Q2 2024 Cenovus Energy Inc Earnings Call
Good day ladies and gentlemen and thank you for standing by. Welcome to Cenovus Energy's second quarter results. As a reminder, today's call is being recorded. At this time all participants in the lesson only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. You can join the queue at any time by pressing star 1. Members of the investment community will have the opportunity to ask questions first.
At the conclusion of that session, members of the media may then ask questions. Please be advised.
Patrick Reed: That this conference call may not be recorded or rebroadcast without the express consent of Cenovus Energy. I would now like to turn the conference call over to Mr. Patrick Reed, Vice President, Investor Relations. Please go ahead, Mr. Reed.
Patrick Reed: Thank you, Operator.
Patrick Reed: Good morning, everyone, and welcome to Cenovus' 2024 second quarter results conference call.
Speaker Change: On the call this morning, our CEO , John McKenzie, will take you through our results.
Speaker Change: Then we'll open the line for John and other members of the Cenovus management team to take your questions.
Speaker Change: Before getting started, I'll refer you to our advisories located at the end of today's news release.
Speaker Change: These describe the forward-looking information, non-GAAP measures, and oil and gas terms referred to today.
They also outlined the risk factors and assumptions relevant to this discussion.
Speaker Change: Additional information is available in Cenovus' annual MD&A and our most recent AIF and Form 40F.
Patrick Reed: And as a reminder, all figures we reference on the call today will be in Canadian dollars unless otherwise indicated.
Patrick Reed: You can view our results at Cenovus.com
Speaker Change: For the question and answer portion of the call, please keep to one question with a maximum of one follow-up.
You're welcome to rejoin the queue for any other follow-up questions you may have.
Patrick Reed: We also ask that you hold off on any detailed modeling questions. You can follow up on those directly with our investor relations team after the call.
Patrick Reed: I will now turn the call over to John . John , please go ahead.
John Mckenzie: Great. And thank you, Patrick. Good morning, everybody.
John Mckenzie: I'm going to start this call by highlighting some safety achievements in our second quarter.
John Mckenzie: We completed the largest turnaround in the history of the Lloyd Minster Upgrader. The turnaround was completed with approximately 1 million man-hours and peak mobilized workforce of about 3,200 contractors.
John Mckenzie: This was no small feat, and what I'm most impressed about was our safety performance.
Patrick Reed: Our planned 49-day turnaround was done with no incidents, and I want to acknowledge all of our staff and contractors for their incredible commitment to the safety and success of this turnaround.
John Mckenzie: We've also seen a number of wildfires recently across northern Alberta, and in some cases in close proximity to our oil sand sites.
Patrick Reed: We are prioritizing the safety of people working on the site and are closely monitoring the evolving situations.
Patrick Reed: Well, we had limited our staff at Sunrise Asset for a short period of time. With the recent rainfall and firefighting efforts, we're in a better place. We have now returned all our staff to Sunrise Site and all of our assets continue to operate at normal rates.
Speaker Change: So, today marks a significant milestone for Cenovus and our shareholders. In the month of July , we achieved our net debt target of $4 billion, and we are now moving to returning 100% of excess refunds flow to shareholders as per our framework.
John Mckenzie: I'm very proud that we'll be delivering a substantial increase in shareholder returns going forward.
John Mckenzie: It really sets the stage for continued growth in our shareholder returns over time.
Speaker Change: Production for the first half of 2024 continues to trend at the higher end of our guidance range. In particular, the operating performance at our oil sands assets continue to be exceptional in the second quarter.
Speaker Change: In the second quarter, oil sands produced around 610,000 barrels a day and generated an operating margin of approximately $2.7 billion, an increase of over $500 million from the prior quarter.
Speaker Change: Looking to the third quarter, we're ready to execute the turnaround of Christina Lake beginning in September . The turnaround is anticipated to reduce third quarter production by about 45,000 barrels a day.
Speaker Change: We also remain on track with our execution of Royal Sands growth projects. This includes the Narrows Lake tieback to Christina Lake, which continues to track on schedule.
Speaker Change: We've also completed the drilling of the first two well pads at Narrows Lake Resource Area, and we're on schedule to deliver first oil in mid-2025.
Speaker Change: The remaining three well packages continue to progress as per schedule.
Speaker Change: In our conventional gas business, production volumes were around 123,000 BOE per day, an increase of 2,400 BOE per day relative to the prior quarter.
Speaker Change: Our conventional business also reduced per barrel operating costs primarily as a result of focused efforts to improve the cost efficiency of the business.
Speaker Change: In our offshore business segment, production was approximately 66,000 BOE per day, an increase of 1,300 BOE per day compared with the prior quarter.
Speaker Change: Now, the C-ROSE FPSO is currently at dry dock for its regulatory maintenance. This work is progressing well and we are fast approaching project completion. We expect the C-ROSE to return to the field late in the third quarter of this year.
Speaker Change: The West White Rose Project is now 80% complete and remains on track for first oil in 2026.
Speaker Change: for an overall upstream guidance range of 785 to 810,000 BOE per day.
Speaker Change: The continued focus on driving value in our downstream business has led the company to optimize plant turnaround activity in the second half of the year. During the Lima turnaround this fall...
Speaker Change: Now, as a result of the performance in the U.S. refining business year to date and the optimization of the turnaround activity going forward, we've updated our full year downstream throughput guidance to 640,000 to 670,000 barrels a day.
Speaker Change: Now to our corporate and financial performance.
Speaker Change: Cenovus generated $2.9 billion of operating margin in the second quarter, approximately $2.4 billion of adjusted funds flow, and $1.2 billion of free funds flow, which reflects higher benchmark crude oil prices and a narrowing light-heavy differential.
Speaker Change: Through our base dividend, share buyback program, and variable dividend, we paid over a billion in shareholder returns. And at the end of the second quarter, net debt was approximately $4.26 billion. And as I mentioned, in the month of July , we achieved our $4 billion net debt target.
Speaker Change: This is a significant milestone and overall this has been another strong quarter for the company. We have a clear view of the work in front of us and we're looking forward to delivering on the growth projects we've set out to accomplish and increase production guidance for the 2024 that we shared with you today.
Speaker Change: The next are the gating items here and as we move towards topside in 2025.
Speaker Change: Sure, so maybe I'll start and then I'll let Keith chime in on this, but you know you're absolutely right. Hitting the four billion net debt target has been something this organization has been really focused on for a number of years and it's a great day for this company and a great day for our shareholders.
Keith: We mentioned that we're about 80% complete, but we've really largely completed the work on the gravity-based structure and the top sides, and we now move really into the marine-based part of the...
Keith: One is the Sea Rose life extension project. So the Sea Rose is over in dry dock approaching completion of that maintenance activity.
Keith: and we'll be coming back on station at the back end of the third quarter to restart production early in the fourth quarter. So that's progressing well. That allows us to extend the life of the asset out into the late 2030s.
Speaker Change: And, you know, I'd like to say that things are extremely...
Speaker Change: Progressing well.
Speaker Change: A lot of marine work is now progressing, which will allow us then to connect the West White Rose Project to the Sea Rose.
Speaker Change: All that activity is on track for summer 2025 and then we'll be able to commence drilling at the back end of 2025 and start seeing production and the ramp up in production in 2026 and 2027.
Speaker Change: So things, Neil, are progressing really well.
Neil: Still a bit of scope ahead of us, you know, we're spending about $700 to $800 million this year and $700 to $800 million next year.
Speaker Change: Yeah, so in Canadian manufacturing, you know, we had the upgrader down first week in May for its 49-day turnaround, you know, that extended into the first week of July . So the assets...
Neil: or the major asset in Canadian refining wasn't operating, it was down for turnaround during the quarter. Also remember that we expense all of our turnaround costs, and I think we expensed about $211-$220 million during the quarter.
Neil: Yeah, thanks. Good morning. Thanks. Thanks, John , for the detailed rundown, as always.
Speaker Change: Questions, I've got a couple of questions but the the first one is maybe just a little more at the macro level. I mean you're a large shipper on Trans Mountain I'm interested in
Neil: Thanks.
Neil: Thanks Greg. I mean, I think the important thing around Trans Mountain is we've seen the facility come on, it's up, it's operating, and it's operating well.
Speaker Change: And we've seen the heavy differential in Alberta, Titan, you know, if you compare Q1 to Q2, that's in the order of $6 U.S. better. We can't obviously attribute all of that to any one thing.
Neil: Markets are a little more exciting and interesting than that. However, I would say we've seen Trans Mountain have the impact that when we took the contract, we were looking for it to deliver.
Neil: And many questions have come our way regarding, you know, what's going on with Trans Mountain on why is that happening? And I would direct you to look at the U.S. Gulf Coast, which really is where prices are originally set. And we've seen that to be a little bit wider by a dollar or two.
Speaker Change: outages in the area as well as in the mid-continent. Over the next little while I would say we expect Trans Mountain to continue to have its intended impact in Alberta and differentials to be as narrow as they've been in a long time.
Speaker Change: Hi, good morning, and thanks for taking my questions. The first one, and I guess also congratulations on achieving the $4 billion net debt floor.
Speaker Change: the Superior Refinery, and the Toledo Refinery, and driving improvement across.
Speaker Change: with higher utilizations, but you know, by no means are we done. There's still lots of work we have available to us to improve reliability, to improve profitability, and to drive down our costs.
Speaker Change: And then maybe to the back end of your question, you know, just specifically, we are seeing some of those reliability initiatives bear fruit, you know, John just talked about the Lloyd Upgrader turnaround, that's another opportunity for us to go in there and reduce the bad actors.
John: that we had at the upgrader to help drive that longer-term reliability improvement that we expect.
Speaker Change: So there's lots of work underway, but by no means are we declaring victory. There's still room to improve and room to go on all aspects, reliability, profitability, and our operating costs.
Speaker Change: Your thermal heavy oil assets have...
Speaker Change: Frankly, not only remained resilient, but also shown growth over the past few years.
Speaker Change: Can you talk towards the work that you've been focused on there to help bolster production?
Speaker Change: without any incremental steam generation capacity? And also, what do you view as the inventory or the ability to maintain that either flat or even higher over the next few years? Thanks.
John: demonstrated across that that business.
Speaker Change: You know, some things I would point to, obviously, after taking over the Lloyd Thermal Assets and the Sunrise Assets, we were able to deploy some of the Cenovus technology into those assets and immediately improve production.
Speaker Change: We do execute resource delineation and happy to report that we're finding additional resource to maintain, you know, kind of those levels of production out into the future. So, lots of activity going on, on assessing where it is.
Speaker Change: I think the other thing is obviously our NCG, so non-compressible gas.
Speaker Change: into the reservoir and timing of that. It's really, for us, a steam-oil ratio game. So the more we can drive down our steam-oil ratio, the more production we can achieve. And you're seeing some of those improvements, you know, across the various assets.
Speaker Change: And then, you know, maybe I'd point to Sunrise, you know, when we took over Sunrise, it hadn't had a pad drilled and tied in since.
Speaker Change: You know, kind of the early 2020s.
Speaker Change: But also, we're starting to utilize the spare steam capacity that we had at that asset. So, you know, we're pretty excited about the growth profile that we have at Sunrise over there.
Speaker Change: the coming couple of years as we continue to add pads and grow.
Speaker Change: And then maybe I'll just touch on some of the other growth that we have in the oil sands portfolio. On narrows, you know, we're approaching mechanical completion.
Speaker Change: Remind people that that's going to be about 20,000 to 25,000 barrel a day increase. And then on Foster Creek, we have an optimization project underway, which is...
Speaker Change: Essentially a STEAM edition project, that project is progressing well, on track for completion at the back end of 2025, early 2026, which will then allow us
Speaker Change: to steam new pads and bring on an additional 30,000 barrels a day at Foster. So lots of exciting things happening across the oil sands and, you know, it just demonstrates the continuous improvement that's happening every day in that business to make it better.
Speaker Change: Great. Thanks, Dennis.
Speaker Change: Thanks and good morning everyone. I'll start with a question on the positive OPEX guidance revisions for the oil sands and...
Speaker Change: AsiaPAC in particular, my understanding is that some of the all sands improvement is probably lower fuel costs and maybe even slightly higher volumes. But beyond that, can you just elaborate on what's driving those improvements?
Speaker Change: Yeah, I think Dennis, you hit on the two really big things in that, you know, we're working on both the numerator and the denominator.
Speaker Change: than we would have had in our internal budgets. And a lot of that is, you know, related to the activities that we're taking on with the redevs and redrills and seeing the productivity from non-condensable gas and the like. So.
Speaker Change: And our use of energy. Those continue to be areas of focus for us. So managing that cost, and obviously a lot of that is commodity price driven, but also managing energy use is something that we're...
Speaker Change: somewhat related. What was the rationale for pushing out some of the downstream turnaround work to 2025? Thank you.
Speaker Change: Hey man, how's it going, it's Keith.
Speaker Change: Yeah.
Speaker Change: Since we've taken over Toledo and operate Toledo, we're continuously looking for optimizations between Lima and Toledo.
Speaker Change: And the team came up with a really unique way to continue running Lima through the turnaround and using some of the facilities at Toledo to process.
Speaker Change: kind of the intermediate barrels that would have been putting put into storage or would have drove us to reduce rate at Lima. So it's a really unique optimization that's happening and it's and it's enabled by the fact that we now own and operate both refineries.
Speaker Change: and that there's interconnecting pipe between the refineries. So, that will allow us to push out that turnaround, or sorry, to optimize that turnaround. On the delayed turnaround, we were able to do some maintenance.
Speaker Change: and inspection activity that allowed us to understand that
Speaker Change: The turnaround that we had planned at one of our joint venture operations.
Speaker Change: was enabled to be pushed out. So we're seeing that push out into the 2025 timeframe. So all in all, that's the optimization that's happening in the U.S. downstream and why we're able to raise the bottom end of our guidance on throughput for the year.
Speaker Change: I appreciate the thoughts, Keith, so I'll turn it back.
Speaker Change: Okay.
Speaker Change: Once again, as a reminder for our analysts, you can join the queue to ask a question by pressing star 1.
Speaker Change: Your next question comes from John Royall from JPMorgan. Please go ahead.
John Royall: Hi, good morning. Thanks for taking my question
John Royall: So great to hear that you've hit the 100% here with returns of capital. Can you just talk a little bit about the mechanical approach to the buyback from here? Will you forecast the full year's cash flows and try to take a more rateable approach and kind of correct as you go? Or should we expect it to be a little bit more variable quarter to quarter depending on the actual cash flows in that quarter?
Speaker Change: Morning, John . It's Kam. A couple of things I would highlight there. I think number one,
Speaker Change: You know, we've obviously been on this net debt journey reduction for quite a while and we're there now So I think one of the first things
Speaker Change: That's really important, is that we want to make sure we stay as close to that $4 billion as possible as we go forward and looking at how we return cash to shareholders. So that's the first thing you should think about. You know, secondly, I would say, you know, clearly, you know, now that the debt reduction is behind us,
Speaker Change: There will be no more cash directed towards further deleveraging.
Speaker Change: And so all of our cash will go towards returning cash back to shareholders.
Speaker Change: Most likely in the form of buybacks. I think given where the share price is today and what we see is intrinsic value That is what people should expect that 100% of that excess free cash flow will probably be returned in the form of share repurchases
Speaker Change: You know in terms of the mechanics month by month quarter by quarter. I think the thing to watch is you know
Speaker Change: We will be making sure that we are allocating as close to 100% as possible.
Speaker Change: You know, obviously things like working capital movements will move our debt around, but that's something we'll be watching month by month. But I think the goal is to stay as close to that 100% as possible while trying to hold the debt at that $4 billion level.
Cam: Great. Thanks, Cam. And then my follow-up is a macro-type question that I don't think has been asked yet. Can you talk about the supply-demand fundamentals and refining?
Speaker Change: in the mid-con right now. We've had what's looked like a tighter market than some other regions in the U.S. that certainly also appears to have been impacted by the unplanned downtime at Joliet. What are your expectations for the mid-con market in the second half, particularly with Joliet coming back now?
Speaker Change: Thanks, John . It's a great question. Maybe start at the top and work more regionally from there.
Speaker Change: From a more macro perspective, what we've seen is...
Speaker Change: Very similar circumstances as recent years. So that percolates through into both gas crack and diesel crack. So it isn't any meaningful change on a macro perspective.
Speaker Change: As of late, regionally, you know, we've seen a regular strong summer gasoline season, but what we have seen is...
Speaker Change: Some volatility, and it's all been supply-driven, as you pointed out, and that has resulted in sort of temporal, really big moves in the price.
Speaker Change: and you know I think for the region which has become relatively balanced
Speaker Change: to occasionally a little bit long, we're going to see these periods of volatility as supply moves around, particularly given that demand is just persisting, it's where it's been, and so the story on a minute-by-minute, week-by-week basis is going to be all supply driven.
Speaker Change: Looking out over the next months, I mean, you can't predict what unplanned outages are going to be, they will come as they come.
Speaker Change: However, the thing that we do know is that we head into fall turnaround season, and that's going to match sort of through the period of time where we switch from gasoline season to diesel season, distillate. And we anticipate that that turnaround will be sort of multiple type levels, and if there is any supply-demand imbalances, it'll tighten it up, and, you know, we could probably see a little bit more of a narrow, tighter supply-demand balance through that period of time.
Speaker Change: Thank you.
John: Great. Thanks, John .
Speaker Change: Your next question comes from Manav Gupta from UBS. Please go ahead.
Manav Gupta: Hi guys, quick question, a little bit of follow up on John Royall's, it's very clear, surplus cash is all going to go to shareholders, no nothing for debt reduction, just trying to understand a preference between buyback and variable dividend, should we continue to see a combination of those, or you have a very strong preference for?
Speaker Change: one of those. Definitely Biobank's over variable, but if you could talk about that.
Speaker Change: I kind of alluded to this when I answered John's question, but I think number one,
Speaker Change: You know, the principles around how we return cash, none of that has changed.
Speaker Change: Rateably, predictably, grow the base dividend over time. We've typically done that, you know, kind of in that April-May timeframe, obviously driven by the board discretion. But as the business grows, you're going to continue to see us target, you know, I'd say double-digit growth in the base dividend over time.
Speaker Change: May was more a function of we under allocated our shareholder returns in the first quarter and so that's not a reflection I would say the value that we see in the buyback so going forward
Speaker Change: To the extent that you continue to see an attractive share price, which we do, you should expect most, if not all of our excess returns will be done in the form of share repurchases.
Speaker Change: Perfect. And just a quick follow-up. You did raise the upstream volume guidance for the year. And so if you could just talk about the thought process behind raising it at this point of time.
Speaker Change: Sure. You know, Manav, what we typically do through the year is we watch our performance and tighten up the range in our guidance as we get into mid-year.
Speaker Change: You know today's guidance range reflects is some really strong performance that we've had through the first six months of the year and our expectations that we have in the back half of the year. So what we're trying to guide the market to
Speaker Change: is the midpoint of that range that we've put out publicly today. So it really is, you know, I think a reflection of what we've been able to accomplish and how we see the back half of the year unfolding.
Speaker Change: You know, particularly, I guess, in Q4 where, you know, coming through the Christina turnaround, we expect to have very strong Q4 performance.
Speaker Change: Thank you so much.
Manav Gupta: Great. Thanks, Manav.
Speaker Change: Your next question comes from Patrick O'Rourke from ATB Markets. Please go ahead.
Patrick O'rourke: Hey, good morning, guys, and congratulations on hitting the net debt target there.
Patrick O'rourke: Just first question here, you sort of unpacked what's going on operationally in the thermal unit.
Patrick O'rourke: Recent monthly well scrubs have turned up some pretty intriguing multilateral cold flow wells that you guys have drilled. Maybe if you could walk us through sort of the evolution of your view on the play and the potential scope that that could have.
Keith: Hey Patrick, it's Keith. Yeah, thanks for the question and probably the one growth project I didn't touch on before, but you know, we're really excited about what we're seeing and show. Obviously, we have a very significant land mass basis.
Patrick: We have a midstream infrastructure there and obviously it all connects right into our upgrader and Lloyd Refinery, so a very integrated value chain. We were a pretty active driller in 2023, saw some good results.
Patrick O'rourke: And, you know, the way we set up our program, we will do our winter program around all of the assets and then we'll deploy the rigs over into conventional heavy oil. So you'll see us.
Patrick O'rourke: Our drilling activity in that basin pickup here in the back half of the year.
Patrick O'rourke: and you'll start seeing the production growth through the back half of the year coming out of that basin. We're pretty excited because, you know, we see lots of opportunity to continue to grow that as...
Patrick O'rourke: As per our investor day pack, easily an additional 20,000 barrels a day of growth over the next three to five years. So that's what we're focused on. We're seeing pretty good results.
Speaker Change: We're working to contain and get our costs down even further, and the netbacks at strip price are really attractive.
Speaker Change: Okay, great. And then maybe moving back over to the macro side, you guys...
Speaker Change: touched on the weakness in heavy high TAN oil in the Gulf and that's sort of driven some of the performance in the WTS differential but as a physical shipper on TMX
Speaker Change: What's a little bit less sort of clear or transparent to us is sort of how these heavy high tan barrels are, you know, what the opportunity set is in pad 5 and what the pricing is looking like there and the marketing opportunity. Can you maybe speak to that a little bit and the potential for some value creation there?
Speaker Change: Great. Thank you, Patrick. It's Jeff.
Jeff: It's a really great question, and as that market continues to develop, it is.
Speaker Change: It's quite a puzzle to be solved over time. We have found, as the...
Speaker Change: Facility has started up a relatively interesting split between volume.
Speaker Change: with the bulk of the volume just slightly greater than half headed towards Asia rather than pad 5. We've also seen demand move back and forth between heavy high tan and light.
Speaker Change: I would say that early days here, Pad 5 is testing it out and trying the high tan barrels and that may be really high tan or that may be lower tan over time and they do obviously continue to like light where they can get it.
Speaker Change: So, you know, it's been an interesting start.
Speaker Change: The biggest thing, as I started with, is that this has driven the differential in Alberta in the order of dollars.
Speaker Change: and so I think we continue to see that persist. There will be movement back and forth.
Speaker Change: between Asia and PAD5.
Speaker Change: and that actually ends up in the rebalancing of global trade flows and the pricing difference between AFRAs and VLCCs is really played into this.
Speaker Change: and it's been an early days thing that started quite quickly where we have seen reverse lightening off the west coast to find the most effective efficient move through to Asia so I kind of point in that direction as well as you look to the overall balances.
Speaker Change: Okay, thank you.
Patrick: Thanks, Patrick.
Speaker Change: As a reminder, for the media, you can join the queue to ask a question by pressing star 1.
Speaker Change: Your next question comes from Harry Mathur from Barclays. Please go ahead.
Harry: Hi, thanks, good morning. You know, you've talked a lot about the shareholder return angle now that you're at the $4 billion net debt target, but I'm curious whether reaching that long-term goal changes anything or opens up anything for you on the strategic front in terms of priorities, whether that's upstream M&A or potential JV simplifications like you've talked about in the past. Thank you.
Harry: Yeah, I think, Harry, nothing really changes on the strategic front.
Harry: had a business model that has endured through time and we're definitely looking forward to flipping over to 100% shareholder returns, but what we're really focused on right now
Harry: is the growth projects that we've got underway and we need to deliver on those. You know, that spending started in 2023 and is largely done.
Harry: By the end of 2025. So, you know, that's that's something we're focused on other areas where we're obviously focused on is continuing to build out our Refining business and getting that operating the way we want it to operate
Harry: and Managing our Cost Control. So as we kind of think about what's in front of us, it's going to be good to run this business model at 100% shareholder returns going forward. And that's really what we're focused on today is just sticking to our knitting and executing on what's in front of us versus trying to take on...
Harry: New Challenges are modifying the strategy in some way going forward.
Speaker Change: Okay, thanks. And then just to follow up on the balance sheet, so you've indicated in the past that you're comfortable kind of running cash around the $3 billion CAD level, gross debt around $7 billion CAD for the $4 billion net debt. So, you know, is the expectation we should have that as maturities come up in the next few years, you'll just plan to refinance those in regular course and maintain that cash balance around the current level?
Cam: Hey Harry, it's Kam. You know, I would say a couple things. Number one, right now I'd say we're in a very good position financially where
Cam: We don't really have a lot of maturities coming at us here in the next little while, our next maturity is a really small one in that $150 million range in 2025 and then we're free and clear through to 2027. So I think in the short term you probably will see us just continue to put that cash on the balance sheet.
Patrick: That mix that you referenced around cash and gross debt.
Speaker Change: You know, I don't envision you're going to see any material changes, you know, obviously as market conditions change and move.
Speaker Change: We'll always look at opportunities if they're there for refinancing, but right now I'd say we're in a really comfortable position where the maturity profile we've got and the coupon and the tenor that we've got on our debt is quite optimal given the environment we're in.
Speaker Change: Okay, thank you.
Harry: Thanks, Harry.
Harry: Your next question comes from Alex Bill from Old Newfoundland and Labrador. Please go ahead.
Alex Bill: Hi, sorry, I should be grouped with media questions. Good morning. On the CROs turnaround, you talked about return to production in Q4, which is the change from prior quarters when it was expected in Q3. Is that just the nature of dry docking today, or are there specific delays there that you can speak to?
Alex: Hey Alex
Speaker Change: Yeah, no, the dry dock is going well. I would say the start to the steel replacement on the hull was a little delayed, but now it's progressing extremely well. So, you know, we're anticipating on having the vessel sail out of the dry dock towards the end of...
Harry: of August , early September and be back on station and then the re-hookup and restart of production, you know, early into the fourth quarter. So, a little bit delayed, a couple of weeks to four weeks.
Speaker Change: But, all in all, the work is progressing well now and as expected, so we'll be back on station and restart production in the fourth quarter.
Speaker Change: Okay, thanks for that. And as you're probably aware, Upstream reported a few weeks ago about potential sales of some of your South Asian assets, and I just wondered if you could potentially speak to that, and if not, taking into note you're sticking to your knitting line earlier, how you might look at other acquisition or sale opportunities as you sort of balanced your debt and where you want it now.
Speaker Change: Yeah, Alex, it's John . You know, we really like our portfolio today, and we're not looking, I don't know where that report came from.
Speaker Change: To be honest, I haven't seen it, but we like our portfolio and we're in a position today where we are sticking to our netting and continuing to drive efficiencies right across our business and deliver on our growth projects.
Speaker Change: I can't comment on a particular report that you've seen. I haven't seen it, but there's certainly nothing in it from our perspective.
Speaker Change: Okay, thank you.
Alex Bill: Thanks, Alex.
Speaker Change: Your next question comes from Emma Granney from the Globe and Mail. Please go ahead.
Emma Gruny: Yeah, g'day, thanks for taking my question. I want to ask you, in your press release there, you talk about the ESG report that was going to be coming out end of June , obviously a lot of uncertainty because of Bill C-59. When can we expect to kind of see that report and what are you hearing from the competition bureau there on how those rules are going to pan out?
Jeff Lawson: Hey, it's Jeff Lawson here. First of all, in the Competition Bureau, I guess we'd like to commend the Commissioner.
Speaker Change: of the Competition Bureau for acting quickly and coming out with a consultation process. So, I don't know if you're aware of that, but a lot of consternation around...
Speaker Change: Uncertainty in the wording and the legislation which is why people have pulled back on disclosure and the Competition Bureau has launched a consultation where everyone is now proactively commenting
Speaker Change: to try to clean up the guidance around what will be presented and what won't and that consultation period is through till
Speaker Change: September , we should have all of our comments in and expect some further clarity as we go through the fall.
Speaker Change: So in terms of what will be done, I guess we'd like to make a few points. So everything that we were doing prior to the enactment of the legislation, we continue to do.
Speaker Change: Any Environmental Work, Emissions Reduction.
Speaker Change: Land Reclamation. On the governance side, Indigenous Reconciliation Activities. Just being good stewards of capital in our communities, we're absolutely continuing to do. On the social governance side, we have our report almost ready to go. We should get it out within the next...
Speaker Change: months, pared back on the environmental side until the legislation has cleaned up a bit on that front.
Speaker Change: Everything we can do to figure out what an internationally recognized standard is, is something we'll continue to do alongside the Competition Bureau and the producers here. And when we have further clarity, we'll come up with something. We just don't have that clarity yet.
Speaker Change: Okay, great. I mean, in the scale of things, how annoying is that whole C59 thing?
Speaker Change: A-ha.
Speaker Change: It's been a tremendous amount of distraction.
Speaker Change: and work for an incredible number of people who are just trying to do the right thing.
Speaker Change: It has been a distraction everyone, it's taken a huge amount of time and resources. And what's frustrating is that I would say...
Speaker Change: People in this industry, and specifically in our company, we do want to speak to all the good things we're doing.
Speaker Change: We do want to let people know what we're doing, so that's our longer term intent and plan, and you can expect we'll approach it that way.
Speaker Change: And you get these curveballs thrown at you and the best thing you can do is try to work through it and not get too frustrated and I think work with government and work with the Bureau and we'll come out the other side at what we think will be a decent place.
Speaker Change: Thanks very much.
Speaker Change: Great. Thank you.
Speaker Change: Your next question comes from Chris Varcoe from Calgary Year Olds, please go ahead.
Chris Varko: With oil sands producers, including Cenovus, planning more production increases here in the next couple of years, how quickly do you see Western Canada getting back into a situation where the pipelines are running full again and potentially impacting differentials?
Speaker Change: Yeah, we get that question a lot, Chris, and there's been a number of, you know, different theories. Some of the pipeline producers or pipeliners are thinking it's going to be a shorter period of time than the producers.
Speaker Change: We have an internal view. We think at some point, the history of this basin is we do fill available pipeline space, but we also think we have a number of other options.
Speaker Change: Move more barrels out of this province and keep the differential in check.
Speaker Change: You know, one thing I would say to you is I think for the big oil producers in Western Canada, we've largely solved for the differential in that we've all got either upgrading capacity or export capacity for the majority of the volumes that we produce.
Speaker Change: So whether we fill up these pipelines, I think Enbridge has said a couple years, or whether it takes five, six years.
Speaker Change: The impact to our business models is less than it used to be 5-10 years ago. So I don't have a firm number for you, Chris, other than at some point we will fill these lines. But the impact to the business model and other options we've got for egress, I think, are there today.
Chris Varko: Just following up on TMX, we talked about the fact that it's going to have an impact upon the industry and upon Alberta. I guess what are you seeing is not just the immediate impacts, but the longer term impacts, and ultimately,
Chris Varko: Do you think it's going to be worthwhile or worth it for Canadian taxpayers who obviously put a lot of money into a project which is run well over budget?
Speaker Change: Well, I mean, absolutely, Chris, the, you know, the, um...
Speaker Change: The construction and commissioning and running of the TMX pipeline is a great day for Canadians. You know, admittedly it was over budget and admittedly it was probably more expensive than it needed to be.
Speaker Change: That being said, this will generate a huge amount of revenue for Canadians in the form of royalties and tax dollars.
Speaker Change: You know, that go towards the public person, in my view, increase the standard of living for all Canadians. So, you know, short, medium and long term, this is a great asset for Canada and it's an important piece of infrastructure for the country.
Speaker Change: Finally, I just wanted to follow up on a question that Emma asked, and that's regarding Bill C-58. There was obviously a lot of concerns expressed by both pathways and individual producers, but realistically, how great was the threat that you felt that the bill was imposing on the industry that you needed to pull back on sharing the information you felt you needed to share?
Speaker Change: Please.
Speaker Change: So, you know, I think the unintended consequence of Bill C-59 is that it stifled the discussion. And in Canada, we need to have robust discussion on energy policy because it's such an important part of our economic fabric of this country.
Speaker Change: And not having certainty over things like what are international standards and what are we being held to has kind of stifled that debate. Now as Jeff mentioned, we see a process in place to try and get some clarity around that.
Speaker Change: And my hope is that will happen sooner rather than later, which will allow us to again start talking about the good things this industry is doing with regards to our efforts on CO... CO...
Speaker Change: Carbon Dioxide Emissions and Environmental Performance.
Speaker Change: Thank you.
Jeff Lawson: Thanks, Chris.
Speaker Change: Your next question comes from Robert Tuttle from Bloomberg News. Please go ahead.
Robert Tuttle: Yeah, hi, I'm kind of answering my question in the last...
Speaker Change: just a minute ago, but I wanted to just follow up on the PMX question.
Speaker Change: Yeah, Robert, I'm going to let Jeff answer that question. He's much closer to that than I am.
Speaker Change: Hi Robert, it is Jeff, that's a good question in terms of the racking and stacking of various
Jeff Lawson: forms of egress from Alberta. I would say two things. Currently, the overall tariff around that pipeline is still to be to be settled. However, based on, you know, current projections and currently where it is set,
Speaker Change: We then have to look to the prices of commodity at the end of the pipe.
Jeff Lawson: We do see Gulf Coast deliveries, Mid-Continent deliveries, and West Coast deliveries all intrinsically linked through global pricing. And so given if those relationships hold, and that's predominantly set by shipping,
Jeff Lawson: We do believe that the cost of spot will see trends mountain.
Jeff Lawson: on a cost basis relatively higher than other alternatives and so it will fill towards the end of filling all available capacity. Again, that's forward-looking and what we don't know is what will come along next.
Speaker Change: to create the egress that John was speaking about. So, you know, markets are fluid and they continue to move around and that can have an impact on everything I've just said.
John: So, the TMX, you don't see it being utilized at full capacity for, what, a couple of years maybe? Two or three years? Something like that?
Speaker Change: You know I think that that comes to individual supply-demand forecasts and how quickly many various producers come along and then you look to the future of how does operability go and you know where are various other pieces of infrastructure and how are they running. I think I think reasonably we're not going to expect to see all of current egress filled in the next year and I think John really put it well is is it two years is it three years is it five years time's going to tell but you know you've got it well bounded in that in that range
Speaker Change: Okay, thank you.
Speaker Change: Great. Thanks, Robert.
Speaker Change: I will now turn the call back over to John for closing remarks.
John: Listen, thank you very much for participating in the call today. We certainly appreciate the interest in the company. Thank you for your questions and take care and have a great rest of your day.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.