Q1 2025 Cenovus Energy Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by.
Welcome Annapolis and achieved.
First quarter 'twenty 25 results conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Ask a question during the session you will need to press star one one on your telephone.
This call is being recorded.
Speaker Change: I would now like to turn the meeting over to Mr. Patrick Reed, Vice President Investor Relations and internal audit. Please go ahead Mr. Reid.
Speaker Change: Thank you operator.
Speaker Change: Good morning, everyone and welcome to Synovus is 2025 first quarter results conference call.
Speaker Change: On the call. This morning are CEO, Jon Mckenzie and CFO Cam Sundar will take you through our results.
Speaker Change: Then we'll open the line for John Kamm, and other members of the Synovus management team to take your questions.
Speaker Change: Before getting started however.
Speaker Change: For you to our advisories located at the end of today's news release.
Speaker Change: These describe the forward looking information non-GAAP measures and oil and gas terms referred to today.
Speaker Change: They also outline the risk factors and assumptions relevant to this discussion.
Speaker Change: Additional information is available on <unk> annual MD&A and our most recent Aif and form 40 F.
Speaker Change: And as a reminder, all figures we referenced on the call today will be in Canadian dollars unless otherwise noted.
Speaker Change: You can view our results at Synovus dotcom.
Speaker Change: Yeah.
Speaker Change: For question and answer portion of the call.
Speaker Change: We just keep to one question with a maximum of one follow up.
Speaker Change: Youre welcome to rejoin the queue for any other follow up questions you may have.
Speaker Change: 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.
Speaker Change: I will now turn the call over to John John. Please go ahead.
John Kamm: Thank you Patrick good morning, everybody.
John Kamm: Just before we get started on our first quarter performance I'd like to take a moment to recognize some of them are great people.
John Kamm: To accomplish great things, while also ensuring we do it the right way.
John Kamm: Protecting our people <unk>.
John Kamm: For example on West White Rose, we have now worked over 27 million hours with a total recordable incident frequency of 0.18. This is exceptional performance by any measure and a clear example of how we will continue to ensure that all of our workers return home safely each and every day.
John Kamm: As another example of our safety programs and work we've instituted a program on dropped off object prevention across our company.
John Kamm: The program focuses on planning hard barriers and work controls to reduce the risk of dropped objects.
John Kamm: We have seen the impacts of this program and how our work is performed mitigating risks across our business through the commitment and dedication of our people in the field.
John Kamm: At Synovus occupational and process safety is ingrained in our culture and our values.
John Kamm: So now turning to our results.
John Kamm: Our focus in 2025 is on flawlessly operating the base business building momentum in the downstream.
John Kamm: Delivering on our growth projects and maintaining our focus on cost structure.
John Kamm: Upstream production in the quarter was 819000 Boe per day highlighted by yet another impressive result from our oil sands business.
John Kamm: At Christina Lake production was 238000 barrels per day, and we have completed the narrows Lake project, which connects to the Christina Lake plant and are now running stands for a tieback pipeline and injecting steam into the first two well pads.
John Kamm: First oil from Narrows Lake is expected early in the third quarter as planned.
John Kamm: With first production on the way, let me take a moment to talk about what makes this project so special and unique.
John Kamm: Well, we've done it narrows Lake is a real feat of engineering and I'm incredibly proud of the technical and operational staff, who have made this possible.
John Kamm: At 17 kilometers long the narrows Lake tie back is the longest steam line ever started up in the oil sands industry. It allows us to access some of the best reservoir in the basin at a fraction of the cost of building a new plant.
John Kamm: Over there producing lives. These first well pads at narrows or expected to have cumulative steam oil ratios well below two and the best wells are expected to produce at peak rates of over 3000 barrels per day.
John Kamm: These are some of the longest and most productive wells in our industry showcasing our technical and operating capability.
John Kamm: We have now drilled the first five well pads at Narrows Lake.
John Kamm: After bringing the first two well pads on will begin steaming. The third later this year with two more to follow in 2026.
John Kamm: At Christina Lake, we already have the lowest steam oil ratio in the industry today, and where the narrows time, whereas the tying of narrows Lake This will decrease further.
John Kamm: By using stay more efficiently will drive the S word down and increase production by about 20000 barrels per day.
John Kamm: This is the first of our major growth projects.
John Kamm: We will be bringing on over the coming year, marking an important milestone for the company.
John Kamm: Outside of Christina Lake performance at Foster Creek continues to be exceptional with production of 203000 barrels a day over the quarter.
John Kamm: This was a result of new well pads drilled into very high quality reservoir, coupled with a successful redevelopment and optimize program.
John Kamm: Foster Creek is now undergoing a turnaround that began in mid April and we're making excellent progress on the turnaround.
John Kamm: Bringing back production to around 170000 barrels a day with the remainder of the volume is expected to be back before the end of May.
John Kamm: During the turnaround we are completing some of the tie ins as part of the optimization project that will add four new steam generators.
John Kamm: 80000 barrels a day of steam capacity.
John Kamm: This will be the first new steam capacity added at Foster Creek since 2016, enabling us to bring forward high quality resource that will add 30000 barrels a day of production.
John Kamm: Project is now 75% complete and on track for first oil in early 2026.
John Kamm: At Sunrise production averaged about 52000 barrels a day in the quarter in April we brought on the fourth and final well pads from our first well package since acquiring this asset.
John Kamm: And we've now completed the first phase of our growth program, which was focused on the central development area.
John Kamm: So starting in May we will we will be commencing on the first of two turnarounds at Sunrise. This year in preparation for bringing on the next phase well pads.
John Kamm: From the East development area.
Speaker Change: Chris will move us into some of the highest quality reservoir in the portfolio.
Speaker Change: Will allow us to fully optimize the steam capacity, leveraging new synovus, well and completion designs that means lower <unk> and higher production as we bring those well pads on starting in early 2026.
Speaker Change: In the offshore segment Atlantic volumes were higher quarter over quarter as we saw increased rates from Terra Nova and the West White Rose field returned to production in March.
Speaker Change: Now most importantly, the west White Rose project continues to make great progress the gravity or concrete gravity structure is ready to leave the graving dock and will begin tullow to earnings calls over the next few days that is where the dry balanced and will be completed before we move the structure to.
Speaker Change: The white rose field location in June.
Speaker Change: The top sides are also being prepared for sale out to the field with transportation vessel, where the transportation vessel now on site and angle side.
Speaker Change: We'll bring these two major components together for installation this summer, which will position us to commence drilling from the platform before the end of the year and achieve first oil in the second quarter of 2026.
Speaker Change: In the downstream Canadian refining performance was exceptionally strong with record quarterly throughput and utilization rate of 104%.
Speaker Change: We're certainly seeing the benefit of improvements we've made during the upgrader turnaround last year, and we expect that business to continue to perform well despite narrow light heavy differentials.
Speaker Change: In the U S. We're continuing to build momentum in our operating performance highlighted by strong throughput lower costs and better process unit reliability in our operated assets.
Speaker Change: Our Toledo refinery is currently undergoing major turnaround, including maintenance on eight units within the refinery at major units within the refinery, including the smaller of the two crude units. This work will help to drive a step change in performance going forward.
Speaker Change: Turnarounds are both are operated and.
Speaker Change: Non operated refineries, which began in the first quarter are also now complete.
Speaker Change: With crack spreads improving in our Toledo turnaround wrapping up this quarter, we expect to see a clear runway for U S refining business to deliver higher performance through the second half of this year I'll now turn it over to Kam to walk through the financial results.
Kam: Thanks, John Good morning, everyone.
Kam: In the first quarter, we generated 2.2 dollars 8 billion of operating margin at approximately $2 2 billion of adjusted funds flow.
Kam: Operating margin in the upstream was around $3 billion, an increase of approximately $380 million from the fourth quarter, driven by our strong operating performance and higher sales volumes.
Kam: Our business continues to significantly benefit from narrow heavy oil differentials since the <unk> pipeline came into service last year.
Kam: Oil sands non fuel operating costs were $8 92 per barrel in the first quarter as we continued to deliver some of the lowest cost production in the basin.
Kam: In the downstream and operating margin shortfall of approximately $240 million reflected seasonally low Chicago crack spreads as well as the tighter heavy oil differentials.
Kam: Our downstream operating margin also included $26 million of inventory losses, and $81 million of turnaround expenses in the quarter.
Kam: And the Canadian refining.
Kam: Our operating margin was $68 million up $21 million from the prior quarter. Despite a nearly $4 per barrel decrease in the upgrading differential.
Kam: Operating costs in the Canadian refining business were $2 81 per barrel also down around 12% relative to Q4, excluding turnaround costs.
Kam: We are also pleased with the progress we've made in the first quarter in the U S refining business, our adjusted market capture of 62%, which excludes inventory holding gains and losses, our FIFO impacts was approximately 10% higher than the fourth quarter.
Kam: This reflects higher reliability and resulted in an increase in adjusted refining margin of more than $2 per barrel.
Kam: Excluding turnaround costs, our operating costs in the U S refining business were $12 15 per barrel.
Kam: Importantly, we saw continued decrease quarter over quarter in controllable costs in our operated assets and we expect those costs to continue to trend downward over time.
Kam: Capital investment of $1 2 billion was driven by sustaining activity across the business as well as growth capital in both the oil sands at Atlantic region, we're advancing our major projects.
Kam: Free funds flow was approximately $1 billion in the quarter.
Kam: And consistent with our commitment to grow shareholder returns our board of directors has approved an 11% increase to the annual base dividend to <unk> 80 per share.
Kam: This increased dividend and our sustaining capital required to maintain our business is fully supported and a $45 per barrel <unk> oil price.
Kam: This dividend increase is an outcome of the continued growth we see in our business and as we deliver our growth projects and build momentum in our downstream business. We're confident in our ability to continue to grow our dividend dividend consistently over time.
Kam: Our net debt was approximately $5 1 billion at the end of the first quarter.
Kam: This includes the redemption of the preferred shares and increase in noncash working capital largely related to tax installments and payments of annual incentives as well as normal course reductions in accounts payable.
Kam: While our net debt remains elevated above our 4 billion target we are prioritizing the balance sheet with our excess free funds flow.
Kam: While continued to remain active with our in CIB given the current valuation of our shares.
In total during the quarter, we returned $595 million to shareholders through dividends share buybacks and the redemption of the preferred shares.
Kam: Subsequent to the end of the quarter the company repurchased $178 million worth of shares through our in CIB from May five.
Kam: Through to may 5th or about 11 million shares.
Kam: With the value, we see in our shares today and with the capital investment decreasing as we complete our major projects. We have six we see a significant opportunity to increase our.
Kam: Returns to shareholders through buybacks going forward and continuing to ensure our balance sheet remains strong.
Kam: I'll now turn the call back to John for some closing remarks, great. Thank you Cam.
Kam: We accomplished a lot in the first quarter and looking forward, we've had a great start to the second quarter. So we have a lot more to do over the next six weeks.
Kam: By the end of Q2, the vast majority of our 2025 turnaround activity in both the upstream and the downstream will be behind us Narrows Lake will be ready to begin production in both the concrete gravity structure and the top sides for west White rose will be preparing for installation offshore.
Kam: With major maintenance activities behind us and production beginning to ramp up we're positioned for very clear runway of strong operating performance in the second half of the year and into 2026.
Kam: Now with the recent volatility in.
Kam: In the market or sorry, the recent volatility in the market has been a good reminder of why we put our strategic priorities and financial framework in place we continue to progress our growth plans with minimal impact to the business.
Kam: This financial discipline, coupled with our focus on reducing costs makes synovus resilient and durable for the long time and well positioned in any reasonable commodity price scenario.
Kam: And with that we are.
Kam: Happy to take your questions.
Kam: Thank you.
Kam: A question at this time, please press star one on your Touchtone telephone.
Kam: Thank you please limit yourself to one question and one follow up.
Kam: One moment for our questions.
Speaker Change: The first question.
Speaker Change: Is from the line of Greg Pardy from RBC capital markets. Your line is now open.
Speaker Change: Yes, thanks, good morning, and I appreciate the rundown John can you dig into the maybe the scope of the work you've got going on at Toledo I.
Speaker Change: I guess you are wrapping up but also maybe what the objectives are in terms of the stepwise improvement performance that you referred to.
Speaker Change: Yes, sure good morning, Greg So.
Speaker Change: At Toledo, we're currently in.
Speaker Change: <unk> turnaround and a smaller part of the plant. So I think it's the west side of the plant asking yet.
Speaker Change: Wyman Toledo mixed up then what called one north one west, but I think it's the west side of the plant, but we're into.
Speaker Change: Eight major vessels. So this would include the.
Speaker Change: Small crude unit the Cougars.
Speaker Change: The reformer the tail gas unit and the like but the real intention here.
Greg: Greg is just to continue on this journey of.
Speaker Change: Improvements in the reliability of our assets. So we've got a.
Greg: Tight scope on this.
Greg: We're now through I think the riskiest part of the turnaround and we've been through all our major inspections and where.
Greg: Continuing forward as I mentioned in my call.
Greg: We see this as kind of wrapping up.
Greg: In the second quarter and sort of the mid June timeframe, but it really marks a progression of improvement that we've been making through our assets over the past, while so youll remember in Q2 last year.
Greg: We took down the the Lloyd upgrader for a major major turnaround.
Greg: Asset operated incredibly well coming out of that turnaround as we were able to get after a lot of the major issues that were haunting us there.
Greg: And similarly in Q3 Q4, we took down Lima.
Greg: And that asset has operated really well coming out of turnaround operating at or close to full capacity through Q1 and that continues through Q2. So we expect to see the same kind of step change performance in Toledo coming out of this and looking forward to.
Greg: And unencumbered run through Q3, and Q4, we don't have any major outages in our downstream business.
Speaker Change: Okay got it got it thanks for that maybe just shifting gears onto the marketing side.
Speaker Change: Just at times that realization on Foster Creek can be just a little all over the place at least by by our yard stick kind of just curious how do you decide.
Speaker Change: On Christina or Foster Creek in terms of moving those barrels through <unk> into Asia, or California, or or moving them down into the lower 48.
Speaker Change: Sure. So I've got Jeff Murray on the line with me suggest that's a good question for you.
Speaker Change: Greg It is it's a great question and when you look at the assets on an asset by asset basis, I think youre going to continue to see that movement around.
Speaker Change: When you take a look at oil sands as a whole youll find that the value of the assets, we own for moving product around sort of consistently resolve themselves at the oil sands level. The reason for that is we make a decision every month, taking a look not only at locational differentials.
Speaker Change: Between Alberta, and the West Coast, Alberta in the Gulf Coast, but we also take the great differential into account. So there are slight differences in quality between the high Tan and low Tan and we do find that that moves around a notably in the U S. Rather than so much on the west coast.
Speaker Change: But we will move to find an extra 25, 50 75 cents on great choices and that is to optimize the value of pipeline contracts like Trans mountain Keystone and Flanagan South So I think youll continue to see that movement, but within the oil sands segment.
Speaker Change: Should see it resolved itself based on those larger market indicators.
Speaker Change: Thank you. The next question is from the line of Dennis Fong.
Speaker Change: Your line is now open.
Dennis Fong: Hi, good morning, and thanks for taking my questions as well congratulations on a really strong quarter, yes. Good morning.
Speaker Change: My first one is just on the downstream side and a bit of a follow on to Greg's question.
Dennis Fong: Having gone through that.
Dennis Fong: As you just highlighted the major part of the turnaround at Toledo like are there any parts of the affiliate that you've found can be further optimized and further how are you thinking about.
Dennis Fong: Products marketing and so forth once you've kind of ramps that asset back up.
Dennis Fong: Yes, one of the things we're always looking to do Dennis is.
Dennis Fong: Improved.
Dennis Fong: The.
Dennis Fong: The ability of our refineries to operate more efficiently capture more margin.
Dennis Fong: And take cost out of the system and those things are all kind of tied together one of the longer term or medium term objectives.
Dennis Fong: Objectives that we've got.
Dennis Fong: Is to really start to run linemen Toledo as an integrated operating unit those refineries were meant to be run together they were designed that way.
Dennis Fong: Ultimately that's the direction, we're going so in light of where we've been over the last six months and dealing with some fundamental reliability issues and getting that behind us.
Dennis Fong: You probably haven't noticed that we are also working on.
Dennis Fong: Things to get products to market.
Dennis Fong: In a different way that captures more and more margin for us. So some of the things that I would point to is opening the docket, Toledo and moving more and more product off the dock getting those products into higher realization markets were.
Dennis Fong: Looking at.
Dennis Fong: All options of egress from from really rail too.
Dennis Fong: Marine to pipe and we've got some some interesting interesting things happening on the pipe side as well but.
Dennis Fong: But as we kind of progress this increase.
Dennis Fong: Increase the competitiveness of these.
Dennis Fong: Refineries were really tackling this on all fronts.
Dennis Fong: Okay.
Dennis Fong: Great.
Dennis Fong: Appreciate that color on the downstream side.
Dennis Fong: Shifting gears towards the upstream I wanted to kind of ask a question on Sunrise here.
Dennis Fong: Obviously, you've been making a lot of progress on that particular asset.
Dennis Fong: With kind of the new new well pad adds.
Dennis Fong: In view of increasing production over the next couple of years as you further optimize that how are you thinking about where opex and SLR could eventually trend towards.
Dennis Fong: And kind of whats the upside in terms of the fact that maybe in terms of applying <unk> best practices.
Dennis Fong: In terms of underlying operations.
Dennis Fong: What we've talked about publicly Dennis is taking that asset to about 75000 barrels a day.
And that would tell you that the SLR is coming down.
Dennis Fong: From its design basis from both streaming apps something close to three and potentially below that.
Dennis Fong: And one of the things that's really exciting for us on that asset as I mentioned this on the call is we're actually moving to the eastern side of Sunrise, which is.
Dennis Fong: Some of the best resource that we have inside our portfolio.
Dennis Fong: So as we kind of move into what we call the <unk> pads, which BV.
Dennis Fong: One two and then you'll get 4% five three later on.
Dennis Fong: These are some of the best reservoir that we have in the portfolio and we will be drilling sort of the longer wells with the steam separators and really give us the ability to use team differently.
Dennis Fong: And ultimately the recovery on these wells is enormous as well some of the best wells.
Dennis Fong: What we have in the end of the pads.
We're going to recover north of 4 million barrels over their life. So we're really excited about.
Dennis Fong: The strength of that reservoir and the quality of that reservoir and as we move more and more into it youll.
Dennis Fong: You'll see the SaaS or come down and Youll see that production come up to about 75000 barrels a day that we talked about.
Dennis Fong: Sure.
Dennis Fong: Thank you.
Speaker Change: <unk> question is coming from the line of Mono Hossa Ginnie Securities. Your line is now open.
Speaker Change: Thanks, and good morning, everyone.
Speaker Change: I'll start with a question on the Capex profile in your slide deck that points to a fairly.
Speaker Change: A large drop in 2026 on spending into the call. It $4 billion range. So my question is what is your confidence level in that estimate and what are the factors that could nudge, the 2026 budget a bit higher or lower as the as the year progresses.
Speaker Change: Yes. Thanks.
Matt: Thanks for the question Matt.
Matt: I'll start by preference Cygnus, and then I'll turn it turn it over to Cam, but the capital spend actually starts to come down in the fourth quarter of this year as some of our projects.
Matt: From the project phase two commissioning and startup.
Matt: But we have we have high confidence that we are going to be decreasing our capital budget from the $5 billion that we've been running at to a lower number in 2026, but maybe you want to take that sure.
Matt: Sure.
Speaker Change: I think at the end of the day, maybe where it start as you know this is really a function of.
Speaker Change: And the fact that we spent the last three years focusing on the growth plan that we've gotten as you know this year. We've got about one four to $1 8 billion of growth spend and that growth really in earnest starts to show up this year and going through into 2027. So I think the big benefit. We've got is we've got a fairly robust trajectory of volume.
Speaker Change: Over the next few years and couple that with I would say.
Speaker Change: A desire to have lower spending I think at the end of the day, we are really focused on driving what's the best value for our shareholders. So I think given other capital allocation priorities, we have particularly around shareholder returns I think we've got pretty high confidence that youre going to see the capital come down in and just to give you a bit of a frame of reference you one of the biggest changes youre going.
Speaker Change: See year over year is as west White Rose gets completed that probably singularly will be the one of the largest decreases were going to see in capital profile going into 2026, given that project will be largely completed by the end of this year and the drilling of the wells starting up kind of late Q4 and into Q1, So I.
Speaker Change: I'd say from a confidence level I think at the end of the day, we're pretty confident that we're going to see a drop in I'd say I'd say for now I think somewhere in that low $4 billion range is a good starting point for you guys to think about for 2026.
Speaker Change: Great. Thanks for that and then my second question is on Narrows Lake and how it ultimately gets reported my understanding is that it simply gets layered into Christina Lake reporting right out of the gate, but maybe you can confirm that and then second you touched on that and you did touch on this in your opening remarks, John but.
Speaker Change: What sort of an impact are you expecting narrows lake to have on overall Christina Lake blend quality in that box. Thank you.
Speaker Change: Yes, so youre absolutely right. This is going to just be part of the Christina Lake reporting its all one complex now and in terms of quality of production, it's very similar to what we see at Christina Lake.
Speaker Change: Now the interesting thing, though and I touched on this in my in my opening comments is building that pipeline of 17 kilometers and getting that operating well.
Speaker Change: Seeing the startup as flawlessly as we have seen it.
Speaker Change: It also gives us a lot of confidence to think about resource development going forward in places like Kirby West, which is to the south at Christina Lake Siem accessible with the technology that we've got today. So it really does open up a lot of things for us.
Speaker Change: At Christina Lake in the short term what Youll see is narrows just come into Christina there'll be reported as one complex and the point that I was making earlier is that the quality of crudes very similar.
Speaker Change: Thank you next.
Speaker Change: The next question is coming from the line of Neil Mehta from Goldman Sachs. Your line is now open hey.
Neil Mehta: Good morning, John and team.
Speaker Change: Hey, good morning, one of your perspective on West White Rose for again close to that inflection I know theres. Some really big milestones ahead here over the next day.
Speaker Change: Six months. So we wanted to just see how thats tracking and what you are spending time thinking about.
Speaker Change: Yes, we used the word inflection a lot inside this company and it kind of describes where we think we are as a company as well.
Speaker Change: But as I mentioned in my notes and I will just kind of give you a rundown of how we see this project unfolding over the next six to eight months.
Speaker Change: But we are we are literally days away from pulling out the gravity based structure.
Speaker Change: From our Jensen will take it to a place called Arnold's Cove.
Speaker Change: Where we will do the dry balancing.
Speaker Change: That could happen as early as tomorrow, but it's it's going to happen over the next few days. Similarly, we have Costco vessel now an angle side.
Speaker Change: And is preparing for the load out of the top sides that will happen at the end of the month early June.
Speaker Change: We'll be bringing the top sides up to Newfoundland.
Speaker Change: Two to Bull arm.
Speaker Change: In June we will we will tow the gravity based structure out to the field and we will put it replace it on the seabed.
Speaker Change: And then in July we will bring the top sides from bornemann will make them up with the.
Speaker Change: Gravity based structure from there there is a few months to do of commissioning and startup work and then in Q4, we will start drilling.
Speaker Change: With first production as I mentioned expected in the second quarter of 2026.
Speaker Change: It's pretty exciting time. This is this is becoming very real very very quickly.
Yes, and as you think about de risking those items.
Speaker Change: What is the most important of them and how much confidence do you have that you have that mitigated.
Speaker Change: Mitigating those risks.
Speaker Change: We have great confidence in.
Speaker Change: Where we are today, we actually floated the gravity based structure last night.
Speaker Change: So we just continue to kind of Derisk This project and get too.
Neil Mehta: Important milestones in a very methodical way. So there's nothing that we're doing here Neil that is unique in and out of sequence with what others have done in this basin is just big pieces of equipment.
Speaker Change: Turning in very short periods of time right now.
Speaker Change: Thanks, Jeff.
Neil Mehta: Thanks Neil.
Neil Mehta: Thank you.
Neil Mehta: The next question is coming from the line of John <unk> from Jpmorgan. Your line is now open.
John: Hi, good morning, Thanks for taking my question.
John: Disconnected for a chunk of the call. So I'm, hoping that none of this was addressed.
John: But I wanted to start on capture rates and refining.
John: You had a nice improvement this quarter despite a tight.
John: You mentioned some impact from improvements you made it why should.
John: Should we expect that given you'll be back in turnaround this quarter with Toledo.
John: <unk> <unk> should come off a little bit on the capture rate and then you talked about 70% plus being a range. So that's kind of a near term target is that achievable in the second half.
John: We need some more help from disk to get there.
Speaker Change: Yes, you kind of touched on the three things that impact capture one is the definite that has certainly been tight although it's good for the company if it does impact our capture rates in our ability to drive profitability in the downstream and we expect that to stay tight through the second quarter.
John: Thing is reliability and are producing the products that you expect to produce and I would say that.
Speaker Change: <unk>.
Speaker Change: It's happening as per plan and I think we're in good shape. There and then that allows you to place those products effectively into the market and that's a third thing so.
Speaker Change: So as we.
Speaker Change: Kind of work through the turnaround in Toledo that obviously affects Q2, but coming out of that we expect to be well above the 62% that we were in Q1.
Speaker Change: Okay.
Speaker Change: Great. Thank you and then my second question is on the pacing around the buyback.
Speaker Change: And <unk> you had some prep purchase as well as the big working capital build.
Speaker Change: And the buyback was a little wider but you came out of the gate pretty strong quarter to date, despite going into a big turnaround period and also prices down a bit. So if you could just talk about the cadence on the buyback side and how.
Speaker Change: How you think of how that interacts with the different moving pieces on cash flows that'll be helpful.
Ken: Hey, John its Ken.
Ken: A couple of things I would just say on the buyback program I think obviously, we're we're always continue to monitor cash flows inflows outflows quarter by quarter. Obviously in Q2 here, we're going to have a fairly heavy.
Ken: Period for turnarounds and turnaround costs as it relates to Toledo and foster.
Ken: But what I would say is just step back a little bit and just describe our buyback is going to be very flexible it will be.
Ken: You may not see it ratable over time, but we're going to be we'll be flexible and will be value focused on that buybacks. Obviously, we stair stepped it up a little bit as we talked about on the call here in April.
Ken: Repurchasing just under 11 million shares. So I think we'll be we'll be thoughtful about when we do it when we use that capital, but I would say at the same time the.
Ken: The reason, we've got that flexibility in our balance sheet is strong although we're not right at that $4 billion floor that we talk about for that.
Ken: Think thats necessarily going to stop us from being value and flexible around where we see opportunity. So yes I wouldn't.
Ken: Hold us to some ratable form of a buyback, but I think where we can use our balance sheet and where we see value. We'll continue to assess it but I think what I would tell you is over the long term, obviously, we want to target getting to a 100% returns, but that's not necessarily what youre going to see on a quarter by quarter basis.
Ken: Yes, John I'd, just add to that one of the things that I say is we are never going to put this balance sheet at risk and we have a $4 billion leverage target for a reason.
Ken: But there is a fine line between discipline and dogma and when you have opportunities like we have with the share price being where it is.
Ken: So incumbent on us to take a look at that understanding that we have one of the best balance sheets in the business.
Ken: Thank you.
Ken: Thank you.
Speaker Change: The next question is coming from the line of Patrick O'rourke from ATV capital markets. Your line is now open.
Speaker Change: Good morning, Patrick.
Speaker Change: Good morning, and thank you for taking my question I guess, maybe just to build a little bit upon the discussion of just having with John just curious in terms of where you see the most attractive sort of application of shareholder returns right now <unk> been aggressive with the buyback in May but you also raised the dividend and then of course, we've got another.
Speaker Change: Tranche of the preferreds that are coming up is redeemable here and how you think about that allocation and of course.
Speaker Change: I guess theres the interplay you talked on the balance sheet.
Speaker Change: How working capital releases through the balance of the year.
Speaker Change: Hey, John It's Patrick it's Cam maybe a couple of things I would highlight I think first off maybe I'll start with the base dividend I think.
Speaker Change: We've been very clear, we've got different components to our shareholder return strategy and I would describe the base dividend as being more.
Speaker Change: <unk> versus say more discretionary returns, which is what the buyback any and a variable dividend could be over time, but when you look at the base dividend, it's really about.
Speaker Change: Creating a business plan and a strategy that continues to allow us to predictably ratably grow our dividend over time, and that's all underpinned I would say by our five year plan that we outlined last year. So obviously I think the dividend growth that we've given this year, but at 11%.
Speaker Change: It's I think very tied to our business growth that we see not just this year, but going into 2006 and 27 and so what I would say is when you look at our growth plan over the next few years and you look at our.
Speaker Change: Our ability to grow that dividend I'd say, we were very comfortable and confident we're going to see consistent growth over time and this this increase we have given and it's always typically in April may.
Speaker Change: Is just consistent with that long term strategy.
Speaker Change: Last thing I would just say on the dividend as it is keep in mind, it's always going to be anchored to a ability to sustain that dividend in a $45 <unk> price and I think as that business plan continues to deliver we're going to have more capacity to grow that over time.
Speaker Change: When you think about the kind of interplay between other.
Speaker Change: Capital allocation priorities, particularly around buybacks and even perhaps I would say market conditions. Our continued move around they are volatile and I would say, we are going to be flexible and thoughtful about where we see the most value.
Speaker Change: Obviously, we took out the pressures series five back in.
Speaker Change: March at the end of March which was $200 million, we've got to another.
Speaker Change: Series do here at the end of June and another 150, and then about $300 million next year and I would say long term I would say look the pressures had a had a time and a place in our capital structure.
Speaker Change: Years back when husky put them in place I would say those.
Speaker Change: Those drivers are probably not the same today, but at the same time I think if we see better opportunities to deploy cash.
Speaker Change: The buyback will we may choose to do that and that's a decision. We'll make is these perhaps get to their rate reset dates.
Speaker Change: Okay, Great and then.
Speaker Change: I know, it's small in terms of cash flow generation here, but one thing that stood out to me in the quarter was the.
Speaker Change: The margin that was created in the conventional business I think it was above substantially above the highest estimate on the street look at the net backs big jump in sort of price realization. There is that just a function of better gas pricing in the basin.
Speaker Change: And what's the sort of appetite to continue to grow that particular business as we see eco basis improve here.
Speaker Change: So Jeff why don't you take the first half of that and I'll take the second.
Jeff Murray: Great. Thanks, Patrick.
Speaker Change: Two parts to that one obviously is we've seen gas prices do what gas prices have done I wouldn't say that.
Speaker Change: Quarter, one to quarter, one comparison, it's meaningfully different but when you look at Q4 to Q1 acre price all in was better. However, the part that you need to make sure. You add is we do have some pretty valuable and significant pipeline space that moves natural gas out of the base.
Speaker Change: I would point you to last year.
Speaker Change: Easy way for you to kind of think about it over time, where that added in the order of about $1.
John Kamm: $1 U S per annum btu to our realization and so I think thats, probably the first thing you should anchor on there and I'll turn it to John for the balance sure just on the second piece as I mentioned Patrick in my opening remarks, we're really focused on four things right now for the balance.
Speaker Change: 2025, and going into 2026, we are focused on our base business. We're focused on delivering growth. We're focused on the competitiveness of our downstream and we're focused on our cost structure. So.
John: So all we really like our conventional business. We believe we've got some really interesting opportunities its not really a story for this quarter of this year.
Speaker Change: But at some point in the future, we'll come back and we'll talk about.
Speaker Change: The conventional business.
Speaker Change: More comprehensively, but right now we are we are.
Speaker Change: Focus on the four things that I mentioned.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Next question is coming from the line of Manav Gupta from UBS. Your line is now open.
Manav Gupta: Hey, Good morning, I think you discussed a number of growth projects.
Manav Gupta: This genetic and others I'm just wondering if that's on the Foster Creek I think youre looking to grow volumes at about 30000. So can you help us understand what's the progress on the volume growth and Foster Creek, and then should we expect it to be online.
Manav Gupta: Yes so.
Manav Gupta: Foster Creek, because really the only project, we've got where we're adding steam capacity and as I mentioned, we're adding about 80000 barrels a day.
Manav Gupta: Of incremental stream and we've got some good reservoir in front of US both to the west and to the north and what Youll see from us through the rest of the years will finish the installation of a steam that'll happen. This summer and then we will finish the oil and water handling by the end of the year.
Manav Gupta: To make that a live project going into 2026. So early on in 2026 you.
Manav Gupta: Youll see the growth coming out of Foster Creek as well.
Manav Gupta: Okay.
Manav Gupta: Have a lot of turnaround in this quarter, our upstream and downstream so help us understand some of the risk planning around this to make sure. This concludes on budget and on time. Thank you yes.
Speaker Change: Manav I would describe we've been in a heavy turnaround period for the last year and we're really coming to the end of it most of this ends within the next six weeks.
Speaker Change: So as I mentioned in my opening remarks, we are now complete the turnaround work at WR, Babel, Borger and Wood River are running online.
Speaker Change: We are largely complete the turnaround at Foster Creek and we're about in the middle of the turnaround at Toledo on the 15th of May we'll start our turnaround at Sunrise.
Speaker Change: That's a fairly low risk event, but coming out of Q2.
Speaker Change: The vast majority of our turnaround major maintenance work is done I think we've got one more turnaround in this fall.
Speaker Change: At Sunrise, but outside of that.
Speaker Change: We are emerging from a period of heavy maintenance into a period, where we don't have anywhere near the same magnitude of major maintenance going forward. So we're really looking forward to that.
Speaker Change: But if I were to tell you where we are in terms of the risk profile of the vast majority of this has now been derisked and we're looking to kind of wind up.
These turnarounds can get everything back to full production.
Speaker Change: Next.
Speaker Change: Our next question coming from the line of Mono Hoffman from TD Securities. Your line is now open.
Mono Hoffman: Hi, Thanks amount of letting me back on.
Speaker Change: Hi, again.
Speaker Change: Yes, and I'm only asking this question because I'm getting the question, it's solid related to your definition of market capture which was adjusted for the quarter I did read the footnote it looks.
Speaker Change: Understanding here is that the inventory if that gets smoothed out and that the average market capture doesn't change overtime when compared to the original definition, but maybe you could just walk us through the mechanics on the rationale for the change. Thank you.
Speaker Change: Hey, Matt it's Kevin So maybe.
Matt: If you want tons of detail I would say.
Speaker Change: <unk> team offline, but just to give you a highlight so what we've done there is.
Speaker Change: The way, we calculate the market captures it takes the two key benchmarks that drive the profitability of our.
Speaker Change: U S downstream business, including group three in Chicago, and so that that percentage you see there is as a percentage of a blended crack of those two benchmarks.
Speaker Change: And this quarter, what we've done is we've now adjusted it for what we describe as inventory holding gains and losses, our FIFO impacts so that you can actually see.
Speaker Change: The underlying business performance is absent some of those inventory movements that you typically see because of.
Speaker Change: FIFO accounting so.
Speaker Change: And when you look at our supplemental information you can see there we've adjusted it going bankruptcy you can see what the impact of that is normalized for FIFO.
Speaker Change: So the intent there is just to make it more comparable with what you see with U S refiners in those regions.
Speaker Change: Thank you I know that was a borderline modeling questions I appreciate your taking the time to assets okay.
Menno: Alright, Thanks Menno.
Speaker Change: Thank you.
Speaker Change: At this time, we have no questions in the queue. So we will wait a minute to give you the chance to connect with US. If you do have a question I would like to remind you that if you are on the phone and wish to ask a question. Please press star one on your Touchtone telephone.
Speaker Change: Okay.
Speaker Change: The next question is from the line of Chris Barton from Calgary Herald. Your line is now open.
Chris Barton: Hi, John Thanks for taking the question with the federal election now over what is the status of talks between the pathway Alliance and the federal and provincial governments and I guess, how far apart or how close are the three sites.
Chris Barton: Chris we're kind of in a bit of a holding pattern right now the election has only just happened.
Chris Barton: And what we've always maintained is pathways in the <unk>.
Speaker Change: Project certain projects underneath that are a priority for us.
Speaker Change: And we need those two levels of government to come together.
Speaker Change: Create a path forward for us where those projects can get done in the industry can remain competitive so there is.
Speaker Change: Not much.
Speaker Change: In the way of new news on that but it's something that we maintain as a priority and we're hopeful we can get back talking with both levels of government fairly quickly.
Speaker Change: Do you expect the ability to be able to order pipe for the project in calendar 2025.
Speaker Change: I mean, Chris I really all depends on where we get to with with those two levels of government. We've been really clear about is that we need a path forward and our financial framework that keeps us competitive and allows us to move forward with that.
Speaker Change: Thank you.
Speaker Change: The next question is from the line up.
Speaker Change: Alex spill from all new land Labor program.
Speaker Change: Your line is now open.
Speaker Change: Good morning.
Speaker Change: I opened up on hi, there, yes im following up on the reports of layoffs at this.
Speaker Change: Recently, <unk> and Im asking how much of that is captured in Newfoundland and whether that has to do with sort of transition of west white rose or broader economic principles.
Speaker Change: One of the things, we Havent done Alex has talked about numbers or talk about locations, where we've seen.
Speaker Change: Job loss and we do that out of respect for the families and respect for the employees. This is a very private matter and we wanted to be or treat people with dignity and respect.
Speaker Change: But what I would tell you is as a company we are getting to the end of an investment cycle in this business and our capital spending is decreasing and consistent with that.
Speaker Change: The amount of work that we have to do is decreasing and that means we've got to.
Speaker Change: To readjust, our labor force to make it fit for purpose.
Speaker Change: And ensure that we are competitive as an industry. So don't have an exact number for you in Norton or what I'd, probably give it to you if I had to top of mind, just just to be respectful of the people that are involved in this.
Speaker Change: Thank you.
Speaker Change: And there are no further questions registered at this time I would now like to turn the meeting back over to Mr. John Mckenzie.
John Mckenzie: Great and thank you operator.
John Mckenzie: So this concludes the conference call. Thank you for joining US today, we really appreciate your interest in the company and have a great day everybody. Thank you.
John Mckenzie: This concludes today's program you may all disconnect.
John Mckenzie: For participating in today's conference and have a great day.
John Mckenzie: Okay.
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