Imperial Oil Ltd (IMO) 2023 Q2 法說會逐字稿

Good day, and welcome to the Imperial Oil 2Q '23 Earnings Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Dave Hughes, Vice President of Investor Relations.

Thank you, and good morning, everybody. Welcome to our second quarter earnings call. I'm joined this morning by Imperial's senior management team, including Brad Corson, Chairman, President and CEO; Dan Lyons, Senior Vice President, Finance and Administration; Sherri Evers, Senior Vice President of Sustainability, Commercial Development and Product Solutions; and Simon Younger Senior Vice President of the Upstream. Cautionary statement, today's comments include reference to non-GAAP financial measures. The definitions and reconciliations of these measures can be found in attachment 6 of our most recent press release and are available on our website with a link to this conference call.

Today's comments may also contain forward-looking information. Any forward-looking information is not a guarantee of future performance, and actual future performance and operating results can vary materially depending on a number of factors and assumptions. Forward-looking information and the risk factors and assumptions are described in further detail on our second quarter earnings release that we issued this morning as well as our most recent Form 10-K. All these documents are available on SEDAR, EDGAR and on our website. So please refer to those. So I will hand it over to Brad and to Dan to go through the remarks. And as always, we will follow up after that with the Q&A session. So Brad, over to you.

Thank you, Dave. Good morning, everybody, and welcome to our second quarter earnings call. I hope everyone is doing well. Before addressing the financial and operating results for the quarter, I wanted to take a moment to talk about the Sirius wildfire situation in Alberta and across many parts of the country that has been present now for over the past few months and continues in many areas today. Our thoughts continue to be with the many communities that were and continue to be impacted by these buyers and related evacuations.

Throughout this challenging time, Imperial is working directly with communities to help address emergency requests, including donating safety equipment and personal protective gear to firefighting crews, ensuring local supplies of jet fuel for firefighting planes, and our employees are helping deliver items donated by the company such as water and nonperishable food to those impacted by the wildfires as well as the first responders. I'd also like to send a heartfelt thank you to all the emergency services that have been doing such a tremendous job in battling these fires and providing assistance and support to the impacted communities.

Now let's talk about our second quarter performance. The results we will talk about over the next several minutes are reflective of a quarter that included a significant level of planned maintenance at 3 of our major assets. And I'm pleased to say that all the work was completed safely and consistent with our plans. And while we still have major planned turnaround work ahead of us, in particular, a turnaround at our Sarnia refinery and chemical site later this year, we expect to see stronger volumes in the second half, most notably in the upstream.

The second quarter also saw continued strength in the commodity price environment. While we saw some moderation in diesel cracks, motor gasoline strengthened and crude remained relatively steady, while WCS prices improved. All in all, a positive environment for us as we move into the second half of the year.

So now let's review the second quarter results. Earnings for the quarter were $675 million with cash from operating activities of over $1.1 billion when excluding working capital impacts. These results are notable in that they demonstrate continued strong performance in a period where we were executing a significant amount of planned maintenance activity, both in the upstream and the downstream. In the Upstream, production in the quarter was 363,000 gross oil-equivalent barrels per day, reflecting the impacts of major planned maintenance at Kearl and Syncrude.

I'll talk about each asset in more detail in a few minutes, but I'm pleased to say that this work was executed as per our plans and operations are now back to normal at these 2 assets. We still have some planned maintenance scheduled for the second half of the year, but it is much less significant. And given our first half performance, we are moving into the second half of the year with confidence in the production guidance we have provided.

Our downstream business also performed very well. Refining throughput averaged 388,000 barrels per day, which equates to a refinery utilization in the quarter of 90%. And -- this reflects a very successful major planned turnaround at Strathcona, which is our largest refinery. Operations are back to normal here as well. We ended the second quarter with year-to-date utilization of 93%, which is right on our guidance for our refining business. While we do have another significant planned turnaround at our Sarnia facility in the second half of the year, which impacts both the refinery and our chemical operations, we are confident in our plans and ability to deliver on our full year guidance.

We have talked a fair bit about our priorities as they relate to greenhouse gas emissions reduction, both our own and those of our customers. And I have a couple of exciting updates on our efforts in this area. Our Kearl mining facility received its first shipment of renewable diesel for use in our heavy-duty truck fleet. And we passed a significant milestone with respect to our renewable diesel project at Strathcona as we began mobilizing key contractors to the site to begin facility construction work.

On shareholder returns, in addition to announcing a $0.50 per share dividend this morning, in late June, we also announced the renewal of our normal course issuer bid. -- under which we plan to repurchase 5% of our outstanding shares, which amounts to around 29 million shares. And as you would have seen in our earnings press release this morning, we have decided to accelerate the buyback program with the intention of having it completed prior to the end of this year. As you know, we have a long track record of shareholder returns, and this underscores our continued commitment to returning surplus cash to shareholders in the most effective and efficient way possible.

With that, I'll pass things over to Dan.

Thanks, Brad. In the second quarter, we reported net income of $675 million, a decrease of about $1.7 billion from the second quarter of 2022, reflecting lower commodity prices and significant turnaround activity. Looking sequentially, second quarter net income of $675 million is down $573 million from the first quarter, mainly driven by significant turnaround activity in the upstream and downstream and weaker downstream refining margins were partially offset by recovering upstream realizations.

Now looking at each business line. The Upstream reported net income of $384 million, up $54 million from the first quarter net income of $330 million, reflecting higher realizations, partly offset by lower volumes, mainly from the turnaround the turnaround activity at Kearl and Syncrude. The downstream net income was $250 million, down $620 million from the first quarter's net income of $870 million, reflecting planned turnaround activities at the Scratcona refinery and lower refining margins.

Finally, our chemicals business continued to demonstrate strong and reliable operational performance with net income of $71 million in the second quarter, up $18 million from the first quarter.

Moving on to cash flow. In the second quarter, we generated $885 million in cash flows from operating activities and improvement of about $1.7 billion over the first quarter, reflecting the absence of the income tax catch-up payment we made in the first quarter of around $2.1 billion. Excluding working capital effects of $251 million, cash flow from operating activities for the second quarter was $1.136 billion, down about $400 million from the first quarter. We ended the quarter with just under $2.4 billion of cash on hand.

Going on to CapEx. Capital expenditures totaled $493 million in the second quarter, up $179 million from the second quarter of 2022 and in line with our plans and full year guidance of $1.7 billion. In the Upstream, second quarter spending focused on smaller projects to sustain and grow production as well as progressing the in-pit tailings project at Kearl and the SA-SAGD Grand Rapids project at Cold Lake. Grand Rapids remains on track to be completed on an accelerated basis by the end of this year, in line with our previous updates about 1 year ahead of schedule. In the downstream, second quarter spending focused on progressing our renewable diesel project at Strathcona. This project is planned to start up in 2025.

Shifting to shareholder distributions in the second quarter of 2023, we paid $257 million of dividends. As Brad noted, in line with our long-standing commitment to return cash to shareholders on June 27, we announced the renewal of our normal course issuer bid. This NCIB allows us to purchase up to 5% of our outstanding shares. While we started purchasing the shares ratably over a 12-month period, we plan to accelerate the share purchases and finish the program prior to year-end. Lastly, this morning, we announced the third quarter dividend of $0.50 per share payable on October 1.

Now I'll turn it back to Brad to discuss our operational performance.

Thanks, Dan. So now let's talk about our operating results for the quarter. Upstream production for the quarter averaged 363,000 oil-equivalent barrels per day, which is down 50,000 barrels per day versus the first quarter. Coincidentally, this is also down 50,000 barrels per day versus the second quarter of 2022. And -- but when adjusting for the sale of XTO, we are down around 35,000 barrels per day year-on-year. This lower production was driven primarily by the major turnaround work that was completed in the quarter at both Kearl and Syncro as well as some production and steam cycle timing impacts at Cold Lake. The turnaround work executed in the quarter was completed safely and as per plan. In the quarter, we saw WTI crude prices come down slightly versus the first quarter, but we also saw a material tightening of the WTI-WCS differential, resulting in overall bitumen realizations being up quarter-over-quarter.

On the petroleum products side, we saw continued softening of diesel prices, but gasoline strengthened, leading into the summer driving season. And as a result, overall refining margins remain above mid-cycle.

So now let's move on and talk about Kearl. Kearl's production in the second quarter averaged 217,000 barrels per day gross, which was down 42,000 barrels per day versus the first quarter and down 7,000 barrels per day from the second quarter of 2022. Production in the quarter was impacted by our annual planned turnaround, which, as I noted, was completed on schedule and also on budget. While this work behind that -- with this work behind us, we are looking to a strong second half of the year, which we are already demonstrating with July expected to come in at around 285,000 barrels per day, which is approaching our best ever July of 287,000 barrels per day gross. This is in line with our full year guidance of 265,000 to 275,000 barrels per day gross.

Now turning to cash operating costs. While we saw an increase versus the first quarter due primarily to the planned turnaround activities, we also saw a decrease of about USD 3.50 per barrel versus the second quarter of 2022, a quarter where we also had a major turnaround. Year-to-date, cash operating cost at Kearl are just over USD 26 per barrel, which is about $6.50 per barrel lower than the first half of 2022. This is the trend in cost we are expecting to see as we continue to work towards our target of sustainable unit cash operating costs at or below USD 20 per barrel at Kearl. And as for a quick update on our autonomous haul program at Kearl, as of the end of the quarter, 73 out of our 79 Caterpillar 797 heavy haul trucks have been converted to autonomous, and the remaining trucks are expected to be complete by the end of the third quarter.

I'm also pleased to provide you with an update on the Kearl Environmental Protection order, which has been a key focus area for us. In the second quarter, we completed construction work on the key mitigation efforts to expand the existing seepage interception system. These expansions included additional drainage structures, pumping wells and vacuum systems. Now that construction is complete and systems are fully operating, our focus is on continuous monitoring and gathering additional data to ensure these mitigation measures are working as intended.

Additional assessment Cold a production for the second quarter averaged 132,000 barrels per day, which was 9,000 barrels per day lower than the first quarter and 12,000 barrels per day lower than the second quarter of 2022. The lower second quarter production was mainly driven by production and steam cycle time, which as you know, is not unusual for Cold Lake since it is predominantly using cyclic steam stimulation technology. Even with the lower production in the second quarter, we remain within guidance on a year-to-date basis and, therefore, expect to deliver a full year production of 135,000 to 140,000 barrels per day. This guidance reflects a relatively minor planned turnaround at Cold Lake's Navia plant, which is scheduled to take place in the third quarter with an annualized volume impact of around 2,000 barrels per day.

Next, I would like to provide a brief update on Grand Rapids Phase 1. As you know, this is another key project that will impact our emissions reduction plans and focus on profitable production growth. So I'm pleased to say that the project continues to progress very well against the accelerated time line we communicated late last year. All well pairs have now been drilled and completed, and construction is around 80% complete. The project remains on track with start-up of steam injection expected later this year.

Once fully online, the Phase 1 of the project is expected to produce around 15,000 barrels per day. And I would also like to address a recent issue at our Cold Lake Megan plant, where a flock of Canadian Giese came into contact with oil in a lime process water (inaudible) the 12 birds have been taken to a rehabilitation center where they have been -- they've been assessed and are being cleaned and cared for.

We are monitoring their status, and they are currently in good condition. We provided immediate notification to regulators and local communities and continue to provide regular updates accordingly. Cleanup of the oil, which totals approximately 6 barrels is nearly complete, and we have put additional measures in place to protect wildlife, including surveillance, decoys and flags as well as additional noise candidates. I'm disappointed that this has occurred, and we will be making every effort to learn and apply any preventative steps that are identified.

Now a few comments on Syncrude. Imperial share of Simcoe production for the quarter averaged 66,000 barrels per day, which was down 10,000 barrels per day versus the first quarter and down 15,000 barrels per day versus the second quarter of 2022. The main factor in the lower production was turnaround timing. In 2022, Syncrude's main planned turnaround began in the third quarter. This year, the timing was advanced with the planned maintenance starting on March 22nd and continuing for 63 days. The turnaround went well and was completed on schedule.

Syncrude also experienced some bitumen production issues related to poor weather conditions and unplanned reliability events, which impacted production in the quarter. The interconnect pipeline continued to add value to the operation, enabling around 4,000 barrels per day of SSP production from imported bitumen, helping offset the volume impact of the reliability events.

Looking ahead to the second half of the year, Syncrude has a planned hydrotreater turnaround scheduled to start in mid-August and continue into early fourth quarter, running around 60 days. The expected impact is 12,000 barrels per day in the quarter. Now let's move on and talk about the downstream. In the second quarter, we refined an average of 388,000 barrels per day, which was down 29,000 barrels a day versus the first quarter and down 24,000 barrels per day versus the second quarter of 2022, reflecting a utilization of 90%. We -- coming off a very strong first quarter, we entered into a major planned turnaround at Strathcona, our largest refinery. The turnaround started April 3rd and continued for 57 days at a cost in line with the guidance we provided of around $120 million.

The team delivered a safe and successful turnaround, executing a significant scope of work over a shorter period of time than in the past, a remarkable achievement. So congratulations to the team. Year-to-date, utilization of our refinery sits at 93%, so we are right on track to deliver on our guidance of 92% to 94%. Also, please keep in mind that we have another large turnaround plan for the late third quarter and into the fourth quarter at our Sarnia site. This turnaround also includes the chemical plant and is expected to run for 6 or 7 weeks with an annualized crude throughput impact of 9,000 barrels per day and a cost of around $165 million, which includes the chemical scope.

Finally, I'd also like to wish Strathcona refinery a happy 75 -- 75th anniversary. July 17th marked 75 years of operations at the facility. And while the facility has changed dramatically in that time, a few things have remained quite constant being a safe and reliable operation as well as a good neighbor to the community over those 75 years. Congratulations to the entire Strathcona team, past and present, and thanks to all of our business partners and stakeholders for your long-standing support.

I mentioned earlier that we've reached an important milestone with our Strathcona renewable diesel project as we began mobilizing key contractors to the site to commence construction. The project is progressing well with detailed engineering and equipment fabrication progressing as per plan. Currently, construction activities are focused on underground infrastructure work and tank foundation installation. The project is currently on schedule for a 2025 startup.

Petroleum product sales in the quarter were 475,000 barrels per day, which is up 20,000 barrels per day versus the first quarter and down 5,000 barrels per day versus the second quarter of 2022. The increase versus the first quarter is reflective of typical demand fluctuations and demand for all products remain stable with motor gasoline and diesel at around 90% to 95% of 2019 levels.

Jet fuel demand continues to strengthen and remains above 2019 levels. I would also note that being able to continue to supply strong sales demand like we saw in the second quarter, even with our largest refining asset off-line for planned maintenance is a testament to the detailed planning that went into the event. Our thanks go out to the team for managing this so effectively. On crack spreads, diesel margins softened quarter-over-quarter but have leveled out and are now showing some signs of strengthening and are well within the 5-year band. Motor gasoline cracks strengthened throughout the quarter as we entered into the summer driving season. And they also remained strong versus last year, but currently at the top of the 5-year band. And that brings us to chemicals.

Chemicals delivered strong results with earnings in the second quarter of $71 million, which is up $18 million versus both the first quarter of this year and also the second quarter of 2022. As mentioned, we have some major planned maintenance at the Sarnia site scheduled to start later in the third quarter. This includes the chemical facility, although sales are not expected to be materially impacted.

One other item I wanted to mention was a quick update on progress on the pathways alliance. Imperial continues to be actively involved in the pathways discussions with the government regarding the fiscal policy and regulatory certainty, which is needed to progress this critical project. Conversations to date have been collaborative, productive and focused on a deeper understanding of our foundational project and working towards meeting due diligence requirements for the government's financial support. We have also started to engage with indigenous communities, which is a high priority for us.

Engineering and field work is also underway to support the regulatory application for the foundational project expected to be filed later this year. So a lot of work underway by the 6 member companies to progress this unprecedented project in support of Alberta's and Canada's net 0 goals by 2050 for Scope 1 and 2 emissions.

So to wrap up, this was a solid quarter underpinned by successful execution of significant planned maintenance at 3 of our major facilities. This work was completed safely, on time and on budget, enabling us to minimize the impact of having the facilities offline. But we're not finished. We have another large turnaround at our Sarnia facility as well as a relatively small planned turnaround at Cold Lake and a planned hydrotreater turnaround at Syncro, -- so the focus will remain on executing this work as safely, efficiently and effectively as we did in the second quarter. And as we look forward to the second half of the year, we are targeting a strong finish.

We will continue to focus on shareholder returns. And as we announced this morning, we are accelerating our recently renewed NCIB with the intent of completing it prior to year-end. And as cash balances allow, we will continue to evaluate additional opportunities to return excess cash to our shareholders. We will continue to focus on sustainability and make progress towards our emission reduction goals in a thoughtful and pragmatic way.

Today, we talked about a few milestones in pursuit of these goals, including progress on our renewable diesel project, receiving the first shipment of renewable diesel at Kearl for use in our heavy haul trucks, progress towards completion of Grand Rapids Phase 1 and continued work on pathways. I look forward to continuing to bring you updates on these attractive opportunities as we continue to focus on maximizing the value of our existing business while at the same time, responding to the changing needs of our customers and communities. And a key priority continues to be improving our environmental performance and fully addressing the recent incidents at Kearl and Cold Lake.

As always, I'd like to thank you once again for your continued interest and support. And now we'll move to the Q&A session. So I'll pass it back to Dave.

Thanks, Brad. We'll jump into the Q&A session now. As always, I would appreciate if you could limit yourself to one question, plus a follow-up, then that just helps us ensure we can get as many questions in as possible. So with that, operator, could you please open up the Q&A line.

(Operator Instructions) we'll go first to Manav Gupta with UBS.

We are seeing a very strong rebound in refining cracks all across U.S. You have a unique portfolio, whereby you are levered to the East Coast crack, Chicago cracks as well as the West Coast crack. And you have a track record of actually capturing that crack. So as we look at the second half of this year, what's the outlook for refining, given a very strong rebound in cracks and that it looks like you're running much harder than the first half.

Yes. Thanks for the question. And I think you characterized it quite accurately. We are in a unique position here in Canada with 3 large refining assets both in the east and the west part of the country. We've got well-established infrastructure networks. And all of that system together, coupled with other integration with our upstream gives us a unique competitive advantage and allows us to fully extract value from the market. As we look to the second half of the year, we continue to have a very strong view of the market. And certainly, our priority will be to capture that. We do have the large turnaround, as I mentioned a couple of times. But we think even with that, we are still in a very strong position to finish out the second half of the year. And of course, those turnaround activities, both at Strathcona, the first part of the year, Sarnia, the second half of the year, position us to continue to operate not only in a safe manner, but a very reliable manner and fully maximize the utilization of these assets going forward, so we can respond to market demands.

A quick follow-up here is on Coal,help us understand some milestones and what we can look for as you try and bring that cost down towards your target of $20 per barrel.

Yes. Thanks for the question. I mean, we're quite encouraged by the progress so far this year with our cost structure. I commented on the autonomous haul trucks -- those continue to be a cornerstone of our cost structure, and so delivering on full autonomy adds significant value to us. We talked about the turnaround, now putting that turnaround behind us, but noting that we completed it in a very cost-effective way, also contributes to our overall cost structure. And then there's several examples where we are fully leveraging technology to also improve our cost. And all of that speaks to kind of the numerator of the unit cost. But equally important is the denominator. At Kearl, we obviously have a large fixed cost investment out there.

So the more volume that we can produce will drive our unit costs down. And so I talked about kind of our volumes performance for the first half of the year. The first quarter was, you may recall, a record -- I mean, yes, a record first quarter for us. The second quarter, which I just discussed was actually our second highest -- well, together between the first -- I think it was our third highest second quarter. When you put that all together, it's our second highest first half of the year. On the heels of last year, our highest second half of the year. So the message being we continue to set records at Kearl. And it's that momentum that I believe is going to drive us to a very strong second half volumes performance, and that will continue to drive our cost structure down to the $20 per barrel target that we set.

Moving next to Pardy with RBC Capital Markets.

And as always, thanks for the super detailed summary, Brad and Dan and others. I want to ask you a couple of questions. Maybe to come back to pathways. So you're not as dependent on the pipe coming down from a sequestration standpoint or at least you would be able to, I'm assuming, get ahead of the queue a little bit in terms of actually injecting CO2 at Cold Lake. Is that the right characterization? And then how material could that be if you can start injecting in 26 or 27 versus 2029. Have I got that right?

Yes, you do, Greg. When you step back and you look at the whole pathways project focused on 95% of the oil sands production we have -- the cornerstone of the project is this foundational pipeline running from the north, the round Murray, all the way down to Cold Lake. And along that way, there are probably 20 different operations that ultimately would get tied in. But at the very end of that pipeline is where Cold Lake sits. And so we have the advantage with Cold Lake that we can start decarbonization activities, carbon capture activities without being dependent on a pipeline, a big trunk line to transport those to the sequestration site where the port space is.

Now the poor space that we will be using is all part of the pathways alliance of poor space award from the Alberta government. So we will be accessing that. So we view Cold Lake as an integral pathways project. But it does not require the pipeline. So it does have the potential to start up well advance of the pipeline in the late 2020s, but targeting well in advance of 2030. So our technical teams are actively working on that project. It has a material impact. I don't have the tons right in front of me. But as we've said for Imperial, we are targeting a 30% reduction in our greenhouse gas intensity by 2030 and cold like carbon capture is a key component of that.

And I'll shift gears now maybe completely, and it's a bit of a holistic question, but it's probably a question aimed at Dan, but I'm just curious, I want to come back to maybe your capital structure and then where your comfort zone is as a CFO in terms of kind of cash balances and long-term debt, particularly on cash balances is sort of $2.5 billion like a nice minimum place to be? And then how does that then connect a little bit to the NCIB and SIB. And obviously, I know you're not going to spend money you don't have and so on, but I'm just trying to better understand that capital structure in terms of how we're thinking about this going forward.

Greg, I love talking about our capital structure, capital allocation as well, especially with kind of the very aggressive plans that we've laid out and we continue to deliver on. But I'm going to let Dan kind of go through some of those details...

Well, Greg, I appreciate you're talking about not returning cash that we don't have. You've been listening carefully. I appreciate that. But look, we said debt wise, we're comfortable with our level of debt. It's quite low. We paid some last year when we sold the XTO and used those proceeds to kind of make a structural change in our debt -- we -- so we're comfortable there. Regarding cash balance, we've never put out a target. And I would say it all really just depends on circumstances. We do like to have a buffer, but there's no magic number there. So we're committed to return cash, as we've said, as we generate it, and that continues to be our philosophy long-standing. And we don't have a magic number on the cash balance. It's going to be dependent on circumstances, quite frankly. So I'm probably not exactly the answer you're looking for in terms of granularity, but that's where we are.

We'll go next to Dennis Fong with CIBC Global Markets.

My first one is on TMX, but a little bit kind of different maybe from what you traditionally asked. In terms of product marketing to the West Coast, I was hoping to get a couple of things from you there. One, kind of your interpretation of impacts to the products market in that region, especially given the evolving toll structure associated with the Transat pipeline system as well as maybe a little bit of understanding as to the flexibility of marketing volumes into that region, especially given your, I guess, exposure to jet fuel market within BC.

Let me try to give you a couple of perspectives on that, but then I'll see if Sherri, who's here with us, wants to add anything to that. Certainly, we view TMX as a key component of infrastructure in the country. We are very pleased to see it progressing towards completion and start-up. It does provide significant incremental flexibility and optionality for both crude movements and product movements. For us, both with the existing pipeline network to the West Coast, but then supplemented by TMX we will be preferentially using it for products because it is key infrastructure for us. And I think more broadly for the industry, it provides that same flexibility. It does allow us to fulfill our customer demands. It allows us to continue to explore expansion of our customer base and not just Jet, but across all of our product slate. So we will leverage that and we view it as a positive thing. So I don't know, Sherri, anything you want to add?

I guess maybe, Dennis, for the second part of your question, maybe you could just repeat, it was around volatility of the market, and I believe you had a question around Jets.

Yes. I was just hoping to understand, again, kind of the flexibility or potential impacts when you think about moving jet fuel because I know you're a primary supplier to BC and specifically, I think that airport out there as well.

I think as Brad noted, I mean, essentially, we're going to have improved egress into that market. And while we do intend to use the pipeline to those products into that market, we expect that the volatility that you may see in the market is no different than what we would traditionally see with imports coming into the Port of Vancouver as well as supply coming from the Western Canadian refineries. So I don't think we'll see necessarily an increased amount of volatility and the market will continue to price competitively depending on the supply and the fundamentals that are occurring. Certainly, we're seeing increased levels of travel across Canada as more travelers are open to traveling internationally and seeing some demand pick up and restore back to recover levels, which is encouraging. And so that will certainly challenge the demand to supply and demand situation, but don't expect that the TMX start-up will have any major impact on volatility different than what we would see today.

And my second question, release back to Kearl. When you think about -- and I'm sure it's extraordinarily small here in terms of introducing renewable diesel into that into your heavy equipment out there. How do we think about the eventual, I guess, cost or potential cost impact of, I guess, utilizing renewable fuels or renewable diesel across the entire fleet? And how does that potentially impact the U.S. $20 per barrel target when you think about kind of medium to longer-term plans, again, kind of layering in the idea of decarbonizing that asset?

Yes. It's a really good question. And one we spend a fair amount of time reflecting on. I guess I would start with stating that we remain committed to our U.S. $20 per barrel unit cost target. And we believe that is achievable even with the use of renewable diesel. Which, as your question implies that renewable diesel does come at a premium cost, and we recognize that. But we're looking at kind of the totality of our operation and balancing cost objectives with emissions performance objectives as part of our emissions performance involves being responsible for carbon cost for any emissions that incremental emissions across our operations that we would have to pay for carbon. And so when we put all that together, we believe it's both prudent from cost standpoint as well as from an emissions standpoint.

So again, when you look at compliance costs, you look at offsets that will be generated at the projected increase over time of carbon credits approaching $170 per ton. We actually see it as accretive to our business. And then as I mentioned, our use of renewable diesel at Kearl really has 2 benefits. There's the immediate benefit to Kearl as I was just talking about. But we also see it as important to be able to work with Caterpillar, demonstrate the suitability of renewable diesel at increasingly higher blend rates to demonstrate the suitability with other customers as well. So it becomes integral to our supply strategy for the 20,000 barrels a day that we plan to produce at Strathcona once it starts up, which will be Canada's largest renewable diesel manufacturing facility. So it's an integrated strategy.

We'll go next to Doug Leggate with Bank of America.

This is actually Kalei on for Doug. So Brad, my first question really goes to Kearl and as a follow-up on guidance. And I know you reiterated guidance in your opening remarks, but I'm hoping that you can address Kearl maybe a bit more directly. So full year guidance is around 270, if I'm not mistaken. So hitting that would imply a material step-up in the second half, perhaps to around the 300,000 barrel mark. So I'm hoping that you can address maybe the upper limits of the production capacity at Kearl and talk about how that's trending relative to the guidance that you laid out at Analyst Day.

Yes. Thanks for the question. And as I commented on earlier, the Kearl has a repeated history of continuing to demonstrate strong volume performance, increasing volume performance and setting records. And in order to achieve our guidance of 265,000 to 275,000 barrels a day full year, we are going to need to continue to have very strong volumes performance at Kearl. But as I mentioned with one of the earlier questions, the first quarter, we set records. The first half is second best. July is approaching a record -- and it will take continued strong performance like that with some more records. But we believe that's quite achievable. We have had in our history, both last year, the year before, several months where we exceeded 300,000 barrels a day. So our objective, my challenge to the team is going to be to string together several strong months in a row to get us to the end of the year. It won't be easy, and it's going to require this continued focus on reliability. But again, we -- at this point, we believe it is achievable.

Brad, you mentioned July. Would you be able to give us that number...

Yes, I think I mentioned it on the call. Our -- July is not over yet, of course, right? So we still have a few days left, but we are on track, as I sit here today to achieve around 285,000 barrels a day for July.

Got it. That's perfect. My follow-up is more of a macro question on Syncrude premiums. And these have been pretty sticky since the first quarter of '22. Wondering if you guys can talk to the underlying fundamentals and the effect that TMX may have on it next year?

Sorry, I missed the first part of your question.

On Syncrude premiums, it's been trading at a premium to WTI since the first quarter of '22. I'm just hoping that you can address the underlying fundamentals and how those may be changed or reinforced by the startup of TMX next year?

Yes. You're exactly right. SSP has traded at a premium to WTI. It's been quite strong. And we believe that with the start-up of TMX and the overall impact that has on increasing egress for heavy crudes from the country and from Alberta that ultimately, that helps to strengthen the value of really all of our crudes just through that increased access, less risk of constraints. And then couple that with what's happening on the demand side, and we see continued strengthening demand for the heavy crudes for the synthetic foods, setting aside any seasonal turnaround plans. So we continue to have a strong view on SSP.

We will go next to Menno Hulshof with TD Securities.

I just have one question that ties into a lot of the things that have already been talked about. Can you just guess on where things stand with respect to sourcing of feedstock for the renewable diesel facility. And then maybe any color on how you're managing the availability and price risk on feedstock would be helpful as well.

Yes. Thanks for that question. And I'll make a couple of comments, and again, see if Sherri has anything else to add. But obviously, I talked about progressing the construction activities. That's going extremely well. And Equally, the feedstock supply work is also going quite well. It's commercially sensitive and so I don't want to give too many details. But what I would share with you is our strategy is to both establish some long-term supply commitments for the feedstock as well as maintain flexibility to supplement that with shorter-term more spot purchases as well. And through that combination of long-term supply commitments for a large part of the supply, but keeping optionality to capture the market or maintain optionality in the spot market.

We're not having all of the supply tied up. We believe that's a prudent strategy. So again, without giving commercial details, we have secured some long-term supply arrangements already, and we continue to progress that commercial work, and we have complete confidence we'll be ready when this project starts up in 2025. And our view is it will continue to be a very economic project for us. Anything, Sherri, you want to add?

No, I think you've covered it very well. I mean, Canada is a net exporter of most of these feedstocks. And so we continue to see the market here looks very robust and that even the consumption that we plan to use within the shred production, we shouldn't have a material impact on the broader markets. And so yes, there is obviously some strengthening of pricing, but Brad covered well that we've got a diversified strategy in terms of how we manage the cost of our feedstock.

Would you be prepared to give a breakdown on contracted versus spot ballpark?

No. We normally wouldn't kind of reveal those commercial details. But again, fair to say, a substantial amount of the contract is longer term.

We'll go next to Neil Mehta with Goldman Sachs.

First question is around CapEx and how you see the trajectory playing out from here at the April Analyst Day, you talked about 24 CapEx being -- it looks like around $1.7 billion and drifting a little lower from there and sustaining CapEx averaging about $1.1 billion. Any moving pieces relative to those numbers? Or that's still what we should anchor towards?

Neil, thanks for the question. Nothing has materially changed at this point. We still -- we're right on track for our 2023 guidance of 1.7. And we're in kind of the middle of our business planning cycle for 2024. So we're kind of working through those details. But based on the reviews I've had so far, everything seems right in line with kind of the underlying assumptions that form that outlook that we shared with you at Investor Day. So I think we still feel quite good about kind of that range. And likewise, kind of the split between sustaining capital and growth capital. Simon is here with me. The upstream is a key driver of that CapEx. Anything from your perspective?

I do think I do have anything to add, Brad, It's, as you say, a pretty steady outlook. And we'll see -- we'll go through our planning process and cycle this year as we currently are and inform of any updates, but it's looking pretty steady.

The follow-up is on Kearl and winterization. That was certainly something that came into focus in -- over the last couple of years, just given how extreme some conditions can get up there. Can you just explain to us some of the things that you're doing to create resilience to the to the extent cold weather plays out again in an extreme way.

Yes. Thanks for that question. And -- for those of us that live in this area, we know that cold weather is a reality that we have to plan for. And we saw some extreme conditions 2 winters ago that did have some adverse impacts and a great credit to the Kearl team that they spent a lot of time studying kind of the root causes of those reliability issues and have tackled them one by one, and we feel quite good about our readiness. And maybe I'll ask Simon to talk a little bit about a couple of the details. And I think we shared some of that at Investor Day, but maybe Simon can remind us of that.

Exactly right, Brad. We did share some of the details at the Investor Day and really -- we took a very thorough deep dive into what occurred and what learnings we could glean from that. We've made significant updates and enhancements to our operating protocols that look at conditions of the ore that we're mining through conditions in the ore prep plant and obviously, ambient temperatures. And we've established a set of protocols to optimize throughput and reliability through those extreme cold weather stretches. We also made a number of other changes around maintenance practices and cold weather procaredness sort of in the lead up to the winter period. And -- as I shared previously, we feel very good that those enhancements were validated just this past winter, where we saw not quite as extreme but relatively comparable stretches of cold and in fact, saw record-breaking reliability and throughput. So we're certainly not stepping away from any of those enhancements. We'll be doubling down on those for the coming winter, but learning anymore that we feel like we need to, but do feel that we're extremely well positioned.

And there's real money there. So I appreciate that.

And at this time, I'll turn the call back to Dave Hughes, Vice President of Investor Relations for closing remarks.

All right. Well, I guess on behalf of the management team, I'd like to thank everybody for joining us this morning. If you have any further questions or follow-ups, please don't hesitate to reach out directly to anybody on the Investor Relations team here. So thank you very much.

This does conclude today's conference. We thank you for your participation.