Q2 2025 Cenovus Energy Inc Earnings Call
Good morning everyone. Thank you for standing by and welcome to the Synovus energy. Second quarter 2025 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask a question during the session. You will need to press star 1 1 on your
Patrick Read: Thank you, Operator. Good morning, everyone, and welcome to CENOVUS's 2025 second quarter results conference call. On the call this morning, our CEO, Jon McKenzie, and CFO, Kam Sandhar, will take you through our results. We'll then open the line for Jon, Kam, and other members of the CENOVUS management team to take your questions. Before getting started, I'll refer you to our advisories located at the end of today's news release. These describe the forward-looking information, non-GAAP measures, and oil and gas terms referred to today. They also outline the risk factors and assumptions relevant to this discussion. Additional information is available in CENOVUS's annual MD&A and our most recent AIF and Form 40F. And as a reminder, all figures we reference on the call today will be in Canadian dollars unless otherwise indicated. You can view our results at cenovus.com.
Telephone, as a reminder, this call is being recorded. I would like to turn the meeting over to Mr. Patrick. Reed Vise, president invest relations and internal audit. Please. Go ahead Mr. Reid.
Thank you, operator.
Good morning everyone and welcome to cenovis 2025 second quarter results conference call.
On the call this morning, our CEO John, McKenzie, and CFO cam. Sandart will take you through our results.
We'll then open the line for John Cam and other members of the cenovis management team to take your questions.
Before getting started, I'll refer you to our advisors located at the end of today's news release.
These describe the forward-looking information, non-gaap measures, and oil and gas terms refer to today.
They also outline the risk factors and assumptions relevant to this discussion.
Information is available in sovas, annual mdna and our most recent aif and form 40f.
and as a reminder,
all figures, we reference on the call today will be in Canadian dollars unless otherwise indicated.
Patrick Read: For the question and answer portion of the call, please keep the one question with a maximum of one follow-up. You are welcome to rejoin the queue for any other follow-up questions you may have. 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. I will now turn the call over to Jon. Jon, please go ahead.
You can view our results at sonova.com.
For the question and answer portion of the call. Please keep the 1 question with a maximum of 1, follow-up.
You are welcome to rejoin the queue for any other follow-up questions you may have.
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.
Jon McKenzie: Great. Thank you, Patrick, and good morning, everyone. As always, I'll start with our top priority, health and safety. This quarter posed some unique challenges, and I couldn't be more proud of the way our people responded. In late May, the Caribou Lake wildfire forced the evacuation of over 2,000 workers from our Foster Creek and Christina Lake operations. The fire came within a couple of kilometers of Christina Lake, and as a result, the facility underwent an orderly shutdown as per our protocol. After a brief outage, and thanks to the tireless and determined work of our people, we safely ramped production back up to 250,000 barrels a day and returned to normal operations over the course of the week.
I will now turn the call over to John.
John, please go ahead.
Great. Uh, thank you Patrick and good morning, everyone.
Uh, as always, I'll start with our top priority health and safety.
This quarter posed, some unique challenges and I couldn't be more proud of the way our people responded.
In late, May, the Caribou Lake Wildfire forced the evacuation of over 2,000 workers from our Foster Creek and Christina Lake operations.
The fire came within a couple kilometers of Christina Lake. And as a result, the facility underwent an orderly shutdown as per our protocol
Jon McKenzie: Now, this effort included draining and restarting over 50 kilometers of steam pipelines, bringing 26 boilers back online, returning the Cogent facility back to service, and remobilizing all 2,000 people back to site. It was an incredible effort, all safely done and without damage to our assets. It's a privilege to witness how our people step up when it matters most, and I'd like to thank our staff for their resilience and continued commitment and dedication. Now turning to the quarter, this was a terrific quarter for the company. A lot of important work got done, and many important milestones were achieved. We underwent a heavy maintenance period, completing large turnarounds in both the upstream and the downstream, which came in ahead of schedule and under budget.
After a brief outage and thanks to the tireless and determined work of our people. We safely ramp production, back up to 250,000 barrels a day and return to normal operations over the course of the week.
now this effort included draining and restarting over 50 kilometers of steam, pipelines, bringing 26, boilers back online returning, the kogan facility, back to service,
And remobilization people back to site.
It was an incredible effort all safely done and without damage to our assets.
It's a privilege to witness our people step up when it matters most, and I'd like to thank our staff for their resilience and continued uh, commitment and dedication.
Now, turn to the quarter.
This was a terrific quarter for the company. A lot of important work got done and many important Milestones were achieved
Jon McKenzie: We achieved some very significant milestones on our major projects, bringing us closer to delivering on our production growth targets and completing our three-year cycle of higher capital investment. And through all that activity, we delivered exceptional operating performance across the company. Together, these achievements set the stage for the second half of the year and beyond, and they were accomplished thanks again to the hard work and determination of our people. Now, I want to speak to some of the details. Beginning with the upstream, production in the quarter was 766,000 BOE per day as we completed turnarounds at Foster Creek and Sunrise and managed the production impacts from the wildfire activity at Christina Lake and the steam release at Rush Lake. The turnarounds at Foster Creek and Sunrise both went very well.
We underwent a heavy maintenance period, completing large turnarounds in both the upstream and the downstream which came in ahead of schedule and under budget.
We achieved some very significant Milestones on our major projects bringing us closer to delivering on our production growth targets, and completing our 3-year cycle of higher capital investment.
And through all that activity, we delivered exceptional operating performance across the company.
Together these achievements at the stage for the second half of the year and Beyond and they were accomplished. Thanks again to the hard work and determination of our people.
Now, I want to speak to some of the details.
Beginning with the Upstream production in the quarter was 766,000, Boe per day as we completed turnarounds at Foster Creek and sunrise.
And managed the production impacts for the wildfact welfare, activity of Christine Lake and the steam release that Rush Lake.
Jon McKenzie: We completed the work and restored production well ahead of schedule, minimizing volumes lost over the quarter. At Christina Lake, production came back strongly following the brief wildfire-related shut-in. Production was 218,000 barrels a day in the quarter and has averaged over 250,000 barrels a day in July. And we achieved an important milestone with the Narrows Lake tieback to Christina Lake. Narrows Lake produced the first oil earlier this month in July. This is a huge accomplishment and a testament to the technical and operations team who made this first-of-a-kind tieback possible. We'll ramp up the first pads at Narrow Lake over the remainder of the year, and this means a lower steam oil ratio and sustained higher production rates as we maximize the value from this asset. Now, the second quarter was also a very busy quarter at the West White Rose project.
The turnarounds of Foster Creek and sunrise, both went very well. We completed completed the work and restored production. Well, ahead of schedule. Minimizing volumes lost over the quarter.
At Christina Lake production came back strongly following the brief uh Wildfire related. Shut in production was 218,000 barrels. A day in the quarter and is averaged over 250,000 barrels a day in July.
And we achieved an important Milestone with the Narrows Lake. Ty back to Christina Lake Narrows Lake. Produ Narrows Lake produced first oil earlier, uh, this month in July.
This is a huge accomplishment and a testament to the technical and operations team who made this first of a Kind tieback possible.
We'll ramp up the first pads at narrow Lake over the remainder of the year. And this means the lower steam oil ratio and sustained higher production rates as we maximize the value from this asset.
Jon McKenzie: During the quarter, both the concrete gravity structure and the top sides were transported out to the offshore field location. In June, the CGS was placed on the seabed, and in mid-July, the top sides were lifted and set atop the CGS well ahead of schedule. Now, this feat of engineering included the world's first-ever direct ship-to-ship transfer of a top side to the pioneering Spirit Crane vessel. With both the CGS and the top sides work complete and set in place, hookup and commissioning activities have now begun. This will include the connection to the Searles FPSO, which began producing oil earlier in the year following the successful completion of the asset life extension. During the quarter, it reliably produced over 7,000 barrels per day.
On second quarter was also a very busy quarter at the West White Rose Project.
During the quarter, both the concrete gravity structure, and the top side were transported out uh to the offshore field location in June. The CGS was placed on the seabed and a mid July. The top sides were lifted and set at top the CGS, well ahead of schedule.
now, this feat of engineering include the world's first ever, Direct ship to ship transfer of a topside to the pioneering Spirit crane vessel
With both the CGS and the top sides work, complete and set in place hook up and commissioning activities have now begun.
Jon McKenzie: We plan to commence drilling from the West White Rose platform before the end of the year and achieve first oil in the second quarter of 2026. At Foster Creek, we tied in four new steam generators during the turnaround and turned them over to operations in July. These steam generators will collectively add about 80,000 barrels per day of new steam capacity as part of the optimization project. We will complete work on the de-oiling and water treatment facilities later this year, and we're on track to bring on first oil from the project in early 2026. Now, during the quarter, we also responded to a casing failure in an injector well at Rush Lake, which resulted in a steam release to surface. The release was a localized incident impacting one well at a Rush Lake 2 asset.
Uh, which began producing oil earlier in the year, following the successful completion of the asset life extension. During the quarter, it reliably produced over 7,000 barrels per day.
We plan to commence drilling from the West White Rose platform before the end of the year and Achieve first oil in the second quarter of 2026.
At Foster Creek, we tied in 4 new steam generators, during the turnaround and turned them over to operations in July, these steam, generators will collectively about 8,000, barrels per day of new steam capacity, as part of the optimization project,
We will complete work on the ding and water treatment facilities. Later this year. And we're on track to bring on first oil from the project in early 2026.
Now, during the quarter, we also responded to a casing failure and an injector. Well, at Rush Lake which resulted in a steam release to surface.
Jon McKenzie: In response to the release, both Rush Lake 1 and Rush Lake 2 facilities were shut in. Prior to the shut-in, the facilities had been producing about 18,000 barrels a day. The well has been brought under control and will work together with a regulator to complete a full investigation and put together a plan to safely restart production. As a result, and out of caution, we have removed Rush Lake volumes from our production guidance for the remainder of this year. The production impact has been partially offset by strong performance from the other Lloyd Thermal assets, driven by new development wells and optimization work. Overall, it's been a very active and productive period for upstream business, and we continue to deliver on our growth plans. In the downstream, we had strong results in the second quarter, excluding inventory holding losses and expensed turnaround costs.
The release was low, was a localized incident impacting 1, well at a rush Lake 2 asset.
In response to the release both rush like 1 and Rush Lake 2. Facilities were shut in prior to the shut in. The facilities had been produced in about 18,000 barrels a day.
The well has been brought under control and will work together with a regulator to complete a full investigation and put together a plan to safely restart production.
As a result, an out of caution. Uh, we have removed Rush Lake volumes from our production guidance for the remainder of this year.
The production impact has been partially offset by strong performance from the other Lloyd thermal assets driven by new development Wells and optimization work.
Jon McKenzie: The downstream business generated about 220 million in operating margin. The Canadian refining had another exceptional quarter. Crude throughput reached a new quarterly high of 112,000 barrels per day with a utilization rate of 104%. The reliability improvements made to the upgrader during last year's turnaround have enabled us to test the capacity of the facility, with crude rates reaching as high as 87,000 barrels a day versus an operable capacity of 7,800 barrels per day. The Lloydminster refiner also performed exceptionally well, with rates reaching 33,000 barrels per day and record asphalt production in the quarter as we took advantage of strong seasonal demand. In US refining, we delivered crude throughput of 553,000 barrels per day while also executing a major turnaround at the Toledo refinery. And our execution at the Toledo refinery is exemplary.
Overall, it's been a very active and productive period for Upstream business and we continue to deliver on our growth plans. In the downstream. We had strong results in the second quarter, excluding inventory, holding losses and expensed turnaround costs. The downstream business generated about 220 million in operating margin.
The Canadian refining, uh, had another exceptional quarter crew, throughput reached, a new quarterly, high of 112,000 barrels per day with a utilization rate of 104%.
The reliability improvements made to the upgraded during last year's, turnaround have enabled us to test capacity or test the capacity of the facility.
With crude rates reaching a size of 87,000 barrels a day versus an operable capacity of 78,500 barrels per day.
The Lloyd Minster refiner, also performed exceptionally well with rates reaching 33,000, barrels per day and record asphalt production in the quarter. As we took advantage of strong seasonal demand
In US refining, we delivered crew throughput of 553,000 barrels per day while also executing a major turnaround at the Toledo facility, or Toledo refinery.
Jon McKenzie: We took down eight major refinery units on the east side of the plant and, similar to Lima last year, took a targeted approach to address the issues that we expect to improve reliability going forward. The turnaround was completed 11 days ahead of schedule, and costs came in at the low end of the guidance range. Now, importantly, this marks the end of a heavy maintenance period across our downstream business, where we have expensed nearly 900 million in turnaround costs over the last six quarters. With our full network up and running and our major maintenance behind us, we have a clear runway to demonstrate the capability of the refining network through the rest of the year and into the second half of 2026. So I'm now going to turn it over to Kam to walk us through our financial results.
And our execution, at the Toledo refiner was exemplary. We took down 8 major Refinery units on the east side of the plant and similar to Lime. Last year, took a targeted approach to address the issues that we expect to improve reliability going forward.
The turnaround was completed, 11 days ahead of schedule and cost came in at the low end of the guidance range.
Now importantly in this marks, the end of a heavy maintenance period across our Downstream business where we have expensed nearly 900 million in turnaround costs over the last 6 quarters.
With our full Network up and running and our major maintenance behind. As we have a clear Runway to demonstrate the capability of the refining, Network through the rest of the year and into the second half of 2026,
Kam Sandhar: Thanks, Jon, and good morning, everyone. In the second quarter, we generated 2.1 billion of operating margin and approximately 1.5 billion of adjusted funds flow. Operating margin in the upstream was approximately 2.1 billion. Relative to the last quarter, benchmark oil prices were lower and the Canadian dollar strengthened. This was partially offset by the WCS differential narrowing by more than $2 a barrel in the quarter. Oil sands non-fuel operating costs of 10.73 per barrel increased quarter over quarter due to turnaround activities and lower volumes in the second quarter. We expect operating costs to come down in the second half of the year and into next year as we return from maintenance and begin to bring on additional volumes from our growth projects. In the downstream, we generated an operating margin shortfall of 71 million.
So, I'm now going to turn it over to cam to walk us through our financial results.
Thanks John and good morning everyone.
In the second quarter, we generated 2.1 billion of operating margin and approximately 1.5 billion of adjusted funds flow.
Operating margin in the upstream was approximately 2.1 billion relative to the last quarter Benchmark oil prices were lower and the Canadian dollar strengthened. This was partially offset by the WCS, differential narrowing, by more than 2 dollars a barrel in the quarter.
Oil. Sands non-fuel operating costs of 1073 per barrel, increased quarter over quarter due to a turnaround activities and lower volumes in the second quarter.
We expect operating costs to come down in the second half of the year. And into next year, as we return from maintenance and begin.
To bring on additional volumes from our growth projects.
Kam Sandhar: Excluding 50 million of inventory holding losses and 239 million of turnaround expenses, operating margin in the downstream was about 220 million in the quarter. In the Canadian refining business, operating costs of 10.63 per barrel decreased by about 20 cents a barrel from the first quarter, coming in below our full-year guidance range for the second consecutive quarter. In the US refining business, per unit operating costs of 10.52 per barrel decreased by about $1.60 per barrel from the first quarter and over a dollar a barrel relative to the same quarter last year. We continue to make progress in driving down costs in our operated refineries as we increase reliability and structurally remove costs across our network.
In the downstream, we generated operating an operating margin shortfall of 71 million.
Building losses and 239 million of turnaround expenses. Operating margin in the downstream was about 220 million in the quarter.
In the Canadian refining business. Operating costs of 1063 per barrel. Decreased by about 20 cents a barrel from the first quarter coming in below our full year guidance range for the second consecutive quarter.
In the US refining business per unit, operating costs of 1052 per barrel, decrease by about 1.60 per barrel from the first quarter and over a dollar Barrel relative to the same quarter last year.
Kam Sandhar: Capital investment of 1.2 billion included sustaining activity across the business as well as growth and optimization capital in the oil sands, where we advanced our key projects and in the Atlantic region with the progression of the West White Rose project. At the end of the second quarter, our net debt was approximately $4.9 billion, a reduction of about 150 million from 5.1 billion at the end of the first quarter. In addition to reducing our debt, we returned $819 million to shareholders through dividends, share buybacks, and the redemption of $150 million of preferred shares. We purchased approximately 300 million worth of shares through our NCIB in the quarter, or about 17 million shares at an average price of about $17.50 per share.
We continue to make progress in driving down costs in our operated refineries as we increase reliability and structurally remove costs across our Network.
Capital investment of 1.2 billion included sustaining activity across the business as well as growth and optimization capital in the oil sense, where we Advanced our key projects and in the Atlantic region, with the progression of the West, White Rose Project.
At the end of the second quarter, our net debt was approximately 4.9 billion dollars of reduction of about 150 million from 5.1 billion at the end of the first quarter.
In addition to reducing our debt, we returned 819 million to shareholders through dividends, share BuyBacks and the Redemption of 150 million of preferred shares.
Kam Sandhar: Non-cash working capital decreased by $923 million in the quarter, a significant contributor to our ability to continue to return cash to shareholders while further reducing our debt. We will continue to steward net debt towards our $4 billion target while remaining active with our NCIB. With the value we see in our shares today and with our growth projects on track to start up in the coming quarters, we continue to see a significant opportunity to increase our returns to shareholders going forward through share repurchases. To this end, the company purchased another $129 million worth of shares subsequent to the end of the quarter through July 28th, or about 6.6 million shares. With that, I'll now turn the call back to Jon for some closing remarks.
We purchased approximately $300 million worth of shares through our NCIB in the quarter, or about 17 million shares, at an average price of about $17.50 per share.
Non-cash working capital decreased by 923 million in the quarter. A significant contributor to our ability to continue to return cash to shareholders as well further reducing our debt,
We will continue to Steward net debt towards our 4 billion Target while remaining active with our ncib.
With the value you see in our shares today and with our growth projects on track to start up in the coming quarters, we continue to see a significant opportunity to increase our returns to shareholders going forward through share repurchases.
To this end, the company purchased another 129 Million worth of shares subsequent to the end of the quarter through July 28th. There are about 6.6 million shares
Jon McKenzie: Great, and thank you, Kam. So as I touched on before, we had a terrific quarter and have successfully delivered on a number of key initiatives. We completed the turnarounds of Foster Creek, Sunrise, and Toledo well ahead of schedule and under budget. We achieved first oil at Narrows Lake and are now bringing on new production from some of the best quality resources in the basin. We have begun hookup and commissioning of the West White Rose project ahead of schedule after successfully completing critical work to make the concrete gravity structure with the top sides in July. And we've tied in four new steam generators at Foster Creek. That brings us one step closer to completing the optimization project and adding over 30,000 barrels a day of production at Foster Creek. Our growth projects are approaching completion.
With that, I'll now turn the call back to John for some closing remarks, great, and thank you Cam.
So as I touched on before, we had a terrific quarter and have successfully delivered on a number of key initiatives.
We completed the turnarounds of Foster Creek sunrise in Toledo well ahead of schedule, and under budget.
We Chief first oil at Narrows Lake and are now bringing on new production from some of the best quality resources in the basin.
We have begun hookup and commissioning of the West, White Rose Project ahead of schedule after successfully completing critical work to make the concrete gravity break, uh, structure with the top side's in July. And we've tied in 4, new steam generators at Foster Creek. Uh, that brings us 1, Step Closer to completing the optimization project and adding over 30,000 barrels. A day of production uh at Foster Creek
Jon McKenzie: Our major maintenance activities for the year are largely behind us, and we are focused on driving value from our operations. This is a pivotal moment for the company as we execute on our plan to deliver higher production and lower capital into 2026 and increase free funds flow. We have a clear view on the work in front of us and remain focused on creating long-term value for our shareholders. And with that, we're happy to answer any of your questions.
Our growth projects are approaching completion. Our major maintenance maintenance activities for the year are largely behind us, and we are focused on driving value, from our operations. This is a pivotal moment for the company. As we execute on our plan to deliver higher production and lower Capital into 2026 and increase free funds flow.
Operator: Thank you. If you have a question at this time, please press the star one-one on your touchstone telephone. We ask that you please limit yourself to one question and one follow-up. One moment for questions. Our first question will come from the line of Menno Holschoff from TD Cowan. Your line is open.
We have a clear view on the work in front of us and remain focused on creating long-term value for our shareholders. And with that, we're happy to answer any of your questions.
Thank you. If you have a question at this time, please press the star 1 1 on your touchtone telephone.
We ask that you please limit yourself to 1 question and 1 follow-up.
1 moment for a question.
Menno Hulshof: Thanks, Menno. Good morning, everyone. Good morning, Jon. I'll start with a question on US downstream and with the understanding that you don't disclose utilization by refinery. And you did touch on this to some degree in your opening remarks, but can we just get a rundown on the status of your pad-to-operated refineries? And given that the little bit of downstream turnaround activity that was planned for Q3 looks to have been pushed to Q4, how would you frame the bookends for Q3 utilization and market capture?
Our first question will come from the line of meno Hof from TD. Colin line is open.
Good morning everyone. Good morning, John. I'll, I'll start with a a question on us Downstream. And with the understanding that you don't disclose utilization by
Jon McKenzie: Yeah. So you know the way I would frame it is, you know we've always talked about being competitive in the downstream, and we've defined that as kind of a Q1-Q2 cutoff point, and we measure it using Solomon. So what we're driving towards is kind of that 98% availability right across the refining network that we have in the US. Today, all those refineries are kind of wide open. We're out of turnaround. At Toledo, everything is operating, you know, as we would expect it to, and we expect to see that, you know, through the third quarter. I think we have some scheduled maintenance. It's relatively small at Toledo, and I think that's probably the confusion you have with additional turnaround work. But as in any refinery, you know, you have regular scheduled maintenance that you undertake during the course of time.
Refinery and and you did touch on this to some degree in the in your opening remarks. But can we just get a rundown on the status of your pad to operate and refineries and given that the little bit of Downstream, turnaround activity, that was planned for Q3 looks to have been pushed to Q4. How, how would you frame the bookends for Q3 utilization and Market capture?
And we measure it using Solomon. So what we're driving towards
Is kind of that 98% availability.
Um, right across the refining Network that we have in in the US.
Today, all those refineries are kind of wide open. We're we're out of turnaround. Um, at Toledo. Everything is operating, you know, as we would expect it to and we expect to see that, you know, through the third quarter,
I think, uh, we have some scheduled maintenance is relatively small, um, at Toledo. I think that's probably the confusion you have with additional turnaround work.
Jon McKenzie: But if I kind of look out from now, the only, you know, big turnaround we have happens in 2026 at Lima, and that looks like that's going to be in the back half of the year, Q3, Q4, and then 2027 at Toledo. So we are through this major maintenance cycle that we've been in over the last six quarters, and we're really looking forward to seeing what we can do over the next 12 months and then more broadly with much less maintenance going forward through '26, '27.
um, but as in any Refinery, you know, you have um, you know, regular schedule maintenance
Take during the course of time, but if I kind of look out from now the only, you know, big turnaround we have happens in 2026 at uh Lima and that looks like that's going to be in the in the back half of the Year, key 3 key 4.
And then 2027, um, at Toledo. So we are through this major maintenance. Um,
Cycle that we've been in over the last 6 quarters. And, and we're really looking forward to seeing what we can do over the next 12 months. And then, uh, more broadly with much less maintenance going forward through 2627.
Menno Hulshof: Terrific. Thanks for that, Jon. And then maybe just flipping over to Rush Lake, it's good to hear that you've already you're already developing a plan to restart the well. And I'm not going to ask for background on the root cause because I know there's an ongoing investigation. But given that it looks to have been a casing failure on an injection well, can we assume there's minimal risk to Rush Lake design capacity and operating protocols? And are there any read-throughs at all for your other Lloyd projects? Thank you.
Terrific. Thank thanks for that John and then maybe just flipping over to to Rush Lake. It's it's good to hear that you've already. You're already developing a plan to restart the well, and I'm not going to ask for, for background the root cause because I know there's
Jon McKenzie: Yeah. I think, you know, out of an abundance of caution and conservatism, we've removed Rush Lake production for the rest of this year. So you're quite right. We're just finishing our root cause analysis and the investigation right now. We're confident that this is a casing failure on one well. And you know, as I said in my call notes, we've got control of the site, and we're moving to sort of the recovery phase of this where we'll work with the regulator and convince ourselves that we've got a good, safe startup plan for this. But both two things need to come together, and we need to finish the investigation. But you know, suffice it to say we're in the recovery portion of this incident.
Menno Hulshof: That's great to hear. Thanks again. I'll turn it back.
An ongoing investigation but given that it's it looks to to have been a case in failure on an injection. Well, can we assume there's minimal risk to Rush Lake design capacity and operating protocols? And are there any Retros at all for your other Lloyd projects? Thank you. Yeah, I think I think, you know, out of an abundance of caution and conservatism, we've removed Rush Lake production for the rest of this year. So, you're quite right, we're we're just finishing our root cause analysis in the investigation right now. Um, we're confident that this is a case in failure on 1 well and, uh, you know, as I said, in my call notes, we've got control of the site and we're moving to sort of the recovery phase of this, where we'll work with the regulator and convince ourselves that we've got a good safe startup plan for this. But um those 2 things need to come together and we need to finish the investigation but, you know, suffice it to say, we're in the recovery portion of this incident.
Jon McKenzie: Thanks, Menno.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Dennis Fong from CIBC WM. Your line is open.
That's great. Uh, great to hear. Thanks again, I'll turn it back.
Thanks man.
Thank you. 1 moment for our next question.
Our next question will come from line of Dennis Fong from CIBC.
Dennis Fong: Hi. Good morning, and thanks for taking my questions. I guess first off, congrats on a really strong quarter. My first question here is just around next steps for some of these up-and-coming projects or ones that you're working on next. I know you've highlighted Sunrise, Lloyd Thermal, and Conventional Lloyd Heavy Oil, including Multilats, as kind of potential next projects. Can you discuss around sizing of CAPEX and how you would think about the cadence of growth as well as cadence of spending over the next few years as you kind of look towards these projects, as well as kind of how do you maybe right-size them given obviously the volatile commodity price environment we're sitting in?
WM your line is open.
Jon McKenzie: Yeah. So you know, as we've kind of signaled to the market, we're really coming to the end of an investment cycle that we've had in this business. It started in '23 and really concludes this year. So you know, we've been pretty clear that 2026 capital will be much reduced from where we were in '23, '24, and '25. And we've kind of used kind of a low 4 billion as a good marker for you to build into your models. You know, one of the things that we think about as it relates to some of the shorter cycle assets that we've got, and I guess in particular as it relates to Lloydminster, is we just feel like we've got some real tremendous structural advantages there in that we own a huge block of land. It's full of oil. We own all the infrastructure.
Hi. Good morning. Uh, and thanks for taking my questions. Um, uh, I guess first off congrats on on a really strong quarter. Um, my my first question here is just around next steps for some of these, uh, uh, up and-coming projects are ones that you're you're working on next. Um, I know you've highlighted Sunrise Lloyd thermal and conventional. Um uh Lloyd heavy oil including multi lats as as kind of potential next projects. Can you discuss around sizing of capex? Um and how you would think about the Cadence of growth um, as well as Cadence of spending over the next uh, few years, as you kind of look towards these projects, as well as kind of. How do you maybe write size them? Given obviously the volatile commodity price environment. We're sitting in,
Yeah. So, you know, as we've kind of signal to the market, we we're really coming to the end of a investment cycle that we've had in this business that started in 23, um, and really concludes this year. So, you know, we've been pretty clear that 2026 Capital will be, um, much reduced from where we were in 2324 and 25, and we've kind of used kind of a a low 4 billion. Um, as a um,
Good marker for you to build into your model.
you know, 1 of the things that we, um, we think about, as it relates to, some of the shorter cycle, um, assets, that we've got
And I guess in particular, is it relates to Lloyd ministers. We just we just feel like we've got some real tremendous structural advantages there and that we own a huge block of land.
It's full of oil.
Jon McKenzie: We've got all the pipelines, and then we have a lot of the royalty rights there as well. So as with any investment, we kind of right-size it, and we make sure that it returns capital and return on capital at $45. And then we kind of think about what's the right pacing and staging to use in terms of how big that investment needs to be. So we think about all kinds of things like, can we do this efficiently? Do we have the drilling location sized and set up and ready to go in that pacing and staging? And so I think, you know, when you think about 2026, it might be somewhere around the 150 to 200 million range that we would put into that cold heavy oil business.
Uh, we own all the uh um, infrastructure. We've got all the pipelines and then we have a lot of the royalty rights there as well. So as with any investment, we kind of rightsize it and we make sure that it returns, uh, capital and return on Capital at 45 dollars.
And then we kind of think about what's the right pacing and staging to use in terms of how big that investment needs to be.
So we think about all kinds of things, like, can we do this? Sufficiently do we have the uh, drilling location sized and um, set up and ready to go, and and, and that pacing and staging. And so I think,
Jon McKenzie: And Lloyd, and that kind of supports, you know, growth in the kind of 10% range as we move towards 40,000 barrels a day. But you know, like any investment, it's got to make money at 45 bucks.
think about 2026, it might be somewhere around the 150 to 200 million range that we would put into that cold heavy, Oil Business, and Boyd, and that kind of supports
You know, growth in the kind of 10% range as we move towards 40,000 barrels a day. But you know, like any Investments got to make money at 45 bucks.
Dennis Fong: Great. Thanks, Jon. Really appreciate that that color. My second question here and maybe a bit of a follow-on to Menno's first question, and frankly not to belabor a focus on the US downstream. Now that you've completed major maintenance on Toledo and obviously Lima last year, can you talk towards what maybe your team saw or changed during those turnarounds that provides you and the teams with incremental confidence around kind of this runway for stronger operations going forward?
Jon McKenzie: Yeah. So we've now had a chance to get inside every asset except for Superior, which we rebuilt and restarted in 2023, '24. But in Superior for, sorry, in Toledo, we had a chance to take the east side of the plant down. You know, the big units and the big money-making units that we had a chance to get into for the first time were the ice cracker, the crude unit, the reformer, got inside the sulfur systems, the vac tower, the small cokers, the hydrogen plants, and the flares. So those are pretty significant assets. And when we got inside them, you know, we didn't find a significant amount of fond work, which is always a good thing.
Great. Thanks John. Really appreciate that. That color. Um, my second question here and and uh maybe a bit of a follow-on to me first question, and frankly, not to, to belabor, um, a focus on the US Downstream now that you've completed major maintenance, um, on Toledo and obviously, while I'm a last year, can you talk towards what? Uh, maybe your team saw or changed during those turnarounds that provides you in the teams with incremental, competence around, kind of this runway for stronger operations. Uh, going forward,
Yeah, so we we've now had a chance to get inside, um, every asset except for Superior, um which we rebuilt and restarted in 2020 324.
But um, in in Superior for uh, sorry in Toledo.
uh, we had a chance to take the east side of the plant down, you know, the big units and the big money-making units, uh, that we had a chance to get into for the first time where the iso cracker, uh, the crude unit, the reformer uh, got inside the software systems, the VAC Tower, um, the small cokers
Um, the hydrogen plants and the flare. So those are, those are pretty significant assets and when we got inside them, you know, we didn't find a significant amount of fond work.
Jon McKenzie: But the improvements that you make on that and getting everything cleaned dusted give you a much better confidence that you can continue to run those kind of assets at the reliability rates that we're looking for. So we were pleasantly surprised in the turnaround by what we didn't find. And we look forward to a good clean run in Toledo.
Uh, which is always a good thing. Um, but the improvements that you make on that, and, and getting everything, cleaned dusted, and gives you a much better, uh, confidence that you can continue to run those kind of assets, the um, reliability rates that we're looking for. So we were pleasantly surprised in the turnaround by what we didn't find.
Um and we uh we look forward to a good clean run in um in Toledo.
Dennis Fong: Great. Thanks, Jon. I'll turn it back.
Jon McKenzie: Great. Thanks, Dennis.
Operator: One moment for our next question. Our next question will come from the line of Greg Party from RBC Capital Markets. Your line is open.
Great. Thanks, Sean. I'll turn it back.
Great, thanks. Dennis
1 moment for our next question.
Greg Pardy: Yeah. Thanks. And thanks for the rundown. Yeah. I mean, good questions so far. Jon, maybe just to switch into Asia for a minute. You know, Liwon, Indonesia, as I sort of think about those assets, Liwon's not oil price-driven. It's a good field. It reduces your break-even. But just curious how you sort of think about those two assets and how they, you know, and how they fit in the portfolio long term. You know.
Our next question will come from the line of Greg party from RBC Capital markets. Your line is open.
Jon McKenzie: The way I think about them, Greg, is, you know, we have real competency inside our footprint, both in Asia and Indonesia. Now, in Indonesia, we're a non-operated party with 40%. In the South China Sea, we operate the deep water. But I think, as you pointed out, these assets throw out a significant amount of free cash flow. So it's fixed price gas, plus we get liquids. You know, we produce that gas where we get about a $12 realization for it. We produce the gas for about a buck. It's got very minimal capital requirements, sustaining capital requirements, and you know, the fiscal terms are actually quite good in terms of royalties and taxes. So our strategic bent on those has really been to operate well and harvest cash from them.
Yeah, thanks and and thanks for the rundown. Yeah, I mean good questions so far John maybe just to to switch into Asia for a minute, you know, Lee won Indonesia. As I sort of think about those assets, Lee ones you know not oil, price driven. It's a good field. Reduces your break even but just curious how you sort of think about those 2 assets and how they you know and how they fit in the portfolio long term.
You know, the way I I think about them Greg is, you know, we have um, real competency inside our footprint, both in Asia. Um, and Indonesia and now in Indonesia, we're a non-operated party with 40% in, um, the South China Sea, we operate the deep water,
But I think as you pointed out these assets throughout a significant amount of uh, free cash flow, so it's fixed price gas, plus we get liquids, you know, we produce that gas or we get about a 12 dollar realization for we produce the gas for about a buck.
It's got very minimal. Um,
Capital requirements sustaining Capital requirements and you know the fiscal terms are are actually quite good in terms of royalties and taxes. So our our our uh strategic um
Jon McKenzie: And I think, as you know, they kind of generate about a billion dollars of free cash flow every year. And our goal there is really to try and extend the contractual terms around the gas sales and get as much free cash flow as we can out of those assets going forward. So it's kind of a harvest strategy today with an idea that we've got some contractual optimization to do through time.
Prevent on those has really been to operate well and harvest cash from them. And um I think as you know, they they kind of generate about a billion dollars of free cash flow every year.
And our, our goal there is really to try and extend the contractual terms around the gas sales and get as much. Um,
Greg Pardy: Okay. Makes complete sense. And just a quick one for Kam. You know, the working capital tailwind was huge in the quarter. Should we expect much of that to reverse in Q3, Q4, Q5, you think?
Uh, free cash flow as we can out of those assets going forward. So it's, it's, it's kind of a harvest strategy today with an idea that that we've got some contractual optimization to do Through Time.
Kam Sandhar: Hey, Greg. It's Kam. Well, I would say, number one, I think working capital is something we're always going to be focused on, making sure we minimize it to the best we can. I think the tailwinds you saw in the second quarter, you know, a big chunk of it was driven by just the price movement we saw in the quarter. So there's probably about a 4 or 5 hundred million dollar impact on the working capital release we had as it relates to commodity price changes on our inventory balances. And then the second piece I would say is there were some tax refunds that we were expecting that we were able to bring in the door through the second quarter that amounted to a couple hundred million dollars. So, you know, I think the goal for us is to try to minimize any builds in working capital.
Okay, makes makes complete sense and just, uh, just a quick 1 for cam. I mean, I'm, you know, the working capital Tailwind was huge, uh, in the quarter. Should we expect much of that to reverse in in 3, Q4 Q?
You think?
Kam Sandhar: I think, obviously, timing of production to sales, those types of things will always move around quarter to quarter. But I think the goal is to try to try to maintain and minimize and keep working capital as low as possible. So I wouldn't expect you're going to continue to see fluctuations because of commodity prices, but I think we're going to try to minimize that as much as we can. And I think, obviously, this quarter, that release really helped us not just deleverage but also continue on a fairly robust shareholder return program through the quarter.
Uh, tax refunds that we were expecting that we were able to bring in the door, um, through the second quarter, that amounted to a couple hundred million dollars. So, you know, I think the goal for us is to try to minimize any builds in working capital. I think, obviously, um, timing of production to sales those types of things will always move around quarter to quarter, but I think the goal is to try to try to maintain and minimize and and keep working capital as low as possible. So I wouldn't expect you're going to continue to see fluctuations because of commodity prices, but I think uh, we're going to try to minimize that as much as we can.
Greg Pardy: Very good. Thanks. Thank you both.
And I think obviously this quarter not release really helped us um not just de-lever but also continue on a fairly robust shareholder return program through the quarter.
Kam Sandhar: Thanks, Greg.
Very good, thanks. Thank you both.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Neil Mehta from Goldman Sachs. Your line is open.
Thanks Greg.
Thank you. 1 moment for our next question.
Neil Mehta: Yeah. Good morning. Good morning, Jon, team.
Our next question will cost the line of Neo meta from Goldman Sachs Headliners open.
Kam Sandhar: Morning, Neil.
Neil Mehta: Morning, sir. Now, you've been always very transparent about your perspective around M&A and have a long history of doing really good M&A, including the Husky deal. I mean, certainly, that's been a lot of the investor focus and attention around a certain asset. And just your perspective on whatever you can say, whatever comments you would make about M&A strategy, and how do you think about a potential bolt-on deal? You know.
Yeah, good morning. Good morning, John's team. I want to good morning sir. Um, you know, you've been always very transparent about your perspective around m&a and have a long history of doing really good m&a including the Husky deal. I mean certainly that's been a lot of the investor focus and attention uh around certain asset and just your your perspective on um what whatever you can say.
Whatever comments you would make about, m&a strategy. And how do you think about, uh, you know, a potential bolt-on deal?
Jon McKenzie: I don't think anything has changed in the way that we look at M&A. You know, we have a portfolio that we quite like. We don't see any holes inside that portfolio. And as it relates to capital allocation, inorganic and organic opportunities, you know, need to compete. So nothing's really changed over the course of our tenure in terms of the way we look at M&A. And Neil, if you're thinking about a particular M&A piece, we're obviously not going to comment on that.
You know, um I don't think anything has changed in the way that we um look at m&a. You know, we have a portfolio that we uh, quite like uh we don't see any um holes inside that portfolio and as it relates to Capital, allocation, in organic inorganic opportunities. Um
You know, need to compete. So nothing's really changed um over the course of our tenure, in terms of the way, we look at m&a.
And Neil if if you relate, if you're thinking about, you know, a particular m&a piece, we're obviously not going to comment on that.
Greg Pardy: And we'll just keep our eyes open. Then why don't we turn over to the operations here and talk about West White Rose?
Jon McKenzie: Sure.
Greg Pardy: The concrete gravity structure is a big deal, getting that on. And just talk about now you're moving into hookup and commissioning. So what are the gating items? And remind us again what that translates to from a free cash flow perspective.
Jon McKenzie: Yeah. So you know, the last couple of years, starting with your free cash flow question, you know, we've been investing about 800-plus million dollars a year into that project. And that's all going to kind of flip over and generate about 800 million of free cash flow using kind of a $60 WTI, $63 Brent pricing when we reach full production in the '27 or, sorry, '28, '29 timeframe. So it's a huge change in terms of cash flow generation versus cash flow consumption that we're really excited about. You're absolutely right. It's a huge step for us to get this CGS on the seabed floor. And this was done with precision. It was done really, really well. And as I mentioned in my call notes, well ahead of schedule.
And uh, we'll we'll look, we'll just keep our eyes open. And then, uh, what why don't we turn over to the operations here and talk about West White Rose. Um, the concrete gravity structure, uh, was is a big deal, um, getting that on and just talk about now you're moving into hookup and commissioning. So, uh, what are the gating items and, uh, remind us again, what that translates to from a free cash flow perspective?
Yeah. So you know, the last couple years uh starting with your free cash flow question. You know, we've been investing about 800 plus million dollars a year uh, into that project and um,
That's all going to kind of flip over and and generate about 800 million of free cash flow using kind of a sixty dollar WTI 63 Brent. Um, pricing, when we, uh, reach full production at 27 or sorry, 2829 time frame.
so it's a it's a huge um change in terms of uh cash flow generation versus um
Uh, cash flow consumption.
That we're we're we're really excited about you're, you're absolutely right. It's a huge step for us to get this CGS on the seabed floor and and this was done with Precision, it was done.
Jon McKenzie: And I'm always amazed at our technical people in this company, whether it's in oil sands or whether it's in the offshore or even in the projects group, what they're able to do. And getting the top sides made it up with a gravity-based structure as seamlessly as we did and with the precision that's involved was a real feat for this company, a real credit to those people. So the kind of, if you were kind of looking at a critical path now, the piece of commissioning that's on the critical path is getting the top sides welded to the gravity-based structure. It's a huge effort, and that will get underway in short order. And we anticipate the entire commissioning and hookup schedule to be about three months.
Um, really, really well. And as I mentioned my call notes, well, ahead of schedule and I'm always amazed.
At our technical people in this company, whether it's an oil, sands, or whether it's in the offshore or even in the projects group, what they're able to do.
and getting the, um,
Top sides made it up with the gravity based structure of seamlessly as as we did. And and with the Precision that's involved.
Um, was a real feat for this company, a real credit to those people.
so they they kind of um, if you're kind of looking at critical path now,
Jon McKenzie: And then prior to the end of the year, we will start drilling our first well at the West White Rose project with the first oil expected in early Q2 2026.
Um, the piece of commissioning that that's on the critical path is getting the top sides welded to the gravity based structure. It's a huge effort and and that will get underway, uh, in short order. And we anticipate the entire commissioning and hookup scheduled to be about 3 months and then prior to the end of the year, we will start drilling our first well,
Greg Pardy: Thanks, Jon. Good luck with that. Important.
Um, at, uh, uh, the West White Rose project for the first oil expected and early, uh, Q2 202026.
Kam Sandhar: Thank you. Yeah.
Operator: One moment for our next question. Our next question will come from the line of Patrick O'Rourke from ATB Capital Markets. Your line is open.
Thanks John. Good luck with that important. Thank you. Yeah.
1 moment for our next question.
Jon McKenzie: Morning, Patrick.
Our next question will come from the line. I know Patrick oror from ATV Capital markets, your line is open.
Greg Pardy: Hey, guys. Good morning. Just looking here, you're able to improve the outlook for the operating costs in the Canadian downstream unit with this update to guidance here. I'm wondering what the key drivers are here. Is it utilization? Is it reliability enhancement and margin capture? Or how much of that really came down to, you know, lower than anticipated gas prices in the Western Canadian sedimentary basin?
Jon McKenzie: Yeah. You know, it's all of the above, Patrick. Anytime you're trying to take costs out of a refining business and get your unit costs down, obviously, you're looking at the denominator as well as the numerator of the equation. And getting good production on the top line is a big help. And when we ran the upgrader in the refinery at the levels we did, you're going to see a consequence on your unit costs on the output of that equation. One of the things I'd tell you is I think Eric and his team, and I couldn't be more proud of these guys, not just in Lloydminster, but also in our operated refineries in pad two, have been grinding out costs over the last, you know, number of quarters. And they're kind of getting after this in a very tactical and in a very meaningful way.
Hey guys. Good morning. Good morning. Um, just looking here, you're able to improve the outlook for the operating costs in the Canadian. Uh Downstream unit with this update to guidance here. Um wondering what the key drivers are here, is it utilization? Is it reliability enhancement? Uh, and margin capture uh or how much of it of that really came down to, you know, lower than anticipated uh gas prices in the Western Canadian sedimentary basin.
yeah, you know, it's it's all of the above Patrick
Um, anytime you're trying to take costs out of um or refining business and get your unit cost down, obviously you're you're looking at the denominator as well as the numerator, the equation and getting good. Um production. Um on the top line is a big help.
And when we ran those, uh, the upgrader and the refinery at the levels, we did you're going to see a a consequence on your unit costs on the uh output of that equation.
1 of the things I I tell you is I think Eric and his team and I couldn't be more proud of these guys. Not just in uh Lloyd Minster. But also in uh in our operator, to refineries in um Pad 2 have been grinding out costs
Jon McKenzie: And what we've seen over the quarters is a continued reduction in not just the absolute spend, but as you get that better reliability and you're not spending as much on maintenance and you're getting the volumes that come through, it shows up in the numerator and the denominator of that equation. But this is really blocking and tackling, and this is getting under the covers of the business operating in a very deliberate and tactical way. And we think we've got more to come. So we're on a journey as it relates to unit costs. And you know, these guys have been on it, and they continue to stay on it, driving that kind of performance. As it relates to energy, and in particular in Lloydminster, there's no doubt we benefit from reduced gas costs and reduced electricity prices. But the same principles apply.
Um, over the last, you know, number of quarters and they're, they're kind of getting after this in a very, um, tactical and in a very, uh, meaningful way. And what we've seen over the quarters is, is a continued reduction and not just the absolute spend. But as you get that better reliability and you're not spending as much on maintenance and you're getting the volumes that come through, it shows up uh in the numerator and the denominator of that equation. But this is really blocking and tackling and this is getting under the covers of the business operating in a very deliberate and tactical way. And we think we've got more to come.
Jon McKenzie: You're still trying to minimize the amount of gas you use and minimize the amount of electricity you use and use it as well as possible. So all I would say is this is really blocking and tackling one-on-one. And Eric and his team have been all over this for some time, and we're seeing the results now.
So we're on a journey as it relates to uh unit costs. And um, you know, these guys have been um, on it and they continue to stay on it, uh, driving that that kind of performance as it relates to energy. Um, and in particular in uh, Lloyd Minister, there's no doubt. Uh we benefit from reduced gas costs and reduced, um, electricity prices.
But the same principles apply you're still trying to minimize the amount of gas you use and minimize the amount of electricity you use and use it as well as possible. So,
Greg Pardy: Okay. And then I was going to ask about West White Rose, but I thought that was pretty comprehensive there. So I'm just going to switch back to the US downstream and maybe as it relates to my last question. How low do you think you could get the operating costs there? Or what's, you know, if you could quantify the opportunity on a per unit basis? And then what's really, you know, when you think about the driver of incremental margin there between market capture, lower costs, product slate optimization, what's really going to be the biggest driver of margin as we roll into the next 12 months where you don't have the same level of major turnaround activity that you've had, you know, through this quarter?
Um all I would say is this is really blocking and tackling 101 and and Eric and his team have been all over this for for some time and we're seeing the results now.
Okay. Um and then I was going to ask about West White roads but I thought that was pretty comprehensive there. So I'm just going to switch back to the US Downstream and maybe as it relates to my last question. Um, how low do you think you could get the operating costs there? Or what's, you know, if you could quantify the opportunity on a per unit basis and then what's really
Jon McKenzie: So there's always three drivers of margin in a refinery. One is you got to get the crude slate, right? And I think we do a pretty good job of that. Differentials have been very tight. As differentials or if differentials widen, we would capture more of that in our downstream. And that's kind of a one-to-one relationship in the upgrader. And at Toledo and Superior, in particular, we do have a pretty high diet of heavy oil. So as the differentials widen, you'll see margin capture in those three assets in particular, those four, if you include the Lloyd refinery, increase. We have a lot of work we're doing on the product side. So product placement is another area where you can drive additional value and additional margin capture. And we've opened up the dock at Toledo. We think that's a very strategic asset.
You know, when you think about the driver of incremental margin there between Market capture lower costs products, laid optimization, what's really going to be the biggest driver of margin as we roll into the next 12 months where you don't have the same level of major, turnaround activity that you've had.
You know, through this quarter.
So there's always 3 drivers of margin in a in a Refinery 1 is you got to get the crude Slayer right. And I think we do a pretty good job of that. Now differentials have been very tight uh as differentials or if differentials widen we would capture more of that in our Downstream. Um and that's kind of a 1 to 1 related and at Toledo uh and Superior in particular we do have a, a pretty high diet of uh, heavy oil. So as the differential is wide and you'll see margin capture in in those 3 assets, in particular, those 4, if you include the loiter Refinery, um, increase
We have a lot of work we're doing on the product side. So, product placement is another area where, um,
Jon McKenzie: We continue to increase our terminal positions, not just in pad two, but we opened an asphalt refinery in pad four recently. That was part of our disclosure in a prior call. And we work that piece of it every day. So the commercial piece of the business works on it. As it relates to unit costs, we've been pretty clear that we're not competitive on unit costs and we need to get our unit costs down through time. We're going to do this in a smart way. We're not going to jeopardize reliability or safety to get there. But the trajectory that you've kind of seen that business on, I would expect it to continue through time. But we think there's probably another $2 per barrel that we can get out of our US refining assets through time. But that's going to be, you know, a journey.
You know, you can drive additional value and additional margin capture and uh, we've opened up the docket Toledo. We think that's a very strategic asset. We continue to increase our uh, terminal positions. Uh, not just in uh, Pad 2. But uh, we opened asphalt Refinery and Pad 4 recently. That was part of our, uh, disclosure in a prior call.
Jon McKenzie: It's going to be something that we're going to be very deliberate about. And as I said before, we're not going to compromise reliability and safety, which are always kind of job one in running the refineries.
Greg Pardy: Okay. Thank you very much.
You know a journey is going to be something that we're going to be very deliberate about. And as I said before, we're not going to compromise reliability and safety which are always kind of job 1 and running the refineries
Jon McKenzie: Thanks, Patrick.
Okay, thank you very much.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Manav Gupta from UBS. Your line is open.
Thanks Patrick.
Thank you. One moment for our next question.
Manav Gupta: Good morning, guys. I just wanted to understand this a little better. You were down for about a week because of the fire, and then you probably took a week to ramp back up. And so I'm just trying to understand the opportunity barrel that was lost. So if these fires would not have happened at all, what would be a good number in terms of the volume that would be higher for the quarter versus then if because of these fires?
Our next question will come from the line of manav Gupta from UBS. Your line is open,
Good morning, guys. I just wanted to understand this a little bit better. Um, you were down for about a week because of the fire and then you probably took a week to ramp back up. And so, um, just trying to understand the opportunity battle that was lost. So, if these fires would not have happened at all, um, what would be a good number in terms of the volume that
Jon McKenzie: Yeah. So on Christina, I think that's the asset you're talking about. We were down for about four days, and then we ramped up to full production over the coming week. So about 11 days in total to go from a standing start to 250,000 barrels a day. I think adding up the barrels that we lost, it's about 2 million barrels. So if that were the number that you were going to use as the kind of LPO or lost profit opportunity, I think that would be a good number to put in your model.
Would be higher for the quarter versus when it's because of the fires.
Yeah, so on Christine, and I think that's the asset you're talking about. We were down for about 4 days.
And then we we ramped up to full production over the over the coming weeks, so about 11 days in total to go from a standing start.
To 250,000 barrels a day. I think adding up the the barrels that we lost, its about 2 million barrels.
uh, so if that were the number that you were going to use as the
Manav Gupta: 2 million barrels. Thank you. That's exactly what I was looking for. And my second question to you was you generally have a very informed view on the differential, especially on the heavy side. So multiple things going on here, OPEC raising some volumes, then Chevron getting to drill back, but then very high US utilization and desire for heavy barrels. So like what's your outlook for the heavy light differential into the year end?
Kind of lpo or loss profit opportunity, I think that would be a good number to put in your model.
Jon McKenzie: Well, you know, Jeff Murray gets paid to provide insights on these kind of questions. Maybe I'll turn it over to him.
2 million B. Thank you. That's exactly what I was looking for. Uh, and my second question to you was you generally have a very informed view on the uh differential especially on the heavy side. So multiple things going on here opaque, raising some volumes, then Chevron getting to drill back, but then very high us utilization and desire for heavy barrels. So like, what's your outlook for the heavy light, differential into the year end?
Dennis Fong: Sure. Thanks, Jon. And now there's sort of two parts to that. There'd be what is the differential in Alberta and what is the differential in the US Gulf Coast. And I think you were referencing a lot of global things that impact that US Gulf Coast differential. We've seen that be quite narrow compared to history, sort of a minus two, minus three to WTI. And that's been obviously appropriate for where things have been. Looking forward, I think the question you need to ask yourself and answer is if there is increased OPEC plus production, when does that come and how much is it? Because much of that volume would be medium sour, which tends to have an impact on the diff in the Gulf.
Well, you know, Jeff Murray gets paid to provide insights on on these kind of questions. Maybe I'll turn it over to him.
Dennis Fong: I wouldn't see that going anywhere further past what is more a normal long-run average of maybe $2 wider, you know, minus three, minus four, minus five. That tends to percolate back into Alberta. And then I would say on Alberta, it's the same thing I probably said the last couple of quarters. TMX is here and TMX is working and TMX is doing what it's supposed to do, which is to maintain the Alberta differential quite tight to the Gulf Coast. And I think we would see that persist definitely through the fourth quarter.
Sure thing, John. Um, and now, if there's sort of two parts to that, uh, there would be: what is the differential in Alberta? And what is the differential in the U.S. Gulf Coast? Um, and I think you were referencing a lot of global things that impact that U.S. Gulf Coast differential. We've seen that be quite narrow compared to history, uh, sort of a minus $2 to minus $3 to WTI, and that's been obviously appropriate for where things have been looking forward. I think the question you need to ask yourself and answer is, if there is increased OPEC+ production, um, when does that come? And how much is it? Because much of that volume would be medium sour, which tends to have an impact on the diff in the Gulf. I wouldn't see that.
Manav Gupta: Thank you so much.
Going anywhere further past, uh, what is more a normal long run? Average of, you know, 2 maybe 2 dollars wider. You know, minus minus 3, minus 4, minus 5 that tends to percolate back into Alberta. Uh, and then I would say, on Alberta, it's the same thing. I'd probably said the last couple quarters. Uh, TMX is here and TMX is working, and TMX is doing doing what it's supposed to do, which is, to maintain the Alberta differential, uh, quite tight to the Gulf Coast. And I think we would see that, uh, persist definitely through the fourth quarter.
Jon McKenzie: Thanks, Manav.
Thank you so much.
Operator: Thank you. 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-one. One moment for any questions. This question will come from the line of Emma Grainy from the Globe and Mail. Your line is open.
Thanks man.
Thank you. 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,
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Manav Gupta: Yeah. Good day, guys. Thanks for taking my question. I'm just curious to get your take on the new policy environment that we're seeing from Ottawa, Bill C5, and that kind of thing, and where you think this might set Canada going forward, particularly with Sonovus and several opportunities.
Our next question will come from the line of Emma grainy from the Globe and Mail your line is open.
Jon McKenzie: Okay. Well, thanks for your question, Emma. I'm going to turn this over to Jeff Lawson to give you an answer.
Yeah, good day, guys. Thanks for taking my question. I'm just curious to get your take on the new policy environment that we're seeing from Ottawa, Bill C-5, and that kind of thing. Where do you think this might set Canada going forward, particularly with Cenovus and SLOAN opportunities?
Jeff Lawson: Hey, Emma. Thanks for calling in. How's your day?
Okay, well thanks for your question and I'm I'm going to turn this over to Jeff Lawson uh to give you an answer.
Manav Gupta: Pretty good, mate.
Hey, Emma. Thanks for calling in. How's your day?
Jeff Lawson: Good. I'll give you a bit of an answer. I think the federal liberal government has been the most constructive with us and our industry than we've seen in the course of the past decade. So they're out here often. They're visiting, and they're really trying to make an effort, I think, to improve the Canadian economy. So bills are bringing in on major projects. I think they're well-intentioned. They've got a lot of work to do with industry and with the provinces to get things done. And what we say is perfectly consistent. We love the notion of new projects and strengthening the Canadian economy. At the same time, we need to take a step back and say, you know, what's precluding us from proceeding with these things? And really, there's a lot of regulatory hurdles.
Pretty good, mate.
Good.
Um, I'll give you a bit of an answer. I think the federal liberal government
has been the most constructive with us and our industry. Then we've seen in the course of the past decade.
So they're out here often, they're visiting and they're really trying to make an effort.
I think to improve the Canadian economy.
I think they're well-intentioned, they've got a lot of work to do with industry and with the provinces uh to get things done.
And what what we say is perfectly consistent, um, we love the notion new projects.
Jeff Lawson: So there's a lot of talk about, you know, an energy corridor, a new pipe to the coast. Yet we still have a tanker ban, an emissions cap, methane regulations, an industrial carbon tax that isn't competitive with other jurisdictions. So those are things we need to see, we think, change for major projects to occur. And I'd say the good thing is that the governments are all engaging on those discussions and being thoughtful about what we're putting forth to them. So I'm cautiously optimistic we're moving in the right direction, but we've got a ways to go.
And strengthening the Canadian economy. At the same time, we need to take a step back and say, you know what's precluding us from proceeding with these things and really, there's a lot of regulatory hurdles. So there's lots of talk about, you know, an Energy Corridor, a new pipe, uh, to the coast that we still have a tanker ban and the missions cap.
Methane regulations. Uh, an industrial carbon tax that isn't competitive with other jurisdictions. So those are things. Um, we need to see we think change.
For major projects to occur. And I say the good thing is the the governments are all engaging on those discussions and being thoughtful about what we're putting forth to them. So I'm I'm cautiously optimistic, we're moving in the right direction, but we've got a ways to go.
Manav Gupta: Great. Thank you for that. The other thing I was going to ask is basically when you come to that policy kind of change, I know you don't want to weigh in on M&A and MEG specifically, but I'm curious whether this broader policy change kind of shifts anything in the energy environment and infrastructure environment when it comes to mergers and acquisitions.
Great, thank you for that. Um, the other thing
Jeff Lawson: I think it shifts everything positively. I think just going back over the past decade, we've seen a flight of foreign direct investment in this country in all sectors because we have uncertainty of regulation. We have burdens of regulations. There are long timeframes to get projects done, which are not competitive with other places. So if we become more competitive, we'll become more attractive to foreign capital. We'll see higher valuations in various industries in different companies, and we'll be more inclined to pursue organic and inorganic growth. So we'll have the funding to pursue organic growth, and we'll also have the funding and backing, everyone will, to pursue more M&A initiatives instead of simply returning capital to shareholders. So I think it's a virtuous circle, and it would drive more M&A.
The other thing I was going to ask is basically when you come to that policy kind of change, I know you don't want to weigh in on you know, m&a and make specifically but I'm curious whether these broader policy change kind of shifts anything in the energy environment and infrastructure environment when it comes to mergers and acquisitions.
I think it shifts everything positively, I think. Um, just going back over the past decade, we've seen a flight.
Of foreign direct investment in this country and all sectors because we have uncertainty of Regulation. We have
Burdensome regulations and their long time frames to get projects done, which are not competitive with other places. So,
Uh, if we become more competitive will become more attractive to foreign Capital. We'll see higher valuations in various Industries.
In different companies and would be more inclined to pursue organic and inorganic growth. So we'll have the funding to pursue organic growth and we'll also have the funding and backing. Uh, everyone will to pursue more m&a initiatives instead of simply returning Capital to shareholders. So I think it's a virtuous circle and it would drive more m&a.
Operator: Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Mr. John McKenzie.
Jon McKenzie: Great. And thanks, everybody, for your questions today and for those of you online. We absolutely appreciate your interest in the company, and please enjoy a great day. Thank you.
Thank you. There are no further questions registered at this time, uh, when I like to turn the meeting over to Mr. John McKenzie.
Operator: This concludes today's program. You may all disconnect. Thank you for participating in today's conference and have a great day.
Great. Um and thanks everybody for um their questions today and and for those of you online we absolutely appreciate your interest in the company and and please enjoy a great day. Thank you.
This concludes today's program, you may all disconnect. Thank you for participating today's conference and have a great day.