Suncor Energy Inc (SU) 2023 Q1 法說會逐字稿

Good day, and welcome to the Suncor Energy First Quarter 2023 Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Troy Little, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning. Welcome to Suncor Energy's first quarter earnings call. Please note that today's comments contain forward-looking information. Actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our first quarter earnings release, as well as in our current Annual Information Form, both of which are available on SEDAR, EDGAR and our website, suncor.com. Certain financial measures referred to in these comments are not prescribed by Canadian generally accepted accounting principles. For a description of these financial measures, please see our first quarter earnings release.

We will start with comments from Rich Kruger, President and Chief Executive Officer; followed by Kris Smith, Suncor's incoming Chief Financial Officer; and Alister Cowan, Suncor's current Chief Financial Officer. Also on the call are 3 of our senior operating leaders. Peter Zebedee, Executive Vice President, Mining and Upgrading; Shelley Powell, Senior Vice President InSitu and E&P; and Arlene Santos, Senior Vice President, Refining and Logistics. Following the formal remarks, we'll open up the call to questions. Now I'll hand it over to Rich to share his comments.

Thanks, Troy. Good morning. Thanks for joining us. I know many of you on the line, and I look forward to reconnecting. For those of you that I don't know, maybe a very brief background. I come to Suncor with nearly 40 years in energy. 31 of those were with ExxonMobil around the world. And then the last 7 of those nearly 40 were with Imperial Oil here in Canada as their Chairman and CEO. Background includes everything from operations, capital projects, commercial, corporate strategy, et cetera, upstream, downstream, oil gas, onshore/offshore, conventional LNG oil sands and the geography started out in North America, Southeast Asia, Middle East, West Africa, former Soviet Union and now back to reterm supposed to be North America and Canada. So I would never say that I've seen and done it all, but I think it's pretty fair to say I've seen and done a lot.

Personality, what can you expect from me? I strive to be quite clear. I hope you'll find me candid transparent. I live in a fact-based world, and I tend to be quite focused. Last but not least, I consider myself to be reasonably decisive and very competitive. I play to win. My assessment, this is week 6 on the job. It's been quite a time. I see a very proud company here at Suncor, excellent people, quality assets, some very unique competitive advantages, but I also see a company with uncapped potential. I see a gap between our current performance and what I would consider best-in-class in many, many areas. So what is my objective? It's really quite simple. Lead the company to be the best of the best, the undisputed industry leader, #1.

I think in our business that there's 4 kind of foundations or pillars that are key to that, safety, operational integrity, reliability and profitability. If you read the press release this morning, you probably noticed, I said that 3 2, if not 3x. That's because I believe in it, and that's what I've learned over the course of my career. I strive for us to be a company that delivers on its commitments and delivers long-term or superior long-term shareholder value. I never forget the shareholder, and promise you that. Will this be easy? No. But quite frankly, I wouldn't have come out of retirement to be here had it been easy. So what can you expect from Suncor going forward? This focus on the fundamentals, starting with safety, operational integrity, you can expect an intense focus on cost, organizational efficiency and then operational support from our center.

We will become a simpler and a more focused organization. And I think it's important to note that we basically produce a series of commodities, commodity is subject to price cycles and those who have the lowest cost structure has the greatest resiliency to compete in whatever business cycle we happen to be in. We will look hard at reducing spending where value isn't added, whether that's operating costs, OpEx or CapEx. In terms of capital allocation philosophy, for those of you that know me, you've heard this before, we've had a strong balance sheet, very much believe in a reliable and growing dividend, selective high-quality well-timed investments and returning surplus cash to shareholders. I believe in rewarding our shareholders for their faith and ongoing commitment to the company. So I said succinctly, you can expect a lot of words around clarifying, simplifying and focusing what we do, why we do it and how we do it.

And I would end with last but not least, you can expect a sense of urgency and urgency to improve, strengthen our competitiveness produce results. My first 5 weeks on the job, been quite busy. I visited about 50% of our major facilities. I met with men and women who wear hard hats and boots for a living, our workplace leaders. I've observed, have listened, have learned, have started coaching. My general sense is this organization is ready. It is ready to respond. It is ready to step up and perform. I'm quite honored and excited to lead it, and I can assure you we won't leave anything on the table. So with that, I'll turn it over to Kris.

All right. Thanks, Rich, and good morning, everyone. Well, first of all, I'd like to acknowledge all the achievements that our company and employees have made over the last 9 months as I've handed the reins over to Rich as our permanent CEO, we took decisive action to address our safety performance and drive increased focus on operational excellence. We refocused our portfolio through the sale of our renewable power and international E&P assets in Norway and the U.K. And meanwhile, we acquired an additional stake in Fort Hills at an attractive price and recently announced our transaction with Total Energy to acquire its Canadian upstream assets, including its stake in Fort Hills. We also presented a Fort Hills mine improvement plan in November that enables us to improve long-term asset performance and drive down unit costs. And we continue to work across our entire portfolio to drive improved performance.

Now we have more work to do, but I'm confident that we will build on that momentum under Rich's leadership and deliver strong performance and results for our shareholders. I'm very excited about what the future holds for Suncor, and I look forward to working with all of you in my new role as CFO following our AGM. Now before handing it over to Alister, I would like to update you on 3 transactions we recently announced as well as provide a brief operational update. As mentioned, 2 weeks ago, we announced the acquisition of Total Energy Canada for CAD 5.5 billion. The transaction, which remains subject to the exercise of Arriofirst refusal includes a 50% non-operated working interest in Surmont and a 31.23% working interest in Fort Hills.

This transaction adds 135,000 barrels per day of high-quality bitumen production capacity to our portfolio and strengthens our long-term free cash flow potential. The transaction is accretive to adjusted funds from operations per share and delivers attractive returns at mid-cycle pricing. As for Surmont, it is a high-quality InSitu asset, with top quartile steam oil ratios, a 50-year reserve life and low cash operating cost per barrel, which will improve Suncor's cash margins and provide a reliable source of funds through the commodity cycle.

With the 2 recent acquisitions of additional Fort Hills interest between the tech and Total transactions totaling 46% as well as bitumen production at our Firebag and MacKay River operations, Suncor will have sufficient owned bitumen volume with an oil sands reserve life of 29 years to keep the baseline upgraders full post the projected end of base mine life in the mid-2030s. In addition, Suncor has now eliminated the need to replace the base mines production with new developments, which also provide optionality for future growth, if that is the best use of investors' capital.

The transaction will be fully funded via debt and is expected to close sometime in Q3. With a more resilient pro forma business supported by incremental production and cash flow potential, Suncor's Board of Directors intends to approve an increase in the quarterly dividend of approximately 10% after the close of the transaction is contemplated. Also, consistent with Suncor's strategy of refocusing on our core business, we announced the sale of our U.K. E&P assets at CAD 1.2 billion, including $338 million in contingent payments and excluding working capital adjustments. The transaction is expected to close soon, and we look forward to it. And lastly, we announced last week that Suncor will become the primary long-term fuel supplier for Canadian Tire's retail fuel sites.

Consistent with the retail optimization plan presented in November by bringing 2 iconic Canadian brands and loyalty programs together in Central Canada and Canadian Tire, this strategic partnership provides long-term value to Suncor by expanding our noncontrolled retail fuel network and securing long-term supply to protect refinery utilization and maximize sales volumes. Now switching to current operations. We're pleased to report that our Commerce City refinery returned to service as scheduled at the end of Q1 after a progressive restart that commenced in February. For Terra Nova, the FPSO is undergoing additional work side in Bull Arm, Newfoundland to ensure that it is ready for safe and reliable operation in the field.

Based on this and looking forward to the remainder of the year, we are removing any expected production from Terra Nova from our 2023 E&P production guidance. An updated plan for reaching first oil will be available after midyear once we are further through the additional work. With the removal of production volumes from Terra Nova as well as the impact of acquiring a lower-than-expected stake in Fort Hills with respect to the acquisition from tech and the potential early closing of the sale of our U.K. North Sea assets as expected, we expect to be near the bottom of our 2023 upstream production guidance range.

Once we have further progressed the acquisition of Total's Canadian upstream assets, we will update shareholders further on production guidance for the year. Now just before I close, I would like to thank Alister for his tremendous leadership as Suncor's CFO over these last 9 years and in particular, to thank him for his support of me over these last 9 months. Congratulations, Alister. I hope you enjoy a well-deserved retirement, but you still have a little bit more to do. Go back over to you.

Thanks for the kind words, Kris, a little bit more to do. I've certainly appreciated all of the relationships I form with members of the investment community over these last 9 years, Bilibino Suncor as well as before that time. And I'm very thankful for the support of my colleagues and the finance team during my time here. Now enough of that, and let's get on to the quarter highlights. Overall, we generated $3 billion of adjusted funds from operations. The oil sands segment delivered $2.6 billion of adjusted funds from operations with production of 675,000 barrels per day. This performance reflects a new quarterly InSitu production record of 361,000 barrels per day and the average base plant and Syncrude utilization of 33%.

At Fort Hills, we completed the acquisition of the additional working interest from tech resources in early February, and production remains on track to ramp up in Q2 prior to starting a 5-year turnaround in July, consistent with the restart plan. Oil Sands realizations averaged $91 per barrel or 89% of WTI. This reflects the USD 7 per barrel decrease in the benchmark WTI offset by small U.S. dollar, USD 1 per barrel, not only in the WCS heavy differentials versus Q4 of last year. Our E&P segment generated adjusted funds from operations of $500 million with production of 67,000 barrels per day at an average price realization of $108 per barrel or 98% of rent. Downstream generated adjusted funds from operations of $1.2 billion on a FIFO basis.

Excluding the $130 million of FIFO losses would be about $1.3 billion on our LIFO leases. Refinery utilization averaged 79% and margin capture was strong at 102%. Overall segment performance was in line with our expectations, and it obviously impacted by the downtime at the Commerce City refinery that started at the end of Q4, but utilization in our Canadian refineries was a solid 94% during the quarter. During the quarter, we returned $1.6 billion to shareholders, including $700 million in dividends and $900 million of share buybacks. Sand core net debt position as of quarter end was $15.7 billion which primarily reflects working capital use of $2 billion and the earlier-than-expected closing of the acquisition of the stake in Fort Hills from tech, which all in, including leases, was $1 billion.

Our final 2022 cash top-up payment was $500 million as we paid the majority of our cash taxes of $4.2 billion throughout 2022. And as Kris mentioned, we expect to receive the $1.2 billion of gross proceeds from the sale of the U.K. E&P in the near term. As stated previously with the acquisition of Total's Canadian upstream assets, we're now expecting to remain at a 50-50 capital allocation between share buybacks and debt reduction until we return to $12 million of net debt at which point, we also want to 75-25 allocation. And with that, thank you all, and I'll turn you back to Rich.

Before we get to your questions, I like to commend Kris for his leadership over the last 9 months, the focus he's brought to this business, particularly safety. I've seen that in site visits. And also, I can assure you, Kris and I are going to work very well together. We have been engaged since before I showed up or weeks before that, and I think we're going to make a very strong team. And lastly, thank Alister for his dedication and leadership for nearly a year. As I said, he will be missed, but not forgotten. Look forward to working with each of you and the investment community at large. And with that, I'll turn it back to Troy to kick off our question period.

Thank you, Rich. I'll turn the call back to the operator to take some questions.

(Operator Instructions) And our first question will come from the line of Greg Pardy with RBC Capital Markets.

Indeed, all the very best to you Alister. Rich, and welcome. You can't imagine how happy I am to have you back in the chair. So a couple of quick ones. So Rich, particularly as you looked at the business, I'm wondering if there are areas upstream or downstream where you see low-hanging fruit from an operating performance perspective to either higher throughput or lower operating costs? And if so, what those might be and how long do you think some of that might be to achieve better performance?

Greg, I missed you, too. So it's good to be back. Thank you. As I've seen opportunities across the organization. And I think let me start on the downstream a little bit. There was a baseball analogy that I want to share quick is the downstream here and in Canada has done very, very well. I'm a baseball fan. And somebody told me we didn't hit a triple, we were born on third base. We have a lot of structural advantages right now. But what is important are we operating to the best of our ability. And I think as I look at the downstream, I see reliability is still an opportunity. I think our cost structure, turnaround performance, turnarounds, we spend a lot of money in the, of course, the time offline. So I think there, it's just getting incrementally better at the fundamentals, the basics, in the upstream, I mean, mining is a tough business.

We know that. We've got aging mines. We've got more challenges on haul distances and things, but I've spent a lot of time with Peter in looking at as kind of improvement plans all the way from reducing contractors to enhance efficiency and reduce cost, improving the performance of our fleet. So Greg, in those areas, I would say, it's lots of little things. And so I don't know if I'd maybe describe them as low-hanging fruit, but I think they're very tangible in things that we have and will continue to have a very intense focus on.

I hit at it in my comments. Just fundamentally, our cost structure is looking at ensuring that all our people, everybody above the operating units are focused on what they do to support the operating units. And I think there's some low-hanging fruit there and really looking at what we do, how we do it. And we're making small improvements. I'll have more to say about that in the next couple of months ahead, but I wrapped up my comments with the sense of urgency. We need to get on with it. And I don't see anything in my first 5, 6 weeks that will prevent us from bringing about material improvement from inside from focusing on those things that we control.

Okay. Understood. The second quick one. Well, maybe it's not a quick one. The pace at which you run the base line is coming up a lot. And there is a fairly defined view it would seem out there that it's really all about managing ARO that you're going to have to slow down the mine to manage ARO. How are you guys kind of thinking about that decision? Like how should we think about how fast that baseline is going to run over the next few years?

Well, I'm going to turn it over to Peter here in a second to maybe give you a little bit more specific on it. But I think if you look at and Kris described the recent deal we've done, looking at longer-term bitumen supply because the most valuable barrel through an upgrader is the incremental barrel, the last barrel. It's much like a refinery is so ensuring that we utilize those facilities to the fullest and then it becomes what's the most economic way to do that. And whether it's continuing to mine and extend the life of the baseline, whether it's bringing a bitumen supply from outside the lease. And I would say those are all kind of works in progress, but it's all about value. It's all about determining what is the most valuable barrel to fill up those upgraders with. But Peter, maybe if you want to add any further color to my comments?

Yes, maybe a little bit more information, Greg. I think in the short term, and I mean, between now and 2026 and '27, the rate of mining at base line will continue as is. And so we'll be running to maximize volumes out of the baseline. This is a tailings driven facility. And so until we're able to open up our tailings plan, and we look to secure an additional piece of variability around potential for water management and recycle. We don't have a lot of ability in the short term to throttle the rate of mining. Post that in our long-term plans, we are looking to see what the rate of mining is that will maximize the value coming from the asset taking into consideration the ore body operating costs, et cetera.

And one moment for our next question and that will come from the line of Dennis Fong with CIBC.

Again, congratulations to Kris and Rich on your new roles as well as Alister for a well-deserved retirement. The first question I have is, during the quarter, it looks like you had about 5,500 barrels a day of Fort Hills production that was processed at the base plant upgraders and about 1,800 barrels a day of oil sands of volumes that were procincrude. Can you talk towards I guess some of the impacts of feeding those barrels through the various upgraders and processing facilities? And maybe what some of the considerations may be in the future for shifting the destination of barrels across your portfolio?

Dennis, this is Rich. I'll maybe start out with that again, then I'll probably turn it to Peter for more specifics, but it's all about value. And I think one of the things I said in my opening comments is that I really look forward to working with here is the unique competitive advantages that we have through the physical integration of our upstream through our upgrading and actually, quite frankly, all the way through refining and logistics. We've got an asset base that is quite hard. Well, it's unparalleled, it's hard to replicate. And so those kind of decisions are about incremental what are bitumen prices in the market, what's the sour crude, what's the synthetic price and how can we move molecules around to maximize the value of each and every barrel. Maybe I'll turn it to Peter, though, to kind of get into like how do we do it and how real time are those decisions to make the most money.

Thanks, Rich, and thanks, Dennis. And it is indeed a really dynamic process. And frankly, it's all about margin optimization and generating the maximum value for those molecules. Dennis, we really look at it, I would say, on 3 time horizons, starting from the long range, kind of the business planning process and the budgeting process that really optimizes extraction at all of the bitumen production facilities, the utilities and takes into consideration major maintenance outages for the year. So it's that kind of macro level planning.

And then zooming in on much more of a short-term planning process where we look at production planning and consideration of all the risks we have in our facilities on kind of a 1- to 12-week time horizon. And that really allows us to optimize on market-based conditions, food differentials, logistics, downstream demand, et cetera. And then finally, it's really in the here and now. It is that shift by shift optimization, that's done by our production planning team, and we have an integrated production planning team across the upstream assets in the region and extending down into downstream into the refining and production coordinators on a our ship-by-ship basis. So this is very dynamic, very real time, and it's all about making the most from the molecules that we produce.

Great. Great. I appreciate that color. Maybe shifting focus towards the downstream side and maybe a little bit more specifically, Commerce City. I know the facility itself was impacted by, we'll call it, a very unique circumstance with respect to winter conditions in the region. I was just curious as to whether or not there were any learnings from the events that occurred there. And if there were any changes to operations or operating procedures that were being implemented to maybe limit the risk of future kind of downtime as well as anything else across the rest of the platform?

Yes. Dennis, it's Rich here again. There have been a lot of learnings. And I think the best organizations whenever you have things like this happen, that's how you get better is through the learning process. And in fact, I'll say, just literally real time, we went through a pretty comprehensive discussion with our the Suncor Board of Directors yesterday on the learnings on it. And the learnings, they fall into a variety of buckets, but the competency of individual operators that we had sufficient training and the uniqueness of what happened, the temperature drop over the very, very short period was extreme.

If you look at the temperature range itself and the low ends of it, that's not necessarily out of the realm of history, but it's how fast the temperature changed and then what that impacted on control systems, steam generation and our ability to keep things hot, keep things warm with that. And so as we lost steam capability, there was a little bit of a cascading effect and the judgment was made, it was before I was here, but I look at it, I think it's exactly the right judgment to take that entire facility down, and that was made out of concern, out of safety and operational integrity. And that, to me, was the right decision. But now you've got a facility in extremely cold weather that you're not able to be keeping warm anymore.

And so it's kind of a damn if you do game if you don't. If you continue to operate, you run risk that in those extreme conditions, you could have some loss of primary containment and further escalating to that. But also you knew when shutting it down, now you've taken things to amiantemperature. So I would say there's been a lot of learnings. And what we're trying to do right now is take those learnings and incorporate it into the facility, whether it's operator capability and training, whether it's heat tracing, some things that we would do in preparation for the apparently every year, there's a winter in Denver. And before the next season, so that if we were to experience something as unique as this, we would be far better equipped to handle it. So yes, lots of learnings, and we're plowing it right back into actions to ensure that something this consequence doesn't happen again.

And one moment for our next question and that will come from the line of Neil Mehta with Goldman Sachs.

Welcome back, Rich. We missed you, sir.

Thank you, Neil. It's good to be back.

All right. progress to everyone and Alister on your retirement. The first question is just around the transactions, both Surmont and Fort Hills from Total. Maybe you could dive into what attracted you to this asset? Why now and dig more into the upside case associated with the deal? And how are you mitigating some of the risks associated with that?

I'll give you a little bit of color commentary, but I'm really going to turn it over to Kris, because Kris and Alister are the ones that made this happen. I was brought this thing literally within an hour by announcement on February 21. And by then, things had moved along as we look at it, is we've talked about the long-term bitumen supply, the value in keeping the upgraders full and the uplift you get from that. Now we have other internal alternatives. We looked at those alternatives, whether they're developing incremental mining capacity or Insitu. But we looked at this and we saw a significant value in it. We saw a material dimension of risk management in it in terms of not having to plan and execute large-scale capital projects. The timing of it, it brings barrels immediately, and it's accretive. So to me, it looked at it, it was pretty clear that this is a win-win. Why don't I ask Kris to comment any further on it.

Well Thanks, Rich. I actually don't have too much more to add because I think you covered the major points. I mean Neil, when we looked at the opportunity of this transaction, I mean, it was checking a lot of boxes for us. And first of all, obviously, we know the Fortellis asset really well. We have a lot of confidence in the long-term value of that asset and the plan we have for it. Surmont is a high-quality bitumen assets. As I mentioned in my remarks, we're a very good operator in situaselves. We see a real opportunity to actually work with the operator and bring both of our advantages to that asset. And then as Rich mentioned, it's just a great strategic fit. There's a lot of industrial logic related to this transaction and long-term bitumen supply into the region. So we thought it was a really nice fit for our portfolio. As Rich mentioned, accretive to shareholders. We see very good return, long-term returns from this investment at the price we paid. So we just thought it attractive on all sorts of dimensions when we entered into the deal.

And I'll make one other comment on it. We're all aware that ConocoPhillips has a rotor on Surmont. We reached out the morning and the announcement and one of the overriding messages is we would be a partner, a very willing partner that would look to invest and grow value in this asset. We have tremendous respect for ConocoPhillips as an operator, and we think there would be synergies that we could bring that would add value to both the Surmont operation as well as our Firebag map and forth that together, we can make this more valuable than either of us individually. So we'll see what goes on in that, but we would very much look forward to being in that partnership.

Yes. That makes sense. So that's the follow-up is, as you highlighted in the presentation, there are significant tax pools associated with this. To the extent that Conoco does execute a write-up first refusal on Surmont only. Do the tax pools exist at the asset level or they have to consolidate level? Does that make sense?

I will do one comment, then I'll ask Alister if he wants to supplement a little bit. But with the ROFO still out there kind of anything that might happen in the future is kind of speculative, if this than that. And I would say all those remain to be seen. It kind of depends on what happens. But Alister, would you have anything you'd want to add there or for a later date?

No, you've got it right. I mean, it depends that gets executed what happens to the tax losses. They would on the face of it would be lower by the amount of the ROFR. But beyond that, we have to see how it was executed.

And one moment for our next question and that will come from the line of Doug Leggate with Bank of America.

I love the exotic version, but congrats to all you guys. And Alister, I'm glad we were able to get our trip squeezed in before you walked away. So thanks for your time again. Guys, I wonder if I could follow up on Neil's question on the ROF, but I want to be a bit more specific about the tax benefits that you guys are acquiring. Kris, this might be for you, given it's more of a kind of a technical accounting question. But I'm trying to understand who owns the tax losses. Is it the Total entity that you're buying the shares of or do the tax losses sit at the asset level? In other words, if ConocoPhillips did preempt, do you hold on to the majority of those tax losses or do they get transferred with the asset? Any technical explanation of how that might work would be really appreciated.

Thanks, Doug. So as you pointed out, we're doing a share transaction. We're purchasing the entity. So the tax pools are at the entity level. Now as Alister mentioned in an answer to the earlier question from Neil, I mean, certainly, if the ROFR has triggered then is going to move into a different sort of transaction at an asset level. And then I think the cash pools are going to be looked at quite differently, and they're going to be lower. But we're transacting at the entity level. So as we're looking at the tax pools are on that basis.

Okay. So we're going to have to wait and see how please out. Are the tax pools split proportionately to the value of the assets included in the transaction sort of 2/3, 1/3?

They're at the entity level.

Okay. I'll wait and see how that plays out. I guess, Rich, my question for you is that, obviously, you're inheriting a lot of legacy reliability issues, not all of those or rather a large part of those on margins or structure related to the age of the mine. So how do you anticipate closing some of those reliability gaps given the obvious more structural challenges of the mine life?

Well, first of all, Doug, I would say that advanced age is no excuse for poor performance. So I'm saying that a bit tongue in cheek. You take the mines, yes. What you're saying is obviously, there's aging equipment. I think the issues are a little bit more things like haul distances and ore quality in different areas. Because if you look at it, I was up with Peter just a couple of weeks ago, I went into the maintenance phase at each of the base mine and Syncrude Fort Hills, and you talk about how we maintain things. We basically like rebuild trucks over time. So a truck is not old because over a period of a relatively short time, it's rebuilt. And now upgraders are different things. They look at refineries.

Refineries across around the world have been operating and they can operate very reliably despite age. It comes down to maintenance. It comes down to best practices, operational discipline. And so yes, we have an aging mine in terms of assets. And yes, we have increased haul distances. But I think that just means we just have to get smarter and more creative about how we manage costs and improve reliability. I really don't look at that and certainly Peter doesn't either. I know we don't look at that as an excuse or as a well a limitation on what we can achieve. I think it just means we need to get more thoughtful and more creative. And it really means executing the fundamentals extremely well.

Our maintenance programs, our reliability programs, looking at risk-based work selection on turnarounds. It's just the blocking and tackling in our business that we've learned for decades is whether you've learned that in refining or whether you've learned it in mining, but executing extremely well. And I hope and I think you've heard in my comments, that's going to be our plan looking at what we do, how we do them and then ensuring that those folks that are not at the asset that they're providing the highest level of support, whether that's for rotating equipment, whether that's near term, midterm or long-term mine planning. It's a focus on the basics but just doing the basics extraordinarily well. So I know kind of a long answer to it, but my premise is the age of our facilities and ultimately is not going to be a material inhibitor.

Great perspective, Peter. Go ahead, please.

Anything you'd add to that, Peter?

Well I would just say, and especially in the mining operations are really our approach is threefold. Across our portfolio, we're moving 1.3 billion tons of material every single year to generate the products that we do. And so little things make a big difference. And that means squeezing the efficiency out of our own operations every shift, every single day. It means reducing our exposure to more expensive tonnages by executed by our third-party contractor. I would say the last tranche of that really is around the implementation of new mining technologies like the autonomous trucking technology we have active in our base plan today, and we'll be scaling up across all of our assets in the near future.

And Doug, it's Rich again. You got me going here. So I got to say one more thing. I think we haven't talked today so much, but our focus on safety and improving safety. Safety is a huge productivity driver. Not only do we have a moral obligation to people and we care about people, that's why, but it affects productivity. So activities that Peter has going on on safety systems, collision avoidance, fatigue management. We've talked about autonomous vehicles over time. All of these things not only ensure a safer workplace, but they provide a more productive workplace. And so I think those things the safety operational integrity, reliability and profitability they're all very interlinked. And so I think the other things we're working on add to that same reliability aspect, particularly in mining.

And one moment for our next question and that will come from the line of Menno Hulshof with TD Securities.

Rich, you talked about driving clarity and simplification throughout the organization. Can you just elaborate on what is meant by that? It felt like those words were carefully selected and what specific steps could we see over the next year to achieve that?

To give me too much credit, Menno. I don't know that they were carefully selected. But what I believe is I believe everybody in the organization needs to have a line of sight to how do they support making money. And I very much believe in making money. We are in business to make money and as much of it as possible. And everybody starting with me needs to see how they do that. So what I believe here and just been here a short while, but I'm proof testing a lot of things is that we can enhance our clarity about what the workforce does to support, whether it's safety, integrity, reliability or profitability. And I think we can eliminate work, I think we can do a way with work that doesn't add value.

I think we can look at things like service levels and service level of support, but all with a keen eye on how it enhances bottom line business performance. So if my words came across is carefully selected, they're not really intended. We're early in this, but I just see a lot of opportunity for organizational efficiency. And if that's focusing on higher-value activities, so be it. If that's eliminating low value-added work, awesome. It's combinations of all of that. And I do think above the field in an organization, you can create an energy, a motivation through clarity and focus that people can move mountains. I think fundamentally, if you look at our business, our business has kind of involves moving mountains in many cases. And I think this organization is ready for that I think they're asking for it. And that's exactly what I intend to provide.

Okay. And then having seen all of the inner workings at Exxon and Imperial for decades, are there any best practices that have been shortlisted for rollout of Suncor over the near to midterm? And I guess, as a follow-up to that, do you think there are ways that Suncor an empirical could work together even more effectively?

Yes. I think I'm a big believer in benchmarking and best practices. How do you know if you're the best unless you've got some kind of a scorecard to it. And so what I think of best practice is, whether it's safety systems, integrity systems, there's kind of 3 categories, I think about. First, the system design itself is it a quality system. And in my short time here, I think we have quality systems. Our safety systems, our operational excellence systems, I think, are quality. Now can they be improved? Can they be made better to implement? Absolutely. Are they as simple as they can be to apply in the field, those are questions, but we have sound systems. So then you get into the application of the system. That's where in a short time, but I've seen variability in how well we've applied systems at different sites.

And my vision there would be we reduce variability to the highest standard of performance. And once you have a quality system, once you've applied that system, then it comes into the effectiveness, are your systems delivering the intended result, and that's where you put that return feedback loop in place to enhance the system, strengthen the leadership that goes with the applicability to produce better results. So on the application of what I think are our quality systems, we have work to do to reduce variability. And then along with that is measuring the execution, quality, the effectiveness of our application.

Those are the 2 areas where I plan to focus early on and other best practices. I think I'm a big one for learning. You look over the lease line to learn. And for collaboration, whether that's in operational refineries, whether that's in operation of mines. I believe that for the oil sands, well, for Suncor to be a winner in the oil sands, the oil sands also has to win and compete on the world stage. The consumer, when they put a nozzle in a car or a truck or the side of an airplane, quite frankly, they don't really think about where that low gas diesel or jet comes from. It comes from an oil sand, West Texas Intermediate at all. So we have to be globally competitive in the oil sands. And then our goal is to be the best of the best in the oil sands. So to be globally competitive, that comes with collaboration. And I think pathway is a great example of that.

But I think there's other more fundamental examples of how do we run and operate mines? How do we maintain dikes and dams and tailings? How do we treat? How do we collaborate with the federal and provincial governments on sound public policies that achieve the objectives, but also ensure or maintain the competitiveness of what is a critical industry for not only Alberta but Canada overall. So that's a long after you got me going there, Menno on a topic I'm passionate about. But I think collaboration and application of standards and best practices is very much a part of a winning formula.

And one moment for our next question and that will come from the line of Harry Mateer with Barclays.

First one, I see Slide 4 about the capital allocation, and it looks mostly similar to what the company had previously. But at the same time, some comps coming out of the gates with a debt-funded acquisition and going above the $12 billion to $15 billion net debt range at least for a period of time. So Rich, for the credit investor community, I would like to get your reactive on the balance sheet, how you think about optimal leverage for Suncor and perhaps where in the investment-grade category, you think the right places for Suncor's ratings to be?

Yes. I think some of the specificity of what you've asked for maybe is beyond what I can comment on today. But fundamentally, I think I believe in a strong balance sheet. We produce a basket of commodities. Prices go up and down and how you have the resilience to get through the inevitable cycles is by having a strong balance sheet. And when I look at covering what our priorities are, the care and feeding of the existing asset base, the sustaining expenditures are you need to do those in the short term and the long term. And as I commented, a reliable and growing dividend, high dividend is very, very important to me.

So I want to ensure that we have a cost structure, which includes a level of debt and financing cost on debt so that we can withstand those ups and downs and financially deliver, maybe you dial back on high-quality investments at periods of low prices, maybe you use the flywheel of returning surplus cash to shareholders is modified, but that you don't put at risk, taking care of what you already have and you can still continue with a reliable and growing dividend in periods of up and down. Maintaining a strong credit rate is key, obviously, for the cost I think coming out of Daisy is a bit of a reflection on confidence that we have in the corporation.

And I think that's all important. Maintaining our ability to borrow when we can and should leverage for opportunities, keeping a strong credit rating, our credibility in the marketplace and then getting our cost structure where we can withstand the inevitable ups and downs you see in our business. It's the business we've chosen. Harry, I'm not sure if I was specific enough for you. Alister, if you have anything else to add or bolster that or refute it.

I think you summarized it very well. And I would just emphasize the work, the rating agencies went through our Total acquisition and no changes to our ratings. I think that demonstrates their commitment to a strong balance sheet and getting the debt back down in a relatively short order.

Okay. And then a follow-up. I'm not sure for Alister or Kris. But given the planned debt financing, you've noted in the slides, I mean, Suncor has a pretty clean maturity play in the next couple of years. So how are you thinking about staggering that financing? Are you comfortable issuing some longer-term debt? Or are you thinking more like issuing shorter-dated notes or bank debt to provide a bit of a glide path to gross debt reduction in the next couple of years?

Yes. As you noted, Harry, our maturities have been in the short term, we tank taken most of those out with the debt buyback last year. We'll focus more on the shorter end. Obviously, we think we can accelerate the debt repayment, so we'll be focusing on our ability to be able to repay debt as quickly as we can. We will all see some longer-term stuff as part of the package, but the focus will be on the end.

And we do have time for one final question, and that will come from the line of Roger Read with Wells Fargo Securities.

Yes. I guess what I'd like to really kind of understand Rich and Kris is so much of the forward focus is going to be on reliability, safety and the general systems are in. How much visibility do you have today or certainty do you have what needs to be done in terms of making things work the way you want them to work and improving the overall performance. And what I'm really just getting at is you had the Investor Day at the end of last year, and then we've had obviously some pretty significant changes here at the top. And I just want to kind of understand, are we looking at something that should really be a very quick impact? Are we looking at things that, well, let's think about it more as a 24% 25% kind of event. Anything you can do to help us with the time line. I'd appreciate.

Yes. I think in terms of what needs to be done, a lot of it is not, and I don't mean to oversimplify it, but it's not rocket science either. It gets back to and looking down the table at the executive VPs and the senior VPs responsible for our operations. It's the kind of things we talked about. It's applying best practice. Well, it's executing our work exceedingly well. That is not necessarily complicated. It's ensuring that people have the skills, abilities, the time, the support to do what we know it takes to operate and maintain facilities. Yes, it is also getting smarter, looking for creative financial solutions, whether that's our truck fleet at Fort Hills, for example, or getting better at the turnaround expenditures, we spend, for example, nearly $1 billion a year on plant turnarounds across our massive asset base.

Well, it seems like that should be something we become really, really good at. Because you save money and if you shorten time lines through risk-based work selection, you get online quicker and you start making money while you take facilities down. So I think I would love to be able to say how fast and what to expect. Roger, I'm not there yet. But I think what we need to do and what we need to focus on and equally important, what we need to be sure we don't focus on to allow the attention to where the biggest bang for the buck is. I think that's getting clearer and clearer. I think the senior leadership team and I are rapidly getting aligned on that.

We will be pursuing any and all improvement opportunities with a sense of urgency. I know I didn't give you a time line or numbers, but when you started saying 24 25 million that in my time line, there's no better time than the present. And so I think I would hope that we start seeing hope not a very good strategy, by the way. So I would expect that we will start to see incremental improvements with time and that time is not just the future. That's sooner rather than later. I just signed to deliver. I'm looking at my team down there, and I just signed them up. I could tell there's a little tightness being form down there at the end of the table, but they're all smiling. So that's a good thing.

Yes, I appreciate that. Yes, just as a quick follow-up, it's been kind of hammered already, but the ROFR that Conoco has if they exercise that, it obviously alters the transaction, would we anticipate then you would obviously, with a lot less debt would be likely to move back to a 75-25 payout more quickly. I mean, that seems like a natural progression if that happens, and I'm just trying to kind of anticipate what the changes might be if that piece of the Total transaction does not occur.

Well, again, what Conoco may or may not do, we'll all learn that here in the relatively near future. But if I think about if I step back from it more broadly, if we go back to what I described on capital allocation, if we have if we have surplus cash, we'll look at what's the best way to return that to the shareholder. And that will be a combination of continued to look at our dividend and/or share buybacks and/or debt reduction. So undoubtedly, if we didn't have this big acquisition, our debt would be back closer to where we've talked about targeting it. But it would be that combination of events that we would just look at what we believe is the highest value of the shareholder. And I can assure you, Roger, everything we have done and will continue to do, we'll always have the shareholder at the front of the windshield, not looking at back, but looking forward, what's in the best interest of the shareholder. That is that's our mantra.

Thank you. I would now like to turn the call back over to Mr. Troy Little for any closing remarks.

Thank you, operator. Thank you for joining us, everyone. Please don't hesitate to call us with any follow-up questions. Operator, you can now end the call.

Thank you all for participating. This concludes today's program. You may now disconnect.