Suncor Energy Inc (SU) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Suncor third quarter 2014 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, Mary, and good morning, everyone, and welcome to the Suncor Energy Q3 call.

With me here in Calgary are Steve Williams, our President and Chief Executive Officer, and Alister Cowan, our Executive Vice President and Chief Financial Officer.

I'd ask you to note that today's comments contain forward-looking information, and actual results may differ materially from expected results because of various risk factors and assumptions described in our third quarter Earnings Release as well as our current AIF, and both of these are available online.

Certain financial measures referred to in these comments are not prescribed by Canadian Generally Accepted Accounting Principles and for a description of these financial measures, please see our Q3 Earnings Release.

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

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

Thanks, Steve, and good morning, everyone, and thank you again for joining us.

The third quarter saw oil prices decline sharply, and the market outlook turned bearish.

However, Suncor continued to manage both our operating and capital costs very tightly.

And the integrated model delivered solid financial results once again.

In Oil Sands, we saw a new quarterly production record and captured an average price of over CAD89 per barrel.

At the same time we were able to push our cash operating costs down close to CAD31 per barrel.

In E&P our production was reduced by planned maintenance, but we achieved average pricing of over CAD101 per barrel of production.

The net result was another quarter of strong cash generation.

We produced almost CAD48 of cash flow and CAD10 of free cash flow for every barrel of production.

We've now posted almost CAD10 billion in cash flow and over CAD3 billion of free cash flow in the past 12 months.

Given the recent drop in oil prices and comparatively weaker market that many are forecasting for the coming year, perhaps we should take a few minutes to look forward rather than back.

First, I would say that forecasting short-term oil prices is not for the faint of heart.

Even the experts get it wrong almost as often as they're right.

Because of that near term uncertainty, we use conservative assumptions in our planning.

We're focused on driving costs out of our business, and we maintain a very healthy balance sheet.

Pricing volatility is a reality in our business.

And we believe it's critical to be well prepared for the inevitable down cycles.

If we are in fact headed for an extended period of lower oil prices, Suncor is among the best positioned companies in the industry to not only withstand lower prices, but potentially to outperform.

We've made significant progress on cost management.

Our average cash costs across the Company to produce a barrel of oil is less than CAD30.

That means we can generate strong cash flow even in a low oil price environment.

Over the past few years, a key part of our strategy has been to instill strong capital discipline and spend within our means.

We continue to do that going forward.

Even with global oil prices in the current range, we would expect to generate sufficient cash flow to maintain our current operations, fund our growth projects, and sustain our dividend.

We have a very low debt, strong liquidity and cash on-hand.

And that gives us flexibility at a time when the sector will be squeezed.

In short, we believe Suncor is well positioned to create value for shareholders during a period of weakness in global oil prices, with strong upside growth potential.

Now, I'm not going to tell you that I like lower oil prices, but what I will say is that Suncor's strategy was designed with oil price volatility in mind, and we've positioned ourselves to deliver on our long-term strategy.

So now turning back to our third quarter results.

I'll take a few minutes to look at our operations in some detail.

In Oil Sands, we achieved solid reliability and production in July and August, prior to commencing planned coker maintenance.

At the tail end of September we took the number two upgrader complex down to make some minor repairs.

The work was safely completed, and we've been running it up at capacity the past couple of weeks.

We expect to finish the year around the low end of our annual Oil Sands guidance range.

Our in situ operations continue to perform well in the quarter.

Prior to the planned maintenance in September, Firebag routinely exceeded its nameplate capacity of 180,000 barrels per day, while maintaining a steam to oil ratio below 3 to 1. Going forward we're confident we can sustain even higher production from Firebag without significant investment in the near term.

At MacKay River, we've achieved a first oil from our debottlenecking project and expect to move beyond 30,000 barrels per day during the fourth quarter.

In E&P, it was a fairly heavy maintenance quarter with significant turnarounds at Terra Nova and Buzzard.

Nevertheless, we finished the quarter at the high end of our guidance range, and we anticipate solid production in the final quarter of the year.

We saw encouraging developments in Libya this quarter as production restarted at a reduced level, and we recorded a lifting in September.

Our down stream delivered yet another very strong quarter.

The refineries operated an average of 94% of capacity even as we began turnarounds late in the quarter, and we full took advantage of strong margins particularly in the west.

Our midstream business is what connects our upstream and downstream.

This quarter we continued to extend our crude marketing logistics.

We shipped over 40,000 barrels per day of inland crude to the Montreal refinery primarily by rail.

We also moved cargoes of Western Canadian oil by rail to Eastern Canada and then by ship to foreign buyers.

We'll continue to use our deep portfolio and capability in midstream assets to maximize the value of our production and to reduce the cost of our refinery feedstock.

We're comfortable that we have the assets and plans in place to continue to access global pricing as we grow our production.

So, speaking of growing production, we did continue to push forward on all of our key growth projects this quarter.

Our Fort Hills Mine project is tracking to all key milestones.

Engineering, and procurement activity are progressing to plan.

Market pricing has largely been within expectations.

We're not seeing inflationary pressures.

Construction is progressing on schedule with civil work well under way and some offsite modular and process facility construction starting.

Site construction man power is currently around 3,000, and we'll gradually ramp up to peak of approximately 5,500 in 2016.

Our capital and schedule outlook is unchanged since we announced project sanction a year ago.

We continue to expect first oil in 2017, with ramp-up to full production of about 70,000 barrels per day, that's our share, in 2018.

Elsewhere in the Oil Sands, we continue to progress a variety of debottlenecking expansion projects that are expected to push production at the base operations over 500,000 barrels a day by 2018.

These include production growth at both Firebag and MacKay River as well as further infrastructure enhancements at our base plant.

In the North Sea, the Golden Eagle project remains on budget and has now moved ahead of schedule with first oil expected any day now.

Drilling activities will continue into 2015, as the project ramps up to full production.

The Hebron project off the East Coast of Canada is also progressing well.

During the third quarter, the gravity based structure was moved from dry dock and safely installed in its deepwater location.

The project continues to target first oil by the end of 2017.

These two projects are expected to add between 40,000 and 50,000 barrels per day of production.

So when combined with the various brownfield extensions at our other offshore projects, they will help to grow net production over the next few years.

In Montreal, we continued our CAD200 million investment program that will transform that plant into an inland refinery.

The reversal of Enbridge's line 9 recently encountered a delay, but we still anticipate moving to 100% inland crudes by mid-2015, and of course that was the original plan.

And that will represent a step change in profitability for our business in Quebec.

So the operations are delivering, and the capital programs are on track to grow both our production and our margins.

While the near term macro environment is somewhat uncertain, I remain enthusiastic about Suncor's prospects.

We are well positioned to continue to deliver strong results.

So I'll turn over to Alister now to take a closer look at our financial performance.

Thanks, Steve.

And good morning everyone.

As everyone knows, this was my first full quarter with Suncor, and it was certainly eventful.

We've seeing crude prices drop sharply and energy stock follow suit.

But, as Steve did note, Suncor was able to put another quarter of strong financial results on the board thanks to the high quality of our assets, our integrated strategy and steadily improving operating performance.

We posted operating earnings of over CAD1.3 billion and cash flow from operations of almost CAD2.3 billion.

For the last 13 consecutive quarters now, we have generated more than CAD2.2 billion in cash flow each quarter.

We increased our capital spend to CAD1.8 billion during the quarter, over half of which was devoted to growth.

But we still generated free cash flow of CAD470 million.

The balance sheet continues to be in great shape.

We finished the quarter with net debt of just under CAD6.7 billion, a net debt to cash flow ratio of 0.67 to 1, and a cash balance of CAD5.35 billion.

Two credit rating agencies upgraded Suncor in the third quarter into the A rating range providing us with further financial flexibility.

As we promised in our last quarterly call, we aggressively executed on our share buyback program.

During the last quarter, we invested CAD522 million to purchase almost 12 million Suncor shares.

Since commencing the buyback program just over three years ago, we have now repurchased and cancelled over 9% of our outstanding shares.

At the current price levels, we continue to be strong buyers of the stock.

In addition, on September the 26, our dividend payment to shareholders reflected the 22% increase that was announced earlier in the quarter.

So we're continuing to deliver strong value back to our shareholders.

We also continue to review and refine our portfolio with a view to focusing on our core integrated business.

In Montreal we completed the CAD121 million acquisition of a sulfur recovery facility that will be a key part of our operations and help to reduce our operating costs as we convert to running 100% inland crudes including Oil Sands production.

Also in the downstream we announced an agreement to sell our 50% share in Pioneer Energy for CAD183 million.

Pioneer was a passive investment that did not fit with our downstream strategy.

And in he upstream, we completed the sale of our Williston creek oil and gas assets in central Alberta for CAD169 million.

These are quality assets but no longer a strategic fit for our business.

Moving forward, we will continue to look for other opportunities to optimize our integrated portfolio of assets and grow the overall profitability of the business.

With crude prices having declined, the capacity of the business to generate sufficient earnings and cash flow to fund growth is squarely in focus.

We routinely stress test the balance sheet by modeling for attractive lower oil prices and assessing that impact on our key financial metrics.

The results of that work confirm our confidence.

Our integrated strategy and business model are robust.

And we expect to continue to generate sufficient cash flow to execute our strategic plans even in a much lower crude price environment than we've seen in the past couple of years.

So we will continue to stay the course and adhere to the principles that have got us to where we are, pursue operational excellence in our base business, continuously improve the reliability of the assets, and focus on cost management across the enterprise, exercise capital discipline, lay down capital efficiently and spend within our means, and steadily increase the cash we return to shareholders, and profitably grow the business, focus on returns and never chase growth for the sake of growth.

You should not expect a lot of surprises from Suncor just because the macro environment may be in flux.

As Steve noted earlier, our integrated strategy anticipated volatile oil prices.

We'll continue to execute on it to drive value for the shareholders.

So with that, I'll give you back to Steve Douglas.

Thank you, Alister, and thank you, Steve.

Just want to make a couple of references before we go to questions.

We have issued an updated guidance.

The only change on the guidance, and it is available on our website, is an update to oil price and exchange rate assumptions reflecting the recent downturn in pricing and the weakness of the Canadian dollar.

A couple of other metrics that people are always interested in.

We did have an inventory LIFO, FIFO net decrease to after tax earnings of CAD103 million in Q3 as a result of falling prices.

But year-to-date it's a positive CAD82 million after tax.

With regard to stock-based compensation, the impact was a recovery after tax of CAD33 million in the third quarter.

Year-to-date it's a net expense of CAD249 million.

And finally, the weakening Canadian dollar against the US dollar, the FX impact on our US denominated debt was a net expense of CAD394 million after tax in the quarter, and year-to-date it's CAD420 million expense.

With that, I'll turn it back to Mary.

I'd ask you to try to keep the questions on a strategic level.

As always, the IR team and controllers will be available for any detailed modeling questions throughout the day.

Mary, please open up the lines.

Thank you.

We will now take questions from the telephone lines.

(Operator Instructions)

The first question is from Greg Pardy from RBC Capital Markets.

Please go ahead.

Yes, thanks.

Good morning.

Steve, just you mentioned Golden Eagle.

I guess we expected it at year end or maybe early next year.

Could you touch on what the production outlook is looking like for Buzzard in terms of when we should expect declines kicking in there and to what extent Golden Eagle is going to offset that.

You sort of nailed it in the question there, Greg.

We expect declines to start through 2015, but the importance of the timing of Golden Eagle is we expect that to more than offset the declines.

So overall, you'll see a slight increase through the year.

Okay.

Great.

From everything you said in terms of how you're running the business right now, it doesn't sound as though there's any change in your thinking with respect to dividend policy and dividend growth as we move into 2015.

Is that fair?

No, that's fair.

Clearly, we have to calibrate it in terms of the price of crude and the actual cash flow that comes in.

But we are in a very robust position.

So our commitment was to a competitive, sustainable and growing dividend.

That policy is intact.

You'll see a -- as the -- I think we're in our 13th consecutive quarter now of more than CAD2.2 billion cash generation, and what we've been doing, as the -- as operational excellence is working, as the integrated model is working, and our degree of confidence in that cash flow has been increasing, we've been moving across from the share buyback to increasing the dividend relatively aggressively.

You'll see that policy continue to play out.

And even at these stressed prices at the moment, we still see ourselves having enough cash to take a dividend review at the end of this year.

Okay.

Very good.

Last question from me is if we just go with the Oil Sands right now, the SOR performance at Firebag's impressive.

Wondering -- I think you alluded to it is, you may not need to go ahead with a big debottleneck just because you're getting more volume through the plant.

The contrast there is just with the mining and upgrading.

And it just seems as though we've probably had more wrinkles in terms of production, albeit very good operating costs.

What's your perspective based on how the Oil Sands business is running right now?

Again, you sort of nailed it in the question there, Greg.

If you think of Firebag, name plate capacity is 180,000 barrels a day.

As I said, with the exception of the planned maintenance, we've been at about those levels.

We were moving into over the last couple of years there, particularly into -- because of the age of the facility, the opportunity to start drilling the first infield wells.

They've been working very well.

The whole strategy was meant to optimize it through the cycle, not at the beginning of the cycle, but the whole way through the cycle of the wells.

And what we're seeing are the SORs now consistently below the [300,000] level.

So very encouraged by that.

You'll see us continuing that strategy.

What it's said -- what it's demonstrated to us is that we do have the first part of the debottleneck's going to come free or very close to free.

You will see us bring the plant up to [190,000], maybe even beyond 190,000 with very little investment.

So what that means is the investment debottleneck step will go back, because we'll be able to take first advantage of it with virtually no capital.

So very good news around Firebag.

On the mine, what I would say, it was always -- the mining operation was always a much slower burn project in a sense.

It was about getting operational excellence to work and then the steady continuous improvement there.

So if you go back a couple of years, you will have seen 250,000 -- 260,000 barrels a day of mined bitumen.

We're now regularly approaching 300,000 barrels a day.

In fact, in Q3 it was 295,000 barrels a day.

So I'm getting confident that we will be able to get up over the 300,000 barrels a day.

But yes, it's been -- it's about maintaining at that level.

Lots of high wearing equipment, and it's about continuous attention, continuous operational discipline and sticking to that ops excellence principle we put in there.

I'm comfortable we will get to and stay at over 300,000 barrels a day.

Okay.

Thanks very much.

Thank you.

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

Please go ahead.

Good morning, everybody.

Thanks for taking my question.

Steve, your point that Suncor can fund the current growth plans and the dividend at current prices is an important one, I think, and it's a unique one.

And we would agree with that assertion, given what we're modeling for 2015, but my question is what capital spending assumption is implicit in that comment that you would be using for 2015?

And then if you can't be that specific, maybe you could perhaps just talk about how sensitive your CapEx plans are to the oil price environment and maybe what are some of the primary moving parts or considerations that you're thinking about the most when it comes to formulating 2015 CapEx.

Okay.

Thanks, Guy.

And of course you're right.

We're getting -- the way our detailed planning process works, we go through with our Board at our next meeting detailed budgets and CapEx, and by the end of the year we will come out with our guidance on capital expenditure.

But I can say a few things which I think will help significantly.

So a big part of our focus over the last three years has been about capital discipline and getting our capital budget under control.

It's working very well, and you've seen the results of that where we've reduced versus guidance our numbers for three consecutive years.

Let me just make a comment.

In the third quarter that trend has continued.

We haven't re-guided, but there is -- and our plan always was as Fort Hills starts to get nearer to completion, the spend will increase as we go into 2015 and 2016, and that's absolutely working to plan.

But it is below the levels we originally guided at the beginning of the year, and we took CAD1 billion out.

The under-spend is still continuing so I don't think it will be anything like you've seen, but we're on or ahead of the guidance we've given you in terms of capital spend.

So that's to the good side, not over-spending it.

For the last three years we've been guiding -- and I think if you like, the crunch here was always going to be 2015 and 2016.

We've been guiding to -- and it was a broad target in order to enable you to model it, that we would be in that CAD7 billion to CAD8 billion range.

We expect to be in that CAD7 billion to CAD8 billion range next year.

I need to go through the final reviews, but it does look as though the capital discipline is working.

We'll be somewhere towards the center of that range.

And when you start to model those numbers in, of course you have to put your crude price assumptions in there, but you'll see we can afford that capital, and it leaves us free cash flow.

Very helpful.

Thank you.

And then I had a follow-up.

Wanted to discuss the buyback a little bit.

But I believe and apologies if I missed this in the prepared comments, but before you had talked about buying CAD500 million or so back of your stock over the second half of the year.

In the prepared comments I think you still said you're strong buyers of the stock at current levels.

It looks like you bought back CAD400 million or CAD500 million or thereabouts during 3Q.

Can you just talk about the thought process around accelerating your repurchase activity in 3Q and then how you're thinking about the buyback at lower price levels?

Let me talk specifically about -- and Mary, can I just check?

We had a fading line there.

Is the line still clear to you.

Yes.

We do hear you very clearly, sir.

Thank you.

So we talked -- and I think there may have been some confusion.

When we talked about it at the end of the second quarter, we had over CAD1 billion of NCIB left and our plan was to spend the CAD1 billion by the end of the year.

And we are a value purchaser, so we look at the opportunities to buy, and we've been aggressive in the third quarter.

We still have approximately CAD500 million left for the fourth quarter, and our current plans are to execute that, consistent with our view on value as we do it.

So we're still in the market and plan to execute on the share buyback.

Thanks for clarifying that.

Thank you.

The following question is from Paul Cheng from Barclays.

Please go ahead.

Hey, guys.

Good morning.

Two questions.

Steve, seems like that you're not going to change your budget at today's oil price, rightfully so.

But is there a rule of thumb that you can share, at what much lower oil prices and how long they sustain before you may start revisiting your capital program?

That's the first question.

Secondly, if we look at your international E&P operation, what are your competitive edge which you believe could result in better than industry average return?

If there's no real competitive edge in that business, that business really should be part of your core operation.

Thank you.

Thanks, Paul.

In terms of capital program, it is important that we take a step back.

We have been clinical in our execution of capital discipline for the last three years.

The primary purpose of that was to get us into a position where our balance sheet was strong so that when the market had downturns we wouldn't be stopping and starting capital projects, because that's a very inefficient way of spending capital.

Every time you slow it down, it costs money.

Every time you remobilize it starts money.

So we deliberately got our balance sheet into very good health so that these situations would not cause us to adjust our capital spend.

And of course, the economics of the project are not sensitive to short-term oil prices.

It's a 52 year project, and it's against our view of oil prices through that period.

So of course we have to cut our cloth within our means, but you will not see capital budget coming up and down and these projects being stopped and started.

We don't -- weak -- cash costs across our barrels of less than CAD30, we are significantly cash producing at very low levels.

If it went to levels in the CAD40s, CAD50s, of course we'd have to reflect.

But right now, nothing we see will cause us to change course on that capital budget.

It's very disciplined about sustaining capital to retain reliability and it's very disciplined about focused growth within our means.

So I don't see yet -- I can't say what will happen end of next year or the following year.

If we were to see extended lower prices for multiple years, then we might have to reflect on that.

But right now, I don't see us -- I've already taken the first review of our capital budge budget for next year, and I'm very encouraged by the levels of it, well within our affordability.

We'll reflect on that next year.

So no quick change in course.

No need to change course, because we already have that capital discipline.

Around E&P -- let me just talk more broadly around M&A to start with, particularly divestments.

You have seen us, again, with a great deal of discipline sell down assets to get to our core business.

So you saw us sell -- the gas business is down, and Alister took us through a couple of businesses, one in the downstream and one in the upstream, which didn't fit our core model, and we haven't hesitated.

We've sold those, and we've actually sold them at very good prices as well, before this market crude price started to reduce.

So good strategy around that.

Of course, you know because we've been talking about it over a number of calls, our E&P business, we do see our E&P as a core business but only particular parts of it.

The North Sea, we have a competitive advantage.

The -- off of the East Coast of Canada, we have an advantage.

And we have a window of opportunity which is with the projects we're executing, we slightly grow capacity over the next four or five years.

Towards the end of that period, -- we'll take the review during it as well.

We need to look at how core our E&P business is to us.

And if we're able to find great opportunities and sustain them in those basins where we have competitive advantage, you'll see us utilize that.

You won't see us exploring the world.

And today in the world there are -- most companies are much more stressed than Suncor are, so there's a huge number of opportunities in the conventional upstream, in Oil Sands, and in the downstream.

We have been very, very disciplined and found nothing of interest to us.

So while we have the capability to do it, you've seen us exercise discipline around what we've actually done, and actually that's been supporting I think the tone of your question, which is we've been selling down, not buying assets.

Thank you.

Thank you.

The following question is from Mohit Bhardwaj from Citigroup.

Please go ahead.

Steve, I just wanted to ask you to up follow up on the comments that you were just making.

You've said this in the past, that as -- if the oil prices are down enough, there might be certain opportunities which might become interesting, so you guys are off [seeding] a lot of divestitures.

On the acquisition side are you seeing something either in the Oil Sands or outside that would be of interest to you?

Yes, as you would expect, we positioned our balance sheet to be very strong for this period, not that we had foresight that oil prices would be this low, but one of the scenarios we planned against was it.

What a market like this does, is other companies who are not in such a good position are having to sell assets in order to support their balance sheet.

So we are -- and I think it's well-known, there are assets in the downstream on the Americas continent, there are significant conventional E&P assets around the world and there are a number of major Oil Sands assets up for sale.

So we're aware of those and we have the capability to look at them.

But we've not been interested in anything we've looked at so far.

So if I look, we're in an excellent position as far as the downstream's concerned, where you've seen the degree of integration and balance we have in the operation and with Line 9 connecting into Montreal, we have effectively the ability to make a spare refinery to come into that integration.

So it becomes an inland refinery, not an international crude fed refinery.

If you look at Oil Sands, it's very difficult for any Oil Sands project to be attractive to us, because we have amongst the best assets in the industry, and we have enough resource in our ownership for the next 50 years-plus.

And then there's the conventional E&P world, and, as I said, we view our core and our strengths to be relatively limited around the East Coast of Canada, the North Sea and that of Atlantic basin region, and so we've looked at opportunities there, and we've not been interested in them.

So you will see us continue to exercise that discipline.

Very clear.

If the you could also update us on your strategy as far as midstream assets are concerned.

You mentioned in the past that you might look at an income fund to house those assets to realize a better value.

Is this something still on the plate, or are you still looking at that?

It's Alister here.

I think the midstream assets are really core to delivering our integrated strategy.

So we wouldn't at this point see any concept of an income fund to monetize those.

Thank you.

Thanks for taking my questions.

Thank you.

(Operator Instructions)

The next question is from Paul Sankey from Wolfe Research.

Please go ahead.

Hi.

Good morning, everyone.

Hello?

Your line is now open.

Please go ahead.

You've been very clear about your capital discipline, and I think we've also heard from you very clearly that acquisitions are not interesting to you.

So I guess the question then becomes the outlook for cash return to shareholders.

And I think you've outlined -- could you just go back through how you see the balance between buyback and dividend and how fast you're going to want to return free cash flow?

Thanks.

You know what I would say, Paul, is just look at our track record, and we've had a -- over the last five years, our compounded average growth rate in dividends is above 40% now.

We have bought back approaching 10% of the Company's shares.

What you will see us do -- and of course, the free cash we have available is of course dependent on the -- mainly on the price of crude, given the discipline and the reliability of the operating businesses now.

And what you'll see is what we said.

So it's about making sure we have a competitive, sustainable and growing dividend.

That will grow as the Company grows.

And we have -- I talked about in my preamble around our move particularly around Oil Sands up to 500,000 barrels a day in that 2018 time frame.

So it then just becomes a question of what's the balance between share buyback and dividend.

Over time, you'll see us moving to dividend.

That's the long-term contract we have with our shareholders.

We have been -- as the operational excellence and the capital discipline has been getting traction, and our share price has been below what our valuation of it is, then we've been buying back reasonably aggressively.

We will continue a balanced strategy of opportunistically buying back our stock and increasing dividend.

But you'll see that move more towards dividend from NCIB.

Although we're a value buyer, as time goes on our plan is to move that into more of a dividend payment, and that's what you've seen.

You'll see the same strategy continue to play out.

I guess the idea is that you'll -- cash flows and volumes are going to be accelerating very quickly relative to -- unless you were just to simply increase the dividend that quickly.

Just wondering how fast that's going to go up or if there's a kind of terminal?

Yes, we have -- there's so many ifs and buts that it's an impossible question to answer other than in principle.

We do have very attractive growth.

We shouldn't forget that we have -- we have enough resource in our ownership probably for 50 to 100 years at the levels of operation we're looking at.

We have a whole sequence of particularly in situ investments that we're working on which will become -- we've called it this replication strategy where we're currently in the details of the design and construction philosophy for that.

But what it's going to be is, because we have such extensive, high quality in situ resource, you'll see us putting one of these plants down at regular frequencies as we move into the next decade.

So we also have growth opportunity through there.

I wouldn't want you to think that we're stuck at this size of Company.

One of the purposes of the operating discipline, the capital discipline was to be able to grow the Company profitably, and we've been working very hard on that.

So the three things that will compete for capital will be the growth of the Company, dividend and share buyback.

We'll be looking on a value basis at those three.

Great.

The clarity of the message bears repeating.

Thank you very much.

Thank you.

The following question is from Arthur Greyfer from CIBC.

Please go ahead.

Good morning.

Just one question from me.

Cash costs, Oil Sands cash costs in the quarter were CAD31.10, lower than the guidance you provided for the year.

Can you talk about how you see that cash cost developing over the next few years.

You talked about achieving 500,000 barrels a day 2018.

Any indication as to what that number could look like when you achieve that production threshold?

You guys ask tough questions.

There's so many of moving parts in that question, Arthur.

I have to be really careful.

But I'll give you -- I've tried over the last four or five quarters to sort of give my thoughts on what's happening to operation costs up there.

So first of all, I would say great credit to the business up there.

They have got their operating costs in great shape, and there are always two big components to that type of business.

And I know most people are aware of it, but the fixed costs in the Oil Sands business are very high.

And depending on how you define them, they're in the 70% to 80% range.

When you've got that sort of cost structure, it's very important you have a reliable operation so you can spread it over the maximum number of barrels.

So a key part of getting our operational costs down was getting our reliability up.

That's working very well, and I expect it to get better as time goes on.

So the prices are coming down, and everything else equal they will stay down.

There are one or two effects just health warnings in the short-term.

There is some seasonality particularly in base plant costs because of the weather and the things we have to do as we go into that.

So you will see some movement.

You'll see -- I wouldn't be surprised if you see a slight increase relative to that number as we go into the fourth quarter.

But we guide an average through the year and through the cycle.

So overall, the trend continues to be downwards.

You've heard me say a couple of times, if everything else were equal I wouldn't be surprised to see it come down into the [20%s] and you can see on a quarterly basis we are occasionally getting very close to that now.

If I look at it on a much shorter term basis I can see moments when we do that.

So we keep that out there as an objective.

It's not within our short-term reach, to be able to get there, but I hope the tone you're getting is these are real changes.

They are sustainable.

And I'm very encouraged by the way they've been moving so you can start to model them in.

And in particular for 2015 we will guide as we get towards the end of this year as to what we're expecting for next year, and we haven't finalized those numbers yet.

Okay.

Thank you very much.

Thank you.

The following question is from Mike Dunn from FirstEnergy.

Please go ahead.

Good morning, everyone.

Couple questions from me.

First, your thermal cash operating costs excluding gas were down I guess looks like CAD1.70 a barrel quarter-over-quarter even though production, thermal production was roughly flat.

Can you just talk about what's driving that lower cost and whether or not this is a one-time or maybe indicative of what we should be thinking about going forward?

I'll make some indicative comments but they come with health -- you have to be very careful about taking very short-term numbers.

Again, very encouraging, good progress.

If I have to pin it on a couple of things for this period, it would be -- if you remember, when we came out with our investor books a couple of years ago, we went to great lengths to explain how in situ works through the cycle.

When you first bring it on you have very high steam oil ratios, because you have very low oil production.

As you go through the life of it you start to get into equilibrium on an individual well.

Then you go into decline as you get towards the end of that well.

Then you have to bring on new wells, so you have to add the net effect of all of those wells up, and then as you start to get towards the end of the life of the first generation of wells, you then have the opportunity to start drilling infield wells.

And we've always said be very cautious about taking instantaneous SORs.

You have to look at it through the cycle.

What you're seeing is very encouraging for the long run, because we're now coming towards the end of the first cycle.

We started to see some rundown, and we've been doing as we said before the first infield wells up in Firebag.

So what you're seeing are the low SORs associated with those infield wells starting to have an impact.

And that's what you get, because you're effectively drilling them into place where you've already got some distribution of heat so you have much less -- in fact, we've seen the first flow from those wells with no steam because the temperature has been warm enough.

So overall, it's encouraging, you're seeing the move in the right direction, and Firebag SORs you will see stay in a relatively low range.

Okay.

Great.

And second question maybe for Alister.

Alister, you've been on the job there a few months.

One thing I've always had difficulty with Suncor is figuring out what your cash overhead costs are on a corporate basis outside of what you report as cash operating costs, outside of royalties, outside of current tax, et cetera, I guess outside of the G&A portion of your downstream business.

What is that run rate number on an annual basis?

Other companies would probably report it as a cash G&A expense excluding stock-based comp.

Can you just give us some guidance on that?

Yes, that's a good question.

We clearly have been looking at the whole cost base across the Company since I've got in, and I'm encouraged to see [said] on the operating costs.

On the G&A side, I think we probably should take that offline, it is a bit more of a modeling question, just so we gather the right analysis and detail perhaps that we want.

So let's take that offline.

We'll follow up with you.

Okay.

And then maybe along those lines as well, just looking at your annual reports, your headcount is higher today than it was I guess back when the Petro Canada merger occurred and even though you've gotten rid of essentially all of your Western Canadian conventional business.

Is there room to trim some fat there?

I would look at it differently.

We always look at costs, and of course employee costs are an important part of that.

But what you've got to remember is, we are investing and executing major projects.

I talked about the construction staff-up in Fort Hills are over 3,000 people now, which we weren't executing when we did the Petro Canada merger.

They are not Suncor head count.

But, of course, we're supervising and managing and leading that activity.

So we're setting the Company up for its position in the future.

We always -- part of operational excellence, part of the discipline of how we run the business, we are always looking at how we can efficiently -- be more efficient.

That's a continuous process.

Great.

That's all from me.

Thanks, everyone.

Thank you.

The next question is from Nia Williams from Reuters.

Please go ahead.

Hi, thanks for taking my question.

I just wanted to ask about whether you have any more plans to send tankers of Oil Sands crude off the East Coast of Canada to markets overseas and whether you see that becoming a regular route to market for Suncor crude?

Just a technicality, it wasn't actually an Oil Sands crude but very close to it.

It was called lake material.

But yes, depending on the market, it is a logistics route that is part of our flexible midstream.

It's a purely economic activity, so we'll look at the price differentials and see whether it makes good business sense.

But yes, potentially, it's a long-term piece of opportunity and flexibility for us.

So the ability to rail in there, the ability to get the vessels at the right size and move it through the St Lawrence, we see that as a key piece of the industry's flexibility.

Thanks.

And are there any plans for another shipment right now?

Like is there any in the works?

I don't talk normally to short-term movements, but as a part of our plan going forward we will regularly look and see if it makes sense.

Economics have changed a bit with crude price changes, but I normally don't talk to individual vessel movements.

Okay.

Thanks.

Thank you.

The next question is from Chester Dawson from The Wall Street Journal.

Please go ahead.

Yes, thank you for taking my question.

I'd like to know in terms of energy east, how much capacity you intend to ship from there and whether any of that you envision going offshore?

And secondly, can you speak to Syncrude's reliability, is there anything that they can learn from the Suncor base plant operational excellence, and are you satisfied with their reliability at this point?

Okay.

So let me first take the Energy East Pipeline and again, I'll just make some general comments and then come in onto Energy East.

As you know, logistics is a key part of Suncor because of our size and our history on the continent, and we have plans which I'm very comfortable with to accommodate our growth.

We are a strong supporter of the need to get to different markets, so we are a supporter of Energy East.

We're a supporter of Keystone to the Gulf.

We're also a supporter of the Gateway project to the west.

And you'll see us continue.

All of those are contingent on the best practice, best consultation, best environmental practice and the highest standards of safety.

We don't talk about the commercial terms associated with each of those supports, but we are a strong supporter of Energy East and the filing is going in as we speak.

Moving over to Syncrude, I think it's fair to say we and the operator who's been disappointed in the performance of the assets, we're encouraged and Exxon and Imperial are absolutely right up there amongst the best of the operators of assets in the world.

There are some particular challenges around Oil Sands and particularly the location and some of the conditions we have to work with.

So we work closely with them to try and get the best out of those assets.

We've been doing that for some time, and I'm confident in their program to turn those assets around.

It's taken a little bit longer than we would have expected, but I'm comfortable that we will get there.

Thank you.

Thank you.

The following question is from Geoff Lewis from the Globe and Mail.

Thanks very much for taking my question.

Just got two quick ones.

What sort of volumes can you move from the port in Sorel-Tracy and which markets are attractive at this point?

And second question would be as these Eastern pipelines move forward, Energy East and particularly Line 9 in the near term, what would be the determining factor on the addition of a coker at Montreal?

Thanks.

Volumes, they're not big volumes.

I don't think we've ever talked about specific volumes.

But you'd see the same sort of vessel potentially, if you use the facility all of the time, you'd be moving one of those ships, maybe each month, maybe potentially every two or three weeks.

So it's not a significant increase in the volume on the St.

Lawrence.

The second question was --

Which markets from Sorrel Tracy are attractive?

We look globally in terms of what the opportunities are, and it depends on the economics of the day.

And if the economics aren't right then we wouldn't make those movements.

But normally economics are stronger nearer and then you start to move further away.

So it could be movements around the coast of this continent, either to refineries on the East Coast or down to the Gulf or it could be makes -- Europe currently has an issue in terms of crude supply, so there may be opportunities to move into Europe as well.

But that will depend purely on the economics of the day.

On the question on Montreal, several things need to happen there.

First of all, we are getting close to finishing the first CAD200 million investment there on a project called Isomax which gives us more flexibility in terms of the types of crude we can put in there.

So that's good, positive sign.

I was very pleased with the approvals for Line 9, very pleased with the opportunities, and that's why we've gone ahead with the first parts of the investment to take full advantage of that flexibility.

Then as Line 9 gets turned over next year, we will move the refinery to cheaper inland crudes which will be a mix of light and some heavy material.

And then the coker project is purely dependent on the economics.

And the main driving force for a project of that type is the difference between light and heavy materials, so what we call the light/heavy spread.

So we continue to look at that.

I would expect to get the first proposal on that across my desk mid to end of next year.

It's not something that will happen instantaneously, and then it will be a big investment over a number of years, if we choose to go ahead with it.

Thanks.

Thank you.

There are no further questions registered at this time.

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

Thank you, Mary.

Perfect timing.

Thanks to everyone for participating.

Just a reminder again, we have one question that we will follow up on today, but I'm sure there are others.

We'll be available by phone and e-mail on an ongoing basis.

Thanks again for taking part.

Bye now.

Thank you.

The conference has now ended.

Please disconnect your lines at this time.

Thank you for your participation.