Q3 2022 Suncor Energy Inc Earnings Call

November 3, 2022

The conference will begin shortly.

Raise your hand during Q&A, you can dial star one one.

[music].

Yeah.

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Suncor Energy third quarter 2002 results conference call.

After the speaker's presentation, there will be a question and answer session.

Ask the question during the session you will need to press star one one on your telephone.

And here an automated message basing your hand is right.

At this time I would now like to hand, the conference over to your host today, Mr Triangle, Vice President of Investor Relations. Please go ahead.

Thank you operator and good morning.

Welcome to Suncor Energy's third quarter earnings call.

Please note that today's comments contain forward looking information.

Actual results may differ materially from the expected results because of various risks risk factors and assumptions that are described in our third quarter earnings release as well as in our current annual information form.

Of which are available on SEDAR, Edgar and our website Suncor Dot com.

Certain financial measures referred to in these comments are not prescribed by Canadian generally accepted accounting principles.

Description of these financial measures. Please see our third quarter earnings release.

We will start with comments from Chris Smith, interim President and Chief Executive Officer, followed by Alister Cowan Suncorp Chief Financial Officer.

Also on the call are three of our senior operating leaders Peters that many executive Vice President mining and upgrading Shelley <unk> senior Vice President and since you've been A&P and Arnelle Santos Senior Vice President refining and logistics.

Following the formal remarks, we'll open up the call for questions now I'll hand, it over to Chris to share his perspective on the quarter.

Thanks, Troy good morning to everyone and thank you for joining us.

On our last call I discussed that achieving best in class safety and operational performance at Suncor is core focus that my goal every day is to execute on our plans to drive that performance.

A key element in delivering this is the focus of our senior operations leaders on driving changes through the organization at the frontline.

We're doing something a bit different than past calls our three senior operating leaders Peter Shelly and are now are with Alastair need today to demonstrate our increased focus on this and to answer any questions. You may have on operations.

Now taking a brief look at the quarter, we generated $4 5 billion and adjusted funds flow from operations, which included a FIFO loss in the downstream of $585 million.

And as it's designed to do our physical integration between upstream and downstream mitigated the impact of wider heavy crude differentials delivering strong margins.

Extreme volumes came in as expected at 724000 barrels per day during the quarter.

And I expect these volumes to increase in the fourth quarter as our maintenance activities at Syncrude and base plant upgrade or one were completed in October .

In the downstream we had strong Q3 margins on the back of a 100% utilization rate in the third best crude refining throughput in our history.

Downstream margin capture was 85%, reflecting higher than normal levels of processing of sweet crude in our refinery primarily due to a planned outage in the Edmonton sulfur recovery units in the quarter.

As well, we continue to see solid volumes and margins in our sales and marketing segment with distillate demand in particular continuing to be strong.

During the quarter, we distributed $1 7 billion to shareholders in the form of dividends and share buybacks.

Also we successfully completed an upsized bond repurchase tender that resulted in buying back our debt below face value and lowering our structural breakeven by nearly $1 per barrel on <unk> basis.

These actions keep us on track with our capital allocation framework and move us toward our goal of reducing our net debt and depending on commodity pricing increasing capital allocation to share buybacks to 75% by the end of Q1 2023.

Now my comments on the quarter today are intentionally brief because we delivered a strong quarter in line with our expectations.

Instead, the focus on my opening remarks will be on recent actions that we've taken on improving safety and optimizing our asset portfolio.

Work continues across the company to improve safety and operational excellence with a particular focus on our mining and tailings operations.

My priority has been to remove distractions from the organization and to focus our employees on safe reliable operations at our biggest opportunities.

With fresh from external mining perspective at a number of leadership changes in place we are in position to execute and deliver on our plans at an accelerated pace.

In particular, there are three actions I'd like to highlight today.

First.

We initiated a thorough review of the makeup of our frontline workforce with a view to reduce our exposure hours enabled robust workforce planning, which will allow safe work execution and improve efficiency and competitiveness.

As part of this we are following through on an objective to reduce our contractor workforce and our mining and upgrading business by 20%.

As of today more than half of this objectives have already been completed and we are.

We're on track to safely achieve and sustain the full reduction by the first half of 2023.

In addition to streamlining our contractor workforce I'm also taking action to enhance our contractor management processes to ensure consistency and simplification and how we assure safe work practices in the field and we will continue to work together with our contractors to embed industry best practices and strengthened safety culture.

Second.

As previously mentioned, we are installing industry, leading technologies for collision awareness put over 1000 pieces of mobile mine equipment across our operating assets to mitigate a key risk in our mining operations.

I am pleased to say this initiative is progressing well and two thirds of increase of our mine equipment will be outfitted by year end and installations on the remaining equipment at Aurora are expected to be completed by January 2023, nearly two months ahead of schedule.

Deployment schedules for the remaining minds are on plan with.

With Syncrude Mildred Lake mine and Fort Hills going live in mid 'twenty, three and so on of course base might be complete by the end of next year.

As well our fatigue management system installation as discussed in previous calls will be completed across all mines by early 2023 and is already fully installed and functioning at Syncrude Mildred Lake and Aurora mines.

This technology is so far demonstrated the potential to reduce fatigue related to events by up to 80%.

Third and crucial to our long term success, we are partnering with industry, leading subject matter experts to better equip our leaders across all of our operations with practical skills to lead and sustain behaviors on the frontline of our organization.

By enhancing our leadership coaching and competency programs to ensure sustainment of visible felt leadership.

Our approach Leverages human organizational performance principles consistent with other industry leaders to strengthen our safety culture, while ensuring we have a strong focus on our material risks and assurance of our critical controls.

These are a few key examples of how we're driving focus and improving safe reliable operations going forward.

I would now like to move to our progress on our efforts to optimize our asset portfolio towards our core integrated business.

As you know we've initiated a robust process to divest from noncore assets increased and focused in our portfolio.

Recently announced the sale of our wind assets for $730 million.

And also during the quarter, we closed the sale of our Norway E&P assets.

Meanwhile, the process to sell our U K E&P assets continues and I expect that process to conclude in the coming months.

A portion of the proceeds of these noncore asset sales is being used to increase our operated ownership interest in the port Hills asset by approximately 21%.

This additional interest in Fort Hills demonstrates our confidence in the long term value of the asset which is backed up by a detailed assessment by our new and highly experienced mining leadership.

Last week in our Fort Hills announcements I discussed our multi year performance improvement plan for Fort Hills, which will have a short term impacts to both production and cost over the next three years and set up the asset for long term success.

Although there is no change to our 2020 to Fort Hills guidance as we begin to execute this plan, we do expect volumes to be reduced in the fourth quarter as well as into Q1 'twenty three.

When combined with other factors such as extended turnaround in our oil sands business and non operated E&P assets. We expect overall company production to come in towards the lower end of our 2022 guidance.

We continue to manage through the Fort Hills plan and I look very forward to providing a more fulsome update at our investor presentation on November 29.

This targeted portfolio optimization, focusing suncor on our core integrated business and along with our capital allocation framework accelerates the execution of our plans to grow shareholder value.

As well a core part of our long term success will also be on continuing to advance our plans to decarbonize our assets a big piece of which is collaborating with our oil sands industry peers and the pathways Elias to reach net zero by 2050.

I am pleased to see the government of Alberta select the pathways alliance for poor space in the Cold Lake area and this is an important milestone in pathways plans to develop a world scale carbon capture system for the oil sands industry.

I am encouraged by this progress and continued industry government and stakeholder co investment and collaboration will be key to the success of this world scale endeavor.

And with that I'll now pass it over to Alastair for his comments.

Thanks, Chris I'll briefly focus on a couple of items.

Our capital allocation, we continued to buy back shares and reduce our net debt.

Year to date Q3, you have returned $6 $3 billion in total to shareholders.

Uprising, $1 9 billion in dividends, plus $4 $4 billion to share buybacks, thus roughly 7% standing cheers.

<unk> also reduced net debt by $2 $5 billion, excluding approximately $1 billion of.

Foreign exchange translation loss due to the significantly stronger U S. Dollar this year.

Depending on commodity prices, we expect to increase our allocation to share buybacks to 75% by the end of Q1 'twenty three are missing.

<unk> will complement our 4% dividend yield.

Mix during the quarter, we recorded $2 6 billion.

The tax agreement related to Fort Hills note. The impairment is gated by the transaction valued recently purchased the additional stake of the project.

With that over to you Troy.

Thank you, Chris and Alastair I'll turn the call back to the operator to take some questions.

Thank you.

And again to ask a question please.

One one on your telephone.

We have our first question from the line of Greg Pardy RBC capital markets. Please go ahead with your question.

It's definitely like what you and the team are doing in terms of steps taken but wanted to ask about Fort Hills, but maybe just before I do that.

When I look at your downstream business going into the fourth quarter two big.

<unk> is obviously cracks and the other one is just it's just high utilization are you continuing to see high utilization rate.

In the in your refineries and.

Just any other color you can give us some of the downstream as we go through Q4.

Sure Hey, Thanks, Hi, Greg and thanks for the question and yes to your point, we're certainly seeing a really strong cracking margin environment were expecting that to continue.

Into the fourth quarter.

Do you have are now hear our senior Vice President refining why don't I start and I'll, let just ask him to just talk a little bit about refinery utilization and our expectations in Q4.

Thank you Chris.

Let me first talk we see continued.

On the profitability languished for our downstream business.

Mix.

On the channels.

Of course focus on Austin capital the Liberty.

And look back in the third quarter.

Overall utilization was 100%.

We did have to account for the planned outage.

And so I'm pretty Columbia unit.

And this impacted our ability to fully capture the margins in that period.

Optimize our crude slates.

For the fourth quarter I am anticipating similar utilizations.

Les might be weaker tracks with what I was.

David within above historic levels.

Thanks, Arnaud and so we've got a strong I think we're setting up for a strong end to the year. Greg is the way I would say it on the downstream side.

And I would expect as we go into 2023, the macro environment for refining is going to continue to be quite strong.

For us now.

Now you said you had another question on Fort Hills.

Yes, so let let's come back maybe to Fort Hills, exactly so with the remediation plan.

Seven wanted to dig into recognize you're going to talk more about this at the Investor Open House, but can you talk maybe just about a bit about where variability.

Water and then maybe what some of the differences are between the south central and North pits and then I guess overall, how you would sort of characterize that that resource distribution, whereas most of the ore.

How does the plan now set you up for long term success of Fort Hills.

Yes, no. Thanks, Greg and yes, we will definitely talk about this in detail at the Investor Day, and as we talk also about our 2023 guidance and as we said we have this improvement plan related to the asset to deal with a lot of the issues that you just raised it in your question I have Peter here beside me.

Peters <unk>, our executive Vice President of mining and upgrading its obviously been working extremely closely with his team and maybe I'll just pass it over to Peter to provide a color to your question. Yes. Thanks very much Chris Let me first start off by saying that we.

Myself, along with the team have done a really in depth review over the last few months on Fort Hills asset.

And firstly.

I think it's important to note that our fixed plant facility really is world class and our focus.

Round.

The challenges we've seen have really been around the ore body.

Mine is as you stated.

Some of the issues that we're seeing are related to 2021 events and really around physical constraints in the pits and this will require changes in how we mine in sequence to your.

Years to come.

You are correct Fort Hills asset has three main pits in the south pit, which we're currently completing mining in transitioning to the center and pads.

In the early part of 2023, and then ultimately the north pit and it is indeed, the north pit that has the largest amount of reserves and is largest in surface area.

The new plan really accelerates the transition on behalf of <unk>.

Center in the North pit this will ultimately give us more operational flexibility.

And it gives us more ability to increase our operating efficiency and the year to come. So we are actively monitoring the risks around Devonian water pit wall instability.

Have controls in place.

While the new plan is not without risks, we believe we have a good handle on what's to comment we've got appropriate mitigation in place great. Thanks Peter.

Thanks, Great. Thanks very much.

Yes.

Thank you so much. Thank you. Your next question comes from the line of Mickey.

Thanks.

Erica.

Yes.

Hey, good morning, this is actually clay on for Doug.

Thanks for taking my questions here I've got a couple the first one is just on the reliability. It seems like you guys are making some improvements there we can see it in the numbers can you just talk about what's changing in your operations don't have that better performance.

Yes, no. Thanks very much for the question.

Exactly one of our key focus areas.

All in all aspects of the business upstream or downstream and the teams have been working on that.

Specifically in with a lot of focus.

It isn't it isn't one thing it's really the combination of driving the focus across the organization on the performance of the assets of reliability and just the work that all the teams are doing across all the asset fixed plant as well as our mining assets.

You heard a bit in Peter's comments, so I'm really pleased with the progress we're making on it and we're going to continue to move quickly in that direction to continue to improve on our reliability.

Okay. I appreciate that second question. This is a follow up on Fort Hill. So after this acquisition, where you acquired your non op partner stake.

Can you talk about any other incremental M&A opportunities that might be on your radar maybe other asset that you own a piece of debt we would like.

More us.

Yes, no. Thanks for the questions first of all just to be clear.

Not looking to do M&A.

What we do do is if there is an opportunity that's going to provide compelling value to our shareholders.

On strategy, then we'll take a look at it in the example of the transaction. We just did a tech is a clear example of that where we had an opportunity to do to take our partner interest in that asset that we operate we know well, it's a long life asset is low intensity GHT barrels.

And we were able to transact at a very compelling value for our shareholders and so when we can do that sort of thing will be very disciplined and we will be very opportunistic.

I appreciate it thank you.

Thank you.

Your next question comes from the line of course.

Please go ahead and ask your question.

<unk>.

Yeah, Larry they aren't about on the recently announced acquired interest is that sort of a natural stopping point at that particular asset or are there any kind of longer term plans to increase ownership obviously acknowledged.

During the recent announcement had a strong element of price associated with it.

Alright, thanks for that I think.

The question.

Ill give you the answer I just gave to the last question because it's the exact same.

We did this transaction based on all the dimensions I, just that extreme compelling value for shareholders strategic fit and it was an opportunity that presented ourselves to do that and add significant value for our shareholders. We're not in the mode of looking to do M&A and we really just those offer types of opportunities present themselves.

Then we will obviously take a close look at it it's going to create compelling value for our shareholders.

Okay. Thanks, and then just as a follow up on Capex. So.

And acknowledging youll be talking about this on a little bit more later this month, but how are you thinking about next year's spend with west White rose and the elevated cost environment as well as continuing to monitor Fort Hills.

Yes, thanks for the question and we're going to be talking about that in detail at our upcoming Investor day on 2023, we're going through the portfolio very carefully and our capital plan and will be in a position to share that with you then.

Thanks.

Thank you.

Your next question comes from the line of Matt who shop.

Okay.

Your line is now open.

I'll start with your <unk>.

For mental free funds flow targets I believe the plan is still to get to Q2, 0.1 5 billion by 2025 and it looks like you are targeting.

Five for this year and $1 3 billion for next year. So can you just give us a sense of how much of your Q.

$75 million target for 2022 has already been achieved.

And how you're tracking on your $1 3 billion dollar target for next year.

Yes, no. Thanks, very much and we continue to push forward.

On that program and just a reminder, that program is made up of initiatives and investments that drive increased revenue and margin enhancement as well as cost reductions.

We're on track relative to those plans and we're seeing those come through.

And examples we've talked about them in the past examples as the interconnecting pipeline that we invested in and that we really started in 2022 really leveraging that asset and were seeing the benefit of that asset through the performance of the business. We're also driving cost reduction cost reduction, we're extending expecting more of that program to be playing out.

$2023 24.

Obviously, we have inflation headwinds that we're going to need to work through and so we're actually working and pushing the team to find other cost reduction offset knowing that we've got these inflation headwinds in front of us. So feel we're on track relative to the program still much to do on the back half of it and a lot of focus by the team to deliver.

Yes.

Thanks, Chris and then my second question relates to turnarounds and utilization for 2023 and maybe this also falls into the wait till the end of the month bucket, but I'll throw it out there can you just.

Remind us or maybe just walk us through where we should expect to see the largest.

Turnarounds and impact to utilization across upstream and downstream in 2023.

Sure sure. Thanks, Menno on downstream, it's going to be a what I'll call a regular turnarounds at a program through 'twenty three probably the largest of that is going to be at the Calvert city refinery with the turnaround for plant two.

Why don't I ask Peter actually we do have Youtube had planned.

Maintenance next year, so why don't I ask Peter to provide a bit more color to your question yes.

Yes, I would say for 2023 of the biggest events R&D due to as you mentioned Chris.

Syncrude turnarounds also next year I do want to highlight though maybe just building on what you said, Chris what is different for us compared to historical performance really is this interconnect pipeline between Syncrude and the base plant. It really helps us again much more operational flexibility.

In the past when we needed bitumen production Coker and hygiene JV units, we really need to dose to startup together in sequence with the use of the interconnect pipeline. We've decoupled that we can really prioritize benjamin of producing assets to start exporting Benjamin asked the coffers aren't ready.

On the other side export sour crude as it covers online on the hydro treaters from sell down. So it just gives us a bunch more operating flexibility and thats really changed the game for us.

Great.

Thanks Peter.

Any other questions matter.

The next question is from the line of Sean.

With JP Morgan. Please go ahead and ask your question.

So just one on capital allocation a couple of your peers.

They have been using buybacks and in addition.

Going to a special or variable dividends more recently.

I think Youre framework really just allows for the buybacks. So maybe you can just talk about how you think about a variable dividend as a tool relative to the buyback and the preference there.

To buybacks.

Thanks for the question John .

We are very focused on being disciplined against our capital allocation framework and actually I'm going to ask alister to take that question. Thanks.

Thanks, Chris.

John Thanks.

So as we said at our capital allocation.

It's 50 50 between buybacks.

The debt reduction, we expect to move to 70 525.

Really quickly in the next few months.

Enable dividends at this point given the inherent value in our stock are now part of the equation, but I would never rule that out longer term.

The part of the capital allocation as we go forward, but when I look at the value of our stock is significantly undervalued.

The focus is definitely on buying stock back.

Okay. Thank you Alastair and then if I could just follow up on the on the 75% level and certainly not we're going to split hairs here about a month or two here or there, but just if you could clarify what.

You mean by <unk>.

At dependency on the commodity environment is that if price declines precipitously you might not move to the 75% just trying to understand exactly what that comment means.

Yes, I think it would be.

Commodity prices in line with where we're at today.

No problem of meeting.

We ended Q1 next year.

So very significant reduction in commodity prices the crocs, obviously that we get extended out.

Thank you.

Thank you so much.

And your last question comes from the line of Scott.

Sure.

That does America.

Sure.

Do you have a doubling up here.

And then on the call earlier, but I did it because first of all I did want to say.

I don't know if it's been called out yet.

The strong operating performance again this quarter ahead of the analyst day Im sure everybody is happy to see that but Mike. My question is on the slide deck.

Might be getting ahead of the analyst day here, but the $2 one $5 billion target.

<unk> been characterized as well.

Offsetting headwinds.

Obviously inflation amongst other things should we think of that.

As signaling that the $2 one 5 billion is no longer an absolute but.

No longer than that.

And maybe an absolute with some offsets on any.

Any early look to how youre thinking about that ahead of the end of the month would be helpful. Thanks.

I'll take that one Doug thanks for that yes.

We're still as Chris had mentioned earlier.

<unk>.

Achieving.

The specific items, we had in the $2 one by revenue margin some cost reductions with a big focus on cost reductions coming in 2023, and then obviously in 'twenty four 'twenty five.

Additionally, the <unk>.

And then revenue from Cogent.

If I look at what was inherent in that assumption was that we would absorb.

So the regular inflation running 2% to 3% obviously not in that environment. So while we are targeting and asking our operations to find additional all says, it's certainly going to be difficult to offset inflation.

So in our business to the extent that we're seeing it today. So some of it will be used to offset inflation, there's no doubt about it.

Great.

On the analyst day, Thanks, a lot.

Thank you.

So much and you don't have any questions on queue I would now like to turn the conference.

Yes.

Great. Thanks, everyone for joining us and for the questions I.

I hope everyone can join us for our upcoming Investor presentation on November 29th in preparation for that the leadership team and I are completing a deep review of the portfolio towards providing a robust company guidance for 2023 and I'm looking forward to the conversation with everyone on that day.

And in closing I, just want to emphasize that I am taking actions to drive shareholder value and achieve operational excellence and make no mistake. This is the focus of our leadership team everyday hence my top priority and so thanks, everyone and we'll end the call there. Thank you operator.

Yeah.

Thank you.

Our participants for joining us today and this concludes today's conference.

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The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Good day, ladies and gentlemen, and thank you for standing by and welcome to this time core energy third quarter 2000, <unk> results conference call.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then give an automated message banking Johan Anthony.

At this time I would now like to hand.

The conference over to your host today, Mr Triangle, Vice President of Investor Relations. Please go ahead.

Thank you operator and good morning.

Welcome to Suncor Energy's third quarter earnings call.

Please note that today's comments contain forward looking information.

Both of which are available on SEDAR, Edgar and our website Suncor Dot com.

Certain financial measures referred to in these comments are not prescribed by Canadian generally accepted accounting principles.

For a description of these financial measures. Please see our third quarter earnings release.

We will start with comments from Chris Smith, interim President and Chief Executive Officer, followed by Alister Cowan <unk> Chief Financial Officer.

Also on the call are three of our senior operating leaders Peters that many executive Vice President mining and upgrading Shelly Pal Senior Vice President constitute an A&P and Arnelle Santos senior Vice president of refining and logistics.

Following the formal remarks, we'll open up the call for questions now I'll hand, it over to Chris to share his perspective on the quarter, great. Thanks, Troy and good morning to everyone and thank you for joining us.

On our last call I discussed that achieving best in class safety and operational performance that Suncor is core focus and that my goal every day is to execute on our plans to drive that performance.

A key element in delivering this is the focus of our senior operations leaders on driving changes through the organization and the frontline we're.

Now taking a brief look at the quarter, we generated $4 5 billion and adjusted funds flow from operations, which included a FIFO loss in the downstream of $585 million.

And as it's designed to do our physical integration between upstream and downstream mitigated the impact of wider heavy crude differentials delivering strong margins.

Upstream volumes came in as expected at 724000 barrels per day during the quarter.

And I expect these volumes to increase in the fourth quarter as our maintenance activities at Syncrude and base plant upgrade or one were completed in October .

In the downstream we had strong Q3 margins on the back of a 100% utilization rate in the third best crude refining throughput in our history.

Downstream margin capture was 85%, reflecting higher than normal levels of processing of sweet crude in our refineries primarily due to a planned outage in the Edmonton sulfur recovery unit in the quarter.

As well, we continue to see solid volumes and margins in our sales and marketing segment with distillate demand in particular continuing to be strong.

During the quarter, we distributed $1 $7 billion to shareholders in the form of dividends and share buybacks.

Also we successfully completed an upsized bond repurchase tender that resulted in buying back our debt below face value and lowering our structural breakeven by nearly $1 per barrel on the WTO basis.

Now my comments on the quarter today are intentionally brief because we delivered a strong quarter in line with our expectations.

That the focus on my opening remarks will be on recent actions that we've taken on improving safety and optimizing our asset portfolio.

Work continues across the company to improve safety and operational excellence with a particular focus on our mining and tailings operations.

My priority has been to remove distractions from the organization and to focus our employees on safe reliable operations at our biggest opportunities.

With fresh from external mining perspective, and a number of leadership changes in place we are in position to execute and deliver on our plans at an accelerated pace.

In particular, there are three actions I'd like to highlight today.

First I have initiated a thorough review of the makeup of our frontline workforce with a view to reduce our exposure hours enabled robust workforce planning, which will allow safe work execution and improve efficiency and competitiveness.

As part of this we are following through on an objective to reduce our contractor workforce and our mining and upgrading business by 20%.

As of today more than half of this objectives have already been completed.

And we are on track to safely achieve and sustain the full reduction by the first half of 2023.

In addition to streamlining our contractor workforce and also taking action to enhance our contractor management processes to ensure consistency and simplification and how we assure safe work practices in the field and we will continue to work together with our contractors to embed industry best practices and strengthened safety culture.

Second.

As previously mentioned, we are installing industry, leading technologies for collision awareness cutover 1000 pieces of mobile mine equipment across our operating assets to mitigate a key risk in our mining operations.

Deployment schedules for the remaining minds are on plan.

With Syncrude Mildred Lake mine and Fort Hills going live in mid 'twenty, three and so on of course baseline being complete by the end of next year.

This technology is so far demonstrated the potential to reduce fatigue related to events by up to 80%.

By enhancing our leadership coaching and competency programs to ensure sustainment of visible felt leadership.

These are a few key examples of how we're driving focus and improving safe reliable operations going forward.

I would now like to move to our progress on our efforts to optimize our asset portfolio towards our core integrated business.

As you know we've initiated a robust process to divest from non core assets increased fit and focus in our portfolio.

Recently, I announced the sale of our wind assets for $730 million.

And also during the quarter, we closed the sale of our Norway E&P assets.

Meanwhile, the process to sell our U K E&P assets continues and I expect that process to conclude in the coming months.

A portion of the proceeds of these noncore asset sales is being used to increase our operated ownership interest in the port Hills asset by approximately 21%.

This additional interest in Fort Hills demonstrates our confidence in the long term value of the asset which is backed up by a detailed assessment by our new and highly experienced mining leadership.

Last week at our Fort Hills announcements.

I discussed our multi year performance improvement plan for Fort Hills, which will have any short term impacts to both production and cost over the next three years and set up the asset for long term success.

Although there is no change to our 2020 to Fort Hills guidance as we begin to execute this plan, we do expect volumes to be reduced in the fourth quarter as well as into Q1 2003.

When combined with other factors such as extended turnaround in our oil sands business and if not operated E&P assets. We expect overall company production to come in towards the lower end of our 2022 guidance.

We continue to manage through the Fort Hills plan and I look very forward to providing a more fulsome update at our investor presentation on November 29.

This targeted portfolio optimization focus of Suncor on our core integrated business and along with our capital allocation framework accelerates the execution of our plans to grow shareholder value.

I am encouraged by this progress and continued industry government and stakeholder co investment and collaboration will be key to this gets fixed out of this world scale endeavor.

And with that I'll now pass it over to Alastair for his comments.

Thanks, Chris I'll briefly focus on a couple of items.

Our capital allocation, we continued to buy back shares and reduce our net debt.

To date Q3, you have returned $6 $3 billion in total to shareholders comprising $1 9 billion in dividends plus $4 $4 billion to share buybacks, thus roughly 7% of outstanding shares.

<unk> also reduced net debt by $2 $5 billion, excluding approximately $1 billion.

Foreign exchange translation loss due to the significantly stronger U S. Dollar this year.

Depending on commodity prices, we expect to increase our allocation to share buybacks to 75% by the end of Q1, 'twenty three and this will complement our 4% dividend yield.

Next during the quarter, we recorded $2 6 billion after tax impairment related to Fort Hills.

The impairment is gated by the transaction volume recently purchased the additional stake of the project.

With that over to you Troy.

Thank you, Chris and Alastair I'll turn the call back to the operator to take some questions.

Thank you.

And again to ask a question. Please press star one.

One one on your telephone.

We have our first question from the line of Greg Pardy RBC capital markets. Please go ahead with your question.

So definitely like what you and the team are doing in terms of steps taken.

I wanted to ask you about Fort Hills, but maybe just before I do that.

When I look at your downstream business going into the fourth quarter, two big advantages, obviously cracks and the other one is just it's just high utilization are you continuing to see high utilization rate.

In your refineries and it's.

Just any other color you can give us on the downstream as we go through Q4.

Sure Hey, Thanks, Hi, Greg Thanks for the question and yes to your point, we're certainly seeing a really strong cracking margin environment were expecting that to continue.

Into the fourth quarter I.

I do have our <unk>, our senior Vice President refining why don't I start and ill ask him to just talk a little bit about refinery utilization and our expectations in Q4.

Thank you Chris.

Let me first start we see continuously look on the profitability kind risk for our downstream business.

Mix.

On the channels and of course focus on Austin capital delivery.

I look back in the third quarter.

You did nice niche almost 100%.

We did have to account for the planned outage to Edmonton, some pretty Columbia unit.

And this impacted our ability to fully capture the margins in that period.

<unk> optimize our crude slates.

For the fourth quarter I am anticipating similar utilizations.

Les might be weaker.

The landscape within above historic levels.

Got it and thanks, Arnaud and so we've got a strong I think we're setting up for a strong end to the year. Greg is the way I would say it on the downstream side.

And I would expect as we go into 2023, the macro environment for refining is going to continue to be quite strong for us.

Now you said you had another question on Fort Hills.

Yes, so let let's come back maybe to Fort Hills, exactly so with the remediation plan.

So I wanted to dig into recognize you're going to talk more about this at the Investor Open House.

Can you talk maybe just about a bit about where variability.

Yes, no thanks, Greg and and yes, we will definitely talk about this in detail at the Investor Day, and as we talk also about our 2023 guidance and as we said we have this improvement plan related to the asset to deal with a lot of the issues that you just raised in your question I have Peter here beside me.

Peter Zebedee, Who's our executive Vice President of mining and upgrading we've obviously been working extremely closely with his team and maybe I'll just pass it over to Peter to provide a color to your question. Yes. Thanks very much Chris Let me first start off by saying that we.

Myself, along with the team have done a really in depth review over the last few months on Fort Hills asset.

And firstly.

I think it's important to note that our fixed plant facility really is world class and our focus.

And the challenges that we've seen have really been around the ore body.

And so as you stated.

Some of the issues that we're seeing are related to 2021 events and really around physical constraints.

And this will require changes in how we mine in sequence to your in the years to come.

Youre correct Fort Hills asset has three main pits in the south pad, which we're currently completing mining in transitioning to the central pads in the early part of 2023, and then ultimately the north pit and it is indeed, the north pit that has the largest amount of reserves and is largest in surface area.

The new plan really accelerates the transition that we have.

Center in the North pit this will ultimately give us more operational flexibility.

And it gives us more ability to increase our operating efficiency in the year.

Her to come so we are actively monitoring the risks around ammonia and water pit wall stability.

We have controls in place.

The new plan is not without risks, we believe we have a good handle on what's to comment we've got appropriate mitigation in place great. Thanks Peter.

Yeah.

Thanks, Great. Thanks very much.

Thank you so much and your next question comes from the line of Scott Murphy.

From Bank of America.

Hey, good morning, this is actually clay on for Doug.

Yes, no. Thanks very much for the question.

Exactly one of our key focus areas.

All in all aspects of the business upstream or downstream and the teams have been working on that specifically and with a lot of focus.

It isn't it isn't one thing it's really the combination of driving the focus across the organization on the performance of the assets of reliability and just be it the work that all the teams are doing across all the asset fixed plant as well as our mining assets.

You heard a bit in Peter's comments, so I'm really pleased to see the progress we're making on it and we're going to continue to move quickly in that direction to continue to improve on our reliability.

Okay. I appreciate that second question. This is a follow up on Fort Hill. So after this acquisition, where you acquired your non op partners stake.

Can you talk about any other incremental M&A opportunities that might be on your radar maybe other assets that you own a piece of that we would like.

More us.

Yes, no. Thanks for the questions first of all just to be clear.

Not looking to do M&A.

What we do do is if there is an opportunity that's going to provide compelling value to our shareholders.

And we were able to transact at a very compelling value for our shareholders and so when we can do that sort of thing will be very disciplined and we will be very opportunistic.

I appreciate it thank you.

Thank you. Your next question comes from the line.

Thank you.

Go ahead and ask your question.

Obviously acknowledging the recent announcement had a strong element of price associated with it.

Yeah.

Alright, thanks for that I think.

The question.

Ill give you the answer I just gave to the last question because it's the exact same.

We did this transaction based on all of the dimensions I, just that extreme compelling value for shareholders strategic fit and it was an opportunity that presented ourselves to do that and add significant value for our shareholders. We're not in the mode of looking to do M&A and we really just those are types of opportunities present themselves.

Then we will obviously take a close look at it it's going to create compelling value for our shareholders.

Okay. Thanks, and then just as a follow up on Capex, So and technology, you'll be talking about this on a little bit more later this month, but how are you thinking about next year's spend with west White rose and the elevated cost environment as well as continuing to monitor Fort Hills.

Yes, thanks for the question and we're going to be talking about that in detail at our upcoming Investor day on 2023, we're going through the portfolio very carefully at our capital plan and we'll be in position to share that with you then.

Thanks.

Thank you.

Your next question will come from the line of Manav Boucher.

Okay.

Your line is now open.

I'll start with your <unk>.

Mental free funds flow targets I believe the plan is still to get to Q2 0.1 $5 billion by 2025 and it looks like you are targeting.

Five for this year and $1 3 billion for next year. So so can you just give us a sense of how much of your Q2.

$75 million target for 2022 has already been achieved.

And how you're tracking on your $1 3 billion dollar target for next year.

Yes, no. Thanks, very much and yes, we continue to push forward.

On that program. Just a reminder, that program is made up of initiatives and investments that drive increased revenue and margin enhancement as well as cost reductions were on track relative to those plans and we're seeing those come through.

And examples we've talked about them in the past examples as the interconnected pipeline that we invested in and that we really started in 2022 really leveraging that asset and we're seeing the benefit of that asset through the performance of the business. We're also driving cost reduction cost reduction, we're extending expecting more of that program to be playing out.

$2023 24.

Obviously, we have inflation headwinds that we're going to need to work through and so we're actually working on pushing the team to find other cost reduction offset knowing that we've got these inflation headwinds in front of us. So feel we're on track relative to the program still much to do on the back half of it and a lot of focus by the team to deliver.

<unk>.

Thanks, Chris and then my my second question relates to turnarounds and utilization for 2023 and maybe this also falls into the wait till the end of the month bucket, but I'll throw it out there can you just remind us or maybe just walk us through where we should expect to see the largest.

Turnarounds and impact of utilization across upstream and downstream in 2023.

Sure sure. Thanks, Menno on downstream, it's going to be a what I'll call. It regular turnarounds at a program through 'twenty three probably the largest demand is going to be at the copper city refinery with the turnaround for plant two.

Why don't I ask Peter actually we do have Youtube had planned.

Maintenance next year, so why don't I ask Peter to provide a bit more color to your question yes.

Yes, I would say for 2023 of the biggest events R&D due to as you mentioned, Chris and then a syncrude turnaround also next year I do want to highlight maybe just building on what you said, Chris what is different for us compared to historical performance really is this interconnect pipeline between Syncrude and the base plant.

Really helps us again much more operational flexibility.

In the past when we needed bitumen production Coker and hygiene <unk> units, we really needed those startup together in sequence with the use of the interconnect pipeline. We've decoupled that we can really prioritize but it's been producing assets to start exporting Benjamin as the coffers aren't ready.

On the other side export sour crude as a koppers online on the hydro treaters, who sell down so it just gives us a bunch more operating flexibility and thats really changed the game for us.

Great.

Thanks Peter.

Any other questions matter.

The next question is from the line of Sean <unk> with Jpmorgan. Please go ahead with your question.

So just one on capital allocation a couple of your peers.

They have been using buybacks in addition.

Im going to special or variable dividends more recently.

Your framework really just allows for the buybacks. So maybe you can just talk about how you think about a variable dividend as a tool relative to the buyback and the preference there.

So buybacks.

Thanks for the question John .

We're very focused on being disciplined against our capital allocation framework and actually I'm going to ask alister to take that question. Thanks.

Thanks, Chris.

John I mean I know.

We set out our capital allocation.

Whether it's 50 50 between buybacks.

Does that reduction we expect to move 270 525.

Really quickly in the next few months.

Annual dividends at this point given the inherent value in our stock are now part of the equation, but I've never ruled that out longer term.

The part of the capital allocation as we go forward, but when I look at the value of our stock is significantly undervalued.

And our focus is definitely on buying stock back.

Okay. Thank you I'll start and then if I could just follow up on the on the 75% level and certainly not looking to split hairs here about a month or two here or there, but just if you could clarify what.

You mean by <unk>.

At dependency on the commodity environment is that if price declines precipitously you might not move to the 75% just trying to understand exactly what that comment means.

Yes, I think it would be.

Commodity prices in line with where we're at today.

No problem in meeting.

We ended Q1 next year.

So you've made significant reduction in commodity prices. The crocs, obviously that we get extended out.

Thank you.

Thank you so much.

And your last question comes from the line of Scott.

Yes.

Bank of America.

Yes.

You have a doubling up here I was on another call earlier, but I did want Chris first of all I did want to say.

I don't know if it's been called out yet but the.

The strong operating performance again this quarter ahead of the analyst day Im sure everybody is happy to see that but Mike. My question is on the slide deck.

Might be getting ahead of the analyst day here, but the $2 one $5 billion target.

<unk> been characterized as well.

Offsetting headwinds.

Obviously inflation amongst other things should we think of that as signaling that the $2. One 5 billion is no longer an absolute but.

No longer than that.

Maybe an absolute with some offsets on any.

Any early look to how youre thinking about not ahead of the end of the month would be helpful. Thanks.

I'll take that one Doug. Thanks, So yeah, I mean, obviously, we're still as Chris had mentioned earlier.

Yes.

Achieving.

The specific items, we had in the $2 one five revenue margin some cost reductions we have a big focus on cost reductions coming in 2023, and then obviously in 'twenty four 'twenty five.

Additionally, the bonds and then revenue from cogent.

If I look at what was inherent in that assumption was that we would absorb.

So the regular inflation run 2% to 3%, obviously not in that environment. So while we are targeting skewing our operations to find additional also is certainly going to be difficult to offset inflation.

So our business to the extent that we're seeing it today. So some of it will be used to offset inflation and some of that as I thought.

Great.

On the analyst day, Thanks, a lot.

Okay. Thank you.

Thank you so much and you don't have any questions on queue I would now like to turn the conference.

For clothing.

Great. Thanks, everyone for joining us and for the questions I.

I hope everyone can join us for upcoming Investor presentation on November 29th in preparation for that leadership team and I are completing a deep review of the portfolio towards providing a robust company guidance for 2023 and I'm looking forward to the conversation with everyone on that day.

Thank you.

Participants for joining us today.

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Q3 2022 Suncor Energy Inc Earnings Call

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