Suncor Energy Inc (SU) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Suncor's fourth-quarter and year-end conference call and webcast.

I would now like to turn the call over to Mr.

John Rogers, Vice President, Investor Relations.

Mr.

Rogers, please go ahead.

Thanks, Joe, and good morning, everyone, and thank you for listening in to our fourth-quarter conference call.

I have a large group with us this morning.

Rick George, our President and CEO; Steve Williams, our Chief Operating Officer; Bart Demosky, our CFO; of course, Helen Kelly from the Investor Relations department; Maureen Cormier, our VP, Controller; and [Jolene Gillamo] from the Controller's department.

We will follow the normal format.

Rick will give his commentary on the quarter.

Bart will give a bit of an update on how we thought financially we are doing.

I will talk a bit about the outlook, which was included in the quarterly release, and then we will open up for questions.

So Rick, why don't you start us off?

John, thank you very much and good morning to everyone.

I'm going to talk this morning with the intent of the way I think about where Suncor is currently is kind of in three pieces.

2009 was really about getting the merger done.

2010 is around our whole issues around divestments, around driving efficiencies in this Company.

It is also around continuing to work hard and delivering on operational excellence.

And as you were -- getting ready for 2011, '12 in terms of growth.

And so what I am going to talk about a little bit today is those three segments.

So just starting off with 2009, and it was really about creating the new Suncor, particularly in the second half of the year.

And again, 2010 will be about realizing the benefits of that.

So if you will remember a year ago this time, we (technical difficulty) one of the more challenging economic environments of our current kind of careers.

What we responded back with is, like most of the industry, pulled back on spending in terms of both capital and expense.

We did take advantage of a contango at that point in terms of selling forward our crude through 2009, and well above spot prices, to try to make sure we protected the balance sheet.

And obviously, crude did recover in 2009, and the hedge did negatively impact us later in the year.

On the other hand, it did what it was supposed to do, and that is protect the balance sheet during those kind of very, very uncertain times a year ago.

Then in March of last year, we announced the merger with Petro-Canada.

And I've been asked a few times lately if I would do that deal today, given what I know in the rearview mirror of some nine months.

And the answer would be absolutely yes.

I continue to like where this deal leaves us in terms of a Company, and I continue to see many benefits, including the fact that it gives us a very solid core of downstream integration assets that integrate back with our oil sands operation, and ones that are definitely keepers, even in the environment here, where we continue to see shutdowns of refineries in North America, and we will see some in Europe as well.

The merger also has given us the financial strength and the cash flow that has and will spin off from the merged assets mean that we have the strength, number one, but we also have lowered our average cost of production of the merged oil assets, the oil production across the entire Company, to about CAD23, which will help us in terms of the ability to handle low parts of the cycle in terms of commodity prices in the future.

So you can expect us to hedge a lot less than you've seen us in the past.

We do have a few, but a very small amount of hedges in 2010 and none after that.

And so do not expect us to do a lot of hedging from here.

I think we will ride this out.

The national gas business, after divestments this year, we think will be a solid foundation which will give us a natural hedge against the gas consumption we have in our other businesses here, particularly in Alberta.

The synergy value that we've announced initially was some 300 million.

We have upped to that to CAD400 million dollars and still expect to get CAD1 billion a year in capital savings per year on a go-forward basis here.

All of that looks very solid to me.

So if you think about we announced this in March.

We actually then spent about 120 days, which is a record time in terms of getting the deal done.

We actually got shareholder approval from both of the shareholders overwhelmingly.

We closed the deal on August 1, which isn't that long ago.

And of course, following that, the 60 days were really about getting the organization set, getting the strategy well-known by both the employees, very importantly the management team, and obviously outside stakeholders, as well.

We also, during that final 90 days of the year, put that strategy in place, started to have employees leave the organization.

What I would say, though, is the work is far from over.

A lot of 2010 is really about how we move this Company to be the efficient kind of Company that we want to [come] as we then get ready to ramp up growth.

So before I move to 2010 on a more solid basis, let's talk about the fourth quarter.

And certainly we've made some very significant strides this year in the implementation of operational excellence.

Safety, reliability, cost, environmental performance -- all the indicators, and we marked this in great detail -- all look to be improving on a continuous basis.

Higher levels of production and lower cost were certainly evident through much of the year, and we've taken some very major steps on the environmental performance side, notably with the new tailings technology we announced in the fourth quarter, where we expect on a longer-term basis to see huge environmental and cost benefits.

Steve Williams, our Chief Operating Officer, and all of the employees of our operating groups, have and continue on a relentless pursuit of operational excellence.

Now, we did have the one incident on Upgrader Number 2 in the fourth quarter.

Obviously, we are very disappointed by that and are not making excuses for that.

I will say that we had a whole number of employees and contractors who have worked tirelessly over the holiday season and January through what were some brutal winter temperatures.

And I'm happy to say that we are -- all the repairs are finished, we are in startup mode, and feed is in the unit as of this morning.

So we feel good about getting that unit back online.

So it did have a big impact on the fourth quarter.

It had a big impact on us in terms of our feelings about where we are.

We know operational excellence is not a point destination, but a journey.

We still feel like we are on a very strong journey to deliver that.

So there are a number of other things in the fourth quarter in terms of results and adjustments.

And I think part of this is the noise around the merger.

Bart is going to go through that in some detail with you in terms of what that is.

And so I think that is enough comments from me around the fourth quarter, at least for the moment, until we get to Q&A.

Now, 2010 is about completing the transition of the Company, and realizing the benefits of the merger.

Now, we continue to work hard organizationally on realizing the synergies.

By the end of 2010, I expect we will realize a continuous yearly reduction of our overheads and operating costs of some CAD400 million per year.

Driving efficiency and effectiveness is obviously a big part of that equation.

And as I mentioned earlier, we also expect fully to get CAD1 billion per year of capital cost savings as well.

So the one thing I would say is that it is obvious that divestments are a big piece of work in 2010.

The natural gas divestments are getting a high level of interest from potential buyers, and not surprising.

These are good assets, but don't fit Suncor in terms of its current strategy or our key component of our current size.

But we are seeing a good take-up in terms of interest in those.

You saw that we did announce we've sold the Colorado US natural gas assets.

We are also getting a lot of interest in some of the other packages we have out there.

So from my viewpoint, I do not see any difficulties in terms of -- and we are very much on target in terms of reaching our objective of CAD1.5 billion to CAD2 billion of divestments of North American gas assets by the end of this year.

In addition, we should be able to announce some news on our Trinidad and Tobago assets.

Again, these are gas assets that just don't fit us long-term.

They are good assets, small, but don't fit us.

And we're also getting lots of interest in our non-core North Sea assets.

Overall, the picture is that overall divestments are going very well.

From that slimmed-down base, we will begin to implement our strategy of growing oil sands by some 10% to 12% per year, which will drive an overall Company growth rate of 7% to 8% through 2020.

So you have to look at 2010 as a year in which we are building a solid foundation and the base on which we are going to drive this Company forward.

So one of the first projects to go is Firebag 3.

Construction is progressing as we speak, and we anticipate steaming in early 2011.

So just a little over a year from today.

The Millennium Naphtha Unit, which is a project that we had shut down at the first part of 2009, (technical difficulty) as well.

That project will be completed, again, in early 2011.

The other things of kind of note on other projects that we have underway is the Syrian gas project and that gas field that will be onstream in the second quarter.

We expect it to be onstream in the second quarter of 2010.

And our doubling of the size of our ethanol plant in Ontario should be complete and onstream about this time next year as well.

So we have a number of projects in place, as well as the planning around where we go from there in terms of particularly oil sands growth in 2011, 2012.

Now, one of the reasons you see in some of the forecasts that you see on the look-forward is 2010 is certainly a big year for turnarounds.

In the international offshore business, we have big turnarounds in the East Coast and on Buzzard in the North Sea.

We have a turnaround in the upgrader number 2 in oil sands.

And a very big year in terms of turnarounds at all four of our refineries.

Now, that's an unusual year.

It is just a coincidence.

We will get this spaced out a little bit more evenly on a go-forward basis.

And again, it is part of just kind of some of the fundamentals that we've got to get straightened in terms of this new Company.

That pretty much sums up 2010.

And although I do expect some noise around earnings in the first quarter or two here of 2010, as we go through the divestments and as we work our way through these assets, the financials are going to get much stronger in the third and the fourth quarter here.

We should be through most of those turnarounds, most of the one-time merger costs will be behind us, and then we can look forward from there in terms of where we go.

We will be making decisions later this year on what follows Firebag 4.

So after 3, we will go to 4.

We're actually doing the engineering work as we speak.

And so we haven't really announced the exact timing of 4 startup, but there is a sequence to this.

We continue to work hard on a number of projects.

That includes Fort Hills, Firebag 5 and 6.

We are also looking at a Fort McKay expansion and even looking at the Lewis lease, which we have environmental approvals for development.

So the good news is we have environmental approvals for many projects already in place.

It's a matter of picking which ones are best for us on a go-forward basis.

So as the world continues to dig its way out of this economic slowdown, and I think at some point the market will turn its attention to dwindling oil resources, and certainly I see Canadian oil sands at the center of that future development in terms of what resources will be brought on.

It is a very large resource in a secure place in the world.

And we are demonstrating -- have demonstrated and will continue to demonstrate a continuous record of environmental performance.

That is our job for sure.

So I do like our position.

It is up to us to execute.

Certainly the entire organization here feels like that.

I know that the incident we had here in the middle of December is certainly a bit of a setback for us, but I see it as a bump along the road that we are going to be able to recover from and keep moving forward.

So that was really my comments.

Bart, over to you, to talk a little bit more about the financials.

Thanks, Rick, and good morning, everyone.

Q4 certainly was a milestone quarter for Suncor, and it marks the first full quarter of consolidated financial results postmerger for the Company.

So that was obviously very exciting for us.

As I look at the quarterly financials, though, I think, as Rick mentioned, we are not happy with the results achieved.

Now a couple comments on that.

Just considering the impact on production from the upgrader fire at oil sands and some of the tail-end turnaround work in our offshore assets, as well as a number of one-time accounting adjustments for this quarter, all of which were related to the merger, which included adjustments to fair market value for some of our assets, a couple of dry holes and as well as adjustments to royalties relating to prior periods; adding that all up, certainly our operating earnings could have been higher.

A lot of that, though, stems from our legacy assets and programs, so I would not expect to see adjustments of the same order of magnitude in the future.

As Rick mentioned, the numbers this quarter were impacted at the upgrader -- by, sorry, the upgrader fire at oil sands.

We will continue to see the impact of this in Q1 on our results, as we absorb the impact of the lost production in January and the cost to repair the damage.

And I just want to touch on that briefly.

The costs to repair the damage are not significant.

We're estimating them at about CAD60 million.

We are in the process now of starting to work through the insurance claims for both property damage and business interruption.

And I would expect there will be payouts on both fronts, but not likely until the second or third quarter.

So we are going to have a bit of a mismatch in terms of when we have cash going out the door versus cash coming in.

Having said all of that, we are where we are.

And all of the things that I -- being equal, I know we are headed in the right direction.

So although this quarter was certainly a challenging one financially, I did see a number of positives, and I just want to touch on a couple of those.

Firstly, if we look at November as a stand-alone month, both operationally and financially, it was very strong.

It was a month in which we didn't have any turnarounds, asset sales or merger-related costs of really any magnitude, and we generated very strong results.

So looking at that, I've seen the potential of the organization, and I am quite excited about it.

Second, the significant crude price hedge that we had on in 2009 has now rolled off.

We do have about 50,000 barrels a day in 2010 of collars.

So there shouldn't be as much of an impact on cash certainly going forward.

And at Rick and I have both said, we're not anticipating that we are going to need to be putting further strategic hedges on going forward, given our much lower cost base and the ability that gives us to withstand any kind of lower-end commodity prices during the cycle.

Looking forward, there are going to be a number of challenges in 2010, primarily in the first half.

As Rick said, we've got major turnarounds at a considerable number of our larger upstream assets.

On the asset sales side, we are anticipating selling about 75,000 barrel a day equivalent from our upstream portfolio during 2010.

Of those divestitures, the large portion of that will be in the first half, so that will impact our earnings and cash flows on a go-forward basis.

And as well, there is going to be continued merger-related costs through the year.

Once we are through that merger integration work and divestiture work, though, again, primarily in the first half, I think we are really going to be in a position to started achieving and seeing the kind of financial results that the organization is capable of.

A brief comment on synergies.

We do expect the fourth quarter of 2010, by then, we will have in place annual savings; that's a run rate of CAD400 million.

And there does appear to be more upside to that number.

By the end of 2010, I'm expecting that the synergy savings on the operating side will have started to exceed the merger costs.

So going into 2011, we should see a positive net run rate for Suncor on synergies.

So that is our plans there.

And as Rick mentioned, the CAD1 billion per year in capital synergies is a very solid number.

So all told, if commodity prices hold this year and we get the performance that we are anticipating out of the business, and the asset sales are completed, then I do still expect we will be in a position to get our debt paid down towards the CAD10 billion range by the end of 2010.

And that being the case, in 2011, that is when we can start to -- or the Board can start to consider dividend increases going forward.

So those are the financial objectives for 2010 and a bit of overview financially where we were in Q4.

With that, I will turn it over to John.

John?

Thank you, Bart.

Just a few comments on the outlook.

It is in the quarterly release.

The total production of 644 certainly reflects two things -- [they are] primarily the turnarounds.

During the year, almost all our upstream assets -- and downstream assets -- but our upstream assets affecting the production -- are going to go through major turnarounds during 2010, and that does reflect that.

Many of you have asked what we would estimate to be the impact of the divestitures.

That is clearly set out for you, about 75,000.

So that 644 does not include any divestitures in it.

We will actually update that number as we go through the year and give you a better idea where that looks.

Oil sands at 300,000, it does reflect the 40-day turnaround for you.

So we are expecting 300,000 barrels a day.

We continue to make progress in terms of bitumen feed to the upgrader.

We do expect to end the year somewhere in the neighborhood of 340,000 barrels a day.

So haven't changed at all that particular view in terms of moving ahead at oil sands.

It is just the impact of the turnaround brings us to about 300,000.

It also brings the operating cash, the cash operating costs, in the neighborhood of CAD35 to CAD39, which is higher.

We would expect by the end of the year we would be back in that CAD32, CAD33 range, with the higher levels of production.

But again, during [the year], impacted by the turnarounds.

The realization, [475], [575], not far off what we actually had experienced this year in terms of realizations.

The Syncrude production of 38,000 barrels a day basically kind of stands on its own there.

Natural gas at 680 million cubic feet or Mmcf per day.

We are expecting we will sell in the neighborhood of 300 million feet of that.

So we are going to be down to somewhere in the neighborhood of about 380 million to 400 million by the end of the year.

East Coast production, again, impacted by the turnarounds, but around 55,000 barrels a day.

As is international, 138,000.

It's impacted both by turnarounds and by the -- and Libyan assets by the OPEC quotas.

So the only other thing I was going to mention is the LIFO/FIFO adjustment.

If we had used LIFO in the downstream, our earnings on the downstream would have been lower by about CAD52 million.

So, Joe, that is all I was going to say.

We can open it up to people's questions.

Again, we would ask that what we -- we keep these questions respect of Rick's, Bart's and Steve's time, and everybody on the call, to a strategic nature.

Helen and I, Maureen and Jolene will be very happy to deal with all of your individual detailed modeling questions subsequent to the call.

And as you've called in before, we are very responsive and get right back to you.

So Joe, if we can open it up to questions, that would be good.

(Operator Instructions) Andrew Fairbanks, Bank of America Merrill Lynch.

Had a question around the oil sands and the pace, longer term, that you think you can grow there.

Obviously, you are going to be getting a lot of sales proceeds coming in, and I was just curious if operationally you've looked forward.

And do you think you would be able to do two, for example, Firebag phases simultaneously?

I mean, I know they are going simultaneously, but -- overlapped currently.

But do you think operationally within the organization you would have that capability, if you did choose to go ahead and accelerate the pace of the buildout?

What I really want the organization to focus in on is on doing these projects in a cost-effective manner.

And so I think what we want to be really careful of is to not create our own firestorm of inflation this next go-round.

And so I just see these going in a sequence, but not an overlapping sequence.

But at any one time, you will have a project or two in engineering, and you'll have others that are starting construction; you'll have others that are finishing construction.

So what I see is just a sequence, where you will not at any one point in time have too many projects out there to get overextended, where you get very worried about where your balance sheet again or any of those issues.

So what I see is more of a sequence of a few -- we have projects that extend out well to 2020.

And so rather than try to rush at this, create our own firestorm of inflation, if we get too many people on site, that also impacts productivity.

What I see is just going at this at a very steady state.

And Andrew, you may have heard me talk about this, but I think the oilsands industry -- well, first of all, it's going to be dominated by four or five big players.

Obviously, Exxon, Shell, ourselves, CNRL among those big players.

And I think what you are going to see as we go forward here is a more disciplined approach to this, which I think is good for everyone.

It means you are not going to go through these boom-bust cycles.

You can work on safety and on productivity issues.

We look at this much more as a long-term business, a growing business than this kind of cycle up and down which is kind of where I am very worried about going.

So my view of this, Andrew, is you're just going to go in a sequence.

It's better for our employees as well or for the engineering firms or the contractors we deal with because they will have a very good, planned, steady work as opposed to worrying about at the end of this project they don't have another project to go to, those kinds of issues.

That's great, thanks.

That's helpful.

I guess just one other quick one, if I could.

On the Voyageur upgrader, you mentioned that you would be open to looking at a potential joint venture there.

I was just curious if there has been any activity or interest along those lines.

Yes, there has been some interest.

We've been talking to a number of players.

I'm not going to identify who those are, but absolutely there has been some interest there.

I certainly think that will be among the first, if not the first, of the upgraders -- projects to restart.

However, having said that, it may be a little while yet before we can announce anything or get anything started up there.

That's great.

Thanks, Rick.

Arjun Murti, Goldman Sachs.

Just a follow-up to your comments on the divestitures.

I believe you mentioned there has been quite a bit of interest in the gas properties that you've got up for sale in North America.

Any update on how the international asset sales are progressing?

I think you have a package in the North Sea.

And then your latest thoughts on keeping versus divesting Syria and Libya.

Thank you.

On the international side, first of all, we are expecting to announce something on Trinidad and Tobago here in the first or, very latest, early in the second quarter here in terms of the divestments of that.

We do have a small package of UK assets that are out there that are a very, very small package.

And then we do have the Netherlands.

So those are the three assets that we are working hard on divestments.

And as I look at Syria and Libya, they are not on our divestment list currently.

The Syrian project, actually, looks relatively good to me.

I've been over there.

We actually have five gas wells that average over -- each well over 30 million cubic feet a day.

We also have three oil discoveries on that same block.

That looks particularly good.

And as I mentioned earlier, that project will actually be producing, we expect, here in the second quarter of 2010.

So that looks very solid to me, and not a divestment candidate currently.

And Libya, I have also been there, done a lot of homework on that.

We currently have no plans except to move ahead there and fulfill.

I do like our position there in terms of it is in the fairway.

It is oil; it's not gas.

It is -- now, obviously we still have some homework to do there, but currently not up on the divestment list.

I would say we have a lot of low-hanging fruit in terms of what we see in terms of divestments that don't fit our portfolio on a go-forward basis.

We are working on those first.

That is terrific.

Thank you very much.

Andrew Potter, UBS Securities.

Just looking for a little bit more color on Lewis.

I was kind of curious about the comments you made there.

I think you mentioned that you have environmental approvals.

But what else would need to be done to kind of move this along as a credible project?

Where is it at in terms of delineation drilling and what is -- maybe a few comments in terms of how the quality stacks up versus McKay and Firebag and some of the other opportunities.

And you know what?

I don't really have that answer today.

It is still kind of under review in terms of how that fits into our -- and I know this -- I get a lot of questions from a lot of people about where does Fort Hills fit, where does.

And you know what?

We are still doing our homework on that.

I don't think we're in a position yet to come out with that.

Late this year, do expect us to put a lot more color on that.

But we are actually trying to make sure before we say a lot that we get our homework done, that we know the actual sequence here and then we'll be able to go from there.

Sure.

And then just one question on taxability.

I was a bit surprised how low the cash tax number was in 2010.

I think you are saying CAD800 million to CAD900 million.

Any thoughts on how that splits out between the oil sands and the rest of the Company?

And maybe if you can a little bit of color in terms of what we should expect for cash tax guidance in the medium term as well.

Andrew, if I can actually get back to you specifically; I just don't have that sitting in front of me.

But I will be very happy to -- we'll phone you right after the call and give you those details.

Thanks.

(Operator Instructions) Paul Cheng, Barclays Capital.

Two quick questions.

Rick, I know that you are not ready to talk about Fort Hills, but if I look at the remaining of the oil sands portfolio, McKay expansion, Voyageur, Firebag 5 and 6, how you will rank after the Firebag 3 and 4, if we look beyond that how, we should rank which one is more likely it is going to get -- proceed first, and what condition change may -- lead to a change] in that order?

Paul, I think I've mostly answered that question already, and I've got to be careful, because we do have contractual obligations.

We have partners in one of those projects anyway.

But here is what I would say.

Listen, this is around applying the technology that we know we have in our genes here, in terms of applying those against each one of these projects.

And then it is really down to a return on capital calculation.

So it is really that simple.

But what I want the time to do is to make sure that we do that extremely well so that we are not second-guessing later on why we picked the sequence we are.

So it is really quite clear.

We will be using our most up-to-date technology and just looking at this, and listen, what gives us the highest return on capital for our shareholders on a go-forward basis.

I'm quite comfortable with the fact that we can be long bitumen.

And so in this world that we see at least for the next half a dozen, if and not a whole decade here, we believe the likelihood is you are going to have smaller light/heavy differentials.

And so that is why we are putting bitumen and production projects ahead of upgrading projects at the current time.

Now, that won't stay forever.

There will be other opportunities.

But that is certainly our current position.

So we should assume that after the Firebag 3 and 4, you would probably go for the MacKay River expansion and Firebag 5 and 6 before you look at the other two?

You're like leading the witness, Paul.

Do you have a law degree as well as a financial degree?

No, I didn't say that.

What I said is we are going to look at all of the projects and we are going to go from there.

Okay, that's fair.

The second question is that you folks have [talked] about CAD400 million of the annual savings run rate by the year-end on the operating costs and CAD1 billion on the cap year saving on the annual run rate.

Can you give us some maybe a little bit more detail in terms of either by segment or by functionality, where there is -- how much of them is human cost related, material or efficiency gain, that kind of information, so that we will be having a better understanding.

And also that where you see what area that may have the upside opportunity.

First of all, you did catch on.

There is potentially more benefits than the CAD400 million that we're going to start to realize in the fourth quarter.

Many of those synergies do come from divestitures, and so we are making divestitures in all of the assets that we are going through, both the international and the North American gas.

So we are going to see some cost reductions there.

We are also going to see some cost reductions in terms of better purchasing and the ability to actually reduce our costs through that.

So those would be two primary pieces that we would actually (multiple speakers) --

Sorry to interrupt, so is the CAD400 million is actually including the associated costs with the asset that you disposed?

Because from that standpoint, you don't really flow through into the bottom line, because you are also losing the revenue.

So did I interpret it wrongly from what you said?

We do have some costs that are associated, and we will be able to reduce those costs.

But they are not directly with that producing property, if that is what you mean.

We are carrying some costs we are going to reduce from that.

Okay, so you're just saying that the G&A costs related to certain property, and when you reduce the property, you can reduce the G&A costs.

Not the actual production costs related to those properties?

That's correct.

I see.

Okay.

Do you have a rough percentage, that out of the CAD400 million, say, segment or by the function of those lines and also (multiple speakers)?

I couldn't give you that right now, Paul, but we will update you as we have those.

Okay.

Thanks.

Amir Arif, Stifel Nicolaus.

Rick, you sort of touched on this just in your last answer, but can you tell us your thought process on the mix between bitumen and synthetic production, just outside of the fact that heavy oil differentials are just longer term with the downstream operations you have now?

That is a question I think you have to kind of answer over time.

So if you think about this on a go-forward basis, if anything the last couple of years, we have been a little bitumen short.

So we have plenty of capacity, and we certainly have room in terms of through the operational excellence piece.

And I will ask Steve if he wants to chip in here, in terms of increasing our (inaudible) capacity with the assets we have right now.

I think what I would say is, listen, we have the capacity at oil sands for moving 200,000, 350,000 barrels a day of capacity.

I think John mentioned we expect to finish this year in the 340,000 range.

I would be very comfortable even at 100,000 to 200,000 barrels a day of more of just a pure bitumen blend that is marketable into the market from there.

It is that kind of a range that I would be very comfortable with over time.

Now, as I say, the issue of light/heavy differentials is one that has cycled historically.

So I'm not trying to say there is never going to be another cycle to this.

And we certainly cannot upgrade in capacity.

It's important to remember, also, we have -- I think it is 25,000 barrels a day of coking capacity at the Edmonton refinery.

And we run a lot of the products coming out of these upgraders right into Edmonton, into Sarnia and into our Denver refinery.

So you have to kind of look at this on an integrated mix.

I'm just saying -- and I think what I'm trying to say is I don't see for the next half a dozen years a limitation on our being able to export bitumen, even if we were 100,000 or 200,000 barrels a day long.

As long as we've got the diluent and the piping assets to get it to the market, I think that is kind of an upgrading risk that I would take.

We still, if you look at it in that way, we are the biggest upgrader in this whole industry, and have more flexibility with our assets than any other player.

So feel pretty comfortable with that in terms of a -- on a strategy basis.

And is there any key lease expiration dates, whether it is Fort Hills or Lewis or any other large oil sands projects, that are coming up in the next five years?

No.

I think the only one that note -- I think, if I recall back to the agreements -- and this is kind of from memory -- is that I think there was an agreement with the former Petro-Canada that we would have Fort Hills on production, I think it is 2018, 2019.

And so -- but I don't see that as being an issue.

Okay.

And just --

None of the other leases have any expiry dates at all.

Okay.

And then just on your strategy of hedging less going forward, is that -- I mean, I understand that process now, but as you start ramping up your capital for some of these new growth projects, is that going to change?

Or is that something as long as you are living within cash flow, you are comfortable leaving unhedged?

I think part of the benefit to this merger is the size and scale in our financial strength.

And I think if you look at our track record over the last 10 years of when we've done hedges, they have not really worked well.

So listen, I'm definitely on the conclusion side of the fact that this is not something that a large company needs to be doing.

So I think, again, if you take a look at it, we are now either the fourth or fifth largest oil and gas company in North America.

We have a lot of different assets and the financial strength to go through the low part of the cycle, especially given the fact that we do now have some international production with a much lower cost base.

I would take that risk rather than have the -- than the risk of hedging and thinking I'm smarter than the market, which has been proven, obviously, wrong so far.

Sounds great.

Thanks.

Greg Pardy, RBC.

I know you didn't want to get too much into some of the details, the numbers and things.

But the CAD35 to CAD39 cash cost, it just seems to be high.

So what I'm wondering is whether you are being conservative there or whether that is just how the numbers shake out as you go with the turnaround and then with the additional cost in the repairs.

Steve Williams, our Chief Operating Officer, is here with us, and it is a great question to turn over to Steve.

We are being realistic.

There are three things we are factoring into that cost.

One is we have, as Rick was saying, substantial turnaround activity on the plant this year.

The second one is we have had the disappointing start.

We do have feed into the unit now, but we are going to have to carry that cost through the year.

And the third one is we will have the full-year costs of MacKay River bitumen into the plant now.

So if you take those three into account, then that is a reasonable range.

Okay.

Thanks.

And just around the downstream -- and maybe I can get this off-line after from John -- but you said basically it's -- are we sort of looking at 30-day turnarounds across the board with most or all of your refineries?

Yes.

Yes, we are, Greg.

Okay.

And Rick, just the last question.

I know you obviously like what you see with Syria, obviously from a growth standpoint and cash flow, I'm sure.

How does Syria -- I just want to find out how you are thinking about Syria in terms of fit with where the Company is going.

Or is this something that you are going to look at and say, we'll see how it performs.

If we get a bid, we will look at it.

Like I just want to understand how married you are to the asset.

Listen, I think I'm pragmatic on this.

First of all, I think our job is to get this project online.

We still have an exploration rig going out there.

We have -- we are drilling a gas well currently.

We have at least two more oil well locations.

We have one other block that we have run 3-D seismic on that we will have interpreted by April.

So I see this coming together kind of midyear, where we will actually know exactly what we have.

So -- and so right now, I am not in the divestment mode.

First of all, I think you are going to get your capital out of this quite readily.

We are very close to the finish live in terms of the project and very proud of the work the guys over there have done to get that lined out.

You can actually do business in Syria; I'm absolutely convinced of that.

It is a place that honors their contracts.

They have been relatively good to work with.

And so it is a place that I'm not particularly afraid of.

And I think what we -- we've got a big investment there.

What is really our challenge here is to make sure that we maximize the opportunity there.

And we've got the time and the breadth to do that.

So again, on personal inspection, on being there, on seeing the work on the ground and seeing the plant and the assets, I really want to make sure that we actually maximize that value.

And that could include staying, and that may be one of the options that are available to us.

Okay.

Thanks very much.

Carrie Tait, The National Post.

Can you just -- whether or not you'd consider sticking with Voyageur all by yourself, or now that you've explored joint ventures, that that seems to be the way to go?

You know what?

I don't know the real answer to your question, so I think we have all options under consideration, Carrie.

And what we do know is we are not proceeding right now with that upgrader.

As I mentioned earlier, we are focusing in on actual oil production more than upgrading at the current time.

But it is an option on the table that we can pull at any time in terms of moving it forward.

That sort of leads into my next question.

I was going to ask with the intention to stay bitumen long, what does the timing on Voyageur look like?

Unknown at the current time, until we get a little bit further along.

I would say that we do not see restarting that in the next 12 months.

It is something, again, when we get back to actually announcing a sequence of projects late this year, we will be in a position to discuss that a little bit more.

Okay.

Justin Amoah, Argus Media.

I was just wondering with Shell announcing plans to convert its Montreal refinery into a terminal, what are the next steps for Suncor in trying to get Line 9 reversed?

That is a great question.

Listen, we are very strongly in favor of reversing Line 9 going into Montreal.

It is something we will be working on.

It is an issue that the whole industry will look at, so it is not our decision alone, but it is something we certainly favor.

As you will recall, Line 9, and for those of you that are on the phone that may not know what that is, it is a pipeline that runs between Ontario and Quebec, particularly Montreal.

And it originally did run crudes from Ontario from the West into Quebec.

It currently runs product, finished product, so it flows the other direction, from Quebec into Ontario.

Certainly something that the industry is looking at in terms of reversing that pipeline back to its original state.

It is certainly something that we are in favor of.

It may take a while to get that lined out.

Okay.

Thanks.

Barbara Betanski, UBS Global Asset Management.

You had mentioned briefly your target for reducing debt this year, and I just wonder if you could detail that a bit in terms of your debt reduction targets.

And you mentioned also a plan to review the dividend around year-end, and I'm wondering longer-term how you are sort of thinking about the dividend policy and when you look at how much cash will be needed to direct towards your 7% growth target, how you would like to grow that dividend.

Both good questions.

Just thinking about the debt side of things first, our target is to take the proceeds from asset sales this year.

And we are planning to complete most of the planned asset sales that we've outlined this year and apply those proceeds towards debt reduction.

So we would see our year-and debt level getting toward the CAD10 million range.

Now that lines out very well with what our long-term objective is, which is to manage our debt to cash flow to a 2 times target at the bottom (technical difficulty) of our cycle, which we would see at about CAD60 a WTI.

So I'm feeling very comfortable based on what we are seeing so far on the proceeds side from the asset sales that we'll be well on our way and should achieve that target by year-end.

When it comes to dividends, what we've said in the past -- and this will be, at least directionally, the plan going forward -- that as we grow our production base, and the growth, as Rick has outlined, is largely going to come from the oil sands side, and we grow our cash flows, we will look to then grow our dividends.

So the next phase of growth that we have coming onstream will be Firebag 3; and that is in Q1 of 2011, we will start to see cash flow from that.

And that is why we wouldn't planned to talk to the Board about considering increases in dividends until that time.

But the overall plan would be to grow dividends, again, as production and cash flows grow.

Thanks very much.

Nathan Vanderklippe, Globe and Mail.

I'm just curious on your new tailings technology what your ambitions are for using that elsewhere.

Is that something you can see being used at, say, Syncrude or selling to other oil sands players?

I think that's a great question.

And I can't speak for other operators.

I guess, first of all, we are very committed to this.

We have actually spent about three years developing this technology.

There are patents around it.

I can't really speak for whether other operators are interested in it.

We are extremely excited about this in terms of its future in terms of us being able to reclaim ponds at a much faster clip.

And the vision is -- and this is not an announcement -- but the vision is that we will eventually get to a point here where we only have one active pond going at a time, and that we will actually be able to reduce our costs by having much short haul distances and much less kind of movement of tailings around a very wide footprint.

So there is some really big rewards as we get this to work.

But it is -- that is a five- to seven-year journey.

That is not a journey that comes overnight.

But I can't speak for really whether other operators are interested in it or not.

Thanks very much.

Thank you.

There are no further questions registered at this time, so I'll will turn the meeting back to Mr.

Rogers.

Great.

Thanks, Joe, and thanks, everyone, for listening in.

And again, Helen and Maureen and Jolene and I will look forward to your detailed calls later.

So everybody have a good day.

Thanks.

Thank you.

The conference call has concluded.

You may disconnect your telephone lines at this time.

We thank you very much for your participation.