Suncor Energy Inc (SU) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Suncor Energy's fourth quarter results conference call.

Please be advised that this call is being recorded.

I would now like to turn the meeting over to Mr. John Rogers, Vice President Investor Relations.

Please go ahead, Mr. Rodgers.

Good morning everyone, and thanks for listening into our fourth quarter conference call.

As usual, we have in the room with us Rick George, our President and CEO, Ken Alley, our CFO, Brenda Cherry, our Vice President and Controller, and Rob Dawson from our Controllers Group.

We will follow the usual format of Rick and Ken giving a bit of a summary of the quarter, and then we will move into Q&A.

Rick, why don't you kick it off?

Good morning everyone.

I am delighted to be here.

I guess, if you look back in the rear view merger at 2005 it is going to be a year that we at Suncor remember for a long period of time.

Not just because of the fire, which was of course an unfortunate event, but I think we also learned from it and are a better organization today as a result of that fire, and what it took to recover from that.

And so there is nothing like a bit of trauma to make sure that you are on top of your game.

Also, 2005 will be a real memory for me in the sense that the way that our leadership team and our employees handled and reacted to the event.

I'm absolutely proud of them and the work that they did this year to have Suncor recover in such great shape.

Let me just summarize, I know most of you know this quite well, but of course we had a major fire on January 4 of last year.

And although we were on the phone the day after, we didn't quite know where we were.

We did come back on about two weeks later on meeting in discussions with you to let you know that we would be down for quite some time with about half the plant.

It would have been kind of easy for employees or even the senior management team to give up on the year.

But what I will tell you is I'm proud no one gave up on anything.

We realized at that point that we had about nine months ahead of us.

And looking at the long life of Suncor, and you think about the next 50 to 100 years, nine months is a relatively short time period.

So kind of amazing kind of instant turn from oh, no, this is an unfortunate event to, how are we going to fix it, and how are we going to get on with life?

Despite some tough conditions, a pretty cold kind of February and March last year, and very tight construction and labor and materials, our employees, the contractors involved, the engineering firms accomplished kind of the following in a very safe timely and cost-effective manner.

What you've got to remember also is we had no fatalities and no lost time incidents in the major event, and very good track record in the rebuild as well.

So basically, last year we completed the rebuild on the frac tower in September.

Brought it up and running.

It obviously runs very well.

And that was on the schedule we gave you at the end of January last year.

We also completed construction of the vacuum tower unit.

It was brought on about two or three weeks after we brought the frac tower, the U2 operator back on.

And you probably -- many of you have forgotten this, but we also completed a very big turnaround during that nine-month period, something that was scheduled in September in any event.

We also through the year cut through a lot of our teething issues with Firebag, that now have been largely dealt with.

Every day is a learning experience, but that operation is now meeting our expectations.

Firebag 2 also started up, and we started to see bitumen in the ground -- I think it was in November.

And Ken is going to speak to this so I don't want to speak to it.

But obviously we finished out the year with a great fourth quarter, and are obviously looking forward to a very -- hopefully a very steady 2006.

I think there's lots of talk around the industry about bitumen in the ground, and whose has got the team, and who has got the facilities to process it.

I will tell you that I really believe that Suncor really has the organization in this tough business to set very aggressive targets and deliver on those.

That is a track record we have developed over time.

And I'm proud of the way that Suncor has responded, certainly to 2005 but even before that.

And so very proud of that overall track record.

It is kind of interesting to note, it was a rough year for us.

And despite that our share price performance was one of the best of all the integrated oil and gas companies worldwide.

And I think a lot of that goes to the support that you, our shareholders, have shown us.

Most, if not all of you, stuck with us through the good times and the bad.

And we are proud about the fact it has paid out for you as well.

And just to know, we are working hard to make sure these kind of events don't occur again.

That is kind of 2005.

Let me talk just a couple of minutes about 2006 because this is a train in motion here.

The oil sands operation continued to be very steady.

We have shown you in the outlook that our target for 2006 full year is 260,000 barrels a day.

We are well aware that we were almost at 270 through the fourth quarter.

January numbers look solid.

But we also have maintenance issues through the year.

And so we still feel like 260 is a safe target for where we are right now, and what we should be able to for sure deliver through 2006.

We continue to work hard on operating excellence, but before we set any more targets other than the 260 we want to get a couple of more quarters behind us.

But just to know, everything looks very good to us in terms of where we are.

The construction of our -- our next big construction project, which is the Millennium Coker unit is currently about 30% complete on construction.

Most of the large pieces of equipment are on-site.

We are now working on tie-ins and a lot of the other detailed work.

This is going to take quite a bit of time, but we are on schedule for an early 2008 startup of that equipment.

And that will bring our capacity up to the 350,000 barrels a day.

Currently 30% complete.

Almost all the major equipment purchased -- and large parts of the biggest equipment on-site.

We look like we're still on time and on budget.

I know these are not easy days.

We have pressure just like everybody else, but I would say -- again I think it is about the team of people you put on these things, and our learning curve and kind of where we are.

And I'm sure this is going to stack up very well against other investments in this industry.

In 2006 we have been quite a long list here, but we are also working on a cogeneration plant at Firebag.

So that means we have Firebag stage 1 on and up and meeting expectations.

Firebag 2 is starting steam.

We will have the cogeneration facility up by the end of 2006.

So that will add another 25,000 barrels a day of capacity at Firebag.

So ultimately two years after the end of this year, we will up at around 100,000 barrels a day more or less.

That it is the kind of target with Firebag.

The construction of our Sarnia refinery to convert to low sulfur diesel is going very well.

And we are expecting startup of that facility midyear.

And we are also well along in our position to take that refinery from a sweet refinery to a sour refinery, which will be completed by the middle of 2007.

So a lot of activity there.

But again in the Sarnia refinery it is going pretty much on budget and on schedule.

The construction at the Denver facility, again to get to low sulfur diesel has been more problematic.

In fact we are about 30% over cost there.

We have had certainly a number of challenges.

We will be taking that unit down, as you see in the outlook, actually on February 10 for about 40 or 45 days.

And so that has been a little bit more problematic, although I'm very proud of the operation there.

And if you look at the cash flow for the year, that has been a tremendous investment for Suncor.

Basically our investment buying those two refineries has actually already been paid out -- you know, on a cash flow sense.

So I am very proud about what we have been able to accomplish there.

And once we get through this construction and the startup following, and we will start working even harder on tying those two plans together and getting the work done.

If that list isn't long enough, we also expect the startup of our ethanol plant.

This is a $120 million project in Ontario.

It will startup in the third quarter.

That project is coming along very well.

I think it is again on schedule and on budget.

We will also during the second quarter startup our third wind power project, a project we call Chin Chute, which is down southeast of Enbridge.

And by the way, we have our fourth wind power project, this one in Ontario, which will be starting construction hopefully by the end of the year -- this year.

The other big activity we have got going on on a kind of core basis is the workaround getting regulatory approvals, and also doing engineering on our Voyageur project.

And that is the project that takes us from 350 to the 500,000 barrels a day.

Everything we know about that looks good.

We're anticipating regulatory approval before the end of the year.

So kind of pretty much on schedule.

I often describe Suncor -- as running Suncor these days as being half construction and half operating.

But you know, if you look at that long list of activities, I think it is going relatively well here.

We do have a budget this year, our capital budget of 3.5 billion.

I will promise you that we at Suncor realize that is an a lot of money, and it is our job to spend that money wisely and as effectively as we go forward.

So we are actually looking forward to the year.

We think we've got a good growth plan on a very long-term basis here.

And I think if there are any questions about Suncor's ability to face adversity and succeed, I think this last year showed that we can do that.

So with that, Ken, over to you.

Good morning everyone.

We are very pleased to report strong financial results for the fourth quarter, with earnings of $694 million and cash flow of about 1.23 billion.

We are also very pleased with that strong fourth quarter combined with strong commodity prices throughout the year and substantial receipts -- interim receipts on our insurance policies enabled us to surpass in 2005 our 2004 earnings and cash flow.

And we think that is quite a substantial accomplishment, given that the oil sands operation was cut to 50% of capacity really from January through September.

I would also like to point out that we were also able to generate a very solid return on capital employed of about 21%.

Just a minute on the insurance proceeds.

We have received, as I said, substantial interim payment on the insurance policies.

To date we received about C$115 million on the property program, and close to $600 million interim payment on the business interruption policy.

In our view, the insurance policies have accomplished the objective.

They enabled us to maintain a strong balance sheet in 2005, enabled us to continue all of the progress that Rick talked about on our expansion plans and our capital spending programs.

And we exited the year with a balance sheet in great shape, with net debt at $2.9 billion.

And we're well-positioned moving forward with a strong balance sheet and financial capacity to fund the capital spending program of $3.5 billion for 2006.

So with that, John, I think I will pass it over to you for the outlook.

I will just give you a quick update.

We did put the outlook out in conjunction with the capital spending release just before Christmas.

And we haven't changed it.

Production up at oil sands 260,000 barrels a day.

Looking at natural gas coming in somewhere in the neighborhood of 205 to 210.

I think you see the production split 11% diesel, 45% sweet and 44% sour, and still expect to be able to do that.

That particular split will give us the crude basket of something like WTI cushing C$5.50 to C$6.50, so really unchanged.

The cash operating costs, as we have predicted, is 16 to 16.75.

And we gave you the sensitivity around the gas price also.

So you will be able to work that into your model.

This is the first time I'm actually pleased to announce the crude oil hedging losses.

Cash flow of 143 and 92 in earnings, so I think you'll see the impact on our earnings of the hedging losses in the fourth quarter, which are no longer there.

We do have a new hedge, which I will talk in a minute.

But rather the low price that we had it hedged in the past will no longer have that significant impact in the earnings.

So obviously we have a strong earnings momentum going into 2006.

Our capitalized interest, 28 million for the fourth quarter, but 120 for the year.

Now most of our large shareholders, in fact it was almost unanimous in terms of we have taken out some crude oil hedges for 2006 and 2007.

We did manage to top up a little bit in January.

So today we have about 7,000 barrels that have been pulled forward with a $50 floor and a $93 ceiling.

And we have about 10,000 that have been pulled forward with a $50 floor and an $88 ceiling.

And I think as we have mentioned in the outlook, we may be doing up to about 30% of our production in similar levels.

We're not looking at hedging at lower levels.

But if and when the market does give us the opportunity to do something in the $50 floor and the $85 plus ceiling, we would be quite interested in doing that.

With that I think I will turn it over to the audience for questions.

Once again, in the tradition of the Suncor conference calls, and I think in regard to both Rick and Ken's time, if we can keep these questions to the strategic level.

And then after Brenda and Rob and I will be more than happy to answer all your detailed questions.

On the call, if you mind just not asking your modeling questions.

And Brenda and I and Rob will be in a better position to answer those after.

So let's open it up for questions.

(OPERATOR INSTRUCTIONS).

Martin Molyneaux from First Energy Capital.

I guess I am a little confused with the fourth quarter, and I guess on a go forward basis in terms of the oil sands royalties.

It looks like it was 89 million or something around 6% in Q4.

It was more like 14% in Q3, Q2.

Is this kind of a onetime thing, or should we be looking at lower royalties on a go forward basis?

No, I think the lower royalties that maybe you're anticipating won't be coming in until 2009 when we go to the bitumen base.

The booking of the royalty -- the accounting for the royalty is always confusing.

And we almost want to apologize as accountants for that.

What we have to do is you can't do it on a quarter by quarter basis.

Because what we have to do is we have to estimate the entire royalty for the entire year, and then divide into the various quarters.

On any given quarter the actual royalty rate may look a little funny, because it is being adjusted for the anticipated full amount for the year.

The other thing that did come into account this year that we're not anticipating in the future years is the impact of the fire, and the capital spending around the fire did impact the royalties.

So going forward the guidance I think that we gave you should be sufficient.

It just was a little different when we did all the adjustments this year, and that's why the royalty in the fourth quarter looked a little different.

On a go forward basis in terms of the turnaround of the Denver refining operation, is it going to be completely down for, I think you said 45 days here?

No, it is just what we call the West plant, which is the largest of the two plants.

It will be down.

The East plant will be up and operating.

We don't see a condition, unless it is very unusual, where we would have a condition where both plants are down.

Is there any more work on Denver in the balance of this year, or that's it for --?

Yes, there is a little bit of work after we get through that related to tying these two refineries together.

So you're going to see us do some boring underneath the road that splits between the two of these, and tie them in with the pipelines.

And you'll see some other stuff as we go into '07 as well as we get through this period of the investment to get to low sulfur diesel, and then work hard on how we drive the synergies out of this.

You'll see it over the next couple of years actually.

Okay.

A third point here.

It looks like 2006 is going to be a little bit lower activity level in Fort McMurray for the industry as a whole.

With cash flowing 1 billion 2 in the fourth quarter and relatively robust oil prices right now, is there any room in the CapEx program to pull in some what might be 2007 expenditures into 2006, or are we pretty much nailed down of where the CapEx program is now?

It's a good question.

I think there may be a little bit of room there.

It will really depend to whether we can actually get the manpower on the ground.

And you are right, 2006 looks like a little bit of a low point.

And that is kind of almost a misnomer, because it is still very, very high activity levels.

So there is a chance we could potentially advance a little bit, but I don't think it will be anything significant.

Brian Singer of Goldman Sachs.

With regards to natural gas consumption rates and the steam oil ratio, it looks like that Firebag that gas consumption was relatively flat versus the third quarter.

Was that right?

And does that actually represent an improvement versus the third quarter on kind of a same-store sales basis, considering what could have been an inflationary impact from the early steaming from the Firebag expansion?

I don't think that there actually was a decrease there.

Certainly what we are seeing in Firebag 1 is we are beginning to see the well dropping down to that steam oil ratio that we had anticipated, which is the 2 to 2.4.

However, in conjunction with that, we began steaming in the third quarter phase 2.

And that would have been included in the costs there also.

You should have seen a slight increase in the total gas consumption, however, we are delighted to say that the wells in Firebag 1 are performing well, and the steam oil ratio is dropping there.

What should we expect for 2006 from Firebag, at least from the initial Firebag in terms of where the steam oil ratio can go?

Are you doing anything that you believe is unique versus the rest of industry in terms of the two projects?

You know, the Firebag stage 1 was designed for 35,000 barrels a day.

We expect it to get that kind of rate by the end of the year.

It will be kind of a build up from where we are today.

And I think our peak rates -- we have had a couple of [mains] issues here in January, but our peak rates in there have been around 31, 32,000 barrels a day.

So we are kind of heading towards that range.

And the steam oil ratio heading into 2.2 and then down.

There is a couple of things that we're working on, and I wouldn't say it is totally unique to Suncor.

First of all, we installed a number of down hole pumps, which have increased the capacity of those.

If you look at our [setting D] versus most of the rest, the one thing you'll notice is we have a number of wells that are producing well over 2,000 barrels a day of bitumen.

So these are big volume wells.

And I think that would set as apart.

The other thing we're doing is injecting light hydrocarbons.

I don't want to get too specific, because there is issues around how we're doing that that we want to remain relatively quiet about.

We're working on how we get lift, whether it is pumps or gas lift on the wells. and we're also working on light hydrocarbon injection with the steam, which we think has the opportunity -- it hasn't proven itself yet, but has the opportunity to reduce the steam oil ratios further.

One last quick question on the Denver refinery.

Once the maintenance is complete, should we expect that all the stacks will be up to standards, or are there any issues surrounding that?

No, all the diesel specs -- you know, it is going to take us a while to clean out the pipelines and the tanks and all of that.

Starting in the third quarter, on the third and fourth quarter you can assume that we will be up to spec.

Paul Jang of Lehman Brothers.

You must be pretty happy that you have everything behind you and running at full speed.

Absolutely.

I have got several questions.

Hopefully they are not going to take up too much time.

Ken, on the insurance proceeds, how much is the remaining debt that you're still waiting to be reimbursed?

And on that I mean can you share with us how much the remaining claim through the insurer that you have?

Sure.

The big one is the business interruption.

So if you recall, there was US$900 million of total coverage.

And to date we have settled $500 million of that.

So there is still $400 million that we continue to work with the insurers on.

That is pretax I presume.

That is all pretax, yes.

Rick, I think I asked this question before, maybe I try again.

Just (indiscernible) is really important for you to remain in the natural gas business?

I know that (indiscernible) to have somewhat of an internal hedge.

But as the industry it seems like it is increasingly having difficulty to find natural gas reserves in North America at a reasonable price.

The cost is rising very rapidly.

What kind of return does that business can actually generate?

And is it really worth it for you to continue to be there?

I apologize you have to ask the question twice.

I must have not answered it well the first time.

I will take full responsibility.

Listen on a philosophy sense first before we get to return on capital kind of estimation.

I still think it is very important for us to remain in the natural gas business.

I don't think that an absolute 100% hedge is essential to the strategy.

But having some gas -- right now as you know we're about 120% gas production versus consumption, or even a little higher than that.

And I like that position.

If you look over the next 10 or 20 years that is going to be much more difficult to maintain.

We would fully admit that.

And that that is a tougher road.

Now you do have other options.

And again that is one thing about Suncor is we are always looking at, not just option A, but option B, C and D. Option B for us would be, you could look at acquisitions, especially and get a hold of long-term assets.

And option C, which we are pursuing with probably the most vigor is coke gasification which is the natural outcome of where we get to.

And so there are a number of people that are pursuing technologies around coke gasification.

And the way I look at that is I think it will happen in the 2010 to 2015 time period.

I think we want to be a late follower on the technology, not necessarily a leader, since it is not core to our business.

So what I would like to do is maintain this natural gas business as long as we can grow and get a good return on capital.

Then early in the next decade we will start replacing some of that gas production with coke gasification.

Which we have an abundance of coke, so we basically have a free fuel.

And you can take that all the way to straight hydrogen if you wanted to.

But with that is also we're working hard with both industry partners and both levels of government here in Canada on a C02 backbone infrastructure.

And so we need that backbone infrastructure at the same time we put in gasification, so we collect the C02 and reinject it in some of the old oilfields in central Alberta.

There is kind of a timing technology in play there.

And we're working that quite hard.

But it is something that will be in that I think 2010 to 2015 timeframe.

If you look at the natural gas business from a return on capital viewpoint though, it is actually our highest return business.

If you look on the numbers that we produced this morning for the full year 2005, it had a 30% return on capital.

It has been in that range for the last couple of years.

It certainly has more than carried its weight.

As long as we can produce those kind of returns -- and I'm very proud.

It hasn't necessarily always shown, but our exploration track record looks solid to me.

I know it doesn't always show in the reserves each year.

But just hang with us.

I'm actually quite pleased with how that unit has performed.

Maybe another question.

I think that everyone admits that the infrastructure from the [ray] area is not for Suncor, but for the entire region is not really that good yet.

And the manpower problem that remain typically persistent, even when we are looking at some of the low point in activity at this point.

What if -- say if Suncor is a major operator there, what are the initiatives that you guys have with the government there that are trying to improve the operation there?

That is a good question.

It is kind of a multiple attack approach here, none of which is a single answer to that.

But we announced, for example, that we're putting $2.5 million into an athletic library town complex.

Other operators are doing similar kind of things.

We are trying to turn (indiscernible) actually that view of being a kind of boom town to being a town that people really want to move to, because it has the best and up-to-date facilities.

We're working with the provincial government around release of more land for housing developments.

And we're working with provincial government on putting a highway between Edmundson and Fort McMurray.

We're also, and I'm personally involved on a campaign with, NAT, the Northern Alberta Institute of Technology, we are trying to raise $100 million -- I know we will get that done -- to increase the capacity of trades education by some 30%.

And so it is a multiple phase.

You've got to fill the pipeline with human capacity.

We've got to build infrastructure so that Fort McMurray is seen as a great town to move to.

And we've got to improve the infrastructure getting up there.

What I often talk about is we have the advantage of being in the center of the largest heavy oil basin in the world.

The disadvantage is it is all tied in with one two lane highway.

I think we've just got to improve that as we go forward.

So we're working on many facets of that.

Are we going to see any significant improvement over the next couple of years at all?

Yes, I think if you give us 24, 36 months, I think you'll see a dramatic improvement, absolutely.

Two final questions, if I could.

One is that have you learned anything throughout the startup of the new vacuum tower, anything new that you can share in terms of how you can optimize your operation or anything there?

Secondly, on the mining operation, what is the sustainability of the -- what kind of [petrol] production that you may be able to do or raise to over the next 10, 15 years or whatever the incremental production for bitumen that you really have to (indiscernible)?

On the first one, and I will let John take the second part of that question.

On the first one, not really anything particular surprising about the vacuum tower.

You remember this is our second vacuum tower, significantly larger than the first one.

But except for the size and the scale this will be -- I think if it is not, it is very close to the largest vacuum tower in the world on any refinery type operation.

But it came up relatively good.

We will have some issues I think as we go through the years and we fine tune it.

But no real surprises in terms of how -- I don't want to oversimplify this because the operators up there will kill me, but I would just say the theory of running a vacuum tower is relatively simple.

But execution of that may be a little more difficult, but I think no real surprises.

The technology is all pretty well known by the industry.

John, do you want to take the second?

Yes, the question on the bitumen to feed the plant as we execute our growth plans is a topical question, there's no doubt about it.

The one thing that we have committed to is doing the three phases of Firebag.

Obviously we are steaming phase two right now.

Rick did mention the cogen facility that we're bringing into Firebag.

And then the third phase will come on.

We will probably deliver somewhere between 135 to 150,000 barrels of bitumen out of our in-situ project.

That was the critical mass we felt we needed to get to in terms of beginning to really work on the cost structure and the efficiency of that operation.

Now in conjunction with that, what we're doing is we are delineating what we now call Lease 23.

I guess we need a new name for that.

There's also a mine north of Firebag call, [Adept].

So Lease 23 and Adept are two mining options that we have.

We're just delineating those at the present time.

The one thing that we feel confident in is that we have sufficient mining resources going forward so that if we chose to go stop Firebag at phase 3 and paid the rest of the expansion through mining, we could.

Or we could do a combination of in-situ mining, or we could just do in-situ.

We will just have to see as it all plays out.

Obviously, our in-situ Firebag is working quite well right now.

But with natural gas prices where they are, it is a little disadvantaged in terms of cost.

We do have all those options, which hence is why we get a lot of questions around that.

The other thing we will tell you is what we're simply looking for is the cheapest source of bitumen to feed the plant.

And we feel we have the options to go ahead with one of or other or a combination of both.

Greg Pardy of Scotia Capital.

After all that, up all my questions have been answered.

Brian Dutton of UBS.

I just have one short one.

Rick, you have talked in the past about new technology in the mine.

I know earlier you were talking about technology on the [frac D] side.

But I just wonder, you were going to be testing some equipment, pending some cold weather.

I know the weather hasn't been that cold up there, but what has been your experience so far?

A great question.

I probably should have covered that.

We have invested about $100 million in our R&D project which -- and those of you that don't know, it is fundamentally one where this would eliminate the trucks that run between the shovel and the crusher units.

We're actually putting the crusher unit on the mobile platform, and then moving it quite quickly to hydro transport, so it would eliminate the truck in between there.

The prototype is complete.

We're actually doing run in tests as we speak.

What we're hoping for is a full run of tests here in February and early March.

And you're right.

We have had very little winter.

What we had always planned to do here is to test that out through those minus 30, minus 40 degrees temperatures.

Our issue this year is we haven't seen any yet.

And it also hasn't been operating yet.

We're about a month late in terms of getting that thing up and running.

But the good news is the current expectation is we will have that up so we test it through February.

I don't know whether to hope for cold weather or not.

That is kind of a two-edged sword.

But on this one we will test it.

But as you know in the summertime this is such an easy operation that is not the test we're looking for.

It is kind of how does it operate at minus 30, minus 40.

Having said that, I do think the end of the first quarter I will be able to talk a little bit more about what the results of that were.

Were we happy?

Where does it go?

And what were the next steps with that technology?

So kind of too early to tell.

Amir Arif from Friedman Billings and Ramsey.

It is Sam Arnold.

The only question I had is on I guess upcoming downtime.

And for the new Millennium Coker did you guys make all the appropriate tie-ins and set things so you won't have any downtime for that in '07?

Or is there something we should be aware of out there where you'll have to do a 10, 20 day turnaround?

The Millennia Coker unit actually doesn't come up until 2008.

Right.

But I didn't know if you had made tie-ins in '07 or something like that?

We're actually in the process of working in all that right now, so we are expecting in early 2008 that we should begin to utilize that facility.

And we are not expecting -- there will be a ramp up period of course during 2008, but we're not expecting downtime.

Rick?

Yes.

The question is do we have to take the U2 down to do those tie-ins?

Right.

My current information is that, yes, we may have to take a small window of a couple of weeks down, but not a major turnaround.

Okay, that was my question.

Okay.

That's good.

As far as your bitumen capacity, if there was no bottleneck with upgrading, what is the most you think you could do just from a like a truck and shovel and conveyor limitation standpoint?

Right now we're flat out in terms of the production of the Firebag.

Firebag is ramping up.

And I think you saw during the month of December it was about 32,000.

It will begin to increase.

The mine is almost at capacity, so I wouldn't expect a lot.

One of the things we don't want to do is -- we want to purposely be long in bitumen when we're bringing new facilities up, but that is not really part of our long-term strategy is to have access bitumen to sell in the market.

Andrew Fairbanks of Merrill Lynch.

I had some questions on technology, and actually most of them have been answered as well.

Very good answers on gasification and others.

I guess my question is regarding some of the longer-term opportunities to increase recovery rates, is there a particular technologies or avenues of research that you are thinking of as the most promising at this point?

Not that we haven't mentioned before, I think.

We continue to look for new technologies on many fronts.

We continue to look at that.

I would say that most of our research today is in how we improve the bitumen production side of this business, because the upgrading side is a relatively set kind of issue.

And so how do we improve that.

And then of course this coke gasification CO2 sequestration or enhancement of old oilfields is the other big area.

It is kind of on the gas side and then on the bitumen production side.

But I don't think we have anything we want to talk about, other than what I publicly have talked about earlier in this conversation.

(OPERATOR INSTRUCTIONS).

Robert Plexman with CIBC World Markets.

Congratulations on a great quarter.

Good to see you guys back in business.

I had a question regarding the U.S. downstream.

The cash flow from that business just gets stronger and stronger every quarter.

I would have thought in the fourth quarter, for seasonal factors if nothing else, that it might have held off a little bit.

Is that business basically running on plan?

Can you tell us or are you ahead of plan down there?

And with the product mix you have now that you've expanded the base, should we be looking at that steady-state contribution rather than the seasonal fluctuations of the gasoline season?

Yes.

No, listen, first of all, this business is a business where the best quarters are always going to be your second, third quarters.

And the weakest quarters are always going to be the fourth and the first.

So don't change that model.

That is -- with exceptions, of course there's an exception to everything.

But that is still going to be the model going forward.

Really what happened to us in -- I attribute this a lot as the Suncor luck.

But when we bought the first refinery then that was right before refinery margins moved up to one level.

We completed the acquisition of the Valero East -- what we call the East plant today.

And then of course the hurricanes hit.

And then you saw refinery margins jump one more time.

And so this has been a really unusual 2005.

I would not model that going forward, unless you want to model hurricanes, which something that is probably in our best interest to any of us.

What happened is, we compete for product into that Denver market with refineries both in the Panhandle of Texas and in Kansas.

And of course when those hurricanes hit and you had all those refiners on the Gulf, what happened was product was going south rather then west -- and refined margins all across all of North America did.

You can't model that on a go forward basis.

I would say let's kind of give this another year.

I mean I'm very proud of what happened.

We certainly -- the operations had a very good year from a cash flow viewpoint, very solid.

It has been a great investment for our shareholders.

We talked about -- but some of that is timing.

You've got to kind of admit when you get something lucky.

But on a go forward basis, we will get this thing kind of steadied out after we get through this turnaround in the tie-in of the new facilities.

And a year from now then I think I will be a lot more assured of what this thing looks like on a long-term -- in terms of earnings annualized at least, and cash flow.

If I ask you a second one on the strategy side too.

On the natural gas side of the business, it is pretty clear why you want to be in that business.

You set out some aggressive production growth targets in the past, Rick.

And it looks like it -- and you're still forecasting production growth.

It is hard to realize those targets.

The industry is mature in western Canada, especially on the conventional side.

When you talk about some of the alternatives do you see yourself getting into more of the unconventional stuff, or do you see yourself maybe moderating the production target on the gas side going forward?

As you know, we look at this very steadily.

I think 2005 has been an unusual year for us.

We had a number of plant problems, a number which we didn't operate.

That had a major impact.

And of course like everyone else, we were impacted by early spring break up, and the ability to get some wells drilled.

I look at this as a bit of a bump on this long journey of this road.

I'm not giving up on our 5% kind of growth forecast.

Now having said that, a year from now we're not kind of back on that kind of track, then I will look at that slightly differently.

But I'm not giving up on it at all.

I do not see us going to a -- people talk a lot about tight sand strategy.

It is not us.

We are basically turned into a deep foothills driller.

And I think that is where you will see us stay in the main part.

Again, I think our longer range strategy is somehow with coke gasification, which again is another offset for this whole thing.

There are no further questions registered at this time.

I would like to turn the meeting back over to Mr. Rogers.

Thanks everyone for listening in to our fourth quarter.

It was obviously a pretty good quarter for us.

And we're looking forward to 2006.

So again, Brenda, Rob and I will be around to answer your modeling questions.

We will stay right foot.

So for those of you who need to call, 403-269-8670 is the number.

And we will be happy to help you with your modeling questions.

Thanks everyone.

Thanks for the questions.

And we will talk to you very soon.

Thanks, bye.

Thank you, Mr. Rogers.

The conference has now ended.

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We thank you for your participation, and have a great day.