Q2 2023 Imperial Oil Limited Earnings Call
Please standby we're about to begin.
Good day and welcome to the Imperial oil to Q23 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Dave Hughes, Vice President of Investor Relations. Please go ahead.
Thank you and good morning, everybody welcome to our second quarter earnings call.
Joined this morning by <unk> Senior management team, including Brad Corson, Chairman, President and CEO , Dan Lyons Senior Vice President Finance and administration, Sharon <unk> Senior Vice President of sustainability commercial development and product solutions and Simon younger senior Vice President of the upstream.
Sherri statement todays comments include reference to non-GAAP financial measures the definitions and reconciliations of these measures can be found in the attachment six of our most recent press release and are available on our website with a link to this conference call. Today's comments May also contain forward looking information any forward looking information is not a guarantee of future performance.
The actual future performance and operating results can vary materially depending on a number of factors and assumptions forward looking information and the risk factors and assumptions are described in further detail on our second quarter earnings release that we issued this morning as well as our most recent Form 10-K. All of these documents are available on SEDAR Edgar and on our website. So please refer to those.
So I will hand, it over to Brad and to Dan to go through their remarks, and as always we will follow up after that with the Q&A session. So Brad over to you. Thank.
Thank you Dave Good morning, everybody and welcome to our second quarter earnings call I Hope everyone is doing well.
Before addressing the financial and operating results for the quarter I wanted to take a moment to talk about the serious wildfire situation in Alberta and across many parts of the country.
That has been present now for over the past few months and continues in many areas today.
Our thoughts continue to be with the many communities that were and continue to be impacted by these fires and related evacuations.
Throughout this challenging time imperial is working directly with communities to help address emergency requests, including donating safety equipment and personal protective gear to firefighting crews ensuring local supplies of jet fuel for firefighting planes and our employees are helping deliver items donated.
By the companies such as water and nonperishable food to those impacted by the wildfires as well as the first responders.
I'd also like to send a heartfelt. Thank you to all the emergency services that had been doing such a tremendous job in battling these fires and providing assistance and support to the impacted communities.
Now, let's talk about our second quarter performance. The results, we will talk about over the next several minutes are reflective of a quarter that included a significant level of planned maintenance at three of our major assets and I'm pleased to say that all the work was completed safely and consistent with our plans.
And while we still have major planned turnaround work ahead of us.
In particular, a turnaround at our Sarnia refinery and chemical site. Later this year, we expect to see stronger volumes in the second half most notably in the upstream.
The second quarter also saw continued strength in the commodity price environment.
While we saw some moderation in diesel cracks motor gasoline strengthened and crude remained relatively steady while WCS prices improved.
All in all a positive environment for us as we move into the second half of the year.
So now let's review the second quarter results.
Earnings for the quarter were $675 million with cash from operating activities of over $1 1 billion.
When excluding working capital impacts. These results are notable and that they demonstrate continued strong performance in a period, where we were executing a significant amount of planned maintenance activity both in the upstream and the downstream.
In the upstream production in the quarter was 363000.
Gross oil equivalent barrels per day, reflecting the impact of major planned maintenance at Kearl and Syncrude.
I'll talk about each asset in more detail in a few minutes, but I'm pleased to say that this work was executed as per our plans and operations are now back to normal at these two assets.
We still have some planned maintenance scheduled for the second half of the year, but it is much less significant and given our first half performance. We are moving into the second half of the year with confidence in the production guidance we have provided.
Our downstream business also performed very well refi.
Refining throughput averaged 388000 barrels per day, which equates to a refinery utilization in the quarter of 90%.
This reflects a very successful major planned turnaround at stress Kona, which is our largest refinery operations are back to normal here as well.
We ended the second quarter.
Year to date utilization of 93%.
Which is right on our guidance for our refining business.
While we do have another significant planned turnaround at our Sarnia facility in the second half of the year, which impacts both the refinery and our chemical operations. We are confident in our plans and ability to deliver on our full year guidance.
We've talked a fair bit about our priorities as they relate to greenhouse gas emissions reduction both our own and those of our customers and I have a couple of exciting updates on our efforts in this area are curl mining facility received its first shipment of renewable diesel for use in our heavy duty.
Duty truck fleet.
We passed a significant milestone with respect to our renewable diesel project add stress Kona as we began mobilizing key contractors to the site to begin facility construction work.
On shareholder returns in addition to announcing a 50 per share dividend. This morning in late June we also announced the renewal of our normal course issuer bid.
<unk>, which we plan to repurchase 5% of our outstanding shares which amounts to around 29 million shares.
And as you would've seen in our earnings press release. This morning, we have decided to accelerate the buyback program with the intention of having it completed prior to the end of this year.
As you know we have a long track record of shareholder returns and this underscores our continued commitment to returning surplus cash to shareholders in the most effective and efficient way possible.
I'll pass things over to Dan.
Thanks, Brad and the second quarter, we reported net income of $675 million, a decrease of about $1 $7 billion from the second quarter of 2022, reflecting lower commodity prices and significant turnaround activity looking sequentially second quarter net income of $675 million is down.
$573 million from the first quarter, mainly driven by significant turnaround activity in the upstream and downstream and weaker downstream refining margins, partially offset by recovering upstream realizations now looking at each business line.
The upstream reported net income of $384 million up $54 million from the first quarter net income of $330 million, reflecting higher realizations, partly offset by lower volumes mainly from the turnaround.
Turnaround activity at curl and Syncrude the downstream as net income was $250 million down $620 million from the first quarter's net income of $870 million, reflecting planned turnaround activities at the scrap toner refinery and lower refining margins.
Finally, our chemicals business continued to demonstrate strong and reliable operational performance with net income of $71 million in the second quarter up $18 million from the first quarter.
Moving on to cash flow in the second quarter, we generated $885 million in cash flows from operating activities an improvement.
About $1 $7 billion over the first quarter.
Plucking the absence of the income tax catch up payment we made in the first quarter of around $2 1 billion, excluding working capital effects of $251 million cash flow from operating activities for the second quarter was $1 billion $136 million down about $400 million from the first.
Quarter, we ended the quarter with just under $2 4 billion of cash on hand.
Going on to Capex capital expenditures expenditures totaled $493 million in the second quarter up $179 million from the second quarter of 2022 and in line with our plans and full year guidance of $1 7 billion in the upstream second quarter spend.
<unk> focused on smaller projects to sustain and grow production.
As well as progressing the in pit tailings project, yet Carl and the SA Saggy Grand Rapids project at Cold Lake Grand Rapids remains on track to be completed on an accelerated basis by the end of this year in line with our previous updates about one year ahead of schedule.
In the downstream second quarter spending focused on progressing our renewable diesel project at scrap Kona. This project is planned to start up in 2025.
Shifting to shareholder distributions in the second quarter of 2023.
We paid $257 million of dividends as Brad noted in line with our long standing commitment to return cash to shareholders on June 27th we announced the renewal of our normal course issuer bid this and CIB allows us to purchase up to 5% of our outstanding shares while we started purchasing the shares ratably.
Over a 12 month period, we plan to accelerate the share purchases and finished the program prior to year end.
Lastly, this morning, we announced a third quarter dividend of <unk> 50 per share payable on October one now I'll turn it back to Brad to discuss our operational performance.
Stan So now let's talk about our operating results for the quarter.
Upstream production for the quarter averaged 363000 oil equivalent barrels per day, which is down 50000 barrels per day versus the first quarter.
Coincidentally. This is also down 50000 barrels per day versus the second quarter.
2022.
When adjusting for the sale of <unk> were down around 35000 barrels per day year on year.
This lower production was driven primarily by the major turnaround work that was completed in the quarter at both curl and Syncrude as well as some production and steam cycle timing impacts at Cold Lake.
The turnaround work executed in the quarter was completed safely and as per plan.
In the quarter, we saw WTS crude prices come down slightly versus the first quarter.
We also saw a material tightening of the <unk> WCS differential, resulting in overall bitumen realizations being up quarter over quarter.
On the petroleum products side, we saw continued softening of diesel prices, but gasoline strength that leading into the summer driving season and as a result overall refining margins remain above mid cycle.
So now let's move on and talk about kernel.
<unk> production in the second quarter averaged 217000 barrels per day, gross which was down 42000 barrels per day versus the first quarter and down 7000 barrels per day from the second quarter of 2022.
Production in the quarter was impacted by our annual planned turnaround.
Which as I noted was completed on schedule and also on budget.
While this work.
Behind us with this work behind us.
We're looking to a strong second half of the year, which we are already demonstrating with July expected to come in at around 285000 barrels per day, which is approaching our best ever July of 287000 barrels per day gross this is in.
Aligned with our full year guidance of 265 to 275000 barrels per day gross.
Now turning to cash operating costs, while we saw an increase versus the first quarter due primarily to the planned turnaround activities.
We also saw a decrease of about $3 50 U S per barrel versus the second quarter of 2022, a quarter, where we also had a major turnaround.
Year to date cash operating cost at hurdle or just over 26.
U S dollars per barrel, which is about six.
Dollars 50.
U S.
Per barrel lower than the first half of 2022.
This is the trend in costs, we are expecting to see as we continue to work towards our target of sustainable unit cash operating costs at or below U S $20 per barrel at Kearl.
And as for a quick update on our autonomous haul program at Pearl.
As of the end of the quarter 73 out of our 79.
Caterpillar 797, heavy haul trucks have been converted to autonomous and the remaining trucks are expected to be complete by the end of the third quarter.
I'm also pleased to provide you with an update on the curl environmental protection order, which has been a key focus area for us in the second quarter. We completed construction work on the key mitigation efforts to expand the existing Super Gen reception system.
These expansions included additional drainage structures pumping wells and vacuum systems.
Now that construction is complete and systems are fully operating our focus is on continuous monitoring and gathering additional data to ensure these mitigation measures are working as intended.
Additional assessment work will occur in the coming months and will include additional delineation.
Drilling work in the area to determine if any further mitigation are required.
We will continue to engage with the local indigenous communities to provide updates and to continue to provide access for site tours and independent testing.
There is no indication of adverse impacts to wildlife or fish populations and nearby river systems, nor risk to drinking water for local communities.
I would also like to say again, how deeply apologetic we are to our indigenous partners for this unfortunate situation.
We are committed to rebuilding the trust we have lost and as you can see we have been working very hard to correct. The issue and ensure that it does not happen again.
As noted earlier I'm also very pleased to announce that occur we started using renewable diesel in the heavy truck fleet for the first time.
This will allow us to demonstrate the suitability of lowering this shouldnt renewable diesel for use in heavy equipment applications across our customer base.
Moving to Cold Lake.
Kobe production for the second quarter averaged 132000 barrels per day, which was 9000 barrels per day lower than the first quarter and 12000 barrels per day lower than the second quarter of 2022.
Lower second quarter production was mainly driven by production and steam cycle time.
As you know is not unusual for cold Lake since it is predominantly using cyclic steam stimulation technology.
Even with the lower production in the second quarter.
We remain within guidance on a year to date basis, and therefore expect to deliver full year production of $135 to 140000 barrels per day.
This guidance reflects a relatively minor plant turnaround at cold Lake Snap VA plant, which is scheduled to take place in the third quarter with an annualized volume impact of around 2000 barrels per day.
Next I would like to provide a brief update on Grand Rapids phase one as.
As you know this is another.
Key project.
That will impact our emissions reduction plans and focus on profitable production growth. So I'm pleased to say that the project continues to progress very well against the accelerated timelines. We've communicated late last year, all well pairs have now been drilled and completed and.
And construction is around 80% complete.
The project remains on track with startup of steam injection expected later this year.
Once fully online the phase one of the project is expected to produce around 15000 barrels per day.
And I would also like to address a recent issue at our Cold Lake He can plant, where a flock of Canadian geese came into contact with oil and a line.
<unk> water lagoon.
The 12 birds have been taken to a rehabilitation center, where they had been.
They've been assessed and are being cleaned and cared for.
We are monitoring their status and they are currently in good condition.
We provided immediate notification to regulators and local communities and continue to provide regular updates accordingly.
Cleanup.
The oil which totals approximately six barrels is nearly complete and.
And we have put additional measures in place to protect wildlife, including surveillance decoys and flags as well as additional noise candidates.
I am disappointed that this has occurred and we will be making every effort to learn and apply any preventative steps that are identified.
Now a few comments on Syncrude.
Imperial share of Syncrude production for the quarter averaged 66000 barrels per day, which was down 10000 barrels per day versus the first quarter and down 15000 barrels per day versus the second quarter of 2022.
The main factor in the lower production was turnaround timing in 2022 Sim crudes main planned turnaround began in the third quarter. This year as the timing was advanced with the planned maintenance starting on March 22nd and continuing for 63 days the turnaround went well and was completed on schedule.
Joel.
Syncrude also experienced some bitumen production issues related to poor weather conditions, and unplanned reliability events, which impacted production in the quarter.
The interconnect interconnect pipeline continued to add value to the operation.
Enabling around 4000 barrels per day of SSP production from imported bitumen, helping offset the volume impact of the reliability events.
Looking ahead to the second half of the year Syncrude has a planned hydro treater turnaround scheduled to start in mid August and continue into early fourth quarter running around 60 days.
<unk> impact is 12000 barrels per day in the quarter.
Now, let's move on and talk about the downstream in the second quarter. We refined an average of 388000 barrels per day, which was down 29000 barrels a day versus the first quarter and down 24000 barrels per day versus the second quarter of 2022, reflecting a utilization.
90%.
Coming off a very strong first quarter, we entered into a major planned turnaround at stress Kona our largest refinery.
The turnaround started April 3rd and continued for 57 days at a cost in line with the guidance, we provided of around $120 million.
The team delivered a safe and successful turnaround executing a significant scope of work over a shorter period of time than in the past a remarkable achievement. So congratulations to the team.
Year to date utilization of our refineries sits at 93%. So we are right on track to deliver on our guidance of 92% to 94%.
Also please keep in mind that we have another large turnaround plan for the late third quarter and into the fourth quarter at our Sarnia site. This turnaround also includes the chemical plant and is expected to run for six or seven weeks with an annualized crude throughput impact of 9000 barrels per day.
And a cost of around $165 million, which includes the chemical scope.
Finally, I'd also like to wish stress Kona refinery a happy 75.
75th anniversary.
<unk> 17th March 75 years of operations at the facility.
And while the facility has changed dramatically in that time, a few things have remained quite constant.
In a safe and reliable operation as well as a good neighbor to the community over those 75 years congrats.
Congratulations to the entire stress Kona <unk> past and present.
And thanks to all of our business partners and stakeholders for your long standing support.
I mentioned earlier that we've reached an important milestone with our stress Kona renewable diesel project as we began mobilizing key contractors to the site to commence construction. The project is progressing well with detailed engineering and equipment fabrication fabrication progressing as per plan.
Currently construction activities are focused on underground infrastructure work in pain Foundation installation. The project is currently on schedule for a 2025 startup.
Petroleum product sales in the quarter were 475000 barrels per day, which is up 20000 barrels per day versus the first quarter and down 5000 barrels per day versus the second quarter of 2020 to the.
The increase versus the first quarter is reflective of typical demand fluctuations and demand for all products remained stable with motor gasoline and diesel at around 90% to 95% of 2019 levels.
Fueled demand continues to strengthen and robot remains above 2019 levels.
I would also note that being able to continue to supply strong sales demand like we saw in the second quarter, even with our largest refining asset offline for planned maintenance is a testament to the detailed planning that went into the event.
Our thanks go out to the team for managing this so effectively.
Crack spreads diesel margins soften quarter over quarter, but have leveled out and are now showing some signs of strengthening and are well within the five year band motor.
Motor gasoline cracks strengthened throughout the quarter as we entered into the summer driving season.
And they also remains strong versus last year, but currently at the top of the five year band.
And that brings us to chemicals chemicals delivered strong results with earnings in the second quarter of $71 million, which is up $18 million versus both the first quarter of this year and also the second quarter of 2022.
As mentioned, we have some major planned maintenance at the Sarnia site scheduled to start later in the third quarter. This includes the chemical facility, although sales are not expected to be materially impacted.
One other item I wanted to mention was a quick update on progress on the pathways Alliance.
<unk> continues to be actively involved in the pathways discussions with the government regarding the fiscal policy and regulatory certainty, which is needed to progress. This critical project.
Conversations to date have been collaborative productive and focused on a deeper understanding of our foundational project and working towards meeting due diligence requirements for the government's financial support.
We have also started to engage with indigenous communities, which is a high priority for US engineering and field work is also underway to support the regulatory application for the foundational project expected to be filed later this year.
So a lot of work underway by the sixth member companies to progress this unprecedented projected support of Alberta, and Canada's net zero goals by 2050 for scope, one and two emissions.
So to wrap up this was a solid quarter underpinned by successful execution of significant planned maintenance at three of our major facilities.
This work was completed safely on time and on budget, enabling us to minimize the impact of having the facilities offline.
But we're not finished we have another large turnaround at our Sarnia facility as well as a relatively small plant turnaround at cold Lake.
Any planned hydro treater turnaround at Syncrude. So the focus will remain on executing this work as safely efficiently and effectively as we did in the second quarter.
And as we look forward to the second half of the year. We are targeting a strong finish we will continue to focus on shareholder returns and as we announced this morning, we are accelerating our recently renewed and CIB with the intent of completing our prior to year end.
And as cash balances allow we will continue to evaluate additional opportunities to return excess cash to our shareholders.
We will continue to focus on sustainability and make progress towards our emission reduction goals in a thoughtful and pragmatic way.
Today, we've talked about a few milestones in pursuit of these goals, including progress on our renewable diesel project, receiving the first shipment of renewable diesel at curl for use in our heavy haul trucks progress towards completion of Grand Rapids Phase, one and continued work on pathways.
I look forward to continuing to bring you updates on these attractive opportunities as we continue to focus on maximizing the value of our existing business. While at the same time responding to the changing needs of our customers and communities.
And a key priority continues to be improving our environmental performance and fully addressing the recent incidents at Kearl and cold Lake.
As always I'd like to thank you once again for your continued interest and support.
And now we'll move to the Q&A session. So I'll pass it back to Dave.
Thanks, Brad will jump into the Q&A session now.
As always would appreciate if you could limit yourself to one question plus a follow up then that just helps us ensure we can get as many questions in as possible. So with that operator could you. Please open up the Q&A line.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker phone. Please make sure your mute function is turned off Tobias <unk>.
Press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
We'll go first to Manav Gupta with UBS.
Okay.
Good morning, guys.
We are seeing a very strong rebound in refining cracks all across U S.
You have a unique portfolio of thereby you are levered to the east coast crack Chicago cracks as well as the West coast crack and you have a track record of actually capturing that crack so as we look at the second half of this year.
What's the outlook for refining given a very strong rebound in cracks and then it looks like youre running much harder than the first half.
Yes. Thanks for the question then.
I think you've characterized it.
Quite accurately.
We are in a unique position here in Canada with <unk>.
<unk> three <unk>.
A large refining assets.
In the east and the West part of the country, We've got well established infrastructure networks.
And all of that system together.
With other integration with our upstream gives us a unique competitive advantage and allows us to fully extract.
Value from the market.
As we look to the second half of the year, we continue to have a very strong view of.
<unk> of the market and certainly our priority will be to capture that.
We do have the large turnarounds.
I mentioned a couple of times.
But we think even with that we are still in a very strong position.
To finish out the second half of the year and of course.
Those turnaround activities, both debt spreads Kona the first part of the year Sarnia as the second half of the year.
<unk> us to continue to operate not only the safe manner, but a very reliable manner and only.
Maximize the utilization of these assets going forward. So we can respond to market demands.
Thanks for that question.
Quick follow up here.
Help us understand some milestones and what we can look for as you try and bring that cost down towards the target of $20 per barrel.
Yes. Thanks, Thanks for the question.
I mean, we're quite encouraged by the progress so far this year with our cost structure.
I commented on the autonomous haul trucks.
Those continue to be a cornerstone of our of our cost structure and so delivering on on full autonomy.
Add significant value to us.
We've talked about the turnaround now putting that turnaround behind us, but noting that we completed it.
In a very cost effective way also contributes to our overall cost structure and then theres. Several examples where we are fully leveraging technology to also improve our cost and all of that speaks to kind of the numerator.
Of the unit cost, but equally important is the denominator.
Act hurdle, we obviously have a large fixed cost investment out there. So the more volume that we can produce.
We'll drive our unit cost down and so.
I talked about.
Kind of our volume performance for the first half of the year the first quarter.
Was you may recall a record.
Record first quarter for us the second quarter, which I just discussed.
Was actually our second highest.
Well.
Together between the first I think it was our third highest second quarter. When you put that all together, it's our second highest first half of the year.
Yes.
And on the heels of last year, our highest second half of the year. So the message being we continue to set records at Pearl.
And it's that momentum that I believe is going to drive us to a very strong second half volume performance and that will continue to drive our cost structure down to the $20 per barrel target that we've set.
Thank you so much for taking my questions.
Yes. Thank you.
We'll go next to pardy with RBC capital markets.
Hey, Thanks, good morning, and as always thanks for the Super detailed summary, Brad and Dan and others.
Yes.
One I ask you a couple of questions maybe to come back to.
Pathway, so you're not as dependent on the pipe coming down.
The sequestration standpoint, or at least you would be able to.
Im assuming get ahead of the Q, a little bit in terms of actually injecting.
Two at Cold Lake.
That is that the right characterization and then how material could that be if you can start injecting in 'twenty six 'twenty seven versus 2029 have I got that right.
Yeah.
Yes, you do Greg.
When you step back and you look at the whole pathways project.
<unk> focused on.
95% of the oil sands production we have.
The cornerstone of the project is foundational pipeline running from the north around Murray all the way down to Cold Lake and along that way there are probably 20 different operations that ultimately would get tied in.
But at the very end of that pipeline is where cold Lake six and so we have the advantage with cold Lake that we can start the carbonization activities carbon capture activities without being dependent on a pipeline a bit.
Trunk line two to transport those too.
Question sequestration site, where the pore spaces now the pore space that we will be using is all part of the pathways Alliance.
Our space award from the Alberta government. So we will be accessing that so we view cold Lake is an integral part.
<unk> waste project.
But it does not require the pipelines. So it does have the potential to start up well in advance of the pipeline.
In the late 2000 Twenty's, but.
Targeting well in advance of 2030, so our technical teams are actively working on that project.
It has a material impact I don't have the.
<unk>.
Tons right in front of me, but.
As we've said for four Imperial we are targeting a 30% reduction.
In our greenhouse gas intensity by 2030, and Cold Lake carbon capture is a key component of that.
Okay terrific terrific.
Shifting gears now maybe it completely and it's a bit of a holistic question, but.
It's probably a question aimed at Dan I'm, just curious I want to come back to maybe your capital structure.
And then where your comfort zone as a CFO in terms of kind.
Cash balances and long term debt, particularly on cash balances as sort of $2 5 billion like a nice minimum place to be and then how does that then connect a little bit to the NCI BNS IP and obviously I know youre not going to spend money you don't have and so on but I'm just trying to better understand that that capital structure in terms of how we are.
Thinking about this going forward.
Well, Greg I love talking about our capital structure and capital allocation as well, especially with kind of the.
The very aggressive plans that we've laid out and we continued to deliver on but I'm going to let Dan kind of go through some of those details. Thank you Brad they loved it too.
Greg I appreciate Youre talking about not returning cash that we don't have you been listening carefully I appreciate that.
But.
Look we said.
Debt wise, we're comfortable with our level of debt, it's quite low we paid some last year when we sold the <unk> and use those proceeds.
<unk> to kind of make a structural change in our debt.
So we're comfortable there regarding cash balance you know we've never we've never put out a target and I would say.
<unk>.
It really just depends on circumstances, we do like to have a buffer.
There's no magic number there so.
We are committed to returning cash as we've said as we generate it.
And that continues to be our philosophy longstanding and we don't have a magic number on the cash balance it's going to be dependent on circumstances quite frankly.
Probably not exactly the answer you're looking for in terms of granularity.
That's where we are.
No no no that's super helpful. Thanks, very much.
Thanks, Greg.
Yes.
We'll go next to Dennis Fong with CIBC global markets.
Okay.
Hi, good morning, and thanks for taking my question.
The first one is on Tms, but a little bit kind of different from what you traditionally have asked.
In terms of product marketing to the West Coast I was hoping to get a couple of things from you. There one kind of your interpretation of impact to the products market in that region, it's actually.
Given the evolving toll structure associated with the Trans mountain pipeline system as well as maybe a little bit of understanding as to the flexibility marketing volumes into that region, especially given your.
I guess exposure to jet fuel market within BC.
Let me try to give you a couple of perspectives on that but then I'll see if sherry who is here with us wants to add anything to that.
Certainly we view <unk> as a key component of infrastructure in the country.
We are very pleased to see it progressing towards completion and startup.
It does provide.
Significant incremental flexibility and optionality for both crude movements and product movements.
For us.
Both with the existing.
Pipeline network to the West coast, but then supplemented by tier mix.
We will be preferentially using it for products.
Because it is key infrastructure for us.
And I think more broadly for the industry. It provides that that same.
Flexibility.
It does allow us to fulfill our customer demands that it allows us to continue to explore expansion of our customer base and.
Not just jet, but across all of our product slate.
So so we will leverage that and we view it as a positive thing.
So I'm not sure anything you want to add I guess, maybe Dennis to the second part of your question. Maybe you could just repeat it is around the volatility of the market and I believe you had a question around jets.
Yes, I was just hoping to understand again kind of the flexibility or potential impacts when you think about moving jet fuel because I know you are a primary supplier to BC and specifically I think that airport out there.
Well.
I think as Brian noted.
Actually we're going to have improved.
I think that market and while we do intend to use the pipeline tools products as that market, yes, I expect that the volatility that you may see in the market is no different EBIT traditionally see with imports coming into the port of Vancouver, as well as supply coming from.
The western Canadian refineries. So I don't think it will be necessarily an increased amount of volatility and the market will continue to price competitively depending on the volume the demand fundamentals that are occurring certainly we are seeing increased levels of travel across Canada.
More travelers are open to traveling internationally.
Lance pick up and restore back to pre COVID-19 levels, which is encouraging and so that will certainly challenge the demand supply and demand situation, but.
The Geo mix.
Startup will have any major impact on volatility different then we would see today.
Okay, great great.
Second question.
The lease back to Karl.
When you think about it.
Extraordinarily small here in terms of introducing renewable diesel into.
That into your heavy equipment out there how do we think about that.
Eventual I guess cost for potential cost impact of.
I guess utilizing renewable fuels renewable diesel across the entire fleet and how does that potentially impact the U S $20 per barrel target.
When you think about kind of medium to longer term plans again kind of layering into the idea of decarbonising.
Asset.
Yes, it's a really good question and one we spend a fair amount of time.
Reflecting on.
I guess I would start with.
Stating that we remain committed to our U S $20 per barrel unit cost target.
And we believe that is achievable, even with the use of renewable diesel which as you're your question.
Implies that renewable diesel does come at a premium cost and we recognize that.
But we're looking at kind of the totality of our operation and balancing.
Cost objectives with emissions performance objectives, and part of our emissions performance involves.
Being responsible for.
Carbon costs.
Or any emissions that.
Incremental emissions across our operations that we would have to.
Hey.
Sure Karl.
Ben.
And so when we put all that together.
We believe it's both prudent from a cost standpoint.
As well as from an emissions standpoint, so again when you look at compliance cost you look at offsets that'll be generated at the.
The projected increase over time.
The carbon credits approaching $170 per ton.
We actually see it as.
As accretive to our business.
And then as I mentioned.
Our use of the.
With Newell diesel at Pearl really has two benefits there is the immediate benefit to Pearl.
As I was just talking about but we also see it as important to be able to work with caterpillar.
Demonstrate the suitability of renewable diesel at increasingly higher blend rates.
To demonstrate the suitability with other customers as well so it becomes integral to our supply strategy for the 20000 barrels a day that we plan to produce at stress Kona once it starts up which will be Canada's largest.
Renewable diesel manufacturing facility. So it's an integrated strategy.
Great Great really appreciate the color on both those items I'll turn it back.
Yeah.
We'll go next to Doug Leggate with Bank of America.
Hey, Good morning, guys. This is actually <unk> on for Doug.
So thank you for taking my question here. So Brad My first question really goes to <unk> and it's a follow up on guidance and I know you reiterated guidance in your opening remarks, but I'm, hoping that you can address Karl maybe a bit more directly so full year guidance is around $2 70, if I'm not mistaken. So we're hitting that would imply a material step up in the second half.
Perhaps around the 300000 barrel mark so I'm, hoping that you can address maybe the upper limits under production capacity at Kearl and talk about how that's trending relative to the guidance that you laid out at analyst day.
Yeah. Thanks, Thanks for the question.
As I commented on earlier.
They are.
Karl has.
A repeated history of continuing to demonstrate strong volume performance, increasing volume performance and setting records.
And in order to achieve our guidance of 265 to 275000 barrels a day full year, we are going to need to continue to have.
Very strong.
Volumes performance at Pearl.
But as I as I mentioned with one of the earlier questions.
The first quarter, we set records.
<unk>.
The first half.
Second Best July is approaching a record.
And it will take.
<unk> strong performance like that with <unk>.
No.
With some more records.
But we believe that's quite achievable.
We have had.
In our in our history, both last year and the year before.
Several bonds, where we exceeded 300000 barrels a day.
So.
Our objective my challenge to the team is going to be the string together several strong months in a row to get us to the end of the year.
It won't be easy.
And it's going to require this continue.
Focus on reliability.
But again at this point, we believe it is achievable.
Brad You mentioned July would you be able to give us that number.
Yes, I think.
I mentioned that on the call.
Our July is not over yet of course right.
So so we still have a few days left but.
We are.
On track.
As I sit here today to achieve.
Round 285000 barrels a day for July .
Got it that's perfect. My follow up is more of a macro question on St career premiums and these have been pretty sticky since the first quarter of 'twenty. Two wondering if you guys can talk to the underlying fundamentals and the effect that <unk> may have on it next year.
Sorry, I missed the first part of your question.
On Syn crude premiums.
Trading at a premium to <unk> since the <unk>.
First quarter of 'twenty two.
I'm, just hoping that you can address the underlying fundamental and how those may be chain.
Changed or are reinforced by the startup of <unk> next year.
Yes exactly.
Exactly right.
SSP has has traded at a premium to <unk>, it's been quite strong.
And we believe that.
With the.
The startup of <unk> and the overall impact that has an increase.
Increased egress.
For heavy crudes from the country and from Alberta that ultimately that helps to strengthen.
The value of.
Really all of our crude so just through that increased access less risk.
Risks of constraints.
And then couple that with.
What's happening on the demand side.
And we see continued strengthening demand for for the heavy crudes for the synthetic crudes setting aside any piano.
Then I will turnaround plan so.
We continue to have a strong view on.
On SSP.
I appreciate the comments I'll leave it there thank you.
Thank you.
We'll go next to mono Hoshaw with TD Securities.
Thanks, and good morning, I just have one question that ties into a lot of the things that have already been talked about can you just I guess on <unk>.
Where things stand with respect to sourcing of feedstock for the renewable diesel facility and then maybe any color on how you are managing the availability and price risk on feedstock would be helpful as well.
Yes, thanks for that question at all.
Make a couple comments and again see surety has anything else to add but.
Yes.
Obviously I talked about progressing the construction activities that is going extremely well.
<unk>.
Equally the.
Feedstock.
Supply work is also going quite well.
It's commercially sensitive and so I don't want to give too many details.
What I would share with you is our strategy is to bowls.
Establish.
Long term supply commitments for the feedstock as well as.
Maintained flexibility to supplement that with shorter term or spot.
Purchases as well and through that combination of long term supply commitments for a large part of the supply, but but keeping optionality.
To capture the market are maintained optionality in the spot market.
Not having all of the supply tied up we believe that's a proven strategy. So again without giving commercial details we have.
Secure some long term supply arrangements already.
And and we continue to progress that commercial work.
We have complete confidence will be ready.
With this project starts up in 2025, and our view is it will continue to be a very.
Economic project for Us.
Hey, thank sharing with that no I think you've covered it very well I mean, Canada is a net exporter.
Luckily feedstocks.
The market here very robust and that even the assumption that we plan to you.
And then the strength production, we shouldnt have a material impact on earnings.
The broader market. So yes, there is.
Obviously, the strengthening of pricing, but that type of well that we've got a diversified strategy in terms of how we manage the cost of our feedstock.
Would you be prepared to give a breakdown on contracted versus spot.
Ballpark.
No we normally would.
Kind of reveal those commercial details.
But again, a fair to say.
A substantial amount of the contract is longer term.
Perfect. Thank you both.
Thank you.
We'll go next to Neil Mehta with Goldman Sachs.
Yes, good morning, Brad Martin team.
First question is around Capex.
And how you see the trajectory playing out from here at the April Analyst Day, you talked about.
2004, capex being it looks like around $1 7 billion and drifting a little lower from there and sustaining capex, averaging about $1 $1 billion any moving pieces relative to those numbers or is that still what we should anchor towards.
Yes, Neil Thanks for the question.
Nothing has materially changed at this point, we still love where we are.
Right on track for our 2023 guidance of one seven.
And we're in the middle of our business planning cycle for 2024.
So we're kind of working through those details but.
Based on the reviews I've had so far.
Everything seems right in line with kind of the underlying assumptions that formed that outlook that we shared with you at Investor day. So I think we still feel quite good about kind of that range.
Likewise kind of the split.
Between.
Sustaining capital and growth capital.
I don't know Simon assignments here with me.
The upstream is a key driver of that Capex any anything from your perspective.
Excuse me I don't think I do have anything to add Brad at some as you say a pretty a pretty steady looking.
We'll see we'll go through our planning process and cycle. This year as we currently are in.
And inform of any.
<unk>, but it's looking pretty steady okay very good.
Okay. Thanks, Brad Thanks Aman the follow up is on Kearl and winter is nation that was certainly something that came into focus in.
Over the last couple of years, just given how extreme some conditions can gap. There can you explain some of the things that youre doing.
To create resilience to the extent the extended cold weather plays out again.
And you can think STREAMWAY, yes. Thanks, thanks for that question.
<unk>.
For those of us that live in this area we.
We know that cold weather is a reality that we.
We have to plan for and.
We saw some extreme conditions too.
Two winters ago.
That did have some adverse impacts.
Great credit to the curl team that they pay.
He spent a lot of time studying kind of the root causes of those reliability issues and have tackled up one by one.
We feel quite good about.
Our readiness.
Maybe I'll ask Simon to talk a little bit about <unk>.
All of the details and I think we shared some of that at Investor day, but maybe Simon.
Can you remind us of that exactly Rob Rob we did share some of the details.
Investor Day, and really we took a.
A very thorough deep dive into into what occurred.
And what learnings, we could glean from that.
We've made significant.
Updates and enhancements to our operating protocols that look at conditions of the ore that we're mining through conditions in the in the oil prep plant and obviously ambient temperatures and we've established a set of protocols to the <unk>.
Optimize throughput and reliability through those extreme cold weather stretches. We also made a number of other changes around maintenance practices and cold cold weather preparedness sort of in the lead up to the winter period in <unk>.
As I shared previously we feel very good.
Those enhancements were validated just this past winter, where we still are not quite as extreme but relatively comparable stretches of cold and and in fact saw record breaking reliability and throughput.
We're certainly not stepping away from any of those enhancements will be we'll be doubling down on those for the coming winter learning enable that we that we feel like we need to but do feel that we are extremely well positioned.
Thanks, Sam and there is real money there so appreciate that.
Absolutely. Thank.
Thank you.
And at this time I'll turn the call back to Dave Hughes, Vice President President of Investor Relations for closing remarks.
Alright, well I guess on behalf of the management team I'd like to thank everybody for joining us this morning.
Any further questions or follow ups. Please don't hesitate to reach out directly to anybody on the Investor relations team here.
Here. So thank you very much.
This does concludes today's conference we thank you for your participation.
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