Q2 2024 Suncor Energy Inc Earnings Call
Speaker Change: or Journey Leto!
Speaker Change: Good day and welcome to the Suncor Energy second quarter 2024 financial results call. At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Suncor Energy's Vice President, Mr. Troy Little. Mr. Little, the floor is yours.
Troy Little: Thank you, operator, and good morning. Welcome to Suncor Energy's second quarter earnings call.
Unknown Speaker: Actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our second quarter earnings release, as well as in our current annual information form, both of which are available on CDAR, EDGAR, and on our website, suncor.com.
Speaker Change: Please note that today's comments contain forward-looking information.
Speaker Change: Actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our second quarter earnings release, as well as in our current annual information form, both of which are available on CDAR, EDGAR, and our website, suncor.com.
Speaker Change: Certain financial measures referred to in these comments are not prescribed by Canadian Generally Accepted Accounting Principles.
Speaker Change: For a description of these financial measures, please see our second quarter earnings release.
Speaker Change: Following the formal remarks, we'll open up the call to questions. Now I'll hand it over to Rich to share his comments.
Rich: Thanks, Troy. Good morning. Following a strong first quarter, our second quarter was about execution and momentum.
Speaker Change: Execution of Major Turnaround Activities, and Momentum in Targeted Improvement Areas. Kris will detail the quarter here in a few moments, but I'll start with some color commentary, beginning with a recap of our May 21st Investor Day.
Unknown Speaker: May 21 was about unveiling today's Suncor and its ambitions, a company committed to consistently delivering high performance. With growth from within existing assets and a wealth of long-term internal options, there will be no significant capital directed to new bitumen development in the next five years.
Speaker Change: May 21st was about unveiling today's Suncor and its ambitions. A company committed to consistently deliver high performance.
Speaker Change: May 21st was also about backing up our words with a growing list of proof points to build trust and credibility. Trust in our company and credibility in our management.
Kris: In terms of key messages I'll highlight three. First, with across-the-board improvements and a hundred plus thousand barrels a day of increased production we intend to grow free funds flow by greater than three billion dollars per year by 2026.
Kris: Second, aligned with stronger performance, we're now allocating 75% of excess funds to share buybacks and have increased our net debt target from moving to 100%.
Kris: Third, with growth from within existing assets and a wealth of long-term internal options, there will be no significant capital directed to new bitumen development in the next five years.
Unknown Speaker: Our safety performance is a credit to our people, processes, priorities, and site leadership, achieved despite major turnarounds at both Sarnia and Montreal. Upstream production, the first half, 803,000 barrels a day, up 61,000 barrels a day or 8% versus the first half of last year, down 270 million or 4% versus the first half of last year. That's positive enough. However, in the first half, as I mentioned, upstream production was 61,000 barrels a day higher. Refining throughput, 62,000 barrels a day higher, and refined product sales, 57,000 barrels a day higher than the first half of last year. Higher absolute volumes, lower absolute costs, and operating leverage.
Kris: I'll move on to reliability. Kris will detail the second quarter. I'd like to reflect on the first half. Refining throughput in the first half is 443,000 barrels a day up 62,000 barrels a day or 16% from the first half of last year.
Kris: It represents our best first half in company history and our second best second quarter in company history.
Kris: versus 82% in the first half of last year.
Speaker Change: achieved despite major turnarounds at both Sarnia and Montreal. Edmonton, our moneymaker, had its best ever utilization of a hundred and seven percent in the first half.
Kris: Refined product sales in the first half were 588,000 barrels a day, up 57,000 barrels a day, or 11% from the first half of last year.
Kris: Again, the best first half in company history and the best second quarter in history.
Kris: despite turnaround
Kris: As I mentioned, upstream production was 61,000 barrels a day higher. Refining throughput, 62,000 barrels a day higher. And refined product sales, 57,000 barrels a day higher than the first half of last year.
Kris: Cost management is about discipline and accountability, attention to detail, a mindset that every dollar matters.
Kris: So, the second quarter is complete. How did we do? Four big events, two upstream, Syncrude Base Plant, two downstream, Sarnia and Montreal. We completed in aggregate all of our turnarounds on budget in a whopping 10% shorter in duration.
Unknown Speaker: It's Sarnia, a $150 million event, the largest in its history, and it was $5 million under budget. Our teams delivered across the board safety, cost, schedule, and then restarted. We've said before we have 55 new 400-ton trucks on order, and they will replace twice as many smaller, less efficient third-party trucks. The first 22 are already in operation. That's six more than our last call. Fifteen more will arrive at Fort Hills through November, and the final 18 will be at the base plant in the fourth quarter of this year and the first quarter of next year.
Kris: Base plant, $370 million dollar work scope, completed on budget and five days ahead of schedule.
Kris: Quality Planning and Execution, Clarity, Focus, Accountability, and Determination.
Kris: Internally, 2023 was about achieving stability and predictability in turnaround performance. 2024 has been about improving work scope and duration.
Kris: You may recall on May 21st, Dave outlined capital cost reduction target of $225 to $250 million per year in turnarounds by year-end 2026.
Kris: 2024 has provided us another proof point through improved work scope and shorter duration. Our next target now is extended intervals between turnarounds.
Kris: I'll move to the second area of targeted improvement, mining.
Kris: Peter said it much more eloquently than I did on May 21st, or than I will, but our mining strategy in a nutshell is fewer trucks, bigger trucks, autonomous trucks, operated better, maintained cheaper.
Peter: We've said before, we have 55 new 400-ton trucks on order, arriving, and they will replace twice as many smaller, less efficient, third-party trucks.
Peter: The first 22 are in operation. That's six more than our last call.
Peter: 15 more.
Peter: will arrive at Fort Hills through November .
Peter: And the final 18 will be at base plant in the fourth quarter of this year and the first quarter of next year.
Unknown Speaker: Last week, I sat behind the wheel of one of these bad boys at Fort Hills, and I got to tell you, I was ready to drive it into the mine, but sadly, Peter concluded I wasn't qualified. Recall, in total, these 55 new trucks will lower our overall corporate break-even by saving more than $300 million a year in operating costs.
Speaker Change: Last week, I sat behind the wheel of one of these bad boys at Fort Hills, and I gotta tell you, I was ready to drive it into the mine, but sadly, Peter concluded I wasn't qualified.
Speaker Change: Recall, in total, these 55 new trucks will lower our overall corporate breakeven by saving more than $300 million a year in operating costs.
Speaker Change: We talked about autonomous previously. Our fleet conversion continues at base plant. Today we have 70 large haul trucks operating autonomously. That's 14 more than our last call. By the end of the year, we'll be at 91.
Speaker Change: Our North Steep Bank mine, the ore movements are now fully autonomous and Millennium is ramping up. We are moving 80% of all base mine ore autonomously now. Our original target was 100% by year end. We will beat that target.
Speaker Change: Savings $1 million per year per truck plus productivity gain. In total, $175 million annually by 2026 with expanded autonomous operations as outlined in our May 21st review.
Speaker Change: You may have noticed we've had increased commentary lately on In-Situ.
Speaker Change: We have achieved growth with back-to-back record quarters. In fact, we've set record quarters four of the last seven in our in-situ operations.
Speaker Change: An example at Firebag, we're up essentially 10,000 barrels a day, year on year, with no growth investment.
Speaker Change: At today's prices, that's more than $100 million per year in additional free funds.
Speaker Change: So how are we doing this?
Speaker Change: Steam Reliability, Produced Water Piping, Site Water Management, and Infield Drilling SOR Management.
Speaker Change: Again, attention to detail, Firebag is our lowest cost, most profitable asset with growth potential. I was on site at Firebag in June . What did I see? I saw a team focused on facility utilization and low cost debottlenecking.
Speaker Change: The latest example I'll share is a $1 million modification to add diluent stripping capacity to increase bitumen production.
Speaker Change: adding a fifth pressure safety valve adjacent to the existing four.
Speaker Change: this simple add one valve.
Speaker Change: will increase bitumen rates by 3,000 to 5,000.
Speaker Change: barrels a day per year. I saw pictures of this work early this morning, the new equipment being installed could fit in the back of my son's pickup truck.
Speaker Change: And the best part, this modification will be operational this month. A $1 million investment will deliver an additional $50 million per year in free funds.
Speaker Change: This example is representative of the focus within our operations across the company today.
Speaker Change: A laser-like focus on asset utilization, industrial engineering, challenging historic norms, testing facility limits, and safely modifying operating parameters.
Speaker Change: Identifying opportunities, capturing value, then immediately asking what's next. The result is low-cost or no-cost barrels. Free barrels upstream and downstream.
Speaker Change: So whether it's turnaround execution, mining improvements, in-situ growth, or other areas, these are tangible examples of today's Suncor. Focused, competitive, results-oriented. With that, I'll turn it over to Kris.
Unknown Speaker: Beginning first with the business environment in the second quarter, which continued to remain very robust, our 5-2-2-1 refining index was US $26.70 a barrel, which is about $9 a barrel below Q1, driven primarily by strong crude oil pricing resulting in higher feedstock costs, along with softer cracking margins. Overall, we remain very pleased with the progress and the focus of the Fort Hills team on delivering against our improvement plan. Total internal synthetic crude oil and bitumen transfers averaged 63,000 barrels per day in Q2, demonstrating our ability to leverage our physical integration to maximize value and mitigate the impacts of the turnaround.
Kris: Beginning first with the business environment in the second quarter, which continued to remain very robust.
Kris: Crude oil prices improved across the board versus the first quarter.
Kris: with WTI averaging US $81 a barrel.
Kris: The Light Heavy Differential narrowing by U.S. $6.00 a barrel to average $14.00 a barrel and the Synthetic Premium improving by U.S. $10.00 a barrel averaging a $3.00 premium to WTI.
Kris: On the refining side, 2-1-1 cracking margins decreased slightly with softening of diesel cracks, partially offset by strengthening gasoline cracks.
Kris: Our 5-2-2-1 refining index was U.S. $26.70 a barrel, which is about $9 a barrel below Q1, driven primarily by strong crude oil pricing resulting in higher feedstock costs, along with softer cracking margins.
Kris: As Rich noted in his comments, we continue to see strong operational performance across the board.
Rich: along with strong turnaround performance in the quarter, Suncor's upstream delivered production of 771,000 barrels per day in the quarter.
Rich: including 55,000 barrels per day of production in our E&P segment and record second quarter oil sands production of 716,000 barrels per day which included record quarterly production at Firebag of 234,000 barrels per day.
Rich: Fort Hills also had another strong quarter, producing 167,000 barrels per day.
Rich: And consistent with our original plan outlined in the fall of 2022, and our current annual production guidance, production in the second half 2024 is expected to be lower than the first half, as we will be moving more overburden as we open up the North Pit.
Rich: Overall, we remain very pleased with the progress and the focus of the Fort Hills team on delivering against our improvement plan.
Rich: Total internal synthetic crude oil and bitumen transfers averaged 63,000 barrels per day in Q2, demonstrating our ability to leverage our physical integration to maximize value and mitigate the impacts of turnarounds.
Rich: This included 45,000 barrels per day of bitumen transferred from Fort Hills to Base Plant Upgrader.
Rich: Now with respect to the downstream, refining utilization was an impressive 92% in the second quarter, including impacts of planned turnarounds at Sarnia and Montreal, with the refining network running at over 100% utilization following completion of those turnarounds.
Rich: This supported refined product sales of 595,000 barrels per day, surpassing the previous record set last quarter by 14,000 barrels per day.
Rich: Downstream margin capture was also an impressive 99% in the quarter on a LIFO basis when compared to Suncor's 5-2-2-1 refining index.
Unknown Speaker: Downstream margin capture was also an impressive 99% in the quarter on a LIFO basis when compared to Suncor's 5-2-2-1 refining index. On the back of this strong operational performance, disciplined cost and capital management, and a supportive business environment, Suncor delivered another quarter of solid financial results, generating $3.4 billion in adjusted funds from operations, or $2.65 per share. Our laser focus on cost continued with total operating, selling, and general expenses of $3.2 billion in the quarter, which is down over $250 million from Q1.
Rich: On the back of this strong operational performance...
Rich: Disciplined Cost and Capital Management, and a supportive business environment, Suncor delivered another quarter of solid financial results, generating $3.4 billion in adjusted funds from operations, or $2.65 per share.
Rich: In the first half, that translates into $6.6 billion in adjusted funds from operations, or $5.11 per share.
Rich: Our laser focus on cost continued with total operating, selling, and general expenses of $3.2 billion in the quarter, which is down over $250 million from Q1.
Rich: Second quarter costs were essentially flat with Q2 2023 when adjusting for the restructuring charge taken last year related to our organizational downsizing.
Rich: And at the same time, delivering 29,000 barrels per day more upstream production and 36,000 barrels per day more downstream throughput. As Rich said earlier, that's what we call operating leverage.
Speaker Change: We also had a decrease in non-cash operating working capital in the quarter of approximately four hundred million dollars, primarily driven by higher accounts payable, as well as timing of commodity tax and royalty payments.
Speaker Change: As for capital, it was $2 billion in the quarter, driven primarily by planned turnaround and maintenance activities, as outlined by Rich, across the assets, as well as continuing work on key economic projects like the base plant cogeneration project and the Fort Hills North Pit extension.
Speaker Change: And our capital program remains on plan for the year.
Speaker Change: As a result, we generated $1.4 billion of free funds flow, or $1.05 per share in the quarter, and aligned with our revised capital allocation framework announced in May, returned $1.5 billion, or $1.19 per share, to our shareholders.
Speaker Change: including 698 million dollars in dividends plus 825 million dollars in share repurchases.
Unknown Speaker: For the first half, that means we've already returned $2.5 billion to our shareholders this year via dividends and buybacks, which is a reflection of the continued focus and execution by the teams across the business. Looking forward, the Suncor team is fully focused on delivering the improvements laid out in our May 21 Investor Update and, as can be seen by our second quarter results, accelerating that plan wherever possible and driving shareholder value. And with that, I'll hand it back over to Rich.
Speaker Change: and which is a reflection of the continued focus and execution by the teams across the business.
Speaker Change: Looking forward, the Suncor team is fully focused on delivering the improvements laid out in our May 21 investor update, and as can be seen by our second quarter results, accelerating that plan wherever possible and driving shareholder value.
Speaker Change: And with that, I'll hand it back over to Rich. Okay, a couple comments before we get to your questions. First, full year guidance.
Unknown Speaker: Now that said, we know we've got a second half to go, and we're going to play it out till the final whistle. We have a clear, comprehensive roadmap and a determination to win.
Speaker Change: We have a clear, comprehensive road map and a determination to win.
Unknown Speaker: Personally, I come from a long line of hardworking, early to bed, early to rise farmers. And at the crack of dawn, my dad would often say, get up, son; you make hay while the sun shines. Well, the sun is shining on this company, and we plan to make hay in the second half of the year. With that, I'll turn it over to Troy.
Rich: Personally, I come from a long line of hard-working, early-to-bed, early-to-rise farmers, and at the crack of dawn, my dad would often say, get up, son, you make hay while the sun shines. Well, the sun is shining on this company, and we plan to make hay in the second half of the year.
Unknown Speaker: Thank you.
Rich: With that, I'll turn it over to Troy.
Troy Little: Thank you, Rich. I'll turn the call back to the operator to take some questions. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. One moment while we compile the Q&A roster.
Operator: And our first question will come from the line of Greg Pardy with RBC Capital Markets. Your line is open.
Speaker Change: Thank you for watching!
Speaker Change: And our first question will come from the line of Greg Pardy with RBC Capital Markets. Your line is open.
Greg Pardy: Thanks. Thanks. Good morning. And thanks for a very energetic and detailed rundown.
Greg Pardy: I was hoping to come back to the turnarounds that as you, you know, you laid out went extremely well, but Rich, could you or the team maybe point towards some specific examples as to what you're doing differently now that are working?
Rich: Absolutely, Greg, thanks. Yeah, I'm going to turn it over to Shelley Powell because Shelley, along with Dave, are really the ones who are the prime movers driving the performance improvement here. Shelley, you want to offer some comments about what's different?
Shelley Powell: Yeah, absolutely. Love to talk about turnarounds.
Shelley Powell: So I think as Dave mentioned during the May 21st Investor Day and then Rich reiterated this morning, certainly improving our turnaround competitiveness is a major opportunity for us and we know this because we have the benchmark front and center.
Speaker Change: And when we look at those benchmarks...
Speaker Change: What we see is an opportunity to both shorten the duration of our events, they're too long, and also improve our overall cost performance and bring costs down. So to answer your question, maybe let me give you an example in each of these areas of some of the things we're doing differently.
Speaker Change: So first, the biggest lever when it comes to shortening events is quite simply to do less work.
Unknown Speaker: Some of our own inspection processes and standards were preventing us from doing this. They required us to open and inspect certain pieces of equipment at very specific and defined time intervals, regardless of how that piece of equipment might have been used. As a bit of an analogy, maybe think of taking your car in for an oil change every four months, regardless of how often you drove.
Speaker Change: And when we look in the past...
Speaker Change: Some of our own inspection processes and standards were preventing us from doing this. It required us to open and inspect certain pieces of equipment.
Speaker Change: at very specific and defined time intervals, regardless of how that piece of equipment might have been used. So, as a bit of an analogy, maybe think of taking your car in for an oil change every four months, regardless of how often you drove it.
Speaker Change: So now what we're doing is taking a much more specific approach.
Speaker Change: Looking at each piece of equipment, looking at how it was operated, the conditions that it was exposed to, and then really deciding on the best inspection approach.
Speaker Change: Up to and including really kind of giving ourselves a tough question around what would it take to inspect this equipment offline and keep it out of the turnaround window entirely. So this is a new approach to what we call risk-based inspection.
Speaker Change: And it's allowed us to take a fair amount of work out of the turnaround without adding any additional risk. That's been a big win for us.
Speaker Change: Maybe a second example on the cost reduction side. This is an area where technology has really helped us. In our spring events, we used drones.
Speaker Change: to complete refractory and stack inspections that were up at higher elevations. In just one of our events, this reduced and eliminated close to 3,000 hours that would have traditionally gone to building scaffold to get up to those heights.
Unknown Speaker: So this is an example that I think really delivers on all fronts. First of all, it means fewer people in our units and fewer exposure hours. So from a safety perspective, we really like that. It means reducing overhead costs. And as we get more efficient at this type of routine inspection over the long term, we also have the ability to shorten events. So now that we've got these benchmarks in front of us, we know exactly where to focus, and that's what we're doing.
Speaker Change: So this is an example that I think really delivers on all fronts. First of all, it means fewer people in our units, fewer exposure hours. So from a safety perspective, we really like that. It means reducing overhead costs.
Speaker Change: And as we get more efficient on this type of routine inspection over the long term, we also have the ability to shorten events. So now that we've got these benchmarks in front of us, we know exactly where to focus and that's what we're doing.
Rich: Thanks for that. And maybe just to completely shift gears, you know, Rich, you've talked about a number of the assets, you know, fire bag, base, operations, and so on.
Rich: With Syncrude, there's been good success, I think, with the bi-directional pipelines, but are there any further synergies that you'd see there on a go-forward basis?
Rich: I think there are Greg, in fact I'd say broadly we see synergies across the entirety of our asset base and now with with Suncor being in the operating position with Syncrude
Speaker Change: The natural networks of people and sharing of ideas is just more, it's real-time. And we've moved people into the Syncrude operation and out of the Syncrude operation into our other business. And so that network of expertise keeps expanding.
Speaker Change: and that creates
Speaker Change: synergies at a fundamental operating level with safety.
Speaker Change: The bi-directional pipelines certainly have helped there, but I think we're seeing synergies across the board. I don't know, Peter, do you have anything else you'd add, a specific example?
Peter: Well, I think certainly, Greg, you know, we look at Fort Hills and Aurora and their proximity. I mean, you can throw a baseball between the two sites, so there's some obvious synergies.
Peter: In terms of us operating both of those assets that we're looking to do, but maybe just to reinforce Rich's comments earlier, you know, regardless of how close the assets are,
Speaker Change: We believe our competitive differentiator really is the interconnectedness of our site. So whether that's, you know, Fort Hills to the base plant, Syncrude and Firebank connects, etc. We're really looking to optimize and improve those as we go forward.
Unknown Speaker: And I think, Greg, I'd just add to that in your...
Speaker Change: And I think, Greg, I'd just add to that, you're seeing that...
Greg: in the upgrader utilization.
Greg: where previously Syncrude, as an example, was mine connected to upgraders, and anywhere you had planned or unplanned work, there was an impact on it. Now with this interconnectedness, we are able to, you know, maximum run these upgraders, just like, you know, conceptually like they're refineries, where they're connected to multiple sources of feedstock.
Greg: and I commented on the added the value of every 1% utilization and so you know we will achieve a record high utilization this year following upon a record high utilization last year that's money in the bank
Operator: Thank you. Please take a moment for our next question.
Speaker Change: Understood. Thanks very much.
Speaker Change: Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Dennis Fong with CIBC. Your line is open.
Unknown Speaker: Hi, good morning. Thanks for taking my questions, and congrats on obviously a very strong first half. Looking forward to kind of what the second half in 2025 looks like. My first question may be directed maybe towards Peter a little bit more. You've talked a little bit about technology and implementation with Shelley as well as in your opening remarks about technology and implementation. I just wanted to run back towards MindConnect, one of the, I guess, in-house developed pieces of technology that you are using to help track efficiency of the trucks. Can you talk about maybe some surprises you've seen in terms of the mining fleet efficiency? Also, maybe coupled with, obviously, the addition of these ultra-class trucks that you're adding to the field?
Dennis Fong: Hi, good morning. Thanks for taking my questions and congrats on obviously a very strong first half. Looking forward to kind of what the second half in 2025 looks like. My first question may be directed maybe towards Peter a little bit more.
Speaker Change: You've talked a little bit from Shelley as well as in your opening remarks about technology and implementation. I just wanted to run back towards MindConnect, one of the, I guess, in-house developed pieces of technology that you are using to help track efficiency of the trucks.
Speaker Change: Can you talk towards maybe some of the surprises you've seen in terms of the mining fleet efficiency? Also maybe coupled with, obviously, the addition of these ultra-class trucks that you're adding to the field.
Speaker Change: Yeah, sure, Dennis, happy to do that. And I think, you know, to start with, you know, it's my belief that transparency of data and, you know, really drives performance.
Speaker Change: So with MindConnect, you know, it's simply a tool that aggregates the data across our sites so we can see how Fort Hills is doing relative to Base Plant, to Syncrude, etc. And that drives a little bit of internal competitiveness.
Speaker Change: But it also gets down into the details. And, you know, the key to driving improvements in the upstream in our mining business is really around efficiency, and particularly the efficiency of the ultrafast haul truck fleet.
Rich: So we can drill down on a shift-by-shift basis how fast these trucks are operating, you know, how many tons they have on per load, etc., etc., and even drill down into the individual operator performance. Actually, we shared with Rich.
Rich: Last week, just an example of a scorecard that we developed for operators in terms of, you know, relative performance, safety performance, truck productivity performance, etc. So it sets up that data transparency, internal competitiveness, and a structural way to drive improvements, a targeted way to drive improvements.
Speaker Change: I think what you're seeing on the O.S. and G.C.O.S. that we've demonstrated year-to-date is really...
Speaker Change: You know, the starting of the manifestation of our truck strategy, buying those more trucks, driving efficiencies in scale.
Speaker Change: driving efficiencies in our operations and really starting to get right size for the material movements that we have today.
Rich: So we're going to continue to do that. As Rich said, we've got a bunch more units that are up or coming in over the remaining six months of this year and into the first quarter of 2025. And we're going to continue to drive the efficiencies with the scale of those trucks that we're bringing in.
Speaker Change: Great. I appreciate that color there, Peter. Shifting gears to the downstream side, through the quarter,
Speaker Change: Obviously, very strong run time, but also fairly good capture in terms of margin.
Speaker Change: I was hoping you could provide us a bit of an update in terms of some of the marketing initiatives as well as management of inventory and global marketing of crude that you've been implementing just, I guess, as Dave has been spending some more time at the company.
Kris: Dave isn't here in the room with us today or I'd turn it over to him but Kris you want to go ahead and comment on that? Sounds good. Hi Dennis, thanks for that. Yeah I'm gonna pinch hit for Dave and put on my old downstream hat.
Kris: on this quarter, but your question is obviously broader than that, just in the marketing of crude, and I think it kind of touches on TMX, but before I go there, I mean, you raised the point that we had market capture of 99%.
Kris: in the quarter. And really, when we have that type of market capture, I think it demonstrates the various elements of our downstream business and how we go to market and the underlying strength of the assets.
Kris: We had strong utilization, as we noted, particularly Edmonton set a quarterly record.
Kris: which helps us also with channel mix, and then because of our position both domestically within our branded channels and our export capability, our ability to capture margin across the value chain, and we're seeing strength in our branded channels, both retail and wholesale, and then the strength of our logistics and marketing activities.
Kris: are also allowing us to export records amount of distillate to and clear the market. So even though we're running at high utilization and there's, you know, it's a distillate long market in Western Canada, as an example, we're able to move those barrels and capture that margin.
Unknown Speaker: Dave Oldreive, Douglas Leggate, Jon Mitchell, Douglas Leggate, Jon Mitchell, Douglas Leggate, And we don't just take the product to the dock and sell it at the dock. We actually actively market into the end markets themselves and capture the arbitrage. And for that reason, we've taken positions with some time charters as well. We're really pleased with what we're seeing there. It's definitely adding value. And just another demonstration, I think, you know, as Rich says, there's integration, and there's Suncor integration.
Kris: And so that underlines that market capture number. And we're continuing to build on that logistics capability, both domestically, as well as taking advantage of TMX.
Kris: spoke at the last call about TMX, and when that asset came on, we viewed it as just another great opportunity within our logistics network to expand our reach to different markets.
Kris: And we don't just take the product to the dock and sell it at the dock, we actually actively market into the end markets themselves.
Kris: and Capture the Arbitrage. And for that reason, we've taken some positions with some time charters as well. We're really pleased with what we're seeing there. It's definitely adding value and just another demonstration, I think, of
Unknown Speaker: And you kind of look at our platform on our downstream business all the way, you know, from that rack all the way through those domestic branded channels where we have, you know, best in class in Canada, along with now our reach, obviously, outside of Canada. And lastly, with inventories, we carefully manage those inventories. We would have had, obviously, a build-up and a draw-down through Q2 as we prepare for the turnarounds. And that was another component to that market capture we saw in the quarter.
Kris: All the way, you know, from that rack all the way through those domestic branded channels where we have, you know, best in class in Canada, along with now our reach obviously outside of Canada.
Kris: Dennis, if I could just add to that a couple of comments, you know, there's a lot of a lot of research out there on
Dennis Fong: from pre-pandemic.
Speaker Change: And I would attribute these results to kind of three factors, our strategic relationships or partnerships.
Speaker Change: Great, really appreciate the call from from all of you. I'll turn it back.
Operator: And that will come from the line of Neil Mehta with Goldman Sachs. Your line is open. Yeah.
Speaker Change: On driving down net debt, you're at $9 billion. And so, you know, I just love your perspective on how you're tracking towards the $8 billion target. Is middle of next year still the best bogey that you could provide? Or is there the potential to pull that forward? And just any perspective around how you see the cadence of...
Speaker Change: When we laid out the May 21 kind of the business plan...
Speaker Change: But we are focused on beating that. And I think there was someone on the call who said something about, you know, maybe a Christmas present or no better Christmas present than year-end. We're looking at all the levers to do that.
Speaker Change: and many of those levers are just our base performance. And when we put that business plan together that we reviewed, we benchmarked it off of 2023.
Speaker Change: In all areas, upstream, downstream, volumes, cost, we are performing better than what we showed you on May 21st.
Speaker Change: Now, you know, there's a long way to go. We're certainly not declaring victory. But when I look at that,
Speaker Change: If market factors aside, that tells me that we're looking at pulling that forward and I'm having increased confidence that those things that we can control, we will be pulling those that bring that net debt target forward.
Speaker Change: There's still a second half of the year to go, market plays a big factor in it, but quite pleased with the fundamental performance of the organization on those factors that we can control that could accelerate hitting that target.
Speaker Change: Yeah, thanks Chris. That's that's really helpful. And then just to follow up on on how you can pull that forward asset sales Become part of the potential mechanism to do that And then the other swing in the calculation, of course is how we should be thinking about working capital So your perspective on those two two line items would be great
Speaker Change: You know, I've talked a little bit about asset sales in the past, those things that are, you know, kind of core to our integrated strategy and add the most value, and those assets that are, you know, that are less core, but they can be quite valuable to us. So we don't, you know, we don't talk specifically about anything until we actually have something to talk about. But we are, we continue to look at all of our assets.
Kris: of the Timing on Achieving Net Debt. And you know, Kris on the working capital, would you like to comment on that? For sure. Hey, Neil. Yeah, I mean, good call out, you know, when we think about the levers for us to be pulling on every dimension of the business, I mean,
Kris: Rich already mentioned production, cost, sustaining capital, but working capital is obviously a key component of that too. So you can rest assured that the Suncor team has a laser focus on that as well and just sharply managing that working capital.
Operator: Welcome. Thank you. One moment for our next question.
Speaker Change: Thank you, Kris. Thanks, Richard. You're welcome. Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Manav Gupta with UBS. Your line is open.
Unknown Speaker: Good morning, guys. I would like to highlight that this is the second quarter in a row where you have pretty much beaten the street on every important metric, so congratulations on that. Those things tend to drive very strong re-ratings.
Speaker Change: Good morning guys, I would like to highlight that this is the second quarter in a row where we are pretty much beating the street on every important matrix.
Unknown Speaker: My first question to you, sir, is that when I look at year-to-date Fort Hill's cash costs, it's close to $31, and your guidance is $33 to $36. So first of all, should we expect you to be towards the lower end or beat your guidance? And then, as these new trucks arrive, can we see a scenario in 2025 where this cash cost drops closer to $30 or even less?
Speaker Change: Congratulations on that. Those things tend to drive very strong re-ratings.
Speaker Change: My first question to you, sir, is that...
Speaker Change: When I look at year-to-date Fort Hills cash costs, it's close to $31.
Speaker Change: and your guidance is 33 to 36. So first of all, like.
Speaker Change: And so running at the, at or above our guidance range, upstream and downstream, that is a big part of driving unit costs down, and we're, as I said earlier, we're exceeding our
Speaker Change: Our rate of expected improvement on the volume side of it.
Speaker Change: on the downstream. So, you know, where we are tracking will be at or better than our cost guidance. And that's, you know, yeah, we got five months of the year left. But I think that is a, you know, a reasonable outlook, a reasonable expectation.
Peter: Peter, do you have anything else to comment on?
Peter: The biggest bulk of the costs are in your... Yeah, and I would say, especially at Fort Halesman Avenue, it is a good callout. We've had some really good months where our costs have been, you know, better than guidance, of course. But, you know, as we look forward for the rest of the year, we're remaining disciplined to our mine improvement plan.
Peter: We're exactly on track on that, and some of the key activities involve the opening up of the North Pit, which will drive higher mining volumes, and hence our strategy to...
Peter: Employ these larger haul trucks, drive efficiency in our mining operations, and maintain our unit mining cost tonnage at or better than where we have been historically. So it's really about driving discipline, making sure that we're staying true to having sufficient mine inventories so that we have sufficient bitumen production out of that facility.
Unknown Speaker: Can I just add, I think some of the exciting things about, particularly in Peter's business, the steps we're taking are very tangible. You know, when you convert a truck to autonomous, the costs that are extracted out of that, we know when we bring a new 400-ton haul truck to improve efficiency and productivity. So these improvements are very tangible. They're independent of oil prices.
Peter: And I'll just add, I think some of the exciting things about particularly in Peter's business
Peter: They're the...
Speaker Change: The steps we're taking are very tangible.
Peter: You know when you convert a truck to autonomous, the costs that are extracted out of that. We know when we bring a new 400-ton haul truck on, the efficiency and the productivity. So these improvements are very tangible.
Peter: They're independent of oil price.
Unknown Speaker: And it's a matter of the sequence and the pace at which we pursue them. And what I'll tell you is that we keep challenging ourselves to accelerate the pace of our improvements. The conversion to autonomy, can we accelerate that pace? You know, we're a little bit at the mercy of our OEM manufacturers on the delivery of haul trucks, but we're working hard directly with them on new trucks and shovels because of the tangible nature of the improvement. You know, there's money in the bank when we capture those in the,
Peter: The Conversion to Autonomy. Can we accelerate that pace? We're a little bit at the mercy of our OEM manufacturers on the delivery of haul trucks, but we're working hard directly with them on new trucks and shovels because of the tangible nature of the improvement.
Peter: You know, there's money in the bank when we capture those in the, uh...
Peter: There's an urgency that Peter has created within his organization that I'm quite proud of. And because we know it can make our business better, stronger for the long term.
Speaker Change: Thank you for a very detailed response. My quick follow-up here is we understand you're not as exposed to the WCS differential given your refining operations, but we have seen some widening here and trying to understand what's your near to medium-term outlook on the WCS differential. Obviously, TMX is running, but then you guys and everybody else will also be running much harder in the second half, so trying to understand your outlook for the differential in medium and near term.
Speaker Change: Well, you're spot on that our level of integration and the nature of our asset base gives us a lot of resiliency or natural hedge or cushion where we're not nearly as vulnerable.
Speaker Change: That said, I mean, you're still going to see that light-heavy differential, you know, move around a little bit depending on what's going on in the market and, you know, we saw it come in when the line came in, came on, we all expected that.
Speaker Change: and trading down kind of low teens. It's since widened out, but that was a bunch of other factors. There was refinery outages in PAD2 through that period of time. There was a big drawdown in inventories.
Speaker Change: But, you know, our view is that we're going to continue to see that light-heavy differential be supported in the low to mid-teens. Will it get a bit higher now and then because of market factors? We can absolutely expect that. But it should be far more structurally supported than we would have seen a number of years ago when we would see big volatility and see blowouts in that light-heavy differential. But I think, you know, the main underlining point to all that is the one Rich just made. And just with our integrated...
Rich: Business model all the way from bitumen production through upgrading through our downstream business refining and then on to the customer We're largely insulated from that type of volatility
Rich: Um...
Rich: I think maybe just to come back on on the cost structure here, you know, obviously.
Speaker Change: Is there anything in it that was...
Speaker Change: Thank you.
Speaker Change: Yeah, Roger, this is Rich. There were no one-time, any events or things. I think the biggest thing I'd say is we took a restructuring charge in the second quarter of last year. I believe the number is, somebody keep me honest, $275 million.
Speaker Change: And what I said in my comments is that year on year, we're in absolute dollars, we're $270 million less than we were in the first half. So when you take out that restructuring charge, we're basically flat in absolute cost.
Speaker Change: despite the much, much higher volumes across the board.
Speaker Change: You know, that's that operating leverage we talked about, and so a going forward basis.
Speaker Change: That's today's Suncor. That is the focus we're bringing.
Peter: With the discipline, with the actions that Peter has described in the upstream, Dave has similar in the downstream, to keep the cap on costs. I mean, that's who we are. Another way I'd offer you to look at it, just as kind of an interesting way,
Peter: We added the remaining interest at Fort Hills this year.
Peter: And we've offset inflationary pressures, which there are throughout our business.
Peter: We did all that for free. We offset inflation, added Fort Hills barrels at no higher cost.
Peter: Again, it keeps coming back to the phrase I use is operating leverage, and I think that is the, you know, the thing I would say that I'm particularly, continue to be pleased with.
Peter: is the level of focus within the organization on the goals, the objectives, what's important. And when you create focus with 15,000 plus people, you can get results, and that's exactly what you're seeing. And I see no reason that won't continue.
Speaker Change: No, it's definitely an impressive performance, that's why I was just, you know, I want to make sure I can start thinking about it as this is the level as opposed to, you know, just a good quarter. If I were you, if I were you, that's the way I would start thinking of it.
Speaker Change: Okay, great. And then the last question I had just, what's the right way in terms of share repurchases, you've hit the debt targets, if you could just
Speaker Change: reiterate for us where we should see that shake out on a quarterly basis.
Speaker Change: Yeah, sure, Roger. We laid that out. This is Kris. We laid that out at the May 21st update, so we've moved to a...
Speaker Change: 75% share buyback, 25%...
Speaker Change: debt reduction allocation of excess refunds flow. Once we get to the $8 billion net debt target, which we talked about on May 21st and a bit earlier on this call, then we're going to move ourselves to 100% shareholder return allocation.
Speaker Change: And is there a, I guess again, kind of getting back to Neal's question earlier about working capital, I mean, assume that on an annual basis and then make the adjustments on a quarterly?
Speaker Change: Yeah, that's exactly right. That's the way I think about it.
Speaker Change: Okay, thank you.
Speaker Change: Thank you. One moment for our next question.
Operator: And that will come from the line of Menno Hulshof with TD Cowan. Your line is open.
Speaker Change: And that will come from the line of Menno Hulshof with CD Cowan. Your line is open.
Menno Hulshof: Thanks and good morning everyone. I'll start with a question on the strong beat on production. Rich, you provided a lot of detail in your prepared remarks, but could you maybe loosely quantify how much production uplift you got from faster than expected completion of turnarounds versus like pure outperformance of the assets?
Speaker Change: And then, I guess the follow-up to that, and this is more a point of confirmation, but was there any maintenance activity deferred in the quarter? And if so, what was the thinking behind that?
Speaker Change: Yeah, you know, take that in reverse. We did everything in the quarter we had planned to do in our business plan.
Speaker Change: So there were no deferrals and things. So I commented on the upstream that we had 12 additional kind of days. They weren't full days because they were parts of the assets. So, for example, you know, Syncrude had relative to plan, seven days of additional 8.3 COCR runtime. We, um...
Peter: Other things that I would say is Peter's team, to my pleasant surprise, as they looked at the turnaround work, said, all right, what else can we do elsewhere across the asset base to offset that? So we were probably...
Peter: What may be...
Peter: Peter...
Peter: I think that's a fair assessment. And again, it comes back to looking at this as an integrated production system. So we're moving, you know, sour barrels, some base plant to send crude to take advantage of some hydrotreating capacity that we have there.
Peter: We're looking to, as Shelley said, really minimize the scope and execute within a well-defined window and set ambitious targets for the team that they...
Speaker Change: you know, frankly, we're able to achieve this year. So it's kind of a
Speaker Change: We're pulling all the levers here to get that maximum value that we possibly can. And I think, you know, Menno, I think one of the things that it comes back to on me, and I mentioned we were at Fort Hills last week,
Speaker Change: Firebag a few weeks earlier is the...
Menno: The potential of the organization, I don't think if we could sit here on the phone today and tell you we fully understand the full potential yet, because the organization continues to exceed what we think are challenging expectations.
Menno: and that is a lot of fun. And you see that energy and enthusiasm. I use some of the examples at Firebank in terms of adding or debottlenecking at low or no cost.
Menno: You're seeing that across the upstream and downstream, and I don't know if we'll continue to beat like we, you know, did on this quarter, but...
Menno: I continue to be pleasantly surprised at the organization's ability to creatively find ways to exceed expectations, and that makes for a lot of fun.
Menno: Terrific. And maybe I'll just sort of continue along the
Menno: sort of continue the conversation on the turnaround side of things. Rich, you mentioned extended...
Rich: Intervals between turnarounds is one of the next potential focus areas. What is your best guess on what that could look like and which assets are most likely to benefit first?
Rich: I think it comes in two areas, and this is kind of building off of Shelley's comments.
Speaker Change: As we look at individual pieces of equipment...
Speaker Change: You may have a turnaround at an upstream or downstream facility, but component parts of that turnaround, we may look at, and instead of doing a three-year interval, we may convince ourselves that we have sufficient
Speaker Change: Information to go five year interval on component parts. So that would shorten the overall duration of a turnaround, but we might still have a turnaround at that facility every so often. So that's part of it. The bigger opportunity is if we can just simply extend the intervals on entire turnarounds. I think that's a bigger question for us right now.
Speaker Change: But I think the prize, if we get into it, and I'll go back to the May 21st deck.
Speaker Change: where we had kind of the target of the capital cost reduction that we believe we can achieve as we go from third and fourth quartile in turnarounds to first and second quartile. That continues to be the right kind of the right magnitude of the prize.
Speaker Change: The added benefits that we're still quantifying is, as we have more days on production, what is that benefit? And that, I think, is a further upside to what we've shown in the May 21st deck.
Speaker Change: Shelley, do you have any other, or Peter, do you have any other comments on that? Peter, I saw you.
Peter: We've got a couple of specific examples, Menno. We're really looking across the entire upgrading base and we're guided by Solomon, so our strategies are rooted in benchmarking on where there are clear opportunities.
Peter: You know, there's some good examples of SYNCRUD at looking at decoupling the units, at looking at extending turnaround units, or turnaround intervals, so like VAC tower from three years to six years, the, you know, recovery units from four years to six years, higher tiers three years to six years, so we have very specific plans that are asset by asset.
Peter: Informed by Parliament and a similar thing at Base Plant. So I still think there's lots of opportunity in the turnaround space that we're going after. Some of these, given the intervals and the cycles, will take some time to play out in the coming years.
Peter: But rest assured, our engineering teams and the site teams are really laser-focused on making a big difference here, and the end result is in more uptime.
Peter: Improved safety, improved reliability, and improved turnaround efficiency, which is a bottom line free funds flow increase.
Unknown Speaker: And just to comment on that, we've talked in the past about how we had gotten a bit lax on benchmarking. Today's Suncor is all about benchmarking. We want to know who the best of the best is, why they're better than us, and then what we can do to then close that gap and then exceed that performance. So I mentioned before that we had not participated in the most recent Solomon survey or two. Solomon, the holy grail of plant benchmarking
Speaker Change: Just a comment on that. We've talked in the past about how we had gotten a bit lax on benchmarking.
Speaker Change: Today's Suncor is all about benchmarking. We want to know who the best of the best is, why they're better than us, and then what we can do to then close that gap and then exceed that performance. So I mentioned before that we had not participated in the most recent Solomon survey or two, Solomon the Holy Grail on...
Unknown Speaker: I'm not getting any commission for plugging Solomon in on this. But Shelley and Dave reached out and said, you know, the next survey is next year. That's too long for us. We want to get in and get the most recent update on where we benchmark. And Solomon did that for us. And we had their president and their leadership team here with us, what, two weeks ago? And we sat down one afternoon going item by item across our business where we have room for improvement.
Speaker Change: on, you know, plant benchmarking. I'm not getting any commission for plugging Solomon on this, but Shelley and Dave reached out and said, you know, the next survey is, you know, next year. That's too long for us. We want to get in and get the most recent update of where we benchmark.
Speaker Change: And Solomon did that for us, and we had their president and their leadership team here with us, what, two weeks ago? And we sat down one afternoon, going item by item across our business, where we have room for improvement. And I think now as we take that back into our broader plans and individual facilities...
Unknown Speaker: And I think now, as we take that back into our broader plans and individual facilities, I think we're going to find and identify areas to improve even beyond what our initial expectations have been.
Speaker Change: I think we're going to find and identify areas to improve even beyond what our kind of our initial expectations have been.
Unknown Speaker: I appreciate the thoughts. I'll turn it back.
Speaker Change: I appreciate the thoughts. I'll turn it back.
Speaker Change: Thank you. That concludes today's question and answer session. I would now like to turn the call back over to Mr. Troy Little for any closing remarks.
Troy Little: Thank you everyone for joining our call this morning. If you have any follow-up questions, please don't hesitate to reach out to our team. Operator, you can end the call.
Operator: This concludes today's program. Thank you all for participating.