Q1 2022 Suncor Energy Inc Earnings Call
[music].
Good day and thank you for standby welcome to the Suncor Energy first quarter 2022 results conference call.
This time, all participants are in a listen only mode.
After the Speakers' remarks, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your host today, Mr. Trevor Bell Vice President of Investor Relations. Please go ahead.
Thank you operator, and good morning, welcome to Suncor is first quarter earnings call with me. This morning are Mark Little President and Chief Executive Officer, and Alister Cowan Chief Financial Officer. Please note that today's comments contain forward looking information. The actual results may differ materially from the expected results because of it.
Risk factors and assumptions that are described in our first quarter earnings release as well as our current annual information form both of those are available on SEDAR, Edgar and our website Suncor dot com certain financial measures referred to in these comments are not prescribed by Canadian GAAP for a description of these financial measures.
Please see our first quarter earnings release, following our formal remarks, we'll open up the call to questions now I'll hand, it over to Mark for his opening remarks.
Great well, thanks, Trevor and good morning, and thank you for joining us.
I concluded my remarks on our fourth quarter call by saying that Suncor is well position to deliver higher production and substantial free funds flow in 2022, with a clearly defined capital allocation framework that accelerate shareholder returns and debt reduction.
I also reiterated my commitment to strengthen safety reliability and operational excellence to improve <unk> performance and a meaningful and sustainable way.
While we still have work to do I'm pleased to report that we're making progress and that all parts of suncor are shifting into high gear.
Today's record financial results are due to our operating performance and strengthening marketing market conditions.
Four we go into the results I would like to walk through the unique advantages of Suncor is physically integrated model in the current macro environment, which underpins our confidence in continuing to grow shareholder returns.
In a time of global energy scarcity are physically integrated model.
Via bulk position.
In the past the integrated model gave suncor and its shareholders downside protection.
It gives us upside opportunity.
Crude oil and refined product markets gained strength in Q1, which accelerated in late March and early April on the back of a global energy shortage.
Cracking margins are responding to low inventory levels refinery rationalizations and significant crude feedstock shortages throughout the system.
Record diesel cracks are providing an additional pricing uplift to our sweet synthetic crude oil due to a significantly higher distillate cash relative to other supply options.
And while crude prices and cracking margins are certainly strong compared to recent years. There are even more competitive advantages for us on both ends of our integrated model.
Within the upstream we have the highest SCO conversion ratio amongst peers and expect SCO production this year to be the highest ever in the company's history.
And the downstream Suncor is refinery production is heavily weighted towards distillate production, which is well above industry average.
We are seeing significant value capture on both ends of our integrated model under current market conditions.
Putting this together approximately 60% of our enterprise wide production is weighted to SCO and distillate both of which are trading at significant premiums and with a strong macro demand outlook for both.
A combination of operational improvements and strong market conditions over the past year have driven in free funds flow that is much stronger than the scenario presented at our 2021 Investor day.
This has enabled us to significantly increase shareholder returns and the pace of debt repayment.
Specifically.
In the quarter, we bought nearly one 5% of the outstanding shares for $830 million and reduced net debt by $730 million.
Suncorp Board of directors approved a quarterly dividend of 47 per share, which represents an increase of 12% over the prior quarter dividend and is the highest quarterly dividend per share in the company's history.
Also the board approved an increase of the companies and CIB program up to a maximum of 10% of Suncor is public float.
With respect to capital allocation, we continue to accelerate progress against our 2021 Investor Day plan.
Our plan is to use half of our free funds flow to buy back shares and have to repay debt until our net debt reaches $12 billion.
Once at $12 billion, our plan is to direct 75% of free funds flow to buying back shares and 25% to debt reduction.
And for clarity once net debt is that a 9 billion dollar floor will direct all free funds flow to shareholder returns.
With current strip pricing, we expect to be in a position to achieve our $12 billion net debt target during the second half of this year.
And move to this increased share buyback level.
It is important to note that our net debt includes our capital lease obligations of $2 $8 billion.
Youll find these details and further supporting illustrations as part of slide six within the first quarter Investor Relations deck.
And in addition to these actions.
We're making changes to our asset portfolio.
Sharpen our focus and realized significant value uplift.
On our last call I mentioned, initiating a sales process for Norway, E&P and part of Roes Bank.
Since then we have also begun the process.
Divest of our wind assets.
And based on interest from potential purchasers, we decided to market our entire U K North sea portfolio.
These potential divestments offer further opportunities to accelerate progress towards our capital allocation goals.
Let's go through the first quarter financial results.
With $4 $1 billion of adjusted funds from operations for the first quarter Suncor posted the highest quarterly cash flow in its history.
Beating the prior record set in Q4 of 2021 by over 30% on an absolute and per share basis.
We completed the first quarter with 766000 barrels per day of production.
This represents strong rates through February and March after a slow start in January that we discussed on our last call.
Our Q1 production is a solid start towards achieving our 2022 production guidance.
Turning to operations.
Oil Sands delivered 417000 barrels per day of production and Syncrude delivered production about 182000 barrels per day.
As we continue to physically integrate our assets it's worth looking at a couple of key performance indicators.
The combined SCO production was 515000 barrels per day at 96% operator utilization.
And was supported by an since your production of 249000 barrels per day or 98% utilization.
Despite challenges in January these utilization rates reflects the progress we're making on reliability.
Yeah.
On the last call I mentioned, the optimization of Syncrude maintenance and support a stronger full year volumes.
Well, let's see how volumes are comparable to the last quarter. The mine performance and Benjamin production has never been better.
In fact Q1 was the highest quarterly bitumen production in Zim crudes 44 year history.
In line with our plan, we built sour synthetic inventory for hydro trading in the coming months and increase the use of the interconnecting pipeline infrastructure.
This optionality is just one example of the flexibility within our assets and provides further support to our full year production guidance range.
With four hills fully ramped up the asset delivered 88000 barrels per day of production.
February and March production averaged approximately 90% of nameplate capacity.
Our E&P offshore assets delivered 80000 barrels per day of high margin production as we continue to follow our disciplined free funds flow approach to these assets.
Moving to the downstream.
Our LIFO margin is 20% improvement compared to last quarter, while our Canadian utilization came down ahead of industry average.
As many are aware the majority of the Canadian population had significant lockdown restrictions until the end of February .
As a result, Canada's gasoline demand in the quarter lagged versus 2019, while diesel is ahead.
As I look at March and April gasoline demand continues to improve towards higher at normalized levels.
For downstream first quarter results are solid given this weak demand. However, we continue.
With continued demand growth and strong market cracks I expect improved results from our downstream for the remainder of the year.
This is a strong business with an exceptional track record as it's outpaced its peers on our refining EBITDA per barrel on a five year basis up 50% improving to 60% on a three year basis, highlighting the benefits of its resilience, especially through volatility.
Before leaving operations I wanted to highlight the recent additions of Peters Zebedee as executive Vice President of mining and upgrading and Alistair Gibbons as our VP of Fort Hills.
Visa additions add depth to our mining team.
Most of Peter's career has been spent in oil sands mining tailings.
Alistair brings decades of global mining and mine development experience.
Combined these two later spring over 50 years of direct mining and operational expertise.
We know we've had challenges in our minds and.
And we've taken concrete actions since the fall of last year to strengthen our mining capability Peter.
Peter announced or are two excellent additions, bringing more senior mining expertise into our senior leadership team.
Another significant milestone is our implementation of S. P.
In April we went live with our company wide business process transformation, which moves some core to a common platform across the entire organization driving productivity and cash flow improvements.
Further to our commitments on safety reliability and operational excellence Suncor will be hosting an oil sands operational presentation on the morning of July 13th.
This will be combined in person and webcast event.
Our focus on the execution of our plans.
During this session. We will review the changes we've made and are making to ensure safe and reliable operations.
The presentation will feature my operational executive leaders with a particular focus on our mining operations.
I'll now pass it onto Alister to go through our financial results.
Thanks, Mark and good morning, everyone as Mark noted our adjusted funds from operations per share of $2 86.
70% improvement compared to our previous quarterly record, which we just set in Q4 of last year. So there is more than double last year's result.
We continue the disciplined execution of our capital allocation framework.
And on the $600 million in dividends and $830 million in share buybacks, which equates to an 11% annualized cost return yield using with you on an average share price.
We acquired and cancelled nearly one 5% of our shares in the quarter.
Average price of approximately $58 Canadian per share.
We increased our share buyback momentum in March.
Today, we have bought back over 2% of outstanding shares.
We also reduced our net debt by nearly $730 million during the quarter roughly $15 billion.
Note that this includes $2 $8 billion of capital leases.
It's also worth noting that this meant a reduction to place. Despite these significant 1 billion dollar final tax payment for 2020 one.
This was the main use of cash in working capital during the quarter.
As we have highlighted in previous earnings calls.
Before I go through our financial results I know that there'll be both due to our segmented financial reporting to be in a pre tax basis in line with our peers since system compatibility.
Adjusted funds from operations bring us this fall will be on a pretax basis.
And Scott you noted consolidated level, so let's walk through our results.
All signs generated Q1 adjusted funds from operations of $3 4 billion with an average realization of 115 Canadian dollars per borrower.
As I look at realization across oil sands are bensimon realization of 103 Canadian dollars per BOE were significantly above the benchmark due to our strategic marketing and logistics advantage.
Expanding our marketing capability and driving higher realization is a key element of our $2 billion free funds flow improvement program.
<unk> delivered $725 million.
Adjusted funds from operations in the quarter.
<unk> average price realization of 123 Canadian dollars per Boe.
Moving to her joining soon we though we generated $1 $6 billion of adjusted funds from operations with 94% utilization.
These are the second highest quarterly results in the company's history.
I'm going to achieve in a seasonally weaker quarter.
Although FIFO tailwind helped the results.
Pleased to see strong LIFO margins that increased 20% when compared to Q4. This result is in line with Jonathan and crossing Bogdan, partially offset by weaker Canadian gasoline demand in the quarter.
As Mark highlighted continued concerns on monthly.
As Martin discussed in detail advancing operations enjoy an unparalleled advantage in the current macro environment.
Once the current strip.
<unk> profitability to be well above 2018 2019.
Record years.
These operating results and progress on our $2 billion of free funds flow program are foundational to our confidence in delivering on our capital allocation goals.
Including a record dividend of 47 per share.
10% share buyback for this year and dealt with using an increasing proportion of <unk>.
So to shareholder returns.
For example of our men's and our company wide business process transformation based on S&P is growing well.
This program is the largest component over $2 billion, plus with an anticipated annual contribution of 275 million.
Millions be realized in 2022.
As a reminder, the net debt levels of Mark discussed were highlighted last year.
<unk> is 2025 and 2030 targets and do include capital leases.
We fully expect to execute the full 10% share buyback program and achieve our $12 billion net debt level by later this year.
And to clarify our forecast reflects proceeds from north sea E&P and when distributions to be received in the first half of 2023.
Lastly, we have updated our corporate guidance to reflect the current business environment and these changes are a result of higher LNG prices.
Cash cost per bottle, primarily due to natural gas.
<unk> guidance for 2022.
Higher energy prices impacted these elements they translate to significantly higher revenues in funds from operations.
Before I pass it back to Mark I would like to emphasize that our 60% of corporate production weighted to SCO and distillate positions us very well in the current macro environment.
Therefore, our shareholders should expect cost to return profile.
Even more robust for the remainder of the year and shareholder returns and debt reduction to be more aggressive than outlined at our investor day.
A year ago now back to you Mark for some closing remarks.
Great well thanks Alastair.
Last call I mentioned that Suncorp board of directors have endorsed that detailed operational excellence plan.
Outline the progress in my opening remarks today, and our board and management have great confidence in our plan and the progress we're making.
The board and management team looks forward to engaging in constructive discussions with Elliott as we do with all our major shareholders to better understand their perspective.
We will continue to do so with a clear goal of enhancing the long term success of Suncor and maximizing long term value for our shareholders.
And with that Trevor I'll turn it back to you.
Thank you Mark and Alistair I'll turn the call back to the operator, so we can take some questions.
Thank you.
A reminder to ask a question you press star one on your telephone to withdraw your question press the pound.
Again to ask a question Thats star one on your telephone.
Our first question comes from the line of Greg Pardy from RBC capital markets. Your line is open.
Thanks, Good morning, and thanks for the detailed rundown Mark I was wondering I know you've made some changes with your executive leadership and so on and you've had time.
To reflect in terms of safety and reliability and so forth is there anything else you could maybe walk us through in terms of how perhaps the approach youre approaches has shifted in terms of enhancing reliability and so on.
Yeah. Thanks, Greg I appreciate the question.
And I think I've talked about this maybe not as much detail, but we've spent a lot of time getting important in assessing our safety performance, including input from third party experts some of which our mining focused summer, which just global safety experts.
And so we obtained a lot of good feedback associated with that and then as you know we've been reorganizing the leadership team at <unk>.
Now I have four operators at the leadership table, so we doubled that and.
Made some big changes split the upstream and have as well and then we've made and brought significantly.
Very capable and new leaders to the table, including Bruno frame, Karen Shelly Paolo Bruno's running the central organization Shelley's running the unsecured E&P assets and then I just talked about Peter Zebedee, joining the team. He has a deep mining expert we've also.
I talked about Alastair coming into Fort Hills, and we just had our now Santos are global.
Refining and chemical processing leader join us to run our refining business. So theres been a lot of change at the leadership table, we've changed our processes within the organization and so we're and I would say the primary focus there is not just in preventing incidents which of course, we have an enormous focus on.
But also ensuring if something does go wrong that we've mitigated the potential consequence, and put just as much focus on that as we do on preventing incidents and then finally leveraging technology.
Making sure that we're using whenever technologies are available on the last call I talked about collision avoidance and fatigue management, there's other technologies that were implementing as well so.
Getting input from third party experts reorganizing, bringing in new leadership changing the processes of the organization and leveraging technology.
Okay. Thanks for that Mark.
The second question is totally shifting gears, but just in terms of the sale of the UK assets I'm wondering if you can just provide us with a bit of a thumbnail on what that package. It looks like I think it's around 30000 barrels a day and then as the motivation here really about acceleration of debt reduction you certainly don't have the money problem.
This year, but an acceleration of the debt reduction or is it also about strategic fit.
Well some of this is it's boats around strategic fit associated with it our view was we could narrow the focus.
All of the business and all the various parts of the company required lots of investment to move forward and so staying disciplined on our capital deployment is critical obviously rose bankers coming up and requires significant investment in the total size of the package is about 25000 barrels a day.
Okay. Thanks very much.
Yeah.
Thanks, Greg.
Our next question comes from the line of Phil Gresh from Jpmorgan. Your line is open.
Yes, hi, good morning.
First question, obviously Elliot has their proposal out there with with many different factors around it.
I was particularly curious about your view on retail.
You talked about the benefits of the integrated model and I was just wondering how strategic you think it is to maintain control of retail assets.
Yeah. Thanks felt great question.
We have the best downstream business in North America, and our rack forward business in retail is a key part of that.
It's also intertwined with our wholesale and industrial business as well.
And the rack forward business, it's interesting we're generating the highest cash flow in our downstream business on a per barrel basis of any business in North America.
And so what we call rack forward or the retail business is a very strong performer and can go head to head with other retail businesses. We think it's key to maximizing the value across the internet integrated business chain.
And it's also one of the reasons that we've been able to deliver twice the profitability versus our next closest peer, particularly through Covid as I highlighted in my prepared remarks. So we think we have the best downstream business in North America, and we think it's important that it stay together.
Okay got it very clear.
My second question.
With respect to the cost.
Factors. So I was just looking back at the 2021 analyst day, where you talked about reducing the operating costs by about $1 billion seven over a multiyear period.
And I certainly recognize the underlying cost environment is very different size entirely outside of your control.
But if I were just kind of disaggregate the controllable versus uncontrollable factors. How would you suggest we think about where you are in that $1 seven trajectory of savings you are looking to get in what is still remaining.
The slides would imply maybe $500 million will be left between 22 and 25, but just any kind of update there would be interesting. Thanks.
I'll, let alister answer that but thanks for the question.
If I look at that we're still on track for the one point.
Phil you know cost reduction, we're ramping up I would say that you know if you call last year in Oklahoma as well it was really around margin and revenue enhancement very little on the cost side.
As we move through 2022 you're going to see more costs coming out of the business and that will ramp up in 'twenty three 'twenty four.
In line with our plan view. So we are on track I mean, the key element Mark and I. Both mentioned, we went live in our business process New systems at the beginning of April you'll start to see some of those costs come out later on this year and they are significant.
The organization as I talked about in my remarks. So we're on track for you you mentioned in place yes.
Obviously, we're looking at what we are looking at hydrogen mitigates out how do we offset as much as we call them.
We will continue to talk about as we go through the remainder of the year both on the operating costs on the capital side.
Okay, great. Thank you.
Our next question comes from the line of Neil Mehta from Goldman Sachs. Your line is open.
Good morning team.
I'd love to kick off on the downstream side of the business.
Obviously, the refining fundamentals are very strong on the screen right now when I see you raise your New York Harbor indicators.
$38 a barrel just curious on your perspective on how you are capturing that in the second quarter.
Does the backwardation.
Enable you to still earn.
Our strong margin again.
On the screen and it does look like you have a.
Decent amount of turnaround here in Q2, and the refining side of the business. So any thoughts on your ability operationally.
To maximize profitability in this environment and then wanted to tack on there.
It is we saw some headlines around Denver this morning, and downtime, but that is that plant is still up and running.
Yeah, great. Thanks, Neal appreciate it let me, let me deal with the Denver upfront. So yes, we are posting essentially everything on our public network. There just to make sure for community awareness and those sorts of things. So what you saw posted in our communications.
Just kind of normal protocol.
But we do not expect this to be material in any way and we continue to make our product in Denver.
On the downstream, it's interesting New York Harbor as particular strong it's kind of interesting, but even as you get into the Chicago market. We're not seeing the same strength in Chicago as we would see in New York Harbor, but that said this is the strongest downstream market. We've seen in a very long time as I comp.
I did in my prepared remarks, and so we're seeing significant capture in the distillate markets.
Mark that we have a very strong wholesale business and as such we've seen continued strength in the distillate side of our business with direct connection to the consumer and so we you know we think that we have very strong capture and it's one of the reasons I commented in my remarks that we're expecting.
The downstream to continue to strengthen and its performance as we go forward.
And the market looks fantastic so that.
That's really what the focus is we've built a bunch of inventory to manage our turnarounds Sarnia is now down in the admin tender has been in turnaround for a short period here and so as Montreal and so we built the inventory to be able to manage it and so our focus is to capture as much of this Q2 is always in Q.
Three are the strong quarters in the downstream so that's what we're focused on.
Thanks for the perspective, Mark and then the follow up with your comments around the mining side of the business. As you said you brought in new leadership to take a look at this.
Assets.
One of the questions we get from investors is the challenges that you're having in mining.
This process driven or those asset driven in other words as you think about it maybe go through each of them. They syn crude some of them are older in nature are there fundamental problems that we as a community should be worried about and then talk about Fort Hills, which is a newer asset.
So is it is a process problem, which would be more fixable.
Or is it asset underlying asset problem, which would be more problematic.
Well I would separate that into two pieces associated with that.
One is on the safety performance safety performance as we've talked on previous calls is is in the contractor community.
Almost exclusively with young contractors with mobile equipment. So it's a huge focus area. It's one of the reasons that we focused on collision avoidance is a technology that can help and also making sure that the.
Folks that are coming in and fully understand the risks on our managing them accordingly.
In the mining side.
We think that this is some of this is.
Ore body related and such like at Fort Hills, We've talked about you know unexpected very high ore grade in the south face of the mine we have talked about opening up the mine phase. So some of this is just the evolution of the mine as we go but you know Fort Hills, the physical plant at Fort Hills is operated.
Extremely well we've highlighted before that we've run this.
Above our 100% design and such so.
We've put in their cards on the table.
Located with it but I would separate safety and performance clearly getting global mining expertise to the table will help us in managing this and ensure that we're delivering safe and reliable operations.
Thanks Mark.
Our next question comes from the line of Dennis Fong from CIBC Capital. Your line is open.
Hi, good morning, and thanks for taking my questions. The first one maybe falls a little bit along what.
Bill was.
Hugging out there in terms of incremental.
Free cash flow margin by our estimates, we think that there could be another $4 million to $500 million increase with 2023 pre fund flow through digital initiatives might optimization Hs and syncrude synergies, how should we be thinking about those improvements.
We'll call it breakeven cost structure, and how that potentially influences. The way that you think about the existing dividend level. In addition to the shares that you are buying back. Thanks.
Okay. Thanks Dennis.
As we've outlined you know and I talked a little bit earlier, you know, we will continue to accelerate the realization of about $2 billion.
And then in 'twenty two 'twenty three uses of further several hundred million dollars of benefits to come in from one eventually does to the cost structure and break evens as it lowers our breakeven and as you'll recall from my Little chart that we have.
By lowering the cost breakeven we gave ourselves more.
Room to increase further increase the dividend so by lowering the cost real ever so the opportunity to continue to increase the dividend.
With I won't be laid out.
And of course no.
The more we're buying box that gives us more flexibility to increase the dividend for the remaining shareholders you're absolutely correct there.
Maybe I can just add to that Alastair is.
It's interesting we've talked a lot about various components of our $2 billion cash flow improvement plans some of which is cost oriented some of which is margin, but it was interesting because in the first quarter. We just achieved a milestone because the interconnecting pipeline between Syncrude and base plant reached payout.
Which is which is interesting it's been in operation for a short period of time, and we're learning more and more ways to leverage it and extract additional cash. So that's just one example of why we're able to drive better and better results.
Great Great really appreciate that incremental color shifting gears to my my second question here is just.
Frankly upstream and really more specifically non upgraded bitumen realizations for the quarter were considerably stronger.
Quarter over quarter relative to the benchmark can you talk to some degree what changes may have been implemented or underlying advantages suncor has on the slide trading side, which is kind of driven some more of that value capture specifically on the upstream barrels obviously theres been some shrink and downstream side.
Yes. Some of this is you see is that we have a very efficient barrel in Fort Hills, that's actually coming out of the mine because it's partially D. Asphalt Ed it means less failure went to be blended and we can literally take it all the way into the U S Gulf coast, because of our advantaged logistics and such.
And sell that and we can drive much higher net backs if you'd go back in time, you'll see it captures a higher netback associated with that so so some of this is just market access moving the volumes and the total production that's coming out of these assets versus where we were in Q4, so with Fort Hills speed.
A larger portion of our production with higher net backs do you see that in the results.
Great appreciate the color I'll turn it back.
Thanks Dennis.
Our next question comes from the line of Roger read from Wells.
Fargo. Your line is open.
Yeah. Thank you good morning, just like to maybe follow up a little bit on some of the maintenance and how maybe that ties into.
On the upstream side of the business and how that probably ties into a few of the questions that are already out there. So we look at what's coming at you here in the second quarter is any part of this maintenance.
Aimed at you know overall process improvements or is it just.
The basic maintenance that you need to do and I was just curious how the new management team may already be.
<unk> that.
Yeah, you'll see a little bit of that Roger at.
Fire bag, so they're doing some work associated with it but you know our view is as the vast majority of this at this stage of the game is its kind of annualized or time based maintenance to ensure that the facility has integrity and they're going to operate going forward.
Fire bag. It's the first time, we've had the two big plants down at the same time and this is just really about reliable safe operations going forward.
Okay, and then shifting gears, a little bit going back to the goals on the $12 billion of debt the longer term target of 9 billion and in the process of returning via I guess share repurchases, maybe special dividend just trying to understand what was all on the table there.
If you reached the 9 billion level and then do we assume that the proceeds from the <unk>.
Excuse me the divestments in the U K and Norway would be used towards debt reduction.
Thanks Roger.
If you look on you.
You know our allocation, we expect to get your $12 billion by the end of this year at the same time as we bought back 10% of the stock.
And then at that point, we switched over to 75% by box and 25% reduction once we get to the 9 billion. We've talked debating that allows us to devote all refunds slowed to over 100% of it too.
I'm a shareholder returns.
We're not taking anything off the table at this point is the buybacks.
Variable dividends special dividends or things like leave my options open about what we are committed to returning 100% of the free funds flow about point back to the shareholders and then on the on the.
Asset sales, which we expect to get the proceeds in next year.
And if you look at that one chart, we did they go into the free funds flow so they win.
Allocating data coming.
Come again next year, 75% see buybacks, 25% staff reduction.
Thank you for clarifying I appreciate it.
Thanks Roger.
Our next question comes from the line of men, who suffer from TD Securities. Your line is open.
Thanks <unk>.
Good morning, everyone. Most of my questions were.
Answered already but maybe I'll just start.
Toss went in on market access our Trans mountain expansion just got pushed to Q4 of next year for mechanical completion, which has me thinking it could be for 2024 event at this rate and with the understanding that you don't have much differential.
Exposure.
How tight do you think things could get for the for the industry from a basin perspective between now and <unk>.
<unk>.
What are you currently seeing in terms of basin storage apportionment or anything else that comes to mind.
Yeah. Thanks, Matt So that's a big question.
It's interesting to see in the market for the first time ever that I recall, we had significant inventory draws through Q4 and through Q1 within Western Canada, I think now that everybody's reported its a little clearer as to why that happened.
And.
So we're sitting now at relatively low inventory levels coming into maintenance season. So I would expect that we're going to trade sideways and have a fair amount of inventory.
Available in Western Canada through until the fall now could we end up building inventory in the fourth and first quarter of next year I think that's a possibility.
Surprising that were still moving about 100000 barrels a day of oil by rail.
Despite the mainline being unimportance, so there's lots of space right now, it's actually move oil and we would expect that the mainline could stay on a portion through until the fall. So so when you start talking about the end of 'twenty. Three the question is if it actually gets pushed to say Q2 of 'twenty four.
<unk>. It means we have another winter to go through and we couldn't be much tighter so that it could be a bit of a pinch point that said our expectation is that late 'twenty. Three is a realistic expectation for a T. M. P L and the team seems to be executing well and making good progress so.
That our call is I think that the dates they have out there and we're aligned with them, we're expecting it to happen at that time.
Thanks for the question.
Yeah, that's that's really helpful Mark and maybe I'll just follow up with Oh.
A question on asset sales and you've touched on this to some degree already bought but since you were testing the market on a number of different fronts at the moment.
In Norway, the U K wind solar what does the M&A market feel like at the moment or are you seeing any sort of movement in terms of the bid ask spread and how confident argue that you can get some of these deals across the line.
Yeah.
Great question, when you get into the oil and natural gas side and such it's complicated because of the volatility in the commodity prices huge.
Both in oil and natural gas and so whether we're able to get these across the goal line or not and get fair value for it time will tell associated with it when you get to wind and solar I would say well that's that's a little different we've had a massive response to us selling our wind and solar busy.
Yes.
The opportunities and our current investments that are underway.
And in fact, so much so that it's slowing down the process because we've had to process. So many different inquiries associated with it. So I think that I'm very confident that that will move forward and we'll get really good value associated with it but in the oil and gas side. It's more complicated although we did our deal on Golden Eagle last year, and we're quite <unk>.
Happy with that so we'll wait and see how it plays out but time will tell.
Thanks Mark.
Thanks Menno.
Our next question comes from the line of <unk> Gupta from Credit Suisse. Your line is open.
Hey, guys I had a quick question I mean, do you think of any interesting dynamics at Syncrude sweetest treating almost $7 or WTS and WCS is trading 15 below and the human about 'twenty. So I know you had the flexibility in the system to make one product a little more than the other can you there.
Mind us if you push the system how much more.
Syncrude suite, you can actually meet at the expense of bitumen and lots of flexibility in the system.
Yeah, Great question Manav it's.
So syncrude the physical asset of Syncrude, only makes one product and it's a sweet synthetic crude and as you pointed out it's trading at a significant premium. This goes back to the comments that I talked about where both sides of our integrated model have some tremendous wins in the sale as we go forward.
Word here, because you're seeing the sweet synthetic barrel trading at a big premium and we think a lot of it is related to getting the high distillate molecules that are so strong within the market and then you have our refining system that disproportionately makes diesel at a much higher <unk>.
Tentage than the average refining business and obviously distillate cracks are extremely strong.
Gasoline is strong, but distillate is even stronger and so as I pointed out in my prepared remarks, 60% of our production is either synthetic or distillate. So we think that this is really going to supercharge the integrated model because the both side.
<unk> of our business the upstream and the downstream has a tremendous opportunity as we look at this market condition. So.
It sets us up very well for the second and third quarter.
Oh, perfect and I think you know in the past.
You have indicated that on a normalized Nissan refining you're reasonably confident that they are playing in marketing can generate cash from operations of 4 billion. I think you would at 1.7 and when you're going to be because the pandemic here you improved to about three point due in 2021 and some there you had indicated 4 billion as at ease Nevertheless.
Estimate, but like the kind of environmentally I didn't right now 4 billion would be that he comes out of it they've given you are refining capture in your system. So I know, it's a little bit to footnote I E. Not easy question with the.
I've been a year, where suncor cash from operations adjusted funds from operations and you're finding good could be 5 billion 6 billion can you talk a little bit about that.
Well, we'll leave it to you to come up with the numbers, but what I would say is when we talked about the 4 billion, we considered that to be kind of a normal market for our downstream business with demand back and clearly this is not a normal market, we're seeing tremendous strength and so we are expecting this year's performance.
To be above what we saw in 2018 in 2019.
Perfect. Thank you guys.
Thanks Manav.
Our last question comes from the line of Doug Magee.
Bank of America. Your line is open.
Thank you good morning, everyone. Thanks for taking my question.
Mark I realize youre doing the event on July 13th.
I wonder given.
Obviously, the pretty strong performance in the quarter I Wonder if you could just give us any early insights as to what your new management team is seeing or doing or initiatives that have been identified to address one of the oldest criticisms.
You know the whole pension pass, which has been reliability and safety.
Yeah.
Thanks, Doug.
A lot of this is you know one of the things when I talk about lessons learned from third party experts that we've done that both like boots on the ground in the mine getting feedback from folks. We've also locked in assessed our performance relative to the global Super majors and tried to understand exactly how does.
This play out what what are we doing or what are they doing that we're not doing from that we learned a lot about driving standardization and having a core of excellence at the core of the company we've had that to some degree, but we significantly strengthened with the reorganization.
So a lot of that was behind the reorganization we brought in all the new leaders and such and so Peter which is kind of interesting Peter spin on the ground now for just over a month.
He he's almost like a cold eyes expert into this window, because he's getting a chance to go through.
Some of that he's impressed with some of the things he feels like need to be changed and so lots of support and focus with Peter on not just preventing incidents, but ensuring that we have the capacity to fail safe at.
At the center of the organization, we're putting a lot more emphasis on driving the standardized risk assessments across all of our facilities versus it being done within the actual facilities themselves and sharing talent around our assessments across all the various facilities. So those those are a few.
But I'll get to in that whole process and one of the things that we thought would make a lot of sensors for our major investors and such to be able to meet.
Meet these people hear from them directly about the work, they're doing and it's one of the reasons that we set it up for July 13th because we think it's important that you get a chance to understand the operating capability. We have in the organization and the leadership that they are providing so we look forward to that opportunity.
I'm grateful for the answer I know, it's early days and obviously very much looking forward to that.
My follow up is on.
I guess allocation free cash flow.
I think all of us.
Resetting our views as to what mid cycle refining could look like and obviously, you've got your organic self-help $2 billion target.
It sounds like that's getting some traction.
So I'm curious one of the other issues that was brought up by Elliot obviously was.
How did they saw allocation of free cash flow towards toppled returns to shareholders share buybacks and so on.
So I'm curious if you if you've had any dialogue on that topic because it seems that your capacity for cash returns could be substantially higher than what you laid out last year.
Yeah, Doug I'll I'll take that one I mean, you know we havent node.
Any specific dialogue, but.
But we talked through channels as a law.
We are being consistent with our Investor day last year, when we laid out the framework I mean, but.
But it's fair to say, it's all got accelerated growth the strong business environment, there and that's why we're able to come out and say what do you expect to be at a $12 billion.
That day by the end of this year ballpark substantially more shares.
We would have expected.
You may want to recall that last year, we were assuming a $55 W. T I place over long term.
Clearly, we're not there, but it is the way to to accelerate returns and you'll see not in the dividend the buy box.
And what that means as we move forward, we can allocate amongst more of our free cash flow to shareholder returns and that's what we're writing today.
Great stuff thanks for the answers.
We have no further questions at this time now I'll turn the call back over to Trevor Bell Vice President of Investor Relations for any closing remarks.
Great well, thank you operator, and thanks, everyone for joining us today, if there's any follow up questions. Please reach out to myself and the IR team we'd be happy to help that concludes today's call. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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