Suncor Energy Inc (SU) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Suncor's fourth-quarter 2015 financial results 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, Melanie.

Good morning, everyone.

Welcome to the Suncor Energy Q4 shareholder call.

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

Just before we begin, I would ask that you note that our comments today contain forward-looking information and the actual results may differ materially from the expected results because of various risks factors and assumptions described in our Q4 earnings release as well as our current AIF and those can be found online in SEDAR, EDGAR and suncor.com.

Certain financial measures we refer to are not prescribed by Canadian GAAP and for a description of these, again, please see our Q4 earnings release.

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

With that, I will turn over to Steve Williams for his comments.

Thanks, Steven.

Good morning and thank you all for joining us.

For some time now, I've been telling you about Suncor's commitment to capital discipline and our journey to operational excellence.

We've been working relentlessly to become the most reliable and the lowest cost operator in the sector.

We've built a balance sheet that could sustain us when the inevitable downturn in crude pricing came along.

18 months ago, that downturn arrived and has punished our industry, leaving many of the weaker players struggling to survive.

Now I'm not going to tell you that we welcomed these much lower for much longer prices, but I would say is that we see this period as just as much an opportunity as a threat.

Our goal is to use this period to build an even stronger Company, a competitively advantaged Company that is poised to benefit significantly when oil prices finally recover.

In 2015, we took important steps to strengthen the Company.

Our operational excellence initiatives continue to drive cost out of the system and increase production and reliability to record levels.

Our integrated downstream business succeeded in maximizing the value of our production as it generated well over 40% of our cash flow in both the quarter and the full year.

And of course, we took further strides to profitably grow the Company by closing the purchase of an additional 10% of the Fort Hills project from Total and by advancing the offer to purchase Canadian Oil Sands Limited.

Now I would like to take a closer look at our performance and how we have set ourselves up for continued progress going forward.

In the fourth quarter, our total production averaged 583,000 barrels a day and that's a 5% increase versus the same quarter in 2014.

That brought our annual production to 578,000 barrels per day and that represents an 8% annual production increase and put us in the upper range of our guidance for the year.

At Oil Sands, the Firebag In Situ plant continued to outperform, averaging just under 200,000 barrels per day of production in the fourth quarter.

Those results were enabled by strong infill well performance, advanced reservoir management and the completion of a minor debottleneck project.

The project involved the repurposing of equipment originally intended for the Voyageur upgrader project.

It allowed us to increase the water treatment capacity of the plant for a very modest level of investment.

As a result, we were able to sustain production well above previous levels and increase the name plate capacity of the Firebag plant from 180,000 barrels a day to 203,000 barrels a day and that's effective from January 1 of this year.

So what that means is that we have allowed -- we have been able to add 23,000 barrels per day of production at a capital efficiency of less than 5,000 per flowing barrel, which I think by any standard is a remarkably cost-effective growth project.

At the MacKay River plant we were able to increase quarterly production by over 20% versus last year as the debottleneck project completed earlier in the year increased name capacity by almost 20% to 38,000 barrels a day.

Strong reliability and record production drove down our quarter-over-quarter In Situ costs by [17%] to just over CAD11.65 per barrel.

Meanwhile, our base plant operations continue to achieve strong reliability from both the mining and upgrading assets following planned maintenance completed in October.

With a solid fourth quarter, we wrapped up a year at the base plant where for the first time in our history, average mining production exceeded 300,000 barrels per day and upgrading throughput surpassed 90% of capacity.

Now this high level of performance represents the early fulfillment of a five-year goal we set back in 2012.

Our major turnaround maintenance this spring includes investments in the U2 complex that will help to sustain reliability at the high levels we have reached in 2015.

Overall, Oil Sands costs for the quarter were CAD28 per barrel, bringing our average Oil Sands cash costs for the year to CAD27.85.

And that's a year-over-year reduction of almost 20%.

And of course, that is measured in Canadian dollars.

In US currency, it equates to less than $20 per barrel.

And I want to say that number again.

So in US currency, we've now got the cost down to just under $20 per barrel at current exchange rates.

So, the net result for Oil Sands operations was a very strong year.

Our overall production came in at the high end of our guidance, our costs were below the low end of guidance and we simultaneously achieved record reliability.

In exploration and production, volumes for the fourth quarter came in at 112,000 barrels per day, bringing our average production for the year modestly above our original guidance range at 114,000 barrels a day.

We saw continued strong low-cost production from Buzzard and Golden Eagle in the North Sea, while most -- what was modest natural declines continued to affect production off the east coast of Canada.

So let me turn to the downstream.

Our refineries once again operated reliably in the fourth quarter.

And that's despite maintenance in both the Montreal and Edmonton plants and we achieved average utilization of 93% in the fourth quarter.

During the fourth quarter, we were pleased to see Enbridge's Line 9 pipeline to Montreal begin operations.

We now have the ability to supply our Montreal refinery with a full slate of inland crude and to integrate supply planning across our entire refining and marketing network.

As we move forward, this development is expected to drive significant value.

Looking back on 2015 as a whole, I am pleased with our overall operational performance.

A number of points stand out for me.

This was our best year for personal safety since the Suncor Petro-Canada merger in 2009.

Recordable injuries and lost time injuries were at exceptionally low levels, reflecting a focus on safe and disciplined operations.

And be assured, safety will continue to be front and center for Suncor as we strive to continuously improve our operations.

We increased our overall production by 8% year-over-year thanks to steadily improving reliability across our operations.

At the same time, we reduced our operating costs by almost CAD1 billion year-over-year by streamlining processes, eliminating the lower priority work, and closely collaborating with our suppliers and business partners.

We also reduced our capital spending by well over CAD1 billion versus our original guidance, while still managing to execute our critical maintenance projects and of course, advance our key growth projects.

On this last point, I'm pleased we have been able to progress our major growth projects despite the extended low oil price environment.

During the fourth quarter, construction on the Fort Hills project surpassed 50% with all activities tracking to plan.

Off the east coast of Canada, the Hebron project also moved forward at pace.

Both projects continue to target first oil late in 2017.

Of course, the other development on the growth front was our offer to purchase Canadian Oil Sands Limited in an all share deal valued at approximately CAD6.6 billion.

We made the offer early in the fourth quarter and in mid-January, the Canadian Oil Sands board agreed to support our amended offer.

We're now working together to reach out to Canadian Oil Sands shareholders and encourage them to tender their shares before tomorrow's deadline which is at 4 PM Mountain time.

While the Syncrude assets have performed and are certainly challenged at these current price levels, we do take a long-term view on the value of these long-life assets.

With a 49% ownership stake, Suncor will devote experienced personnel to work closely with the operator to drive major performance improvements and realize significant long-term added value for both Suncor and Canadian Oil Sands shareholders.

This transaction is an excellent fit with our Oil Sands growth strategy and a prime example of our ability to create value during the oil price downturn in order to build an even stronger Company.

A year ago, we were in the early stages of the oil price collapse and I made the following comments about oil prices: And the first one was that today's low oil prices should not come as a surprise.

On the contrary, it was the stable pricing the past few years which represented the anomaly.

We planned for a low crude price environment and we are prepared to manage through it.

We have taken prudent actions to accelerate our cost reduction initiatives and defer discretionary capital expending until a definitive price recovery is evident.

These actions will strengthen our operating model and help us to maintain or improve our competitive position.

These thoughts remain true today.

This is a challenging time for the entire industry, but it's a challenge that Suncor is meeting head-on.

We will continue to focus on safe and reliable operations, to drive cost out of our business, to live within our means and to position ourselves to take advantage of an eventual oil price recovery.

With that, I will pass along to Alister to go into more detail on our financial results.

Thanks, Steve.

The final quarter of 2015, as we know, saw further drop in global oil prices, which has certainly continued into the new year.

Our average price realizations across the upstream business fell sharply quarter-over-quarter.

We saw price declines of over 35% in Oil Sands on the east coast and in the North Sea.

Strong downstream margins along with continued cost reduction initiatives right across our business and the further decline in the value of the Canadian dollar, partly offset the impact of the low crude prices.

We generated CAD1.3 billion in cash flow from operations and did post an operating loss of CAD26 million for the quarter.

That brought our total cash flow for the year to CAD6.8 billion and our operating earnings to CAD1.5 billion.

Now that CAD6.8 billion of operating cash flow more than covered our sustaining CapEx of CAD2.6 billion and our dividends at CAD1.6 billion, leaving over CAD2.5 billion to invest in our growth projects.

We recorded a net loss of approximately CAD2 billion for the quarter, driven by non-cash impairment and derecognition charges of CAD1.6 billion and an unrealized foreign exchange loss on the revaluation of US dollar denominated debt of $382 million.

As a result of the deteriorating crude price environment, we recorded impairment charges of approximately CAD800 million in E&P related to offshore projects.

Now this represented a portion of the increased value of the merger bump that was allocated to these assets at the time of the Suncor Petro-Canada merger and we also recorded an impairment of just under CAD400 million [related to the] Oil Sands project, the largest of which related to a share of the Joslyn mine.

Additionally, we recorded an impairment charge of CAD450 million against our Libyan assets due to escalating political unrest, an increased uncertainty with respect to the Company's return to normal operations in that country.

Now this charge in Libya brings an average value of those assets to zero.

During the fourth quarter, we maintained our focus on cost management as we continued to seize opportunities to reduce both capital and operating expenses.

On the capital front, we invested CAD1.9 billion in Q4, bringing our total CapEx for the year to CAD6.2 billion.

This represented a saving of about CAD1.3 billion versus the midpoint of our original guidance.

It does speak to our commitment to exercise rigorous capital discipline and to continue to live within our means, as Steve said.

We've taken an equally disciplined approach to managing operating costs.

You'll recall that about a year ago, we announced the planned reduction of CAD600 million to CAD800 million of operating expenses and we expected to realize these savings over a two-year period.

In fact, we were able to advance that and able to capture nearly CAD1 billion in savings in 2015 alone.

And you've seen our total operating selling and general expenses fall from over CAD9.5 billion in 2014 to CAD8.6 billion in 2015.

The majority of these savings we believe are controllable and sustainable.

I just want to jump in here to reinforce the points Alister has just made.

Whilst I was very pleased at our accomplishments on the cost management side, it's very clear to me that the job is not done.

In fact, I'm not sure the job of cost management is ever done.

You've heard us use the phrase: this is not a crash diet, it's a change in lifestyle.

And for that reason, we have now taken further steps to reduce costs and preserve capital.

We've decided to defer discretionary capital spending originally planned for 2016 resulting in a further reduction to this year's capital spending forecast of CAD750 million.

These spending cuts will not affect our production in 2016 or our major growth projects scheduled to come on stream and ramp up in 2017 and 2018.

We have also reduced our 2016 operating expense budget by a further CAD500 million.

The process of driving out cost is relentless and continuous.

With each cost reduction initiative, we identify further opportunities as we continuously strive to improve our business processes.

With this new target, we expect to see our 2016 operating, selling and general expenses drop towards the CAD8 billion number.

Moving forward, we will monitor the price environment closely and make further adjustments to our spending plans as the situation warrants.

Spending within our means and preserving a strong balance sheet will continue to be one of our top priorities.

Thanks for that, Steve.

As Steve says, let's look at the balance sheet.

It remains in very solid condition.

We finished 2015 with just over CAD4 billion in cash, a net debt to cash flow of 1.7 times and a debt to capitalization of 28%.

We also have approximately CAD7 billion of unutilized lines of credit and therefore we have ample liquidity to see us through even a much lower for much longer crude price environment.

Having said that, it's clear that the rating agencies are proposing to take significant downward action across the industry.

And my hope is that they are able to clearly distinguish between companies that have and continue to demonstrate capital discipline and financial conservatism and those that have not.

Our long-term capital allocation priorities do 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 shareholders.

Now while the low crude price environment endures, we'll certainly continue to take the necessary steps to preserve cash and maintain our balance sheet strength.

This will result in the deferral of some growth spending, as Steve said.

But our major growth projects are continuing to track to plan.

There is no change to the quarterly dividend, which we increased midway through last year and at the current level, we believe the dividend is competitive and certainly sustainable.

To sum up, our financial strategy remains sound in the face of a very difficult crude price environment.

We are making prudent, proactive moves to preserve cash and liquidity and maintain our balance sheet strength.

Suncor continues to be well-positioned to not only weather the storm of low crude prices but to seize opportunities during this downturn in order to strengthen and grow the Company and we plan to do just that.

Now, with that, I'm going to pass you back to Steve Douglas.

Well thank you, Steve, and thank you, Alister.

Just a couple of notes before we open the microphone.

Obviously, with the continually falling crude prices again in the fourth quarter, we did have a LIFO FIFO expense.

It was, after-tax, CAD77 million and for the year, an expense of CAD286 million.

Stock-based compensation, as folks know our shares performed well relative to the energy index throughout 2015.

It was a net expense after tax of CAD59 million in the fourth quarter and CAD234 million for the year 2015.

Finally, the Canadian dollar continued to weaken in the fourth quarter and throughout the year, so the FX impact to us was an expense of CAD382 million in the fourth quarter and CAD1.93 billion for the full year 2015.

I just refer you to changes to our guidance.

Steve and Alister did mention them.

No changes to production outlook, but we have reduced the capital expenditure range by CAD0.75 billion for the year.

We've also made reductions in the assumptions on oil price and associated impacts of taxes and royalties to reflect those lower price assumptions and of course you can see full details on www.suncor.com.

I would note that the guidance excludes any impacts of the Canadian Oil Sands Limited transaction, which obviously is still in process.

With that, I'll will turn back to Melanie to open the microphone for questions.

(Operator Instructions) Neil Mehta, Goldman Sachs.

Congratulations on a strong 2015 in the face of a really tough macro.

Want to dig into capital spending.

You've reduced the CapEx here from CAD6.7 billion to CAD7.3 billion to CAD6 billion to CAD6.5 billion.

How much of that delta is due to change in timing at Firebag and then how much flexibility is there to move that lower given the growth projects that you have?

These are approximate numbers, Neil, but think of somewhere in that CAD50 million to CAD100 million range for the Firebag and the balance of it is other action we are taking.

In a few categories, you will see the Montreal Coker project and In Situ replication slipping one year.

You will see we're working very hard on improved productivity with existing suppliers and contractors.

So we will be taking a very tough review of the projects which are in-flight at the moment.

It's the biggest spend year for the Fort Hills project and we're hoping to be able to work with contractors there to get some further improvement in the terms of those contracts.

So it's a group of items and Firebag, as I say, is about CAD50 million to CAD100 million.

And this might be too early to say, but once you add Canadian Oil Sands in there, how much of an incremental CapEx do you anticipate that would add?

You know, incrementally, we think it's about CAD250 million as we stand today and of course depending on the crude price, then that's a very low level of capital to support an asset of that size.

All right.

Last question for me is related to Canadian oil macro, just broadly.

At the current forward curve, there's a lot of debate around whether Canadian oil production will grow in 2016 and 2017.

Obviously, there are a number of big projects of which you guys have some of those.

At the current forward curve, do you think oil production in Canada will grow over the next couple of years and at what point would you actually see Canadian Oil Sands broadly production shut in or is there no price point that would actually trigger that?

You do have to add, as an overlay onto your question, the timing.

I have no doubt that Canadian Oil Sands will grow because there are major capital investments in flight that will be completed and it makes absolute sense to complete those for a couple of reasons.

One, these are very long life assets and we are viewing them over the life of the project.

The other one, from a pure execution point of view, is this is a very productive time to be investing, to be spending that money, because we are getting good productivity and very good quality results from the construction in the field as we speak.

So I think you will see growth in the short- to medium-term.

The mid- to longer-term then is a different period and a different question because that depends very much on the long-term view of crude.

Suncor's point of view is that the market does work.

We have position ourselves to be able to run our Company this year at an average price of CAD36 a barrel, which we think puts us in a very strong position and from that, we got 8% growth 2015 on 2014 and, depending on whether Canadian Oil Sands is included in this number, continues to grow right the way through until Hebron and Fort Hills comes online.

So, I see short- and mid-term growth.

The longer-term growth will depend on pricing.

Our view of pricing is that through multiple cycles, this will come back up to the supply for cost, which we view through that period to be somewhere in the CAD70 to CAD90 range.

So more optimistic about the long-term.

It's a question of when the long-term actually arrives.

Your final question then was around shut-in economics.

I think what everyone has to remember is that the fixed costs on a lot of these off assets are up in the 70%, 80% range.

So even if you shut down, you don't take a lot of the cost down.

These numbers where our cash operating costs are below $20 a barrel, we certainly don't see ourselves shutting in.

All right.

Thanks a lot, guys.

Paul Cheng, Barclays.

Maybe this is a number quick one for Steve.

If we look at CAD35 oil, not surprising there.

Everyone will see cash burn and we estimate that for you guys, including assume the Canadian Oil Sand acquisition go through, maybe a cash burn somewhere in the CAD4 billion.

So should we assume, as a result to preserve your balance sheet that by now you're pretty much done on the M&A fund or that you want to stretch your balance sheet further?

I think it's the right -- a good question to ask.

If you actually look, what I said earlier was we have looked to finance the Company this year at that price you said, Paul.

We've used CAD36, but we're in that mid-CAD30s range.

That covers, at that price, our dividend and sustaining capital is covered and a significant contribution to our growth is covered.

And I think me and you have had the conversation a number of times about the reason for putting so much cash on the balance sheet early on was effectively to pre-fund the major growth projects.

So, I don't particularly like it.

It's tougher than we anticipated when we started but our plan is to be able, even at mid-CAD30s prices to be able to take those two projects through to completion.

One of the attractions of the operational excellence and the stringent capital discipline we've had in place is that our stock has outperformed peers through the period.

What we've been able to use to our advantage through the Canadian Oil Sands discussions has been the strength of our equity relative to Canadian Oil Sands.

So, it hasn't stressed -- we are reasonably cautiously confident that the deal is going to be progressing, but we haven't, in a sense stressed our balance sheet by going through that activity.

So to the extent that there are other opportunities out there, if they are share opportunities, we will take a look.

We have nothing immediately that we are involved in, but we will continue to see if that makes good sense going forward.

Steve, second question.

On the bottleneck, on the Firebag, are we in terms of the debottling opportunity, is it pretty much done?

And the next wave of growth we need to come from the [neo project] extension on the [sectee] side or you have the additional you think opportunity that could be quite meaningful?

We are continuing with the initiative.

It is very much an intrinsic part of what we do now to get the assets we have very reliable and then try to find what the debottlenecks are so that we can selectively, and at low cost, push them backwards.

I would say, do remember those conversations we were having a couple years ago?

We were looking at putting -- I think we used the numbers then 20,000, 25,000 barrels a day on Firebag.

Clearly, we have been able to get that at an even lower cost than we anticipated.

The next bit is a little bit tougher.

We have not completely finished yet.

We think there are other opportunities well below full cost but those will not happen quite as easily and in the same timeframe.

So I think in a year or two's time, we could be talking about a modest further increase in Firebag.

If you then look around the rest of the plants that we have, it's an ongoing process.

We talked about effectively debottlenecking upgrading by getting reliability up.

Very proud of what the team have achieved up there.

They've got it up into the 90% levels for the upgrade and the mine is operating at a very high reliability level.

So we are going to continue to push those and we are looking at opportunities around the upgraders themselves to see if there are some debottlenecks, but no major ones in a very short term.

Steve, just curious then.

Are you now feel like you have right-sized your organization or that given the activity levels that you may still have more room for you to work on the organization size?

I will just take the opportunity, Paul, to be a little bit clear on what we've actually done because it's a very important question particularly around where costs are.

This time last year, we committed, from a relatively cold start, that we would be taking significant costs out and that the people component of that would be approximately 1,000 and that that would be a mix of PSAs and full-time Suncor employees, so all people who were fully dedicated in their employment to running Suncor's businesses day to day.

We significantly over-achieved.

So we actually took just over 1,900 people out and, as part of our growth process, we were able -- the first thing we worked very hard to do was to redirect the skills of some of those people to our growth projects.

So we took that expertise across into, in our case, primarily Fort Hills.

We moved about 200, 250 across.

So the net reduction in 2015 was but 1,700 people.

So we almost doubled and what we set as an objective at the beginning and that's an indication that it wasn't about a numbers target, it was about really working on our underlying business processes to become more productive.

And we had been investing for a few years on systems that would help us do that and we were able to take full advantage of them in 2015.

So although I'm talking about CAD500 million going forward, that is largely not about more people.

That is largely about the processes and the supply chain and getting better at our business.

So yes, we are towards the end of those reductions.

Okay.

A final question, if I may.

On the next wave of the In Situ growth project, what kind of timeline and what needs to happen in order for you to be able to sense and more feel comfortable to sanction those projects?

Thank you.

We are in tremendous shape, Paul.

We've been working steadily in the background about two main parts to the selection criteria for -- We're starting to see really exciting new technologies appear.

So Mark Little and his team have been working hard on piloting, at reasonable scale, those technologies so that we can make the right process choices as we go into replication because we really do want to do it once and then replicate it 10, 15 times.

We've also, in parallel with the technology choice, gone off and looked at the resource base.

And of course that's where Suncor has a tremendous advantage because it's one thing having a replication philosophy.

It's another one having the volume and quality of resource that you can just put these standard manufactured plants onto and we are already up to having identified 13 or 14 of those.

If you remember, we were talking about a 30,000, 40,000 barrel a day plan.

We were talking about 10 plus of those so the program in design is going very well and the only difference the announcements we have made about CapEx today will make is we will take a little bit more time around that technology development and selection and then we will move into the replication program one year later in the early 2020s.

Thank you.

Guy Baber, Simmons.

I apologize in advance for asking about 2017 CapEx after you just give us 2016 CapEx guidance, but I do think that understanding the evolution of capital spend over the next few years from what's supposed to be a peak year this year is really a critical consideration.

And I just want to be sure that we are understanding the moving parts in terms of the longer lead times, spending commitments that are falling off, but also understanding some of the CapEx that has been deferred that you guys will have to spend in 2017, 2018.

So if you could just give us any updated color on the progression from this point, even at a high level, that would be appreciated.

Okay, thanks.

What I would do is just sort of refer to our track record.

If you look at our track record, we have -- the principles that we've talked about are not just goals and objectives we sat there.

We've actually adhered quite closely to them now over the last four or five years.

This principle of getting operational excellence working, getting the ops costs down, generating the cash and then living within our means, and that meant -- so we've been developing the projects we wanted to develop, we've been maintaining the plant to the highest of standards, and increasingly until this current cycle downturn happened, we've been returning that money to share -- the balance to shareholders through two means.

Through the share buyback and the significantly increasing dividend.

You will not see us change away from those major principles.

So our plan is to be prudent, to spend within our means and be very disciplined as we go forward.

As you rightly say, a significant piece of our capital budget last year and this year are discretionary growth projects, which we have the full intention of completing.

But what that leaves is if you just take those out, then you have a significant amount of additional cash available at any reasonable crude price.

So everything from that point will be discretionary and you'll see the same capital discipline exercised.

So it clearly is heavily dependent on crude price but the same principles and the same priorities around capital allocation will be there.

It is going to be more difficult in that period, given what we've just gone through, to be spending money on growth projects unless you have a high degree of confidence in crude price going forward.

Got it, that's very helpful.

Longer term, you have previously talked about CAD3.5 billion to CAD4.5 billion for the portfolio being a sustaining CapEx level.

Is that still a good number or is there downside to that number from deflation?

For modeling purposes, I would say that range is still pretty good.

I mean there is some deflation and as you get more reliable, then your maintenance bill does start to come down because you are doing more and more maintenance on a planned basis rather than an unplanned basis.

But I would say for modeling purposes, that CAD3.5 billion, CAD4.5 billion is still good.

Okay, got it.

And then last one from me.

You mentioned the importance of the dividend and I was just hoping you could talk about that a little bit more around thoughts around the dividend in a capital constrained low oil price type world.

Just an update on how you were thinking about it, whether you look to hold at current levels or if a progressive growth policy is still something that you guys are looking to drive forward.

Just latest thoughts there in light of the current environment would be appreciated.

Okay, Guy.

I will answer that one and then Steve probably will jump in.

And Steve outlined our principles and that is around one of the key ones is making sure we're returning cash to shareholders in a reasonable manner, whether it's through the dividend or it's through stock buybacks.

When we want to have a competitive dividend that is sustainable and we want it to grow in the long-term, growth obviously will depend on where we get to with oil prices, but we feel very comfortable with where we are at on the dividend today.

As you'll recall, we increased it last summer.

I'm very comfortable with that.

I think the yield is very competitive.

And given where we are and at CAD36 oil, we are more than covering our dividend and our sustaining capital and as Steve said, leaving some for growth.

So I'm comfortable with that.

I think if you look forward, we'll see whether the oil grows, but we are committed to increasing the returns to the shareholders.

Thanks very much for the answers, guys, and congrats on a strong year.

Jason Frew, Credit Suisse.

Thanks for taking this.

I would like to ask a little bit about the downstream and maybe if, Steve, you can could help reconcile some of the fundamentals there.

Seems to be more debate around exposure to different product types and consumer trends in gasoline and diesel and I just wondered if you could shed some light on how Suncor is positioned to move through that.

Thanks, Jason.

We are really pleased with the model we have and we put together.

We think the integrated model is really proving how valuable it is through this downturn.

We are particularly proud of the downstream.

It really has earned the position as the number one downstream in North America now.

And what comes with that is a great deal of flexibility around the supply and supply logistics to the refineries and the operation of the refineries themselves.

I think if you look at Q4 this year, it was a little bit strange, as Steve said, because there was a big FIFO loss in there of just under CAD80 million.

There were also some one-time costs that you can see around severance and inventory.

So actually when you take those into account, we did much better in the quarter.

But I think your points are on the money.

I think the view is with the spread between Brent and WTI and with the outlook for diesel in particular, the refineries will make, I think, modestly less going forward.

What I really love about the Suncor position is we're positioned to take best advantage of that.

So whatever the market gives to us, we will be best positioned.

And of course, the connection of Montreal into Line 9 was not just about the Brent and the WTI spread.

It is actually to a spread of inland, a much broader basket of inland discounted crudes.

So I'm still very pleased we did that piece of work and still confident it will yield benefits going forward.

Hope that helps.

Yes, thank you.

Mike Dunn, FirstEnergy.

Steve, maybe just to pick up on Jason's line of questioning.

Wondering if you can talk about what you're seeing for demand trends in your eastern, I guess your Ontario, Quebec markets and what you're seeing out in the west.

The data that's available is pretty miniscule with respect to that.

I would assume that with the weak economy out west and Alberta you would be seeing maybe a weakening in demand and I'm not sure about the east.

The margins in Ontario look pretty darn good right now.

Yes, I mean you've sort of nailed it there, Mike.

If you look generally, what we've been able to see is and I will take a step back.

And so this is the umbrella and then I will talk about western demand as we've been seeing it.

Generally, what we've seen is as prices, particularly for gasoline, have been coming down, we've seen a modest increase in demand for product.

And I think that has been reflected through -- if you look at the statistics around auto purchases, they've been up and there's been a slight shift back to the bigger SUVs, particularly in the US.

So we've seen that.

We have seen a reasonably healthy demand.

Now that is stronger east than it is west and we've seen, exactly as you say.

As the general economic activity in the west has come down, particularly here in Alberta, we've seen a softening on diesel demand and that's meant we've been exporting that material, the majority of it, down to the US but some further afield.

So you're right.

And we expect --it's not easy to see that turning around very quickly.

Okay, thanks, Steve, that helps.

I appreciate it.

Chris Cox, Raymond James.

I'm sorry, Mr. Cox.

We are unable to hear you.

There is some static on the line.

Maybe, if Chris could call back in and we will take the next question.

Certainly.

Brian [Birsy], Legal and General Investments.

Just to go back to the dividend again, your comments about not cutting the dividend and not expecting to and I guess the expected cash burn this year and potentially next, if oil prices continue to stay at these levels, seems in direct contrast to your comments with regarding maintaining balance sheet strength.

I guess we're looming in rating agency downgrades, some fear multiple matches.

Is there a level that you need to see before you would consider cutting the dividend?

I think Alister spoke to the general principles there, Brian.

And what we are doing is, if you look at the sequence of things we are able to control, we deliberately came in with too much cash on our balance sheet, to be honest.

And that was absolutely to be able to protect Fort Hills and Hebron.

And for a while, we were running at the CAD5 billion, CAD5.5 billion of cash there.

So it was always part of our plan to modestly run that down to our target, which is nearer CAD3 billion.

We have done aggressive OpEx cuts, we've done aggressive CapEx cuts and we are balancing within our plans.

Our finance is at CAD36 a barrel for this year.

So we have to see if on average, the average price that we saw last year was CAD54.

So we keep a very close eye on that.

Of course, the other piece we have is for non-core assets.

We have the opportunity for asset sales during the year, so we have just quietly in the background positioned some of those non-core assets to be of further assistance.

So Alister was right.

We are -- you can never say never because we don't exactly what the crude price will be, but for any circumstance we can currently see coming at us at the moment, we believe we will be able to protect that dividend and we have this OpEx CapEx in asset sales that we're lined up to do.

So, has the Board actually met already with regards to the dividend or is it upcoming?

Yes, the Board -- we have had Board meetings this week and we announced yesterday to continue the dividend.

Okay.

Once again, with regards to the rating, certainly we are seeing significant decreases in ratings across the energy spectrum.

What is your pain threshold with regards to it?

You certainly have outlined some of your cash preservation efforts but nonetheless, leverage is still rising no matter how you look at it and at some point, you need to consider taking that path.

Let me give you, I will give you our view on it.

Clearly, there are industry conversations going with the debt rating agencies around current ratings.

Suncor is in a very strong position because we have a high-quality rating with the agencies and even if we were to take -- we are obviously not aiming to, but even if we were part of that downdraft and we took a downgrade, we would expect it to be one.

Conceivably, it could be more, but that wouldn't seem to be appropriate for Suncor right now.

That still leaves us with quality investment-grade credit ratings.

For a lot of the industry, I think, there may well be credit downgrades which take them from investment-grade to adjuncts status.

We're working hard to protect that.

We've got the capital -- we've got the plans in place and the discipline to execute them.

But I think, as you say, the industry outlook in the short-term is a difficult one.

It's difficult to separate yourself apart from that completely.

We're hoping we will get some recognition for the discipline we have exercised.

Okay, thank you.

Nima Billou, Veritas Investment Research.

Quick question.

Why stop at COS?

If you are one of the best operators in the Oil Sands, and I think you have done a very capable and competent job and you are looking for growth and have a constructive view on more material oil prices, why not MEG Energy and Synovus?

I think they would make ideal targets for Suncor and I think you could bring the same expertise to bear that you would to COS and you'd be able to fund their growth for many years.

Thanks for the question.

You make a very interesting point.

We are very pleased, and as I say, cautiously optimistic around the Canadian Oil Sands deal progressing later this week.

We have a very active M&A group that keeps a watch on companies that operate within our core business and that we think there may be synergies with.

As I say, there are no plans in place for an immediate follow-up to the Canadian Oil Sands potential deal, but we continue to look.

That's why in my general comments, I think the words I used where we see this as much of as an opportunity as a threat and so we look to see if there are areas where we could add value.

So, no details in our plans at the moment but your question is very valid.

Thank you very much and one final question.

You have done an excellent job on the refining side but I want to poke into the granularity a little bit.

Your operations are most levered to Chicago crack spreads, yet refining has continued to demonstrate strength.

How much of that cash resiliency is driven by other crack spreads in general?

How much of it is driven by the benefits from an FX tailwind because FX has been favorable for you guys?

I just wanted to get a sense as to the source of that resiliency because those spreads are certainly contracting for Chicago.

Structurally, Brent WTI spreads should be contracting in the future because the US can now export WTI, so WTI prices will be going up and Iranian oil could potentially be hitting the European markets, bringing Brent down.

So I just wanted to get a sense as to why the refining segment held up so well.

Nima, it's Steve Douglas year.

I'll give you a summary comment and then we can pick that up off-line if you would like.

But what I would say is the link to Chicago is not that strong.

If you look at refining orbits like Denver or Edmonton, they are essentially logistical islands, which can sustain strong margins and strong location differentials relative to the Gulf Coast or Chicago or New York for extended periods of time.

So we're really not bound by Chicago cracks.

And we have set up our business such that A, we have I will say advantaged feed stock supply costs, access to a range of inland crude and B, such that we are sold out, so we run at capacity most of the year, but happy to pick that up further in a follow-up.

No that's an excellent --

With that, we have run out of time.

So I am going to say thank you for everyone for participating and obviously, as always, the investor relations team remains open to calls and emails.

So we will look to follow-up with you after the call.

Thank you.

Thank you.

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