Suncor Energy Inc (SU) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the Suncor third-quarter results conference call.

(Operator Instructions).

I would like to remind everyone that this conference call is being recorded on Friday, November 6, 2009, at 9.30 AM Eastern time, and we'll now turn the conference over to Mr.

John Rogers, VP Investor Relations.

Please go ahead, sir.

Great, thank you, and good morning, everyone.

Thanks for listening in to our third-quarter conference call.

I have in the room with me Rick George, our President and CEO, Steve Williams, our Chief Operating Officer; Bart Demosky, our CFO; Maureen Cormier, our VP Controller; [Jolene Gilnaud], who works in the Controller's Department; and Helen Chan, who works with me in investor relations.

We're going to follow the regular format.

Rick is going to give you a bit of an overview in terms of how he was thinking about the quarter.

Bart will give you a bit of a sense in terms of financially how we felt the quarter turned out.

I'll give you a bit of an update in terms of our outlook for the fourth quarter, and then we'll open it up to your strategic Q&A questions.

So, why don't we turn it right over to Rick and go with that?

Thanks, John, and great to be with you this morning, and looking forward to your questions and having a bit of a dialogue.

Obviously, this has been a very busy year.

So, as you know, we worked on this merger heading into March, which we announced the end of March.

Held our shareholders' meeting, got our vote in in early June.

And now, we are some 13 or 14 weeks since we closed this merger on August 1.

But obviously, a big milestone for this Company and a big change for where we are going overall.

So I thought what I would do is update you on operations, update you on the merger, and then we'll get a chance to talk about strategy as well.

So, that's kind of where I'm going with my discussion.

So, listen, from a financial reporting perspective, and Bart is going to take you through that, but a pretty messy quarter when you combine three months of Suncor and two months of Petro-Canada, legacy Petro-Canada assets.

And we also in the period had significant planned maintenance going on as well.

First of all, our vacuum tower maintenance, or our vacuum tower upgrader number one in the oil sands was down.

It was completed -- the plant maintenance was completed ahead of schedule.

We also had significant planned maintenance on Buzzard and Triton in the North Sea and on Terra Nova and White Rose on the East Coast, all of which, by the way, are now complete, and we would expect to have much better fourth quarter in terms of our planned maintenance schedule.

The fourth quarter, obviously, will be much better in terms of full production, less turnarounds.

Our normalized production rate is roughly 700,000 barrels a day.

But that will, over time here, be reduced by some dispositions, which I'm going to talk about here in just a moment.

So overall right now, here's what it feels like from an operational viewpoint, and Steve is sitting here with me is, listen, what we can control is being controlled.

We feel in very good shape, especially given kind of a year in which you're going through a merger as we've taken on.

The work that Steve has led around operational excellence has really taken hold.

Our oil sands operation for the quarter averaged 305,000 barrels a day, and that is not without some challenges, and included a turnaround of the vacuum tower, which, by the way, was on costs and, as I mentioned, ahead of schedule.

So even in October, you would've noticed an announcement that we averaged 307,000 barrels a day, despite a problem with the U2 charge pump.

So what we're seeing is much better controllables, we're seeing much more ability to control our own destiny, much more flexibility around delivering on our set of goals.

And real kudos to the oil sands group and to Steve and how the whole operational excellence is taking hold.

In situ, MacKay River, we have both planned and some unplanned maintenance at Firebag.

We've had a couple of problems with the steam [gin].

So the average runrate for the quarter from total in situ, from the two operations, is about 80,000 barrels a day.

Our expectation is that we'll hit 90,000 barrels a day heading into 2010, and then we'll be ramping up from there.

And we'll be talking about that a little bit later on.

We did have two unplanned incidents at the Edmonton refinery in the third quarter, and part of that is really a result of the amount of capital that's been put in that refinery over the last three years.

There's been just over CAD3 billion of capital put in that refinery.

And now that that spending is done, this is about getting back to operational excellence, and I know the guys at the refinery are working very hard on that.

So overall, operations, I feel very good about where we are.

You know, you never let your guard down.

There is still a lot of work ahead.

But considering the kind of year we've had, we feel very good about it.

On the mergers, obviously since August 1 there's been a lot of work done on getting the organization in place.

In mid-September, the positions here in Canada have been confirmed.

Unfortunately, that has resulted in about 1,000 layoffs to date.

And that's the unfortunate part of any merger, but it's one that we've moved through relatively quick.

And, listen, we fully understand that in this kind of areas, the quicker you move and the faster that you make these changes, the better you are going to feel about it overall as we get into the new state of the new Suncor.

So, we feel very good about the plans we did going into August, the end of August.

Feel very good about where we are in terms of the organization.

And, as you know, when we announced the merger, we announced about -- an expectation of CAD300 million in expense reductions and CAD1 billion in capital efficiencies.

I can just tell you that we are very confident that we're going to exceed those synergy targets, and we'll get more precise about that over the next several months in terms of how much we're going to exceed those targets.

Having said how pleased I am about where we are in the merger, I'd say we still have a lot to do.

First on the list, of course, is some massive dispositions.

So we are going to be selling some of the assets, the weaker assets in the portfolio, or the ones who do not fit our strategy.

And that includes some natural gas assets, some small North Sea assets, Trinidad and Tobago assets.

We have a corporate plane up for sale.

We have got real estate consolidation going on.

In total, the target we have is about CAD2 billion to CAD4 billion worth of asset sales.

Most of that will take place in 2010.

And we will reduce our production by 10%, or maybe just slightly over.

That, of course, will be quickly replaced by new projects coming online and that we'll be talking about later on.

The other things that we're working on beyond the asset disposition is supply-chain efficiencies.

We'll be working very hard with the international organization.

Right now, we are in the tail end of a 90-day consultive process, which is required under European rules with our international organization, and would expect to be working through that here in the next 30 to 45 days.

And we are preparing the organization for steady and reliable growth from a very strong base overall.

So what you're going to hear more from us on a go-forward basis is a lot more about where we're going.

So, the last thing I want to talk about is around strategy, and it's very important that everyone understand that, first and most importantly, we are an oil sands dominated and integrated energy company.

Today, before these asset dispositions, we're about 85% oil, about 15% gas on the upstream side of this Company, and our investments over the next five years will obviously be oil-dominated.

The new Suncor is going to look a lot like the old Suncor.

It will be based around operational excellence.

It will be based around the development of 26 billion barrels of reserves and resources.

It will be certainly about a disciplined capital investment profile on a go-forward basis.

We will obviously also continue to focus on reducing our environmental footprint, and our recent announcement around our tailings reduction program is a great example of that.

That's a technology that we are very excited about, and I think is going to make a step change in terms of our footprint overall as a Company.

The other thing that I'm really looking forward to is we only have 55 days left, and -- not that I'm counting, but 55 days for what I would call our big hedge position.

And so, that runs out at the end of this year.

So, expect to go into 2010 a lot cleaner than we have 2009 here.

In 2010, we do have 55,000 barrels a day at CAD50 to CAD70 costless collars.

Obviously if crude oil is above CAD70, we will pay a slight penalty for that, but again, it's 55,000 barrels on 700,000 barrels equivalent.

So, it's certainly not the kind of position we have this year.

And don't really see any time in the near term taking any more hedge positions.

So we'll head that question off.

So, I do know there is a lot of interest out there in a capital budget for 2010, and the order of projects in terms of this growth profile going forward.

This is actually -- this coming week, we have Suncor Board meeting.

So I will be in a position to discuss our 2010 capital program in some detail, and unfortunately, we're going to have another phone call next Friday morning with which we're going to update you on that.

We expect to have a very quick call, but I don't want to take precedence in terms of -- I want to make sure that the Board is onside before we actually announce that.

So that's really what I wanted to talk about.

Bart, over to you.

Thanks, Rick, and good morning, everyone.

Welcome.

Just by a way of a bit of introduction, I think for most of you on the line, I haven't had a chance yet to meet with you face to face or speak with you personally, and that's something I'm very much looking forward to doing over the coming months and quarters as we get out and start to communicate with you about our business priorities and including our growth plans.

Just turning to the third quarter, I will share a couple of thoughts with you.

Rick had mentioned that this quarter was really all about bringing the two companies together, and that includes the books.

It was a bit of a messy quarter from a reporting perspective, just given all the one-time items that we've had to deal with.

Financially speaking as well, it was challenging, as there were a lot of factors influencing our earnings and cash flow, very few of which, quite honestly, benefited us.

Obviously, looking at Q3 of this year versus Q3 of last year, we are in a much lower commodity price environment.

WTI was roughly CAD50 lower this quarter than where we were at the same time last year.

And margins were much lower as well.

Looking at the natural gas side, [Acu] and Henry Hub were only about one-third of where we saw prices last year.

And lying over that, or overlaying that was a strengthening dollar throughout the quarter.

So a lot of challenges, and Rick highlighted the drag on our cash flow and earnings from the hedges that we had out there as well.

So quite frankly, as the new CFO I am relieved actually to be through the first quarter.

So we can now really start to focus on what the true financial potential of the Company is, which should become more apparent here in Q4 when we have far less noise in the numbers to deal with.

And just to give you a little bit of a sense of what that can look like, if we all just stand back for a moment and strip away the turnarounds and factor in a full quarter of production from all the Petro-Canada assets and the Suncor producing assets, all else being equal, I would estimate that cash flow from operations would've improved by about CAD400 million to CAD500 million, and that's just from the upstream part of the business.

So we are expecting improved financial results as we go forward.

Just a couple of other things to highlight.

On the net debt side, we ended the quarter just over CAD13 billion.

As Rick mentioned, through the asset sales we are targeting a CAD2 billion to CAD4 billion of proceeds there, and that fits with our target to bring our debt levels down to about CAD10 billion.

And we believe that will be largely achievable through 2010.

Our goal, ultimately, is to get our cash -- or debt-to-cash flow down to about two times, and that's at the bottom of the commodity price cycle.

Just one thing I'd emphasize, though, it's -- when it comes to the asset sales, it's not a fire sale.

Time and liquidity are on our side, and we have about CAD4.5 billion to CAD5 billion of available credit lines with us to support us through this period.

And as far as being the Company's new CFO, the one key message that I'd like you to take away from today's call is that it's definitely part of my plan to ensure that the Company maintains a very strong financial position as we embark on our growth journey ahead.

So that concludes my remarks, and I'll turn it back over to John.

Thanks, Rick and Bart, for those comments.

I'm just going to give you a bit of a precis in terms of the outlook -- really for the rest of this year and a few other things of a modeling nature, and then we'll open it up to strategic questions.

The outlook for the oil sands, you can see it's on page four of the press release.

All we're really doing is tightening up the range from the range that we had previously.

290,000 to 305,000, obviously with the numbers coming out for October yesterday of 307,000, we're in a very strong position to be well within this range and feeling very comfortable where we are, and I think again, this just illustrates how well we are doing on an our operational side.

And I should -- there were some questions earlier that when you get into a merger of this size, you may take your eye off the ball in terms of operations.

And I think this just flies dead in the face of that.

Clearly, the oil sands has been very solid and the production has been very, very good through this.

We have adjusted a bit of the sales mix, and that's just to illustrate a bit of the -- we did have a bit of bitumen sales and a bit of sour production sales, and that's just where that is.

And that's also reflected in the realization price that we have.

Cash operating costs -- we are lowering the guidance, so we're feeling pretty good about that.

32 to 34 is the way we feel it would come out for the year, so very comfortable with that.

And again, I think just illustrative of what we're doing in terms of managing the costs and increasing production up at oil sands, and really helping us that way.

For the rest of the divisions, the natural gas, the East Coast, and the international, these are specific fourth-quarter outlooks.

Obviously, we only had two months of production from the former Petro-Canada assets during the third quarter, so we chose to just put out a guidance for the fourth quarter.

You can see those numbers there; I won't actually read them to you, but all very strong and looking very comfortable with that.

Just a few other points, just for your edification, is the income tax that we felt that we were going to pay this year, the cash taxes, are somewhere in the neighborhood of CAD950 million to CAD1 billion, and we paid a good chunk of that already.

The royalties, the oil sands, and the East Coast -- that's actually in the documents.

The royalty guidance, both for the oil sands and the East Coast, is in the documents.

And the last point I was going to make, and I know some people do like this, the LIFO FIFO adjustment for the downstream is about CAD35 million for the quarter, so it had been CAD35 million -- the downstream would've been CAD35 million higher had it been in the -- had we used LIFO versus FIFO.

So, that's really all we were hoping to deal with or going to deal with in terms of specific modeling questions.

Rick and Bart and Steve are here to answer your questions of a strategic nature, and then of course Maureen and Jolene and Helen and I will be around after the call to deal with many of your modeling questions, and I'm sure there will be after a quarter like this -- the first quarter we come out.

We'll be happy to deal with you one-on-one to deal with that.

So with that, Operator, we'd like to turn it over to the large audience we have listening in and entertain their questions.

(Operator Instructions).

Robert Kessler, Simmons & Company International.

Rick, just thinking in terms of asset sales, and Syncrude in particular, is that something you really need in the long term?

I guess, Conoco has got their interest on the block, appears to be getting fairly decent indications of interest there.

Just thinking, why not on the margin take some capital off the table in that project and redirect it to what you can control on the oil sands a little bit more directly, in line with your kind of long-term strategy to really focus on operations and manage those effectively?

I think it's a great question and obviously one that we thought through a bit.

I think our position right now is we're quite happy with our 9% interest in Syncrude.

We do think it does give us a real window into some of the operations of Syncrude.

Sorry, I said 9%; I think it's a 12% interest.

And it also, in a way, helps us in terms of our customer base.

So, you know, we are a big producer of synthetic crude oil.

So when we have upsets on either Syncrude or Suncor, then we'll still be able to kind of meet our delivery targets.

So overall, we like our position.

We think it gives us a window into some of the technologies and operational improvements that Syncrude is trying to make.

And so, there is probably more advantages to us right now staying in that asset than selling it.

And, to be honest with you, what I see on a go-forward basis in terms of our capital plans, and we'll talk about this more next Friday, is I want to see a really disciplined approach.

This oil sands business, in my mind, is going to be dominated by Exxon, Shell, Suncor, and CNRL, and then some other players.

But what I think you're going to see through this next cycle is a much more disciplined approach.

So it isn't as though you could take that -- those billions of dollars and then immediately deploy them.

Otherwise, you will create (multiple speakers) kind of inflation spiral again, which is not a position that I want to rush to.

So, we have many assets that are much weaker than that one, I think, to put on the block.

That makes sense.

And then, on perhaps the weaker assets on the block, looking at kind of North American natural gas as you prepare to divest some of those assets, what -- can you give us any color in terms of what you're doing on drilling activity?

Are you taking a step down there in preparation for sale, or just general outlook on activity in North American natural gas?

Steve will answer that question for you.

Yes, we're putting the packages together.

We're watching the operating costs in those businesses, so you've seen us manage the rates of drilling and exploration in those areas.

So you've nailed it, really.

We are in the process of putting those packages together and they come out in the next quarter.

One thing I would add, and we've said this a few times, is if you look at the combined natural gas business that came from Petro-Canada and we have at Suncor, if you look at the combined capital we're going to be spending on exploration, development, it's going to be less than the two companies would've spent separately.

So clearly, we're looking at natural gas to be that natural hedge for the oil sands and not to be a growth part of the business.

Andrew Fairbanks, BAS-ML.

I just had another asset sale question.

I wonder if you could give us a little better sense of scale of the natural gas and North Sea assets that you are looking at divesting?

Okay, yes, we're looking at around a 30% level is the simple answer.

So if you think of the size of the gas business and you think of 30%, that will get you there.

Would it be the same for the North Sea assets?

It's a little bit different ratio there.

So what I would say is there we're looking at -- we have a number of fields which we have a very small interest, which are not necessarily strategic to us.

It's not that they are weak assets.

They are just not -- either not material or not strategic.

Obviously, Buzzard and Hobby are the key parts to that North Sea asset base.

There's -- some of the assets, for example, like our very small interests in Scott/Telford, which are not key.

So, you would not see the same kind of scale in terms of asset dispositions there.

That makes sense.

And I noticed that Libya and Syria weren't on that list.

Do you think, longer term, those are keepers for you or you may divest them, but it just could be a longer timeframe?

My position on those two are, first of all, they are both large assets.

They are both fairly material.

I have not been to Libya yet.

That's on my agenda here in the next two weeks.

The one thing I like about Libya is its oil, and I understand fully the view of the market there and the risk that people kind of see to that.

So I'll be making my own kind of independent view of that.

What I would say is right now we are going to fulfill our obligations.

I have made a trip to Syria.

That project, by the way, is about 90% complete.

It is gas with an oil rim and some oil discoveries actually already drilled.

So, that asset looks actually quite strong to me.

And the fact that we are 90% complete -- that's not a great time.

We should have that asset online here in the first, second quarter of 2010.

The spending is largely behind us.

There is still some spending to go.

But -- so I look at that one as one we're going to fulfill our obligations, get this online, and then determine where we go from there.

That's great.

And then, just a last one, if I could.

A couple of years ago, Petro-Canada decided to try and sell some of their non-core oil leases, and I don't know if that's something you would look at.

I know, Rick, you've not been a fan of selling bitumen leases in the past, but do you think there could be some little pieces and bits within the portfolio that would make sense just putting out in the market as bitumen values are coming up a little bit?

You are right.

I am pretty hard on this one.

So, and listen, we do discuss this internally a lot.

I am kind of not a seller of oil sands leases because it's our heartland and it's the core of this Company on a go-forward basis.

And I'm not saying that we've looked at every single lease in the Company because we're not actually at that point.

But I'm not really a seller of oil sands leases because that's our backyard.

It's the area that we are going to compete on a worldwide basis.

If anything, I'd say down the road I'd be more of an acquirer, or maybe a better way to put that, a consolidator than I would be a seller.

Andrew Potter, UBS.

Just a question on Libya.

I think you mentioned that you had fulfilled obligations there.

Could you just remind us, what is the minimum spending level over the next couple of years?

Yes, it's roughly CAD1 billion over a five-year period.

You remember, we also produce there.

So you have revenue coming in against that as well.

And so, I'm not saying it's insignificant, but on the size and scale of this Company, it's not a huge, huge portion of the overall spend or the overall production rates.

So, it's material and it's one of those things we want to make sure that we get full cooperation and that everyone lives up to their agreements in the arrangement.

And again, I need to do a lot more review as I'm over there in a couple of weeks' time.

Sure.

And then, just one question on what could be announced next week.

So next week, we'll see 2010 guidance.

Should we also be expecting a bit of color kind of on the -- more of the strategic side beyond 2010, or is that still further out after you finish a review of all the other different growth projects?

Thanks, Andrew.

It's John.

What we intend to talk about next week is, first and foremost, the 2010 capital program.

So we'll give you a bit of a sense of that.

We'll give you an update in terms of where we are, in terms of the strategy and the business plan, and begin to roll that out, so it'll give you a sense as to where the Company is going to be growing over the next period of time.

And to the extent that we can, we'll give you a bit of an update in terms of an update on the strategy.

If we can, what we'd like to do is keep the guidance for 2010 the way we've always done the guidance, which typically is for the fourth quarter, so we'll give you the guidance for production, specific guidance for production for 2010 during the fourth-quarter conference call, which has been our pattern over the last five or six years.

Mark Polak, Scotia Capital.

Actually, most of my questions have been answered.

Maybe just one other one on the production outlook for the rest of the year.

With only two months left and looking at -- obviously, you've tightened up the production range a bit, but it implies a fairly wide range for November, December.

Are there any sort of risks to that outlook that you've seen that warranted keeping that wider?

And in that vein, do you still see Firebag exiting the year around 70,000?

No, it's just a question of prudence.

Our practice this year has been to understate and overdeliver.

We see Firebag exiting -- we see total in situ exiting at about 90,000 this year and we normally will quote the two together now as we go forward.

So, we'll see -- we're looking, as I said we've narrowed the guidance, so we'll see a good performance for the last two months.

William Lacey, FirstEnergy Capital.

Most of my questions have been answered, except for one, and that relates just to the tailings management technology that you guys are now looking at deploying on the mining side here.

Can you talk a little bit about cost implications of the roll-out of the new technology?

Let me just talk, William, in general.

Things will get more specific as we talked about the capital budget and then move into next year.

But think of this project as having a return versus our base case.

So this project is actually, in net terms versus the base mining plan with tailings ponds in there, going to give us a fairly healthy economic return.

So don't view it as just the cost.

This brings with it income.

So this is more dealing with the long-term reclamation costs?

Yes.

If you actually compare the base case without TRO in there, then you can generate the return versus that base case versus the reclamation costs.

Brian Dutton, Credit Suisse.

Rick, in the quarterly report you point towards the improvement in the reliability of the base business as being a significant factor contributing to the production in oil sands this year.

Could you give us some indications or insight as to why that's happening and what's the new steep bank facility coming on stream?

How does that play into improving the reliability of the business as well?

Yes, I'll turn it over to Steve for a little more detailed explanation.

But what I will tell you is we talked about for the last two or three years about the need for real focus and our focus on operational excellence.

And it comes from a whole range of things, which Steve can talk to you about.

But I've been very proud of the group in terms of -- in terms of that really hard work that's gone into that.

And so, it's not one thing, but it's a whole series of things.

From my viewpoint, what I'm seeing here is much fewer incidents, much better in terms of planned maintenance, much better in terms of even when we do have an issue, the flexibility around the asset base to work around that and continue to export.

And that continued comes from in situ.

You know, it comes from more assets.

In terms of the steep bank extraction plant, first of all, we did go through one period where we did increase the capital cost of that project.

They did bring it in in that it came online very smoothly, so kudos to our major projects group in terms of that facility coming on and working very well as it started up.

And that was a big investment for us.

Steve, you might want to talk a little bit about operational excellence and your views about really what makes the difference there.

Yes, let me just color in a few of those comments.

So you should think of it, Brian, as a comprehensive change in the way we are operating that business.

It is around systems.

It's around procedures.

It's around the full engagement of employees, which is actually part of the magic potion there.

So, think of it as a 1,000 little things.

Not one big one.

And therefore, it becomes much more difficult, then, to answer your question.

The good news is that we've absolutely laid the foundation.

It's broad-based.

We are seeing the improvements right the way through the business.

We're seeing them in the mine, we're seeing them in extraction, we're seeing them in upgrading, and we're now seeing them in in situ.

So as Rick said there, what that does is it gives you a great deal of flexibility to recover if you have a particular issue in any part of that sequence of operations.

And you've seen that.

We've had some problems in Firebag.

We've been able to accommodate it in extraction and in the mine.

We've seen some problems on a vacuum tower.

We've been able to fully work that around with flexibility in other parts of the plan.

So the bottom line of that is what you've seen is a trend, which we'll continue.

We will continue to see the sorts of improvements we've been seeing this year.

The final piece, and really just to underline what Rick was saying on the new extraction plant there, on the revised budget that plant came up on the new budget on time, and it was fully delivered without an interruption to the operation.

And we did that through the new operating system as well.

So the relationship between major projects and operations significantly improved through that, and that project is fully delivered for us.

I think the other one, Brian, is as we go forward here and as we do -- and have more time in terms of the flexibility between in situ, the base plant, and then Edmonton refinery and Sarnia and Denver, in particular, I think you'll see that flexibility and that ability to move volumes and assets around will have actually also improved.

So on kind of a couple of different levels, that's the one thing about this merger.

It does give us a lot more flexibility and a lot more control over our destiny here.

Paul Cheng, Barclays Capital.

Rick, if you had to do a strategic rank based on the resource quality, looking at the Firebag three to six, the MacKay River expansion leases, and the [foothills], how will you rank those results?

We'll get to that next Friday, but what I would say is this is all about three things, and I've been very consistent about this over the last six months, is our investments on a go-forward basis will be based upon return on capital, the calculations, of up around near-term cash flow, and with some equation there around risk.

And so, that's the criteria against which -- I've been very consistent with this internally and externally dogmatic.

It's not about -- so it's really around -- and that's one of the reasons that we're taking our time here is to try to do as good a job as we can on the calculation of that on all of the assets on a go-forward basis.

You know, what makes this Company unusual, Paul -- this is going to sound like a lecture here -- is, unlike most companies around the world, we actually have more opportunities than we have capital to invest.

So this is about ranking them and then hitting them in the order, and that's the luxury we have and that's the one thing that [assumes this] is, and we want to do that extremely well.

Again, without creating a firestorm of inflation up north that we've kind of experienced in the last -- up until -- for five years up until last September.

Rick, I don't think that you have mentioned about the legacy Petro-Canada operation in the U.S.

Rockies market for the co-payment [fiend].

Looking at the location, is it really strategically fit into the rest of your portfolio on that one?

Listen, we would expect most, if not all, of those U.S.

Rocky assets to be on the market.

Okay, and that you make a comment saying that we should not expect any more hedges in 2010.

Is that a more longer-term shift that given your current portfolio, you no longer believe that you need to engage in the hedging activity as you may be even in the last two or three years?

Paul, it's Bart here, I think that the short answer to your question is yes.

If you look at our overall profile now, and Rick has talked about the ratable way we plan to invest our capital going forward, and really with a focus on making those investments through free cash flow as opposed to having to take on more debt.

We don't have a compelling reason to need to protect the balance sheet and put insurance on, which is what -- during those big periods of capital investment that we've had in the past.

So, we've got much stronger cash flows.

We've got producing assets in the North Sea and East Coast that are very low operating cost.

And as I say, our capital investments are largely going to be made from free cash flow going forward.

So there's not a compelling need to put hedges on going forward.

Okay, two short ones, final ones.

One -- maybe I missed it.

If they had to treat the repair from the fire is now all done and is back to normal?

The second one, John, earlier you were talking about the FIFO inventory.

You say 35 million.

Is that an after-tax or before-tax number?

If it is after-tax, do you have a before-tax number?

And you say that is a loss, if I -- just want to clarify.

Thank you.

Okay, it's -- the repairs for the fire were over about 10 days ago, Paul.

So we are back up and running and at full production, and the 35 million was after tax.

And so, we would've been -- it was a negative draw on earnings, so if you'd added it back it would have been -- yes.

John, what's the pre-tax number?

I'm sorry.

I think you just have to divide by 0.72, Paul.

I just don't have my calculator with me.

Okay, will do.

Thank you.

Harry Mateer, Barclays Capital.

My first question, you look at the balance sheet right now, you have about CAD3.1 billion of CP and bank debt.

Any plans to term that out in the near future, given where rates are right now?

Harry, our focus in the near term, and this goes through 2010, is to divest of those non-core assets and utilize the proceeds from there to pay debt down.

So that didn't give us a real strong reason to get out of the markets and do a bond deal right now.

We'll always be opportunistic and look at those things.

But it's not on our radar screen right at this moment.

Okay, and then a follow-up question to Paul's question on, or I guess your answer to Paul's question on hedging and why you don't feel the need to hedge as much as in the past.

Is it fair to say that when you were thinking about the capital budget for 2010, your intent was to try and match up spending with the projected cash flow?

Yes, I think the way to think about that, Harry, is that we plan to have our cash flow actually higher than our capital program next year.

But we will come back to that next Friday.

Mark Gilman, The Benchmark Company.

I had two questions.

One relating to your intentions regarding the Montreal refinery in the wake of, I believe, the decision not to proceed with Petro-Canada's coker project.

The second one relates to purchase accounting, and whether there might be adjustments going forward, either as a result of asset sales or other events, to the CAD3 billion or so of goodwill that you are putting on the books.

I'll take a pass at the first one, and then see if Steve's got anything to add there.

Listen, we have no intent here to sell our Montreal refinery.

One of the things we will be working on is a reversal of line nine, and so, those of you on the call that don't know line nine, line nine was a pipeline that originally ran from Ontario into Montreal.

It was reversed by the industry about 12 years ago.

We will be working hard with the industry and with the owner to see if we can (multiple speakers) that.

So one of the things I'm very interested in is running Western Canadian crudes into Montreal.

Also very interested to see what Shell ends up doing with theirs.

So, it kind of goes into that overall equation.

And so -- but we do see that as an asset that we'll keep long term.

Steve, I don't know if you want to add anything to that?

The only comment I would add to it, and I don't want to pre-empt the phone call next Friday, but you can take it as an insight into the capital allocation process.

At this stage, we are confident we have better places to put that capital for 2010 and 2011.

So these projects are on hold, not completely shut down.

And Mark, I get to answer the question of purchase accounting, thank you very much.

After 30 years as a CA, I finally get to answer one of these questions.

When you do the purchase accounting, you certainly assign the value to the assets and the resulting goodwill.

Then after disposition, if there is a difference between your carrying value that you have assigned to that asset versus the potential purchase price, that's how that would affect the actual assets, but it wouldn't affect goodwill.

[It] wouldn't make a retroactive adjustment to goodwill.

(Operator Instructions).

Andrew Fairbanks, BAS-ML.

Just a strategy question.

Actually, do you have any thoughts on the dividend policy going forward?

I know, obviously, that's a Board decision, but any other thoughts there in terms of the degree of dividend that you would see offering going forward and how that would fit with the overall value proposition?

And then, in a similar vein, share repurchases -- would you return cash to shareholders through more share repurchases and less dividends, or how do you see that mix going forward?

Andrew, just on the first question of dividends, where we are at right now is -- and this is obviously always subject to Board approval, but the plan right now is to continue to have the same cash equivalent amount of dividend [set] -- going out to shareholders as the combined companies would have been paying out previously, so that's where we're at right now.

I think directionally, you know Rick and Steve have talked about all of the growth opportunities we have and we would see generally the plan to grow dividends as we grow profitable production going forward.

So it won't necessarily be in lockstep, but directionally that's how we would see that part of it unfolding.

The second part of the question, sorry, was?

Just on share repurchases, if that figures into the mix.

I know you indicated that any kind of (multiple speakers)

I think (multiple speakers) investment opportunities we have, and we'll talk a little bit more about that next week.

I wouldn't see us having a lot of available cash flow to be returning to shareholders in the near term.

Obviously, you never say never, but it's not on our radar screen right now.

We have no further questions at this time.

Please continue.

Well, listen, everyone.

Thanks for listening in and thanks for your questions.

And again, Maureen and Jolene and Helen and I will be awaiting your calls, and Helen in particular is very anxious to help you get your models up-to-date and ready to go.

So once again, thanks so much for listening in, and I'm sure we'll talk to everybody soon.

Thanks.

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

Thank you for participating and please disconnect your lines.