Q1 2024 Cenovus Energy Inc Earnings Call
Water results as a reminder, today's call is being recorded at this time all participants are in a listen only mode.
In the presentation, we will conduct a question and answer session. You can join the queue at any time by pressing star one members of the investment community will have the opportunity to ask question first 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 expressed consent of <unk> energy I would now like to turn the conference call over to Mr. Jason <unk> Senior Vice President Investor Relations. Please go ahead Mr. <unk>.
Yeah.
Jason: Thank you operator.
Jason: Everyone and welcome to the Synovus is 2024 first quarter results conference call.
Jason: On the call. This morning are CEO, Jon Mckenzie will take you through our results.
Jason: Then we'll open the line for John and members of the Synovus management team to take your questions.
Speaker Change: Before getting started I refer you to our 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.
Speaker Change: Additional information is available in <unk> annual MD&A and our most recent Aif and form 40 F.
Speaker Change: All figures are presented in Canadian dollars and before royalties unless otherwise stated.
Speaker Change: You can view our results on our website at <unk> Dot com.
Speaker Change: I would ask that you keep to one question with a maximum of one follow up Youre welcome to rejoin the queue for any other follow up questions you may have.
John: John Please go ahead.
John: Great. Thank you very much Jason and good morning, everybody.
John: Safety is at the forefront of everything we do at Synovus and I'd like to take a moment to acknowledge an important accomplishment in the first quarter.
John: And our Atlantic region, we say squeeze safely and successfully took the syros Fps So off station, which is a once in 10 year or more activity and a job well done by everybody involved.
John: Now at our Investor day, we outlined our strategic objectives, the low cost organic growth opportunities, where they are high quality assets and how we will leverage our integrated value chain. We also talked about our disciplined financial framework, which includes growing shareholder returns.
John: Our first quarter results are a reflection of our disciplined approach to managing this business. We continue to be pleased with the performance of our upstream business, while driving focused improvements in downstream operations and increasing margin capture where the quarter achieving the highest throughput to date.
John: Our upstream business delivered strong operating results in line with the prior quarter with production of around 800000 barrels equivalent per day.
John: This was slightly lower than Q4 with planned maintenance having started at the <unk>.
John: I'd like to highlight that the Lloyd Minster thermals produced over a 114000 barrels per day, the highest quarterly average in the history of the asset, reflecting higher operating efficiency and improved downhole pump reliability.
John: Our oil sands and thermal assets continued to produce exceptional results.
John: We remain on track to deliver future production growth from Narrows Lake tie back to Christina Lake.
John: The pipeline is now 67% constructed with hydro testing in line and planned to be completed by the end of the year.
John: And at Foster Creek optimization project. This is on schedule for our targeted 2026 startup.
John: We will also be starting up two additional well pads at Sunrise later this year supporting the base production and the start of production growth in 2025.
John: And we also continue to optimize the turnaround schedule and as such we have advanced some of the work out of our planned Q3 turnaround at Christina Lake into Q2.
John: The impact of our planned outages can be found in the maintenance table in the news release.
John: We're also looking forward to the important milestone for our industry with the imminent startup of the <unk> pipeline. This critical piece of interest with this critical piece of infrastructure now complete.
John: So we anticipate light heavy differentials remain narrow for years, while access egress capacity exists and.
John: And in our conventional gas business production volumes remained relatively consistent around 121000 Boe per day.
John: And as a reminder, we test all opportunities at the bottom of the pricing cycle and we continue to progress our capital program with a focus on safe execution and cost reductions.
John: First quarter production in our offshore business segments remained steady at approximately 65000 Boe per day, the Asia Pacific assets continued to operate reliably generating about $263 million of operating margin.
John: In the Atlantic region turnover returned to production and contributed about 7200 barrels per day in the first quarter. The <unk> is it dry dock with regulatory maintenance work progressing as planned and preparation for the startup of the West White Rose project in 2026.
John: Now as we previously communicated we anticipate the <unk> will returned to production late in the third quarter of 2024.
John: The progression of the White Rose project continues as planned and is now approximately 80% complete.
John: Overall, our capital risk spend remains on track for this project.
John: In the first quarter. The company spent just over $1 billion in capital and we expect to be well within our guidance range for total capital spend this year. It was another strong quarter for upstream business and we look forward to continuing to execute our plans as the year progresses.
John: Now moving to our downstream segment in our Canadian refining business average utilization for the first quarter was about 94%, our refining and upgrading assets continue to perform very well with high reliability.
John: That said the refining margin contribution or the refining margin contribution from the Canadian refining segment was impacted by the decline in synthetic crude prices over the quarter and narrow heavy oil differentials in March.
John: In the next few weeks, we will be executing a large scale turnaround at the Lloyd Minster Upgrader that is expected to reduce Q2 throughput by about 45000 barrels per day for the quarter. This has already been reflected in our corporate guidance for the year.
John: In the U S refining segment combined crude utilization across the assets was 87% an increase from the prior quarter. This was primarily driven by lower levels of planned maintenance at our non operated refineries and improved operating performance across the refining portfolio.
John: The week Chicago crack environment in the fourth quarter of 2023 was a challenge for our U S business that carried into January of 2024 with product inventories rebalancing in the pad two market, we've seen a strong rebound in the Chicago crack spread which we were able to take advantage with all of our refineries.
John: <unk> available and running well this resulted in a meaningful improvement to our U S refining margins exiting the first quarter.
John: We anticipate the Chicago crack environment to remain relatively strong with heavy industry turnaround schedule underway and seasonal demand strengthening overall, we had the highest quarterly throughput for our downstream business since the acquisition of our operated refining assets in 2021.
John: Demonstrating the continued progress of our plans to improve the reliability profitability and utilization of the business.
John: Now to our corporate and financial performance Synovus generated $3 2 billion of operating margin in the first quarter approximately $2 2 billion of adjusted funds flow and $1 2 billion of free funds flow rich reflects higher refining benchmark prices and about $195 million.
John: <unk> gain in the U S. Refining segment that was offset by about $250 million for share based compensation paid in the first quarter.
John: Through our base dividend, we returned $262 million to shareholders and the board of Directors also approved an increase to the quarterly base dividend of <unk>, 29% to 72 per share annually consistent with the company's commitment to grow shareholder returns.
John: In alignment with our shareholder returns framework, we returned $165 million to shareholders through our share buyback program in Q1, and the board of directors declared a variable dividend of 251 million fulfilling our commitment of 50% of excess free funds flow returned to shareholders.
John: Now subsequent to the end of the quarter from April one to April 26, the company repurchased approximately $250 million worth of shares through our NCI b or about eight 6 million shares.
John: The company's net debt was approximately $4 8 billion at the end of the first quarter a reduction of 233 million from year end and included 370 million build of noncash working capital and this was largely a function of benchmark pricing improvements and steady operations across the value chains.
John: Since we set our 2020 for budget in December commodity prices have exceeded our expectations and based on the current commodity price complex and our operating plan, we expect to achieve our net debt target at some point in the summer of 2024 as we described in the first quarter news release, we're also introducing some minor.
John: Changes to our shareholder returns framework.
John: Once we achieve our net debt threshold will be targeting we will target allocating 100% of each subsequent quarters excess free funds flow to shareholder returns. This remains unchanged from our current approach.
John: In the event that net debt exceeds $4 billion at a given quarters and we will reduce the 100% target allocate allocation of excess free funds flow by the amount that net debt exceeded $4 billion.
John: In order to efficiently manage working capital and cash the allocation of excess free funds flow to shareholder returns may be accelerated deferred or reallocated between quarters, while maintaining our target to allocate 100% of excess free funds flow over time to show her shareholder return.
John: <unk> and sustained net debt at $4 billion.
John: This new framework will become effective once we reach $4 billion net debt target and until then there will be no change to the current target allocation of 50% of excess free funds flow to shareholder returns and 50% of excess free funds flow to deleveraging the balance sheet.
John: Ultimately the goal of the revised framework is to improve flexibility, while continuing to strive towards paying 100% shareholder returns overtime and sustainment net debt at $4 billion.
John: Now before closing I am pleased to share that during the quarter or first quarter of 2024. The company received a credit rating upgrade from S&P global.
John: To triple B with a stable outlook.
John: This target achieved we have received mid triple B rating.
John: Ratings from all rating agencies.
John: As we said at our Investor Day, we're focused on achieving our $4 billion net debt target progressing our high return growth projects in the upstream and continuing to run the downstream business reliably profitably and safely showing improvements quarter over quarter and with that I think we're all ready to answer your questions.
John: Yeah.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: You have a question. Please press star followed by the one on your telephone keypad.
Speaker Change: <unk> Telecom technology request questions will be taken into or would you proceed.
Speaker Change: I wish to cancel your request. Please press star followed with you I would like to advise everyone to please limit your questions to one question and one follow up.
Speaker Change: Your first question comes from the line of Marty.
Marty: From RBC capital markets. Please go ahead.
Marty: Yes, thanks, good morning, and John and team Thanks, very much for the rundown.
Marty: Thanks, Greg.
Marty: Well, Hey, that's a compliment good way to start the call off.
Marty: So, let's let's start maybe just with the share price range you guys.
Marty: Talking about in the past I believe the upper band was around 30.
Marty: Our variables became more attractive and buybacks were less attractive.
Speaker Change: Could you revisit that I'm, just curious maybe what that range looks like and then presumably that upward bound number is going to is going to rise with time.
Marty: Good morning, Greg It's Cam.
Cam: First off I'm, just going to say that the number of the year referencing I would say it was purely use Devon as an illustrative measure to describe what our framework as it is not a ceiling.
Cam: In fact, I would say.
Cam: As John pointed out on the call we bought back 250 million shares here over the last month, so we still see.
Cam: A lot of attractive returns to continue to buyback shares and Youll continue to see us active in the market is as I mentioned in April so the principles around that framework has not changed I would say, we still have lots of room to continue on the plan that we have the variable payment that we've made through Q1 is really a reflection.
Cam: Of the very formulaic approach that we took to our framework that we've outlined previously and that if we under allocate that we would pay out the remainder through a variable. So it is not a reflection of.
Speaker Change: Any kind of ceiling on the share price I would say, it's a reflection of us sticking to the commitment that we made on the framework so and as John described going forward, we are going to give ourselves some flexibility. If we do end up over under allocating that we will look at either buying shares are looking at a variable dividend, but today still lot.
Speaker Change: Some opportunity to continue to repurchase shares, yes, Greg and I would just add onto that please don't read into the fact that we've got a variable dividend has any kind of view that we take internally on the intrinsic value of the stock one of the things that we have to do on a quarter over quarter basis as allocate excess free cash flow as it arrives.
Speaker Change: To shareholder returns.
Speaker Change: You'll note in the quarter that.
Speaker Change: Cracks in Chicago were actually quite depressed and in fact gasoline cracks were negative in January all of that changed in February and March and you're kind of in a window, where you have to make some estimates about how much excess free excess free cash flow youre going to have in a very volatile commodity market.
Speaker Change: In Q4 of 2023.
Speaker Change: We underestimated the re overestimated the amount of excess free cash flow, we were going to have and I think in this quarter. We are probably on the other end of it but that shouldnt be or nobody should take that as a reflection of about how we feel about the intrinsic value of the shares.
Speaker Change: Okay.
Speaker Change: That's actually really helpful to clarify.
Speaker Change: So I'm going to completely shift gears, maybe on the Tms.
Speaker Change: Curious could you bring us up to speed, maybe with where you stand in the marketing process. So how do you fulfill germline Phil.
Tms: Have you got tankers.
Tms: Set to go do you expect to make sales.
Speaker Change: <unk> sales in the second quarter and Thats It for me. Thanks.
Speaker Change: Yes, good morning, Greg It's drew.
Drew: Simple answer is yes to all your questions. So.
Speaker Change: This is a really good date for Canada.
Speaker Change: <unk> came out this morning, and they are officially on commencement so.
Drew: I think this has been a long way to Dave for everybody. So we're pretty excited on behalf of the industry in Canada to have another great asset available to us so.
Drew: To your question, we have been preparing for this for quite some time.
Drew: Our last component of the very small volume of final line fill is going here now this month.
Drew: It's about $1 3 million barrels our share.
Drew: So over the last quarter, and then finishing this quarter that fulfill from our share is going to be in place. Our teams have been working with buyers.
Drew: A pretty vast market out there which is exciting.
Drew: And yes, we are preparing to start to ship and we expect the operation to commence here in may and as we've talked about the last few quarters.
Drew: We are expecting it to be a bit bumpy as things get up to good stable state. So we are anticipating a little bit of bumping. This but the teams are taking that into account, but it's it's a great day to start using the asset.
Speaker Change: Terrific, Thanks very much.
Speaker Change: Well thanks, Greg.
Speaker Change: Thank you and your next question comes from the line of Dennis Fong from CIBC. Please go ahead.
Dennis Fong: Hi, good morning, and thanks for taking my questions.
Dennis Fong: Maybe the first one here is just related to superior.
Dennis Fong: Can we get maybe an update in terms of.
Dennis Fong: The ramp up on the facility as well as how you guys are thinking about the cadence the inventory in fact.
Dennis Fong: At superior as well.
Dennis Fong: Hey, Dennis Keith here.
Dennis Fong: Things are progressing as per our plan we talked about.
Dennis Fong: Last quarter, taking kind of the first six months to the inventory from kind of up and down starts in 2023 and the inventory that we built up all the kit is running well and we're progressing on that inventory plan.
Dennis Fong: So kind of around midyear. We will then the only last remaining item to restart as the HFF alky at superior, which will start in early Q3 and that will have all of the all of the asset running but even before that we should see our crude rate through that asset increase to near.
Dennis Fong: Full capacity, so things are progressing as per plan.
Dennis Fong: The market's constructive to de inventory and mechanically the refinery is running all the units with the exception of the HFF alky at this point.
Speaker Change: Great I appreciate that that color.
Speaker Change: Color and context, maybe staying with the downstream and maybe a little bit of a follow on to the entire team at situation.
Speaker Change: Obviously as this narrow some of the feedstock costs to increase with respect to the refining operations can you talk towards some of the initiatives.
Dennis Fong: Touched on a little bit at the Investor day, and maybe where that could go.
Dennis Fong: Looking forward in terms of improving realizations on refined product and strengthening margin just again now that youre operating all three of those refineries.
Speaker Change: Sure maybe I'll start there Dennis I mean, there's three real levers too.
Dennis Fong: Refining economics in the first and the biggest is getting.
Dennis Fong: The best in the REIT and the cheapest feedstock into your refinery so as you know.
Dennis Fong: The refineries that we own and operate or typically heavy oil refineries and those.
Dennis Fong: Heavy oil differentials narrowing will be negative for the refineries by and large the offset obviously comes.
Dennis Fong: In our downs or upstream story, where we realize the value of that and that was always part of the integrated model. So for example, when we take the upgrader down four.
Dennis Fong: Turnaround this quarter, we're doing that at a time of very low differentials or the economic impact of that is actually quite muted as we take most of that dilutive.
Dennis Fong: Diluted bitumen to market.
Dennis Fong: The other big area that we continue to work on is the placement of products.
Dennis Fong: And we continue to push farther and farther into the eastern block of pad two we see that is.
Dennis Fong: A highly prospective area and then ultimately as we've talked about getting product into pad, one and into Canada is something that we are actively looking.
Dennis Fong: To explore and do through time.
Dennis Fong: The third area that we're looking at is our cost control.
Dennis Fong: And making sure that we have minimized our capital and operating cost in the refineries.
Dennis Fong: Reliability today takes precedence over.
Dennis Fong: Really trying to grind out the last nickel over operating costs, but it is something that we continue to look at on a day to day basis. So as as we kind of go forward. What you should see from us are increasingly better levels of reliability across our refining fleet through time and better.
Dennis Fong: <unk>.
Dennis Fong: Profitability that comes with that as we optimize the commercial part of the operation over the top of that the key for US really is the reliability that allows that commercial optimization to have come through time and I think Q1 is probably the start of something that we see.
Dennis Fong: Strong continuing trend going forward.
Speaker Change: Great I appreciate that color there I can I can turn it back thanks.
Dennis Fong: Yes.
Speaker Change: Thank you once again should you have a question.
Speaker Change: Please press star one on your telephone keypad.
Speaker Change: And your next question comes from the line of minor hosts.
Speaker Change: From TD Cowen. Please go ahead.
TD Cowen: Thanks, and good morning, everyone I'll start with a follow up question to Greg's question on Tms, where do things stand in terms of ongoing pull discussions and what is your best guess in terms of when all of this.
TD Cowen: That's resolved and potential outcomes.
Speaker Change: Thank you.
Drew: Okay Menno, it's drew thanks for that question yes.
Drew: It's an ongoing conversation I.
Drew: I think it is going to carry through the balance of this year probably into Q1.
Menno: From a timing perspective, so I think it's going to still take some time.
Speaker Change: So coming back to.
Speaker Change: I think everybody's kind of pleased to see the assets come available for everyone.
Speaker Change: That work to ultimately get to the final commercial construct.
Drew: Expect that to carry out the remainder of this year.
Drew: Essentially drift into the first quarter, even into the first half of next year, probably before we finally get to closure on that.
Speaker Change: Terrific. Thanks drew and then the follow up is on <unk>.
Speaker Change: I think I know the answer to this but I'm just looking for confirmation just on the comp.
Speaker Change: <unk> of the current.
Speaker Change: Asset portfolio my understanding is that the portfolio was fairly cored up but is there any potential for smaller divestitures over the coming quarters or is that still not a priority for the moment.
Speaker Change: Yes, I think I think mental we've been really clear that we are really focused on our base business over the next while you are quite right, we quite like the asset base that we've got.
Speaker Change: And we are focused on the improvements we're making in the downstream together with the growth in the upstream with the projects that we laid out at Investor day. So we've got our plate full over the next few months and we're just looking forward to executing on.
Speaker Change: We think is a pretty robust suite of activities.
Speaker Change: Thanks, John I'll turn it back.
Speaker Change: Menno.
Menno: Thank you. Your next question comes from the line of John Royall from Jpmorgan. Please go ahead.
John Macalister Royall: Hi, good morning, Thanks for taking my question.
John Macalister Royall: So you gave some color on superior.
John Macalister Royall: But in terms of your other two operated refineries.
John Macalister Royall: Can you talk about utilization I think you were a bit below your target ranges for the year at both.
Speaker Change: <unk> and I know theres, a little maintenance in the quarter, but.
Speaker Change: Anything to call out there in general just in terms of getting to those targets near term.
Speaker Change: Yes.
Speaker Change: Hey, John Keith there.
Speaker Change: Interesting quarter as John talked about in his opening remarks.
John Macalister Royall: The low crack spread persisted into January and so we actually reduced run rates.
John Macalister Royall: At the start of the quarter and then obviously is.
John Macalister Royall: The market balanced in February February one we're really.
Speaker Change: Im happy with the performance at the refineries as they ramped up to Max capacity in and capture that crack spreads. So I wouldn't read too much into it in the first quarter, we do have some maintenance coming in the back end of the year at Lima, but overall, we're pretty happy with that.
Speaker Change: The performance in the assets and as John indicated on a previous question.
Speaker Change: Our sole focus is on continuing the reliability and the margin capture and the profitability of these assets and running them safely and reliably and we are seeing.
Speaker Change: Quarter over quarter improvement, they're manifesting itself in the best throughput.
Speaker Change: The company has had since kind of the merger back in 2021 in Q1, 2024, so pretty happy with the progress.
John Macalister Royall: Starting to see the progress and we should expect that that will just continue.
John Macalister Royall: Over quarter.
Speaker Change: Great. Thanks, Keith and then on the base dividend.
Speaker Change: This is a pretty chunky hike you took today and.
Speaker Change: Well ahead of the pace that I think you would need to hit that high twenties.
John Macalister Royall: Per quarter level that you show in your slides by 2028 with the idea that kind of frontload the bigger increases in slow it too.
John Macalister Royall: Kind of a low double digit annual rate from here just trying to think about how.
John Macalister Royall: Youre thinking about the base dividend from here.
John Macalister Royall: Hey, John It's Cam so I think the principles around what we discussed at Investor day haven't changed.
Cam: We've got obviously high confidence in achieving our debt target in the foreseeable future I think we laid out our five year business plan.
Cam: At Investor Day that has a substantial amount of growth starting in 2025 in earnest and moving up towards 2028, but that's the way you should think about the base dividend is number one it is absolutely ankur too low.
Cam: Low commodity prices and that sort of $45 <unk> range.
Cam: It's a level of dividend, we view as a commitment.
Cam: And I'd say, we've left ourselves lots of room to continue to grow that dividend I'd say comfortably in double digits.
Cam: Going into the future years. So the increase this year is I think it's a reflection of the confidence in our plan. It's a reflection of where the balance sheet is and continue to anchor to bottom of the cycle.
Speaker Change: Thank you.
Speaker Change: Thanks, John.
John Macalister Royall: Thank you and your next question comes from the line of Patrick O'brien from Keybanc capital markets. Please go ahead.
Unknown Attendee: Hey, good morning, guys and thanks for taking my question just sort of on the oil Sands unit I think you touched on shifting some of the maintenance into Q2 for Christina Lake There when I look at the schedule looks like a little shifted into Q4, maybe if you could sort of unpack.
Unknown Attendee: The changes in the maintenance schedule or in the oil sands give us a little bit of color on that here.
Unknown Attendee: Yes, Patrick it's Keith here no real overall change in the annual impact from from the outage, we're just able to break up the OTA agenda into two different chunks. So we're going to take a little bit of a slowdown.
Keith: Here in Q2 at Christina Lake and then finished the turnaround in Q3 and some of that turnaround carries into the first part of Q4. So all you're seeing is a little bit dip.
Unknown Attendee: Different phasing than we originally thought but overall impacts are are the same as we originally put in our in our guidance. So.
Speaker Change: That's really it.
Speaker Change: For for the oil Sands, we have some small small outages and Lloyd thermal but in general there.
Speaker Change: Rest of the oil sands are running full out for the rest of the year.
Speaker Change: Okay. Thanks.
Speaker Change: Sorry, I had a lot of questions on the return of capital framework thinking on the dividend et cetera here.
Speaker Change: Turning to slide.
Speaker Change: In the deck on the change that you've made here.
Speaker Change: In scenario, two where the net debt below $4 billion you still return the $900 million just using the scenario here just wondering what would drive that.
Speaker Change: I think working capital build and release kind of equals zero over time.
Speaker Change: Would there be a scenario, where you would have to actually.
Speaker Change: Return excess free funds.
Speaker Change: Target returning in excess of that to kind of level set to $4 billion.
Speaker Change: Yes, it's a good question Patrick So I think number one I guess, what Hasnt changed is we will do everything.
Speaker Change: Everything we need to do to protect the balance sheet at that $4 billion level and Youre right.
Speaker Change: The fluctuations you see quarter by quarter.
Speaker Change: Around $4 billion will largely be influenced by working capital and foreign exchange.
Speaker Change: Other minor things so.
Speaker Change: You are right the way the we've outlined it is above 4 billion will take take will hold back the portion that we're above and put it back on the balance sheet below $4 billion.
Speaker Change: Pay out 100%, but I think as we move forward depending on what those fluctuations are in working capital I would say, we do have the discretion to adjust accordingly, and that could mean going slightly above 100% or it could be meaning being below but I would say that the key for us is and will be which is different than today as we've got lot of Virginia.
Speaker Change: And our.
Speaker Change: And our structure today around returns this gives us flexibility to manage both the debt and if we see opportunity to grow slightly above 100, but I wouldn't rule. It out it's just I'd say the minimum level would be 100%.
Speaker Change: We are below $4 billion.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Thanks, Patrick.
Speaker Change: Thank you as a reminder, that Istar and wanted to ask a question.
Speaker Change: Your next question comes from the line of Manav Gupta from UBS. Please go ahead.
Speaker Change: Hi.
Manav Gupta: If you look at last year, you were off to a slightly tougher start on their upstream and that.
Manav Gupta: You're coming in slightly below the midpoint of the guidance in the upstream segment.
Manav Gupta: Knowing you guys you always try for midpoint or above the midpoint in fact alerts adult and so this year you are off to a much stronger stock so should we assume that.
Manav Gupta: There anything cooler.
Manav Gupta: At this point things are looking where you could actually go and hit the top end of your guidance.
Manav Gupta: Yes.
Speaker Change: Im not sure were going to.
Speaker Change: Pinpoint where we are within the range that we've already.
Manav Gupta: Given you for guidance, but we feel very comfortable in the guidance that we've given them enough.
Manav Gupta: And you're quite right. The upstream is operated really really well over the last three or four quarters. The downtick that you saw in Q1 of 2023 was really due to the pacing and staging of our capital program.
Manav Gupta: But we won't see that kind of.
Manav Gupta: GAAP this year, so Keith mentioned, we've got.
Manav Gupta: Turnaround at Christina that we've scheduled for the third quarter and we need to do a good job of that but we are very pleased with the production that we've seen from the upstream its Ben.
Manav Gupta: <unk> been very strong and as everybody knows that's really the backbone of this company. So.
Manav Gupta: Having it perform at those levels is something that we're very pleased with that.
Manav Gupta: I'm not sure we're ready to tighten that guidance quite yet I think it's still pretty early days, but.
Manav Gupta: We're very pleased with where we are.
Speaker Change: Okay. My quick follow up on the downstream is.
Speaker Change: Unit operating costs in the U S is now trending down it's like almost like Dominoes and I'm sorry, if you wanted to as you start pushing towards 90% plus utilization how.
Manav Gupta: How much can you bring this can you push this to <unk>.
Manav Gupta: 10, or $11 on a bug unit operating cost.
Manav Gupta: Hey, Manav.
Manav Gupta: We talked a little bit about our focus on reliability and with improved reliability you do see.
Manav Gupta: Two things, obviously your denominator increases with higher throughput, but also your unplanned unscheduled and reactive maintenance goes down so.
Manav Gupta: Two things, we do think will help us start moving to the range that that you've alluded to we made big steps between 2023 and 2024 to get there.
Manav Gupta: We do have to do some of this maintenance activity in the turnaround cycles in order to drive that further improvement in reliability, but that is our focus that coupled with improving margin capture.
Manav Gupta: And the commercial profitability of the asset. So we are we are focused on that we have plans and the plans are underway and starting to show fruition. So.
Manav Gupta: Pretty excited.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you as a reminder members of media.
Speaker Change: Wanted to ask a question.
Speaker Change: Our next question comes from the line of Neil Mehta from Goldman Sachs. Please go ahead.
Speaker Change: Hi, good morning, Thanks for taking the time for Neil Mehta.
Neil Singhvi Mehta: First question on the upstream wanted to ask about some of the growth and optimization project.
Neil Singhvi Mehta: Can you just talk about the factors underway this year for Christina Lake and then as well the Foster Creek optimization and factors over the next few years this will be on the lookout for.
Manav Gupta: Does that fully ramped production by the end of 2027.
Speaker Change: Hi, Thanks. Thanks for the question. So maybe I'll just step back to our Investor day, where we laid out plans for upstream growth of about 150000 barrels a day over the next.
Speaker Change: Three to four years, so narrowing in specifically on Christina Lake the 20000 to 25000 barrels a day comes from tying in our Narrows Lake.
Speaker Change: Resource back into the Christina Lake asset and to do that we're going to be putting in new new pads, which are well underway and putting in a pipeline that ties that resource back in and that pipeline is nearing mechanical completion by the year by end of this year, we should be.
Speaker Change: Hydro testing the line and putting it into service early next year, which will allow us to bring steam up to that resource and start steaming those pads for for the production that will come on in the backend of 2025, so things are progressing.
Speaker Change: As expected.
Speaker Change: On plan and on schedule.
Speaker Change: With regards to Foster Creek its a little later in time and the fact that both projects. The Foster Creek, the bottleneck, which will add steam capacity to foster is scheduled to come on in the mid 2026 timeframe. In addition, we're also adding a naming close unit to that asset, which will help drive down our unit op.
Speaker Change: Opex almost 75, a barrel so those projects are progressing well there underway a lot of activity will happen through this year in 2025 for startup in 2026.
Speaker Change: Sunrise is another growth opportunity for us we have our first new pads since 2020 online and producing we have a couple of additional pads coming on stream at the back end of the year that really sustains our production and then we have new pads coming on in 2025 as well that allows us to start growing production.
Speaker Change: <unk> capacity is there it's a matter of fully utilizing our capacity to generate that incremental 20000 barrels a day of production and then on the East coast, we have our west White Rose project. So the <unk> is off station going through its asset life extension expect that back in the July time period, and West White Rose.
Speaker Change: Project, we finished our last poor on the gravity based structure in the first quarter. So so that part of the project is complete.
Speaker Change: We're working towards mechanical completion and commissioning on the top sides all of that gets made it up in 2025, and we commenced drilling.
Speaker Change: And start seeing production in 'twenty six ramping to to peak production 45000 barrels a day in 2028. So all of those projects are progressing well and then I guess the last one I would talk about is our conventional heavy oil.
Speaker Change: We've ramped up our rig activity in our drilling incremental wells.
Speaker Change: And are starting to see the fruits of that labor with production growing.
Speaker Change: From current base of around 20000 barrels a day up to 40000 barrels a day over the next two to three years.
Speaker Change: Okay, Great very helpful context. Thank you and then a quick follow up.
Speaker Change: Offshore so understand from the release.
Speaker Change: That production from White rose and the Terra Nova field stored at the terminal prior to shipment.
Speaker Change: And then result in a timing difference between production and sales. So just wondering if there is any additional commentary on this phenomenon and how we should expect the phasing of the sales timing.
Speaker Change: Timing impacts as white, rather than kind of our production in flex.
Speaker Change: Yes, I don't know that Theres anything magical in that what we.
Speaker Change: What can happen when you have relatively low levels of production like we did in the first quarter with the <unk> being off station in production that turnover, averaging about 7000 barrels a day is a difference between the timing.
Speaker Change: The oil is produced and move to with <unk> had before it's ultimately sold so you do need to put yourself in a position where you built enough volume for cargo.
Speaker Change: And once you sell that cargo you realize obviously the funds from it. So it's just a timing difference it's nothing thats unique.
Speaker Change: But as we get more and more production on the east coast with the West White Rose project coming on that will become increasingly more ratable through time.
Speaker Change: But it's just a timing difference and there is really nothing.
Speaker Change: Anything to see there.
Speaker Change: Okay very clear thanks, so much.
Speaker Change: Thank you and your next question comes from the line of Dennis Fong from CIBC. Please go ahead.
Speaker Change: Sorry.
Dennis Fong: It's her greedily getting back in the question queue.
Dennis Fong: Jonathan Keith was answering the previous question there at Sunrise I was just hoping for a little bit more clarification, there with the 2025 well is that enough to fully utilize the like that $50 to 60000 barrels a day of excess capacity at the facility or are there other kind of optimization that you can do to improve production potentially beyond the 20000 barrels a day.
Jonathan M. McKenzie: Hey, Dennis Yes. Thanks for the question right now we're focused on on.
Dennis Fong: Kind of fully utilizing the steam capacity and installed capacity is around 210000 barrels a day of steam capacity and we're currently using kind of 160000, so thats where that that incremental production comes from but we are actually using the new techniques as we put in these wells and we will evaluate.
Speaker Change: So our performance on utilizing that technique over time and there is a potential that we could start seeing even more improved SLR relative to historical performance and if that happens then there might be some upside potential but at this point.
Speaker Change: What's built into our numbers is really just fully utilizing the installed capacity.
Speaker Change: And using that on the new wells that we're putting into place.
Speaker Change: Great. Thanks, Keith and then on Lloyd approve.
Lloyd: I appreciate the comments at the very beginning there John.
Lloyd: Talking about stronger pump utilization and uptime, there I'm just curious as to how sustainable you view. This current level of production, obviously theres a good uptick on a quarter over quarter basis.
Speaker Change: I know theres kind of a focus on.
Speaker Change: Reaching further from central processing facilities accessing new areas of reservoir I just wanted to see what maybe the production level could be on a go forward basis from Lloyd.
Speaker Change: Yes.
Speaker Change: In summary I.
Speaker Change: I am not going to write a check on <unk> behalf. He is looking at.
Speaker Change: But what I would tell you is this is Lloyd has a different reservoir than what we have it.
Speaker Change: Foster and Christina and over the last three years, we've learned a lot.
Speaker Change: About producing at Lloyd Minister and we continue to find opportunities to grow production at Lloyds. So I think we've taken a relatively conservative view.
Speaker Change: Sort of a P 50 view.
Speaker Change: Or if you will as to where we think the production is going to be it is currently producing at a rate that would be higher than where we would have budgeted this year, but it's been there for some period of time in the subsurface people together with the operating people just continue to find opportunities to debottleneck.
Speaker Change: To drill wells differently to operate the reservoirs differently and it continues to surprise to the upside so I wouldn't want to be in a position where I'd be telling you that this is going to outperform the way it has.
Speaker Change: Over the course of the last few quarters, but what I would say is we just continue to find opportunities here that provide that kind of upside for us.
Speaker Change: Great great.
Speaker Change: Great I appreciate the color I'll turn it back.
Speaker Change: Thanks Dennis.
Speaker Change: Thank you and our last question comes from the line of Keith <unk> from <unk>. Please go ahead.
Speaker Change: Ahead.
Keith: Hi, just a question for John John just talking about Trans mountain given that it took 13 years to get that project from inception to completion.
Keith: Does that tell you about Canada's ability to get major energy projects built like the pathway to developed.
Keith: Hmm.
Keith: What I would say, Chris first of all is that.
Keith: I think drew mentioned this and I wouldn't want it today with a discussion about the difficulty of getting projects built because this is this is this is a great day for Canada.
Keith: To get this pipeline up and running get it producing.
Speaker Change: And the people of Canada are going to see the benefit for a long period of time in terms of increased taxes and royalties and the like.
Speaker Change: I think as a nation we suffer.
Speaker Change: <unk>.
Speaker Change: And I don't think I'm, saying anything that people don't already know from from lower and decreasing productivity and we need to find ways to get major projects built to get infrastructure built to.
Speaker Change: To the benefit of all Canadians and I think we would all realize that 13 years is far too long.
Speaker Change: For a project of this national importance to get built.
Speaker Change: And I think thats something that everybody understands.
Speaker Change: Given your own company's expectations for growth in other growth estimates out of the Western Canadian Basin do you think western Canada is going to need more pipeline capacity and when do you think that might be or given the challenges that you just talked about do you think this is the lack of export pipeline of a major side they get built.
Speaker Change: Okay.
Speaker Change: Yes, I think.
Speaker Change: As an industry, we have a history of filling up excess egress and I think that will happen through time I've seen various estimates of when that's going to happen.
Speaker Change: Some some suggest within two years other others within five years, I think we would be closer to the.
Speaker Change: Upper range of that in terms of our thinking.
Speaker Change: It is increasingly difficult to build pipelines in this country and it wouldn't surprise me. If this was the last pipeline, but the reality is we have a tremendous resource here in Canada, and we produce our oil in my view.
Speaker Change: More sustainably than probably anywhere else in the world.
Speaker Change: If we were in a position where.
Speaker Change: As a nation, we decided to take that to market, we shouldn't be building more pipelines.
Speaker Change: Thank you.
Speaker Change: Thanks, Chris.
Speaker Change: Thank you that concludes our question and answer session I would like to turn the conference back to Mr. John Mckenzie for closing remarks.
Jonathan M. McKenzie: Yes listen thank you very much for your interest in the company today on behalf of the management team the board of directors and the staff here at Synovus, We really appreciate your interest and support in the company. So I have a terrific day and thank you again.
Speaker Change: Thank you that concludes our conference for today. Thank you all for participating you may all disconnect.