Suncor Energy Inc (SU) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Suncor Energy third-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.

Well, good morning, everyone, and thank you for listening in to our third-quarter conference call.

We are going to follow the usual format, with Rick George giving you a little bit of an overview in terms of his thoughts about the quarter.

Ken Alley, our CFO, will give us a bit of an insight about the financial details.

I also have [Brenda Cherry], our Vice President and Corporate Controller, and [Rob Dawson] from the Controller's Department with us.

So we will follow the normal format, and why don't you kick it off, Rick?

Great, John.

Thank you very much, and pleased to be here with you this morning.

Financially, obviously, we had a very good quarter.

Very solid.

Operationally, the Oil Sands did have some unplanned maintenance that resulted in slightly lower volumes.

Those issues largely got behind us after about the first week of October, here.

October will be slightly down off expectations.

But for the full year, we are expecting to be in that 255 to 260 range, and that is in the outlook, in the quarterly that we put out.

That is, we expect to be within 1 or 2% of our budget.

Now, if you include the bitumen we sell on top of that, then of course we will be over budget.

So you know, I feel relatively pleased about performance.

You're always going to have a few issues as you go forward.

We're expecting to kind of finish the year strong in terms of Oil Sands volumes here.

Our Natural Gas division, obviously, is another area where we revised guidance slightly on volumes.

We are very proud, and I can tell you this, our exploration year has been very good.

That will translate into future volumes, not necessarily volumes this year.

The reason that we are a little lower this year than we had previously said is really due to some pipeline and some gas plant restrictions, not in our control; and also some maintenance that we had to do.

Again, for Suncor, today's gas volume is not as important to us as how our exploration program is going, and I am very proud of that.

You will see that in the future.

Of course, the fact that that exploration program is on a successful basis for the long haul, which is the important issue in our Natural Gas business.

Our downstream results in Canada were impacted by a major turnaround as we get ready to tie-in, and the workaround converting that plant from a light sweet to a light sour refinery.

We will have more maintenance and more turnaround work in 2007 as well.

The project itself is coming along okay.

But it is necessary to shut these down and do the modifications here.

So one big turnaround this fall, on next spring, and then by the middle of next year we will have that refinery totally converted.

You should see the profitability of that business improve dramatically.

Obviously, downstream, the Denver, Colorado, USA assets had another great quarter.

Obviously, very good refining margins and a very good solid operational quarter as well.

All of that translated into very good results on an overall basis, on a financial basis.

Our growth projects continue.

The biggest project is our Millennium Coker Unit project, which is about 65% complete.

That will take us to a volume of 350,000 barrels a day in the middle of 2008.

That project continues to be on time and on budget.

So you know, overall, growth continuing very much on track, and a solid quarter overall.

One of the things I thought I would talk about just a moment is the cost pressures.

You know, you can't pick up a newspaper today or talk about Oil Sands or Alberta without someone talking about the cost pressures overall.

Are there cost pressures on the Oil Sands business?

Of course, yes.

But I will tell you, my intuitive feel here is that we're kind of over the top of where we are on this inflationary period that we have gone through.

We are starting to see some early signs of that intensity of that decreasing.

Not that is going to fall off the roof either, but just kind of topped over in terms of the overall intensity of this.

If you go back, it is kind of dealing with the macro view of North America.

Obviously, you have the slowdown in housing in the U.S.; you're seeing some forecasts, you saw it in the paper the last few days, in terms of a little bit of a slowing down in the center part of Canada.

That also relates back to steel prices dropping on a worldwide basis.

We're seeing concrete and other building materials also more available.

In Alberta, specifically you are obviously seeing rigs available, particularly shallow and workover rigs; but rigs of all types being more available.

We have seen them over the last 36 months.

We have seen a number of industry pipeline and other major projects that either have delayed or are likely to be delayed.

Even house prices in Alberta are starting to kind of cool off.

Certainly, if not even cooling off, at least the supply of housing is more available.

That is true even in Fort McMurray.

We may be seeing the beginnings of some more contractor availability as well, in terms of capacity.

So what does all that mean?

In terms of the way I look at that, it means that -- listen, we are still going to have some pressure on us on a cost basis.

But on a number of fronts here, I think we are probably through the worst part of this overall; or likely to be out of the worst part of it.

Unless we see crude oil jump to $100 a barrel or some other catastrophic event on a worldwide basis.

We, particularly Suncor, will be able to drive these projects forward and get an adequate return on capital.

The one advantage Suncor has enjoyed is a cost advantage both on operating costs and on our capital investment cost structure.

We have had that in the past, and I have no reason to believe that we will not continue to have those cost advantages, certainly over our competitors in this industry, on a go-forward basis.

With that, I will turn over to Ken Alley, who of course is our Chief Financial Officer, who will talk about the quarter as well.

Thanks, Rick, and good morning, everyone.

As Rick said, we are very pleased to be announcing strong financial results for the quarter.

Earnings came in at C$682 million and cash flow at C$1.153 billion, clearly driven by strong crude prices during the quarter.

Capital spending was about C$800 million so we stand at about C$2.4 billion year-to-date.

We expect to be in the range of C$3.5 billion for the full year.

With the strong cash flow that we have had, both in the quarter and in the previous strong quarters, the balance sheet continues to be in great shape.

We have taken the opportunity to strengthen that balance sheet, to give us future financial flexibility.

Net debt now stands at about C$1.8 billion.

We also did take advantage of stronger crude oil markets earlier in the quarter to do a little bit more hedging for 2007 and 2008.

We have additional 10,000 barrels a day for both of those years, on top of the 50,000 barrels a day that were in place for 2006 and 2007, once again using a cost as collar structure.

The new hedges were down at a range of about C$60 floor to C$100 ceiling.

So we will continue to look at the crude market.

We will look to buy what we have called inexpensive insurance for the balance sheet, as long as we can get a reasonable floor but not give up too much of the upside in crude prices with a high ceiling.

So with that, I'm going to pass it back to you, John, for the outlook.

Okay, thanks, Ken.

Rick already mentioned a few of these things, but Oil Sands production we now -- because of the unplanned maintenance that we had in the third quarter, the range we are now predicting for the year, 255 to 260.

Still within, in a 1 to 2% of the original target, so feeling pretty good about that.

There is some minor tweaking to the production split, 1 or 2% here and there.

We are expecting some widening of the differential from WTI on the price that we are receiving for the crude.

That primarily has to do with the price that we're going to be getting for our light sweet crude as more syncrude volumes are coming on, with their expansion coming at full force during the fourth quarter.

Cash operating costs, if I look at where they are in the third quarter, C$23.70, bringing year-to-date to C$20.25 on average.

It did include during the third quarter a onetime insurance charge of C$45 million or $0.45 a share.

So it looks like C$20.50 to C$21 kind of feels right as a range for -- on any average for the year.

So that is what we will have our prediction to be.

Natural gas, here today at about 192 million cubic feet.

I think Rick did talk a bit about the shut-in gas that we do have or the gas behind pipe.

We are now thinking they will probably do well in the range of 195 to 200 million cubic feet.

So a bit of an uptick from where it was in the third quarter, but a little bit below where we had predicted them to be for the year.

Stock-based compensation in the third quarter was $7 million.

That was part of the corporate charges that went through.

So that was all I was going to deal with at this moment in terms of some of the detail items.

Rick has a commitment he has to get to at half past the hour, so we have him for about 20 minutes to deal with any strategic questions that you might have.

Then the second thing I would like to do, a little bit of a change in format, Brenda and I will be around after that to deal with your detailed modeling questions.

We will be happy to do it over the phone, over this line; or you can phone us individually after, whatever you prefer to do.

So Donna, why don't I open it up for questions?

(OPERATOR INSTRUCTIONS) Brian Singer from Goldman Sachs.

Could you talk in greater detail about where you see synthetic oil differentials over the next year, couple of years, and how that might drive your thought process in terms of whether Suncor should be acquiring additional refining capacity?

Yes, Brian, it's Rick George here.

This is a hard thing to predict.

A lot of it will swing on a short-term basis in terms of where are we, but the other people that produce synthetic crude oil are.

We continue to look for downstream acquisitions.

It is certainly not in a must-do kind of mode for us, but it's an opportunistic issue.

Obviously, our purchase of Denver; and that refinery is now running between 90 and 100,000 barrels a day.

It has worked extremely well for us.

We will be looking for those other opportunities.

The recent kind of movement both up and both down and back up slightly on refined margins shows you there still should be some opportunities to do that in the forward market.

So we are still looking, but not on a must, urgent, urgent basis.

Would you look to acquire refineries that could process synthetic crude?

Or would you also look at either converting or acquiring more heavy crude oriented refineries?

Yes, I would say both.

This will be opportunistic.

It will depend a lot on the refinery.

Just as we have done with Denver in terms of converting that refinery to do two things -- number one, get to low sulfur diesel, but also to run more of our sour product.

For us, you have got to remember it's a combination of sweet, sour, and the potential for heavy.

The ideal refinery, for us, would probably run all three.

But you're going to find it where you find it, and then do the investment to move it around and shape.

With Voyageur, which of course is our third large upgrader, we are not a big seller of bitumen and don't see that as a key part of our certainly near-term future.

Near-term for us being seven or eight years.

So, you know, buying coking capacity is not a big part of that overall equation, certainly in that next five- to eight-year period.

Thank you, Rick.

Brian Dutton, Credit Suisse.

Rick, I was wondering if you could give us a little bit of an update on your at-the-mine-face technology.

You were introducing it last winter.

How was it, or was it, running through the summer?

What are your plans for this winter?

Yes, Brian, thanks.

Yes, that face mine technology has worked out extremely well for us.

It was a full-scale model.

The volumes that we are putting through that have actually met or exceeded our design expectations.

We have -- because we didn't put it in the center part of the mine, because it was one in which we still had a lot of testing to do, it has run really on day shifts only up to now.

The plan of the mining group, and I went through this with them last week, is to put that into full-scale operations, 24/7, starting early in the new year.

So it is in part of our production plan.

We would expect to put an order in for our second unit; and we will start to change the mine over time.

The other important issue that that opens up for us is if we open up another mining site, which isn't a given at this point, then we would obviously move straight to this technology.

So like it significantly in terms of, first of all, it is much, much less manpower intensity; but also there's advantages on the environmental side in terms of energy intensity as well.

At the mine capacity of 225, what percentage, then, of your mine extraction would be supported by this unit, say, coming next year?

Brian, it's John.

It would be less than 5%.

So it is a very small piece of the overall operation.

It was a full-scale test; but in the grand scheme of things it was quite small in terms of the overall.

Great, thank you.

Andrew Fairbanks of Merrill Lynch.

Just a question on your longer-term strategy, as you look at where operating costs are going and capital costs are going for the Oil Sands.

Would you contemplate doing a bitumen or downstream (indiscernible) refining capacity swap, similar to Encana?

I think I know the answer.

Or are you happy with the current structure and kind of operating and capital cost advantages you have with upgrading in Fort McMurray?

Andrew, that is a good question.

You have got to remember the first deal that was done in terms of a relationship like that was done between us and Petro-Canada.

If you remember that is a deal we announced a couple years ago.

Starting in 2008, we will take their bitumen from their Fort MacKay project.

In return we will sell them sour product into their Edmonton refinery.

So we are always open to discussions with our customers and even potential bitumen suppliers, in terms of is there a deal there that makes sense.

The way I think about that, Andrew, is capital efficiency.

If we can tie up with a supplier of bitumen, and/or a refiner; and between the two of us you can drive less capital-intensive projects; and you can find a way to share that value, then obviously we are open for business.

Again, it is not a major driver for us.

It is not a must-do.

These are going to be opportunistic issues.

Because, of course, we are on both sides of this fence.

We are a huge producer of bitumen, a huge upgrading complex, and two significant refineries where we are running today close -- or have the capacity, certainly once we get through this construction phase over the next 18 months -- of capacity of 180,000 barrels a day refining capacity.

So the fact that we are in the whole chain I think gives us a little bit different view and a lot more stability.

But we do have the freedom to look at these options as we go forward.

Excellent, thanks, Rick.

Martin Molyneaux from First Energy Capital.

Rick, any update in terms of Firebag Phase 2, and where it stands currently, and how it is ramping up?

Yes.

You know, Phase 2 is on line, if you will.

We have had some teething problems.

So we have not had quite as much steam available as we would have projected at this particular point.

Beyond that -- and we had teething problems on Stage 1 as well.

But this happens to be a different set of teething problems around a set of exchangers and a series of pumps.

This is all aboveground, in the plant itself.

We largely expect to have those issues resolved this fall.

So we have been continuing to ramp up.

Now the actual issue is that the differentiation issue between Stage 1 and Stage 2 is getting a lot more blurred, because we are sending steam to well pads from both operations, and then handling the processing back as well.

So we are ramping up.

We are above 40,000 barrels a day.

Expect in the year somewhere close to 50,000 barrels a day from Firebag.

That would be slightly behind what we would have hoped for at this particular point.

But I would say that downhole, the reservoir continues to perform very well.

Our steam-oil ratios are in the expectation.

If you look at our Firebag, the one distinguishing feature there of course is it is a great reservoir with great thickness.

We have wells that produce in excess of 2,000 barrels a day of bitumen.

If you compare that to a lot of the SAGD operations, a real distinct advantage.

We are using on a number of the wells downhole pumps.

Those have actually on a technical basis worked extremely well.

That is another technical step out for the industry, although other operators are also looking at that and have some of those pumps in place as well.

Overall, you know, normal kind of startup issues on new technology, but very pleased with where Firebag is overall.

Is there any opportunity between one and two to add in a few more well pairs, just to optimize the whole facility?

Or is it going to be only in large clusters?

No.

Listen, we are drilling wells out there all the time.

These are on well pads.

It is more about steam availability that has been our limitation.

We are putting in the cogen plant right now which will generate electricity but also generate more steam available.

So if we had to start over from a blank sheet of paper, we would have put in more steam-generating capacity, even if you didn't use it, than we have had to date in these designs.

The cogen and expansion project we have underway, which is in great shape -- in fact, is a long ways along in terms of progress -- will give us that steam capacity.

Then you should see us over the 18 months after that continue to ramp this production up.

Excellent, thank you.

Paul Cheng, Lehman Brothers.

Several questions.

Rick, I know that you guys haven't finished your budget.

But any kind of number you can share, at least in the direction for 2007, for the CapEx?

No, Paul, we're not giving any projections on that.

That is an issue that we will be discussing with our Board of Directors in November.

So, until we get clearance through that, I don't really want to kind of come out with numbers.

As soon as we get through that, we will definitely be out and give you a full picture of what that looks like.

Maybe let me ask you from another angle.

If we forget about the growth project, just focusing on the maintenance requirement to maintain your operation, what kind of level of maintenance capital that we may be talking about, or we should consider?

Paul, it's John.

It is about $1 billion a year companywide for maintenance.

About $1 billion?

Excellent.

I think that John or Rick, that your sour crude processing upgrade in your Canadian refinery is seeing some cost pressure.

The current estimate of $800 million most likely will be higher.

Any rough estimate how much higher it is going to be?

No, not at this particular point, Paul.

That is a good question.

This is our Project Genesis at the Sarnia refinery.

I think we're just trying to signal that that is under cost pressure.

The project is coming along, and in relatively good shape.

It will be completed by June of this coming year.

So we only have the eight months to go.

Some of this deals with the difficulties of retrofitting in an old refinery and the normal complications you have around that, around working old equipment.

We have had some found work.

One of the vessels is going to have to be replaced.

That is all normal kind of process in a refinery as you find equipment that isn't working well.

It goes back to safety and operation and reliability issues as well.

So I think it is just the complications around that.

Again, the overall return on that capital we are investing still looks quite good to us, in the sense that running much more sour product will lower the feedstock costs.

We still expect a very good return.

Just wanted to indicate that we are under some pressure there.

Sure.

Two final questions.

One, it seems like constantly you have some market rumor talking about you guys could be interested in the royalty trust structure.

So I guess that I'd just come out and ask direct.

Is there any benefit from your standpoint to convert Suncor into a royalty trust?

The second question is on the steam-oil ratio.

Some of your competitors recently that have some presentations coming out and show the Firebag actually is in one of the worst steam-oil ratios, say, 4 to 1 or even 5 to 1.

Wondering that -- if you can comment where did they get it wrong?

Why they would have you guys in such a [difficult] ratio?

Okay, Paul.

Thanks for your final two questions.

Rick only has five more minutes, so we're going to get him to answer the question on Firebag.

Then if we can defer the question on the royalty trust, Ken will be happy to answer it once Rick leaves us.

Go ahead, Rick.

Paul, you have got me in shock here.

Usually you ask three questions.

This time you got away with five. (multiple speakers)

I take into consideration (multiple speakers).

You only have up to six more minutes, that is why.

Exactly.

Okay.

So listen, on the steam-oil ratio, absolutely.

On individual wells, we're quite pleased.

We are seeing them move right down in that 2 range.

The issue is that we have a lot of wells which are just starting to get steam.

Of course, when you first put the first steam in these wells, the steam-oil ratio is infinity.

We track both individual wells and the overall steam-oil ratio, all of it pretty much in line with where we expect it.

I wouldn't want to comment on other SAGD projects.

I think that is for you to ask those operators.

I would just say that, listen, I think the one advantage we have is that this is a very thick reservoir, a very high-quality reservoir, and very little water present.

So on SAGD, you know, I don't think necessarily that the market has really recognized that these reservoirs are not all created equal.

That doesn't say that ours is perfect either.

It is slightly underbalanced, which means that is one of the reasons we bring in the pumping capacity.

The downhole pump.

But you know, usually in this business of geology, thickness and quality will prevail long-term.

I think that is kind of where our fundamental belief is.

It is still the technology -- you have got remember, five years ago, this industry, talking about the industry now, produced virtually no oil from SAGD.

Today, the industry between all the players would be producing well over 100,000, probably close to 150,000 barrels a day from SAGD.

So it is still a technology that is evolving.

I would expect it to continue to evolve and improve over the next five to 10 years.

John, over to you.

Thanks, Paul, for your two questions.

Again, we will answer the question on the royalty trust in the next five minutes or so after.

So if there's any other questions for Rick, Donna?

Tom Lamb from Weybosset Research.

My question is regarding bitumen, and over what time frame might it replace natural gas as a source of fuel for your refinery complex?

Yes, Tom, bitumen will not replace natural gas as a feedstock.

What we have talked about in the Voyageur project application is the request for permission to build a gasifier.

What that gasifier runs off of is petroleum coke, which is a byproduct of our coking upgrader process.

So what we expect over time here is that -- and what we're trying to do is to watch that gasification.

This is -- when you hear the public talking about a cleanburning coal technology, that is gasification.

What we want to see is that technology continue to improve before we invest in it.

But we would expect to have the authority in place to build a gasifier.

It will not be done during the early part of Voyageur; will probably be done at the tail of it.

Of course, what you're doing is you're taking that petroleum coke, which is largely the same chemical equation as coal, stripping out the carbon, and then you've got pure hydrogen or a synthetic gas to run.

That would replace natural gas.

All right, and over what time frame might that take place?

In the next five to seven years or so?

Yes, it is the middle of the 2010 to 2020, so 2015-ish range.

That is what we're talking about.

Okay, great.

Thank you very much.

Appreciate it.

Andrew Potter, UBS Securities.

I think most of my questions have been answered, but just one minor one.

In terms of the gas exploration success you were talking about, can you just give us a little color in terms of where that is?

Does this change your longer-term growth assumptions for the natural gas business?

Yes, there's really two kinds of parts to that.

The second one I will answer first, and that is no.

We still see a 3 to 5% growth in that overall.

We have not seen that over the last 24 months.

I would just say that we are seeing good exploration results and reserves.

We just haven't been able to get them to market.

You know, right now in this market, not necessarily in a huge rush.

But because for us, the supply of natural gas is a long-term issue, not a short-term issue.

We even shut-in a small, very small amount of gas in this last quarter, when you saw gas prices dip down so far.

There is no reason for us to sell gas on a cheap basis, because it is a long-term strategy for us.

Listen, I don't want to get specific on the wells because of competitive reasons.

Just know that, listen, we are a deep Foothills player, so this is not shallow well stuff.

These are all -- not all, but predominantly large, deep wells, high-cost with high volume potential and large reserves.

That is the fairway we play in.

I do not want to get specific on wells for competitive reasons.

Okay, perfect.

Thanks.

Robert Plexman, CIBC World Markets.

I found your comments about the cost pressures easing quite refreshing.

Just wonder about the availability of the craftsmen you're going to need.

How do you -- the number of people you will require, is that number going to increase once you get the third coker set done?

With the people you have in place, how do you keep their loyalty in an environment that is still going to be pretty competitive?

Yes, I guess there's two issues there.

One is, can you get the construction craft to build these projects?

Certainly we are going to be tight over the next two or three years.

There are a number of players including ourselves who have brought in small amounts of foreign labor on a temporary basis.

So we always have that outlet.

As you know, we are working on kind of a six or seven-point plan in terms of the issue of construction craft.

First of all, we're trying to attract young people to this industry.

We are working with NATE, SAIT, and other trade schools to increase their capacity of graduation of trades people.

Then, of course, there's things like immigration and other things that you can work on.

But first and foremost, trying to make sure that we get young and [handle] but Canadians involved in this as much as we can.

I have been relatively pleased, because we have see more labor mobility than I would thought here in Canada, in terms of people willing to come out, either on a temporary basis or a full basis, to Alberta to work.

So we are seeing progress on all kinds of fronts.

Still, there will be pressure on the construction side.

I don't think there is any question about that.

But what I would say is, listen, you're starting to see some of these projects get delayed, and that will take some of the pressure off of what the industry would have seen a year ago or six months ago, in terms of what those peak kind of manpower requirements are.

This year, we have had spot shortages of craft, but not overall, not a massive number of craft shortages.

So you know, we are probably going through kind of a very -- a little bit easier period.

That will change over the next 12 to 24, 36 months.

But we still expect to be able to manage our way through that.

On retention of operating people, that is a different issue.

Suncor works, is working very hard on that, both in terms of recruiting the right skill set, but also retaining them.

One of the big features for us has been, obviously, our compensation package.

But our value and belief systems play into that in a large way.

We try to at least think of ourselves as one of the premiere Canadian companies to work for.

I think that has helped us recruit very talented people.

We also have long-term incentive programs that also keep in place.

So if you remember, the first program was a program called [LTIP].

It paid off, I believe, in 2002.

Our second one is a program we call SunShare, which is a six-year program; and that looks very likely to pay out to employees in 2008.

We will no doubt be asking our shareholders for approval to go to another five- or six-year program that would get us beyond Voyageur.

So those long-term packages tied to share price and share value, hasn't cost our shareholders are a lot of money but has really helped us retain employees over the long period.

Thanks, Rick.

Thanks, Robert, and thank you, Rick, for being with us this morning.

Maybe we can go back to Paul Cheng's question on the royalty trust.

So Ken, if we can turn it over to you?

Yes, thanks, John, because I did want to come back and touch on that.

Because certainly it has been topical over the past few weeks.

You know, I think most of you know, we have looked at this in the past and we continue to evaluate it.

Having said that, there's a number of things we're always evaluating when we see the potential to enhance value for our shareholders.

The question for us with respect to a royalty trust or income trust structure is -- how do you take a structure that is generally acknowledged to be suitable for mature companies with relatively stable free cash flow and tax-efficient distribution to shareholders of that relatively stable free cash flow, and adapt that to a company like Suncor?

Which has a proven track record of an integrated business model that is not only operating in Canada but integrated into the U.S., with plans to continue to evaluate options as we expand our core Oil Sands business.

We are a market leader in one of the most -- in the crude oil basin with global capacity and global potential.

So we are a global company with tremendous growth prospects, internal growth prospects, ahead of us, in a capital-intensive business that is competitive on a global scale.

So our challenge when looking at the royalty trust structure is somewhat different than I suspect some other companies would be.

The other issue for us in terms of evaluating whether we see value for shareholders is we are not currently consistently cash taxable.

So this whole cash tax benefit versus distributions versus capital spending is quite complicated for Suncor.

As I say, we continue to evaluate it.

I would say at the present, we don't see that there is value for our shareholders in converting to that structure at this point.

But we continue to evaluate it.

Great.

Donna, are there any other questions on the line?

Andrew Fairbanks from Merrill Lynch.

This may be a Rick question, but I will run it by you all as well.

When you look at your overall bitumen position, obviously it is just staggeringly huge at 14 billion barrels.

There are some of your peer companies that are actually monetizing some of their less core bitumen lease holdings.

Is that something you would look at?

Or are you just happy with the position you currently have, even though at 1 million barrels a day it would still last for 40 years?

Yes, exactly.

Andrew, one of the issues with us is not just the size of the resource, but also the location of the resource.

For us, we worked really hard, really over the last 40 years, to accumulate a land position that is in close proximity to the operating structure, to the upgrader.

For us now to begin to sell off or monetize a few of those pieces may look good today, but it does harm your future.

Even if your future as you would say would be 140 years out or whatever it is at today's production level.

The other thing we should add is that we have been pretty clear, although we haven't been specific, that 550,000 barrels a day is not the end of the line for us.

We want to continue to grow this business.

We will come back to you at some point in time in the future and give you a good indication of where we are going.

So we just think in our case, given the care and attention that we have put into acquiring the reserves, to turn around and sell them just does not make any sense.

Andrew, it Ken's here.

I guess our view of the future continues to be that value is going to accrue to the resource holder in this world as we go forward.

It is very difficult to get access to the kind of resources we are talking about on the leases that we control in the Athabasca.

So we view that as strategically important going forward.

That's great.

Thanks.

(OPERATOR INSTRUCTIONS)

Okay, the one thing we were going to do is Brenda and I and Rob Dawson are going to be open to answering any modeling questions.

The one thing I will mention is the corporate charges looked like they have had an adjustment that went through this quarter.

It really was a transfer that went from the corporate charge into the Oil Sands of about C$17 million.

That had to do with the proper location of an insurance payment that we made.

So it is better off to be in the Oil Sands operating costs.

It was about C$17 million.

I did mention the stock-based compensation was about C$7 million this quarter.

For those of you, you will be happy to know that we're going to start including the stock-based compensation as part of our disclosure in the future, so that it apparent for you.

So a run rate for the corporate charges is probably in the neighborhood of C$7 million a month. 6, C$7 million a month should be a good run rate.

So, I didn't know if there was any modeling questions you would like to answer over the phone.

We will wait a couple of minutes.

If not, we will be happy to take your calls individually.

Brian Dutton, Credit Suisse.

The C$45 million insurance charge and the C$7 million stock-based comp charge, were they before or after-tax?

That was before tax.

Both of them?

Yes.

Okay, thank you.

Doug Leggate, Citigroup.

John, the cost outlook you gave us for, I guess, I think it was for the full year.

But could you just project forward a little bit and give us some guidance on how you see both the gas consumption charge and the operating cost charge?

Are you talking for the fourth quarter, Doug?

Well, for the fourth quarter, but also if we could maybe look ahead into next year.

Yes, the difficulty with next year is we are just in the process of finalizing the budget.

The one thing that I will tell you -- that it is going to be higher than the C$18.75 to C$19.50.

There is no doubt about that.

We are now looking at something that is probably slightly north of C$20.

But we haven't finalized that particular piece yet.

Once we do, we will get back to you.

Probably in the middle to the end of November we should give you an indication at least on the capital side; and then we will update you on the cash operating costs at the end of the fourth quarter.

So I can't give you too much color because we are just in the process of finalizing all that.

Okay, here is a wild-card.

In terms of the natural gas prices, obviously we did see a little bit of a pullback.

Rick made the comment that maybe you shut in a little bit of gas production when you saw such low prices.

Where did you lock in the oil revenue with hedging?

Has there been any move or any activity in trying to lock in lower gas prices when that sort of situation happens through hedging?

No, we haven't done a lot of that.

It is a good question.

We have typically been focused on hedging crude oil as opposed to natural gas, Doug.

So we haven't done a lot.

We have kind of done that on the basis that we have a natural hedge with the Natural Gas division.

So we haven't done a lot of that.

But I know our crude traders and our gas traders are looking at that particular aspect, but to date we have not done anything.

Okay, that's great.

Thank you.

Thank you.

There are no further questions registered at this time, Mr. Rogers.

Okay, once again, thank you, everyone, for listening in.

Brenda and I have a flight to catch in about an hour and a half or two hours.

So we're hoping if you do have any detail questions that you can lob them to us before that, because we want to make sure that we catch you before we have to get on a plane.

Other than that, everybody have a great day, and once again thanks for listening in.

Thank you.

The conference has now ended.

Please disconnect your lines at this time.

Thank you for your participation and have a great day.