Suncor Energy Inc (SU) 2010 Q4 法說會逐字稿

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

I would now like to turn the meeting over to Ms.

Helen Kelly, Manager Investor Relations.

Ms.

Kelly, please go ahead.

Thank you, operator.

Good morning, everyone.

Thank you for listening in to our fourth quarter conference call.In the room with me this morning, I have Rick George, our President and CEO, Steve Williams, our Chief Operating Officer Bart Demosky, our CFO, and from the Controller's Department, we have Jon McKenzie and Greg Freidin.

As well, we have Jenna van Steenbergen who now works with me in Investor Relations.Rick, Steve and Bart this morning will take turns to give us a perspective in the quarter, and then we'll open it up for questions.With that, I'll pass it over to Rick.

Helen, thank you very much.

Good morning and welcome, everybody.

Just before we head into the quarter, I do want to remind you where we are on the merger and see 2010 as I do.

It was a great year for us overall in terms of driving synergies, in terms of getting the divestments that we talked about at the start of the year done, repairing the balance sheet and also forming one culture.

So feel very good about the year and where we are in our progress of the merger with Venture Canada.

So onto the fourth quarter.

Obviously a very good, solid operating and financial performance.

The downstream earnings, obviously one of the highlights and surpassed our own expectations, helped by obviously strong operations, good margins and good sales volumes.

It was also a record quarter for us in the oil sands business in terms of productivity and reliability, which is a great indicator for us.

Overall the strong fourth quarter enabled us to exceed our full-year production outlook in oil sands.

And although still very, very early in 2011, we're off to a solid start.

And Steve will give you an update in just a moment on those operations.What I'd like to spend my time with for awhile here is around our longer-term strategy and to share my thoughts with you as we head into 2011.

Obviously on a strategic update basis in December, we announced a real milestone for us, our 10-year strategic plan to grow our oil-based production to over one million barrels a day by 2020, and lay down a road map for sequencing the projects that will enable us to deliver to high-return growth.

That growth will be underpinned by oil sands.

Our oil sands will grow to represent more than 75% of our cash flows by the end of the decade.

A key component of that whole plan is our partnership with Total and the joint development of Fort Hills, the Voyager upgrader and the Joslyn mine.This joint venture is a key strategic fit for us, not only is Total a financially and operationally strong partner, the deals de-risk the development of the upgrader, with Total paying some of our Sun costs up front as they pick up a share in th future development of costs.

As we bring on the Voyageur and Fort Hills out of the safe mode and deliver the next phase of growth, we're targeting much higher returns to our shareholders and obviously return on capital, a key number for us.

On the current construction side, Firebags 3 and 4 are both in flight.

Construction of stage 3 Firebag is now 92% complete and we expect first oil at stage 3 to come on late June of this year.

Firebag stage 4 is targeting first oil in early 2013, bitumen is about 93% complete and we'll start ramping up construction in the next few months.

Looking farther out, of course, on the in-situ side, we do have plans in place to develop MacKay River 2 and Firebag 5 and Firebag 6.

By the end of this decade, we'll have a portfolio of bitumen production that's split roughly 60% mining and 40% in-situ, paired with upgrading and refining capacity to maximize the value of every barrel we produce.

In our long-term plans we're also targeting modest growth in our international and offshore portfolio through the investment in Golden Eagle, Hebron and other step-out opportunities as well as ongoing exploration in Norway, Syria and Libya.

Overall, this phase development should enable us to deliver increased returns to our shareholders.

And somewhere in the CAD80 range, we would expect to fund this growth, largely out of internally-generated cash flow.

So as I hone in a little bit more on 2011 in the near-term, this year we have a capital budget of CAD6.7 billion, which is more than 40% growth weighted.

We're targeting some 550,000 to 600,000 barrels a day of production in 2011, something in the range of 280,000 to 310,000 barrels a day which would come from oil sands, something in the 35,000 to 37,000 barrels a day from syn crude and the remainder of 230,000 to 250,000 from our new E&P business.

There are five key things to 2011 as I look out during the year, and I'll give you an outline on those and Steve will elaborate more in just a moment.

The five key things for us in 2011 is operational excellence with continuous improvement on our upgrader reliability.

The second one is improved Firebag performance in volumes.

The third is to reduce our cash costs in oil costs and in-situ.

The fourth is to drive effective project execution, particularly this year on Firebags stages 3 and 4, and to implement and start around planning around the Total joint venture and that 10-year growth plan.

These are the five goals I've set out for my executive team in 2011and believe is what will ultimately drive the types of returns that our shareholders expect.

Now, with the merger behind us, the focus obviously is on moving ahead.

We announced in January the amalgamation of our natural gas and our I&O divisions into a single Exploration and Production division.

That group will be led by Francois Langlois, who's been with the Company for some 29 years and has had leadership in both natural gas and I&O.

Not only will this enable us to take advantage of the synergies between the two organizations, it also helps make our strategy increasingly clear by forming one single conventional upstream division that will spin off cash and grow and support the oil sands while sustaining and delivering on that small growth I talked about.I'd like to take this opportunity to offer my thanks to Neil Camarta for his contribution to Suncor over the past 18 months and during his tenure at Petro-Canada.

So, obviously, very excited about the path we're on, very excited about how this quarter went and in general the year.

We've got the merger behind us, as I mentioned.

Our operational and financial results are improving and we're really showing the kind of Company that Suncor is and can become post the merger.

I believe we're in a much better position than ever.

Now over to you, Steve.

Okay.

Thanks, Rick.

What I'd like to do this morning is to split my comments into two sections.

First, I want to recap, and we'll talk about the Company-wide Operations Excellence Management System, or as I'll refer to it today, OEMS; and second, I will talk about the fourth quarter and overall 2010 actual performance.

In summary, the overall message I want to get across is we are making significant, visible and measurable progress across the Company's operations.

So first let me recap open what OEMS is.

It is the combination of the best systems and processes in the world with the right culture and strong, consistent leadership.

These systems that we've designed have been benchmarked to the best in class, including both Exxon and Dupont.

We're implementing OEMS Company-wide with no exceptions.

And we are seeing strong Company-wide progress, and improvements we're seeing will continue as the system is rolled out and matures.

And successful implementation of an ambitious program like this does take time.

The OEMS system will lead to Company-wide improved performance.

The early implementation, as I've mentioned before, is focused on oil sands base and in-situ businesses, with the aims to eliminate all major incidents through improved process safety management.

And safe and reliable operations are the biggest levers to increasing volumes and reducing costs that Rick was talking about.

So while our improvements in 2011 will be mapped by the upgrader 2 turnaround, which is the largest in oil sands history, and the start-up of Firebag 3 project, we are cautiously optimistic about both.

The last six turnarounds in oil sands have been completed on cost and on schedule, and the start-up and commissioning teams for Firebag 3 have been fully trained and are in place.

In fact, the team successfully started up the night steam generator earlier in January this year.

On the major projects front, we are also fully implementing the Operations Excellence Management System.

And what that will do is help to drive effective, disciplined project execution, particularly on the growth program that Rick covered earlier.

The major project's focus will be on costs and quality, with schedule coming third.

One of the principles on which have we will design and execute the growth program is that we will minimize distraction for the day-to-day organization.

That was one of the important lessons we've learned.

That's why we were particularly pleased to announce the appointment of Kirk Bailey as the EVA for Joint Ventures.

That will allow the operating businesses to focus hard on costs and reliability.

Mark Little, who has had extensive experience before joining at Imperial before joining Suncor a couple of years ago has been appointed to EVP Oil Sands.

So that's a long introduction but very important context for the performance we're now achieving.

So let me talk briefly about the fourth quarter results.

Overall, production was strong across the Company, averaging 626,000 barrels a day during the quarter.

Oil sands, natural gas and international and offshore all exceeded their full-year guidance on production.

Oil sands production in the fourth quarter was 326,000 barrels a day, a record quarter, and during that quarter, we saw improved upgrade of reliability and higher bitumen production.

Oil sands costs for the quarter -- quarter-on-quarter were higher than anticipated, higher than the market may have expected.

Several reasons for that.

It was due to some seasonal affects, some additional maintenance, particularly upgraders and in-situ, and the preparation work that we started for the Firebag 3 start-up.

The good news is that maintenance work is already one-off and we're already starting to see the improved reliability as a result of it.

We've just completed the January numbers and we've had another good month.

Production is 329,000 barrels a day, so that 's the seventh month that we've been able to produce at these levels since completing the turnaround in the middle of the year.

So the OEMS program is improving the upgrader reliability and reducing the probability of fires in the future.

That focus will continue and is relentless, and we will see further improvements that are planned through this year and into the future.

Today, just to recap, we have two upgraders, and of course in the future, we will have three.

We also have the assets available on the ground now to export MacKay River and Firebag bitumen when required.

Now that flexibility is an important part of the Suncor strategy and is unique in the oil sands industry.

Of course it helps us to mitigate the impact of planned and unplanned shutdowns.

And integration, which is also part of the strategy, with the refineries, also offers earnings protection when light/heavy differentials widen as we've seen during the quarter.

In natural gas, production during the quarter was 438 million cubic feet a day, which was higher than planned, and subject to market conditions and interests as we've highlighted before.

We do plan to divest a further 220 million cubic feet a day of gas business in 2011.

Refinery reliability was exceptionally strong in the fourth quarter and overall utilization strong averaged 94%.

Denver, Edmonton and Montreal all ran at utilizations above plan, although Sarnia did continue to be negatively impacted by Enbridge pipeline issues which restricted deliveries of sour crude from western Canada.

So let me just briefly summarize.

While we continue to pursue operational excellence across the organization, fourth quarter results and January 2011 results so far are encouraging indications that we're on the right path.

This is a journey that takes time, but we're confident our work on OEMS and process safety management will lead to higher volumes, lower costs and ultimately higher value for our shareholders.

So let me just pass back to Rick to discuss our performance in international and offshore.

Great.

Thanks, Steve.

On the international and offshore front, first of all, along the East Coast during some regular well testing in the fourth quarter we encountered H2S on part of Terra Nova field.So what we've done is shut down the affected wells and the facilities in which we were testing H2S while we developed a mitigation plan.

That current outage is about 9,000 barrels a day net to Suncor, although I quickly have to say that that deferred production is within our East Coast production guidance.

We also in this year, in 2011, have a plan for a 15-week dock-side maintenance of Terra Nova itself.

However, we are currently working with our partners to consider the possibility of delaying this into 2012.

As many of you know, we've got an issue there specific around the swivel that connects the production to the vessel, and if that swivel continues to operate safely, we'll continue to take a look at delaying that maintenance.

Moving on to our operations in Libya and Syria, I'm delighted to tell you that in both countries, operations are normal and that we see no disruptions of the type that we're currently seeing on TV in Egypt.

During the quarter, we actually had the start of oil production in Syria.

Only about 1,000 barrels a day, although we'll be adding more wells to that as we go through 2011 as we bring this oil rim that's around the gas field into production.

So that'll continue to improve as we go forward.

Our exploration program in Libya continues.

We actually are delighted to announce this morning that we've been moved up to full-quarter production starting here in February.

So again, you'll see a little bit better production from us in Libya, as well, as we go forward.

One exciting thing that happened in the fourth quarter was in Norway, we tested an exploration well, which is a Beta Statfjord well.

We did test it at 10,000 barrels a day on fairly tight chokes.

The reservoir obviously looks very good and very productive, but we have to do a lot more work before we can really determine the size of that particular discovery.

So that's the highlights on the international and offshore side.

Bart, over to you.

Okay.

Thanks, Rick.

Good morning, everyone.

From a financial perspective the strong operational results that Rick and Steve have spoken about, certainly translated into strong financial performance as well.

During the quarter, we delivered operating earnings of CAD946 million, which is roughly a three-fold increase year-over-year on the quarter; and operating cash flow of over CAD2.1 billion, which is almost double from the fourth quarter of 2009.

What I'd say is I'd characterize our results this quarter as a clear sign of the financial capability of this Company, and that's based on reliable operations and our integrated strategy, which Steve highlighted, combined, of course, with a strong pricing environment in the quarter.

Turning to our operations for a moment, in the downstream, that business delivered a record quarter of CAD372 million in earnings due to improved and higher utilization rates, wider light/heavy differentials, improved cracking and refined product margins and very strong product demand across that business.

Our R&M division continues to be a significant source of free cash flow for the organization.

It certainly was in 2010 and in 2011, we expect the downstream to generate well north of CAD1 billion of cash from operations.

For the upstream, oil sands reported CAD487 million in earnings during the quarter as a result of record production and higher price realizations year-over-year, as well as a one-time royalty recovery of CAD105 million related to a bitumen quality adjustment.

Sales mix, however, was impacted by maintenance at one of our hydrogen units, which carried over from the third quarter.As a result, we produced a higher proportion of sour products compared to plan.

Oil sands volume was also impacted by inventory build of just about 15,000 barrels per day during the quarter as a result of pipeline restrictions on the Enbridge system, which have continued.

Oil sands cash operating costs per barrel in the fourth quarter was CAD36.70.

And as Steve mentioned, costs were impacted by higher maintenance expenses at upgrading and in-situ, which will enable us to drive higher reliability going forward from here in 2011.

We believe that's amounted to about CAD2 per barrel of costs.

We do expect costs to be higher over the next few quarters as we ramp up Firebag 3 facilities, and as we undertake a large six- to seven-week turn around at Upgrader 2 during the second quarter.

Overall, we expect oil sands cash costs in the range, and this is consistent with our previous guidance in 2011, of CAD39 to CAD43 per barrel in 2011.

International and offshore recorded net earnings of CAD452 million from continuing operations, and there again, higher realized prices were benefiting the business.

Those were offset somewhat by lower volumes from Terra Nova and White Rose, as detailed by Rick.Also included in I&O's net earnings was a CAD192 million after-tax settlement related to our Terra Nova ownership redetermination, and that increased our working interests going forward by roughly 3.7%.

One of the strengths and benefits of having an integrated strategy like Suncor's is that as we move through different parts of the commodity cycle, the upstream and downstream parts of the business will share in the profits.

Sometimes more value will be captured in upstream and other times such as this past quarter where we saw those pipeline price realizations, and it impacted upstream price realizations, the downstream will share in the profits.

Sometimes more value will be captured in the upstream and other times, such as this past quarter, the downstream will see more of the value.

Over the long-term, our integration strategy enables us to maximize the total value we're able to extract from our upstream bitumen production to refine product sales to the end customer and ultimately to our shareholders.

Turning to the balance sheet and CapEx for a moment, our long-term view and focus is also reflected on how we manage our balance sheet and capital plans.

I'm happy to report that we've met or exceeded all of our financial targets in 2010.First, we completed the sale of CAD3.5 billion of non-core assets ahead of schedule, with all of the cash in the door now, except for a portion of the package in the UK North Sea.

Through that process we've high-graded our portfolio with the sale of our lower-returning assets, and we paid down our debt significantly.

Over time, this will enable us to generate higher earnings and improve our return on capital employed.

Net debt is down from CAD13.4 billion at the end of last year to CAD11.1 billion at the end of the fourth quarter, and that translates into a 1.7 times debt-to-cash-flow ratio.

The proceeds that will be coming from the Total transaction will further improve our position upon closing, which we expect to be late Q1 or early Q2.

Looking forward, we expect to maintain our debt levels well below our 2 times debt-to-cash-flow target and within our 20% to 25% debt-to-capitalization target.

Now, with the merger behind us, a strong balance sheet in place and as we bring on new production and increased cash flows, certainly one of the questions that we get a lot is what our policy on dividends is going to be going forward.

While we don't have and haven't had a formal dividend policy in place, our philosophy has been consistent, and it's been to increase dividends with production growth.

With Firebag 3 coming on stream in 2011, this will be the year we start thinking about dividend growth again.

Obviously this is going to be a Board decision, but our preference is for modest, consistent but sustainable dividend increases, which are in line with our industry-leading growth and position in the market.

So when we think about maximizing shareholder returns, we see that as a combination of growth and execution, and we're in a great position of 2011 and beyond to deliver on both.

And with that, there will be more money to return back to shareholders.

So thank you very much, everyone.

With that I'll turn it back over to Helen.

Great.

Thank you, gentlemen.

Since Rick has briefly gone over the 2011 outlook, I won't go over it again in detail.

The outlook is unchanged from what we had disclosed in December.

You will find the detailed guidance document on suncor.com under the Investor Center.

A quick reminder that, commencing in 2011, our monthly oil sands production numbers will now be posted directly on our website instead of via press release.Please visit suncor.com/production for these numbers.

Quickly here, for our US analysts, the LIFO adjustment for the quarter would result in a negative CAD96 million impact to after-tax earnings.

So with that, Melanie, if you wouldn't mind opening up the lines, we'd be pleased to take your questions.

Just a quick reminder that the controllers and I will be available after the call for detailed modeling questions.

We'd be happy to entertain your questions now.

Thank you.

We will now take questions from the telephone line.

(Operator Instructions)There will be a brief pause while the participants register.

We thank you for your patience.

The fist question is from Joe Citarrella of Goldman Sachs.

Please go ahead.

Thank you.

Rick, hoping you could elaborate a bit, first, on what you're seeing broadly in terms of cost inflation in the region; and second, more specifically, your expectations for capital costs for Ford Hills and Joslyn.

You're obviously still early on in the process there, but any original take on where you are in the process of re-engineering those, what your initial thoughts are and maybe when you expect to have additional details there would be great.

Thank you.

Yes, Joe.

Thanks for that comment.

I don't really have a lot to add other than the general knowledge that basically is out there.

My views -- I discussed this on the last quarter, this next run will be different than the last high inflationary period we had.

For us, partly because we had a lot of the engineering on some of these projects.

For example, the engineering on our upgraders is virtually done -- or 80% done, and also a lot of materials for these projects -- some of the materials on Fort Hills, but a lot of the materials on our upgrader have already been purchased.

So a lot of that is behind us.

We're not seeing the kind of inflationary rates on purchased equipment, steel pipe and all of those kinds of issues, on these projects.

I think if there is a concern generally it's around labor, and labor both in terms of availability and also productivity.

And what we're trying to do is take the lessons that we learned on this last cycle and try to make sure that we don't repeat that.

Those are things like not over-building a workforce too large on any one individual site, making sure that we do the planning and engineering well and we've got the tools and equipment to the work site so that people aren't waiting on that, trying to organize the work in a much better fashion so that we've got clean work sites and clean work fronts to work on, trying to maximize outdoor work in the summer and indoor work in the winter.

So there's a lot of planning.

It's really about that up-front planning that's going to make a difference.

Not really clairvoyant, except that I don't expect this next one to be exactly like the last cycle.

Still a concern, but I do expect it to be different.

That's very helpful.

One more quick one from me.

On the upgrader on turnaround, the U2 turnaround, can you just confirm the dates on that, also that this will take you through the turnarounds for the rest of the year.

The U2 turnaround is the main turn round, it is a big one.

It starts in May and is approximately seven weeks.

Great.

Thank you.

Thank you.

The following question is from Andrew Fairbanks of Banc of America.

Please go ahead.

Thank you.

Good morning, Rick.

Good morning.

It's been some time since we were able to talk about strong downstream results, and I just wanted to, in light of that, get your thoughts on the downstream generally, and also wanted to see if you had any thoughts around some of the refining assets that are coming out in the US.

Obviously, you've got this Voyageur upgrader set, but is there an opportunity with BP selling some assets to get some cheap cokers?

Andrew, thanks.

That's a great question.

I see our position really very different than other oil sands companies or other Canadian companies in the sense that we do see our refiners, particularly three of the four of them, very tied to our oil sands business.

And so in a quarter here where you see pretty large spreads between WTI and Gulf light crudes and Brent, than our inland refineries, i.e Sarnia, particularly Edmonton and also Denver, are going to make good money.

So it's -- if you're integrated and have enough of those flows between the two systems, when you get wide differentials, we're going to make it in the downstream, when we get smaller differentials, we make it in Fort McMurray.

So I think a little bit of that just shows the value of integration.

And it'll swing.

I do think it'll swing over time.

On the second part of that question, Andrew, is around would we be looking at buying refined assets in the US?

First of all, you do not see any growth in terms of US demand.

World demand for crude continues to rise, but it's on the back of Asia and developing economies' GDP growth.

You're not seeing growth in oil consumption or demand in the US despite a lot of sales of SUVs and large vehicles continuing.

So you know what, I don't see it as a growth market.

I definitely do not see us buying a refinery that's on tidal water and getting into that game.

So really no interest right now in expanding our refining business by buying other refining assets.

I would never say never, but it would have to fit back into our strategy, and I don't see, for example, buying a large BP refinery, fits that strategy for us.

Alright, and I guess along those lines, any additional thoughts on the Montreal coker project?

Would that be just pushed well far down the road to when you might need additional capacity for heavy oil?

Yes, no current plans.

I would say that project would be somewhat dependent on us reversing Line 9, us meaning the industry.

So right now, we cannot really move western-based crudes into Montreal, and you'll remember, Line 9 is the key line that actually moves crudes from east to west into Ontario.

At one time it ran crudes into Montreal.

The industry has taken a good look at reversing that line.

So I would say that project's on hold until we can see if we can get that line reversed over time, and that's not a short-term project, and then feed it from our own operations.

That's where the logic of that project would be.

Steve, you want to add something?

The only thing would I add, Rick, is the refining world is historically cyclical and tough.

The only place to be in that world is the best.

Our downstream assets are first-quartile on reliability and costs and, of course, that's exactly the place we intend to take oil sands.

That's terrific.

Thanks, guys.

Thanks, Andrew.

Thank you.

The following question is from Greg Pardy of RBC Capital.

Please go ahead.

Hi, good morning.

You had done a great job in terms of outlining the longer-term, so just some of the questions I had were on some of the things you mentioned going into this and shorter-term issues.

But Rick, what's the run rate now in Libya, if you go back up to full quota, are you back up to 60,000 barrels a day?

Yes, in that 40,000 to 50,000 barrel a day kind of range, net to us.

So that's our 50%.

Okay.

Thanks for that.

And just with respect to the inventories, what I was going to ask you is whether the inventories, if you'd expect to basically draw those down the first quarter.

But are you seeing a continuation of that in terms of -- I think you mentioned that, but are there still disruptions on the pipes right now.

I wonder if enlighten us?

Overall, our plan is to draw them down, Greg.

There are some big puts and takes of course, on the system at the moment.

One is Enbridge reliability and the clarity around.

Second one is, as you know, there are some industry production issues, and so pipelines are being re-gigged as we speak in light of that.

So overall, the strategy is to draw the inventory down, but it will be subject to some of those market impacts.

Okay.

Thanks very much.

The bitumen valuation methodology, I know you -- it's probably complex in terms of explaining it, but what was the major change?

Was it the agreed upon differential between bitumen and BO, or what have you that led to that?

Yes, Greg.

It's Bart here.

The piece that was changed was the part of the differential related to quality of the bitumen, and we've been quite candid about this, but we're still in negotiations with the province.

This is the first step towards finalizing what that differential will be.

Okay.

Then maybe just the last one for me.

With Syria equivalent volumes over 100 million a day, how -- I think that exceeds your off-take agreement, but curious as to how sustainable those rates are and also curious just on the gas pricing you're getting there right now.

Yes.

No, Greg, listen.

We're at 80 million cubics a day flat.

I think there may have been quarter-end kind of differential there.You'll see us move production up in Syria, but it's more around us producing the oil rim on a go-forward basis.

We're just getting ready to put our second well on, we'll put a third one on, and in I think by the end of the year we should have about four wells on there, on the oil side.

But gas has been steady.

That's our quota, that's where we'll be for the full year in terms of that, and that's been a very steady operation for us and a good cash flow generator.

Okay.

Great.

Just the last one is, just on the cash costs, so would the repair costs with the hydrogen outage, those were embedded then, right?

In the fourth quarter numbers?

Was that the bulk of the CAD2 that we would have -- ?

Yes.

So CAD2, Greg, was -- CAD2 a barrel was embedded in that fourth quarter.

Okay.

CAD2.

Sorry, CAD2 million, just for clarification.

Sorry, missed that?

CAD2 million were embedded.

CAD2 million.

Thanks very much.

Thank you.

The following question is from Paul Cheng of Barclays Capital.

Please go ahead.

Hi, good morning, guys.

Several quick ones.

Rick, is there any rough preliminary data that you can provide related to the reserve replacement in 2010?

No, no.

Not currently.

So when we release in March, we'll get a chance to go through that in some detail.

Gee, Paul, not many people ask me about reserves.

That's an unusual one.

Yes, I mean I figured that why not.

(inaudible -- multiple speakers).I figured most of your competitors (inaudible).

Yes, yes.

On Firebag 3 and 4, Rick, how about in terms of budget?

I presume (inaudible) any data that you can provide in there?

Yes, it's in the guidance.

We did move Firebag 3 up by about CAD200 million to CAD300 million.

Part of that is some surprises that we got out of restarting that project up, and the numbers that I think we provided with you earlier on 4 is still very solid numbers.

So we did see a small increase in Firebag 3.

I do not expect to see any further increases.

As I mentioned earlier, we're actually starting to see -- we're bringing facilities on every week and every month here, but starting steam March should have production starting to ramp-up in June.

But Firebag 4 seems to be very well under control with the numbers we've given you.

Rick, based on your experience now in Firebag 3, how long do you take after the steaming do you think it would reach a steady state of the production?

You mean full production, Paul?

Yes.

We've always said it's about an 18-month kind of time period, 18 to 24, something like that.

So you're looking at the end of 2012?

Yes.

Into the start of 2013, that's a good number, yes.

And I think previously that you guys had the target to bring the steam/oil ratio to about 2.5 in Firebag 1, and 2 I think is (inaudible) 3.

Is that those are still the good number?

Yes, Steve Williams here.

Those are reasonable numbers to assume.

We have an active program to manage SORs this year, given the nature of it, the actual timing and how it works is very difficult to predict to the month, but we are putting in the in-fill wells on stages one and two.

Of course, on stages three and four, the spacing of the well pairs is different.

So we will get to different SORs.

We have seen some progress on the early stages.

So we were getting it down into the low threes at the end of last year.

And, of course, on MacCay River, with much lower industry-leading levels, down in the lower twos.

So Firebag 1 and 2 right now is about 3.1, 3.2?

Yes, around there, yes.

Okay.

And, Rick, you talk about -- I think earlier you guys talked about the dividend policy or that your expectations.

How about in terms of the share buyback as tool to return cash to shareholder.

How would you guys build that?

Paul, it's Bart here.

I think just looking at our plans forward from here and all of the extensive slate of growth projects that we have planned to develop, that's first call on our cash.

That's how we're going to be able to best return and drive improved returns to our shareholders.

Next, we've got dividends, and we think that's the right place to focus starting to return more cash to shareholders over time.

Consistently, consistent growth, and we thinks that's what shareholders value.

Thanks.

Thank you.

Thank you.

The following question is from Brian Dutton of Credit Suisse.

Please go ahead.

Yes, good morning, Rick.

You mentioned in your comments at the beginning that reducing cash costs were a priority for you this year.

I know we always talk about cash costs on a per-barrel basis, but I was looking at the cash costs here for the fourth quarter, and they came in at CAD1.1 billion, which I think is a record amount.

I was wondering if you could give us, one, color around why are the costs so high in absolute dollar terms, and the steps you plan to take to reduce the costs in absolute dollar terms?

Yes.

I mean, of course to move from the per-barrel costs into the absolute one, and Brian, you have to look at overall production levels as well, so the record absolute costs come with the record production in fourth quarter.

We have the most comprehensive of programs attacking these costs aggressively.

The biggest parts, as I described earlier, are the execution of this Operations Excellence Management System and the biggest levers on costs are safe, reliable operations.

You did see during the better quarters on costs last year, we got into the very low 30s, and that's where we aim to get back to, and we think the main things in achieving that will be to get the assets reliable, particularly around upgrading.

We're very encouraged by the progress we're seeing.

So we did have to do two pieces of work in the fourth quarter, one was on the finishing off of the repairs on the hydrogen furnace, which is now back in full-service and operating very well.

The second piece was part of a rolling program of repairs to the U1 coat drums, and these repairs are extensive.

Instead of just simply repairing individual problems, as we've done in the past, when we take these facilities out, because we have spare upgrading capacity at the moment, we take the opportunity to fully weld overlay and repair the complete circumferential rings around the cokers.

The consequence of that is the costs have been a bit higher, but we will get improved reliability as we go through 2011 and 2012.

Brian, let me just add.

Listen, I know that there is a concern.

Just know, as I mentioned, the five targets for 2011, that is on it.

It's certainly on Mark Little's list, and we will get to this.

You may not quite see as much of it as you'd like in the first and second quarter as we go through this turnaround and prep for the turnaround, but it's our aims and goals and we'll try to roll this operating cash costs over and you'll see it more in the third and fourth quarter.

Rick, I guess what I'm really struggling with, though, is the costs in dollar terms are up CAD150 million from the third to the fourth quarter, and I realize the increase in the record number of volumes are coming out of the mine, but aren't about 80% of the costs fixed coming out of the mine?

So that's really what's surprising me is the absolute dollar amount given the fixed nature of the business.

Yes.

And again, we don't see that as necessarily the trend for the long-term.

I think our longer-term trend is as we describe it here.

As Steve describes it, the key is reliability.

We are paying a price and we are going at this in a very systematic and sequential piece here.

There are no shortcuts and, you know what, going through this in the way we are gives us a lot more confidence that we're on the right track in terms of long-term reliability.

So I know it's uncomfortable.

It's uncomfortable for us in seeing that, but it's not the long-term trend.

Okay.

Thank you.

Thank you.

The following question is from Mark Polak with Scotia Capital.Please go ahead.

Good morning, guys.

Now that you're two months into the feed and some of the EPC work on Hebron, is there any upgrade on what you think costs might be on that project?

No.

We don't have any current update on that.

So, as you know, that's being led and operated by Exxon.

We are continuing to go through that, but no new numbers to come out at this time.

Okay.

Thanks.

And one other one.

The sub-Beta Brent discovery in Norway, with the appraisal well test.

Are you able to provide any sense of the size of that discovery, and are you starting to think stand-alone or is that looking like a tie-back development?

The answer's yes, in the sense that we have not really decided.

We were looking at both, but you know what?

We'll get a second well down off that discovery, an appraisal well, either sometime late this year or early next year, and then I think we'll start to be able to hone in on what is the true size and scale and producibility of that.

So, listen, it's certainly better than drilling a dry hole, but we just don't know enough yet to really get very definitive about how that ties in.

Great, thanks.

Thank you.

(Operator Instructions)The following question is from Gene Laverty of Bloomberg.

Please go ahead.

Good morning, guys.

Just wanted to double check on the turnaround schedules for the upgraders.

You did mention U2, can you give me the start date for that turnaround and how long it's going to go?

Gene, we've upgraded our Suncor presentation for the fourth quarter, and you'll find that on our website.

There is a page on turnarounds.

We've just narrowed it down, as Steve said earlier, May is the start date of the turnaround.

It's roughly somewhere between six to seven weeks, so that's the final call on that.

Okay.

Thank you.

Thank you.

The following question is from Justin Amoa of Argus Media.

Please go ahead.

Hi.

Thanks for taking my call.

I also had a question about the turnaround.In the previous presentation -- investors presentation, I think you guys had a seven-week and this one you have six weeks.

Is there a reason for that change?

No.

You should think of it as it's approximately a seven-week turnaround.

These are major events, and what we're calling at the moment is it's between six and seven weeks.

So it's just a rounding error.

As we get into it, we'll plan it down to the hour, but we don't normally share all of those numbers at this stage.

Okay, thanks.

I think you guys mentioned inventories of -- did you say a build of 15,000 a day, if I'm right, or was that another number?

No, that's the right number, just under 15,000 barrels a day.

Alright.

Thank you.

Thank you.

The following question is from Mark Gilman of Benchmark.

Please go ahead.

Guys, good morning.

I have two questions.

First, could you maybe, Bart, remind us of your hedging philosophy and give some indication as to open positions for 2011?

Secondly, Rick, you've got a number of satellite platforms and projects coming on in 2011, the White Rose satellite, South Hibernia, the Buzzard enhancement.

Can you give us an idea of the implications of these projects regarding how long they will sustain the production plateau in each location?

Okay.

So Bart will take the hedging question, I'm sure he'll be glad to answer that.

Thanks, Mark.

So hedging, the philosophy go-forward for the Company, given the strength of our cash flows, the diversity of them, and our plans to really fund growth out of our internally-generated cash flow is that we don't feel that we need to hedge production go-forward from here.

In 2011, we have no crude hedges on the books.

And none planned, I have to add, right, Bart?

That's right, Rick.

So on the second question, yes, we do have these satellites.

It's all built into the estimate we give you on I&O production rates.

Longer term, the way I like to think about our I&O, and now rolled into an exploration/ production vehicle, is this is a division which will show growth over the next decade.

It will not be steady -- and we do have some really big chunks coming on as well, like Golden Eagle and Hebron and the results of discoveries in Libya and potentially the Norway discovery, as well.

But what I would see is today, if you take a look at this newly traded E&P division, we would be just around 200,000 barrels a day.

And I would see that actually growing slightly over the next current decade.

These current satellite on the East Coast are not overly material to Suncor, but certainly built into those projections that we show on the outlook.

Thanks, Rick.

Thank you.

The following question is from Shaun Polczer of Calgary Herald.

Please go ahead.

Hola, hi.

Earlier you said that the Libyan production is going to go back up to full quota.

On Monday, I guess WikiLeaks released diplomatic cables that said that the quotas were imposed because of a diplomatic dispute with the Canadian government.

Just wondering if you could care to comment on that; and second, whether or not you plan to sell the Libyan assets now that they are up to full production?

So on the first one, that WikiLeaks was actually a report of something the US ambassador in Libya reported.

So I would not want to get into it comments.

You should call his office and ask him what he said, okay?

It has nothing to do with us, per se.

On the second question, we have absolutely no plans to sell in Libya.

Thank you.

Thank you.

There are no further questions registered at this time.

I'd like to turn the meeting back over to Ms.

Kelly.

Thank you, everyone, for joining us this morning.

As I said, the controllers and I will be available after the call for detailed modeling questions.

So feel free to give us a call or send me an email.

Thank you for joining us today.

Bye.

Thank you.

The conference has now ended.

Please disconnect your lines at this time.

We thank you for your participation.