Suncor Energy Inc (SU) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the Suncor Energy, Inc.

second quarter results conference call.

At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question-and-answer session.

Instructions will be provided at that time for you to queue up for questions.

If anyone has any difficulties during the conference, please press star followed by the 0 for operator assistance at any time.

I would like to remind everyone that this conference call is being recorded on Thursday, July 26, 2007, at 10:00 am Eastern Time.

I will now turn the conference over to John Rogers, VP of Investor Relations.

Please go ahead, sir.

Great.

Thanks, Maria.

Good morning, everyone, and thanks for listening in to our second quarter conference call.

I have with me in the room the usual suspects: Rick George, our President and CEO; Ken Alley, our CFO; Brenda Cherry, our VP Controller; and [Greg Freeden], from our Controller's department.

We're going to follow the normal format of Rick giving you a bit of an overview of his thoughts on the quarter and a few other comments, Ken giving a very brief outline in terms of the financial implications of the quarter, and then I'll give a short look at our outlook, and then we'll open it up for your strategic questions.

So why don't I move it over to Rick and start with his opening comments.

Thanks, John, and good morning, everyone.

I'm delighted to be here to talk about our second quarter earnings and cash flow; or really I guess Ken is going to talk mostly about that.

But you know what I think where I would position this quarter is very solid.

I know the headlines in the news may be the fact that earnings are down quarter-over-quarter, but this was a quarter that was very important for us in terms of positioning ourselves for the future.

The quarter was affected by the planned tie-in turnaround at the oil sands, and that has gone very well.

In fact, the two highlights I would point out for the quarter were that we did complete -- well, we actually completed here in July the turnaround at oil sands -- big piece of work.

Some found work, and I'm very proud of the Suncor oil sands employees; it was a big undertaking.

And that really puts part of the risk of the year behind us.

The other thing was the very strong quarter in our downstream businesses.

Both Sarnia and Denver had record volumes, very good cost control, very good reliability and, obviously, very strong results, so we're very proud of that in the quarter as well.

The tie-in at the oil sands, which is kind of a highlight of the quarter, was completed this past week and went very well.

We are wrapping up as we speak.

Things are in pretty good shape.

We do have the diesel hydro-treater, which is the last unit up, and it'll be out by Monday.

Overall, a very solid tie-in work.

And this work is important because it will enable us to increase volumes up to the 350,000 barrels a day by the middle of 2008, so a very important piece of work.

And it's also important, I think, to point out that the MCU project is the cheapest source of installed capacity in the oil sands industry, so it's one of those incremental projects that will not only just add volumes for us, but also will continue to position us as a low-cost -- both on install capacity and a lowest-cost operator as well.

So we're looking forward to that.

Now it will come on in stages over the next, really, 12 months.

We're calling for the middle of 2008 in terms of capacity of 350,000 barrels a day.

But we're very proud about where we stand on that project overall.

I think when we set up our major projects group about five years ago and we started the execution of these projects, we're starting to reap some of the benefits of those actions and of really building that human capacity and expert capacity in our company overall.

You'll notice in the outlook for the rest of this year, the rest of 2007, we have not changed our guidance for oil sands production and cost.

That will mean we'll have to have a very good last six months particularly for oil sands, and that is going to be very important to us.

We would expect to average in the range of 280,000 barrels a day in the second half, with cash costs in the $22-a-barrel kind of range.

That is aggressive, but I feel like we have a real opportunity to make that happen.

So stay tuned, but that's where we're sticking for the time being and are relatively optimistic that we can have a great run here in the last five and a half months of the year.

The downstream had, obviously, a very strong second quarter -- good volumes, good performance.

Very proud of what they've done as well.

This integration strategy of ours, which we kind of kicked off in the industry up here in Canada, is paying huge dividends for us, and we look forward to continuing solid performance in that downstream business.

We continue -- and I know this will be in some of the questions, no doubt.

We continue to make excellent progress on our Voyager project.

I'm -- well, obviously, we're still doing a lot of work on the engineering side and the definition and also purchasing a lot of equipment and long-lead items.

I can tell you that the economics for Voyager look fine in my book, and we'll be looking forward to getting final board approval and to be in a position to discuss the costs, as well as the benefits of this project, before year-end.

Now, just to kind of give you a recap, and I think it's on page 11 of the quarterly, but we're making great progress on our other project work that we have underway.

The MCU project, which I talked about before, which gets us up to 350,000 barrels a day, is about 85% complete and is on time and on budget.

The Millennium NAFTA unit -- it is a smaller project, in the $600 million-plus range -- is about 8% complete on construction, over 70% complete on engineering and, again, is on time and on budget.

The scheduled completion for that is the second quarter of 2009.

The Steepbank extraction plant is about 10% complete.

Again, engineering not quite 70% complete and it's, again, on time and on budget.

The Firebag cogeneration and expansion project is about 95% complete, and we will be bringing that on in the third quarter of this year, again, on time and on budget.

The similar theme here: you're seeing consistency.

At Sarnia, we do have an 84-day turnaround at the Sarnia plant here starting September 1st.

Now, the refinery will be only partially down, so not the entire plant, and that's where we finish up the tie-in of the diesel desulferization plant and the integration with the sour product coming out of our oil sands plant.

That project looks like it's in a very good position to get that done, and we should be able to bring that totally on here very late in 2007, and in 2008, what we'll enjoy as a much lower feedstock cost into that refinery, which again should help margins, particularly as we head into 2008.

So listen, the project work is going well.

The Voyager project is kind of where we expected it to be at this particular time.

We'll get back to you on that before year-end.

But everything is really kind of on track.

A solid second quarter given the turnaround that we had planned, and so work here at Suncor continues on the track that we've laid out over the last year plus time.

So with that, Ken, I'll turn it over to you.

Good.

Thank you, Rick, and good morning, everyone.

As Rick said, we are pleased to report solid earnings and cash flow for the quarter considering the plan to turnaround the oil sands.

That strong financial performance has left the balance sheet in very good shape.

Net debt at the end of the quarter stands at about $2.2 billion, up a little bit from the end of last year, the very low levels of last year, as we expected as we push through a completion of the MCU expansion and move forward with the Voyager expansion project.

So overall, very pleased with how the balance sheet looks right now.

Capital spending came in line with expectations, and we're still expecting capital to be in about the $5.3 billion range for the year.

We didn't add to our hedge positions in the quarter, and just a little bit on the hedge strategy, we continue to evaluate the pre-oil markets for opportunities to buy what we call inexpensive insurance for the balance sheet going forward.

For us, that means if we see opportunities to lock in a high floor for crude price, but not give away much of the upside, because we, as others, continue to see a very positive crude oil environment going forward, and we don't want to give away a lot of the upside to protect our strong balance sheet.

Having said that, we'll continue to evaluate the market, and we would look to hedge up to 30% of production going forward, if we could see those kinds of opportunities.

So with that, I think I'll pass it over to you, John.

Great.

Thanks, Ken.

Let me give you a quick update in terms of the outlook.

It is, of course, in the quarterly release, but I'll try to put a little color around it for you.

The outlook for production, one of the main pieces in here, of 255,000 to 265,000 -- as Rick mentioned, we need to average just slightly over 280,000 barrels a day for the final six months of the year.

Now I will caution you, we will put out the July numbers in the next little while and, clearly, with the MCU just starting to come back in the last 10 days of the month, we won't be in that 280,000 range.

It will be considerably less than that, so August through December is beginning to be a good marker in terms of where we're looking for that production to come from.

So again, just to caution on the July production, simply because the MCU is coming through there.

You see the mix, and that's just to reflect historically where we've been to the end of the six months and where we expect to be to the end of the year.

I think there's some really good news in terms of the realizations.

We had predicted a much wider realization or differential on our crude than we're actually experiencing to date and what we're going to experience to the end of the year, so we're now predicting somewhere in the range of 350 to 450, even though at the end of the second quarter, we're only at about $1.80 off of where WTI is.

Cash operating costs to a large extent goes hand-in-hand with production volume, so we are looking at a $22 cash cost to the end -- for the six months to the end of the year, so that's the other marker that we're looking and working very hard at to make sure that we're beginning to get the costs in line there.

Natural gas production volumes of 215 to 220.

We are looking at how to build in those volumes in the second half of the year, and hopefully those will come through for us.

The only piece of modeling data that I'd like to deal with now is simply on the stock-based compensation.

Many of you have asked for that particular number and the charge that we have to each of the divisions, so if you have your pens ready, I'm going to give that to you.

Oil sands: in the second quarter, the charge was $20 million; after tax was $17 million.

For natural gas, it was $1 million before tax and $1 million after.

R&M was $7 million before and $6 million after.

And the corporate charges are $19 million before and $16 million after.

So that's all we were going to do with -- at least for this stage, in terms of the modeling questions.

Maria, what we'd like to do is open the phone lines for everyone's questions for Rick and Ken, strategic questions.

And of course, Brenda and Greg and I will be available right after the conference call, and we'll be more -- more easily deal with your modeling questions and will be happy to take whatever time is necessary then.

So Maria, if we could open the lines now for questions.

Thank you.

Ladies and gentlemen, we will now conduct a question-and-answer session.

(OPERATOR INSTRUCTIONS) One moment, please, for your first question.

Your first question comes from Brian Dutton from Credit Suisse.

Please go ahead.

Yes, good morning.

Rick, I was wondering if you could discuss your natural gas strategy.

Looking at the costs in the division, they seem to be rising.

The expiration charges seem to be quite high.

Can you give us some insight as to what you're thinking there?

And have you considered buying assets as opposed to going out and drilling and exploring?

Brian, thanks for that question, and I think you're spot on to ask it, by the way.

So what makes Suncor a little bit unusual in this natural gas business -- and it's a strategy philosophy point -- is although gas today is very important for us, the gas kind of balance and our future gas production is equally important to us.

We have particularly taken on a strategy of deep foothill plays in particular -- number one, less competition, but also bigger longer-term reserves usually come with that.

Now, we experienced here in the quarter a couple of big well write-downs, and that kind of comes hand-in-hand with that strategy.

You kind ofwin big, but lose big as well when you drill these dry holes, and so you're going to see a little bit more volatility to that.

The other thing that we also see is much more proved undeveloped reserves, because these deep foothill plays don't always have immediate access to the plant.

And I know that on a normal E&P modeling base, you'd say, "Oh, geez, well, you shouldn't drill those until you have the plant availability." For Suncor, it's a little bit of a different issue.

What we're trying to do is to build long-term reserves so we have that natural hedge there.

Now, having said all of that, Brian, we will be undertaking another look at this in terms of what this looks like on a strategy basis.

I think the world is changing here a little bit in this natural gas business in the Western Sedimentary Basin.

First of all, the issue around the unit trust and the federal government's actions there means probably fewer buyers of particularly big assets on a go-forward basis, so that may open that opportunity for acquisitions.

I would also say we're probably at the plateau.

I think we'll be in a real extended plateau of the Western Sedimentary Basin.

And in that, there may be some different strategies and different moves that we can take a look at in terms of long-term reserves and long-term kind of a hedge position on natural gas.

I would say all that is in play.

And a lot of that's changed over the last nine months, and so very much on point -- what I'd say is hang with us; we'll kind of be out probably the early part of next year and be able to talk in a little bit more detail about some of the changes in strategy we have in that business.

Are there any implications for your plans here on gasification?

Not really.

We continue to look at gasification as the long-term answer, and we continue to look at the technology around that.

And again, there are a number of players, as you know, who are involved in gasification, and some of the leading technology providers, which include Shell, GE, Conoco and a number of other new kind of technologies coming along.

What I would say is I want to really kind of see those technologies work on a -- new technologies work on a pilot-plan scale before we undertake it, and so here's one area that I don't necessarily feel like we have to be the absolute leader.

It is important to us, but not absolutely dead central to the oil sands strategy.

Being a near-term follower on that technology may be our best position.

Okay, thank you very much.

Thanks, Brian.

Your next question comes from Martin Molyneaux from FirstEnergy Capital Corp.

Please go ahead with your question.

Gentlemen, you don't segment out the Colorado versus Ontario refining stuff anymore.

Can you just give us a sense of who did relatively better within that segment?

Thanks, Martin.

Yes, we don't, and that was -- we combined that when we did the organizational change earlier this year.

They both had very strong quarters.

Obviously, the margins in Colorado have been holding up very, very well, and I think we've seen that through the last few quarters.

But not to dismiss Ontario; it did pretty well also.

Both of them contributed very strongly to this particular quarter, and if we look at where the margins are, the refining margins on both sectors for this quarter to date, they're not quite as strong, but they're still pretty darn strong, so we continue to be pretty happy with both of those markets and where they're contributing.

So the Colorado margins have been squeezed like East Coast's margins have been squeezed, also?

No, not as badly, not as badly as the East Coast.

As you know, the Colorado market tends to be kind of a market on its own, if you like, and there is a shortage of supply in that market, so it continues to be a little stronger than the East Coast.

Okay.

Rick, in your opening comments, you talked about some of the long lead-time items for Voyager being ordered up now.

Can you give us a sense of what kind of magnitude we're talking about?

Is it $1 billion of preorders, or is it more than that?

What actually does that mean from a dollar commitment point of view?

Yes, Martin, I can at least outline that for you.

So, yes, it would be well in excess of $1 billion, and you've got to remember, this ties in with Firebag stages 3 through 6, which is -- Firebag stage 3 is really underway.

The piling has already started, and a lot of the modulars are actually being built already through to the upgrader, and I would say a lot of the longest-term lead items have already been ordered and are on track.

The reason that we haven't announced a cost number yet is we want to get it down to where we've got a certain amount of certainty, and so when we come back to it at the end of this year, this will be much further along than other companies have announced in terms of completeness on engineering.

We'll have virtually all of the major pieces of equipment on order, and a certain percent of the bulks as well.

We will be, for example, starting piling on the base site.

The base site for the upgrader is actually already cleared.

We'll be starting piling there and deep undergrounds in the next month.

But what we want to do is to make sure that we get in that range so that we're not updating costs as we go through the project.

So that's why you've seen the kind of discipline for us, and that's why you see on the current projects we have -- why we're on schedule and on budget is don't announce early numbers, make sure you get engineering done, get your major pieces of equipment bought, and then, to be honest with you, the variability you have is around field construction costs and productivity, and those are things that we can certainly narrow the range in on the uncertainty.

And so a little different approach than other players, who have announced numbers very early, having done only preliminary engineering without purchasing equipment.

When we come out in November, we'll be showing you sites of us already driving piles deep underground and where that fits exactly, so that'll kind of give you an indication that we're pretty far along the path here.

Great.

One final question.

We've got a bunch of labor issues going on in and around the Fort McMurray area.

Any thoughts on how all this is going to play out?

Yes.

Well, I'm remaining an optimist.

I will tell you about that.

Listen, any labor disruption -- for those of you that are on the phone call who don't know, this deals with the construction trades only.

This is not our in-house -- our union employees who are the operators of our plant.

This deals with the construction craft, so any strike is bad news.

I mean, I would start there.

We do feel like we have a very good relationship with our contractors and with the people who work on our sites.

It's unfortunate that we've come around to this.

What is important to remember with regard to the building trades is we do not have a direct relationship with the unions.

That is done by our contractors; that's done by the Jacob's, the Bantrel's of this industry, and so it's really their lead on this that it's happening.

There is a chance that we will see some strikes.

I think from a Suncor viewpoint, thank goodness we're through the turnaround, which was our big event at the oil sands plant.

If we do have strikes on the construction site, it may delay a couple of those projects I outlined earlier, but again, you'll not see a huge, huge impact here if -- unless the strike goes on for a considerable length of time.

Great.

Thank you very much.

Thank you.

Thanks, Martin.

Your next question comes from Paul Sankey from Deutsche Bank.

Please go ahead with your question.

Hi, guys.

Could you just remind us about your strategy for U.S.

refining?

Any observations you've got on the market for assets down there?

Any other observations would be interesting to me.

Thank you.

Okay, Paul.

Well, thanks for that.

We continue to look at all refining assets that are in our orbit that we can get to directly from our oil sands plant.

We look at all of those assets, both in Canada and the U.S., I will tell you.

We, obviously, have seen some huge numbers in terms of costs of purchasing some of these assets.

The last number of refineries bought -- just very large ticket items, kind of beyond the range that we would be willing to pay.

And you look at our two Denver acquisitions -- remember, we bought those two Denver refineries for roughly $200 million U.S., and that has paid off handsomely.

And although we would like to have more refining assets, I think we're going to wait until they get to the right value range for us.

Now, we have seen refined margins, as mentioned by Martin, starting to taper off in some parts of the U.S.

There will be another side of this refining cycle.

We'll be very patient here, and we're not in a hurry.

Those of you that have been around Suncor for a long time, remember, I talked about two or three years before we picked up Denver that we were looking at assets, found the right thing, worked out fine for us.

What we don't do is get in a panic mode.

Now remember, we're close to 200,000 barrels a day of refining capacity as we speak, and even as we go to 500,000 barrels a day of production capacity at oil sands, it's still not a really bad mix.

Having said that, I would take more refining assets if I could find them at the right price.

That's interesting.

Thanks a lot.

I guess it's related and, again, I guess you're kind of reminding us given you've been pretty consistent on this, but can you talk a little bit about the U.S.

dollar versus the Canadian dollar and how you think about that?

I mean, obviously, we're in volatile times, but it would just be interesting to know how you're seeing it, the very latest update, if you like.

Hi, Paul, it's Ken Alley here.

I mean, I think as everyone knows, I mean, most of our revenue is denominated in U.S.

dollars or related to U.S.

dollars, so clearly we have a sensitivity in the exchange rate.

I guess what we've learned over the last couple of years is if we had a forecast, we probably would have been trading it.

But there is a relation between the Canadian dollar at commodity prices and particularly crude prices, so what we've seen is a strengthening dollar.

We've also, obviously, seen a strengthening crude price.

So I mean, the kind of currency exchange rate -- it's not totally correlated one-to-one, but we do think there's a relationship, so I mean, we think with the higher commodity prices, we expect to see a stronger dollar.

We plan for a stronger dollar.

We never really forecast or expect it in the future to have a $0.70, $0.75 dollar, so we kind of accept the currency for what it is.

It's hard to forecast where it's going, going forward, but we do think that it is related to the commodity price.

And for us, the biggest sensitivity continues to be on the crude price, not on the currency.

Yes, it's interesting that you've got this returns target, which is very unusual nowadays with most all else having long since abandoned it, but you're sticking with $35 U.S.

WTI for a $0.15 return, and I guess you're on budget from that.

And that is through the MCU expansion, Paul, and we'll update that as we update the cost for Voyager as we continue to grow the business going forward.

Will your view on the dollar affect that at all, do you think, or are you still pretty strong -- you're going to stick with that kind of thing?

I mean, as I say, what we do is we look at what crude price, and what we'll do is we'll update our expectations for returns as we move through the Voyager expansion with the crude price and a currency that we think is appropriate for that crude price expectation.

Yes, I understand.

Okay.

Because we tend to adjust the currency with the crude price.

Sure, I get it.

Okay, thanks a lot, gentlemen.

I'll leave it there.

Thank you.

Thanks, Paul.

(OPERATOR INSTRUCTIONS) Your next question comes from Robert Plexman from CIBC World Markets.

Please go ahead.

Good morning.

Rick, I wanted to ask you about Suncor's strategy and whether you find yourself at all second-guessing the strategy.

I mean, Suncor is quite unique in its capability to generate sustainable production growth, but you can't do that and generate free cash flow, which a lot of investors are looking for and would like to see.

So do you spend much time trying to reconcile those two issues?

I think it's a great question.

Listen, we continue to look at our strategy and do reviews.

What I would say is the kind of rapid growth model that we've seen out of Suncor for the last decade -- and we'll see out of it over the next four years for sure -- what I think most of our shareholders are pretty comfortable with, as long as we can grow this company at the kind of rate that we grow, which, by the way, is one of the fastest growing oil companies certainly in the public market sector, and that's not at risk in the sense the plans are pretty well laid out.

It's hard to also, then, necessarily have the cash flow to increase either share buybacks or dividends.

I think when I talk to shareholders, most of them are very comfortable with that position as long as we can get an adequate return on capital, and we feel that we can, and we can deliver on that, and so I think as long as we're in that position.

Now, once we get Voyager done, which is a 2011, 2012 event, then we're working very hard on where we go from there, and one of the options always is return more of that money back to your shareholders or continue to grow, and so we're definitely going to take a look at that.

What I feel like, Robert, is we're pretty well locked and loaded through 2011, 2012.

After that, then we're a lot more open to do we continue to grow at this rate or do we continue to grow at a lesser rate, and we still see growth, but kind of at what rate, and then what other opportunities that presents itself in terms of shareholder value.

Okay, thank you.

Robert, one thing that I think you also have to look at is where a corporation is in kind of its life, and when we think back to the period of Millennium -- and this also talks a bit about why our hedging strategy is where it is today -- during the period of Millennium, we were literally spending two times our cash flow, so the amount of free cash flow available was very small.

If you look at the current expansion and this expansion going through 2012 -- of course, depending on commodity prices, but we're more or less spending our cash flow and utilizing our balance sheet a little bit, so we've kind of gone from spending two times our cash flow to basically being in line, and in 2012, as the company becomes more mature, you have more free cash flow, and then you have a nice situation where you could grow and you could have a pretty good return back to the shareholders.

So we certainly realize and understand and are sympathetic with shareholders asking to have more free cash returned to them, but they're also, as Rick mentioned, very supportive of the strategy right now and where Suncor is in its life cycle.

Okay, thanks, John.

Your next question comes from Doug Leggate from Citigroup.

Please go ahead with your question.

Thanks.

Good morning, guys.

Apologies -- I was a little late getting on the call, so I don't know if you've already covered this issue, but it kind of relates to the previous question.

As you look out beyond Voyager and you look at the asset base that you obviously have and the NPV or the way to optimize the NPV of that asset, assuming that you found some combination of incremental growth projects, it's probably unlikely that the full raft of opportunities really feeds that incremental growth.

I guess my question is, where are you on the idea of perhaps starting to pare back on some of your asset exposure, perhaps sell down some of your assets and maybe realize value that way balanced against how you try and optimize the NPV coming out of those very long-life assets?

Doug, it's Rick George here.

Again, thanks for that question, and I do get that question more often than you might expect.

So listen, I think what cuts Suncor really differently than any of the other companies, certainly of our size on a worldwide basis, is we have the reserves.

So these are high quality assets; they're not fringe kind of leases.

We have, obviously, very long life reserves.

And you know what?

I like that position, and to monetize those early to me seems like a very short-range strategy and would kind of then move us down with a lot of other people.

What our forte is, is the leading guys in the oil sands business, the lowest install capacity on a capital basis and lowest operating cost position.

Those are our hills to die for.

And by the way, if you monetize -- by the way, if you monetize, say, some oil sands leases, then you're just setting up more people to compete with you in what is your heart business, so to me, number one, I don't know that these days -- I mean, oil sands leases values have dropped recently, but to be honest with you, we're more of a buyer of long-term assets than we are a seller.

And again, I think it's a unique position.

If you look worldwide, what is the industry clamoring for?

It's clamoring for access to reserves that they can produce.

And I don't need to tell you what's going on in Russia, Venezuela, West Africa or the Middle East.

And the great thing about Canada is you've got access to them.

Now, they're heavy, but at least you've got access and market access as well.

Maybe a follow-on, Rick, again, I apologize if this has already been answered in detail, but Paul's earlier question about refining exposure and so on -- I kind of have a related question.

If the strategy remains, then, to hold onto the assets longer-term, but perhaps find a way of returning cash to shareholders, perhaps the Canadian upgrading strategy is the swing fighter.

How do you feel about the prospect -- some of the kinds of deals that have been talked about recently, the Encana/Conoco deal, the opportunity of maybe sending some of the incremental production work down the line into the lower 48?

Is that something that's on your mind?

Well, absolutely.

I mean, listen, I think that there are opportunities for that kind of transaction, and we continue to talk to all the players.

There's not a single player in here that is looking at that equation.

I think what's been really hard about these kinds of deals and why you haven't seen more of them done is the valuations.

And again, as I talked about earlier, we're kind of a very patient buyer of downstream assets.

I still think long-term, there's going to be more value that accrued to the player who has reserves, that has refineries.

Now, I could be dead wrong, but we're going to solve this refining problem, and you're going to see expansions, but I'm not sure we're going to solve this access to resource issue in the near term.

So with that in mind, and that is a defined strategy and kind of -- I don't see that changing on my watch kind of an issue; then it's a valuation issue.

If you have a downstream player that wants to do a deal but values his refineries at the last sets of purchase prices that the independent refineries have gone for, then that's a hard deal for us to cut, because -- maybe for desperate players, but we're not in the desperate category.

Great.

I'll leave it there.

Thanks very much.

Your next question comes from Tom Brinkmann from Davenport.

Please go ahead with your question.

Good morning.

I just wanted to know a little bit more color about the construction going on the Firebag sites, both the cogen plant and expansion in-situ operations, sort of from the standpoint of government approvals, and talk about delays possible with any kind of labor strife with the construction unions, but a little about with getting approvals from Alberta Energy and other government sources.

Thanks, Tom.

It's John.

We actually have the approval for all four phases that we're currently working on in terms of Firebag.

Firebag 3 is the one we're working on currently, and that's scheduled to come on early in 2009, and then Firebag 4 will be right after that, and that'll be early 2010.

So we actually have the approvals that we need and are in the process of that construction right now.

With the cogen facility that we've put in and some of the de-bottlenecking that we've done, we look like we probably could get up somewhere in the neighborhood of 80,000 to 90,000 barrels a day and that's sort of phase one and two, and then phase three will be a 65,000-barrel-a-day operation.

As Rick mentioned in his comments, the construction on the Firebag facility is going quite well, and we're right on track with that, so we don't have any major concerns at the moment.

Okay.

I think, just one slight thing on that is, that we are still waiting for one approval on 4 through 6.

We do not anticipate a problem.

The other thing on the permit process is the upgrader, the Voyager upgrader -- all permits are in, and so that is not a constraint.

Even some of our competitors' announcements -- you've got to remember, some of those don't even have regulatory approvals yet.

We've had that in hand for a period of time.

So we don't see a lot of roadblocks.

This construction -- you also raised the issue of the construction labor; I covered that earlier, but again, we hope that -- first of all, we hope there is no strike.

If there is one, we hope it's not long.

Right now, we're in probably a pretty good position.

We have a number of these smaller projects and Voyager itself is just in the starting stages of construction, so we're hoping not -- that we don't have a huge impact.

Again, time will tell on that.

Uh-huh.

And as far as the timing of construction, when it occurs -- I know there are some things you have to work around up there in Alberta, right, in terms of clearing land and all, I think even with environmental concerns and bird migratory patterns, but you're confident, apparently, that you can work around those schedules and be able to build out all the different facilities you need, and not just in terms of the cogen plant and in-situ operations, but other roads and things around the site?

We don't see any issues on that, anything on that, right, through Voyager.

Again, I think my view on that would be we're certainly set through the 2011-2012 growth, the 500,000 to 550,000 barrels a day.

Now, what I would quickly say is after that, all bets are off, because I think, number one, we lose accelerated depreciation right off, so the federal government change.

We'll have to look and see what the royalty changes come with provincial government and how all that plays out, but what I would say is that it's not automatic that we would go into a fourth upgrader at Fort McMurray close to 2012.

That's part of the strategy that we're looking at currently.

Okay, thank you very much.

Thanks, Tom.

Mr.

Rogers, there are no further questions at this time.

Please continue.

Great.

Well, thanks, Maria, and once again, thanks, everyone, for listening in to our conference call.

Again, if you have any detailed modeling questions, Greg and Brenda and I will be around, and we'll be happy to spend whatever time we need with you to answer your questions.

So once again, thanks for listening in to our second quarter conference call, and everyone have a good day.

Thanks, bye.

Ladies and gentlemen, this concludes the conference call for today.

Thank you for your participation, and you may now disconnect your lines.