Q4 2022 Cenovus Energy Inc Earnings Call
Turning to the results.
As a reminder, today's call's being recorded at this time all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session.
You can join the queue at any time by pressing star one.
Members of the investment community will have the opportunity to ask questions first at the conclusion of that session members of the media May then ask questions. Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of synovus energy I would now like to turn the conference call over to MS. Sherry Wendt, Vice President Investor Relations.
Please go ahead Ms Wendt.
Thank you operator, and welcome everyone to Synovus is 2022 year end and fourth quarter results Conference call.
Please refer to the advisory is located at the end of today's news release.
<unk> describe the forward looking information non-GAAP measures and oil and gas terms referred to today.
They also outline the risk factors and assumptions relevant to this discussion.
Additional information is available in <unk> annual MD&A and our most recent Aif and form 40 F.
All figures are presented in Canadian dollars and before royalties unless otherwise stated.
Alex <unk>, our President and Chief Executive Officer will provide brief comments and then we'll take your questions.
We ask that you. Please hold off on any detailed modeling questions and follow up on those directly with our Investor relations team after the call.
And please also keep to one question with a maximum of one follow up you can rejoin the queue for any other questions.
Alex Please go ahead.
Thanks, Sherry and good morning, everybody before we talk about our fourth quarter and annual results I thought I'd take just a minute to discuss our other news we announced this morning. After our AGM at the end of April I will be shifting to the role of executive Chair John will become our next president and CEO . This is something that I've been.
Working with the board on for quite some time, ensuring a robust plan for executive succession, including developing strong internal candidates has been a key focus of mine and the rest of the Synovus Board.
And I am very proud to say in my entire career I have never worked with US capable of leadership team as I am Lucky to have here at synovus today, when I joined Synovus a feedback we received from shareholders was that the company has historically lacked a strong succession plan one of my very early access president.
<unk> CEO was to bring on John .
As CFO to help achieve three key priorities, we have set for synovus optimize our cost structure expand our market access and strengthen our balance sheet that.
And as many of you know when John and I, when John joined the company Eni Werent Strangers in fact, we've known each other for the better part of our careers and I knew that John's towering strengths of discipline accountability work ethic and deep knowledge of the energy business would be a huge help to me as we embarked on delivering on those priorities.
The entire leadership team and all the people in this company came together to deliver on those priorities, culminating with the husky transaction and John's move to COO I won't say, it's all been a walk in the park. The reality is that we've worked through some incredible challenges along the way, but I can say with complete.
Honesty that John and I have never been misaligned on what we believe is best for the company.
I think it is fair to say, we come at problems from different perspectives and I think this diversity has actually made us a really successful team since the husky acquisition, we've achieved many milestones together I'll take a moment to revisit just a few.
We delivered above and beyond our targeted synergies from the Husky deal, we continued to aggressively reduce debt and we implemented and are executing on our shareholder returns framework. We've also evolve the asset portfolio with opportunistic A&D transactions. These are better position the company to maximize the heavy oil value chain.
<unk>, which will support further growth in cash flow and shareholder returns.
But I think most importantly, we've been able to create a low cost resilient integrated energy company that is profitable at all parts of the commodity cycle. John has been instrumental in these efforts and our vision for synovus with his breadth of experience strategic thinking and incredible commercial acumen theirs.
No better person to be the next president and CEO of this company, while I could have stayed on in the role for another year or two synovus is in really great shape and I think John has earned the right to lead synovus that I don't think there could be a better time for this leadership transition.
Thanks, John .
Thanks, Alex and maybe I'll chime in and thank you for those kind words and Youre right. This company has accomplished a great deal over the past five years under your leadership, you've really built a much more resilience in all of us.
And something that I'm really proud of is we have a reputation for delivering our commitments under your stewardship.
In my view, you've left the CEO chair and the company in a much better condition than you found it.
Which is really a great measure of success. So I am very much looking forward to the next phase of Synovus and continuing on the path that you've said cytosorb.
As you said earlier, you and I have known each other for the better part of our careers, including working closely together on other projects prior to us getting together at synovus.
And through that time, we've been good good friends, so I'm thrilled that youre staying on as executive chair and continuing your ongoing support and advocacy for synovus.
And more broadly the Canadian energy industry, and I am grateful to continue working closely with you over the coming years. So thank you very much well. Thanks, Jon as many of you are aware an increasing increasingly significant proportion of my time has been spent on external efforts, including actively partnering with governments to help support Canada.
And achieving its climate goals, while also remaining a competitive economy in which Canadians can thrive and next to safety. There is nothing more important to synovus in our industry, then reaching a durable solution between government and industry to achieve our emission aspirations once I move to the executive chair position.
I intend to dedicate even more time to this pivotal external issue for both synovus and our industry beside my board governance responsibilities I will also continue to work closely with John to progress the strategic direction, we have established for synovus.
I really cant tell you guys, how happy I am for John in his new role and how excited I am about my continuing role with this great company and our people.
So with that maybe I'll turn to the year end and quarterly results and as I do every quarter I am going to start with our top priority health and safety I would like to recognize our well delivery group, which reduced this recordable injury frequency from <unk> 91 in Q1 2022 down to <unk> five three over the.
Full year. This performance improvement comes with focus and dedication and I am really proud of what this group has been able to accomplish as we continue to ramp up our drilling activity. Similarly, our recordable injury frequency at our Lima refinery fell to 0.1 from <unk>, 5% in 2021. This is an <unk>.
Absolutely Outstanding result, and we're all proud of our team and lineup for this achievement that being said some of the recent incidents at our non operated refineries are an important reminder, to us that we must never become complacent or take our safety performance for granted we will be unrelenting in our efforts to ensure that <unk>.
<unk> strong safety culture is embedded at every site, where we operate this includes Toledo, where we expect to close the acquisition of the refinery at the end of this month and have superior as we commence startup.
Turning to our operating results I'll begin with the upstream looking back on the year. There was a lot of A&D activity that helped to streamline our upstream business by acquiring the remaining 50% of Sunrise. We now have full control to deploy synovus is operating model and take that asset from about 45000 barrels per day today.
Back up.
Its nameplate production of 60000 barrels a day and beyond this as an excellent opportunity for synovus to show, our Sag D expertise and the benefits of our operating model.
We also sold the Tucker oil sands asset and the Wembley conventional asset this year for total proceeds of $950 million combined these sales helped accelerate our deleverage deleveraging efforts through the year. It also allows us to focus our capital spend on higher return projects.
Looking at the Q4 operating results total production averaged over 806000 Boe.
Per day up about 30000 Boe per day from the third quarter. This is a significant achievement of our operating teams who did an exceptional job of managing through extreme winter weather in December the conventional business contributed about $250 million of operating margin in the fourth quarter, while keeping production.
Rates relatively flat this winter the team was focused on adding new wells some pre purchasing of materials that were slated for 2023 and advancing some infrastructure projects to support multi year development in this segment.
Asia Pac region also contributed to the quarter over quarter production increase in China, We saw our partners draw gas above daily contract rates and additional production came online in Indonesia from New Wells recently completed and the Atlantic segment production remained relatively flat however, with the Terra Nova.
Fps So asset life extension now complete we are expecting the Terra Nova field back online in the second quarter of 2023.
Turning to the downstream I will start by highlighting some of the successes we achieved at our operated assets over the year.
The Lima refinery continues to run reliably and achieved record throughput in 2022, it generated about $1 1 billion in operating margin. This year and also delivered its best ever safety performance. These results reinforce our philosophy that strong safety performance drive strong.
Reliability, which in turn drive strong financial results.
The Lloyd Mr. Upgrader, and refinery continued to demonstrate strong utilization through the year, even with turnarounds at each asset. The upgrader was able to take advantage of a wide synthetic to heavy oil dif, while the refinery continued to capture strong asphalt margins together. These two assets delivered almost 700.
And operating margin in the year. We also made significant progress on the superior rebuild with startup underway. The refinery began circulating hydrocarbons in mid February with throughput expected to start mid March the refinery remains on schedule to ramp up to full operations.
In the second quarter of 2023.
And at Toledo, the acquisition of the remaining 50% of the refinery remains on track to close by the end of February the repair estimate stemming from the September fire is not significant and the refinery is expected to get up to full rates by around mid Q2. This year.
Turning back to our Q4 results as we announced in early January our downstream operations were affected by some extremely cold weather unplanned operational events and a third party pipeline outage back in December . This morning, we provided a detailed update in our news release, highlighting that almost all of our DAU.
Stream assets were back up and running at normal rates. The exception is the wood River refinery were an incident in December reduced throughput modestly the refinery's utilization has steadily increased since the first week of January and is currently running at a very substantial proportion of its normal throughput rate.
We expect a refinery to return to normal rates during the second quarter.
Turning to our Q4 operating margins oil prices were lower in Q4, which impacted oil pricing and margins sales volumes were less than production as we look to avoid wider differentials in December driven by the third party pipeline outage. This also impacted oil sands operating.
And in the quarter. However, those inventory volumes should serve as a future tailwind when sold in U S manufacturing the fallen commodity prices through the quarter resulted in a negative FIFO impact of roughly $180 million in Q4.
U S manufacturing operating margin includes operating costs of about $40 million to $50 million a month for Toledo and superior and this is really important for everyone to keep in mind given that those operating costs have been coming without any throughput to offset them as these two refineries come back on.
Online and start generating revenues the per barrel metrics of the U S manufacturing segment will significantly improve.
Turning to our annual financial results I want to highlight some of the achievements we hit in 2022, I'll start with earnings which increased 10 fold from 2021.
Annual adjusted funds flow was $11 billion, which we put to good use reducing debt by more than half and investing about $3 7 billion in the business.
That capital investment supports other businesses and directly generates jobs and economic benefits in the areas, where we operate.
The financial discipline and continued focusing on deleveraging also led to ratings upgrades by two of the credit rating agencies in the fourth quarter. We also tripled our base dividend in Q1, 2022 and rolled out our shareholder returns framework overall, we delivered more than $3 4 billion to our shareholder.
This year through a combination of share buybacks and dividends at the same time, we will contribute over $6 billion in taxes, and royalties to Canada and $100 million of taxes in the U S.
Moving now to our fourth quarter financial results adjusted funds flow was about $2 4 billion in free funds flow was $1 1 billion.
Net debt came down another $1 billion over the quarter and landed at just over $4 3 billion as of year end under our shareholder returns framework, we've allocated half of Q4 excess free funds flow to shareholder returns, which has been delivered in the form of share buybacks during the quarter looking ahead.
Theres a couple of factors that will increase net debt in the first quarter. The first is a cash tax liability payment in Q1 of about $1 2 billion for taxes that were accrued over 2022, secondly, we expect to close the Toledo refinery purchase for another $300 million U S.
Plus closing adjustments, including working capital at the end of this month now that we are cash taxable in all jurisdictions taxes will be paid on a quarterly basis going forward we.
We have become increasingly confident we might get under our net debt floor of 4 billion around the end of the fourth quarter. However, the extreme winter weather third party pipeline outages and operational challenges in December were unanticipated and ultimately prevented us from getting all the way there.
Net debt has been forecast to increase in Q1 2023 above the net debt floor based on the 2022 cash tax payment alone. The issues, we experienced in December delayed our forecast timing of reestablishing that net debt floor in 2023 by about two months.
<unk>, given where net debt sits today and assuming commodity prices remain around current levels. We now expect net debt to be above the 4 billion floor until around the end of the third quarter, while some impacts from weather and unplanned outages continued into early 2023, we remain confident in our key operating target.
Our 2023 corporate guidance remains unchanged.
Turning to our plans to reduce emissions synovus and its peers at pathways Alliance reached an important milestone in Q4, we've entered into an agreement with the government of Alberta that allows us to start a detailed evaluation of the proposed storage hub for our carbon capture project. This work is necessary to get us to the <unk>.
Next stage in the regulatory process.
A significant amount of work is underway with a pathways alliance as we progress feasibility studies environmental assessments.
And early engineering work for the carbon capture and storage project.
And also advanced other technologies conversations with our provincial and federal governments about their role in partnering with us to advance. These decarbonization efforts also continue to go well within Synovus, we continue to advance our own emissions reduction strategy, including progress on carbon capture and storage.
<unk> plans for several facilities Synovus is also focused on helping support economic self sufficiency and indigenous communities.
Last year, we spent the equivalent of about $1 million a day on goods and services from indigenous owned businesses and we are already halfway to our target of spending at least $1 2 billion with these businesses between 2019 and the end of 2025.
Now I'll do a quick recap of the year before we move to Q&A.
<unk> 2022 was a really successful year for synovus, we improved our safety performance across the business year over year, we generated adjusted funds flow of 53% higher than the year before Meanwhile, we reduced net debt by more than half, while also reducing cash or increasing cash returns.
To shareholders to six five times the prior year, that's almost $3 billion in incremental shareholder returns year over year, our balance sheet is in great shape entering 2023, and we look forward to delivering even greater returns as we grow cash flow and pursue our net debt floor. So with that we're happy to <unk>.
Questions.
Thank you, ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing star. One we will now begin our question and answer session and go to the first caller.
Go to Greg Pardy with RBC capital markets.
Yes. Thanks, good morning, Thanks for the rundown and I think first just Alex and John Congratulations to you both fantastic job and great key Alex that Youre going to continue to be involved on a go forward basis. So maybe what I'll do is I'll pose a question that I'm getting which has been a little surprising but that is mainly related to ACA.
<unk>.
As it relates to Synovus and then.
In the upstream and you get even more granular. It's been suggested that you may be looking at the deep basin, but as opposed to just sort of.
Dressing acquisition question I'm interested in.
What aspects of the business do you want to reshape I'm, assuming the downstream is probably predominant in that equation, but just any color would be great on that plant.
Sure Greg happy to talk about that.
Maybe I can kind of simplify this for people in all I'll really talk about what what do I view as the key priorities for the company in 2023 and right off the bat and I'll say this.
Im long gone, but safety.
Is number one for this company and you heard me talk about the work that we've done and what we've been able to accomplish and it is.
It is everybody's focus on getting.
The new assets in the company to the same level of safety.
That we've enjoyed in this company for the for all these years so on top of that.
I would say I have two real focus is the first is getting to $4 billion as soon as we possibly can and I.
I think John made this comment in his remarks, but.
People, when we really pride ourselves when we say something we really mean, it and we intend to deliver on it and that 4 billion target that is sacrosanct to us and we're not going to sacrifice anything.
To get to that to get to that target the.
The next priority for me.
<unk> that is really getting this new portfolio, we have in the downstream.
Getting it operating once again at the same level.
Operational sort of efficiency and safety and quality as we experienced in our upstream business, where we're bringing as you heard me talk about we're bringing superior back we're already.
Starting to bring it back to the Toledo deal is going to close very shortly.
And everybody in this company and particularly John and Keith are just laser focused on bringing those assets in and showing and demonstrating to our investors that this downstream business can perform.
As well as we know it can so those are the priorities, we're not going to sacrifice anything.
For those priorities.
We always we always look at M&A transactions I've always said, we're opportunistic about that but we will not we would not ever do anything from that perspective that would materially move us.
From that target at that $4 billion target I've set that is our focus.
Alright, great. Thank you.
Yeah.
No worries.
We'll take our next question from Dennis Fong with CIB Sea World markets.
Hi, good morning, and thanks for taking my questions I'd also like to reiterate what Greg said.
And just congratulate the two of you on kind of the next top of your career.
My first question here is just related to.
Your.
The combination of both the balance of integration, but also more specifically the refining operations.
Just given what you've seen more recently with respect to some of the downtime.
On pipelines as well as outages by various refineries. How are you guys thinking about the flexibility of your marketing assets going forward as well as more is there any albeit the near term learnings from holiday downtime experienced with Q4 that you'd like to implement on the various assets going forward.
Hey, Dennis it's Keith Thanks for the question.
It was a pretty interesting time in December obviously with the weather with the weather impacts, but also coupled with a third party pipeline going down.
I actually think the teams responded pretty aggressively and pretty well we were we're actually able to ramp up our rail program in a matter of a couple of weeks and start shipping crude by rail.
Some of the concerns that we're starting to see in Alberta, we were able to store. Some barrels. That's why you saw some of the inventory growth in the fourth quarter and resell those later on at a higher market. So.
I think from a marketing and commercial capability standpoint, really happy with what the team was able to do.
When I think about the future and think about superior and think about Toledo coming online they're served bye bye.
The mainline system, which is going to be really interesting for us to get our crude.
Out of out of Alberta and into an integrated refinery set of assets that consume the molecules that we produce so we see that integration is.
Being beneficial for heavy oil producer.
And we're also pretty excited about what we're seeing even at our Lloyd refinery and Lloyd upgrader and being able to integrate our our oil sands production into those two assets. So that integrated value chain is pretty valuable for us and we will utilize both both the conversion assets, but also our marketing activities to maximize.
That value.
Dennis This is John I'll, just add a couple of things with Keith and I completely agree with with Keith.
Downstream assets really gives us the flexibility and optionality to perform differently in times like we saw in December when the Keystone pipeline went down and more broadly with the wider differentials.
Those assets, particularly our operated assets have performed really well I think one of the reinforcing.
Thoughts that we would have going through December and we've talked about this before is that we still have a strong desire.
To own and operate those assets.
Participating in so we see the U S downstream is absolutely core to our strategy.
And we really look forward to putting superior.
Toledo into our stable of refineries and bringing those up over the next few weeks.
Hey, Dennis it's Alex and now Im going to sound like I'm really gilding, the Lily here by being in the third person to comment on your question, but the one other observation I would make is.
Thank the ability that Keith talked about to mitigate the impacts of those challenges.
If we had not done the husky transaction, we would not be remotely in the position to manage these kind of circumstances Synovus just did not have all of those storage resources.
The other pipeline takeaway opportunities so.
The whole when we did that deal as I said the goal was creating a much more resilient company and I think the response to.
To the company during what was really a pretty significant incident.
<unk> was really was.
Really good.
Great Great I appreciate that.
And contacts from all three of you.
My second question Paul.
Falls, along the lines a little bit of what Greg was asking as well.
I know the answer to that in terms of.
Your current portfolio just given as we look forward.
Over the next few years ramp up of.
The volume of the <unk>.
Variety of your oil sands assets.
Low cost optimization narrows Lake Tieback and Debottlenecking, how should we think about or how are you guys thinking about.
The balance of upstream exposure versus downstream exposure.
On an ongoing basis, especially given the multiple shifting macro environment throughout North America.
Dennis I don't think I don't think anything has really changed as Alex mentioned, we're kind of in a world right now where we look at our downstream exposure as well as our takeaway capacity from Alberta.
As keep putting us in a relatively beneficial spot. So I don't think that we would be.
Be of the view that we need to materially increase our takeaway capacity or materially increase our refining capacity we are quite happy.
With the balances that we've got I think I'd, just reiterate something that Alex was talking about as people are thinking about growth, but what we are really focused on.
Over the coming months, and particularly Q1 and Q2 is getting our net debt back to $4 billion in getting these two refineries online and producing positive free cash flow. So.
I think the growth.
The agenda that seems to be coming up as a theme is something that we can probably talk about in future quarters, but.
Right now we are focused on getting our debt down and getting our 100% shareholder returns intact.
They're with.
Getting our downstream operating well.
Great. Thanks, I appreciate the color I'll turn it back.
Thanks Dennis.
We will take our next question from Neil Mehta with Goldman Sachs.
Yes, Congrats Alex and Joe.
John .
Awesome to have you.
In the role.
I just.
Wanted to start off on capital returns, Alex you've been pretty clear that you want to take a countercyclical approach to.
To buying back stock and.
And didn't want to buy back stock at the local high now.
<unk> shares have pulled back here a little bit.
Just your perspective on the preferred return of capital mechanism versus buyback versus more variable component has the business in flex.
Closer to two.
That sub $4 billion Mark.
Yes.
Look we've said this many times.
Our preferred method of returning cash to shareholders is through share buybacks and.
Yes.
I think at the kind of valuations that we're seeing right now we're we're obviously in that range, where I think there's compelling value to buy back shares.
But at the end of the day, we're committed to get those returns back to shareholders.
If we are trading at significantly above above our NAV.
Will.
We will always be thoughtful about whether we are creating value by those share buybacks and if we're if we're of the view that we're not then we're still going to return that money through variable dividends, but the priority has been and remains remains share buybacks.
Okay. That's helpful and the follow up is just on the macro we've seen a lot of volatility and the WCS differential or recognize that you guys are much more protected than you than you were when you first came in Alex.
Into that spread but curious on how you see that playing out and the moving pieces in <unk>.
Maybe you can also comment on <unk>, because that's going to move the needle potentially a year out.
Well why don't I pass it over to Keith because he can just repeat to you what he says to me every morning, when I walk in his office.
Thanks, Yes, obviously, we saw the differential widen out there for a period of time and tightened back up.
More recently, we kind of look at it as two parts. We look at is the the transportation or location spreads between Alberta, and the Gulf Coast and then we look at the light heavy differential in the Gulf Coast.
The good news is obviously.
With the third party pipelines backup and running us heading into the <unk>.
Summer turnaround seasons, and heading into a lower condensate requirement egress out of Canada is looking pretty good right now so we're seeing that component of the differential tightened down.
Down in the Gulf Coast, We're also seeing the differential tightened with with Chinese demand coming back some of the SPR release is slowing down.
And then I guess the other one would be just natural gas prices coming off which which enables more processing.
In complex refineries and better value from processing heavy barrels so all of those things are constructive.
Two an improving differential and we're starting to see that and expect that to continue through 2023 <unk> coming on the back end of 2023 is obviously going to be another.
Help for narrowing that differential we're really encouraged with.
Seeing that pipeline come up where a large shipper on the pipeline so really looking forward to.
Getting barrels into a new market and actually being able to access the world with those barrels so.
Pretty exciting times.
Thank you Keith.
Right.
We will go next to Menno <unk> with TD Securities.
Good morning, everyone I'll follow up with Tom.
A question to get answers on the five year plan or thermal growth and Sunrise optimization Narrows Lake Tieback in particular I'm just looking at the slide deck. It looks like the lag $35 to 50000 barrels per day over the next call. It two two and a half years, but what key deliverable should we be looking for.
Over the next year and what would you need to see to get to the top end of that range at 50000 barrels a day.
Hi, there it's noted rumsey here.
I mean, we've laid out a plan to grow notionally three 5% per year.
We're seeing great success actually as we move our pipeline.
Christina Lake up to the Nanos Lake area.
Our plan is in place to actually start drilling up in the <unk> within the next 12 months.
<unk>.
And optimization that Sunrise, we've seen.
We've seen obviously great success in applying our historical synovus methodologies.
Site.
We're pleased to have 100% of the equity with some others allows us a lot more flexibility.
Four pods for example drilling just now so this is setting this up to fill the process planned over the next 18 months or so.
And along with that as we apply our synovus subsurface methodologies.
Examples of things like we've just drilled two two wells that are 600 retailers and the reservoir rather than rather than historically <unk> been able to maximize 800, so that really cuts the cost gives us a bigger wells and more flexibility. So it's a very steady build plan.
We have a lot of flexibility as we kind of go forward and as you say Christina Lake is going to grow.
We're also going to grow at Foster Creek.
Through.
An increased number of pods that we have and Sunrise is there just a completed Lloyd thermal.
Again, applying our subsurface methodologies looking to tie back greater distances than originally planned so again steady growth across the whole portfolio.
Menno, it's Alex and just just from kind of the way.
Where you went with the question I, just maybe wanted to make one thing clear like that that extension into narrows Lake Nobody should think of that as kind of a high risk high capital sort of phased expansion of the oil sands. This is norris guys. They've already built the road has been built in.
There they are building the pipelines.
<unk> work is something we've done obviously.
Dozens if not hundreds of times so.
We just see this as a <unk>.
Our relatively low risk kind of natural extension of Christina Lake So just.
Just want to sort of make sure people aren't thinking of this as some new or relatively high risk capital project that we've embarked on.
Thanks, Alec and maybe I'll just move on to Asia Pac could we get an update on regional pricing dynamics given the original sorry, the recent volatility.
On the contracting side of things and with the understanding that you are largely fixed price across your Asia Pac portfolio is there anything that we should be aware of in terms of ongoing contracting activity or price resets I think the answer is nothing material, but maybe you can confirm that.
Sure Hey, Menno, it's drew.
So youre correct like on the contracting side around price, it's fairly set from a range bound standpoint.
That will still play out for a number of years.
Interesting load youre kind of getting to the point that I think we are seeing that just before Christmas even in December actually we started to see <unk>.
Buyers in the demand really start to increase and so we've actually been.
Over kind of selling.
Even on our contract volumes since December and that's carried through here into the first quarter and it's it is really around what you are alluding to here is we are seeing demand really pick up over there.
So we're in a really nice circumstance at the moment actually that we are in conversations about potentially some more supplemental agreements like we've had in the past. So those conversations are happening literally as we speak.
But in a true day to day week to week reality, we've been actually producing and selling above contract volume.
But from the pricing perspective, it is price bound as per the longer term contracts.
It's John we actually give you.
Fairly good snapshot of the net backs.
That we get from our Asia Pacific business and some of the supplementary information that we sandoz so to <unk> point.
The gas in Asia, Indonesia is relatively fixed, but we do flow on the NGL side. So you will see some variance from quarter to quarter.
Depending on how much of the Ngls that we sell and what price we get for them, but they are usually kind of a brent plus basis for the liquids.
Yeah, and just to finish without the net backs are north of $70 per Boe equivalent.
Okay.
Yes those are.
Phenomenal numbers I appreciate the color guys I'll turn it back.
No worries thanks Benno.
Thank you as a reminder, star one if you would like to ask a question.
Well take our next question from John Royall with Jpmorgan.
Yeah.
Hey, guys. Good morning, Thanks for taking my question and congratulation.
John on the new role.
<unk>.
If you could maybe speak to the overall impact of the Keystone outage.
Dream.
I know it sounds like you've got some.
And inventories.
Or is there a plan to drop of inventories back down from here.
We report three themes.
The only spot volume currently impacted on coupon maybe you could just confirm.
If you are back shipping on that pipe.
The level.
Prior to this call.
Hey, John it's Keith.
Obviously, the impact of Keystone through the month of December impacted both our upstream and our downstream.
We did choose to.
A portion of it on the mainline driven by some of that as well. So we had a few decisions to take in the December period in a couple of those were.
To ramp up our rail program. So we're able to ship on nine unit trains through the December January time period.
And now we're ramping that program back down keystone's back flowing so so egress out of Canada. We are seeing the differential come back in because of sufficient egress out of Canada. So I would say all of our downstream assets are being fed and the inventory that we built we will we will sell off into the market.
Higher values than if we had tried to sell it in a distressed market in December .
Just just to put a finer point on it John .
And sorry, just John Mckenzie speaking.
The assets worked as designed in terms of what we've built in <unk>.
Midstream and downstream business as we've talked about earlier so because of.
The outage that we had on Keystone, we inventory and about 18000 barrels a day of heavy oil we expect to relieve our inventory of that in Q1 and then the other impact that we would have seen with Keystone is they did have to cut rate on the <unk> refineries, which are fed off the Keystone pipeline.
Would kind of be a secondary impact.
From that outage as well.
Great.
Thank you and then just thinking about the downstream side.
A little bit more kind of near term on the throughput guidance I understand you guys.
Only annual guidance.
My high level color it sounds like Youre getting superior.
Partially at some point in the quarter and maybe a little later.
We also have lower rates you mentioned the river.
Thanks.
Really you don't give quarterly guidance is there any kind of high level way. Thanks drew.
Where you might be.
Utilization for <unk>.
With <unk> or any other way.
Think about it.
Yes, John Keith.
I think the way I would be thinking about it is we had we had some challenges both due to due to the Keystone outage as well as the weather impacts.
But all of our operated assets came back up by mid January and had been running well since then.
Our non operated assets.
Borger was back up and running at good rates by mid January and then with regards to Wood River.
The the rate cut due to the incident in early December you should think of that as ramping up through the first quarter substantially getting back to normal throughput.
And then you have to remember that there are some turnaround activities happening across our assets in the second quarter.
With regards to superior.
We're happy with the progress obviously this asset it's been down since 2018, we've been doing the rebuild since.
Since the Husky merger and we're now at a point where were introduced hydrocarbons and we're working to bringing crude in the mid part of March that will take a little time to lineup and we will work on ramping up the refinery.
Through the second quarter.
Toledo, we're ready to take the ball on March one and.
We don't think we will lose any progress on the repair and rebuild of that asset and those those repairs are looking like that will happen by the end of end of April and then we will start working on restarting restarting that asset through the May June timeframe. So.
All of it's coming together a lot of it at the same time, but.
That's kind of how it is looking over the next several months.
Very helpful. Thank you.
Thank you at this time, we would like to ask them.
Members of the media to ask questions as.
As a reminder, you may signal by pressing star one on your telephone keypad.
Let's pause for just a moment.
We'll go first to Christopher Combe with Calgary Herald.
Hi. This is a question for Alex Alex Why did you make the decision now has stepped down as CEO and move into the executive chair role. As you said you could have stayed on for maybe another year or longer but why now.
Well, Chris that's a good question.
Yeah.
I would tell you.
I sort of said at the start but I I think that a thoughtful and measured succession plan is a hallmark of a well managed company.
And I know my board thinks of that.
When I joined the company I remember, telling the board that they can count on me for five to seven years.
And I'm kind of probably a little more than halfway through that that that I'm, having I'm heading towards six years in the company but.
I would say I think I think all companies benefit.
Bye.
But a thoughtful succession plan and in this case.
John has been such an instrumental part of the strategy and the execution of the things you heard me talk about today in my comments.
He has amply earned the right.
To have a shot at leading leading this company and it's not lost on me, John and I are not too far apart in age and <unk>.
If I were to.
Decided to stick around for another two or three years.
I could really put John in a situation, where he might time out and not be not be able to have a good a good run.
Leading the company and I don't think that would be fair to John I don't think it would be fair to the shareholders because I think they're all going to be great beneficiaries of his leadership over the coming years.
At the end of the day.
I think what's best for the company and what's best for the shareholders needs to take a little bit of precedence over what might be best for me.
Just to follow up on that I wanted to ask you about your new role you talked about the fact that youre going to focus on advancing the industry and policy I guess, what do you see as those key issues that youre expecting to tackle in that role as chairman and why do you feel it's necessary to seek other advocate at this time.
Well, Chris at those priorities are those things you and I talk about so regularly but.
It is I think a lot of people appreciate over the last two or three years, an increasing amount of my time has really been spent on on working on on pathways.
On a larger scale for the industry, but particularly focused on synovus is GHT reduction plan and Nia.
Im a very meaningful part of pathways discussions with the various levels of government in this country about that.
I've actually been very very lucky.
To have a leadership team like I have that they've been able to pick up the slack while I spent an increasing amount of time on that issue I think it is absolutely vital.
That industry, the federal government the provincial government come to some type of durable agreement as to what.
Our emission reduction.
Ambitions are.
And that we put in place a structure to make sure that industry can do that while maintaining this incredibly important industry for the country for Canada for Alberta.
I suspect this industry is probably going to represent somewhere around 10% of the country's GDP. This year and I think it's just incredibly important for Canadians.
That we find a way for this industry to be able to continue to thrive and the way we're going to do that is by is by constantly improving our environmental leadership.
Finally, I just had a question for John John what will be the key issues for you going forward.
I'm, particularly curious in what significant changes or differences in focus will we see any under your leadership, whether it's in terms of production downstream expansion or anything else.
Yes.
Alex mentioned in his opening non C&I have worked very closely together over the last five years.
What I really focused on is running the day to day of the company, where Alex has been more outwardly focused particularly over the last.
Period of time with his involvement in pathways, So I would.
I would tell you Chris that both Alex and I have our fingerprints all over the corporate strategy.
And we develop this in a partnership together with the rest of our.
The leadership team. So I don't think youre going to see much of a change I think it's.
It's going to be very similar to what you've seen before as we kind of continue on the trajectory that we've been on for the last five years.
Thank you.
Thanks, Chris.
We will take our next question from Ashok Dutta with S&P Global Platts.
Alright. Thank you I had a question for Keith if I may please Keith.
Do you want to.
Take our guests are sure what would be synovus has views on it.
WCS.
<unk> differentials.
Average for 2023.
Yeah.
Tell me too Keith.
I think if I could guess that it may not be sitting here, but.
I think it was kind of in my in my previous answer to the differential question. The structure of of the differential is improving both from egress out of Canada.
We head into the into the summer months upstream production comes offline for turnaround activity. The barrel gets a little a little lighter with less condensate. So there's actually less barrels that move out of the province, So that differentials narrowing and then I think just from a U.
U S Gulf Coast fundamentals.
Natural gas prices coming off an SPR release is slowing down.
And Chinese demand coming back we're seeing.
We're seeing a firm bid on WCS out of the Gulf Coast.
Those two things coupled together.
I think we're more likely to see the differential narrow then widen through 2023.
Okay understandable a quick follow up so you talked about nine unit trains.
Paul easy or difficult it wasn't it wasn't a challenge to get rail cars back on track.
Yes.
An interesting question, we built a lot of flexibility into our rail program. When we when we laid out back in the 2020 time period.
And it's a testament to the to the marketing commercial folks on quickly being able to.
Set up agreements and and restart the rail program so win win.
Keystone went down and we started seeing inventories build in Alberta, we quickly turned on our rail program and we're able to load nine unit trains and offload them down in the Gulf Coast. So.
And then were quickly able to turn that program back off so.
A testament to the flexibility that the company has built over the past few years.
And one last question when was the last time.
Crude on rail.
We're continuously moving some crude by rail there is some refiners that are not pipeline connected so it's an ongoing program, but the ramp up was a little bit different.
Alright, Thank you very much.
Thank you.
That will conclude our question and answer session. At this time I would like to turn the call back over to Mr. <unk> for any additional or closing remarks.
Well, thanks, Thanks, very much operator, and I have to say.
With.
With all of the excitement about John and I.
A number of our of our shareholders and other followers might've missed a very important thing that also we also did this quarter and that was we.
Promoted.
Corona del Ferrari two executive VP as she was already chief sustainability officer.
From my own perspective.
She she literally demonstrates the.
Top decile of professionals in this field and we were very happy to do that and happy to give her that promotion so with that I will pass it back to operator and thank everybody for.
For your time and listening to us today.
Thank you that will conclude today's call. We appreciate your participation.