Suncor Energy Inc (SU) 2024 Q3 法說會逐字稿

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Good day and welcome to the Suncor Energy third quarter 2024 Financial Results Call.

At this time, all participants are in a listen-only mode.

After the speaker presentation, there will be a question and answer session.

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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.

Suncor Energy, Senior Vice President of External Affairs.

Please go ahead.

Thank you, operator, and good morning.

Welcome to the Suncor Energy's Third Quarter Earnings Call.

Please note that today's comments contain forward-looking information.

Actual results may differ materially from expected results because of various risk factors and assumptions that are described in the third quarter earnings release as well as in our current annual information form, both of which are available on SEDAR, EDGAR and our website, 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 third quarter earnings release.

We will start with comments from Rich Kruger, President and Chief Executive Officer, followed by Christmas, Suncor's Chief Financial Officer.

Also on the call are Peter as Deputy Executive Vice President and oil sands, Dave Bolger, Chief Executive Vice President of Downstream, and Shelly Bell, Senior Vice President, Operational improvement and support services.

Following the formal remarks, we'll open up the call to questions.

Now I'll hand over to Rich to share his comments.

Good morning.

Let me start with Happy Holidays more on this later three months ago, I stated our second quarter was about execution and momentum, execution of major planned turnaround events and momentum in targeted improvement areas.

Conversely, our third quarter was about performance and delivery performance, largely unencumbered by major Mitch activities and delivering on commitments.

Our 2Q stated during our May 21st Investor Day.

As usual, Chris will detail quarterly results.

I'll provide some color commentary.

Starting with safety.

Personal safety, core value top priority continues to be strong year on year, lost time events down 40% from portables, down 23% rates are at or near our best ever.

Similarly process safety performance year to date is that a best ever level positions us within the First Call or to pile in North America.

I'll highlight our oil sands team for their third quarter performance, particularly those at Firebag in early July.

With wildfires in the region, we moved Firebag to essential personnel only as a precaution we shut in production site-wide thereafter, restarted the least affected well pads, touch and go for several weeks.

Our team has worked closely with local and provincial authorities and responders are number one.

Focus was to protect our people and protect our assets.

I'm pleased to say the entire situation was managed incident free credit to our people, procedures and site leadership project option impact was material, however, but limited to July, only 60,000 barrels a day for the month every quarter.

I talked about reliability.

Our asset utilization because the incremental in incremental barrel produced a refined is the most profitable barrel produced a refined.

It's delivered at little to no incremental cost essentially flows to the bottom line.

At today's Suncor, a full utilization of installed capacity closely follows safety in our priorities.

And as full utilization is achieved, we turn to low-cost debottlenecking.

This clear simple operational framework is delivering tremendous value company.

Why I'll illustrate with refining throughput in upstream production.

Refining throughput in the third quarter was 488,000 barrels a day, up 25,000 barrels a day or 5% compared to a strong third quarter of 23.

It was the best quarter of any quarter in Company history.

In fact, there isn't even a close second, 20,000 barrels a day or 4.3% higher than our previous best quarter achieved with 105% overall refining utilization in the quarter.

This was our highest overall network utilization and in any quarter in history.

And all four refineries achieved 100% or higher every single facility led by Commerce City at 109% in Sarnia and Montreal, with best Devers both at 106%.

Year to date, utilization is 98% compared to 88% at the same time last year.

We're on pace to blow away our previous high high reliability and resulting throughput enabled us to confidently and aggressively market and sell the result.

Refined product sales of 612,000 barrels a day in the third quarter, the highest quarterly sales in our history in our first quarter ever with sales above 600,000 barrels a day from those that are keeping track.

This is now back to back to back record quarter with our quarterly records upstream production third quarter 800,900 barrels a day, up 138,000 barrels a day or 20% from the third quarter of last year.

It was our best third quarter in Company history within 6,000 barrels a day of our best quarter ever.

Performance exceeded our prior best third quarter by 67,000 barrels a day, and this was achieved despite a 20,000 barrel a day wildfire impact I mentioned at Firebag and a 10,000 barrel a day turnaround impact at MacKay River.

Greater utilization in the third quarter is at an unprecedented 99%.

Recall, each additional 1% utilization.

That's 20 million a year in free funds flow.

Year to date, utilization is at 96 turnaround.

Our best prior annual average was last year at 92% were set to beat that in 2020 for bottom line, third quarter and year to date reliability, our asset utilization has been exceptional on trend for best ever across the board.

Upstream and Downstream here, again, a credit to our people, their expertise, their teamwork and their determination profitability.

Chris will cover overall profitability.

I'll highlight cost management and operating leverage.

Year to date 2020 for total S and G, all of our top to bottom is 9.65 billion, down 340 million versus a year to date 2023.

However, upstream production is 87,000 barrels a day higher year-on-year.

Refining throughput is 49,000 barrels a day higher year on year and refined product sales are 51,000 barrels a day higher year on year.

You get the message free barrels higher absolute volumes, lower absolute cost, the Oxford dictionaries definition of operator the leverage.

In a nutshell, every business segment or major operated asset upstream and downstream corporate is at lower absolute and or unit costs in the first nine months of this year compared to the first nine months of last year.

I'll offer you another perspective on year-on-year cost per month.

Let's assume for a moment that our fourth quarter of 23 acquisition of totals 31% to 31%.

Interest in Fort Hills never happened.

In other words, takeout of all impacts in 2024 of the additional ownership.

So we will have an apples to apples year on year performance with the exact same ad revenue, down $880 million, yet upstream volumes are up 34,000 barrels a day, and refining, of course is up 49,000 barrels a day.

I'll repeat that apples to apples, $880 million lower costs year on year with higher volumes.

Bottom line operating leverage has been achieved any way you slice it.

I've said it before.

Cost management is about attention to detail discipline and accountability, a mindset that every dollar matters cost-conscious determined results-oriented today, Suncor during our May 21st, I Dave.

We detailed a number of our improvement plans.

I'll provide an update on a few turnarounds we previously stated.

The second quarter was our biggest turnaround quarter in 2024 with 80% of the year's activity planned.

We recall for big events, 800 million completed on budget and 10% shorter in duration.

We've now completed the bulk of the years remaining activity, specifically based plant due to upgraders annual maintenance maintenance in MacKay River combined the two events again on budget ahead of schedule.

For the year, total turnaround spend will be under $1 billion, down to 20% from the prior five-year average mining we've described our mining strategy in a nutshell is fewer trucks, bigger trucks, autonomous trucks operated better, maintain cheaper update on the 55 new 400 ton trucks that will replace twice as many smaller, less efficient third party trucks.

First five are now in operation to more will arrive at Fort Hills shortly.

The final 18 will arrive at the base plan throughout the first quarter of 2025.

These 55 new trucks will lower annual operating costs by more than $300 million a year in situ for several quarters.

I've talked about the value of our in situ operations.

Performance records keep piling up pick up, particularly at Firebag through the first nine months of 2020 for two record quarters in five record months, including August at 238,000 barrels a day and said September at a whopping 247,000 barrels a day.

At Firebag.

Last quarter, I highlighted an opportunity that the Firebag team identified a 1 million modification deal.

You had stripping capacity to increase bitumen production with the expected impact of 3 to 5,000 barrels a day in increased annual average production, 50 million in additional free funds flow per year.

The opportunity was implemented in third quarter.

It was completed in mid August, ahead of schedule at a cost of $500,000 versus $1 million.

Incremental production to date has been more than double the 3 to 5,000 barrels a day expected.

Consequently, the incremental free on a year, this is Suncor's version of a double double half the cost twice the value Fort Hills we just passed the one-year anniversary of the total Canada acquisition of primary asset was a 31% working interest in Fort Hills, bringing our ownership to 100%.

We've our regulated the benefits production reserves long term bitumen supply tax pools.

I've got another example of value added from this acquisition.

Recall that Fort Hills applies the PFT. process technology, which partially decarbonize is produce.

Bitumen removes the heavier asphalt molecules results in a premium value in the market.

Our physical integration allows us to either direct Fort Hills directly to the market or to our base plant upgraders.

Until recently, we were pipeline limited to a maximum of 65,000 barrels a day to the base plant.

However, our team identified an opportunity to increase this capacity.

So for what $1 million, we have increased Fort Hills to base plant capacity, 65,000 barrels a day to 100,000 barrels a day.

We de-bottleneck the pipeline with improved hydraulics, completed the work in six weeks with the use of surplus equipment as both operational flexibility and incremental financial value, specifically 50 to 100 million a year in additional free funds flow, dependable experience replicated.

I've said before, there is integration, and then there is Suncor integration.

This is an example of the latter.

These Fort Hills and Firebag examples are representative of a focus within the Company today.

The laser like focus on asset utilization, testing, facility limits, capturing value, de-bottlenecking, adding low or no cost barrels upstream and downstream, our teams company-wide are literally raising the ceiling on both our performance and our potential.

With that, I'll turn it over to Chris.

Great.

Thanks, Rich.

Good morning, everyone.

Well before providing a brief overview of the financial and operating performance for the quarter, I want to go back to how rich open the call and start with holidays.

You will remember that during our investor update in May, Rich talked about a Christmas precedent for our shareholders, specifically achieved at our net debt target by year end.

As you can see from our third quarter financial results, Christmas has indeed come early.

This is a significant milestone for our company and shareholders and started in Q4.

As per our capital allocation framework, we will move to 100% return of excess funds to our shareholders.

This past May, at our Investor Day call, we announced a new 8 billion net debt target that was underpinned by an ambitious plan generating substantial incremental free funds flow.

Today.

Not only are we executing the plan, but we're ahead of us enabling us to meet our net debt target well ahead.

We have many external forecasts, but we do it by being laser focused on what we can control, production costs, capital and working capital.

I want to congratulate the entire Suncor team, which did an amazing job delivering this result.

So by way of recap, at the beginning of the year, we were returning 50% of excess funds to our shareholders.

In May, we reset our net debt target to 8 billion to reflect our improved performance and business plan and increased to 75% return of excess funds.

Now that we've hit our 8 billion target at the end of September, we are increasing to 100% return of excess funds starting in Q4.

Shareholders ask for a new Suncor, and this is yet another example of how we're delivering continuing on the subject of net debt.

Subsequent to the quarter, in October, we successfully completed a bond repurchase tender, retiring 1.1 billion in principle, with interest rates coming down, building cash doesn't drive value.

The tender captured significant economic value by retiring a large portion of our 2038 maturity tower.

As a result of this, we locked annual interest savings of 70 million a year for the next 14 years.

We optimized timing of retirement of the higher interest to us that we reduced our largest maturity tower by half, and we lowered our WTI breakeven while strengthening the resilience of our balance sheet.

This was a win-win for both Suncor shareholders and bondholders, allowing us to strategically delever the balance sheet to manage our 8 billion net debt target while providing liquidity to our bondholders.

Now that we've hit the 8 billion net debt target, you may still see our net debt move up and down from quarter to quarter around that number, driven by working capital movements that are a reflection of Suncor managing our business.

That said, you can rest assured we will be allocating at or near 100% of excess funds on an annual basis.

While managing these fluctuations and are committed to ensuring maximum return of cash to shareholders while prudently managing our business and balance sheet.

Now before handing back over to Rich, I will provide a brief overview of the financial and operating performance of the quarter, beginning with the business environment.

Crude oil prices came down during the quarter with WTI averaging U.S. $75 a barrel.

The light heavy differential steady at US. $14 a barrel and the synthetic premium decreasing by US dollar 50 a barrel, averaging a premium of $1.30 to WTI.

On the refining side, 2-1-1 Crack margins decreased, reflecting global supply demand.

However, our five two two one refining index remains strong at US $26.5 a barrel, which was $0.65 a barrel below Q2, driven primarily by lower benchmark cracks, offset by lower crude oil pricing.

Natural gas, a key input cost or operations also came down in the quarter, averaging $0.65 a GJ.

Now, as Rich has already gone through the operational performance in the quarter.

I won't go through it in detail other than to repeat that we saw a strong operating performance in the quarter.

As Rick said, this included 829,000 barrels per day of upstream production, 176,000 barrels a day from oil sands and 53,000 barrels a day from our E&P segment.

This was the best Q. three upstream volumetric performance in company history, including record Q3, up greater utilization and Firebag monthly records in the quarter.

Fort Hills was right on plan at 166,000 barrels per day.

And we remain very pleased with the progress of the asset and the focus of the Fort Hills team on delivering against that plan.

We also achieved 488,000 barrels per day of refining throughput and 105% refinery utilization in the downstream, which is our best quarter ever well, we saw a 612,000 barrels per day of refined product sales, also a quarterly record and 101% margin capture on a like-for-like basis when compared to our five to one refining index.

The Company continued its type cost focus with total O&G expenses of 3.1 billion in the quarter, which are down quarter over quarter, while production is significantly up again, as Rich pointed out, this is our operating leverage in a nutshell for CapEx as it was $1.5 billion, excluding capitalized interest in the quarter, which is down from last quarter, driven by less planned turnaround and maintenance activities across the business and is on plan for the year.

We continue to prudently invest in sustaining our integrated asset base, advancing key projects like Base Plant cogen project, the upgrader Coke upgrader, one Coke drone replacement project, Fort Hills North pit development in the Mildred Lake West mine expansion.

This record operational performance underpinned our strong quarterly financial results.

Despite the drop in crude price from Q2, we generated 3.8 billion and adjusted funds from operations or $2 and had operating earnings of 1.9 billion or $1.48 per share.

In the quarter, we returned 1.5 billion to our shareholders, including $690 million, dividends plus $790 million in share repurchases, while as I've already mentioned, hitting our net debt target.

Overall, the third quarter was a continued demonstration of the new Suncor's focus on delivery of the fundamentals of safety, operational reliability, cost and capital discipline and profitability, including strong financial returns for our shareholders.

And rest assured that the Suncor team is focused on finishing this year strong and carrying that momentum into 2025.

And with that, I'll hand it back over to you, Rich.

Thanks, Chris.

Before we continue on and on full year guidance, I don't have any new numbers for you today, but I'm going to lead that horse right up to the water third quarter, complete six weeks into the fourth upstream production.

We continue to track above the high end of our guidance for refining throughput.

We also continued to track above the high end of our guidance for the fine print sales.

Same message continues to track above the high end of our guidance, OS. and G. and CapEx.

We continue to track within or better than our guidance ranges.

I've repeatedly said today's Suncor is a improvement plans backed by a growing list of performance proof points and a clear comprehensive roadmap and determination to compete in.

We have during our May 21st Investor Day, I stated that with the plans that we had outlined at that time, we projected hitting are at or near $8 billion net target sometime midyear 2025.

I also stated that we were committed to do better than we would pull every lever to excel great achieving that target in the subsequent increase in buybacks.

Some of you have reminded me I went so far as just say that I couldn't think of a better Christmas present for our shareholders to achieve that target by year end (technical difficulty)