Suncor Energy Inc (SU) 2012 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Suncor Energy third quarter 2012 conference call and webcast.

I would now like to turn the call over to Mr. Steve Douglas, Vice President, Investor Relations.

Mr. Douglas, please go ahead, sir.

Thank you, Operator, and good morning, everyone.

Welcome to the Suncor Energy Q3 shareholder call.

With me here in Calgary are Steve Williams, our President and CEO; Bart Demosky, our Chief Financial Officer; Jolene Gillimo, our Controller; Greg Freidin, our Assistant Controller; and Jenna van Steenbergen, our IR Analyst.

I just before I start, legal advisory regarding forward-looking statements.

Please note that today's comments contain forward-looking information.

Actual results may differ materially from expected results because of various risk factors and assumptions described in our Q3 earnings release, as well as our current AIF.

Both of these are available on SEDAR, EDGAR and our website, Suncor.com.

Certain financial measures referred to in the comments are not prescribed by Canadian generally accepted accounting principles, for descriptions of these financial measures, please see our Q3 earnings release.

After our formal remarks this morning, we will open the call for questions, first with members of the investment community and then media, if they are on the line.

I'll now hand it over to Steve Williams for his comments.

Thanks, Steve, and good morning, everyone.

[Our Suncor] balance, we have a lot of good news to report, and I believe we are making some strong progress in a number of key areas.

So let me start with just a few highlights from the past three months.

First, on cash flow.

We took advantage of rising Oil Sands production, strong crude prices and favorable refinery cracks to generate record cash flow of CAD2.74 billion.

Our Oil Sands operation, meanwhile, achieved record production with over 340,000 barrels a day, and we successfully drove our Oil Sands cash costs below our target of CAD35 per barrel for the quarter.

Our integrated mobile continued it's strong performance, as our refineries operated at over 96% capacity, enabling us to capture 94% of world pricing in the quarter.

Our Firebag In Situ project exist continued to exceed expectations as we reach full stage three capacity production well ahead of schedule.

In addition, we've began commissioning the next stage of the Firebag project; Firebag Stage 4 is expected to produce first oil by year end.

Clearly, it was a very successful third quarter.

So let's have a look at what's driving Suncor's strong results.

I look at our business through a lens of operational excellence, continuous improvement and careful tracking of the key metrics that drive performance.

A culture of safety is absolutely foundational to performance.

Our focus on safety underpins everything we do at Suncor.

Over the past few years, we have approached world class levels of safety and we will continue to improve on that performance.

Year to date in 2012, we further reduced total injuries -- recordable injuries, and lost time injuries by over 20%, and these improvements set the stage for progress on many other fronts.

We need to be the low-cost competitor in the businesses we operate and we are clearly making progress.

A disciplined approach to spending is a key contributor to our performance.

Bart will get into the financial details a bit later, but I would like to provide a couple of examples of progress we are making on cost management.

First, we said earlier this year, we expected to exit 2012 with Oil Sands cash costs below CAD35 per barrel.

I'm pleased to say that even with the significant maintenance activities in August and September, and of course, those have continued into the first part of October, our cash costs for the quarter average CAD33.35 per barrel.

Second, by focusing on cost and quality and exercising rigorous discipline on our spending, we now expect a reduction to our 2012 capital spending program of just over 10% or CAD850 million.

Strong execution on our Firebag In Situ project was a contributing factor to our reduction in capital spending.

Firebag 4 is rapidly approaching completion and expected to come in approximately 10% under its CAD2 billion budget.

We have begun steaming the formation and we're now expecting first production by the end of the year, approximately three months ahead of schedule.

Reliability is another important aspect of operational excellence and we have a number of examples this quarter to highlight.

As I mentioned earlier, we achieved record Oil Sands production in Q3, despite planned maintenance in both our unit two upgrader complex and our MacKay In Situ plans.

We now have sufficient scale and flexibility in our Oil Sands operation to enable us to maintain strong production and sales, even when portions of the operation are undergoing maintenance.

In the downstream, our refineries continue to demonstrate world class reliability.

The result, record cash flow of over CAD1 billion for the quarter.

Our refineries continue to be the most profitable and North America on a per barrel of capacity basis, and a big reason for this is the ability to safely and consistently run at or near capacity.

Of course, strong reliability is a function of good planning and well executed maintenance programs.

Our offshore facilities underwent extensive planned maintenance work this quarter and we encountered a number of challenges.

But this maintenance was key to operational excellence and part of our journey to improved long-term reliability.

So in summary, it has been another strong quarter from both an operational and financial perspective.

Our focus on operational excellence is helping us to steadily increase reliability and reduce costs.

Now of course, in addition to running safe, reliable and profitable base operations, Suncor is a significant growth company with a suite of growth projects in various stages of development.

As I mentioned earlier, we are pleased with the continued progress at Firebag.

We had expected to execute 2012 with production of 120,000 barrels per day, but we've steadily reached that level thanks to a successful infill well program on the original well packs in Firebag Stages 1 and 2, combined with steady ramp-up of Firebag 3 production.

In just the past 12 months alone, the Firebag complex has added almost 60,000 barrels a day of production.

That represents more than a 100% increase to the Firebag production and more than a 10% increase to Suncor's total production.

With the commissioning of Firebag Stage 4 now well underway, and the commencement of engineering from Mackay River Phase 2, we expect in situ will continue to be an engine of growth for the next several years.

We have rich in situ resources with abundant opportunity to profitably grow production.

In our EMT group, we have a number of very promising projects that will mitigate depletion rates in the offshore wells and maintain strong profitable production sold, of course, at [brent] prices.

In particular, I wanted to mention that we remain on track to take the Hebron Project to our Board of Directors for sanction by year end.

First oil at Hebron is currently anticipated in 2017, based on the current estimates, Suncor is working interest of 22.7% represents a net resource addition of about 150 million barrels.

In our Q2 call, I said that we would work to examine our capital growth program in order to ensure that we are spending capital effectively and achieving our desired returns for shareholders.

In that regard, we are working very hard to assess our Oil Sands joint venture projects, and drive towards sanction decisions in the most cost-effective way possible.

While we are not yet in a position to provide definitive updates on these projects, I would like to offer a few comments.

The joint ventures are in good health and we are working effectively with our partners to review the projects.

Each of the projects is separate, and our review focuses on generating shareholder value with an emphasis on the cost and quality of the projects.

We haven't completed the review, but early indications are that we have been able to add significant value to the mining projects.

However, the production timeline for Fort Hills is likely to be delayed by about a year to 2017.

At the same time, Voyageur economics appear challenged in light of the projected ramp-up of in title and production in the North American market.

Now, you can see from the revised 2012 guidance update that was issued yesterday, that our focus on capital discipline is having a material effect on our capital spending program.

Now, we will provide updates on our growth projects when decisions are made, but in the meantime, you will see us continuing to focus on steadily improving our base operations while delivering profitable growth through our world class in situ assets.

With that, I will pass it along to our CFO, Bart Demosky, to go a little deeper into the financial details for the quarter.

Thank you, Steve, and good morning to everyone.

As Steve noted in his opening comments, there was certainly a lot of good news this quarter.

And despite a heavy maintenance schedule in our EMT and Oil Sands operations, I think it is fair to say that Suncor's integrated model did serve very well as an effective hedge against the volatile North American crude prices that we saw and once again achieve -- allowed us to achieve very strong financial results.

Let me just touch on those for a moment, operating earnings came in, obviously, at CAD1.3 billion, we had record cash flow of CAD2.74 billion and our return on capital employed for the quarter was 12.5%, excluding our major projects in progress.

Now with another strong quarter in the books, our financial metrics continue to look very, very good.

At the end of the quarter, our net debt has now been reduced to just over CAD5 billion, our net debt to cash flow ratio now stands at 0.5 to 1, and we had CAD5.4 billion of cash on the balance sheet at the end of the quarter.

Maintaining a fortress balance sheet certainly is a high priority for Suncor, and we will continue to exercise discipline in our capital allocation and cost management.

As a growth company in a volatile commodity business, it is critical that we maintain the ability to execute on our plans right through the business cycle and that certainly is the capacity that our balance sheet delivers for our shareholders.

Now on the call last quarter, I talked at some length about our efforts to take costs out of the business, and I indicated that we were making good progress towards our CAD35 per barrel Oil Sands cash cost target, and to reduce our 2012 CapEx spend.

And I'm very pleased that we have been able to deliver on both of those fronts.

Thanks to a very disciplined approach to cost management, we have reduced our total Oil Sands cash operating costs, while at the same time, increasing the through-put.

In fact, total cash operating costs of CAD1.045 billion for the third quarter are CAD34 million less than in the same period in 2011, and that is despite a 5% increase in total production.

Now that same disciplined approach is apparent in our capital spending program, where we have reduced our 2012 CapEx guidance by over 10% from CAD7.5 billion to CAD6.65 billion.

Now to accomplish that, we focused in three areas.

We have been bringing projects in under budget, closely managing spending on our JV projects, and third, limiting spending where we didn't see sufficient return on investment.

On that last point, in the Oil Sands base, for example, the Management team identified over CAD200 million in savings this year on small capital projects through improved scope management.

The key to those three efforts is the focus on return for shareholders.

Now of course, with our strong free cash flow generation, we are in a great position to continue returning cash to shareholders, and we are doing just that.

In August, we completed our first-ever normal course issuer bid and in September, we launched a second buyback program of a further CAD1 billion.

And we firmly believe that opportunistic purchases of Suncor shares are a high value means of returning cash to shareholders, and we are continuing to execute on the current program.

Once we complete this trunch of buybacks, we expect to purchased and cancel approximately 5% of Suncor's outstanding shares.

We have now released updated guidance for 2012, and I would like to highlight a few things for you.

First, with nine months of production under our belts, we remain on track with our overall forecast production range.

Given the progress we have made on cost management, we have reduced Oil Sands cash cost forecast from the previous range of CAD37 to CAD40 per barrel to now CAD35.50 to CAD37.50 per barrel.

As mentioned earlier, we have made some significant reductions to our capital spending program and as a result, CapEx has been revised down to CAD6.5 billion.

In fact, the actual cash outlay will be even lower, as that number includes a one-time CAD400 million non-cash item for this year, at least, and it is a long-term commitment for the Wood Buffalo Pipeline.

Which is a commitment we had anticipated making in 2013, but has advanced to this year in order to accommodate the faster than expected ramp-up in Firebag production.

To wrap things up, with the bulk of this year's major maintenance programs having been completed in October, we are positioned for solid performance for the final two months of the year.

Going forward, our focus will remain on operational excellence, rigorous cost management and disciplined use of excess cash in order to maximize shareholder returns.

With that, thank you very much.

I'm looking forward to your questions, and I will pass it back to Steve Douglas.

Thank you, Bart and Steve.

I should just reiterate the reference earlier to the 2012 guidance, it has been updated and it's available on our website at Suncor.com.

A couple of other details, the LIFO FIFO impact this quarter was a CAD78 million positive after tax gain, and that equates to a CAD50 million negative, so a CAD50 million expense after tax year to date.

Stock-based compensation is something I should highlight because it did have a significant impact on our results.

We had an after tax expense of CAD167 million in the quarter and CAD250 million year to date for stock-based comp, and the Delta versus 2011 for the comparable periods is almost CAD400 million in the quarter and almost CAD300 million year-to-date.

Finally, the exchange impact, FX was an after-tax gain of CAD252 million in the quarter, and that is CAD237 million year-to-date.

So with that, I will turn it back to the Operator to open the lines, but I will note that for detailed questions, the Controllers group and Investor Relations group will be available throughout the day, certainly, to deal with any modeling questions you may have.

With that, I will pass along to the Operator.

Thank you.

Questions will now be taken from the telephone lines.

(Operator Instructions)

The first question is from Andrew Potter with CIBC.

Please go ahead.

Hi guys, great quarter.

Just a couple questions on the in situ side.

First, just in the longer term growth, obviously, you laid out our Firebag 5 and 6. What are -- how are you thinking about Lewis and Meadow Creek and those other in situ your projects that you have?

Is there a possibility of moving those forward, or accelerating on that side, if you layoff things like Voyageur and Joslyn, or are those still viewed as longer-term assets?

And then just a question on Firebag 3, you guys have done a good job ramping up to your stayed capacity of 120,000 barrels a day.

When we look at primary data on GIOS Co, it seems to show that the well pads associated with Firebag 3 are only producing half rig, if half the well pairs are on stream.

So does that mean that we will see either, a higher capacity than you stated, or does that contribute to a quicker ramp-up in Firebag 4 as you bring these other well pads on?

Yes, a complex question there, Andrew, so I will give the simple version.

In summary, on the investment opportunities around in situ, one of the thing that categorizes Suncor is that we have a long list of very attractive in situ projects.

We also have a long list of mining projects.

The only bias we have in how we sequence those is largely the returns that are associated with them, so you will see us looking at all of the opportunities we have and making choices.

We have -- there are a number of plans on the horizon, and you will see them on that list of potential projects we can go to.

There are further opportunities in Firebag, there is an expansion at Mackay River and then you list other opportunities; all of those we are currently taking a look at.

When we start to get into future enhancements around what the long-term plan looks like, we will reference the timing and sequence.

Part of the answer to your question actually gets into the detail of what you asked on Firebag Stage 3 and 4, as well.

One of the flexibilities of Firebag now is we have cross connected all of the facilities.

If you think of Firebag -- if you think of in situ as three stages, steam generation, the pads themselves and the oil water separation, then we have connected those across, so we do have flexibility going forward.

What you have seen with Firebag Stage 3 is we have been able to take full of damage of the surface facilities, so that is the steam generation and the oil water separation, more quickly by doing some of the infill wells on Stage 1 and 2.

So you will see some further advantage being taken of across connections as we go forward.

The other opportunity offers us on Firebag, which is the link back to your first question, is now, we have those three stages slightly out of sync in terms of size.

The great opportunity there is that it presents us with lower than full cost investment opportunities to de-bottleneck Firebag, so you will see us also talking about those in the future.

Okay, that was great.

One more question, you mentioned on Voyageur that light oil fundamentals are making this project more challenging.

If you could just give us your view on light oil fundamentals or pricing differentials?

All I would say is that what we are saying is, with the tight oil volumes that are coming on, there is an increased volume of effectively light, sweet crude.

An upgrader is just -- it just takes advantage of the margin between light crudes and heavy crudes, and so it squeezes the margin on an upgrader.

We are in the process -- that's part of the work that we are doing at the moment -- we are in the process of fully assessing what the maybe long-term consequences of that change in the market are.

And our belief is that it does put the Voyageur economics under more pressure than when we initially conceived the project.

Okay, that's great.

Thanks, guys.

Thank you.

The next question is from George Toriola, I beg your pardon, from UBS.

Please go ahead.

Thanks, and good morning, guys.

A couple of questions here.

The first is on Mackay, how does the expansion of the Mackay fit into your suit of projects right now?

Thanks, George.

What I would say is, it's at the early stage of development, so we are looking at Mackay River, we believe we have got some -- the resources are a tremendous resource, as you know.

It has amongst the best in industry steam oil ratios.

We are currently at the very early stage of developing expansion options on that.

Those are relatively quick projects, so we're at the early stages, optimistic about when that project could come online.

Okay, great.

And then the other question is just around your buybacks.

When we look at what you have done so far, year-to-date, I think, average price of around CAD30 and some in Q2 -- I'm sorry, in Q3, under CAD33.

Where do you, we are now probably closer to 10% higher than where you were in Q3, where do you start to payback on your buybacks and how do you think about what is -- what would optimistic buying be from here?

Hi, George, it's Bart here.

Good question.

We have made a point of emphasizing that we do see value here in the shares and we are value buyers, and I can give you a little bit more color on that.

Essentially, the way we look at it is we take a reasonably conservative long-term view of crude prices and -- to determine a net asset value for the Company.

And then we take a bit of a conservative view on that to determine up to what kind of limit would we buy shares.

Now, of course, we are a very firm believer that through time, we're -- and the execution on our growth and very strong focus on operational excellence and investing in the right projects to drive returns.

We are going to return to drive [navs] for the company higher.

But that said, even without that future growth in mind, we are still a buyer here.

I think I mentioned in my comments that we are buying now, and we expect to continue to be buying, but I can't tell you exactly at what rate.

Thanks, and then I guess the last question for you would be, would you just continue to build cash on the balance sheet here, and I mean, how would you -- what's the outlook as you build cash on the balance sheet here?

Yes, maybe I will just pick this one up at the strategic level.

I think we've clearly stated what our priorities are.

So our priorities are we invest in our assets, ensuring safe and reliable operations, and we are seeing the benefits of that clearly coming through in our quarterly performances now.

Next, we have a lot of lent in very attractive growth projects, and you will see us focusing through those on cost quality and shareholder value.

Then the third phase, as Bart says is you will see us committed to returning to shareholders, and you have seen us do that through the share buyback, you've seen us do that through a dividend increase.

And next year, we will review again with our Board of Directors, our policy around dividends, and would expect to see some movement now.

Thanks a lot.

George, it's Bart again.

Just one last thing I would add to Steve's comments is that I think if you look at our return of cash to shareholders over the past year, the dividend growth that Steve mentioned and the opportunistic buybacks, the yield on those two has been about 4%.

And our five year on keygar on dividend growth is over 20% and on an all-in return to shareholders basis is almost 50%.

So, we are keeping true to what we have been telling shareholders about delivering that cash back.

That's helpful, thank you.

Thank you.

The next question is from Greg Pardy with RBC Capital Markets.

Please go ahead.

Yes, thanks, good morning.

I'm going to hit you with three questions.

First one is, I just want to be clear here, are you saying that Fort Hills and Joslyn are meeting hurdle rates, or I think you said you are just getting closer; that's the first question.

Second question, really for Steve is to what extent are you agnostic between mining in situ bitumen supply sources, or are there unique advantages that the mining projects would provide you?

And the last one is really just around Montreal, and what the game plan there could be in terms of turning that into an inland refinery, but also the potential to process your own bitumen production.

Thanks very much.

Thanks, Greg.

Three wide ranging questions.

Fort Hills and Joslyn, we have not been specific about either -- exactly what our hurdle rate is or where these projects are, but let me try and be a little clearer at this stage.

Clearly, both of those projects have been worked through joint ventures, and we are working very closely with our joint venture partners to make those the best projects they can be.

Both of them, as we have gone through this initial review, and that is what I was trying to indicate in my earlier words, are currently looking attractive to us.

We have had programs on them, which have looked extensively at scope, at cost and are very pleased with the progress we have seen those making.

So although we haven't taken on our Board through those yet, both of those are currently have support and are funded through to the next stages in their development, so are looking good.

What we are saying is that the Voyageur project is slightly -- is more stressed than that.

The -- we talked about the market changes, we've talked about -- we are doing the same type of review in terms of looking at the scope and cost set, and it is struggling versus our hurdle rates, so we are looking very aggressively at what we can do to improve that.

We are in the midst of that work, so we are not able to give any more details on it, but the partnership is working well, and we are working particularly on Voyageur with Total to make progress on that.

On your second question on mining and in situ.

Broadly speaking, we are agnostic.

There are some differences that we like in them, and we have always talked about.

There are very different regional capital costs, there are very different sustain in capital costs and there are very different operating costs with those projects.

We believe in the long run, against our view of what will happen with costs and what will happen with the markets, that those projects are broadly equal depending on your assumptions.

What you will see us doing is selecting, largely on the basis of return on investment, against those projects.

Now, there have to be some other constraints in there; these projects take a long time to develop, and we take a long-term view in their value.

So I think what you will see going forward is a mix of mining and in situ projects.

Your third question on Montreal, we sit in a very advantaged position.

Effectively, we are delighted with the performance of refining and marketing, but we, effectively, as you point out in your question, have a refinery, which is not running on England economics, it is running on coastal or international-type economics.

So we are not able to get cheap feed into the Montreal refinery.

The Line 9 reversal discussions are in progress, the bidding season has closed and we are optimistic about the outcome of that.

Regulatory approval is currently being sought for the project, and part of what we are looking at is our auctions there.

Our auctions to start to turn that over to becoming an inland-type refinery with the economics of the other three refineries we have.

So we are looking at a suite of options there, ranging from disconnecting it with its existing facilities, which enables us to get some crudes in there for inland or from Western Canada.

And then there are varying options right the way up to the [Fullcoca] project that was proposed.

All of those depend on the progression of Line 9 and other ways of getting inland crudes out to Montreal.

So lots of options, we're currently taking a full-out review, and again, very optimistic about what the outcome will look like.

That's great.

Thanks very much.

Thank you.

The next question is from Guy Baber from Simmons & Company.

Please go ahead.

Thanks for taking my question, and congrats on the results.

Obviously, very positive cash cost news this quarter, and you guys lowered the guidance.

Was just wondering if there is anything more specific you all would highlight that contributed to such strong performance this quarter?

And then do you have a revised exit rate target for this year that you want to share, and is the goal for 2013 still to hold that rate flat and then eat inflation?

Good morning, Guy.

It's Bart here; I will take a first go at your question.

We are very pleased with the progress we have made on our Oil Sands cash costs.

There's several contributing factors to that one, but I will just highlight a couple of them.

First, is that if you look at the reliability of our Oil Sands upgraders, as well as the steady ramp-up from production from Firebag, the increased volumes have certainly been a big factor in driving costs down.

We have had better productivity and mine cost management.

There is a specific project there that we have highlighted in the past that has reduced our haul costs, and that was the opening of our North Steep Bank Extension Mine, and so that has added significant value.

As well, lower natural gas prices have contributed to lower costs.

Now, adding all of that up though, our operating costs year-over-year in total are actually down quarter-over-quarter.

So the focus on the discipline around operating those assets, and on the ramp-up and growth has held costs steady while we have had a ramp-up in production volumes, so those two things combined put us in a very, very good position.

We are looking forward to continued strong performance here as we exit the year.

We have not yet though, come out with any guidance on costs for next year.

We do anticipate providing that sometime in the month of December, but we are very positive on the outlook.

Okay, great.

Thanks.

And then I had a follow-up on Firebag, and I think you guys touched on this earlier.

But obviously, you have identified a Firebag 5 and 6 as potential longer term expansions, each at around 65,000 barrels a day.

But I think you also had mentioned that you might not want to accelerate those projects previously because there might be some operational benefit to seeing how Firebag operates the post the Stage 4 ramp-up.

So my question there is, how flexible can you be, and maybe accelerating phases 5 and 6 without sacrificing operational performance and efficiencies?

And then can you talk a little bit more about the opportunity to potentially pursue Firebag expansions in smaller increments than the 65,000 barrel a day phases you had identified previously?

Thanks.

I think you've sort of answered the question as you are asking it there.

We really meant it, and I hope you have seen it demonstrated that we are walking the talk.

We will focus on laying down our capital expenditure efficiently.

That means the focus will be on cost and quality, and we will not destroy value by over accelerating the projects.

There is no doubt that we have learned a lot from Stages 1 and 2, into Stage 3; there is no doubt that we have learned from Stage 3, into Stage 4, and we are seeing that reflected in a couple of things.

Reflected in the quality of the assets as they are being handed over, and the speed with which we have been able to ramp them up reliably.

So we want to continue to learn those lessons, and we will not sacrifice those lessons just for speed.

However, there are some smaller increment opportunities on Firebag.

If you think, as I said earlier, of the three stages, raising steam, the wells and then the oil water separation facilities.

Because you can never get that perfect, we have some real deep bottleneck opportunities, the economics with those opportunities are very good.

Think of them as the equivalent in in situ, as the North Steep Bank Mine was in mining, you are able to leverage off of the existing assets you have, and get higher return projects.

So I think the first projects you will see will be those de-bottleneck projects, the later ones will be 5 and 6 and some of the other in situ opportunities we have.

Thanks, very helpful.

Thank you.

The next question is from Paul Cheng with Barclays.

Please go ahead.

Hi guys, good morning.

Several quick questions.

Bart, what is the Firebag 3 steam raiser, is it similar to the average buyback or should we assume that that actually is better?

Yes, for the Firebag 3, specific piece, it's similar in the low three's.

Of course, for the infill wells, it's much better because a lot of the heat is already there.

Steve, on the Firebag, do you have a number you can share?

I know that your total, all year spend cash flow is about in the CAD33, CAD34 in this quarter.

What is just on the Firebag?

Hi Paul, this is Steve Douglas here.

We haven't actually broken out by individual project.

But we do, in fact, in our operating results, breakout the in situ cost per barrel, and it is about CAD18 this quarter.

Firebag would be slightly higher than Mackay because of course, it has a higher steam oil ratio than the Mackay, but we put it together as a consolidated in situ number.

Is there any meaningful technology that -- currently, that you have on the final project that you think could substantially reduce the Firebag or that in situ cash operating cost?

I am not going to reference specific technologies, but yes, we have an extensive R&D program going on in our in situ.

We currently are working on about 10 projects, which are a combination of different types of technology.

All of the sorts of things that you have heard of, around different ways of starting up these projects, different ways of using potentially, solvents in combination or separately from using steam.

So, yes, there are lots of projects, but nothing we would want to talk to at this moment.

Steve, should we assume that you're not going to see any of those new technology being rolled out in commercial operations within the next one or two years?

Absolutely.

Because those technologies will largely be applied to new projects, so you will see us talking about those technologies as we bring either some of the new phases or the de-bottlenecks or capital investments.

But yes, you shouldn't expect to see breakthrough technology, I don't think, in the next one to two years.

So you actually, that project commercially in the next one or two years?

Okay.

On the capital spending, on Voyageur, can you remind us that how much is your capital you already spent, and what was the original budget?

I think the original budget is CAD20 billion, right?

Paul, we haven't talked to the budget since the project was originally sanctioned.

But if you like, offline we can go into the historical numbers.

Okay.

Two final questions, one on Montreal.

I know that you guys are looking more committed to the Line 9 reversal, but it's potential, that may be in 2014.

In the meantime, have the company looking at opportunity using rail to ship the oil into that facility as a bridge gap, or that you think the timeline is too short, that mitigate economic to consider that?

And then the final one, wondering, Steve or Bart, whether you can give us some direction in terms of the preliminary 2013 CapEx, whether it's going to be flat, or up compared to this year.

I think previously, the expectation has been CAD8 billion to CAD9 billion, if we assume the [John Rancher] project goes forward, so wondering that, what is the current direction that we should expect now?

Okay, so two questions there, Paul, let me answer them.

Line 9 reversal and alternatives, yes, our review is comprehensive.

We are looking at all possible alternatives including rail, and of course, that could be a mixture of material coming across either from Western Canada or up from the US.

We look at all of those options, and I would anticipate that you will see some development in Montreal on rail in the coming year.

Your question on 2013, we haven't reviewed our numbers with our Board yet; we will be doing that in a couple of weeks time.

And I would anticipate that leading to a capital guidance sometime in September.

But just to put it in context, I would expect the numbers to be at or close to the 2012 original number of CAD7.5 billion, not in the CAD8 billion to CAD9 billion range you were talking about.

That is good news.

Thanks you.

Thank you.

The next question is from Mike Dunn with First Energy Capital.

Please go ahead.

Good morning, everyone.

A couple questions on -- as it relates to your bitumen volumes.

First question, folks, I guess as your bitumen volumes and your bitumen sales are going to grow here with Firebag 4 ramping up, you are not going to be processing all this at your upgraders are at Edmonton.

How should we be thinking about your price realizations for bitumen?

They are not disclosed, specifically, and I know historically, up north of Fort McMurray with Petro-Canada, the Mackay River realizations were sort of lower than industry average, et cetera, so just wondering about some color on that.

And I think if you could just talk about the Wood Buffalo Pipeline, in terms of what the project is, I think that relates to -- is it between Firebag and the main upgrading facilities, or is it something else?

Thank you.

I will take the second one first there, Mike.

The Wood Buffalo Pipeline, actually, is from the terminal in Fort, McMurray down to Edmonton, so it's providing outlet for production.

The question on bitumen, what I would say, and you are correct, we don't have a published price, if you like, a realized price.

But we do have the flexibility to mix either -- to blend either dilbit or thinbit, and we do that opportunistically in order to access the best possible market price, so I will leave it at that.

Okay, thank you.

Thank you.

The next question is from Brian Dutton with Credit Suisse.

Please go ahead.

Yes, good morning.

This plan last year, there was lots of discussion about entering the lean zone in the mine.

So I was just wondering if you could tell us where you are in that process.

What is the implication for bitumen volumes as you move out of the lean zone for next year, coming from the mining side of the business, and then, of course, the implementation on cash cost?

Okay, Brian, I will take that one.

Yes, we did talk about entering the lean zone of the mine.

We are still in the lean zone of the mine, which makes the results on current cash costs even more exciting.

Do have to just -- and I know you are very familiar, just have to remind everyone that we did bring the North Steep Bank Mine, so we have been able now to optimize the term.

The consequence of that means, we will be moving through the lean zone a little bit slower.

We are starting to come out of the worst of the lean zone now, so we are seeing a slow and steady improvement.

The consequence of that is directionally, you have got to look at all the other cost to drivers, as well, that will continue to help us reduce cash costs through next year.

And a second question, you have touched a little bit here on -- in your various answers on the bottleneck opportunities.

But in your operational excellence program, have you had a chance to really get under the hood of the operations and see what de-bottleneck opportunities exist in both Oil Sands and the refining businesses?

I mean, the short version is yes, we are.

Part of our review and part of our capital program that we are looking at in detail at the moment is looking at the de-bottleneck opportunities I talked earlier about at Firebag and Mackay River.

But also, we are looking now at the base plan, as well, so we are having a detailed look around mining to see if there are any optimizations within our existing mines.

We are also looking at extraction where there are some potential opportunities, as well.

So, again, I am optimistic we will find some de-bottleneck opportunities as the plant becomes more reliable, it is much easier to see where the opportunities for these laser focused de-bottleneck high return projects are.

So I think you will see including a few of those as we present our budget for next year.

Great, thank you very much.

Thank you.

The next question is from Andrei Sardo with Hart Energy.

Please go ahead.

Good morning, gentlemen.

Could you talk briefly about any plans you may have regarding the Montey shell gas formation?

As you know, we have a good quality resource there.

We are currently looking at our strategy for development of that, but we have nothing to say at the moment.

Clearly, with gas prices coming up, with lots of discussion in this sector of our business, particularly around potential of LNG opportunities, we are reviewing in the light of that, what we think that does plan is for our Montey.

But we haven't managed anything yet.

I will talk about those in future conferences.

Thank you for your time.

Thank you.

The next questions is from Menno Hulshof with TD Securities.

Thanks, and good morning.

I have a couple of easy ones, I believe.

The first relates to the U2 turn around in 2013.

How long are you expecting that to last, and then what can you tell us about the turnaround schedule for the coming year, in general?

And then the second point relates to Buzzard.

I understand that you are not the operator there, but can you comment at all on where things stand in terms of the ramp-up process?

Hi, Menno, Steve here.

We will include a full maintenance schedule when we release for guidance for 2013.

But the U1 turnaround will be scheduled in the same kind of timeline as last year's U2, which should be a little shorter.

Of course, it is much smaller, it's the smaller of the two upgraders, so a much smaller impact.

The other question was on Buzzard.

Just Buzzard, I mean, as you say, we are not the operator there, we are in daily contact with the operator, but nothing much to add to what they have been saying.

The facility is in start-up as we speak.

As you know, they have had some electrical issues with the generators there.

But I don't think it is appropriate for me to offer minute-to-minute or day-to-day updates on that; that is up to the operator.

Perfect, thank you.

Thank you.

The next question is from Paul Cheng with Barclays.

Please go ahead.

Just two quick follow-up.

On the bitumen, as you are ramping up your production, have you looked at the option of wearing the bitumen out, and not even [branding with in situ], and whether that may look like a economic total [libel] and attractive opportunity for you?

And secondly, when you talk about the de-bottleneck, have you also looked at whether there's any de-bottleneck opportunity in the upgrader that could be done very cost effectively?

Thank you.

The answers are really simple Paul, yes and yes.

We have looked at, and we do look at railing bitumen out.

And we do the comparative economics, so generally, for significant volumes, the rail struggles to be very competitive with pipeline.

We continue to review that, because of course, those economics change depending on a number of assumptions.

Yes, the upgraders are included.

We do look at the possibility with the existing plans to at below full costs, expand their capacity and that's part of our review, as well.

Thank you.

Thank you.

(Operator Instructions)

The next question is from Jeremy van Loon with Bloomberg News.

Hi guys.

I just wondered with the improved cash flow, as well as they reduction in CapEx spending, what your plans are for leverage is?

Do see issuing less debt going forward, and do you aim to reduce debt?

Yes, hi, Jeremy, it's Bart here.

I will maybe just give a bit broader answer than what you asked there, but it will get directly to what you're asking.

It goes back to our priorities for use of cash.

We do have higher cash flow and we have reduced CapEx for this year, but our focus points are first to invest in our assets, to drive reliability higher through operational excellence.

We have a full suite of growth projects, and Steve has talked about a number of them that we have announced, plus a number of potential opportunities that we have not yet announced.

And so, investment in high profitability growth projects is call number two for that cash.

Then of course, return of cash to shareholders is priority to number three.

Both through dividend growth, regular dividend growth and opportunistic buybacks.

Now, what I will say about debt, and our fixed debt is that it has been coming down over the past couple of years.

We have reduced our net debt by almost CAD9 billion when you include the cash on the balance sheet.

We do have a couple of debt maturities in the next couple of years, and depending on cash position, if it is above our at targets, we will likely just pay those off at the time without renewing them.

Great, thanks.

Thank you.

The next question is from Carrie Tait with Globe and Mail.

Please go ahead.

Hi, thanks for taking my call.

I'm wondering how you plan to deal with the North American tight oil situation.

That's not really going to go away anytime soon, so I'm wondering how you figure that out in your business?

Thanks Carrie.

Yes, just a few comments I would make.

Clearly, the volumes of tight oil that are being produced are impressive.

What we do is we take a long-term view on the overall market.

Our view is that still, if you look at the supply demand balance for the continent, the continent is short.

So we think there is a very good place for the tight oil, which is coming on and a very healthy Oil Sands business, as well.

But we do look at how that impacts our project, so we think the resource projects are clearly working, and you've heard us say that.

The bitumen and resource producing projects, the mines and in situ, it does put the upgrading projects under more stress.

Because their margin projects, which only work because of the difference between the value of light and heavy materials, which we think gets squeezed in a world with more tight oil.

We are fully aware of it, and we factor it into our investment plans.

That's very helpful.

Does this mean that the Fort Hills and Voyageur projects could be split apart, rather than developed in parallel?

No, I would want to make that really clear, the three big joint venture projects we have, the Voyageur project, which is the upgrader, the Fort Hills project and the Joslyn mine project.

All three of those are individual projects, and all three of them will take individual reviews.

It is possible for them to go either together as part of a sequence, or for them to be split apart and for one to go and one not to go; all of those options are possible.

Now, when Petro-Canada and Suncor came together, Suncor was pretty adamant about wanting to remove Petro-Canada Act.

I'm wondering if that is something that's at all on your radar as a foreign takeover reviews have really hit the headlines?

No, my simple comment would be that I think the Petro-Canada Act has largely been superseded by the broader competition act.

So federal government has absolutely the opportunity to look at all potential strategic moves for major corporations.

The only comment I would make is that in order to fully develop the Oil Sands in where investment is needed, it is important that the ground rules are very clear for us in terms of how and what companies we can engage with.

I am pleased that the federal government are working on clarifying those for us.

Do think there are any Canadian oil and gas companies that should be protected from foreign takeovers?

I think we need to let the government rules come out so that we can clearly see their intent.

Thanks for your time.

Thank you.

The next question is from Scott Haggett with Reuters.

Please go ahead.

I want to get your view on refining margins going forward.

Do you expect them to remain as wide as they have been in the current quarter?

And what is your outlook over say, the next two or three years?

A very difficult question.

As long as we have these differentials that we are seeing, then we will see these types of refinery margins.

I think one of the comments I would like to make is it is a very good position for companies like Suncor to be in, where they have an integrated business model.

Where it is very, very difficult to be precise about how these differentials and markets work, and therefore, to have the benefit to take the profit either in your upstream or in your downstream is a very powerful position.

And again, in our third quarter, it has been reflected in our very high refining and marketing earnings, which have made a great contribution to our performance.

Thank you.

Thank you.

There are no further questions registered at this time.

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

Thank you, Operator, and thanks to everyone for the terrific level of participation.

Just a reminder, we will be available throughout the day, so please give Jenna van Steenbergen a call if you have further questions or want to get into the financial details.

With that, I will say thank you very much, and sign off.

Thank you.

Thank you.

The conference call has now ended.

Please disconnect your line at this time.

Thank you for your participation.