Suncor Energy Inc (SU) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Suncor first-quarter conference call and webcast.

I would now like to turn the meeting over Mr.

John Rogers, Vice President Investor Relations.

Mr.

Rogers, please go ahead.

Thank you, Ruth, and good morning, everyone, and welcome to our first-quarter conference call.

I have in the room with me Rick George, our President and CEO; Steve Williams, our Chief Offering Officer; Bart Demosky, the CFO; Maureen Cormier, our Vice President and Controller; and [Jolene Gillamo] from the Controllers Department; and Helen Kelly, of course, is with us also.

Rick is going to kick us off with his comments on the quarter and a bit about the business and then we'll go from there.

So, Rick, I turn it over to you.

John, thanks a lot and good morning, everyone.

We've got a little bit of ground to cover today, so I thought the best part of these calls is usually trying to give you a real good feel for how we think things are going here at Suncor.

And obviously we would prefer to speak to you about things that we're delivering on rather then our hopes and dreams, and we do have a lot going on in this company.

So specifically today what I'd like to cover is operational reliability.

We'll give you an update on the merger; we'll give you an update on future growth and our thinking about when we'll be able to talk about that in more detail, and then an update on really when we think we'll be through this and the path forward.

So, and also Bart will give you some comments on the quarter itself and then we'll open up for questions and answers.

I am going to ask both Steve Williams and Bart Demosky to help on certain parts of this this morning so you'll have three speakers.

So anyway, let's get started with operational reliability.

And listen, like many of you on the call, we are very disappointed with our performance in the fourth quarter of last year and the first quarter of this year.

What I can assure you is that we have taken this very seriously, that all of our management and, by the way, all of our employees are not happy with the two incidents we had at our Oil Sands upgrader in the fourth quarter of last year, the first quarter of this year.

We have made a lot of progress over the last several years at Oil Sands and are really a bit shocked to have two incidents like this back to back.

What I would say is that we have brought in experts -- Steve will talk about that more in a minute -- and are taking action to try to minimize the possibility of this happening again.

And if you think about it as compared to our competitors in the Oil Sands space, I think we're no better, no worse, but of course that's not the goal.

We are very uncomfortable because we've always have been a leader and it's our intent to stay in that leadership kind of position.

If you think about the Company overall, I just want to step back.

You know, our international and East Coast assets are working well; our natural gas downstream assets are operating in a very safe reliable fashion.

We monitor both safety and operational statistics on all of those assets.

And if anything they're exceeding our guidance and the things that we put out to you.

It is just these two issues around the upgrader that have kind of delayed us coming out of the gate here.

What I'd like to do now is ask Steve to jump in -- Steve Williams, who is our Chief Operating Officer -- talk about what he and his team at Oil Sands are doing to reestablish that leadership position.

Steve?

Okay, thanks, Rick, and good morning, everyone.

First let me just reiterate what Rick has already said.

We're tremendously disappointed with the two incidents, the one we had in December and February.

And when I say we, I do mean from senior management right the way down to the operators.

It did -- if you cast your mind back, it put a tremendous damper on what was an outstanding year.

Last year we set daily, weekly, monthly and annual records on the mine, on in situ extraction and upgrader.

So to have such a disappointing end to the year was tough for us.

We are absolutely determined that we will resolve the issues at Oil Sands.

I do want to reinforce a couple of things though.

In this business often when we have issues it's to do with the [results].

That's not the case for us.

It comes down to equipment and processes that we deploy.

So the good news from that is it's within our control to fix it.

To get to the bottom of what the issues are here, as Rick said, we did bring in the best the world has to offer in terms of independent advisors.

So we had A.T.

Kearney, DuPont and Pilko in here.

And we charged the Group with two activities, quite different ways of looking at the problem.

The first one was a rigorous fact-based review of every event we've had on those plants over the last five years.

That piece was -- the consultant who helped us do that was A.T.

Kearney and they were able to use their worldwide benchmarking system which compared and brought best practice from about 50 other facilities around the world.

The second piece of work we did in parallel was what we call a qualitative review which really was interviews with 51 of our people from the most senior level right the way through to the maintenance technician and the operator technician.

And that was just make to make sure for all of the assets and practices and processes we thought we had in place that these things were actually having effect where the rubber hits the road.

So we checked everything through that practice and culture study at the same time.

So at the very highest level, in summary, we found a few things and none of them a complete surprise when you hear them.

First one, obviously we've been in a decade of very fast change in Oil Sands, a significant change in people, significant changes in processes and process -- by processes I mean the way we get things done and significant changes, mainly additions, to the assets through this period of high growth.

Of course for the base plant we're at the end of that period of high growth so it is a period of consolidation.

The study is complete in terms of its analysis, it's just entering its final recommendations phases and we'll conclude that work over the next couple of weeks.

Both Rick and myself are on the steering committee; we took our Board through the status of it yesterday.

If I had to summarize in just one phrase where the improvement plans are going to be focused, it's back to basics.

Amongst all that level of activity we need to get back to some of the good practices we know how to do.

So, as part of our operations excellence initiative, you've heard me speak in the past about how we've been implementing a process safety management approach, which is the industry's best approach for these types of operation.

So I don't want you to think for one second that that means we're complacent, but it does mean that we've got a head start on doing some of this work.

Now, in some cases we've taken immediate action and right now we have a double check on every critical operation that's going on in the plant and we'll continue that until we -- until we displace it with a better practice.

So that means some of the things we're doing are taking longer.

Overall the investigation has helped us to sharpen our focus and we will be increasing the pace of our journey to operational excellence.

But it has confirmed that we're on the right track.

We have a lot of other measurements we take underneath the headline production and cost numbers and almost without exception all of those key indicators are moving in the right direction.

So some great progress has been made.

As I say, we just need to increase the pace and stay the course with operational excellence.

So, if I look at the current operations you'll see it we had an excellent start-up on Unit 1.

We did take the opportunity during the maintenance to do work on the mine and construction and you'll see that so far the program is working -- very early days, but we did post record production in April of just over 330,000 barrels a day.

So a good start but we need to -- as I say, we need to stay the course.

Other businesses -- just a brief comment in general -- are doing very well.

I'm particularly pleased with safety, the reliability we're seeing across the businesses, the operating costs and the divestments in the gas business are going very well.

Rick?

Thanks, Steve.

And now let's move on to the merger.

You know, the merger is one of the key things I think we want to talk about today.

And as I've traveled around a bit or around Calgary here, people used to talk to me about the weather, they used to talk to me about oil prices, talk about gas prices; now all I hear as I walk down the street is well how's the merger going?

So I know it is top and center on people's minds.

Let's just kind of frame this up.

So 2009 was really around the announcement, the initial positioning of the merger.

And you'll remember we just closed in August, so normally about nine months into this.

2010 is really about driving efficiencies and really getting this organization around to get to those, as I call it the base foundation of this organization, straight and solid so we can then build on it from there.

And you'll see us in 2011, we'll come back to the -- centered on growth, on Oil Sands growth and other areas of growth as the new company moves forward on a very solid basis.

So, the short answer to the question about, Rick, how's the merger going is I actually feel really good about where we are.

I think if you look back a year from today and you think about what all we've accomplished in the last 12 months I feel really great about it.

I think the merger was done at the right time.

The bottom of the market is always a good time to do a transaction and we did it right, pretty close to the bottom of the market.

I think it's going to drive unbelievably good value on a go-forward basis.

We have had some consultants in that really have helped us through trying to measure how the merger is going so that we actually make sure we're on the right track.

And what we get out of them is the progress we've made in the last nine months since August 1 would rank is in top quartiles in terms of how mergers go.

Now that doesn't mean it's perfect, it doesn't mean we're done, but it does mean that I think we feel really good about the track we're on.

If I can take you back to the synergies -- at the time of the merger we announced CAD300 million of expense savings and CAD1 billion on cost savings.

And we upped that number to CAD400 million on expenses, the expense number only here a quarter ago.

I can just tell you that our expectation is that the number is going to be considerably higher than that.

I won't give you a new number because I don't want to declare where we are until we're absolutely certain of delivery.

But what I would expect to do is come back to you in the third or fourth quarter, give you what we think the final number is and then put that to bed.

We are very solid on the CAD1 billion of capital synergies, in fact we think it's a lot higher than that.

But we will actually -- now I'll just kind of put a nail in the coffin on the CAD1 billion capital savings synergies.

It's getting actually to be more of a struggle to measure it than it is to move forward.

So I feel really good about that and again we'll be back to you on the expense side of that.

If you then move on to the asset divestitures, both here in North America and on the international, where first of all the pricing we've got for the assets that we've sold has been above our expectations.

We are very much on schedule.

So to date we have agreements, we don't have the cash but we have agreements on about CAD1.5 billion in asset sales and I expect this divestment program on the assets that we've told you about to be done before the end of the year, so we'll have this behind us.

And again, the pricing has been very good on this.

We actually expect that our total proceeds from these asset divestments is going to be over CAD3 billion.

There's been a lot of interest -- on the assets that we haven't announced I will tell you that we do have multiple bidders and the process is going very well.

In addition, we are in the process of closing our London, England office.

We are -- we here in Calgary are going into one building.

So, the Suncor Energy Center building is being renovated, it hasn't been renovated since the 1980s and we're on track to having everyone into that building by the end of this year.

We are currently located in the Sun Life building here in Calgary and I can tell you two-thirds of the space that we have here is already subleased and we're working hard on the other one-third.

So it just shows you things are moving along, we are making real progress.

The one other thing we did here about five, six months ago is we did a cultural survey with our employees.

So this is relatively close after the close and, not so surprising, people are going through a tough adjustment to the new company.

And so there are certainly some challenges, some things we need to improve on.

But it does also show that people are very proud to work for Canada's largest oil and gas company, understand our value systems and really believe in the strategy on a go-forward basis, which is very important.

So, I feel pretty good about where we are on that -- not that there isn't plenty of room for improvement.

So I think the other thing we're kind of working hard on -- this is probably one of the toughest pieces of work and that is on our whole systems and process integrations.

So, about four years ago Suncor implemented a broad SAP program so that your finance system, HR systems, your payroll, your accounts payable, your supply-chain systems all talk to one another.

We have really driven that so that we've gotten more efficient.

Now with the merger it's going to take us a while to get back to that.

And so we are actually moving all of the assets over to an SAP system and then we're going to upgrade that system as well.

So this is going to be implemented in about four waves.

The first of these releases, as we call them, will actually happen August 1 of this year, and the last one will happen the second quarter of 2011.

And that will be the foundation on which we're able to drive efficiency and it will help us also to reduce costs and then also we will certainly have fewer headcount, particularly in consultants and other people, as we do that.

So it is very tough work, but what I would say -- very proud of the work that's been done and very much looking forward to getting that done overall.

So, many of you have asked for more specifics around how we're going to grow this operation.

We've talked a lot about we felt very confident that our Oil Sands operation can grow by 10% to 12% per year on a go-forward basis, we still remain very confident of that.

You know that we are working full steam ahead on Firebag 3; we have over 2,000 construction workers on site there now.

Firebag 3 will be complete by the second quarter of 2011 and we're also working on Firebag 4, it should come on the second half of 2012.

And as you know, we have some 26 billion barrels of resources to support that growth, that kind of growth for a decade or more.

And so we're working hard on the engineering, but also on the strategy of lining up which projects go next and the exact order and timing of that.

We will be back out to you later this fall with that.

And one of the reasons I'm not kind to rush that is we just want to make sure that we do all of our homework around getting costs down in these projects, get the engineering far enough along and making sure that we proceed with the right projects after Firebag 4.

So, we'll talk to you -- we'll have a chance to talk about that either at the end or of the third or the end of the fourth quarter.

And I think from then on the transparency of this growth will be very clear to you.

One of the reasons we're doing that as well is it's very important that this company get our foundation processes and systems correct before we refocus this organization on growth.

Without that solid foundation then driving this synergistic value would extend for a much longer period of time.

So I just feel very strongly that there's a sequence to this that's very important.

Looking forward, we expect to exit this year with very good strong production in Oil Sands but also across the entire company.

We expect to have our cash costs in Oil Sands in the low CAD30's.

The East Coast international assets we'll be producing full out.

Our natural gas business, the divestments we've completed, they'll be moving forward.

And then we also expect to have an organization that the processes are improving and an organization that's in one building and fully aligned.

So, really looking forward to kind of getting to that position and, again, lifting off from there.

So that's kind of where we are.

And now I'll turn it over to Bart who will say a few things about the quarter.

Great.

Thanks, Rick, and good morning, everyone.

As I'm sure you've probably all seen in our press release this morning, our operating earnings in the first quarter were CAD287 million in cash from ops, CAD1.124 billion.

I just want to touch on a couple of key factors that influenced the results this quarter.

The first being higher benchmark prices and the results certainly reflect stronger crude oil prices, we've been the beneficiaries of that, partially offset by the strong Canadian dollar and weak natural gas prices as well.

WTI was CAD78.70 a barrel during the quarter in natural gas for us averaged at CAD5.35 an Mcf at AECO.

Now the light/heavy differentials at Hardesty were constructive as well, in fact they were quite tight at US$8.95 a barrel.

Refining margins recovered from seasonal lows of Q4 and are slightly ahead of Q1 2009.

So all of those factors were working in our favor and had an impact on the results.

As both Rick and Steve have touched on, though, the other factor that impacted us in the quarter certainly was lower volumes.

They were lower than expected, mainly as a result of the operational upsets at the Oil Sands upgraders.

And we had an impact there of about 98,000 barrels per day lower than our previous guidance of 300 a day for the year.

It also had a negative impact on our downstream results as they had to supplement proprietary feed with third-party purchases to meet our contractual requirements and also had some additional refined product purchases that they had to make to meet demand.

I'd estimate that the total impact of those fires on operating earnings was just about CAD600 million and the impact on cash flow about CAD800 million in the first quarter.

Also impacting volumes was international, they were slightly below guidance of [138] at 133,000 barrels per day.

And really the story there was restrictions -- production restrictions in Libya and some unplanned maintenance at Buzzard during the quarter, but that was fairly minor.

On the flipside of that, positively impacting volumes was our East Coast operations where production averaged 75,000 barrels per day exceeding our current guidance of 60,000 a day and previous guidance of 55,000 a day.

So, tremendous results there.

And higher production at Hibernia driven off of better reliability and stronger reservoir performance was the story there.

Natural gas averaged 733 million cubic feet a day and that was a fair amount of our guidance of 680 a day as well.

And our Syncrude operations added 32,000 barrels per day of volumes and contributed about CAD14 million to net earnings.

Our refining and marketing operation also had a very strong quarter and delivered CAD196 million to net earnings.

And that's really a reflection I think of additional throughput volumes that came to the table through the merger, as well as continuing strong retail margins for that business, it's been a very positive situation for that part of the business for a while and we did add some more stations that were producing results over the quarter as well.

Now with our lower Oil Sands production we did see a higher costs and it's really a matter of the math.

When you're spreading a large amount of fixed costs over a lower volume it just leads to higher prices and our cash cost per barrel on the quarter ended up at just under CAD55 compared to our guidance of CAD35 to CAD39.

Now those costs also included CAD40 million from MacKay River, but also reflect higher production from our Firebag operations.

Slightly offsetting those Oil Sands costs were royalties which were significantly lower than last quarter as a result of the lower volumes.

And on the in situ side we did see a decline in operating costs there continuing to move in a very positive direction, down to CAD19.35 a barrel from CAD20.30 in Q4.

And that's despite higher natural gas prices quarter over quarter.

So this was really driven by improved production volumes from that business.

Just to turn to the balance sheet for a moment, as we drive towards our goal of lowering our net debt to about CAD10 billion we're closely watching two things, first being cash flow from ops and the second being of course where we're at on our divestment proceeds.

And although our cash flow in the quarter was -- from operations was not as strong as it will be going forward, we still came out of the quarter in respectable shape with our net debt down to about CAD13.1 billion.

As Rick said, we already have agreements in place on about CAD1.5 billion of divestitures and to date have received just under CAD900 million of that.

And we're targeting CAD3 billion to CAD4 billion now in total divestitures.

So bringing our debt down towards that CAD10 billion mark by year end does still look quite achievable.

So looking forward, we have a heavy slate of turnarounds in our upstream assets in 2010, particularly in Q2, although the third quarter has much less of an impact so we should start to see a clear picture of the results from the operations.

These turnarounds, of course, will impact financial results.

But by the fourth quarter there is minimal production impact from turnarounds in the schedule.

So, all that adding up we do expect to continue building on operational efficiencies and financial momentum throughout the year and that's something I'm feeling very good about.

So that concludes my comments.

I'll turn it back to John.

Great, thanks, Rick and Steve and Bart.

As you saw in the outlook, there were some minor adjustments to production numbers, particularly around Oil Sands where we're now predicting production volumes of 280,000 barrels a day and that has more to do with what happened in the first quarter versus what we are expecting in the future.

Cash costs CAD38 to CAD42, again more with what happened in the first quarter versus what was a change in our view of the future.

And Bart did mention the -- particularly the East Coast had a very good quarter and we did take the opportunity to up their guidance from 55,000 barrels a day to 60,000 barrels a day.

For those of you who -- I'll give you a couple of modeling things and hopefully this is all the modeling things we talk about on the call.

LIFO/FIFO adjustment was CAD47 million, so our earnings would have been lowered by CAD46 million if we followed LIFO.

And we have been asked for the split of that CAD400 million in operating synergies, and this is just an approximation of where we think it will reside, but about 30% will be in Oil Sands; about 15% in nat gas; about 10% in I&O; about 20% in R&M; and about 25% in corporate.

So that's I think all of the prepared comments we had for you.

Ruth, if I can turn it over to you to poll the callers for questions.

But again, if we can keep the questions for Rick and Steve and Bart to a strategic level after the call of course Helen and myself and Maureen and Jolene will be happy to answer your detailed modeling questions.

So, Ruth, if you'll take it away.

(Operator Instructions).

Robert Kessler, Simmons & Co.

Good morning, Rick and everyone.

Your Oil Sands unit cash costs have been running high and I know that's expected given the lower volumes and higher costs associated with the fires.

And I definitely appreciate your candid remarks about and review of best practices for asset reliability going forward.

And in the long-term I would think that that improved reliability brings down those unit cash costs, but at the same time that reliability initiative in its own right probably carries a few costs of its own.

So, I'm curious how you're thinking about the net effect of that kind of higher integrity spend and higher utilization rate?

And what your net expectation for cash cost per barrel in the Oil Sands might be for the next call it three years?

I think you referenced low 30s for the exit rate this year.

Is it too hopeful to think we might get down into the 20s in the next two years, particularly with crude prices in the 80s?

I think you very eloquently almost answered the question there, Robert.

I think you're right; there are lots of puts and takes as we go through this program.

Bart talked about the very high percentage of fixed costs which have had the impact this year.

I think what we've guided on is we do anticipate getting into the low 30s again by the end of this year.

And that's as we start to see volumes come up.

We have aggressive programs which we're working real costs in terms of [sweating] the detail of the costs.

We also have a focused reliability program which was really paying off for eleven and a half months last year.

So I think we're comfortable to talk about the low 30s and we target further than that, but wouldn't claim when we would get there.

Okay, thank you very much.

Andrew Fairbanks, Merrill Lynch.

Good morning, all.

I had two questions for you, Rick.

I wanted to get your view on share repurchases longer term out in time with debt coming down and asset sale proceeds potentially coming in even higher.

How do you think about that in terms of shareholder returns?

And then the second was just I wondered if you had some additional color on what areas you're finding better than expected cost synergies coming through?

So, okay, Bart will take the first part of the question on share repurchases.

You might want to talk just a bit about dividend as well, Bart; there's always kind of a mixture of that.

And then I'll take the second one.

Sure.

Yes, great question, Andrew.

I think the way to think about our progress for it is to first look at the slate of opportunities that we have in front of us.

As Rick mentioned and Steve touched on as well, we do have a tremendous portfolio of growth opportunities in front of us.

We are on a path I think to get our debt down to around CAD10 billion, but that's kind of the structural level where we'd like to see ourselves get to.

If we were to continue to see high oil prices and tremendous cash flow over time, obviously that will afford us some opportunity to start returning more of that cash to shareholders.

But we'd want to see that environment first.

And of course we need to fund our operations and those growth opportunities.

So, it will be out a ways in the future.

What I would say is depending on the timing; obviously as we continue to grow production and our cash flows grow that's when we'd look to target returning more of that to shareholders.

The earliest I'd see that is probably sometime in 2011 when we bring the next phase of Firebag 3 on and that production starts to produce cash for us.

Great.

And then the second part of that question, Andrew, deals with the areas of synergies.

I think I would mention international.

So, as we are going through the divestments on that international portfolio then we find ourselves with I think a good set of base assets that we're very proud to own long-term, but didn't feel like we needed the large overhead of a London office.

So at the end of all of this we're going to have about 70 people here in Calgary who will look over those international assets.

And if you think about it, that's almost 200,000 barrels a day of oil equivalent.

And so there's been a huge cost savings in that on a go-forward basis.

The other thing is about an area I would largely term as corporate overheads.

So if you think about a synergy -- a merger like this you think about the synergies and you think about that platform I talked about and the need for a solid foundation.

Then there are cost savings because you don't need the same size of HR group or finance group or other overhead areas as the two companies have separately.

I would single out a couple things.

We're seeing huge value in the supply chain management of this and the expectation is quite high for that.

And if you think about who in this country of Canada has one of the largest capital spending programs and, by the way, one of the largest spending programs on expense basis annually, it's us.

And so, although we felt good going into the merger where our supply chain management group was, there is still lots of room for improvement; very proud of the work they've done in this.

They give processes and systems to back them up; you're going to see huge savings versus where the two companies were before.

The other area I'd point to is IT as well, because we will through this year or into the first part of next year be shutting down something like 3,000 computer applications as we bring this ERP system up and running.

And just take that down to a little bit more practical application, when we get down to one payroll system, one Accounts Payable system, one email system -- all those basics, it's just amazing how much money you can save by doing that.

And again, getting back to -- getting all of us into one office will also be a huge plus for us.

If not just from a financial position, from a team position as well.

So, those are the kinds of areas that I would point to in terms of the real chance to make a huge impact.

No, that's excellent.

Thanks, Rick.

Greg Pardy, RBC Capital.

Hi, good morning.

A couple things, the April production numbers, could you give us a little insight into those?

I mean, they're really big numbers and I guess that, as well how are you feeling right now about your exit rate of 340,000 to 350,000 barrels a day?

Okay, thanks, Greg.

Yes, I mean April was a tremendous number and particularly pleasing because we had such a disappointing preceding few months.

I think in a sense it reiterates a couple of things for us.

We did talk towards the end of last year and you heard me mention that the programs we've been working on have been delivering.

We've been able to take existing assets up to controlled high levels of throughput, we've taken them up to, as I say, daily, weekly, monthly and annual, even accounting for the problems we had last year operating levels.

So it was pleasing to be able to come straight at the gate and get up to 333,000.

We did have -- you know that the limit on the operation has largely been the bitumen supply, so the ability of the mine and the in-situ assets to produce.

One of the things we were able to do and we took full advantage of during the shutdown was to make sure we got ourselves in an excellent inventory position so that once we had the upgrading facility (inaudible) we were able to move the full volumes through, both to upgrade it and to have the diluent available so that we could make full use of our bitumen export capability.

So it was very reassuring to see it and we feel very comfortable at those levels and, in fact, we have taken it on a daily basis much higher.

The exit rate I would say, first of all you've often heard us say we don't want to talk too much about the future in the sense that we want to lead by our performance and then talk about what we've actually done.

So now you know what the plant is capable of and we've been able to post a good score.

We guided it back [to 80] level which has given you a view of how tight the plan.

And I would say we'll see how it goes for the rest of the year.

Individual months due do depend on were we able to get in a good inventory position for April, sometimes you can do that, sometimes you can't depending on the circumstances.

But you can see what the plant is capable of now.

Okay, no, thanks for that.

And then just without rehashing the fire -- you know, Rick, I know when you and I talked you were saying still haven't quite got the determination.

Does it look as though it was operator error or was it something else?

Have you been able to identify it at this stage or not?

Yes, yes, so the investigation on that is largely complete and, yes, we do have the cause, it really dealt with the fact that we had a blockage and then we had a freeze up in a pipe break.

So we think -- you're never 100% certain in these things, so it was an equipment failure.

But because we had a dead leg that actually froze, so I don't know if you'd call that an operator error or not, it's kind of a combination.

And what you usually find in these events, it's not one thing; it's about two or three things that go wrong in a sequence.

So yes, I think we're pretty comfortable that we have what actually caused the second issue.

And then obviously you're taking steps to make sure that does not recur.

Thanks very much.

Stephen Richardson, Morgan Stanley.

Good morning, guys.

A quick question just, Rick, on the gas business.

Going forward how should we really think about I guess the sizing of that business and the potential for growth there?

Is this really a 350 million to 400 million a day go-forward business which is sustaining capital?

Can you give us any thoughts on how the thinking may be changing on that side in regards to divestitures?

Sure, Stephen, and thanks for that question.

And you know what?

Listen, I think once we get this natural gas business down to the right size the real focus is going to be around return on capital in that business.

And so what I think is very important here is that we not be kind of held to the old business model that either company prior to this had around natural gas.

I do want to see a business that's growing, because I mean in this business if you're not growing you're kind of -- there's only one other direction.

But what I would say is we've got to get ourselves to a low cost position where we're able to make money when gas is in the CAD4 to CAD5 range.

My own belief longer term, Steve, is that we will see CAD6 to CAD8 gas.

It won't be this year, maybe not next, but we will be moving back into what I would call a more normal -- we're not going to see CAD10 or CAD12 gas either.

But what I would say is you've just got to prepare yourself to be on the low part of the cost curve.

And so I still see that as a very important part of Suncor.

But one that won't be growing at the same kind of rates that our Oil Sands business is.

We're still going to be an Oil Sands centric growing company, but that does not diminish the way that I see natural gas or by the way R&M or international offshore is being key parts of the Company.

I think a company this size you do need some of that breadth and width to fulfill the strategy.

Maybe just a follow-up, Rick.

Do you see the assets within the portfolio today to deliver on those goals?

Or do you need to make some either swaps or asset changes in that portfolio to meet those return thresholds?

Yes, that's a good question.

I think the answer is probably.

But I think the base part of the divestments out of that business will be done this year.

It will be around -- okay, and the charge to [Neal] is really okay, Neal, we've got the divestments done now; you find a way to profitably grow this business.

And that's what I don't think we're quite in a position to get overly discussed about.

That may include the ability to make swaps, and assets may move in and some positions move out of some.

Not at the size and the scale that we are doing today, but it is really around how do you prepare that business to go for the long haul.

Thanks very much, guys.

Paul Cheng, Barclays Capital.

Thank you.

Hey, guys.

I have to apologize that I came in a bit late, so maybe that you already covered it.

If you do, then I apologize about that.

Rick, you have I think retained a consulting company that's coming in and looking at the [best practice] and reliability issue.

Did they already gave you some kind of preliminary finding and suggestion, and what kind of initiatives that you guys have in mind that may be implementing over the next six to nine months?

Paul, we actually covered that very extensively at the front end, so if you don't mind, if I could defer that question until after the call.

Okay, that is fine.

I will just read the transcript then.

That's okay.

And the second one that you have a turnaround in the Oil Sands for 40 day.

Is that going to be in June or is going to be in May or July?

It's going to be in May and June, Paul.

May and June?

And it is the vacuum tower on Unit 2, so it is not a complete shutdown.

So how much is the production impact during that 40 days?

It is 85,000 barrels a day.

85,000 barrels per day.

And it would start in early May, I presume?

45 days.

Okay, 45 days.

And then final, one quick one.

What is the exit rate that you guys -- you give a full-year estimate for production on Oil Sands, North American gas, East Coast and international.

Do you have an exit rate for 2010?

Paul, it's John.

We don't.

We had the question earlier about the exit rate in Oil Sands, and I think we answered that one.

And we haven't actually put out exit rates for the rest of the assets.

And until we go through all the divestitures and whatnot, that's probably best that we don't.

I think you have an idea in terms of what we are going to do in terms of divestitures, so you will kind of look at where we think our base will be.

But if you give us a little bit of time as we put in place the strategy, that will all become a lot clearer.

Okay, thank you.

Carrie Tait, National Post.

Hi, good morning.

Thanks for taking my call.

I'm wondering if you can give us any idea on whether Syncrude is still -- you expect it to stay a part of the portfolio?

Carrie, I think it's a great question and I get asked that quite a bit as you might well guess.

So, what I would say is, listen, Oil Sands is a key part of our business.

Our intent here is that we would stay in Syncrude because of the strategic value that's in our heartland business.

But what I would quickly say is you never want to say forever, okay, in terms of -- I guess everything is for sale at the right price.

But what I would say is our going in position into this is it's a key part of the portfolio going forward.

Okay, thanks.

Will you have any -- will there be a pared down version of the report that you might public on the accident?

There's no intent to have a public report around the latest incident.

We're more than willing to talk about it and give you an update, but not a public report.

Okay.

And my final question, again sort of related to accidents.

Why didn't Suncor press release the explosion at the Montreal refinery?

We did.

We did.

We did release it.

That was a very minor issue.

We did, it was a minor event, it wasn't the refinery itself, it was a vehicle on an operating bay.

So it's had no impact on the refinery operations.

It's actually a vehicle fire, not a refinery incident.

Yes, Carrie, if you do check our press releases on our website you will see it there.

Okay, thank you.

(Operator Instructions).

Mark Gilman, Benchmark.

Guys, good morning.

Rick, I wonder if you could talk just a little bit about your thinking on the module sizes of 65,000 a day that you've chosen to go with at Firebag, which is frankly a bit larger and different than we've seen across the industry.

And in that regard give some comment, if you could, on what you believe a full cycle capital cost is on a per daily flowing barrel basis.

We've seen various numbers being quoted and they seem to mean different kinds of things depending on who you're talking to.

Yes, you know, Mark, I think it's a great question and I would guess -- you know what I think the market misses some is every SAGD development is different and it's different in terms of reservoir thickness, in terms of how water wet or not wet it is, around reservoir quality, around location, around depth of reservoir.

And so I think the market tends to kind of blend all of these into one.

So it isn't like one development scenario fits all.

So I think that's one of the things I would say to it.

For us, you've got to remember, Firebag has 9 billion barrels recoverable, it's a huge, huge resource.

And we believe that stepping it up in the 65, which is what three (technical difficulty) or five -- given our experience on stages one and two makes the right kind of size and scale sense to us.

We already have a lot of the infrastructure in for those -- of those future stages which includes a lot of the power lines, the roads going in, the airstrip, the pipelines, so we're putting in a couple more pipelines this coming winter.

But what I would say is for that development that size and scale that makes sense.

If you have a smaller plot of land with a different reservoir you might be in a completely different scenario and I would give you MacKay River which I can talk about because that's ours.

You know, 65,000 on that would make no sense.

So, I think you've got to take each circumstance and take a look at it, it's not one size fits all.

Now around the cost thing, I mean what we like to think about in the SAGD is it's kind of CAD40,000 to CAD50,000 a daily [pool] on dollar per barrel for SAGD.

Now again, reservoir amounts (inaudible).

Let's just say Firebag, for example, our well productivities are double what the industry average is.

So this is a very good reservoir.

Again, every reservoir -- and even Firebag, you'll find some of the well pads will be very different than other well pads.

So you've just got to take -- you've got to take what mother nature gives you and then work with that.

Rick, when you talk CAD40,000 to CAD50,000, are you talking about well pads that will fully support 30 years worth of production?

(multiple speakers) 25 years, yes, for sure.

Okay, thanks very much.

(multiple speakers) it's important to remember, Mark, is we have not actually as an industry, that I know of, produced one of these to full life.

So that's why you see us and other players starting to do infill drilling, we're starting to find ways to keep reservoir pressure up other than using natural gas, you're starting to see people use light solvents.

So, this is an industry that's still very much in its very young years.

There's a lot of growing and a lot of technology that will come along to really improve this business overall.

I'd say kind of stay tuned.

This is actually going to be fun before it's over.

And the fact we have so many players trying and pursuing different technologies is a real plus for the industry.

Thanks very much, Rick.

Thanks.

Justin Amoah, Argus Media.

I was wondering how, if you have an idea, about how the April increase in tolls on the Enbridge system will affect the Company going forward?

You're talking about the specific change in the tolls potentially?

We're still assessing that.

I'll be happy to actually answer those kinds of detailed questions off-line if I can.

Okay.

Thank you.

Thank you.

There are no further questions registered at this time.

I would like to turn things back with you, Mr.

Rogers.

Well, thank you, Ruth, and thanks, everyone, for listening in.

And again, Helen and I and Maureen and Jolene will be happy to take your detailed calls at my telephone number.

So please give us a call.

Other than that, we are having our AGM in Calgary today, so if you'd like to come down to the Telus Convention Center at 11 o'clock we'd be happy to do that.

And the presentation is on the -- the new IR presentation is on the website.

Okay?

So thanks, everyone, and have a good day and we'll talk to you soon.

Bye.

Thank you.

The conference call has now ended.

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