Suncor Energy Inc (SU) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Suncor Energy 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. Rogers.

Great.

Thanks, Carrie, and good morning, everyone, and thanks for listening into our fourth-quarter conference call.

I have in the room with me here in Calgary [Brenda Cherry] and [Rob Dawson].

And at a remote location -- and this is the first time we've done a remote conference call -- we have Rick George, the President and CEO, and Ken Alley, the CFO.

We will follow the usual format, if we may, and that is Rick will give you a bit of an overview and how he thought about the quarter and the year and where the Corporation is and the industry is at this point in time.

Ken will give us a bit of an update in terms of the finances, and I will give a very short comment on the outlook and we will go from there.

So why don't we pass it over to Rick to give his overview?

Rick?

Thank you, John, and good morning, everyone.

Delighted to be on the call with you.

Obviously, I want to talk about 2006 first and then go on and talk a little bit about 2007 and the outlook.

2006 was an incredible year for us.

It was very exciting, both in terms of obviously earnings -- our return on capital numbers were outstanding.

But probably more for us it is the execution of our growth plans and the positioning for future growth.

In fact, if you look at the planned production increases that Suncor has on the books through 2012, we will enjoy a 15% average growth rate over that period.

Now obviously, you have got to take into account the last few years, but over an extended period of time, a 10% kind of growth rate is an incredible average in this industry.

Obviously, it compares very favorably with any other publicly-held company, certainly of our size, in North America or around the world.

I don't know of anyone who's adding more production barrels in the oil sands business than we are through 2012.

The other thing I would just continue to point out is the one thing we are very proud of is our track record over 40 years, especially in the last few years, in terms of driving safety in our operations, our growth projects and, even though we had some difficulty on the two refinery projects, the other projects we have are on schedule and on budget.

And our drive led by Oil Sands and the other operating groups and our drive for operational excellence, which is underway.

If you take a look at 2006 in a little bit more granular detail, I think we made significant progress on the expansion with Upgrader Number 2.

This is a project we refer to as Millennium Coker Unit.

That is -- the project will take us up to 350,000 barrels a day of capacity in 2008.

Construction on that project is about 70% complete, so we are very far along, pretty much on track.

We will have a lot of that work done in 2007, with the very tail end of that work in 2008.

One of the things I will tell you right now is that there are two turnarounds that Suncor is planning in 2007.

One is at Oil Sands; right now, it's scheduled for the second quarter.

A fairly lengthy turnaround, and that is to tie in this equipment around this Millennium Coker unit.

The second turnaround that we have is the Sarnia refinery.

And again, that is the final tie-ins on that work of converting it to a sour refinery, and that will happen in the third quarter of this year -- third quarter, start of the fourth quarter.

All of that is coming along.

In fact, while I'm on that, the Sarnia refinery -- and obviously this year, we finished the project to meet low-sulfur diesel specs.

We're underway to continue to change the rest of the equipment necessary to turn this to a sour refinery, to run predominately our sour feed out of Fort McMurray.

And we will have that complete by late third quarter, early fourth quarter of 2007.

The Denver refinery, while we're on the downstream, very well-positioned in 2006.

We got through our low-sulfur diesel project, and that refinery has continued to perform very well since then.

Obviously, had a gangbuster year; we're quite proud of those assets.

And what we're working on there is safety, operational excellence and we're just kind of a continual drive there.

While we're on that, just kind of directionally, we have seen refining margins slip slightly in Sarnia, but remain quite strong in Denver.

So different markets are definitely reacting in different ways.

Firebag has ended the year with production in excess of 40,000 barrels a day; that was kind of the exit rate.

We feel relatively good about that.

I mean, if you were to look at this thing 12 or 18 months ago, a little bit slower ramp-up than we would have expected.

When we compare it to the other SAGD operators, our ramp-up actually occurring quicker than most, if not all, other players in that.

We continue to learn as we go along, and that is the good news; and we continue to improve on this technology.

What I would say is virtually all of our issues are on the surface in terms of plants and equipment, a lot of it dealing with water handling and our need for more steam.

The reservoir itself is performing very well.

These are very big wells, and in the SAGD world, it is a great reservoir.

We just have to continue to work on the plant type equipment itself.

The other very exciting thing for us is we did receive regulatory approval late in 2006 for Voyageur.

And Voyageur is our project -- a large project that takes us from the 350,000 to the 500,000, 550,000 barrels a day by 2012.

In fact, we will be spending about $2.5 billion on Voyageur in 2007.

We are obviously doing detailed engineering.

We expect to actually start site prep here in the next few weeks; we did receive the order of counsel during this week.

And we also have started to commit to long-lead items such as major vessels and other equipment.

So we are starting down that road.

Before the question comes up, we expect to be in a position later this year to give a definitive cost estimate.

Obviously, we have a range.

Right now, it is quite a large range, between what the high and the low number could look like.

As we get further completed on engineering, as we get more of the large pieces of equipment ordered, we will be able to narrow that down to a point where we are comfortable with putting out an estimate.

But buckle your seat belt; we're definitely on our way here and we feel quite good about that.

So 2007, if you look forward, obviously the completion of the MCU project, tying it in mid-2007 -- again, second quarter; it could slip to the third quarter -- everything looks solid there.

The start and the kickoff of Voyageur.

Our continued focus on safety.

We're quite proud.

With one exception, all of our operations are getting towards a world-class safety kind of standard, which we are quite proud of.

And then a focus on excellence in operations.

The outlook is there.

I'm not sure -- I think that may be addressed a little bit later.

But we're expecting annual production rates of 260,000 to 270,000 barrels a day at Oil Sands.

And the natural gas numbers are in there as well, which is the 215 to 220 -- that includes liquids in terms of million cubic feet a day equivalent.

What I would say is I know there are some questions around our operating costs at Oil Sands in the fourth quarter.

There's a couple of things.

We had a number of one-off things in the fourth quarter.

We did have some production related events, particularly in November and early December.

We also did spend more on labor cost.

And this issue of labor cost is more around the amount of labor that we used than it is a large ramp-up in inflation.

In fact, I think one of the questions this morning is, is Rick going to retract his comments around the fact that he thinks we've seen the peak on this inflationary period in Alberta.

And I think the answer is no.

I guess if I keep on long enough with a prediction that we've peaked, it will sooner or later happen.

But we are starting to see things kind of not slow down too much in the Fort McMurray area.

But in the rest of Alberta, with drilling and other capital commitments, you see a number of these projects in the industry slowing down or delayed.

And so I think that has got to come back in terms of -- not that we're going to see a reduction in cost, but certainly a less extreme velocity of increase in cost as we go forward -- hopefully on the capital side, but certainly on the labor side.

I think the one thing I would say about Suncor is, again, we've never really depended on a high commodity price to achieve our goals.

And to the extent that the rest of industry slows down, delays or halts is probably a good thing for Suncor overall.

As you can tell with our Voyageur project, we are kind of driving right up the middle and continuing on our plans on course, if you will.

I think that's, Ken, all I've got to say, and I will turn it over to you to talk about the financials.

Thanks, Rick, and good morning, everyone.

As Rick said, by all accounts 2006 was a very good year for Suncor, and we're obviously extremely pleased to be reporting earnings for the year close to $3 billion and cash flow in the $4.6 billion range.

Just to put the fourth quarter in context, the first three quarters were very exceptional in terms of financial performance.

We had a very good run over the first three quarters of the year.

The fourth quarter clearly wasn't up to the same standard as the earlier quarters, but as -- we finished the year strongly and I think it's important to focus on where we go in 2007.

And Rick outlined the outlook for the year and the growth plans that are firmly in place in moving forward.

When you think about the balance sheet positioned after the great year we had in 2006 -- our debt is below $2 billion.

So very strong balance sheet.

We're prepared to move forward aggressively with the growth plans that Rick outlined.

So overall, very pleased with the year.

Somewhat weaker fourth quarter, but we understand the factors underlying that, and very much looking forward to a strong 2007 and continuing to move forward with the growth plan.

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

Great.

Thanks, Ken.

I think, Rick -- and I'm just going to do a couple of outlook things.

I think Rick had already mentioned about the production being 260 to 270 up at Oil Sands.

The split, now that we've got the Upgrader running back with the (indiscernible) at full tilt for us, we're looking at the split, with diesel being 10%, sweet being 42%, sour 43% and bitumen 5%.

That should give us a little better product mix coming out of the Oil Sands and the differentials should be a little better going into this year.

We have predicted a basket of about [$7.50] to [$8.50] for crude -- or for average realized price, and we're feeling relatively confident with that.

I think what we're seeing in January is the heavy oil differential is widening slightly.

Good thing were only producing 5% bitumen.

But in January, it's up to about $18 versus December, where it was about $16.

So a little widening in terms of that differential.

We were seeing, during the fourth quarter, particularly in December, a discount on light sweet crude of about $2.

And that has swung dramatically in January to a premium of almost $2.50.

We don't expect that will continue for the quarter, and probably move back to something like $1.

So it looks like the prices that we're receiving are going to be certainly within that $7.50 to $8.50 range.

Cash operating costs, Rick already mentioned about the $21.50 to $22.50 and how we're thinking about that.

I think we have to stay tuned to see where the actual cash operating costs do come about; we need a little more of a trend going forward.

So we are sticking right now with the projection of $21.50 to $22.50.

In the natural gas, the 215 to 220, as Rick did mention, does include liquids.

And if you just strip out the liquids and you look solely at natural gas, it is probably in the range of about 205 -- 205 million cubic feet.

I'm going to give you a couple of the modeling pieces and then we're going to ask that we don't have any further modeling questions on the call.

Brenda and Rob and I will be happy to deal with those one-on-one after the call as usual.

For the crude oil hedges, it is outlined in the statements, but we have about 60,000 barrels per day, with a floor of 5164 and a ceiling of 9326.

Stock-based compensation during the quarter was about $53 million, and you will see that in the corporate charges.

It's about $43 million after-tax.

And year to date on the stock-based compensation, it's about $122 million and about $107 million after-tax.

That's, I think, all we have in terms of prepared remarks.

We would like to open it up to you for your questions.

Again, if you could keep them -- in the interest of everybody's time, if you could keep the questions at the strategic level.

And once again, Brenda, Rob and I will be very happy to deal with your modeling questions after.

So with that, Carrie, let's open up the lines for questions.

(OPERATOR INSTRUCTIONS) Brian Singer from Goldman Sachs.

Good morning.

Going to the operating costs, excluding the one-time production events you talked about in the fourth quarter, Rick, can you go into more specifics on your use of greater amounts of labor -- what that means and why that would not repeat itself going forward in your base case?

Yes.

What I would say is you are going to have periods here where you are going to spend more money in the mine getting ready either for winter or -- a lot of this was in the Upgrader, as we had a number of challenges in the quarter.

So there were a number of one-offs.

I mean, there is no guarantee that we are not going to have some of that on a go-forward basis, so I'm not saying that.

But what I would say is I would not take one quarter and then make that the trend.

And so, listen, we are concerned about it, we are all over this, we will continue to work it.

But we're going to stick with our outlook of $21.50 to $22.50 until we have better data.

But I wouldn't -- this kind of one point on a continuum.

I would not take that as an extrapolation of where we are going.

Great.

On the technology front, any updated thoughts on mobile crushing?

Any new technological developments that you are working on?

That is a great question -- thanks, Brian.

Yes, listen, we've got the first unit of the mobile crushing system in operation.

We've moved it over to a more -- it's a kind of mainline mining location.

As of about the first of the year, it has been operating on a more consistent basis.

A little bit of debugging work that is going on with that, but we've been very pleased.

And we're actually working on putting the second unit on order.

And we expect to have a third one right behind that.

So with those three units, you will see -- I think it's over 50% of our production from the existing mines will move towards this more automated mine system.

So we like what we see -- less energy intensity should drive less manpower.

And the maintenance looks, again, something that will help us out on that.

So quite like that.

On Firebag, we're still continuing to look at all kinds of technology.

The industry in general, I think, is making improvements there.

And the other big piece of technology that we are continuing to look at -- although not ready to pull the trigger on -- the Voyageur application did include approval for a gasifier.

I think that may be the first approval from a regulator on a gasifier in Canada, maybe save the OPTI refined project process, if you will.

Anyway, we are obviously going to be looking quite (technical difficulty) at how is that technology developing, who has the best technology and when that fits in our current plans.

The Voyageur project as we have it outlined right now does not include the gasifier up front, but would be something we will take a look at at a later date.

Those are the three biggest pieces of technology.

The one thing I didn't mention on the call is of course biofuels; that seems to be the hot topic of the moment, given the State of the Union address.

We have the largest ethanol plant in Canada; we have been blending ethanol for a decade.

We do it in our Denver operation as well.

We are looking at a second phase of that ethanol plant in Sarnia and will be looking at other biofuel opportunities, both in Ontario and in Colorado.

It hasn't escaped us; in fact, we'd be one of the lead [steers] on that in Canada for sure.

So working on that front as well.

And follow-up on the mobile crushing.

Based on current gas prices and labor costs, does the mobile crushing actually reduce operating costs once it gets going or does it just reduce the fluctuations in operating costs going forward?

No, it should have a slight reduction.

Again, I'm not sure you're going to see it, because, again, these are going to phase in over a period of time, and you are fighting inflation through that period.

I wouldn't model is a drop in operating costs, but what I would model is our ability to fight inflation should be better than other players who are -- really even the new guys. the new entrants, are still using what by that time, by the time they get started up, will be old technology.

Thank you.

Robert Kessler from Simmons & Company.

Good day, gentlemen.

I had a question on your natural gas business segment.

Just thinking more strategically here, you lost money in the quarter.

I recognize you had some exploration spending or expense; it looked higher than normal there.

But just thinking about the viability of that business segment, recognizing of course you've got the natural hedge there with the Oil Sands use in your Oil Sands segment, but doesn't it need to stand on its own two feet?

Natural gas prices weren't really all that low in the historical context in the fourth quarter.

So just some general thoughts there.

Absolutely, and be glad to touch on that.

The one thing that is different about Suncor is we are definitely a deep foothills kind of frontier player in the Alberta BC kind of corridor.

And we did have a number of well write-offs in the fourth quarter that came through.

We've also had some real successes on that foothills front, much of which will take a period of time, even up to a couple years to tie in.

And so what I would say about the natural gas business is we're taking a long-term view, as we do with all of our businesses.

Absolutely, it has to stand on its own two feet.

We are not a subsidy forum.

But what I would say is behind the scenes, we've had some successful wells.

We do not go out on press release on individual wells.

I watch this quite carefully, and for the long-term -- I'm talking here in the 2010, 2012 timeframe -- we look to be well positioned to bring on new gas.

The trouble with us is access to plants, because again, we're on the western edge of this basin and we're limited by pipeline capacity and plant capacity.

So before we can commit to new plants -- and we've got to have a number of exploration wells in an area to get sufficient volumes to get a new plant built -- and even that will take some time.

So this is going to be -- almost typical Suncor is we go at this in steps.

It does not have a steady, ratable business in a sense that you can't expect us every year to go at the same pace.

Having said that, obviously, we'll continue to watch this business to make sure it does stand on its own and is viable without the strategy piece, which is of course the natural hedge.

Fair enough.

Thank you for your comments.

Brian Dutton from Credit Suisse.

Good morning.

Rick, could you give us a little more definition regarding the turnaround in (indiscernible), very long turnaround.

And as you indicated, it is related to the MCU.

Will we actually be seeing increased capacity coming out of the turnaround?

And if not, what kind of then ramp in capacity would we be looking at into 2008?

I think that is a good question.

And absolutely -- in fact, part of that 260 to 270 on the outlook is an expectation that once we get through the turnaround on Upgrader Number 2 is that we will see increased capacity.

Now we are not calling 350, by the way, but what we would expect is a gentle ramp-up on that.

What I would say again is that the exact time of this isn't clear.

It is set currently at May, but may delay it until late summer/early fall, depending on how far we can get.

This is a combination of making sure the construction is far enough that you don't have too much work in that outage window, because it's a big outage for us.

And you are right, it is a long one.

We are doing obviously the routine maintenance as well as these tie-ins.

That's what makes it such a large amount of work.

We also have a number of small projects in that that will also help us increase our capacity and ability to meet 350,000 barrels a day in that.

So there is a lot in it.

What it should mean, though, is that we shouldn't have to take another major outage until 2010.

So this should -- what we're trying to do is go through this with a fine-tooth comb and then that should give us, on this particular unit, a good three-year run, Brian.

So you wouldn't be then doing any major tie-in activity next winter then?

Not according to plan, no.

Brian, if I can add a point of clarity.

The one thing that we should remember, and I know there is a general thinking that once we have that coker tied in, we're immediately going to have a capacity of 350, and it isn't completely right.

Because although we have the coker tied in, we don't have all the associated utilities tied in.

And that will happen in six to nine months subsequent to the tie-in of the coker.

So we will move up the production level.

It's hard to predict exactly how that will happen in the second half of the year, but we will be restricted until we get all the associated utilities put in place.

I guess my more concern was that from what I hear is you're not going to be doing major commissioning work next winter.

No.

No.

In fact, some of the last work that will be completed on that project is on the sulfur plant, so it's a matter of can we get that sulfur plant before the weather closes in.

And that may be the limiting factor on how hard we can run that, but the cokers -- addition to the coker units themselves, that will be done to a large part whenever the turnover is done, and that will be turned over to operations.

But as John says, we may not be able to run that at full strength because we don't have some of the other utilities and the sulfur plant up and running yet.

Great, thank you.

Paul Cheng from Lehman Brothers.

Good afternoon -- or good morning, guys.

Rick, maybe this is more for Ken.

When I'm looking at your cash flow capital spending roughly 5 to $5.5 billion a year over the next four or five years.

It appears that even at $60 oil that we're probably going to have a little bit more than $1 billion in (indiscernible) this $50 oil is probably more than $2 billion.

Is that a concern?

I mean, you have strong balance sheet obviously that if you want to, you can just raise the debt to support you.

But just want to get maybe a feeling how you guys are looking at that.

Is that something that you may want to raise some equity that you (indiscernible) or based on debt, or that whether you want to slow down the investment a little bit?

How is that whole thing shaking up?

Thanks, Paul.

As I indicated earlier, we are very comfortable with the shape the balance sheet is in right now.

So we are comfortable as we move forward with capital spending for the foreseeable future in that kind of $5 billion plus range, that we can finance that with cash flow as well as using the balance sheet and still maintain a high-quality credit rating.

So we've got lots of financial flexibility, Paul.

So we're looking to do it with additional debt which would be still appropriate relative to the high-quality credit rating and internally generated cash flow.

We are not looking at this point to need equity to fund the growth plans that we have, and we certainly have no intention of slowing down.

And Ken, I know that it's still early stage and you don't have a good number of what the Voyager is going to cost you.

But just roughly speaking, it looked like for the Voyager to work that we need at least $45, $50 oil to get a (indiscernible) cycle, return this -- my number on the ballpark, correct?

The way we're thinking about that, Paul, is you're right, we haven't given the final cost estimate yet and we are working that.

As Rick said, it will come out later this year.

Our expectation at this point is that we will still be able to generate a good return on capital employed, call it 15%, at a long-term sustainable crude price.

Now we haven't actually put a pin in that quite yet, but our belief is that it will certainly be below the kind of peak crude price level that we're seeing and likely in the lower end of that range going forward.

What is that range, Ken?

I'm sorry, I may have missed it.

Did you put down a number?

As I said, Paul, we haven't put a pin in it yet.

As you know, our approach here is once we have the final cost estimates, we have an expectation of what returns are going forward --.

No, but I mean, I guess my question is that what is the long-term price range that you will be using to judge or that -- are you using $40, $50, or --?

We would look at it across a range of crude prices, Paul.

So if you think generally within a crude price range of, I don't know, call it the $40 to $60, we are very comfortable in the return expectation for that project within that crude price range.

Perfect.

Just a final one.

Rick, maybe I missed it, did you mention how many days that the Oil Sands turnaround later in the year going to be?

During that time, is the whole thing going to shut down or it's going to be reduced running?

Okay, yes.

So this is the Upgrader Number 2.

So Upgrader Number 1 will run through that.

I think our current estimate is about 50 days; it's in that range.

Listen, we're still in the early days of that.

So when we get down to the last 30, 60 days before that, we will have a much better estimate, but it's something in that range.

Paul, just back on your prior question to Ken, the only thing I would add to that is at least in our expectation still is that we will maintain in a post-Voyager world our position of being a low-cost operator and the lowest cost capital in terms of incremental capital investments in this business.

So I take your question around crude oil prices, and that is a very important issue.

But just know, we're not giving up our low-cost position on installed capital or operating costs for anything.

Okay, very good.

Thank you.

Andrew Fairbanks from Merrill Lynch.

Good morning, guys.

Rick, I had a question around the sulfurization for Voyager as you look at finalizing the cost estimates there in the process units.

What are your latest thoughts on the value of the sulfurizing at Fort McMurray versus trying to save the capital and let that happen at the buyers' refineries?

You are talking really about how much hydrotreating we do.

We are committed on Voyager.

The horse has left the gate, so to speak, in terms of certainly on Phase II being a sweet upgrading asset.

The Phase II of that will produce more sour product.

I still like taking a look at that.

I mean we take a look at it on a constant basis, not only with our own two refineries but with refinery customers as well.

Our conclusion on the Voyager look was that because of the size of this, you just cannot put that much sour into the market without degradating the market considerably.

So our view is the less risky route is to go ahead and put that capital in Fort McMurray.

I wouldn't say on a go-forward basis in the future that is a given at all, and we're continuing to look for opportunities either with our customers or with assets that we may look at where we can, again, diversify that hydrotreating out of Fort McMurray to other places.

Thanks.

(OPERATOR INSTRUCTIONS) Robert Plexman from CIBC World Markets.

Hi, Rick.

Alberta has a new premier who said he wants to review the Oil Sands fiscal regime.

Now looking at Suncor, you're somewhat insulated.

You're paying the 25% net profit interest and I guess paying cash taxes this year.

But how are you reacting to these overtures in Alberta?

That is a good question.

I think we are all sitting here waiting to see exactly what this government does in this review.

As I understand it, this review is going to take about seven to nine months, somewhere in that range.

What I like about it is they are going to take a real considered view.

I think if you look at it, one of the arguments I would make is that they've gotten a lot of their money upfront.

If you look at these land sales on oil sands leases, on the carbonate leases, on conventional leases, they've made a good amount of money upfront.

And I think the people who really understand this in detail understand it.

They also know they need a very stable regime to continue to see this advance.

That doesn't mean that there won't be some adjustments.

I know one of the hot points is this 1% royalty until payout.

Remember, that is not a forgiveness of royalty; it's just a delay of royalty.

The government gets their money; it's just in a different time period.

And you are right, most of the players are already in a 25 -- the established players are all in a 25% royalty payout already.

If they make some changes in that area, I don't see that it's a huge impact to us.

We've got to see the details.

The devil's in the details.

But I think also it's a little bit hard for the government to make massive changes when they've taken the money for these leases upfront and continue to take it upfront as people pay for these leases in a stable royalty regime.

So I think the government's got to do what it's got to do.

It's got to represent the people who actually own the resources.

I wouldn't want to short-circuit that, but I think they've got to take into account all of that.

And if I can ask you another one, Suncor is embarking on the Voyager.

Can you tell us if the quality of the mining and in-situ leases varies very much from the existing operations as you build capacity up to that 500,000 barrel a day level?

I'm just wondering what things like bitumen saturation and other factors that might impact unit costs in the future.

We don't see a real change in that.

I mean the feed to Voyager is going to be large SAGD, it's largely Firebag.

And the Voyager project includes stages 3 and 4 of Firebag, and that work is actually underway in terms of engineering and purchase of long-lead items.

And actually, the site has actually been cleared already for both those stages.

It's going to be predominantly that, so you've got to take into account that that may be a slightly higher energy cost number.

But in terms of quality of crude, especially once you get to this size and you've got feeds from two mines and four stages of Firebag plus the expansion of Firebag, you're not going to see a great deal of variability to that overall.

As you know, the other thing that we've got is a couple of different new mine leases that we're looking at where that fits in the overall plan.

No announcements yet, but just know we're working on that as well.

If we were to open a new mine, it would be based on completely different technology than we're using in the current operation.

Thanks, Rick.

(OPERATOR INSTRUCTIONS) Kate Lucas from JPMorgan.

Good afternoon.

I have a quick question around the integration between your Oil Sands operations and your downstream operations, both in the past quarter and then also as you look ahead.

What do you look as increasing integration between the two business units?

I think that is a good question.

Let me just take Denver for an example.

We currently run about 15,000 barrels a day, and that refinery is running between 90,000 and 100,000 barrels a day.

Over time, we expect to get that capacity up with some capital additions, and I'm not talking about big capital.

These are small capital issues.

But it would run about 15,000 barrels a day of sour.

That is much higher than we had made the assumption when we purchased those assets.

We are not running an awful lot of sweet through that because the local sweet crude supply in the Colorado/Wyoming area is quite strong, and we're able to fill up from local sources.

But we could run an additional 20,000 to 30,000 barrels a day of sweet if the opportunity came.

The issue is that the local crudes really are being run instead of sweet from Alberta.

The Sarnia refinery is a different case.

That refinery has always been designed as a light sweet crude oil, and they would run 60% to 70% of our sweet product through that refinery.

As we get this capital investment completed here in the third quarter, then about 60% to 70% of that throughput will be sour product, which will mean that that refinery will have its feedstock costs lowered by a considerable amount.

If you'd looked at that in 2006, if we had converted that refinery already by then, it would have made a difference of kind of in the $4 to $5 range in terms of reduction of feedstock cost.

So all of that ties in.

So if you take a look at your capacity to run, you don't run this, but it's in the 50,000 to 60,000 barrels a day at both refineries. 100,000 barrels a day of our own product could move through there.

It doesn't always because sometimes we get higher prices by selling outside than just running it through our own plant.

Seasonality is something we keep.

If you look at the profit in the marketing, you'll see it starting to increase this year and I would expect that to continue.

And part of that is our ability to look at and trade these crudes differently than other people.

Okay, thanks very much.

(OPERATOR INSTRUCTIONS) There are no further questions registered at this time.

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

Great.

Thanks, Carrie.

And thanks, everyone, for listening in.

Of course, if you have any further questions, myself and Brenda Cherry and Rob Dawson will be more than happy to help you.

So thanks for listening in and I'm sure we will be talking to everybody soon.

Thank you.

The conference has now ended.

Please disconnect your lines at this time.

Thank you for your participation and have a nice day.