Suncor Energy Inc (SU) 2013 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Suncor Energy second-quarter 2013 financial results 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.

Thank you, Marcus and good morning, everyone.

Welcome to the Suncor Energy Q2 shareholder call.

With me here in Calgary, are Steve Williams, our President and Chief Executive Officer; and Bart Demosky, our Chief Financial Officer.

Please note that today's comments contain forward-looking information, our actual results may differ materially from expected results because of various risk factors and assumptions, described in our second quarter earnings release as well as our current annual information form.

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

Certain financial measures referred to in the comments are prescribed by Canadian Generally Accepted Accounting Principles.

For a description of these financial measures, again please see our second-quarter earnings release.

Following our formal remarks, we'll open the call to questions -- first for members of the investment community then members of the media.

With that, I'll hand it over to Steve Williams.

Good morning and thank you for joining us.

For the past few quarters, I've been talking to you about Suncor's focus on operational excellence, capital discipline and profitable growth, and I'm pleased to the say that our efforts are paying off.

So let me start with operation excellence.

In the second quarter, we successfully completed the largest maintenance turnaround in the Company's history.

This involved the complete shutdown of the Unit 1 upgrading complex to carry out preventive maintenance and significant plant improvements.

We now expect to extend our run time between major turnarounds from four to five years, and we'll be able to run at higher rates of throughput.

We did this work without a single lost time injury, a peak workforce of 3,400 people working out of a 3.5 million hours with no time loss to injuries.

Our environmental performance was also notable.

We reduced our sulfur dioxide flaring emissions by about 95%, compared to our previous best turnaround performance.

Productivity, safety, and environmental care -- these are all part of operational excellence.

We also completed major planned maintenance at Firebag in the Steepbank and the at the Edmonton refinery.

Again, we achieved excellent results in terms of product productivity, safety and environmental care.

In our E&P group, a routine underwater inspection detected a broken mooring chain at our Terra Nova offshore production facility.

It is one of nine chains and does not impact vessel safety, integrity or stability.

However, we will extend our planned full maintenance in order to fix the broken chain.

At the same time, we'll conduct pro-active preventive maintenance on the other mooring chains.

So with our major maintenance for the year complete in Oil Sands and R&M, we're well positioned to run reliably for the remainder of the year.

Our Oil Sands facilities have been producing at record rates the past few weeks, and our refineries are operating at near capacity.

As part of our Q2 release, we've updated portions of our guidance but made no changes to production or cash costs.

We anticipate the our total production for the year will fall in the lower half of the guidance range.

Obviously this implies strong production through the second half of the year, and that's exactly what we're expecting.

Turning to capital discipline, I'm pleased to report that we remain on track with our previous commitments.

We promise to return cash to shareholders in a very meaningful way and we're doing just that.

Our second quarter dividend payment reflected the 54% increase we announced in April, and we repurchased and canceled almost so million more Suncor shares during the quarter.

We've also promised to invest prudently to optimize our existing assets and profitably grow our production, and again, we're keeping our commitments.

Our growth and optimization initiatives are moving forward according to plan, and we've been able to reduce our planned capital spend for 2013 by over 4% to$7 billion.

That reflects optimization of scope, timing and budget on various capital projects.

It also reflects our commitment to execute our strategy, while staying within a strict capital budget guidelines.

That leaves me to profitable growth.

In our last call, I announced our plan to add 100,000 barrels per day of new Oil Sands through the bottlenecking and expansion of existing assets.

Some people questioned our ability to deliver these new barrels.

Today, I want to reiterate my confidence in this growth plan.

These new barrels are low-risk, high-return and very real.

In fact, we've already begun to unlock new production capacity with the commissioning of the hot bitumen pipeline and blending facilities, we've taken the first significant step to debottlenecking our Oil Sands facility.

Now whilst the logistics involved are a bit complicated to explain, I want to underscore the importance of the hot bitumen pipeline and blending facilities.

We have the ability to import(inaudible) -- to blend with Firebag bitumen shipment to market, and this is a significant development.

Shipping Firebag bitumen straight to market and bypassing the upgraders, allows us to ramp up bitumen production from our mine to feed the upgraders.

At the same time, following our U1 turnaround maintenance, we're upgrading bitumen at record rates.

The result of all of this is a step change in Oil Sands production.

We're still finalizing the numbers for July but I expect that when we post our Oil Sands production in a day, you'll see a monthly record of approximately 390,000 barrels per day.

And keep in mind we have accomplished this despite losing over a million barrels of production in the first half of the month, due to a third-party pipeline constraint.

So production is trending in the right direction and we debottlenecked our internal logistics to sharply increase the volumes we can produce and move from our Oil Sands facilities.

But what about getting production to market?

There seems to be a prime concern for industry and the investment community.

Now, we're certainly supporters of improving the industry's access to multiple markets.

But for Suncor, access to markets is simply not an issue.

We have ample market access to handle both our current production and our future growth.

So let me just say that again.

For Suncor, access to markets is simply not an issue.

We have ample market access to get -- to handle both our current production and our future growth.

By the end of 2014, Suncor expects to be in a position to ship over 600,000 barrels a day to our refineries and other globally-priced markets across North America.

And that will accommodate both our increasing production and our profitable trading business, and it will continue to assure us maximum net backs for our Oil Sands production.

By the end of this year, we expect to ship heavy barrels to the US Gulf Coast via the new Keystone [said] pipeline.

At the same time, we plan to begin shipping Western crude to our Montreal refinery.

This will increase both our integration and our profitability.

In short, we're set up for steady, profitable growth.

One part of our growth plan that I know is of great interest to the market is the Fort Hills mine project.

I'm not in the position to make a definitive announcement on Fort Hills today but I can say that we are making excellent progress on the project.

And together with our joint venture partners, we continue to target a sanction decision later this year.

And while construction of Fort Hills is expected to represent no more than 15% of our capital budget in any given year, I know that it is a major focus for our shareholders.

So I want to emphasize once again that we'll only move forward with the project, if we're fully confident that we'll deliver strong returns for our shareholders.

Now of course, we also have a large number of sanctioned projects that are already in flight and are steadily moving forward.

These include the bottleneck projects at MacKay River, drill facilities to deliver Western crude to our Montreal refinery, expansion of existing production at Hibernia and White Rose, as well as production from Golden Eagle and Hebron projects.

As I've said before, we have a sweet and attractive projects in the queue that are expected to deliver production growth of about 8% annually over the next several years, and we expect to accommodate all of them within an annual capital budget of $7 billion to $8 billion.

Operational excellence, capital discipline, profitable growth, it's a virtuous circle, and it's a mantra that I'll often repeat, as we move this company forward and drive long-term shareholder value.

I'm going to pass over to our Chief Financial Officer, Bart Demosky, to share his perspective, including a little bit of a deeper dive into our Q2 results.

Thanks, Steve and good morning, everyone.

The second quarter demonstrated the continued stability and strength of Suncor's integrated model, producing operating earnings of $934 million and cash flow from operations of $2.25 billion.

And our return on capital employed after we adjust for major projects and progress and the impact of Voyageur rose this quarter to 12.5%.

During the quarter, we took advantage of shrinking crude price differentials to achieve a very healthy Oil Sands average price of over $84 per barrel.

On a company-wide basis, our integrated model allowed us to capture a full 99% of global prices.

With North American oil prices having strengthened considerably, we have adjusted our pricing assumptions upwards towards the second half of the year.

And this is good news as it means increasing revenues, particularly as we ramp up production in the second half of this year.

But it will also result in an increasing tax burden.

Consequently, we have updated our guidance to reflect higher cash taxes for the year.

As expected, our Oil Sands cash operating costs per barrel rose, largely as a result of the impact of the planned U1 turnaround.

We came in at $46.55 for the quarter and now stand just under $40 year-to-date.

However, looking at the run rates we're currently achieving and our expectations for the remainder of the year.

We still anticipate the cash costs will fall within the upper half of our guidance range of $33.50 to $36.50 per barrel for the year.

Most importantly, if you consider our production capability, which is now in excess of 400,000 barrels per day and the extent to which our operating costs are fixed, you can quickly realize that we can deliver a unit cost well below -- per barrel, and that's consistent with our target for the remainder of 2013.

Our in-situ you on a operations are an important part of the Oil Sands cost equation.

At $16.70 per barrel, they were down by almost 20%, versus the same quarter last year, and we expect this trend to continue as Firebag ramps up to its 180,000 barrel per day production capacity by early next year.

I have to say I'm quite pleased with the results, in light of the number of challenges we successfully managed during the quarter.

It was certainly not business as usual, and so just a few things I want to walk you through to consider.

As Steve mentioned earlier, we successfully completed significant planned maintenance at both our Oil Sands and Edmonton facilities.

These were large capital projects involving thousands of workers and taking up significant portion of our production assets off-line for a lengthy period of time.

Third-party power generation and pipeline outages further reduced our Oil Sands production, by over three million barrels in the quarter.

for the second half of the year.

And the key issue there was the devastating flooding we have in June in Alberta, which resulted in the closure of two pipelines.

This [for our quarter] reduced Oil Sands production for almost three weeks.

In ENT, our production in Libya was reduced somewhat due to issues in coordinating third-party security services.

And on top of that, global crude prices in North American refining cracks both declined versus the same quarter last year.

Nevertheless, for the eighth consecutive quarter, we achieved $2.25 billion of cash flow from operations.

With our portfolio of production facilities, our deep mid-stream capabilities and our industry-leading refining assets, we were able to mitigate the impact of maintenance and other operational challenges.

The key to Suncor's integrated business model is the flexibility it provides; it gives us choices, and that is a genuine competitive advantage in today's volatile marketplace.

With strong cash flow generation and careful cost management, our balance sheet continues to be rock solid.

Our net debt today stands at $7.1 billion and our net debt to cash flow from operations is at 0.7 to 1. In July, we retired a further $300 million of long-term debt, and we continue to have ample liquidity to fund all of our capital priorities going forward.

And one of those priorities is returning material cash to shareholders.

Our substantial dividend increase and renewed share buyback program were well received by the market last quarter, and we believe we're successfully positioning Suncor as a unique growth and income opportunity and the market will reward us over time.

Finally, looking back to our last quarterly call, there are a couple of items that remain open and I did want to address those today.

First, the sale of our conventional natural gas business, which was announced in April, remains on track to close here in the third quarter.

And upon close, we expect to realize a gain on this transaction.

Second, we indicated earlier this year that Suncor had been advised about the possibility of a tax reassessment related to derivative transactions from 2007.

During the second quarter, we provided the tax authorities further documentation in support of our position, and we remain confident that our original fund was correct and we will continue to work with tax authorities to resolve this issue.

Looking forward, I'm excited about Suncor's prospects.

I believe we have the necessary elements in place for us to outperform in the second half of the year and I fully expect we will continue to deliver on our commitments to shareholders.

And with that, thank you, everyone, and I'll pass it back to Steve Douglas.

Well.

Thank you, Bart and Steve.

We have referenced earlier in the call that we've updated our 2013 guidance.

We've decreased the capital spending and we have adjusted the price deck upwards and that's resulted in an increase in cash taxes; all of the details are available on our web site.

LIFO/FIFO impact was a positive of $4 million after tax bringing the total for the year to a positive of $121 million after tax.

Our share price rose for the quarter resulting in a stock-based comp impact of an expense of $45 million and year-to-date, an expense of $81 million.

The American dollar rose versus the Canadian dollar, resulting in a $254 million after-tax expense to Suncor and bringing the year-to-date expense to $400 million even.

I'll turn it over now to the operator for questions.

A reminder though, the IR team and the controllers will be available throughout the day for detailed questions.

Happy to take those and with that, I'll turn it over to Marcus.

Thank you, Mr. Douglas.

(Operator Instructions).

Our first question is from Phil Skolnick from Canaccord Genuity.

Please go ahead.

Your line is open.

Yes.

Thanks.

On the Fort Hills project, is that -- it seems like the timing of making a decision has been pushed a little bit later in the year.

Is that because of the uncertainty around Keystone?

No, it's not that [slit]; it's purely administration around the timing of the joint venture partners Board.

So everything's moving exactly as we expected.

As I said, I hope really clearly, we do not have a market access issue, so Keystone once we are supporters of it, is not particularly important to Suncor.

Okay, thanks.

And could you explain a little bit more about the SAGD light and what could it mean for Firebag as well?

Thanks.

I mean all I would say is we have a number of R&D technology-type projects, which potentially move Firebag forward.

Some are around the extraction technology itself.

So adding solvents or surfactant, and they really adjust the same oil ratio and make it more economic from an energy-consumption point of view.

Some of them are around the construction and execution of the construction proms themselves, where what you'll see us doing is a much more repeatable, replicable type of surface facility.

So both of those prongs are being actively developed by Suncor.

Okay, thanks.

The following question comes from Greg Pardy from RBC Capital Markets.

Please, go ahead.

Your line is now open.

Hi.

Thanks.

Good morning.

A couple of questions, Steve.

I know you've a high degree of confidence in terms of your hitting your Oil Sands guidance in the second half of the year.

Could you talk a little bit about the impact of this heated line and also what you would peg your Oil Sands capacity now at?

You've -- just in terms of the second question there first, Greg, we've got in the investor pack there a growth program looking forward, and the answer to your question is the sum of four or five or six different projects and they change as we go through 2013, 2014, 2015, 2016, 2017, as the impact of those projects are coming on.

So there's no easy way to answer that question without referencing you to that graph because -- so, for example, Firebag is part of the volume ramp-up.

The ramp-up is progressing on, if anything, a little bit faster than we expected; we're currently around the 160 mark on Firebag, as it's coming on and we expect by the end of the year to get up to 180.

So some of these projects are ramping in a relatively consistent rate now.

So the capacity of the plant is moving as has these projects come on.

The good news is that you'll see -- you heard, Bart and myself reiterate that we've -- in order to get -- if you just -- you're going to be able to do the math in the next couple of days.

At 390 with -- we left 1 million barrels on the table with the Enbridge pipeline issues at thebeginning of the month, so you've got to add 30,000, 35,000 barrels on top of that.

So you can see even today, post-turnaround with the facilities and the bitching and blending facilities on, we're up into the low-400s, and you'll continue to see that grow and that graph is the best view we can give you of that going forward.

Bitumen blending has two or three particular benefits, not just that -- I'll give you a few examples of them.

One of them is that we were able to secure a [diluent] contract into the region so we now have the ability to bring [diluent] it in to blend with the Firebag bitumen.

We also, with the hot bit pipeline, effectively are able to bypass the upgrade to feed tanks.

So it has two benefits.

One, it means we can now run the mine harder.

The second one is -- and it's very important but quite complex, is we're able to improve the feed quality up to the upgrader because the residence time is less.

Now we've taken the -- but the residence time is greater.

Now we've taken the Firebag bitumen [act], so it is a much better feed quality going to the upgraders.

So there are multiple benefits that we've been able to bring that blend that -- bring that line on.

It's operating and we're very pleased with its performance.

Okay.

And just to reiterate, I think in your last call -- I'm shifting gears here a bit -- you'd said $7 billion to $8 billion a year, with the expectation for CapEx going out to the end of decades.

So even if Fort Hills is upsized, I think in Total was suggesting that, there's still no change in those goalposts, correct?

Now what I would say is Fort Hills -- I know I've been a little bit opportunistic here; it's not material to Suncor, so very important project to us.

But it's about -- if we go ahead,it will be about -- it will never be more than 15 percentage of our capital budget in any one year.

So either as part of our overall capital budget or as a total piece of the project because we've derisked it by going to 40% with only of the ownership.

It's an important decision but it is not really material to Suncor's future.

I hope we've been able to demonstrate to you, over last year and with the announcement we've made today, we have rigorous capital discipline in place.

We're working on the scope of the project, the execution, the number of projects we're putting in there.

And for the second consecutive year, we've reduced the number -- actually to below $7 billion.

So you can see the capital discipline in place.

I wouldn't want specifically to get tied a tight wrench because if I go seven or eight years out, we may have major additional projects that we want to layer in here.

But you have our absolute commitment and our track record is that we're hitting that range.

So if we're going to move away from that, we will clearly signal it to you.

Okay.

Thanks, Steve.

And then last one for me is this 100,000 barrels a day of debottlenecking opportunities.

Now you talked about that in the last call at what -- 20,000 to 30,000 are flowing.

When do you start to hear -- when do you fill in the details on that?

Our plan is to come back with much more detail by the end of this year.

But you know, we have said a little bit, Greg in -- there's some stuff around extraction, there's some stuff around the McKay River debottleneck, and those are the -- those are front-end projects.

There's more infrastructure stuff, about 35,000 barrels of it that's coming on -- first all about 215 then the fuller volume in 260.

And in the last two pieces are the McKay River to the expansion project and the Firebag debottleneck.

So those are slightly bigger projects, and we'll come out with more detail.

But we're already starting to get fairly detailed in terms of the design and the timing of those projects here.

So by the end of the year, we'll give you more detail.

Okay.

Appreciate it.

Thanks very muchThank you very much.

Thank you.

The following question comes from Mark Polak from Scotiabank.

Your line is open.

Thanks, and good morning, guys.

Just on the heated bitumen line, is this one of your -- what is the capacity of that?

Are you able to run all of Firebag through that even once it's ramped up?

And then sort of second part to that just -- are you running any MacKay River through the upgrader?

Or is that going straight to the blending storage facilities?

Sorry.

I missed the second part question there but I've got the first part.

Immediately, it's 80,000 barrels a day, and that's a mix of cooling and dilute limits but we progressively moved that on, so it will not be the constraint to our operations.

And the second part of your question was?

Just whether you're running any MacKay River through the upgrader or is it going straight to market as a blend?

We have a choice.

So depending on our bitumen balance on the day, we can put that to market or we can put it to the upgraders, so that's part of the flexibility of the operation.

Okay.

Thank you.

The following question comes from Mike Dunn from FirstEnergy.

Please go ahead.

Your line is now open.

Yes.

Good morning, folks.

I think, Steve, you might have personally answered my first question but just trying to do the math around run rate July volumes.

I think if you were about [390] for the month and that was impacted by 30,000 to 35,000 negatively, so you'd be sort of [425] through the remainder of July.

Just wondering is upgrader run time, was it pretty strong as well as sort of -- for July?

And then I'm thinking about fourth quarter, no planned downtime that we know of but fingers crossed, that could also be a really strong quarter for production, if I'm correct.

And I have a second question after this.

Okay.

Yes.

So just in terms of upgrader, you're also going to see a record performance.

The net result of the unit two turnaround we did and then the unit one turnaround we've done this year is the facilities are in excellent condition.

We've also -- we've been transparent but it has been quite in the background --we've also taken the opportunity to rebuild our hydrogen facilities over the last couple of years at those turnarounds, so both primary and secondary upgrading are in excellent condition and we really are starting to see the utilization creep up.

That's why you'll hear a very confident tone in our speaking today because for all of the headline numbers you can see, we can see three or four or five numbers behind those and they are very encouraging.

So not only would I expect to see a strong finish to the year, but we don't have a major turnaround for 34 months now.

So you're going to see us have the opportunity to start toperform on a monthly basis, on a quarterlily basis and put some real annual numbers on the doors next year, as we go in it as well.

And one thing I would remind you of is we do have a unit two vac tower.

We don't call it a major turnaround for a number of weeks in the third (inaudible) fourth quarter.

So you'll see a small planned reduction but nothing material.

You're going to see both volumes.

And because of the fixed variable cost ratio, costs be impacted.

So volumes will come up and costs will come down.

And that's why we've been confident to stay within the guidance, even though that means we've got to really perform in the second half.

Okay.

Thanks, Steve.

And then second question, with your CapEx budget modifications, the E&P division saw a bit of a reduction in spending.

Is that just related to timing of spending on some of your major offshore projects?

Thanks.

Yes.

That's all it is.

It's is just timing.

And what we'll do is -- you've seen this through a few years now --if we get the timing advantage, we'll keep taking advantage of that.

So if you actually over the last few years, by timing adjustments, you've seen effectively, that sort of percentage, maybe even a bit higher -- select from one year to the next, so that's part of the capital discipline.

Sure.

Thanks, Steve.

Thanks, everyone.

Thank you.

Our following question comes from Paul Cheng from Barclays.

Please go ahead.

Your line is open.

Hey, guys.

Good morning.

Steve, do you have a rough number of what is your [REN] obligation for your (inaudible) operation?

We don't have an actual number but it is largely immaterial for us.

For those not familiar, REN is a piece of regulation in the US gasoline blending.

For those not familiar, REN is a piece of regulation.

It's in the US [about] gasoline blending.

We think of the overall impact as largely immaterial and down in the sort of $10 million, $15 million range because of our ability to blend and what we would have to -- what we'd probably have to purchase.

So relative to the sorts of numbers you've been seeing in the industry, it's very low.

Ten million dollars to $15 million -- you're talking about for the full year, right?

For the full year, yes.

Okay.

And Steve, you talk about Fort Hills, can you give us any update about Joslyn?

The only update I would give on Joslyn is, at minimum, it's moving backwards.

So we're taking a strategic review.

I don't see us running two mines in parallel, in terms of the execution phase, for any significant time, so absolute minimum that project is going back.

And the fastest I would see us sanctioning that project would be probably in the 2017 range, and that would put first oil back to 2021, 2022, and that's the best case.

So you can start to push it significantly back in your models.

And that -- on the Firebag 5 and 6, are we now officially that -- or that have you guys decided what you're going to do with the Firebag?

Are you going to continue [departly] and use the existing -- the infrastructure from 3 and 4 to just extend it?

Or that we're really going to have an individual project going to be?

Or has that been decided yet?

Not fully decided.

The options are still there.

But the most probable case is that the plan is that we'll get up to its 180 design by the end of this year, beginning of next year.

The debottleneck I talked about is a significantly reduced-type project, relative to the full stages.

And we anticipate that's a first oil in the 2017 timeframe, and that's going to put 20,000, 25,000 barrels a day on to that facility.

It's a very significant resource Firebag, so we have a lot of options after that.

Could be -- the base case used to be additional stages.

That is much less likely now.

Much more likely, we will do modifications to existing stages, in order to have a more economic project.

And you'll see us supplying there and Lewis and Meadow and MacKay river; this republication strategy, where we have a fairly vanilla simple design, and then we keep up -- we keep laying down the same facilities, and you'll see the cost -- the capital costs associated with it come down significantly.

The other reason we keep our powder slightly dry is to do with the technology question earlier on, we do have significant potential technology moves forward, so we want to have the capital projects, where we can go and test -- check those at commercial level.

Right.

Steve, I know it's way too early in the process but any rough idea that how much is the CapEx saving per daily of production barrel?

I think that the Firebag that we're looking at -- 3 and 4 combined -- is probably about in the $45,000, $50,000 per daily barrel of rate.

And [if we can] estimate that, how much is the saving may look like?

No.

You're right for it's too early to be specific because we've still lots of questions to answer.

But suffice it to say it's a significant move in the right direction; if the solvent technologies work because the energy input is materially reduced.

Okay.

But it's too early to say specific numbers.

All right.

Thank you.

Thank you.

Our first question comes from David McColl from Morningstar.

Please go ahead.

Your line is now open.

Hi.

Good morning, and thanks for taking my question.

It's good to see some comments pertaining to market access in the release, and just want to talk about that a little bit.

So, if I'm reading between the lines on what's -- I think becoming far less subtle comments on the call this morning, it would appear that Suncor is not directly exposed to the Keystone XL project.

So I guess for those of us who need to be hit over the head a few more times, can you confirm in a less subtle manner -- it was in the context of that 600,000 barrels of capacity that -- in fact, that is the case, and I'll probably have a follow-up.

Thank you.

Okay.

Suncor is absolutely aligned with its industry partners about the need to get Oil Sands and Western crudes to as many markets as we can and not be subject to the risks of a single market.

So we are actively engaged in pipelines to the West; the energy pipeline that's been announced this morning by TransCanada to the East.

And we are also actively engaged in Keystone, both Keystone South and Keystone North.

Keystone south will be operational by the end of the year.

And we have the capability, at that point, to move volumes all the way from Oil Sand up from Western Canada down to the Gulf Coast.

So we're actively involved in all of those projects.

We are not dependent on any, single project.

So we already have, in our -- in contractually tied up, in our capability, to have -- the volumes -- to handle all of our products and all of the foreseen products.

So in the future, it enables us to optimize the market, to make best use of it and to have robustness by getting did to all of the markets, including into the international markets.

So we're part of the project, we're supporting it but we are not dependent on it.

Okay, great.

So the -- I guess a follow-up there then it's just the timing for the 600,000 barrels.

And just thinking about this in the context of your North American onshore portfolio.

Should we be look at this as a case of your production continues to increase your -- the capacity of lack -- for lack of better phrase I guess the capacity for the pipeline system, as far as you're concerned -- should be able to increase lock step with that.

In other words, we don't see any issues coming up, whether it is in 2014, 2015.

It should be smooth sailing, aside from various issues that can happen with third party outages?

You'd know that from a Suncor perspective, we don't have a takeaway issue today and we don't foresee a takeaway issue for Suncor going forward.

We would prefer and we support access to multiple markets.

But it's not critical, either today or to our expansion plans.

That's great.

Thank you very much.

Thank you.

The following question comes from Carl Preston of National Bank.

Please go ahead.

Your line is now open.

No, thanks.

Good morning, guys.

I've two questions here.

The first question on your integration of western barrels to your Montreal refinery.

Can you confirm how much that's -- how much capacity you're going to have there and also whether or not that's going to be Suncor barrels you're shipping there?

Yes.

So we have multiple ways of getting connection into the Montreal refinery.

We are in the process of constructing some rail import facilities, and some of those, we anticipate being operational at the end of this year.

So the very early end, you'll get to that of 10,000, 15,000 barrels a day number.

The refinery's ability to take the crude after that, depends on the quality of it, and the import facilities can get up beyond 20 and up into the 30,000-barrel-a-day range and maybe slightly beyond.

That's the first part, which is available very early to us and it would just depend on the economics of using inland crude versus international crudes.

We are also part of the Line 9 Reversal project, and we have enough volume on that line to be able to fill our Montreal Refinery.

It's early days we're working very closely with the Quebec government, with the employee unions and with the environmental groups, who are interested in that and everything to date is very positive that line will go ahead.

But all of that is not -- that's about making additional money in the refinery.

So we produce about -- we process about 50 million barrels through the year on that refinery, and that enables us to take advantage of the differential between international crudes and in-land or Western Canadian crudes.

So -- but that's not part of -- that's an upside in our R&M business, and even further improves the integration of our business.

But not necessary first to get the products away from Oil SandsThe volumes we're talking about, we already have the capability of getting it away from Oil Sands.

So whilst it's a very attractive project to us, it is not essential in terms of market access.

Okay, thanks.

And my second question here just pertains to your share buyback program.

As you look forward and start to achieve your 8% growth targets, is this buyback program something you would continue to run?

Or is that going to be dependent on market condition share price?

Yes.

Hi, Carl.

It is Bart here.

So let me just take that one.

And as we look at our -- the strategy that we have for returning cash to shareholders, it's a very key priority for us.

Consistency is a key part of that as well.

And if you look at where we've come from, just about two years ago this time to now, we've grown our quarterly return of cash to shareholders by about 100%.

Now part of that is the result of some quality pricing we're receiving.

But we are growing our production and growing our cash flow and growing our earnings.

And so there's opportunity to continue to grow -- the return of cash to shareholders.

It will come in both the form of dividends and growth there but as well buybacks, so long as we have the free cash to do that so that will definitely be part of the strategy

All right.

Thanks a lot.

Thank you.

The following question comes from Menno Hulshof from TD Securities.

Please go ahead.

Your line is now open.

Yes.

Thanks and good morning.

I'll start with a question on turnarounds.

You mentioned on a couple of occasions you have no major oil sands turnarounds until 2016 but that there is a turnaround at Unit 2 this quarter, which isn't considered major.

So how should we be thinking about your definition of major turnaround?

And would it be based on weeks of downtime?

I think the things I would emphasize, re-emphasize is that we're absolutely confident in our position.

Or impact to production or something else entirely?

Yes.

I mean normally, we'll be specific, so you don't have to do much interpretation if you like.

So normally, with that guidance, we've already accounted for the turnaround.

But for example, the Unit 2 turnaround is a three -- three [and a bit] week shutdown; doesn't shut the upgrader down itself and only reduce of -- it's of 50,000, 60,000 barrels a day, that sort of number.

So not material to the overall production there.

But we normally we're very specific about -- if there are going to be turnarounds like that, we will define them, and we'll define the duration and the impact, and the actual number is reflected in the guidance.

Okay, great.

Thanks, Steve.

And then I've got a question for Bart on the timing of the resolution of your dispute with the CRA.

And then as a follow-up to that, is it an all-or-nothing situation on the $1.2 billion tax bill?

Or do you think you could end up somewhere in the middle?

Yes.

Hi, Menno.

Well, the process can take a long time when you get into a dispute with the CRA.

I think the things I would emphasize, re-emphasize, is that we're absolutely confident in our position.

The claim never would have occurred, unless we were absolutely confident.

So in spite of how long it might take, our view is it will be resolved favorably for Suncor and its shareholders.

Between now and when resolution ultimately occurs, as I said, I think on the call when we announce this, we may be in a position, if the CRA does move forward that we have to post some cash collateral to fight our position and that would be half of the $1.2 billion, so $600 million.

If we did have to post that though, it would have no impact on our return ofcash to shareholders or our other strategic and capital plans we've already accounted for.

Perfect.

Thanks, Bart.

Okay, thanks.

Thank you.

(Operator Instructions).

The following question comes from Carrie Tait from Globe and Mail.

Please go ahead.

Your line is now open.

Hi.

Thanks for taking my call.

Can you talk about the energy east pipeline and if you are signed on as a shipper?

We support the project and we are part of the enactment this morning.

Yes.

And when you keep speaking about why you don't have market access problems, can you expand more on all of the reasons why you are not fretting about pipelines like Keystone?

We are probably -- part of Suncor's long-term strategy has been integration and what I would call the infrastructure and the pipeline system, so we've been a major player in that world for awhile.

We have been actively managing -- we have a trading and logistics department, whose sole job is to make sure we don't restrict the operation unnecessarily.

So we've been very active.

We are a -- we've have been supporters of all of the existing lines.

We're also supporters of these new lines.

So we've been very active in the -- getting the product to market and getting the diluent Fort McMurray.

So as the problems have become clearer over the last couple of years, we've just been active out there; making sure we can secure access because it's very much part of our model.

And so the guys have just really performed well; they've recognized the need for pipelines, the need for tankage.

We've got 10 million barrels of storage mid- continent as well, and it's just recognizing the issue and addressing it in our trading department, and logistics guys have done a very good job.

Actually, it was more like being one step ahead rather than turning to relying much more on rail or something like that.

Do I understand that correctly?

We are -- we actually are -- within our logistics and transportation department, we have significant expertise on pipelines, we have significant expertise on rail, we also have significant expertise in the marine world and we use all three of them.

So part of Suncor's strategy is a balanced mix of all three of those transportation modes.

Okay.

And my second question is why is Joslyn going backwards?

Right now, I don't find the project quite as attractive as Fort Hills, and so we're looking at ways to improve it.

So it's a quality resource with the potential to mine.

The economics are not standout attractive to us at the moment.

So we -- if you remember, we put Fort Hills through a process of making sure all of the partners had the opportunity to get the best design to extract the resource in the best way to get the returns, and that significantly improved the Fort Hills returns.

We now want to put Joslyn through the same process so ourselves, particularly in Total are working to see if we can improve the economics because as they stand at the moment, they're not so attractive to us.

Do you still feel as though going through the Fort Hills process will get Joslyn to the same level?

I think -- it will definitely improve the returns of the projects.

The base quality of the asset is not quite as good as Fort hills.

Fort Hills is the next-best industry mine.

If you look at the combination of the quality of the ore and the size of the reserve, it's is a 50-year project, with very good quality ore.

So it was always, from a fundamental point of view, goingto be the industry's most attractive next project.

Joslyn is a little bit further back and so we still have to work to do on it.

Is that something you want to keep holding on to, if it doesn't add up for you right away?

It's a quality reserve.

It's just a question of making sure that we have the very best design of project, and the timing is good.

So yet we're very happy with it.

Okay.

Thank you.

Our following question comes from Jeff Lewis from Financial Post.

Please go ahead.

Your line is now open.

Hi.

Thanks for taking my question.

Just winding back again to energy east.

Can you talk about the commitment and what sort of terms you signed up for?

And secondly, are you more interested in the export piece of that project, given your plans for online 9 and rail and crude to the Montreal Refinery?

I mean I can only give you answers generally for commercial reasons.

So, no, I wouldn't talk.

We are a significant potential user of the energy east line; not appropriate for me to talk at this moment about volumes but we've been working very closely from the outset with TransCanada on the option.

And I would just reference you back to my general comments, which are Suncor supports getting these crudes into the international market.

It's very important, as the industry continues to steadily grow, that we have access to multiple markets so that we can realize the full potential of it for Suncor and for Canada itself, in terms of getting the value of these resources.

So yes, we're supporting it and part of that is to get it to international waters.

Thanks.

Thank you.

The following question comes from [Ben Hobrach] from Argus Media.

Please go ahead.

Your line is now open.

Alright.

Thanks for taking my call.

Just had a couple of questions.

On the market access strategy, I see you have this slide in the presentation.

You showed 30,000 barrels a day to it looks like Vancouver, Puget Sound.

Is that current space you have on say transmountain?

Or is that something else altogether?

And then my second question was the idea of the coker at Montreal, is that dead or any sort of update there?

So the first one -- yes, you're right.

It is the transmountain line.

Of course we can use -- we can export crude oil products on that line, so there's flexibility in that routing.

In terms of the Montreal Coker, it's an active project that we're looking at developing.

It depends on your view of the future and where we [heart and done] on our view.

We can execute that project to the relatively low cost, compared to a full project because the design was completed and a lot of the major vessels are already -- were already constructed before the project was put on hold.

So there sat, over in Montreal, being protected from the environment with nitrogen blankets on them.

We haven't sanctioned that project yet.

We're waiting to see the conclusion on the Line 9 Reversal, which is an important part of that and then we'll actively consider the project after that.

Thank you very much.

Thank you.

The following question comes from Jeremy van Loon from Bloomberg news.

Please go ahead.

Your line is now open.

A couple of comments.

Steve, I was wondering if you could talk a little bit about the partnership with Total.

I think when you announced the schellation of Voyageur, you said there was some consideration of working together on other projects that would open up the possibility of doing other things.

I'm just wondering where that is right now.

The relationship with Total is very good.

Of course, the Voyageur was a tough decision but we made it in close contact with each other but we came to the same conclusion.

So the relationship is very strong.

I, as a matter of routine, meet up with [Christoph] and talk about our opportunities.

We're very keen together between the two of us; [all to tackle] with a third partner in Fort Hills to keep a high quality relationship, as we move through to the potential sanctioning of Fort Hills.

So all of that is working very well.

We're having very healthy conversations about the timing, if Joslyn were to go ahead.

We haven't taken it much further than that.

So there are other possibilities but we're look at getting some success on the board.

So it's a good relationship.

We will continue to talk but not at lot -- no plans in any other projects yet.

And just one other question, just looking at the oil differentials that have come in quite a bit in the last month or two, I'm just wondering to what extent is that playing into overall decisions about strategic direction?

Or are these things too short term to feed into that?

A couple of comments.

They're short term because these capital projects are long cycle projects.

We're looking five, ten, 15, 20, 25 years out, and that's the economic basis for the projects.

I would say there is a bit of -- and the Suncor model -- one of the reasons we like the integrated model is, in the short term, it's very difficult to be -- to accurately predict what these differentials are going to be.

The beauty of the Suncor model is that we make the money, whether it's upstream or downstream because of the integration, so in -- well, it strongly underscores the importance of the integrated model we have.

The one thing I would say is -- and it's -- one swallow make a spring.

It does indicate what we were saying, which is the market will work, the differentials will start to move, as access becomes available.

So we have seen particularly the late heavy differential close, which is saying that market is working.

Now, of course, that was -- our view is in the long-term that will continue to happen, and that's why we believe upgraders in Alberta are not justified.

And, operator, with that, I think we'll wrap up.

I don't believe there are any further calls.

That is correct, Mr. Douglas.

I would now like to turn the meeting over to you, sir.

Thank you very much, Marcus, and thank you to everyone who joined us today.

Just a final reminder the IR team and controllers will be available today for detailed questions on the Q2 results.

Thanks again.

And with that, we'll sign off.

Thank you.

The conference has now ended.

Please disconnect your lines at this time, and we thank you for your participation.