Suncor Energy Inc (SU) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to Suncor's first-quarter 2015 financial results call and webcast.

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

Mr. Douglas, please go ahead, sir.

Thank you, operator, and good morning, everyone.

Welcome to the Suncor Energy Q1 earnings call for 2015.

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

I need to remind you that we will have some forward-looking statements this morning.

Please note that our comments contain forward-looking information and actual results may differ materially from expected results because of various factors and assumptions that are described in our Q1 earnings release as well as our current AIF and these are of course available on our website.

Certain financial measures referred to in our comments are not prescribed by Canadian generally accepted accounting principles and for a description of these please see again, our Q1 earnings release.

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

I will now hand over to Steve Williams.

Good morning and thank you for joining us.

These are certainly interesting times in our industry.

Oil sands in the first quarter were down about 50% year-over-year forcing many companies in our sector to take drastic action to weather the storm.

We have seen budgets slashed, growth deferred and debt and equity issued in response to the low oil price environment.

Here at Suncor we had taken decisive steps to sustainably reduce our costs in response to the fall in crude prices but our balance sheet remains very healthy and our fundamental strategy remains very much intact.

We are continuing on our operational excellence journey which means steadily improving reliability, reducing costs and profitably growing our production.

It also means an unwavering focus on safe, reliable and environmentally responsible operations.

I am very pleased with the progress we have made in the first few months of 2015.

During the first quarter, strong reliability and a very light maintenance schedule contributed to Companywide production of over 602,000 barrels per day, a 10% increase versus the first quarter of last year.

At the same time, we demonstrated the financial and operational discipline necessary to generate free cash flow yet again even as benchmark crude prices dipped to six-year lows.

We've had a strong start to the year despite a very challenging market and here are some of the highlights.

With a relatively mild winter in Northern Alberta, our oil sands operations ran almost flawlessly.

The Firebag in situ plant continued to exceed expectations averaging almost 189,000 barrels per day and reducing steam oil ratios to 2.6.

In the mines we took advantage of improved ore grade and strong reliability to produce over 318,000 barrels per day.

So all added up to new quarterly records for both total and upgraded production which increased year-over-year by 13% and 11% respectively.

We also continue to drive down the cost of our oil sands operations.

Our cash operating costs dropped by more than 20% quarter over quarter to CAD28.4 per barrel.

That included a record low of CAD14 per barrel for in situ production and it is not just unit costs that are falling.

Our absolute oil sands cash cost for the quarter were down by almost CAD125 million even as we grew production.

So we certainly benefited from a 50% drop in natural gas prices but more importantly, our controllable costs were down by over 5% on an absolute basis and of course our costs are denominated in Canadian dollars.

At prevailing exchange rates, our first-quarter cash costs came in below $23 per barrel.

Let me just say that again, our oil sands cash cost were below $23 per barrel.

In the E&P, the operation story was also positive.

The ramp up of Golden Eagle and stronger reliability from all of our producing assets allowed us to increase offshore production by 2.5% while maintaining operating costs of well under CAD10 per barrel.

We did see some modest production from our Libyan assets but no liftings were recorded in the first quarter and we continue to exclude Libya from our guidance and likely ongoing uncertainty in the region.

Turning to the downstream, our refineries operated very reliably once again during the first quarter.

Utilization rates exceeded 95% which supported a modest increase to refined product sales and I am pleased to say that our cost reduction efforts were not confined to the upstream.

In the downstream, we took advantage of lower gas prices and also realized a number of efficiencies that allowed us to lower our operating, selling and general expense by 8% quarter over quarter.

So all in all, it was a strong operational quarter as demonstrated by improving reliability, growing production and declining costs.

Our long-term focus on operational excellence is clearly delivering results.

At the same time, we are making excellent progress on future growth projects.

At Fort Hills, all critical milestones continue to be met.

Engineering has surpassed 75% and construction is more than 25% complete and both continue to track to schedule and budget.

The current oil price environment presents a number of key opportunities including lower costs, increased productivity, better resource availability and improved work quality.

And we can capitalize on those through disciplined project execution.

So this will enhance our ability to deliver the project as per the plan.

Meanwhile construction continued in the first quarter on the gravity-based platform at the Hebron project off the East Coast of Canada.

But Fort Hills and Hebron are on target to produce first oil in late 2017.

Together these two projects will contribute over 100,000 barrels per day of new volumes once they ramp up to full production.

These projects are an excellent fit with Suncor's strategy to profitably and responsibly develop long-lived assets that will generate cash flow across multiple price cycles.

But speaking of price cycles, I would be remiss if I failed to comment on the current pricing environment.

On last quarter's call I promised not to get into forecasting oil prices.

Nevertheless, I am asked my view on oil price in just about every meeting I have with investors and analysts and to be honest, I am not overly concerned with crude prices, at least not short-term spot prices.

Suncor has no impact on global pricing and I would rather concentrate my efforts on the things which we can control.

We are focused on continually improving the reliability ability of our operations, taking unnecessary costs out of the business and profitably growing our production.

If we are operationally excellent and capital disciplined, our business will be profitable through all phases of the price cycle.

When oil prices are high as they were the past few years, we will build cash on the balance sheet as a hedge against low oil prices.

When oil prices are low as they currently are, we will draw down some of that cash and continue to execute on our strategy and we will take advantage of soft market conditions to achieve cost efficiencies in both our base business and our growth projects.

Most importantly, we will live within our means, grow production and return cash to shareholders throughout the price cycle.

We have had a very strong start to 2015 and we are tracking very well against our various guidance metrics.

I've summarized our strong operational performance in the quarter.

I am now going to ask Alister Cowan to take a closer look at some of the financial details.

Thanks, Steve.

As everyone knows, the first-quarter featured the lowest benchmark crude prices in six years.

As we said before, Suncor was prepared for the downturn in prices and their integrated business model has proven very resilient.

We generated almost CAD1.5 billion in cash flow from operations.

This number was virtually identical to last quarter even though the average Brent crude price fell by well over CAD20 per barrel to average just over $55 this quarter.

This underlines the strength of Suncor's integrated business model that captures profitability across the entire value chain.

Despite a negative CAD170 million FIFO accounting impact as a result of the fall in oil prices, the refining and marketing group posted operating earnings of CAD492 million and cash flow from operations of CAD678 million.

Earlier on the call, Steve made reference to the cost reductions achieved in oil sands and in (inaudible).

These are just two examples of the cost efficiencies being realized right across the Company.

In January as you know, we announced cuts to our operating budget in the range of CAD600 million to CAD800 million including a reduction in our workforce of 1000 positions.

At that time we anticipated phasing in the budget cuts over a two-year period.

For the first-quarter results you can see we have already made substantial progress.

Our operating, selling and general expenses were down by over CAD160 million or about 7% versus the same quarter last year.

We achieve these reductions while growing production by over 50,000 barrels per day.

We have been focused on streamlining our business processes and permanently removing structural costs.

Now this is part of a comprehensive exercise that began well before the drop in oil prices and I am confident that we will continue to achieve and potentially exceed our cost reduction targets in the quarters to come.

We are also targeting capital cost efficiencies.

As part of our January announcement, we committed to reducing our 2015 capital expenditures by CAD1 billion bringing our capital guidance for the year to a range of CAD6.2 billion to CAD6.8 billion.

The first quarter capital spend of just over CAD1.3 billion and keeping in mind the seasonality of our spending, we are on track to meet the target.

Significantly we were able to fund our first-quarter capital spending entirely from cash flow from operations and produced almost CAD150 million in free cash flow.

So even in a quarter where the Brent average price was just over $55 per barrel, we were able to maintain our operations at capacity, continue to invest in our key growth projects and pay a dividend that was 22% higher than Q1 of last year.

And most importantly, we continue to maintain a rock solid balance sheet.

Our net debt to cash flow was running at 1.2 times and our debt to capitalization is at 26%.

We finished the quarter with over CAD4.8 billion in cash on the balance sheet and undrawn lines of credit of CAD6.7 billion and we continue to attract a strong investment grade credit rating.

Looking forward, our capital allocation priorities remain unchanged, fund the base business as it continues its operational excellence journey, to lower costs and improve reliability, invest in long-term profitable growth in our core business areas, and return meaningful cash to our shareholders.

We certainly don't anticipate a substantial oil price recovery in the short term but we do anticipate higher prices down the road.

In the meantime, we will continue to live within our means and take the necessary steps to preserve cash and maintain our balance sheet strength.

As I said before, our financial strategy is designed to enable us to manage through the inevitable oil price cycles.

We will remain committed to capital discipline, operational excellence and profitable growth and I am confident that we will continue to produce strong results going forward.

With that I am going to pass you back to Steve Douglas.

Thank you, Alister and Steve.

Just a couple of highlights before we go over to Q&A.

LIFO/FIFO again was a factor as we had a falling Canadian dollar during the quarter and it was a net after-tax negative impact of CAD170 million in the first quarter.

Stock-based compensation was an impact after-tax of CAD93 million in the quarter and finally as everyone is aware, the exchange rate was very significant in its impact with the falling Canadian dollar, there was an after-tax negative impact of CAD940 million to our net earnings based on our US denominated debt.

With that I should also reference our 2015 guidance.

No changes to production or to our capital spending, it is a little early in the year with just three months under our belt to make any changes there.

We did adjust some of the assumptions around international tax rates, current tax payables.

All the details are available on our updated guidance on the website.

With that, operator, I will turn it back to you and we will take questions.

(Operator Instructions).

Guy Baber, Simmons.

Good morning, everybody, and congratulations on a strong quarter.

I wanted to start off on the theme of the operational excellence journey but could you just comment on the exceptionally strong upgraded performance this quarter with the SCO output of 340,000 barrels a day?

If you could just talk about that improvement and the uplift it gave to your bottom line versus more historic utilization efficiencies?

And then if you could talk about how sustainable you believe that is and if you are continuing to run that well on a leading edge basis.

And then I have a follow-up as well.

Let me answer that for you, Guy.

In some ways there are no surprises for us.

We have been working in a diligent way over multiple years to improve upgrader reliability.

What we said was that we were expecting to move up the whole complex up to above a 90% utilization over a number of years and the full extent of that program was going to take us two turnaround cycles and the units too where we were seeing the big difference has its main turnaround next year.

So some of the results, we have always been a little conservative in terms of what we have been guiding on.

So some of the results are starting to come.

We haven't re-guided because it is the first quarter and we do build into our guidance some unplanned work as well as planned work.

But it is a trend.

We have seen over a number of years it is a result of the ops excellence.

We do expect to see that trend continue.

In fact, we have seen it continue although we have some minor turnarounds going on in the plant at the moment we see it continue into April.

So very much on target, very much a part of the trend and we expect to see that trend continue for the next couple of years.

Very helpful.

Also obviously great progress on the CAD600 million to CAD800 million of cost reduction initiatives.

So first, congrats on that.

Could you just talk a little bit about where perhaps you have been the most successful in reducing costs and what you see in the market?

Sure, I will give you some examples.

I would say I am really pleased with the excellent progress that has been made.

I am a little bit cautious sometimes about the words I use like successful because a big part of it was a significant reduction in workforce which is a difficult thing to have to manage.

We targeted 1000, we have actually realized just over 1200 as we speak.

A lot of what we have been doing has been looking at productivity, not just numbers.

So the sorts of things that are happening we are flying less people in and out, we are using far more local labor, we are seeing better quality people come in.

We have negotiated savings with contractors, we have reduced overtime by different scheduling, we have re-prioritized things like IT spend.

So to be honest, what we are doing is it is part of a process.

We are going to overachieve versus the CAD800 million we have talked about and we are going to reduce the time we did it in from two years to this year.

So we will continue because it is part of the search of operational excellence for perfection but of course, you never quite get there.

So very pleased with what we have done.

The program is continuing, we will overachieve this year.

Great.

Thanks for the comments.

Greg Pardy, RBC Capital Markets.

Thanks, good morning.

The base oil sands OpEx number was quite impressive.

When you look at the balance of this year and really going ahead, how much of a number do you think is going to be sustainable?

In other words if volumes were higher you are taking absolute costs out of the system if eventually we will go back into a higher oil price environment but is this a trend you think we will continue to see going down with base oil sands OpEx?

Two things I would say, Greg.

I think it is a trend and the best view of the trend you get is if you look at what has happened over the last four or five years.

So we have come from approximately CAD40 down to this CAD28 number.

Now we have had an exceptionally good quarter so two things have helped -- three things if you like, the basic cost management has done very well and we are pleased with that.

But we did have very low gas prices and we have exceptionally high reliability so both of those things helped.

So there is definitely a trend.

We have not reguided for this year because we do have two quarters with not major maintenance but some maintenance in the upgraded region so we will take a look at guidance toward the middle of the year in the third quarter to see if we could be reducing it.

But you can definitely start to assume that we will be at the very low end of guidance if we continue this.

Okay, great.

Just maybe staying on the cost front, the Syncrude numbers were also considerably lower.

I mean we haven't seen numbers like that for a very long time.

Is there anything in the -- I mean Syncrude volumes are good in the quarter but is there anything around things like deferred maintenance or reclamation that are taking a real bite out of these Syncrude number or was this strictly a volume gain in 1Q?

Let me say a couple of things.

Of course you should really address the questions to the operator but I will make a few comments.

We have been working on operational excellence within Syncrude and the same components are there, better cost management and management of reliability.

I am on the record as having been disappointed with Syncrude's performance over the last three or four years but also on the record, they have been diligently working on what I believe are the right issues.

Your question gets right to the important bit.

The most important thing we are looking for from Syncrude is costs coming down and reliability coming up.

So it was a good quarter but I would like to see that improvement continue.

Okay, thanks for that, Steve.

Maybe just the last one, spending wise you guys have been the last few years call it the mid-6s in billions per year.

How should we be thinking about CapEx maybe into the end of 2017 with Hebron and Fort Hills finishing up in that year?

I think the best indication of the discipline and the rigor we have had around our capital budget is to look at through what was a fairly big cycle over the last four years.

We have kept to our CAD6.5 billion.

You are right, the peak of spending on Fort Hills and on Hebron is next year but broadly speaking you will see us applying the same sort of capital discipline.

So if I go back three or four years, we were talking about that and I remember you asking the question about will we be between CAD8 billion and CAD9 billion.

You are going to see us much closer to the numbers historically we have been spending.

Okay, that is great.

Thanks very much.

Phil Gresh, JPMorgan.

Good morning.

First question is just around the capital cost opportunities on Fort Hills and Hebron without making you commit to saying that the capital costs is want to be lower, maybe just talk about what you are seeing trend wise given what you have been seeing on the operating cost front?

Okay.

You will recall when we said we were going ahead with particularly Fort Hills, and the same logic goes across to Hebron, part of the reason for wanting to go ahead at this time was our view, not that we foresaw the significant downcycle in crude price but we did see a drop off in activity in the Fort McMurray region and so we anticipated the upward pressure on the cost of major projects would start to come down.

So part of the reason we went ahead in this timeframe was to be able to spend the majority of the money on the project at a very low cost time in that particular business and region.

That is proving to be the case so you heard me say the project is going very well, construction is 25% complete, it will be 50% by year-end.

Engineering is 75% complete.

What we are seeing, if you think about how we set up -- the reason for setting up the joint venture was to de-risk our exposure so we had 40%.

There is definitely a de- risking going on in that project so the upside risks are improving relative to the downside risks which is very, very encouraging.

So as we continue to hit the milestones, that continues to be the case.

Of course we have used virtually none of the contingency which is in excess of CAD1.5 billion on that project.

So all of the signs are the execution of the project is going very well and we are seeing real trends out there so the quality of the work, the quality of the labor, the commitment of the contractors has been exceptional.

And if you run the current strip kind of through your model in Fort Hills, would you be comfortable that it is still a low double-digit IRR type of profile?

Sure, I mean there are lots of puts and takes on the economics but there are some mitigating factors that you have to look at.

You run the strip and of course that is the important point.

We put the long-term price in and this is a 52-year project, short-term spot prices through construction are not that relevant to the IR calculation so we have redo and it isn't moved much from our original numbers when we put current exchange rates and crude prices.

So things are looking pretty good.

Okay, fair enough.

My follow-up question is how do you think about the long-term growth of the Company today?

Has anything changed materially?

Are you still thinking through the cycle mid single-digit growth, just kind of coming back to the question about CapEx post Fort Hills.

How are you thinking about things?

The simple answer is yes, what we are looking at is the major growth projects are going ahead.

There are about 100,000 barrels a day building up in that 2018 timeframe.

So considerable growth.

The other piece of growth is the continued reliability improvements that I think there was a bit of skepticism about initially but they are clearly manifesting themselves now.

That is what the upgraded production is around, that is what the Firebag improvements have been around.

So you see that and then we have a long list of growth projects behind that so we owe the market a clearer view of our replication strategy.

It is coming along very nicely so we have a complete in situ replication strategy which will take us through 10 years through to 2030 sort of timeframe and then we have some great conventional E&P projects as well.

So within our ownership, we have lots of opportunity for growth.

Of course one of the benefits of the relatively good performance of our equity is we also have some opportunities in the market.

So there is nothing we have much liked at the moment.

Our view is there still is a bit of a gap between buyers and sellers but the best position to be in is to have a good balance sheet and be disciplined.

Sure.

Absolutely.

Thanks a lot.

Sameer Uplenchwar, GMP Securities.

Good morning, guys.

Congrats on a great quarter again.

A quick question on dividend growth.

I'm trying to understand and this is on the prior question, once Hebron and Fort Hills spending starts coming down starting 2017, how are you thinking about dividend growth and share buyback because capital spending seems to be tapering off so just trying to understand long-term how are you thinking about that?

I don't think our strategy has changed in a sense.

We look at the opportunities we have to deploy the funds and we compare them rigorously.

So we look at the returns we get on our projects, the dividend we have always said we will keep our dividend meaningful, sustainable, growing in proportion to our production.

So we plan that that would continue as the Company continues to grow.

And then opportunistically, we will buy stock back so with the exception of this year for four years, we bought back 10% of the Company.

Our average share price buyback has been in the mid-30s, CAD34 a share range.

So we think that was very successful and you will see us using those same tools with the same discipline.

Perfect.

Last question, you just mentioned on the E&D front, if I have to think about it from that perspective, are you looking at assets within Alberta or is it going to be international?

How should I think about that looking at this project?

To be honest, if you look at our record, our record has been one of disciplined divestment rather than acquisition so we did do the Petro-Canada deal, we did do the purchase of the Denver Refinery both very much at the bottom of the cycles they were in.

So we are not averse to doing deals but more recently we have been more into divesting of assets at the right time.

It is not a great time to be selling assets right now, there are lots on the market so we look at how it fits with our business.

The first area we look at and I think of three broad areas we look at.

The first one is oil sands, very difficult for acquisitions to work in oil sands because we have the highest quality resource so we have organic projects which those things have to work against.

So it is very tough for us to make those work.

We look at the downstream because we believe in this integrated model adding value and I think it is doing that.

So we look at all the assets on this continent to see if they fit with our integrated model.

And then we do look around our conventional E&P and our strategy has been around approximately the percentage of the E&P we have.

So we are part of the joint ventures with Exxon and Shell off of the East Coast of Canada, two great opportunities in the midterm there.

And we do look at other assets but overall our view has been there is still a gap between buyer's and seller's expectations.

Thank you.

Mike Dunn, FirstEnergy.

Good morning, everyone.

A couple of questions on your upgraded quarter, your salary (technical difficulty) and we were about 58% of the total (inaudible).

Is that at an upgrader output similar to what you achieved, is that a reasonably good number to use going forward?

I think it is fair to say that is why I said almost flawless when I talked about operations.

We didn't have a perfect quarter on the (inaudible).

It wasn't bad, we did well but we did have one unplanned shutdown there.

So I don't know, Steve, if you would want to say particular numbers there.

We probably lost something in the area of 25,000 to 30,000 barrels a day of sweet production over to sour, Mike.

So that does have an impact but when you are running at close to 100%, you can't expect the entire complex to be at that level.

I think as we get to that top end you are likely to see that sweet sour mix weaken somewhat.

Okay.

It is my understanding, folks, that you did have a strong quarter in terms of mined bitumen output partially due to the ore grade but even if that was more of a normalized throughput from the mine, would you have still been able to make that up from Firebag bitumen through the upgrader?

We expect it to do over 300 and we did.

We run Firebag and MacKay River run full to the limit of the assets all of the time so we take them to the limit.

If we are working on a steam generator, then it is impacted but our normal strategy is we run all of the bitumen sources full.

Okay.

And then over to your E&P division, your press release mentioned -- are you drilling the Beta -- around Beta right now off Norway and then as well maybe just shed some color on that noncommercial well off Newfoundland that you had the exploration expense for whether that was something this quarter or from prior quarters?

The answer to your first question is yes, we are in the process of drilling that well and over the next few months we would expect to start to see the results and yes, we wrote down the (inaudible) well.

That is part of our normal E&P and of course you have to drill a number of those to hit a good one so very much a part of the E&P program.

Okay, thanks, Steve.

That is all for me.

Arthur Greyfer, CIBC.

Good morning.

Just a few questions.

The first one is on the cost side.

Can you elaborate a little bit about that CAD600 million to CAD800 million and what I'm looking for is how much of those cost savings are really a reflection of the current price environment or the current deflationary cost environment?

Really what I'm wondering is could we potentially see more cost savings just due to a cost inflationary environment?

Are all of these really just structure changes that we don't expect to come back over time?

Arthur, it is Alister.

Yes, I would say that Steve gave some great examples of how we are achieving those cost savings.

We just take 1200 people out of the organization but Steve gave some other examples and there are more very much structural changes in the way we are doing our business rather than sort of taking one-time price reductions that ultimately do come back.

So the majority of those cost reductions will be permanent structural changes in our cost base.

Okay.

Looking at the CapEx number, so as you said, Alister, that CapEx is CAD1.3 billion and taking into consideration that Suncor has a history of putting out CapEx guidance and then coming underneath that, is there a reason why I shouldn't just take that CAD1.3 billion and times it by 4 and assume that is what the CapEx will actually turn out to be this year?

That was music to my ears.

I will hand it over to Alister so he can answer the question.

But I wish you could see the smile on my face.

We have been working for a number of years particularly in oil sands against a reputation of project overruns, not being able to do things within our CapEx limits.

So it was a specific objective of ours to become much more disciplined about capital and to give a prudent but realistic estimate.

So I am pleased that there is a general realization there that we manage that in a disciplined way.

Go on, Alister.

Thanks, Steve.

As I said in my comments, our CapEx is seasonal so the CAD1.3 billion was actually in line with what we expected as part of our overall CAD6.2 billion to CAD6.8 billion.

So don't just multiply it by 4, there is going to be some seasonality.

We've got some turnarounds coming obviously as we ramp up in the summer work especially Fort Hills you will see that go up in the next couple of quarters.

We are still going to hit in that range of CAD6.2 billion to CAD6.8 billion.

Okay.

And the last question for me is you talked about some planned maintenance in Q2 and Q3.

In terms of context of the guidance of the 410 to 440, talk a little bit about where?

You cut out there for just a second, Arthur, you said talk a little bit about --?

So planned maintenance for Q2 and Q3 in the oil sands operations in terms of guidance, (technical difficulty) volumes likely shake out?

We got it.

You are cutting out but I think we have the gist of it.

You know, it is true we are right across the upstream producing at or above the high-end of guidance but we do have maintenance planned right across the upstream in the second and third quarters.

I would say that we certainly expect to be midpoint or above in our guidance production but you have to have quarters like Q1 in order to hit guidance because we do take that maintenance into account.

Thank you very much.

(Operator Instructions).

(inaudible)

Just a few quick questions.

Line 9 at the Montreal Coker, just wanted to find out what is the latest with that please?

Line 9 much as we anticipated, we still anticipate it coming on in the second quarter this year so in the May/June timeframe.

It is dependent on a final permission to start up from the [NAV] and not being given to Embridge but we are working with both of those to try to secure the second quarter start up.

So I am waiting to see actually happen but it does still look as though signs are encouraging and of course the actual regulatory approval for line 9 reversal was given last year so still on schedule.

Montreal, let me just say that the combination of the rail connection we put into Montreal and the modifications we made to the Isomax, Montreal had one of its best quarters ever in the first quarter and of course as line 9 gets reversed then that trend will continue.

The yields that we have got particularly for distillates around the Isomax have been above our expectations which is good news.

The Coker is a refinery margin project that we will look at at the right time.

We are still investing in the development of that project this year and towards the end of this year, beginning of next year, it will come across my desk to take a look at whether we approve it.

So still being developed but not imminent.

Okay.

Just a very quick follow-up, with line 9 reversal, would you still be looking at getting crude from the US Gulf Coast?

You know, one of the strengths of Suncor is what I call our logistics and our intermediates.

We run our trading organization to take advantage of the difference in prices.

So, yes, all is possible.

We run that model every day and we look at where the best trades can be made.

So we move material up from the Gulf Coast into Montreal.

Of course line 9 will give us greater access to inland crude, both from the Western side of Canada and here in Alberta but also for inland crude in the US.

So it just gives us extra flexibility and we will take advantage of all of that.

Okay.

Thank you very much.

Chester Dawson, Wall Street Journal.

Thank you for taking my questions.

Two main points.

First, I was wondering if you could tell me what your average realized price for oil sands crude was in the first quarter.

Secondly, I will ask you to answer that first.

Steve is just looking up the number for you.

While he is doing that maybe I will ask my second question which is you mentioned that you don't have any particular interest in oil sands M&A.

But I'm wondering if you have any insight into whether others might be interested in seeing crude for example?

There has been some talk or speculation that Imperial might want to increase its stake.

Are you aware of that?

Have they had any discussions with you about that as a major shareholder?

No, I wouldn't have any comment.

I can't comment on theoretical competition type issues.

I mean I think the fundamentals are still the same for all of us.

One of the challenges around acquisitions is if you hold excellent resource you have to benchmark other assets against them.

And I think there still is generally a disconnect between buyers and sellers but other than that, I would ask other Syncrude analysts directly.

Chester, the realized price, the average realized price for the oil sands in the quarter was CAD47.67.

Okay, great.

Thank you.

Lastly, could you give me any update on your crude by rail shipments in the first quarter and where you expect them second quarter and beyond?

It is Steve Douglas here.

We continue to ship significant volumes to Montreal, 30,000 to 40,000 barrels per day of rail.

Other than that we really do it as Steve Williams mentioned, on an opportunistic basis.

So when there is an arbitrage opportunity, we can actually move anywhere in North America with our rail shipments and we will continue to do that.

We have a large fleet of rail cars and it is really about taking advantage of arbitrage opportunities.

We don't move our own equity crude by rail.

We have sufficient pipeline access to move it all by pipe.

Okay.

Just to follow-up and clarify, I think last quarter you said it was not efficient to rail it to the Gulf of Mexico.

Is that still the case?

It really comes and goes because of course, we have seen a lot of volatility in crude pricing and so it is really a day-to-day optimization exercise.

Great, thank you.

Jeff Lewis, The Globe and Mail.

Thanks for taking my question.

I was wondering about the 200 additional layoffs.

Can you clarify from what area of the business those cuts were made?

I would just comment generally.

The majority of these costs have been around what I would call our head office and overhead.

So we have been working for a number of years on streamlining our work processes in the Company and that is where these have come from.

So although we set targets, it was very much about how can we still do the critical important work for the Company but do it more productively and that is where they've come from.

So the majority are in Calgary and Toronto around our head office functions.

Okay.

Just as a follow-up, regarding the cost reductions, Alister mentioned that a lot of them were from structural changes.

Can you be more specific on some of the areas of the business where you have been able to wring costs?

The release mentioned lower gas prices and higher volumes helped sort of drive the per barrel cost down but what specifically have you been able to change in the business that you see sort of sticking around as the year goes on?

Yes, I mean it would be largely a repeat of what I said earlier.

It is about productivity, it is about improved processes so it is around a better supply chain, IT, HR, finance.

It is about how we work those processes better.

So the changes we have made are permanent with different systems in place which is why we think these things will largely be sustainable.

So it is about how you -- I mean the phrase that used to be used was how you reengineer or redesign those work processes.

So it is those types of things.

But would you say the bulk of the savings are coming from things like that or from the higher volumes and lower gas prices?

No, the bulk of the savings are coming from those -- CAD600 million to CAD800 million, gas prices have no impact and nor do volume.

I see.

Thank you.

Scott Haggett, Reuters.

Just to get a little more mundane, can you tell us when you expect the current coker maintenance to wrap up and when you will begin the vacuum unit and other coker work?

Just general comments, I think you are talking about the Unit 1 upgrader annual inspection that is going on on two of the coke drums.

It is going very well.

The work is on schedule.

We would expect it back online in the next few weeks.

Then in terms of the planned Unit 2 vacuum tower work, we will be executing that in the fall.

Okay, thank you.

[Sean Polser], MergerMarket.

Would you be interested in increasing your stake in Syncrude?

You know, I think what I would say is I would just look back to our general position.

I mean we are not adverse to transactions.

We have a long list of excellent organic projects so anything we look at has to work very well relative to those.

If we look at Suncor's track record on I would call general M&A type activity, we tend to be more in the disposal of assets than in the buying of assets over the last few years and that has been part of that disciplined strategy getting to our core business.

We do look at all potential opportunities out there but generally our feeling is there is a big gap between buyers and sellers.

Would you be interested in selling your share in Syncrude?

Same answer.

Okay, thank you.

Thank you.

We have no further questions registered.

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

Please go ahead, sir.

Thank you operator and thanks to all the participants.

If you have more detailed questions, we are certainly available today and all the time.

Thanks for taking part and we will look forward to talking to you again.

Thank you.

The conference has now ended.

Please disconnect your lines at this time.

Thank you for your participation.