Suncor Energy Inc. Q1 2023 Earnings Call
And why.
Good day and welcome to the Suncor Energy first quarter 2023 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 the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question Press Star One again, please be advised that today's.
<unk> conference is being recorded I would now like to hand, the conference over to your speaker, Mr. Choi Little Vice President of Investor Relations. Please go ahead.
Thank you operator, and good morning, welcome to Suncor Energy's first 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 that are described in our first quarter earnings release as well as in our current annual information form.
Both of which are available on SEDAR, Edgar and our website Suncor Dot com.
Certain financial measures referred to in these comments are not prescribed by Canadian generally accepted accounting principles.
A description of these financial measures. Please see our first quarter earnings release.
We will start with comments from rich Kruger, President and Chief Executive Officer, followed by Chris Smith, <unk> incoming Chief Financial Officer, and Alister Cowan <unk> current Chief Financial Officer.
Also on the call are three of our senior operating leaders Peters Executive Vice President mining and upgrading Shelly Powell Senior Vice President in situ in A&P Arnold Santos Senior Vice President of refining and logistics.
Knowing the final remarks, well open up the call and questions now I'll hand, it over to rich to share his comments.
Good morning, Thanks for joining us I know many of you on the line and I look forward to reconnecting.
For those of you that I don't know maybe a very brief background I have my I come to Suncor with nearly 40 years in energy 31 of those were with Exxonmobil around the World and then the last seven of those nearly 40 were with Imperial oil here in Canada as their chairman and CEO .
Brown includes everything from operations capital projects commercial corporate strategy et cetera, upstream downstream oil and gas onshore offshore conventional LNG oil sands and the geography started out North America Southeast Asia Middle East West Africa, former Soviet Union and now back to.
Right right.
I used to be North America and Canada.
I would I would never say that ive seen and done at all but I think it's pretty fair to say that I've seen and done a lot.
Personality, what can you expect for me.
I strive to be quite clear.
You finally, candid and transparent.
I live in a fact based world and I tend to be quite focused.
Last but not least I consider myself to be reasonably decisive and are very competitive.
I play to win.
My assessment this week six on the job.
It's been quite a time I.
I feel very proud company here at Suncor excellent people quality assets, some very unique competitive advantages, but I also see a company with untapped potential I see a gap between our current performance.
And what I would consider best in class and in many many areas. So you know so what is my objective, it's really quite simple lead the company to be the best of the best the undisputed industry leader number one.
I think in our business that are just for kind of foundations are pillars that are key to that safety operational integrity reliability and profitability. If you read the press release. This morning, you probably noticed I said that three.
Two if not three times I asked because I believe in it and that's what I've learned over the course of my career.
I strive for us to be a company that delivers on its commitments.
<unk> delivers long term, our superior long term shareholder value.
I never forget the shareholder and promise you that you know will this be easy now but.
Frankly, I wouldn't have come out of retirement to be here and I.
Had it been easy.
So what can you expect from Suncor going forward. This focus on the fundamentals starting with safety operational integrity.
Can expect an intense focus on cost.
Organizational efficiency and then operational support from our center.
We will become a simpler and more focused organization.
And I think it's important to note that we basically produced a series of commodities commodity subject to price cycles.
And those who have the lowest cost structure has the greatest resiliency to compete in whatever business cycle, we happened to be in.
We will look hard at reducing spending where value is added.
Whether that's operating costs opex or capex in terms of capital allocation philosophy for those that know me you've heard this before even a strong balance sheet very much believe in a reliable and growing dividend.
Selective high quality, well timed investments and returning surplus cash to shareholders.
I believe in rewarding our shareholders for their faith and ongoing commitment to the company. So sense to simply you can expect a lot of words around clarifying simplifying and focusing on what we do why we do it and how we do it.
And I would end with last but not least you can expect our sense of urgency and urgency to improve strengthen our competitiveness and produce results.
My first five weeks on the job been quite busy I visited about 50% of our major facilities I've met with with men and women who were hard hats and.
Boots for a living our workplace leaders I've observed I've listened to learn just started coaching my general sense is this organization is ready it is ready to respond it is ready to step up and perform.
I'm, a quite honored and excited to lead it and I can assure you we won't leave anything on the table.
So with that I'll turn it over to Chris.
Alright, Thanks, rich and good morning, everyone.
Well first of all I'd like to acknowledge all of the achievements that our company unemployed that made over the last nine months as I've handed the reins over to rich as our permanent CEO .
Took decisive action to address our safety performance and drive increased focus on operational excellence.
We refocused our portfolio through the sale of our renewable power and international E&P assets in Norway and the UK.
And Meanwhile, we acquired an additional stake in Fort Hills at an attractive price and recently announced our transaction with total energies to acquire at the Canadian upstream assets, including at stake in Fort Hills.
We also presented a Fort Hills mine improvement plan in November that enables us to improve long term asset performance and drive down unit costs.
And we continue to work across our entire portfolio to drive improved performance.
Now we have more work to do but I'm confident that we will build on that momentum under rich's leadership and deliver strong performance and results for our shareholders.
I'm very excited about what the future holds for Suncor and I look forward to working with all of you in my new role as CFO following our AGM.
Now before handing it over to Alastair I would like to update you on three transactions, we recently announced as well as provide a brief operational update.
As mentioned two weeks ago, we announced the acquisition of total energy, Canada for $5 $5 billion Canadian.
The transaction, which remains subject to the exercise of a right of first refusal includes a 50% non operated working interest in <unk> and a 31, 3% working interest in Fort Hills.
This transaction adds 135000 barrels per day of high quality bitumen production capacity to our portfolio and strengthens our long term free cash flow potential.
The transaction is accretive to adjusted funds from operations per share and delivers attractive returns at mid cycle pricing.
As for <unk>. It is a high quality and such you asset with top quartile steam oil ratios of 50 year reserve life and low cash operating cost per barrel, which will improve suncorp cash margins and provide a reliable source of funds through the commodity cycle.
With the two recent acquisitions of additional Fort Hills interests between the Tech and hotel transactions totaling 46% as well as pitchman production at our fire bag and Mackay River operations Suncor will have sufficient Owens betjeman volume with an oil Sands reserve life of 29 years to keep the baseline upgrader full post the projected end of.
<unk> mine life in the mid 2030.
In addition, suncor is now eliminated the need to replace the base mines production with new developments, which also provide optionality for future growth if that isn't the best use of it is the best use of investors' capital.
The transaction will be fully funded via debt and is expected to close sometime in Q3.
With a more resilient pro forma business supported by incremental production and cash flow potential some quarters board of directors intends to approve an increase in the quarterly dividend of approximately 10%. After the close of the transaction that was contemplated.
Also consistent with Suncor strategy of refocusing on our core business, we announced the sale of our UK UK E&P assets.
Canadian $1 2 billion <unk>.
Including $338 million in contingent payments and excluding working capital adjustments.
The transaction is expected to close soon and we look forward to it.
And lastly, we announced last week that Suncor will become the primary long term fuel supplier for Canadian tires retail fuel price.
Consistent with the retail optimization plan presented in November by bringing two iconic Canadian brands and loyalty programs, together and Petro, Canada and Canadian tire. This strategic partnership provides long term value to suncor by expanding our noncontrolling retail fuel network and.
In securing long term supply to protect refinery utilization and maximize sales volumes.
Now switching to current operations. We're pleased to report that our Commerce City refinery returned to service as scheduled at the end of Q1 after progressive restart that commenced in February .
For Terra Nova the Fps. So is undergoing additional work side and bull arm Newfoundland to ensure that it is ready for safe and reliable operation in the field.
Based on this and looking forward to the remainder of the year, we're removing any expected production from turnover from our 2023 E&P production guidance.
An updated plan for reaching first oil will be available after mid year. Once we are further through the additional work.
Yeah.
With the removal of production volumes from turnover as well as the impact of acquiring a lower than expected stake in Fort Hills with respect to the acquisition from Tech and the potential early closing of the sale of our UK North sea assets as expected.
We expect to be near the bottom of our 2023 upstream production guidance range.
Once we have further progress the acquisition of hotels Canadian upstream assets, we will update shareholders further on production guidance for the year.
Now just before I close I would like to thank Alastair for his tremendous leadership.
Suncor CFO over these last nine years and in particular.
Thank him for his support of me over these last nine months.
Congratulations Alistair I hope you enjoy a well deserved retirement, but you still have a little bit more to do so back over to you.
Thanks for the kind words, Chris a little bit more today I certainly appreciate it.
All of the relationship so far I'm with members of the investment cumulatively over these last nine years.
Suncor as well as before that time and I'm very thankful for the support of my colleagues and the finance team.
During my time here.
Not enough of them, let's get onto the quarter highlights overall, we generated $3 billion of adjusted funds from operations.
Also on the segment delivered $2 6 billion of adjusted funds from operations.
Production of 675000 barrels per day.
This performance reflects reviewed quarterly and since your production record of 261000 barrels per day.
Every space bonds in Syncrude.
<unk> of 93%.
At Fort Hills, we completed the acquisition of the additional working interest subtract resource season early February production remains on track to ramp up in Q2 prior to starting a five year turnaround in July consistent with.
Our restart plan.
Oilsands realizations averaged $91 per barrel or 89% of <unk>.
This reflects a $7 <unk> per barrel decrease in the benchmark double UTI.
Sir by small U S dollar.
One U S dollar per barrel.
And the WCS heavy differentials versus Q4 of last year.
Our E&P segment generated adjusted funds from operations, so $500 million with production of 67000 barrels per day at an average price realization of $180 per barrel or 98% of brands.
Downstream generated adjusted funds from operations of $1 2 billion on a <unk>.
FIFO basis.
The $130 million of FIFO losses will be about $1 3 billion on a LIFO basis.
Refinery utilization reached 79% and margin capture was strong at 102%.
Overall segment performance was in line with our expectations.
Obviously impacted by the downtime of the Commerce City refinery is starting to at the end of Q4.
But utilization of our Canadian refineries was a solid 94.
During the quarter.
During the quarter, we returned $1 $6 billion to shareholders, including $700 million in dividends and $900 million of share buybacks.
Let me close the net debt position as of quarter end was $52 7 billion, which primarily reflects working capital use of $2 billion.
On the earlier than expected closing of the acquisition also stake in Fort Hills from Tech Rich all in including leases was $1 billion.
Our final 2022 cash telco payment was $501 million.
The majority of our cash taxes of $4 2 billion through 2022.
And as Chris mentioned, we expect to receive the $1 $2 billion of gross proceeds from the sale of the UK E&P in the near term.
As stated previously with the acquisition of Total's Canadian upstream assets, we're now expecting to remain as a 50 50 capital allocation return.
Share buybacks and debt reduction until we return to $12 billion of net debt for inspiring.
Points to 70 525 allocation.
And with that thank you all and I'll turn it back to rich.
Before we get to your questions I'd like to commend Chris for his leadership over the last nine months.
Our focus he has brought to this business, particularly safety I've seen that in into my site visits.
And also.
I can assure you, Chris and I are going to work very well together.
We have been engaged since before I showed up.
Weeks before that.
I think we're going to make a very strong team and lastly, thank al surface dedication leadership for nearly a year as is said he will be missed but not forgotten and look forward to working with each of you and the investment community at large and with that I'll turn it back to Troy to kick off our question period.
Thank you rich I'll turn the call back to the operator to take some questions.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment, while we compile the Q&A roster.
And our first question will come from the line of Greg Pardy with RBC capital markets. Your line is open.
Thanks, very much good morning, everybody and thanks for the thanks for the rundown and indeed, all the very best to Alastair.
Rich and welcome you can't imagine how happy I am to have you back in the chair So a couple of quick ones.
So rich, particularly as you looked at the business.
Im wondering if there are areas upstream or downstream, where you see low hanging fruit from an operating performance perspective to either higher throughput and lower operating costs.
And if so what those might be and how long do you think some of that might be to achieve better performance.
Greg I missed you too so it's good to be back.
I do.
As.
I've seen opportunities across the organization and I think let me start on the downstream a little bit.
Yes.
It was a baseball analogy that I don't want to share a quick is the.
The downstream here to hear any Canada has done very very well I'm a baseball fan and somebody told me it's.
We werent we.
We didn't hit a triple were born on third base, we have a lot of structural advantages right now, but what is important are we operating to the best of our ability and I think as I look at the downstream I see reliability is still an opportunity I think our cost structure.
Turnaround performance turnarounds, we spent a lot of money and of course, the time offline. So I think there is just getting its just getting incrementally better at the fundamentals the basics in the upstream.
The mining mining is tough business, we know that we've got ageing mines, we've got more challenges on haul distances and things, but I spent a lot of time with Peter in and looking at it as kind of improvement plans, all the way from reducing contractors to enhance efficiency and.
And reduce cost.
Improving the performance of our fleet so Greg in those areas I would say, it's lots of little things and so I don't know if I'd, maybe describe as low hanging fruit, but I think theyre very tangible and things that we have and will continue to have a very intense focus on.
I hit at it in my comments.
Fundamentally our cost structure is looking at ensuring that all our people everybody above the operating units are.
Our focus on what they do to support edge.
To support the operating units and I think a.
I think there is some low hanging fruit there and really looking at what we do how we do it.
And we've already we're making small improvements I'll have more to say about that in the next couple of months ahead, but I wrapped up my comments with this sense of urgency.
We need to get on we need to get on with it and I don't see anything in my first five six weeks that will prevent us from bringing about material improvement.
From inside from focusing on those things that we control.
Okay understood and the second quick one well, maybe it's not a quick one.
The pace at Ritchie, which you run the base minus coming up a lot.
And there is a.
Fairly defined we've seen out there and it's really all about managing arrow that youre going to have to slow down the mine to manage <unk>. How are you guys kind of thinking about that decision like how should we think about how fast that baseline is going to run over the next few years.
Well I'm going to turn it over to Peter here in a second to maybe give you a little bit more specific on it but I think if you look at and you look at Chris described.
The recent deal we've done looking at longer term bitumen supply. He is the most valuable barrel through an upgrader is the incremental barrel last barrel. It's much like a refinery is still ensuring that we utilize those facilities to the fullest and then it becomes what's the most economic way to do that and.
Whether it's continuing to mine and extend the life of the base mine, whether it's bringing a bitumen supply from outside of the lease.
I would say those are all kind of works in progress but.
It's all about value, it's all about determining what is the most valuable barrel.
Fill up those upgrades with Peter if you if maybe if you want to add any further color to my comments, so maybe a little bit more information Greg.
The short term and I mean between now and 2026 and 27 the rate of mining that base.
And we will continue as is and so we will be running to maximize volumes out of the base mine. This is a tailings driven facility and so until we are able to open up our tailings plan and we'd look to secure an additional piece of variability around.
So for water management and recycle.
Don't have a lot of ability in the short term to throttle the rate of mining pulse that in our long term plans. We are looking to see what the rate of mining and subtle maximizes the value coming from the outset, taking into consideration your body operating costs et cetera.
Terrific. Thanks, Thanks to both.
Thanks, Greg.
One moment for our next question.
And that will come from the line of Dennis Fong with CIBC. Your line is open.
Thank you good morning, everyone and again congratulations to Chris then rich on your new roles as well as Alastair for a.
Well deserved retirement.
The first question I had is during the quarter. It looks like you had about 5500 barrels a day at Fort Hills production that was processed at the base Upgrader isn't about 800 barrels a day of oil sands off the volumes that were processed 15 crude can you talk towards again some of the impact of feeding those barrels through the various upgrade or it's an <unk>.
Chris I think facilities and maybe what some of the considerations maybe in the future for shifting the destination of barrels across your portfolio.
Dennis This is rich I'll I'll, maybe start out with that again that I'll, probably turn it back to Peter for more specifics.
It's all about value and I think one of the things I said in my opening comments is that I really look forward to working with here is the unique competitive advantages that we have to the physical integration of our upstream through our upgrading and actually quite frankly, all the way through refining and logistics.
We've got a we've got an asset base that is quite hard it while it's unparalleled in its hard to replicate and so those kind of decisions are about incremental.
Bitumen prices in the market, what's the sour crude which is a synthetic price and how can we move molecules around to maximize the value of each and every barrel, maybe I'll turn it to Peter though to kind of get into that like how do we really how do we do it and how real time are those decisions to make the most money.
Thanks, Rich and thanks, Dennis and it is indeed, a really dynamic process and frankly, it is all about margin optimization and generating the maximum value for those molecules.
Dennis we really look at it I would say on three time horizons, starting from our long range kind of the business.
Planning process in the budgeting process that really optimizes extraction at all of the pitchman production facilities utilities and takes into consideration major maintenance outages for the year, so that kind of macro level planning and then zooming in on much more of a short term planning process, where we look at production planning and considering.
<unk> of all the risks we have in our facilities and kind of up 1% to 12 week time horizon and that really allows us to optimize an on market based conditions through differentials logistics downstream demand et cetera, and then finally, it's really in the here and now and is that shift by shift optimization that is done by our production plan.
<unk> team and we have an integrated production planning team across the upstream assets in the region and extending down into downstream into the refining and production coordinators on time for our ship by ship basis. So this is very dynamic very real time, and it's all about making the most from the molecules to be produced.
Great Great I appreciate that color.
Maybe shifting focus.
Towards the downstream side, and maybe a little bit more specifically commerce city I know the facility itself was impacted by we'll call. It a very unique circumstance with respect to winter conditions in the region. I was just curious as to whether or not there were any learnings from the events that occurred there and if there were any.
Changes to operations or operating procedures that were being implemented to maybe limit the risk of future.
Kind of downtime as well as anything else across the platform.
Yes, Dennis rich here again.
There have been a lot of learnings and I think the best organizations whenever you have things like this happen.
That's how you get better is through the learning process in fact I'll say.
Just literally real time, we went through a pretty comprehensive discussion with our the Suncorp board of directors yesterday on the learnings on it.
And the learnings that they fall into a variety of buckets.
The competency of individual operators have we had sufficient training in the the uniqueness of what happened the temperature dropped over the very very short period.
<unk> was an extreme if you look at the temperature range itself and at the low end of it thats not necessarily.
Out of the.
The realm of history, but it's how fast the temperature change and then what that impacted on control systems steam generation and our ability to keep things hot to keep things warm with that and so as we lost steam capability. It was a little bit of a cascading effect and.
The judgment was made it was before I was here, but I look at it I think it's exactly the right judgment to take that entire facility down and that was made out of concern on our safety and operational integrity and that to me was the right decision, but now you've got a facility in extremely cold weather that you are not able to be keeping war.
<unk> anymore, and so it's kind of a damned. If you do damned. If you don't if you continue to operate you'd run risk that in there is extreme conditions you could have some type of loss of primary containment.
Further escalated event, but also you knew when shutting it down now you've taken things to ambient temperature. So I'd say theres been a lot of learnings and what we're trying to do right now is take those learnings and incorporated into the facility, whether its operator capability and training, whether it's heat tracing some.
Things that we would do in preparation for the <unk>.
Currently every year Theres, a winter in Denver and before the next season so.
If we were to.
Experienced something is unique as this we would be far better equipped to handle it. So yes lots of learnings and we're plowing it right back into actions to ensure that this consequence doesn't happen again.
Okay.
Great I appreciate the incremental color you provided there rich I will turn it back thanks.
And one moment our next question.
And that will come from the line of Neil Mehta with Goldman Sachs. Your line is open.
Hey, welcome back graduate we missed yes, Sir.
Thank you Neil good to be back.
And congrats to everyone and Alistair on your retirement.
The first question is just around.
The transactions both Fairmount <unk>.
Fort Hills from total maybe you can dive into what attracted you to this asset why now why.
Dig more into the upside case associated with the with the deal and how you're mitigating some of the risks associated with that.
I'll give you a little bit of color commentary, but I'm really going to turn it over to Chris.
Chris announced or that we are the ones that made this happen.
I was brought.
Into this thing.
Literally within an hour of by announcement.
On February 21, and by then things had been.
There had been things have moved along.
We look at it is we've talked about the long term bitumen supply the value in keeping up the upgrader is full.
And the uplift you get from that now we have other internal alternatives.
We look at we looked at those alternatives, whether they are developing incremental mining capacity or in situ, but we looked at this and we saw <unk>.
Significant value in it we saw a material a dimension of risk management.
In terms of not having to plan and execute large scale capital projects.
Timing of it.
It brings barrels immediately and it's accretive.
To me it looked at it it was pretty clear that this is a win win.
I'll ask Chris to comment any further on it.
Thanks, Rich I actually don't have too much more to add because I think you covered the major points when we looked at Neal when we looked at the opportunity. This transaction I mean, it was checking a lot of boxes for US first of all obviously, we know the portals asset really well.
Have a lot of confidence in the long term value of that asset.
We have for it.
Fairmont as a high quality bitumen asset as I mentioned in my remarks, we're also well.
A very good operator in such a ourselves we see a real opportunity to actually work with the operator and bring.
Our advantages to that asset and then as rich mentioned from a strategic as just a great strategic fit and there's a lot of industrial logic related to this transaction and long term detriment supply into the region. So we saw it as a really nice fit for our portfolio as rich mentioned accretive to shareholders.
We see very good return long term returns from this investment at the price. We paid so we just saw at attractive all sorts of dimensions, when we entered into the deal.
I'll make one other comment on it.
We're all aware that Conocophillips has a has a ROFO runs Vermont.
We reached out the morning of the announcement.
What are the overriding messages as we would be a partner they're willing partner that would look to invest and grow value. In this asset we have tremendous respect for conocophillips as an operator, and we think there would be synergies that we could bring that would add value to both this remark opera.
<unk> as well as our fireback back and forth that together, we can make this more valuable than either of us individually.
So we'll see we'll see what goes on in that but we would very much look forward to being in that partnership.
Yes.
Center, that's the follow up is as.
As you highlighted in the presentation there are significant.
<unk> pools.
Associated with this to the extent that Conoco does.
Execute a right of first refusal on surmount only.
The tax pools exist.
At the asset level or at the consolidated level that makes sense.
And just one comment and then I'll ask Alastair if he wants to supplement a little bit but.
With the roof are still out there kind of anything that might happen in the futures kind of speculative.
This than that and I would say on all of those remain to be seen we just it kind of depends on what happens, but Allison would you have anything you'd want to add there are yes.
For a later date no you got it right I mean, it depends that aggregates executed was close to.
On the face of a b lower by the amount of the ROFO, but beyond that we obviously everyone.
Was executed.
Got it.
Sure.
And one moment for our next question.
Okay.
And that will come from the line of Doug <unk> with Bank of America. Your line is open.
Good morning, everyone I loved the exotic version, but congrats to you guys.
Alastair I'm glad we were able to get our trip squeeze them before you walked away. So thanks for your time again.
Guys.
I Wonder if I could follow up on Neal's question on the on the roof, but I want to be a bit more specific about the tax.
The benefits that you guys are.
Acquiring Christopher this might be for you. Given this is more of a kind of a technical accounting question, but I'm trying to understand who owns the tax losses.
Is it the total entity that you are buying the shares off or did a tight <unk> sits at the asset level in other words, if conocophillips did preempt do you hold onto the majority of those types of courses or do they get transferred with the asset any.
Technical explanation of how that might work would be really appreciate it.
Yeah, Thanks, Doug so.
As you as you pointed out we're doing a share transaction, we're purchasing the entity of the tax pools or at the entity level.
And as Alastair mentioned in his answer to the earlier question from Neil I mean, certainly if the Rovers triggered it then it's going to move into a different sort of transaction at an asset level and then I think the tax pools are going to be looked at quite differently and they're going to be lower but we're transacting at the entity level. So as we're looking at the tax pools are on that.
<unk>.
Okay. So we're going to have to wait and see how it plays out.
Tax pools splits proportionately to the value of the company.
The assets included in the transaction two thirds one third.
They are at the entity level.
Okay.
Wait and see what how that plays out I guess rich. My question for you is that obviously you are inheriting a lot of legacy reliability issues not all of those or rather a large part of that was one of the margins are structurally is it to the age of the mine so.
How do you anticipate.
Closing some of those are liability gaps given the obvious.
Structurally it just starts with challenges of of of the.
Mine life.
Well first of all Doug I would say that.
Advanced age is no no excuse for poor performance, so I'm, saying that a bit tongue in cheek.
Yes.
I think you take take the mines, yes, what youre, saying is obviously there is aging equipment I think the issues are a little bit more things like haul distances and in.
Or quality in different areas, because if you look at it I was up with Peter just a couple of weeks ago.
I went into the.
Maintenance space at each of the base mine at Syncrude Fort Hills, and you talk about how we maintain things we basically like rebuild trucks over time so.
Truck is not all because over over a period of relatively short time, it's rebuilt and now upgrade or is there a different thing, but look at refineries refineries across around the world have been operating in and they can operate very reliably. Despite age it comes down to maintenance comes down to best practices opera.
Regional discipline and so yes, we have an aging.
<unk> set of assets and yes, we have increased haul distances, but I think that just means we just have to get smarter and more creative about how we manage costs and improve reliability. So I really don't look at that as a certainly.
It certainly got Peter does neither I know, we don't we don't look at that as an excuse or at.
Well, we're a limitation on what we can achieve I think it just means we need to get more thoughtful and more creative.
Really means executing the fundamentals extremely well our maintenance programs our reliability programs looking at risk base worked selection on turnarounds is just the blocking and tackling in our business that we've learned for decades.
Whether we have learned that in refining or whether you've learned it in mining, but executing extremely well.
I hope and I think you've heard in my comments, that's going to be our plan looking at how we do the St. What we do how we do and then ensuring that those folks that are not at the asset that they are providing the highest level of support whether thats for rotating equipment, whether that's near term midterm or long term mine.
Planning.
It's really it's a focus on the basics, but just doing the basics extraordinarily well. So I know, it's kind of a long answer to it but I.
Just.
By premise is the age of our facilities and ultimately is not going to be immaterial inhibitor.
Peter Great perspective, thanks, Thanks, and good luck Peter go ahead. Please.
Anything you'd add to that Peter I would just say and especially in our mining operations are really our approach is threefold.
Our portfolio, we're moving $1 3 billion tons of material every single year to generate.
So we do.
So little things make a big difference and that means squeezing efficiency out of our own operations every shift every single day.
Means reducing our exposure to more expensive tonnages by executed by a third party contractor I would say the last tranche of that really is around the implementation of new mining technologies like the autonomous trucking technology. We have acted in our base plan today, and we will be scaling up across all of our assets in the near future and Doug Richard.
You got me going here, so I got to say one more thing I think we haven't talked today, so much but our focus on safety and improving safety safety is a huge productivity driver when when you not only do we have a moral obligation to people and we care about people thats why but it affects productivity.
So activities that Peter has going on and safety system collision avoidance fatigue management, we've talked about autonomous vehicles over time all of these things not only ensure a safer workplace.
But they provide a more productive workplace and so I think those things they safety operational integrity reliability and profitability here, all very internal inter linked and so I think the other things we're working on add to that same reliability aspect, particularly in <unk>.
Mining.
I appreciate your answers guys. Thanks, so much.
Yes, Thanks, Doug.
And one moment our next question.
And that will come from the line of Menno <unk> with TD Securities. Your line is open.
Thanks, and good morning, everyone Rich you talked about driving clarity.
Simplification throughout the organization can you just elaborate on what is meant by that it felt like those words were carefully selected and what specific.
Perhaps could we see over the next year or two to achieve that.
Can you give me too much credit Menno I don't know that there were carefully selected.
What I believe is I believe everybody in the organization needs to have a line of sight to how do they support making money and I very much believe in making money. We are in business to make money and as much of it is possible and everybody starting with me needs to see how they do that.
And that.
So what I, what I believe here in just a.
Short, while but I'm proof testing a lot of things is that we can enhance our clarity about what the workforce does to support.
Whether it's safety integrity reliability or profitability and I think we can eliminate work I think we can do away with work that doesn't add value I can I think we can look at things like service levels and service level of support but all with a keen eye on how it enhances bottomline.
Business performance. So if my words came across as carefully selected.
Not really intended we're early in this but I just see a lot of opportunity for organizational efficiency and if thats focusing on higher value activities. So be it if thats, eliminating low value added work awesome.
It's a combination of all of that and I do think above the field in an organization you can create an energy or motivation through clarity and focus.
People can move mountains.
And I think fundamentally when you look at our business our business hazard.
Kind of involves moving mountains in many cases and I think this organization is ready for that.
They are asking for it.
That's exactly what I intend to provide.
Okay. Thanks for that Rich and then and then Havent seen all of the inner workings at Exxon and Imperial for decades are there any best practices that have been shortlisted for rollout at suncor over the near to mid term and I guess as a follow up to that do you think there are ways that suncorp.
It could work together even more effectively.
I'm, a big believer in <unk>.
And benchmarking and best practices, how do you how do you know if youre the best unless you unless you got some kind of a scorecard to it.
So what I think are best practices.
Whether it's safety systems integrity systems, Theres kind of three categories I think about first the system design itself is it a quality system and in my short time here I think we have quality systems. Our safety systems are operational excellent systems I think our quality now can they can they be improved.
Can they be made better to implement absolutely are they are they.
Simple as they can be to apply in the field those are questions, but we have a sound systems. So then you get into the application of a system, that's where in a short time, but I've seen variability.
And how well we've applied systems at different sites and my.
Vision, there would be we reduce variability to the highest highest standard of performance and once you have a quality system. Once you've applied that system then it comes into the effectiveness.
Our system is delivering the intended result, and Thats, where you put that that return feedback loop in place to enhance the system strengthened the leadership that goes with the applicability to produce better results. So on the application of what I think are our quality systems, we have.
To do to reduce variability and then along with that is measuring the execution quality of the effectiveness of our application. Those are the two areas, where I plan to focus on.
Early on.
And other best practices I think in the big one for learning Youll look you look over the over the lease line to learn.
And for collaboration whether that's in whether that's in operation refineries, whether that's in operation at mines I believe that for the oil sands well for suncor to be a winner in the oil sands. The oil Sands also has to win and compete on the <unk>.
Early stage the consumer when they put a nozzle.
Car or truck or the side of an airplane quite frankly, they don't really think about where that low gas diesel or jet comes trucks have come from and all sad West, Texas intermediate all so we have to be globally competitive.
The oil Sands and then our goal is to be the best of the best in the oil sands so to be globally competitive that comes with collaboration and I think pathways as a great example of that but I think theres other more fundamental examples of how do we run and operate mines, how do we.
How do we maintain.
Dykes and dams and tailings, how do we treat how do we collaborate with the <unk>.
Federal and provincial governments unsound sound public policies that achieves the objectives, but also ensure our maintain the competitiveness of what is a critical industry for not only Alberta, Canada. Overall, so that's a long and you got be gone there.
On a topic I'm passionate about but I think collaboration and application of standards and best practices is a very much a part of a winning formula.
I appreciate the thoughts rich I will turn it back.
One moment for our next question.
And that will come from the line of Harry Mateer with Barclays. Your line is now open.
Thank you good morning.
First of all I see slide four about the capital allocation it looks mostly similar to what the company had previously but at the same time some of course coming out of the gates with a debt funded acquisition and going above the $12 billion to $15 billion that range at least for a period of time, so rich for the credit Investor community would like to get your perspective on the balance sheet.
How do you think about optimal leverage for suncor and perhaps where.
And the investment grade category I think the right places for Suncor is rating's debate.
Yes, I think.
I think some of the specificity of what you've asked or maybe it's beyond what I can comment on today, but.
Fundamentally I think I believe in a strong balance sheet, we produce a basket of commodities prices go up and down and how you have the resiliency to get through inevitable cycles is by having a strong balance sheet.
And when I look at covering what my priorities are.
The care and feeding of the existing asset base sustaining expenditures are you need to do those in the short term and the long term and as I commented it reliable and growing dividend.
Dividend is very very important to me so I want to ensure that we have a cost structure, which includes.
Our level of debt and financing costs on that so that we can withstand those ups and downs and financially deliver maybe you dial back on high quality investments at periods of low prices may be you used the flywheel flywheel.
Returning surplus cash to shareholders is modified.
But that you don't put at risk taking care of what you already have and you can still continue with a reliable and growing dividend in periods of up and down and maintaining a strong credit rating is key obviously for the cost and I think coming out of the Daisy is a bit of a reflection.
<unk> confidence that having the corporation and I.
That's all that's all important is maintaining our ability to borrow when we can and should leverage for opportunities keeping a strong credit rating our credibility in the marketplace and then getting our cost structure, where we can we can withstand the inevitable ups and downs you see in our business. It's the business we've chosen.
Harry I'm not sure if I was specific enough for Ya Alastair if you have anything else to add or bolster that or <unk>.
I think you summarized it very well.
I emphasize that work.
Really agencies with C R.
Two tile acquisition and no changes to arrangements I think that demonstrates our commitment.
On balance you to getting the debt back down in a relatively short order.
Exactly.
Great. Thanks for that and then a follow up I'm.
Im not sure for Alastair, Chris, but you know given the planned debt financing.
You've noted in the slides I mean suncor.
A pretty clean maturity slate in the next couple of years. So how are you thinking about staggering that financing or are you comfortable issuing some longer term debt or are you thinking more like issuing shorter dated notes or bank debt to provide a bit of a glide path to gross debt reduction in the next couple of years.
Yes, as you noted.
Our maturities have been.
In the short term what do you think you've taken most of those.
Buyback last year.
We will focus more on the shorter end, obviously, we think we can accelerate the debt repayments that we'll be focusing on our ability.
To be able to repay debt as quickly as we can and we will always see some longer term. So it's.
As part of the package.
Focus will be on our own.
<unk>.
Okay. Thanks very much.
Thanks Terry.
Okay.
And we do have time for one final question.
And that will come from the line of Roger read with Wells Fargo Securities. Your line is open.
Yes, Thanks for working me in here.
I guess, what I'd like to really kind of understand rich and Chris is.
So much of the forward focus is going to be on reliability safety and general systems are in how much visibility do you have today or certainty do you have what needs to be done in terms of making things work. The way you want them to work and improving the <unk>.
Overall performance and what I'm really just getting at is.
Had the Investor day at the end of last year, and then we've had obviously some pretty significant changes here at the top and I just want to kind of understand.
We're looking at something that should really be a very quick impact are we looking at things.
Well, let's think about it more is it $24 25 kind of event.
You can do to help us with the timeline I'd appreciate it.
Yes.
In terms of what needs to be done.
Lot of it is not and you know and I don't mean to oversimplify it but it's not rocket science, either it gets back to and I am looking down the table at the.
The executive Vps, who is senior VP is responsible for our operations. It's the kind of things we talked about it's applying best practices well executing our work.
<unk> well that is not in.
Necessarily complicated, it's ensuring that people have the skills and abilities the time the support.
What we know it takes to operate and maintain facilities.
It is also getting smarter and looking for creative financial solutions and whether that's our our truck fleet at Fort Hills for example, or we're getting better at the turnaround expenditures. We spend for example, nearly a $1 billion a year on plant turnarounds.
Across our massive asset base well it seems like that should be something we become really really good at because you save money.
And way to shorten timelines do risk based work selection you get online quicker and you start making money, while you take facilities down so.
I think I would love to be able to say, how fast and what to expect I am just Roger Im not there yet, but I think the.
What we need to do and what we need to focus on and equally important what we what we need to be sure. We don't focus on to allow that to allow the attention to where the biggest bang for the bucket I think thats getting clear and clear I think the senior leadership team and I are rapidly getting.
Aligned on that.
And in terms of we will be pursuing any and all improvement.
Opportunities with a sense of urgency I know I didn't give you a timeline or numbers, but this is when you started saying 'twenty four 'twenty five.
Today My timeline.
There is no better time than the present and so I think I would hope that we start seeing hope's not a very good strategy by the way. So I would expect that we will start to see incremental improvements.
With time and that times not just in future that's sooner rather than later.
I just signed yes deliver songs.
I'm looking at my team down there and I just signed them up I can tell there is a little tightness.
For them down there at the end of the table, but they're all smiling so thats a good thing.
Yes, I appreciate that.
Yes, just.
As a quick follow up.
It's been kind of hammered already but the ROE further conoco as if.
They exercise added obviously alters the transaction what we anticipate.
Then you would obviously with a lot less debt.
Would be likely to move back to $75 25 pay out more quickly I mean, thats just that seems like a natural progression if that happens and I'm just trying to.
Kind of anticipate what the changes might be if that that.
That piece of the total transaction does not occur.
Again, it what conoco may or May not do we'll all learn that here in the relatively near future, but if I think about if I step back from it.
More broadly if we have go back to what I described on capital allocation, if we have it.
We have surplus cash we will look at what's the best way to return that to the shareholder and that that'll be a combination of continuing to look at our dividend <unk> share buybacks <unk> debt reduction so undoubtedly if we didn't have this.
Big acquisition, our debt would be back closer to where we've talked about targeting it and but it would be that combination of events that we would just look at what do we believe is the highest value of the shareholder and I can assure you Roger everything everything we have done and will continue to do we will always have the shareholder at the.
The front of the windshield not not looking at bat, but looking forward what's in the best interest of the shareholders that is R.
That's our mantra.
I appreciate it thank you.
Youre welcome.
Thank you I would now like to turn the call back over to Mr. Troy Little for any closing remarks.
Thank you operator, thank you for joining US everyone. Please don't hesitate to call us with any follow up questions. Operator, you can now end the call.
Thanks, Bob.
Thank you all for participating. This concludes today's program you may now disconnect.
Okay.
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