Q2 2023 Cenovus Energy Inc Earnings Call

July 27, 2023

Okay.

[music].

Good day, ladies and gentlemen, and thank you for standing by welcome to Sinopis Energy's second quarter results. As a reminder, today's call is being recorded at.

At this time all participants are in a listen only mode.

During the presentation, we will conduct a question and answer session. You can join the queue at any time by pressing star one.

Is that the investment community will have the opportunity to ask questions at.

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 express consent of <unk> energy.

I would now like to turn the conference over to Mr. Jason <unk> Senior Vice President Investor Relations. Please go ahead Mr. Patchy.

Jason Abbate: Thank you, operator, and welcome everyone to Cenovus's 2023 Q2 Results Conference Call. Please refer to the advisories located at the end of today's news release. These describe the forward-looking information, non-GAAP measures, and oil and gas terms referred to today. They also outline the risk factors, assumptions relevant to these discussions. Additional information is available in Cenovus's 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. Jon McKenzie, our President and Chief Executive Officer, will provide brief comments, and then we'll take your questions. We ask that you hold off on any detailed modeling questions. You can follow up on those directly with our investor relations team after the call. Please keep to one question with a maximum of one follow-up.

Thank you operator, and welcome everyone to Synovus is 2023 second quarter results Conference call. Please refer to the advisories located at the end of today's news release. These describe the forward looking information non-GAAP measures and oil and gas terms referred to today. They also outline the risk factors assumptions relevant at these discussions additional information.

Is available once notices annual MD&A and our most recent Aif and form 40 F.

All figures are presented Canadian dollars and before royalties unless otherwise stated.

John Mckenzie, our President and Chief Executive Officer will provide brief comments and then we'll take your questions.

I ask that you hold off on any detailed modeling questions. You can follow up on those directly with our Investor relations team after the call.

And then please keep to one question with a maximum of one follow up Youre welcome to rejoin the queue for any other follow up questions you may have John .

Jason Abbate: You are welcome to rejoin the queue for any other follow-up questions you may have. John, please go ahead.

John Please go ahead, great. Thank you, Jason and good morning, everyone.

Jon McKenzie: Great. Thank you, Jason, and good morning, everyone. Before we start, you'll have seen a few changes to our executive team that we announced this morning. When I succeeded Alex in April, it did create an opportunity for us to move some of the executive group around to really take advantage of their capabilities and versatility. You can read the full details in our news release. However, I'd just like to step you through a few of the changes. Keith Chiasson will become our new Chief Operating Officer, and replacing Keith in the Downstream will be Doreen Cole, who's been promoted to the position of Executive Vice President, Downstream. Drew Zieglgansberger will become our new Chief Commercial Officer, and Andrew Dahlin will replace Drew as the Executive Vice President of Natural Gas and Technical Services.

Before we start you will have seen a few changes to our executive team that we announced this morning.

I succeeded Alex in April it did create an opportunity for us to move some of the executive group around.

To really take advantage of their capabilities and versatility.

Can read the full details in our news release, however, I'd just like to step you through a few of the changes.

Keith Jason will become our new Chief operating officer, and replacing Keith in the downstream will be Doreen Cole who has been promoted to the position of executive Vice President downstream.

<unk> Berger will become our new Chief commercial officer, and Andrew Deleon will replace drew is the executive Vice President.

Natural gas and technical services, Jeff Hart, who is currently our Chief Financial Officer will succeed Andrew as the executive Vice President of corporate and operation services.

Jon McKenzie: Jeff Hart, who's currently our Chief Financial Officer, will succeed Andrew as the Executive Vice President of Corporate and Operation Services. Finally, Kam Sandhar will replace Jeff as our new Chief Financial Officer. I really do feel incredibly fortunate to be surrounded by such a talented group, and we have absolute confidence in their ability to continue stewarding this company. At this time, I'd also like to recognize Canning Fok, who's announced his retirement from our board. I've known Canning for over 10 years and have really benefited from his knowledge and experience. I think further Canning has played a significant role in the repositioning and success of Cenovus over the past two years. We all wish him the very best and really look forward to his continued presence as one of our major shareholders.

And finally, <unk> will replace Jeff as our new Chief Financial Officer, I really do feel incredibly fortunate to be surrounded by such a talented group and we have absolute confidence in their ability to continue Stewarding. This company.

At this time I'd also like to recognize scanning Fox, who has announced his retirement from our board.

I've known Canning for over 10 years, and they have really benefited from his knowledge and experience.

I think further counting has played a significant role in the repositioning and success of synovus over the past two years.

We all wish him the very best and really look forward to his continued presence as one of our major shareholders.

Jon McKenzie: Now let's move to our results. As always, I'll start with our top priority, which is health and safety. This quarter posed some unique and significant health and safety challenges, and I couldn't be more proud of the way our people have stood up to the challenge. This quarter, we focused on the safe and disciplined ramp-up of the Superior and Toledo refineries, as well as completing the major turnaround at our Foster Creek asset. I'd like to thank all our people for their continued commitment to safety and our core values as we completed these tasks. The results were truly exemplary. Similarly, in our conventional business, we dealt with a number of wildfires through the quarter.

Now, let's move to our results.

So as I as always I'll start with our top priority, which is health and safety.

In this quarter or this quarter posed some unique and significant health and safety challenges.

And I couldnt be more proud of the way our people have stood up to the challenge.

In this quarter, we focused on the safe and disciplined ramp up of the superior and slate of refineries as well as completing the major turnaround at Foster Creek asset.

I'd like to thank all our people for their continued commitment to safety.

Our core values as we completed these tasks the results were truly exemplary similar.

Similarly in our conventional business, we dealt with a number of wildfires through the quarter.

Jon McKenzie: We temporarily shut in 85,000 BOE per day of our natural gas and NGL production through most of May and part of June and supported our staff in their communities. The company worked tirelessly to keep our people and our assets safe. In addition, we greatly appreciate the actions taken by local authorities and the provincial emergency management teams. Our staff truly demonstrated our core value in protecting what matters. Going above and beyond for each other and our communities is truly something we're all proud of. With that, I'll take you through our operational results. Starting with our US manufacturing assets, as we mentioned in the Q1 call, our focus has been on bringing the Superior and Toledo assets online.

We temporarily shut in 85000 Boe per day of our natural gas and NGL production through most of May in part of June and supported our staff and their communities. The company worked tirelessly to keep our people and our assets safe.

In addition.

We greatly appreciate the actions taken by local authorities and the provincial emergency management teams, our staff truly demonstrated our core value and protecting what matters.

Going above and beyond for each other and our communities is truly something we're all proud of and with that I'll take you through our operational results.

So starting with our U S manufacturing assets as we mentioned in the first quarter call. Our focus has been on bringing the C superior in Toledo assets online.

Jon McKenzie: Toledo was fully operational by mid-June, while Superior continues to ramp up with a focus on safely restarting the cat cracker, which is the last of the major units to restart. These assets are incredibly important and meaningful contributors to our integrated heavy oil strategy. Our focus in the Q3 and beyond will be to operate them reliably, efficiently, and profitably. Our Lima refinery continued to operate at high rates of utilization through the quarter, while the Wood River Refinery ran well through the quarter following the completion of some planned maintenance. The Borger Refinery is back up to full rates after some planned and unplanned outages over the course of the Q2.

Toledo was fully operational by mid June while superior continues to ramp with a focus on safely restarting the cat Cracker, which is the last of the major units to restart.

These assets are incredibly important and meaningful contributors to our integrated heavy oil strategy.

Our focus in the third quarter and beyond will be to operate reliably efficiently and profitably.

Our Lima refinery continues to operate at high rates of utilization through the quarter, while the wood River refinery ran well through the quarter. Following the completion of some planned maintenance.

The borger refineries back up to full rates after some planned and unplanned outages over the course of the second quarter.

Jon McKenzie: Turning to our Canadian manufacturing, our Lloydminster Upgrader and Refinery ran at a combined utilization rate of 86% in the quarter, and they're fully operational as we enter Q3. We expect both of these assets to run at high levels of utilization through the remainder of the year. Overall, I'd say we achieved everything we set out to do in the Downstream during Q2, and we're very confident in our ability to produce reliably and profitably through the remainder of 2023. In the Upstream, we revised guidance as a result of the wildfire impacts, which had an annualized impact of approximately 10,000 BOE per day in our conventional business. We've also built in a modest decrease of 5,000 barrels per day for our Lloydminster Thermal, adjusting for the slower than anticipated ramp-up in the year.

So turning to our Canadian manufacturing, our Lloyd Minister Upgrader, and refinery ran at a combined utilization rate of 86% in the quarter and they are fully operational as we enter the third quarter.

We expect both of these assets to run at high levels of utilization through the remainder of the year overall I'd say, we achieved everything we set out to do in the downstream during the second quarter and we're very confident in our ability to produce reliably and profitably through the remainder of 2023.

In the upstream we revised guidance as a result of the wildfire impacts which had an annualized impact of approximately 10000 BOE a day.

In our conventional business and we've also built in a modest decrease of 5000 barrels a day for our Lloyd thermals.

<unk> for the slower than anticipated ramp up in the air.

Jon McKenzie: These changes have resulted in overall lowering of our guidance to between 775,000 and 795,000 BOE per day. At our oil sands assets, we safely completed a large turnaround at Foster Creek early in the quarter. The turnaround was on schedule and on budget, and the asset is now running at pre-turnaround rates. Our focus through the quarter has been on continued execution of projects that support our short- and long-term production volumes with our new well pads progressing as planned. You can see the benefits of our continual effort to optimize these assets with the increased production at Sunrise. In addition, at the Lloydminster Thermal, we saw record daily production and quarterly production volumes of approximately 112,700 barrels per day and 106,000 barrels per day, respectively.

These changes have resulted in overall lowing lowering of our guidance to between 775 and 795000 Boe per day.

At our oil sands assets, we safely completed a large turnaround at Foster Creek early in the quarter. The turnaround was on schedule and on budget and the asset is now running at pre turnaround rates.

Our focus through the quarter has been on continued execution of projects that support our short and long term production volumes with our new well pads progressing as planned.

You can see the benefits of our continual effort to optimize these assets with the increased production at Sunrise.

And in addition at the Lloyd Thermals, we saw record daily production and quarterly production volumes of approximately 112700 barrels per day, and 106000 barrels a day respectively.

Jon McKenzie: We expect strong production from oil sands in the second half of 2023, with all major maintenance behind us. In Asia Pacific, our volumes over the quarter were lower as a result of planned and unplanned outages. On 7 April, an unauthorized vessel traveling in our dedicated pipeline corridor and struck an umbilical line at the Liuhua 21/29-1 field in China. The line that detached is designed, which resulted in immediate and secure shutdown of our sub-sea wells. Our operating group restored production by the first week of June, with no environmental impacts in the surrounding area. We, as I mentioned, with the vast majority of our major maintenance behind us and the forecast continual ramp-up of wells across the Upstream portfolio, expect to see elevated and steady production numbers over the remainder of the year.

We expect strong production from oil sands in the second half of 2023 with all major maintenance behind us.

In Asia Pacific our volumes over the quarter were lower as a result of planned and unplanned outages.

On April seven to nine authorized vessel travelling in our dedicated pipeline quarter and striking umbilical line at <unk> 21, 29, one field in China.

We aligned attached as designed which resulted in immediate insecure shutdown of our subsea wells are operating group restored production by the first week of June with no environmental impacts and the surrounding area.

And as I mentioned with the vast majority of our major maintenance behind us and the forecast continual ramp up of wells across the upstream portfolio, we expect to see elevated and steady production numbers over the remainder of the year.

Jon McKenzie: I'd now like to highlight our corporate performance and shareholder returns. We delivered almost CAD 2 billion of adjusted funds flow in the quarter, supported by tighter differentials and increasing oil sands operating margins, or partially offset by no recorded sales in our Atlantic region during the due to timing of liftings and a -CAD 170 million FIFO adjustment, which really impacted our US manufacturing segment. With the dividend increase announced in April and through our base dividend and NCIB, we distributed about CAD 575 million directly to our shareholders in the quarter. As per our 14 June announcement, the warrant repurchase transaction presented us with a unique opportunity to repurchase about 2.4% of our diluted shareholder base at an attractive price, purchasing just over 45 million warrants.

I would now like to highlight our corporate performance and shareholder returns we.

We delivered almost $2 billion of adjusted funds flow in the quarter supported by tighter differentials in increasing oil sands operating margins, particularly partially offset by.

By no recorded sales in our Atlantic region during the due to timing of lifting.

And a negative FIFO adjustment of about $170 million, which really impacted our U S manufacturing segment.

With the dividend increase announced in April and through our base dividend and NCB, we distributed about $575 million.

Directly to our shareholders in the quarter.

As per our June 14th announcement, the warrant repurchase transaction presented us with a unique opportunity to repurchase about two 4% of our diluted shareholder base at an attractive price purchasing just over 45 million warrants.

Jon McKenzie: I believe we obtained favorable payment terms that provide us with the flexibility to remain within our shareholder returns framework. We'll continue to dedicate 50% of our excess free funds flow to shareholder returns until we reach our CAD 4 billion net debt target, at which time we'll dedicate 100% of our excess free funds flow to shareholder returns. We continue to focus on running our assets safely and reliably. As we line out our integrated business model, we expect to have strong production and throughput in H2 2023, which will continue to move us forward to achieving that CAD 4 billion net debt target. Before we take your questions, I'd also like to update you on our sustainability work.

I believe we obtained favorable payment terms that provide us with the flexibility to remain within our shareholder returns framework and will continue to dedicate 50% of our excess free funds flow to shareholder returns until we reach a $4 billion net debt target at which time, we'll dedicate 100% of our excess free funds flow to shareholders.

It turns.

We continue to focus on running our assets safely and reliably as we line out our integrated business model, we expect to have strong production and throughput in the second half of 'twenty through 'twenty three.

Which will continue to move us forward to achieving that $4 billion net debt target.

So before we take your questions.

I'd also like to update you on our sustainability work our 'twenty 'twenty. Two ESG report was released in June and we announced a new milestone to reduce our methane emissions in upstream operations by 80% by year end 2028.

Jon McKenzie: Our 2022 ESG report was released in June, and we announced a new milestone to reduce our methane emissions in Upstream operations by 80% by year-end 2028. We see reducing methane as a key near-term action that contributes to our 2035 emissions target. We also continue to advance technologies that will help us address our 2050 net zero ambition. You can read more about those achievements and the progress we've made towards other ESG targets in the ESG report on our website. In closing, we've succeeded in accomplishing the operating goals we set out for ourselves in Q1 and are well positioned for a significant improvement in our financial performance in the H2 2023. With that, we're happy to take your questions.

We see reducing methane is a key near term action that contributes to our 2035 emissions target. We also continued to advance technologies that will help us address our 2015 net zero ambition.

You can read more about those achievements and the progress we've made towards other ESG targets and the ESG report on our website.

So in closing we've succeeded in accomplishing the operating goals, we set out for ourselves in the first quarter and are well positioned for significant improvements in our financial performance in the back half of 2023.

And with that we're happy to take your questions.

Operator 3: 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 the question-and-answer session and go to the first caller. First question comes from Dennis Fong at CIBC World Markets. Please go ahead.

Operator: 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 the question-and-answer session and go to the first caller. First question comes from Dennis Fong at CIBC World Markets. Please go ahead.

Thank you.

Ladies and gentlemen, Anthony reminder, you can join the queue to ask a question by pressing star. One we will now begin the question and answer session I'm going to quick color.

First question comes from Dennis Fong at CIBC World markets. Please go ahead.

Dennis Fong: Hi, good morning, and thanks for taking my questions. My first question here is just on capital structure. Just with respect to term debt, you guys are showing about a 14-year average maturity. How are you thinking about continuing to take either advantage of the free cash flow that you're generating to change essentially the structure of what you guys have for term debt?

Hi, good morning, and thanks for taking my questions.

My first question here is just on.

Capital structure.

With respect to term that you guys are showing about a 14 year average maturity.

Are you thinking about continuing to take.

The advantage of the free cash flow that you're generating to unchanged essentially the structure of what you guys have for term debt.

Jon McKenzie: Great. Morning, Dennis. It's not necessarily the first question that I was anticipating, but maybe I'll have Jeff answer that for you.

Great. Good morning, Dennis it's not necessarily the first question that I was anticipating but maybe Jeff.

Jeff to answer that for you, yes, no and I'll just give you some color Dennis on where we see the capital structure and we talked to the $4 billion net debt.

Keith Chiasson: I'll just give you some color, Dennis, on where we see the capital structure. We talked to the CAD 4 billion net debt. You know, we view that as driving towards CAD 7 billion on the gross side. You're right, we're right around the 14-year average term mark. Look, we'll be balanced through all of this. I think you have to view our end goal on this is to have a tower structure that is sustainable and that we like and is balanced through. You know, we'll target throughout the different towers and be balanced in it. It'll really be dependent on the market and where we see the curve and different factors in there as well.

We view that as driving towards $7 billion on the gross side and you're right. We're right around the 14 year average term Mark look will be balance through all of this so I think you have to view as are our our Angola mixes to have a tower structure that that is sustainable and that we like and it's balanced through so we'll target throughout.

The different towers and be balanced in it so and it will really be dependent on the market and where we see.

Where we see the curve and different factors in there as well so.

Keith Chiasson: You know, roundabout answers that will be balanced and end up with the structure that we like as we get through this deleveraging and see us taking to about CAD 7 billion in gross debt.

Roundabout answers that will be balanced and we end up with the structure that we like as we get through this deleveraging and see is taking to about 7 billion in gross debt.

Dennis Fong: Great. Thanks. My follow-up and my second question probably aligns more with maybe what you're expecting. In terms of Superior and the kind of ramp up of the FCC unit there, I was just hoping to get a little bit more context in there. Are you able to sell some version of, we'll call it slightly off-spec product? And how should we be thinking about the timing of, we'll call it the full ramp up of all units at Superior?

Great great. Thanks.

And my follow up my second question is probably in line more or less with maybe what you were expecting.

In terms of superior in the kind of ramp up of the FCC unit there.

I was just wanted to get a little bit more context, and there are you able to sell some version of we'll call it slightly offset product and how should we be thinking about the timing of we'll call. It a full ramp up of all units at superior.

Jon McKenzie: Yeah. I'll let Keith answer that question, but the FCC is really a gasoline-producing unit, and it's more incremental to where we are versus what we're producing today. Keith, maybe you can provide some color on Superior.

I'll, let Keith answer that question, but the FCC is really the gasoline producing units and it's more incremental to where we are versus what we're producing today, but Keith maybe you can provide some color on on superior.

Keith Chiasson: Yeah. Thanks for the question, Dennis. You know, maybe I'll just step up a little bit. You know, when I think about, you know, the whole Downstream throughput, you know, we're kind of right at the 690, almost 700,000 barrels a day of throughput. So, you know, most of our assets are online with the exception of the FCC at Superior. You know, at Superior, you know, I would say it's been a little bit of a challenge for us, but nothing systemic there. It's just working through, you know, kind of normal startup issues. So, you know, we're days away from introducing feed into that unit.

Yes.

Thanks for the question Dennis maybe I'll, just step up a little bit when I think about the whole downstream throughput, we're kind of right at the 690, almost 700000 barrels a day of throughput. So most of our assets are online with the exception of the FCC at at superior at Superior.

I would say it's been a.

A little bit of a challenge for us.

But nothing nothing systemic there it's just working through.

Normal startup issues. So we're days away from introducing feed into that unit and as John alluded to when we go through the crude unit, we do make on spec products that we can sell asphalt gasoline and diesel.

Keith Chiasson: As Jon alluded to, you know, when we go through the crude unit, we do make on-spec products that we can sell, asphalt, gasoline, and diesel. Then we make some intermediate products that would require the FCC to continue to process. So we have a fair amount of inventory there that we'll be able to run through the FCC once it's up and running and generate cash. Like I said, it's imminent. We're just you know, knocking through the last couple of challenges that the team has seen as they've safely restarted that refinery after being down for five years.

And then we make some intermediate products that would require the FCC to continued process. So so we have a fair amount of inventory there that we'll be able to run through the FCC once it's up and running and generate cash.

And like I said, it's imminent and we're just now.

<unk> been through the last couple of challenges that that the team is seen as they safely restart at that refinery after being down for five years.

Dennis Fong: Great. Thanks for answering my questions. I'll turn it back.

Great great.

Thanks for answering my questions I'll turn it back.

Jon McKenzie: Great. Thanks, Dennis.

Great. Thanks, Dennis.

Operator 3: Thank you. The next question comes from Greg Pardy at RBC Capital Markets. Please go ahead.

Operator: Thank you. The next question comes from Greg Pardy at RBC Capital Markets. Please go ahead.

Thank you. The next question comes from Greg Pardy at RBC capital markets. Please go ahead.

Greg Pardy: Yeah. Thanks. Good morning. Thanks for the rundown. Yeah, maybe just to stick with the US manufacturing for a bit. Like your utilization rates actually looked okay from what we were expecting, but it's cost obviously. I guess the question there is the costs effectively are they inflecting now into margin? I guess the question for Keith, but as you ramp up fully at Superior and now with Toledo, then could we look forward to potentially working capital releases as we go through the H2?

Hey, Thanks, good morning, Thanks for the rundown, yes, maybe.

Stick with with the U S manufacturing for like your utilization rates actually looks okay from what we were expecting.

It's cost obviously and I guess the question. There is is the cost effectively are they in collecting now into margin.

And then I guess a question for Keith, but as you ramp up fully at superior and now with Toledo, then could we look forward to potentially working capital releases as we go through the back half of the year.

Keith Chiasson: Hey, Greg. Thanks for the question. You know, what I would offer up on just the cost basis, as you can imagine, you know, through startup, you're incurring some additional maintenance costs and repair costs. You know, we do expect those to normalize at the back end of the Q3 and into the Q4. We should see, you know, some of our cost structure come down as we get to, you know, normal operations through this quarter. You know, with regards to revenues and profitability, you know, I would say, you know, things are looking good. We're producing products. We're gonna be able to, you know, we're marketing those products and sales. You know, we're gonna see the normal cash cycle associated with the refineries.

Hey, Greg Thanks for the question.

What I would offer up on just the cost basis as you can imagine through startup youre incurring some additional maintenance costs and repair costs. So we do expect those to normalize at the back end of the third quarter and into the fourth quarter and so we should see.

Some of our cost structure come down as we get to normal operations through this quarter.

With regards to revenues and profitability I would say.

Things are looking good we're producing products that we're going to be able that we are marketing those products in sales. So we're going to see the normal cash cycle associated with the refineries.

Keith Chiasson: All's looking good, kinda coming out of Q2 into Q3 across those assets. Like you said, you know, utilization, and I alluded to this in the previous question, utilization is, you know, into the low 90% now, you know, across all of our assets and that one's coming up imminently.

But all is looking good.

Kind of coming out of coming out of the second quarter into the third quarter across those assets and like you said utilization and I alluded to this in the previous question utilization is into the low 90% now across all of our assets and the FCC just as the last unit to start up across our fleet.

That one is coming up imminently.

Jon McKenzie: Hey, Greg, just on the working capital question as well. I think one of the things that you will see is, and Keith kind of mentioned this, is we do have a reasonably significant inventory of intermediates that we'll work through the refineries as you know through time as they you know continue to produce on-spec product. But you know when we kinda guide you to where you should be thinking about inventory levels in particular, you should be kind of in that 45 to 50 million barrel range. So with these refineries coming up, you know, there is additional inventory that we will carry both on the front end and the back end of those refineries going forward.

Hey, Greg just on the working capital question as well I think it's I think one of the things that you will see us and Keith you kind of mentioned this is we do have a reasonably significant inventory of intermediates that we.

We'll work through through the refineries is through time as they.

Continue to produce on spec project product, but when when we kind of guide you to where you should be thinking about.

Inventory levels in particular, you should be kind of in that $45 million to $50 million barrel range. So with these refineries coming up there is additional inventory that we will carry both on the front end and the back end of those refineries going forward. So while you may see some short term working capital releases as we chew through the inventory that we built up.

Jon McKenzie: While you may see some short-term working capital releases as we chew through the inventory that we've built up, I think that's a reasonable number for you to be building into your models.

I think that's a reasonable number for you to be building into your models.

Greg Pardy: Okay. Well, thanks for that. You know, sort of all of this then rolls up into the question everybody's asking, right? Which is, you know, should we sort of be thinking around CAD 4 billion as-

Okay. Thanks for that and then.

Third of all of this then rolls up into into that question everybody's asking right, which is D C.

Are we sort of be thinking around $4 billion is around year end as at November and December is that the early part of next year.

Drew Zieglgansberger: Around year-end, is that November? Is that December? Is that the early part of next year? You know, what's your thinking there? Frankly, does it matter that much?

Greg Pardy: Around year-end, is that November? Is that December? Is that the early part of next year? You know, what's your thinking there? Frankly, does it matter that much?

What's your thinking there and frankly, it doesn't matter that much.

Jon McKenzie: Well, the way we think about it, Greg, is we've now got our assets into the condition that we wanted them to be in. You know, getting Superior and Toledo up were really kind of the last assets that we wanted to bring forward that kind of completed our vision of the assets that we acquired from Husky. Getting those value chains in order was really important to us. Now, one thing I would say is don't expect us to do anything different other than run these assets well over the coming quarters. We are focused on getting our debt down to CAD 4 billion. You know, whether that happens in November, December, January, or February is really a function of the pricing and the commodity strip that you wanna use.

Well the way, we think about it Greg is we've now got our assets into the condition that we wanted them to be in.

Getting superior and Toledo up.

Kind of the last assets that we wanted to bring forward the kind of completed our vision of the assets that we acquired from Haas case, so getting those value chains.

And order as it was really important to US now one thing I would say is don't expect us to do anything different other than run these assets well over the coming quarters. So we are we are focused on getting our debt down to $4 billion.

Whether that happens in November December January February is really a function of the pricing.

The commodity strip that you want to use over the course of the quarter, we've seen could be as high as $80 are as low as 65. It's today, it's back it looks like it's back to 80.

Jon McKenzie: You know, over the course of the quarter, we've seen crude be as high as $80 and as low as $65, and you know, today it looks like it's back to $80. You know, cracks have been volatile. We saw actually negative diesel cracks for a couple of days this month. I think the important thing is to understand, though, this is the trajectory that we're on. All the assets are up and running. We're gonna dedicate 50% of our free cash flow to debt reduction, 50% to shareholder returns. Then we get to CAD 4 billion, we'll flip over to 100%. There's nothing that's gonna change the operating strategy of this company between now and then.

Cracks have been volatile we saw actually negative diesel cracks for a couple of days this month so.

I think the important thing is to understand that this is the trajectory that we're on all the assets are up and running we're going to dedicate 50% of our free cash flow to debt reduction of 50%.

<unk>.

To shareholder returns and then we get 4 billion will flip over to a 100, but theres nothing thats going to change the operating strategy of this company between now and then.

Drew Zieglgansberger: Yep, understood. Thanks very much.

Greg Pardy: Yep, understood. Thanks very much.

Understood Thanks very much.

Yeah.

Jon McKenzie: Thanks, Greg.

Thanks, Greg.

Operator 3: Thank you. The next question comes from Neil Mehta at Goldman Sachs. Please go ahead.

Operator: Thank you. The next question comes from Neil Mehta at Goldman Sachs. Please go ahead.

Thank you. The next question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Neil Mehta: Yeah, thank you, and congrats to everyone on some of the leadership changes here. My first question was just on the offshore. The tactical question is, can you spend a little more time talking about the softer results there? It sounds like it's just a timing effect. If that was an underlift, do you get it back in the back half? Then the bigger picture question related to offshore is how do you see this business evolving over the next couple of years and fitting into the broader portfolio?

Yes, Thank you and congrats to everyone on the leadership changes year. My first question was just on the offshore. The tactical question is can you spend a little more time talking about.

Okay.

Softer result, there it sounds like it's just a timing effect.

If that was an under lift you get it back in the back half.

The bigger picture question related to offshore is how do you how do you see this business evolving over the next couple of years getting into the big into the broader portfolio.

Jon McKenzie: Okay. Sorry, Neil, you cut out a little bit. I assume you're talking about the underlift on the East Coast.

Okay. So sorry, you cut out a little bit I assume youre talking about the under lift on the east coast.

Neil Mehta: Yes, the underlift on the East Coast, and then, do you get it back in H2?

Yes, Zander lift in the East Coast, and then you get it back in the back half.

Norrie Ramsay: Yeah. Hi, Norrie Ramsay here from the Upstream. We obviously took, as we mentioned, a timely opportunity to take a TAR earlier in the year that we were gonna take in August, so we're gonna have flat production going forward. We're fully operational and up, and it's purely timing. There's two things. The FPSO, we actually offload it and take it to storage tanks. Those continue to take place. Our lifting was just happened to be a few days after the Q2 finished. We've actually had a lifting in very early July, which you'll see kinda coming through in the Q3 results. We expect to see steady production from our White Rose operations in the east area there.

Yes, Hi noted rumsey here from the upstream.

We obviously took a.

As we mentioned.

Timely opportunity to Qatar and late in the year.

I'm going to take in August so what kind of how flat production going forward, we are fully operational and up.

On a purely timing, there's two things we the FPA, so we actually offloaded and take it to a.

Storage tanks. So those continue to take place, but are lifting was just happened to be a few days after the.

The second quarter finished so we've actually lifting that early July , which twitchell youll see kind of coming through in the <unk> results, but we expect to see.

Steady production from our base heroes operations in the East area, there and as we've mentioned before Terra Nova and continues to be the harbor site.

Norrie Ramsay: As we've mentioned before, Terra Nova continues to be at the harbor side, just finishing some maintenance that to allow it to go back offshore. We're collectively supporting the operator and gaining a lot of confidence to be able to see line of sight to that going offshore and then establishing safe production from the Terra Nova asset as well later on the end of this year, beginning of next year.

Just finishing some maintenance.

To allow it to go back offshore.

Collectively supporting the operator, and gaining a lot of confidence to be able to see line of sight to that going offshore and then establishing safe production from the Terra Nova asset as well later later on named this year beginning of next year, yes.

Jon McKenzie: Yeah. You know, I think, Neil, just, you know, to expand on that a little bit is we see, you know, West White Rose, you know, having a good clean run through the rest of the year. I think we've got a line of sight now on Terra Nova to potential production before the end of the year, although we're not calling anything into our forecast, and we continue to make really good progress on West White Rose through the quarter as well. We did achieve a couple of major milestones there. Maybe, Drew, you might wanna talk a little bit about the other offshore business in Asia and where we are with that.

I think Neil just.

To expand on that a little bit as we see.

West White rose, having a good clean run through the rest of the year I think we've got a line of sight now on Terra Nova to potential production before the end of the year, although we're not calling anything into R.

Our forecast and we continue to make really good progress on west White Rose.

Through the quarter as well, we did achieve a couple of major milestones there, but maybe drew you might want to talk a little bit about the other offshore business in Asia, and where we are with that.

Drew Zieglgansberger: Yeah, sure thing, John. As you would have seen in the news release and then to John's comments this morning, we had an unplanned event in China. We dealt with that in April and May, and the teams did an extraordinary job getting that back online. As you guys may recall, we had a very strong Q1, and you know, the demand for gas and our production was actually over kind of our budget at the time, and happy to say that now continues now that we're back up and fully operational in June.

Yes sure thing John So.

As you would have seen in the news release, and then to John's comments. This morning, we had an unplanned event in China and we.

We dealt with that in April and May and the teams did an extraordinary job getting that back online as you guys may recall, we had a very strong first quarter.

And the demand for gas in our production was actually over kind of our budget at the time and happy to say that that now continues now that we're back up and fully operational in June .

Drew Zieglgansberger: As we see the back half of this year, we expect to have still strong demand for our production in the Asia Pacific business and happy to report that things are running very well, and we are still trending on the high end of our guidance relative to what we thought the demand was gonna be.

So as we see the back half of this year and we expect to have still strong demand for our production in the Asia Pacific business and happy to report that things are running very well and we are still trending on the high end of our guidance relative to what we thought the demand was going to be.

Yes.

Neil Mehta: Thank you. That's great color. And the follow-up is just on the Pathways project. Jon, it's hard for us often to get visibility on where we are in those negotiations, but I guess the working assumption for a lot of investors is that it gets to FID next year. Just any of your thoughts on timing and what are the gating factors to get this thing to FID?

That's great color and the follow up is just on the pathways project John its hard for us.

Often to get visibility on where we are in those negotiations, but I guess the working assumption for a lot of investors is that it gets that next year just any of your your thoughts on timing and what are the gating factors to get this thing to death.

Jon McKenzie: Sure. I'm actually gonna turn that question over to Rhona DelFrari. Rhona's not usually here. She's usually on the road, speaking to the virtues of our industry. Rhona's here with us today, and she's knee-deep in this, and you've probably got the most up-to-date and relevant information on this, Rhona.

Sure I'm actually going to turn that question over to Ron <unk> for Aerie Rone is not usually our she is usually on the road.

Speaking of the virtues of our industry, but Ron is here with us today and she is knee deep in this and you've probably got the most.

Up to date and relevant information on this rule, yes, Neil I mean I can tell you. We are still full steam ahead with with the pathways work all six of our companies, but as well the federal and now the provincial government there was kind of a bit of.

Rhona DelFrari: Yeah, Neil, I mean, I can tell you we are still full steam ahead with the Pathways work, all six of our companies, but as well, the federal and now the provincial government. There was kind of a bit of a waiting period when the Alberta government was in the election campaigning. You know, you would have heard that there's been a bilateral talks announced between the feds and the Alberta government, so that's all positive. The Pathways companies are right there. We're meeting, you know, every week with our government counterparts to talk about how we progress the policy and the fiscal frameworks that are needed to push forward with the Pathways Foundational project, which is the 400+ km CO2 pipeline and the hub.

Waiting period, when when the Alberta government within the election campaigning but.

You would have heard that there has been a bilateral talks announced between the fads and the Alberta government. So that's all positive and the pathways companies are right there.

Meeting every week with our government counterparts to talk about how we progressed the policy and the physical frameworks that are needed to push forward with the pathways foundational project, which is the 400 plus kilometer <unk> pipeline in the hub, but there's also there's still 70 other technologies at the pathways companies.

Rhona DelFrari: There's also, you know, there's still 70 other technologies that the Pathways companies are working on that will progress us towards our net zero 2050 target. I think, you know, we're still pleased with the amount of attention that the federal and the provincial governments are putting towards this. I would say that it's unprecedented level of attention in Ottawa with multiple departments working together. They're taking this really seriously, and the governments understand how important the CCS project is for, not just for our sector, but for the entire country. You know, I remain very optimistic that we're gonna get going on this. We've been really clear, you know, the next big spend for the Pathways companies would be the purchase of pipeline for that CO2 pipe project.

We're working on that we'll progress towards our net zero 2050 target, but I think we're still pleased with the amount of attention that the federal and the provincial governments are putting towards this.

I would say that it's unprecedented level of attention in Ottawa with multiple departments working together theyre, taking this really seriously and the governments understand how important the Ccs project is for not just for our sector, but for the entire country. So I remain very optimistic that we're going to get going on this.

We've been really clear the next big spend would be part of the pathway as companies would be the purchase of pipeline for that too.

Type project, and so governments understand that and they understand that they.

Rhona DelFrari: Governments understand that, and they understand that they need to clarify things like the investment tax credit and give us more details on that, and things such as contracts for difference that they've already announced. I'm very positive this is still progressing at the right pace.

They need to to clarify things like the investment tax credit and give us more details on that in things such as contracts for difference that they've already announced but but I am very positive. This is still progressing at the right pace.

Dennis Fong: Thank you so much.

Neil Mehta: Thank you so much.

Thank you so much.

Jon McKenzie: Great. Thanks, Neil.

Great. Thanks, Neil.

Operator 3: Thank you. The next question comes from Menno Hulshof at TD Securities. Please go ahead.

Operator: Thank you. The next question comes from Menno Hulshof at TD Securities. Please go ahead.

Thank you. The next question comes from Mono Hoffman at TD Securities. Please go ahead.

Operator 2: Thanks, good morning, everyone. Maybe I'll just follow up on Neil's question with a higher level government related question as well. Like, what do you think of this week's government announcement related to the potential phasing out of what they're calling inefficient subsidies? I know it's pretty fresh, but when do you think we'll have a better sense of what that means in practical terms? And is it fair to say that ongoing negotiations on CCUS incentives are a separate conversation?

Menno Hulshof: Thanks, good morning, everyone. Maybe I'll just follow up on Neil's question with a higher level government related question as well. Like, what do you think of this week's government announcement related to the potential phasing out of what they're calling inefficient subsidies? I know it's pretty fresh, but when do you think we'll have a better sense of what that means in practical terms? And is it fair to say that ongoing negotiations on CCUS incentives are a separate conversation?

Thanks, and good morning, everyone, maybe I'll just follow up on Neil's.

Neil's question with a higher level of government related question as well.

What do you think of this week.

Government announcement related to the potential phasing out of what Theyre, calling inefficient subsidies I know, it's pretty fresh but when do you think we'll have a better sense of what that means in practical terms.

Is it fair to say that ongoing negotiations on Ccs incentives.

A separate conversation.

Jon McKenzie: Yeah. Menno, it's Jon. Sometimes, you know, I don't know how they name these pieces of legislation or how they end up positioning them, but if it is what I've, you know, what it purports to be, it probably should be a fairly short piece of legislation. You know, one of the things I'd say is I'm not really aware of any subsidies that are direct and unique to the oil and gas industry. I've been in this industry for a lot of years, and many of those years have been spent in finance. I certainly remember writing a lot of checks to the provincial and federal government, but don't remember receiving a lot of checks in return.

Yeah Menno.

Menno, it's John .

Sometimes I don't know how they named these pieces of legislation.

End up positioning them, but if it is what it what it purports to be it probably should be a fairly short piece of legislation.

One of the things I would say is I'm not really aware of any subsidies that are direct and unique.

To the oil and gas industry I've been in this industry for a lot of years and many of those years have been spent in finance a.

And I, certainly remember writing a lot of checks to the provincial and federal governments, who don't remember receiving a lot of checks.

In return.

Jon McKenzie: You know, a couple things I would say is, you know, in 2022, we spent almost CAD 4.5 billion on royalties and taxes, and that is, you know, that exceeds the amount of money we spent in capital and the amount of money that we return to shareholders. That is our single, largest, expense, and we expect that number to be even higher in 2023. We're kind of like you. We're waiting to hear what this is all about. We certainly hear political rhetoric, with regard to oil and gas subsidies. We're just really not sure what it means because, again, we're not really aware of any oil and gas subsidies for the industry.

A couple of things I would say is.

In 2022, we spent almost $4 $5 billion on royalties and taxes.

And that is.

That exceeds the amount of money, we spent some capital exceeds the amount of money.

We returned to shareholders that is our single largest.

<unk> expense should we expect that number to be even higher in 2023. So.

We're kind of like you were waiting to hear what this is all about we certainly hear political rhetoric with regard to oil and gas subsidies were just really not sure what it means because again, we're not really aware of any oil and gas subsidies for the industry.

Operator 2: Okay. Yes. Thanks for that, John. Maybe I'll just follow up with a question on shareholder capital returns. You've made it clear on many occasions that the relative economics of buybacks are tested at mid-cycle $60 WTI. Today we're sitting at about $80. The stock is off of its low. My question is, how are you thinking about buybacks versus a variable dividend? I'm asking that with the understanding that we've only seen one variable dividend since the return framework was formalized.

Menno Hulshof: Okay. Yes. Thanks for that, John. Maybe I'll just follow up with a question on shareholder capital returns. You've made it clear on many occasions that the relative economics of buybacks are tested at mid-cycle $60 WTI. Today we're sitting at about $80. The stock is off of its low. My question is, how are you thinking about buybacks versus a variable dividend? I'm asking that with the understanding that we've only seen one variable dividend since the return framework was formalized.

Okay, yes, thanks for that John and maybe I'll just follow up with a question on shareholder capital returns.

I've made it clear on many occasions that the.

The relative economics of buybacks are tested that mid cycle $60 wty, but today, we're sitting at about $80 stock is off of its low. So my question is how are you thinking about buybacks versus a variable dividends and I'm asking that with the understanding that we've only seen one variable dividend.

The return framework was formalized.

Jon McKenzie: Yeah. You know, nothing changes in our framework, Menno. You know, we screen all our capital at $45. We screen our buybacks at $60. We still think those are sort of the right low cycle and mid-cycle prices. I think, you know, I'm looking at Cam, and he's nodding his head. I'm looking at Jeff, and he's nodding his head. I think with where our share price is today, we're still more inclined to return capital to shareholders in the form of buybacks and that the share price today in our view doesn't reflect the net asset value at $60. I think, you know, you're gonna continue to see shareholder returns come back in the form of largely buybacks until we get there. You know, we've been pretty clear on the framework.

Yes.

Nothing changes in our framework Menno, we screen all our capital at 45, we screen our buybacks at 60, we still think those are sort of the right low cycle in mid cycle.

Prices I think I'm looking at Cam and he is nodding his head I'm looking at Jeff and he is nodding his head, but I think with where our share prices today, we are still more inclined.

To return capital to shareholders in the form of buybacks and that the share price today.

In our view doesn't reflect the net asset value. It at $60. So I think youre going to continue to see that until or continuing to see shareholder returns come back in the form of largely buybacks until we get there but.

We've been pretty clear on the framework, if we get to the point, where we think it's in excess of mid cycle pricing or the discounted value of the shares.

Jon McKenzie: If we get to the point where we think it's in excess of mid-cycle pricing or the discounted value of the shares are in the excess of mid-cycle pricing, I think you'll see a greater majority of the returns come back in the form of special dividends. Cam, I don't know if you have anything else to add on that.

In the excessive mid cycle pricing I think youll see a greater majority.

Of the returns come back in the form of special dividends, but Cam I don't know if you have anything else to add on that.

Kam Sandhar: Hey, Menno, it's Cam. The only thing maybe I would just add is, like, I think keep in mind, we're gonna keep continuing to be disciplined. 50% is gonna go back to shareholders.

Hey, Matt it's Kevin the only thing maybe I would just add is keep in mind, we're going to keep continuing to be disciplined. So 50% is going to go back to shareholders until we get to that debt target of $4 billion and as John said I think right now the bias continues to be towards buybacks.

Keith Chiasson: Until we get to that debt target of CAD 4 billion. As John said, I think right now the bias continues to be towards buybacks. I think the other thing you should be thinking about is, you know, we obviously did the warrant transaction back in middle of June. You know, we made it clear that that's something we're gonna manage inside of that framework through the balance of this year and sort of at the latest next January when that payment has to be made by. You know, the focus hasn't changed, the discipline hasn't changed around the framework and, we'll, you know, continue on the path we're on.

Kam Sandhar: Until we get to that debt target of CAD 4 billion. As John said, I think right now the bias continues to be towards buybacks. I think the other thing you should be thinking about is, you know, we obviously did the warrant transaction back in middle of June. You know, we made it clear that that's something we're gonna manage inside of that framework through the balance of this year and sort of at the latest next January when that payment has to be made by. You know, the focus hasn't changed, the discipline hasn't changed around the framework and, we'll, you know, continue on the path we're on.

I think the other thing you should be thinking about as we obviously did the warrant transaction back in their middle of June .

And we've made it clear that that's something we're going to manage inside of that framework through the balance of this year and it started at the latest next January when that payment has to be made by so.

<unk> Hasnt changed the discipline hasnt changed around the framework and.

Continue on the path we're on.

Operator 2: Appreciate the color. I'll turn it back.

Menno Hulshof: Appreciate the color. I'll turn it back.

I appreciate the color I'll turn it back.

Keith Chiasson: Thanks, Menno Hulshof.

Thanks Menno.

Operator 3: Thank you. The next question comes from John Royall at JPMorgan. Please go ahead.

Operator: Thank you. The next question comes from John Royall at JPMorgan. Please go ahead.

Thank you. The next question comes from John Rajala at J P. Morgan. Please go ahead.

Speaker 16: Hi. Good morning. Thanks for taking my question. So first one's in refining. You've talked about the run rates. Just wondering on profitability and cash flows. On the prior call, you guided to Toledo and Superior being free cash flow positive by July. Is that the case now, or is the FCC impacting the ability to generate positive cash flows?

John Royall: Hi. Good morning. Thanks for taking my question. So first one's in refining. You've talked about the run rates. Just wondering on profitability and cash flows. On the prior call, you guided to Toledo and Superior being free cash flow positive by July. Is that the case now, or is the FCC impacting the ability to generate positive cash flows?

Hi, good morning, Thanks for taking my question.

First one is on refining you've talked about the run rates.

Wondering on profitability and cash flows on the prior call you guided to Toledo and superior being free cash flow positive by July .

Not the case now or is the FCC impacting the ability to generate positive cash flows.

Okay.

Keith Chiasson: Hey, Jon, it's Keith. Yeah, good question. You know, I would say Toledo's been up and running since early June, making products and selling products. You know, we're highly confident on kind of cash flows there. Superior has been able to sell products as well, but you know, until we actually get to full gasoline make coming out of the FCC, you know, it's kinda gonna be kinda rate at that kinda cash flow break even. You know, I would say we're seeing that trend of improvement though through the quarter. I think the other thing to look at though is kind of where cracks have been, and I think Jon alluded to it in one of his answers.

Hey, John .

Keith.

Good question I would say Toledo has been up and running since early June making products and selling products. So we're highly confident on kind of cash flows. There superior has been able to sell sell products as well, but until we actually get to full gasoline make coming out of the FCC.

Kind of going to be.

Right at that kind of cash flow breakeven.

I would say, we're seeing that trend of improvement, though through the quarter.

The other thing too to look at though is kind of where cracks have been I think John alluded to it in one of his answers they've kind of been pretty wide and then very narrow and and more recently have come back to kind of matching the various regions around the U S. So cracks are pretty supportive now.

Keith Chiasson: You know, they've kinda been pretty wide and then very narrow, and more recently have come back to kind of matching the various regions around the US. You know, cracks are pretty supportive now. Differentials have tightened in, you know. Obviously, the refineries that run heavy crude, you know, lose a little bit of that crude advance. You know, anything that we lose in our Downstream, we actually get in our Upstream. You know, I think in general it's setting up for a great Q3 like we anticipated. As we've talked about, the last unit to come up is Superior, which is a relatively small unit in the grand scheme of things.

Differentials have tightened in so obviously, the refiners that run heavy crude lose a little bit of that crude advanced but.

Anything that we lose in our downstream, we actually get in our upstream so.

I think in general it's setting up for.

Great third quarter like we anticipated.

And as we've talked about the last unit to come up with superior, which is a relatively small unit in the Grand scheme of things.

Speaker 16: Okay. Thank you. In terms of the wildfire impacts on the upstream, I know it's a very fluid situation generally, and it's tough for us who aren't on the ground to really understand the impact. How confident are you that you're on the other side of the major impacts and that the 5 to 7 thousand barrels per day offline couldn't go the other way and grow in scope there? Just trying to understand the risks that the fires pose as we stand today.

John Royall: Okay. Thank you. In terms of the wildfire impacts on the upstream, I know it's a very fluid situation generally, and it's tough for us who aren't on the ground to really understand the impact. How confident are you that you're on the other side of the major impacts and that the 5 to 7 thousand barrels per day offline couldn't go the other way and grow in scope there? Just trying to understand the risks that the fires pose as we stand today.

Alright, Thank you and then.

In terms of the wildfire impacts on the upstream.

No. It's a very fluid situation generally and it's in it's tough for us who aren't on the ground to really understand the impact.

How confident are you that youre on the other side of the major impacts in that five to seven barrels per day 1000 barrels per day offline Couldnt go the other way growing scope. There just I'm just trying to understand the risks that the fire as close as we stand today.

Drew Zieglgansberger: Yeah. Hey, John, it's Drew. Yeah, great question. As you alluded to, it was a very wild quarter, no pun intended. You know, I think one of the things I would start with is that our teams did an outstanding job, considering that we actually had the town of Edson and a lot of our staff there actually evacuated 3 times, two by wildfires and once by an actual flood, to be honest. Just to give you a little perspective on kind of the 5 to 7 that's still left to be brought on. You know, the vast majority of that, almost all of it is still up in our Rainbow Lake asset, just inside the BC border in our Bivouac dry gas play.

Yeah, Hey, John It's drew.

Yes, great question as you alluded to it was a very wild quarter.

Intended it.

I think one of the things I would start with is that.

Our teams did an outstanding job considering that we actually had the town of Edison and a lot of our staff there actually evacuated three times two by wildfires and once by an actual flood to be honest so.

Just to give you a little perspective on kind of the five to seven and that's still left to be brought on.

The much fast majority of that almost all of it is still up on a Rainbow Lake asset just on that on there just inside the BC border and our bivouac dry gas play and the reason that we can't bring that back on yet is we just are waiting for some more secondary power lines to still be reactivated by third party providers. There are some wildfires in northeast BC.

Drew Zieglgansberger: The reason that we can't bring that back on yet is we just are waiting for some more secondary power lines to still be reactivated by third-party providers. There are some wildfires in Northeast BC, nothing around our actual assets. As you can imagine, you know, with the amount of impact we had, you know, that fuel is now all gone. The risk to your question about, you know, could it go the other way, there's not a lot left to kind of burn and reactivate that risk for us. Thankfully we've had very little and almost no direct asset damage or concern around the ability to safely produce.

Nothing around our actual assets as you can imagine with.

With the amount of impact we had that fuel is now all gone and so the risk to your question about could it go the other way.

Theres not a lot left to kind of burn and reactivate that risk for us.

Thankfully, we've had very little almost no direct.

Asset damage or concerned around.

The ability to safely produce so the remaining that's offline now is still just waiting for power and its third party kind of activation from power Poles and whatnot and it's it's a dry gas play.

Drew Zieglgansberger: The remaining that's offline now is still just waiting for power, and it's third-party kind of activation from power poles and whatnot, and it's on a dry gas play. The remainder are just some other remote sites, more in central Alberta, that's waiting for the same thing. It's just some power. I think the risk has been reduced significantly. It's just the realities of how forest fires burn and where they've now been burnt. It's very low risk that something in those areas could be reactivated. The fuels has been used.

The remainder or just some other remote sites more in central Alberta that is waiting for the same thing is just some power. So I think the risk has been reduced significantly and.

And it's just the realities of how forest fires burn and where they've now been burnt it's very low risk that something in those areas can be reactivated the fuels has been used.

Speaker 16: Thank you.

John Royall: Thank you.

Thank you.

Drew Zieglgansberger: Thanks, Jon.

Thanks, John .

Operator 3: Thank you. The next question comes from Manav Gupta at UBS. Please go ahead.

Operator: Thank you. The next question comes from Manav Gupta at UBS. Please go ahead.

Thank you. The next question comes from Manav Gupta with UBS. Please go ahead.

Keith Chiasson: Hey, guys. I just quickly wanted to touch base on Lloydminster Thermal volumes. Looks like this was one of the stronger quarters, if not the strongest, since you got these assets. Help us understand some of the changes that you have made at this asset, which is allowing you to get a higher volume versus when you acquired them.

Manav Gupta: Hey, guys. I just quickly wanted to touch base on Lloydminster Thermal volumes. Looks like this was one of the stronger quarters, if not the strongest, since you got these assets. Help us understand some of the changes that you have made at this asset, which is allowing you to get a higher volume versus when you acquired them.

Hey, guys I just quickly wanted to touch based on light Cardinal volumes looks like this was one of the stronger quarters, if not the strongest since you've got these assets. So help us understand some of the changes that you have made at this asset which is allowing you to get to higher volume versus when you acquired them.

Norrie Ramsay: Hi there, Manav, it's Norrie here. Yeah, we've talked about it in the previous quarter as well. I mean, fundamentally, we've been applying our subsurface technologies and methodologies from our Foster Creek and Christina Lake assets over to our Lloydminster Thermal assets. The assets are really good assets, and we have lots of opportunities around these central processing facilities. What we have been doing is basically drilling longer wells that have what we call higher conformance so that they actually produce at a higher rate. We've also been utilizing our

Hi, Manav, it's noted here.

Yes, we've talked about it in the previous quarter as well I mean fundamentally we will be applying our subsurface technologies and methodologies from our Foster Creek Christina Lake assets over to Lloyd thermal assets. The assets are really really good assets and we have we have lots of opportunities.

Around the central processing facilities. So what we have been doing is basically drilling longer wells.

What we call higher conformance, so that should produce a higher rate.

Norrie Ramsay: We've also been utilizing our Zero-based design facilities and using submersible pumps to actually increase the rate of production. We're basically, the philosophy is trying to fill all of our plants that we have, and keep them full as we kinda go forward. It's been very successful. We continue to build out new pads to sustain this level of production, and at the same time, we take advantage of opportunities as we understand them. Our production currently is very, very strong, and that's the kinda plan kinda going forward.

We've also been.

Utilizing our.

Jon McKenzie: Zero-based design facilities and using submersible pumps to actually increase the rate of production. We're basically, the philosophy is trying to fill all of our plants that we have, and keep them full as we kinda go forward. It's been very successful. We continue to build out new pads to sustain this level of production, and at the same time, we take advantage of opportunities as we understand them. Our production currently is very, very strong, and that's the kinda plan kinda going forward.

Zero based design facilities, and using submersible pumps to actually increase the retail production.

So basically the philosophy is trying to fill all of our plants that we have.

Fool as we cannot go forward so it's been very successful.

Continue to build our build out new pods to sustain this level of production and at the same time.

Take advantage of opportunities.

We understand them so.

Production currently is very very strong.

That's the plan kind of going forward.

Speaker 17: If I could just pick your brain around, I mean, you had some downtime in Q2, some of your peers had downtime in Q2, now all you guys are ramping up. Last few months, the apportionments were zero. Like, what's your outlook for near-term apportionment, apportionments? Do you expect them to rise? Eventually, what are you hearing on the TMX expanded pipeline startup? Thank you.

Manav Gupta: If I could just pick your brain around, I mean, you had some downtime in Q2, some of your peers had downtime in Q2, now all you guys are ramping up. Last few months, the apportionments were zero. Like, what's your outlook for near-term apportionment, apportionments? Do you expect them to rise? Eventually, what are you hearing on the TMX expanded pipeline startup? Thank you.

Perfect and if I could just speak a brain around I mean, you had some downtime in <unk>. Some of your peers that downtime into Q now Paul you guys are ramping up so long.

Yes.

Few months portion thanks, one zero, but like what's your outlook for near term Bushman apportionment until you expect them to rise and then eventually what are you hearing on the Pn mix expanded pipeline startup. Thank you.

Keith Chiasson: Hey, Manav, it's Keith. You know, you're bang on. Apportionment on Enbridge has been 0 for the past several months, which you know is just pointing to the fact that egress out of the country is matching production. I think you're also bang on that some of the upstream has been taking turnarounds through this period. You know, with regards to TMX, you know, it's scheduled to come on in Q1 2024. Obviously there's pre-startup activities in the linefill that happens into the Q4 of this year.

Keith.

You're bang on apportionment on Enbridge has been zero for the past several months, which.

I was just pointing to the fact that that.

<unk> out of the country is matching production I think Youre also bang on that some of the upstream has been taking turnaround through this period.

With regards to <unk>.

It's scheduled to come on in Q1 2024.

Obviously, there is pre startup activities in line fill that happens into the fourth quarter of this year with all of that kind of happening we actually anticipate for the first time in a long time that it would be sufficient egress.

Keith Chiasson: You know, with all of that kind of happening, you know, we actually anticipate for the first time in a long time, there would be sufficient egress, you know, from the province, even as we head into the winter months where, you know, all the upstream producers are back on and, you know, you're at that higher concentration of diluent in your bitumen blend. You know, there probably will be a little bit of widening on that, just as the system normalizes. You know, I think we're looking at tighter diffs and, you know, with TMX coming on, you know, that should sustain itself for a longer period of time.

From the province, even as we head into the into the winter months, where all of the upstream producers are back on and you are at that higher concentration of diluent in your bitumen blend.

There probably will be a little bit of widening on that just as the system normalizes, but.

I think we're looking at tighter deaths and with with <unk> coming on that should sustain itself for for a longer period of time.

Speaker 17: Thank you so much for the detailed responses.

Manav Gupta: Thank you so much for the detailed responses.

Thank you so much for the detailed responses.

Keith Chiasson: Great. Thanks, Manav.

Great. Thanks Manav.

Operator 3: Thank you. The next question comes from Harry Mateer at Barclays. Please go ahead.

Operator: Thank you. The next question comes from Harry Mateer at Barclays. Please go ahead.

Thank you. The next question comes from Harry Mateer of Barclays. Please go ahead.

Speaker 18: Thank you. Good morning. I guess first circling back on the debt reduction question at the start of the call, your CAD 7 billion gross debt landing zone implies about CAD 1.5 billion of debt reduction. You know, rates markets have been tough to call all year, but for the time being, you've got no shortage of options on your curve that are below par. Just, you know, how are you thinking about prioritizing? Is it maturity ladder, coupon, you know, ability to buy back below par, CAD versus USD, and then, you know, open market versus doing something a little bit more accelerated like a tender to get it done more quickly?

Harry Mateer: Thank you. Good morning. I guess first circling back on the debt reduction question at the start of the call, your CAD 7 billion gross debt landing zone implies about CAD 1.5 billion of debt reduction. You know, rates markets have been tough to call all year, but for the time being, you've got no shortage of options on your curve that are below par. Just, you know, how are you thinking about prioritizing? Is it maturity ladder, coupon, you know, ability to buy back below par, CAD versus USD, and then, you know, open market versus doing something a little bit more accelerated like a tender to get it done more quickly?

Thank you good morning.

I guess first circling back on the debt reduction question at the start of the call. Your 7 billion gross debt landing zone implies about wanted to explain a debt reduction.

The rates markets have been tough to call year, but for the time being you've got no shortage of options on a curve that are below par so.

How are you thinking about prioritizing is the maturity ladder coupon the ability to buyback below par CAD versus USD, and then open market versus doing something a little bit more accelerated like a tender or to get it done more quickly.

Speaker 19: Yeah. It's Jeff here, and the answer is yes to all of it. We'll be balanced on that as we'll look at, you know, relative interest costs, where we see, you know, you'd say discounts relative to premiums and then the indenture structure. Then as far as execution goes, it's, you know, again, it'll be yes. We'll look at both, you know, what does it look like on a tender and open market purchases. We'll spread it around in all of that and take a balanced approach in all of it.

Jeff Lawson: Yeah. It's Jeff here, and the answer is yes to all of it. We'll be balanced on that as we'll look at, you know, relative interest costs, where we see, you know, you'd say discounts relative to premiums and then the indenture structure. Then as far as execution goes, it's, you know, again, it'll be yes. We'll look at both, you know, what does it look like on a tender and open market purchases. We'll spread it around in all of that and take a balanced approach in all of it.

Yes, so it's Jeff here and the answer is yes to all of it. So we will be thoughts on that is we'll look at.

Our relative interest cost.

We see.

You would see.

Discounts relative to premiums and then the Ann tower structure, and so and then as far as execution goes is again it will be yes, we'll look at both.

What does it look like on a tender and open market purchases. So we'll be we'll spread it around and all of that and take a balanced approach in all day, Harry we don't mean to be coy on that but obviously, we can't answer that question literally.

Jon McKenzie: Yeah. Harry, we don't mean to be coy on that, but obviously we can't answer that question literally.

Speaker 18: Yeah. No, I get it. Second one is, you know, just going back to something that came up last year a couple times on calls, is just around your JV and your strategy going forward. You know, at the time you indicated, and you've taken some steps towards this in some of your assets, but, you know, the strategy is to be an operator and 100% owner of, you know, your refineries where possible. Just curious, you know, is that still the case? Is that still the vision? You know, are there any discussions you've had on that front that might have advanced beyond a preliminary stage?

Harry Mateer: Yeah. No, I get it. Second one is, you know, just going back to something that came up last year a couple times on calls, is just around your JV and your strategy going forward. You know, at the time you indicated, and you've taken some steps towards this in some of your assets, but, you know, the strategy is to be an operator and 100% owner of, you know, your refineries where possible. Just curious, you know, is that still the case? Is that still the vision? You know, are there any discussions you've had on that front that might have advanced beyond a preliminary stage?

Yes.

Got it.

Second one is.

Going back to something that came up last year a couple of times on calls is just around your JV and your strategy going forward and at the time you indicated.

And you've taken some steps towards us on some of your assets, but the strategy is to be an operator, and a 100% owner of your refineries where possible.

Just curious is that still the case is that still the vision and are.

Are there any discussions you've had on that front that might have advance beyond a preliminary stage.

Jon McKenzie: Yeah. You know, Harry, one of the things we've been successful in is unwinding the JVs we've had with BP. We've purchased the 50% of the interest in Sunrise that we didn't own, and more recently we've bought the 50% of Toledo and assumed operatorship of that refinery. You know, the way we think about the refineries where we have an ownership interest is those are core assets for us. Core assets, you wanna have both operating and strategic control. We think that is important. We have always signaled to the market that we have a desire to own and operate those assets that we have an interest in that we believe are core to the future of this company. Nothing has really changed there.

Yes, Harry one.

The things we've been successful and is unwinding. The JV as we've had we've had with BP and we purchased the 50% of the interest in Sunrise that we didn't known and.

More recently, we bought 50% of.

<unk> assumed operation operator ship with that refinery.

The way we think about.

The refineries, where we have an ownership interest as those are core assets for us and core assets you want to have both operating and strategic control. We think that is that is important. So we have always signal to the market that we have a desire to own and operate.

Those assets that we have an interest in that we believe are core to the future of this company. So nothing has really changed there.

Jon McKenzie: There's certainly no update on any kind of discussions that may or may not be happening with in and around that JV. We're happy to own those assets in the form that they're in, understanding that longer term, you know, we wanna own and operate the assets that we would consider core to our portfolio.

Theres certainly.

No update on any kind of discussions that may or may not be happening with.

In and around that JV, where we're happy to own those assets in the form that they are in.

Understanding the longer term.

We want to own and operate the assets that we would consider corridor portfolio.

Speaker 18: Okay. Thanks very much.

Harry Mateer: Okay. Thanks very much.

Okay. Thanks very much.

Yeah.

Operator 3: Thank you, ladies and gentlemen. As a reminder, should you have any questions, please press star one. Next question comes from Dennis Fong at CIBC World Markets. Please go ahead.

Operator: Thank you, ladies and gentlemen. As a reminder, should you have any questions, please press star one. Next question comes from Dennis Fong at CIBC World Markets. Please go ahead.

Thank you, ladies and gentlemen, Anthony Minder should you have any questions. Please press star one.

Next question comes from Dennis Fong CIBC World markets. Please go ahead.

Speaker 19: Hi, Dennis.

Jon McKenzie: Hi, Dennis.

Keith Chiasson: Hey, good morning. Hey, thanks for taking my follow-up. Just two on the, one on the upstream side. I know you provided a brief update on the Narrows Lake to Christina Lake connection and development. Can you provide a little bit more details in terms of what the next steps happen to be? I know there's some CapEx this year, but also maybe an update on timing and how we could see that kind of ramp up through time.

Dennis Fong: Hey, good morning. Hey, thanks for taking my follow-up. Just two on the, one on the upstream side. I know you provided a brief update on the Narrows Lake to Christina Lake connection and development. Can you provide a little bit more details in terms of what the next steps happen to be? I know there's some CapEx this year, but also maybe an update on timing and how we could see that kind of ramp up through time.

Hi, Dan Good morning, Hey.

Hey, Thanks for taking my follow up just to on the one on the upstream side I know you provided a brief update on narrows Lake.

Christina Lake connection and development can you provide a little bit more details in terms of what the next steps happened to be I know there is some capex. This year, but also maybe an update on timing and how we could see that kind of ramp up through time.

Norrie Ramsay: Yep. Hi, Norrie Ramsay here. We continue to make good progress. The context is obviously, Narrows Lake is an extension from our Christina Lake operations, and it's a 17-kilometer pipeline that takes us up to another very rich area for development. The pipeline's two-thirds kind of complete. We expect to actually be starting to steam up our first pads, which we've actually started to drill already in early 2025. By about midyear 2025, we should expect to see initial production coming from that asset area. The first phase of development are four rich pads up in that area that will tie back to Christina Lake. That really reflects our long-term business plan.

Yes, Hi noted Ranjit here.

We continue to make good progress.

Context is obviously.

<unk> Lake is an extension from our Christina Lake operations.

17 kilometer pipeline that takes us up to another very rich area for development.

The pipelines.

Two thirds kind of complete.

We expect to actually be starting to steam up.

<unk> pods, which we've actually started to drill already in early 2025. So by about midyear 2025, we should expect to see impact production coming from that asset area and the first the first phase.

Phase of development of four.

Rich pods up in that area.

Will tie back to Christina Lake.

That really reflects some.

Our long term business plan and then we'll start building out from there into the second and third phase of drilling opportunities.

Norrie Ramsay: Then we'll start building out from there into the second and third phase of drilling opportunities. It's all on track. It's a very exciting opportunity. We like the rock there. It's very clean and very thick. It's a great opportunity and quite innovative, rather than building a central processing facility away up at the site, being able to tie it back to our existing plant, is a very accretive approach.

So it's all on track.

It's a very exciting opportunity.

The rock there is very is very clean and very thick.

So.

Great opportunity and quite innovative rather than building a central processing facility are way up at the site, we have been able to tie back to an existing plant.

It's a very accretive approach.

Dennis Fong: Great. Thanks. My next question is just more on carbon capture and GHG emission reduction plans. Under the list of projects for CCS, you have both the Lloydminster Upgrader as well as Christina Lake Phase One. I was hoping to get a little bit of an update on the progress, potentially in identifying opportunities at this kind of Phase One Christina Lake carbon capture project. Then secondarily, just with the Lloyd Upgrader carbon capture, is that contingent on the Pathways pipeline project moving forward? Or are there other opportunities to store and sequester carbon that's captured from that facility? Thanks.

Great Great. Thanks, and my next question is just.

More on carbon capture and <unk> emission reduction plans.

The list of projects for Ccs you have both the Lloyd against Upgrader as well as Christina Lake Phase one.

I was hoping to get a little bit of an update on the progress potentially and in identifying opportunities at this kind of phase one of Christina Lake a carbon capture project and then secondarily just with the Lloyd upgrader carbon capture is that contingent on the pathways.

Project moving forward or are there other opportunities too.

Store and sequester.

Carbon that's captured from that facility.

Yes.

Keith Chiasson: Maybe I'll take the second part first, Dennis. It's Keith. Just around Lloydminster Upgrader, and then I can hand it over to someone else to talk about Christina Lake Phase One. You know, the interesting thing with the Lloydminster Upgrader is, you know, we have a steam methane reformer there, relatively high concentration carbon dioxide source, relatively straightforward to capture. The other interesting part is obviously we have a very large resource in a close proximity to the upgrader that we can actually use for enhanced oil recovery. I would say it's not dependent on Pathways Alliance. We can build the infrastructure, and have an economic project at that asset.

Maybe I'll, maybe I'll take the second part first Dennis it's Keith and just around Lloyd Upgrader, and then I can hand, it over to someone else to talk about Christina Lake Phase one.

But the interesting thing with the Lloyd Upgrader is we have a steam methane reformer theyre relatively high concentration carbon.

Dioxide source.

Relatively straightforward to capture.

And the other interesting part is obviously we have a.

A very large resource and a close proximity to the upgrader that we can actually used for enhanced oil recovery.

So I would say, it's not dependent on pathways, we can build the infrastructure.

And have an economic project.

Keith Chiasson: hence why we're advancing today through our standard project development process, and looking at ways to integrate that with our upstream business for enhanced oil recovery. Maybe I'll hand it off for-

At that asset so hence why we're we're advancing today through our standard project development process.

And in looking at ways to integrate that with our upstream business for for enhanced oil recovery.

And maybe I'll hand, it off for okay.

Norrie Ramsay: Okay.

Keith Chiasson: the Upstream.

Norrie Ramsay: Norrie here since it's a Christina Lake question. As we've kinda explained in our public documents, our first phase of our carbon capture is at Christina Lake. There's the ability to have a number of phases there, and it's core to our commitment under Pathways. The pipeline will run adjacently to our operations there. We've actually started preliminary engineering to understand the size and scale of this complex project, which is, by its scale, almost kinda a world's first. Again, it's in the plan. It's consistent with our Pathways commitments, and we're just continuing to de-risk it and understand how we'd operate something like this going forward.

I noted here since this at Christina Lake question.

As we've kind of explained in a public.

Documents.

First phase of our carbon capture is at Christina Lake.

There is the ability to have a number of phases, there and it's core to our commitment in the pathway.

Pipeline will run adjacent Lee to our operations. There. So we've actually started preliminary engineering to understand the size and scale of this complex.

<unk>.

Which is.

It's scale almost going to a world's first.

But again, it's in the plan is consistent with our pathway as commitments and we're just continuing to derisk it and understand how we would operate something like this going forward.

Rhona DelFrari: Dennis, it's Rona. Just to add on to that, just to make it even more confusing, while everything that Keith was explaining and Norrie is absolutely correct, when you look at the numbers overall, when you're talking about Pathways' target of 22 megatons by 2030 of a reduction, Lloydminster Upgrader is part of that because the federal government includes the Lloydminster Upgrader in its oil sands emissions numbers.

And Dennis it Rona and just to add onto that just to make it even more confusing.

While everything that Keith was explaining and Orient is absolutely correct. When you look at the numbers overall, when you're talking about pathways target of 22 Mega tons by 2030 of our reduction Lloyd Upgrader is part of that because the federal government includes the light upgrader and with oil sands emissions numbers.

Dennis Fong: Okay. Perfect. Thank you all for that context. I'll turn it back now.

Okay perfect. Thank you all for context, I'll turn it back to us.

Jon McKenzie: Great. Thanks, Dennis.

Great. Thanks, Dennis.

Operator 3: Thank you. At this time, if any members of the media would like to ask a question, please press star one. First question from Chris Varcoe at Calgary Herald. Please go ahead.

Operator: Thank you. At this time, if any members of the media would like to ask a question, please press star one. First question from Chris Varcoe at Calgary Herald. Please go ahead.

Thank you.

Any members of media would like to ask a question. Please press star one.

First question from Chris Barco at Calgary Herald. Please go ahead.

Jon McKenzie: Morning, Chris.

Norrie Ramsay: Hi.

Chris Varcoe: Hi.

Rachel Smith: Hi, John. This is a question about differentials. What impact have the narrow differentials had on you in H1? Maybe more importantly, where do you see heavy light differentials going in H2 of this year?

Good morning, Hi. This is a question hi, John This is a question about differentials what impact or what impact of the narrow differentials had any in the first half, but maybe more importantly, where do you see heavy light differential is going in the second half of this year.

Chris Varcoe: Hi, John. This is a question about differentials. What impact have the narrow differentials had on you in H1? Maybe more importantly, where do you see heavy light differentials going in H2 of this year?

Jon McKenzie: Yes, maybe I'll take the first piece of this, and then I'll turn it over to Keith because he lives and breathes this every day. We saw a real narrowing of the differential from Q1 to Q2. For this company, you know, it's more beneficial for us to have a narrow differential than a wider differential. With the processing assets that we've got and the takeaway capacity that we have inside the company, we can mitigate, you know, roughly 75% of the location differential and about half of our heavy oil differential. Having those narrow differentials certainly helps us.

Yes, maybe I'll take the first piece of this and then I'll turn it over to Keith because he lives and breathes. This.

Every day, but we saw a real narrowing of the differential from the first quarter to the second quarter.

And for this company.

It's more beneficial for us to have a narrow differential than a wider differential with the processing assets that we've got and the takeaway capacity that we have inside the company we can mitigate.

Roughly 75% of the location differential and about half of our heavy oil differential.

So having those narrow differential certainly helps us and you saw that in the second quarter, where we go from here.

Rachel Smith: Yeah.

Chris Varcoe: Yeah.

Jon McKenzie: You saw that, you know, in Q2. Where we go from here, you know, Keith's got some views on. I'll just turn it over to him.

Keith Scott some views on I'll, just turn it over to him.

Keith Chiasson: Hey, Chris, you know, we kind of look at this in two parts, kinda in Western Canada and also in the Gulf Coast, where heavy differentials kinda get set. You know, on a global basis, you know, we're seeing pretty good strength in the differential, driven mostly by kinda the heavy refinery utilization and some additional refineries coming on in Asia that consume heavy barrels. You know, that coupled with the OPEC cuts being predominantly heavy barrels, and then the US Strategic Petroleum Reserve starting to refill, all drives a pretty healthy demand for Western Canadian heavy production.

Hey, Chris we kind of look at this in two parts kind of in Western Canada and also in the Gulf Coast, where heavy differentials kind of get set.

On a global basis.

We're seeing pretty good stir.

Strengthen the differential driven mostly by kind of the heavy refinery utilization and some additional refineries coming on in Asia that consume heavy barrels that coupled with the OPEC cuts being predominantly heavy barrels and then the U S strategic petroleum reserve starting to refill all drives.

Pretty healthy demand for four.

Western Canadian heavy production.

Keith Chiasson: In kinda Western Canada, you know, with TMX forecasted to come online in Q1 and start line filling in Q4, you know, we actually see an opportunity for differentials in Alberta to stay relatively tight as well. You know, setting up for a pretty good fall, winter, and into next year.

And kind of Western Canada, with Tms forecast to come online in Q1 and start line filling in that fourth quarter, and we actually see an opportunity for differentials in Alberta to stay relatively tight as well so setting up for a pretty good fall winter and into next year.

Okay.

Rachel Smith: Just to follow up on something that you referenced earlier, John, I wanna ask you about what impact does the talk from the federal government of phasing out these fossil fuel subsidies and their plans for an incoming emissions cap have on the Pathways projects moving forward? Does it have any impact at all?

Chris Varcoe: Just to follow up on something that you referenced earlier, John, I wanna ask you about what impact does the talk from the federal government of phasing out these fossil fuel subsidies and their plans for an incoming emissions cap have on the Pathways projects moving forward? Does it have any impact at all?

And just a follow up on something that you referenced earlier John wanted to ask you about what impact does the talk from the federal government of phasing of these sorts of fuel subsidies.

And their plans for NIM coming emissions cap have on the pathways projects moving forward does it have any impact at all.

Yes.

Jon McKenzie: You know, the second part of your question, you know, I don't believe it does have any impact on Pathways at all. First part of your question, you know, I think I was relatively clear. I really don't know what they mean by subsidies to the oil and gas industry. I'm generally not aware of any subsidies that are direct to the oil and gas industry that they may or may not be speaking of. You know, like you, we're waiting for more detail on this, similar to waiting for more detail on the emissions cap and how that's gonna play in, but we don't necessarily see how this all comes together quite today.

The second part of your question I don't believe it does have any impact on pathways.

Ted All first part of your question I think is relatively clear I.

I really don't know what they mean by subsidies to the oil and gas industry.

And generally not aware.

Any subsidies that are direct to the oil and gas industry that they may or may not be speaking of so like you we're waiting for more detail on this.

Similar to waiting for more detail on the emissions cap and how thats going to play in but we don't necessarily see.

How this all comes together quite today.

Rachel Smith: Thank you.

Chris Varcoe: Thank you.

Thank you.

Jon McKenzie: Thank you.

Thank you.

Yes.

Operator 3: Thank you. The next question comes from Alex Bill at allNewfoundlandLabrador. Please go ahead.

Operator: Thank you. The next question comes from Alex Bill at allNewfoundlandLabrador. Please go ahead.

Thank you. The next question comes from Alex Barron.

Mr. Lin. Please go ahead.

Speaker 20: Good afternoon, or morning where you are. Jon, I was wondering if you guys could provide any comment or color on the Irving assets that are on the market right now, and, you know, assets I would imagine you're pretty familiar with. You may have answered part of this earlier with some of the comment on debt, but is there any appetite for M&A at all right now?

Alex Bill: Good afternoon, or morning where you are. Jon, I was wondering if you guys could provide any comment or color on the Irving assets that are on the market right now, and, you know, assets I would imagine you're pretty familiar with. You may have answered part of this earlier with some of the comment on debt, but is there any appetite for M&A at all right now?

Good afternoon, good morning, where you are Ken John .

I was wondering if you guys could provide any comments or color on the earning assets that are on the market right now.

Assets I would imagine you're pretty familiar with and you may have answered part of this earlier with some of the comment on that but is there any appetite for M&A at all right now.

Jon McKenzie: You know what? I think, Alex, we are really focused on staying close to our knitting right now. This organization's been through a lot of change and growth over the past number of years. As I mentioned in some of my comments, we've really got the assets configured and built in a way that we are really happy with, you know, where we are today. I think for us over the next few quarters, it's really about demonstrating the earnings and cash flow capability, these assets, running them in a safe and reliable condition and demonstrating the profitability of what we've built. You know, that is priority one and job one.

I think Alex we are really focused on staying close to our netting right. Now this organization has been through a lot of change and growth.

Over the past number of years and as I mentioned in some of my comments, we've really got the assets configured and built in a way that we are really happy with.

Hum.

Where we are today, so I think for us.

Over the next few quarters, its really about demonstrating the earnings.

Cash flow capabilities these assets running them in a safe and reliable condition and demonstrating the profitability of what we've built so that is priority one and job one.

Jon McKenzie: You know, in terms of Irving, you know, we're aware that, you know, just like you, of the announcement that they put out. You know, I haven't worked there in almost 10 years, so, you know, we don't have any unique insight into that. We as a company will stick to our knitting over the short to medium term.

In terms of our Irving.

We're aware of that.

Just like you have the announcements.

Announcements as they put out.

But I haven't worked there in almost 10 years so.

We don't have any unique insight into that but we as a company we will stick with our netting for stick to our knitting over the short to medium term.

Speaker 20: Okay, thanks for that. As my follow-up, I'm wondering if you can provide any color on the asset life extension for the SeaRose and specifically if a shipyard has been picked for that and, you know, where that stands parallel to West White Rose.

Alex Bill: Okay, thanks for that. As my follow-up, I'm wondering if you can provide any color on the asset life extension for the SeaRose and specifically if a shipyard has been picked for that and, you know, where that stands parallel to West White Rose.

Okay, Thanks for that and.

My follow up I'm wondering if you can provide any color on the asset life extension for the tea Rose and specifically at the shipyard has been paid for that and where that stands parallel to west White rose.

Jon McKenzie: Sure. I'll turn that over to Norrie. Norrie's been the one who's been leading that effort on our side.

Sure I'll turn that over to Nora <unk> spend the one who has been leading that effort on our side.

Keith Chiasson: Yeah.

Alex Bill: Yeah.

Norrie Ramsay: Hi there. Norrie here. Just to confirm, the asset life extension is a statutory requirement to, in simple terms, recertify the SeaRose FPSO and make sure it can stay out for the duration of the period we wish to develop the West White Rose project. It's obviously commercial what we're kinda doing, so I'm not in a position to talk about any details of the supply chain. The principle is we will take the FPSO. There's two pieces of work. There's offshore work in the subsea components that are offshore in the buoy area. Again, that uses local subsea expertise within the province. We will be taking the FPSO early next year to an appropriate yard.

Yes, Hi Def.

Nora here and just to confirm.

The asset life extension.

Constitute requirement too.

In simple terms recertify.

<unk> and make sure it can Steve.

For the duration of the period, we wish to develop the west White Rose project.

It is obviously commercial.

We're kind of doing so I'm not in a position to talk about.

The details of the supply chain, but the principle is we will take the FPA. So there's two pieces of work offshore work.

In the subsea components that are that are offshore.

In the <unk> area. So again not use these local sub.

Subsea expertise within the province, and we will be taking the FPA. So.

Early next year to an appropriate.

Norrie Ramsay: as I said, we're just not in a position to disclose that until we've completed all our commercial processes.

Yeah.

Norrie Ramsay: as I said, we're just not in a position to disclose that until we've completed all our commercial processes.

We're just not in a position to to disclose that until we complete the dollar.

Commercial processes.

Speaker 20: Okay, thanks, everyone.

Alex Bill: Okay, thanks, everyone.

Okay. Thanks, everyone.

Jon McKenzie: Great. Thanks, Alex.

Great. Thanks, Alex.

Operator 3: Thank you. The next question comes from Robert Tuttle at Bloomberg News. Please go ahead.

Operator: Thank you. The next question comes from Robert Tuttle at Bloomberg News. Please go ahead.

Thank you and the next question comes from Robert Tuttle at Bloomberg News. Please go ahead.

Speaker 21: Yeah. Hi, good morning. Thanks. I just wanna get your insight. The tolls on the Trans Mountain have come out. There's been a lot of unhappiness by some producers with those tolls as being too expensive. I'm just wondering how this will play out in terms of oil exports. How competitive will this pipeline be when it comes to reaching Asia, or will the oil end up mostly going down to the US West Coast? How competitive will it be to reach, say, China versus going down to the Gulf Coast? Just want your insight.

Robert Tuttle: Yeah. Hi, good morning. Thanks. I just wanna get your insight. The tolls on the Trans Mountain have come out. There's been a lot of unhappiness by some producers with those tolls as being too expensive. I'm just wondering how this will play out in terms of oil exports. How competitive will this pipeline be when it comes to reaching Asia, or will the oil end up mostly going down to the US West Coast? How competitive will it be to reach, say, China versus going down to the Gulf Coast? Just want your insight.

Yes, hi, good morning, Thanks, I just wanted to get your insight on where you are.

Tolls on the Trans mountain have come out.

There's been a lot of.

Happiness, probably some producers are opposed hauls as being too expensive.

Just wondering how this will play out in terms of oil exports.

How competitive will this pipeline be when it comes to reaching Asia or will the oil end up.

So going down to the U S West coast, how competitive it will be to reach say, China versus going down to the Gulf coast just higher inside.

Keith Chiasson: Hey, Robert. You know, suffice it to say, obviously, the commercial arrangements are sensitive, but, you know, in general, you know, there's components of our toll structure that are fixed and components that can fluctuate with increased costs. You know, you would've seen a few letters going into the CER, you know, just making sure the allocation of those costs was done appropriately. So that's kind of the work that you're seeing around that avenue. From a competitiveness, you know, this is one of the first pipelines that have been built and providing egress out of Canada in a long period of time. First one that kinda goes to the West Coast and doesn't go through the US.

Hey, Robert Suffice it to say, obviously, the commercial arrangements are sensitive but in general there is.

Components of our toll structure that are fixed.

<unk> can fluctuate with increased costs in and you would have seen a few letters going into the CER, just making sure the allocation of those costs was done done appropriately. So that's kind of the work that youre seeing around that Avenue.

From a competitiveness.

As one of the the first pipelines that have been built in and providing egress out of Canada.

Long period of time first one that kind of goes to the west coast and doesn't go through the U S. So we think it will provide a very attractive alternative for Canadian producers to move their barrels to market in a different fashion and potentially even access different markets. So.

Keith Chiasson: We think it will provide a very attractive alternative for Canadian producers to move their barrels to market in a different fashion and potentially even access different markets. You know, our view would be that this pipeline, when up and running, will run full and provide pretty good economics, not only to the producers but to the country to move those barrels, excess barrels, outside of Canada.

Our view would be that this pipeline went up and running we will run full and provide provide pretty good economics, not only to the producers but to the to the country to move those barrels.

Excess barrels outside of Canada.

Jon McKenzie: Yeah. You know, I'd just like to kinda pile on with what Keith is saying. The tolls get a lot of attention right now, and justifiably so, you know. We will work through that with TMX. You know, the reality is this is an absolutely necessary piece of infrastructure, not only for Cenovus, but also for the oil and gas industry in Canada at large. This is gonna take another 590,000 barrels of Canadian oil to market at a time when the world is really needing more energy and the demand for oil and gas is growing, and those barrels should come from Canada. You know, beyond the tolls, you do have to realize as well that this is an asset that's gonna be in service for decades.

I'd, just like to kind of pile on with what Keith is saying in the tolls get a lot of attention right now and justifiably. So.

But we will work through that.

With <unk>, but the reality is this is an absolutely necessary piece of infrastructure not only for synovus, but also for the oil and gas industry in Canada. At large this is going to take another 590000 barrels of Canadian oil to market.

At a time when the world is really needing more energy and the demand for oil and gas is growing in those barrels should come from Canada.

Beyond the tools you do have to realize as well. This is an asset that's going to be in service for decades, it's going to provide jobs, it's going to provide tax dollars is going to provide royalties.

Jon McKenzie: It's gonna provide jobs, it's gonna provide tax dollars, and it's gonna provide royalties for Canadians going forward. We think this is a very good news story for Canada, you know, understanding that there are cost overruns and implications for tolls in the short term, but, you know, something that is very, very important for this country.

For Canadians going forward. So we think this is a very good news story for Canada understanding that there are cost overruns and implications for tools in the short term but.

Something that is very very important for this country.

Speaker 21: Thanks. I'm wondering, the reality is there'll be more capacity than there'll be production, at least initially. I mean, which lines are going to, you see, lose the spot? Will that come off Enbridge? If you got TMX full, will that come off Enbridge or will TMX not actually run full, at least some of those spot barrels will go down to Enbridge? Where do you think that'll happen there?

Robert Tuttle: Thanks. I'm wondering, the reality is there'll be more capacity than there'll be production, at least initially. I mean, which lines are going to, you see, lose the spot? Will that come off Enbridge? If you got TMX full, will that come off Enbridge or will TMX not actually run full, at least some of those spot barrels will go down to Enbridge? Where do you think that'll happen there?

Thanks I'm wondering.

The reality is there'll be more capacity than there will be production at least initially I mean, which lines are going to lose the spot will come off Enbridge. If you got <unk> Hall.

Come off average or or or will <unk> not actually run for at least some of those spot barrels will go and where do you think that will happen.

Jon McKenzie: Well, you know, one of the things, Robert, I'd tell you is this industry has a great habit of expanding to fill pipeline capacity. You know, talked about the 590,000 barrels a day of incremental takeaway capacity that you know, this pipeline will be able to take away. That, that'll be filled, I think, in relatively short order over the coming years. You know, the reality is this industry has grown by almost 800,000 barrels a day since 2015. Those kind of infrastructure projects that increase our ability to get to market tend to get filled fairly quickly with the amount of resource we have in Canada. You're quite right, there'll be some short-term rebalancing.

Well.

One of the things Robert I'd tell you is this industry is a great habit of expanding to fill pipeline capacity.

<unk> talked about the 590000 barrels a day of incremental takeaway capacity that.

This pipeline will be able to take away that that will be filled I think in relatively short order over the coming years. The reality is this this industry has grown by almost 800000 barrels a day since 2015.

And those kind of infrastructure projects that increase our ability to get to market.

Tend to get filled fairly quickly with the amount of resource we have in Canada. So you are quite right there'll be some short term rebalancing.

Jon McKenzie: Longer term, we'll fill this pipeline and I think probably sooner than most people think.

But longer term, we will fill this pipeline and I think probably sooner than most people think.

Speaker 21: I do.

Robert Tuttle: I do.

Thank you.

Operator 3: Thank you. There are no further questions at this time. I will now turn the call back over to Mr. McKenzie for closing comments.

Operator: Thank you. There are no further questions at this time. I will now turn the call back over to Mr. McKenzie for closing comments.

Thank you there are no further questions at this time I will now turn the call back over to Mr. Mckenzie for closing comments.

Jon McKenzie: Great. Well, listen, thanks everybody for joining us today. We always appreciate the interest in this company and the questions that come with it. I just end this call by saying I hope everybody has a great day and stay safe.

Great well listen thanks, everybody for joining us today, we always appreciate the interest in this company and the questions that come with it.

So just as in this call by saying I hope everybody has a great day and stay safe.

Operator 3: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.

Q2 2023 Cenovus Energy Inc Earnings Call

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