Q3 2021 Imperial Oil Ltd Earnings Call
Yeah.
Good day, and thank you for standing by and welcome to the Imperial Q3, 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like turn the conference over to your Speaker today, Dave Hughes, Vice President of Investor Relations. Sir. Please go ahead.
Thank you good morning, everybody. Thanks for joining us on our third quarter earnings call I'm joined today by Brad Corson, Chairman President and CEO.
And the rest of the management team, including Dan Lyons Senior Vice President of Finance and administration, Simon younger senior Vice President of the upstream Sri <unk>, Vice President of commercial and corporate development and John Whitmore, Vice President of the downstream I'm going to start by reading the cautionary statement todays comments include reference to non-GAAP financial measures the.
And reconciliations of these measures can be found in attachment six of our most recent press release and available on our website with a link to this conference call.
Todays comments may also contain forward looking information any forward looking information is not a guarantee of future performance and actual future financial performance and operating results can differ materially depending on a number of factors and assumptions.
Looking information and the risk factors and assumptions are described in further detail in our third quarter earnings press release that we issued this morning as well as our most recent Form 10-K and all of these documents are available on SEDAR Edgar and on our website.
I ask you to please refer to those.
Actual format today, Brad I'll start with some opening remarks, and then Dan will go over the financial performance then back to Brad to talk through our operating performance for the quarter.
Then we will follow it up with a Q&A session, so with that I'll turn it over to Brad.
Thanks, Dave Good morning, everyone and welcome to our third quarter 2021 earnings call I hope each of you are doing well and had the chance to enjoy some time with friends and family over the summer.
What a difference a year makes the third quarter is now in the books and I'm very much looking forward to taking you through our results today.
It was a great quarter by any measure as our strong operational performance continued to allow us to make the most of this very attractive business environment.
Our assets performance met or exceeded our expectations and once again, we have a few records to talk about.
And I would note.
But this was across all of our business lines.
Along with very strong operational performance, we continue to benefit from actions, we took last year to reduce our overall cost structure and improve reliability.
And this combination is so advantageous when commodity prices are continuing to see strength.
This is what allows us to capture maximum value today, but also ensures our resiliency in a downturn should that occur in the future.
And this quarter. The momentum you have heard me talk about was fully on display.
We had very little planned maintenance.
And on top of that high reliability, which allowed us to take maximum advantage of the improving business environment.
Over the next few minutes, Dan and I will detail the results of what was again, a very strong quarter.
So now, let's turn more specifically to the third quarter results earnings for the quarter were $908 million and our cash from operating activities was over one point in time.
Dollars Boe.
Both up significantly from the second quarter.
Crude prices continued to strengthen through the quarter and downstream and chemical margins remained robust.
Our upstream continues to perform very well and I'll talk more about each asset and just a few minutes, but would point out that we delivered our highest third quarter upstream production and over 30 years, driven by the second best quarter ever at Pearl.
And our downstream performed extremely well also.
We saw utilization of 94% and higher product sales as demand continued to recover.
We also announced our intention to pursue a renewable diesel project, which at the time of commissioning is projected to be the largest in Canada.
This will deliver incremental shareholder value in addition to helping imperial and Canada with the energy transition and overall reduction in emissions.
And I can't say enough about our chemicals results Wow, not only did we set a quarterly earnings record, but our year to date earnings are already greater than the best ever full year earnings for the last 30 years, obviously, we have one quarter to go for the year.
So it's not a direct comparison.
It says nothing about the fourth quarter, but gives you a flavor for just how strong our performance has been year to date.
So in total our strong cash flow generation in a period of very strong commodity prices is underpinned by excellent operational performance, we were able to get the most out of very attractive markets for crude refined products and chemicals.
And once again, our strong cash position has enabled us to continue to deliver on our promise of shareholder returns in the quarter, we returned over $500 million to our shareholders in the form of dividends and share buybacks.
So far in 2021, we have returned in excess of $2 billion to our shareholders.
The last time, our shareholder returns, where this high three quarters into the year was 2008.
And of course, there is more to come.
All of this together adds up to a very strong year, so far a year, which is being recognized by the market.
As of yesterday's close our share price had risen over 85% since the start of the year and up 50% since pre pandemic levels at the beginning of March 2020.
So with that I'll now turn it over to Dan to go through our financial performance for the quarter in more detail. Thanks, Brad.
Getting into the financial results for the quarter, our net income in the third quarter was $908 million up $905 million from the second quarter of 2020.
This increase was driven primarily by an increase in upstream realizations and volumes as well as improved margins in our downstream and chemical businesses now.
Now if we look sequentially, our third quarter income of $908 million is up $542 million from the second quarter of this year driven by higher margins in the downstream and higher volumes in the upstream and downstream driven by substantially lower planned turnaround activity.
Looking at each business line. The upstream recorded net income of $524 million up about $280 million from our second quarter net income of $247 million driven mainly by higher volumes due to the absence of planned turnaround activity at coral and Syncrude.
In the downstream downstream net income was $293 million in the third quarter up about $230 million from net income of $60 million in the second quarter, reflecting higher margins in the absence of the planned turnaround at our stress Kona refinery.
Our chemicals business continued to demonstrate strong performance through the third quarter with net income of $120 million I'm, sorry, $121 million up from net income of $109 million in the second quarter driven by strong polyethylene margins. This is the highest quarterly net income in over 30 years for our chemical business.
Moving on to cash flow in the third quarter, we generated over $1 $9 billion in cash flow from operating activities were just over $1 $5 billion, excluding working capital effects.
Our free cash flow for the quarter was about $1 7 billion, bringing our free cash flow for the year to over $3 $2 billion, an improvement of about $3 $5 billion from last year.
Even with substantial returns of cash to shareholders. We ended the third quarter with close to $1 $9 billion of cash on hand.
Moving on to Capex capital expenditures in the third quarter totaled $277 million up almost a $140 million from the third quarter of 2020 and up about $20 million from the second quarter of this year and the downstream are spending reflects increased spend for the sarnia product.
<unk> pipeline in the upstream we continue to progress the curl in pit tailings projects as well as spend on mind progression and efficiency projects at Kearl and volume Sustainment work at Cold Lake.
Based on some great work done by the organization around capital discipline.
We were able to revise our capital guidance down for the full year to around $1 $1 billion without impacting the key projects that we had planned for the year.
Shifting to shareholder distributions earlier today, we announced a fourth quarter dividend of <unk> 27 per share we remain fully committed to returning surplus cash to shareholders. We have demonstrated this this year by increasing our dividend, 23% as of July 1st and by returning over $2 billion.
To shareholders year to date, including $1 $2 billion via an accelerated and CIB program in May and June given our strong cash position. We are actively evaluating options to return additional cash to shareholders, including accelerating our NCI.
Executing a substantial issuer bid we are paying a special dividend above and beyond our base reliable and growing dividend.
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 third quarter, which as I noted earlier was very strong across the entire company that is to stay across all business units.
Starting with the upstream production averaged 435000 oil equivalent barrels a day in the third quarter, which represents an increase of 30 34000 barrels per day versus the second quarter of this year and an increase of 70000 barrels per day versus the third.
Quarter of 2020.
It also represents our highest third quarter production and over 30 years and is the first time, we've seen four consecutive quarters with upstream production exceeding 400, 400000 oil equivalent barrels per day since 1990.
The increase was a result of continued strong operating performance driven in large part by our focus on reliability and by the absence of the planned turnaround activity. We saw in the third quarter of 2020, notably at Kearl.
I will now talk in more detail about each asset starting with hurdle.
By now you must be getting used to hearing me talk about <unk> continuing to deliver more and more impressive results.
Well.
Here, we go again and I am pleased to be able to report that that trend continued in the third quarter.
Crude oil production averaged 274000 barrels per day gross in the third quarter, which is the second best quarter in the assets history.
Recall that in the fourth quarter of 2020 hurdles production was 284000 barrels per day.
Now this quarter's production of 274000 barrels per day was up 19000 barrels per day versus the second quarter due in part to the elimination of the planned turnaround which has historically started in September.
And as we discussed on our second quarter earnings call. We eliminated this second turnaround a full year ahead of our original schedule and began our strategy of only one turnaround each year versus two each year.
The third quarter's production also represents an increase of 85000 barrels per day versus the third quarter of 2020 again the increased due in part due to the absence of similar turnaround activities and the absence of a third party pipeline outage.
Now as of yesterday.
Total production for the month of October has averaged 289000 barrels per day.
So with our third quarter performance and the strong production and reliability, we've seen so far in the fourth quarter. We are confident that we will achieve our increased production guidance for hurdle of 265000 barrels per day, which we communicated in July.
I wanted to take just a minute to talk about unit cash cost at Kearl and our target of U S $20 per barrel.
We highlighted that we were close to reaching this target late last year, and we continue to focus on reducing our operating costs and are making great progress.
In fact hurdles unit costs are down year to date.
<unk> $3 75, Canadian on a unit basis versus 2020, despite continued pressure from energy prices.
And in fact, we reached just under U S $19 per barrel in the third quarter of this year.
These strong energy prices along with the strong Canadian dollar are creating real pressure on the U S dollar equivalent cost, but despite these challenges we continue to focus our efforts on achieving this target of U S $20 per barrel unit cost at Kearl.
Now moving to Cold Lake.
Had another strong quarter at this asset as well.
Production averaged 135000 barrels per day, which was down 7000 barrels per day versus the second quarter due in part to planned maintenance, but was up from 131000 barrels per day versus the same quarter in 2020.
And.
The key driver as we continue to see improved well performance driven by our continued focus on reliability and optimization at the site.
Now the minor planned maintenance at the <unk> plant in the third quarter, which I talked about on the second quarter call was completed per plan.
And as with Carl our third quarter results and continued strong reliability.
<unk> us well to achieve and potentially exceed our increased annual guidance for cold Lake of 135000 barrels per day.
Now moving to Syncrude imperial's share of Syncrude average production was 78000 barrels per day in the third quarter, which was up 31000 barrels per day versus the second quarter and up 11000 barrels per day versus the third quarter of 2020.
A major turnaround on one of the Coker is it's in crude was executed during the second quarter of 2021.
The absence of this turnaround activity drove the significant increase in production for the third quarter.
There was also a turnaround in the third quarter of 2020 at the asset.
This asset has performed well post turnaround, although there were some relatively minor challenges late in the quarter, which have since been resolved.
The original plan was also for a second turnaround at Syncrude in the fall of this year. However, this plant was optimized earlier this year and by slightly increasing the scope of the spring turnaround as well as deferring some less urgent work into <unk>.
Next year's turnaround Syncrude was able to eliminate the fall turnaround. This year. This optimization helps to reduce overall cost at the asset and maximize production.
Which is particularly beneficial in today's commodity price environment.
Also of note was the transition of the operator ship of Syncrude from Syncrude, Canada Ltd, the Suncor, which happened at the end of the quarter.
The owners are completely focused on improving the asset performance and delivering full synergies over the next few years.
Now, let's move to the downstream we refined an average of 404000 barrels per day in the second quarter, which was up 72000 barrels a day versus the second quarter of 2021.
Recall, we had a major turnaround at our stress Kona refinery in the second quarter.
Which primarily accounts for the significant increase in throughput in the third quarter.
Throughput was also up 63000 barrels per day from the third quarter of 2020 <unk>.
Reflective of the demand recovery, we have seen since last year.
Our throughput of 404000 barrels per day equates to a utilization of 94% versus the 78% we reported in the second quarter and represents the highest quarterly utilization since the fourth quarter of 2018, well before the pandemic.
I would also remind you that on the second quarter call I mentioned, we exited June at 93% utilization. So as you can see the strong performance and reliability continue throughout the third quarter positioning us well to meet our full year guidance of 89.
<unk>.
As I mentioned on the second quarter call. We did have some planned maintenance activity in the quarter, specifically, a smaller turnaround at our Nanticoke refinery, which started in mid September and was completed in October.
Head of schedule.
At the time I mentioned this was not expected to have a material impact on the utilization or margins in the quarter and I confirm I can confirm that that work was completed as planned and as I mentioned actually ahead of schedule.
Looking at cash operating cost our downstream business continues to do an excellent job in managing its spending.
Year to date cash operating costs in the downstream where one bill.
Bill you had $455 million, which is actually down $87 million compared to 2020 and down even more when normalizing for the high energy prices, we see this year. This.
This is especially notable because our refining throughput has increased by 33000 barrels per day, and our petroleum product sales have increased by 19000 barrels per day.
So not only are we refining more barrels and selling more product we are doing it at a lower absolute costs.
In August we also announced plans to construct a renewable diesel manufacturing facility at our stress Kona refineries. This facility will be world class with a capability to produce 20000 barrels per day of renewable diesel from locally sourced feedstocks.
We're really excited about this opportunity not just because of its potential to reduce greenhouse gas emissions by up to 3 million tonnes per year, but also because of its potential to deliver shareholder value at the same time.
So stay tuned.
To come on this as we continue to progress towards a final investment decision.
Now petroleum product sales in the third quarter.
485000 barrels per day up 56000 barrels per day from the second quarter.
This was largely driven by the increased demand during the summer driving season.
Sales were also up 36000 barrels per day versus the third quarter of 2020, as we continue to see demands recover from the pandemic related softness of 2020.
As of September we were seeing industry demands pretty consistent with what we saw in the second quarter with gasoline demands nearing 95% of normal.
Diesel remaining close to historical levels.
And jet pushing above 55% bench.
Benefiting from further easing of travel restrictions I would add that if we look specifically at imperial sales, our jet volume is actually about 10% better than broader industry levels around 65% of historical.
Predominantly related to competitive gains we've been able to capture this year.
Increasing our overall market share.
And with respect to downstream margins, unlike crude prices, our third quarter crack spreads were hovering around the middle of the five year band, which reflects fairly steady improvement over early 2020 at the outset of the pandemic.
Despite ongoing demand volatility our continued focus on reliable and efficient operations ensures we are capturing as much value as possible in the current downstream environment.
I'll wrap up our operating results with chemicals 2021 has been an incredible year for our chemicals business and we continue to see outstanding results in the third quarter.
Continued strong production reliability and margin supported chemical earnings for the quarter of $121 million, which represents the highest quarterly earnings in over 30 years.
This also represents an increase of $12 million versus the second quarter of 2021.
And $94 million higher than the third quarter of last year.
I would also point out that year to date chemical earnings are $297 million, which is higher than the previous third quarter year to date record of $220 million set in 2018.
And we have continued to see volume and margin strength, so far in the fourth quarter.
And as I've mentioned in my opening remarks, our best full year earnings for the chemicals business was $287 million set in 2015, we still have the fourth quarter in front of US. So this is not a direct comparison, but again. This gives you a flavor of just how strong our performance has been year to date.
So in closing an excellent quarter on all fronts.
We have talked over the past few quarters about our commitment to put the company in the best possible place to maximize value and we are seeing those benefits now.
Decisions, we have made and the work the organization has done over the past several quarters.
As exceptional and is allowing us to take maximum advantage of the prevailing market conditions.
I am sure you will agree that our third quarter results highlight this.
Our operations firing in all cylinders when commodity prices are as strong as they are allows us to really deliver on our value proposition.
A large part of which is a focus on shareholder returns.
And looking forward to the fourth quarter.
As you have seen commodity prices has so far remained strong and we continue to focus our commitment to you to deliver maximum value. We are carrying a lot of momentum into the fourth quarter.
And just to reiterate we remain committed to returning surplus cash to shareholders.
Via a reliable and growing dividend and second through other means like an accelerated and CIB share buyback program, a substantial issuer bid or a special dividend.
Given our very strong cash position, we are actively evaluating those steps so stay tuned.
With that I'll turn it over to Dave for the Q&A session.
Okay. Thanks, Brad we did have a number of questions pre submitted so let's why don't we open up the Q&A with a couple of those and then we'll go over to the live Q&A line.
First question comes from Phil Gresh Jpmorgan.
How should we think about the production progression over the next few years at Kearl as you aimed to ramp to 280 plus.
Thanks for the question Phil.
We continue to see record performance out of curve.
Just on our supplemental crushing capacity that we have discussed in the past and other enhancements and reliability and so that gives us great confidence in assets productive capability.
And Moreover, as we've announced last quarter, we moved to one turnaround starting this year from two previously which is a key driver for us increasing our 2021 guidance to 265000 barrels a day.
Target and as I just mentioned, we remain very confident in achieving given the continued strong performance through the third quarter and now into the fourth quarter.
So beyond the 265000 barrel a day level, we've got other low cost projects to get to the 280000 barrel a day level over the next couple of years, including plant Debottlenecking.
Enhanced mine planning bitumen recovery as well as some digital initiatives.
You may recall at our previous Investor day.
We outlined that path to 280000 barrels a day with Pearl reaching 270000 barrels a day in the 2023 of 2024 timeframe and ultimately to 280000 barrels a day by 200 by 2025.
Yeah.
We still see a progression path.
But as evidenced by our recent performance and our track record of.
Continued improvements.
I fully expect that we will do better than that 2025 timeline at.
At our upcoming Investor day in March we'll give more information on that but again I expect that we'll be well ahead of that earlier timeline.
And then I'd also note that as we continue to Debottleneck hurdle and really put more barrels over a relatively high fixed cost asset base. We also expect to.
<unk> to drive down our overall unit costs.
We are only part way through the ramp up of our autonomous haul truck program and we've talked about realizing a U S $1 per barrel saving from the full rollout, which we expect to achieve over the next two years.
In addition, we see a number of opportunities.
To apply digital solutions more broadly accrual which include drones other optimization technologies.
The overall objective to continue to drive that cost not only the $20 per barrel, but even lower than that.
Thanks for that question Phil.
Phil had a follow up since you pushed back the timing of Investor day could you give us some updated thoughts on Capex in 2022 and beyond does the framework from last Investor day still hold or could there be increases in spending from project.
Project activity like renewable diesel <unk> inflation.
Yes, thanks for the second question Phil.
We were really looking forward to.
To getting back together in person this year four.
What would have been investor day in November.
We see a lot of value to that event being in person.
As I know you and other analysts and investors do as well.
As we reflected on the situation with Covid across Canada.
Some of the travel restrictions that are still underway. We concluded it was still just a bit too soon for an in person event like that and so consequently, we decided to adjust the timing of our Investor day, moving it one quarter.
And so now planning to host that event in March of next year.
And soon and.
Dissipate Youll get a save the date notice from.
From our Investor Relations team.
Yes.
But in so far as 2022 guidance goes we're planning to share that with you.
Within the next month or so so that you will have our latest numbers in a timely fashion more along the lines of what you would have.
We'll see.
In prior Investor days.
So we'll give you that guidance, but then at our Investor Day early next year, we will go through our longer term outlook, which will include an update on the stress Kona renewable diesel project other capital investment plans.
<unk>.
And what Youll see is a story that.
It looks very similar to what we laid out last year with capex growing from kind of this year's levels.
Which we now have updated at $1 $1 billion and we previously projected over the next few years, we'd be averaging around 151 $6 billion.
And really we see that general magnitude of expenditure continuing.
Especially with.
The stress Kona renewable diesel project.
We believe we will mostly be able to include that in those same levels of spending. So that's just kind of a high level characterization.
But more to come.
With our updated guidance and then at Investor Day in March.
I guess also specific to your question on inflationary pressure we.
We do see some cost pressure in our business, but we don't expect it to materially impact our capital spending levels, given our ability to find offsets in efficiencies.
Thanks again Phil.
I'm going to add another one here a few folks have asked about this so I'm going to pull it together into one question, but it sort of follows up from the question about inflation in general, but more specifically and thats whats the impact of the much higher natural gas prices.
On a refinery profitability.
And.
Our fuel cost advantage that we've talked about before refineries energy efficiency is that still.
Is that still an advantage and then kind of finally does it have any implications for potential stepping up the development of our unconventional assets.
Yes, I mean, that's a really good question, obviously energy costs are important.
Driver for us and so we're watching that very carefully and doing everything we can to offset those.
Those upward pressures.
As I mentioned in my comments, Carl and generally the downstream.
<unk>.
But speaking more broadly about kind of the impact of.
Higher natural gas prices.
What what we've indicated in our 10-K filing and still is very accurate representative is.
It really a modest impact overall, we see.
For every <unk>.
$1 change in gas price Canadian $1 change in gas price, we would estimate.
About a $90 million.
Net income impact for that one one dollar change.
Now we also produce about 110 115 million cubic feet per day of gas.
Mostly from our unconventional assets so that provides some internal offset.
Our gas.
Input costs energy costs across upstream and downstream.
That's why that $1 impact to gas prices is pretty modest.
I'd also point out that our gas feedstock costs remain advantage globally.
And are moving higher in the context of a stronger overall commodity price environment. So on a net basis, we're really benefiting from higher commodity prices, including for crude and refined products. As you can see in the strong cash flow that we've generated for the quarter.
I'd also note that our refineries are at or near industry best in class when it comes to energy efficiency. According.
So our Solomon surveys and that trend has continued for many years now so we have an advantage over the Canadian competitors in the current high price environment for gas and energy.
So all of that said, we don't take rising cost for granted and we're always looking for offsets a good example, in our diodes downstream as our recent investment in the 41 megawatt cogeneration unit at our stress Kona refinery, which reduces.
Our electricity price exposure and overall costs.
And so with the strap Kona co. Gen project I just mentioned, we now have almost 600 megawatts of cogeneration capacity across all of our portfolio.
And as for whether we'd step up investment at our unconventional acreage to produce more gas I would say, we're never sitting idle and we're always considering our investment choices, but at the moment.
We're continuing to focus on our core oil sands operations, where we haven't yet exhausted all of the highly economic value creation opportunities that we see.
That answers your question. Thanks.
Okay operator.
Over to the live Q&A line now please.
Thank you.
A reminder to ask a question you will need depressed power one on your telephone again that is star then the number one.
Tobey your question first dependent.
Please standby, while we compile the Q&A roster.
Okay.
Sorry.
Your next question will come from Neil Mehta with Goldman Sachs. Your line is open.
Good morning team.
Brad.
<unk> laid out a little teaser there around capital returns and as I think about part of the stock reaction today I think there was maybe some expectation for some incremental updates there, but it sounds like those could be coming in just talk through how youre thinking about.
A buyback relative to a tender relative to continued dividend growth.
And help us to frame out.
Timeline around any such decision.
Yes, Thanks for your question Neal.
And yes, I did want to.
Really reinforce our commitment to returning excess cash to our shareholders.
We've we've made that a priority for us for a long time.
We've demonstrated with our actions throughout this year that that was a high priority for us.
I know.
There is a.
Focus on dividend and share buybacks and I would just remind you and others that.
Due to the strength of our company and the actions we took through the pandemic, we did not have to cut our dividend.
And in fact.
We've maintained it.
Through last year, and then earlier this year, we announced a very significant increase in the dividend <unk> <unk> per share.
On top of the prior 22 so.
Almost 25% increase.
A little bit later.
Approaching this summer we did reinstate our share buybacks.
With a very accelerated 4% program over over two months.
And then most recently we've reinstated.
Kind of a full year of 5%.
Share buyback program. So again, we've been very active and committed and returning cash to our shareholders.
And so as we look to the rest of this year and into next year.
The momentum is building for us as a company we are generating significant cash we are seeing our cash balances grow and so we are committed to returning that excess cash.
To our shareholders and that's why I mentioned that we are actively evaluating.
Some very important steps over over the coming months that could include an acceleration of our NCI B program.
Could also include a substantial issuer bid or perhaps a special dividend.
We haven't made any final decisions yet.
It is subject to board approval.
But those discussions are actively underway.
And.
I might also ask Dan to comment a little bit on our views on substantial issuer bid versus special dividend, because we have been discussing that.
With our shareholders and Thats influencing us.
Yeah. Thanks, Brad, Yes regarding an SUV versus a special dividend I talked to a number of you on the line, we'd like to get get folks views analysts and investors.
We're a bit agnostic, but I think the feedback we're getting is pretty significantly in favor of.
Our substantial issuer bid buyback over over a special dividend and there's some research that came out recently that said some of that too, but mainly thats really from just talking to investors. So I mean, there is different reasons for that tax and you haven't you have a choice and more structural maybe with an SUV is what folks tell us so as we wait.
Those options, we'll certainly we certainly take investor input into account in a very significant way.
And Dan it's a logical timing to think about an update around this.
Fourth quarter call. When you made a big decision around dividend bump earlier. This year is that what we should base cases.
The clearing point for this decision.
Yes, I wouldn't get into timing as Brad said, we're actively evaluating all this stuff and you know look I think.
Brad said, we're absolutely committed to returning surplus cash I think we've demonstrated that so just working through that.
Okay, Alright, and then the follow up question is just your thoughts on the Canadian <unk>.
Oil markets here.
WCS.
And it has widened out a little bit in terms of the differentials, but mine three is now online.
How do you think about spreads from here and as oil has stayed firm do you think that differentials could stay more contained now that you have.
Pipeline takeaway.
Yes, there is no doubt.
Encouraged by by the additional takeaway capacity here in Canada.
Been a long time coming to get some more.
Egress.
<unk> and so now with the line three.
Spansion being up and running I think that's very positive.
And of course longer term, we're still encouraged by.
The plans for the Tms.
Completion as well so all of that provides more more access for our barrels to get to.
The higher cost markets.
In the U S.
And I think having more stability and flexibility in that regard should help keep.
These differentials are fairly narrow.
We've seen pretty good stability throughout the year in those differentials.
Pretty much in the 13 14, $15 a barrel range.
That differential coupled with some very strong <unk>.
Ti pricing.
Puts us in a very strong position.
So I think we will continue to see.
So some fairly tight differentials.
Theres always.
Some volatility that could occur depending on.
Unique situations in the marketplace and if there are any pipeline disruptions that might occur with unplanned outages, but we're feeling quite encouraged.
In fact.
Thank you.
And your next question will come from Dennis Fong with CIBC World markets. Your line is open.
Hi, good morning.
Thanks for taking my question the first one really relates to <unk>.
Capital spending.
Got to this year. So there was a modest decrease in guidance from one two to $1 one.
Just hoping to understand.
In light of the stronger.
Production that youre seeing both from parole and Cold Lake.
Does that influence any of your we'll call it pace of development for other assets like Grand Rapids, and so forth and how do you think about balancing some degree of obviously optimizing the base production levels versus <unk>.
Tackling potentially will call it ESG flash expansion related focused projects.
Got a separate question for the renewable diesel facility, but really more on the upstream side there.
Yeah. Thanks, Thanks for that question.
First on capital spending I would just reiterate.
The comments, we made earlier on the call that.
Despite our reduced guidance on capital spending that in no way reflects a change in focus of our program.
It really is just reflecting that as the year's progressed and as we continue to lock in efficiencies and achieve capital discipline.
<unk>, we have been able to.
Complete the same amount of work, we had planned but at a lower cost. So that's a really good outcome.
As we look to the future and we will talk much more about this.
At Investor Day in March we continue to evaluate all of our.
Efficiency projects are.
Kind of growth opportunities with Debottlenecking and other kind of low cost high efficiency use of capital.
And we are positioning all of those in the best time slot.
That makes sense for us to maximize earnings maximize value and of course capture.
The market as best we can.
So you think about an asset light cold Lake.
One of the reasons we have been.
So successful with our volume performance there is because we have consciously.
Deployed additional rigs to do Workovers and other.
Well optimization activities to increase production, there and thats low cost and high return use of our capital. So we're going to continue to do that.
Obviously this price environment encourages that.
For bigger investments.
We're taking a look at a much longer view.
<unk> of the price environment certainly.
You need to be cognizant of.
Other.
Risks that we may see long term.
When it comes to ESG and again Youll Youll hear us talk more about this at Investor day.
But a significant part of our capital strategy is to reduce our overall emissions.
US talk at last quarter's call.
The start up of one of our boiler flue gas.
The efficiency projects that Carl just one boiler, we have plans to expand that to five other boilers.
We're also deploying.
New solvent technologies at Cold Lake, which also reduce our ambitions, so ESG and lower emission spending is very important to us it's very prominent in our capital spending plans.
But also creates economic value.
At each of the assets, where we are we're making those investment choices. So.
So more to come on that.
In March.
Great Great and then my follow up question here is just on the renewable diesel facility. There just from the language is the initial announcement as well as.
The potential significance again balancing.
<unk>, a strong economic return as well.
Yes, she focused project it seems like.
When you change the slam dunk per se it seems like a very.
Attractive project to move forward on so with kind of F E potentially insight what are some of the last item that youre looking to get gain incremental clarity on.
It sounded like you were continuing to pursue we'll call it negotiations and discussions with various.
Governmental and regulatory bodies, how does that potentially progressing so I just wanted to get a quick update as to where youre at with the renewable diesel project.
Thank you.
Yeah. Thanks, Thanks for the question and thanks for the interest I mean I think.
Characterized it well.
<unk> it.
As as a high priority value accretive project for us as it does deliver significant environmental benefits.
So we are progressing it as quickly as efficiently as we can.
We are.
Still in the middle of several commercial negotiations.
Around sourcing feedstock around hydrogen production.
We're also optimizing our own design to make sure we're leveraging best available technologies.
And so all of that is kind of a work in progress that will bring us to an app.
D.
Probably some time next year, but.
More work to do there.
You also mentioned.
Our discussions with with government entities, yes.
Those are very important to us.
We've had very constructive.
Constructive discussions.
Both at the provincial level and the federal level I think there is a shared view that this project is very important.
And in the overall kind of Canada's objectives around net zero.
And individual provinces like British Columbia C. It also is very strategic for there.
Their fuel sources. So we're just working with all of those entities to kind of align on a plan and a strategy.
Their participation and support but it's all going extremely well.
And that's the key message I want to leave with you is we are very encouraged very optimistic.
And certainly more to come.
And we would expect to have much more detail available in March at Investor Day.
Okay. Thanks, I appreciate the color.
Thank you.
Your next question will come from Greg Pardy with RBC capital markets. Your line is open.
Thanks, Thanks, Good morning, good good rundown and good questions.
First one is almost like a modeling questions, Brad probably for Dan, but it's really just around tax ryzen and <unk> and.
And cash Taxability, obviously, a high class problem.
In the World, we're living now oil price points, but how should we how should we think about that in 'twenty two.
Yes, So let me grab that Brad Yeah go ahead, yeah, Greg obviously, yes. It is a high class problem. If you ask me a few months ago I would say, we'd have sort of very very minimal.
Cash tax payments in 'twenty, two and I think thats still the case I don't think we will have to really what I would call significant cash tax payments in 'twenty two but on current trends, we will become cash tax paying in 'twenty three that's probably as good as I can give you at this point.
Obviously, it's sensitive to prices right, we want to hire.
That drives us to pay tax that's just fine, but yes, we're getting to the point where.
Losses in depreciation and stuff like that which have really been very very low taxes for quite a while.
We're getting past that point, but I think 22, youll see minimal relatively small amount of cash taxes and a more much more significantly in 'twenty three.
Okay terrific.
Maybe just shifting over to <unk>.
Maybe it's the pathways initiative like I know I know you are in the middle of negotiations still with governments and so on but Brad is there anything you can say in terms of the.
Direction that that is heading and obviously theres been some appointments with the change up in terms of the federal cabinet and so forth, but how should we sort of read maybe the progress on on.
On pathways in terms of what you can say.
Yeah. Thanks, Thanks for the question Greg.
I'm really excited about the pathways initiative I think we're making great progress.
The consortium.
<unk> companies are all.
Very engaged they are working very closely together.
Myself and the other Ceos, where we're meeting on a very regular basis.
To kind of review, our our plans and kind of next steps and progress.
And again, all very positive we just issued some new information to the market.
Sure.
I guess early last week to give some more updates on our plans talk about the phasing that we see.
With our emissions reduction initiatives.
And all of that.
Illustrative of kind of our commitment to achieve net zero by 2050 for the oil sands and what you would see in those announcements.
Significant reduction by 2030.
A lot of work underway right now around.
Kind of feasibility studies for the main.
Pipeline.
Up north in Alberta.
Okay.
We're getting design on that.
Also looking at.
All of the potential sources.
Carbon that we would want to capture and what the timeline looks like two to complete those those capture investments.
And then equally important is working with the Alberta government.
Around poor space and so we've recently submitted our application for access to pore space in the Cold Lake Jen.
And then in parallel.
Our conversations with.
The federal government around the investment tax credit in the consultation that they've had underway and I would just say that all of those conversations continue to be very constructive there there is a.
Strong support for this project there is a strong recognition that it is.
Fundamental to the country, achieving their net zero aspirations by by 2050.
<unk>.
With respect to some of the new ministerial announcements obviously.
We follow that very closely.
Yeah.
Mr. Wilkinson has been a key contact for us.
Rod environmental issues.
Now staying in the cabinet moving over to NR can which is another very key.
Ministerial position for our engagements.
<unk>.
We don't.
We don't have.
A lot of experience with the new environmental Minister, but we very much look forward to engaging him and talking about our project and next steps.
Hopefully.
<unk> a shared vision of net zero by 2050.
We have a long history of working with many ministers and many governments.
And our objective is always to.
Makes those engagements as constructive as possible and look for ways that we can contribute to Canada overall goals. So again.
Things are progressing well.
More to come but I'm extremely pleased with the progress we're making.
Terrific, Thanks very much.
Thanks, Greg.
Okay. So we have a few more that were pre submitted.
So we'll start the first one comes from Manav Gupta of credit Suisse.
Neil Mehta had asked a bit about kind of our forward view.
The heavy differentials. This one is a bit more specific in that we are seeing some widening of the heavy light spread today and can you talk about what might be driving that.
Yes, thanks for that question.
Obviously, there is always a lot of moving parts in the market and especially right now.
I think a key factor in in that spread and again.
Generally been pretty tight although it has widened a little bit in the last month.
And I think a contributor to that is we did see some.
Inventory builds here in Western Canada.
Over the last month, or so kind of in parallel to the commissioning of line three.
Some if you will temporary impacts that had.
On pipeline egress and I think there was also some very short term pipeline outages that also impacted egress, all very temporary in nature, but it did cause a build in inventory.
And so I think that probably had an effect on some of these differentials.
Sure.
So I think that's the key beyond what I've already said.
<unk> had a follow up question related to renewable diesel can you talk about the feedstock you plan to use for the renewable diesel facility will be veg vegetable oil primarily or will you use some talent.
Yes kind of maybe building on my earlier comments about this projected.
And our optimism about it with respect to feedstock, we are very much planning to use vegetable oils.
What a waste or tallow product and one of the reasons, we chose our stress Kona refinery is.