Q4 2024 Cenovus Energy Inc Earnings Call
Speaker Change: Good morning ladies and gentlemen, welcome to Synovus Energy's fourth quarter and full year 2024 results conference call.
At this time, all participants are in listen-only mode.
Speaker Change: Following the presentation, we will hold a question and answer session. To queue up for questions by phone, please press star 1 and an operator will contact you. I would like to remind everyone that this conference is being recorded today. I would now like to turn the meeting over to Mr. Patrick Reed, Vice President, Investment Relations. Please go ahead, Mr. Reed.
Thank you, operator.
Patrick Reed: Good morning, everyone, and welcome to Synovus' 2024 year-end and fourth-quarter results conference call.
Patrick Reed: On the call this morning, our CEO, John McKenzie, will take you through our results.
Patrick Reed: Then we'll open the line for John and other members of the SNOVIS management team to take your questions.
Patrick Reed: Before getting started, I'll refer you to our advisories located at the end of today's news release.
Patrick Reed: These describe the forward-looking information, non-GAP measures, and oil and gas terms referred to today.
Patrick Reed: They also outline the risk factors and assumptions relevant to this discussion.
Patrick Reed: Additional information is available on Synovus's annual MD&A and our most recent AIF and Form 40F.
Patrick Reed: And as a reminder, all figures we referenced today on the call will be in Canadian dollars unless otherwise indicated.
You can view our results at synovus.com.
Patrick Reed: For the question and answer portion of the call, please keep to one question with a maximum of one follow-up. You're welcome to rejoin the queue for any other follow-up questions you may have.
Patrick Reed: We also ask that you hold off on any detailed modeling questions. You can follow up on those directly with our Investor Relations team after the call.
Patrick Reed: I will now turn the call over to John. John, please go ahead. Great. Thank you, Patrick, and good morning, everyone.
John Mckenzie: In 2024, Synovus achieved its best ever process safety performance. We reduced the number of Tier 1 and Tier 2 process safety events by 44% compared to 2023.
John Mckenzie: 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,
Deloitte Upgrader, Lima Refinery, and Rainbow Lake.
John Mckenzie: On top of this, we decreased the number of lost time injuries by 23% compared to 2023. These are incredible achievements and the entire company is very proud of our operating teams who delivered these fantastic results.
John Mckenzie: 2024 was a very important year for the company and we achieved many significant operational and financial milestones.
John Mckenzie: In the upstream, production grew by about 2.5% from 790,000 BOA a day to 797,000, sorry, 779,000 BOA a day.
In 2023 to 797,000 BOE per day in 2024.
John Mckenzie: Included in this was best was the best ever year for oil sand segment where production increased by about 3% year-over-year to 610,700 BOE per day.
John Mckenzie: 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 Lloydminster Thermal Assets.
John Mckenzie: Total offshore production increased to about 67,000 BOE per day, despite having the CROs off station for all of 2024 as it underwent its life extension work.
John Mckenzie: This included around $59,000 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.
John Mckenzie: In the third quarter of 2024, the company successfully completed a major turnaround at Christina Lake and returned the asset to production well ahead of schedule.
John Mckenzie: Now, this was also the first full year of operating our downstream assets after restarting the Toledo and Superior refineries in 2023.
John Mckenzie: Our total crude throughput increased by 87,000 barrels per day year over year to 647,000 barrels per day in 2027.
John Mckenzie: In our U.S. refining segment, throughput increased by nearly 100,000 barrels per day to 556,000 barrels per day, which translates into a full year utilization rate of about 91%.
John Mckenzie: As a result, per unit operating costs in the U.S. refining excluding turnarounds decreased by 18% relative to 2023.
John Mckenzie: We also completed major turnarounds in 2024, 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.
John Mckenzie: 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.
So now turning to the fourth quarter results.
Speaker Change: 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 3 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: A temporary build and inventory of around 22,000 barrels a day related to the timing of sales, along with the redemption of our Series 3 preferred shares.
Speaker Change: We'll 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, our production was over 816,000 BOE 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 sand segment of 628 or 629 thousand BOE per day.
Speaker Change: Oil sands operating margin over 2.3 billion in the fourth quarter was down slightly from about 2.5 in the prior quarter, partly a result of lower commodity pricing as well as a difference between production and sales.
Speaker Change: Offshore production the fourth quarter was about 70,000 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 MAC field.
Speaker Change: Turning to the downstream, in the fourth quarter our weighted average crack spread net of RINs averaged $8.20 US 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 TMX pipeline earlier 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 improvement 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 on 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 562,000 barrels per day, which represents a utilization rate of 92 percent. This was an increase of 3 percent quarter over quarter and 17 percent relative to the fourth quarter in 2023.
Speaker Change: Our operating expenses in U.S. refining, excluding turnaround costs, were Canadian dollars, ten dollars and eighty nine cents per barrel in the fourth quarter. This improved 18 percent quarter over quarter and about 15 percent relative to the fourth quarter of 2023.
Speaker Change: Driving costs out of the business while improving our reliability and margin capture is a key focus for us and we are seeing the benefits of the work done to date and we'll see more in 2025 as we continue to drive towards more profitable operations and competitive US refining business.
Speaker Change: Canadian refining throughput was 104,000 barrels per day, which represents the 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.
Operating expenses of $12.26 per barrel.
excluding turnarounds, improved by about 13% from 2023.
Speaker Change: Since completing the upgrade or turnaround in early Q3, both the upgrader and the refinery have run at or near full rates.
Speaker Change: With the next major turnaround plan 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.
Speaker Change: and now have the infrastructure in place to access some of the highest quality resource in our portfolio. We'll begin steaming the Narrows Lake pads in the spring and anticipate first production around mid-year.
Speaker Change: On the West White Rose Project, we reach mechanical completion on both the concrete gravity-based structure as well as the top sides, and finish the life extension work on the Cedar Rose FPCO.
Speaker Change: The FPSO 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: At sunrise, we expect to see higher production starting in late 2025, with volumes continuing to increase through 2027.
Speaker Change: With these milestones achieved in 2024, all of our growth projects are progressing well and remain on budget and on schedule.
Speaker Change: I'd now like to touch on our outlook for 2025. In December of 2024, we outlined a budget for this year of $4.6 to $5 billion of capital investment. This includes about $3.2 billion of sustaining capital and $1.4 to $1.8 billion of growth capital.
Speaker Change: At that time, we embarked on several highly profitable multi-year projects, which we identified as having the potential to be significant drivers of the company's free funds flow growth at a very efficient capital cost.
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 150,000 BOE per day by 2028, which will deliver growth and 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 in conventional heavy oil.
Speaker Change: Now this is reflected in our production guidance range of 108,000 to 145,000 BOE per day, representing approximately 3% growth relative to 2024.
Speaker Change: In the downstream, our total crude throughput guidance of 650 to 685,000 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.
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.
Speaker Change: 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're on 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.
Speaker Change: Should you have a question, please press star followed by the one on your telephone keypad.
Speaker Change: You will hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star, four way to do. I would like to advise everyone to have a limit of one question and one follow-up. If you're using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question.
Speaker Change: Your first question comes from the line of Manu Hulshov from TD Securities. Please go ahead.
Manu Hulshov: Thanks and good morning, everyone. Good morning, Sean. I'll start with a question on
Manu Hulshov: Refinery US refinery market capture you know the number for Q4 is 45% that was marginally
Manu Hulshov: 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 product slate is fully optimized, where could we expect the US market capture to settle out?
Speaker Change: Yeah, I would think in that kind of a normalized environment, mental, we should be in the 70% plus range. If you look at Q4, you know, we were coming out of turnaround 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.
Speaker Change: You know, this is this is something that you'll see improve from us in time, but.
Speaker Change: You know, for today's world, probably 70-75% is probably the right number you should be using.
Perfect.
Speaker Change: Thanks for that. And then the second question is on return of capital. The stock is, as of this morning, in the $21 range. I think everybody on this call would agree that there's a pretty significant.
Speaker Change: discount on the valuation. Is there any way of materially accelerating buybacks over the near term? And how are you weighing that against PREF redemptions? On the surface, it feels like buybacks is the higher return opportunity, but any thoughts there would be helpful.
Morning Menno, it's Cam.
Speaker Change: It's a great question. I think first off, where I'd start is our, our framework as a whole has not changed. So you know, we talked about last year moving to 100% excess free cash flow going back to shareholders.
Speaker Change: You know, clearly you've pointed out in the fourth quarter here we we did make a decision to take out the
Speaker Change: One of the series of prefs, 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 prefs as to whether that's something we'll look at. But no doubt you're correct. I think we see a really good opportunity and
Speaker Change: We'll keep doing that. But I think what I would highlight is number one is we want to make sure that we do not
Speaker Change: Lead on the balance sheet any material form 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.
Speaker Change: And where there's opportunity, we'll continue to buy back stock as aggressively as we can. And I would agree with you, we see the same opportunity you do in the attractiveness of the shares where they're trading today.
Thanks, Cam. I'll turn it back.
Great. Thanks, Mano.
Speaker Change: Thank you. And your next question comes from the line of Dennis Fong from CAPC World Market. Please go ahead.
Hi, good morning, and thanks for taking my questions.
Morning.
Speaker Change: I would say maybe the first one, if you may, I'd like to go back to the U.S. downstream. It seems like you are making some progress in terms of aggregate operations. Obviously, there's a refinery startup kind of through this quarter. I was 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 at some of your upcoming turnarounds that maybe gives you a little bit more confidence around continuously maintaining a higher level of utilization.
Speaker Change: Yeah, you know, Dennis, we're really attacking this on a number of fronts, you know, and you highlight the reliability and the mechanical availability of the assets that we've got. But we're, you know, we're also tackling this in terms of how we place our products.
Speaker Change: How we source our crude and also how we manage our unit operating costs. All those things are really tied together But if I were going to kind of point to some big events that have really improved our performance in Q4
Speaker Change: You know, I would just highlight some of the things that we worked on in 2024 and I'll give you a couple of examples is, you know, we did a lot of work at the Lloyd Minster Upgrader on our electricity reliability and making sure that we have reliable power coming into that plant. 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 you know a situation where we're seeing cracking around the cones of the coke drums due to excess vibration there and we were able to you know deal with that.
Speaker Change: As you get into the U.S. assets, there's 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 catcracker during the Lima turnaround, as well as the coking units and the ISOM units. And those are
Speaker Change: High value units that in the past have been you know less than or had a lower reliability than we would have 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 going to be doing a fair amount of work on would include the Alki unit, the Reformer.
Speaker Change: One of the crude units and one of the coker sets as well. So, you know, 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 a place where we're happier with it. We start to see the results in unit costs, market capture, and throughput.
Fantastic. Really, really appreciate that color there, Jon.
Speaker Change: My next question, actually shifting focus over to West White Rose, again, looks like you've made a fair amount of progress with respect to the top side and 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 right around Q4 of next year. So before we get to drilling, we've actually got to float out the top sides and make or float at the top sides and the gravity based structure, I've got to make the two together, you know, 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, you know, I think in the mid first half of 2026.
Speaker Change: We'll drill, you know, about seven wells to start with. That would include your producers, your gas injectors, and the like, but all of this is, you know, designed to get us to first oil in sort of the early part of 2026.
Speaker Change: Great. I appreciate that color as well. I'll turn it back.
Great. Thanks, Thomas.
Speaker Change: Thank you. Once again, should you have a question, please press star 12 by the 1 on your telephone keypad. Your next question comes from the line of Greg Bardi from RBC Capital Markets, Philippines. Please go ahead.
Greg Bardi: Yeah, thanks. Thanks. Good morning. Thanks for the detailed rundown, Jon.
Greg Bardi: You've got lots of capacity on Trans Mountain. I'm just curious as to how you're sort of thinking about marketing barrels, what you've seen in terms of appetite in Asia, and then just given tariff threats and so on, whether you're seeking to move more barrels into Asia or whether it's pretty much business as usual.
Speaker Change: Sure Greg, I've got Jeff with me actually, I'll let him answer that question.
Speaker Change: Hi, Greg. Jeff Murray. Great question. You know, there's what we've seen and then what we think is going to occur should tariffs come to pass.
Speaker Change: What we've seen is Trans Mountain runs at capacity for contract, that makes sense given what's committed. We've seen, as we've said before, robust demand at the dock.
Speaker Change: different 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
Speaker Change: So, you know, without tariffs that that continues unabated should tariffs show up that would obviously look to an economic reason for rebalancing.
Speaker Change: We expect that would obviously drive as much volume as possible through Trans Mountain, perhaps beyond the contracted capacity, provided that that volume can find a home out the dock.
Speaker Change: and that it would preferentially head globally rather than to California.
We've seen significant
Speaker Change: inbound conversations around that. We believe that demand at the dock will be robust 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 that direction and a rebalancing away from the United States and the balance to head globally.
Speaker Change: Okay, you clearly thought through this very carefully. So maybe just to stay with Asia for a minute. Indonesian gas, you know, is continuing to climb. China, you know, continues to play a really strong role. How are you thinking about
Speaker Change: role then that Asian gas and just Asia in general plays in the portfolio because it's obviously very different than you know being an onshore producer in the oil sands.
Speaker Change: Yeah, no, no, you're 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,
Speaker Change: When you have fixed realizations, it's something you can count on quarter on quarter.
Speaker Change: So our strategy with Asia has really been to minimize the investment to this point and to continue to work with CNOC to elongate contracts and make sure that the cash flow that we generate from this business just continues to come in the door. So I don't think too much has changed.
Speaker Change: as well as in the Madura Strait in Indonesia. But it's been a tremendous asset for us through time. We see really strong gas demand in Asia, which buffets those
Speaker Change: Assets and then we've got a couple priorities in terms of you know I mentioned making sure that the contract extensions come through 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 when we see that continuing.
into the future.
Terrific. Thanks for that.
Greg Bardi: Thank you. And your next question... Thanks, Gregg. ... ... ... ...
Speaker Change: Thank you. And your next question comes from the line of Neil Mehta from Goldman Sachs. Please go ahead.
Neil Mehta: Thanks for all the detailed information. Just sticking with downstream, I think some of the challenges certainly has been around
Neil Mehta: Operations and Capture. Some of this has been kind of market conditions with WCS being tight and the MidCon.
Neil Mehta: being soft and so just your perspective relative to the Analyst Day a year ago.
Neil Mehta: You know, I don't think anything's changed in terms of how we see the midcon market in terms of its competitive advantages. We always see
Neil Mehta: The MidCon is being able to get preferenced feedstock in terms of cheaper Canadian oil, we believe, as well as going to have cheap natural gas, and we actually see the market as being reasonably robust, but what I think we are working on
Unknown Speaker you know, bought
You know, the obvious in terms of reliability and operations.
Neil Mehta: is moving products farther afield and trying to access pad one in Canada with some of our products to achieve higher margins. So, you know, we do see the additional tightness that you get in pad two. Some of that is seasonal, you know, I think some of that represents additional product that wants to access.
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Speaker Change: Ladies and gentlemen, we apologize for the inconvenience as we are experiencing technical difficulties. The Synovus Energy fourth quarter and full year 2024 results conference call will resume shortly. Please stand by.
Speaker Change: Thank you for waiting. We appreciate your patience. The Sanova Synergy fourth quarter and full year 2024 results conference call will now resume. Please go ahead.
Jonathan McKenzie, Unknown Executive
Operator, you can go to the next question.
Speaker Change: Mr. Mehta, your line is open. May I please ask your question?
All right, John, can you hear me?
John: I can hear you, Neil. Can you hear me? Yeah, I didn't know if you wanted to round out your points on the MidCon. I think you got through most of them.
John: Yeah, I don't know what happened there. I apologize. We had a bit of a technical issue, but all I was saying, Neil, as I think that long term, we still think that this is going to be a preferenced area for refining and it's it's part of our strategic.
John: plan to get oil out of Hardesty and into, you know, a better netback for the company longer term. So, you know, we have seen some challenges on getting products out of Pad 2 and into higher realization jurisdictions and that's kind of an industry issue.
But that's something I think will resolve through time.
Speaker Change: Thanks, Jonathan. I think in our investor conversations, one of the challenges around the story has been, 24-25 are just heavy years of capital, close to $5 billion, but there's clear line of sight to that rolling in 26, 27, 28. And the fear, of course, is when you see that back gradation in capital investment, does that get...
Speaker Change: get plugged with more growth capital, and then are you in a perpetual spend cycle? So how committed are you to get to this free cash flow harvest and get into the other side of the spend?
Speaker Change: What I would say, Neil, is because we were in a world in 2023.
Speaker Change: you know, where we really hadn't invested in much growth in this portfolio, you know, 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: You know, almost a no-brainer in terms of capital efficiencies and returns, and making those investments at a time when the debt was close to our debt targets, and at a time when we had robust free cash flow, you know, made a ton of sense for us.
Speaker Change: You know having that kind of a portfolio where you have those kind of opportunities, you know to the magnitude and the economics that we saw in 2023
Speaker Change: is probably a little more muted in 2025 in that we probably don't have the same level of opportunities that we saw there. So what you will see is growth capital come off and it will start to come off later this year and that will continue into 2026 and 2027.
Speaker Change: and you'll see a higher percentage of free cash flow generation and that will go back to the shareholders.
Thanks, Jen.
Yeah, thank you.
Speaker Change: Thank you. Once again, should you have a question, please press star four by the one on your telephone keypad. Your next question comes from the line of Jan Royal from J.P. Morgan. Please go ahead.
Hi, good morning. Thanks for taking my question.
Speaker Change: So my first question is on the balance sheet, Cam talked about not wanting to lean in to the balance sheet for capital allocation, but
Speaker Change: Your net debt has drifted up to about $600 million above your target at this point. I think the drivers in 4Q were pretty clear. I mean, negative excess refunds and...
Speaker Change: A couple with the pay down of the preferred, 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, Jon, it's Cam. Maybe just to expand on the comments I made earlier. So, yeah, just looking at the fourth quarter for a second. So, clearly, in Q4, the net debt moved up a little bit from where we were in the third quarter. Some of that was driven by
Jonathan McKenzie, Unknown Executive
Speaker Change: We also, as Jon talked about on the call, we had some undersold production in the quarter of which I think some of that you're going to see that reverse into cash in Q1.
Speaker Change: and then obviously we made a decision on the PREF redemption. So, you know, the way I think about, as we enter this year is.
Speaker Change: You know, we the number one priority is always going to continue to be
Speaker Change: Driving and holding the debt to that $4 billion. So in the short to medium term,
Speaker Change: 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 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 this, I think that one of the things you're going to see this year is, you know, we do have, you know, a bit more turnaround activity in the first half of the year, obviously at Foster Creek and Toledo.
We've got, and then comes out with that is costs.
Speaker Change: and the capital is a little bit front end weighted. So, you know, that inflection you're gonna see on free cash was gonna 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 returning a hundred percent as quickly as we can.
Speaker Change: Great, thank you. And then my follow-ups on the conventional business. There's actually a fair amount of growth when I look at the midpoint of guidance relative to where you finish the year in 24. And that's coming off of kind of a flattish year last year. So can you just talk about your go-forward strategy in conventional and what's driving that increase this year?
Speaker Change: Yeah, I'll speak to that, John. You know, conventional has been a business that we haven't really invested much in over the past number of years because, one, we've been focused on debt reduction and, two,
Speaker Change: With the growth capital that we've added to the portfolio over the last three years, there just hasn't been any room for conventional, but it's it's a portfolio that's got lots of opportunity in terms of liquids, rich gas and investment that we can make it.
You know pretty High return so it's
Speaker Change: The strategy that we are pursuing to kind of drill to fill, fill our infrastructure, generate
Speaker Change: Cost of capital returns at the bottom of the cycle, but we you know, we'll invest kind of 400 million dollars into that business this year. And that's probably a decent go forward rate at this point. But to offset declines and grow production.
Speaker Change: for that kind of investment is something that's of high return to shareholders.
Thank you.
Thanks, John.
Speaker Change: Thank you. And your next question comes from the line of Dennis Fong from CIBC World Market. Please go ahead.
Speaker Change: Hey, sorry, I had to hop back on for one more. I had a quick question just really around Toledo. At the time when you closed the acquisition, it also included a multi-year product supply agreement with BP.
Speaker Change: Given some of the operation of that refinery and other refineries in the region, can you talk towards a little learning that you had in terms of
been involved.
Speaker Change: essentially how you think about that specific supply agreement and if that can change any time in the future. Thanks.
in.
Speaker Change: I'm looking at Jeff it's a relatively immaterial part of the portfolio as it relates to the entire transaction but Jeff maybe you can speak to the
Speaker Change: Yeah, Dennis, the way we think about that, as Jon said, is
Speaker Change: relatively small compared to the the overall portfolio. One thing that we we we do like about it
Speaker Change: is that it was a means to place physical volume with a counterparty who has a physical home for it.
Speaker Change: and allow us to over time work into it or out of it based on value as we can choose to place volume differently or 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 sell significant volume to a really long list of people and we'll compare those sales
as we can, you know, optimize it over time.
Great. Thank you. Appreciate that call, Jess.
Great. Thanks, Thomas.
Speaker Change: Thank you. Once again, should you have a question, please press star four, by the one on 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 of the call when the technical difficulty happened. So if somebody has already asked it, I'm very sorry. I just wanted to understand your outlook for the heavy light differentials and its impact on your businesses, whether it's upstream, downstream, and even Canadian downstream.
Manav Gupta: Maybe I'll start and then I'll turn it over to Jeff, but you know a narrow differential is good for this company.
Manav Gupta: So, our exposure to the WCS WTI 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.
Manav Gupta: It's Jeff. This is one of the things we spend lots of everyday thinking about. Obviously, the answer to your question depends on different time frames.
Manav Gupta: right here right now through the balance of last year and looking forward right now.
TMX is here.
Manav Gupta: 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 winter, where we have seen new five year, I guess you would call it low discounts. And that's as a result of Trans Mountain being able to move that volume.
Manav Gupta: 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? You know, along with most of 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.
Manav Gupta: And what I would say on that front is there are a number of really interesting opportunities coming to market right now that have us have us believing in good opportunities for the differential to stay relatively narrow over time.
Thank you so much. I'll turn it over.
Great. Thanks, Manav.
Speaker Change: Thank you. And your next question comes from the line of Chris Varco from Calgary, Calgary Herald. Please go ahead.
Okay.
Chris Varco: Hi, John. Thanks for taking my call. Good morning. Thanks for taking my call. I 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: Yeah, we think about that a lot, Chris, and we've done a lot of work on on tariff. So, the short answer to your question.
Chris Varco: As it relates to our plans for 2025, it is nothing. The tariffs will not impact our spending plans in 2025.
Chris Varco: 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. So I don't think there's anything that we would see on the tariff side.
Chris Varco: that would change any of our operating plans this year or in the near future.
Chris Varco: In terms of the impact of tariffs, there's been a lot of, you know, discussion, you know, through industry and through the press on who's going to be impacted by this. And it's, it's actually a pretty difficult question to answer in that.
Chris Varco: 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.
Chris Varco: that could be impacted, but there's also 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.
Chris Varco: in the U.S. as well as FX rates. So when you kind of look at the spectrum,
Chris Varco: 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 tariff, as well as what the overall impact would be to the company.
Chris Varco: So what we're doing is we're watching the price signals very closely to get a feel for that, and if we are in a world, unfortunately, in March, where tariffs do come, you know, we will watch those price signals and react accordingly.
speech.
Speaker Change: Just to clarify that or follow up on that, do you think that I guess the question of who pays the tariffs, whether it's producers, refiners, or consumers, do you think that's impacted by geography as well or do you have a sort of a clear sense?
On which, you know, on what that share might be.
Speaker Change: Yeah, you know 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, you know, our area where we export a lot of crude into is into pad 2.
Speaker Change: And there's been a lot of speculation on who's going to pay for which portion of the tariff, but I really think it's unclear at this point in time and hopefully we won't have to find out.
Speaker Change: Just separately, if I could sneak one last in, I wanted to know if you think the tariff situation or frankly the upcoming federal election in Canada changes at all the likelihood of the Pathways Project proceeding this year?
Speaker Change: You know, I 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 supports to do it. This is a project that doesn't have a return. It's an expense and we're willing to pay something, but we need the appropriate set of supports from the federal and provincial government to make it happen.
Thank you.
Great. Thanks, Chris.
Speaker Change: Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Mr. John McKenzie. Please go ahead.
John Mckenzie: Great, and thank you very much. We certainly appreciate your time and interest in the company this morning. Have a great day, everybody.
John Mckenzie: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
Transcription by CastingWords