Q4 2024 Cenovus Energy Inc Earnings Call
Speaker Change: In 2020 for Synovus achieved its best ever process safety performance, we predict we reduced the number of tier one and tier two process safety events by 44% compared to 2023.
Speaker Change: This World Class result was achieved in a year in which many sites operated alongside brownfield growth projects and we successfully executed four major turnarounds at Christina Lake.
Speaker Change: The Lloyd Upgrader, Lima refinery and Rainbow Lake.
Speaker Change: On top of this we decrease we decrease the number of lost time injuries by 23% compared to 2023.
These are incredible achievements in the entire company is very proud of our operating teams who delivered these fantastic results.
Speaker Change: 2024 was a very important year for the company and we achieved many significant operational and financial milestones.
Speaker Change: In the upstream production grew by about 2.5% from 790000 BOE a day to 797770 9000 BOE a day.
Speaker Change: From 2023 to 797000 Boe per day in 2024.
Speaker Change: Included in this was best it was the best ever year for oil Sands segment, where production increased by about 3% year over year.
Speaker Change: To 610700 Boe per day.
Speaker Change: This growth was fueled by production increases at Sunrise and our conventional heavy oil business as well as new annual production Records at Foster Creek, and Lloyd mentioned with thermal assets.
Speaker Change: Total offshore production to increase to about 67000 Boe per.
Speaker Change: Per day, despite having the sea rose off station for all of 2024 as it underwent its life extension work.
Speaker Change: This included around 59000 Boe per day from our Asia Pacific business, which continues to operate with a high level of predictability generating approximately $1 billion of free funds flow for the fourth year in a row.
Speaker Change: In the third quarter of 2024, the company successfully completed a major turnaround at Christina Lake and return the asset to production well ahead of schedule.
Speaker Change: So this was also the first full year of operating our downstream assets after restarting the Toledo and superior refineries in 2023.
Speaker Change: Our total crude throughput increased by 87000 barrels per day year over year to 647000 barrels per day in 2027.
Speaker Change: In our U S refining segment throughput increased by nearly 100000 barrels per day to 556000 barrels per day, which translates into full year utilization rate of about 91% as a result per unit operating costs in the U S refining excluding turnarounds decreased by <unk> <unk>.
Speaker Change: 18% relative to 2023.
Speaker Change: We also completed major turnarounds in 2024 at both the Lloyd Upgrader and the Lima refinery our assets have performed very well coming out of the turnarounds and we expect to see continued improved operating performance in 2025.
Speaker Change: Corporately, we generated over $8 billion of adjusted funds flow in 2024, and we returned about $3 2 billion to shareholders through dividends share repurchases and the redemption of preferred shares.
Speaker Change: Importantly, we also achieved our 4 billion net debt target in 2024. This was a significant milestone for synovus and as a result, we are now paying out 100% of our excess free funds flow.
Speaker Change: So now turning to the fourth quarter results.
Speaker Change: In the corner in the quarter, we generated $2 3 billion of operating margin approximately $1 6 billion of adjusted funds flow and about $125 million of free funds flow.
Speaker Change: Notably, we returned over $700 million to shareholders in the quarter through dividends share buybacks and the redemption of our series <unk> preferred shares.
Speaker Change: Our net debt at the end of the year was $4 6 billion, an increase of about $420 million from the previous quarter, reflecting a weakened Canadian dollar.
Speaker Change: The temporary build an inventory of around 22000 barrels a day related to the timing of sales along with the redemption of our series <unk> preferred shares.
Speaker Change: We will continue to steward towards our net debt target of $4 billion, while paying out excess cash flow generated to our shareholders.
Speaker Change: In the upstream or production was over 816000 Boe's per day, and was an increase of 6% quarter over quarter and up 1% relative to the fourth quarter of 2023.
Speaker Change: This included record quarterly production from our oil Sands segment of 628 or 629.
Speaker Change: 1000 Boe per day.
Speaker Change: Oil sands operating margin over $2 3 billion in the fourth quarter was down slightly from about $2 five in the prior quarter, partly a result of lower commodity pricing as well as a difference between production and sales.
Speaker Change: Offshore production in the fourth quarter was about 70000 Boe per day, a 6% increase from the prior quarter and in Asia Pacific volumes from Indonesia were up 23% driven by increased production from our MHC field.
Speaker Change: Turning to the downstream in the fourth quarter, our weighted average crack spread net of rens averaged $8 20 U S per barrel a decline of 45% compared to the third quarter.
Speaker Change: In addition, the price differential for heavy oil, which makes up a significant portion of the volumes. We process has narrowed with the startup of the <unk> pipeline early this year.
Speaker Change: As a result, our downstream operating margin in the fourth quarter was a shortfall of $396 million, which includes an inventory timing loss of $45 million about $132 million of turnaround costs and a shortfall of $95 million from our non operated refining assets.
Speaker Change: We're already seeing some signs of improvements in refined product prices this year and anticipate returning to more normalized seasonal crack spreads heading into the spring our focus in the downstream continues to be an improving what is in our control and we are making real progress with a real sense of urgency.
Speaker Change: In U S refining fourth quarter throughput was 562000 barrels per day, which represents a utilization rate of 92%. This was an increase of 3% quarter over quarter and 17% relative to the fourth quarter in 2023.
Speaker Change: Our operating expenses in U S refining excluding turnaround costs, where Canadian dollars $10 89 per barrel in the fourth quarter, this improved 18% quarter over quarter and about 15% relative to the fourth quarter of 2023.
Speaker Change: Driving costs out of the business, while improving our reliability and margin capture as a key focus for us and we are seeing the benefits of the work done to date and we will see more in 2025 as we continue to drive towards more profitable operations and competitive U S refining business.
Speaker Change: Canadian refining throughput was 104000 barrels per day, which represents a utilization rate of about 97%. This was an increase of 5% quarter over quarter and 4% relative to the fourth quarter in the prior year.
Speaker Change: Operating expenses of $12, 26%.
Speaker Change: Sorry, $12 26 per barrel.
Speaker Change: Excluding turnarounds improved by about 13% from 2023.
Speaker Change: Since completing the upgrader turnaround in early Q3, both the upgrader and the refinery of run at or near full rates.
With the next major turnaround planned for 2028, we expect to see an extended period of sustained strong operational performance from our Canadian refining business.
Speaker Change: In the fourth quarter. We also achieved some important milestones on our major projects. We reached mechanical completion of the narrows Lake pipeline and now have the infrastructure in place to access some of the highest quality of resource in our portfolio will begin steaming the narrows Lake.
Speaker Change: Ads in the spring and anticipate first production around mid year.
Speaker Change: On the West White Rose project, we reached mechanical completion on both the concrete gravity based structure as well as the top sides and finished the life extension work on the <unk>.
Speaker Change: B F. P. S O will resume producing from the white rose field by the end of this month.
Speaker Change: The West White Rose project is now, 88% complete and we're well on our way to producing first oil in 2026.
Speaker Change: We also made significant progress on the Foster Creek optimization project, which is now 64% complete and we expect first oil in early 2026 and to fully ramp up production in 2027.
Speaker Change: At Sunrise, we expect to see higher production starting in late 2025 with volumes continuing to increase through 2027 with.
Speaker Change: With these milestones achieved in 2020 for all of our growth projects are progressing well and remains on budget and on schedule.
I'd now like to touch on our outlook for 2025 in December of 2024, we outlined the budget for this year of four $6 billion to $5 billion of capital investment. This includes about $3 $2 billion of sustaining capital and one four to $1 8 billion of growth capital.
Speaker Change: This marks the final year of a three year growth investment cycle, which we began in 2023.
Speaker Change: At that time, we embarked on sell highly profitable multiyear projects, which we identified as having the potential to be significant drivers of the company's free funds.
Speaker Change: Growth at.
Speaker Change: Had a very efficient capital costs.
Speaker Change: Two years later with a lot of work to deliver these projects now behind US we have clear visibility to bringing on about 150000 Boe per day by 2028, which will deliver growth in free funds flow for the years to come.
Speaker Change: In 2025, we'll start to see the impact of these growth plans with higher production from the startup of Narrows Lake and continued development of Sunrise and conventional heavy oil.
Speaker Change: So this is reflected in our production guidance range of 108200, 45000 Boe per day, representing approximately 3% growth relative to 2024.
Speaker Change: In the downstream our total crude throughput guidance of 650 to 685000 barrels per day also represents a 3% increase from 2024 levels. As these volumes increase we are driving costs down and we are guiding to year over year reduction in unit operating costs excluding turnarounds.
A 15, 5% for the Canadian and U S refining business respectively.
Speaker Change: 2025 is a much lighter year for turnaround maintenance versus 2024, we have two major turnarounds planned in 2025 at Foster Creek, and the Toledo refinery, which will take place in the second quarter alongside smaller planned turnaround activities or maintenance activities at Christina Lake and Sunrise.
Speaker Change: With the conclusion of the turnarounds in the first half of the year and the growth capitals spend declining later in the year, we expect to see both production and free funds flow increasing in the second half of 2025.
Speaker Change: Now in closing we ended 2024 on a strong note operationally with record production from our oil sands assets and improving downstream operational performance, we expect to build on this momentum through 2025 and deliver on the guidance. We released in December while continuing to execute our major growth projects.
Speaker Change: With our disciplined capital budget low cost structure, we are in a clear path to grow free funds flow and provide significant returns to shareholders now with that we're happy to take your questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your telephone keypad.
Speaker Change: We'll hear it from that you had has been raised and should you wish to cancel your request with stifle.
Speaker Change: I would like to advise everyone to have a limit to one question and one follow up if youre using a speakerphone. Please.
Before passing any keys wonder.
Speaker Change: One moment. Please for your first question.
Speaker Change: Your first question comes from the line of Mono who shelf from TD Securities. Please go ahead.
Speaker Change: Thanks, and good morning, everyone.
John: Everyone. Good morning, John.
John: I'll start with a question on refi.
John: The refinery U S refinery market capture.
John: The number for Q4 was 45% that was marginally higher than in Q3, but if we were to assume that all refineries are running at north of let's say, 90% to 95% utilization and that the the product slate is fully optimized.
John: Could we expect U S market capture two to settle out.
Speaker Change: Yeah, I would think in that kind of a normalized environment menno, we shouldnt be in the 70% plus range.
Speaker Change: If you look at Q4, we were coming out of turnaround and in Lima at a time of high crack.
Speaker Change: And then I think the other impacts on that for the quarter were around the differential narrowing as well as the lower overall crack but this is this is something that youll see improved from us in time, but for today's world, probably 70% to 75% is probably the right number should be using.
Speaker Change: Perfect.
Speaker Change: Thanks for that and then the second question is on return of capital. The stock is as of this morning, and the $21 range I think everybody on this call would agree that there's a pretty significant discount on the valuation is there is there any way of materially accelerating buybacks over the near term and how are you weighing that against prep redemptions on the.
Speaker Change: On the surface it feels like buybacks as the the higher return opportunity, but any thoughts there would be would be helpful.
Cam: Good morning, Menno, it's cam.
Menno: It's a great question I think first off where I'd start is are our framework as a whole has not changed so we talked about last year moving to a 100% excess free cash flow going back to shareholders you know.
Menno: Clearly you've pointed out in the fourth quarter here, we did make a decision to take out the one of the series of Prefs, a $250 million and I'd say, that's part of our strategy kind of long term looking at our capital structure. Overall, so we'll continue to assess the future process to whether that's something we'll look at but no doubt you're correct I think we see a really good opportunity.
Menno: And buybacks and I would say even through the fourth quarter, despite having relatively low excess free funds flow, we did over allocate to shareholder returns, including the press and continue to buy back stock and I think where there's opportunity we will keep doing that but I think what I would highlight is number one is we want to make sure that we do not.
Menno: Lean on the balance sheet any material for them to do that I think we really want to stick to the discipline that we've created where we want to stay as close to $4 billion as possible.
Menno: And where there's opportunity we will continue to buy back stock as aggressively as we can and I would I would agree with you. We see the same opportunity you do in the attractiveness of the shares where they are trading today.
Speaker Change: Thanks, Ken I'll turn it back.
Ken: Great Thanks for that.
Speaker Change: Thank you. Your next question comes from the line of Dennis Fong from CIBC World markets. Please go ahead.
Dennis Fong: Hi, good morning, and thanks for taking my questions.
Speaker Change: Good morning.
Speaker Change: I would say maybe the first one if you may I would like to go back to the U S. Downstream. It seems like you are making some progress in terms of aggregate operations, obviously, theres a refinery startup kind of through this quarter.
Speaker Change: Hoping you could maybe outline some of the projects that you have ongoing or some of the equipment you might either be changing replacing or fixing some of your upcoming turnarounds that maybe gives you a little bit more confidence around <unk>.
Speaker Change: Continuously maintaining a higher level of utilization.
Speaker Change: Yeah.
Speaker Change: Dennis we're really attacking this on a number of fronts and you highlight the reliability and the mechanical availability to the assets that we've got but we're also tackling this in terms of how replacement products.
Speaker Change: We source our crude and also how we manage our unit operating costs in all of those things are really tied together.
Speaker Change: But if I were kind of kind of point to some big events.
Speaker Change: That it really improved our performance in Q4.
Speaker Change: I would just highlight some of the things that we worked on in 'twenty 'twenty four and I'll give you a couple examples as we did a lot of work at the la administer upgrader on our electricity reliability and making sure that we have reliable power coming into that plan. We did a lot of work on the coker units during that turnaround.
Speaker Change: And we're seeing the results of that we had a situation where we're seeing cracking around the cause of the coke drums.
Speaker Change: Due to excess vibration there we were able to deal with that as you get into the U S.
Speaker Change: Assets Theres a lot of work going on there in terms of mechanical availability and getting these assets into a condition where they compete.
Speaker Change: With the independent refiners, we did a lot of work on the cat cracker during the alignment of turnaround as well as the coking units and the Aissami units and those are.
Speaker Change: High value units that in the past have been less than or had a lower reliability than we would've liked but we're seeing good reliability of those units coming out of the turnaround.
Speaker Change: As we go into the Toledo turnaround in the spring you know some of the things that we are.
Speaker Change: We're going to be doing a fair amount of work on would include the alky unit reformer.
Speaker Change: One of the crude units and one of the coker sets as well. So we just kind of continue to knock these things off both inside and outside the turnaround schedule and as we.
Speaker Change: Invest in these assets and get our reliability up to.
Speaker Change: A place where we're happier with it we start to see the results in unit costs market capture.
Speaker Change: And and throughput.
Speaker Change: Fantastic I really really appreciate that color there John.
Speaker Change: My next question actually shifting focus over the west White rose.
Speaker Change: Again, it looks like you've made a fair amount of progress with respect to the top side of the gravity structure can you talk towards your drilling plans over the next kind of 12 to 18 months for the project as well as any kind of cost controls you might have for that segment of this project.
Speaker Change: Yeah. So the drilling is going to start yeah, right around Q4 of next year.
Speaker Change: So before we get to drilling we've actually got a Florida at the top sides in Florida, the top sides and the gravity based structure and got to meet the two together then we'll be into some commissioning work.
Speaker Change: And hook up with those assets and following that the drilling will start.
Speaker Change: Drilling in the fourth quarter is going to result in first production.
Speaker Change: Thinking the mid first half of 2026.
Speaker Change: We'll drill about seven wells to start with.
Speaker Change: That would include your producers your gas injectors and the like but all of this is.
Speaker Change: Designed to get us to first oil and sort of the early part of.
Speaker Change: 2026.
Great.
Speaker Change: I appreciate that color as well ultimately turn it back.
Speaker Change: Great. Thanks, Dennis.
Speaker Change: Thank you once again should you have a question. Please press star followed by one on your telephone keypad.
Speaker Change: Next question comes from the line of Greg Pardy from RBC capital markets Philippines. Please go ahead.
Greg Pardy: Yeah. Thanks. Thanks, Good morning, Thanks for the detailed rundown John.
Greg Pardy: You've got lots of capacity on Trans Mountain and I'm, just curious as to how you're sort of thinking about marketing marketing barrels what you've seen in terms of appetite in Asia, and then just given the tariff threats and so on whether your.
Greg Pardy: Seeking to move more barrels into Asia, or whether it's pretty much business as usual.
Speaker Change: Sure Greg I've got a I've got Jeff with me actually I'll, let him answer that question.
Jeff: Hi, Greg Jeff Marine Great question, there's what we've seen and then what we think is going to occur should tariffs come to pass what we seen is trans mountain who runs at capacity for contract that makes sense given what's committed we've seen as we've said before our robust demand at the dock different.
Jeff: Different grades move in different times in response to market and we've seen broadly over time about a 50 50 split of deliveries to Asia and California.
Jeff: Without tariffs that that continues unabated should tariffs show up that would obviously look to an economic reason for rebalancing, we expect that we would obviously drive.
Jeff: As much volume as possible through Trans mountain, perhaps beyond the contracted capacity provided.
Jeff: Provided that that that volume can find a whole amount the dock and then it would preferentially had globally rather than to California, we've seen significant.
Jeff: Inbound conversations around around that we believe that demand at the dock will be robust.
Jeff: For folks that want to come and pick it up there and take it and move it to the best Global location. So you know predicting the future a little bit should tariffs come to pass I think we would see increased flow with that direction at a rebalancing away from the United States.
Jeff: <unk> globally.
Speaker Change: Okay, clearly thought through this very carefully so maybe just to stay with Asia for a minute.
Speaker Change: Indonesian gas is continuing to decline.
Speaker Change: China.
Speaker Change: Continues to play a really strong role how are you thinking about.
Speaker Change: Roll them at Asian gas in Asia in general in place in the portfolio, because it's obviously very different than being an onshore producer in the oil sands.
Speaker Change: Yeah.
Speaker Change: Yeah, No no youre right and you know one of the things, we really like about that Asian business. Greg is it's a really high margin business and as you know.
When you have a fixed realization, it's something you can count on quarter on quarter. So our strategy with Asia has really been to minimize the investment to this point and to continue to work with C&I to elongate contracts and make sure that the cash flow that we generate from this business just continues.
Speaker Change: To come in the door. So I don't think too much has changed.
Speaker Change: With regard to our thinking around Asia. Most of what we do is in that block 29 26 range.
Speaker Change: As well as in the Madura Strait in Indonesia, but it's been a tremendous asset for us through time, we see a really strong.
Speaker Change: Gas demand in Asia, which buffets those.
Speaker Change: <unk>.
Speaker Change: Assets and then we've got a couple of priorities in terms of you know I mentioned, making sure that the contract extensions come through.
Speaker Change: In 2026 27 as it relates to some of the gas contracts, but.
Speaker Change: It really has been a tremendous asset for us through the years, we see that continuing.
Speaker Change: Into the future.
Speaker Change: Terrific Thanks for that.
Speaker Change: Yeah.
Speaker Change: Thank you Gregg next question.
Speaker Change: Thank you and your next question comes from the line of field Matta from Goldman Sachs. Please go ahead.
Field Matta: Yeah. Thanks, Thanks for all the detailed information just sticking with downstream.
Speaker Change: I think some of that's.
Speaker Change: The challenge is certainly has been around operations and capture some of this kind of market conditions with WCS being tight and the mid con being soft and so just to your perspective relative to the analyst day.
Speaker Change: A year ago.
Speaker Change: Has your medium term view of the mid con evolved in any way and how much of the softness that we've seen in this market has been more seasonal and temporary.
Speaker Change: Yeah.
Speaker Change: I don't think anything has changed in terms of how we see the mid con market in terms of its competitive advantages, we always see the midcon is being able to get.
Speaker Change: Preferenced feedstock in terms of cheaper Canadian oil we believe.
Speaker Change: As well, there's going to have cheap natural gas and we actually see the market as being reasonably robust, but what I think we are working on.
Speaker Change: The obvious in terms of reliability and operations is moving products.
Speaker Change: Further afield in trying to ask.
Speaker Change: Access pad one in Canada with some of our products to achieve higher margins. So we do see the additional tightness that you get in pad two.
Speaker Change: Some of that is seasonal I think some of that represents additional product that wants to ask.
Speaker Change: Hello.
Speaker Change: Okay.
Ladies and gentlemen, we apologize for any inconvenience is experiencing technical difficulties.
Speaker Change: Cause I notice energy fourth quarter, and full year 2024 vessels conference call that a schulman shortly please standby.
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Speaker Change: Thank you for Lee I appreciate your patience with Synovus energy fourth quarter and full year 2024 vessels conference call will now with Sean. Please go ahead.
Speaker Change: Neil are you there.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Operating operator, you can go to the next question.
Mehta: Mr. Mehta. Your line is open please ask your question.
Speaker Change: Alright, John can you hear me.
Speaker Change: I can hear you Aneel can you hear me, yes, I do.
Speaker Change: Don't know if you went to round out your points on the mid con.
Catherine most of them.
Speaker Change: Yes, I don't know what happened there I apologize, we had a bit of a technical issue but.
Speaker Change: All I was saying Neil is I think that long term, we still think that this is going to be a preferenced area for refining and it's as part of our strategic.
Speaker Change: Planned to get oil out of hardisty and into.
Speaker Change: A better netback for the company longer term. So we have seen some challenges on getting products out of pad two and into higher.
Speaker Change: Realization jurisdictions, and that's kind of an industry issue, but that's something I think will resolve through time.
Speaker Change: Yeah. Thanks, Shannon I think in our Investor conversations one of the challenges around the story has been <unk>.
Speaker Change: 2425 are just heavy years of capital close to $5 billion, but there's clear line of sight to that rolling in 'twenty six 'twenty 728, and the fear of course is when you see that backwardation in capital investment does that get.
Speaker Change: Does that get plugged with more growth capital and then are you in a perpetual.
Speaker Change: Spend cycle.
Speaker Change: How committed are you to get to this free cash flow harvest and against the other side of the spend.
Speaker Change: Yeah.
Speaker Change: What I would say Neil is because we were in the world in 2023.
Speaker Change: We really hadn't invested in much growth in this portfolio, probably since 2015, and then acquiring husky on the back of that you know they were in a very similar position. So much of the growth capital that we put forward was really stuff that was.
Speaker Change: Almost a no brainer in terms of capital efficiencies and returns and.
Speaker Change: Making those investments at a time when the when the debt was close to our debt targets.
Speaker Change: And at a time when we had robust free cash flow you know made a ton of sense for us.
Speaker Change: Having that kind of a portfolio, where you have those kind of opportunities to the magnitude and the economics that we saw in 2023.
Speaker Change: It is probably a little more muted in 2025 and that we probably don't have the same level of opportunities that we saw there. So what you will see us.
Speaker Change: Growth capital come off and they'll start to come off later this year and that will continue into 2026, and 27 and you'll see a higher percentage of free cash flow generation and that will go back to the shareholders.
Speaker Change: Thanks, Tim.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you once again should you have a question. Please press star followed by one on your telephone Keypad. Your next question comes from the line of John Royall from J P. Morgan. Please go ahead.
John Royall: Hey, good morning, Thanks for taking my question.
John Royall: My first question is on the balance sheet Cam talk about not wanting to lean in to the balance sheet for capital allocation, but you're.
John Royall: Your net debt has drifted up to about 600 million above your target at this point.
John Royall: I think the drivers in <unk> were pretty clear I mean negative excess free funds and.
Coupled with the pay down of the preferred.
Speaker Change: But should we think about you as more maintaining the 100% levels going forward or might you pull back a bit over the near term just to get back towards that $4 billion.
Speaker Change: Hey, John its cap and maybe just to expand on the comments I made earlier so just.
Speaker Change: Just looking at the fourth quarter for a second so clearly in Q4, we see the net debt moved up a little bit from where we were in the third quarter. Some of that was driven by.
Speaker Change: Sort of the change in the Canadian dollar weakening relative to the U S. Dollar because we do have a fair amount of U S. Dollar denominated debt so that impacted us in Q4.
Speaker Change: We also as John talked about on the call. We had some undersold production in the quarter of which I think some of that youre going to see that reverse into cash and in Q1.
Speaker Change: And then obviously you've made a decision on the prep redemptions. So you know the way I think about as we enter this year is we.
Speaker Change: The number one priority is always going to continue to be driving in holding the debt to that $4 billion. So in the short to medium term, yes, you might see us put a little bit more on the balance sheet to get us back to four but I think the goal and the urgency is to get us to a position that we can.
Speaker Change: Get after share buybacks as quickly as possible and that is still a priority for us.
Speaker Change: I think and John talked a little bit about deciding they one of the things youre going to see this year as you know we do have a bit more turnaround activity in the first half of the year, obviously at Foster Creek in Toledo.
Speaker Change: We've got then comes out with that as costs and the capital is a little bit front end weighted so you know that inflection youre going to see on free cash flow is going to really start to kick in as we moved into the third quarter. So you know in the short term, yes, you might see a little bit less buybacks, but I think we're committed to absolutely.
Speaker Change: Returning 100% as quickly as we can.
Speaker Change: Great. Thank you and then my follow ups on the conventional business.
Speaker Change: There's actually a fair amount of growth when I look at the midpoint of guidance relative to where you finished the year in 'twenty four and that's that's coming off of kind of a flattish year last year. So can you just talk about your go forward strategy and conventional and what's driving that increase this year.
Speaker Change: Yeah, I'll speak to that John conventional has been a business that we haven't really invested much in.
Speaker Change: Over the past number of years, because one we've been focused on debt reduction and to.
Speaker Change: With the growth capital that we've added to the portfolio over the last three years, there just hasnt been any room.
Speaker Change: For conventional but it's it's a portfolio that's got lots of opportunity.
Speaker Change: In terms of liquids rich gas and an investment that we can.
Speaker Change: Make it.
Speaker Change: Pretty Hum high returns so it's the.
Speaker Change: The strategy that we are pursuing to kind of drill to fill filler infrastructure generate.
Speaker Change: Cost of capital returns at the bottom of the cycle, but we will invest kind of $400 million into that business. This year.
Speaker Change: It's probably a decent go forward.
Speaker Change: Right at this point, but to offset declines and grow production.
Speaker Change: For that kind of investment is.
Speaker Change: Is something Thats.
Speaker Change: Hi returned to shareholders.
Speaker Change: Thank you.
Speaker Change: Thanks, John.
Speaker Change: Thank you and your next question comes from the line of Dennis Fong from CIBC World markets. Please go ahead.
Speaker Change: Hey, sorry, I had to hop back on for one more.
Speaker Change: I had a quick question just really around Toledo at.
Speaker Change: At the time when you close the acquisition also included a multiyear product supply agreement with BP.
Speaker Change: Given some of the operation of that refinery and other refineries in the region can you talk with a little learnings that you had in terms of.
Speaker Change: Worldwide.
Speaker Change: Alright.
Speaker Change: Essentially how you think about that specific supply agreements.
Speaker Change: And if that can change anytime in the future. Thanks.
Speaker Change: Yes.
Speaker Change: I'm looking at Jeff, It's a relatively immaterial.
Speaker Change: The portfolio as it relates to the entire transaction.
Speaker Change: But Jeff maybe you can speak to the.
Jeff: Yes, Dennis the way, we think about that as John said is relatively small compared to the overall portfolio. One thing that we do like about it is that it was a means to place physical volume with a counterparty who has a physical home for it and allow.
Jeff: US to overtime work into it or out of it based on value as we can choose to place volume differently or or with with that buyer. Obviously that buyer is significant in the market and we'll just continue to evaluate that in terms of future opportunity we.
Jeff: Sell significant volumes to all.
Jeff: A really long list of people and we'll compare those Sarah sales against this opportunity as we can optimize it overtime.
Speaker Change: Great. Thank you I appreciate that color guys.
Dennis Fong: Great. Thanks, Dennis.
Speaker Change: Thank you once again should you have a question. Please press star followed by the London. Your telephone Keypad. Your next question comes from the line of Manav Gupta from UBS. Please go ahead.
Manav Gupta: I apologize I got knocked out Coca Cola when the picnic.
Manav Gupta: Technical difficulty happened. So if somebody has already asked it and they Saudi I just wanted to understand your outlook for the heavy light differentials and its impact on your businesses, whether it's upstream downstream anyone can you be in downstream.
Sure maybe I'll start and then I'll turn it over to Jeff, but you know of narrow differential is.
Manav Gupta: Good for this company so our exposure to the WCS <unk> differential preferences, our upstream business more than it degrades our downstream business in terms of the flow of funds, that's kind of at a high level, but I'll turn it over to Jeff to give you a view of how we're thinking about that differential going forward.
Jeff: It's Geoff. This is this is one of the things we spend lots of everyday thinking about.
Jeff: Obviously the answer to your question depends on different Timeframes.
Jeff: Right here right now through the balance of last year and looking forward right now Tnx's here. It's on it's working we said that Oh I don't know Q2 of last year. The real proof in that pudding has been through a winter where we have seen new five year I guess you would call.
Jeff: But low discounts.
Jeff: And that's as a result of trans mountain being able to move that volume.
Jeff: We believe that continues to persist and then as we look forward I think we've long said that we believe producers will do what producers do which is find oil and the question is when do we start to get towards filling up available capacity.
Jeff: Along with most of the industry. We believe that is later this decade and one of the things that we're working hard on right now is various different forms of future egress and what I would say on that front is there are.
Jeff: A number of really interesting opportunities coming to market right now that have us have us, believing and good opportunities for the differential to stay relatively narrow overtime.
Speaker Change: Thank you so much I'll turn it over.
Speaker Change: Great. Thanks Vanessa.
Speaker Change: Thank you and your next question comes from the line of Chris <unk> from Calgary Herald. Please go ahead.
Speaker Change: Okay.
Chris: Hi, John Thanks for taking my call.
Speaker Change: Morning, Thanks for taking my colleagues just wanted to ask you John about the impact of tariffs on your capital spending plans for 2025, if they come into place and also how you think they might affect the integrated nature of your operations on both sides of the border.
Speaker Change: Yes, we think about that a lot Chris we've done a lot of work on on tariffs. So the short answer to your question.
Speaker Change: As it relates to our plans for 2025 it is nothing.
Speaker Change: Tariffs will not impact our spending plans in 2025.
Speaker Change: As you know we limit our capital spending to fairly modest levels and we're in the process of finishing off some very important projects for this company.
Speaker Change: So I don't think there's anything that would see we would see on the tariff side.
Speaker Change: That would change any of our operating plans.
Speaker Change: This year in the near future.
Speaker Change: In terms of the impact of tariffs, there's been a lot of discussion through industry and through the press on who's going to be impacted by this.
Speaker Change: It's actually a pretty difficult question to answer in that.
Speaker Change: It affects so many of the variables that impact our cash flow and people point to the oil prices being one and that's certainly one that.
Speaker Change: That could be impacted but there's also a knock on impacts on the price of condensate the price of natural gas, which are all inputs to our business that would probably be preference to us as well as what happens to refining margins.
Speaker Change: In the U S as well as FX rates. So when you kind of look at the spectrum.
Speaker Change: Of all the things that impact our cash flow, it's really not clear to us who's going to pay which portion of the tariffs as well as what the overall impact will be to the company. So what we're doing is we're watching the price signals very closely.
Speaker Change: To get a feel for that and if we are in the world. Unfortunately in March where tariffs do come we will watch those price signals and react accordingly.
Speaker Change: Yes.
Speaker Change: Just to clarify that or to follow up on that.
Speaker Change: Do you think that I guess, the question of who pays the tariffs whether it's producers refiners are consumers do you think that's impacted by geography, as well or do you have a sort of a clear sense.
Speaker Change: On which.
Speaker Change: What that share might be.
Speaker Change: Yes.
Speaker Change: Chris We don't have a clear sense and that's why it's important to continue to watch the price signals.
Speaker Change: So our area, where we export a lot of crude into us into pad two.
Speaker Change:
Speaker Change: And theres been a lot of speculation on who's going to pay for which portion of the tariffs, but I really think it's unclear at this point in time and hopefully we won't have to find out.
Speaker Change: Yes.
Speaker Change: Just separately if I could sneak one last thing I wanted to know if you think the tariff situation or frankly, the upcoming federal election in Canada.
Speaker Change: Does it all the likelihood of the pathway project proceeding this year.
Speaker Change: Hum.
Speaker Change: Don't think it changes anything Chris I think you know what we've we've talked about is our willingness to move forward with the project if we can get the appropriate.
Speaker Change: Set of financial support to do it. This is a project that doesn't have a return it's an expense.
Speaker Change: And we're willing to pay something but we need the appropriate set of support from the federal and provincial government to make it happen.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Great. Thanks, Chris.
Speaker Change: Thank you there are no further questions registered at this time I would now like to turn the meeting elevated Mr. John Mckenzie. Please go ahead.
John Mckenzie: Great and thank you very much we we certainly appreciate your time and interest in the company. This morning.
Speaker Change: Have a great day everybody.
Speaker Change: Thank you.
Speaker Change: France has now ended please disconnect your lines at this time and thank you for your participation.
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