Q3 2024 Imperial Oil Ltd Earnings Call
Good day and welcome to the Imperial oil third quarter 'twenty 'twenty four 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 Shah Vice President of Investor Relations. Please go ahead.
Peter Shah: 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, Dan Lyons Senior Vice President Finance and administration, Sharon <unk> Senior Vice President of sustainability and commercial development and Prada.
Solutions, and Cheryl <unk> Smith senior Vice President of the upstream.
Todays comments include reference to non-GAAP financial measures the definitions and reconciliations of these measures can be found in attachment six of our most recent press release and are available on our website with a link to todays conference call.
Peter Shah: Todays 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 Shah: Forward looking information and the risk factors and assumptions are described in further detail on our third quarter earnings release that we issued this morning as well as our most recent Form 10-K.
Peter Shah: All of these documents are available on SEDAR, plus Edgar and our website. So I'd ask you to refer to those.
Speaker Change: Brad is going to start with some opening remarks, and then hand it over to Dan who is going to provide a financial update and then Brad will provide an operations update once that is done we will follow with a 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, which more than offset the reduction in price realizations due to the softening of WT high prices and with Tia mix in operation, we are seeing the value of additional egress and narrower and more stable deferred.
Brad Corson: <unk> 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 planned turnaround activity and softening of refinery crack spreads all three of our manufacturing assets continue to realize the structural benefits of advantaged feedstocks and import parity pricing and.
Brad Corson: The Canadian market.
Brad Corson: So now let's review the third quarter results.
Brad Corson: Earnings for the quarter were $1 $237 million with cash from operating activities of $1.797 billion when excluding the impact of working capital I am very proud of the organization's ability to deliver on what is within their control, namely strong <unk>.
Brad Corson: Operational results and structural cost improvements, which positioned us to offset the moderation in crude 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 447000 gross oil equivalent barrels per day in the third quarter. This marks our highest third quarter production over the past 30 years, even when including the historical volumes associated with the divested assets.
Brad Corson: Our focus on structural cost reductions coupled with strategic volume growth.
Brad Corson: Have driven a unit cost savings of over $3 U S. A barrel when comparing to year to date.
Brad Corson: 2023.
Brad Corson: <unk> continued the year with yet another fantastic quarter and match the assets record for highest third quarter production.
And with 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 280000 barrels per day for the year on a gross basis.
Brad Corson: I'm also thrilled by the performance at Cold Lake, We had a very strong quarter that included the successful ramp up of production from our Grand Rapids Phase One project, which is the industry's first solvent assisted Sag D operation, which more than offset the impact of the planned turnaround activity.
Brad Corson: In the downstream, we continue to see strong operating performance as well, including the safe execution of turnarounds at both Nanticoke and stress Kona, which were below budget and ahead of schedule.
Brad Corson: Finery throughput averaged 389000 barrels per day, which equates to a refinery.
Brad Corson: Utilization in the quarter of 90% in a year to date utilization of 91%.
Brad Corson: With the last of our planned upstream and downstream turnaround activity completed in October we.
Brad Corson: We are now well positioned for a strong finish to the year.
Brad Corson: Overall, we continued 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 issuer 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 starting with financial results for the third quarter. We recorded net income of $1 $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.
When comparing sequentially third quarter net income is up $104 million 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 each business line and looking sequentially.
Dan Lyons: Extreme earnings of $1 $27 million are up $228 million from second quarter, primarily due to higher volumes and lower opex, partially offset by lower realizations downstream earnings of $205 million are down $89 million from second quarter, mainly.
Dan Lyons: Reflecting lower refining margins.
Finally, our chemical business generated earnings of $28 million down $37 million from the second quarter, primarily driven by our business segmentation shift of aromatic products from our chemical segment to our downstream segment.
Dan Lyons: There is no impact on our consolidated financial results, but there was a onetime 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 K T moving from.
Dan Lyons: The chemical segment to the downstream segment, we made this shift because we now see aromatic is more closely aligned with our downstream finished products and with our chemical business, we will steward and report our business on this basis going forward.
Dan Lyons: Moving on to cash flow in the third quarter, we generated $1 $487 million in cash flows from operating activities, excluding unfavorable working capital effects of $310 million cash flows from operating activities for the third quarter were about $1 8 billion.
Dan Lyons: Up $289 million from the second quarter of this year, which brought our ending cash balance to about one 5 billion.
Shifting to Capex capital expenditures totaled $486 million in the third quarter up $99 million from the third quarter of 2023 in the upstream third quarter spending focused on sustaining and growing production at curl Syncrude and cold Lake.
Dan Lyons: In the downstream third quarter spending mainly included progressing how renewable diesel project at Kona.
Dan Lyons: Year to date 2020 for capital expenditures of $1 $444 million or $135 million higher than the comparable period in 2023 to support the momentum in our business, we've chosen to spend somewhat more than we initially anticipated.
Dan Lyons: As such we expect to finish this year modestly higher than the $1 $7 billion guidance. We provided in December of last year.
Dan Lyons: Shifting to shareholder distributions in the third quarter of 2024, we continued to demonstrate our longstanding commitment to return surplus cash to our shareholders.
Dan Lyons: We paid $322 million of dividends and returned an additional $1 $2 billion two accelerated share repurchases under our normal course issuer bid program. We made on remain on track to fully complete the program by year end buying.
Dan Lyons: Finally, this morning, we announced a fourth quarter dividend of <unk> 60 per share consistent with our third quarter dividend now.
Speaker Change: Now I'll turn it back to Brad to discuss our operational performance.
Speaker Change: Stan.
Brad Corson: Upstream production for the quarter averaged 447000 oil equivalent barrels per day and as I mentioned earlier. This represents the highest third quarter production and over 30 years production was up 43000 barrels per day versus the second quarter and up 24000 bear.
Brad Corson: <unk> per day versus the third quarter of 2023 year to date production is on a record pace and is 25000 barrels per day or about 6% higher than 2023 year to date.
Brad Corson: So now let's move on and talk specifically about hurdle <unk>.
Brad Corson: <unk> production in the third quarter averaged 295000 barrels per day, gross which is up 40000 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 310000 barrels per day in October which is looking like another record for the month.
Brad Corson: Turning to operating costs I am extremely pleased to share the progress hurdle continues to make on its journey to achieving our annual unit cash cost target of $20 <unk> per barrel.
Brad Corson: <unk> unit cash operating costs in the quarter were $17 51.
Brad Corson: <unk> per barrel.
Brad Corson: With higher volumes greater mine productivity favorable energy costs, and the absence of turnaround activities.
Brad Corson: <unk> costs decreased by almost $5 U S per barrel versus the second quarter.
Brad Corson: Compared to the third quarter of 2023, where we essentially had the same volumes unit costs are almost $3 U S per barrel lower a reduction of over 13%.
Brad Corson: On a year to date basis, our unit cash cost of $20 21.
Brad Corson: <unk> per barrel is nearly $4 U S per barrel lower than last year, and well on track to achieve $20 U S per barrel or lower for the full year.
Brad Corson: I would like to acknowledge the hard work and effort that the <unk> team delivered and continues to deliver and improving our unit costs.
Brad Corson: So now turning to Cold Lake.
Brad Corson: For the third quarter Cold Lake production averaged 147000 barrels per day, which was flat versus the second quarter and up 19000 barrels per day versus the third quarter of 2023.
Brad Corson: During the quarter strong production from the new Grand Rapids project.
Brad Corson: And the better than planned mass turnaround performance allowed us to sustain high production levels.
Brad Corson: Turnaround was safely completed two weeks ahead of schedule, resulting in about 4000 barrels per day of incremental production over our quarterly turnaround guidance strong production along with lower energy costs resulted in unit cash costs of $12 85.
Brad Corson: <unk> per barrel, which is a decrease of over $5 U S per barrel compared to the same quarter last year.
Brad Corson: On a year to date basis, our unit cash costs of $15 seven.
Brad Corson: U S 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 10000 barrels per day, and we're well on our way to reach and the expected 15000 barrels per day as the final pumps were being installed.
Brad Corson: For the third quarter Grand Rapids achieved an average of 15000 barrels per day, while realizing an average of 20000 barrels per day for the month of September.
Brad Corson: And on an instantaneous basis, we have seen peak rates of 22000 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 15000 barrels per day.
Brad Corson: This marks an important milestone in our strategy to transform our production that cold Lake 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 Sag D. We expect phase one alone will lower hold lakes unit costs by around $1 U S per barrel, while also reducing our emissions intensity or.
Brad Corson: Our cold Lake strategy includes additional phases of Grand Rapids development alongside other opportunities such as the Lemming Sag D redevelopment project.
Brad Corson: Lemming.
Brad Corson: Is another great example of our strategy to maximize value from our existing assets. This project is returning to coal Blake's initial pilot location, which was started up over 40 years ago to further develop that resource using <unk> technology construction of the new facilities continued.
Brad Corson: Throughout the quarter and we are progressing on plan to begin steam injection at lending in late 2025 with peak production expected to average about 9000 barrels per day in 2026.
Brad Corson: Now a few comments on Syncrude and.
Brad Corson: Imperial's share of Syncrude production for the quarter averaged 81000 barrels per day, which is up 15000 barrels per day versus the second quarter and up 6000 barrels per day versus the third quarter of 2023.
Brad Corson: During the quarter Syncrude to utilize the interconnect pipeline to import bitumen driving higher upgrader utilization rates and producing about 9000 barrels per day, our share of incremental Syncrude sweet premium.
Brad Corson: At the end of October Syncrude completed 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 389000 barrels per day, reflecting a utilization of 90%.
Compared to the second quarter, when we had turnarounds at stress Kona and Sarnia, we processed an additional 2000 barrels a day in the third quarter refi.
Brad Corson: Refining throughput was partially offset by additional plant turnaround work at stress Kona and nanticoke, both of which are now complete.
Brad Corson: Our year to year to date utilization of 91% positions us well to achieve the high end of our full year guidance of 89% to 92%.
With the completion of the stress Kona turnaround, we added additional operational flexibility to co process plant based feedstocks at that refinery 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 nanticoke turnaround was the largest turnaround across the company this year and I am extremely proud of the team for executing the sites. Most successful large turnaround event in decades with completion ahead of schedule and below budget. This achievement leverage refining capabilities within the <unk>.
Brad Corson: <unk> and Exxonmobil network, bringing people in from Imperial and Exxonmobil refineries across North America to provide assistance.
Brad Corson: From a financial perspective are structurally advantaged 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 stress Kona refinery that will add 20000 barrels a day of throughput capacity when completed in the first half of 2025 I'm very pleased with the progress of the construction, which will continue into next year.
Brad Corson: The stress Kona 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.
Speaker Change: Petroleum product sales in the quarter were 487000 barrels per day, which is up 17000 barrels per day versus the second quarter and up 9000 barrels per day versus the third quarter of 2023 inclusive of the business segmentation shift that Dan mentioned.
Brad Corson: And earlier.
Brad Corson: Overall, we continue to see resilient demand in Canada with gasoline and diesel at approximately 90% and jet at about a 100% compared to 2019.
Brad Corson: Turning now to chemicals earnings in the third quarter were $28 million, which was down $37 million versus the second quarter.
Brad Corson: The lower earnings in the third quarter is mainly due to the $31 million shift.
Brad Corson: To include earnings from the Aromatics business in the downstream segment.
Brad Corson: Chemical earnings for the third quarter, excluding this shift would have been $59 million down $6 million from the prior quarter.
Brad Corson: Earnings in the quarter were up $5 million versus the third quarter in 2023 due to stronger margin environment in 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 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 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 <unk> 30 list. We were recognized as one of the top 30 companies on the FX 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 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: Multiple planned turnarounds.
Speaker Change: I am pleased to have shared the very encouraging initial production from our Grand Rapids project and look forward to the completion of the stress 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 planned 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 issuer bid 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 12, as we issue our annual guidance for 2025, and we are also planning an investor day with a 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 will move to the Q&A session and I will pass it back to Peter.
Peter Shah: Thank you Brad is always be depreciated, if you could limit yourself to one question plus a follow up so that we can get to as many questions as possible. So with that operator could you. Please open up the phone line for questions.
Speaker Change: Thank you if you would like to ask a question. Please signal by pressing star one 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 reach our equipment again that is star one to ask a question we will pause for just a moment to allow everyone an opportunity.
Speaker Change: This signal for a question.
Speaker Change: We will take our first question from Manav Gupta with UBS.
Manav Gupta: Congrats on another strong quarter. My question here is my thinking on the Syncrude strong performance there.
Manav Gupta: Just help us understand what are the realized benefits youre seeing of this by the different kind of pipeline how is it helping you deliver stronger results at Syncrude.
Speaker Change: Yeah. Thanks for the question Manav and as Youll recall, we had this bi directional pipeline in service for a couple of years now.
Speaker Change: And we see multiple benefits in that it allows us flexibility to both import.
Speaker Change: <unk> at times, when we have the need for additional volumes, we have additional capacity to process downstream, we can keep those downstream facilities full and.
Speaker Change: Similarly, if we have any.
Speaker Change: Any constraints in those downstream facilities, we can we can shift.
That bitumen over two to Suncor is operation.
Speaker Change: Fundamentally it just provides.
Speaker Change: Broader redundancy and how we optimize the operation of those units.
Speaker Change: We continue to see several thousand barrels a day of uplift.
Speaker Change: Year over year as a result of that so it's been it's been a very.
Speaker Change: Value accretive investment that we've made and we continue to feel quite good about it.
Speaker Change: Perfect and my second question is it looks like.
Speaker Change: Phase one is even going better than planned.
Speaker Change: How should we think about further opportunities for this imminent opportunity that asset.
Speaker Change: Yes, thanks for that recognition and certainly <unk>.
Speaker Change: Share your optimism it is.
Speaker Change: It is going better than planned.
Yeah.
Speaker Change: I have to caution that its still early days.
Speaker Change: We've only been producing crude for for a few months I think first oil was back in may as I recall so.
We're continuing to ramp it up we are continuing to optimize.
Speaker Change: Kind of the reservoir performance optimizing the injection rates of of steam and diluent.
Speaker Change: But all the indicators are looking very positive and so what that means looking ahead is again further validation of our strategy with that same Sag D.
Speaker Change: We've mentioned in the past that we have up to 10 phases of potential Grand Rapids development. So maybe not surprisingly with these encouraging results.
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. These these early successes. So the team is evaluating those options but.
Speaker Change: Safe to say that we do see.
Speaker Change: Multiple more phases of development and we're going to be advancing those in.
Speaker Change: That's one of the exciting things about <unk>.
Speaker Change: Our Investor day planned for the spring of 2025 is will be in a position to lay out more of those plans.
Speaker Change: Again, I think the bottom line is 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: We will take our next question from Neil Mehta with Goldman Sachs.
Speaker Change: We will take our next question from Neil Mehta with Goldman Sachs.
Speaker Change: Hi, Neil can you hear us.
Speaker Change: Operator, maybe we can go to the next question and we can come back to Neil.
Speaker Change: Yes, we will take our next question from Menno <unk> with TD Securities.
Speaker Change: Thanks, and good morning, everyone I'll, maybe start with a question on Digitization since it it feels like we havent talked about it.
Speaker Change: In a while can we just get a refresh on where you are currently focusing.
Speaker Change: Your digitization efforts in what is a reasonable expectation for annual investment in 2025 and beyond.
Speaker Change: Yes, thanks for the question.
You're right, maybe we haven't talked about much recently, but.
Speaker Change: That's no reflection on kind of the business focus on it there's a lot of work going on to continue to.
Speaker Change: To leverage technologies available to us to continue to.
Speaker Change: Explore applications of new technologies, what we shared at our last Investor day was the.
The potential value.
Speaker Change: Well over $1 billion that we could anticipate from further.
Speaker Change: Digital technologies 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: The one that we have been talking a lot about lately is what we've done with autonomous haul trucks.
Speaker Change: That's just a great achievement for us that we now operate fully.
Speaker Change: Economists mind 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: <unk> seen both cost and productivity benefits and also kind of underlying that is improved safety performance or lower risk of safety incidents. So we feel quite good about that.
Speaker Change: I've 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 and 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 do.
Differ.
Speaker Change: Opening up other units that don't have any indications of issues and we're inside of 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 is as part of that we also featured.
Speaker Change: What we're doing with <unk>.
Speaker Change: Kind of a robotic dog and who we've named spot and spot is helping supplement our operation staff by.
Speaker Change: Regular monitoring of AV equipment performance, allowing us to have more real time data and also gathering that data in a more efficient way and so those are just a few examples but there's many of them.
When it comes to digital technologies, it's not a short list of three four or 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 and in the spring of next year I'm sure we will showcase.
Speaker Change: Any.
Speaker Change: 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 our basin egress and the MRI Enbridge mainline specifically it looks like we're starting to see low single digit apportionment again for November.
Speaker Change: Question is do you know what is driving that and are you surprised to see it with <unk> X just having wrapped up.
Speaker Change: Yes. It is.
Speaker Change: Great question.
Speaker Change: We're not surprised at all by the lower <unk>.
Speaker Change: <unk> what it reflects I think is some rebalancing of volumes between the Enbridge system of the Tms system based on <unk>.
Speaker Change: Based on producers' volume commitments on <unk>.
Speaker Change: <unk>.
Speaker Change: Overall, I think it's it's a great story for industry that.
Speaker Change: <unk> has now been started up.
We have more egress capacity.
From the basin through Enbridge and through <unk>. 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 stability.
Speaker Change: Two the market such that we are now seeing a narrower.
WCS differential and we're seeing that differential be more stable so I.
Speaker Change: I think it's a great result for Canada. It's a great result for our industry and it is 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 Pardy with RBC capital markets.
Greg Pardy: 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 Pardy: 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.
Give us any idea as I'd like.
Greg Pardy: Still under 1 billion eight or so or what have you any color there would be great. Thanks.
Greg Pardy: Sure.
Speaker Change: Yeah. Thanks, Thanks, Greg.
Speaker Change: As you are I'm sure well aware.
Speaker Change: When when we look at our capital program, we have multiple projects that span multiple years.
Speaker Change: And so there is always.
Speaker Change: Some shifting of capital from from one year to the next as we as we optimize execution.
Speaker Change: What we're also seeing and I view it as a great positive is theres a lot of momentum in our organization right now above <unk>.
Speaker Change: Maximizing profitable volumes and and with that.
We are.
Speaker Change: Pursuing all economic opportunities that that allow us to increase production and those economic opportunities some of them.
Speaker Change: Our our opex related some of them are capex related and so so you're seeing that.
Speaker Change: But on balance I think it's a really good thing.
Speaker Change: Ban.
Speaker Change: I guess you used the word.
Speaker Change: Modest modest increase.
Speaker Change: We.
Speaker Change: Finished out last year.
Speaker Change: Most of the $1 $8 billion.
Speaker Change: Of capital this year, we're trending slightly above that rate.
Speaker Change: And so I would say, where we are year to date is somewhat reflective.
Speaker Change: Relative to our $1 seven guidance.
Speaker Change: Again, I kind of hate to put out an exact number but.
Speaker Change: You can look at the trends the projections.
Speaker Change:
Speaker Change: We're going to be somewhere between.
Speaker Change: One eight and 109.
Speaker Change: Somewhere in that range I think it's a good thing because again, it's translating the profitable volumes.
Speaker Change: Okay.
Yes, no no I mean, youre, a super low capital intensity business to begin with.
Speaker Change: Okay.
Speaker Change: Exactly.
Speaker Change: Think about we.
Speaker Change: <unk> talked in the past at Investor day about <unk>.
Speaker Change: Sustaining capital of around I don't know $5 per barrel or something well I mean, we're producing more barrels right.
Speaker Change: And so with that comes some some sustaining capital requirements, but net net it's a really positive thing.
Speaker Change: Yes, no great. Okay, maybe just a follow up a little bit about what Menno was was asking about but.
Speaker Change: Everybody.
Speaker Change: Everybody is dark.
Speaker Change: It 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: When do we start to see more of a balanced any aggressive 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 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 interest in that I know as I travel around and meet with investors.
Speaker Change: And analysts.
Speaker Change: From our perspective.
Speaker Change: 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:
Speaker Change: Based on existing capacity.
Speaker Change: But we also feel like there will likely be additional capacity that will be achieved.
Speaker Change: Achieved both in the Enbridge system and in the Tms system.
Speaker Change: As those operators look for further debottlenecking.
Speaker Change: And so that's going to extend even longer P&L.
Speaker Change: The capacity available to the industry as we look at individual growth projects.
Both both in the near term and the long term looking much further down the road like Aspen.
Speaker Change: We don't have any concerns about egress and so 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.
Speaker Change: But we feel really good about egress.
Speaker Change: Alright, good thanks, Brad.
Greg Pardy: Thanks, Greg.
Speaker Change: We will take our next question from Doug Leggate with Wolfe Research.
Thank you Hey, Brian Thanks for taking my taking my questions.
Speaker Change: I'm guessing you've got some some competition on the U S majors today so.
Doug Leggate: Thanks for getting me on.
Doug Leggate: So.
Doug Leggate: Clearly Europe Ching to give us an update on.
Doug Leggate: The operations with the analyst day, and the coal Youre going to do in December but.
Doug Leggate: Im not trying to get ahead of that too much but when you say that Carol is doing 310000 barrels a day in October.
Doug Leggate: On your operating costs are below $18.
Speaker Change: It kind of seems that the writings on the wall as to where this is headed.
Speaker Change: 200000 below the average.
Speaker Change: 2022 analyst day was a stretch goal for the future.
Speaker Change: Too much of a stretch to say that you are there and there is an upside case to that in which case, maybe you could frame for us how do you see sustainable capacity on an annualized basis.
Operating costs below 18 would pick your best in class, just maybe frame it for us a little bit she couldnt I've got a follow up predominantly.
Speaker Change: Yeah. Thanks, Thanks, Doug.
Speaker Change: And Youre right that Theres, a lot going on with the with earnings releases and calls today, but I. Appreciate you taking time to join ours and thanks. Thanks for your question.
Speaker Change: We are.
Speaker Change: Definitely excited about.
Spending some time on December 12, laying out our guidance for 2025.
Speaker Change: But then also the.
Speaker Change: The Investor Day, we are planning in the spring as well because we have made significant progress.
Really across all of our assets.
Speaker Change: On some really important fundamentals around volume cost efficiency.
Speaker Change: <unk>.
Speaker Change: All with an objective.
Speaker Change: Achieving best in class and and resiliency for our portfolio. So a lot of good things to talk about.
Speaker Change: Karl will certainly be feature in.
Speaker Change: And those discussions and Youre right a couple of years ago.
Speaker Change: There were probably a lot of people that were skeptical of our ability to reach 280000 barrels a day and $20 U S.
Speaker Change: But we have clearly demonstrated our ability to do that.
Speaker Change: Quite confidently.
Speaker Change: At our last Investor day, I kind of teased out the <unk>.
Speaker Change: Potential for 300000 barrels a day in the future.
Speaker Change: Since then our teams have been actively working on very specific plans to achieve 300000 barrels a day.
So I remain optimistic that we will achieve 300000 barrels a day in a reasonable timeframe.
Speaker Change: And what we'll do at Investor Day is is lay out what that timeframe looks like and then on costs I am glad you raised that because we really haven't talked much about anything other than $20 U S.
And we've been laser focused on that but as this quarter's results illustrate and this year's results illustrate that we do have our arms around $20 U S and as I mentioned this last quarter was $17 50, So we know how to do.
Speaker Change: Oliver something less than $20, 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 going to give you a new number today, we'll save that excitement.
Speaker Change: For for our call.
Speaker Change: But it will be a material improvement and it will bring us to best in class that's the goal.
Speaker Change: And all of that translates to more volatile more value for our shareholders more cash flow.
Speaker Change: All that comes with <unk>.
Speaker Change: Based on more volumes at a lower cost.
Speaker Change: Yeah.
Speaker Change: So it's really exciting thank you.
Speaker Change: Thank you for that as far as getting on the call, but you know.
Speaker Change: Amazing to think your stock in the last five years has been the best performer.
Speaker Change: The entire energy space in a period of at least an hour coverage and so congratulations on not.
Speaker Change: However, a big part of that is obviously been your dividend strategy your dividend policy.
Speaker Change: I wanted to try and touch on what happens at $70 oil I guess, where oil has been sleeping on.
And it really relates to.
You had a little bit of a cash burn this quarter.
Speaker Change: Your ASI B, I guess depends on oil being north of 70.
Speaker Change: Beyond the CIB. So I guess my question is would you be put an under levered balance sheet, we do prepare to lean on your balance sheet to maintain.
Speaker Change: Some element of <unk> in your buyback and how does the.
Speaker Change: How do you think about the dividend growth story going forward is going to be a dumb question, but Tom.
Speaker Change: I'll leave it there thank you.
Speaker Change: Yeah, Thanks for that Doug and.
Dan Lyons: Dance dance here chomping at the bit to answer that question. So.
Speaker Change: I will defer to him, but the one thing I would mention before Dan gets into the details as just a reminder, that our visit because you mentioned $70 a barrel.
Dan Lyons: Our corporate breakeven to cover all of our sustaining capital and our dividend.
Dan Lyons: Is around $35 a barrel so.
Dan Lyons: We see value accretion.
Well a significant opportunity.
Dan Lyons: Opportunity between $35 to $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 yes, yes, firstly regarding our dividend philosophy philosophy as we've talked about before.
Dan Lyons: Reliable and growing dividend is sort of a bedrock of obviously, our dividend philosophy and our overall cash return philosophy.
Dan Lyons: And we're at 60 cents a share now.
Dan Lyons: When I arrived here in 2018, we were 16, so we've grown at an error.
Dan Lyons: Our goal is obviously.
Dan Lyons: Within the bounds of what makes sense and what's sustainable to keep growing that in a robust way going forward. So so that's unchanged.
Dan Lyons: Regarding.
Dan Lyons: Free cash flow beyond that.
Dan Lyons: Our policy our philosophy, there is to return that to shareholders in a timely manner through the NCI and <unk>.
On your question around.
Dan Lyons: Would we go ahead.
Dan Lyons: Borrow money.
To do an S. IV that has not been our practice in the past and what we said is.
Dan Lyons: We're comfortable with our debt level, we're not looking to lower that further I mean, you are right. We are leverage levels are quite low.
Dan Lyons: So I would say it has not been our practice to borrow to do <unk>.
Dan Lyons: So look none.
Dan Lyons: <unk> completely off the table, we consider everything but based on past history I wouldn't.
Dan Lyons: That wouldn't be the first place we go.
Dan Lyons: So.
Dan Lyons: I think the base assumption.
Dan Lyons: Is.
Dan Lyons: Sure.
Dan Lyons: In most all cases, we continue the NCI EBIT, it's always always price dependent and surplus cash beyond that we're going to look.
Dan Lyons: Historically, you've looked at <unk> and that sort of our first quarter call going forward, but we are open we will open our aperture of course too.
Dan Lyons: Always of returning surplus cash, but based on past practice I think.
Dan Lyons: Where our heads at.
Speaker Change: Thanks, so much.
Speaker Change: 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.
Travis Wood: <unk> talked lots about the opportunities that curl.
You're on a pretty short cycle turnaround activity, there, but are there opportunities to step into a larger maintenance program in and come out of the back end of that was more of a step function on potential output at Kearl 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: No.
Our ability to grow volumes at.
Speaker Change: At Pearl is not directly dependent on doing additional maintenance, it's really about ensuring that kind of the right equipment, we've got the right maintenance procedures.
Such that we can minimize downtime.
Speaker Change: No.
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.
Speaker Change: The amount of downtime, we have four turnarounds and you may recall that you go back a few years, we were doing two turnarounds per year at Kearl and each one of those was around 35 days. So around 70 total days of turnaround in a year and then.
Speaker Change: We moved to one per year. So he went from 70 days to 35 days.
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. The one we've just executed this year was less than 20 days. So we've gone from 70 days to 20 days and and with each reduction in day of downtime obviously.
It comes more production on an annual basis.
Speaker Change: So that's really the journey. We're on is how can we reduce.
Speaker Change: 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 from $2 80 to $2 90 to 300.
Speaker Change: We are pursuing very specific projects that will allow us to do that specific capital projects and there will be incremental costs for those there'll be depending.
Speaker Change: Depending on the nature of the projects that we may have to be.
Speaker Change: Some tie ins to existing <unk>.
Speaker Change: Kit that we have and we'll schedule that during kind of the normal planned turnarounds, but I hope that gives you kind of a bit of color for how we're approaching that.
Speaker Change: Yes, no. It does Brad Thank you and I said, so basically just kind of staying with the shorter cycle times on the planned maintenance schedule and then I mean, I think it's alluded to on the modest cap.
Speaker Change: Capex increase here to the tail end of the year, but how should we and I think you've dangle the carrot for December 12.
Speaker Change: I think we're all trying to get at the same thing I mean, the assets in 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.
Speaker Change: 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 through year to date. So can you try to get us to a kind.
Speaker Change: Kind of a cadence of how we should think about volumes into into 2025.
Speaker Change: Yes, well I think that is something we want to reserve for the December 12 call specific to 2025 guidance.
But I mean, I think you can infer.
Speaker Change: Based on our track record over the last few years that we're going to continue to challenge our individual assets to continue to perform at higher and higher levels.
Speaker Change: That higher and higher levels means more volume lower costs, and I think youll see that in the 2025 guidance.
Speaker Change: As we share that in December and then.
Speaker Change: When you look at the five year plan, we're updating our five year plan to reflect that as well and so.
Speaker Change:
Speaker Change: And I kind of gave.
Speaker Change: We gave some indication of where we're going with <unk>, where we're going as were going from $2 80 to 300 over.
Speaker Change: Over a certain timeline it won't all be in.
Speaker Change: In one year it will be a several year journey and we're going to bring those costs down below $20 and there is a similar story in analogous story at Cold Lake what we're doing at Cold Lake with bringing on Grand Rapids at 15.
Speaker Change: Maybe 20000 barrels a day now what we're doing with landing at 9000 barrels a day next year and those are also allowing us to.
Speaker Change: To reduce our unit costs, so that will be the theme more volumes lower costs, but the exact numbers I'll save that until towards <unk>.
Speaker Change: December 12.
Speaker Change: Okay I appreciate that I tried and I'll hand, it back and maybe you can bring spot to the per day in the spring.
Speaker Change: Yeah.
Alright, 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.
Neil Mehta: Thanks for all the comments.
Neil Mehta: Had a couple on the <unk>.
Neil Mehta: Low carbon stuff, which is first.
Neil Mehta: First on renewable diesel with Strat comm coming online we've seen in the United States really challenging.
Neil Mehta: The economics of the assets that have come into service in a lot of that is I think could.
Speaker Change: Could be idiosyncratic to the U S. I'm just curious on your perspective on how the mid cycle economics of renewable diesel have evolved in Canada.
Speaker Change: What are the market conditions as you bring that asset into service.
Speaker Change: Yes.
Speaker Change: Yes, thanks for the question because I.
Speaker Change: As we talked about our renewable diesel project.
Speaker Change: Project that threat Kona I do like to differentiate.
Speaker Change: The underlying economics of our project versus you know.
Speaker Change: What you see or read about in the U S are or maybe other projects. We continue to feel very good about the economic fundamentals of our renewable diesel projects, we expect to deliver solid economic returns.
Speaker Change: That are accretive to our portfolio and why is that what's different well several things one is we.
Speaker Change: We are leveraging our existing scale of stress Kona refinery.
Speaker Change: Two.
Speaker Change: Allow us a lower capital cost.
Speaker Change: And lower operating costs once we started up because we're constructing that project.
Speaker Change: Literally in the middle of the stress on the refinery. So we're leveraging that utilities, we're leveraging.
Speaker Change: Rail infrastructure, we're leveraging existing staff all of that thing results and lower capital lower operating cost then on top of that.
Speaker Change: So the crop that we're gonna be using.
Speaker Change: For the feedstock oils.
Speaker Change: Are all locally available.
Speaker Change: So the cost 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.
Speaker Change: We are using some proprietary technology from Exxonmobil a specific catalyst.
That will allow us to produce a drop in diesel product that is effective overall, a much wider range of temperature conditions than existing biodiesel is in the U S and so what that means is our.
Speaker Change: Our our purchasers.
Speaker Change: I can use this diesel not just in the summer months, which is what is common.
Speaker Change: Historically, but they can run it in the winter months as well.
Speaker Change: And we will be doing the same we plan to use this renewable diesel that hurdle for example, and we're planning to use it year round.
Speaker Change: And so having that greater.
Speaker Change: Degree of operating flexibility allows it to not only be in higher demand because it's unique but also allows us to see a.
Speaker Change: You know a premium value for it and then lastly, I would say is the supportive regulation.
Speaker Change: In Canada, and this is different than the U S. We have the federal clean fuel regulations.
Speaker Change: And there are other provincial considerations like in British Columbia, They have a clean fuel standards.
Speaker Change: 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: And.
Speaker Change: That's helpful.
Speaker Change: Brad you wouldn't put a dollar comfortable putting a dollar per gallon kind of view of what mid cycle economics would be on a EBITDA basis for for renewable diesel with you.
Brad Corson: Well I'm not comfortable sharing that sort of number today, maybe not even in the future but.
Brad Corson: Because theres commercial considerations, there, but what I would say is.
Brad Corson: We are we are planning to spend.
A fair amount of time at Investor day talking more specifically about this project.
Brad Corson: The economic considerations, because we do recognize that what we have is very unique.
Brad Corson: And it may be difficult for the market for the analyst to kind of see what that value proposition is until we're up and running and then then you'll be reading about it every quarter.
Brad Corson: And youll see the incremental value but.
Brad Corson: Before then we'd like to lay out maybe a more comprehensive story on that.
Brad Corson: So more to come.
Speaker Change: And over time, but one last one for me which is.
The latest on pathways.
Speaker Change: What can you just help us understand the latest in terms of the state of play with the gating items are.
Speaker Change: <unk>.
Speaker Change: What we can expect the next key milestone around around this initiative.
Speaker Change: Well the.
Speaker Change: And I laid out some of those kind of summary updates I think what's real key is.
Speaker Change: But the next big milestone is for.
Speaker Change: The pathways companies too.
Speaker Change: Two at some point hopefully reach an agreement with the federal and provincial governments as to kind of the aggregate fiscal package and frameworks.
Speaker Change:
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: As I mentioned, we have gone out to potential pipe suppliers and asked them to give us proposals.
Speaker Change: On cost and timing.
Speaker Change: Because we do see that as critical path going forward and so we want to move this forward as much as we can but there comes a point that it'll be time to order the pipe and make a large investment and we need to have the right physical framework.
Speaker Change: Certainty for our companies for our investors.
Speaker Change: At reasonable economic returns before we can make those big investments. So that's what you should be looking for is when do we get kind of the final terms with with the governments and then when do we placed 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 also.
Speaker Change: Indigenous relationships with all the communities.
Speaker Change: That are along the pipeline route.
Speaker Change: And so those discussions are ongoing as well, but the most critical thing is this pipe water.
Speaker Change: Okay.
Speaker Change: Optimistic that we'll get those terms and we'll keep it on track, but theres still still a lot of work to do there.
Speaker Change: Alright, I will 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 <unk>, Vice President of Investor Relations for closing remark.
Peter Shah: Great. Thank you so on behalf of the management team I would like to thank everyone for joining us. This morning. If there are any further questions. Please don't hesitate to reach out to the IR team and we'll be happy to answer those questions. So with that thank you and have a great day.
Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.
Speaker Change: [music].