Suncor Energy Inc (SU) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Suncor's second-quarter 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.

Thank you, Colleen, and good morning, everyone, and thanks for listening into our second-quarter conference call.

In the room with me today I have Rick George, our President and CEO; Steve Williams, our Chief Operating Officer; Bart Demosky, our CFO; Helen Kelly, who works in the Investor Relations Department; and from the Controllers Department, we have [John McKenzie], our Vice President and Controller and [Joleen Gillamon].

We are going to start with the normal process.

Rick and Steve and Bart will give us their perspective on the quarter, and then we will open it up to Q&A.

So Rick, why don't you kick it off?

John, thank you very much.

Good morning, and welcome, everybody.

Listen, we are delighted to have you on the phone call this morning and delighted to report a solid second quarter.

We had good, strong production, and what is obviously very encouraging for us is the remaining portion of the year looks very encouraging.

The second quarter was really one which we had significant turnaround work at our Oil Sands.

I can say it was executed very well.

And despite the turnaround work that we had, and we had our vacuum tower on our largest upgrader down for about a month or a little over, we still had one of the best quarters on record.

I'll let Steve update you more on the operational side in just a moment.

What I would like to do is kind of concentrate my comments on the merger and the forward-looking strategy.

And what I want to take you back is one year.

I guess it is always kind of the role of the CEO to take the broader view.

And, you know, we closed the merger on August 1.

So just one year and a couple days ago -- or a couple days less than one year ago.

And what I've got to do is kind of give you the report card on where we are.

I feel very proud about what we've done in that one year.

Feel very good about the path forward.

And feel very good about being on the right track.

Now in that merger, we had announced that we had CAD300 million of operating synergies.

We have actually increased that in the intervening period to CAD400 million.

We still continue to make great progress on that front and would expect to exceed that number.

We will come up with a final update here in the third and fourth quarter of this year, and we will kind of close that off, but feel very good about that.

And you should continue to expect to see that flow through to the bottom line as we go forward, certainly through some of the toughest part of that.

We also had a target to sell between CAD2 billion and CAD4 billion in assets.

I'm proud to tell you we are on track with that.

Most of the divestitures will be completed here by the end of 2010.

To date, those divestitures amount to about CAD2.4 billion.

You did see a lot of the cash come in during the second quarter, so the cash from these divestitures are going to start to roll in third and fourth quarter.

There may be a little bit that lags into the first quarter of next year.

And our current estimate is that the divestitures in total will be in that CAD3 billion to CAD3.5 billion range.

So those of you that are modeling that know that's kind of where we are.

The transaction metrics we are seeing are solid, well above plan, and definitely the assets that we would not see in this Company long-term.

So it all kind of fits there.

Along with the asset sales and operating synergies, we are obviously working hard on our overhead costs.

We've reduced our office size -- our head office size by about 1000 people.

And what we expect here is continued drive on efficiencies.

We've closed the London office.

It actually has, I think, a little less than 100 people currently in the office, and we would expect to get that totally closed by year-end.

We are in the process of relocating the staff in Calgary to one building over the next four months.

In fact, I think we move here in two weeks' time -- we and the Finance and the COO's office.

We are proud to tell you that we have already subleased 70% of the space we have in the Sun Life Plaza, where we currently sit.

So the subleasing, moving, getting everybody in one building is actually moving along.

And on that front, I'm very happy to tell you that I feel like the team is really coming together.

We really -- you know, you never want to declare success on this, but I really would say I feel very good about the leadership team coming together as one team, really understanding where the strategy is, what the values and beliefs are, what we've got to do to make this Company a lot more efficient, and feel really great about that.

Now of course, there are always challenges ahead, and before we can actually realize the true long-term potential of this Company.

One of those major enablers is a companywide ERP system.

We are going to a total SAP system.

Now, that is the system that Suncor was on, and we went through the challenges of that about four or five years ago.

We'll have the total Company converted over to the SAP here by the end of 2011.

The first phase of that -- this actually comes in kind of four different phases -- the first phase of that actually gets enacted this weekend.

And so we are making progress.

Never as quick as you want, but we are making progress.

And that will be -- that platform will be a key enabler.

These mergers, it always seems like your systems are the toughest, some of the toughest things to get right and get going.

Work on operational excellence and the liability of our existing assets has continued to be a big focus area.

I'm going to let Steve talk about that.

And again, I mentioned the real drive, and one of the areas that I'm concentrating on, is the drive for efficiencies and cost management.

But listen, if you think about a one-year out -- and if I could have painted you a picture then about what this Company should look like, where we should be one -- some 12 months later, I feel good about that.

It is up to us in terms of delivery of execution and then getting prepared to go on to our growth strategy.

We continue to make -- on the growth side, we continue to make good progress on Firebag 3, largely on time and on budget.

One thing to remember about Firebag 3, many of the -- or much of the work there is actually hard money bids.

So this is a little bit of a different era.

We haven't seen hard money bids on a job in over a decade, but did get that on 4.

We expect to get some of that on -- sorry -- on Firebag 3; we expect to get some of that on 4 as well.

The expectation here is -- which is what we've told you before -- is to have steam in the second quarter of 2011 and production to start after that.

Full production about 24 months after that date.

And that is 62,000 barrels a day.

Firebag 5, engineering continues.

It's quite a ways along.

And we expect to start putting assets in the field later this year, with production starting up in the fourth quarter of 2012.

One of the highlights of the past quarter is the Syrian gas production project.

The plant came into production during April, and that has been a great success story for us, and for the country of Syria, by the way.

I was there for a plant opening.

Great celebration and very proud of what the team there has done.

The expansion of the ethanol plant is proceeding as planned.

Target completion late this year, so we are starting to knock these projects off.

And we are working hard.

One of the things we promised you is that we are going to work hard on the growth projects sequencing subsequent to Firebag Stage 4.

Now, we had always committed that we would get back to you in the fourth quarter of 2010, and that remains our intent.

So we are doing a lot of hard work.

I want to make sure we do that well.

And then we should be able to lay out much of what the next decade for this Company looks like.

One of the challenges, of course, is the natural gas business.

It is for the entire industry right now in North America.

Part of that work that we are doing is also a look at that natural gas business.

It is one that I think is still very important to the portfolio, but one which is very difficult right now to get your return on capital numbers to where you would like them to be.

So just know we are working hard on that.

The goal of this Company -- and this is kind of an important point -- after we get done with the divestitures and these near-term growth plans are implemented is to move from kind of 50-50 cash flow on Oil Sands, as we are today, toward -- we should be at the end of this period 65%/35%, with 65% of our cash flow coming from Oil Sands.

And as we go forward with the growth plans in the not-too-distant future, it will be closer to 75%/25%.

Of our upstream assets, 90% will be oil.

And so that is a very different kind of profile than you will see with many, many other industry players.

So just to summarize, one year out, the culture, I feel really good about.

I feel good about the teams coming together.

I feel like we are really getting to the focus part, harnessing the value from each one of our assets.

And I would say that focus also on continuing to work our overhead costs down and working on efficiencies.

We understand our real commitment to deliver on results.

And a big focus for us, as I mentioned.

And then the exciting part of this is we will be getting back to the opportunities, to what I see as some real world-class growth opportunities on a go-forward basis.

So all in all, feel really good about the quarter, feel good about where we are one year after the merger.

Steve, I will turn it over to you.

Okay.

Thanks, Rick, and good morning, everyone.

So, as Rick said, there are a number of solid achievements during the second quarter.

The turnaround at the Oil Sands was accomplished on time and budget.

It was a large-scale turnaround, below management's expectations on costs at approximately CAD295 million.

And at its peak, employed 2300 people on the project there.

So the strategy to break the turnaround into smaller, segmented scopes of work in order to be more planned for and focused in execution has certainly paid off.

We do have a much smaller turnaround in September, starting on the 9th, for approximately six weeks.

The remaining work on U2 will carry on into 2011, with a full unit shutdown planned in the second quarter for approximately seven weeks.

I still expect production at the Oil Sands plant will average 280,000 barrels a day for 2010, and given that six months to date, we're just under 250,000 barrels, you can see we plan to have a very strong second half to the year.

In the fourth quarter, as we average over 330,000 barrels a day, we should see the costs in the low 30s.

In our natural gas division, production remains quite strong.

Divestitures continue according to plan.

The strategy is being reworked, as Rick said, to ensure that it fulfills the objective of being a natural hedge, but also earns at least its cost of capital while doing that.

The downstream continues to show good reliability and strong earnings and cash flow generation.

During the quarter, we received regulatory approval to move ahead with our new tailings reduction process.

This process will dramatically reduce the time it takes to settle our tailings bond.

From what we've typically highlighted, it is 40 years to less than 10 years from the initial disturbance to reclamation.

So a significant game-changing technology for Suncor and the industry.

We expect TRO will also help us reduce fluid containment costs, and therefore mining operation and reclamation costs.

It is expensive at over CAD1 billion, but we expect it will be both economic and pay environmental dividends as we implement.

Okay, Bart.

Okay.

Thanks, Steve, and good morning, everyone.

As Rick highlighted in his comments, this certainly was a solid second quarter for the Company, both operationally and financially.

I guess what I would say in summary of the financials is I would characterize our operating earnings of CAD781 million and operating cash flow of CAD1.76 billion as a suggestion of the financial capability of this organization.

And contributing to the financial performance this quarter, overall production was strong across the Company, and that is notwithstanding some significant turnarounds we had at U2 in our Oil Sands operations, and at Buzzard.

In fact, the 296,000 barrels per day production at Oil Sands, it had one of its best quarters on record, and that is despite the 85,000-barrel-a-day impact to production during the 45-day scheduled maintenance turnaround that Steve was just speaking to.

Our East Coast Canada operations benefited from some very, very strong performance at Hibernia, along with contributions from the North Amethyst add-on at White Rose.

And we also did benefit from a delay of maintenance work at Terra Nova.

But given the performance to date and how things have gone, we decided to increase our full-year guidance for production for East Coast Canada from 60,000 to 65,000 barrels per day.

And while Libya continues to be restricted under a production quota, we did have an earlier than expected ramp-up at the Ebla gas plant, and it is now operating at full production.

So we are looking forward to positive results from that part of the business going forward.

Now, with the strong production that the Company realized in the quarter, we also enjoyed relatively high oil prices.

So it was a very good time to have the production running very well.

That was partially offset by a continued strong Canadian dollar, though.

Operating costs were relatively in line across the business, which is very good news.

But I think most importantly, I am seeing a consistent drive to lower our costs, both on the capital and expense side.

And Rick talked about the attention that he and I think the whole Company is paying to making sure we keep costs in line.

And I'm particularly encouraged that Oil Sands will have their costs back to the low 30s once they are through the turnaround.

So that will be very positive for the organization.

And we did see that cost double during April, when we were at a record production for the month at Oil Sands of 333,000 barrels per day.

We still are, though, expecting Oil Sands' costs to average in the CAD38 to CAD42 per barrel for the year, given the impact of the higher costs we saw during the first quarter of the year.

In the downstream part of the business, we saw higher cracking margins this past quarter, but they were offset by wider light-heavy differentials and, as I mentioned earlier, the stronger Canadian dollar.

But earnings and cash flow performance for that part of the business continue to be robust, within a greater North American refining context.

On the capital spending front, our outlook is for spend to be unchanged versus our budget of CAD5.5 billion approximately for 2010.

Now as Rick said earlier, at present, we continue to move at pace with our planned asset divestitures.

We are about two-thirds of the way through our natural gas sales, and we have about another 15,000 barrels per day of assets to go in the North Sea.

To date, we've divested of CAD2.4 billion of assets, and although we have only collected just under half of that amount, which has had an impact on our progress on debt reduction.

On that front, along with some working capital changes that affected our debt balance, we ended the quarter with a net debt of CAD13.2 billion.

And although -- what I would say is that although the debt has not come down as fast as probably you would have expected, and certainly I would hope for, most of that can just be attributed to timing.

And I would expect that with the completion of our CAD3 billion to CAD3.5 billion of divestitures and collection of those proceeds, we should see our debt ending up within our targeted range.

Looking forward from here, we have one smaller turnaround at U2 during the third quarter and some planned maintenance at White Rose in Q4, as well as turnarounds at a couple of our refineries later in the year.

So while the Q3 financial results will be impacted by that planned maintenance, the magnitude will be much less than what we saw this quarter, and I'm expecting Suncor's earnings capability will become much more apparent over the remainder of 2010.

That concludes my remarks.

Thank you very much, everyone, and I will turn it back to John.

Great.

Thanks Rick, Steve and Bart.

I'm not going to belabor the outlook too much.

One would expect when you have a quarter that is on track that you're not going to have to make much of an adjustment to your outlook.

The Oil Sands, as Steve mentioned, we are expecting to produce at about 280,000.

So in spite of the turnaround that we do have in September and slightly into October, we would expect 280.

Now, for those of you who want to do the math, which I'm sure you do, that will be about 315,000 barrels a day in the second half of the year, so a much stronger second half, as Bart mentioned, than first half.

Syncrude production, we adjusted a small amount, down to 36 from where it was, 38.

And Bart mentioned that the East Coast is performing so strong that we did update that number to 65 versus where it was before, 60.

So all in all, some pretty good news, I think, in terms of the outlook.

The one modeling question which we will entertain -- and I will beat right up there -- or get to right here is the LIFO/FIFO adjustment resulted in a CAD50 million positive adjustment to after-tax earnings.

So with that, Colleen, operator, if you wouldn't mind opening up the lines to questions, we will be pleased to take people's strategic questions.

Once again, I will remind you that John McKenzie and Joleen and Helen and I will be available after the call to help you with your detailed calls.

So for your strategic questions, we would be happy to entertain them now.

(Operator Instructions) Andrew Fairbanks, Bank of America.

Had a question -- as we look out towards the fourth quarter growth sequencing release you will have, are you at that point also going to talk about some of the other business segments?

So as we look out strategically over time, how much capital is natural gas going to get, Non-Oil Sands production going to get?

Or do you have any earlier conclusions on how those other businesses fit into the medium-term outlook?

Yes, I think we will be able to give you a good outline of that as we get into the fourth quarter and give you that outlook.

Generally I kind of went through it in my piece, but you are going to see the dominance of capital in this Company spent on oil and on the Oil Sands.

And that doesn't mean -- because there are a lot of employees on this call -- it doesn't mean that the other businesses aren't important.

It is just means that is where we see the biggest part of our reserves, our growth and the go-forward strategy.

And I guess a lot of the debate in the example of natural gas, do you go smaller with higher returns, or keep the full integration with the Oil Sands.

And presumably you are still working through some of those thought processes.

We are, but what I would say is the main focus on there is we've got to have return on capital that is at or above our cost of capital.

Or your other question was, are you seeing business at all.

I would guess the other thing when I think about that, Andrew, is the natural gas production is not what makes this Company unusual.

And so we have got to focus in on what our strengths are, but also the things that makes us different than other oil companies around the world.

And gas, it's hard to see that.

So without getting to the answer, what I would say is those are the questions we're wrestling with.

What is the size, and how do we get return on capital up?

No, that's great.

Thanks, Rick.

Arjun Murti, Goldman Sachs.

You touched upon kind of base business execution, and that was the focus of my question.

You have clearly been performing and producing very well coming out of the latest turnaround.

But these kind of assets, they are going to have planned downtime, they are going to unfortunately, from time to time, also have unplanned downtime.

It is just the nature of these types of assets.

Should we think about your base business kind of everything through Firebag 2 is doing 300,000 to 315,000 barrels a day on a sustained basis?

You may be able to do better than that at times, but we have to take into account the downtime you're going to have.

And while you can do kind of a low 30s per barrel operating cost when you are performing well, we probably do have to take into account some downtime.

I'm just curious how you are thinking about sort of sustainable base business execution.

Or is that too pessimistic of an outlook, and there are things you can do to kind of get a higher sustained level of production and lower unit costs?

Thank you.

That was a long question.

The way we think about it is the capacity of the upgrader is 350,000.

And that means rarely does it ever do 350,000.

There are days it does over 350,000 and there are days it does under 350,000.

When we put out our outlook to you, we tried to take into account all of the things that could potentially affect it -- planned maintenance and whatnot.

So the numbers that we give you and the outlook that we provide for you is our best estimate, based on all the variables that potentially go into production.

So I think 300,000 to 315,000 is a little bit of a pessimistic view in terms of where we think we are right now.

As most of us know, we have been a little bit restrained in terms of bitumen delivery to the upgrader, but you know, those are being resolved as we go forward.

And we would expect in the fourth quarter we should be able to do over 330,000.

So that is our goal, and that is what we expect to do going forward.

Thanks, John.

Are there steps you have taken to kind of give people more confidence that 330,000 plus or minus is a better sustainable number for the base business than the 300,000 plus or minus you've kind of been at?

I think one of the things you've got to remember is as we continue to progress with Firebag 3 and 4, we are also going to complete [laying] out the unit.

So what you remember, the thing that changes this Company a lot around that particular production number you are focused in on is more and more of our bitumen is going to come from SAGD bitumen, which is more marketable directly, without necessarily taking it through upgrading.

So if anything, your flexibility on a go-forward basis increases.

It still doesn't mean that during periods of time, where like next year, we've got the Upgrader Number 2 down for 45 to 50 days, that you're not going to see a big production cut.

But you're going to see more flexibility here in terms of what products we do export.

Where we were before is on mined bitumen, you had no flexibility to sell diluted bitumen.

So if anything, you should see over a time here our flexibility, in terms of the products we produce, go up and the variability drop somewhat.

And I think that is part of what John was getting to.

That's a good point, and thanks for that color.

Just a final one.

I think you mentioned in your prepared remarks that Firebag 3 is kind of on track, on budget.

It looks like you spent CAD3.3 billion -- I presume that's through the second quarter -- and the budget is CAD3.6 billion.

Is there only CAD300 million of spending left over the next three or four quarters, or any chance it could actually start up earlier and you're just further progressed through the project?

No, no, it is on the track that we mentioned before.

And John, you're kind of scrambling to look at the numbers he is referring to.

But from our viewpoint, we are not bringing this thing on earlier.

We've got a lot of systems to turn over.

Now, what you will see, because we do bring on one steam gen early, the [ninth] steam gen, that will again increase our flexibility.

But we are not calling Firebag 3 itself any earlier.

John?

Yes, I guess the problem with putting out a 75-page release is that it takes a second to jump to that page you were at, Arjun.

But you're right (multiple speakers) --

We struggle with the 75 pages, too.

I promise you.

We've spent, you're right, CAD3.3 billion.

The bulk of the heavy spending, you're right, has been done.

But as Rick said, we are still driving towards that second quarter.

And a review of the project has said that we are, for the most part, on track in terms of time and costs.

So haven't had a need to change that at all.

Thank you very much.

I appreciate it.

Andrew Potter, CIBC World Markets.

Just a quick question on the 2011 outlook.

It looks like on your base plan, or kind of base CapEx plan, that we should see some pretty substantial free cash flow in 2011.

So maybe just a little bit of color in terms of how you think about that free cash flow.

Is there a scenario where are you decide to accelerate CapEx on some of the more conventional opportunities, or does that contribute to kind of a resurrection of the Voyageur upgrader, or are you just happy possibly increasing dividends or buying back shares with the free cash?

Great questions.

What we've been seeing for the last while, and you will continue to hear us say this, and I think you will see us be consistent in the way we conduct ourselves, is that we see it sort of steady as she goes.

We've got a planned capital spend.

We'd see ourselves spending in the range each year of probably CAD5.5 billion to CAD6.5 billion or so of capital.

That is our target range.

We haven't come out with numbers for next year.

But as I said, for this year, we are on track to spend about CAD5.5 billion.

You are right.

At the right price line and with the production outlook that we have, we could be in a position to start to generate more free cash flow.

You shouldn't expect to see us look to accelerate capital projects more quickly.

I mean, one of the things that we've talked about and obviously would be concerned about with doing that is starting to bring more inflation into the marketplace again.

And that is something we would like to avoid.

So we will have other options, obviously, with the free cash, if it is there.

From a dividend perspective, our philosophy is to grow dividends as we grow production.

And 2011 is the next time frame in which we will have new production coming onstream.

And that is the time we will take a look at increasing the dividend, obviously subject to what the Board says.

Perfect.

And just from a debt management perspective, I think you guys were sort of saying that CAD10 billion is kind of where you're comfortable at.

I mean, should we look at it and say that any free cash kind of that would take debt down below CAD10 billion would go back to some sort of return to shareholders, whether dividend or buyback?

I guess what I am getting at is CAD10 billion still kind of the targeted debt level?

Yes, Andrew, it is.

And I think the way to think about that is we set CAD10 billion as kind of a target level, because based on where our capital structure is right now, that gets us to just under 2 times debt to cash flow.

And 2 times debt to cash flow is kind of our target at the lower end of sustainable crude prices.

So that is where the CAD10 billion came from.

But the number, though, to focus in on is the 2 times.

And the way I think to think about the cash flow is first, as we grow our production and we grow our cash flows, where we'd look to return more to shareholders is through dividends.

If we did see some kind of a windfall environment, where we have extreme free cash flow, obviously we would look at other ways of deploying that, and share buybacks or returning it in other ways is one opportunity for us.

That's great.

Thanks a lot.

If I could provide maybe one additional piece of color on that, is because we are the largest player in the oilsands business and there always is this underlying concern around inflationary rates, one of the things you shouldn't expect us to do is to have a massive ramp-up in capital, because it kind of creates our own firestorm of inflation.

It can have that kind of influence.

The way I look at this thing is we've got a decade of growth, if not 15 years of growth ahead of us.

This is kind of about how do you develop the plan so that you just steadily go at that, and don't go into the big kind of inflationary period that this industry experienced leading up to the fall of 2008.

Okay.

That's great.

Thanks a lot.

Amir Arif, Stifel.

I had -- first question is really on Firebag Stage 3 and 4.

As those volumes come on and you're -- again, your upgrader capacity is at 350,000, how are you thinking about that?

And, Rick, I know you sort of touched upon it in terms of the flexibility it gives you, but are you thinking of it in terms of flexibility on the production mix to meet the 350,000 or you are comfortable enough in the standalone SAGD economics to be thinking about increasing sales volumes?

You will see us -- our goal here is to get bitumen long, and we have plenty of capacity to export this.

We are working hard on a number of pipes, and obviously have the diluent, as well.

So you will see us over time here, as 3 and 4 ramp up, increase the amount of bitumen sales.

And if you look at both the capital investment, but also the cash operating costs on the Firebag side, you should have plenty of margin in terms of making a very good return on that, at least on the scenario that we see on a go-forward basis.

Is there a better way to hedge that bitumen now with the Western Canada Select, or the market is not there yet?

Well, we are not really hedgers.

I can get Bart to give you a fuller answer.

But we have kind of -- I think given the size and the breadth of this Company and the stability and the go-forward basis, we are not really looking at hedging that, per se.

In fact, you will see we have a small amount of hedges this year, but really have placed nothing on it beyond that.

And just second question on the asset sales.

The A&D market has picked up as prices that people are getting are pretty good, just like you guys.

Have you thought about potentially selling more assets than what you initially were targeting, or -- to capture the value that you can get on conventional assets right now?

Yes, listen, we don't have really any big plans to add any more significant.

What I would say is as we get the divestments done that we said, you will always look at your portfolio and check and make sure where you are.

We will kind of go through that at the end of this year.

Where we are right now, we are just focusing in on the assets that we said we were going to sell.

Let's get that done.

As we get into the strategy piece late this fall, show you that go-forward, I'm not saying there wouldn't be a few pieces that you may go in and divest after that, but it is not really something that we are stepping up to in terms of right now.

Okay.

Thanks, Rick.

And then just one final question.

On your CapEx of I think CAD5.5 billion this year, about CAD400 million or CAD450 million is going to the tailings reduction operation.

That's correct.

Should we be thinking of that is an ongoing maintenance capital, or is this more (multiple speakers)?

Absolutely not.

No, so this is a CAD450 million this year; then you are going to have something on the order of CAD600 million to CAD800 million next year; a tail bit of it into 2012.

And then that system should be there in place.

And all of our scenario work shows that the ongoing operating costs of that system as we put it in is lower than our current projection.

So I wouldn't over-model that in, but no, this is not a program that you will see go on for years and years.

It was just under your sustaining capital part versus your growth capital, but I completely understand what you're saying.

Okay.

Yes, and Amir, that is simply classification.

We have to put things that don't increase the productivity or the amount that we could produce up at Oil Sands into maintenance as opposed to growth, and that is why it is there.

Okay.

Thanks, guys.

Greg Pardy, RBC Capital Markets.

I'm going to hit you with three quick ones.

But just maybe to follow up on the tailings management, could you put any numbers around the impact of what bringing in the new technology would save you versus what you are paying now?

Just curious.

Second, how soon could we hear about the North Sea asset disposition?

Then third, Ebla quite impressive in terms of the rate of ramp-up in the second quarter.

Does that exceed nameplate of CAD80 million a day to your interest?

Thanks.

Greg, why don't I take the first one on tailings?

So the answer is not yet.

We are looking at the numbers and what we will be talking about.

What I would say is just to underscore what Rick said earlier there.

In terms of if I compare the tailings' costs, the TRO costs with the base mining and reclamation costs, then it saves us money versus that option.

So we actually see a return on that investment as we go forward.

Okay.

Thanks.

On the North Sea, the small North Sea assets that we are looking at putting into a package and is out there is one that we are still continuing to work.

We would hope to have bids in that are satisfactory in the third quarter.

Again, with divestments you're not -- we always have the -- you're not always sure, and you have to always judge that against our profit on a go-forward basis in terms of just holding where we are.

That is the last piece of the international, at least a big part of the portfolio that is up for divestiture, and it has been the one that we worked on the last, I guess would be the way to put it.

On Syria and Ebla, what I would say is yes, that 80 is there.

The field is actually, we feel, in very good shape.

It's actually larger than we first projected.

We are going to put a couple more wells in that field, particularly focused on there is an oil rim around that field.

So we are actually -- it is not big material in terms of the overall company.

But you should see some oil production on top of the gas here in the first part of 2011.

Again, not a big number and it is not material.

But the growth near term is probably more on oil than on the gas field itself.

But the ability to both debottleneck, to ramp production up, is there in the longer haul.

I think it is good for us to get this plant stabilized, make sure that the reserves are in the range we believe they are.

And all of that will kind of unfold as this year unfolds, and we will know a lot more about where we are.

Okay.

Thanks, Rick.

Bart, you've talked -- you mentioned the CAD2.4 billion, but generally, I think you were expecting to come in at the higher end of the range on total dispositions of -- whatever it was -- I think CAD3 billion to CAD3.5 billion.

Is that kind of still in the cards, or do you think it is midway between the two numbers?

I think that is still in the cards, Greg.

Obviously it is subject to getting these last assets sold.

We don't know what the pricing is there yet.

But we are on track.

Okay.

Thanks a lot.

Stephen Richardson, Morgan Stanley.

Quick question.

In terms of thinking about the growth outlook and the disclosure later this year, should we also expect -- and I think, Rick, you talked about laying out a growth outlook for a decade -- should we expect that some of the projects within the portfolio are pared down, i.e., some clarity on certain projects that will not be part of that 10-year plan?

Yes, we'll -- not -- yes.

That's a good question.

Kind of caught me by surprise.

Listen, I think that when we lay the logic of this plan out, there won't be a lot of surprises.

And I do not also expect that you're going to see, okay, as a result of that downtooling on a lot of other projects or anything else like that.

So no surprises, I don't think, on that overall process.

I think once you see this laid out and in the sequence in we lay it out, it will look very logical to you.

Not a lot of surprises in terms of more asset divestments or big changes.

Okay.

My second question was on the write-down of the extraction equipment, can you speak a little bit about that?

About -- I guess there was some expectations going back surrounding mobile crushers and some of the work being -- more of the work being done at the mine phase.

Can you talk a little bit about what preceded that decision to write that off and what the go-forward expectation is there?

What we did there was we just took an in-depth look at the forecast use of those assets going forward.

If I just summarize quickly what we concluded from that work, the project worked.

It is economic for us to progress.

The economics are not particularly great in a mature mine.

They work much better in a new mine.

So we are able to use pieces of that equipment, and we've not written down that.

But the pieces that we are not going to use in the foreseeable future as a matter of discipline we've written down.

So overall, a good piece of technology; we've now got to look for the opportunity to use it.

Steve, it's Bart.

Just one other thing I would maybe add to that.

It wasn't a complete write-down.

The Oil Sands operations is using some of the equipment off of that as well -- I think CAD30 million or CAD40 million worth.

So only the part that we know we won't be using is being written off.

Thank you very much, guys.

Paul Cheng, Barclays Capital.

Rick, I think that many years ago you are a big proponent of an (inaudible) approach for Oil Sands; in the last two years that you start to believe you not necessarily need an upgrader and look for more bitumen.

And in the last two years clearly that I think we've seen the industry executives moving into that direction.

And it looks like that most of the point of being in longs is only for the bitumen.

So is that a concern, if everyone moves that direction, say, four or five years down the road, that the light/heavy [defense] will expand dramatically and end up having the upgrader may be a good idea?

I don't know whether that you start to revisiting your view or you are stating that you wanted to be long in bitumen and upgrader is not really an important piece.

That's a great question, and it's one that we think about often here.

You know, you're right, the industry has kind of moved kind of in a herd mentality, which happens, and saying, okay, we don't need a lot more upgrading.

I believe there will be a point in time here where upgrading will be again necessary, and that is where our Upgrader 3 will come into play.

Been around this industry a long time.

There always has been cycles and will be cycles.

If you look at it in a North American context right now, we're going into a bit of a cycle here where we are long on upgrading.

And that deals with the expansion of many upgraders in the US, including places like Wood River, Port Arthur, a number of other [coping] projects, which I won't necessarily list for you, Paul.

You know them as well as I do.

As that gets absorbed, then I think there will be a time where an upgrader -- in fact, probably pulling the trigger on that will be at a point where you kind of start to see that cycle change.

So I still do believe Upgrader Number 3 will be built.

The timing of it is the only issue.

So for us, I think going bitumen long for a period of time makes a lot of sense, and then we will be looking for what we think is the right sequence in terms of when we go back at that project and start that upgrader project again.

These do tend to be pretty long cycles.

I think this one is particularly long because of the amount of upgrade built in the North American system.

But you've got to remember the feed overall, certainly coming from the north, is going to get heavier and heavier quite quickly.

From the time you decided to restart the construction in the Upgrader 3, how long it takes for that to be complete?

Yes; it is a two- to three-year period.

It could be a little bit longer than that, depending on the execution mode that you choose and the pace at it.

But if I were modeling that or thinking about that, you'd plan on at least three years for that.

Three years, okay.

And I know that you are going to give us far more detail in the fourth quarter.

But have you relooked at what is Fort Hills importance in your future portfolio?

This is Fort Hills, Paul?

Yes.

So, yes, I mean, Fort Hills we still see as a valuable asset.

It is a very good mining lease.

There is already capital investment put in there.

It will be in the sequence of projects at some point.

Again, what I am not yet really willing to talk about is where is that in that sequence.

We have so many opportunities, whether that be expansion at MacKay River, Firebag 5 and 6, Fort Hills, we've got Meadow Creek.

So we have so many opportunities.

This is about the sequencing, and a lot of different factors that go into that.

So without getting any further into what we expect to release in the fourth quarter, I think that's the best thing I can say.

It is in the portfolio; the exact sequence is not something we are willing to necessarily land on at this moment.

Okay.

Rick, you were talking about Firebag 3 starting up next year.

Firebag 1 and 2 I presume now is already on [a sustainable runway].

Can you give us some data on what is the steam/oil ratio, what we have learned there.

Is there a disappointment or that has been good?

And is the Firebag 3, 4 and 5, the quality of the sand and all that is going to be dramatically different than Firebag 1 and 2?

I always seem to get the Firebag questions, Paul.

The 1 and 2 no doubt went through -- Suncor went through a lot of learning with 1 and 2, as did the industry, as we went through this early phase.

Some of the things we didn't do is steam; we didn't put enough steam into the reservoir.

I think we overestimated where the steam/oil ratio should be.

Right now, we are anticipating it will probably be in the 2.6 range.

Eventually, we will do some infill filling to enable us to do that.

Going forward with 3, 4 and 5, we would expect that we probably would have a steam/oil ratio in the 2.6 range.

John, can you tell me what is the current steam/oil ratio in 1 and 2?

Yes, it is currently somewhere between 3 to 3.3.

3 to 3.3.

And you are saying that you think that it will go down to 2.6.

And what initiative that you are taking, and why you think it's actually going down into that?

After all, those -- that has been coming onstream for quite some time.

Yes, that's a good question.

There is a couple of things.

As we get to full capacity, that is going to help.

The second thing is the infill drilling that we should do will bring -- should bring more barrels on with less steam, and that should enable us, and that is our target, to bring it down to about 2.6.

But as the saying goes, we're all kind of moving along, we're all learning as we go along.

So 2.6 is currently our target for 1 and 2, and based on our experience, we think we should be able to get close to that range.

Okay.

My final question, for the Oil Sands, John, what kind of sustainable capital on a normal year we should assume on a per-barrel basis, including, say, all the whole nine yards, whether it's the upgrader or the (inaudible) and everything all-inclusive?

Paul, it probably should be in the CAD8 to CAD9 a barrel range going forward.

Okay.

Very good.

Thank you.

George Toriola, UBS Securities.

Just a question around natural gas.

Post your divestitures, wondering if you can talk about how you see -- how you are thinking about natural gas, the development of your natural gas assets in the context of a weak gas price environment.

The comment Rick had made earlier was the question around return on capital in natural gas.

So would you still look at that as a hedge, or you will look to bring in third-party capital?

How would you be looking at that, and would you look to grow those volumes with your oil volumes?

Yes, so that's a great question and a strategic one.

I guess, you know, I would say that having our gas consumption and gas production totally hedged with production is not something that is necessarily high on our list.

I think what we are trying to do here is to reposition our gas business so that we can make money when gas is in this CAD4 to CAD5 an Mcf kind of range.

So if we can't get to that kind of point, given the amount of gas that we see on the horizon here around North America, then you've got to really question are we in the right business.

So this is about repositioning our gas business so that we can make money in this kind of an environment.

We are certainly going to be there for a period of time.

You can never say forever in this business, but we certainly see an abundance of gas, given the tight gas, shale gas play around North America.

So I would say more of an emphasis on return on capital and a little less on getting totally balanced.

Okay.

Thanks a lot.

Mark Polak, Scotia Capital.

Just a quick question on Hebron, with the new study coming out on that last week, talked about construction beginning next year.

Just wanted to confirm my suspicion is it would be pretty minimal capital net to Suncor next year.

And then are you sort of thinking over the life of this project this is -- or life of the construction, it is about a CAD1 billion investment for Suncor to get that to first oil?

This is Hibernia, right?

Oh, Hebron.

Sorry, Hebron, yes.

I think that's a good way to look at it, pretty much on that kind of a line.

Great.

Thank you.

(Operator Instructions) Carrie Tait, National Post.

Thanks for taking my call.

I'm wondering if you can sort of explain what you are doing to counter the campaigns like Rethink Alberta and the different political roadblocks that are popping up in the United States, like members of Congress opposing Keystone.

What are you doing to get them on side?

Okay, yes.

Thanks for that question.

So obviously, the most important thing is that we get this discussion out on a fact basis, not on a theoretical or a basis with no fact.

So we are working very hard as an industry and also from Suncor in terms of making sure that we get the facts and the basics of this industry out in the public in a very big way.

You are seeing ads by CAPP out there that are trying to straighten out the record.

Certainly I am out on the road, as well as other senior executives in this Company out on the road talking about this.

All of the work that we've done indicate, certainly for Canadian citizens, but increasingly for Americans as well, is they do see the Oil Sands as a very important part of the long-term strategy around energy security in North America.

Now obviously, all of us, and especially here at Suncor, but the industry in general, knows that we need to show continuous improvement on the environmental front.

So I think there's two actions -- getting the facts out and then working very hard on continuous improvement on a go-forward basis.

And that continuous improvement comes in the form of less land disturbance, less water use, less air emissions and a real focus on technology.

So all of those fronts we are working on.

We just were up in Fort McMurray this week, and our pond number one, which is no longer a pond, by the way, has some incredible working on restoration.

You will see us out here in September demonstrating that, and some real visuals.

And in fact, Carrie, I'd love to have you up there to show you what is actually progressing and how we are making real progress.

When you talk about that you are out on the road talking to people, trying to get the facts out, who are you talking to?

What kind of groups, what type of politicians?

Well, all kinds of groups.

Everybody has a political agenda and all politics are local.

That's the one thing you got to always remember about life.

And certainly, I find that the Canadian press overplays how this plays in the United States.

So it may be a headline here in Canada, but it doesn't even get to the 20th page in the US.

So I understand your role in this and your job, but if you ask the average Americans, they won't even know what the issues are.

And so listen, we are out on a very broad basis, talking to big audiences.

We're trying to talk to influence leaders.

What I would say is once people understand the facts, then we garner a lot more support.

When you talk about how it is overplayed in the United States and it plays in page 20 of an American newspaper, does that mean to say that you don't think that the concerns members of Congress are putting up against projects like Keystone are very weighty?

Carrie, if I answer your question, it seems like you are leading the witness here a bit.

No, I would not say that.

I think everyone's concerns are very important.

We listen to everyone's concerns.

But with that, we want to make sure that the discussion is adult-based and factual-based.

Thank you.

Francois Desjardins, Le Devoir.

I have been covering the Shell refinery situation here, and I've been kind of wondering if you guys have weighed the impact, if Shell did close its refinery, leaving you alone to bear the cost of the Portland Pipeline.

We certainly have looked at all of those cases and do not expect that to be a huge feature overall in terms of the economics of running in Montreal.

But you know, Montreal certainly is a tough market because you can get water-borne product into the port of Montreal.

So it does change the dynamics some, and certainly in our overall market, that is one of the tougher ones because it is on tide water.

I'm sorry, I didn't catch the end there.

You said you cannot get more product into the port --

You can, you can.

My point is it is a difficult market.

Okay.

All right.

Thank you very much.

Could you state your name please?

Actually, I didn't catch your name at the beginning.

I'm sorry, I didn't catch your question.

No, I just wanted -- because there was a few of you talking there, I just still wanted to catch your name.

It was Rick George who spoke.

Thank you.

Mr.

George, thank you.

Thank you very much.

There are no further questions registered at this time.

I would like to turn the meeting back over to Mr.

Rogers.

Great.

Thanks, everyone, for listening in to our call.

Again, Helen and John and Joleen and I will be available for detailed questions after the call.

So should you have detailed modeling questions, of course give us a call directly.

Other than that, be careful out there, and we'll talk to you soon.

Thanks, bye.

Thank you.

The conference has now ended.

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