Suncor Energy Inc (SU) 2002 Q2 法說會逐字稿

All participants please stand by. Your meeting is ready to begin. Good morning, ladies and gentlemen. Welcome to the Suncor Energy second-quarter results conference call. I would now like to turn the meeting over to Mr. John Rogers, vice president of investor relations. Please go ahead, Mr. Rogers.

Thank you, Stacy, and good morning, everyone, and thanks for listening in to our conference call on our second-quarter earnings.

I have in the room with me Rick George, our president and CEO, Ken Alley, our vice president of finance, [inaudible] James, our corporate controller, and John McKenzie, the manager of investor relations, so we have a good group in here today to talk about earnings for the second quarter. Rick is going to give you a bit of an overview, in terms of his thoughts on the earnings and a little bit about what he's going to think going forward. I'll go into some specifics on the second-quarter earnings. And then go over the outlook for you, and then we'll open it up for questions. So I'll turn it over to you now, Rick.

Okay. Thanks, John. Good morning, everyone. Delighted to be here and also very pleased to discuss with you the results of our second quarter.

I know that you have the press release, but just to recap, the earnings in the quarter were $229 million. That includes the - some $34 million from the sale of our natural gas marketing business. This is a business we started up from scratch about four years ago, and just decided it was not right for us for the long haul.

Now, that number, $229 million, is up from $90 million in the first quarter of this year, and obviously up significantly from a year ago.

Cash flow was $352 million, up from 181 million in the first quarter of this year, and, you know, a lot of this can be attributed to the investment that we made in Project Millennium, the increase in volumes at our oil sands plant and improving operations there.

You know, we made significant progress in this quarter on what is, you know, really our major three priorities for the year, and that is, of course, increased production, working on getting our costs down, and also paying down the debt and then, of course, after that, future growth.

So all of those issues, we are making progress on, and quite proud of the efforts of the entire Suncor team as we've gone through this journey.

First of all, at the oil sands plant, production averaged about 208,000 barrels per day in the second quarter. That's up substantially from the 180,000 barrels a day we averaged in the first quarter.

You know, we always knew that we were going to go through a learning curve with these new assets, and I would say we're kind of right on track in terms of - you know, I guess, a normalized kind of learning curve. You know, we've still got a lot of work to do. In fact, I often describe these new assets as getting through the first winter, which was the first quarter and then preparing to get through the next winter, and I think that's still kind of where we are. Still have a few issues - a number of issues we're working on to correct, trying to kind of get things buckled down, getting ready for the next time we go towards that minus 40-degree temperature. But, you know, I think that there's no doubt about the ultimate capacity of this plant. There's no doubt about our ability to run it. There's no doubt about the fact that the - the mix we get out of it is as we designed, and the fact that we're trying to - and are actually resulting in driving shareholder value off of this asset.

You know, I always consider this project that we went through as being one of the biggest risks that Suncor will ever have to take, and I think we're feeling good about where we are with it. It's not perfect, but obviously we're really making progress, so I'm proud of the team that's worked so hard on that.

We've also made progress and continue to make progress in the area of reduction of cash operating costs. $12.60 this quarter is a good solid progress. It's much better than the first quarter, which we told you was a big transition quarter for us. We're not there yet in the sense that we need to continue to work hard at getting our volumes up, which will help get the - these average costs down, and also working on the underlying cost structure itself.

As many of you know, we have a program in-house which we call 9 by 3, which is a really stretch target, trying to get these operating costs down in the $9 a barrel range by the end of 2003.

I'm not giving up on that target. I'm just telling you it's going to be very difficult. I am pretty confident that we will get in the $10 range, and that's - if I were modeling it, that's probably would I would model for Suncor, kind of 2004 and beyond. But that doesn't mean I'm giving up on the $9. I'm just saying that we realize how tough that target is going to be.

And I'll give you - you know, we'll kind of keep you abreast of how we do related to that.

I guess one other area I'm going to express a little bit of caution is we had put out our estimate of $12.50 target for the year, and, you know, the first quarter we were at 12 - I'm sorry, 16.25 in the first quarter, and with that first quarter being so high, it's difficult to get down to that 12.50 range. Again, I'm not giving up on it. We'll see what kind of a continuous improvement we can make, quarter over quarter, in the third and the fourth quarters. Obviously, our goal is to get below that. Whether we can actually hit that 12.50 target, that's something we have yet to prove, both to ourselves and to you.

You know, the second objective we actually are very hot on, both this year and next, is paying down our debt, a reduction of our debt. During the quarter, we paid down our debt by approximately $90 million. This remains one of our top priorities, and I'm optimistic we can pay down our debt by three to four hundred million dollars by the end of this year, and obviously our target is $700 million by the end of '03 and is still a high priority and one, I think, is achievable, given both the improvement in operations and in the oil prices as they are today, the volumes that we're seeing coming, and the things that we see on the plate.

Now, that doesn't mean that we've given up on growth projects. This is a big year for progress at our Firebag operation. As you know, we're under construction with Phase I of Firebag, and although we did have some impact from some fires in the region and we lost between a week and two weeks in terms of construction time, the project overall remains on schedule and within budget.

About 20% of the on-site construction is now completed. In terms of total project, we're about 25%. About one-third of the well pairs have been drilled, and about $235 million has been spent this year to date. In fact, we will spend the majority of the money on Firebag this year.

Construction has also started on our vacuum tower project, which is the millennium vacuum tower. Ground-breaking is under way, and things are getting started there as well.

So as much as we're kind of getting back to operational excellence, the growth projects we've talked about are also starting and underway and we're feeling very good about those. And, you know, the size of these projects, we're feeling very much that we're much more in control and that these will not run away from us in a cost sense, as we go forward with these projects.

As I look into the second half of the year, my priorities have not changed. It's really one, I mentioned earlier, of getting volumes up, operating excellence. With that, working on the cost structure and trying to get our costs to come down, making progress through the year on paying down debt, and then also working hard on not just the two growth projects I just mentioned but also the next series of growth that leads us towards that half a million barrels a day in that 2010 and 2012 kind of range. So, you know, the true potential of these assets and this business model, I think, is quite evident. It's good to be a hard asset company in the kind of market we have today. You know, it's - if you've ever seen a hard asset company, I think it's this company. It's one that's both transparent and one that really has invested in steel, in resources, in energy needs for our customers.

I know that the - at the moment, the financial markets are going through a great deal of uncertainty. I think in the long term and, you know, Suncor over the last 10 years, even with today's price, has delivered almost 1200% shareholder value in terms of total shareholder return over the last 10 years. I believe that companies like Suncor, with a clear business plan, hard tangible assets, a real vision about where they're going, with good growth rates and high return on capitals will continue to show good shareholder returns.

So for us, it's not really a change of strategy, just kind of keep pursuing what has really delivered up to this point, and really kind of looking forward to the next several years.

I think, you know, we've gone through some of the toughest periods with this company over the last couple years and the next several should actually start to be a little bit more fun. That's really the way I describe it with my team. So that's a good summary, I think, on where we are. John, I think I'll turn it back to you.

Great, great. Thanks, Rick, and let me just go through a couple of things. We did put the guidance out on July the 10th, and really, the earnings were a little bit higher than the guidance. The cash flow was right in line. Production up at oil sands came in at about 207,000, you know, barrels, 600 barrels, right in line with the projection of 208, so no big discrepancy there. Sales came in at 197, well within the range that we set out. The sales mix, 58% light suite diesel versus 42% light sour I think was well within the range that we gave you. Realizations of 3668 to on average was within the range, and cash costs, we're delighted to say, came in, you know, slightly under the range that we gave you. So I think there's some good news there.

Really, the earnings coming in slightly ahead of the range was just subject to some finalization of the numbers, and nothing more than that, so, you know, we're delighted with the earnings at 229 and with the cash flow at 352.

Let me just spend a minute, because I know you'll be trying to do this, to go through a normalized earnings and take out the adjustments. And I'm happy to say that we don't have too many adjustments, as we have had in the past. It's getting a little easier from this side, I can tell you, and hopefully it's getting easier from your side.

Net earnings after tax were about 229. That did include the sale of the natural gas division at Sunoco so this was included in Sunoco's earnings of about 34 million.

There is an FX gain, which we went over on the guidance call with you, of about $32 million.

So if you look at normalized earnings after tax, they're in the neighborhood of about 163 million. So they contain the two adjustments, the sale of the natural gas division of 34 million, and the FX gain of 32.

After we take out the dividends and the gain on the revaluation of the coffers, again, according to the new accounting policies, we have normalized earnings, net income of about $165 million.

So those were really the adjustments. Not many, as I say. Mostly accounting adjustments, so we can blame [inaudible] James in terms of doing those, but, you know, the business is working pretty good for us.

Let me just go over a couple of other things before you ask. Hedge accounting. In terms of the earnings impact in the second quarter, it was about - about $40 million. Cash flow, about 58. And year-to-date, it's about 50 million in earnings and 75 in cash.

$5 million in capitalized interest during the quarter was included, and if you look at the corporate charges, there are about $38 million in the interest line, so you'll see a positive number there.

Mark-to-market as I mentioned on the preferred shares was about 9 million. The other piece I was going to mention is our statements did include an adjustment to the income tax because of the change to the Alberta rate by .5%, which became effective in April of this year, and that was about $10 million. So you'll have to include that in your models also.

And let me just go over the new rates for you.

Oil sands is about 35%. 90 is deferred, 10 is current. Natural gas is 48%. 95 is deferred, 5 is current. And EM and R, or Sunoco, is 37%, about 10 is deferred and 90 is current.

The other piece I was going to mention is on DD and A. In the - in the first quarter, we had DD and A of about $6.13, up at oil sands. In the second quarter, it was about 5.58. The second half of the year should be somewhere in the neighborhood of about 5.10. So we're seeing a continuing decline in the DD and A as we get those volumes up, and we should see some steady progress. Still won't get down to the $4.75 till we get some of the assets we're writing off over the next 12 months off the books, and we get production up to 225,000 barrels a day.

And the last piece I was going to mention, on the quarter, is if we had produced at 225,000 barrels a day, our cash costs would have been in the neighborhood of about $11. So still some work to do to get those down to 10, but obviously we're making some pretty good progress.

So that's all the comments I think we're going to make on the second quarter, subject to your questions, and let me just quickly go over the outlook for the third.

Production we're anticipating for the third quarter will be in the neighborhood of about 200 to 205. Still have a 200,000 barrel a day outlook for the year. Now, the 200 to 205 does take into account the 8-day turnaround that we did on 5 C 9. I think quarter to date, we're averaging in the neighborhood of about 170 barrels a day. Hence, we're going to get the 200 to 205. And the other reason that we didn't want to change the yearly target of 200,000 barrels. Sales will be in the range of 200 to 205. Realization of crude oil sales exactly the way it's been before. A little wider range in terms of cash operating costs, 11.25 to $12, so we'll see where they unfold, but I mean what you should take away from here is obviously we're on a downward trend in terms of this cash operating cost.

Nothing really new on the natural gas side. Natural gas continues to improve with volumes coming on somewhere in the neighborhood of 180 to 190.

That's really all I was going to mention. We did give you a couple of other things, in terms of, you know, what we're realizing today for crude oil and natural gas refining margins. I'll let you read that at you're leisure. And we did update you in terms of the crude oil position, so really, the - the third quarter is, you know, steady improvement in terms of volumes, in terms of costs, and, you know, really it's unfolding the way that we had anticipated.

So that's all we were going to say on the second quarter and the outlook for the third quarter. Stacy, we'll be happy to open it up for questions now and take them from the participants. 00:15:47

Thank you, Mr. Rogers.

If you are from the analyst community and you have a question, please press 1 on your touch-tone telephone. Fur using a speakerphone, please lift the handset and press 1. And should you wish to cancel your question, please press the number sign. Please press 1 at this time if you do have a question. And our first question from Tyler Dan from Banc of America Securities. Please go ahead.

Good morning, gentlemen. How are you.

Great.

The - just to drill a little bit deeper into the cash costs in your commentary there, could you go through a little bit on what your assumptions are for overburden removal for the third and fourth quarters, and I think that will help us get a little bit of sense for what the full year might end up looking like.

Sure. Tyler, we have a budget for the full year of about $140 million for cash overburden removal. We spent in the first quarter about 55. In the second quarter, $32 million.

Okay.

So we've - what we've done is averaged the final two quarters with the remaining amount, and I can't do the math that fast in my head, but - so we spent 55 in the first, 32 in the second, so we'll send the remaining of the $140 million budget in the third and the fourth quarter.

The rest will be just right out of cash operating costs, operating costs on the P and L, with the volumes - actually, the sales volumes that we had anticipated.

And does it look like about $13 for the year would be appropriate, you know, just to - to be aligning ourselves with some of the caution that you'd outlined earlier in the call?

Well, you know, I think our target still is 12.50, you know, for the year. We are, obviously, putting a lot of caution around that number. The only thing I can access - you know, I can suggest that you do is wait - and that's what we're doing, is wait until the end of the third quarter. Let's see what we actually realize in the third quarter in terms of those cash operating costs, and, you know, we'll come up with a value for the fourth quarter.

Should you choose to, in your model for - to be conservative, move it up from 12.50 to $13 or that range, you know, you should feel free to do that. Obviously, the 12.50 is going to be a hard target for us.

Okay. Thanks very much.

Thank you.

Thank you. Our next question is from Paul Chen from Lehman Brothers. Please go ahead.

Thank you. Hi, guys.

Hi, Paul.

Hi, Paul.

Several quick questions. Rick, I'm wondering if you can share with us some of the thinking behind when you decided to exit the retail natural gas market, that business. I think that's several years ago that you was having some decent hope that because of your retail exposure in that market, it will be a good business, so I just want to see that - I mean, in the future, I mean, how you decide which business to begin and which business to be out.

Yeah, I mean that's -

And secondly, you haven't talked much related to the Voyageur, Phase I and phase II expansion project. I know you're still really early. Can you talk about that? When are you guys going to take a closer look in terms of the economic and then when that you may decide if that project is going to be definitely a go-ahead or not and what is the current hurdle that's facing you before you can make that decision?

Okay. Thanks, Paul. What you started off as saying is a simple question, that is not as simple as you might think it is.

Well, for you it must be a simple question because you're thinking about it all the day.

That's right. On the natural gas business, you know, we - we do periodically have very small kind of entrepreneurial startup kind of little businesses that we take a look at. This was one of those I think we initially got into this business and we put about five or six million dollars which we expensed when we went into the business. We - we did take some losses as we went through some startup phase of that.

What the initial thought was there was we were going to try to make some ties with our customers, between the purchase of natural gas for their homes and also purchase of Sunoco gasoline. As you know, we have about 20% of the retail market share in Ontario between the Sunoco and the pioneer brand. And what we found is we were having a very difficult time making those ties for the customer between those two commodities.

We also found that there was a lot of competition in that particular business that really, to be honest with you, was willing to take a lower return on capital than we were willing to take.

We ended up selling it really into what is an income trust, which, again, has a completely different set of economics.

You know, I think we sold at a great time and it was a great price for us. That's why you see the earnings there. And, you know, it's kind of typical of Suncor and the way I think about these things. It's good to have some entrepreneurial spots in a company like Suncor that you let run a little bit. Now, I wouldn't put large amounts of money in this kind of thing but we did learn a lot by it as an organization. We learned we can't make those ties. We learned a lot of things that related to our customers and our database and exited it, I think, at a good time. So I don't know that this is a negative. In fact, you know, it obviously returned great returns for our shareholders. But having those entrepreneurial spots, I think, is good.

We have one right now in our natural gas business which we call prospect generation shop, and it's very small. We haven't put much money into it. It's been very interesting, though, and very enlightening, and that's one that we could talk about down the road and maybe kind of show you some of the results out of that.

So I look at this a little bit as - especially a company like Suncor, where the strategy and the vision is so clear, letting people have a little bit of rope around entrepreneurialism and trying to look at their business differently and try to drive returns. And what we're always looking at is how do you get your return on capital up. Are there ways that you can look at your business in which you can invest less capital but still get cash flow or drive shareholder value.

Both of those two examples I've just given you, both the natural gas business and retail business, and what this prospect generation shop, are both kind of attempts at that same thing. So, I mean, that's kind of the framework that I would put around it. Obviously, exiting it at the right time is just as important as when you enter it, and hence, you see the positive results here. I think it's been, overall, a good return for our shareholders.

Certainly. Rick, in the overall scheme of thing, when you're dealing with those kind of a little bit more risky venture, internally do you have a set - is target in terms of how much carpet you will be willing to risk in any particular one venture like that?

Yeah. I mean not a hard and fast rule. I would say that the one thing that is probably true of Suncor is, number one, we spend - we have a very high capital budget in this, and this industry in general does. I mean, this year our capital budget was $900 million. You know, on something like this, you know, three or four million dollars a year would be a big number. So if you think about it in percentage terms, not a lot of money would I allow to kind of run on that.

I mean, you got to remember what really drives shareholder value in this company is that set of cokers and that whole - and you probably see the vision work that I've shown you on 2010 but it's really - I think it's really how do you get cheap bitumen into those [inaudible] to separate the light product. That's really - that's really the driving force behind this company, so I would make no mistakes about that overall.

Let's talk about Voyageur a minute because this is something I know we haven't announced anything, and really aren't in a position to announce anything, but we are working extremely hard as a senior management group, working on what Voyageur looks like. And although it would be quite simple for us to go out and just say, listen, we're going to add a third and a fourth set of cokers, hydro-treating, it's going to look just like millennium did only we're going to do it better and in smaller packages and life will be sweet and that's it, I think what we're trying to do is optimize off of that. And that's why you've heard me talk about looking at refining assets. I mean, if I could joint venture or buy a refine reap that has hydro-treating so I could hydro-treat south of Fort McMurray instead of doing it all at Fort McMurray in one spot, definitely looking at this that.

What I would expect around Voyageur is that we'll get more definition over the next year. I would expect a year from now that I'll be able to give you a pretty good definition. Now, you've got to remember, Firebag, stages 1 and 2 is very set. The vacuum tower is set. The next set of cokers is very clear. So the next four years, we know exactly what pots and pans we really are going to put in place.

And that is, you know, Firebag, stages 1 and 2, maybe even 3 and 4, the vacuum tower, which is - construction has already started this - is getting started this month, and then the next set of cokers. Now, what we do beyond that is the thing that we're working so hard on now. We're trying to optimize it. Again, I think extreme flexibility and a real emphasis on return on capital is what's driving this.

Rick, please, on your - I know this is a little bit premature. Based on your -

Paul.

Yeah.

Paul, there's probably about 40 other people that want to ask questions. Okay. Sorry, I don't mean to cut you off but maybe we can have this discussion at another time.

Okay. That's fine.

Okay.

Thank you. Our next question is from Andrew Fairbanks from Merrill Lynch. Please go ahead.

Hey, good morning, guys.

Good morning.

In looking at the reduction costs, reduction targets as you move into the third quarter, could you give us some flavor of kind of the character of things that you're going to be working on to bring the op costs down. Is it procurement or, you know, just what sub-segments are the regions that should drive that.

Yeah. Okay. One of the drivers in the short range is increase of volumes. That's - you know, number one, that's always going to help you because of the nature of this operation, which is really a manufacturing plant with high fixed costs, low variable costs, so volumes up is obviously number one.

The number two thing that - and we're working on broad sets of teams across that business. One of the things I would, you know, remind people is just after a huge expansion phase, after putting 3-and-a-half billion dollars in that business, right behind that what you've got to do is steady down and get excellence in operations and then start working on cost structure. And it's something that we haven't had the time to rework on over the last four or five years because of Project Millennium. When you're spending, you know - we were spending at one point over $5 million a day on construction, it's really hard to get people to focus on the pennies. So I think what you're going to see is just across the plant kind - and we are experiencing across the plant exercise in process and reducing costs and looking at-an elimination of wastes. Obviously subcontractors is a big target area for us, suppliers and looking at every single supply contract we have.

It's also looking at the very fine points that if - for example, if we have a service where we require two pumps to run at a hundred percent capacity, but we have one pump out, the history in this company has been, because production rate has been so important, is we would actually call people out on overtime to fix that third spare pump, even if we didn't really need it, and we're doing statistical analysis, for example, on all those systems to say, well, no, listen, you can wait till Monday morning, you can do this on a regular shift, you don't have to pay overtime. So it's down to the details. I'll give you another example. And I do review this monthly in terms of the progress because we have these study teams looking at every single slice across the oil sands, both kind of vertically and horizontally.

But one of them is a detailed analysis of if we improve the roads in the mine, we can reduce both energy consumption, wear on tires, speed, and, therefore, increased productivity. And then we also, with a review of what we can do to do that, is the markers, and we'll be measuring against that.

So very detailed kind of analysis on every part. It's almost a time and motion productivity kind of study we're doing here, and it takes a long time. This is a very complex plant now, and, you know, you're dealing with 2,500 employees. So, you know, and lots of ideas, so we're trying to keep it very creative and really across the board review.

That's excellent. Thanks a lot.

Thanks, Andrew.

Thank you. Our next question is from David snow from energy equities. Please go ahead.

Yeah. Hi. I was going to say put Tim on, he was on a tear there. I wanted to ask about what other projects or projects you might be thinking about launching in the period coming up. You touched on Voyageur. Is there something else that you're contemplating, or have you not really formulated anything beyond that?

No, David, it's John. We haven't really looked beyond that. You know, I think we understand our business pretty clear. As you know, one of the other step-outs that we did make is we - you know, we looked at possibly taking the technology down to Australia, and, you know, we worked pretty hard on that for a couple of years but I think we came back and we realized we have such a - just a great business model here in Canada. You know, that effectively we can grow at 15% a year and mid-cycle pricing get about a 15% return on capital. We're not going to stray too far from that business model. So there will be little things here and there, but, you know, I think we understand pretty clearly what our business is and really fundamentally where we're going to go with it.

Well, you mentioned your goal of half million barrels a day by 2010, 2012. Is - and you must be looking at different heavy oil applications. Do you have any other projects beyond Firebag that are in your thinking at this point?

Yeah. It's Rick here. You got to remember, Firebag has over 9 billion barrels of recoverable oil in today's technology, so that - you know, that's almost the equivalent of what Kuwait has so we don't - although we have other leases and other things, we're going to start on the best lease that we have, and move from there, which is obviously Firebag, so -

How does that compare with your existing oil sand area that you're doing? More in place reserves than you had when you began your surface operations?

Yeah. I mean, our open-pit mining operations today have reserves currently of about two-and-a-half billion barrels, and so, I mean the total company is in the 12 barrel dollar - 12 billion barrel range, and you can see the size and the scale.

Yeah.

But, you know, the one thing I'd say is that, you know, I believe the technology around in situ recovery, which is really the Firebag technologies, and the technologies that we and the rest of the industry are working on with regard to that, I think, will really help us reduce costs of producing heavy oil over the next 5 to 10 years.

Do you think the in situ will get below the open-pit costs?

Yes, I do. What I can't really predict is how quickly, but absolutely I do believe that.

And so you're probably by the time you got to 2010, 2012, you would be getting a big slice, maybe 40 or 50% of the total, out of in situ?

Absolutely. That's the game plan.

Okay. Terrific. Thank you.

Thanks, David.

Thank you. Our next question is from Brian Dutton from UBS Warburg. Please go ahead.

Yes. Hi. John, I was just wondering if you could clarify your caution on the 12.50 for the year. Is that caution just really related to the expected extra costs coming from the turnaround in the first part of July?

No. Yeah. I mean that's part of it Brian is, you know, we did - did experience, you know, some costs with that turnaround with 5 C 9 during July. I think it's just overall cautiousness. We're pretty comfortable that each and every quarter we're driving those costs down, and as I mentioned earlier, if we had run at 225, we would have been in the $11 range, and we know there's, you know, this room to go well below that. But to try to hit - hit the average of 12.50 for the year is, you know, a difficult thing because I think if you do the math, you'll find that we, you know, probably have to be somewhere in the $10 range in the third and fourth quarter to do that. That will be very hard to do. I think, you know, we are predicting for the third quarter 11.25 to 12, so what you will see and I think what our goal is, is each and every quarter to drive those costs lower and lower. It's just with that 16.25 that we did experience in the first quarter, it makes it pretty tough right out of the starting blocks. So I think that's where the cautiousness comes from. It's not from our belief that we can drive those costs down each and every quarter.

So does the 11.25 to 12 include incremental costs because of the turnaround in July?

Yes, they do.

Could you quantify those costs?

I don't have them. I think that turnaround was about $5 million, in that range, Brian.

Okay. Great. Thanks a lot.

Okay.

Thank you. If you are from the media community and you have a question, please press 1 on your touch-tone telephone. If you are using a speakerphone, please lift the handset and then press 1. And should you wish to cancel your question, please press the number sign. Please press 1 at this time if you are from the media community at this time.

Once again, if you are from the media community and you do have a question, please press 1 at this time.

At this time, there are no further questions registered from the media community. Mr. Rogers, did you want to take further questions from the analysts?

Sure, if there's any further questions, Stacy, that will be great.

Thank you. Louis Gorgardi from John S. Harold. Please go ahead.

Hi, Rick and John. Nice job, considering the environment.

Just have a couple of really quick questions. John, I didn't catch it and it's my fault. Did you say an overall tax rate? Did you give that?

Yeah. The overall tax rate for the company is 37%.

Okay. And you said the DD and A for 2002, I think you - did you give a per-unit number estimate?

I think it's going to average - given where we are today and given what we're expecting - somewhere around the mid-5's, 550, in that range.

Okay. Great. And just this is like my - more or less a question. On the natural gas, I was looking at - I'm trying to understand. I'm not trying to nitpick. I'm just trying to understand why - what's going on in the natural gas sector. Purchases of crude oil and products was up, both for the quarter and for the half. And why that expense is up.

Gene speaking. We have some movement of gas back and forth between different pieces of the business. Or downstream with the sale of that natural gas business and we've been supplying that business out of our natural gas business in the upstream, and as we got out of that business, we just started to intercompany, if you want to call it that, transfer that gas back to that business. So it's just the accounting, tracking those [inaudible] going back and forth between different segments.

You say this is between refining and marketing segment and natural gas -

Refining and marketing segment. You'll see that drop off going forward here, given the sale of that natural gas business.

Okay. All right. Thanks have much.

Thanks.

Thank you. Our next question is from Greg party from Goldman Sachs. Please go ahead.

Hi. Good morning.

Hi, Greg.

Couple of yes, sir just on - Rick, where is your current production rate at the oil sands, given now that the shutdown is over.

It's around 200,000 barrels a day, plus or minus. In that range.

Okay. And the other quick question was just in terms of - I know your debt reduction is a pretty key priority for you. How much underneath the 900 million in capex that you'd originally budgeted for this year do you think you'll come? Do you think you'll need to spend anywhere near that, or - and if so, is all of that going to go to debt reduction?

That's a great question, and I got Ken Alex sitting next to me so if I say anything different, he'll kick me. I know that. But my current guess is that we will not spend all of the 900 million. My - you know, if you had a good number, it would be 850, and, yeah, everything that doesn't go to capital is going to debt reduction. I can promise you that.

Okay.

And, you know, that really - really, it isn't because - we have a very good solid credit rating, A low in Moody's and S and P. We obviously want to keep that. But it's really around flexibility for the future. And, you know, we're enjoying quite solid oil prices currently. What we want to do is take advantage of this time period, get this down so that as we go through future growth plans, we've got an excellent balance sheet to do whatever we need to do.

Thanks a lot.

Thanks, Greg.

Thank you. Our next question is from Brock winterton from RBC Capital Markets. Please go ahead.

Thank you. Rick and John, perhaps you can just discuss your light sweet crude oil price realizations because just looking back over the last couple of quarters, they've moved around a fair amount in terms of the differential off what I'd call Edmonton light. Q1 it looked like your differential was about 30 cents and Q2 here it's about 3.50. Now, can you give us some guidance as to what you would expect going forward?

You know, a lot of that has to do with some of the bitumen sales. We are seeing, you know, a tightening of heavy/light differentials, but we did ship about - I think it was about 8 or 9,000 barrels of bitumen, Brock, and I think you could probably anticipate that into the third and the fourth quarter.

The other thing, of course, that, you know, did - isn't quite getting us to where we want in terms of price is we still have a little more sour in that mix than we had hoped, so, you know, going into the third quarter, if we can get it up to two-thirds/one-third, you're probably going to get that WTI Chicago equivalent that we have in the guidance, and then the bitumen, that's just going to do what differentials do in terms of the heavy oil market, so that's probably the thing that maybe is skewing you a little bit is the bitumen sales that are picking up a little bit.

Actually, no, because I'm looking at the light sweet crude oil price realization of 3707. Now, according to most numbers, the Edmonton par price was like, you know, over $40, 40.50. So I don't quite understand why that is so far off the Edmonton light price as compared to previous quarters.

Yeah.

Now, is this - is this something in the market or is it something in the production side of your light sweet?

No, it's actually in the - you know, where we're actually selling that product, Brock. And, you know, the transportation into that market.

So I don't think that that is significantly different than what we had anticipated. I think we're only about a dollar off, on average, of WTI. But you know what? I'll be happy to re-look into that question, and if I, you know, can kind of come up with something different, I'll be happy to get back to you on.

Great. I guess what I'm really getting at is that the manufacturer of your light sweet is in line with the specs that you were hoping for and there's been nothing - there's been no change in that.

No, sir.

Right. Okay. That was the key issue.

Okay.

Thank you. Our next question is from Robert plexman from CIBC World Markets. Please go ahead.

Yeah. Good morning. The natural guess production costs, better in the second quarter than the first quarter but still turning higher and anything you can do about that, or want to do about that, or is that just life in the natural gas business today?

I think that's just life in the natural gas business, Robert. You know, it is - we are looking at those costs and trying to make sure that we, you know, get them as low as we can. And there always is variations in this business, quarter to quarter, so it's hard to give you kind of a trend, if you like, from one quarter to the other. You kind of have to look at the six months or the 12 months in total, due to accruals and everything else. It's a little difficult to carve this up. And also, there were plant turnarounds that can cause that. That can swing around a little bit.

Okay. Thanks, John.

Thanks.

Thank you. Our next question is from will Goldberg from Peters and company. Please go ahead.

Thank you. I wonder if you could tell me when you think you might have a public disclosure about your Voyageur plans.

Yeah. This is Rick here. I wouldn't expect this to come anytime soon. Again, the next four years is pretty well lined up, and a lot of this depends on our - you know, this downstream integration I've talked about in terms of looking down - downstream and looking at joint ventures or potential purchases that would minimize costs upstream. I'd think the public - any kind of a public announcement beyond what you've already kind of told you, I'd even be 12 months from doing something like this, and the pieces will unfold over that period of time. So you'll see pieces of this and I'll try to make this clearer over the next 12 months. And I'm had not trying to be elusive. To be honest with you, we have multiple options on which way to proceed here, not all of which is within our control, and so as we look at these over the next 12 months, we'll narrow it down to which ones we pick that we think will drive best value and which opportunities we can capture.

Okay. And maybe just of interest to you, Shell announced a 10% cost increase on Alaska this morning.

Oh, is that right. Misery loves company, you know.

Thanks Rick.

Thanks, will.

Thank you. We do have a follow-up question from Paul Chen from Lehman Brothers. Please go ahead.

Hey, John. Quick question. Other than the fractionator that you are repacing, are there any other units that currently are over 20 years old and they need replacement?

No. No. I mean the - the plant itself is, you know, 35 years old and it's kind of been in a continuous change mode there. The fractionating tower at 5 C 9 has really been the Achilles heal and it has been for about the last two or three years and that's the kind that kind of restricted production. I think this is about the fourth turnaround we've done on it in the last two years so it's effectively the problem area. There really isn't anything else significant, you know, that has to change.

Thank you.

Thanks, Paul.

Thank you. We do have a follow-up question from Robert plexman from CIBC World Markets. Please go ahead.

Oh, hi, John, again. When I look at your gasoline sales, I see the retail side, volumes going up a little bit, but losing ground on the other, I guess, which is the wholesale side, and is that giving up market share or are there things going on with your contracts in that part of the business?

Well, we've lost some - some market share, particularly, you know, some of the - the jets that we've been selling.

Yeah. This is just gasoline. I see it with the jet fuel, but it's the other gasoline that seems to be slipping a little bit, so is that a market share issue in that part of the business?

I think part of this, rob - it's Rick here. I think part of this also reflects the fact that we did not have particularly good operations in the first half of this year out of refinery. We were actually purchasing some gasoline to make up for that. And so they would, you know, have done a really quick analysis about how much do we want to supply to our regular customers versus just let them buy from other people. I think it's more that than a permanent change. There's no question about it, supplying both our Sunoco stations or pioneer, which we own half of, and - but I think, you know, when we had the refinery problems, which, you know, on a scale of Suncor, haven't really reached kind of enough of an issue to make it, but I think it's more related to that than anything.

Okay. Thanks, Rick.

Yeah.

Thank you. At this time, there are no further questions registered. I would now - we do have a follow-up question from Greg party from Goldman Sachs. Please go ahead.

Hi. Just to follow up on the - on your realizations, your - John, your crude oil hedging loss in 2 Q was, what, 3.25 a barrel? Is that about right? So your realizations - the numbers you're quoting, the $37 that you locate for the light sweet, would have been after that hedging loss, right?

Yes.

Yes.

Okay. So you would have realized about $40 which would have been in line with Edmonton par?

Yes.

Okay. Okay.

Sorry. I'm just looking up statements here. Yeah.

Thank you. At this time, there are no further questions registered. I would now like to turn the meeting back over to Mr. Rogers. Please go ahead, Mr. Rogers.

Thanks, Stacy, and thanks, everyone, for listening in. If there's any further follow-up questions, of course McKenzie or myself will be around all day today to, you know, take your calls. So thanks - thanks for your 00:45:16 interest, and we'll talk to everybody soon.