Q3 2024 Imperial Oil Ltd Earnings Call
Good day and welcome to the Imperial Oil third quarter 2024 earnings call. As a reminder, today's conference is being recorded. At this time, I would like to turn the call over to Mr. Peter Shaw, Vice President of Investor Relations. Please go ahead.
Peter Shaw: Good morning everybody and welcome to our third quarter earnings conference call. I'm joined this morning by Imperial Senior Management team, including Brad Corson, Chairman President and CEO.
Peter Shaw: Dan Lyons, Senior Vice President, Finance and Administration, Sherry Evers, Senior Vice President of Sustainability, Commercial Development and Product Solutions, and Cheryl Gomez Smith, Senior Vice President of the upstream.
Peter Shaw: Today's comments include reference in non-gap financial measures, the definitions and reconciliation of these measures can be found in tax and six of our most recent press release and our available on our website with a link to today's conference call.
Peter Shaw: Today's comments may also contain forward-looking information. Any forward-looking information is not a guarantee of future performance, and actual future performance and operating results can vary materially depending on a number of factors and assumptions.
Peter Shaw: For looking information in the risk factors and assumptions are described in further detail on our third quarter earnings release that we issue this morning as well as our most recent form 10K. All these documents are available on CDR plus Edgar and our website. So, it asks you to refer to those.
Speaker Change: Brad is going to start with some opening remarks and then handed over to Danny who's going to go provide a financial update and then Brad will provide an operations update. Once that is done, we will follow with the Q&A session. So with that, I will turn it over to Brad for his opening remarks.
Brad Corson: Thank you Peter, good morning everybody and welcome to our third quarter earnings call. I hope everyone's doing well.
Brad Corson: I'm really pleased to report another strong quarter for Imperial. We saw excellent operational performance across all of our assets, both upstream and downstream, which more than offset the impact of lower commodity prices on a sequential quarter over quarter basis.
Brad Corson: Despite the lower prices, net income was actually up nearly 10% versus the second quarter. I'm also happy to report that operational performance has remained strong as we've moved into the fourth quarter.
Brad Corson: Our upstream once again saw record production and continued reduction in unit costs.
Brad Corson: which more than offset the reduction in price realizations due to the softening of WTI prices.
Brad Corson: and with TMAX in operation, we're seeing the value of additional egress in narrower and more stable differentials that provide a significant net benefit to imperial.
Brad Corson: Our downstream business also performed well over the quarter and contributed solid earnings, despite significant plan turnaround activity and softening of refinery cracks spreads.
Brad Corson: All three of our manufacturing assets continue to realize the structural benefits of advantage feedstocks and import parity pricing in the Canadian market.
Brad Corson: So now let's review the third quarter results.
Brad Corson: earnings for the quarter.
Brad Corson: We're $1,237 million.
Brad Corson: with cash from operating activities of 1 billion.
Brad Corson: $797 million when excluding the impact of working capital. I'm very proud of the organization's ability to deliver on what is within their control, namely strong operational results and structural cost improvements.
Brad Corson: which positioned us to offset the moderation include prices and refining margins that I mentioned earlier. Earnings year to date are slightly higher than last year and up 10% on a per share basis.
Brad Corson: In the upstream, we achieved total production of 447,000 gross oil equipment barrels per day in the third quarter.
Brad Corson: This marks the highest third quarter production over the past 30 years, even when including the historical volumes associated with the divested XTO assets.
Brad Corson: Our focus on structural cost reductions coupled with strategic volume growth and driven a unit cost savings of over $3 US a barrel when comparing to year to date.
Brad Corson: 2023. Colonel continued the year with yet another fantastic quarter and matched the assets record for highest third quarter production.
Brad Corson: and was record production now over the first nine months of the year and momentum carrying into the fourth quarter we feel very confident in our ability to reach 280,000 barrels per day for the year on a gross basis.
Brad Corson: I'm also thrilled by the performance at Cold Lakes.
Brad Corson: We had a very strong quarter that included the successful ramp up
Brad Corson: of Production from our Grand Rapids Phase One project.
Brad Corson: which is the industry's first solvent that's assisted.
Brad Corson: Sagthe Operation, which more than offset the impact of the plan turnaround activity.
Brad Corson: in the downstream, we continue to see strong operating performance as well, including the safe execution of turnaround at both Nannickoke and Straftonum, which were below budget and ahead of schedule.
Brad Corson: Refinery throughput average 389,000 barrels per day, which equates to a refinery utilization in the quarter of 90%. And a year to date utilization of 91%.
Brad Corson: With the last of our planned upstream and downstream turnaround activity completed in October, we are now well positioned for a strong finish to the year.
Brad Corson: Overall, we continue to deliver significant value to our shareholders through our reliable and growing dividend, which has now increased for the 30th consecutive year on a paid basis.
Brad Corson: We are also on track to complete the accelerated share repurchases under the normal course issue or bid by the end of this year resulting in a 5% reduction in our share count and further returns to our shareholders.
Speaker Change: with that I'll pass things over to Dan to discuss our financial results in more detail.
Dan Lyons: Thanks, Brad.
Dan Lyons: Starting with financial results for the third quarter, we recorded net income of $1 billion, $237 million. This represents a decrease of $364 million from the third quarter of 2023. Primarily as a result of lower margins in our downstream business.
Dan Lyons: When comparing sequentially third-quarter-net income is up, 104 million dollars from the second quarter of 2024, with strong operating performance on volumes and operating expenses, more than offsetting lower prices.
Dan Lyons: Now shifting our attention to East Business Line and looking sequentially, upstream earnings of $1 billion, $27 million are up, $228 million from second quarter primarily due to higher volumes and lower optics.
Dan Lyons: Partly Off-Sat by Lower Realizations. Downstream earnings of $25 million are down $89 million from second quarter, mainly reflecting Lower refining margins.
Dan Lyons: Finally, our chemical business generated earnings of $28 million down $37 million from the second quarter primarily driven by a business segmentation shift of ouramatics products from our chemical segment to our downstream segment.
Dan Lyons: There is no impact on our consolidated financial results.
Dan Lyons: but there is a one-time shift at the segment level in the third quarter of 2024 with nine months of after tax earnings of $31 million and nine months of sales volumes of 120 kt moving from the chemical segment to the downstream segment.
Dan Lyons: We made this shift because we now see our mathematics is more closely aligned with our downstream finished products than with our chemical business. We will stew it and report our business on this basis going forward.
Dan Lyons: Moving on to cast slow.
Dan Lyons: and the third quarter we generated $1,487 million in cash flows from operating activities.
Dan Lyons: Excluding Unfavorable Working Capital Sex of $310 million.
Dan Lyons: Cash flows from operating activities for the third quarter, we're about $1.8 billion. Up, $289 million from the second quarter of this year, which brought our ending cash balance to about $1.5 billion.
Speaker Change: Testing to CapEx?
Speaker Change: Capital Expendor 2 is total $486 million in the third quarter.
Speaker Change: Up $99 billion from the third quarter of 2023.
Speaker Change: and the UPSS, third quarter spending focused on sustaining and growing production at curl, sink, crude and cold lake. In the downstream, third quarter spending mainly included progressing how renewable diesel project at Straftonham.
Speaker Change: Year to date, 2024 capital expenditures of $1,444 million are $135 million higher than the comparable period in 2023.
Speaker Change: To support them, a mentor in our business, we've chosen to spend somewhat more than we initially anticipated. As such, we expect to finish this year, a modestly higher than the $1.7 billion guidance we've provided in December of last year.
Speaker Change: Gifts into Shareholder distributions in the third quarter of 2024, you can continue to demonstrate our longstanding commitment to return surplus cash to our shareholders.
Speaker Change: We pay $322 million of dividends and returned in additional $1.2 billion to accelerate its share of repurchases under our normal force issuer bid program. We may not track to fully complete the program by year end.
Speaker Change: Finally this morning we announced a fourth-quarter dividend of 60 cents per share consistent with our third-quarter dividend. Now I'll turn it back to Brad to discuss our operational performance.
Brad Corson: Thanks Dan.
Brad Corson: Upstream production for the quarter average 447,000 oil equivalent barrels per day. And as I mentioned earlier, this represents the highest third quarter production in over 30 years.
Brad Corson: Production was up 43,000 barrels per day versus a second quarter and up 24,000 barrels per day versus the third quarter of 2023.
Brad Corson: The year to date production is on a record pace and is 25,000 barrels per day or about 6% higher than 2023 year to date.
Brad Corson: So now let's move on and talk specifically about curl.
Brad Corson: Curls production in the third quarter averaged 295,000 barrels per day gross, which is up 40,000 barrels per day versus the second quarter and matched the third quarter record previously set in 2023.
Brad Corson: We are off to a very strong start to the fourth quarter with gross production around 310,000 barrels per day in October, which is looking like another record for the month.
Brad Corson: Turning to operating costs, I'm extremely pleased to share the progress pearl continues to make on its journey to achieving our annual unit cash cost target of $20 US per barrel.
Brad Corson: Curls Unit cash operating costs in the quarter were $17.51 US per barrel.
Brad Corson: With higher volumes, greater mind productivity, favorable energy costs and the absence of turnaround activities, unit costs decreased by almost $5 US per barrel versus the second quarter.
Brad Corson: Compared to the third quarter of 2023, where we essentially had the same volumes, UNICOS are almost $3 US per barrel lower, a reduction of over 13%.
Brad Corson: and on a year-to-date basis, our unit cash cost of $20 and 21 cents, US ProBarrow is nearly $4 US ProBarrow lower than last year. And well, I'm trying to achieve $20 US ProBarrow or lower for the full year.
Brad Corson: I would like to acknowledge the hard work and effort that the Curl team delivered and continues to deliver and improving our unit costs.
Brad Corson: So now turning the cold light.
Brad Corson: For the third quarter, Col. Lake Production averaged 147,000 barrels per day, which was flat versus the second quarter, and up 19,000 barrels per day versus the third quarter of 2023.
Brad Corson: During the quarter, strong production from the new Grand Rapids Project and the better then planned mass-qula turnaround performance allowed us to sustain high production levels.
Brad Corson: The turnaround was safely completed two weeks ahead of schedule, resulting in about 4,000 barrels per day of incremental production over our quarterly turnaround guidance.
Brad Corson: Strong Production, Along with Lower Energy Costs, resulted in Unit Cash Costs of $12.85 US per barrel, which is a decrease of over $5 US per barrel compared to the same quarter last year.
Brad Corson: On a year-to-date basis, our unit cash costs of $15.7 US per barrel is more than $2 per barrel lower than last year.
Brad Corson: The ramp up of Grand Rapids phase one has exceeded our expectations. At the end of July, we were producing 10,000 barrels per day and were well on our way to reach in the expected 15,000 barrels per day as the final pumps were being installed.
Brad Corson: for the third quarter, Grand Rapids achieved an average of 15,000 barrels per day, while realizing an average of 20,000 barrels per day for the month of September.
Brad Corson: and on an instantaneous basis, we have seen peak rates of 22,000 barrels per day. We're continuing to monitor the field performance, but are very encouraged by the initial production and are confident in the project basis of 15,000 barrels per day.
Brad Corson: This marks an important milestone in our strategy to transform our production that cold-light and I appreciate all the work by the project team to successfully accelerate this project by a year.
Brad Corson: As we have noted before by utilizing industry's first commercial application of solvent assisted sagdee, we expect phase one alone will lower cold lakes unit costs by around $1 US per barrel, while also reducing our emissions intensity.
Brad Corson: Our Cold Lakes strategy includes additional phases of Grand Rapids development alongside other opportunities such as the Lemming FagD Redevelopment Project.
Brad Corson: Laming.
Brad Corson: is another great example of our strategy to maximize value from our existing assets. This project is returning to cold lakes and initial pilot location, which was started up over 40 years ago to further develop that resource using FagD technology.
Brad Corson: Construction of the new facilities continued throughout the quarter and we are progressing on plan to begin steam injection at Lemme in late 2025 with peak production expected to average about 9,000 barrels per day in 2026.
Brad Corson: Now a few comments on sin crew.
Brad Corson: and Peerodal's share of sinc root production for the quarter average 81,000 barrels per day, which is up 15,000 barrels per day versus the second quarter and up 6,000 barrels per day versus the third quarter of 2023.
Brad Corson: During the quarter, St. Krewd utilized the inner connect pipeline to import picture men driving higher upgrade or utilization rates and producing about 9,000 barrels per day are share of incremental St. Krewd's sweet premium.
Brad Corson: at the end of October, conclude a hydro-treater turnaround, which started at the beginning of September and was completed on time and on budget.
Brad Corson: Now let's move on and talk about the downstream, which also had strong operations in the third quarter.
Brad Corson: Overall, we refined an average of 380,000 barrels per day reflecting a utilization of 90%.
Brad Corson: Comparative 2nd Quarter when we had turnaround at Straft Kona and Sarnia, we processed an additional 2000 barrels a day in the third quarter.
Brad Corson: Refining throughput was partially offset by additional plan turnaround work at Strafton and Nannicoch. Both of which are now complete.
Brad Corson: are year to date utilization of 91% positions us well to achieve the high end of our four-year guidance of 89 to 92%.
Brad Corson: With the completion of the Stratcona turnaround, we added additional operational flexibility to co-process plant-based feedstocks at that refinery.
Brad Corson: by co-processing these feedstocks. We can help our customers reduce their emissions and further enhance imperial's low-carbon product offering.
Brad Corson: The Nannacle Turnaround was a largest turnaround across the company this year and I'm extremely proud of the team for executing the site's most successful large turnaround event in decades with completion ahead of schedule and below budget.
Brad Corson: This achievement leveraged refining capabilities within the Imperial and Exxon mobile network, bringing people in from Imperial and Exxon mobile refineries across North America to provide assistance.
Brad Corson: From a financial perspective, our structurally advanced-aged downstream business remained profitable in the quarter despite significant turnaround activities and the impact of lower refining margins.
Brad Corson: We continue to progress the construction of Canada's largest renewable diesel facility at our Stratcona refinery that will add 20,000 barrels a day of throughput capacity when completed in the first half of 2025.
Brad Corson: I'm very pleased with the progress of the construction which will continue into next year.
Brad Corson: The Straft Cona Renewable Diesel Project is a highly attractive and strategic opportunity within our portfolio. And one that leverages the numerous competitive advantages we have, including location, scale, expertise and technology.
Brad Corson: Petroleum products sales in the quarter were 487,000 barrels per day, which is up 17,000 barrels per day, versus the second quarter, and up 9,000 barrels per day versus the third quarter of 2023, inclusive of the business segmentation shift.
Speaker Change: that Dan mentioned earlier. Overall, we continue to see resilient demand in Canada with gasoline and diesel at approximately 90% and jet at about 100% compared to 2019.
Speaker Change: Turning now to chemicals earnings in the third quarter were $28 million, which was down 37 million versus the second quarter.
Speaker Change: The lower earnings in the third quarter is mainly due to the $31 million shift.
Speaker Change: to include earnings from the aromatics business in the downstream segment.
Speaker Change: Chemical earnings for the third quarter, excluding the shift, would have been $59 million, down 6 million from the prior quarter.
Speaker Change: earnings in the quarter were up $5 million versus the third quarter in 2023 due to stronger margin environment and absence of the major turnaround in the third and fourth quarter last year adjusting for the same shift.
Speaker Change: Dan and I have mentioned earnings were up $36 million versus the third quarter of 2023.
Speaker Change: As always, I'd like to wrap up by highlighting a few other items of note.
Speaker Change: First, the Pathways Alliance is continuing to progress the design and engineering for the proposed carbon capture and storage pipeline project.
Speaker Change: During the quarter, Pathways issued the request for proposals to the pipe manufacturers for the proposed transportation pipeline as early engineering and regulatory work continues.
Speaker Change: Along with consultation and engagement with indigenous communities. In parallel, we continue to have constructive discussions with the federal and provincial governments to finalize the fiscal frameworks necessary for this important project to proceed.
Speaker Change: and finally we are proud to be included on this year's TSX 30 list. We were recognized as one of the top 30 companies on the TSX based on our dividend adjusted share performance of 167% over a three year period.
Speaker Change: This is great recognition that our business strategy and execution is delivering significant value for shareholders.
Speaker Change: and a great recognition for the contribution of our workforce, who are working hard every day to grow shareholder value while delivering affordable and reliable energy for societal needs.
Speaker Change: In closing, we had another excellent quarter. We achieved record volumes in our upstream, significantly reduced upstream unit costs, and delivered high downstream utilization, while safely executing.
Speaker Change: Motto Bowl plan turnaround.
Speaker Change: I'm pleased to have shared the very encouraging initial production from our Grand Rapids Project and look forward to the completion of the Straft Kona Renewable Diesel Project next year.
Speaker Change: We will continue to bring you updates on these attractive opportunities as we remain focused on maximizing the value of our existing businesses. While at the same time, responding to the changing needs of our customers and while maintaining reliable and affordable energy for Canadian consumers.
Speaker Change: As I look ahead to the end of the year, with all of our plan turnaround activity completed now, we're very focused on a strong finish and continuing to return surplus cash to our shareholders by completing the accelerated normal course issue we're been by the end of the year.
Speaker Change: I would also like to share that we are planning to host a conference call on December 12th as we issue our annual guidance for 2025. And we are also planning an investor day, will they longer term outlook in the spring of 2025?
Speaker Change: and as always I'd like to thank you once again for your continued interest and support.
Speaker Change: So now we'll move to the Q&A session and I'll pass it back to Peter.
Peter Shaw: Thank you, Brad. As always, we appreciate it if you could limit yourself to one question plus to follow-up so that we can get to as many questions as possible. So with that operator, could you please open up the follow-up line for questions?
Speaker Change: Thank you. If you would like to ask a question, please signle by pressing star 1 on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to returquitment. Again, that is star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signle for questions.
Speaker Change: The New York Times,
Speaker Change: We will take our first question from Monov Group, Doug with UBS.
Speaker Change: Congress on another strong quarter. My question here is, basically, on the synchroode strong performance there, just help us understand what are the realized benefits you are seeing of this bi-directional pipeline, how is it helping you deliver stronger results at synchroode?
Speaker Change: i
Speaker Change: Thanks for the...
Speaker Change: and as you recall we had this.
Speaker Change: by Directional Pipeline in Service for a couple of years now.
Speaker Change: and we see multiple benefits in that it allows us flexibility.
Speaker Change: to both import, you know, bicsamen at times when we have the need for additional volumes, we have additional capacity to process downstream, we can keep those downstream facilities full.
Speaker Change: and similarly, if we have any constraints in those downstream facilities, we can shift that bitgemen over to Suncours operation. And you know, fundamentally it just provides...
Speaker Change: Brought her redundancy and how we optimized the operation of those units. And we continue to see several thousand barrels a day of uplift year over the years. It's been a very...
Speaker Change: kind of value a creative investment that we've made and we continue to feel quite good about it.
Speaker Change: For the second question, looks like grants up its phase 1 is even going better than plant. So how should we think about further opportunities, further similar opportunities that happens?
Speaker Change: Yeah, thanks for that recognition and certainly...
Speaker Change: We share your optimism. It is going better than planned. I have to caution that it's still early days. We've only been producing crude for a few months. I think first oil was back in May as I recall.
Speaker Change: We're continuing to wrap it up, we're continuing to optimize...
Speaker Change: Kind of the reservoir performance.
Speaker Change: Optimizing the injection rates of steam and deljuent, but all the indicators are looking very positive. And so what that means looking ahead is again further validation of our strategy with that say, SAGD.
Speaker Change: We've mentioned in the past that we have up to 10 phases of potential Grand Rapids development.
Speaker Change: Maybe not surprisingly with these encouraging results.
Speaker Change: Continuing the challenge of the team for what opportunities do we have to bring those future phases?
Speaker Change: Forward on a more accelerated basis so we can leverage.
Speaker Change: These early successes, so that the team is evaluating those options.
Speaker Change: You know, safe to say that we do see multiple more phases of development and we're going to be advancing those.
Speaker Change: You know, I think that's one of the exciting things about our investor day.
Speaker Change: Plan for the spring of 2025 is will be in a position to lay out more of those plans. But again, I think the bottom line is what we're feeling really good about it and that will have implications not just for this year and next year but subsequent years longer term.
Speaker Change: Thank you so much for taking my questions.
Speaker Change: and the
Speaker Change: We will take our next question from Neil Mato with Goldman Sachs.
Speaker Change: [inaudible]
Speaker Change: and the
Speaker Change: We will take our next question from Neil Mato with Goldman Sachs
Speaker Change: The New York Times
Speaker Change: I may hope to hear us.
Speaker Change: [inaudible]
Speaker Change: Operator, maybe we could go to the next question and we could come back to Neil.
Speaker Change: Yes, we will take our next question from Mino Holtop with TD securities.
Mino Holtop: Thanks and good morning everyone. Maybe start with a question on digitization since it feels like we haven't talked about it in a while. Can we just get a refresh on where you're currently focusing?
Mino Holtop: Your digitization efforts and what is a reasonable expectation for annual investment in 2025 and beyond?
Mino Holtop: [inaudible]
Speaker Change: Yeah, thanks for the question and you're right, maybe we haven't talked about it much recently, but
Speaker Change: that's no reflection on the business focused on it. There's a lot of work going on to continue.
Speaker Change: to leverage technologies available to us to continue to explore applications of new technologies. What we shared at our last Investor Day was
Speaker Change: the potential value of well over a billion dollars that we could anticipate from further digital technologies.
Speaker Change: And at the time, I believe we had indicated that we had captured maybe about 500 million of those, and the journey continues.
Speaker Change: You know, the one that we have been talking a lot about lately is what we've done with autonomous haul trucks and, you know, that's just a great achievement for us that we now
Speaker Change: operate, you know, a fully autonomous mine with all of our heavy haul trucks.
Speaker Change: We're the only operator in our industry that has been able to achieve that. And from that, we are...
Speaker Change: seeing both cost and productivity benefits and also
Speaker Change: kind of underlying that is improved safety performance or lower risk of safety incidents. So we feel quite good about that. I talked now over the last two quarters about
Speaker Change: completing really every one of our turnarounds ahead of schedule and below budget and digital technology is a key enabler there.
Speaker Change: as we employ technologies.
Speaker Change: in advance of shutdowns to allow us better predictive capabilities on what to anticipate when we open up.
Speaker Change: pieces of equipment allowing us to defer you know opening up other units that don't have any indications of issues and and when we're inside of
Speaker Change: large tanks and vessels, being able to use drone technologies to inspect those.
Speaker Change: We just had our board out to Cold Lake.
Speaker Change: to really showcase what we're doing with Grand Rapids. But as part of that, we also featured what we're doing with
Speaker Change: kind of a robotic dog and who we've named Spot. And Spot is helping supplement our operations staff.
Speaker Change: to have more real-time data and also gathering that data in a more efficient way.
Speaker Change: And so those are just a few examples, but there's many of them, you know, when it comes.
Speaker Change: to digital technologies. It's not a short list of three, four, five things. It's more like 30, 40, 50 things that that the organization is pursuing.
Speaker Change: And when we have our Investor Day in the spring of next year, I'm sure we will showcase, you know, many digital advancements that we're pursuing, because again, we do see it being very accretive to our business.
Speaker Change: Thanks, Brad. That was that was really helpful. The second question is on a basin egress in the Enbridge mainline specifically. It looks like we're
Speaker Change: starting to see low single-digit apportionment again for November. So the question is, do you know what is driving that, and are you surprised to see it with TMX just having ramped up?
Speaker Change: Yeah, it's a great question. We're not surprised at all by the lower apportionment. You know, what it reflects I think is some rebalancing of volumes between the Enbridge system and the TMX.
Speaker Change: system based on producer's volume commitments on PMX.
Speaker Change: CMX has now been started up. We have
Speaker Change: from the basin, you know, through Enbridge and through TMX. The producers are all leveraging that to move their products
Speaker Change: to what they see as the highest value markets.
Speaker Change: and they have more flexibility and that also has provided
Speaker Change: stability to the market such that we are now seeing a narrower WCS differential and we're seeing that differential be more stable.
Speaker Change: I think it's a great result for Canada, it's a great result for our industry, and it's a great result for Imperial, and it has contributed to the earnings I've just announced.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Greg Party with RBC Capital Markets.
Greg Party: Hey, thanks, good morning, and thanks for the rundown as always. Brad, the only thing I wanted to dig into is maybe what Dan was talking about just on the CapEx.
Greg Party: We were getting a question or two in terms of it being maybe a little higher this quarter than expected, and then in terms of being mildly higher, can you give us any ideas like, you know, still under a billion eight or so or what have you? Any color there would be great. Thanks.
Speaker Change: Thanks for watching!
Speaker Change: You know, when we look at our capital program, we have multiple projects that span multiple years.
Speaker Change: And so there's always, you know, some shifting of capital from one year to the next as we optimize execution. I think what we're also seeing, and I view it as a great positive, is
Speaker Change: There's a lot of momentum in our organization right now about maximizing profitable volumes.
Speaker Change: And with that, you know, we are
Speaker Change: pursuing all economic opportunities that that allow us to increase production and and those economic opportunities some of them are are OPEX related some of them are CAPEX related and so so you're you're seeing that
Speaker Change: But on balance, I think it's it's a really good thing. You know, Dan, I guess you use the word, you know, modest, modest increase. You know, we we.
Speaker Change: finished out last year.
Speaker Change: close to $1.8 billion of capital. This year, we're trending slightly above that rate.
Speaker Change: And so I'd say, you know, where we are year to date is somewhat reflective relative to our 1.7 guidance.
Speaker Change: Again, I kind of hate to put out an exact number, but...
Speaker Change: You know, you can look at the trends, the projections. You know, we're going to be somewhere between 1.8 and 1.9, you know, somewhere in that range. I think it's a good thing, you know, because again, it's translating to profitable volumes.
Speaker Change: So, no thanks, sir.
Speaker Change: Yeah, no, no. I mean, you're a super low-capital intensity business to begin with.
Speaker Change: Exactly. You know, we think about, you know, we've talked in the past at Investor Day about
Speaker Change: sustaining capital of around I don't know five dollars per barrel or something well I mean we're producing more barrels right and yeah and so with that comes some some sustaining capital requirements
Speaker Change: But net-net, it's a really positive thing.
Speaker Change: Yeah, no, no great. Okay, maybe in just a follow-up a little bit about what Minow was was asking about but you know everybody
Speaker Change: everybody is dog has got a growth project now right in in Western Canada so we're we're long pipe and so on I'm just curious as to how you guys are
Speaker Change: thinking on two fronts. One is,
Speaker Change: You know, when do we start to see more of a balance in egress, maybe coming out of Western Canada? And is there anything that might mitigate that, i.e. expansions on the mainline or what have you? And then the other thing is, is that just from your own egress perspective, how are you managing that, you know, medium to longer term risk here?
Speaker Change: Yeah, I think it's a good question. There does seem to be a lot of...
Speaker Change: discussion and interest in that I know as I travel around and meet with investors and analysts.
Speaker Change: You know, from our perspective, we feel really good about the amount of capacity that's available for egress. We see that there are several years of run room.
Speaker Change: based on existing capacity.
Speaker Change: But we also feel like there will likely be additional capacity that will be achieved both in the Enbridge system and in the TMX system as those operators look for further de-bottlenecking.
Speaker Change: And so that's going to extend even longer, you know, the capacity available to the industry. As we look at individual growth projects,
Speaker Change: Both in the near term and the long term, you know, looking much further down the road like Aspen.
Speaker Change: We don't have any concerns about egress. And so, you know, whereas a few years ago, that was a significant consideration as we thought about new greenfield growth projects.
Speaker Change: That is not a concern for us today. We'll continue to monitor it, obviously, but we feel really good about egress.
Speaker Change: Very good. Thanks, Brad.
Greg Party: Thanks, Greg.
Speaker Change: We will take our next question from Doug Legate with Wolf Research.
Speaker Change: Thank you. Hey Brad, thanks for taking my questions. I'm guessing you've got some competition on the US majors today, so thanks for getting me on.
Doug Legate: Clearly you're itching to give us an update on...
Doug Legate: the operations with the analyst day and the call you're going to do in December. But I'm not trying to get ahead of that too much. But when you say that Carroll is doing 310,000 barrels a day in October, and your operating costs are below $18,
Doug Legate: It kind of seems that the writing's on the wall as to where this is headed. That's a $300,000 a day average.
Doug Legate: in your 2022 Analyst Day was a stretch goal for the future.
Doug Legate: Is it too much of a stretch to say that you're there and there's an upside case to that? In which case maybe you could frame for us how do you see, you know, sustainable capacity on an annualized basis? And, you know, operating costs below 18 would put you best in class. Maybe frame it for us a little bit if you could, and I've got a follow-up for Dan, please.
Speaker Change: Yeah, thanks. Thanks, Doug.
Speaker Change: and you're right that there's a lot going on with with earnings releases and calls today but I appreciate you taking time to to join ours and and thanks thanks for your question
Speaker Change: We are, we are.
Speaker Change: Definitely excited about
Speaker Change: you know spending some time on December 12th laying out our guidance for 2025 but then also
Speaker Change: the investor day we're planning in the spring as well because we have made significant progress
Speaker Change: really across all of our assets on some really important fundamentals around volume, cost, efficiency, you know, all with an objective of
Speaker Change: achieving best-in-class and resiliency for our portfolio. So a lot of good things.
Speaker Change: to talk about
Speaker Change: Pearl will certainly be featured in
Speaker Change: that there were probably a lot of people that were skeptical of our ability to reach 280,000 barrels a day and $20 U.S.
Speaker Change: Bye.
Speaker Change: We have clearly demonstrated our ability to do that, quite confidently.
Speaker Change: At our last investor day, I kind of teased out, you know, the potential for 300,000 barrels a day in the future. And, you know, since then, our teams have been actively working on very specific plans to achieve 300,000 barrels a day.
Speaker Change: So, I remain optimistic that we will achieve 300,000 barrels a day.
Speaker Change: in a reasonable time frame. And what we'll do at Investor Day is lay out what that time frame looks like. And then on costs, I'm glad you raised that because we really haven't talked much about anything other than $20 U.S.
Speaker Change: and we've been laser focused on that.
Speaker Change: But as this quarter's results illustrate, and this year's results illustrate, that we do have our arms around
Speaker Change: $20 US and as I mentioned this last quarter was 1750 so we know how to deliver something less than $20
Speaker Change: and we will be laying out plans.
Speaker Change: for the next milestone on that journey.
Speaker Change: to something materially less than $20. I'm not gonna give you a new number today. We'll save that excitement for our call.
Speaker Change: um
Speaker Change: But it will be a material improvement and it will bring us to best in class. That's the goal. And all that translates to more value for our shareholders. More cash flow. You know, it comes with...
Speaker Change: based on more volumes at a lower cost.
Speaker Change: Thanks for watching!
Speaker Change: So it's really exciting. Thank you.
Speaker Change: Thank you for that. As far as getting on the call, Brad, you know, it's amazing to think your stock in the last five years has been the best performer.
Speaker Change: of the entire energy space in that period, at least in our coverage. And so congratulations on that.
Speaker Change: However, a big part of that has obviously been your dividend strategy, your dividend policy. And I wanted to try and touch on what happens at $70 oil, I guess where oil has been fleeting.
Speaker Change: And it really relates to, you know, you had a little bit of a cash burn this quarter. Your SIB, I guess, depends on oil being north of 70, you know, at least beyond the NCIB. So I guess my question is...
Speaker Change: Would you be, for an underlevered balance sheet, would you be prepared to lean in your balance sheet to maintain some element of SIB in your buyback? And how does the, how do you think about the dividend growth story going forward? It's going to be a Dan question, but I'll leave it there. Thank you.
Speaker Change: Yeah, thanks for that, Doug.
Speaker Change: Yeah, Dan's here chomping at the bit to answer that question, so I will defer it to him. But the one thing I would mention before...
Speaker Change: Dan gets into details as just
Speaker Change: a reminder that our, because you mentioned $70 a barrel, our corporate break-even to cover all of our sustaining capital and our dividend.
Speaker Change: is around $35 a barrel. So, you know, we see value accretion.
Speaker Change: you know well you know significant
Speaker Change: opportunity between $35 and $70 a barrel and our objective will be to return surplus cash to shareholders. But with that I'll let Dan talk about some of those details.
Dan Lyons: Yeah, yeah. First, regarding our dividend philosophy, as we've talked about before, you know, reliable and growing dividend is sort of the bedrock of that, of obviously our dividend philosophy, our overall cash return philosophy.
Dan Lyons: And, you know, we're at 60 cents a share now.
Dan Lyons: When I arrived here in 2018, we were $0.16, so we've grown it in our...
Dan Lyons: Our goal is obviously, you know, within the bounds of what makes sense and what's sustainable to keep growing that, you know, in a robust way going forward. So that's unchanged, you know, regarding.
Dan Lyons: free cash flow beyond that, our policy, our philosophy there is to return that to shareholders in a timely manner through the NCIB and.
Dan Lyons: and SIBs.
Speaker Change: your question around would we go ahead and you know borrow money
Speaker Change: to do an SIV. You know, that has not been our practice in the past and what we said is...
Speaker Change: We're comfortable with our debt level. We're not looking to lower that further. I mean, you're right. Our leverage levels are quite low.
Speaker Change: So I would say it has not been our practice to borrow, to do SIBs, though, you know, look, you know, nothing's completely off the table. You know, we consider everything, but based on past history, I wouldn't.
Speaker Change: That wouldn't be the first place we'd go.
Speaker Change: So, you know, our, you know, I think the base assumption is, you know, our
Speaker Change: you know, we, you know, in most.
Speaker Change: All cases, we continue the NCIB, but it's always price dependent. And surplus cash beyond that, we're gonna look.
Speaker Change: Historically, we've looked at SIVs, and that's sort of our first port of call going forward. But, you know, we'll open our aperture, of course, to all ways of returning surplus cash, but based on past practice, I think you know where our head's at.
Speaker Change: Thanks so much, fellas.
Doug Legate: Thanks, Doug.
Speaker Change: We will take our next question from Travis Wood with National Bank Financial.
Travis Wood: Yeah, thanks for taking the question here. You guys have talked lots about the opportunities at CURL. You're on a pretty short cycle turnaround activity there, but are there opportunities to
Travis Wood: step in, do a larger maintenance program, and come out of the back end of that with more of a step function on potential output at CURL, and then I have a quick follow-up.
Speaker Change: Yeah, thanks. Thanks for the question.
Speaker Change: I might come at that a slightly different way.
Speaker Change: You know
Speaker Change: our ability to grow volumes that
Speaker Change: at CURL is not directly dependent on doing additional maintenance. It's really about ensuring we've got kind of the right equipment, we've got the right maintenance procedures, such that we can minimize downtime. You know, there's no
Speaker Change: backlog of activity that that if we undertook a longer turnaround that would allow us to make a step change improvement.
Speaker Change: And in fact, what we continue to look at is what can we do to reduce the amount of downtime we have for turnarounds.
Speaker Change: and you may recall that you know you go back a few years we were doing two turnarounds per year at Curl and each one of those was around
Speaker Change: 35 days, so around 70 total days of turnaround in a year, and then we moved to one per year, so we went from 70 days to 35 days.
Speaker Change: Thank you very much.
Speaker Change: and since then we've been on a journey of how can we be more efficient with that one downtime. So instead of 35 days
Speaker Change: The one we've just executed this year was less than 20 days. So we've gone from 70 days to 20 days.
Speaker Change: And with each reduction in day of downtime, obviously comes more production on an annual basis.
Speaker Change: So that's really the journey we're on, is how can we reduce scheduled downtime. Now certainly, we want to make sure we're reducing unscheduled downtime as well. And when you think about a step change to get us, you know, from 280 to 290 to 300,
Speaker Change: We are pursuing very specific projects
Speaker Change: that will allow us to do that, specific capital projects.
Speaker Change: And, you know, there will be incremental costs for those. There'll be, you know, depending on the nature of the project, there may have to be some tie-ins to existing.
Speaker Change: kit that we have and you know we'll schedule that during kind of the normal plan turnarounds but I hope that gives you a kind of a bit of color for how we're approaching that.
Speaker Change: Yeah, no, it does Brad. Thank you. And so basically just kind of staying with the shorter cycle times on on the plan maintenance schedule and then
Speaker Change: I mean, I think it's alluded to on the modest CapEx increase here to the tail end of the year, but how should we, and I think you've dangled the carrot for December 12th, but...
Speaker Change: I think we're all trying to get at the same thing. I mean, the assets and the portfolios.
Speaker Change: performing strong, kind of across the board, Grand Rapids maybe kind of quietly there as well. How do we think about the growth plans, the capital spend in comparison to the the five-year plan that was laid out previously which was
Speaker Change: effectively no growth. And obviously that's not really what the assets are doing here through year to date. So can you try to get us to kind of a cadence of how we should think about volumes into 2025?
Speaker Change: Yeah, well, I think that is something we want to reserve for the December 12th call specific to 2025 guidance.
Speaker Change: Thank you.
Speaker Change: But, I mean, I think you can infer, based on our track record over the last few years, that we're going to continue to challenge our individual assets.
Speaker Change: to continue to perform at higher and higher levels.
Speaker Change: and that higher and higher levels means more volume, lower costs. And I think you'll see that in the 2025 guidance as we share that in December. And then when you look at the five-year plan, we're updating the five-year plan to reflect that as well. And so
Speaker Change: You know and I kind of
Speaker Change: gave some indication of where we're going with PERL. You know, where we're going is we're going from 280 to 300 over
Speaker Change: Over a certain timeline it won't all be
Speaker Change: in one year, it'll be a several year journey, and we're gonna bring those costs down below $20. And there's a similar story, an analogous story, at Cold Lake, what we're doing at Cold Lake with bringing on Grand Rapids at 15, you know, maybe 20,000 barrels a day now.
Speaker Change: what we're doing with lambing at 9,000 barrels a day next year. And those are also allowing us to reduce our unit costs. So that'll be the theme, more volumes, lower costs. But the exact numbers, I'll save that till December 12th.
Speaker Change: Okay, appreciate that. I tried and I'll hand it back and maybe you can bring Spot to the day in the spring.
Speaker Change: Thank you.
Speaker Change: All right, there you go. That's an idea.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Neil Mehta with Goldman Sachs.
Neil Mehta: Yeah, good morning team. Sorry about that earlier. Thanks for all the comments. I just had a couple on the low carbon stuff, which is first on renewable diesel with Strathcona coming online. We've seen in the United States really challenging
Neil Mehta: economics of the assets that have come into service and a lot of that is, I think.
Speaker Change: It could be idiosyncratic to the U.S., but I'm just curious on your perspective on how the mid-cycle economics of renewable diesel have evolved in Canada, and what are the market conditions as you bring that asset into service?
Speaker Change: Yeah, thanks for the question, because I.
Speaker Change: As we talk about our renewable diesel project at Strathcona, I do like to differentiate.
Speaker Change: the underlying economics of our project versus
Speaker Change: you know, what you see or read about in the U.S. or maybe other projects. We continue to feel very good about the economic fundamentals of our renewable diesel project. We expect to deliver solid.
Speaker Change: economic returns that are accretive to our portfolio. And why is that? What's different? Well, several things. One is
Speaker Change: We are leveraging our existing scale of Strathcona refinery
Speaker Change: literally in the middle of the Strathcona refinery. So we're we're leveraging the utilities, we're leveraging, you know, rail infrastructure, we're leveraging existing staff. All that thing results in lower capital, lower operating costs.
Speaker Change: Then on top of that
Speaker Change: The crop that we're going to be using for the feedstock oils
Speaker Change: are all locally available. So the costs of transportation for that crop are relatively low versus what others may see in the U.S., for example.
Speaker Change: And then on top of that, we are using some proprietary technology from ExxonMobil, a specific catalyst.
Speaker Change: that will allow us to produce a drop-in diesel product.
Speaker Change: that is effective over a much wider range of temperature conditions than existing biodiesels in the U.S. And so, what that means is, our
Speaker Change: Our purchasers can use this diesel, not just in the summer months, which is what's common.
Speaker Change: historically, but they can run it in the winter months as well. And we'll be doing the same, you know, we plan to use this renewable desalect curl, for example, and we're planning to use it year-round.
Speaker Change: and so having that greater degree of operating flexibility allows it to not only be in higher demand because it's unique but also you know allows us to see a
Speaker Change: a premium value for. And then lastly, I would say, is the support of regulation. You know, we in Canada, and this is different from the US, we have the federal clean fuel regulations.
Speaker Change: Thank you.
Speaker Change: and there are other provincial considerations like in British Columbia they have a clean fuel standard and all of those underlying regulations also provide additional economic support. So when you put all that together, very different than in the U.S. but quite economic for us.
Speaker Change: All rights reserved. Copyright © 2020, New Thinking Allowed Foundation All rights reserved.
Speaker Change: That's helpful. Brad, you wouldn't be comfortable putting a dollar-per-gallon kind of view of what mid-cycle economics would be on an EBITDA basis for renewable diesel, would you?
Brad Corson: Well, I'm not comfortable sharing that sort of number.
Brad Corson: today, maybe not even in the future, but you know, because there's commercial considerations there. But what I would say is
Brad Corson: You know, we are.
Brad Corson: We are planning to spend
Brad Corson: you know, a fair amount of time at Investor Day, talking more specifically about this project.
Brad Corson: kind of the economic considerations because we do recognize that what we have is very unique and it may be difficult for the market, for the analysts.
Brad Corson: to kind of see what that value proposition is until we're up and running, and then you'll be reading about it every quarter and, you know, and you'll see the incremental value, but before then, we'd like to lay out maybe a more comprehensive story on that.
Brad Corson: So, some more to come.
Speaker Change: Okay, I know we're over time, but one last one for me, which is the latest on Pathways. Can you just help us understand the latest in terms of the state of play, what the gaining items are, and what we can...
Speaker Change: expect as the next key milestone around this initiative.
Speaker Change: Well, and I laid out some of those kind of summary updates. I think what's real key is
Speaker Change: The next big milestone is for the Pathways companies.
Speaker Change: at some point hopefully reach an agreement with the federal and provincial governments as to kind of the the the aggregate fiscal
Speaker Change: package and framework.
Speaker Change: And once we have the right economic framework in place, then we will be in a position to go order the line pipe that we need for this 400 kilometer pipeline.
Speaker Change: Because we do see that as critical path going forward and so we want to move this
Speaker Change: forward as much as we can, but there comes a point that it'll be time to order the pipes.
Speaker Change: and make a large investment, and we need to have the right fiscal framework.
Speaker Change: certainty
Speaker Change: for our companies, for our investors, you know, at reasonable economic returns.
Speaker Change: before we can make those big investments. So that's what you should be looking for is, you know, when do we get kind of the final terms with the governments and then when do we place the order for PIPE?
Speaker Change: There's a lot of other things going on around that that are also important for the project longer term. You know, each company is working on their individual capture projects.
Speaker Change: There's a lot of
Speaker Change: engineering work and ultimately permitting work that's required for the pipeline and a big part of that's also
Speaker Change: indigenous relationships with all the communities that that are along the pipeline route and so those discussions are ongoing as well but the most critical thing is this pipe order
Speaker Change: And I'm optimistic that we'll get those terms and we'll keep it on track, but there's still a lot of work to do there.
Speaker Change: All right, well stay tuned. Thank you, Brad.
Speaker Change: Thank you.
Speaker Change: We do not have any further questions. I would like to turn the call back to Mr. Peter Shaw, Vice President of Investor Relations, for closing remarks.