Suncor Energy Inc (SU) 2006 Q2 法說會逐字稿

Welcome to the Suncor Energy's second-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. Rogers.

Thank you, Christine, and good morning, everyone, and welcome to our second-quarter 2006 conference call.

I have the usual suspects with us today -- Rick George, our President and CEO;

Ken Alley, our CFO; [Brenda Cheery], our Vice President and Controller; and [Rob Dawson] from our Controllers Department.

Rick will have a few opening comments in terms of the quarter, and Ken will give you a big of an update in terms of the financing.

I will talk about the outlook for the rest of the year, and then we will open it up for questions.

So, Rick, why don't you go ahead?

Thank you, John, and thanks to everyone for tuning in this morning; and good morning.

First of all, we're very pleased to announce the second-quarter results and I will let Ken go through the financials on that.

But obviously, I feel great about a very good solid second quarter.

You know what is really good to see is our organization kind of living up to its full potential and obviously our asset base, more or less, running flat out, which is really great to see.

Of course, we are benefiting from high commodity prices and obviously have an extremely strong balance sheet to fund our future growth plans, and also plenty of opportunities as we go forward in terms of what we see on the slate on a go-forward basis.

Our drive on safety and operating excellence is paying off today and is going to be a big part of our future as we go forward.

Now one of the things I wanted to do is spend a little time this morning reviewing the progress we're making on our capital projects.

Because I think that that is one thing that does set us slightly aside from many.

If you think about it, obviously we, just like everyone else is experiencing cost pressures, and we will particularly do so on future projects.

There is no way that you can avoid that.

We are not claiming that we are necessarily vastly different than other people in terms of feeling those cost pressures.

However, I do want to say that I am very proud of our major projects group.

Following our last major expansion, which was Project Millennium, which came onstream in 2002, we made a real decision then to form a major projects group to take control over our capital projects group.

Today, we have -- that group now totals about 400 professionals, many of them that have been with us quite a while.

If you think about it, we have been in kind of construction mode, either planning for or doing engineering, or actually in the field, for the better part of a decade and have seen continuous improvements as we go through that.

So if you look at a number of our projects today, with only one minor exception, pretty much on budget and on schedule from what we have announced.

A good example of that is our MCU project, which we the Millennium Coker project, which in all of its parts is about a $3.6 billion project.

That includes both plant expansions as well as Firebag expansions as well as the mine expansions.

That cost of that is about $40,000 of daily barrel of capacity, which we believe will provide a very solid return on capital at a relatively modest oil price in the $35 to $40 range.

That project, by the way, engineering is virtually 100% complete, construction at about 45% complete.

Again, kind of on schedule, on budget, feel very good about where we are on that, feels very much under control.

You'll start to see the ramp up of that production in late '07 for sure, online in early '08.

The next big project beyond that and particularly in the Oil Sands business is our project Voyageur.

Many if you will have noted we did have a public hearing process during this last month, six weeks.

We do want to honor that public hearing process.

It is a public process and one that does allow people to make sure that their voice is heard.

I think it is a very important thing that we on honor that and respect that.

We are very confident that we will get regulatory approval on a timely basis.

Those of you who don't remember, Voyageur is our project that takes us from 350,000 barrels a day, where we expect to be in 2008, up into the 500,000 to 550,000 barrel a day range.

Obviously, as I mentioned earlier, we are going to experience some cost pressure on that project.

We are not yet in a position to announce what the capital cost of that project is.

We are just not far enough along.

We are obviously doing detailed engineering work.

We're also getting quotes on some of the long lead items.

One of the things I would say is that we still firmly believe that -- and our preliminary indication would be that -- we can get a very attractive return on capital at a relatively low sustaining price, at least compared to the last several years, on that project.

You know, I think what is really important to remember here is that our position as a low capital cost investor and a low operating cost position is one that we are going to protect and make sure that we maintain at all cost.

So you can take from that that my confidence is very high that we will retain our low-cost position in that overall process.

So now, let me review a couple of the other capital projects that we have going on, other than the Oil Sands themselves.

First of all, just to update you on Firebag, on the cogeneration project engineering is about 98% complete; construction on that is 67% complete.

The Firebag expansion engineering is about 91% complete; construction is about 15% complete.

Again, both of those projects are on time and on budget.

In our Sarnia refinery, which is in the Ontario operations, we have started production of our low sulfur diesel, so that portion of that project is over.

Now, we are finishing up over the next year, and it should be fully done 12 months from now, the modification of that refinery to run our sour product out of our Fort McMurray operation.

What I would say is that everything looks good, on time and on budget there.

We do have a major turnaround coming up in the third and the fourth quarter.

We will actually have a portion of that refinery, not all of it, and we will still be in production; but we will be down for the better part of 60 days as we do the modifications to get to that lower-cost feed for that refinery in the middle of next year.

The Oil Sands integration project is 45% complete and on time and on budget.

The ethanol facility is online, and it actually is on spec and online.

That was a $120 million investment, and it actually came in a little bit under budget and obviously on time.

So we are quite proud of that.

Then of course, the Denver desulphurization project was the one that we did have a cost overrun.

We announced that.

That is not new news; we announced that before.

The good news is that those facilities are operating very well with not a great deal of difficulty.

Not completely problem free, but it is commissioned, it is online, it is on spec.

So everything looks like it is working quite well there.

So if you look at those projects, if you think about it in this world we are faced with right now, there's a number projects there completed on time and on budget.

That gives us a great deal of confidence on a go-forward basis that we can continue to maintain these project under control.

Not that you let your guard down, but -- not that things will be absolutely perfect -- but our confidence is quite high that we will be able to manage very well as we go through that.

What is really important for us to do here is to operate excellently, to continue to drive shareholder value by making sure our earnings and cash flow are strong and our financial position continues to strengthen.

You know, if you take a look at this industry in general, I certainly like our position.

It is one that I guarantee we're going to maintain as we go forward.

Ken, over to you.

Thanks, Rick, and good morning, everyone.

We're extremely pleased to announce excellent financial results for the quarter with earnings of $1.2 billion and cash flow of $1.3 billion.

Even if we look through the adjustment for future income taxes and unrealized foreign exchange gains, we're talking about earnings of $755 million for the quarter.

So just a great quarter financially.

A strong cash flow in the second quarter and really indeed throughout the first half of the year has allowed us to take the opportunity to pay down debt, and we have done that, bringing it down to about $2.2 billion at the end of the first half.

So the balance sheet is in great shape.

We expect capital spending to be in the $3.5 billion range for the full year.

If we see additional opportunities to pay down debt in the second half, and we continue to see strong cash flow, we will continue to do that, really just to position the balance sheet and make sure we have that strength going forward.

We didn't do any additional hedging in the quarter.

We are still sitting at about 50,000 barrels a day hedged for 2006 and 2007 with a costless collar structure with a $50 floor and a ceiling of about $92.

We will continue to look at the crude oil markets.

As we said previously, we will continue to target up to 30% of our production going forward.

As long as we can secure a solid floor, $50 or about, and with a costless collar structure that doesn't give up too much upside on the crude price.

So something, call it, $90 or above.

What we're looking to do here, really, is to get some cheap insurance for the balance sheet.

We don't want to give up too much upside; but if we see those opportunities going forward, we would hedge up to 30% of production.

So with that, John, I will pass it back to you.

Great, thanks, Ken.

I will just give you a bit of a preview of what we are expecting for the rest of the year.

A lot of this is already in the quarterly release, but I just wanted to reinforce a couple of topics.

Production outlook for the year for Oil Sands continues to be 260,000 barrels a day.

In conjunction with the second-quarter report, we did put out the July production, which was slightly below the 260,000; we came in at 225,500.

Really just a couple of things were causing that.

We did have, during the month of July, some planned and unplanned maintenance which brought production down a little bit.

We did incur a couple of power outages at the plant which also impacted the production.

We are now right back to where we should be in terms of the production volume.

So one month is not going to have a huge impact on the overall year.

We still expect, as I mentioned, to be in the 260,000 barrel a day range for the year.

I guess that is what an average is, isn't it?

Sometimes you're above that average and sometimes you are below it.

During the month of July, we were below it; but we do expect, again, to meet that target going forward.

So not a lot of concern about production volumes, at least from this side.

The mix is should remain at diesel at about 11%, sweet at 45%, and sour at 44%.

The realization on the crude up at Oil Sands should be WTI at Cushing less, about $5.50 to $6.50.

Cash operating costs had a really good month -- a really good quarter, I should say, during the second quarter; but we will remain with that target to $18.75 to $19.50.

Natural gas production, we have maintained that target in the 205 to 210 range.

Do realize that the actual production average to the end of June is 193 mmcf; but we believe we have the reserves ready to go.

We just need to get those tied in, and we should be up in that range.

Now, I'm going to try to deal with a couple of modeling questions that you may have; and then during the question-and-answer period we once again ask that you keep your questions the strategic questions.

Then after the call, Brenda and Rob and myself will be happy to return your calls and spend whatever time we need on your modeling questions.

Capitalized interest during the quarter was $31 million; year-to-date is $64 million.

That is actually one of the notes to the financial statements.

I am always happy to say this -- hedging losses during the quarter were nil.

So we had no hedging losses during the quarter that impacted the operation.

You can see that we had pretty significant revaluation of our taxes during the quarter.

That had to do with reduction both on the federal side and the provincial side.

You'll notice on page 6 in the MD&A section that it does detail those changes by quarter -- or by division, excuse me.

So you will see the actual impacts in each of the divisions and hopefully can do your reconciliation into your models.

Going forward, the tax rate by division will be as follows.

Oil Sands should average about 34% tax rate.

So Oil Sands at 34%.

Natural gas will be at about 31%.

Our Sunoco EM&R will be at 31%.

Denver will be at 36%.

The corporate will be at 37%.

So overall on a consolidated basis, we would expect the tax rate will average about 34% on that.

So with that, that would be hopefully all the modeling questions that we would deal with, at least at this call.

Again we will be happy -- Rob and Brenda and I will be happy to return your calls right after this and deal with any specific questions you have.

So Christine, why don't we open up the lines for any questions that people may have?

(OPERATOR INSTRUCTIONS) Greg Pardy from Scotia Capital.

Good numbers.

I guess what stood out just was just it looks as though you've achieved design rates at Firebag.

So, Rick, could you give us a little bit of color on that?

As well as what the production profile will look like for Phase II, where I think you're just injecting steam at this stage.

Yes, sure, I will be glad to.

You'll see it start to ramp up here particularly in the last half of the year on the Stage 2.

Both Stage 1 and Stage 2, I would say slower on the ramp-up than we would've initially designed it or expected.

Reservoir performance once we get a line down is very good.

We had a couple of issues on the design in the Stage 2.

We had some problems on some pumps and some problems also on some exchanger metallurgy.

So we've had a couple of outages on Stage 2.

Normal kind of commissioning teething problems is the way I would put that.

Once we get these things lined up, and once the steam gets in, and then -- on a consistent basis the reservoir performance has worked very well.

That is what I think you are really seeing overall.

So you know, we are in the mid-30s to high 30s on production.

You should see that ramp up later in the year, particularly in the fourth quarter and then on into next year.

So reservoir performance, really good; some plant kind of operate -- kind of commissioning and teething problems, probably the only thing I can say.

Other than that we're very pleased with where we are on Firebag.

Then just to clarify, so Phase II really starts to ramp up at the end of '06 or is it more '07?

It starts in '06 but the majority of it's going to come in '07.

Okay, thanks very much.

Andrew Fairbanks from Merrill Lynch.

Just a question.

You mentioned actually tires in your press release; and a number of the mining companies have cited this as a major issue.

It sounds almost preposterous to ask, Rick, but how is Suncor fixed for tires?

There actually are other companies that have had to limit production.

Do you guys have like a huge pile of tires somewhere?

I guess that and then just more broadly as you look out, where do you see the more critical bottlenecks that are developing, as you look out at the expansion?

Are there particular process units that are getting really challenging to get the equipment for?

What are the things you really watch for?

Andrew, I will answer the question on the tires.

We have had to keep them under tarps, so they are kind of hidden on the Oil Sands plant there.

What we didn't get is we didn't get a full allocation of our tires this year.

I think we've mentioned a number of times even that we didn't get a full allocation of tires that we still did not expect.

I think we showed this quarter that they are not impacting our production targets whatsoever.

What we have had to do is bring in more contractors to help out.

And that is why you saw that noted in the press release that we have more contractors coming in.

We're doing a lot in terms of increasing the average life of a tire through proper driving habits and just making sure that we don't overload the trucks and things like that.

So we are managing through this period.

We will probably be another two years in this particular situation before the tire companies actually make the correction and are able to supply the amount of large tires that the Oil Sands facility would require.

But I think given our legacy position and the amount of years that we have been buying tires, we are able to secure a sufficient number to keep us going.

We also bring in contractors, so not expecting this to have any impact on our production either this year or over the next couple of years till this particular shortage is abated.

Yes, John, I can take on the issue of these, let's say, Voyageur or these major projects on a go-forward basis.

I put the concerns really in kind of two camps.

First of all, the long lead delivery items, which is your cokers, your big fractioning towers, and any of the special metallurgy towers that you have to order.

We are obviously sourcing these on a worldwide basis.

But what we're finding is not only the cost up on these vessels, but delivery times are longer as well.

So you just got to get in the queue earlier.

That is not just a Canadian Oil Sands issue, because this is a worldwide refining and processing, upstream and downstream processing kind of capacity issue.

Because as you know, the industry in general is investing capital at a very good clip.

It just happens to be at those big long lead items, which you know, if you had looked at this three or four years ago, you would have gotten delivery on some of those items in 12 to 18 months.

Now you're talking about 24 months or even longer.

So you just got to get your design work done even earlier, and make sure that you have enough spec on it to get those long lead items delivered early.

Then I think the real test is obviously productivity in the field.

Part of that is you've got to line up the work well so that you've got the work packages for the workers at the front really well organized, and so you get the highest productivity numbers.

The numbers we have seen on our recent projects are okay; they're within the range of our expectation.

You always worry about it, when you see more and more of those projects, whether we can keep that up.

That is, I think, our management challenge.

Again I think our major projects group, a lot of experience at this.

We are in a continuous learning mode in terms of -- with each succeeding project we do learn, try to take those learnings forward, and we are learning how to manage these projects better and better.

I think again goes back to my comments about, you know, you've been at this kind of a decade or better; you should be learning a lot [for long] than someone that is, say, starting at scratch.

That's great.

Thanks, Rick.

Doug Leggate from Citigroup.

I wonder if you could just give us your take on the raft of recent news flow on cost pressures on some of the projects going on.

I guess specifically, I'm really trying to get a view as to -- at what point do you think some of your competitor projects price themselves out of the market, in terms of maybe deferring or delaying otherwise some of the plans that they have underway at the moment?

It's John.

Unfortunately, I'm just going to have to give you the standard answer, you know.

I think all companies, every individual company has their own cost of capital and they have their own pressures that they have to meet.

We just can't speak for other companies, and where they are going with their projects, and where their capital costs are.

I think Rick did talk about his view in terms of where Voyageur is.

Although we don't have the final costs on Voyageur, we are pretty confident that we're going to be able to get the kind of return on capital -- and for us that is what it comes down to, is return on capital at a sustainable oil price going forward.

That would be the benchmark that we would be looking at.

We have full confidence, full confidence, we will be able to do that.

So in terms of other operators and how this is all going to shake out, boy, that is just like predicting who is going to win the next Super Bowl.

Just don't know who it is going to be.

But the market has a way of kind of weeding out the lesser projects and keeping with the stronger ones.

You guys will probably be in a better position to predict that than us.

So we are continuing to be focused on our own projects and what we're doing.

We just think with our low-cost position that we will be able to maintain it.

Let me just try one follow-up on that.

As far as you don't have the approval yet, obviously, for the third upgrader.

Are you already locking in long lead-time items and trying to manage the likely cost pressures from that point of view?

It's Rick here.

Absolutely, yes.

We are already starting to lock in and get those things phoned in.

So without getting very definitive, we're working that down.

What you will see over the next couple of quarters here, when we do these calls, we will be able to get a little bit more definitive about what we have on order and kind of where we are.

So we will get more and more definitive.

We're just not in a position today; except to say yes.

Are we putting orders in on the coker business?

Yes, absolutely.

Great, okay.

Thanks very much.

Paul Cheng from Lehman Brothers.

Rick, some of your -- not exactly direct competitors, but in the conventional oil and gas industry space, have indicated that they have seen some moderation of the cost, the increased pressure.

So it is no longer accelerating, but moderating or stabilizing somewhat.

Are you guys seeing that?

Or they are still accelerating in your space?

Yes, I think if we're seeing anything like that it is probably on the gas side, as you see a number of industry participants -- which you have seen the announcements as well -- they are starting to kind of cut back on the gas side.

I would say I haven't seen a lot more than that.

I fact I think on the refining side of our business, if you think about the downstream, they're just kind of now getting kind of regeared up after getting through the low sulfur diesel projects to invest.

So I think it is a bit of a mixed bag.

You may see gas investment down, but probably followed by refinery expansion projects.

So it is all kind of all in our space, so, in this whole chain.

So I don't sense a great deal of that, to be honest with you.

I see.

Also, Rick, I think earlier that you were talking about the tie issue.

How about the sulfur that with what you guys did, all of a sudden you're going to see a bigger and bigger tie-up on the sulfur.

How are we going to resolve that?

Is that going to, at some point, become the bottleneck and cause you to have to so slow down your growth rate?

It's John.

We don't see that happening as we know, and there's a number of things you can do with the sulfur.

But we have always had the strategy -- part of it is because we don't have the footprint up at Oil Sands to store sulfur -- is to dispose of sulfur.

I do underline the word dispose of sulfur.

So we would continue to have to work pretty hard to move that sulfur [off] plant site and find markets for it.

That would be our strategy going forward.

So for us, we don't see sulfur to be an inhibitor of our future growth.

I see.

What is your total sulfur that is currently sitting in your inventory?

Almost nil.

Almost nil?

Yes, we basically produce -- as we produce the Oil Sands, we basically move the sulfur right off.

Perfect.

Then maybe either John or Rick, for the mining, what is the upside capacity or potential there for you to expand that operation?

I mean that to the Voyageur, that obviously some is going to be from [sag feed], some is going to be coming from -- the incremental, going to come from mining.

How much is the upside potential that the mining capacity can extend?

It actually can expand a lot, Paul.

If you looked at our reserves, there's 14 billion barrels of reserves; 9 comes from Firebag, and 5 comes from the open pit mine.

Where we are going to put the upgrader is on a lease called lease 23, which is just west of the plant.

We would expect we would be providing some feedstock potentially from that area.

Further expansion of both Steepbank and Millennium, of course, can be in the cards as we have 2 billion barrels that are sitting there.

We also have a fair amount in the mining just north of Firebag.

So we would think that by the time that we are actually producing at Voyageur today, we may provide about 20% of the feedstock from in situ, and about 80% from mining.

So going forward, we will continue to be a very strong miner.

As we see the economics change and we find the cost structure of in situ to be better then mining, of course we will move more towards in situ.

But today, it is a little bit disadvantaged and we will continue to look for the cheapest source of bitumen going forward.

So John, you are essentially saying that you have the capability there to double your mining capacity over the next five years?

Theoretically, absolutely.

We certainly could do that with 5 billion barrels.

I think we could actually produce for the next 35 years even at the higher production rates out of our mine, also.

There is no concern on our part about that.

I think the one way to look at this is in addition to the existing two mines, we have two other mine locations, one up north and one on the west side of the highway near the plant.

So you'll see us talk more and more about those.

Exactly the timing of when those are brought on, that is an issue that we're still studying.

Again, I think if you look at the Suncor strategy it is around building optionality.

So you've got all of these -- you got a lot of options on a go-forward basis that you're not locked in to any one.

So we're not trying to be evasive there, just saying we purposely designed this thing with maximum flexibility and maximum optionality.

We think that compared to a lot of people in this space that is one of our competitive advantages.

Rick, since you're talking about optionality, one final question, the renewable business.

Do you have the ethanol plant up and running now?

Should we look at this as one-off, or that this could potentially be a more significant or bigger business for you?

How should we look at that?

Yes, I think the way I put that is, yes, we continue to want to expand that business, and we are looking at other ethanol opportunities.

When we put the first ethanol plant in, the Sarnia region there, we do have space there for a second plant.

No announcements, but that is something we will look at.

We are also looking at biodiesel.

You may have seen even a brief notice that we now are selling biodiesel in the Toronto market to the city there and municipality.

You know, again, wind power.

We're just getting ready to break ground this fall on our fourth wind power project.

So yes, on renewables, still see us very active.

Kind of on the leading edge.

We feel like we have kind of a first mover, early mover advantage.

Maybe not first.

Early mover advantage in Canada, although also looking in the U.S. for opportunities as well.

So you know if you look at it overall, not necessarily a huge part of the portfolio, but one that is important and one that we continue to see growing overall.

Okay, very good.

Thank you.

Paul, I need to correct myself.

We have 14 billion barrels of resources, not reserves, so it is just a categorization.

I understand.

Thank you.

Martin Molyneaux from FirstEnergy Capital.

Second-quarter refining marketing margins both Canada and the United States looks absolutely outstanding.

Any thoughts on that segment of the business on a go-forward basis?

I guess has a follow-up, Denver came screaming out of the blocks here with an outstanding quarter.

Any thoughts on what you're going do to fine-tune that operation in '07, '08?

Yes, you know, Martin, thanks for that.

It's Rick here, and thanks for that.

Yes, listen, I think we are -- got to be very close to the peak on refining margins and how long this lasts.

But you are seeing some real projections of refinery expansion over the next three or four years in the U.S., and I think that will have a moderating effect.

We tend to always kind of overbuild refining capacity as an industry.

So we are somewhere near the peak.

I think you'll see those things come down over time; not next quarter, not necessarily this year, but over time, probably to a more moderate level.

Denver, I have been very proud of that.

Very proud of Sarnia too, by the way, but very proud of Denver.

For the next little bit here, because we have taken -- we bought the Conoco refinery then we added the Valero refinery, we're now interconnecting those two.

So we're spending a lot of time on the interconnecting piping and then optimization.

We just brought on this $445 million worth of assets, and that is the biggest change that that refinery has seen in at least 35 years.

So what we really -- my view of this is we really need to kind of settle that down and just operate it extremely well for a while.

There will be expansion opportunities and ways to continuously improve that operation.

But what we need to do at least for the next six to 12 months is just settle it down and operate it very well.

That has been -- as you know, I have talked about this before.

But that has been a great set of assets for us to buy, and one that has paid our really very quickly.

Very proud of not just only the financials on it, but also how hard people worked to put that into the Suncor family, if you will.

Great, thank you.

Tom Lamb from Weybosset Research.

You have mentioned the opportunity to invest at attractive rates of return.

Can you give us some idea how attractive and at what level of commodity prices those numbers might lie?

Tom, as you probably picked up, we were not specific on that because we are talking about something that is going to be announced next year.

If we go back to the current project, the project, the MCU, the $3.6 billion project which takes us from 260 to 350, we get a 15% at $35.

Now that is at 40,000 of daily barrels.

We can't be more specific because we simply don't have the costs on Voyageur; and next year the price of crude; and we want to see where that looks like it's going to be sustainable going forward.

So we are going to have to defer an answer to your question for probably about a year.

Then we will be very specific about where we are going.

But clearly, we feel that a preliminary look at it would mean that we want to go ahead with it.

This last one worked fine, didn't?

Yes, it did.

Thanks very much, and good work.

Robert Plexman from CIBC World Markets.

I have two upgrader-related questions, Rick and John.

The first one, looking at -- at least one of your competitors, they plan to build some upgrading as part of -- at their refinery complex.

I'm just wondering the way you're situated in Denver and Sarnia, if you see that evolving in your future, where you do more upgrading?

Realize you're doing the hydrotreating there now.

But do you see doing more of the upgrading at those sites?

A second question deals with third-party upgrading, because you are doing some of it; we are seeing deals announced for other people.

Is this something you want try and do more of?

Okay, Rob, those are very good questions.

I think what we do not see -- (indiscernible) is probably adding cokers on to the front-end of the two refiners we have.

The (inaudible) that is our belief that coking needs to be done at a very significant volume or size to stay competitively advantaged there.

So kind of 100,000 barrel a day cokers is probably about the right size.

I am not saying that a smaller one won't work; but for us, it's better to kind of knock that carbon out up north and then handle the process of the materials at the refineries.

Now you will see us run more and more sour feed into those refineries over time.

In fact, that is what the big portion of the project at Sarnia is.

The middle of '07 we will be running I think it is like 40,000 barrels a day of sour.

That will lower our feedstock costs into that plant by about -- well, it depends on the market, of course, -- but by $5 to $7 a barrel.

So we move that refinery from one of the higher feed cost refiners in that market space at least down into one of the lowest.

So that should improve the compatibility and the competitiveness of that refinery.

We are looking running more and more sour product into Denver as well.

So those are the opportunities to run the more sour product and maybe a little bit more heavy from time to time; but not necessarily cokers on the front-end of those two refineries.

Now on third party, absolutely.

We are in discussions with a number of parties.

They're very difficult deals to put together in terms of third-party processing.

I think the only one that actually has been done to date that I am aware of and have been any size is the one we did with Petro-Canada announced now a couple years ago.

We will start flowing those fluids on that, on the basis of the deal in 2008 as they get lined up and we get lined up to make that happen.

We would certainly look at those kinds of deals down the road.

There is no question about that.

Thanks.

(OPERATOR INSTRUCTIONS) David Wheeler, Neuberger.

Much was made of the public hearing, the regulatory review process.

It seemed like there were some investor concerns that cropped up then.

Now that we have come through all those hearings, was there anything that jumped out at you from the hearings as surprising, or onerous, or what was the big takeaway from the hearing process?

Well, David, I think, listen, first of all as I mentioned I want to really honor that public process.

It's a very important part.

The concern was really by a number of the stakeholders in the region around the pressure in Fort McMurray.

So when you see the health region or the mayor or even the local member of the Legislature, who is also a cabinet minister, come, it wasn't really about Suncor.

It was about the pressure on the community and the things that they thought should be done.

There is responsibility in that for the provincial government, for companies, and it was a good forum for them to air that.

Listen, I don't want to go down any road except to say that that is fair enough.

That is all fair game.

When you got down to specifics about our project or Suncor's performance really it wasn't -- what I say is no surprises.

This is a very good project.

We feel like we're not actually taking any more water than we have historically had the rights to.

We are using the latest and the best technology.

So again, what we have always tried to set ourselves up as the developer of choice.

With that, with kind of a 50 to 100-year view that you're going to do things right and not take shortcuts.

So I am relatively comfortable about where we are on that.

Now having said that, it rests with the EUB.

They're the regulatory body here, and it is up to them.

We will probably hear more from them over the next three or four or five months in terms of what their view of that is and where we stand in the regulatory process.

But given our experience in these kind of things over time, not a huge amount of surprise.

So nothing that would make you think that the expected time frame for this would be any different than it has been in past processes?

Not that I know of; but again, I am not in control.

So you know I can only control what I can control.

But not that we know of.

Okay, good.

Thanks.

Gordon Gee from RBC Capital Markets.

I just had a couple questions.

Could you just remind me of your insurance situation there (inaudible)?

Sure, Gordon.

It is Ken Alley here.

We have saddled the business interruption claim, so that is finished.

So that money has been received, and we are now just working through finalization of the property damage claim.

We have received to date about US$125 million on that policy and we are working towards final settlement, which we would expect to be sometime towards the end of this year, maybe into 2007.

But there's not a lot of money still outstanding on that claim.

So virtually, to all extents and purposes we see that insurance claim as pretty much behind us now.

I noticed that on your corporate, that G&A had dropped about $40 million from Q1.

Is there something unusual there, or is that they a pattern going forward?

Gordon, I just can't answer that question right offhand.

Why don't you give me the opportunity to look at the specifics on that; and I will phone you back after the call.

Gordon, hello?

Operator, are you there?

Yes.

There are no further questions registered at this time.

Okay, well thanks, everyone, for the listening into our call.

Again, Brenda and Rob and I will be around and we would be very happy to hear from you.

If you have any of form of modeling question or any other specifics, we would be very happy to field your call.

So other than that, I hope everybody has a great day.

Thanks, bye.

Thank you.

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