Q4 2022 Suncor Energy Inc Earnings Call

February 15, 2023

Yeah.

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Suncor Energy fourth quarter 2022 results conference call.

At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising youre Hain has been raised please be advised that today's conference is being recorded.

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

Yeah.

Thank you operator, and good morning, welcome to Suncor Energy's fourth 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 risk factors and assumptions.

Described in our fourth quarter earnings release as well as in our current annual information form both of which are available on SEDAR, Edgar and our website 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 fourth 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, Peter Zebedee Executive Vice President mining and upgrading Shelley powers Senior Vice President and.

In E&P.

Santos Senior Vice president of refining and logistics.

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

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

Since taking on the interim CEO role of Suncor in July of last year, I had been fully committed to improving the safety and reliability of our operations.

We're also maximizing our value capture by leveraging suncor is difficult to replicate integrated model and driving fit and focus across our asset base.

I want to begin our discussion today with an update on several initiatives we discussed at our recent Investor day.

First on safety.

As planned in collision awareness systems are scheduled to go live at Syncrude. The Aurora mine by the end of the first quarter and we are on track to complete implementation of collision awareness and fatigue management technology systems across all the mine sites.

As well, we continue to drive sharp focus on safety performance across the entire company and to that end, we have doubled the safety component waiting of our 2023 employee annual incentive program.

Our alignment with that focus.

Second with respect to costs.

We are making progress on contractor workforce reductions in our mining and upgrading business and remain on track to achieve a 20% reduction by mid 2023.

And to be clear these reductions will not be replaced by Ensource workforce.

Third with respect to reliability.

Our upstream assets performed well overall during our very cold weather at the end of Q4.

Syncrude achieved the highest full year production in its history while.

While our fire bag and since you asked that set a new quarterly production record.

With respect to Fort Hills, while there will be variability between quarters. During the next three years as outlined at our recent Investor Day, our performance improvement plan is progressing as expected.

By mid 2023 volumes will start to ramp up as our mind inventory increases until our planned five year fixed plant turnaround in July and August .

Last we continue to adjust our asset portfolio to focus more on our core integrated business we.

We completed the sale of our wind and solar assets and are making progress on the potential sale of our UK North sea assets.

We also closed the acquisition of an additional stake in Fort Hills from Teck resources.

Considering the smaller than expected interest we acquired we are updating our annual production guidance for Fort Hills to reflect a corresponding decrease of 5000 barrels per day for an annual range of 85 to 95000 barrels per day.

Now onto the quarter.

Looking at the fourth quarter results Suncor generated adjusted funds from operations of $4 2 billion.

Or $3 11 per share.

Total upstream production averaged 763000 barrels per day.

70% of this with Syncrude crude oil are synthetic crude oil, which commanded premium pricing due to higher distillate cut relative to WTS.

20% was non upgraded bitumen from our <unk> operations in Fort Hill.

And lastly, 10% came from our E&P segment and reflects the disposition of our Norway assets, which was completed in the third quarter.

Downstream generated $1 $7 billion of FIFO adjusted funds from operations with an average refinery utilization rate of 94%.

Margin capture was strong at 99%.

As previously communicated our commerce city refinery was put into safe mode. Following the impacts of the extreme weather in late December .

It has begun to progressive restart and we expect it to come back to full production later in the first quarter.

For the full year 2020 to Suncor generated record adjusted funds from operations of $18 1 billion.

Which is 67% higher than our previous annual record.

We paid down $3 $2 billion of debt through the year.

Further strengthening our balance sheet.

And at the same time through dividends and share buybacks, we returned record cash to shareholders of $7 7 billion.

Representing nearly 45% of adjusted funds from operation for a 13% cash yield.

We also continued to drive capital discipline across the company and our capital expenditures for the year were $4 9 billion, which is at the bottom end of our updated guidance range.

Now before turning things over to Alister I would like to highlight the significant progress we've made to date on the oil sands pathways aligns to net zero.

Key lever in our sustainability leadership and the long term de carbonization of the oil sands industry.

Recently, it was seen that pathways assigned an evaluation agreement with the province of Alberta, allowing further delineation of our allocated pore space.

We hope to further advance this with a form of lease agreement before the end of 2023.

As well front end engineering and design of both the pipeline and sequestration facilities progresses as we continue to work with both the Canadian Federal and Alberta provincial governments on the required fiscal and regulatory frameworks to enable these important projects.

And with that I'll now pass it over to Alastair to go through the financial results.

Thanks, Chris and good morning, everyone.

In the fourth quarter oil fund delivered approximately $2 9 billion of adjusted funds from operations with an average realization of $97 Canadian per barrel.

The quarterly performance reflects obviously lower commodity prices compared to Q3, specifically.

Increase in <unk> of $9 <unk> per barrel as well as a U S dollar five.

Darryl decreases in the ceded premium.

We also saw the light heavy differentials widened by $6 U S per barrel, but the upstream impact was offset by a benefit in <unk> due to our physical integration.

Softening commodity prices quarter over quarter were partially offset by higher production. Following completion of significant turnaround activities of the base plant and Syncrude upgrades.

On an annual basis cash cost per barrel for oil Sands operations Fort Hills, and Syncrude came in in this forecast.

<unk> industry wage inflationary pressures as well as buying progressing work that we discussed in some detail at our Investor Day last November .

As benefits from our enterprise wide systems implementation and other digital initiatives start to come through we continue to focus on employee and contractor workforce reduction over 2023 and 'twenty four.

Our E&P segment generated $720 million of adjusted funds from operations in the quarter, reflecting average price realizations of $122 Canadian per barrel.

As Chris said downstream generated $1 7 billion of adjusted funds from operations.

And excluding at $440 million of FIFO loss in the quarter. This would have been $2 1 billion on a LIFO basis.

This performance demonstrates the strength and competitive advantage of our integrated model, which enables us to capture a robust benchmark cracks on lower feedstock costs with widening heavy differential.

As a result, we achieved margin captured over 99% through the quarter.

Encore returned $1 $4 billion to shareholders, including $700 million in dividends and $725 million in share buybacks in the fourth quarter.

On a full year basis, thus 117 million shares repurchase.

Seven $7 billion of total volume, which under to shareholders or approximately 13% of our market cap.

Our quarterly dividend is now the highest in the coming two three.

For the most recent increase of 11% and $2 52 per share.

And as Chris said, we continue to strengthen the balance sheet and reduced net debt during the year by $3 2 billion.

Excluding FX impacts from U S dollar nominated debt.

As previously noted we intend to increase the excess funds flowed through buybacks to 70%, 75% by the end of Q1.

And subsequent to the fourth quarter. The board approved a renewal of the company's share repurchase program for up to 10% of Suncor issued and outstanding common shares as of February 2020.

And this program is planned to begin on February 17 2023.

With that I'll pass it back to Chris for his closing comments great. Thanks Alastair.

Over my last six months as interim CEO at place my focus on setting the foundation for improved performance through operational excellence and a strong safety and performance culture with focus and follow through our.

Our continued focus will be not only to build on that momentum, but to accelerate driving delivery of safe reliable operations capital discipline, reducing our cost structure and growing shareholder returns.

Suncor has an unparalleled set of assets in the Canadian oil sands, coupled with an unmatched integrated model.

We see great opportunities in front of Suncor to leverage those competitive differentiators to drive value for our shareholders in both the short and the long term and that is our focus.

And with that I look forward to any questions you may have and I'll turn it back over to you Troy.

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

As a reminder to ask a question you will need to press star one one on your telephone.

Standby, while we compile the Q&A roster.

And our first question comes from the line of Dennis Fong with CIBC.

Hi, good morning, and I appreciate you.

During our questions. This morning.

First and foremost.

Understanding that there were some comments around margin capture.

From the refining business I was hoping that you could outline can be operational impacts from the supply and trading business unit really given the combination of price volatility and some of the other I'll call it items like potentially ramping up commerce city.

Yes, no thanks very much.

Dennis for that question.

We're very proud of our supply and trading organization.

Our organization has been in place for over 20 years, and we've been putting a lot of work and focus on growing it and creating greater impact from that part of the organization.

In Calgary, but we also have significant trading and marketing operations in Houston as well as an office in London U K.

What I'd say is that organization as we manage the operation it looks to increase the value capture and maximize that margin by leveraging our logistics position working closely with both upstream and downstream and also ensuring that we're maximizing our asset backed <unk>.

<unk> activities around that as well.

Examples would be I mean, obviously, we had the shutdown of the commerce city refinery that we put into safe mode because of the extreme weather events that happened in late December in the Midwest and Gulf Coast, our supply and trading organization was able to react quickly to manage both crude feedstock supply.

That facility, but also product supply into the path toward region.

Another example would be with the Keystone outage that occurred at the end of December we were able to react very quickly and very flexibly to that in terms of looking at our product mix in our oil sands business and and using our asset positions are our logistics our tankers positions.

To actually mitigate the impact of that.

<unk> margins through that event. So so it's a great part of the organization. Thanks for asking the question Dennis I don't think it gets enough attention, sometimes because it's a key component of our integrated model and that margin capture that you see in the downstream, but also our margins we see in the upstream.

Great. Thanks, I appreciate that color.

And if I want.

At all possible I'd like to move in a slightly different direction.

<unk> now commissioned and completed.

The PFT Hot bitumen transfer pipeline, which now connects Fort Hills to your operating complex.

The main plant.

I was just hoping for some commentary.

We'll call it the increased flexibility that you have by connecting all these various assets.

And secondarily I believe the beef plant has process TMT barrels I believe it was at the start of Fort Hills.

Mind understanding kind of again.

<unk> potential flexibility as well as the upside that that connection could offer.

Great. Thanks for that Dennis Axa Im going to pass that question over to Peter Zebedee, Yes.

Yes, thanks very much. So yes. Indeed, you are correct, we have commissioned the PFT jump over line too.

<unk> barrels over into the base upgrader, and we have the flexibility to bring over up to 40000 barrels per day Fort Hills bitumen into the operator, we have utilized that within the last year and that of course just provide.

No flexibility for us on bitumen supply sources.

To the upgrader.

<unk>.

Particularly online in conjunction with the ICP line that we have between Syncrude and the base plant offer us differentiate and flexibility in the region too.

Offset.

Various.

Unit.

Maintenance activities and really.

Extract the highest margin barrels that were producing in the upstream.

Thanks, Peter Hey, I'll, just add to that like the flexibility of Peter's highlighting.

Fort Hills Syncrude fire bag, we've got all we've got all of those assets with connectivity into our base plan and into the Athabasca tank terminal. So it's creating a tremendous amount of optionality for us.

To move bitumen around and in the case of Syncrude as well.

Bidirectional pipeline and we can move sour gas oil is up the syncrude when we find ourselves an opportunity where we've got long hydro treating and that asset. So it's been a real its been a real win for.

For Suncor, and we're looking for more and more opportunities to increase that flexibility.

Fantastic I appreciate that I'll turn it back.

Thanks Dennis.

Thank you and our next question comes from the line of Greg Pardy with RBC capital markets.

Yeah. Thanks, Thanks, good morning, and thanks for the rundown.

Wanted to stay maybe just on the operations side right now and in two questions. There. The first is.

Chris why is 20% reduction in the contractor workforce like how did you guys sort of land on that as being the right number and I think you probably accomplish probably half of that already and are you seeing benefits coming from it.

Thanks, very much Greg.

20% I wouldn't say it arbitrary number it's working in a very.

Focused weighted how low can we get that contractor workforce down while ensuring we are maintaining safe reliable operations and getting the work done maybe I'll ask Peter to talk to it a bit Peter's obviously been leading this because it's been primarily in our mining and upgrading business, which is really the part of the business that has the largest amount of Khan.

Track workforce, great Peter you want to add.

Yes, no I would say maybe a couple of things Greg first one ensuring that we had that transparency built out across the assets to understand.

How many contractors who are coming through the gate each and every day as you can imagine with these mega sites the scale is.

Quite significant so we had to get our arms around the numbers and the second was implementing robust set of controls and processes on ensuring that we're really scrutinizing the release of work for contractors and ensuring that we're maximizing the cup.

<unk>, we have within our own suncor workforce.

And first and foremost and then we're really looking.

To also build some additional tools to provide to our operators.

Provide them with.

Sufficient information to ensure that we're sequencing that maintenance activities in particular and then.

Most cost efficient way.

Thanks, Peter and Greg.

Add to that as well.

So we are making good progress as you just mentioned we're on track we've got high confidence in driving those reduction but the thing.

Add to it.

These reductions do two things.

One obviously.

It reduces cost.

And increases efficiency, but secondly, and as importantly, it actually improve safety.

Because theres less there is less people in the field.

And so we're getting both the benefits from these reductions.

Okay terrific.

It's really the second question comes back to the upstream so as you may.

Maybe had a reluctant or all the rocks in the upstream where do you see most of the low hanging fruit as it relate to.

Either output increases or our.

Our cost reductions aside from safety I'm, just wondering is there more to come from our clients are more to come from <unk>.

Fire bag, and so forth, but where do you see the easy wins that maybe you can achieve in 'twenty three.

Yes, our focus in 2023 is in the upstream and particularly in the oil Sands basin. It is continuing to drive this leveraging the scale around regionalization and so the contractor reduction is a great example of back because it has the ability to leverage across the entire asset base and <unk>.

Optimizing and drive down the contractor workforce as an example, we're continuing to work on that regionalization strategy around services around materials and supplies and then the other pieces and Peter was talking about earlier in his answer on the question around around Fort Hills as we're seeing this.

The opportunity to continue to drive this integration between the assets because it increases reliability.

And how we manage even things like maintenance events. So as we're managing for instance, maintenance and think crude we now have the added benefit that we look at well if certain things are down for maintenance. It doesn't mean necessarily we're slowing the mined down we can now move that bitumen and bring that bitumen into the base plan. So we're going to be focused.

On more and more opportunities like that I have been pleased with what I've been seeing with the <unk>. That's an example would be fire bag as well we had a Q4 production record. So we're seeing increased reliability across the asset, but really our big focus is in the mine upgrading space that Peter's leading because theres a lot of a lot of opportunity both on how.

We are managing cost in the business.

As well as how we're optimizing production amongst the assets.

Thanks very much.

Thanks, Greg.

Thank you.

And our next question comes from the line of Doug Leggate with Bank of America.

Thanks, Good morning, everyone.

Guys I wonder if I could.

Address the dividend I know you announced that last quarter, but.

With the.

The visibility you have today, one of the key things behind the strategy laid out two years ago was to drop to breakeven so with all the moving parts that we've seen with Fort Hills.

The kind of reset your time.

Or do you think that breakeven progress sits today relative to what you laid out I guess, what I'm asking is what's the breakeven to cover your dividend today, what is the headroom for additional dividend increases.

Okay. I'll go ahead, Alistair I'll take that one Chris Thanks for the question Doug.

Obviously lots of moving parts here.

The dividend has been going up.

As we progress improving our operations I would say as we sit and look at it via corporate breakeven sooner.

<unk> capital and dividend as Moody's.

A $40 <unk> higher than we targeted.

But it is competitive amongst your integrated peers.

Zero performance improvements to drive down costs, and improved reliability and production over the long term.

Our focus on driving out back then.

Our longer term target mix Andy Jones.

Biggest factored in really in the opportunity to use the main improvement, particularly.

Particularly at Fort Hills, and I would say as we went through.

Our near term mine too soon.

Get into the north pit.

Largest and final point.

You would expect to see significant improvement in four hours that will help us drive down the overall corporate breakeven.

Okay.

We'll continue to watch it I guess my follow up is.

Barry.

And the numbers I guess, there was a comment about the increase in decommissioning and restoration provision.

I'm just wondering if you can walk us through what the back story as their hardest come about whether we should expect that.

Whether it's at the end of the story, obviously did expect that to continue to evolve.

Leave it there thanks.

Yes, Thanks, Doug.

I mean, you've heard us talk about.

LNG is a water return and remediation of industry wide.

Alright challenge of antibody remains alkhanov hazardous.

Certainly one that we've been talking about it and we're giving conversations discussions with two levels of government in Canada and also the first nations to resolve.

To remind everybody we are the only industry in the world that is not aligned to return any gene.

<unk> water back to the river and that would include all the rainfall but phones on our sites.

So everybody in the industry is actually focused on resolving this obviously, we have a larger volume than anybody else because we've been out in for far longer than everybody else as we go through our normal processes do we update our estimates <unk> water returns alums, specifically this year that would include call.

Higher rates of inflation on future costs as J J for.

For up to 70 plus years into the future.

So that really is the driver behind the increase.

Reliability of the AUC and the financial statements everybody in the industry.

That's why we're all so focused on resolving that water return challenge most governments and our peers.

Just to be clear Alastair quantification, what's the cash out.

And so the cash out for that incremental.

Bob.

Liability.

Yes, Im also Doug we've come in.

After my enclosure and ranges from <unk> 20, <unk> 2027 to 28.

So it is very long dated got it. Thank you.

It all needed and have no near term increase in Capex. So that's what I was trying to get it. Thanks, so much else than us that's great. Thank you.

Thank you.

And our next question comes from the line of Neil Mehta with Goldman Sachs.

Yes, good morning team.

I'd like to kick off here on capital returns and as you said the last couple of years, you've been aggressive in repurchasing shares and reset the dividend just as you look at 2023 can you give us a sense of how much capital can be returned to shareholders with commodity prices coming off a little bit what's your confidence interval without making that pivot.

2% to 75% from 50% of cashback.

Thanks for the question Neil.

So our view is is that we're still in a constructive price environment, obviously not.

I'm not going to be what we saw in terms of the records of 2022, but we feel that what we see right now in the pricing environment, assuming that continues to hold through the balance of the year and our own operational plan.

Our intent is to pivot to the 70 525 here towards the end of Q2.

Sorry end of Q1, and as we're starting to see the debt start to get even closer to those long term targets that we've set out.

A while ago as you know we've made a lot of progress on those debt targets relative to where we thought they would have been <unk>.

18 months ago, and so right now our plan is to continue to move to that $75 25 in that timeframe unless something radically changes in the business environment.

Okay. Thanks for that.

The follow up is around the safety journey.

That you are on maybe you could spend some time talking about.

Your perspective on that.

How can we as an investment community evaluate where you are.

In that in that movement back towards where you wanted to be.

And any comments around commerce city as it relates to that as well.

Great. Thanks, Neil.

I would say I've been very pleased with how the organization responded to safety.

Particularly since I've taken on the interim CEO role.

The entire operations organization led by the senior operating team. Many of them are a number of them are sitting here with me on this call today.

We put in place a very defined and specific and focused safety improvement plan, one that is reinvigorating and driving our focus on our operational excellence management system and operational risk management, that's engaging with our frontline we are rolling out human organizational performance principles, we've been engaging with the organization.

<unk> on those.

Actively over the last number of months as well as Peter has talked about in the past some of the safety technology investments, we're making around the specific risk areas that we saw in the last two years that have led to tragic fatality incident.

I am.

I'm encouraged by what I've seen over the last six months I'm always I always say.

This is a journey and you don't measure this thing and days and months.

But what I would say is since I've taken the interim CEO role I have been pleased with the direction that I've seen in safety performance, both in personal safety and process safety and we've seen a reduction in the number of incidents over that period of time, but again. This focus has to continue.

Has too.

A daily focus for this organization.

For investors I mean, how you mentioned that obviously is in results at the end of the day, but what I can assure you and all of our investors is that the focus of this operating team is squarely on safety first in this organization and let me talk about Commerce City I think it's a great question you just asked Neal.

<unk> city in the aspect of safety. So we had an extreme weather incident in December .

Everyone saw the impact of the entire refining industry during that period of time, our own facility was significantly impacted by that extreme weather and we had a number of equipment failures and some loss of containment and the team. The operating team down there took the measure to put that facility in safe mode.

And take the right steps to face that.

<unk> and ensure that it isn't that we have it in our state and condition that we can operate safely going forward I have been incredibly.

Pleased and proud of the work that the team has done down there in terms of the full inspection and repair of the facility. We've already started the progressive restarted the facility and are on track with where we expect it to be but to me. That's an example, while no one likes to see incidents like that it's an example of how an organization responds.

When it comes to safely.

Managing your assets.

Thanks, Craig.

Alright, Thanks Neal.

Thank you.

And our next question comes from the line of mineral wholesale off with TD Securities.

Thanks, and good morning, everyone I'll start with the answer.

<unk> mine extension since it ties into some of the other questions that were asked previously my understanding is that a decision on sanctioning of the expansion to address mine depletion versus leaning more on in situ production to keep the upgrader full is still expected by.

2025, but maybe you could just give us your latest thoughts on the various options and <unk>.

Consider most likely at this stage.

Thanks Menno.

As you point out our base mine and the mine life is.

2030.

So we're working through various options for replacement of that bitumen supply our focus is primarily.

In those upgrader full we do have a number of options you just outlined a couple of them. In your question. We do have the base mine extension application in place, we're continuing that with that application, but it is not our only alternative or option. We do have the option, which we're also progressing.

Around further <unk> development, just east of the of our base plant contiguous to our current mine operations as both our Lewis.

Lease as well as fire bag, which also has significant resource left.

Too early to call in terms of which horses in the lead race.

Those options are both being worked very hard and the other piece I had mentioned as well as kind of back to earlier on the call we talked about the connectivity amongst the operation.

And our ability to bring bitumen into the upgrader from Fort Hills now.

At 60000 barrels a day or sorry, 40000 barrels a day of capacity that can be further increased and as well we can bring more fire bag yet.

So we have lots of Optionality in terms of Benjamin supplying the upgrader the team's working hard on all of those options. It's all about what's going to be the most economic.

And risk based option that we're going to supply that upgrader I expect over the next 24 months, we're going to start landing on which option is going to be the lead horse.

Terrific and so maybe I'll just.

Pivot to the to the macro with a question on diesel.

Obviously seen cracks come down quite a bit over the last several weeks. So what is your read on this pullback.

Are your expectations for <unk>.

Canadian diesel cracks over the mid term and maybe you could just remind us of how much flex you have on dialing the the products laid up and down for distillates across your four refineries.

Sure and remember too as well and then when we think about diesel we think about it in two aspects as well, there's a refining business, which we are tools are more of a 211, we're not a three to one.

Refining network, which is great.

And it does give us some flexibility to tool up a bit more to diesel but also recall too in terms of our synthetic.

Synthetic crude oil in our diesel makeup in up in our oil sands business. So certainly we're levered to the side of distillate rather than gasoline across the whole system.

The view on diesel I mean, certainly.

Not expecting that we're going to see the extraordinary cracking margins that we saw in 2022, but our expectation is they're still going to see a very robust distillate market.

We're still seeing good demand on distillate, even though it pulled back slightly here.

Simply but still I think the structural.

The foundation for strong distillate cracks is still there and thats the expectation that we're going to see through the balance of the year and if you just look at global global inventories and demand I think gasoline gas.

Gasoline has actually strengthened a little bit it really came off at the end of Q4, not surprised given the seasonality of that but.

But gasoline, we think the cracking margin should be should be at or around historical norms.

Don't see a big big pullback on gasoline, but the story I think in 2023 is going to continue to be distillate and it's going to still be very supportive of both the downstream business as well as our diesel make out of oil sands.

Thanks, Chris I'll turn it back.

Great. Thanks meta.

Thank you.

And our next question comes from the line of Roger read with Wells Fargo.

Yes. Thank you good morning.

Yes.

Maybe just dig in a little bit here on our operational question looking at.

Two things in the oil sands kind of your thoughts on what we should expect in terms of royalties.

And then.

What you are looking at in the way of sort of cash opex.

Higher fuel prices have an impact, but just what are some of the thoughts in terms of cash operating costs underlying inflation and what you can do to push back against that.

Sure Thanks, Roger on royalties.

I think we're going to continue to see royalties were postpaid out in some of the assets, but create pre payout and others.

<unk> royalty is going to be less than 22 versus <unk> 23, <unk> versus 'twenty, two just because of where we're going to be commodity price but.

But I expect we're still going to have a healthy royalty remittance back to back to the product.

On the cash operating cost.

Obviously incredibly focused on that when I was at our Investor day, we talked about the cash operating costs and the impact both.

Of where we're at structurally with our mine plans in 2023.

The main improvement plan in Fort Hills, as well as where we're at and Syncrude just in mind cycle in 2023.

Adding some additional cost, which we're going to be working through this year and expect that back.

Fact that to go in the right direction as we head into next year, but as well we've been seen inflation, but not not in any way that we haven't expected.

And the team has been doing a lot of work.

Just kind of go back to what we talked about earlier in terms of the contractor reduction, but doing a lot of work to first of all offset that inflation wherever we can and drive the cost further down we set the guidance range for 2023 and communicated that at the Investor Day, we're focused on delivering those costs.

Within that guidance range or below.

And I think one of the things on inflation.

Certainly we saw extreme inflation into the back half of last year seen some of it come in we've seen that continue into 2023, but is starting to mitigate a bit too.

Hopefully, we're going to continue to see inflation sort of start to temporary itself as we move into the balance of the year.

And can you quantify at all what part of that is related to kind of underlying fuel costs or what sort of.

What sort of offset you might get there.

Yes, I'd say the inflation.

Inflation is on the labor side contractors and it's why it's one of the areas. We've been incredibly focused on it's that inflationary pressures coming in wages and labor costs, we were seeing it in supplies and materials, but that's starting to come off a bit I've seen that steel prices inflation, starting to really cool on steel in.

In terms of fuel I mean look at the commodity costs I mean, certainly it's been helpful, where we've seen Nat gas prices trend here there are a lot lower than what our expectation would have been <unk>.

Moving into this year, but just.

As you would know just seeing what's going on with the <unk>.

With.

Global.

With just temperatures a warm winter and an oversupply of natural gas in North America.

It's been a nice surprise for our business and there'll be a bit of a tailwind on the cost side.

Okay.

And then the unrelated follow up.

As we're all well aware do you remain the interim CEO any updates on the timing for removing that tag.

Yes. Thanks.

Not in a position to make an announcement on this call.

I'll say, what I said before the board is going through a very diligent process.

Ensuring that they make the decision.

That's going to take this company forward.

The decision is going to be very soon it's been communicated in the past, but that decision is expected in mid February I mean, we're sitting here in February 15th So I expect the decision in the announcement will be coming fairly soon.

Yes, I appreciate that I'm not real good at math, but it struck me the 15th was mid February .

Yeah.

Thanks.

Thank you.

Next question comes from the line of John Royall with Jpmorgan.

Hey, guys. Good morning, Thanks for taking my question.

Just a follow up on Neal's first question on capital allocation and I just wanted to make sure I understand.

You're at about $13 5 billion of net debt today are you talking about possibly going to the 75% here before you hit the $12 billion level.

Is there an expectation that you'll be delevering by 1 billion and a half in <unk> and if it's the latter maybe you can go through some of those drivers of deleverage. I know you are you are closing the wind and solar assets, but then you should have the stake increase in Fort Hills going the other way so just anything on those drivers.

And John I'll take that one.

I have said before that I am going to look through any FX impacts.

12 billion included in the $13 4 billion, there's about $750 million.

FX impacts from a weaker Canadian dollar compared to when we set the targets.

So I would take that off and we fully expect to be close to the $12 billion or close to announce to the 12 billion ex FX by the end of Q1. There is no noise Orion as you mentioned the timing of closing for Hills, we had assumed it would be in the beginning of Q2 and much uplift.

The CLO.

So in a quarter there'll be some noise around that obviously some close Fort Hills are later, but we expect to move at the beginning of Q2.

275%, 25%.

Okay. Thanks, that's helpful and then.

Maybe you could talk about the optimization you guys are doing in retail and specifically the things you're doing around mix for operated versus non operated source I'm, just a little bit of color there would be helpful.

Sure. Thanks, John .

So what we're doing with our retail business.

Outlined in Investor Day, we are optimizing our national network. It is a mix of controlled and non controlled.

$50 50.

Just for round numbers, what we're doing is we're focusing our investment on high volume high value sites and core markets.

When we put those types of investments in place we've seen terrific results within the network while at the same time, we're looking to optimize and rationalize those pieces of the network that are less core and so that will be rationalizing.

Nonperforming sites as well as moving sites that are in noncore markets out of control and then the non controlled channel as well and so that allow us to focus our controlled network on those on those core markets and those high value high volume sites and so that plan is now underway.

It's a five year plan that we laid out when we talked about at Investor day, and the team is focused on delivering it.

Okay. Thank you.

Great. Thanks.

Thank you.

I'll now hand, the call back over to Vice President of Investor Relations Troy Little for any closing remarks.

Thank you operator, and thank you to everyone for joining US today. Please don't hesitate to contact US should you have questions with that operator, you can end the call.

Thank you for participating this concludes today's program and you may now disconnect.

Yeah.

The conference will begin shortly.

Lower Johan during Q&A, you can dial one one.

[music].

Okay.

Yeah.

[music].

Yes.

[music].

Okay.

[music].

Yes.

[music].

Yes.

[music].

Yes.

[music].

Yes.

[music].

Yeah.

[music].

Yes.

[music].

Yes.

[music].

Okay.

Yes.

[music].

Yes.

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

[music].

Okay.

Yes.

[music].

Yes.

[music].

Yes.

Sure.

Okay.

[music].

Okay.

Yes.

Okay.

Yes.

[music].

Yes.

[music].

Thanks.

Yes.

Okay.

[music].

Bruce.

[music].

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

[music].

<unk>.

[music].

Yes.

Okay.

[music].

Yes.

[music].

Okay.

Right.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

Sure.

Yes.

Sure.

Okay.

Yes.

Okay.

Yes.

[music].

Right.

Yes.

[music].

Yes.

Okay.

[music].

Okay.

Yes.

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Suncor Energy fourth quarter 2022 results conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a <unk>.

Question and answer session to ask a question. During this session you will need to press star one one on your telephone.

You will then hear an automated message advising youre Hain has been raised please be advised that today's conference is being recorded at this time I would now like to hand, the conference over to your host today, Mr. Troy Lyttle, Vice President of Investor Relations. Please go ahead.

Thank you operator, and good morning, welcome to Suncor Energy's fourth quarter earnings call. Please.

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

Actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our fourth quarter earnings release as well as in our current annual information form both of which are available on SEDAR, Edgar and our website website Suncor dot com.

We will start with comments from Chris Smith interim President and Chief Executive Officer, followed by Alister Cowan Suncor is chief Financial Officer also on the call are three of our senior operating leaders, Peter Zebedee Executive Vice President mining and upgrading Shelley powers Senior Vice President Institute in E&P, and our announced.

<unk> senior Vice President refining and logistics.

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

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

Since taking on the interim CEO role of Suncor in July of last year, I had been fully committed to improving the safety and reliability of our operations.

We're also maximizing our value capture by leveraging suncor is difficult to replicate integrated model and driving fit and focus across our asset base.

I want to begin our discussion today with an update on several initiatives we discussed at our recent Investor day.

First on safety.

As planned collision awareness systems are scheduled to go live at Syncrude. The Aurora mine by the end of the first quarter and we are on track to complete implementation of collision awareness and fatigue management technology systems across all mine sites.

As well, we continue to drive sharp focus on safety performance across the entire company and to that end, we have doubled the safety component waiting of our 2023 employee annual incentive program to ensure alignment with that focus.

Second with respect to costs.

We are making progress on contractor workforce reductions in our mining and upgrading business and remain on track to achieve a 20% reduction by mid 2023.

And to be clear these reductions will not be replaced by <unk> workforce.

Third with respect to reliability.

Our upstream assets performed well overall during our very cold weather at the end of Q4.

Syncrude achieved the highest full year production in its history while.

While our fire bag and since you asset set a new quarterly production record.

By mid 2023 volumes will start to ramp up as our mind inventory increases until our planned five year fixed plant turnaround in July and August .

Last we continue to adjust our asset portfolio to focus more on our core integrated business.

We completed the sale of our wind and solar assets and are making progress on the potential sale of our UK North sea assets.

We also closed the acquisition of an additional stake in Fort Hills from Teck resources.

Now onto the quarter.

Looking at the fourth quarter results Suncor generated adjusted funds from operations of $4 2 billion.

Or $3 11 per share.

Total upstream production averaged 763000 barrels per day.

70% of this with Syncrude crude oil are synthetic crude oil, which commanded premium pricing due to higher distillate cut relative to WTS.

20% with non upgraded bitumen from our <unk> operations in Fort Hill and.

And lastly, 10% came from our E&P segment and reflects the disposition of our Norway assets, which was completed in the third quarter.

Downstream generated $1 $7 billion of FIFO adjusted funds from operations with an average refinery utilization rate of 94%.

And margin capture was strong at 99%.

As previously communicated our commerce city refinery was put into safe mode. Following the impacts of the extreme weather in late December .

It has begun to progressive restart and we expect it to come back to full production later in the first quarter.

For the full year 2020 to Suncor generated record adjusted funds from operations of $18 1 billion.

Which is 67% higher than our previous annual record.

We paid down $3 2 billion of debt through the year.

Further strengthening our balance sheet.

And at the same time through dividends and share buybacks, we returned record cash to shareholders of $7 7 billion.

Representing nearly 45% of adjusted funds from operation for a 13% cash yield.

We also continued to drive capital discipline across the company and our capital expenditures for the year were $4 9 billion, which is at the bottom end of our updated guidance range.

Now before turning things over to Alister I would like to highlight the significant progress we've made to date on the oil sands pathways aligns to net zero.

Key lever in our sustainability leadership and the long term de carbonization of the oil sands industry.

Recently, we've seen that pathways assigned an evaluation agreement with the province of Alberta, allowing further delineation of our allocated pore space.

We hope to further advance this with a form of lease agreement before the end of 2023.

And with that I'll now pass it over to Alastair to go through the financial results.

Thanks, Chris and good morning, everyone.

In the fourth quarter oil sands delivered approximately $2 9 billion of adjusted funds from operations with an average realization of $97 Canadian per barrel.

The quarterly performance reflects obviously lower commodity prices compared to Q3, specifically.

<unk> of $9 <unk> per barrel as well as a U S dollar five.

<unk> decreases the ceded premium.

We also saw the light heavy differentials widened by $6 U S per barrel, but the upstream impact was offset by a benefit in <unk> through our physical integration.

Softening commodity prices quarter over quarter were partially offset by higher production. Following completion of significant turnaround activities of the base plant and Syncrude upgrades.

On an annual basis cash cost per barrel for oil Sands operations Fort Hills, and Syncrude came in as forecast.

Collecting industry wage inflationary pressures as well as buying progressing work that we discussed in some detail at our Investor Day last November .

Our E&P segment generated $720 million of adjusted funds from operations in the quarter.

Reflecting average price realizations of $122 Canadian per barrel.

As Chris said downstream generated $1 7 billion.

Adjusted funds from operations.

And excluding a $440 million of FIFO loss in the quarter. This would have been $2 1 billion on a LIFO basis.

As a result, we achieved margin captured over 99% through the quarter.

<unk> returned $1 $4 billion to shareholders, including $700 million in dividends and $725 million in share buybacks in the fourth quarter.

On a full year basis, plus 117 million shares repurchase on.

Seven 7 billion of total volume, which Andrew shareholders or approximately 13% of our market cap.

Our quarterly dividend is now the highest in the company.

For the most recent increase of 11% and $2 52 per share.

And as Chris said, we continue to strengthen the balance sheet and reduced net debt during the year by $3 2 billion, excluding FX impacts from U S dollar nominated debt.

As previously noted we intend to increase excess funds flow to buybacks, 270%, 75% by the end of Q1.

And subsequent to the fourth quarter. The board approved a renewal of the company's share repurchase program for up to 10% <unk> issued and outstanding common shares as of February 2020.

And this program is planned to begin on February 17 2023.

With that I'll pass it back to Chris for his closing comments great. Thanks Alastair.

Over the last six months as interim CEO at place my focus on setting the foundation for improved performance through operational excellence and a strong safety and performance culture with focus and follow through our.

Suncor has an unparalleled set of assets in the Canadian oil sands, coupled with an unmatched integrated model.

We see great opportunities in front of Suncor to leverage those competitive differentiators to drive value for our shareholders in both the short and the long term and that is our focus.

And with that I look forward to any questions you may have and I'll turn it back over to you Troy.

Thank you, Chris and Alastair.

Turn the call back to the operator to take some questions.

As a reminder to ask a question you will need to press star one one on your telephone.

These standby, while we compile the Q&A roster.

And our first question comes from the line of Dennis Fong with CIBC.

Hi, good morning, and appreciate you.

Answering questions. This morning.

First and foremost.

Understanding that there were some comments around margin capture.

Yes, no thanks very much.

Dennis for that question.

We're very.

Proud of our supply and trading organization.

That organization has been in place for over 20 years, and we've been putting a lot of work and focus on growing it and creating greater impact from that part of the organization.

Based in Calgary, but we also have significant trading and marketing operations in Houston as well as an office in London U K.

Say is that organization as we manage the operation it looks to increase the value capture and maximize that margin by leveraging our logistics position working closely with both upstream and downstream and also ensuring that we're maximizing our asset backed trading.

<unk> around that as well.

Examples would be I mean, obviously, we had the shutdown of the Congress city refinery that we put into safe mode because of the extreme weather events that happened in late December in the Midwest and Gulf Coast, our supply and trading organization was able to react quickly to manage both crude feedstock supply.

To that facility, but also product supply into the pad core region.

Another example would be with the Keystone outage that occurred at the end of December .

April to react very quickly and very flexibly to that in terms of looking at our product mix in our oil sands business and and using our asset positions are our logistics, our tankage position to actually mitigate the impact of that.

And maximize margins through that event. So so it's a great part of the organization. Thanks for asking the question Dennis I don't think it gets enough attention, sometimes because it's a key component of our integrated model and that margin capture that you see in the downstream, but also our margins we see in the upstream.

Great. Thanks, I appreciate that color.

If at all possible I'd like to move in a slightly different direction.

<unk> now commissioned and completed.

PFT Hot bitumen transfer pipeline, which now connects Fort Hills to your operating complex.

In the main plant.

I was just hoping for some commentary.

We'll call it the increased flexibility that you have by connecting all these various assets.

And secondarily I believe the beef plant has close that CFT barrels I believe it was at the start of Fort Hills.

Mind understanding kind of again.

The potential flexibility as well as the upside that that.

Actually we could offer.

Great. Thanks for that Dennis actually I'm going to pass that question over to Peter Zebedee, Yes.

Yes, thanks very much.

Indeed, you are correct, we have commissioned the PFT jump over line too.

Fort Hills barrels over into the base upgrader, and we have the flexibility to bring over up to 40000 barrels per day Fort Hills bitumen into the operator, we have utilized that within the last year and that of course just provide.

Flexibility for us on bitumen supply sources to the upgrader.

<unk>.

Particularly online in conjunction with the ICP line that we have between Syncrude and the base plan offer us differentiate and flexibility in the region too.

Offset.

Various.

Unit.

Maintenance activities and really.

Extract highest margin after the barrels that were producing in the upstream.

Thanks, Peter Hey, I'll, just add to that I think the flexibility of Peter's highlighting.

Fort Hills Syncrude fire bag, we've got all we've got all of those assets with connectivity into our base plant and into the Athabasca tank terminal. So it's creating a tremendous amount of optionality for us to.

To move bitumen around and in the case of Syncrude as well.

Bi directional pipeline and we can move our gas wells up the syncrude when we find ourselves an opportunity where we've got long hydro treating and that asset. So it's been a real its been a real win.

For Suncor, and we're looking for more and more opportunities to increase that flexibility.

Fantastic I appreciate that I'll turn it back.

Thanks Dennis.

Thank you and our next question comes from the line of Greg Palm.

<unk> with RBC capital markets.

Yeah. Thanks, Thanks, good morning, and thanks for the rundown.

Wanted to stay maybe just on the operations side right now and in two questions. There. The first is.

Chris why is 20% reduction.

And the contractor workforce like how did you guys sort of land on that as being the right number and I think you probably accomplish probably half of that already and are you seeing benefits coming from it.

Thanks, very much Greg.

20% I wouldn't say at arbitrary number it's working in a very.

Focused way to how low can we get that contractor workforce down while ensuring we're maintaining safe reliable operations and getting the work done maybe I'll ask Peter to talk to it a bit Peter's obviously been leading this because it's been primarily in our mining and upgrading business, which is really the part of the business that has the largest amount of <unk>.

Contract workforce.

Peter you want to.

Yes, no I would say maybe a couple of things Greg first one ensuring that we have that transparency built out across the assets to understand.

How many contractors who are coming through the gate each and every day as you can imagine with these mega sites the scale is.

Significant so we had to get our arms around the numbers.

Second was implementing robust set of controls.

Work processes on ensuring that we're really scrutinizing the release of work for contractors and ensuring that we're maximizing the <unk>.

<unk>, we have within our own suncor workforce.

And first and foremost and then we're really looking.

To also build some additional tools to provide to our operators.

Providing them with.

Sufficient information to ensure that we're sequencing that maintenance activities in particular and then.

Most cost efficient way.

Thanks, Peter and Greg.

Add to that as well.

So we are making good progress as you just mentioned we're on track we've got high confidence in driving those reduction but the thing.

Add to it.

These reductions do two things.

One obviously.

It reduces cost.

And increases efficiency, but secondly, and as importantly, it actually improve safety.

Because theres less there is less people in the field.

And so we're getting both the benefits from these reductions.

Okay terrific.

This is really the second question comes back to the upstream so as you may.

<unk> had a reluctant or all the rocks in the upstream where do you see most of the low hanging fruit as it relate to.

Either output increases our.

Our cost reductions aside from safety I'm, just wondering is there more to come from Mackay is there more to come from <unk>.

Fire bag, and so forth, where do you see the easy wins that maybe you can achieve in 2003.

Yes, our focus in 2023 is in the upstream and particularly in the oil Sands basin. It is continuing to drive this leveraging the scale around regionalization and so the contractor reduction is a great example of that because it's the ability to leverage across the entire asset base and <unk>.

<unk> optimize and drive down the contractor workforce as an example, we're continuing to work on that regionalization strategy around services around materials and supplies and then the other pieces and Peter was talking about earlier in his answer on the question around around Fort Hill as we're seeing this.

The opportunity to continue to drive this integration between the assets because it increases reliability.

And how we manage even things like maintenance events. So as we are managing for instance, maintenance and Syncrude. We now have the added benefit that we look at well if certain things are down for maintenance. It doesn't mean necessarily we are slowing the mined down we can now move that bitumen and bring that bitumen into the base plan. So we're going to be focused.

On more and more opportunities like that I've been pleased with what I've been seeing with the assets. An example would be fire bag as well we had a Q4 production record. So we're seeing increased reliability across the asset, but really our big focus is in the mine upgrading space that Peter's leading because theres a lot of a lot of opportunity both on how.

We're managing cost in the business.

As well as how we're optimizing production amongst the assets.

Thanks very much.

Thanks, Greg.

Thank you.

And our next question comes from the line of Doug Leggate with Bank of America.

Thanks, Good morning, everyone.

Guys I wonder if I could.

Address the dividend I know you announced that last quarter, but.

With the.

The visibility you have today one of the key things behind the strategy, we laid out a few years ago was to drop to breakeven so with all the moving parts that we've seen with Fort Hills.

The kind of reset your part.

Do you think that breakeven progress sits today relative to what you laid out I guess, what I'm asking is what's the breakeven to cover your dividend today, what is the headroom for additional dividend increases.

Okay I'll go ahead Alistair.

Chris Thanks for the question Doug.

Obviously lots of moving parts here.

The dividend has been going up.

As we progress and improvements in our operations I would say as we sit and look at it corporate breakeven for sustaining capital and dividend is moving.

$40 <unk> higher than <unk>.

<unk> targeted.

But it is competitive amongst your integrated peers.

As we work through our performance improvement.

To drive down costs, and improved reliability and production over the long term, we are focused on driving that back down to your longer term target of the mid <unk>.

The biggest factor in really in the opportunity to use the main improvement.

Particularly at Fort Hills.

And obviously as we went through.

Our near term mine consumes and get into the north pit.

Largest and final <unk>.

Would you expect to see significant improvement in four hours and that will help us drive down the overall corporate breakeven.

Okay.

We'll continue to watch it.

I guess my follow up is.

Barry.

And the numbers I guess, there was a comment about the increase in decommissioning and restoration provision.

I'm just wondering if you can walk us through what the back story as their hardest come about whether we should expect that.

Whether it's at the end of the story, obviously did expect that to continue to evolve.

And I'll leave it there thanks.

Yes, Thanks, Doug.

You've heard us talk about <unk>.

These are water return and remediation, which is an industry wide.

The challenge of antibody remains open in all parts of this.

And it's certainly one that we.

I'll be talking about it and we're giving conversation discussions.

The two levels of government in Canada, and also the first nations to resolve.

To remind everybody we are the only industry in the world that is not aligned to return any treated water back to the river and that would include all the rainfall that falls on our sites.

So everybody in the industry is actually focused on resolving this obviously, we have a larger volume than anybody else because we've been out in for far longer than everybody else as we go through our normal process. Each year, we update our estimates <unk> water returns Allen's spin.

Specifically this year that would include incorporating higher rates of inflation on future costs as J J.

We're up to 70 plus years into the future.

So that really is the driver behind the increase.

<unk> in the financial statements everybody in the industry.

Why we're all so focused on.

Resolving meltwater return challenge with governments and our peers.

Just to be clear Alastair quantification, what's the cash out the cadence of the cash out for that incremental.

Liability.

Yes, most of that Doug would come in.

After my enclosure and ranges from <unk> to.

22007 to 2018.

So it is very long dated got it. Thank you.

Got it all needed and have no near term increase in cash outflow.

I'm trying to get there. Thanks, so much.

Thank you.

And our next question comes from the line of Neil Mehta with Goldman Sachs.

Yes, good morning team.

I'd like to kick off here on capital returns.

You said the last couple of years, you've been aggressive in repurchasing shares and reset the dividend.

As you look at 2023 can you give us a sense of how much capital can be returned to shareholders with commodity prices coming off a little bit what's your confidence interval without making that pivot, 2% to 75% from 50% of cashback.

Thanks for the question Neil.

Our view is is that we're still in a constructive price environment obviously.

Not going to be what we saw in terms of the records of 2022, but we feel that what we see right now on the pricing environment, assuming that continues to hold through the balance of the year and our own operational plan. Our intent is to pivot to the $75 25 here towards the end of Q2.

Or sorry end of Q1 and.

We're starting to see the debt start to get even closer to those long term targets that we'd set out quite a while ago. As you know we've made a lot of progress on those debt targets relative to where we thought they would have been.

18 months ago, and so right now our plan is to continue to move to that $75 25 in that timeframe unless something radically changes in the business environment.

Yes, okay. Thanks for that.

The follow up is around the safety journey.

You are on maybe you could spend some time talking about.

Your perspective on that.

How can we as an investment community.

Where you are.

In that in that movement back towards to where you wanted to be.

And any comments around commerce city as it relates to that as well.

Great. Thanks, Neil.

I would say I've been very pleased with how the organization responded to safety.

Particularly since I've taken on the interim CEO role.

The entire operations organization led by the senior operating team many of them are or a number of them are sitting here with me on this call today.

We put in place a very defined and specific and focused safety improvement plan, one that is reinvigorating and driving our focus on our operational excellent management system and operational risk management.

Engaging with our frontline we are rolling out human organizational performance principles, we've been engaging with the organization on though.

Actively over the last number of months as well as Peter has talked about in the past some of that safety technology investments, we're making around a specific risk areas that we saw in the last two years that have led to tragic fatality incident.

I am.

I'm encouraged by what I've seen over the last six months I'm always I always say.

This is this is a journey and you don't measure this thing and days and months.

But what I would say is since I've taken the interim CEO role I've been pleased with the direction that I've seen in safety performance, both in personal safety and process safety and we've seen a reduction in the number of incidents over that period of time, but again. This focus has to continue.

Has too.

A daily focus for this organization.

For investors I mean, how you mentioned that obviously is in results at the end of the day, but what I can assure you and all our investors is that the focus of this operating team is squarely on safety first in this organization and let me talk about Commerce City I think it's a great question you just ask Neil about Commerce city in.

The aspect of safety. So we had an extreme weather incident in December .

Everyone saw the impact of the entire refining industry during that period of time, our own facility was significantly impacted by that extreme weather and we had a number of equipment failures and some loss containment and the team the operating team down there took the measure to put that facility in safe mode.

And take the right steps to safe backed facility and ensure that it is in that we have it in our state and condition that we can operate safely going forward I've been incredibly.

I'm pleased and proud of the work that the team has done down there in terms of the full inspection and repair of the facility. We've already started the progressive restarted the facility and are on track with where we expect it to be but to me. That's an example, while no one likes to see incidents like that it's an example of how an organization responds.

When it comes to safely managing your assets.

Thanks, Craig.

Alright, Thanks Neal.

Thank you.

And our next question comes from the line of mineral wholesale off with TD Securities.

Thanks, and good morning, everyone I'll start with the answer.

The base mine extension since it ties into some of the other questions that were asked previously my understanding is that a decision on sanctioning of the expansion to address mine depletion versus leaning more on in situ production to keep the upgrader full is still expected by.

2025, but maybe you could just give us your latest thoughts on the various options.

Consider most likely at this stage.

Thanks Menno.

Yes, as you point out our base mine and mine life is in the mid 2030.

So we're working through various options for replacement of that bitumen supply our focus is primarily.

Around further <unk> development, just east of the of our base plant contiguous to our current mine operations as both our Lewis.

Lease as well as fire bag, which also has significant resource left.

Too early to call in terms of which horses in the lead right.

Those options are both being worked very hard and the other piece I would mention as well it's kind of back to earlier on the call we talked about the connectivity amongst the operation.

And our ability to bring bitumen into the upgrader from Fort Hills now.

At 60000 barrels a day or sorry, 40000 barrels a day of capacity that can be further increased and as well we can bring more fire bag in.

So we have lots of Optionality in terms of Benjamin supplying the upgrader the team's working hard on all of those options. It's all about what's going to be the most economic.

And risk based option that we're going to supply that upgrader I expect over the next 24 months, we're going to start landing on which option is going to be the lead horse.

Terrific and so maybe I'll just.

Pivot to the to the macro with a question on diesel.

Obviously seen cracks come down quite a bit over the last several weeks. So what is your read on this pullback.

Are your expectations for <unk>.

Canadian diesel cracks over the mid term and maybe you could just remind us of how much flex you have on dialing the the products laid up and down for distillates across your four refineries.

Sure and remember too as well and then when we think about diesel we think about it in two aspects as well theres a refining business, which we are tools are more a 211, we're not a three to one.

Refining network, which is great.

And it does give us some flexibility to tool up a bit more to diesel but also recall too in terms of our synthetic.

Synthetic crude oil in our diesel makeup in up in our oil sands business. So certainly we're levered to the side of distillate rather than gasoline across the whole system.

The view on diesel I think certainly.

Not expecting that we're going to see the extraordinary cracking margins that we saw in 2022, but our expectation is there is still going to see a very robust distillate market.

We're still seeing good demand on distillate, even though it pulled back slightly here.

<unk>, but still I think the structural.

Gasoline has actually strengthened a little bit it really came off at the end of Q4, not a surprise given the seasonality of that but.

But gasoline, we think the cracking margin should be should be at or around historical norms.

Thanks, Chris I'll turn it back.

Alright, Thanks meta.

Thank you.

And our next question comes from the line of Roger read with Wells Fargo.

Yes. Thank you good morning.

Yes.

Maybe just dig in a little bit here on our operational question looking at.

Two things in the oil sands kind of your thoughts on what we should expect in terms of royalties.

And then.

What you are looking at in the way of sort of cash opex.

Higher fuel prices have an impact, but just what are some of the thoughts in terms of cash operating costs underlying inflation and what you can do to push back against that.

Sure Thanks, Roger on royalties.

I think we're going to continue to see royalties were in postpaid out in some of the assets, but create pre payout and others.

<unk> royalty is going to be less in 'twenty, two versus 'twenty or 'twenty three rent versus 'twenty, two just because of where we're going to see commodity price but.

But I expect we're still going to have a healthy royalty remittance back to back to the product.

On the cash operating cost, we're obviously incredibly focused on that when I was at our Investor day, we talked about the cash operating costs and the impacts both of.

Where we're at structurally with our mine plans in 2023.

The main improvement plan in Fort Hills, as well as where we're at and Syncrude just mine cycle in 2023, which is adding some additional costs, which were going to be working through this year and expect that expect that to go in the right direction as we head into next year, but as well we've been seen inflation, but not.

Not in any way that we haven't expected it.

And the team has been doing a lot of work.

We kind of go back to what we talked about earlier in terms of the contractor reduction, but doing a lot of work to first of all offset that inflation wherever we can and drive the costs further down.

We set the guidance range for 2023 and communicated at the Investor Day, we're focused on delivering those costs within that guidance range or below.

And I think one of the things on inflation.

Certainly we saw extreme inflation into the back half of last year seen some of it come in we've seen it continue into 2023, but is starting to mitigate a bit too.

Hopefully, we're going to continue to see inflation sort of start to temper itself as we move into the balance of the year.

And can you quantify at all what part of that is related to kind of underlying fuel costs or what sort of.

What sort of offset you might get there.

Yes, I'd say the inflation, we're seeing inflation is on the labor side contractors and it's why it's one of the areas. We've been incredibly focused on it's that inflationary pressures coming in wages and labor costs, we were seeing it in supplies and materials, but that's starting to come off a bit I've seen that steel prices inflation starting to.

Really cool on steel.

In terms of fuel.

Look at the commodity costs.

Certainly it's been helpful, where we've seen Nat gas prices trend here, there are a lot lower than what our expectation would have been.

Going into this year, but just as you would know just seeing what's going on with.

With.

Global.

With just temperatures a warm winter and supply an oversupply of natural gas.

America.

That's been a nice surprise for our business and there'll be a bit of a tailwind on the on the cost side.

Okay and then.

Unreleased follow.

We're all well aware do you remain the interim CEO any updates on the timing for removing that tag.

Yeah. Thanks, no im not in a position to make an announcement on this call.

I'll say, what I said.

For the board is going through a very diligent process.

Ensuring that they make the decision.

That's going to take this company forward I expect the decision is going to be very soon it's been communicated in the past, but that decision is expected in mid February I mean, we're sitting here at February 15th So I expect the decision in the announcement will be coming fairly soon.

Yes, I appreciate that I'm not real good at math, but it struck me the 15th was mid February .

Yeah.

Thanks.

Thank you.

Our next question comes from the line of John Royall with Jpmorgan.

Hey, guys. Good morning, Thanks for taking my question.

So just to follow up on Neal's first question on capital allocation and I just wanted to make sure I understand.

You're at about $13 5 billion of net debt today are you talking about possibly going to the 75% here before you hit the $12 billion level or is there an expectation that you'll be delevering by $1 billion to happen in <unk> and if it's the latter maybe you can go through some of those drivers of deleverage I know you are you are closing the wind and solar assets, but then you should.

Have the stake increase in Fort Hills going the other way so just anything on those drivers.

And John I'll take that one.

<unk> said before that I'm going to look through any FX impacts.

To get to the 12 billion included in the $13 4 billion is about seven $750 million.

FX impacts from a weaker Canadian dollar compared to when we set the targets. So I would take that off and we fully expect to be close.

For the $12 billion or close to announce to the 12 billion ex FX by the end of Q1.

Noise Orion as you mentioned.

<unk> of closing floor Hills, we had assumed it would be in the beginning of Q2 and much up with the sale of the EP assets quarter there'll be some noise around that obviously some closed airwave.

Earlier, but we expect to move the beginning of Q2.

75%, 25%.

Okay. Thanks, that's helpful and then.

If you could talk about the optimization you guys are doing in retail and specifically the things you're doing around mix for operated versus non operated source I'm, just a little bit of color there would be helpful.

Sure. Thanks, John .

So what we're doing with our retail business. So wind in Investor day, we're optimizing in our National network. It is a mixed control noncontrolling.

About 50 50.

Just for round numbers, what we're doing is we're focusing our investment on high volume high value sites and core markets.

We've put those types of investments in place we've seen terrific results within the network while at the same time, we're looking to optimize and rationalize those pieces of the network that are less core and so that will be rationalizing.

It's a five year plan that we laid out when we talked about at Investor day, and the team is focused on delivering it.

Okay. Thank you.

Great. Thanks.

Thank you.

I'll now hand, the call back over to Vice President of Investor Relations Troy Little for any closing remarks.

Okay.

Thank you operator, and thank you to everyone for joining US today. Please don't hesitate to contact US should you have any questions with that operator, you can end the call.

Thank you for participating this concludes today's program and you may now disconnect.

Q4 2022 Suncor Energy Inc Earnings Call

Request a DemoDemo

SU.

Suncor Energy

Earnings