible over over the coming quarters, you know, I suspect you're going to see the majority of that cash, go to the ballet.

Alex Pourbaix: Yeah. No, it's a good question, Phil. You know, I mean, I think we've said it a million times that, you know, on our path down to 10, 100% of free cash flow is going to the balance sheet. Once we hit 10 and with the pace of deleveraging that we see possible over the coming quarters, you know, I suspect you're gonna see the majority of that cash go to the balance sheet. As I kinda said in my opening statement, we are very alive to the value proposition that share buybacks represent for the company and our shareholders at our present valuation.

Cheap. But as I kind of, I kind of said, in my opening statement, we are very alive to the value proposition that share BuyBacks represent for the company and our shareholders at at our present valuation. So I don't think anybody should be surprised to see us be looking very actively at that as we sort of approach. The the 10 billion dollar 10 billion dollar level

Alex Pourbaix: I don't think anybody should be surprised to see us be looking very actively at that as we sort of approach the CAD 10 billion level.

anything on the capex side,

Phil Gresh: Got it. Anything on the CapEx side?

You know, I mean, we've talked about this, we've talked about this before, you know, it, 1 of the great things about doing this husky deal and John sort of alluded to it is, you know, we continue to, you know, like turnover, you know, rocks and and find diamonds. And and I, you know, I really think that what people should expect. I mean, we, you know, I don't see any large large scale, kind of phase expansion.

Alex Pourbaix: You know, I mean, we've talked about this before. You know, one of the great things about doing this Husky deal, and John sort of alluded to it, is, you know, we continue to, you know, like, turn over rocks and find diamonds. I really think that what people should expect, I mean, you know, I don't see any large scale kind of phase expansions anytime in our near future because, you know, we have this really incredible portfolio of kind of what I would describe as kind of brownfield opportunities, organic opportunities just around the edges, to add production at very attractive returns, and at relatively modest capital.

Trans anytime in our near future. Because, you know, we have this really incredible portfolio of kind of what I would describe as kind of Brownfield opportunities. Organic opportunities just around the edges to add production at very, very attractive returns and at relatively modest capital. And I think that's really where you can expect to see a lot of our Capital around those kind of things that John was referring.

Alex Pourbaix: I think that's really where you can expect to see a lot of our capital around those kind of things that Jon was referring to. You know, the opportunity

Alex Pourbaix: I think that's really where you can expect to see a lot of our capital around those kind of things that Jon was referring to. You know, the opportunity around getting FCCL connected, you know, to the Lloyd Complex. You know, that I would kind of put that in the category, once again, of a really, really attractive opportunity with quite modest capital. Those are the kind of things that I think people should be thinking about.

To you know the the opportunity around getting fccl connected, you know to the Lloyd complex you know that I would kind of put that in the category once again of a really really attractive opportunity with quite modest Capital but those are the kind of things that I think people should be thinking about it. Maybe I'd add to that Phil. I think we've been pretty clear through this acquisition of what is required to keep production flat and keep our

Jon McKenzie: Around getting FCCL connected, you know, to the Lloyd Complex. You know, that I would kind of put that in the category, once again, of a really, really attractive opportunity with quite modest capital. Those are the kind of things that I think people should be thinking about.

Jon McKenzie: Yeah. Maybe I'd add to that, Phil. I think we've been pretty clear through this acquisition of what is required to keep production flat and keep our fixed plants in a safe and stable condition. That number, you know, that we've floated quite publicly is around CAD 2.4 billion. What I would suggest is you shouldn't expect a, you know, a right-hand turn from what we've done in the past in terms of capital budgeting going forward. It'll be something, you know, that probably looks very similar to what we've done this year when you know, see the budget for 2020. I think, you know, as Alex said, you know, when you get to CAD 10 billion, you know, clearly we still wanna delever and we wanna address shareholder returns.

Fix plants in safe and stable condition and that number, you know that we floated quite publicly is around 2.4 billion. And you know what? I would suggest is you shouldn't expect email right hand, turn from what we've done in the past in terms of capital budgeting going forward, it'll be something. You know, the probably looks very similar to what we've done this year, when you, you know, see the budget for 2020. So, you know, I think, you know, as Alex said, you know, when you get to

And you know, clearly we still want to deliver and we want to address, sure.

And I think it's a more modest investment in in the assets than you might be thinking.

Jon McKenzie: I think it's a more modest investment in the assets than you might be thinking.

Okay, great. That's very helpful..1 kind of one-off question. Can you remind me with respect to Superior the pace of spending versus how the insurance proceeds come in? Is there any kind of timing variables to think about there? Thank you.

Phil Gresh: Okay, great. That's very helpful. One, kind of one-off question. Can you just remind me with respect to Superior, the pace of spending versus how the insurance proceeds come in? Is there any kind of, timing variables to think about there? I'll leave it there. Thank you.

You it's Jeff here. Yeah I mean the obviously the capex and we've got around half a billion in the guidance this year and and the insurance. We we expect it to be largely. Largely covered the capex. You know, there's not a simple rule of thumb on cash receipt. I think, you know, we sit down and work through, you know, basically our invoices with them and go through all that review. So, you know, the receipt will be a little bit more lumpy but no change to where we're at with that and we still expected to be largely covered.

Jon McKenzie: Yeah, it's Jeff here, Phil. Yeah, I mean, the obviously the CapEx, and we've got around CAD half a billion in the guidance this year. The insurance, we expect it to be largely cover the CapEx. You know, there's not a simple rule of thumb on cash receipt. I think, you know, we sit down and work through, you know, basically our invoices with them and go through all that review. The receipt will be a little bit more lumpy, but no change to where we're at with that. We still expect it to be largely covered, and it's just the timing will be a little bit lumpy, and it's not perfectly even flow with the CapEx.

Jeff Hart: Yeah, it's Jeff here, Phil. Yeah, I mean, the obviously the CapEx, and we've got around CAD half a billion in the guidance this year. The insurance, we expect it to be largely cover the CapEx. You know, there's not a simple rule of thumb on cash receipt. I think, you know, we sit down and work through, you know, basically our invoices with them and go through all that review. The receipt will be a little bit more lumpy, but no change to where we're at with that. We still expect it to be largely covered, and it's just the timing will be a little bit lumpy, and it's not perfectly even flow with the CapEx.

And it's just the timing will be a little bit lumpiness, not perfectly even flow with with the capex and and fill its Alex. I I might just add my team around this table or are regularly subjected to my endeavours to accelerate that that recovery on the insurance side. I think it is an obvious obvious opportunity for us to really accelerate the, the balance sheet recovery. So we are really focused as a

Alex Pourbaix: Phil, it's Alex. I might just add, my team around this table are regularly subjected to my endeavors to accelerate that recovery on the insurance side. I think it is an obvious opportunity for us to really accelerate the balance sheet recovery. We are really focused as a team on seeing those proceeds coming in.

A team on on seeing those proceeds coming in.

Is it is it fair to say you haven't gotten any of the 509 yachts?

Phil Gresh: Is it fair to say you haven't gotten any of the CAD 500 million yet?

Oh no. We're, you know, we've if you think about the capex and what we've received, we, you know, we've received, you know, in order of magnitude, you know, let's say a few hundred million on the property damage and then obviously business interruptions separate and Well on our way on that over time, so it's not perfectly weighted to year-by-year anything Phil, but we're well on our way on collecting those.

Jon McKenzie: Oh, no. We're, you know, if you think about the CapEx and what we've received, we've received an order of magnitude, you know, let's say a few hundred million CAD on the property damage, and then obviously business interruption's separate and well on our way on that over time. So it's not perfectly weighted to year by year or anything, Phil, but we're well on our way on collecting those.

Jeff Hart: Oh, no. We're, you know, if you think about the CapEx and what we've received, we've received an order of magnitude, you know, let's say a few hundred million CAD on the property damage, and then obviously business interruption's separate and well on our way on that over time. So it's not perfectly weighted to year by year or anything, Phil, but we're well on our way on collecting those.

Yeah. Okay. Okay, thank you. Thanks. Phil

Phil Gresh: Yeah. Okay. Thank you.

Alex Pourbaix: Thanks, Phil.

Ladies and gentlemen, as 1 more reminder, should you have a question please? Press star, followed by 1. Your next question comes from my nap Gupta. From Credit, Suisse please, go ahead. Hi, I just wanted to focus a little bit on Canadian manufacturing. The results were stronger than expectations. If you could help us understand what, what drove that. So we can model this segment more accurately going ahead.

Operator: Ladies and gentlemen, as one more reminder, should you have a question, please press star followed by one. Your next question comes from Manav Gupta from Credit Suisse. Please go ahead.

Manav Gupta: Hi. I just wanted to focus a little bit on Canadian manufacturing. The results were stronger than expectations. If you could help us understand what drove that so we can model this segment more accurately going ahead.

Sure Keith. What? Yeah, I mean, you know, obviously we saw really strong operating margins that are at our Upstream, sorry at our manufacturing facilities in the loudness area. You know, that was also included in that was a receipt of a payment from a contract for a customer that wanted to buy it at their contract that are at our bruderheim rail facility. So that's kind of more of a

Alex Pourbaix: Sure. Keith, what are?

Keith: Yeah, Manav. You know, obviously we saw really strong operating margins at our manufacturing facilities in the Lloydminster area. You know, that was also included in that, a receipt of a payment from a contract for a customer that wanted to buy out of their contract at our Bruderheim rail facility. That's kind of more of a one-off event, and that was about CAD 55 million. You know, that might have been a bit of the lumpiness that you weren't able to model in the quarter.

Keith Chiasson: Yeah, Manav. You know, obviously we saw really strong operating margins at our manufacturing facilities in the Lloydminster area. You know, that was also included in that, a receipt of a payment from a contract for a customer that wanted to buy out of their contract at our Bruderheim rail facility. That's kind of more of a one-off event, and that was about CAD 55 million. You know, that might have been a bit of the lumpiness that you weren't able to model in the quarter.

one-off events and that was about 55 million dollars. So that might have been a bit of the lumpiness that you that you weren't able to model in the quarter.

But even then, I mean the earnings are pretty strong. So like, in terms of margins, are you seeing those margins continued into the third quarter? Even if you take out the lumpiness of that 1 time contract,

Manav Gupta: Okay. Even then, I mean, the earnings were pretty strong. Like in terms of margins, are you seeing those margins continue into Q3, even if you take out the lumpiness of that one-time contract?

Act that industrial complex is very close on the value chain to our to our Upstream production. So we're really happy with the assets and actually we're now heading into the to the paving season. So, you know, things are lining up.

Keith: Yeah, Manav, we had really strong operating performance out of both of those assets. You know, throughput at the assets was high and margins were strong. We're really well connected. You know, Alex and Jon alluded to how that industrial complex is very close on the value chain to our upstream production. So, you know, we're really happy with the assets. Actually we're now heading into the paving season, so you know, things are lining up well for the Q3.

Keith Chiasson: Yeah, Manav, we had really strong operating performance out of both of those assets. You know, throughput at the assets was high and margins were strong. We're really well connected. You know, Alex and Jon alluded to how that industrial complex is very close on the value chain to our upstream production. So, you know, we're really happy with the assets. Actually we're now heading into the paving season, so you know, things are lining up well for the Q3.

Third quarter quick follow-up on the superior Refinery. What you're seeing here is your Upstream assets are doing really well but the u.s. refining margins. Have generally struggle is there's a little bit of rain exposure. Just want to know, I understand it's cenovus still fully committed to the superior, Refinery rebuild and and if you could remind us what's the value proposition or Superior, please.

Manav Gupta: Okay. A quick follow-up on the Superior Refinery. What we're seeing here is your upstream assets are doing really well, but the US refining margins have generally struggled a little. There's a little bit of RIN exposure. Just wanted to understand is Cenovus still fully committed to the Superior Refinery rebuild? If you could remind us what's the value proposition of Superior, please?

Alex Pourbaix: Well, we are very much committed to Superior and maybe I'll let. First thing I would say is in terms of the project itself, we are very pleased with how the project is doing. It is a challenging project on a constrained site and everything, we are well advanced in the construction and everything is looking very good. I'm really pleased with progress to date, but maybe I'll let John talk about sort of a little bit about where it fits in our strategy.

Superior and maybe I'll I'll let first thing I would say is where in terms of the the project itself. We are very pleased with how the project is doing. It is a challenging project on a constrained site and everything we are well advanced in the construction and everything is looking very good. I'm really pleased with progress today but maybe I'll let John talk about.

Sort of a little bit of a where it fits in our strategy, you know, soon enough, you know, this won't surprise you but you know, ever since Alex, and I got here and keep the cover, the downstream, 1 of the things we've been talking about is Market access and meeting to get a global price for our heavy oil resource and, and more recently, you know, we would translate that into the industrial logic of buying husky where we've actually bolted on.

Jon McKenzie: Manav, you know, this won't surprise you, but, you know, ever since Alex and I got here and Keith took over the downstream, one of the things we've been talking about is market access and needing to get a global price for our heavy oil resource. More recently, you know, we would translate that into the industrial logic of buying Husky, where we've actually bolted on a downstream business that consumes the molecules that we produce and protects us from location and heavy oil differentials. The value proposition of Superior is really quite clear. This is a refinery that's going to consume about 47,000 barrels a day, 35,000 barrels of that is heavy. This is a refinery that's gonna eat the barrels that we consume.

A downstream business. That consumes the molecules that we produce and protects us from location and heavy oil differential. So the value proposition of superior is really quite clear. This is a Refinery that's going to consume about 47 thousand, barrels a day, 35 thousand, barrels of that is heavy. So this is a Refinery it's going to keep the barrels that we consume and

On the back end it produces a Full Slate of Transportation products as well as asphalt whom. As you know, we are a major asphalt producer in western Canada. This gives us exposure into the Minnesota and Wisconsin market. So there's there's strong connectivity in terms of the industrial and Company logic and strategy. The other thing I would say is this refineries the first stop off Enbridge. And because of that, it allows us to

Neil Mehta: On the back end, it produces a full slate of transportation products as well as asphalt. As you know, we are a major asphalt producer in Western Canada, and this gives us exposure into the Minnesota and Wisconsin market. There's strong connectivity in terms of the industrial and company logic and strategy. The other thing I would say is this refinery is the first stop off Enbridge. Because of that, it allows us to nominate barrels onto the Enbridge system, which gives us more takeaway capacity. That we think this is, you know, not only gonna be a highly profitable refinery, but it's absolutely on strategy with us, and it's got a really nice marketplace to deposit the products that it produces into.

Jon McKenzie: On the back end, it produces a full slate of transportation products as well as asphalt. As you know, we are a major asphalt producer in Western Canada, and this gives us exposure into the Minnesota and Wisconsin market. There's strong connectivity in terms of the industrial and company logic and strategy. The other thing I would say is this refinery is the first stop off Enbridge. Because of that, it allows us to nominate barrels onto the Enbridge system, which gives us more takeaway capacity. That we think this is, you know, not only gonna be a highly profitable refinery, but it's absolutely on strategy with us, and it's got a really nice marketplace to deposit the products that it produces into. As I mentioned before, it is molecularly integrated to our feed slate.

nominate barrels, onto the Enbridge system, which gives us more takeaway capacity. So that we think this is, you know, not only is going to be a highly profitable Refinery but it's absolutely on strategy with us. And it's got a really nice market place to deposit. The, the products that have produces into, and as I mentioned before, is molecular Lee integrated to our feed slate.

Neil Mehta: As I mentioned before, it is molecularly integrated to our feed slate.

Great. My last.

Manav Gupta: Great. My last question is, can you comment a little bit on market access? When do you think Enbridge realistically could be in a position to start the line fill? And do you still see the line coming on somewhere late 2021, early 2022? I'll leave it at that. Thank you.

I can you comment a little bit on Market. Aggress, when do you think Enbridge? Realistically, could be in a position to start the line fell and, and do you still see the line coming on somewhere? Late 21 early 2020 to an early with the thank you, constructively for WCS. Differential pricing line, 3 is forecasted and and we agree with this that you know, we will see that happen in.

Jon McKenzie: Yeah. Thanks, Manav. Everything that we're seeing is lining up pretty constructively for WCS differential pricing. Line 3 is forecasted, and we agree with this, that you know, we'll see that happen in the Q4, later in the Q4. You know, coupled with that, you know, we actually think there will be a DRU startup in the imminent future, which is another 50,000 barrels a day that will get consumed. You know, those two things and kind of current status of where inventory levels are in Western Canada, kind of all is constructive for relatively positive differentials through the H2 of this year.

The fourth quarter later in the fourth quarter, you know, coupled with that. We actually think there will be a Dr. You start up in the in the imminent future, which is another 50,000 barrels a day that will get consumed. You know, those 2 things and kind of current status of where inventory levels are in, in western Canada, kind of all this constructive for relatively positive differentials through the back, half of this year.

Thank you, you're next. You're next question, comes from Manila, whole shop from TD Securities, please go ahead, thanks and good morning everyone, Alex. You just mentioned getting Foster Creek, Christina Lake connected to the complexes are relatively attractive opportunity. And you know, this is something that you've talked about on a number of occasions in the past. And so my question is, are you in a position to elaborate on?

Manav Gupta: Thank you.

Jon McKenzie: Thanks, Manav.

Operator: Your next question comes from Menno Hulshof from TD Securities. Please go ahead.

Menno Hulshof: Thanks, and good morning, everyone. Alex, you just mentioned getting Foster Creek, Christina Lake, connected to the Lloyd Complex as a relatively attractive future opportunity. You know, this is something that you've talked about on a number of occasions in the past. My question is, are you in a position to elaborate on what that's going to look like in terms of scope of work, cost, and capital efficiencies? If not, when do you think you will be?

What that's going to look like in terms of scope of work cost and capital efficiencies and if not, when do you think you will be?

Be I mean like I think we're pretty, you know we've done a huge amount of work on it man. Oh and and we actually there there's there are series of of capital projects and II would really put it in in the category of very modest Capital. Probably you know kind of in the 200 million ish dollar range over a few years and and really we think those projects

Alex Pourbaix: I mean, like, I think we're pretty, you know, we've done a huge amount of work on it, Menno Hulshof. And we actually, there are a series of capital projects. I would really put it in the category of very modest capital, probably, you know, kind of in the CAD 200 million-ish range over a few years. And really, we think those projects are going to be very high-return projects, you know, connecting FCCL production volumes to the complex. I'm probably a little early to go into too much detail, but, you know, it's kind of in that magnitude.

Are going to vary that high high return projects, you know, connecting fccl production volumes to to the complex and I'm just, I'm probably a little early to go into too much detail but you know it kind of in that magnitude and maybe you know, 1 thing I mean, Keith maybe you can talk a little bit about what we hope to achieve by those projects.

Neil Mehta: Maybe, you know, one thing, I mean, Keith, maybe you can talk a little bit about what we hope to achieve by those projects. Yeah. Menno, you know, when we think about this, we have a world-class, you know, upstream resources sitting, you know, within 50-mile radius of a very large industrial complex. Historically, those assets have consumed LLB, which typically fetch a higher price in the global markets. So, you know, by converting both the upgrade and the refinery to other feed slates from Foster Creek or Christina Lake, you know, we think we will get margin expansion on the upstream barrels. We also think that we'll be able to recycle more condensate back into the province. You know, we're a very large consumer of condensate. So those two things coming together.

Yeah, my new, you know, when we think about this, we have a world-class, you know, Upstream resources, sitting within 50 mile radius of a very large industrial complex, and historically those assets have consumed LL be which typically fetch a higher price in the global markets. So by converting both the upgrade on the refinery to other feet slates from Foster Creek or Christina Lake. You know, we think we will get margin expansion on the Upstream.

Keith Chiasson: Yeah. Menno, you know, when we think about this, we have a world-class, you know, upstream resources sitting, you know, within 50-mile radius of a very large industrial complex. Historically, those assets have consumed LLB, which typically fetch a higher price in the global markets. So, you know, by converting both the upgrade and the refinery to other feed slates from Foster Creek or Christina Lake, you know, we think we will get margin expansion on the upstream barrels. We also think that we'll be able to recycle more condensate back into the province.

We also.

I think that we'll be able to recycle more condensate back into the province than, you know, we're a very large consumer of condensate. So, those 2 things coming together, you know, we also are our partners in the HM G p-- Midstream business. So the connectivity is there. So, you know as Alex alluded to we think for a modest amount of capital we can over the next few years, we can integrate those oil, sands assets into those 2, industrial conversion assets and and really generate more.

Keith Chiasson: You know, we're a very large consumer of condensate. So those two things coming together. You know, we also are partners in the HMGP midstream business, so you know, the connectivity is there. You know, as Alex alluded to, we think for a modest amount of capital, we can integrate those oil sands assets into those two industrial conversion assets and really generate more margin and recycle a lot more condensate in the province, eliminating the need to import it from the Gulf Coast. Yeah. And think about that, as Keith said, you know, over the kind of next one to three-year period.

Alex Pourbaix: You know, we also are partners in the HMGP midstream business, so you know, the connectivity is there. You know, as Alex alluded to, we think for a modest amount of capital, we can integrate those oil sands assets into those two industrial conversion assets and really generate more margin and recycle a lot more condensate in the province, eliminating the need to import it from the Gulf Coast. Yeah. And think about that, as Keith said, you know, over the kind of next one to three-year period.

Emergency and recycle a lot more condensate in the province, eliminating the need to import from the Gulf Coast.

So think about that as is key said, you know, over the kind of next 1..2, 3 year period

Koebd.

Menno Hulshof: Perfect. That's all I had. Thank you.

Alex Pourbaix: Thanks.

Operator: Your next question comes from Harry Mateer from Barclays. Harry, please go ahead.

Red. Good morning. So, first question is, you, I mean, you've been very clear about the 10 billion net that Target and then, you know, a little bit more open-ended about the timing of 8 billion, but there's also an order lower. That's been attached to the 8 billion Target. Can you talk about what you mean there and then what might drive you to deal everyone further?

Harry Mateer: Hi, good morning. First question is, I mean, you've been very clear about the CAD 10 billion net debt target and then, you know, a little bit more open-ended about the timing of CAD 8 billion. There's also an or lower that's been attached to the CAD 8 billion target. Can you just talk about what you mean there and what might drive you to delever even further?

Yeah, no. I mean, I like I think I would say and it's probably best to think of that almost in a, from a philosophical perspective. And we, you know, I think the the events over the, the sort of 4 or so years. I've been at cenovus have really hammered home to me, the benefits. And in this industry of operating, with an under levered balance sheet, you know, we very much want to to have

Alex Pourbaix: Yeah. No, I mean, like, I think I would say it's probably best to think of that almost from a philosophical perspective. You know, I think the events over the sort of four or so years I've been at Cenovus have really hammered home to me the benefits in this industry of operating with an under-levered balance sheet. You know, we very much want to have a debt level that puts us in the mid triple B range in terms of credit rating. I think that over time, you know, that probably would have us tending towards lower debt, all things being considered, than CAD 8 billion.

A debt level that puts us in the mid Triple B range and in terms of credit rating and I think that over time, you know, that probably would would have us tending towards lower Dead, all things being considered than 8 billion. But at this time, you know, we that we think 8 billion is is a is a pretty, a pretty ambitious Target that we think we can get to quite quickly and you know, an overtime will certainly be thinking

Alex Pourbaix: I think that over time, you know, that probably would have us tending towards lower debt, all things being considered, than CAD 8 billion. At this time, you know, we think CAD 8 billion is a pretty ambitious target that we think we can get to quite quickly. You know, and over time, we'll certainly be thinking hard about taking it lower. For now, you know, the public target is CAD 8 billion.

Alex Pourbaix: At this time, you know, we think CAD 8 billion is a pretty ambitious target that we think we can get to quite quickly. You know, and over time, we'll certainly be thinking hard about taking it lower. For now, you know, the public target is CAD 8 billion.

Hard about taking a lower but for now we're you know, that the, the public Target is 8 billion.

Okay, thanks for that. And then you know, credit markets and I suspect Equity markets, tend to reward gross debt reduction a bit more than net debt reduction. So can you just remind us how you're thinking about the balance between those? And then, you know, whether liability management, which I know something cenovus did in the past, you know, might that again, be part of the toolkit to help crystallize, some gross debt reduction rather than just running with some extra cash on the balance sheet.

Harry Mateer: Okay, thanks for that. You know, credit markets, and I suspect equity markets, you know, tend to reward gross debt reduction a bit more than net debt reduction. Can you just remind us how you're thinking about the balance between those and then, you know, whether liability management, which I know is something Cenovus did in the past, you know, might that again be part of the toolkit to help crystallize some gross debt reduction rather than just running with some extra cash on the balance sheet?

Yeah. It's it's Geoff here in in in absolutely will look at at gross deleveraging. I think, you know, we have historically and I think will balance that and make sure that we probably hold a little bit more cash and it's, you know, not lost on us. That the I think there's, you know, credit markets are attractive. But we'll we'll look and and balance everything out and make sure that we've got the balance and and tenor that we balance our liquidity. And and look to manage down over time, the, the gross debt but will be balanced through all of that.

Jon McKenzie: Yeah, it's Jeff here. Absolutely, we'll look at gross deleveraging. I think, you know, we have historically, and I think we'll balance that and make sure that we probably hold a little bit more cash, and it's, you know, not lost on us that I think there's, you know, credit markets are attractive. We'll look and balance everything out and make sure that we've got the balance in tenor, that we balance our liquidity and look to manage down over time the gross debt. We'll rebalance through all of that.

Ben.

Okay, thank you.

Harry Mateer: Okay. Thank you.

Alex Pourbaix: Thanks, Eric.

There are no further questions at this time, I'll now turn it back to mr. Poor bet for closing remarks. Well everybody, I I know we're looking at the start of a long weekend and in the in the middle of summer and we very much appreciate your interest in in the company and taking the time this morning. So with that we'll sign off and and thank everybody for participating take care.

Operator: There are no further questions at this time. I'll now turn it back to Mr. Pourbaix for closing remarks.

Alex Pourbaix: Well, everybody, I know we're looking at the start of a long weekend and in the middle of summer, and we very much appreciate your interest in the company and taking the time this morning. With that, we'll sign off and thank everybody for participating. Take care.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you, please disconnect your lines.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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