Q3 2023 Cenovus Energy Inc Earnings Call

November 2, 2023

Good day, ladies and gentlemen, and thank you for standing by welcome C notice energy third quarter results.

As a reminder.

This call is being recorded.

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Operator: At the conclusion of that session, members of the media may then ask questions. Please be advised that this conference call may not be recorded or rebroadcast without the express consent of Cenovus Energy. I would now like to turn the conference call over to Mr. Jason Abbate, Senior Vice President, Investor Relations. Please go ahead, Mr. Abbate.

Be advised that this conference call may not be recorded or rebroadcast without expressed consent.

This energy.

I would now like to turn the conference call over to Mr. Jason.

Senior Vice President Investor Relations. Please go ahead Mr. <unk>.

Jason Abbate: Thank you, operator, and welcome everyone to Cenovus's 2023 Q3 Results Conference Call. Please refer to the advisories located at the end of today's news release. These describe the forward-looking information, non-GAAP measures, and oil and gas terms referred to today. They also outline the risk factors and assumptions relevant to this discussion. Additional information is available in Cenovus's annual MD&A and our most recent AIF and Form 40-F. All figures are presented in Canadian dollars and before royalties unless otherwise stated. We have also posted our results on our website at cenovus.com. Jon McKenzie, our President and Chief Executive Officer, will provide brief comments and then we'll take your questions. We ask that you hold off on any detailed modeling questions. You can follow up with those directly with our investor relations team after the call.

Thank you operator, and welcome everyone to <unk> 2023 third quarter results conference call. Please refer to the advisories located at the end of today's news release do you describe the forward looking information non-GAAP measures and oil and gas terms referred to today. They also outlines the risk factors and assumptions relevant to this discussion.

Additional information is available in stenosis annual MD&A and our most recent Aif and form 40 F.

Jason Abbate: All figures are presented in Canadian dollars and before royalties unless otherwise stated. We have also posted our results on our website at cenovus.com. Jon McKenzie, our President and Chief Executive Officer, will provide brief comments and then we'll take your questions. We ask that you hold off on any detailed modeling questions. You can follow up with those directly with our investor relations team after the call.

All figures are presented in Canadian dollars and before royalties unless otherwise stated we have also posted our results on our website at <unk> Dot com.

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

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

Jason Abbate: Please also keep to one question with a maximum of one follow-up. You're welcome to rejoin the queue for any other follow-up questions you may have. John, please go ahead.

Please also keep to one question with a maximum of one followup you're welcome to rejoin the queue for any other follow up questions. You May have John. Please go ahead Greg.

Jon McKenzie: Great. Thank you, Jason, and good morning, everybody. I'll start this call with our top priority, which is always health and safety. At our offshore China operations, Liwan 3-1, recently achieved a significant milestone of producing 1 trillion standard cubic feet of natural gas sales with no serious incidents or safety events. This is truly an impressive record of safety. The comprehensive pre-startup safety reviews conducted at our Toledo and Superior refineries resulted in strong process safety performance throughout the restart of these assets. These achievements underscore the importance of our values and safety commitments in the work that we do every day. I'm proud of our staff for the hard work and effort that they put into achieving these milestones.

Great and thank you, Jason and good morning, everybody I'll start this call with our top priority, which is always health and safety.

At our offshore China operations Lee one three dash, one recently achieved a significant milestone of producing one Chilean standard cubic feet of natural gas sales with no serious incidents or safety events.

This is truly impressive.

Jon McKenzie: The comprehensive pre-startup safety reviews conducted at our Toledo and Superior refineries resulted in strong process safety performance throughout the restart of these assets. These achievements underscore the importance of our values and safety commitments in the work that we do every day. I'm proud of our staff for the hard work and effort that they put into achieving these milestones.

Record of safety.

And the comprehensive pre startup safety reviews conducted at our Toledo and superior refineries resulted in strong process safety performance.

About the restart of these assets these achievements underscore the importance of our values and safety commitments and the work that we do every day.

And I am proud of our staff for the hard work and effort that they put into achieving these milestones.

Jon McKenzie: Now, we forecasted earlier this year that we would see strength of our operations and the value of our integrated strategy in H2. Our Q3 results are a demonstration of that, with both Upstream and Downstream businesses delivering strong operational and financial results. Our Upstream business saw an increase of production to nearly 800,000 BOE per day in Q3, and combined with higher commodity prices, we generated an operating margin of about CAD 3.4 billion. In the Conventional business, production volumes were impacted by wildfire activity in Q2, but returned to normal rates in Q3. Our production increased over 127,000 barrels per day versus the Q2 number of 105,000 BOE per day.

We forecasted earlier this year that we would see strength of our operations and the value of our integrated strategy in the back half of the year.

Our third quarter results are a demonstration of that with both upstream and downstream business is delivering strong operational and financial results.

Our upstream business saw an increase of production to nearly 800000 Boe per day in the third quarter and combined with higher commodity prices, we generated an operating margin.

Jon McKenzie: In the Conventional business, production volumes were impacted by wildfire activity in Q2, but returned to normal rates in Q3. Our production increased over 127,000 barrels per day versus the Q2 number of 105,000 BOE per day.

There are about $3 4 billion.

In the conventional business production volumes were impacted by wildfire activity in Q2, but returned to normal rates in the third quarter.

Our production increased over 127000 barrels per.

Per day versus the second quarter number of 105000 Boe per day.

Jon McKenzie: I'd again like to thank our staff and contractors that played an integral role in our ability to resume or safely resume our operations following the unprecedented wildfire events. In our Oil Sands, our Oil Sands assets continue to perform exceptionally well following the execution of redevelopment programs and the start up of new well pads, both of which support short- and long-term production growth. Production increased over 600,000 barrels per day versus the Q2 number of 305,000 barrels per day. At our Sunrise Oil Sands production, Q3 production rose 17% to about 55,000 barrels per day. The asset continues to perform well, as we apply Cenovus operating processes, including the implementation of redevelopment wells, adjusting well designs, and operating parameters.

So I would again like to thank our staff and contractors that played an integral role in our ability to resume safely resume our operations following the unprecedented wildfire events.

In our oil sands as our oil sands assets continue to perform exceptionally well following the execution of redevelopment programs.

And the startup of new well pads both.

Of which support short and long term production growth production increased over 600000 barrels per day versus the second quarter number of 300 or 572000 barrels per day.

Jon McKenzie: Production increased over 600,000 barrels per day versus the Q2 number of 305,000 barrels per day. At our Sunrise Oil Sands production, Q3 production rose 17% to about 55,000 barrels per day. The asset continues to perform well, as we apply Cenovus operating processes, including the implementation of redevelopment wells, adjusting well designs, and operating parameters.

At our Sunrise oil sands production.

Third quarter production rose, 17% to about 55000 barrels per day.

The asset continues to perform well.

As we apply synovus operating processes, including the implementation of redevelopment wells.

Adjusting well designs and operating parameters.

Jon McKenzie: Now, I expect our oil sands assets to continue their positive performance through the remainder of 2023 and beyond. We'll remain focused on operational reliability and the safe and efficient execution of our growth capital and optimization projects with the Narrows Lake tieback, Foster Creek steam addition, and new well pads at Sunrise being a few key examples that support short to medium-term growth plans. In our offshore segment, our Asia Pacific assets performed extremely well. The company achieved first gas from the Mako field in Indonesia in September. In the Atlantic, the Terra Nova FPSO has now returned to offshore Newfoundland and is expected to produce first oil in Q4. While our West White Rose project is also progressing as planned with approximately 75% of the work completed to date.

No I expect oil sands assets to continue their positive performance through the remainder of 2023 and beyond.

We will remain focused on operational reliability in a safe and efficient execution of our growth capital and optimize product optimization projects.

With the Narrows Lake Tieback Foster Creek Steam addition, and new well pads Sunrise being a few key examples support short to medium term growth plans.

In our offshore segment, our Asia Pacific assets performed extremely well the company achieved first gas from the Mac field in Indonesia in September.

Jon McKenzie: The company achieved first gas from the Mako field in Indonesia in September. In the Atlantic, the Terra Nova FPSO has now returned to offshore Newfoundland and is expected to produce first oil in Q4. While our West White Rose project is also progressing as planned with approximately 75% of the work completed to date.

In the Atlantic the Terra Nova Fps. So has now returned.

Offshore Newfoundland and is expected to produce first oil in the fourth quarter.

While our west White Rose project.

It is also progressing as planned with approximately 75% of the work completed to date.

Jon McKenzie: We'll continue to advance the work for the regulatory dry dock of the SeaRose FPSO that will commence in January in preparation for the start up of the West White Rose project. Now turning to the downstream business. The Q3 results generated much healthier operating margins from the refining and upgrading assets in our portfolio. Overall, our downstream business contributed over CAD 900 million in operating margin with favorable crack spreads and FIFO tailwinds. Following a challenging H1 of the year, the US manufacturing segment we delivered on our expectations of getting the last of the refining assets online and running reliably. Following the purchase and start-up of Toledo and the commissioning and start-up of Superior, crude utilization increased significantly from 70% in the prior quarter to 88% in this quarter.

We will continue to advance the work for the regulatory dry dock of the <unk> Fps. So that will commence in January in preparation for the startup for the West White Rose project.

Now turning to the downstream business the third quarter results generated much healthier operating margins from the refining and upgrading assets in our portfolio.

Overall, our downstream business continued contributed over $900 million and operating margin with favorable crack spreads and FIFO tail winds.

Jon McKenzie: Following a challenging H1 of the year, the US manufacturing segment we delivered on our expectations of getting the last of the refining assets online and running reliably. Following the purchase and start-up of Toledo and the commissioning and start-up of Superior, crude utilization increased significantly from 70% in the prior quarter to 88% in this quarter.

Following a challenging first half of the year in the U S manufacturing segment, we delivered on our expectations of getting the last of the refining assets online and running reliably.

Following the purchase of the startup of Toledo, and the commissioning and startup of superior crude utilization increased significantly from 70% in the prior quarter to 88% in this quarter.

Jon McKenzie: This is largely due to Toledo having performed well at 90% utilization through the quarter. You also would have seen a sizable reduction in the unit operating costs in our US manufacturing segment, with the majority of our refining assets running at or near full rates in Q3, and a reduction in the overall operating costs associated with the start-up of Toledo and Superior. At the Superior Refinery, we achieved the safe start-up of the Fluid Cat Cracker in early October. While the start-up of this unit was delayed, you know, the business unit completed this complex work without compromising the safety of our staff and assets. You will know that the Borger Refinery is now undergoing planned maintenance, which will impact Q4 throughput. We're really pleased with the Canadian manufacturing segment.

This is largely due.

Toledo, having performed well at 90% utilization through the quarter.

You also would have seen a sizable reduction in the unit operating costs in our U S manufacturing segment with the majority of our refining assets running at or near full rates in the third quarter and a reduction in the overall operating costs associated with the startup of Toledo and superior.

At the superior refinery, we achieved the safe startup of the fluid cat Cracker in early October while the startup of this unit was delayed.

Jon McKenzie: While the start-up of this unit was delayed, you know, the business unit completed this complex work without compromising the safety of our staff and assets. You will know that the Borger Refinery is now undergoing planned maintenance, which will impact Q4 throughput. We're really pleased with the Canadian manufacturing segment.

The business unit completed this complex work without compromising the safety of our staff and assets.

And you will know that the borger refinery is now undergoing planned maintenance, which will impact Q4 throughput.

We were really pleased with the Canadian manufacturing segment crude utilization was 98% in the quarter with Lori administer upgrader and refinery demonstrating strong and stable performance in the ability to capture margins as heavy oil differentials widen.

Jon McKenzie: Crude utilization was 98% in the quarter, with the Lloydminster Upgrader and Refinery demonstrating strong and stable performance and the ability to capture margins as heavy oil differentials widen. With the seasonally weaker crack spreads and the recent weakness in gasoline cracks, we're focused on optimizing our assets to maximize the economic result. We will continue to build on solid operational execution and reliability we've demonstrated this quarter going through year-end. I'd now like to highlight our corporate and financial performance. In Q3, Cenovus delivered approximately CAD 3.4 billion of adjusted funds flow, with both upstream and downstream businesses demonstrating strong performance and contributions to operating margin. Through our base dividend share buybacks and partial payment of common share warrant obligation, we distributed over CAD 1.2 billion directly to shareholders.

With a seasonally weaker crack spreads in the recent weakness in gasoline cracks.

We're focused on optimizing our assets to maximize the economic result.

We will continue to build on solid operational execution and reliability, we've demonstrated this quarter going through year end.

Jon McKenzie: I'd now like to highlight our corporate and financial performance. In Q3, Cenovus delivered approximately CAD 3.4 billion of adjusted funds flow, with both upstream and downstream businesses demonstrating strong performance and contributions to operating margin. Through our base dividend share buybacks and partial payment of common share warrant obligation, we distributed over CAD 1.2 billion directly to shareholders.

I'd now like to highlight our corporate and financial performance in the third quarter Synovus delivered approximately $3 4 billion of adjusted funds flow with both upstream and downstream businesses, demonstrating strong performance and contributions to operating margin.

Through our dividend base share buybacks.

Sorry through our base dividend share buybacks.

And partial payment of common share warrant obligation, we distributed over $1 2 billion directly to shareholders. In addition, the company's net debt was approximately $6 billion at the end of the third quarter.

Jon McKenzie: In addition, the company's net debt was approximately CAD 6 billion at the end of Q3. Long-term debt decreased to CAD 7.2 billion after we purchased CAD 1 billion of notes that were due between 2029 and 2047. We did see an increase in our working capital compared to Q2, although this was driven largely by higher commodity prices. Looking forward, we remain focused on achieving our CAD 4 billion net debt target and delivering 100% of excess free funds flow to shareholders at that time. In closing, we believe we've delivered a stronger Q3 in line with our expectations. We're focused on furthering the operational successes that we've achieved in the quarter and continuing to progress both short- and long-term goals of the company. With that, we're happy to take your questions.

Long term debt decreased to $7 2 billion. After we purchased $1 billion of notes that were due between 2029 2047, we did see an increase in our working capital as compared to Q2.

This was driven by largely higher commodity prices.

Jon McKenzie: Looking forward, we remain focused on achieving our CAD 4 billion net debt target and delivering 100% of excess free funds flow to shareholders at that time. In closing, we believe we've delivered a stronger Q3 in line with our expectations. We're focused on furthering the operational successes that we've achieved in the quarter and continuing to progress both short- and long-term goals of the company. With that, we're happy to take your questions.

Looking forward, we remain focused on achieving our 4 billion net debt target and delivering 100% of excess free funds flow to shareholders at that time.

So in closing we believe we have delivered a stronger third quarter in line with our expectations.

We are focused on furthering the operational successes that we've achieved in the quarter and continuing to progress both short and long term goals of the company.

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

Okay.

Operator: Thank you. Ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing star one. We will now begin the question and answer session and go to the first caller. Your first question is from Dennis Fong from CIBC. You can ask your question.

Thank you ladies and gentlemen.

You can join the queue to ask a question. My question is one we will now begin the question and answer session and go to the first caller.

Your first question is from Dennis Coleman from CIBC Zoster question.

Dennis Fong: Hi, good morning, and thank you for taking my questions. My first one is just around the, I guess the pay down of the warrant obligation. In the quarter, as you highlighted, you did about CAD 600 million. When you think about what's remaining for that obligation, as well as your cash returns back going into Q4, how should we be thinking about, I guess, share buyback cadence, as well as any other considerations you're taking into going into the end of the year around the buyback? Thanks.

Hi, Good morning, and thank you for taking my questions. My first one is just around the.

I guess the pay down of the warrant obligations. So in the quarter as you highlighted you did about $600 million.

When you think about what's remaining.

For that that obligation as well as your cash returns back going into the fourth quarter, how should we be thinking about.

Share buyback cadence as well as any other considerations youre taking into going into the end of the year around the buyback.

Jon McKenzie: Yeah, I'll turn that question over to Cam to answer. You remember, we did those warrant buybacks, I think around CAD 22. We did take the opportunity in the quarter to pay down about CAD 600 of that. I think there's about 111 left that we need to pay. I think the deadline is early January. Maybe Cam, you could talk a little bit about our thinking around share buybacks.

Yes, I'll turn that question over to Kam to answer, but you remember we did those warrant buybacks I think around $22 and we did take the opportunity in the quarter to pay down about 600 of that so I think theres about a 111 left that.

But we need to pay.

The deadline is early January but maybe you could talk a little bit about our thinking around.

Share buybacks.

Cameron Goldade: Thanks, John. Hey, Dennis. So, you know, I think, you know, a couple of things I would highlight. First off, you know, John alluded to this, but the price at which we had transacted on those warrants at obviously a lot lower than where our share price is today. So, you know, we made a very conscious decision to proactively pay that warrant obligation down in Q3 relative to continuing to buy back stock. So I'd say the principles around that aren't going to change. You know, we'll continue to look at probably paying down that warrant liability in Q4. I think given where, you know, even our share price sits today, I think it's not an unreasonable assumption to assume that we would pay the rest of that obligation in Q4.

Kam Sandhar: Thanks, John. Hey, Dennis. So, you know, I think, you know, a couple of things I would highlight. First off, you know, John alluded to this, but the price at which we had transacted on those warrants at obviously a lot lower than where our share price is today. So, you know, we made a very conscious decision to proactively pay that warrant obligation down in Q3 relative to continuing to buy back stock.

Thanks, John Hey, Dennis.

<unk>.

I think a couple of things I would highlight first off.

John alluded to this but the price at which we had transacted on those warrant side, obviously, a lot lower than where our share prices. Today. So we made a very conscious decision too.

Proactively pay that warranty obligation down in Q3.

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Relative to continuing to buyback stock so I would say the principles around that arent going to change.

Kam Sandhar: So I'd say the principles around that aren't going to change. You know, we'll continue to look at probably paying down that warrant liability in Q4. I think given where, you know, even our share price sits today, I think it's not an unreasonable assumption to assume that we would pay the rest of that obligation in Q4.

We will continue to look at probably paying down that warrant liability in the fourth quarter I think given where you are in our share price. It is today I think is not are not an unreasonable assumption to assume that we would.

Pay the rest of that obligation in Q4, and then when you think about the rest of the buyback.

Cameron Goldade: When you think about the rest of the buyback program and, you know, potential for variables, the approach for us has not changed. You know, we're gonna continue to test intrinsic value of the share price at a sort of flat $60 WTI price. If we continue to see opportunity in buying back stock, you should see us active in the market. You know, the goal is always to fulfill that 50% of excess free funds flow in any particular quarter, either through buybacks or through variable dividends. You know, we've been continuing to buy back stock through Q3. You're continuing to see us active in Q4. I think part of that will also include payment of that warrant obligation.

Kam Sandhar: When you think about the rest of the buyback program and, you know, potential for variables, the approach for us has not changed. You know, we're gonna continue to test intrinsic value of the share price at a sort of flat $60 WTI price. If we continue to see opportunity in buying back stock, you should see us active in the market.

Buyback program and potential for variables. The approach for US has not changed we're going to continue to test intrinsic value of the share price at a sort of flat $60 <unk> price. If we continue to see opportunity in buying back stock you should see us active in the market.

Kam Sandhar: You know, the goal is always to fulfill that 50% of excess free funds flow in any particular quarter, either through buybacks or through variable dividends. You know, we've been continuing to buy back stock through Q3. You're continuing to see us active in Q4. I think part of that will also include payment of that warrant obligation.

And the goal is always to fulfill that 50% of excess free funds flow in any particular quarter, either through buybacks or through variable dividends, but we've been continuing to buy back stock through Q3.

Continue to see US active in Q4, and I think part of that will also include.

Payment at that warrant obligations.

Dennis Fong: Great. I appreciate that color, Cam and John. My second question here, or I guess follow-up is, shifting gears a little bit more to the operations side. Appreciate the color that you provided, John, on the flexibility of your downstream operations. I just wanted to ask a quick question about Superior and the FCC unit. As I recall, that FCC unit is generally used to help finish gasoline, and that through the Q3, you were building some intermediate product. How should we be thinking about the opportunity set or how you're gonna manage that inventory, again, just given where gasoline cracks happen to sit at and your ability to maintain flexibility within that particular refinery? Thanks.

Great I appreciate that color Kevin John.

A second question here.

Our next follow up is shifting gears, a little bit more to the operation side.

The color that you provided John on the flexibility of your downstream operations I just wanted to ask a quick question about superior in the FCC unit.

Dennis Fong: As I recall, that FCC unit is generally used to help finish gasoline, and that through the Q3, you were building some intermediate product. How should we be thinking about the opportunity set or how you're gonna manage that inventory, again, just given where gasoline cracks happen to sit at and your ability to maintain flexibility within that particular refinery? Thanks.

As I recall that FCC unit is generally used to help finished gasoline.

And that through the third quarter, you were building some intermediate product.

How should we be thinking about the opportunity set or how youre going to manage that inventory again, just given where gasoline cracks happens to sit at and your ability to you.

Maintain flexibility within that particular refinery. Thanks.

Jon McKenzie: Yeah. I'll let Keith give you a fuller picture on that. You're exactly right. The FCC unit is a big gasoline producing asset. You know, and one of the things we always look at is the forward markets and our ability, you know, to move the sales of that gasoline into higher netback periods. We're always watching sort of the winter-summer spreads and looking at that with an eye on containment as well. Maybe, Keith, you got some additional thoughts on how we're managing gasoline at Superior in particular.

Yes, I'll, let Keith give you a fuller picture on that you're exactly right. The FCC and it is a big gasoline producing asset and one of the things. We always look at is the forward markets and our ability.

To move the sales of the gasoline into.

A higher netback periods and so we're always watching sorted the winter summer spreads looking at that with.

With an eye on containment as well, but maybe Keith you got some additional thoughts on how we are managing gasoline.

At superior in particular, yes, thanks, Dennis obviously.

Keith Chiasson: Yeah. Thanks, Dennis. You know, obviously, Superior being the first stop on kind of the mainline system, and the current rate of differentials, you know, it does provide a significant crude advantage and something different than we had online at the end of 2022. Pretty excited to have this asset up and running and fully operational. We will continue to look at the economics, and obviously, we will make economic decisions on when we run that inventory off. In today's environment, we're still seeing relatively robust returns to do that.

Superior being the first stop on on kind of the mainline system and the current rate of differentials.

It does provide a significant crude advantage and something different than we had online at the end of 2022, so pretty pretty excited to have this asset up and running and fully operational. So we will continue to look at the economics, and obviously, we will make economic decisions on on when we run that inventory off.

But in today's environment, we're still seeing.

Relatively robust returns to do that I think the other thing I would offer up Dennis as we have.

Keith Chiasson: I think the other thing I would offer up, Dennis, is now that we have the integrated network up and running and the other assets up and running, we've been moving some of that intermediate inventory to other assets to run off those products and make finished product. We've been doing that for a period of time. It's not just that we have to run it through the existing asset.

Now that we have the integrated network up and running and the other assets up and running.

Been moving some of that intermediate inventory to other assets to run off those products and make finished product and we've been doing that for a period of time. So it's not just that we have to run it through the existing asset.

Dennis Fong: Great. Appreciate the call, color. I'll turn it back. Thanks.

Great.

I appreciate I appreciate the color I'll turn it back thanks.

Jon McKenzie: Great. Thanks, Dennis.

Great. Thanks, Dennis.

Operator: Thank you. Your next question is from Neil Mehta from Goldman Sachs. Please ask your question.

Thank you. Your next question is from Neil Mehta from Goldman Sachs.

Hudson.

Neil Mehta: Yeah. Good morning, team, and appreciate all the color this morning. Just some early thoughts on 2024 capital would be great. I think, you guys do have some interesting growth projects in flight. Can you help us think about framing this out, recognizing we're gonna get a little more clarity out this year over the next couple of months?

Good morning team.

I appreciate all the color. This morning, just some early thoughts on 2024 capital would be great. Thank you.

You guys do have some interesting growth projects in flight and so can you help us think about framing framing this out recognizing we're going to get a little more clarity here over the next couple of months.

Jon McKenzie: Yeah. Thanks, Neil. You're exactly right. We are gonna come up with a more formal budget release in December. You know, what we've been really trying to communicate to the market is that, you know, our capital spending over the next number of years is gonna be between CAD 4.5 and 5 billion range. Very similar to what you saw in 2023. In 2023, we made a conscious decision to put some capital to work on some growth projects that we have in the portfolio. These are very high return, very efficient projects that we started funding in 2023 and will continue to fund through next year and really through the planning period that we're looking at.

Yes, Thanks, Neil you and you're exactly right, we are going to come out with.

A more formal budget.

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Release in December, but what we've been really trying to communicate to the market.

Is that our capital spending over the next number of years. He is going to be between $4 $5 $5 billion range. So very similar to what you saw in 2023 and 2023, we made a conscious decision to put some capital to work.

Jon McKenzie: In 2023, we made a conscious decision to put some capital to work on some growth projects that we have in the portfolio. These are very high return, very efficient projects that we started funding in 2023 and will continue to fund through next year and really through the planning period that we're looking at.

On some growth projects that we have in the portfolio. These are very high return very efficient projects.

That we started funding in 'twenty, three and will continue to fund.

Through next year and really through the planning period that.

Jon McKenzie: Don't think that the capital budget is gonna look much different than what you've seen this year in that CAD 4.5 to 5 billion range.

We're looking at but.

Jon McKenzie: Don't think that the capital budget is gonna look much different than what you've seen this year in that CAD 4.5 to 5 billion range.

I don't think that the capital.

Budget is going to look much different than what <unk> seen this year in that four $5 billion to $5 billion range.

Neil Mehta: Yeah, that's helpful. To build off that, can you talk about what some of those key growth projects are in 2024? You know, that maybe that higher spend than maybe some were expecting a couple years ago, as long as it's because of differentiated projects, not just because of higher sustaining capital levels, providing a little more color on what those are could be helpful.

Yeah. That's helpful. And then the buildup that can you talk about what some of those key growth projects are in 2024.

That may be that higher spend than maybe some were expecting a couple of years ago as handsets because.

Differentiated projects, not just because of higher sustaining capital levels, providing a little more.

More color on what the Saar can be helpful.

Jon McKenzie: Sure. Again, we've been hopefully clear on differentiating, you know, what we consider to be sustaining capital, and that's the capital keep production flat and our fixed assets in a safe and stable condition from the growth capital. Again, these projects, you know, we started funding them in 2023 and we'll continue through 2024, 2025, and 2026. Maybe, Keith, you might wanna talk about, you know, the big four projects that we've got going on in particular.

Sure and again, we've been we've been hopefully clear on differentiating what we consider to be sustaining capital and Thats the capital keep production flat.

Fixed assets in a safe and stable condition from the growth capital.

But again these these projects we started funding them in 'twenty three.

We will continue through 2425 and 26, but maybe Keith.

You might want to talk about the big four projects that we've got going on in particular.

Keith Chiasson: Yeah, sure, John. Thanks for the question, Neil. You know, I just wanna anchor first on the fact that we look at investments in these growth projects at the bottom of the cycle, and they all obviously clear the bar and are relatively low capital to get the growth that we're gonna be talking about. As John indicated, we've kinda kicked these off through the 2023 period, and they'll continue through 2024. You know, we're pretty excited about the Foster Creek, the Christina Lake, Sunrise and West White Rose projects, all contributing about north of 100,000 barrels a day of growth. You know, at Foster Creek, we're doing a steam expansion.

Yes, sure John Knapp.

And thanks. Thanks for the question I just wanted to anchor first on the fact that we look at investments in these growth projects at the bottom of the cycle now obviously can the bar and our relatively low capital to get the growth that we're going to be talking about and we as John indicated we've kind of kick these off to the 2023.

Keith Chiasson: You know, we're pretty excited about the Foster Creek, the Christina Lake, Sunrise and West White Rose projects, all contributing about north of 100,000 barrels a day of growth. You know, at Foster Creek, we're doing a steam expansion.

Period, and they'll continue through 2024, but we're pretty excited about the Foster Creek Christina Lake Sunrise Dam West White Rose project all contributing about.

North of 100000 barrels a day of growth so.

At Foster Creek were doing a steam expansion, we will be able to kind of wrap that up in the 2025 time period and start ramping up steam and production.

Keith Chiasson: We'll be able to kind of wrap that up in the 2025 time period and start ramping up steam and production. That will add about 30,000 barrels a day of production in the 2026, 2027 time period. Christina Lake, we've been talking about this one for a little bit, but really it's building a pipeline up into the Narrows resource and bringing that back and processing it at Christina Lake, which is a much different, you know, concept than we had, you know, probably 5 or 6 years ago, and a way to access this resource at a much lower capital cost. By doing that, we'll drop our SORs, and we will see kinda an incremental 20 to 30,000 barrels a day of production at Christina Lake.

That will add about 30000 barrels a day of production in.

In the 2026 2027 time period, Christina Lake we've been talking about this one for a little bit, but really it's building a pipeline up into the narrows resource and bringing that back and processing. It at at Christina Lake, which is a much different.

Concept than we had probably five six years ago and a way to access this resource at a much lower capital costs. So by doing that we will drop our Sos and we will see kind of an incremental 20 to 30000 barrels a day of production at Christina Lake again that kind of starts ramping up in the 2025 time period.

Keith Chiasson: By doing that, we'll drop our SORs, and we will see kinda an incremental 20 to 30,000 barrels a day of production at Christina Lake.

Keith Chiasson: Again, that kinda starts ramping up in the 2025 time period, and full production kinda in the 2026 time period. At Sunrise, we've been actively working on applying the Cenovus technology since acquiring the asset. You know, we've spent a bit of time with infills and redrills and redevelopment wells this year, and so you're seeing production kinda north of that 50,000 barrels a day. But now we're adding pads. So the last time a pad was added at Sunrise was in the 2017 timeframe. So we have a whole pad development program. The first one will be steaming at the back end of 2023 here and through 2024. But we're also adding additional pads.

And full production kind of in the 2026 time period.

At Sunrise, we've been actively working on applying the sudden all of this technology.

Since acquiring the asset.

Spent a bit of time with the infill and re drills and redevelopment wells this year and so youre seeing production kind of north of that 50000 barrels a day, but we're now we're adding pads. So the last time a pad was added at <unk>.

Keith Chiasson: But now we're adding pads. So the last time a pad was added at Sunrise was in the 2017 timeframe. So we have a whole pad development program. The first one will be steaming at the back end of 2023 here and through 2024. But we're also adding additional pads.

Sunrise was in the 2017 timeframe. So we have a whole pad development program. The first one will be steaming at the back end of 2023 here and through 2024, but were also adding additional pads. So through kind of that 2025 2026 timeframe you can see as fully getting the full utilization of all the <unk>.

Keith Chiasson: Through kind of that 2025, 2026 timeframe, you can see us fully getting the full utilization of all the steam capacity at the asset. That should drive our production up into that mid-60s type range. You know, we're kinda gonna see a 15,000 to 20,000 barrel a day growth at Sunrise. Then, on our East Coast project, the West White Rose project, this is where a bit more capital will be going in 2024 and 2025 time periods as we finish that project. We're north of 70% complete. We hit some milestones on our gravity-based structure in the quarter.

<unk> capacity at the asset and.

That should drive our production up into that mid.

Mid <unk> type range. So we're kind of going to see a 2015 to 20000 barrel a day gross at Sunrise and then on our East coast projects. The West White Rose project. This is where a bit more capital will be going in.

Thousand 24, and 2025 time periods as we finish that project, where we're north of 70%.

Complete we hit some milestones on our gravity based structure.

In the quarter.

Keith Chiasson: You know, we'll be spending 2024 and 2025 to finish construction, tow it offshore, mate up the topsides and the gravity-based structure, and commence drilling in 2025. We'll start seeing production growing in 2026 and peaking kinda in that 2028 timeframe at about an incremental 45,000 barrels a day. Really excited about the growth projects, you know, the volume it adds at relatively modest or low capital. To John's point, doing all this in that CAD 4.5 to 5 billion capital range over the next couple of years.

And we will be spending 2024, and 2025% to finish construction.

Two it offshore made up the top sides and the gravity based structure and commence drilling in 2025. So we'll start seeing production growing in 2026, and peaking kind of in that 22028 timeframe at about an incremental 45000 barrels a day, so really excited about the <unk>.

Growth projects the volume it adds at relatively modest or low capital and.

And to John's point doing all this in that four 5% to $5 billion capital range over the next couple of years.

Jon McKenzie: Yeah. Neil, just-

Yes, so Neal just.

Neil Mehta: Sorry. Thank you.

Jon McKenzie: You know, what you should be thinking about, just for your model, Neil, kind of in the CAD 2.9 to 3 range for sustaining capital, and then the residual being growth.

Should we be thinking about just for your model you should be thinking kind of two nine to $3 range for sustaining capital and then the residual being growth.

Neil Mehta: Okay. That's really helpful. Thanks. Thanks, John.

Okay. That's really helpful. Thanks, Thanks, Jeff.

Jon McKenzie: Okay. Thanks, Neil.

Okay. Thanks Neil.

Operator: Thank you. Your next question is from Menno Hulshof from TD Securities. Please ask your question.

Yes.

Thank you next question is from Menno <unk> from DB Securities. Please ask your question.

Keith Chiasson: Thanks, and good morning. I've got a couple of follow-up questions from some of the prior questions. Maybe I'll start with a high level one on the operational outlook for downstream. Scale of 1 to 10, where do you think you are today on?

Menno Hulshof: Thanks, and good morning. I've got a couple of follow-up questions from some of the prior questions. Maybe I'll start with a high level one on the operational outlook for downstream. Scale of 1 to 10, where do you think you are today on?

Thanks.

Good morning, So I've got a couple of follow up questions from some of the prior.

Question, So maybe I'll start with a high level one on the operational outlook for downstream a scale of one to 10, where do you think you are today on a downstream performance from a pure operational perspective relative to where you'd like to get to and where else do you see room for improvement within U S refining.

Menno Hulshof: On downstream performance from a pure operational perspective relative to where you'd like to get to, and then where else do you see room for improvement within US refining?

Jon McKenzie: Well, I'm gonna let Keith answer the specifics on this, but what I would tell you, Menno, is refining is a core part of our business. You know, we have built a heavy oil value chain that we think has significant value to the shareholders, and we think it's actually quite unique in its construct. Our goal is to be as good at running the downstream as we are our thermal assets. That's not necessarily gonna happen overnight, but that's the trajectory that we're on, and that's where we wanna take this piece of business. Refining and upgrading is absolutely core to this business.

Well I'm going to let Keith answer the specifics on this but what I would tell you menno is.

Refining is a core part of our business.

We have built a heavy oil value chain that we think has.

Significant value to the shareholders and we think it's actually quite unique in its construct but our goal is to be as good at running the downstream as we are our thermal assets and that's not necessarily going to happen overnight, but that's the trajectory that we're on and that's where we want to take.

This piece of business refining and upgrading is absolutely core to this business. So what youll see from us over the coming years as our continued focus.

Jon McKenzie: you know, what you'll see from us over the coming years is a continued focus on sweating these assets, grinding out value, not just on the operating side in terms of reliability, throughput and the like, but also on the commercial side of this business and making sure that we're making all the right decisions and capturing as much margin as possible. Maybe I'll turn it over to Keith. I don't know that he's gonna give you an answer on 1 to 10, but I think he'll give you some indication on where we think we are.

Sweating these assets grinding out value not just on the operating side in terms of reliability throughput and the like but also on on the commercial side of this business and making sure that we're making all the right decisions and capturing as much margin as possible but.

Maybe I'll turn it over to Keith I don't know if he is going to give you an answer on 1% to 10, but I think ill give you some indication on where we think we are.

Keith Chiasson: Thanks, Menno, and I think I just got some direction. You know, basically, you gotta think about kind of what the Downstream organization has been through. You know, Superior was down for about 5 years, and we've now safely restarted that refinery and pretty excited about it. Toledo kind of came through an event and then a winter freeze event as well. The team there has successfully restarted and has ran that refinery reliably since kind of the June timeframe. Pretty excited about kind of where we are. I think we do continue to have opportunity, though, and part of that opportunity is around the integrated nature of that value chain.

Mono and I think I, just got some direction so.

Basically.

You got to think about kind of with the downstream organization has been through superior is down for about five years, and we've now safely restart at that refinery and pretty excited about it.

Toledo It kind of came through an event and then a winter freeze event as well and and the team. There has has successfully restarted and is ran that.

Keith Chiasson: The team there has successfully restarted and has ran that refinery reliably since kind of the June timeframe. Pretty excited about kind of where we are. I think we do continue to have opportunity, though, and part of that opportunity is around the integrated nature of that value chain.

Refinery reliably since kind of the June timeframe, so pretty excited about kind of where we are I think we do continue to have opportunity, though and part of that opportunity is around the integrated nature of that value chain.

Keith Chiasson: Now that we're up and running reliably, you know, we are actively looking at integration opportunities between Lima and Toledo and ways to capture additional margin. Obviously, having you know, around 120,000 barrels a day of heavy conversion capacity in today's differential market provides a lot of opportunity and flexibility to capture additional crude advantage at those two refineries. You would have seen our unit OPEX drop substantially in the US downstream in the quarter. We're gonna continue to work to grind that even lower over the next several quarters and continue to work on our reliability and continue to improve that.

Now that we're up and running and running reliably.

We're actively looking at integration opportunities between lineman Toledo in ways to capture additional margin.

Obviously, having.

Around 120000 barrels a day of heavy conversion capacity in today's differential market provides a lot of opportunity and flexibility to capture additional crude advantage at those two refineries. So.

Keith Chiasson: You would have seen our unit OPEX drop substantially in the US downstream in the quarter. We're gonna continue to work to grind that even lower over the next several quarters and continue to work on our reliability and continue to improve that.

We're going to continue that.

You would've seen our unit Opex dropped substantially in the U S downstream and in the quarter, how we're going to continue to work to grind that even lower over the next several quarters and continue to work on our reliability and continue to improve that so we're not stopping but we think we have additional opportunity to drive down unit op.

Keith Chiasson: We're not stopping, but we think we have additional opportunity to drive down unit OPEX, improve reliability, and really extract additional margin. The assets are up and running and performing well today.

Next improved reliability and really extract additional margin, but the assets are up and running and performing well today.

Menno Hulshof: Terrific. Thanks. That was a great rundown. Maybe I'll just circle back on West White Rose. It's 75% complete. You've got CAD 440 million invested on a net basis since restart. How is that project generally tracking relative to your internal targets? Given that it's offshore, where do you see the most risk between now and 2026? Is it in the timeline or the budget?

Terrific. Thanks that was that was a great rundown, maybe I'll just circle back on <unk>.

West White rose at 75% complete.

<unk> got $440 million invested on a net basis since since the restart.

Is that.

Jack you generally tracking relative to your internal targets and given that its offshore where do you see the most risk between now and 2026 as it is at in the timeline of the budget.

Keith Chiasson: Yeah, Meno, we're pretty happy with where we're at. You know, when we picked up this project, you know, the gravity base structure had kind of the base of the structure poured, and over the past six to eight months, we've predominantly finished that gravity base structure. We have all the necessary contracts in place for the remainder of the project. The topsides are essentially mechanically complete down in Texas, and we're gonna start progressing through the commissioning phase. All in all, things are lining up. I will remind folks, though, we do have an asset life extension on the SeaRose FPSO, and that will take about nine months here in 2024.

Yes.

We're pretty happy with where we're at when we picked up this project.

The gravity based structure had kind of the base of the structure part and over the past six to eight months we finished.

Prominently finish that gravity based structure, we have all the necessary contracts in place for the remainder of the project at the top sides are essentially mechanically complete down in down in Texas.

Keith Chiasson: The topsides are essentially mechanically complete down in Texas, and we're gonna start progressing through the commissioning phase. All in all, things are lining up. I will remind folks, though, we do have an asset life extension on the SeaRose FPSO, and that will take about nine months here in 2024.

We're going to start progressing through the commissioning phase. So all in all things are lining up I will remind folks, though we do have an asset life extension on an on.

On the <unk>.

So and that will take about nine months here in 2024, So we will.

Keith Chiasson: We will come off station in early January and come back on production in late August or early September. That extension really is setting us up for kind of the drilling activity that will happen in 2026 and making sure the asset can stay in place to kinda end of life. You know, all in all, I would say it's a big project, but it's trending well, you know, kinda as per our expectations on both cost and schedule.

We will come off station in early January and come back on production in late August early September.

And that extension really is setting us up for kind of the drilling activity that will happen in 2026, and making sure the asset can stay in place.

To kind of end of life. So.

All in all I would say, it's a big project, but it's trending well.

Kind of as per our expectations on both cost and schedule.

Jon McKenzie: Yeah.

Menno Hulshof: Thanks a lot. I'll turn it back.

Thanks, a lot I'll turn it back.

Jon McKenzie: Great. Thanks, Menno.

Great. Thanks Menno.

Operator: Thank you. Your next question is from John Royall from J.P. Morgan. Please ask your question.

Thank you. Your next question is from John Royall from Jpmorgan. Please ask your question.

Okay.

John Royall: Hi. Good morning. Thanks for taking my question. Just wanted to-

Hi, good morning, Thanks for taking my question.

Jon McKenzie: Good morning.

John Royall: Clarify one thing on the capital allocation. It sounds like you're including the warrant paydown in your calculation for the 50% allocation. Any update you can give us on, you know, potential timing of getting to that floor would be helpful. Thanks.

Jon McKenzie: Good morning.

So just wanted to clarify one thing on the on the capital allocation.

Or it sounds like including the warrant pay down in your calculation for the.

<unk>, 50% allocation and then.

Any update you can give us on potential timing of getting through that or it would be helpful. Thanks.

Jon McKenzie: Sure. Maybe, we get that question just about every quarter, so why don't I, Cam, I think you're well-practiced at this one.

Sure maybe we get that question just about every quarter. So I don't I can't I think youre well practiced at this one sure. So just just on the warrants. So I think John I would just highlight so when you remember the time, when we announced the transaction on the warrant purchase we did remind everybody that the warrant paydown will be.

Keith Chiasson: Sure. Just on the warrant. I think, John, I would just highlight. Remember the time when we announced the transaction on the warrant purchase. We did remind everybody that the warrant paydown will be included as part of our shareholder framework. To the extent that we pay that liability down, it will be included as part of that 50% of excess free funds flow that we allocate to shareholder returns.

Kam Sandhar: Sure. Just on the warrant. I think, John, I would just highlight. Remember the time when we announced the transaction on the warrant purchase. We did remind everybody that the warrant paydown will be included as part of our shareholder framework. To the extent that we pay that liability down, it will be included as part of that 50% of excess free funds flow that we allocate to shareholder returns.

Included as part of our shareholder framework, so to the extent that we pay that liability down it will be included as part of that 50% of excess free funds flow that we allocate to shareholder returns so.

Cameron Goldade: As John mentioned, we paid CAD 600 million of that through Q3 on top of the CAD 360 million of buybacks we did. Going to Q4, you should expect us to probably pay that warrant liability completely, the remaining CAD 111 million with the incremental either going back to share buybacks or a variable dividends. On your second question, just around the debt, you know, I think what I would just say is, you know, right now the focus for us, as the team has talked about, is executing the base business, focusing on continuing to progress these growth projects. You know, moving the downstream to continued improvement on reliability and sustained throughput. You know, a function of our debt is really gonna be dependent on that and commodity prices.

Kam Sandhar: As John mentioned, we paid CAD 600 million of that through Q3 on top of the CAD 360 million of buybacks we did. Going to Q4, you should expect us to probably pay that warrant liability completely, the remaining CAD 111 million with the incremental either going back to share buybacks or a variable dividends.

As John mentioned.

We paid $600 million of that through Q3.

On top of the $360 million of buybacks, we did and so going into Q4, you should expect us to probably pay that warrant liability completely the remaining 111 with the incremental either going back to share buybacks or variable dividends.

Kam Sandhar: On your second question, just around the debt, you know, I think what I would just say is, you know, right now the focus for us, as the team has talked about, is executing the base business, focusing on continuing to progress these growth projects. You know, moving the downstream to continued improvement on reliability and sustained throughput. You know, a function of our debt is really gonna be dependent on that and commodity prices.

And then on your second question just around the debt.

What I would just say is right now the focus for US is the team has talked about is <unk>.

Executing the base business focusing on continuing to progress these growth projects.

Moving to downstream too.

Continued improvement on our reliability and sustained throughput.

And the function of our debt is really going to be dependent on that and commodity prices. So.

Cameron Goldade: You know, I think we'll get there when we get there. I don't think I can give you a timeline just given we've seen a lot of volatility in commodity pricing even in the last month or two. You know, that timing is going to move around, but I would tell you the focus is absolutely in getting there as quickly as we can.

Kam Sandhar: You know, I think we'll get there when we get there. I don't think I can give you a timeline just given we've seen a lot of volatility in commodity pricing even in the last month or two. You know, that timing is going to move around, but I would tell you the focus is absolutely in getting there as quickly as we can.

I think we will get there when we get there I don't think I can give you a timeline just given we've seen a lot of volatility in commodity pricing even in the last month or two so.

That timing is going to move around but I would tell you. The focus is absolutely in getting there as quickly as we can yes.

Jon McKenzie: Yeah, John, I think that's the important piece is we are just operating this business with a focus of getting to CAD 4 billion as quickly and as prudently as we can. You know, one of the things that you can count on us is that we will, you know, continue on that trajectory unimpeded until we get there.

Yes, Jonathan I think that's the important piece is we are just operating this business with a focus on getting to $4 billion as quickly and as prudently as we can.

One of the things that you can count on US is that we will continue on that trajectory unimpeded until we get there.

John Royall: Great. Thank you. Fair enough. You've also talked about being happy, kind of with your portfolio as is. You've also talked about not wanting to be in 50/50 JVs. You still have the one JV on the downstream side that's hanging out there, and your partner has now rolled out an asset sale target. How are you thinking about that structure right now with WRB?

Great. Thank you fair enough and then.

You've also you've talked about being happy with your portfolio as is.

But you've also talked about not wanting to be at 50 50 JV.

You still have the one JV on the downstream side.

Hanging out there and your partners now rolled out an asset sale target so.

How are you thinking about that structure right now with WR base.

Jon McKenzie: Yeah. You know, we've been really clear on that set of assets for years now. You know, we have been clear that you know, we want to own and operate those assets that we see as core. We've been also clear that we are more likely sellers of those assets than buyers of those assets. We've also been clear there's a fairly healthy bid-ask spread that has persisted through time. You know, I don't wanna comment on what Phillips is proposing within their portfolio. What we're focused on is running the business and you know, we're quite happy with you know, holding that JV through the long term if that's required.

Yes, we've been really clear on.

That set of assets for years, now and we have been clear that.

We want to own and operate those assets that we see as core we've been also clear that we are more likely sellers of those assets than buyers of those assets.

And we've also been clear there is a fairly healthy bid ask spread that has persisted through time so.

Jon McKenzie: You know, I don't wanna comment on what Phillips is proposing within their portfolio. What we're focused on is running the business and you know, we're quite happy with you know, holding that JV through the long term if that's required.

Don't want to comment on.

What Philips is proposing within their portfolio, what we're focused on is running the business.

We're quite happy with.

Holding that JV.

The log too if that's required.

John Royall: Thank you.

Thank you.

Jon McKenzie: All right. Thanks, John.

Alright, Thanks John.

Operator: Thank you. Your next question is from Greg Pardy from RBC Capital Markets. Please ask your question.

Thank you. Your next question is from Greg Pardy from RBC capital markets. Please ask your question.

Greg Pardy: Hey, thanks. Good morning. Thanks for the rundown, guys. You've got lots of capacity on Trans Mountain. Just curious how you're thinking about timing, but perhaps more importantly, how will your marketing strategy work? You know, will you sort of look to sell at the dock, then to tankers, or are you looking at something perhaps more integrated with markets in Asia and so on?

Hey, Thanks, good morning, Thanks for the rundown guys.

You've got lots of capacity on Trans Mountain, just curious how youre thinking about.

Timing, but perhaps more importantly, how will your marketing strategy work.

So is will you sort of look to sell at the dock the tankers or are you looking at something perhaps more.

Integrated with.

With markets in Asia, and so on.

Jon McKenzie: Yeah, no, it's a great question, Greg. It's something we're spending a lot of time on. I'm gonna turn this one over to Drew 'cause Drew's right in the middle of this right now.

No. It's a great question, Greg it's something we're spending a lot of time on so im going to turn this one over to drew <unk> right in the middle of this right now.

Cameron Goldade: Sure. Yeah. Good morning, Greg. Thanks for the question. Maybe to kind of speak on kind of the premise of TMX, we're really pleased that it's still continuing and progressing. I think even with these latest, you know, route change approvals and whatnot, I think it's still pretty positive that that line is gonna come into service here in Q2. What you can expect from us is that we're probably gonna get a call on line fill early in the new year. You know, with that, we're gonna see a you know, a working capital build in order to fulfill our kind of volume commitment there. Then how we're thinking about that, you know, being one of the biggest shippers on that line is that, you know, we're also planning for you know, some obvious you know, startup variability.

Drew Zieglgansberger: Sure. Yeah. Good morning, Greg. Thanks for the question. Maybe to kind of speak on kind of the premise of TMX, we're really pleased that it's still continuing and progressing. I think even with these latest, you know, route change approvals and whatnot, I think it's still pretty positive that that line is gonna come into service here in Q2.

Yes.

Sure, Yes, good morning, Greg Thanks for the question.

Maybe you can kind of speak on.

Kind of the premise of the Tms.

Really pleased that it is still continuing and progressing and I think even with these latest.

Route change approvals and whatnot I think it's still pretty positive that that line is going to come into service here in Q2.

Drew Zieglgansberger: What you can expect from us is that we're probably gonna get a call on line fill early in the new year. You know, with that, we're gonna see a you know, a working capital build in order to fulfill our kind of volume commitment there. Then how we're thinking about that, you know, being one of the biggest shippers on that line is that, you know, we're also planning for you know, some obvious you know, startup variability.

So what you can expect from US is that we.

We're probably going to have a call on line fill early in the new year, so with that we're going to see.

Working capital build in order to fulfill our kind of volume commitment there.

And then how we're thinking about that.

Being one of the biggest shippers on that line is that.

We're also planning for.

Some obvious.

Startup variability I mean.

Cameron Goldade: I mean, a line like that, it's pretty substantive, and getting that operation up and running it to a smooth rate is likely to also take some time. You know, we expect, you know, through 2024 to kind of manage that with probably a little bit of bumpiness, in all reality. How we're thinking from a marketing strategy is that, you know, we're gonna initially be looking to, you know, secure some, you know, agreements and supply FOB at the dock itself. You know, we're gonna wanna see that get up to a good, stable rate. However, we do have some intention to, you know, get into new markets. It gives us another great tool and a suite, potentially into global markets.

Drew Zieglgansberger: I mean, a line like that, it's pretty substantive, and getting that operation up and running it to a smooth rate is likely to also take some time. You know, we expect, you know, through 2024 to kind of manage that with probably a little bit of bumpiness, in all reality. How we're thinking from a marketing strategy is that, you know, we're gonna initially be looking to, you know, secure some, you know, agreements and supply FOB at the dock itself.

Like that is pretty substantive and getting that operation up and running it to smooth the rate is likely to also take some time. So we expect through 2024 to kind of manage that with probably a little bit of bumping. This in all reality. So how we're thinking from a marketing strategy is that we're going to initially be looking to.

Secure some agreements in supply Fob at the dock itself, we're going to want to see that get up to a good stable rate.

Drew Zieglgansberger: You know, we're gonna wanna see that get up to a good, stable rate. However, we do have some intention to, you know, get into new markets. It gives us another great tool and a suite, potentially into global markets.

However, we do have some intention to get into new markets. It gives us another great tool in a suite potentially into global markets. We've obviously got some good connections and access into Asian markets with some of our offshore work over in Indonesia, and China. So yes, we are looking at that.

Cameron Goldade: We've obviously got some good connections and, access into Asian markets with some of our offshore work over in Indonesia and China. Yeah, we are looking at that as a full suite of a new market access for us. You know, we're gonna, you know, do the right thing as we go into 2024, make sure that once they get up and operating, that we can see the reliability of that get there, which I think will take a bit of time. We'll step ourselves into, you know, FOB going onto the water at some point and, accessing those new markets that TMX is gonna allow us all to go after.

Drew Zieglgansberger: We've obviously got some good connections and, access into Asian markets with some of our offshore work over in Indonesia and China. Yeah, we are looking at that as a full suite of a new market access for us. You know, we're gonna, you know, do the right thing as we go into 2024, make sure that once they get up and operating, that we can see the reliability of that get there, which I think will take a bit of time. We'll step ourselves into, you know, FOB going onto the water at some point and, accessing those new markets that TMX is gonna allow us all to go after.

As a full suite of a new market access for us, but we're going to.

Do the right thing as we go into 2024 make sure that once they get up and operating that we can see the reliability of that get there, which I think will take a bit of time, and we will step ourself into.

Fob be going onto the water at some point in accessing those new markets that <unk> is going to allow us all to go after.

Greg Pardy: Okay. Terrific. That is helpful. We look forward to hearing more about it as we go. It's kind of a good segue into net working capital. I guess the question for Cam is, you know, good cash flow generation, obviously. You know, there's headwinds and there's an increase in pricing, as John alluded to. What does the balance of the year look like? The reason I ask that, obviously, is the $65,000 question with you guys, you know, when does the company get to CAD 4 billion. Just curious what your thinking is there.

Okay terrific. Thanks that is helpful.

Look forward to hearing more about it as we go.

It's kind of a good segue.

Into.

It did.

Net working capital I guess question for Cam.

Is.

Good cash flow generation, obviously, there's headwinds and there is an increasing pricing as John alluded to what is the what is the balance of the year look like and the reason I ask that obviously is 65000 or question with you guys. When do they when does the company get to $4 billion.

Just curious what your thinking is there.

Cameron Goldade: Thanks, Greg. Just on the working capital. A couple of things I would highlight. You know, when you look at Q2 relative to where we ended Q3, you know, first off, remember we did book the liability associated with the warrant purchase, which was that full CAD 711 million. We drew that down at the end of Q3 for CAD 600 million. That was partly what drove working capital up in Q3 relative to Q2. The second piece I would just say is when you look at our inventory, didn't see a lot of change from a volume perspective relative to where we were in Q2, but obviously prices moved up significantly, quarter over quarter, which is the lion's share of the increase that you've seen in the working capital.

Kam Sandhar: Thanks, Greg. Just on the working capital. A couple of things I would highlight. You know, when you look at Q2 relative to where we ended Q3, you know, first off, remember we did book the liability associated with the warrant purchase, which was that full CAD 711 million. We drew that down at the end of Q3 for CAD 600 million. That was partly what drove working capital up in Q3 relative to Q2.

Thanks, Greg So just on the working capital. So a couple of things I would highlight when you look at Q2 relative to where we ended Q3.

First off we did remember we did book the liability associated with the warrant purchase which was that full $711 million. So we drew that down at the end of Q3 for $600 million. So that was partly what drove working capital up in Q3 relative to Q2, the second piece, though.

Kam Sandhar: The second piece I would just say is when you look at our inventory, didn't see a lot of change from a volume perspective relative to where we were in Q2, but obviously prices moved up significantly, quarter over quarter, which is the lion's share of the increase that you've seen in the working capital.

I would just say is when you look at our inventory didn't see a lot of change from a volume perspective relative to where we were in Q2, but obviously prices moved up significantly.

Quarter over quarter, which is the lion's share.

Of the increase that you've seen in the working capital, but as we move into the fourth quarter.

Cameron Goldade: You know, as we move into Q4, you know, it's obviously things continue to move around as we look at our marketing strategy on selling our barrels. I, you know, I don't expect a big change. Drew kind of highlighted the one sort of more structural change that you'll see in Q1 when we add more barrels into the system for the line fill associated with TMX.

Kam Sandhar: You know, as we move into Q4, you know, it's obviously things continue to move around as we look at our marketing strategy on selling our barrels. I, you know, I don't expect a big change. Drew kind of highlighted the one sort of more structural change that you'll see in Q1 when we add more barrels into the system for the line fill associated with TMX.

Obviously, if things continue to move around as we look at our marketing strategy on <unk>.

Selling our barrels.

I don't expect a big change and drew kind of highlighted the one.

One sort of more structural change that youll see in Q1, when we add more barrels into the system or the line fill associated with BMX.

Manav Gupta: Okay, understood. Thanks very much.

Greg Pardy: Okay, understood. Thanks very much.

Okay understood thanks very much.

Drew Zieglgansberger: Great. Thanks, Greg.

Great. Thanks, Greg.

Sure.

Operator: Thank you, ladies and gentlemen. As a reminder, you can join the queue to ask a question by pressing star one. Your next question is from Manav Gupta from UBS. Please ask your question.

Thank you, ladies and gentlemen, as a reminder, you can join the queue to ask a question by pressing Star. One. Your next question is from Manav Gupta from UBS. Please ask your question.

Manav Gupta: Thank you guys. A little bit of a macro question here. We have seen some widening of WCS here. Can you help us understand what's exactly going on? Where do you see this spread once, as you said, TMX does come online in Q2, if you could help us understand some of those things.

Yes.

Thank you guys a little bit of a macro question here, we have seen some widening Gulf WCS here.

Can you help us understand what's exactly going on and then where do you see this spread once as you said Pia mix does come online in Q.

If you could help us understand some of those things.

Drew Zieglgansberger: Sure. Good morning, Manav, it's Drew. Yeah, great question. As you've alluded to, you know, the crack or the diff has widened here, and that was not unexpected. You know, we've had some incremental growth come out of the basin here over the course of this year. You know, with condensate pricing and whatnot being quite attractive, people are really moving a lot of sales volume. We expected this to widen out. As I alluded to with TMX coming on, I think, you know, in the near term, people also probably saw some of those potential delays and construction issues that have kind of come out as of late. I think people probably shifted some of their positions on timing.

Sure good morning, its drew.

Yes, great question as you've alluded to.

Or the <unk>.

If has widened here and that was not unexpected.

Had some incremental growth come out of the basin here over the course of this year.

With.

With condensate pricing and whatnot being quite attractive people are really moving a lot of sales volume. So we expected this.

Drew Zieglgansberger: We expected this to widen out. As I alluded to with TMX coming on, I think, you know, in the near term, people also probably saw some of those potential delays and construction issues that have kind of come out as of late. I think people probably shifted some of their positions on timing.

To widen out and as I alluded to with <unk> coming on I think in the near term people also probably saw some of those potential delays in construction issues that have kind of come out as of late.

I think people probably shifted some of their positions on timing, but.

Drew Zieglgansberger: You know, we fully expect as the line fill even starts here early in the new year. I think you'll start to see things already start to head down the path of tightening back up. As it comes into full operation into Q2 sometime, you know, we do expect in H2 next year for it to kind of tighten back up to, you know, what we saw when we had some egress space here earlier this year and late last year. You know, we would expect it to come down substantially from where it is probably in the order of, you know, half of what we're seeing today. You know, that probably won't show itself till it's actually up and operational and probably gets through some of its bumpiness as it starts up.

We fully expect as the line fill even starts here early in the new year, I think youll start to see things already start to head down the path of tightening back up.

And then as it comes into full operation into Q2. Some time, we do expect in the second half of next year for it to kind of tightened back up to what we saw when we had some egress space here.

Earlier, this year and late last year or so.

Drew Zieglgansberger: You know, we would expect it to come down substantially from where it is probably in the order of, you know, half of what we're seeing today. You know, that probably won't show itself till it's actually up and operational and probably gets through some of its bumpiness as it starts up.

We would expect it to come down substantially from where it is probably in the order of half of what we're seeing today.

But that probably when we will show itself till it's actually up and operational and probably gets through some of its lumpiness as it starts up.

Drew Zieglgansberger: Yeah. You know, Manav, I'd say one of the big differences this year from last year, and we certainly saw differentials widen last year when we had the, you know, the Keystone outage and the like. You know, with the Downstream up and running and performing the way it is does insulate us from a lot of those wider spreads that we were exposed to last year. While at a corporate level, we'd still like to see narrower spreads, you know, we're much less exposed to that kind of widening through Q4 and Q1 this year than we were last year. We're again really pleased to have those refining assets up and running and performing well.

Jon McKenzie: Yeah. You know, Manav, I'd say one of the big differences this year from last year, and we certainly saw differentials widen last year when we had the, you know, the Keystone outage and the like. You know, with the Downstream up and running and performing the way it is does insulate us from a lot of those wider spreads that we were exposed to last year.

Manav I'd say one of the big differences this year from last year, and we certainly saw differentials widened last year, when we had the Keystone outage and the like.

But with the upstream or sorry with the downstream.

Up and running and performing the way. It is does insulate us from a lot of those wider spreads that were exposed to last year. So.

Jon McKenzie: While at a corporate level, we'd still like to see narrower spreads, you know, we're much less exposed to that kind of widening through Q4 and Q1 this year than we were last year. We're again really pleased to have those refining assets up and running and performing well.

Well it.

Corporate level, we'd still like to see narrower spreads.

We are much less exposed to that kind of widening.

Through the fourth and first quarter. This year than we were last year. So we're again really pleased to have those refining assets up running and performing well.

Manav Gupta: Perfect. I'm going to ask a follow-up question. Based on the response you provided to John, I got a whole bunch of questions on my Bloomberg, so I'm gonna follow up on this. As it relates to those two assets, sir, is it more of a case of a price, or is it more of a case that you always thought of Toledo as a core asset you want to operate and these two don't actually fit that picture? Which one is it more? Is it price or is it more of they don't fit your action? Yeah.

Perfect.

To ask a follow up question.

Based on the response you provided for John He got a whole bunch of questions on my Bloomberg. So I wanted to follow up on <unk>.

As as it relates to those two assets.

Is it more of a case of it price or is it more of a case that you always thought of Toledo.

Core asset you want to operate in these still you don't actually fit that.

One is it more is it price or is it more do they they don't fit.

Drew Zieglgansberger: You know, what I wanna tell you is Toledo is an absolutely core asset for us. It consumes 90,000 barrels a day of heavy, and it consumes the molecules that we produce inside our upstream. It consumes Christina Lake, and it consumes Sunrise heavy oil and provides us insulation against heavy oil differentials and location differentials. It's an absolutely core asset for us and a key piece of infrastructure. What I don't wanna do is give anybody the impression that we're doing anything other than focusing on our base business right now and our core set of assets that we have. Our intention is to continue to, you know, build on the operating momentum we have, drive our debt down to CAD 4 billion, move to 100% shareholder payout.

Yes.

Yeah.

What I wanted to tell you is Toledo is an absolutely core asset for us it consumes 90000 barrels a day of heavy.

And it consumes the molecules that we produce inside our.

<unk>.

Stream.

<unk>, Christina Lake and it consumes Sunrise heavy oil and provides us insulation against heavy oil differentials.

And location differentials. So it is an absolutely core asset for us and a key piece of infrastructure.

Drew Zieglgansberger: It's an absolutely core asset for us and a key piece of infrastructure. What I don't wanna do is give anybody the impression that we're doing anything other than focusing on our base business right now and our core set of assets that we have. Our intention is to continue to, you know, build on the operating momentum we have, drive our debt down to CAD 4 billion, move to 100% shareholder payout.

What I don't want to do is give anybody the impression that we're doing anything other than focusing on our base business right now in our core set of assets that we have.

Our intention is to continue to.

Build on the operating momentum, we have drive our debt down to $4 billion move too.

<unk>.

100% shareholder payout that is our focus right now and I understand theres rumors swirling, but.

Drew Zieglgansberger: That is our focus right now. I understand there's rumors swirling, but, you know, they shouldn't be.

There shouldnt be.

Manav Gupta: Thank you. Congrats on a great quarter and good to see downstream make a material big contribution. Thank you, sir.

Thank you congrats on a great quarter and good to see downstream make a material contribution. Thank you Sir.

Drew Zieglgansberger: Yeah, thank you very much. Appreciate the questions.

Yes. Thank you very much I appreciate the questions.

Operator: Thank you. Once again, as a reminder, you can join the queue to ask a question by pressing star one. There are no further questions. That concludes our question-and-answer session. I will hand the call back to Mr. McKenzie for the closing remarks.

Thank you once again as a reminder, you can join the queue to ask a question by pressing star one.

There are no further questions that concludes our question and answer session I will hand the call.

Back to Mr. Mckenzie for any closing remarks.

Jon McKenzie: Okay. Well, thank you very much, everybody. We certainly appreciate your interest in the company and wish you the best, and we'll talk to you again in the new year. Thank you.

Okay, well. Thank you very much everybody. We certainly appreciate your interest in the company and wish you the best and we'll talk to you again in the new year. Thank you.

Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.

Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may.

I'll disconnect.

Q3 2023 Cenovus Energy Inc Earnings Call

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