Q4 2021 Cenovus Energy Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by.
Speaker 1: Ladies and gentlemen, and thank you for standing by.
<unk> Energy's fourth quarter and year end 2021 results.
Speaker 1: and Novus Energies fourth quarter and year-end 2021 results. As a reminder, today's call is...
As a reminder, today's call is being recorded at this time all participants are in a listen only mode.
Speaker 1: time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. You can join the queue at any time.
Following the presentation, we will conduct a question and answer session.
And joined the queue at any time by pressing star one members of the investment we will have the opportunity to ask questions first at the conclusion of that session members of the media May then ask questions.
Speaker 1: of the investment community will have the opportunity to ask questions first.
Speaker 1: At the conclusion of that session, members of the media may then ask...
Please be advised that this conference call may not be recorded or rebroadcast without the express consent of synovus synergy.
Speaker 1: that this conference call may not be recorded or rebroadcast without the express consent of Synovus Energy.
I'd now like to turn the conference call over to MS. Sherry Wendt, Vice President Investor Relations. Please go ahead Ms Wendt.
Speaker 1: call over to Ms. Sherry Went, Vice President Investor Relations. Please go ahead, Ms. Went.
Thank you operator and welcome everyone.
Speaker 1: the Novus' 2021 fourth quarter and year-end results conference call. I'll refer you to the advisories located at the end of today's news release.
Oh this is 2021 fourth quarter and year end 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.
Speaker 1: 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.
Speaker 1: Additional information is available in Synovus' annual mDNA and our most recent AIF and Form 40.
Additional information is available and so no. This is annual MD&A and our most recent Aif and form 40 F.
Speaker 1: All figures are presented in Canadian dollars and before royalties unless otherwise
All figures are presented in Canadian dollars and before royalties unless otherwise stated.
Speaker 1: Alex Porbe, our President and Chief Executive Officer, will provide brief comments and then we'll take your questions.
Alex for Bay, our President and Chief Executive Officer will provide brief comments and then we'll take your questions.
Speaker 1: We ask that you please hold off on any detailed modeling questions today and instead follow up on those directly with our investor relations team after this.
We ask that you. Please hold off on any detailed modeling questions today and instead follow up on those directly with our Investor relations team after the call.
Speaker 1: And 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.
And 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.
Speaker 2: Thanks, Sherry, and good morning, everybody. Before we get to our operating and financial results,
Thanks, Sherry and good morning, everybody before we get to our operating and financial results I thought I would update you on our ongoing response to COVID-19, we're closely monitoring the omicron variant and maintaining safe and reliable operations at all of our field sites and I'd say over the last two years.
Speaker 2: I thought I would update you on our ongoing response to COVID-19. We're closely monitoring the Omicron variant and maintaining safe and reliable operations.
Speaker 2: at all of our field sites. And I'd say over the last two years, we've learned a lot about how to maintain the health and safety of our people and communities and to ensure business continuity. We have robust protocols in place and adjust them as needed.
We've learned a lot about how to maintain the health and safety of our people and communities and to ensure business continuity, we have robust protocols in place and adjust them as needed. The pandemic underscores for me how foundational safety as to the way we operate and how focused we must be on continuous improvement in our performance.
Speaker 2: The pandemic underscores for me how foundational safety is to the way we operate and how focused we must be on continuous improvement in our performance.
Speaker 2: Meanwhile, the natural disasters in British Columbia this year presented an example of how our teams work together to not only ensure business continuity, but also meet the needs of the local community.
Meanwhile, the natural disasters in British Columbia. This year presented an example of how our teams work together to not only ensure business continuity, but also meet the needs of the local community. It was a challenging year for British Columbia with widespread forest fires, followed by severe flooding, which caused significant interruption to the supply.
Speaker 2: It was a challenging year for British Columbia with widespread forest fires followed by severe flooding, which caused significant interruption to the supply of refined products to impacted areas. In both situations, our teams worked tirelessly to keep this product supply moving safely and our sites and impacted areas operational where it was safe to do so in order to continue meeting the needs of the communities and customers we serve.
Hi, <unk>.
<unk> products to impacted areas in both situations. Our teams worked tirelessly to keep this product supply moving safely at our sites in impacted areas operational where it was safe to do so in order to continue meeting the needs of the communities and customers. We serve and I think this really reflects the way we do business.
Speaker 2: And I think this really reflects the way we do business at Synovus, including how seriously we take our role in the local communities where we operate.
Synovus, including how seriously we take our role in the local communities, where we operate.
Speaker 2: And as we complete our first year as a combined company, we have harmonized our safety programs and are continuing to roll out our Synovus Operations Integrity Management System, outlining how we manage health, safety, operational integrity and environmental risk.
And as we complete our first year as a combined company, we have harmonized our safety programs and are continuing to rollout our synovus operations integrity management system outlining how we manage health safety operational integrity and environmental risk. Despite the challenges related to the integration and COVID-19.
Speaker 2: Despite the challenges related to the integration in COVID-19, we have had solid overall health and safety performance in 2021. The year was not without recordable injuries though, and this further underscores how focused we must be on continuous improvement in our top tier safety journey. Above all, our focus is doing everything possible to make sure everyone goes home safe every day.
<unk>, we have had solid overall health and safety performance in 2020 one the year was not without recordable injuries, though and this further underscores how focus we must be on continuous improvement in our top tier safety journey.
All our focus is doing everything possible to make sure everyone goes home safe every day.
Yeah.
Speaker 2: Turning now to our fourth quarter and annual results. Our first year as a combined company has been a really good one for Synovus. We accomplished everything we set out to do in 2021 and more. That's not to say that there weren't a few bumps along the way, but when I look what we've accomplished overall this year, I really want to commend our employees and leadership team on a job very well done.
Turning now to our fourth quarter and annual results. Our first year as a combined company has been a really good one for synovus, we accomplished everything we set out to do in 2021 and more that's not to say that there weren't a few bumps along the way, but when I look what we've accomplished overall this year I really want to commend our employees and leaders.
<unk> team on a job very well done.
Speaker 2: I'll start with the upstream segment. We continue to deliver very strong upstream operating performance. Our total production was 825,000 BOE per day in the fourth quarter, an increase of 20,000 BOE per day over the third quarter.
I'll start with the upstream segment, we continued to deliver very strong upstream operating performance. Our total production was 825000 Boe per day in the fourth quarter, an increase of 20000 Boe per day over the third quarter.
Despite experiencing some extremely cold weather in Alberta, and Saskatchewan in December the production increase was led by record quarterly average production rates at our three largest oil sands assets Foster Creek, Christina Lake and the Lloyd Minster Thermals Foster Creek production for the fourth quarter was.
Speaker 2: Despite experiencing some extremely cold weather in Alberta and Saskatchewan in December , the production increase was led by record quarterly average production rates at our three largest oil sands assets, Foster Creek, Christina Lake, and the Lloydminster thermals. Foster Creek production for the fourth quarter was nearly 212,000 barrels per day, an increase of about 25,000 barrels per day over the third quarter.
Nearly 212000 barrels per day, an increase of about 25000 barrels per day over the third quarter.
We spoke on our last quarterly call and at our Investor day about the performance of the new well pads at the West arm of the reservoir and these pads continue to deliver some of the highest rates we've ever seen at synovus.
Speaker 2: We spoke on our last quarterly call and at our investor day about the performance of the new well pads at the west arm of the reservoir and these pads continue to deliver some of the highest rates we've ever seen at Synovus.
Production guidance for foster in 2022 is in the range of 185 to 205000 barrels per day, which includes the impact of a planned turnaround in the year production at Christina averaged 251000 barrels per day in the quarter, reflecting additional production volumes from Redevelopments.
Speaker 2: Production guidance for Foster in 2022 is in the range of 185 to 205,000 barrels per day, which includes the impact of a planned turnaround in the year. Production at Christina averaged 251,000 barrels per day in the quarter, reflecting additional production volumes from redevelopment and redrill wells that we spoke to you about at our investor day.
<unk> and re drill wells that we spoke to you about at our Investor day.
Speaker 2: Production guidance for Christina in 2022 is in the range of 230 to 250,000 barrels per day, which also includes the impact of a planned turnaround later this year. And at the Lloyd Thermals, we continue to see the benefits of applying Synovus' operating techniques. These assets delivered an average of nearly 100,000 barrels per day in the quarter.
<unk> guidance for Christina in 2022 is in the range of 230 to 250000 barrels per day, which also includes the impact of a planned turnaround later this year and at the Lloyd Thermals, we continue to see the benefits of applying synovus is operating techniques. These assets have delivered an average.
<unk> of nearly 100000 barrels per day in the quarter.
Speaker 2: Our realized pricing across the OilSense segment reflected the volatility in WTI and WCS prices that we saw between October and November . Results also reflected higher condensate pricing and our normal additional seasonal blending requirements for diluent in the winter months.
Our realized pricing across the oil sands segment reflected the volatility in W. T. I in WCS prices that we saw between October and November results also reflected higher condensate pricing and our normal additional seasonal blending requirements for daily went in the in the winter months.
In addition, an increase in natural gas prices contributed to higher oil sands operating costs quarter over quarter to about $11.76 per barrel.
Speaker 2: In addition, an increase in natural gas prices contributed to higher oil sands operating costs quarter over quarter to about $11.76 per barrel.
Turning to conventional as a result of higher commodity prices and reliable operations. The conventional business delivered nearly $260 million of operating margin in the fourth quarter production was about 5% lower than the third quarter due to asset sales, but unit operating costs still held relatively.
Speaker 2: Turning to conventional, as a result of higher commodity prices and reliable operations, the conventional business delivered nearly $260 million of operating margin in the fourth quarter. Production was about 5% lower than the third quarter due to asset sales, but unit operating costs still held relatively flat with the third quarter.
Flat with the third quarter.
Speaker 2: Our offshore operations continue to be a strong contributor to our business, delivering operating margin of over $400 million in the quarter and contributing over $1.4 billion of operating margin in 2021. Asia PAC operations continued performing well with daily production of over 62,000 BOE per day in the fourth quarter, which was slightly above the previous quarter. However, we saw increased realized prices and net back.
Our offshore operations continue to be a strong contributor to our business delivering operating margin of over 400 million in the quarter and contributing over 1.4 billion of operating margin in 2020 one.
Asia Pac operations continued performing well with daily production of over 62000 Boe per day in the fourth quarter, which was slightly above the previous quarter. However, we saw increased realized prices and net backs.
Speaker 2: We continue to see strong gas demand in Asia, and as we said at Investor Day, we continue to explore with our partners opportunities to add additional value there.
We continue to see strong gas demand in Asia, and as we said at Investor Day, we continue to explore with our partners opportunities to add additional value there.
Speaker 2: In Indonesia, a production sharing contract was signed for the Liman contract region in East Java and in December we drilled a development well in the MBH field which was completed in January .
In Indonesia, a production sharing contract was signed for the Lima and contract region in East Java and in December we drilled a development well in the M. B H field, which was completed in January and the Atlantic lower production volumes reflected some turnaround activity in the region, but we are able to capture a higher.
Speaker 2: In the Atlantic, lower production volumes reflected some turnaround activity in the region, but we were able to capture a higher netback overall as the business realized the benefit of strong Brent pricing.
Net back overall is the business realize the benefit of strong Brent pricing.
Speaker 2: So moving to the downstream business, in the US manufacturing segment, refinery utilization averaged 72% in the quarter.
So moving to the downstream business in the U S manufacturing segment refinery utilization averaged 72% in the quarter. This reflects the impacts of a planned turnaround at the Lima refinery. The Lima turnaround was a major one in every five year event involving planned outages.
Speaker 2: This reflects the impacts of a planned turnaround at the Lima refinery. The Lima turnaround was a major one in every five-year event involving planned outages at the crude unit and the cat cracker units with a total cost of around $145 million. Following the turnaround, we encountered some challenges with secondary processing units.
The crude unit and the cat Cracker units with a total cost of around $145 million. Following the turnaround we encountered some challenges with secondary processing units, which impacted run rates beyond the initial six to eight week planned timeline extending through December and into January .
Speaker 2: which impacted run rates beyond the initial six to eight week plan timeline extending through December and into January .
Speaker 2: Due to the reduced rates, turnaround related expenses and repairs associated with the outage, unit operating costs for U.S. manufacturing in the fourth quarter increased to $16.88 per barrel. We also expect throughput and operating expenses in the first quarter to be modestly impacted due to the continued reduced throughputs in January .
Due to the reduced rates turnaround related expenses and repairs associated with the outage unit operating cost for U S manufacturing in the fourth quarter increased to 16 88 per barrel. We also expect throughput and operating expenses in the first quarter to be modestly impacted due to the continued reduced through.
Puts in January the repairs at Lima are now complete and I'm pleased to report that operations are back to normal. The operations team is confident that this was a one time issue and has been resolved.
Speaker 2: The repairs at Lima are now complete and I'm pleased to report that operations are back to normal. The operations team is confident that this was a one-time issue and has been resolved.
Speaker 2: In the Canadian manufacturing segment, we continue to see very steady and reliable operating performance at the Lloyd Upgrader and asphalt refinery with an average utilization of 98% in the fourth quarter. This finished out a strong performance year for the Lloyd complex with 96% average utilization for the full year.
And the Canadian manufacturing segment, we continued to see very steady and reliable operating performance at the Lloyd Upgrader asphalt refinery with an average utilization of 98% in the fourth quarter. This finished out a strong performance year for Lloyd complex with 96% average utilization for.
For the full year.
Speaker 2: Fourth quarter utilization and unit refining margins in this segment were similar to the third quarter, generating an operating margin of $131 million, reflecting the strong reliability of these assets as well as capture of wider price differentials at the upgrader.
Fourth quarter utilization and unit refining margins in this segment were similar to the third quarter generating an operating margin of $131 million, reflecting the strong reliability of these assets as well as capture a wider price differentials at the upgrader.
Speaker 2: For those of you who joined us at Investor Day in December , you know we've announced ambitious targets for our five environmental, social, and governance focus areas. These are all available on our website. However, I wanted to remind you of a couple this morning.
For those of you who joined US at Investor Day in December you know, we've announced ambitious targets for our five environmental social and governance focus areas. These are all available on our website whoever I wanted to remind you of a couple. This morning, we are committed to spending at least $1.2 billion with indigenous business.
Speaker 2: We are committed to spending at least $1.2 billion with Indigenous businesses between 2019 and year-end 2025. Working with Indigenous business partners has always been an important part of our approach to supporting Indigenous reconciliation.
Is between 2019 and year end 2025, working with indigenous business partners has always been an important part of our approach to supporting indigenous reconciliation and as part of our efforts to address climate change and greenhouse gas emissions, we have set a target to reduce our absolute scope one and two.
Speaker 2: and as part of our efforts to address climate change and greenhouse gas emissions.
Speaker 2: We have set a target to reduce our absolute scope one and two emissions by 35% by year 2035 from 2019 levels.
Two emissions by 35% by year 'twenty 35 from 2019 levels. We're also maintaining our ambition of net zero emissions from our operations by 2050, which includes our work with the oil sands pathways to net zero initiative.
Speaker 2: We are also maintaining our ambition of net zero emissions from our operations by 2050, which includes our work with the Oil Sands Pathways to Net Zero initiative.
Speaker 2: Turning now to our financial results, in the fourth quarter we generated cash flow from operating activities of nearly $2.2 billion, adjusted funds flow close to $2 billion, and free funds flow of more than $1.1 billion.
Turning now to our financial results in the fourth quarter, we generated cash flow from operating activities of nearly $2 2 billion adjusted funds flow close to 2 billion in free funds flow of more than $1 1 billion.
Speaker 2: Capital spending was $835 million in the quarter, which placed us well within our guidance range for the full year.
Capital spending was $835 million in the quarter, which placed us well within our guidance range for the full year.
Speaker 2: We recorded a $1.9 billion impairment in the US manufacturing segment this quarter. The impairment related to the carrying value of our assets in US refining and changes in current independently derived commodity price outlooks, specifically around crack spreads, RINs and the WCS differential. We also booked a reversal of prior impairments in Q4 related to our conventional business.
We recorded a 1.9 billion dollar impairment in the U S manufacturing segment this quarter the impairment related to the carrying value of our assets in U S refining and changes in current independently derived commodity price outlooks, specifically around crack spreads rens and the W.
C. S differential we also booked a reversal of prior impairments in Q4 related to our conventional business. This does not reflect any change in the way we think about the downstream business. We continue to see long term value in our integrated model and the reduced cash flow volatility that comes with a more diverse.
Speaker 2: This does not reflect any change in the way we think about the downstream business. We continue to see long-term value in our integrated model and the reduced cash flow volatility that comes with a more diverse portfolio of upstream and downstream mass.
<unk> portfolio of upstream and downstream assets.
Speaker 2: On the corporate side, we saw an increase in our general and administrative expenses in the fourth quarter, which impacted adjusted funds flow. This mainly related to a non-cash accrual for a synergy incentive plan that was implemented at the time of the Huskie transaction. This one-time incentive program was clearly very effective in motivating our employees to pursue those synergies for our shareholders.
On the corporate side, we saw an increase in our general and administrative expenses in the fourth quarter, which impacted adjusted funds flow. This mainly related to a noncash accrual for our synergy incentive plan that was implemented at the time of the Husky transaction. This one time incentive program.
It's clearly very very effective and motivating our employees to pursue those synergies for our shareholders.
Speaker 2: We generated $7.2 billion in adjusted funds flow and free funds flow of nearly $4.7 billion in 2021, with total capital for the year coming in at about $2.6 billion.
We generated $7.2 billion in adjusted funds flow and free funds flow of nearly $4 7 billion in 2021 with total capital for the year coming in at about $2 6 billion. These results really speak to the free funds flow generating ability of the company, especially when you.
Speaker 2: These results really speak to the free funds flow generating ability of the company, especially when you consider that free funds flow reflected one-time costs associated with the Husky transaction and capital for the Superior Refinery Rebuild on which we're still collecting related insurance proceeds in 2022.
[noise] sitter that free funds flow reflected one time costs associated with the husky transaction and capital for the superior refinery rebuild on which we're still collecting related insurance proceeds in 2022.
Speaker 2: This financial performance, including asset sale proceeds received in the fourth quarter, enabled us to reduce our net debt by another $1.4 billion over the quarter, closing 2021 with net debt below $9.6 billion. That's a reduction of $3.5 billion since January 1, 2021.
This financial performance, including asset sale proceeds received in the fourth quarter enabled us to reduce our net debt by another 1.4 billion over the quarter closing 2021 with net debt below 9.6 billion. That's a reduction of $3 5 billion since January one 2021 .
Speaker 2: In the fourth quarter, we also announced the sale of Wembley assets in the conventional business, the Tucker oil sands project, and the disposition of two-thirds of our retail stations. The three transactions together represent additional proceeds of nearly $1.5 billion. Tucker closed in January and Wembley is also expected to close in Q1. Retail is still expected to close in mid-2022.
In the fourth quarter, we also announced the sale of Wembley assets in the conventional business that Tucker oil Sands project and the disposition of two thirds of our retail stations. The three transactions together represent additional proceeds of nearly 1.5 billion Tucker closed in January and Wembley.
Is also expected to close in Q1 retail is still expected to close in mid 2022 .
Speaker 2: I'll also take this opportunity to provide an update on our NCIB program, which we announced in the fourth quarter and began executing in November . As of February 7th, we have repurchased approximately 26 million shares at a weighted average price of $16.31 per share.
I'll also take this opportunity to provide an update on a N C. I B program, which we announced in the fourth quarter and began executing in November as of February 7th we have repurchased approximately 26 million shares at a weighted average price of $16.31 per share.
Speaker 2: Looking back over the past year, we have created a better and more resilient Synovus. We've delivered on everything we've set out to do, including successful integration of the Husky business, delivering over and above our targets for upstream operations, Canadian downstream, transaction synergies, asset sales, net debt reduction, and increasing shareholder return.
Looking back over the past year, we have created a better and more resilient synovus. We've delivered on everything we've set out to do including successful integration of the husky business delivering over and above our targets for upstream operations Canadian downstream transaction synergies asset sales.
Net debt reduction and increasing shareholder returns now assuming commodity prices continue to hold we will rapidly hit our net debt target of 8 billion, implying we could be looking at even more free funds flow to allocate in 2022 I assure you we will continue the capital discipline.
Speaker 2: Now, assuming commodity prices continue to hold, we will rapidly hit our net debt target of 8 billion, implying we could be looking at even more free funds flow to allocate in 2022. I assure you we will continue the capital discipline you've come to expect from us. And above all, opportunities for adding value for our shareholders and increasing shareholder returns will be top of mind for this management team. So with that, we're happy to take your questions.
You've come to expect from us and above all opportunities for adding value for our shareholders and increasing shareholder returns will be top of mind for this management team. So with that we're happy to take your questions.
Ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing star one.
Speaker 1: question by pressing star 1. We will now...
We'll now begin the question and answer session.
Go to the first caller.
And we'll take our first question from Greg Pardy with RBC capital markets.
Speaker 3: Yeah, thanks. Good morning. Thanks for the rundown, Alex. So, maybe just to extend from what you've said on, you know, that was really my first question. Sub-8 billion looks like, doesn't sound like there's a lot of appetite for increasing organic investment in the ground and so forth.
Yeah. Thanks, good morning, Thanks for the thanks for the rundown, Alex So maybe just to extend from what you'd said on that you know that was really my first question is you're gonna be sub 8 billion looks like it doesn't sound like there's a lot of appetite for increasing organic investment in the ground and so forth.
Speaker 3: Can you just shed any light as to the options maybe that you'd have from a shareholder return perspective and would those be highest priority right now in terms of things on your to do list? Yeah, no thanks.
Can you just shed any light as to the options maybe that you would have from a shareholder return perspective and would those be highest priority right. Now in terms of you know things on your to do list.
Yeah no. Thanks. Thanks for the question, Greg I mean, I you know I think what we said and Youll recall at our at Investor Day, I think we made very very clearly that as we delever. The balance sheet, we were going to increasingly look at allocating cash.
Speaker 2: We said, and you'll recall at Investor Day, I think we made very, very clearly
Speaker 2: that as we delivered the balance sheet, we were going to increasingly look...
Speaker 2: at allocating cash to returning to our shareholders. You've seen that.
To returning to our shareholders you've seen that we got off I think to a quite a decent start with R. N C. I b, you've seen us double the dividend and here we are rapidly heading towards an end below 8 billion in net dads and I I think what what I would.
Speaker 2: We got off, I think, to quite a decent start with our NCIB. You've seen us double the dividend. And here we are, rapidly heading towards and below $8 billion.
Speaker 2: in that debt and I think what I would say is we...
He is we we are very very focused on the importance and the urgency of returning more value to our shareholders. You know we're we're in you know frankly, we're delevering that at a pace probably quicker than than anyone here even thought.
Speaker 2: very, very focused on the importance and the urgency of returning more value to our shareholders. You know, we're in, you know, frankly, we're delivering at a pace probably quicker than anyone here even thought about. And we have a little bit of work to do as a management team as a board, but I think that our shareholders can expect.
About and we have a little bit of work to do as a management team as a board, but I think that our shareholders can expect that in in a fairly short order, we will be coming back to our shareholders with an updated plan on how we're going to continue to to return and increase our returns.
Speaker 2: that in fairly short order we will be coming back to our shareholders with an updated plan on how we're going to continue to return and increase our returns to shareholders. So I think I'd say just bear with us. We're very live to the issue. We just need to do a little bit of work to come back with a plan that we can announce to our shareholders.
Shareholders. So I think I'd say just bear with US we're very live to the issue, we just need to do a little bit of work to come back with a plan that we can announce to our shareholders.
Okay. Thanks for that and really just the second question is probably more for John but you know what what should we expect from your U S refining off so I'm not thinking so much about cash flow generation, but just perhaps utilization or steps taken to improve the liability or perform.
Speaker 3: Thanks for that. And really, just a second question is probably more for John . But, you know, what, what should we expect from your US refining ops? And I'm not thinking so much about CASO generation, but just perhaps, you know, utilization or steps taken to improve the liability or performance or what have you anywhere you want to go. And that would be
Or what have you anywhere you want to go on that would be fine.
Well, thanks, Greg I'll make a few comments and then I'll, let Keith chime in.
Speaker 4: Thanks Greg, I'll make a few comments and then I'll let Keith chime in. The first comment I'd make is US refining is absolutely core to our...
So the first comment I'd make is U S refining is absolutely core to our.
Speaker 4: strategy of the company and you know during the quarter we did execute a 45-day turnaround at Lima. The actual execution of the turnaround was quite good.
The strategy of the company and.
During the quarter, we did execute a 45 day turnaround in Lima, the actual execution of the turnaround was quite good.
Speaker 4: The total cost, as Alex mentioned, was about $145 million. We did struggle with the ISA cracker and the reformer coming out of that turnaround, but that Lima refinery is now up to $150 million.
The total cost as Alex mentioned was about $145 million, we did struggle with the Isa cracker and the reformer coming out of that turnaround, but then Lima refinery is now up to you.
Speaker 4: normal rates of operation we expected to run through 2022 at normal rates of operation. What we have seen in the past is utilization has been lower than historic due to largely commercial reasons.
Normal rates of operation, we expect it to run through 2022 at normal rates of operation. When we have seen in the past as utilization has been lower than historic.
Do you know largely commercial reasons.
Speaker 4: So as the cracks continue to justify, we'll continue to take those rates of utilization up. I would mention we do have another major turnaround in 2022 at Toledo and that will be executed by our partner at BP.
So as the cracks you know continue to justify what will continue to take those rates.
Rates of utilization I would mention we do have a another major turnaround and in 2022 at Toledo and that'll be executed by our partner.
BP.
Speaker 4: But going forward, you should expect to see more historic rates of utilization and availability as we get into a more robust, cracked market.
Going forward you should expect I think see more historic rates of utilization and availability.
As we get into a more robust crack market.
I don't know Keith if there's anything else you want to add to that.
Speaker 5: I think you got it. The Lima Turnaround is a once in five year type of event, and that's now behind us.
No I think our I think you got it you know the Lima Lima turnaround is a once in five year type of event and that's now behind us and the refineries back.
Speaker 5: back online. And you know, I think just Greg in the in the corridor obviously saw some seasonal weakness in in, you know, cracks, you know, neck cracks of rins around $10 and
Back online and you know I think just a Greg in the in the quarter, obviously saw some seasonal weakness and and cracks that you know net cracks of rins around $10 and you know, obviously gasoline impact a little bit with AUM of crown, but we're expecting kind of that that to be transitory and and really thinking that.
Speaker 5: you know, obviously gasoline impact a little bit with Omicron, but we're expecting kind of that to be transitory and really thinking that gasoline and diesel demand will be really strong through 2022. So, you know, even with the turnarounds John alluded to, we're expecting higher throughput in 2022.
Gasoline and diesel demand will be really strong.
I threw out through 2022, so you know even with the turnarounds are John alluded to we're expecting higher throughput in 2022 based on what we're seeing.
Speaker 2: Hey Greg, it's Alex and I would agree with everything that John and Keith said and I might just put one kind of overarching comment on the U.S.
Hey, Greg, it's Alex and I I I I would agree with everything that Jon and Keith said and I might just put one kind of overarching comment a on the the U S. Downstream is as John said at the start. This this is an absolutely core part of our business and our <unk>.
Speaker 2: Downstream as John said at the start this this is
Speaker 2: an absolutely core part of our business and our integrated strategy. And I think that our investors should expect to see the exact kind of focus.
Integrated strategy and I think that you know our investors should expect to see the exact kind of focus that we put on the thermal business in 2021 and the results. We've delivered there you know John and Keith Norry, our are putting that same collective effort.
Speaker 2: that we put on the thermal business in 2021 and the results we've delivered there. John and Keith and Nori are putting that same collective effort into making sure that we deliver that same kind of performance.
Into making sure that we deliver that same kind of performance.
Speaker 2: out of the US downstream business. It is an area of very significant focus for us in 2022.
Out of the the downs the down to the U S downstream business. It is an area of very significant focus for us in 2022.
Understood Thanks very much.
No worries.
We'll take our next question from Dennis Fong with CIBC.
Hi, good morning, and thank you for taking my questions.
Speaker 6: Hi, good morning, and thank you for taking my questions. The first one here actually both might be directed more at Jeff, but...
The first one you're actually both might be directed more at Jefferies.
Speaker 6: As you noted there in your opening comments, Alex, you did take a $1.9 billion impairment charge. Just kind of digging into the financials and not wanting this to be a kind of modeling stop question. It looks like the discount rate changed in terms of some of your assumptions, but I was hoping that we could get a little bit more detail and color around.
As you noted there in your opening comments, Alex you did take a $1 9 billion impairment charge.
Just kind of digging into the financials.
My name is <unk>.
Modeling stock question.
It looks like the discount rate changed in terms of some of your assumptions, but was hoping that we could get a little bit more detail and color around some.
Speaker 6: some of the changes and assumptions as well as the embedded rings pricing that you are looking at going forward with respect to the impairment.
Some of the changes and assumptions as well as.
Rental pricing as Youre looking at going forward with respect to the impairment charge.
Yes, it's Jeff here. Thanks for the question I mean number one I will say this we're really reflects.
Speaker 4: Yes, Jeff, thanks for the question. I mean, number one, I'll say this really reflects...
Speaker 4: third-party price lines and you know where those currently sit in and that's really the driver and as you can see in the upstream
Third party price lines and.
Where are those currently sit in and that's really the driver and as you can see in the upstream similar.
Speaker 3: Similar to what we're seeing in the downstream is it's really there a reflection of the IQRE prices so we had the reversal. So number one it's a reflection of that Dennis and that really drives a lot of the valuation and changes is those third-party price lines number one.
What we're seeing in the downstream is it's really there are a reflection of the IQ our prices. So we had the reverse so number one it's a reflection of that a dentist and that really drives a lot of evaluation and changes as those third party priceline number one and number two is the discount rates will vary and will adjust and look at different pieces.
Speaker 4: And number two is the discount rates will vary and we'll adjust and look at different pieces depending on you know, structures and of the investments in the refinery. So we've moved that a little bit between, you know, for the different investments. But really that reflects, that's flexible in a range and can always change depending where market is. But really it's a reflection of those third-party price lines done.
Depending on.
You know structures of the investments in the refinery. So we've we've moved out a little bit between for the different investments, but really that reflects that's flexible in our range and can always change, depending where market is but really it's a reflection of those third party price like that.
Okay. Thanks.
Thanks.
Speaker 6: And then the second question maybe falls a little bit along with what Greg was asking there to begin with.
And then the second question, maybe falls for the long, but Greg was asking there to begin with.
Speaker 6: The company has done a really good job in terms of managing term debt maturity.
Company has done a really good job in terms of managing.
Term debt maturities.
Speaker 6: especially with the most recent redemption. Just in terms of what we call an optimal capital structure, how should we be thinking about that just given the amount of free cash flow that you're generating? How should we be thinking about the term debt and the structure as well as the matrices that are going forward? Is there any ways that you can think about optimizing or improving the cost structure on that side?
Obviously with the most recent redemptions.
Just in terms of Optum.
Optimal capital structure, how should we be thinking about that just given the amount of free cash flow that you're generating.
Should we be thinking about the term debt.
And kind of the structure as well as the maturities that are going forward and is there any ways that you can think about optimizing improving.
The construction on that.
Yeah. So it's Jeff again number one is Alex talk to as we said we'd be balance between tenant Aiden and we've reflected that over the last.
Speaker 4: Yeah, so it's Jeff again. Number one, you know, as Alex talked to, is we said we'd be balanced between 10 and 8 and we've reflected that over the last
Speaker 4: you know quarter and into this year with the share buybacks dividend and then the make holes that you referred to they were largely balanced.
Quarter and into this year with the the share buybacks dividend and then they'll make holes that you referred to they were largely balanced you know I would expect US generally we've always talked about holding a cash for a 1 billion I would expect us to operate more between 1 billion to 2 billion.
Speaker 4: I would expect us, generally we've always talked about holding a cash-for of a billion, I'd expect us to operate more between a billion.
Speaker 4: $2 billion. As we accumulate cash until we get to $8 billion, we'll continue to balance shareholder returns and deleveraging.
And so as we accumulate cash until we get to 8 billion will continue to balance shareholder returns and deleveraging.
Speaker 4: And to your point, we'll look across the maturity profile. We did the make holes. We want to maximize our deleveraging, but we'll look up and down the curve. And as we did in Q3 last year, if there's opportunities where we can see to optimize the cost in the term, we'll look at that and balance it all out. So it really is market dependent.
And to your point, we will look at across the maturity profile. We did the make wholes, we want to maximize our deleveraging, but we'll look up and down the curve and you know as we did in Q3 last year, if theres opportunities, where we can see to optimize the cost and the term, we'll look at that and balance it all out so it really is a market depend.
Good.
Great. Thank you for the color.
Thanks Dennis.
Well go to our next question from Phil Gresh with J P. Morgan.
Speaker 2: Yes, hi, good morning. First question, just as I'm thinking about the first quarter, some of your peers have talked about some working capital headwinds. I didn't know if there was any tailwinds in the fourth quarter. I didn't know if there are any things we should be thinking about there in a rising oil price environment because absent that, it would seem like you could potentially hit that net debt.
Yes, Hi, good morning, first question, just as I'm thinking about.
The first quarter some.
Some of your peers have talked about some working capital headwinds I didn't know if there is anything I know you had some challenges in the fourth quart enough. There any things we should be thinking about there in a rising oil price environment cause absent that it would seem like.
You could potentially hit that net debt.
Speaker 2: target of 8 billion in the first quarter. So just any thoughts you'd have on either of those comments.
Target of $8 billion.
In the first quarter.
So just any thoughts you have on either of those comments.
I feel it's a it's John speaking you know I think one of the things that we did a really good job of in Q4 as managing working capital and you would have noticed there was about a 300 million dollar working capital release.
Speaker 4: Hi Phil. It's John speaking. I think one of the things that we did a really good job of in Q4 is managing working capital and you would have noticed there was about a $300 million working capital release.
And that being said you know one of the things that we did see in in December in particular was some pretty weak pricing both W. T I as well as the WTO WCS spread and so we did take an opportunity to build some inventory and not sell in December and some of those sales will be referred.
Speaker 7: And that being said, one of the things that we did see in December in particular was some pretty weak pricing, both WTI as well as the WTI WCS spread. And so we did take an opportunity to build some inventory and not sell.
Speaker 7: December and some of those sales will be reflected in January and February of this year. So we don't necessarily see any working capital
<unk> in January and February of this year. So we don't necessarily see any working capital impediments or headwinds going forward. We think it's it's something that.
Speaker 7: impediments or headwinds going forward. We think it's something that, you know, I think we managed through Q4 and you'll see us continue to manage through Q1. We did put some barrels...
We manage through Q4, and you'll see us continue to manage through Q1, we did put some barrels.
Speaker 7: cap line in Q4 and that's all reflected in the number but you know overall we did see that working capital release and we are expecting to sell some of that production that we start in Q4.
And to cap line in Q4, and that's all reflected in the number but you know overall, we didn't see that working capital release, and we are expecting to sell some of that production that we started in Q4 and Q1.
Speaker 2: Got it. And anything on the broader view at these spot prices of the ability to be below the 8 billion target by the end of 1Q?
Got it and then anything on the broader.
View at these at the spot prices of the ability to be below the 8 billion target by the end of <unk>.
So you're asking me to get pretty digital about when we're going to get.
Speaker 7: So you're asking me to get pretty digital about when we're going to get... What I'll tell you Phil is, the thing that's going to happen in Q1 is we are going to get some proceeds from those two asset sales that Alex mentioned, both Wembley and Tucker, which is now closed and those are material.
[laughter], what I'll tell you Phil as you know.
The thing that's going to happen in Q1, as we are going to get some proceeds from those two asset sales that Alex mentioned, both Wembley and Tucker, which is now closed and those are material.
Speaker 7: in nature. So, you know, we are rapidly moving towards 8 billion. I'm not, you know, I don't have a
In nature.
So you know we are rapidly moving towards 8 billion.
I don't have a.
Speaker 7: actual date as to when we're going to get there, but we are rapidly converging on $8 billion of net debt.
Actual date as to when we're going to get there, but we are rapidly converging on $8 billion of net debt.
Fair enough. Thank you.
And then just one follow up obviously.
Speaker 8: Just one follow up, obviously.
Speaker 8: So, Cocco Phillips was pretty clear on their earnings call that they intend to sell down their full stake by the end of the first quarter. And so, just in terms of managing that, is there anything Synovus is thinking about or is that more of the shareholders would have to be buying the stock and you just kind of buy it back in the open market or any update there and then hopefully it's in the review soon.
Kaka Phillips was pretty clear on their earnings call that they intend to sell down their full stake by the end of the first quarter and so just in terms of managing that is there is there anything synovus is thinking about or is that more of a hit of the.
Shareholders.
And I would have to be buying the stock and you just kind of buyback in the open market or any any update there and then hopefully.
It's in our reviews in.
Speaker 2: Yeah, I mean, I it's Alexville and, you know, I think first off my observation is that our NCIB program, I think has been a reasonably effective offset to Conoco's actions selling down their block. And, you know, I mean, at this point, you guys have heard me say this so many times that, you know, it sounds pretty rote, but, you know, we're always happy to work with them. We haven't really found any opportunities.
Yeah, I mean, it's.
It's it's a it's Alex fill in.
I think first off my observation is that our N C. I B program I think has been a reasonably effective offset to to conoco's actions selling down there their block and you know I I I I mean it at this point you guys have heard me say, there's so many times that you know it sounds pretty.
Wrote, but you know we're always happy to work with them, we haven't really found any opportunities to coordinate and its made a little bit difficult by by the rules, but you know as long as the pricing works for us with our N C. I B program. You know, we think that that remains a pretty.
Speaker 2: to coordinate and it's made a little bit difficult by the rules, but you know as long as the pricing works for us with our NCIB program, you know, we think that that remains a pretty effective offset to their to their sell down and to your point, there's some comfort that it is, it appears that it's going to be coming to the end here pretty quickly. Right, okay. Fair enough. Thank you.
Effect of offset to their to their sell down and to your point, there's some comfort that a it is a it appears that it's going to be coming to the end here pretty quickly.
Right, Okay fair enough. Thank you.
Yeah no worries.
Okay.
Okay.
Take our next question from Neil Mehta with Goldman Sachs.
Good morning team at once it does have time on our risk management and maybe Theres a question for John or Jeff, but just talk about your philosophy around inventory management and risk management and hedging.
Speaker 9: Good morning team. I want to spend some time on risk management.
Speaker 9: And maybe there's a question for John or Jeff, but just talk about your philosophy around inventory management and risk management and hedging. It was a big number in the fourth quarter. Is that something that as we think about Q1 with oil prices having ticked up, you would think would sequentially move higher? So just talk about the philosophy around that in general and any quantification you can provide at the forward curve would be terrific.
It was a big number in the fourth quarter is that something that as we think about Q1 with oil prices having picked up you would think would sequentially move higher so just talk about the philosophy around that in general and any quantification you can provide at the forward curve would be terrific too.
Speaker 7: So, you know, what we have, Neil, are really two programs that are live within the company and both of them are short term. But what we've built in this company is an integrated oil producer where we are moving our barrels out of Western Canada and into our refining not...
Sure. So you know what we have Neil there are really two programs that are live within the company and in both of them are short term, but we built in this company is an integrated oil producer, where we are moving our barrels.
Out of Western Canada and into our refining network.
Speaker 7: in PAD2 as well as to market more broadly through the pipeline access that we've got. And that was always a core consideration how we built our strategy. We didn't want to be in a world where we were forced to sell our barrels at a discount and hard to stay in. Market access is something we've talked about at length over the last four years and something that we've achieved through time and more particularly with the Husky acquisition.
In pad two as well as to market more broadly through the pipeline access that we've got and that was always a core consideration. How we built our strategy we didn't want to be in a world, where we were forced to sell our barrels at a discount and hardisty and market access is something we've talked about at length over the.
Last four years and something that we've achieved through time and more particularly with the husky acquisition.
Speaker 7: So if you think about this company, we carry typically around 45 million barrels of inventory through month end. And what we will do is we will hedge around 40% of those barrels per month to m-
So if you think about this company we carry typically around 45 million barrels of inventory through month end and what we will do is we will hedge around 40% of those barrels per month to month. So that if we have a precipitous decline in the W. T I a price about 40% of that inventory.
Speaker 7: So that if we have a precipitous decline in the WTI price, about 40% of that inventory is his head.
As is hedged out.
Speaker 7: In a rising price environment, you're going to see those barrels, they will become less valuable and will lose money. In a falling price environment, you get exactly the opposite effect.
In a rising price environment youre going to see those barrels they will become less valuable and will lose money in the right in a falling price environment, you get exactly the opposite effect, but net net.
Speaker 7: the term of the cycle you would expect that to be revenue neutral through time. We've just gone through a period where we've had seven consecutive quarters of rising prices.
Over the term of the cycle you would expect that to be revenue neutral through time, we've just gone through a period, where we've had.
Seven consecutive quarters of rising prices.
Speaker 7: So that's program one. Program two is another program we run where we take our WCS exposure and we align the pricing windows.
So that's that's program one program too is another program, we run where we take our WCS exposure and we align the pricing windows between W. T I and the W. Ti WCS differential so that we don't have a pricing exposure, where we set the differentially one month and then the.
Speaker 7: WTI and the WTI WCS differential so that we don't have a pricing exposure where we set the differential in one month and then the WTI price in the following month. So we bring those together, collapse them.
<unk> price in the following months, so we bring those together a collapse them and we do that on about 60% of our exposure. So again, because we're bringing the W. T I a price for it in a rising price environment that program will lose money and alone in a declining pricing environment, It will make money, but Matt Matt.
Speaker 7: And we do that on about 60% of our exposure.
Speaker 7: So again, because we're bringing the WTI price forward in a rising price environment, that program will lose money. In a declining pricing environment, it will make money. But net met over the cycle, it'll be revenue neutral or better.
Over the cycle, it'll be revenue neutral or better and those are the two things that we do.
And then Johnny can you help the street calibrate you.
Speaker 9: And then John , can you help the street calibrate using the forward curve? What those hedging impacts could look like as we think about 2022?
Using the forward curve, what what those hedging impacts could look like as we think about 2022.
Well it depends on where the price of W. T. I goes through 2022, but if you if you're in a world where you've got kind of flat pricing it should be largely revenue neutral.
Speaker 7: Well, it depends on where the price of WTI goes through 2022. But if you're in a world where you've got kind of flat pricing, it should be largely revenue neutral.
Thank you Tim.
Thanks Bill.
We'll take our next question from Manav Gupta with credit Suisse.
Speaker 10: Hey guys, I know it might sound like a modeling question, but it's not actually a modeling question so bear with me
Hey, guys I know it might sound like a modeling question, but it's not actually a modeling question so bear with me.
Speaker 10: Your foster tweak in this quarter was at 212 and Christina 251. Now if you look at the annual guidance, you basically are breaching the upper end of guidance on both those. I think Christina has 250 upper end, Foster 205. So when we think about 2022, should we model you now at least at the top end of it, if not over the top end as it relates to these two assets?
Yeah.
In this quarter was that <unk> and Christina 250 on like if you look at the annual guidance you basically are reaching the upper end of guidance on both dose I think Christina still 50 upper end Foster to little Faisal made me think about 2022 should we model you know at least at the top end of it.
If not all of the top end as it relates to these two assets.
Speaker 2: Manav, what a thoughtful and insightful question. I ask Nori this all the time and Nori will give you a response.
Manav, what a thoughtful and insightful question I I ask norrie of this all the time and he will give you a response.
Hi, Manav, it's in order here.
Speaker 11: I would suggest we give you a range because there's ups and downs as we go through. Our fourth quarter we had very strong safe performance. We weren't impacted by the weather. We continue to have a strong program of activity going forward, but I would just guide there is a range and you could use both ends of the range as we kind of go forward.
I would suggest you know.
We gave you a range because there's ups and downs as we kind of go through.
Our fourth quarter, we had very strong safe performance, which we've been impacted by the weather we.
We continue to have a strong program of activity going forward, but I would just guide there is a range and you could use both ends of the range as we kind of go forward.
Speaker 11: We have turnarounds both at Foster Creek and Christina Lake this year. And that's balanced with, we have strong inventory, very low finding and development costs going forward, and we'll continue to strive to maximise our production.
We have we have turnarounds boost both at Foster Creek and Christina Lake This year.
And that is balanced with we have we have strong.
Inventory at very low finding and development costs kind of going forward and we will continue to destroy to maximize our production.
Okay second question in coming out.
Speaker 7: The second question and... I'm going to have to remind John and Gunev. So maybe I'll just remind you of two other things as well that Naurius has spoken to. We do have turnarounds in both Foster and Christina this year.
John It.
Have you told US yesterday, maybe I'll just remind you of two other things as well that Morris has spoken to is we do have turnarounds in both foster and Christina this year.
And there will be you know reduced production during most turnaround. So we do intend to take Foster Creek down.
Speaker 7: And there will be reduced production during those turnarounds, so we do intend to take Foster Creek down in the Q2 timeframe and Christina Lake.
And are in the Q2 timeframe and Christina Lake in the Q3 timeframe, but that will impact those production numbers, but when we've given you in the guidance.
Speaker 7: but that will impact those production numbers. But what we've given you in the guidance, I think is something that's rep-
I think as something that's representative of where we're going to be.
Perfect and my quick follow up here is I think at the time you did the deal for foster and Christina with Conoco.
Speaker 10: Perfect. My quick follow up here is I think at the time you did the deal for Foster and Christina with Conoco, the contingent payment had a timeline. I think it was five years from the time you did the deal. But can you help us understand at what point will the contingent payments stop if they would, as it relates to these two assets.
Jim payment had a timeline I think it was five years from the time you did the deal but can you help us understand at what point will the.
Contingent payments stop if the wood.
As it relates to these two assets.
Speaker 2: Manavitz, Alex, there is a date circled on my calendar of May of this year and I think that is when it rolls off.
Manav, it's Alex there is a date circled on my calendar of May of this year and I think that that is the that that is when it rolls off 17 me [laughter] Dori. Yeah. He is more granularity than me may 717% to 12 o'clock.
Speaker 2: Nori has more granularity than me, May 17th at 12 o'clock.
So that's exactly five years, because <unk> was the closure of the date of these two assets back in 2017, So basically post Duke you you do not need them right is that likely to think about it.
Speaker 10: So that's exactly five years because May 17th was the closure of the date of these two assets back in 2017. So basically, post 2Q, you do not pay them, right? Is that the right way to think about it? Correct.
Correct.
Thank you. Thank you for taking my questions.
Thanks, Matt.
And again as a reminder.
Please press star one if you'd like to ask the question again that is star one quick question.
Speaker 1: press star one if you'd like to ask a question. Again, that is star one for questions.
Yeah.
Okay.
Take our next question.
From Chris Barco with the Calgary Herald.
Hi, It's a question for Alex Alex There's a.
Speaker 2: Hi, question for Alex. Alex, there's been a fair bit of talk about Trans Mountain Pipeline expansion not taking place in 2022, but occurring sometime or at least being completed at sometime in 2023. And with a substantially higher price tag, I guess what are you hearing and what kind of impact will this have upon Sonoma as a shipper on that?
A fair bit of talk about Trans mountain pipeline extension are not taking place in 2022, but occurring sometime or at least being completed sometime in 2023 and with a substantially higher price tag I guess, what are you hearing and what kind of impact will it have upon synovus as a shipper on that expansion.
Hey, Chris Yeah, I mean as is I think a lot of people are aware, we're quite a significant shipper on on T M X and as such we're in regular contact.
Speaker 2: Hey Chris, yeah I mean as I think a lot of people are aware we're quite a significant shipper on TMX and as such we're in regular contact.
Speaker 2: with the owner and developer and I would say from our perspective
With the owner and developer and I I would say from our perspective, we're quite confident that nothing we're seeing are.
Speaker 2: We're quite confident that nothing we're seeing really will make a significant difference for us as a shipper and we expect that at any of the range of outcomes that we would model that that toll will still be an attractive toll for getting our production to market.
It really will make a significant difference Ah you know for us as a shipper and we expect that at at any of the the range of outcomes that we would model a that that Tal will still be a unattractive toll for getting our production to market.
Can you tell me, how many barrels that you're committed to the expansion.
Geez I'm I'm not sure that that's public Chris I think I I think you could just go I. We are one of the largest shippers on on T. M X and it is a very meaningful volume.
Speaker 2: Geez, I'm not sure that that's public, Chris. I think you could just go. We are one of the largest shippers on TMX, and it is a very meaningful volume.
Speaker 2: Just to follow up lastly, we've seen a rapid expansion in the WCS prices in the last couple of weekend and obviously in oil prices. I'm curious how this is affecting your thoughts or changing your thoughts at all on capital spending in 2022. Does oil moving towards $100 a barrel or WCS being at $100 a barrel change your perspective at all?
Just a follow up lastly, we've seen a rapid expansion in the WCS prices in the last couple of weekend. It obviously in oil prices I'm curious how this is affecting your thoughts or changing your thoughts at all on capital spending in 2022 does oil moving towards $100, a barrel of WCS being at $100 a barrel change your perspective at all.
Yeah, you know you know, Chris I'm, I'm kind of old enough and bear enough scars that you know I I I I I I I guess when it comes to pricing I I'm always very cautious you know, we we anchor all of this company's development plans.
Speaker 2: You know, Chris, I'm kind of old enough and bare enough scars that I guess when it comes to pricing, I'm always very cautious.
Speaker 2: We anchor all of this company's development plans.
Speaker 2: at the bottom of the cycle for oil and gas. We won't invest in a project that doesn't deliver an acceptable return at the bottom of the cycle, which for oil, we would describe as kind of 45 WTI. So although we're pleased to see these higher prices, it's just not something we can count on. Now, that being said, we do have...
At the bottom of the cycle for oil and gas. We we we won't invest in a project that doesn't deliver an acceptable return at the bottom of the cycle, which you know for oil we would describe as kind of 45 W. T. I. So although you know were pleased to see.
These higher prices, it's just not something we are we can count on now that being said you know we do have a we do have quite an active program both in the oil sands and in our conventional.
Speaker 2: We do have quite an active program both in the oil sands and in our conventional business. So we are going to be employing a lot of
Business. So we are we're gonna be employing a lot of service or a lot of drilling our drilling and service rigs a lot of contractors just with our basic sustaining capital program.
Speaker 2: a lot of drilling and service rigs, a lot of contractors, just with our basic sustaining capital program.
Yeah.
Yeah.
Speaker 2: One final question if I could, and that is, what is your understanding of where we're sitting with the tax credit from the federal government on carbon capture?
One final question, if I could and that is.
Where what is your understanding of where were sitting with the tax credit from the federal government on carbon capture and sequestration.
Speaker 2: And have you, I guess, got any response yet on whether EOR is going to be included or not from the federal government?
Have you got any response, yet on whether E. R is gonna be included or not from the federal government.
Speaker 2: So we're, you know, we have been consistently in discussions.
So we're we're you know where we've we have been consistently in discussions.
Speaker 2: with the federal government, Chris, and I mean, my goodness, now going on, you know, probably the better part of a year. And I suspect that the next major milestone, you know, in this discussion is probably going to come
With the federal government, Chris I mean, my goodness now going on you know probably the better part of a year and I suspect that the next major milestone.
And then in this discussion is probably going to come.
Speaker 2: from the federal government with more details about what their plan on the investment tax credit is going to be in the 2022 budget, which is, as I understand, is likely going to be announced in March or April . But, you know, I obviously at the end of the day, you know, a lot of that work is within the government's mandate. But I would say we're working very collaboratively together and we look forward to hearing from them.
From the federal government with more details about what their plan on the investment tax credit is going to be in the 2022 budget, which is as I understand is is likely going to be announced in in March or April , but you know I I, obviously at the end of the day, you know a lot of that work.
Is it is within the government's mandate, but I would say, we're working very collaboratively together and we look forward to hearing from them you know.
Speaker 2: You know, we have had discussions about EOR and I certainly
We have had discussions about about AOR and I I certainly what when I have the have the opportunity I certainly like to remind the government that you know E. O R. Right now is probably the most cost effective way of of Sequestering C O two.
Speaker 2: When I have the opportunity, I certainly like to remind the government that EOR right now is probably
Speaker 2: the most cost-effective way of sequestering.
Speaker 2: CO2, but at this point, we don't have any guidance as to whether they're going to consider CO2 on strong enough butter.
But at this point are we don't have any in any guidance as to whether there theyre going to consider that.
Thank you.
Thanks, Chris.
We will go to our next question from Neil Williams with Reuters.
Speaker 1: our next question from Neil Williams with Reuters.
Okay.
Speaker 12: Hi there, you talked about looking to add value in a...
You talked about.
Yes.
In Asia.
Speaker 12: Do you think there will be more opportunity for investment there than in Canada at the moment?
Our opportunity for investment.
At the moment.
Speaker 2: Hey, Nia, it's Alex. You know, look, we have a very good operation in Asia Pacific. We're quite happy with it. We have.
Hey, near its Alex.
You know look we are we have a very good operation in Asia Pacific, where we're quite happy with it we have great partners and you know we have been able.
Speaker 2: great partners and we have been able over time to continue to add development opportunities and we continue to have those discussions. So it's relatively early days but I think as a business that we see continued opportunities to make some modest investments.
You know over time to continue to add development opportunities and we continue to have those those discussions. So you know it it it it's relatively early days, but but I think it's a business that we see continued opportunities to make some.
Modest investments.
Speaker 2: in a pretty attractive base.
And in a pretty in a pretty attractive basin.
Speaker 12: Okay, thanks. And then as a follow up, do you expect to allocate any capital funding towards the oil complex way align the
Okay. Thanks, and then.
Thank you.
Okay.
Towards the bottom line.
So are you kind of broke up there for a second I didn't get the first part of that.
Speaker 2: Sorry, you kind of broke up there for a sec. I didn't get the first part of that.
And do you expect any major capital allocation can be invested this year.
Speaker 12: Do you expect any major capital allocation to the oil sands pathways?
Speaker 2: You know, I think we're anticipating very significant, you know, capital investment, you know, over sort of the eight to ten years out in the future. But I would anticipate most of the work we're doing right now would be around.
Yeah, you know I think.
We're anticipating very significant capital investment are you know over sort of the eight to 10 years out and in the future, but I would I would anticipate most of the work we're doing right now would be around kind of feasibility study.
Speaker 2: kind of feasibility studies, engineering, permitting, work on permitting. So it is a relatively modest capital allocation for the next couple of years, but ramping up particularly if we're successful with the federal government in that investment tax credit.
These engineering permitting work on permitting so it it is a it is a relatively modest capital allocation for the next couple of years, but but ramping up particularly if if we're successful with the federal government and in that investment tax credit.
For carbon capture and sequestration are as I'm sure you're aware, we have a foundational project, which is a building a carbon trunk line to a carbon sequestration facility.
Speaker 2: for carbon capture and sequestration.
Speaker 2: As I'm sure you're aware, we have a foundational project, which is building a carbon trunk line to a carbon sequestration facility in and around the Cold Lake area. And if the investment tax credit were to come to pass, you would see the partners certainly ramping up capital over that kind of eight to 10 year period.
And in in and around the Cold Lake area, and you know that if if the investment tax credit.
Were to come to pass you know you you would you would see the partners are certainly ramping up capital over that kind of eight to 10 year period.
Okay do you have.
Speaker 12: Okay, thanks. Do you have a rough estimate at this point how much the project would cost? What sort of numbers are we talking about?
Yeah.
Rough estimate how much the contract would cost what sort of numbers are we talking about.
Speaker 2: You know, it really depends ultimately on a number of factors, but I think it's something you could think of kind of being in the scale of many single billions of dollars.
Yeah, you know it it it really it really depends ultimately on on a number of factors, but I think it's something you you could think of kind of being in this in this scale of of you know many single.
Billions of of of dollars.
Okay.
Okay. Thanks.
Yeah. Thank you.
Well take our next question from Janet Mcgratty with <unk>.
Speaker 13: Yes, hi, thanks for taking my question. I actually have two of them for you. And the first is about the future of your joint venture with Phillips 66 for the Wood River and Border Refineries. On their call, they had said that discussions had been
Yes, hi, Thanks for taking my question I actually have two of them for you and the first is <unk>.
Sure.
Venture with Phillips 66 for the Wood River and Borger refineries.
Their call they had said that.
<unk> had been floated about.
Speaker 13: floated about not having the joint venture anymore. And they said that their world has changed, talking about you. So I was just wondering how your world has changed and what is the future of the joint venture for those two refiners? And then, when I'm going to have a second question.
Not having the joint venture anymore, and they said that their world has talked about you. So I was just wondering how your world has changed and what is the future of the joint venture for those two refineries and then when I'm done I have a second question.
Sure I mean first off I would say that you know that that partnership with Philips has been an excellent partnership. They they are a great partner and they've been a great operator of of those assets, but I think what has changed is that.
Speaker 2: Sure, I mean, first off, I would say that.
Speaker 2: You know, that that partnership with Phillips has been an excellent partnership. They they are a great partner and they've been a great operator of those assets. But you know, I think what has changed is that
Speaker 2: You know, our strategy and particularly with the conclusion of the Husky acquisition, I mean, we are really moving towards a strategy of being a fully integrated.
Our strategy and particularly with the conclusion of the Husky acquisition I mean, we are really moving towards our strategy of being a fully integrated energy producer all the way from.
Speaker 2: energy producer all the way from
Speaker 2: you know, the production through to the refinery, the refinery gate. And you know, in a world like that, you can see a scenario where...
The the production through to a.
Refinery the refinery gate, and you know and in a world like that.
You can see a scenario, where you know we we definitely ultimately long term view.
Speaker 2: You know, we definitely ultimately long term view our strategy as being an operator of
View, our strategy as being an operator.
Of refineries and and and if we can if if if when we're involved in refineries that that are great refineries. We we would we'd love to have 100% of it all things being equal so you know.
Speaker 2: And if we can, when we're involved in refineries that...
Speaker 2: that are great refineries, we would love to have 100% of it.
Speaker 2: all things being equal. So, you know, I don't think there's not an urgency.
I don't think there there's not an urgency.
Speaker 2: you know, in any way to deal with that partnership. But I think the comments from Phillips would...
Any way to deal with that partnership, but I think the comments from Philips would would align with ours that that over time, you know peoples people company strategies change in their goals change and this might be a situation, where our where we look to other alternatives, but you know there there's really there there's there's there's no urgency.
Speaker 2: would align with ours that over time, you know, people's...
Speaker 2: People, company strategies change and their goals change, and this might be a situation.
Speaker 2: you know, where we look to other alternatives. But, you know, there's no urgency, and we certainly don't have anything.
And we certainly don't have anything to announce there is probably a lot of discussion to come on that.
Speaker 2: to announce. There's probably a lot of discussion to come on that.
Speaker 13: So how would that work out though? Would you, because for example, like Wood River uses a lot of WCS and I imagine that comes from you. So I mean, how would that work out for you? I mean, would you take it? Would they take it? I mean, would you keep some kind of supply arrangement going forward or have you not thought that far?
So how how would that work out though would you because for example, like Wood River uses a lot of WCS or imagine that comes from you. So let me how would that work out for you I mean would you take it would they take it I mean, you can keep keep some kind of supply arrangement going forward, if he's not thought that far.
Speaker 2: No, it's really hard to speculate. It could be any of the above. And we really are at really sort of a preliminary stage at having those discussions. So it's too early to comment. So do you have any timeline then around these discussions where you expect to reach a conclusion?
No. It's it's really hard it's really hard to speculate I you know it could be it could be any any any of any of the above and where we really are at really sort of a preliminary.
Maybe as stage and having those discussions so it's too early to comment.
So do you have any timeline than that you get around these discussions where you expect to reach a conclusion.
No I think the these things kind of go it at their own pace and.
Speaker 2: No, I think these things kind of go at their own pace. And, you know, I honestly wish I could give you a little more detail, but it's going to take a lot more discussions, you know, between the parties before we determine, you know, what the outcome is. So it's going to take a bit of time.
I honestly wish I could give you a little more detail, but it's going to take a lot more discussions.
Between the parties before we determine our you know what the outcome is so it's going to take them at a time.
Speaker 13: I understand. Now here's my second question. And you said earlier in this conference that you put barrels into cap line in Q4. So can you give me any idea how much? And if this is a new commit, are you a committed shipper? Have you committed barrels? And you know, how do you see this playing out for you and getting, I guess, beginning WCS to the Gulf to Louisiana? How do you feel about that?
And now Here's my second question and you said earlier in this call.
I would say you put barrels into topline in Q4. So can you give me any idea how much and if this is are you a committed shipper.
Have you committed barrels and how do you see this playing out for you and getting I guess, it would be getting WCS to the Gulf Louisiana.
How do you feel about that.
Speaker 2: Yeah, we are a committed cap line shipper and we would look at that as part of an integrated strategy to maximizing the value for our barrels. And obviously, you know, the Gulf Coast has generally been a pretty attractive market for the heavy barrels. So it's just another route to market that we hope to maximize our net back.
Yeah. We we are committed we are a committed cap line shipper and we would we would look at that as part of our as part of an integrated strategy to maximizing the value for our barrels and obviously you know the Gulf Coast is.
Generally been a pretty attractive market for our for the heavy barrels. So it's just it's just another another route to market.
We hope to maximize our net backs.
Speaker 14: Oh, okay, great. Listen, thanks so much for your time. I really appreciate it. No worries. Thanks very much.
Oh, okay, great. Thanks, so much for your time I really appreciate it.
No worries thanks very much.
Okay.
That concludes today's question and answer session. Mr. <unk> at this time I will turn the conference back to you for any additional or closing remarks.
Speaker 2: Well, thanks so much, operator, and thanks to everybody once again for your engagement with the company and your time today. And we'll let everyone get back to the rest of their day. Thanks again. Take care.
Well. Thanks, Thanks, so much operator, and thanks, everybody once again for your our engagement with the company and your time today and we'll we'll let everyone get back to the rest of their day. Thanks again take care.
And this concludes today's call. Thank you for your participation you may now disconnect.
Speaker 15: Thank you for your participation. You may now disconnect.
Okay.
Yes.
Yes.
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Yes.
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Yes.
Yes.
Speaker 16: I.
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