Q4 2021 Cenovus Energy Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome to Synovus Energy's fourth quarter and year end 2021 results. As a reminder, today's call is being recorded at this 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 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.
Please be advised that this conference call may not be recorded or rebroadcast without the express consent of synovus synergy.
I'd now like to turn the conference call over to MS. Sherry Wendt, Vice President Investor Relations. Please go ahead Ms Wendt.
Thank you operator, and welcome everyone to Synovus 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.
Additional information is available and synovus as annual MD&A and our most recent Aif and form 40 F.
All figures are presented in Canadian dollars and before royalties unless otherwise stated.
Alex for Bay, our President and Chief Executive Officer will provide brief comments and then we'll take your questions.
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.
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.
Thanks, Gerry 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.
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.
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.
Our refined 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 at synovus, including how seriously we take our role in the local communities, where we operate.
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 nine.
<unk>, we have had solid overall health and safety performance in 2021, the year was not without recordable injuries, though and this further underscores our focus 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.
Okay.
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.
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.
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.
Nearly 212000 barrels per day, an increase of about 25000 barrels per day over the third quarter we.
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 <unk>.
Of element and re drill wells that we spoke to you about at our Investor day production 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.
Bits of appliance and <unk> operating techniques. These assets have delivered an average of nearly 100000 barrels per day in the quarter.
Our realized pricing across the oil sands segment reflected the volatility in W. Ti in 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 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.
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 relative.
Flat with the third quarter.
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 one 4 billion of operating margin in 2021 Asia Pac operations continued performing well with daily production of over <unk>.
62000 Boe per day in the fourth quarter, which was slightly above the previous quarter. However, we saw increased realized prices and net backs.
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.
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 MBA <unk> 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.
Net back overall as the business realize the benefit of strong Brent pricing.
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.
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 plan timeline extending through December and into January .
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 <unk>.
<unk> 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.
And our 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 was 96% average utilization.
For the full year.
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.
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.
<unk> between 2019 at 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.
<unk> emissions by 35% by year 2035 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.
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.
Capital spending was $835 million in the quarter, which placed us well within our guidance range for the full year.
We recorded a $1 9 billion 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 <unk>.
CFS 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.
<unk> portfolio of upstream and downstream assets.
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 our synergy incentive plan that was implemented at the time of the Husky transaction. This one time incentive program.
Was clearly very very effective and motivating our employees to pursue those synergies for our shareholders.
We generated $7 2 billion and adjusted funds flow in 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 can.
<unk> that free funds flow reflected onetime costs associated with the husky transaction and capital for the superior refinery rebuild on which we're still collecting related insurance proceeds in 2022.
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.
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.
It is also expected to close in Q1 retail is still expected to close in mid 2022.
I'll also take this opportunity to provide an update on our end CIB program, which we announced in the fourth quarter and began executing in November as of February seven we have repurchased approximately 26 million shares at a weighted average price of $16 31 per share.
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.
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.
We will 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.
Yes. Thanks, good morning, Thanks for the thanks for the rundown.
Alex So maybe just to extend from what you've said on the drilling.
My first question is youre going to be some 8 billion looks like.
Like there's a lot of appetite.
<unk> organic investment in the ground and so forth 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 things on your to do list.
Yes, no. Thanks, Thanks for the question, Greg I mean I think.
What we said and Youll recall at our 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 to returning to our shareholders you've seen that.
<unk> got off I think to a quite a decent start with our NCI be you've seen us double the dividend in.
And here, we are rapidly heading towards and below 8 billion in net debt and I think what what I would say is.
We are very very focused on the importance and the urgency of returning more value to our shareholders.
We're in frankly, we're delevering 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 that in fairly short order, we will be coming back to our.
With an updated plan on how we're going to continue to.
Two to return and increase our returns to shareholders. So I think I would 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 the plan that we can announce to our shareholders.
Okay. Thanks for that and really just the second question is probably more for John but.
What what should we expect from your U S refining ops I'm not thinking so much about cash flow generation.
Perhaps utilization or steps taken to improve the liability or performance or what have you anywhere you want to go and that would be fine.
Thanks, Greg I'll make a few comments and then I'll, let Keith chime in.
First comment I would make as U S refining is absolutely core to our.
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.
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.
Normal rates of operation, we expected to run through 2022 at normal rates of operation.
While we have seen in the past as utilization has been.
Lower than historic due to largely commercial reasons, so as the cracks.
Continue to.
Justify we will continue to.
Take those.
Rates of utilization.
I would mention we do have a another major turnaround in 2022 at Toledo and that will be executed by our partner.
BP.
Going forward, you should expect more historic rates of utilization and availability.
As we get into a more robust.
Craft market.
I don't know if theres anything else you want to add to that.
I think I think you got it the Lima and alignment turnaround is a once in five year type of event and that's now behind us and the refineries back.
Back online.
And I think just Greg in the in the quarter, obviously saw some seasonal weakness in.
Cracks.
Net cracks of Rins around $10.
Obviously gasoline impact a little bit with omicron, but we're expecting kind of that have to be transitory and really thinking that gasoline and diesel demand will be really strong.
Through through 2022, so even with the turnarounds John alluded to we're expecting higher throughput in 2022.
Based on what we're seeing.
Hey, Greg it's Alex.
I would agree with everything that Jon and Keith said and I might just put one kind of overarching comment on the U S downstream as John said at the start. This this is an absolutely core part of our business and our integrated strategy and I.
That our investors should expect to see the exact kind of focus that we put on the thermal bid.
Business in 2021.
And the results we've delivered there John and Keith and Norrie are putting that same collective effort into making sure that we deliver that same kind of performance.
Out of 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.
CIBC.
Hi, good morning, and thank you for taking my questions.
The first one actually both might be directed more at Jefferies.
As you noted there in your opening comments Alex.
It did take a $1 9 billion impairment charge.
It begins with financials.
Okay.
Please stop 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 of the changes and assumptions as well as.
Renewal pricing in Europe .
Looking at going forward with respect to the impairment charge.
Yes, it's Jeff here. Thanks for the question I mean number one I'll say.
This really reflects.
Third party price lines.
Where are those currently sit and Thats really the driver and as you can see in the upstream similar to 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 Dennis and that really drives a lot of evaluation and changes as those third party price.
Line number one.
Number two is the discount rates will vary and will adjust and look at different pieces depending on.
Structures of the investments in the refinery. So we've we've moved out a little bit between for the different investments.
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 points down.
Okay.
Thanks.
And then the second question, maybe falls a little bit along what Greg was asking there to begin with.
The company has done a really good job in terms of managing.
Term debt maturities.
Especially with the most recent redemption.
In terms of.
And 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 with maturities that are going forward and is there any ways that you can think about optimizing improving.
The question for you on that.
Yes, so it's Jeff again number one is Alex talk to as we said we'd be balanced between 10 and eight and we've reflected that over the last call.
And into this year with the share buybacks dividends and then the make wholes that you referred to they were largely balanced.
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.
So as we accumulate cash until we get to $8 billion will continue to balance shareholder returns.
And deleveraging.
And to your point, we will look across the maturity profile.
Did the make wholes.
We want to maximize our deleveraging, but we will look up and down the curve.
As we did in Q3 last year, if theres opportunities, where we can see to optimize the cost and the term we will look at that and balance it all out so it really is market dependent.
Great. Thank you for the color.
Thanks Dennis.
Well go to our next question from Phil Gresh with J P. Morgan.
Yes, Hi, good morning first question just.
I'm thinking about.
The first quarter.
Some of your peers have talked about some working capital.
I didn't know if there was anything I know you have hotels in the fourth quarter 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.
Target of $8 billion.
In the first quarter.
Just any thoughts you have on either of those comments.
Hi, Phil It's John speaking 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 working capital release.
And that being said one of the things that we did see in December in particular was some pretty weak pricing, both <unk> as well as the <unk> 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.
<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 something that.
I think we manage through Q4, and you'll see us continue to manage.
Through Q1, we did put some barrels.
And to cap line in Q4, and that's all reflected in the number but overall, we didn't see that working capital release, and we are expecting to so some of that production that we started in Q4 and Q1.
Got it and then anything on the broader.
Yes.
These 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.
What I will tell you Phil is.
The thing Thats going to.
But in Q1 as we are going to get some proceeds from those two asset sales that.
Alex mentioned both Wembley.
Tucker, which is now closed and those are material.
In nature.
No.
We are rapidly moving towards $8 billion.
I don't have.
Actual data 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.
Yes.
Conocophillips 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 the.
Shareholders.
And I would have to be buying the stock.
Just kind of buyback in the open market.
Any update there and then hopefully.
Let's now review soon.
Yes.
It's Alex fill in.
I think first off my observation is that our NCI program I think has been a reasonably effective offset.
Two to Conoco's actions selling down their block.
Yeah.
At this point you guys have heard me say this so many times.
It sounds pretty rote, but we're always happy to work with them, we haven't really found any opportunities.
Two of coordinating its made a little bit difficult by by the rules, but.
As long as the pricing works for us with our NCI program, we think that that remains a pretty effective offset.
To their to their sell down and to your point. There is 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.
Yes, no worries.
Yeah.
Okay.
Take our next question from Neil Mehta with Goldman Sachs.
Good morning team and once it does have time on risk.
Our risk management.
And maybe that'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 too.
Sure. So what we have Neil are really two programs that are live within the company and 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.
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.
So if you think about this company, we carry typically around 45 million barrels of inventory through months and 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 WTO price about 40% of that inventory.
He is hedged out 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.
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.
So that's that's program one program to another program, we run where we take our WCS exposure and we align the pricing windows between Dolby UTI and the WTO WCS differential so that we don't have a pricing exposure, where we set the differentially one month and then the.
<unk> price in the following months, so we bring those together it collapsed.
And we do that on about 60% of our exposure. So again, because we're bringing the WTO price forward in a rising price environment that program will lose money in a low and a declining pricing environment.
We'll make money, but net net 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.
Using the forward curve.
Those hedging impacts could look like as we think about 2022.
Well it depends on where the price of Adobe UTI 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.
Thank you Tim.
Thanks Bill.
Well take our next question from Manav Gupta with credit Suisse.
Sure.
Hey, guys I know it might sound like a modeling question, but it's not actually a modeling question so bear with me.
Yeah.
In this quarter was that <unk> and Christina 251, if you look at the annual guidance you basically are reaching the upper end of guidance on both dose I think Christina still 50 up Brian Foster Wheeler <unk>. So when we think about 2022 should we model you are now at least at the top end of it.
Not all of the adult band as it relates to these two assets.
Manav, what a thoughtful and insightful question I ask norrie of this all the time and Lori will give you a response.
<unk> here.
I would suggest.
We gave you a range because there is ups and downs as we.
We can go through.
Our fourth quarter.
We had very strong safe performance, we've been 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.
We have we have turnarounds boost both at Foster Creek and Christina Lake This year.
And that is balanced with we hope we have strong.
Inventory very little finding.
Finding and development costs kind of going forward and we'll continue to strive to maximize our production.
Okay.
My question in.
Jonathan.
Yes, yes, so maybe I'll just remind you of two other things as well that Morris has spoken to is we do have turnarounds at both foster and Christina This here.
And there will be reduced production during most turnaround. So we do intend to take Foster Creek down.
And the Q2 timeframe and Christina Lake in the Q3 timeframe, but that will impact those production numbers, but what we've given you in the guidance.
I think as something Thats representative of where we're going to be.
Perfect and then my quick follow up here is I think at the time you did the deal for foster and Christina with conical.
Jim payment.
<unk> line I think it was five years from the time you did the deal but can you help us understand at what point will the.
Finjan payments stop if they would.
As it relates to these two assets.
Manav, it's Alex there is a date circled on my calendar of Mei.
This year and I think that that is the.
That is when it rolls off.
Yes. He is more granularity than me may 717% to 12 o'clock.
So thats exactly five years, because <unk> was the closure of the date of these two assets back in 2017, So basically post Duke you do not need them right is that the right way to think about it.
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.
Yeah.
Yeah.
Thank you our next question.
From Chris Barco with the Calgary Herald.
Yes.
Hi, It's a question for Alex Alex.
A fair bit of talk about Trans mountain pipeline extension.
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.
Yes.
As I think a lot of people are aware, we're quite a significant shipper on on <unk> and as such we are.
We're in regular contact.
With the owner and developer and I would say from our perspective.
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.
<unk> will still be an attractive toll for getting our production to market.
Can you tell me how many barrels have you committed to the expansion.
Okay.
I'm not sure that that's public Chris I think I think you could just go.
One of the largest shippers on <unk> and it is a very meaningful volume.
Just a 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, because oil moving towards $100 a barrel of WCS being at $100 a barrel change your perspective at all.
Yes.
Chris I'm kind of old enough and bear enough scars that.
I guess when it comes to pricing I'm always very cautious we we.
Anchor all of this company's development plans.
At the bottom of the cycle for oil.
In gas, we 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 W. UTI. So although we're pleased to see.
These higher prices is just not something we.
We can count on now that being said, we do have we.
We do have quite an active program both in the oil sands and in our conventional <unk>.
Business. So we are we're going to be employing a lot of <unk>.
Service, a lot of drilling drilling and service rigs a lot of contractors just with our basic.
Sustaining capital program.
Okay.
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.
Have you got any response, yet on whether <unk> is going to be included or not from the federal government.
So we're.
We have been consistently in discussions with.
With the federal government, Chris I mean, my goodness now going on probably the better part of a year and I suspect that the next major milestone.
In this discussion is probably going to come.
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 as I understand is likely going to be announced in in March or April but.
Obviously at the end of the day.
A lot of that work as 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.
We have had discussions about about EUR and I certainly when.
When I have the have the opportunity I certainly like to remind the government debt.
Or right now is probably the most cost effective way of sequestering.
<unk>.
But at this point.
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.
Sure Dan.
You talked about.
Yes.
In Asia.
The opportunity for that.
And in Canada at the moment.
Hey, Neil it's Alex.
Look we we have a very good operation in Asia Pacific, We're quite happy with it we have great partners and we have been able.
Over time to continue to add.
Development opportunities and we continue to have those those discussions so.
It.
It's relatively early days, but but I think it is a business that we see continued opportunities to make some modest investments.
And in a pretty in a pretty attractive basin.
Okay.
Okay.
As a follow up.
Okay.
A couple of friends in towards the bottom line.
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.
Capital allocation can be tougher.
This year.
I think we are.
We're anticipating very significant.
Capital investment.
Over sort of the eight to 10 years out in the future, but I would I would anticipate most of the work we're doing right now would be around kind of feasibility studies engineering permitting work on permitting so it is a it is a relatively more.
Modest capital allocation for the next couple of years, but ramping up.
Particularly if if we're successful with the federal government and in that investment tax credit.
For carbon capture and sequestration.
As Im sure you are 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.
That if if the investment tax credit.
Were to come to pass you would you would see the partners certainly.
Certainly ramping up capital over that kind of eight to 10 year period.
Okay. Thank you.
Goodbye.
Next question, how much the contract would cost.
That would be talking about.
Yes. It is.
It really it really depends ultimately on on a number of factors, but I think it's something you could think of kind of being in this in the scale of <unk>.
Many single.
Billions of dollars.
Dollars.
Okay. Thanks.
Yes. Thank you.
Well take our next question from Janet Mcgratty with.
Yes, hi, Thanks for taking my question I actually have two of them for you and the first is the.
Future of your joint venture with Phillips 66 for the Wood River and Borger refineries.
On their call they had said that.
Discussions have been.
Loaded about.
Not having the joint venture anymore, and they said that their world has talked.
<unk> 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 refiners and then when I'm done I have a second question.
Sure I mean first off I would say that.
That partnership with Philips has been an excellent partnership they are a great partner and they've been a great operator of those assets, but I think what has changed is that.
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.
The production through too.
Refinery the refinery gate.
In a world like that.
You can see a scenario where.
We definitely ultimately long term.
Our strategy has been an operator.
Refineries and.
And if we can.
We're involved in refineries that that are great refineries, we would we'd love to have 100% of it all things being equal so.
I don't think theres not an urgency.
Any way to deal with that partnership, but I think the comments from Philips would would align with ours that over time peoples people accompanies strategies change in their goals change and this might be a situation, where where we look to other alternatives but.
There is there is there is no urgency and we certainly don't have anything to announce there is probably a lot of discussion to come on that.
So 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 I mean, how would that work out for you. Let me make you take it would they take it I mean, you can keep keep some kind of supply arrangement going forward. If you have not thought that far.
No it's really hard.
Really hard to speculate.
Could be it could be any any any of any of the above and where we really are it really sort of a preliminary.
Stage of having those discussions so it's too early to comment.
Do you have any timeline that you have around these.
Discussions, where you expect to reach a conclusion.
No I think these things kind of go it.
Their own pace.
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 what the outcome is so it's going to take a bit of time.
And now Here's my second question you said earlier in this comment that you put barrels into topline in Q4. So can you give me any idea how much.
And if this is a committed shipper.
Have you committed barrels and how do you see this playing out for you and getting I guess it'd be getting WCS to the Gulf Louisiana.
How do you feel about that.
Yes, we are committed we are committed cap line shipper and we would we would look at that.
As part of as part of an integrated strategy to maximizing the value for our barrels and obviously the Gulf Coast is.
Generally been a pretty attractive market for for the heavy barrels. So it's just it's just another another route to market.
We hope to maximize our net backs.
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.
Well thanks, so much.
Operator, and thanks, everybody once again.
For your 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.
Okay.
And this concludes today's call. Thank you for your participation you may now disconnect.
Yes.
Okay.
Yes.
[music].
Yeah.
Yes.