Suncor Energy Inc (SU) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Suncor fourth-quarter 2013 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.

Well, thank you, Catherine, and good morning, everyone.

Welcome to the Suncor Energy Q4 shareholder call.

With me here in the conference room are Steve Williams, our President and CEO; Steve Reynish, our interim CFO; and Jolene Gillmo, our Vice President and Controller.

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 Q4 earnings release, as well as our current AIF, and these, of course, are both available on the website.

Certain financial measures referred to in our comments are not prescribed by Canadian GAAP, and for a description of these, please see the Q4 earnings release.

After our formal remarks, we'll open the call to questions, first from members of the investment community and then to members of the media.

Given the name distribution in the room, I think I can probably assure you that of your questions will be answered by Steve.

I'll hand it over to Steve number one to kick off.

Steve Williams.

Good morning and thank you all for joining us.

I'm going to begin with a review of our operational performance and provide you with an overview of our results in the fourth quarter and full year as a whole.

Then I'll talk about our key priorities as we turn the page on 2013 and look to the new year.

Our oil sands operations produced at record rates once again in the fourth quarter, averaging almost 410,000 barrels per day.

With strong reliability from our upgrading complex, we were able to produce over 300,000 barrels per day of synthetic crude oil and set an upgrading record for the year.

And this is particularly encouraging.

We are making steady progress on our operational excellence goals.

We set a target to consistently exceed 90% utilization in our upgrading complex, and that would result in an average synthetic crude oil production of over 315,000 barrels per day.

And I'm confident that we can reach that target in the near future.

Throughout the quarter, our oil sands operations coped with ongoing natural gas curtailments as a result of third-party pipeline issues.

This reduced production from our Firebag in situ project.

However, thanks to the recent debottlenecking in our extraction plant, our mine was able to produce at record rates and partially offset the gas interruption impact.

We continue to experience slightly smaller natural gas curtailments, and we are working closely with the pipeline operator to resolve the issues by the end of the first quarter.

So, as I look back on 2013 at oil sands, I am pleased with our oil sands operational performance.

Production was up 11% for the year, despite major plant maintenance and significant third-party pipeline outages.

With no scheduled turnaround maintenance until 2016, we're looking forward to an extended run of reliable operations.

Our 2014 guidance calls for a year-over-year increase to oil sands production of about 15%, continuing the trend of profitable growth, and I believe we are well-positioned to meet that target.

Turning to the downstream, our refineries, once again, operated reliably in the fourth quarter and took full advantage of the wide crude differentials.

We completed both planned and some unplanned maintenance in the fourth quarter, but still managed to exceed 91% uptime for the quarter and almost 94% for the year.

One indication of our outstanding downstream reliability is our ability to steadily increase the nameplate capacity of our plants.

On January 1 due to this year, we officially expanded the Edmonton refineries nameplate capacity to 142,000 barrels per day.

We've now added over 4% of nameplate capacity to our refineries in just the past two years.

And in a world where crude prices are volatile and integration drives profitability, expanding our existing refinery capacity is extremely important.

It's a very low cost way of growing both production and profitability, and we are taking the same approach to that opportunistic growth across all of our operations.

A key factor in our Refining and Marketing performance is our midstream logistics capability.

In the fourth quarter, we took a big step toward lowering our supply costs at the Montreal refinery as we commissioned the new rail offloading facilities.

We are now delivering oil in 30,000 barrels per day of lower cost inland crudes to our Montreal plant.

In addition, we've taken delivery of marine cargoes of the Eagle Ford and Louisiana light sweet crudes into Montreal from the US Gulf coast.

We've been able to land the crude at significant discounts to the international crudes we would typically run in Montreal.

Going forward, we will continue to look for every opportunity to take advantage of crude differentials and lower the feedstock costs to all of our refineries.

In our E&P group, we completed maintenance at Terra Nova in early December and finished the year with strong production at all of our offshore facilities.

We also continued to progress a number of projects that will help us to maintain and grow our offshore production through the end of the decade.

Notably, the Golden Eagle project is approximately 90% complete and on budget.

We anticipate first oil around the end of this quarter -- at the end of this year.

The Hebron project is also progressing well.

It's on budget with engineering 65% complete and construction activities well advanced.

We continue to expect first oil from this project in 2017.

In Libya, production remains shut in due to political unrest, and given the uncertainties surrounding the timing of the return to operations, we have removed the forecasted production from our guidance.

Steve Reynish will have further details on our approach to the Middle East a little bit later in the call as he speaks to the financials.

To provide a little bit more context on our performance, I'd like to take a few minutes now to revisit the five key value drivers that we identified a year ago.

And just to remind you, the first one was continue to advance Suncor's journey of operational excellence.

The second one was to improve maintenance and reliability across Suncor's operation.

The third one was to foster a culture of engaged employees that drive business results.

The fourth one was to deliver industry leading returns.

And the final one was to achieve long-term sustainability targets.

So let's take a look at how we fared on these key priorities.

Now, as I said, first one operational excellence.

We've seen positive trends in reliability, and cash costs are great indicators that our operational excellence programs are really starting to make a difference.

Disciplined execution on our capital projects is another proof point.

We've delivered almost CAD20 billion worth of projects at or below projected costs in the past four years.

And I've been pleased to see that even as our reliability has been rising, our sustained capital has been falling and a larger percentage of our capital (technical difficulty) towards growth.

We've also continued to see improvement in almost all of our safety and environmental metrics.

However, the past month we were saddened by the death of one of our oil sands employees, and this was a sobering reminder that safety is a journey, and it must continue and will continue to be the value that we hold highest in Suncor.

Maintenance and reliability was a second objective, and we completed a major maintenance turnaround at our number one upgrader complex and still managed a record for upgrading for the year.

We also reduced unplanned maintenance across the entire business, which is a very positive trend.

Now -- and that's not withstanding a number of third-party attitudes.

The reliability of our operation is definitely moving in the right direction.

Third was around employees.

We have put a tremendous effort into our recruitment and training programs.

We promote and carefully track competence, productivity and engagement, and we believe we have a workforce that is second to none.

In the past year, we were pleased to be named to several top employer lists, including the Financial Post's 10 Best Companies to Work For.

Fourth was leading industry returns.

In 2013 we took a number of important steps to drive improved returns in the business.

We've shut down the Voyageur upgrader project.

We focused our near-term oil sands growth on the low cost, high return, debottlenecking expansion projects.

We divested our low return conventional natural gas business, and we laid groundwork for the future profitable growth by advancing major projects like Golden Eagle, Hebron and Fort Hills.

We've demonstrated a commitment to capital discipline and increasing returns for shareholders, and we will continue to deliver on that commitment.

The fifth target was around sustainability, and Suncor has set aggressive, public environmental targets for 2015 that go beyond regulatory requirements.

We've made significant progress against these goals in the areas of air, water, land and energy intensity, and we won't stop there.

We're already working on our next generation of sustainability goals.

So all things considered, 2013 was a very good year with progress made on all fronts, but clearly the job is not finished.

We will continue to drive forward our operational excellence programs, improve our reliability, develop top-tier people, steadily increase our returns and conduct business in a sustainable manner.

So with that, I'm going to pass it along to Steve Reynish to go into some detail around our financial results, both for Q4 and for the year as a whole.

Yes, thank you, and good morning, everyone.

First, let me say how pleased I am to be here today.

As EVP of our Ventures Group for the past couple of years, I've been part of Suncor's senior leadership team, and I'm pleased to bring my perspective to this quarterly call.

So the final quarter of 2013 had a number of similarities to the fourth quarter of 2012.

Once again, we saw strong global oil pricing and wide price differentials for North American inland crudes.

At times, heavy Canadian crudes approached record discounts as refinery maintenance and logistical constraints combined to sharply limit demand.

Suncor's tightly integrated midstream and downstream assets enabled us to maximize our margins and generate strong cash flows.

So here are some of the financial highlights.

Our operating earnings for the quarter came in at CAD973 million, and our cash flow from operations was CAD2.35 billion.

This is the tenth consecutive quarter in which Suncor's cash flow has been at or above CAD2.25 billion.

Quite an achievement given the volatility of crude price differentials over the past couple of years and an indication of the strength of Suncor's business model and the reliability of our operations.

At oil sands, we faced headwinds in the form of third-party pipeline outages that did reduce production.

We also encountered unfavorable crude pricing differentials throughout the quarter.

As a result, our average realized price for oil sands production was just over CAD71 per barrel.

Our refining network was able to run at more than 90% capacity and take advantage of discounted feedstock to generate strong profitability once again.

With a solid fourth quarter, the refining and marketing groups surpassed the CAD2 billion mark in earnings for the second year in a row.

In E&P, we benefited from continued strong Brent pricing to deliver more than CAD550 million in cash flow, despite maintenance at Terra Nova and the continued shut-in of production in Libya.

We continue to focus on careful cost management, taking a very disciplined approach to both capital and operating expenses.

On the capital front, we invested CAD1.7 billion in the fourth quarter, bringing our total CapEx for 2013 to just under CAD6.4 billion.

This represented a savings of over CAD900 million versus our original budget.

It was also the third consecutive year that we have delivered our capital program whilst spending less than our budget.

As we move forward in 2014 with a CAD7.8 billion capital program, we will remain absolutely committed to spending capital efficiently and steadily improving returns.

Our cash operating costs at oil sands fell by just over CAD1.00 per barrel versus the fourth quarter of last year, and we finished the year at an average cash cost of CAD37 per barrel, slightly above our guidance target for the year.

Of course, there is some seasonality to oil sands costs as they typically rise in the cold weather, but they were also specific items in Q4 that resulted in higher expenses.

These included an accelerated maintenance program at the mine, unplanned maintenance and upgrading and higher natural gas prices.

However, we remain steadfast in our efforts to manage costs, and we are confident in our ability to reach our guidance targets for 2014.

We did have a number of one-time accounting items that impacted our net earnings and return on capital employed.

We recognized a total of CAD340 million in after-tax provisions and impairment charges.

The most significant of these related to decisions on our Syrian and Libyan businesses.

In Syria, we elected to impair the remaining carrying value of our assets.

This CAD200 million decision recognizes the fact that there has been no resolution to the political situation, and we currently see no prospects for a return to operations.

In Libya we recorded an impairment charge of approximately CAD100 million, and this resulted from the extended loss of production we have experienced since mid-2013.

While we remain hopeful for a return to production in 2014, the business is not material to our financial results, and our focus will continue to be the safety of our employees and the long-term optimization of value.

So, with another strong quarter of cash generation combined with prudent spending, our free cash flow for 2013 exceeded CAD2.6 billion.

This enabled us to aggressively return cash to shareholders by our dividends and share buybacks.

In the fourth quarter, we repurchased and canceled almost 15 million Suncor shares, and for the full year, we bought back almost 50 million shares, which is more than 3% of the Company.

And, of course, we increased our dividend early in 2013 by over 50%.

I'm further pleased that the Board yesterday approved a further 15% increase to our quarterly dividend.

This decision is consistent with our commitment to return cash to shareholders at a rate that is competitive, reliable and sustainable.

I am pleased that the Board authorized an additional CAD1 million for our share buyback program.

So together these decisions are a vote of confidence in our ability to generate free cash flow over and above our requirements to sustain and profitably grow the business.

I share that confidence, and I look forward to delivering in 2014 and beyond.

So now, I'll hand back to Steve Williams for some closing comments.

Okay.

Thank you, Steve, and I share that confidence as well.

As we begin a new year, we are well-positioned to make 2014 a great year for Suncor.

We have no major turnaround maintenance planned oil sands.

Our Firebag production has fully ramped up.

Our oil sands logistics have been debottlenecked to support increased production and sales.

Our market access strategy is unfolding as planned with the startup of the Keystone Sachs pipeline and additional rail capacity.

Our Montreal refinery will benefit from cheaper inland crude feedstock.

Finally, in E&P, with the sale of our natural gas assets, we are focused on high return oil assets, and we are moving project forward to make sure we maintain and even increase our very profitable offshore production.

In short, there is a lot to look forward to in 2014.

We are excited about the path forward, and we are intent on delivering on our commitments.

So with that, I'll pass it back to Steve Douglas.

Well, thank you, Steve and Steve.

And just before we go to questions, I should note that we have made some adjustments to our guidance.

It is updated on our website.

But the key changes are the removal of Libyan production and an adjustment to reflect the weaker Canadian dollar.

So a lowering of the exchange rate to CAD0.92.

One thing I do want to note is we will no longer be posting monthly oil sands production numbers.

With our growing operations and a changing product mix, a single monthly production number simply doesn't reflect oil sands overall performance.

It's not a good indicator.

As such, we will discontinue the monthly posting of production, and we will focus on quarterly operational updates.

A few more notes.

With crude prices falling in the fourth quarter and product prices falling, we had an after-tax expense in the LIFO/FIFO adjustment of CAD142 million for Q4, largely hitting our refining and marketing results.

For the year, it was actually a positive after-tax impact of CAD80 million.

On the stock-based compensation side of things, with the share price rising throughout the year 15%, the after-tax expense was CAD67 million in Q4 and CAD304 million for the year.

Finally, going back to the FX impact with the Canadian dollar falling, our American denominated debt carrying expense rises, and it was a CAD259 million after-tax expense in Q4 and CAD521 million after-tax expense for the year.

With that, I'm going to turn it back to Catherine to take questions.

Catherine?

(Operator Instructions).

Greg Pardy, RBC Capital Markets.

I do have a question for Steve.

So just a couple actually.

Just in terms of the gas outages right now, you mentioned in the quarter it impacted production rates by about 15,000 barrels a day, but is it having a material impact then on the split between synthetic sweet and any other blends you are producing?

That's the first question.

The second one is just with respect to your oil sands operating costs.

You noted the impact of maintenance.

What would that have been in a dollar per barrel amount, or can you give us an idea had you not done the maintenance?

Thanks very much.

Hi, Greg.

Steve Williams here.

Let me give you some answers to those.

So I mean firstly, not any significant impact on the mix.

It is slightly affecting upgraders, but not anywhere near the 15,000 barrels a day we are talking about overall.

And if anything, those impacts -- although we are still seeing occasional curtailments, the mitigation steps that TransCanada have taken are improving the situation, so the impact is diminishing and not increasing.

And, of course, as the weather starts to improve, then we'll see a further improvement because the gas supplies the common gas supply to the municipality would go out as well as to the industrial gas consumers up there.

So overall the impact is starting to drop off, and no, we are not seeing significant upgrading impacts.

In terms of the operational cost effects, it's sort of good news and bad news.

We are a bit frustrated that that excellent trend we were seeing in operating costs hasn't continued.

That's the bad news.

The good news is that the majority of it we can attribute to one-off events, which you will not see being repeated as the year goes on.

So I think Steve highlighted just briefly some of them, and I'll give you the numbers in approximate dollars a barrel.

So the once off maintenance on the mining trucks we decided do and get ahead of to position us well for this year was the equivalent of a bagged CAD1 a barrel.

Both the combination of the plant and a small amount of unplanned maintenance on the upgraders was about CAD0.50 a barrel.

We also had a one-off back payment.

We did a negotiation with our union employees and paid the backdated element of that, and that was the equivalent of about CAD0.70 a barrel.

So the three of those get you up at the sort of CAD2, CAD2.25 a barrel.

There's a little bit of seasonality in there as well.

I don't like to overplay seasonality, but with a very cold spell up there, gas demand was up and gas prices went up.

So there was an element of gas prices in there.

And I think what I'd say just to close it on the costs is, Steve said it and I would underline it, we are very confident in our guidance.

So that gives you a feel for what we're expecting for 2014.

Okay.

Thanks very much.

Arjun Murti, Goldman Sachs.

Thank you.

Just a few midstream and downstream questions.

You mentioned the rail going to Montreal.

Is there an update on the timing of Line 9 reversal is the first question?

And then I believe you're able to now bring in some cargoes from the Gulf Coast.

Can you just talk about the quantities and maybe the differentials that gets you excited for that option going into Montreal.

Thank you.

Yes, let me -- it's very difficult to be absolutely specific about these market access issues just because the science and the economic is clear.

The final decisions are still in the political realms.

In the Line 9 case, it is actually with the NAB, so it's a little bit simpler.

Our expectation is that we will get a result on Line 9 reversal in this quarter probably by the end of February, and we are still optimistic and expecting a positive response.

And, of course, a lot of the potential investment we talk about in Montreal is conditional on us getting low-cost feed stock into that refinery.

So we remain cautiously optimistic that we'll see that approval in the next four to eight weeks.

Cargoes coming into Montreal, I mean really to put it in context, we've had about three, four cargos go into Montreal, and we really do that on an opportunistic basis.

So, if we can see the material available, it is material.

It is not subject to the export restriction because we are allowed to move materials from the US into Canada.

So we will take opportunity as those differentials are available, and we have good logistics facilities to be able to do that.

So we are taking considerable advantage of that at the moment.

That's great, Stephen, and just one follow-up on refining.

I think you mentioned debottlenecking -- correct me if I am wrong -- was about 4% over the last two years, which is typical 2% one can do in the refining business.

Is that how we should think about your refining growth plans will be continued debottlenecking activities, or in terms of primary distillation, are there the potential to have more meaningful expansions than that?

How are you thinking about the refining side?

Okay.

What I'm going to do is I've stated that the first place we'd start, and you'd seen it right away across our businesses is to make sure we operate the assets we have, as well as we can possibly operate them.

So and that's a piece we can call in operational excellence.

We see the refineries, first of all, come up to the nameplate capacities, and then when we have been able to reliably and safely operate them, we have been able to redefine the capacities of those facilities, and that's the 4%.

And we are doing -- we've been doing very similar things.

We're doing that across the businesses, and in a sense, that's what's happening in oil sands, and that's what starting to happen with these debottlenecks.

There are then some real integration projects, particularly at the Montreal refinery where we can take advantage of low cost, some of it may be capacity like primer distillation, but more of the investment there is around how we get better conversion or better coking -- lower than Fort McMurray-type cost cooking facilities in there to take full advantage of the inland crudes we can put in.

So you'll seeing us doing that is the second stage.

The third piece of our strategy is we've been -- that the integration has worked very well between oil sand and refining.

An,d as you know, we've been able to get up on average up in the mid-90s type levels of Brent-related price because of that integration.

We actually hit in the fourth quarter the low watermark because of the way that integration works in our logistics there.

We are actually starting to see it come up now as the market access strategy is kicking in.

So the next strategic question for us then is, do we want to -- as we start to expand the oil sands and our upstream production, do we want to proportionately increase the integration?

And we look at every refining opportunity that comes on to the market on this continent.

We don't have any immediate plans, but we will continue to look at that as part of our integrated strategy.

And some of that depends on your view as to what's happening on the continent.

Our long-term view is that demand and refining capacity is probably peaking on the continent, and therefore, as market access becomes available, that profit will start to migrate back to the upstream.

But we keep revising that review, and we look at every refining opportunity to see if we want to do any further integration.

So the simple view is the first focus is on operational excellence getting the best we can.

Second focus is on these low-cost debottlenecks, and the third one is whether we readjust then the refining oil sands split.

That's great.

Thank you, Steve.

Guy Baber, Suncor Energy.

Guy Baber with Simmons.

Your underlying refining earnings this quarter were very strong relative to what we contract from a margin perspective in your primary regions.

I'm just wondering if you could discuss any adjustments you've made with respect to crude slate in any of your refineries just across the portfolio or anything else that you might call out that may have contributed to that strong performance?

Does it go back to perhaps shipping some of the Gulf Coast barrels that you've mentioned up to Montreal during 4Q?

Just trying to get a better sense of how and where the numbers came in so strong in refining.

I would say it really is a reflection of the strength of the integrated model.

There was nothing particularly exceptional.

The Denver and Edmonton crack spreads were very positive for us, but really it's just a reflection of the integrated model that we are able to move around.

So that was nothing -- we are constantly trying to optimize it.

One of the -- we've always tried to be very transparent.

One of the advantages our integrated model has is we have a trading shop that works alongside it.

So we are able to optimize the continental feeds into those refineries and take advantage of times when the oil sands or the differentials are significantly advantaged to us.

So nothing particular happened, other than we optimized where we took advantage of those crack spreads.

Okay.

That's helpful.

And then I was hoping you could just provide some commentary around the dividend.

Just what went into the decision on the dividend raise, why was 15% increase the right number, and then are you targeting a specific payout ratio?

And if you can, to what extent, if it all, is the decision to maintain some level of buyback and then balancing the two influence the ability to raise the dividend?

Okay.

We've -- let me start with we've had a compounded average growth rate on our dividend of in excess of 35% over the last five years.

So, as we have been saying, the business is generating more cash, and we are distributing that cash to shareholders.

I like to think of it very simply in terms of the regular -- we've ratioed approximately the dividend to earnings, and that's why we adjusted our timing in terms of when we make a recommendation and when the Board, who has the approval for dividends, approves it.

So trying to create the relationship between adjusted earnings and dividends.

We want that dividend to be competitive.

You've heard Steve say we want it to be reliable and sustainable, and that's our plan.

You will continue to see us raising that dividend as we grow the net earnings -- adjusted earnings of the Company through time.

When we look at it, we have talked about capital discipline, so you see the exercise, some capital discipline around the 15%.

And I know there have been a number of commentators in the market, we are talking 25% and some even talking as high as 40%.

Our commitment is to be competitive, reliable, sustainable and grow that thing through time, and that's where the 15% comes from.

Now when you look at our balance sheet, we still have some significant cash and liquidity capability in there.

You've seen and that's why we've come immediately on top of the dividend with another NCIB or share buyback program.

And if you look at the last couple of quarters, you've seen us buying stock back.

Third quarter was just over CAD425 million, and then in the fourth quarter, we bought back CAD550 million of stock.

You will see us continue through this year buying at approximately that rate.

So to summarize that, the dividend, we don't hardwire it to a ratio, but you can see we're aiming for in that 25% to 30% of adjusted earnings range, and you'll see us, and it's an interesting problem to have.

You'll see us trying to get the cash on our balance sheet in the position we wanted by continuing these share buybacks.

So, you know, we're going to be continuing with a relatively aggressive program for the rest of this year.

Very helpful.

Thank you.

David McColl, Morningstar.

I'd just like to switch back to differentials for a minute.

Given your marketing, refining divisions, interest in Syncrude and Suncor's production of sweet SCL oil.

I wonder if you can comment on Canadian crude prices for the quarter, or I guess maybe put it differently, are you seeing better pricing for Canadian lights and sweet SC oil in your refineries, and are you seeing weaker prices for the upstream?

Tied to this, of course, I'm really interested in your long-term outlook given the strong light oil production we're seeing in the US, which could down the road have an impact on Canadian light prices and differentials.

Thanks.

I'll start, if you like, with the longer-term and strategic view, and then we'll just give you a few comments on some of the shorter term numbers.

If you go back to when we made the Voyager decision, we started to revise our point of view as the information was coming in about the tight oil bill that was going on in the US.

Our view in the long run is that there was going to be considerable length in light sweet crude or you can read across that equivalent to synthetic crude.

And as access to market became available, then the discounts on the heavy crudes, particularly WCS, would start to be reduced, and that price would come up.

And that was the reason we moved to what we -- we shut the Voyager investment down because we believed that there would be a length in light sweet crudes.

That starts in very much to play out as we expected, and what we're seeing now is that the Voyager type investment, it's very difficult to justify doing that.

However, we do have some cheaper alternatives.

So projects like the Montreal coker, much lower costs in terms of coke and capacity compared to Fort McMurray, can start to look very attractive in that world.

So we see that trend continuing.

Now there will be some bumps in the road.

This market access has not gone as smoothly for the industry as it might have done.

For Suncor, it's playing out much as we expected, and we have taken the opportunity to contract into pipelines to protect us through our growth program so that none of these market access projects -- no single one of them -- was critical to us.

And that's playing out very nicely.

However, we have seen these differentials move around, and the power of the integrated model, where we've been able to attract these very high proportions of Brent-related prices rather than these discounted midcontinent crudes, has really played out.

I mean Steve mentioned it.

The power of the model is that we've produced at or around CAD2.25 billion cash a quarter for the last three years.

And we think this was the moment to have the integrated model.

There's some debate -- and we are involved in that debate -- is to how important it is to retain exactly that sort of balance between refining and the oil sands in the future, but this was the time to have it take advantage of those differentials.

So we are really quite neutral to what they are in the sense that if the oil sands prices are high, great we take it in the upstream.

If they are low, we simply take it in the downstream.

I don't know if you wanted to add a comment, Steve, on particular differentials in the fourth quarter?

Well, thanks, Steve.

Thanks, Steve.

Just, David, to some of the specifics.

We saw sharply a drop in crude prices, so widening differentials beginning at the start of the fourth quarter.

I mean if you look at OSA, synthetic upgraded, you saw it moving from par at the tail end of the second quarter, par to WTI, and it bottomed out at about CAD14 or CAD15 discounts to WTI in early December.

And that's come back, and it's now trading at a modest premium.

Sour, sour synthetic likewise, typically trades somewhere in the CAD8 to CAD12 range below WTI, and it bottomed out about CAD25 below WTI and then came back here at the beginning of the year.

And finally, bitumen.

Now neither of those hurt us because we are fully integrated on those, and we are able to capture the uptick.

Where we did see some impact was we had higher bitumen sales than we would typically have of over 100,000 barrels of bitumen daily.

And we weren't able to capture the entire upgrade there because we weren't able to process that all internally, and our access to global markets was somewhat limited.

We are seeing a change in that, as Steve mentioned already, because, of course, we're shipping well in excess of 50,000 barrels a day to the Gulf Coast now.

So the only real impact for us was bitumen pricing, and we're seeing that come back now.

Great.

Just a quick follow-up on that.

If you're shipping well over 100,000 barrels per day, can you give any indication -- down the Gulf Coast -- any indication as to how much of that is going on the Gulf Coast Connector or Keystone South as is called?

Just trying to find out whether you're well over that 50,000 barrels a day capacity you have.

Yes, we're up in the 70,000 barrel a day range.

Okay.

Thank you.

Bob Bakanauskas, ISI Group.

I was noticing with the US dollar appreciation here, I was wondering to what extent the profits in the quarter (technical difficulty) and if you had any breakdown as to what percent of the operating costs are denominated in Canadian dollars versus US?

So, Bob, we've seen obviously a dramatic move at the beginning of this year of the Canadian dollar against the US dollar.

That is broadly favorable to Suncor as an entity.

So we will see value.

If that should continue through this year, we will see a beneficial effect both on earnings and cash.

What was the second part of your question, Bob?

Can you just repeat that for me?

Sure.

In terms of the actual operating costs, labor costs and everything else, what percent would you say is denominated in Canadian dollar versus US dollar?

I don't have an exact percentage, Bob.

I mean the majority of our costs are denominated in Canadian dollars.

So certainly all of the labor, and that would take it something like 80% plus, I think, in Canadian.

But we buy equipment denominated in US dollars.

So we have some exposure there, but the overall balance, say, depreciating Canadian dollar is favorable, I think, to Suncor for both US investors and Canadian investors.

Got you.

And just a follow-up on the overall operating costs.

Obviously, you've had a lot of progress over the past couple of years, which has largely been a function of the SAGD rampup.

Can you talk about mining and upgrading costs specifically, and what direction they are headed?

And I know there was this quarter may have been an anomaly with the increase in maintenance, but just generally I know you stopped disclosing mining costs specifically, but can you talk about the trends there over time and what you expect sort of over the long-term?

You know, all I would say is that a very similar trend, if you like, that we now are hitting record levels in the mine, record levels through extraction.

There are approximate numbers because it depends on the mine and the part of the mine we are operating in.

But you are up at 75% plus type fixed costs.

So as the reliability has been coming up, we're still seeing a steady trend down in both mining and extraction costs.

Got you.

Great.

That's all I had.

Thank you.

Jason Frew, Credit Suisse.

I'm just wondering supposing there's a favorable differential, is there anything that logistically holds you back from being more aggressive with running Gulf Coast crudes through Montreal in the near term?

No, the only thing is shipping availability.

We haven't seen a problem.

So now that the differentials are there, we think we have the access and the logistics to get it in.

Okay.

Thanks.

Menno Hulshof, TD Securities.

I just have one quick one.

It sounds like you recently made the decision to pull back on delineation activity for your Montney assets.

So what was the thought process there, and what is the go forward plan for those?

I'll talk about LNG and that Montney asset we have up there, and for those who don't recall, we sold our North American gas business largely, and that was relatively high cost, relatively low return with a big environmental liability coming out.

So we were very pleased to do that deal.

That left us then this LNG resource, which approximately is in that 7.5 billion, 8 billion barrels.

So it's a sizable piece of gas.

We've been doing -- we retained it primarily to the optionality it gave us in the future, and we did some work early on to delineate it.

I mean what I would say is we finished the delineation work we needed to do to retain it.

We know it's a very high quality piece of resource.

Our plans are that in the next couple of years probably -- you can never be absolutely specific -- but we have no plans in the next couple of years to do any further work on that.

The optionality, we still like.

So we could retain it, but relatively cheaply as an option against a gas price movement in the future.

That's a possibility.

It's big enough that it could go into an LNG project to be a sizable piece of an LNG plant feed.

We've no plans on our books at the moment to do that, but we retain that option.

So for now, that asset is going to start to go acquire, and we will take a strategic look at the choices we have forward.

But we quite like the status quo where we retain optionality.

While it is not on that, it's probably worth saying just in terms of other major inorganic pieces of growth, it's probably worth commenting on those as well.

We had a number of questions after the Investor Day, and probably a bit of clarity would help.

Again, probably in the next few years, we have no plans for large non-core acquisitions, and we have no plans for any significant exploration outside of our existing theaters where we operate in the North Sea and off of the East Coast of Canada.

So it's not to say we will never do any of those things, but there are no plans on our books either for LNG, large non-core acquisitions for exploration outside of our existing theaters.

That helps a lot.

Thanks, Steve.

Chris Feltin, Macquarie.

Just a very quick question here.

It looks like we are getting to pretty much the end of the Firebag rampup here, and I know it's 180,000 for a nameplate.

Just kind of wondering where we should be looking at that in terms of ongoing reliability.

Are you guys comfortable with the 180,000 looking forward here on a sustainable basis?

And just any color, I guess, in terms of what we should be looking at in terms of that particular project.

It sounds like we are pretty close to full capacity out of Phase IV here already.

I've got a very proud Mark Little sat next to me here, and we actually had it yesterday up to 175,000 barrels a day.

So we are confident we can get to the nameplate capacity.

Of course, the next challenge we have now is to reliably produce at those levels, but the asset is we consider to be largely producing what we expected, and this is the year we now have to start to get it up to those levels and keep it at those levels.

So very pleased with the rampup, very pleased with the quality of assets, and now we're in the game of fine-tuning it.

Okay.

That was it.

Thanks.

(Operator Instructions).

Mohit Bhardwaj, Citigroup.

My question is on adjustments.

What milestones need to be accomplished before a final decision is taken by the partners?

And what happens if, say, one of the partners, Total or Occidental, of Suncor doesn't agree to the findings of those milestones.

Thank you.

I'll let Steve Reynish give you the answer.

Yes, so the Joslyn project is obviously operated by Total, and it remains in that engineering feed stage.

So we are still working on the configuration of that mine.

So there is still a ways to go before we would anticipate any sanction decision on this asset.

I think we think we'll have an update on that position probably in Q3 of this year, and that will depend on the progress we and the operator have made in completing that work.

But there's still a ways to go, I think, is the answer to that one.

On the technical more technical issue or contractual issue on the partners, obviously there are four partners involved in this project, and as it currently stands, certainly Total and Suncor would need to agree on the path forward.

The majority of shareholders would need to agree on the path forward.

So that's what we are working towards, but no real update, other than there is still a ways to go on this one.

Thank you.

And if I could just ask a follow-up on Montreal refinery projects.

Steve, it seems like your inclination is more towards Western Canadian integration for the refinery and not so much for getting advantageous crudes from the Gulf Coast.

I was just wondering if you guys have the run in crudes from the Gulf Coast and what the capacity for that is?

Thank you.

I wouldn't say it's quite that clear.

I would say we want to configure the Montreal refinery so we can optimize a broad basket of crudes going into there, and that basket will include the full range of Western crudes from upgraded synthetic crude right the way through to diluted bitumen.

It will also include the opportunity to take discounted midcontinent crudes in there as well, and it will also include the ability to import crudes over the water through the Marine facilities we have.

And that we think -- that flexibility is the most powerful position for that refinery to be in, that we can actually optimize all of those.

The assets on the ground there are quite complex.

They're very capable of handling a broad diet of crudes, and with the potential addition of a coke or down the road, it would give us full range flexibility across those crudes.

So we like the refinery, we like the flexibility, and we'll take advantage of whatever crude is the best crude on the day.

With that operator, I'm going to ask that we wrap things up.

And what I'd say is thank you to everyone who is participating.

As always, both the investor relations team and controllers team will be available throughout the day for detailed questions whether by email or phone, and we look forward to talking to investors and analysts further.

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

Thank you.

The conference has now ended.

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