Q2 2023 Suncor Energy Inc Earnings Call
Yeah.
Good day and welcome to the Suncor Energy second quarter 2023 results conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will meet the press star one one on your telephone.
You will then hear an automated message advising your hand is raised to withdraw your question Press Star. One again. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your host Mr. Choi Little Vice President of Investor Relations. Please go ahead.
Thank you operator, and good morning, welcome to Suncor Energy's second quarter earnings call. Please note that today's comments contain forward looking information.
Actual results may differ may differ materially from the expected results because of risk factors and assumptions that are described in our second quarter earnings release as well as in our current annual information form.
Both of which are available on SEDAR, plus Edgar and our website Suncor Dot com.
Certain financial measures referred to in these comments are not prescribed by Canadian generally accepted accounting principles for a description of these financial measures. Please see our second quarter earnings release, we will start with comments from rich Kruger, President and Chief Executive Officer, followed by Chris Smith and of course, Chief Financial Officer.
Also on the call are three of our senior operating leaders, Peter Zebedee Executive Vice President oil Sands, Dave <unk> Executive Vice President downstream and Shelly <unk> Senior Vice President operational improvement and support services. Following the formal remarks, we'll open up the call to questions now I'll hand, it over to rich.
Sure it's comment.
Good morning.
Second quarter was a very active time for the company, we made material progress in a number of areas, we'll have to share with you today.
First creating an organization wide what I would refer to is focus on the fundamentals safety operational integrity reliability and profitability.
Second we took a number of tangible actions to construct a simpler more focused lower cost organization.
We'll describe today and last but not least we found time in the second quarter to deal with the cyber security incident I'll have more on each of these topics. Shortly I want to give you a few general comments, though during our first quarter call I referenced having visited 50% of our major operating facilities.
Since that time I've continued to go to the field I've now set foot on essentially all our major sites.
On an operational leaders engage in frontline employees, joining facilities at our mines or upgrade or is or in situ operations, our drilling rigs refineries in the Terra Nova Fpss.
In all locations are conversations we're on the fundamentals.
And what those of us above the field are above the operating side can do to help improve overall performance I.
I want to comment on fundamental.
Fundamental number one safety for a moment.
Particularly what did I see when I went to locations first of all safety why is it. So important we care about people management has a moral obligation to provide a safe workplace and quite frankly, it's good for business very strong correlation between safety performance and business performance. So what did I see onsite I saw strong.
Site leadership.
LOL worker engagement I saw very active near Misreporting I saw comprehensive root cause investigation I saw technology, highlighting the mines collision awareness fatigue management by the end of this year, we will have a 1000 pieces of mobile equipment with these technologies.
<unk> installed.
That should make us the first implement these technologies on a full scale in oil sands and they have been proven around the world to reduce safety risk.
Our approach is not hope or faith based but relies on tangible actions, starting with leadership engagement technology and training.
Other observations from the sites.
Evident our company's level of the physical integration is a unique opportunity and an unparalleled advantage.
But what I like the best is I saw opportunities to improve our financial and operating performance in most all aspects of our business.
Also many time in the second quarter to meet face to face with several of our major shareholders had trips to Toronto, New York Boston series of other virtual meetings shared my approach four areas of focus initial assessments of the company highest priority plans, but equally we spent time listening to concerns.
Expectations and our shareholders assessment of accomplished so bottom line, what I'd say is a 120 days in suncor is pedal to the metal or opportunities are abundant and their clear so.
So let me hit on let's get to some meat and I'll talk about some specific actions in the second quarter and I'll highlight four areas starting with the leadership team.
We announced yesterday a series of changes to the composition and responsibilities of our senior executive team I E. Those reporting directly to me.
The changes are consistent with developing a simpler more focused high performing organization, you'll recall I used those words in our first quarter call.
The changes are designed to improve clarity and alignment on strategies priorities fundamentals and execution excellence, we will have clear accountabilities fewer internal interfaces. We're delayering the organization and we are concentrating centers of expertise the senior executive team will be.
Eight including me for newly externally sourced this year three of the four onboard now.
A quick summary of the changes Chris Smith, CFO , Chris will take on additional responsibilities for it and supply chain, Peter Zebedee, our Edp oil sands will be adding in situ in drilling to his remit, giving him all oil sands operations Dave.
Dave Audrey Edp downstream joined US in June eliminated a layer of senior management. So all of our refineries now report directly to Dave.
Shelley Powell senior VP of operational improvement and support services Shelly retains our E&P portfolio. It takes on the important role of revamping, our operational improvement and an associated support functions.
<unk> is our new Chief Human Resources Officer, and Jackie more remains general counsel and corporate Secretary, both individuals with expanded portfolios.
We will add a new executive senior executive role to lead strategy sustainability commercial and development.
These changes were enabled by three senior executive retirements to this month, one later in the year and our <unk>.
Set it back a little bit I once had a mentor, who who used to say simplicity creates clarity clarity creates consistency and consistency create success. This senior executive team is ready to create success.
The next area I'd like to talk about is above field costs on June one we announced internally plans to reduce about fuel costs by $400 million a year. If you think of it on an overall corporate breakeven basis that would equate to about a buck 50 a barrel.
Staffing will be reduced by 1500 or 20% by the end of this year based on performance and business needs in the quarter. We took a one time pre tax charge of $275 million about $210 million. After tax this would represent a nine month payout.
This is an internally led effort eliminating work, we considered to be an affordable or low relative value. We are looking at what we do why we do it how we do it and the value it adds <unk>.
Nothing is off limits reductions are occurring at all levels top to bottom, including senior most executives.
We are on plan a third complete as of August one 535 individuals have left the company at a cost reduction of about $125 million.
So far no.
I would note these actions they aren't easy and they certainly arent taken lightly but they are necessary for our competitiveness.
Another area. We spent time in during the quarter was a strategy reexamination in particular, we've taken a we've started a comprehensive re look at our strategies and our articulated objectives.
Where we stand as we judged that our current strategic framework is not or is insufficient in terms of what it takes to win.
The lack of emphasis on today's business drivers and while important we have a bit of a disproportionate emphasis on the longer term energy transition.
Today, we win by creating value through our large integrated asset base underpinned by oil sands discussions.
Discussions have occurred with our board of directors, who are supportive of our revised direction in town and I would just leave this with more to come but you can expect a sharper clear or tangible articulation of how suncor plans to win.
In addition to the above we encountered a cyber security incident in the quarter on June 25th we confirmed a cyber incident stemming from unauthorized third party access to our network, we immediately isolated our operational systems as well as backup databases and the days thereafter.
We established a safe secure environment free of incursion and corruption. The incident has certainly caused eruption.
Disruption. However, it did not have a material impact on our financial and operating results. Our organization responded extremely well at all levels are it professionals, our operation staff in terms of business continuity and third party support teams brought into assessed to date.
We are largely back to normal with a few exceptions and the benefits of significant lessons learned.
As I look to the rest of the year I'll comment on a few areas. These are examples only not all inclusive that you can expect focus from our company.
First and foremost base business continued focus on the fundamentals and continuing to determine ways to improve our financial performance, which I would measure in free cash flow per share.
Looking at the operational areas.
Mining fleet management, we have in the order of about 900 trucks operating in five mines to three operational trucks. We're examining the makeup of our truck fleet sizes ownership least contracted.
We believe there is a material opportunity to lower our overall cost per ton on all Earth movements, Peter Zebedee as a senior executive with all on this initiative.
A second area I would like to highlight is turnaround planning and execution and for context, we conduct large annual turnarounds at essentially all of our upstream and downstream facilities, we spend about $1 $3 billion per year, roughly 20% of our capital budget when we look at benchmarks.
Solomon and others, we are well below average in turnaround planning execution. So we see a major opportunity to improve cost schedule volumes, Dave hold or even Shelly Powell, our senior executive co leads on this important initiative.
Beyond the operation in it when it would look a little bit further on the radar screen I'll flag two areas that are top of list Fort Hills long term plan the near term recovery plan with SAP last year with a clear and definitive actions for the next several years given our confidence in the value and.
This long life resource our focus is now on years four through 40. The key strategic question is is what is the best most valuable way to move into the north mining areas more to come on Fort Hills. The last area I'll comment on is pathways Alliance, we continue to work to achieve net zero greenhouse gas.
<unk> from our operations by 2050, there is alignment within the pathways alliance and increasingly the federal and provincial governments. This fall is key to agree on a competitive fiscal framework for infrastructure investment, Chris Smith and Arlene strong are strong are the senior exec.
It is on this important file before I turn it over to Chris I want to offer a couple of comments on guidance on upstream production.
We're tracking to the low end of our range a range of 740 to $7 70 midpoint of $7 55, our Terra Nova startup delays and our lower stake in Fort Hills than planned due to the tech acquisition in total add up to about 20000 barrels a day, which together would take us below the low end of the room.
<unk> downstream, our commerce city refinery recovery from the incident in December of 2022 makes achieving guidance challenge, although I'll note that commerce city volumes don't have a proportional impact on downstream profitability simply given relative value contribution that.
Said make no mistake about it we are focused on meeting our targets delivering on commitments. There are no revisions to guidance to date looking ahead I envision updating when we have information and clarity on which to base any changes if there were to be changes and given that turnarounds have such a material impact of that.
Stream and downstream for us it makes sense to tend to upgrade after majority are completed each year or at least well underway for us for this year that would essentially mean at the end of the third quarter, So with that I'll turn it over to Chris great. Thanks, Rich and good morning, everyone I'll just provide some.
High level overview of the numbers and some color.
Suncor generated $2 7 billion of adjusted funds from operations in the second quarter. This includes a one time restructuring charge of $210 million after tax related to work force reductions.
Based on our expected annual savings as outlined by rich and his comments will have about a nine month payback.
Now when severance costs are excluded <unk> was $2 9 billion or $2 19 per share.
While not as strong as the previous year the quarters still saw a very constructive business environment, we saw wty, averaging U S $74, a barrel in the quarter and light heavy differentials strengthened versus Q1, averaging $15 a barrel.
As well, we continue to see synthetic crude oil trade at a premium to <unk> and while refining cracks were down from Q1 to one one cracking margins remained robust at around U S $30 a barrel.
Natural gas, which is a key input cost our operations remained low with echo averaging $2 35, a GJ in the quarter.
Looking forward, we continue to see a strong business environment with both crude and refining crack strengthening since Q2 on the back of healthy supply demand fundamentals and expect to see this continue.
Now turning to operations, our upstream operations delivered 742000 barrels of total production in the quarter.
With respect to oil sands, we have strong operations delivering $2 6 billion of adjusted funds from operations with Oilsands realizations, averaging $94 Canadian a barrel, which was about 94% of <unk>.
Oil Sands delivered 679000 barrels a day of production in a quarter that had the syncrude turnarounds, which turnaround was executed safely with quality and ahead of schedule we.
We saw strong upgrading performance in the quarter with 94% of upgrading utilization, which included that turnaround and which also included a 100% utilization at base plant upgrading.
Levering a total of 505000 barrels a day of synthetic crude oil production.
Our <unk> assets also saw continued strong production, including 102% utilization of fire back.
Meanwhile, the Fort Hills asset was on plan with production ramping up quarter over quarter to 110000 barrels a day net including 14000 barrels a day of internal transfers to base plant upgrade.
As we look forward into the quarter Fort Hills started its five year full plant turnaround in late July and we're pleased with the progress and that is on track to complete on schedule later this week.
Also our base plant upgrade or to schedule major turnaround will be starting in early September stretching into Q4, and that's been reflected in our guidance.
Operation and production generated adjusted funds from operations of $521 million with production of 63000 barrels per day, and average realizations of $108 Canadian per barrel, which was about 102% of Brent.
We also closed the sale of our UK North Sea assets on June <unk> for gross proceeds of $1 $1 billion Canadian.
The asset life extension work on the Terra Nova <unk> continued in the quarter and is now complete with the vessel <unk> actually just a couple of days ago on Sunday.
Once it arrives at station. It will then begin subsea reconnection activities through the remainder of the quarter and into Q4.
Finally downstream generated adjusted funds from operations of $781 million on a FIFO basis in the quarter or $897 million on a LIFO basis.
Average refinery utilization was 85%, which reflected planned turnaround activity.
All refinery assets are back from spring turnaround activities and set up for a strong run for the rest of the year and in fact in July we saw average refining utilization across the network of over 100%.
Meanwhile, in the quarter margin capture was 89%, which reflected reduced heavy feedstock mix and increased intermediates during the turnarounds and rebuilding of inventories.
And we had refined product sales at 547000 barrels per day.
With respect to overall cost as.
As rich said in his comments cost management cost reduction is a key focus of this management team and we're seeing progress on cost and see ourselves trending towards the bottom end of our oil sands cash cost per barrel guidance ranges for the rest of the year.
Year to date capital spend to the end of Q2 with $2 7 billion.
As with costs, we remain laser focused on driving capital discipline, though with the unplanned spend related to the commerce city outage earlier this year and the extended Terra Nova life extension work along with some inflationary pressure we are trending towards the upper end of our guidance range.
On shareholder returns, we returned $1 4 billion to shareholders in the quarter, which was made up of about $700 million in dividends and about $700 million in share buybacks.
Year to date, we've bought back almost 3% of our shares.
And at the end of Q2, our net debt was $14 4 billion, which was a $1 $3 billion reduction from the end of Q1.
As our shareholders expect along with safety reliability and profitability, we remain focused on prudently managing our balance sheet and reducing debt, while continuing to provide very competitive returns to our shareholders through our dividend and reduced share count via buybacks.
And with that I'll turn it back over to you Troy.
Thank you, Chris I'll turn the call back to the operator to take some questions.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
At a time of strength, we ask that you. Please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.
And the first question today will come from the line of Greg Pardy with RBC capital markets. Your line is open.
Thanks, Thanks, good morning, and thanks for the detailed rundown.
Chris.
Dealt into.
Just what turnaround activity it looks like in the third quarter are there any initiatives that you're taking to mitigate the impacts of.
Production being offline is I guess is there anything special or any modifications, maybe that you are making too.
Maintenance planned for the third quarter that you might not have done in previous years.
Yes. Thanks for the question, Greg what I would say is that the team has been super focused on delivering the turnaround as we planned them and if anything if you look at the Syncrude turnaround in the spring and the delivery of that I think it's a great indication of that type of focus that turnaround as I mentioned in my comments not only a good quality really good.
Safety, but came in a bit ahead of schedule and that's what we like to see so I'm looking down at my colleagues at the end of the table, Peter Zebedee and Dave older. Even I know that they're super focused on delivering the turnaround that we've outlined we've outlined them in the guidance as I mentioned, the big one in the quarter as the Youtube turnaround, which will starting to September and go into October .
And Fort Hills, I, just mentioned that was a full plant turnaround five year turnaround really pleased with what we've been saying and it's coming back. This week as we expected. So I would say it's been a real double down focus on getting good planning entities turnaround and focus on execution through them.
Okay. Thanks for that and then maybe just completely shifting gears there as referenced in the release on D C too.
To acquiring the balance of the Fort Hills I'm just interested in what your thoughts are there generally how you think about it strategically and then whether there's any possibility of getting a deal done this year and I'm not asking you to negotiate publicly here I'm just curious as to whether that is something that could be sooner than later or whether it's just going to take some time.
Yes, Greg This is rich I think a couple of things I'd say is the long term bitumen supply to the upgrader is remains a.
Focus area for us and between a combination of the ability to move fire bag volumes, there <unk> Fort Hills, <unk> incremental Fort Hills.
As we look at it we generally would prefer to operate and have a 100% ownership of our assets. That's generally where we think we can add the most value will be the most competitive and so fort hills would fit into that.
With Conocophillips exercising their ROE Ford the deal as originally announced in configured changed and we acknowledge that totality acknowledges that discussions are still going and I. Appreciate you're not asking me to speculate where we will end up but discussions are going continuing the valve the strategic value too.
And I would say to hotel is largely remains the same. So we just we will work through that and when we if and when the Time's right. We have something to announce we will do that I think that but expecting a resolution on all of that this year, that's a reasonable expectation.
Terrific, Thanks very much.
Thanks, Joe.
One moment for our next question.
Yeah.
And that will come from the line of Dennis Fong with CIBC. Your line is open.
Hi, good.
Good morning, and thanks for taking my questions.
The first one really here is rich you've outlined a number of we'll call. It strategic opportunities ahead of you.
And also in light of the changes to the management team can you talk to how some of these decisions can or will be made or at least how you envision them being made and maybe walk comparing and contrasting to how some decisions were made in the past.
Yes, Dennis I think the big thing is when we we will.
We are disaggregated, our business our cost structure the efficiencies the value we add from top to bottom. So for example, I used.
I talked about mining fleet management, when you look at our mining operations huge scale and if U S. Peter breaks down the component parts of his performance he's got the mining the extraction and the upgrading the greatest concentration of course is in the mining and it also happens to be heard.
Chris articulate the.
Upgrader utilization high performance so the greatest concentration of its costs and the greatest opportunity for improvement. So what we're doing and it's not rocket science at all we're very sharply focusing on where we have the biggest prizes and that represents a big prize.
And the goal in all of this is to make us obviously more profitable, but I would ask you to think of that in terms of because here's how we're thinking about it in terms of our breakeven what does it take what business environment do we need to be in so that we can pay all our bills and when I say breakeven output.
Pay our dividends reliable and growing dividend and pay our fund for sustaining capital required to take care of the assets. We have so our focus is on improving our quality our efficiency and lowering that cost structure. So that we are resilient in.
In the tough times and then in the good times, we have more free funds flow available for rewarding shareholders. I mean, that's kind of the mental model that we have here and I just I know I use this word a lot, but it's bringing a very strong clear focus to where our <unk>.
Opportunities lie.
Ended your question with kind of to the past.
Dennis I was laying out a beach in St. Lucia So I don't really know how the past I, just I kind of focused on the present and the future but it.
I said in the very first call that we would be a a simpler more focused organization and I.
I didn't pick those words lightly and if you look at the actions we have and continue to take I think theyre very very aligned with that.
Great Great I appreciate that color my second question.
Moving in a slightly different direction.
As we saw a significant amount of volumes being transferred using the interconnect pipelines in the second quarter really probably managing volumes around the plant turnarounds.
We also saw higher throughput at Fort Hills volumes through the upgraded as well.
Out of curiosity, how the strategy of balancing the flow of all these crews determined and then secondarily are there opportunities to potentially increase that integration or even increase the.
I guess the interconnect between your various assets as you look at strategies going forward. Thanks.
I may ask Peter here to comment here in a minute, but this is one of the things I commented on at the very beginning that.
As I went to site to site and looked at how we're literally how we're plumbed.
And the opportunity set that provides for value whether it's whether it's the syncrude to the base plant, whether it's getting higher bank bitumen to the base plan increasingly Fort Hills.
These are major opportunities for us and they allow us the flexibility when we are doing.
Planned maintenance or even unplanned events to capture value in it and I think the what you saw in the quarter were just very.
Very tangible examples of doing exactly that.
I think to the future or further opportunities Peter maybe you cannot offer or can I ask you to maybe comment on kind of how you see how things might unfold for us.
I think you saw that through the quarter, where were flowing volumes and really keeping our upgrader is full and optimizing our production network. The integrated production network within the region. This is actually also extends into the downstream refining.
Network that we have.
And this is something that we've got our teams focused on 24 hours a day seven days a week really looking to generate maximum benefits.
For the company through placing volumes in the appropriate places.
We've seen it.
Significant benefit employers Fort hills volumes into the base plant upgrade or in terms of yield uplift.
Are there opportunities to expand that yes, we have our development teams focused on looking at what other regional physical integration opportunities.
Gration opportunities turning to the downstream and Peter that that yield uplift is from PFT from prominent paraffinic froth treatment process.
And it's material I mean, it isn't it makes a difference.
Great Great I appreciate the color I'll turn it back thank you.
Yeah.
Thank you one moment for our next question.
And that will come from the line of Neil Mehta with Goldman Sachs Goldman Sachs. Your line is open yeah. Good morning, Tim and Rich. This was very helpful color I want to build on your comments on the cyber attack and we were watching it from the outside.
But maybe you can share some perspective with the investment community if lessons learned and.
How your new team was able to take on this challenge and as.
As we evaluate.
<unk> ability to navigate challenges going forward.
Yes.
Well first the first of all I'd, rather have a root canal then go through one of these attacks again theyre not pleasant at all but let me start with the tail end I was.
Look we I had been here a couple of months, Dave all driven the downstream was four days into his new job and I got to tell you I saw Suncor management at its best in terms of the <unk>.
Trigger and we call it different things, but I would call. It the business continuity plan triggering that pointed it in motion making.
Decisive key decisions early in it.
And that goes from the I T as Peter led our internal business continuity efforts.
I say tongue in cheek, but June was our highest upstream production months of the year. So apparently when the rest of us in Calgary where play.
Playing a walkable here the organization just delivering and so really pleased with that now what I'd also say is we had a comprehensive rundown with our board a week and a half ago and John Hill, our senior VP of it.
I've said John is free to share lessons learned with his colleagues in the community and what I've also said is I'm very comfortable talking too.
Any of my colleagues on lessons learned but I would say a few simple things and these are these are rocket scientists were not the first and we're not the last to go through a cyber security attack, but.
Quick action and its like any emergency response.
When in doubt go the extra distance.
It's easy if you over respond and pull back if you under respond or slow play things.
It likely doesn't turn out well there.
Then the confidence in reestablishing, a safe secure environment and I'll tell you I'm not the only one around this table, but in the.
In the three or four days that followed I learned more about hardware software interconnect than I ever imagined I would in my life, because you needed to understand that as we talked with John and his team to make informed decisions as the events unfolded and so.
Fast response decisive.
Building the safe secure environment, and then as you resume a restore operations doing it very thoughtful measure twice cut once and I'll probably end my comments there but it.
Wouldn't want anyone to go through this but if I were ever to go through it again. This is the team I would want to go through it with.
That's really helpful rich.
The follow up is just your perspective on Fort Hills as you've spent time now touring all of the assets.
Investors are trying to evaluate whether the issues here are structural or.
There is a clear line of path to fixing that and then how does that affect the way. We should think about 2020 for capital spend as well as you think about that.
The plan to get that up to capacity.
Well I think the overall reset that was developed last year and communicated last year is is solid.
It was not a lot of margin for error in that we've got to execute but fundamentally that's true in all aspects of our business.
Execution, that's key and so I like that and what it Peter uses the analogy with me is now we're able to put on the high beams and we're looking not just in front of us month by month quarter by quarter, but we're able to look longer term and my confidence of the value in this asset.
Hi.
So as we look at that I made the comment in my earlier remarks.
<unk> four through 40, what is the best way to maximize that value in four through 40, that'd be very explicit what we're looking at in the North mine the north part of the mine you've got an area that has a higher fines content and another area that has the lower fines content. So as we're looking to go to them.
At North mine, we're thinking about are we better opening up two pits and blending bitumen volumes over time get into more ratable stable predictable production profile versus ups and downs that may occur quarter to quarter year on year as you put a variable bitumen.
Supply higher fines content, lower <unk> content and that that's a that's a value based strategy base and Thats, where we are digging in right now and what it may mean on capital as we move activities around we may move some capital around is it the is it fundamentally different is it at the end of the day.
Is it.
Different plan or a different.
Overall capital profile no I don't think so I think it's just what's the best timing and sequencing to do and that's we'll have more to say on that I would say as we complete our work, which will largely be over the rest of the year, but it's not I would just finish up there it's nice to be not hand to mouth.
And figuring out the short term, how we're responding to things, but with our confidence in the short term plan and I really mean in the next few years and now we're looking at Okay. How do we maximize long term value, which is the name of the game.
Thanks Rich.
Thank you one moment our next question.
And that will come from the line of Manav Gupta with UBS. Your line is open.
Hey, good morning, guys I wanted to switch to the refining side and for finding site. You are one of the most profitable North American refiners.
In the third quarter, we are seeing a very strong rebound in cracks almost five to $6 higher quarter over quarter. And then you indicated you are running much harder in <unk>. So when we look at the third quarter in terms of refining should we think of earnings closer to the first quarter versus second quarter I think in the first quarter of your cash.
Cash flow of about 400 million higher so trying to get the hang of how the refining is looking in the current quarter from you guys.
Yes, I'm going to turn it over to Dave here in a second but Dave has been with US here a couple of months, which is play enough time to get up to speed and his focus is on those same things we've talked about safety operational integrity and reliability, Chris commented, how as we with a lot of the major work behind US we're positioned for good.
Strong run so Dave why don't you comment on kind of how you see we're halfway through the third quarter and how you see the months ahead playing out.
Thanks, Bob for the question.
We do have a very strong refining network.
Here in Suncor with with refineries and just great locations to make money on this business.
You look at the third and the fourth quarter I mean, as Chris mentioned.
July even with the impacts of the cyber attack, our refining business ran over 100% of capacity.
We expect largely to run close to capacity through the balance of the year, we have two small turnarounds planned.
Small hydro cracker turnaround and or Edmonton facility, and a reformer turnaround in Montreal both of those have solid plans in place we expect to deliver those on time and on schedule and on budget.
And with that I will.
See I would see strong performance for the refining business for the balance of the year, Dave can't comment a little bit as you've looked at things, but as you look at okay. So what can we what can we do better and we've talked about turnaround if you want to comment on that but.
I think you've said.
We've got a good network good locations a big part of it is where we are so now what are we going to do to make it even better yes. Thanks rich.
We have a strong refining business.
We do have opportunities to be to be more focused in that business to leverage stronger work processes stronger adherence to standards and to really drive operational excellence across our business. If you look at our Commerce City refinery.
We had our event back in December , which we took most of the first quarter to recover from but we did deliver them back up online we had turnarounds that went longer than we'd like in commerce city, but we know how to fix that we've got new leadership in place I'm committed to help fix that refinery to get that business really focused on excellence.
So that's an opportunity for us, but what I really like about our refining business has the ability to take our molecules and fully integrate them from our upstream assets through through our refineries particular, Edmonton refinery, where we have some really unique.
Optimization integration opportunities, but all the way through to our company owned retail sites at the pump that molecule has integrated all the value is kept within suncor and not lost others in that value chain and that's a real competitive advantage for us and I think just just to add onto that we talked to talked about and particularly focused on refining but.
I want to just reiterate that retail when we talked last quarter I announced just before the quarter.
Canadian tire.
Deal for example, I think things like that where we can further benefit from our ability to confidently provide volumes strengthen the brand kind of ratchet up on the.
The value.
Value per liter value per barrel whatever it is that it's those synergies that I think also as I've talked to David He is new in it.
I can see them right now and you guys can't see him, but he is kind of salivating down there at the end of the table on what we see is continued opportunities absolutely are retail business is solid and where we invest we get really good results.
Really good business, great to see it integrated company owned.
<unk> ability to continue to capture that short for long term care business. So really excited to continue to optimize that part of our business.
We completely agree you have one of the best integrated downstream models out there and my quick follow up question. Here is you have taken ownership of the Syncrude, we have announced them. Good measures over there the cash cost of quarters came down meaningfully quarter over quarter Syncrude was still on the higher side is there a plan to make the <unk>.
Group cash cost even more competitive conveyed we are right now and I've done until after that yes.
Peter do you want to comment on the Syncrude cash costs in the on officer minute in particular per barrel basis, and we said no.
Happy to do that rich and I think linked back to your earlier comments rich.
The biggest component in cash cost per barrel is our mining cost at Syncrude and this is true for all our operations. We are working to drive improved efficiency in our mining business. The scale of our mining business across Suncor portfolio, We're moving $1 3 billion tons per year, and so a little <unk>.
Improvements add up to a lot here and.
And we will look at driving improvements within our own mining operations, especially.
At Syncrude, but also looking at the balance.
How those tons are moved how much we move with their own fleet versus how much do we move with third party contractors and leveraging what we see as an arbitrage.
Turning to move more of ourselves so centric focus and improvement on cash cost per barrel will be driven through improvements in.
Further in sourcing of mining operations.
And in the future looking to implement eponymous so all of our technology to improve.
Our fleet productivity and drive a more competitive.
Mining cost per barrel and <unk> was distorted a little bit by the turnaround impact I think when you take it on a unit cost basis.
It was distorted we did have.
Our coker out for <unk> for 63 days to date.
The turnaround schedule by two days and that of course is another opportunity for us is to look to reduce the duration of those turnarounds improved our risk space word selection and we will be doing that.
Coincident with their downstream colleagues and corporately on improving the efficiency of our turnarounds so that did impact our cost of the heart.
Thank you so much.
Thank you.
Thank you one moment for our next question.
And that will come from the line of Menno <unk> with TD Securities. Your line is open.
Thanks, and good morning, everyone I'll start with a question on shareholder capital returns you were quite active on share buybacks in the in the first half. So is it reasonable to assume that the second half will be.
More skewed towards debt reduction given your 50 50 target.
And when do you expect to hit your secondary $12 billion net debt target on the on the strip.
Yes, Thanks, Menno, it's Chris here, Yeah, as you pointed out.
We had probably more weighted towards buybacks in the first half versus debt reduction, though obviously, we made progress on debt reduction as I mentioned in my remarks, I think as we go through the balance of the year, you, probably see a little bit more trending towards the debt reduction side, but we're still going to be focused on both.
And we've got that 50 50 capital allocation as our guide post as we move through the balance of the year. So youre going to see US continue to toggle on both of those but I think youre right to point out it will probably be a bit less in the second half on the buyback side, but still I would say a very very good buyback program continuing.
In terms of your question.
Around the $12 billion net debt I mean, obviously, it's going to be.
Factor on on your view on what you think pricing is going to look like I think if we see pricing continue at its current level, we're going to start approaching that kind of as we get it earlier into next year now the one piece of metal that I would add is.
As we talked about earlier in Rich's comments on the Q&A with the potential for the Fort Hills transaction. If that does transpire, then obviously that will change the profile.
But the amount would be much less than what we've been talking about a couple months ago in the original transaction. So we would expect to be able to work through that very quickly.
Okay. Thanks for that.
And then my second question is more of a point of clarification on Neil's Fort Hills question I believe the original redevelopment plan was to get to center, because this year and north pit towards the middle of next year.
I think that was the timeline is that still the general plan or is all of that getting reevaluated.
That is still the plan and so my earlier comments, where as we go into north pit and it is we think a bit longer term what is the best way to mine north pit overall, but that the plan you've heard before remains the plan.
Terrific, Thanks, Rich I'll turn it back.
Thanks.
Thank you one moment for our next question.
And that will come from the line of John Royall with Jpmorgan. Your line is open.
Hi, good morning, Thanks for taking my question.
So you mentioned on Terra Nova the subsea connection will go into <unk> once the platform arrives on site.
An expectation you can give us for timing on getting production back up and running full.
Yes, I'm going to turn.
Turn it over to Shelly Paolo here in a second and Chris mentioned we.
Dropped ropes on Sunday, and I think we should be on station sometime today, I think Shelly and.
Then it starts to have process could surely why don't you describe a little bit of.
From the time, we are on station what happens to the integration of our introduction of hydrocarbons sure. Thanks. So much for that so there is still a fair amount of work in front of us so sailing.
Sailing away come March one major milestone for the asset life extension protect the good news is the weather is in our favor right now off the coast of Newfoundland and Labrador Sea states or gas.
As rich mentioned, if all goes well, we arent looking to reconnect over the course of the next couple of days and then we still do you have several weeks of additional work in front of US. So there is a barrier testing that needs to be done with the subsea assets. There is a full set of commissioning activities.
We need to undertake there as well and primarily we are very focused on making sure that we take the time to do the right work to make sure that when we do return to operation, we have a safe and reliable.
Sustainable operation going forward.
So go ahead, yes, I was just going to say so in terms of exact timing we.
We will take the time that we need to do it safely.
As we have got the reconnection and you've got to establish a functionality with the wealth centers and bring them up on or not but.
That.
We've been a little innocuous on it but with where things are production in the fourth quarter at some time.
Is not unreasonable, but what I'd, just say is let's get a little bit further down the line a few more of these things kind of checked off and as we check off each of them our confidence in what that means that we will get higher but thats.
If we lay out our plan right now that's what the plan would include.
Yes.
Great. Thank you.
Super helpful and then.
Given the surmount asset is now not a part of the deal with total and <unk>.
Assuming you do ultimately buying the rest of the Fort Hills, but what are your other options for back filling the loss production from baseline next decade in terms of the production that would've come from Fairmont. Just can you talk through some of the other options you have there.
Yes, absolutely.
I talked earlier on I mentioned about kind of the reexamination of our strategies and kind of what are those.
Key articulated objectives, obviously long term bitumen supply is in that top 10 list. There's no no question about it.
Spend time here again with Shelley recently and now Peter looking at our some of our in situ opportunities and I think the.
Because I'll tell you I'm agnostic to a barrel of bitumen I don't care. If it comes from the Earth. It's what's the most profitable the lowest cost most reliable supply and we're looking at some of our own internal like Louis for example is one we've talked about at points in time.
I guess, a fire Meg south area, we've looked at and we're looking at a variety of other kind of alternatives in the mining just adjacent leases so.
I think the.
John what I'd say is we're looking at kind of the full swath of opportunities and whatever we do will be driven by <unk>.
Lois to supply cost.
And whether that's.
Incremental institute or whether that's incremental mining and whether thats from assets in our portfolio today or assets that we think we can.
Are worth more to us than they are their current owners.
It's that full.
Full view screen a radar screen, we're looking at and.
Fort Hills, obviously helps in that regard from the standpoint, not just the Fort Hills ramp up as well as whatever happens with the total side of it that definitely helps and keeping the upgrader full then beyond that it's all about value, whether that's maintaining our production profile growing it or not.
It's about what value opportunities are there for us.
I'm excited because we're we've got a number of things that are there available number of levers that are available for us too.
Consider pulling overtime.
Very helpful. Thank you.
Thank you one moment our next question.
And that will come from the line of Doug Leggate with Bank of America. Your line is open.
Hey, Good morning, guys. This is clay on for Doug Thanks for taking the question.
My first question is also on Syncrude and maybe that's for rich.
So the trend as we see it in recent years it seemed the Canadians consolidate the oil sands and the result has been just a lot of synergies when I think about your interest in Fort Hills, It's perhaps another play on this and when I think about Syncrude is just another asset that youre highly familiar with so I'm wondering if the ownership structure as it stands today does it maximize.
The value of that asset or do you think there could be synergies and I'm guessing that some of that in the context that you guys were just able to identify material cost savings across the business that you do wholly owned.
Yes, I think it gets back nailed by earlier broad comments that.
<unk>.
Ownership and partnerships get there for a variety of reasons over time.
In a clean sheet of paper World, we would prefer to operate have 100% interest and then and I think it's our asset base is a real vivid illustration of that the synergies and Dave commented earlier, Peter did two of kind of molecule management from the mine all the way through to someone.
<unk> gas tech that gives us opportunities that shows the flexibility that goes with that is also important and I think peters.
Peter's business is probably the best example of it I I commented in round numbers, we have 900 trucks in five different mines in three different kind of asset bases that have three different sets of ownership well Peter wants to move.
<unk> 980 year on Cat 797, and he wants to move them from one to another.
Got to ask people well Peter doesn't like to ask people just like to do it and get on with it and save money. So there's opportunities there, but I'm being a little tongue in cheek, but they but they all come down to value.
The partnership aligned partnerships can be highly highly successful I think the interconnect pipeline as Syncrude is a real. Good example of that it was a long time have come in there was some bad as it used to be at imperial that made that problematic well if he retired and they got it done.
So.
The.
Fertility when both sides can benefit which is what we're about creating partnerships that value add.
And again, 100% ownership operator ship is ideal, but we're not always there and if we get there a move there it's because both parties will see value in such a deal.
That's very helpful Rich I appreciate that.
My second question is on the breakeven that you touched on earlier just wondering if you can quantify where that is today and calling those cost reduction and where you think it could go organically and do you think that level would be low enough or would you consider supporting it with additional downstream and I'm thinking back to last November when you.
Decided to keep the retail segment because it helped bolster your cash margins.
Yeah.
I'm a bit of a numbers guy so I was playing around with numbers last night, and text and email and back and forth and I've got to tell you on a calculation to breakeven I was 50 off from what Troy's experts in.
<unk> came up with and I would say we're kind of.
Guys put out a lot of stuff depending on what you put in in what period, you will look at whether it's dividends or sustaining level, we're kind of in that $50, a barrel range plus or minus a little bit and is it.
You had said is that I would always like it to be lower because I like the resiliency that provides and I like the incremental or supplemental free cash flow and the options that go with that so that will continue to be a big focus area for us as we get to be a simple.
We're more focused organization as we prioritize operational improvements whether their turnarounds mine fleet.
However, they happened to be to strengthen the company and give us.
More and more optionality on it.
Yeah.
Repeat the second the tail end of your question a little bit. So you got me going on breakeven because it's very much the way I look at things.
And the.
The second part of your question Troy scratching, it will know forming sure aikido downstream downstream.
The benefit of being an integrated company like ours is the natural hedge that goes with it. So if the downstream growth whether that's in retail whether that's in partnerships in retail whether that's looking at the pots and pans, we have at our four facilities could be midstream assets.
To me all of those are on the table to look at how we further strengthen it.
Increase our resiliency increase our cash flow.
I don't have I don't have a corresponding list right now to say, here's what those things would be but I'm looking to my left at a fellow named Dave.
It won't be too long before I say Dave.
Let's talk about your list because I think thats really part of the benefit of kind of our density who we are with the level of physical integration and the synergies that go with that.
I appreciate that and then just to be clear the $50 that you mentioned that the <unk> number and what's the.
Yes.
Thank you.
Here the.
Number and then forget it.
It's not precise but yes.
Talk about it here and what kind of a business environment in a <unk> kind of world do we need to be in to be able to pay our priority bills are our ongoing operating costs and I put dividend and sustaining capital taken care of the assets, we have I put those in.
That priority bills dividend is <unk>.
Sacrosanct to me and I've learned in other areas, where you got to take care of what you have you got to feed the kids you have before you before you have any more kids and sustaining capital is very much that take care of the asset base, you have and you want to be able to do that in good business environment and weaker business environment.
So when I talk about breakeven I include dividends and sustaining capital what kind of business environment do we need to be in so we have resiliency and we can withstand a ride through when when times are they are not as strong as we'd like them to be.
Good stuff I'll leave it there thank you.
Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Choi little for any closing remarks.
Thank you for joining us today, please don't hesitate to reach out to US should you have any follow up questions. Operator, you can close the call.
Thank you all for participating. This concludes today's program you may now disconnect.
Okay.
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