Earnings Call: Q1 2021

Apr 30, 2021

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the Imperial Oil First Quarter twenty twenty one Earnings Conference Call. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Mr. Dave Hughes, VP of Investor Relations. Thank you. Please go ahead. Thank you, Jeff, and good morning, everybody. Thanks for joining us on our first quarter earnings call. With me today is our senior management, and that includes Brad Corson, Chairman, President and CEO Dan Lyons, Senior Vice President of Finance and Administration Simon Younger, Senior Vice President of the Upstream John Wetmore, Vice President of the Downstream and Sherry Evers, Vice President of Commercial and Corporate Development. First thing I'm going to do is read the cautionary statement. Today's comments include reference to non GAAP financial measures. The definitions and reconciliations of these measures can be found in Attachment six of our most recent press release and available on our website with the link to this conference call. Today's comments may also contain forward looking information. Any forward looking information is not a guarantee of future performance, and actual future financial and operating results can differ materially depending on a number of factors and assumptions. Forward looking information and the risk factors and assumptions are described in further detail in our first quarter earnings press release that we issued this morning as well as our most recent Form 10 ks. All of those documents are available on SEDAR, EDGAR and on our website, so please refer to those. Usual format, we'll start out with Brad offering some opening remarks, then Dan will provide a financial update and then Brad again with an operational update. And after the opening remarks, we will move to the Q and A. So with that, I'll turn it over to Brad. Well, good morning, everybody, and welcome to our first quarter twenty twenty one earnings call. I hope each of you and your families are doing well and continuing to stay healthy. Now last time I spoke to you back in early February, we discussed what was a very challenging year for our industry, but one in which Imperial delivered very solid business results in the face of both the global pandemic and the associated economic challenges. I also noted Imperial's foundational improvements, including increased production capacity and a reduced cost structure. Over the past year, we have emphasized the priority that we were placing on making sure that we remained well positioned for the eventual recovery as we were taking steps to respond to the business environment. I'm pleased to tell you that the very positive note we ended 2020 on has continued through the first quarter of twenty twenty one, despite the continued challenges brought on by the pandemic. Over the next few minutes, Dan and I will detail the results of what was a very strong first quarter. So now let's talk about those first quarter results. Since we entered 2021, we have been facing lower than normal product demand, but have seen commodity prices and product margins strengthen. The improved market environment, coupled with our continued strong operational and cost performance resulted in us delivering our highest quarterly earnings since the third quarter of twenty nineteen and the highest first quarter since 2018. Earnings for the quarter were $392,000,000 an improvement of over $1,500,000,000 versus the fourth quarter. But recall that the fourth quarter results reflected an impairment of close to $1,200,000,000 related to our unconventional assets. Without this impairment, our earnings excluding identified items have still improved by over $360,000,000 versus the fourth quarter. I'd also highlight that all of our business lines all of the business lines delivered positive earnings this quarter, which is great to see. The first quarter also delivered significant cash flow from operating activities of over $1,000,000,000 reflecting strong operational performance, including the highest first quarter upstream production in thirty years and an ongoing focus on cost reductions and efficiencies. These efforts drove significant benefits in 2020, such as production and manufacturing expense reductions of around $1,000,000,000 And while not all of this was structural, we are committed to finding more efficiencies to offset those savings that weren't structural. And we're seeing this good progress on cost reductions continue into 2021. And to put that in perspective, our cash operating costs in the first quarter were almost $70,000,000 lower than in the first quarter of twenty twenty. We've talked a lot over the past year about our financial resilience, our operational strength, flexibility and integration. And I hope you will agree that our first quarter results are indicative of those strengths and provide a reason for confidence in the company's performance moving forward. Our continued strong operational performance and cash generation not only supported our ability to once again declare a dividend for the quarter, but to significantly increase that dividend. We have paid a dividend reliably for over one hundred consecutive years now and grown it each of the last twenty six years. This morning, we announced a dividend of $0.27 per share, which represents a $05 per share increase or close to 23% increase. Additionally, we announced an amendment to our current NCIB program to allow us to repurchase up to 4% of the outstanding shares of Imperial by the June 2021, so over the next two months. Last year, we were very proud of the fact that we were able to keep paying a stable, reliable dividend in a very tough time. Today's announcements just continue to underscore not just our strong financial position and our confidence in the future, but also clearly demonstrates our ongoing commitment to returning cash to our shareholders. I will now turn it over to Dan to go through our financial performance for the quarter in more detail. Thanks, Brad. Before getting into the numbers, I wanted to highlight, as Dave did at the very beginning, that we are releasing some added information this quarter, and this is by popular demand, I think, in fact, from a number of you on this call. This quarter, we began publishing five additional non GAAP measures. You'll find these in Attachment six at the back of the press release. The measures are cash flow from operating activities, excluding working capital free cash flow, net income excluding identified items, cash operating costs, unit cash costs for the upstream and by major upstream asset being Kearl, Cold Lake and Syncrude. We hope you'll find this added disclosure useful. We'll refer to these measures as appropriate going forward. Getting back to the numbers, our net income for the first quarter was $392,000,000 up $580,000,000 from the first quarter of twenty twenty or up almost $300,000,000 when looking at earnings excluding identified items. As Brad noted, looking sequentially, our first quarter net income of $392,000,000 is up just over $1,000,000,000 from the fourth quarter and earnings excluding identified items are up about $360,000,000 driven by improved results across all of our business lines. Looking at performance by business line, the Upstream recorded net income of $79,000,000 in the first quarter of twenty twenty one compared to a net loss of $1,192,000,000 dollars in the fourth quarter of twenty twenty. Again, excluding the noncash impairment charges of $1,171,000,000 dollars in the fourth quarter, we saw improved results of about $100,000,000 driven by higher realizations, partly offset by lower seasonal volumes. Turning to the Downstream. Downstream net income of $292,000,000 in the first quarter was up $186,000,000 compared to the fourth quarter's net income of $106,000,000 mainly driven by improved margins. Our Chemical business also demonstrated strong performance, earning $67,000,000 in the first quarter of twenty twenty one compared to $23,000,000 in the fourth quarter of twenty twenty, driven primarily by higher margins. Finally, before looking at cash flow, I wanted to mention that our financial statements for the quarter reflect the impact of the termination of agreements associated with the Keystone XL pipeline project. As a result of the termination of these agreements, we recognized a liability of $62,000,000 as of 03/31/2021, which resulted in an after tax charge of $47,000,000 to our first quarter twenty twenty one earnings. At the same time, there was a corresponding decrease in our long term commitments, reducing our other long term purchase agreements by $2,900,000,000 Looking at cash flow. Cash generated from operating activities was $1,045,000,000 in the first quarter, up $622,000,000 from the same period last year and up $729,000,000 from the fourth quarter. Our free cash flow in the first quarter was $898,000,000 up $783,000,000 from the first quarter of twenty twenty. Finally, with these strong cash flows, our cash on hand increased from about $800,000,000 at the end of the year to almost $1,500,000,000 at the end of the first quarter. Moving on to CapEx. Capital expenditures in the first quarter totaled $163,000,000 down $32,000,000 from the fourth quarter. Consistent with our previous guidance, we continue to expect capital expenditures of approximately $1,200,000,000 for 2021 with spending focused on the Inbit tailings project and debottlenecking and efficiency projects at Kearl, volume sustainment at Cold Lake and the Sarnia products pipeline in the downstream. Shifting to shareholder distributions. In the first quarter, we paid $162,000,000 in dividends at $0.22 per share compared to $164,000,000 in the first quarter of twenty twenty. As Brad noted earlier today, we announced the second quarter twenty twenty one dividend payable in July of $0.27 per share, an increase of $05 or nearly 23% from the first quarter. And as Brad also indicated, we plan to purchase up to 4% of our common shares outstanding over the next two months consistent with our robust free cash flow. At a share price of $34 this would represent up to about $1,000,000,000 in purchases commencing next Wednesday and finishing by 06/28/2021. Both of these actions are consistent with our strong financial performance, low capital requirements, confidence in the future and our long standing commitment to return cash to shareholders. Now I'll turn it back to Brad to discuss our operational performance. Thanks, Dan. I'll now take a few minutes to talk about operational performance in the first quarter. Upstream production averaged 432,000 oil equivalent barrels a day in the first quarter, which was up 13,000 barrels per day versus the first quarter of twenty twenty and represents our highest first quarter production in thirty years. This excellent performance was driven by continued strong production at all three of our major upstream assets, Kearl, Cold Lake and Syncrude. Production was down 28,000 oil equivalent barrels per day versus the fourth quarter of twenty twenty, in large part due to lower production at Kearl and Syncrude. This is typical and was expected as the first quarter can provide some real challenges due to winter weather, particularly in our mining operations. And while we did see a very mild start to the year, the typical Northern Alberta winter finally arrived in early February, but the impact was managed exceptionally well by our operations organizations. So now I'll talk in more detail about each asset, starting with Kearl. My commenting was for Kearl, and here we go again. I'm pleased to say that Kearl's strong performance continued through the first quarter In fact, it is the second best quarter ever at Kearl behind the fourth quarter of twenty twenty. This is especially notable given the first quarter is traditionally the lowest production quarter of the year given the challenges winter weather can introduce, as I just noted, and each month delivered record production. So just to be clear, it was a best ever January at Kearl, a best ever February, and a best ever March at Kearl, building on our best ever October, our best ever November and our best ever December that I reported last quarter. This is just a great start to the year for Kearl. And that positive momentum continues into April. April has also been a strong production month at Kearl, averaging over 270,000 barrels per day so far this month. However, as you are aware, we also have a planned turnaround on one of the trains in the second quarter. That is scheduled to begin in early May and lasting until the May. This is consistent with our past turnaround scheduling and is expected to have an estimated production impact of around 42,000 barrels per day in the quarter. That being said, with Kearl's strong performance year to date, we are well on track to achieve our previous guidance of 255,000 barrels per day for 2021. Now let's talk about Cold Lake. Cold Lake also delivered strong results in the first quarter with production averaging 140,000 barrels per day. This is up 4,000 barrels per day versus the fourth quarter and flat versus the first quarter of twenty twenty. This is the result of the ongoing steady and reliable operations at Cold Lake as well as some well optimizations that we've implemented. We have a relatively light turnaround schedule planned for the second quarter, which will cover some routine maintenance. And as such, we expect a minimal production impact in the quarter. Also of note in the quarter is the successful startup of our laser technology at the Cold Lake McKeesis plant. LASER stands for Liquid Addition to Steam for Enhanced Recovery. And is a technology developed by Imperial and first commercially deployed at our Cold Lake, Mahiken plant a few years ago. This is really exciting, but the use of solvent technologies is a key part of our commitment to reducing the greenhouse gas intensity at our operated oil sands facilities. This technology is expected to enable up to a 25% greenhouse gas intensity reduction at McKeesis and is a key part of our pathway to a net zero future. Imperial's share of Syncrude average production was 79,000 barrels per day in the first quarter, which was down 8,000 barrels per day versus the fourth quarter, but up 6,000 barrels per day versus the first quarter of twenty was again expected given the seasonality of the production, while the increase versus the first quarter of twenty twenty helps to highlight the improvements we have been seeing with respect to open. Now looking to the second quarter, Syncrude has a major planned turnaround that began in early April. The work is expected to last until mid June and involves taking one of the three cokers offline for routine maintenance after a normal run. The efforts are in service and were actually put to use in the first quarter, allowing Syncrude to produce an incremental 2,000 barrels per day Imperial share of Syncrude Sweet Premium or SSP from imported product. With respect to the status of the transfer of operatorship to Suncor, the agreement was finalized in the first quarter and the owners are expecting the transition to be complete by the end of the third quarter of this year. And again, we remain confident in the $300,000,000 of synergies this change is expected to deliver to the Partnership. Now let's move to the downstream. We refined an average of 364,000 barrels per day in the first quarter, which was up 5,000 barrels a day versus the fourth quarter, but down 19,000 barrels a day versus the first quarter of last year. Utilization in the quarter was 85%, which was flat versus fourth quarter and down from 91% in the first quarter of twenty twenty. The lower utilization versus the first quarter of last year is indicative of the ongoing demand softness we have been seeing since the outset of the pandemic. And as we continue to experience volatility in the lockdowns and reopening efforts, product demands continue to be variable and somewhat uncertain. Although it does appear that the vaccination program in Canada is gaining momentum now, which is quite positive. Looking to the second quarter, we have a planned maintenance turnaround at our Strathcona refinery that started in early April and is expected to run through the May. With a turnaround such as this, the entire facility does not get shut down, so the site is still able to produce at a reduced rate. We expect the impact to be around 80,000 barrels per day in the quarter or around an 18% impact on overall an But as is typical for downstream turnarounds, we're able to plan well in advance and minimize product supply impacts. So we would not expect to see a significant decrease in product sales even though we will see this lower utilization. 2021 is a fairly light turnaround year for our downstream, and the Strathcona turnaround represents the most significant one of the year. So having this behind us sets us up quite well for the potential demand recovery over the remainder of the year. Petroleum product sales in the first quarter were 414,000 barrels per day, roughly flat with the fourth quarter of twenty twenty, but down 48,000 barrels per day versus the first quarter of twenty twenty. Again, the year on year reduction is reflective of the impact the pandemic has had on fuel demands. As a reminder, on the fourth quarter call in February, I mentioned that in January, we were seeing industry demands more in the 70% to 75% of normal range for gasoline and 35% to 40% for jet, whereas diesel was close to historical levels. The rest of the quarter played out pretty consistent with those demand levels, with maybe the exception of a bit of strengthening on motor gasoline demand, which now sits around 80% of historical. Looking forward, we expect to continue to experience near term demand volatility as provincial and federal health care measures and travel restrictions evolve, but we remain confident in the broader recovery over time. Despite these volatile and challenging conditions, our downstream business continues to deliver very strong financial results with earnings of $292,000,000 in the quarter compared with $106,000,000 in the fourth quarter of twenty twenty. Even as demands continued to lag normal levels, we experienced some strengthening of margins compared to the fourth quarter, which contributed to another very profitable quarter for the downstream business. And our Chemical business delivered an impressive $67,000,000 in earnings in the first quarter, a significant increase of $44,000,000 versus the fourth quarter of twenty twenty and $46,000,000 higher than the first quarter of last year. This performance was driven by strong volumes and margins, some of which resulted from tightened supply in Texas. And while we continue to see some fairly healthy margins so far in the second quarter, we do expect these to return to more typical levels in the second half of twenty twenty one as Gulf Coast operations return to normal. So as we wrap up, I'd like to highlight just a couple of items, which are also noteworthy. First, Imperial recently released its updated corporate sustainability report. As you will see, this is a significant document that provides a lot of detail on what we view as the key dimensions of sustainability and how we are approaching the risks of climate change. Of particular note is the introduction of reporting Scope three emissions estimates and the actions we are taking to identify and progress viable pathways to net zero. The second item I want to mention is our Healthcare Heroes program. You may recall that back in 2020, at the outset of the pandemic, we donated $2,000,000 in free fuel to 80,000 health care workers across Canada. And in the first quarter of this year, essentially at the one year anniversary of the pandemic, we launched a similar second campaign donating an additional $2,500,000 in free fuel. This is our way of recognizing and thanking the many health care workers that have now been on the front lines of this pandemic for over a year. We are so grateful for their service. Dan mentioned the steps we are taking regarding shareholder returns. I just wanted to conclude by saying how pleased I am that the strength, the resilience and the confidence we have in our integrated business that collectively support our stated commitment to drive shareholder value and deliver meaningful returns to our shareholders. I believe this dividend, which by the way represents the largest increase in our history, coupled with the resumption of share buybacks, does just that. And finally, I'd like to once again thank our employees, our contractors and our business partners for their resilience, their determination and commitment to supporting us and working through what has been a very difficult time over the last twelve to fifteen months. They all play critical roles in Imperial's success. So with that, I'll turn it over to Dave for the Q and A session. Thank questions pre submitted. So I think we'll start with addressing questions from a couple of those analysts and then we'll move to the live Q and A line. So Brad, the first couple of questions come from Phil Gresh at JPMorgan. And I'll ask them both. They're both kind of related. Imperial guided to $1,500,000,000 of normalized Downstream and Chemicals cash flow from operations at Investor Day. What is the breakdown between the two segments? And do you think this normalized cash from ops is reasonable to expect in 2021? Thanks for your question, Phil. If you look at our average, looking back from 02/2009 to 2019, our downstream generated about $1,600,000,000 per year in cash flow from operating activities and chemicals was around another 200,000,000 So I would suggest this split can also be applied to the forward looking $1,500,000,000 average that we discussed at Investor Day. And now with respect to your second question, our company generated over $1,000,000,000 in cash from operating activities in the first quarter and our downstream and chemicals business combined for about half of that amount. So that gets us about a third of the way to the $1,500,000,000 we referenced at Investor Day. So it's certainly possible to reach it given our full year utilization guidance of 89% and continued increase in vaccination rates. But admittedly, there's still some uncertainty. But on balance, we remain confident with those targets. Now notwithstanding demand impacts, our downstream and chemical business continues to benefit from structural advantages in Canada that support ongoing profitability. So we're still comfortable with that guidance we've provided. I hope that answers your question, Phil. Okay. Next from Will Lacey at ATB. With the increased focus on carbon by government investors, have you quantified the potential cost implications to the base business under the proposed carbon pricing mechanism, specifically at $170 a tonne? Yes. Thanks for that question, Will. First, I just want to highlight that Imperial supports an economy wide carbon tax and has long operated in jurisdictions with carbon pricing. So we've actually been incorporating the cost of carbon emissions in our plans for a while now. We believe a stable carbon pricing policy provides certainty to our industry but also accelerates innovation, technology and investment and really can play to our strength and technological leadership as we continue to work on pathways to net zero. We are quite well positioned to operate and compete in a low carbon future. So thanks for that question. So a bit of a kind of a follow-up on that one is further, with discussion of the proposed tax incentives that the federal government discussed regarding carbon capture utilization and storage. How may this influence your thoughts on capital related to this? Have you discussed this in more detail with ExxonMobil and their global initiatives? Thanks for that follow-up question, Will. In its recent budget, the federal government announced a substantial funding program for carbon capture and storage, a technology that we view as integral to enabling net zero emissions. There's still a lot to be defined in those budget details, but we very much look forward to working with the federal government and also along with the government of Alberta and our industry colleagues on the best design for that program in the coming months. But this is an encouraging step to support industry efforts to advance technology to reduce greenhouse gas emissions. And Imperial is well positioned, as I noted earlier, to capture those opportunities arising from energy transition. And with regard to ExxonMobil, as you may be aware, ExxonMobil announced in February 2021 that they have created a new business to commercialize its extensive low carbon technology portfolio. That business called ExxonMobil Low Carbon Solutions will initially focus on carbon capture and storage, one of the critical technologies required to achieve net zero emissions and the climate goals outlined in the Paris Agreement. And through Imperial's relationship with ExxonMobil, we have access to industry leading technologies. And as we develop pathways to support net zero future, we will certainly be leveraging that relationship and access from ExxonMobil. We truly believe that technology is critical to enable production growth and emission reduction, and we are exploring those next generation technologies, which when paired with carbon capture and storage could result in incremental production with net zero emissions. So it's our view that CCS has the potential to be even more commercially viable through the convergence of advanced technologies, but also with supportive Canadian policy. So thanks for that question. And Brad, we had just one final one from Will, and then we'll go over to the live Q and A. Any comments on the implications for operations as a result of the COVID challenges in the Wood Buffalo region? Yes. I'm glad you asked that question. And first, I would just point out how how very unfortunate the situation is, in the Wood Buffalo region, and, you know, our thoughts and prayers go out to all those individuals affected. Our focus has always been continues to be, first and foremost, the health and safety of our workforce and the communities in which we operate. We've been maintaining our strict site protocols to prevent the risk of transmission of COVID-nineteen, and we continue to follow all the government and health authority guidance. You heard me comment on Syncrude operations earlier in the call already. But in regards to Kearl, and certainly acknowledging that there is an escalating situation in the Oil Sands region around Fort McMurray, we have been successfully managing and really mitigating the transmission so far without any impact to our operations and no impact to our turnaround plans at this time. The plans that we are progressing were developed with full consideration for COVID safety precautions. And I would point out that we've been applying learnings from safely executing turnarounds in 2020. And we're not only leveraging those at Kearl, but I also mentioned the Strathcona turnaround. One addition of note, though, relative to our turnarounds last year, we've now deployed rapid COVID testing for our workforce prior to them boarding planes and buses used to travel to site. So this gives us one other mechanism to identify and manage any potential transmission of COVID. So there have been no impacts, again, to our operations at Kearl and no impact to our current schedule for the upcoming turnaround. But we're going to continue to monitor that situation and adjust our plans as needed. Okay. Operator, can we go over to the live Q and A line now, please? Certainly. Your first question comes from the line of Greg Pardy from RBC Capital Markets. Your line is open. Hey, thank you. Thanks and good morning, everybody. I guess first off, just thanks for the enhanced disclosure. We're definitely looking for that. So that's a great step forward. A couple of questions. I guess the first one is just on a buyback. Is there an almost asked this in the negative. Is there any reason not to assume that you'd, a, renew the buyback post June 29? And secondly, think about repurchasing a similar order of magnitude shares of, like, call it, 5% or so? Just trying to get just trying to better understand your thinking from that perspective. Yes. Thanks for the question, Greg. And first, I appreciate your recognition of the disclosures that we've added. As Dan pointed out, that has been in direct response to the feedback we've heard from you and many analysts. So pleased that we could take those steps to support your request there. In terms of the buyback and our strategy going forward, as both Dan and I commented, we find ourselves a very strong financial position, very much driven by kind of the underlying quality of our assets, the strong kind of fundamentals associated with those and especially the improvements we've made over the last year in production capacity, in operating expenses. And when you take that combined with the strength we've seen in the commodity market, that puts us in a favorable position with very strong cash flow generation. And as we said at Investor Day, and I've repeated on many occasions, we are very committed to returning cash to our shareholders. And that underpinned our announcements today around a very material increase in our dividend and amending the share buyback program from last year for up to 4%, which I think is something like $290,000,000 shares just over the next two months. Yes, 29,400,000.0. I'm sorry, 29, right. And so that is with share buybacks even after this current program expires. Okay, that's helpful. And the second question is a little bit jumbled, I'm going to ask you. But if you look at the Imperial model pre Kearl sanctioning back in 02/2009, it was limited CapEx, buybacks as you just framed and dividend growth. And what I'm wondering is essentially is that has that model now come full circle? Or when signals are appropriate, is there scope to resume upstream growth? I'm just trying to get an understanding of how you're sort of thinking about reinvesting in the business versus distributions. Yes. Well, it's a good question. And I think it does build on some of our discussions at Investor Day where we highlighted that our priority focus in the near term is maximizing value from our existing assets. And, you know, that's why we have been so, you know, laser focused on improving reliability, improving production capacity, reducing operating expenses, applying capital discipline. All those things are allowing us to generate significant value. But I'd also point out that integral there to is that capacity growth. And if you take Kearl as an example, you know, prior to implementing the supplemental crushers, you know, we were at volumes, at or below 200,000 barrels a day. You know, last year, saw an increase, you know, substantially, above that. This year, we're now indicating 255,000 barrels a day. We we have a pathway to 280. So, you know, over just a few years' time, we will grow production, from 200 to 280,000 barrels a day. So an 80,000 barrel a day increase, which, you know, is is on par to, to several growth opportunities in our portfolio, like Aspen, I think, was was targeted at about 75,000 barrels a day. So we are achieving similar growth, but at a much lower cost, and that's delivering significant value. So, you know, we wanna make sure, we we progress that strategy and and maximize the value from it. We were we will continue to look for growth opportunities, giving priority to those, you know, that generate the highest return. And and we do see continued debottlenecking opportunities at at Kearl and other sites. Longer term, we we will continue to revisit broader growth strategies, you know, as we look at as we look at the market, as we look at, you know, other other considerations with, supportive government policy, you know, competitiveness, all those things. We we have a deep inventory, as you know, with projects like Aspen and others. And we always keep an eye to, you know, m and a opportunities as well, should we see some particularly unique strategic accretive opportunities there. Your next question comes from the line of Neil Mehta from Goldman Sachs. Your line is open. Hi, good morning. This is Carly Davenport on for Neil. Congrats on a good quarter. The first question was just around the downstream. You highlighted reduced demand due to COVID as driving the sequentially lower sales during the quarter. So can you just talk about your outlook for the demand recovery in Canada? Maybe what you're seeing real time on the ground and then if there are any key milestones to look out for there? Yes. Thanks for the question, Carly. I would frame that response by really pointing to the volatility that that we've been seeing. You know, and I I noted some of the the the current demands that that we're seeing. You know, we're the diesel demand is mostly in line with where we were back pre pandemic levels. But we still see a softening in gasoline, motor gasoline, you know, currently in the 80% of normal demand. And that's very much reflective of just, you know, personal mobility, around the country, which has been very impacted by this third wave of COVID cases across all the country. And so that is having an impact. And then, you know, most severely impacted has been jet fuel demand, which is currently only 35% to 40% of normal levels. And I contrast what we're seeing in The U. S. Is I mean, in Canada, starkly different than The U. S. You know, in in The US, personal mobility is is, in many cases, returning to more normal levels. There's a lot of domestic travel, in in the airports in The US. But in Canada, a very different situation, with with COVID, because of this third wave, reintroducing reintroduction of restrictions, in many of the provinces, All of that is restricting mobility and impacting demand. We do expect that demand will recover as the year progresses. Canada is actively progressing vaccination campaigns across the country. We see the momentum picking up, and and we believe that coupled with, you know, good behaviors and restrictions will allow those COVID cases to, significantly reduce over time, allowing mobility to resume, to more, typical levels, and and and that will allow demand to grow again, you know, back to pre pandemic levels, especially motor gasoline. Jet demand will probably take even longer, you know, depending on kinda how businesses react and how business travel returns for long haul flights. So so continued, I think, volatility, continued uncertainty, but, you know, we do see a pathway for demand recovery over time as the year progresses. Great. That's helpful context. And then the follow-up is just a housekeeping item. When we were looking at the cash flow for the quarter, it looks like cash flow statement shows $125,000,000 inflow from kind of other items. Could you just walk through what items are reflected there? Yes, thanks for that. I'm going to let Dan answer that question. Yes, Carly. This quarter, kind of what I talked about earlier with these non GAAP measures, including cash flow from operating activities, excluding working capital. In the past, our press release and the attachments, we've sort of lumped working capital and some other things together. And this quarter, start going forward, we split them out and put working capital on a separate line because obviously working capital is quite volatile, it can swing a lot quarter to quarter. The other items or other things that flow through the income statement that are non cash. I mean, a good example would be pension related expenses that we run through net income, but So that's an example of what's in that other line. But there's a number of items in there, there are obviously things that run through income that aren't cash that aren't working capital. We fought working capital based on feedback we've gotten, folks want to call it out separately. So that's what we've done. Great. Thanks for taking the questions. Your next question comes from the line of Menno Hulshof from TD Securities. Your line is open. Thanks for taking my question and good morning everyone. I just have one. You touched on the laser project at Cold Lake, but could you just elaborate on where things stand operationally and what the next couple of years could look like for laser specifically? And I guess my follow-up there would be whether there is anything that could drive your 25% intensity reduction target higher over time? Yes. Thanks for that question, Menno. As I mentioned on the call, we have now started up laser at McKeesis. We're quite excited about That's been a multiyear initiative for us, as I mentioned, previously deployed at Mohican. Now McKeesis, it's part of our cyclic steam cycling program. So it takes multiple years to achieve kind of full benefits from it. And so over that period, we're going to continue to evaluate its effectiveness. We're going to continue to look for further deployment opportunities. And that gives us line of sight to what's the optimum application for laser. But equally important is the fact that we're continuing to develop and look for application of other solvent technologies that also provide the potential for not just up to 25% reduction in greenhouse gas intensity, But some technologies we're looking at could achieve up to 90% reduction. So again, this is very much kind of an evolving effort by our technologists, but also our operations teams to take all the steps we can to further reduce greenhouse gas intensity. We've achieved, as you may be aware, already 20% reduction in our greenhouse gas intensity since 2013. And we have a stated objective, a commitment, to reduce our greenhouse gas intensity by another 10% by 2023. And as I mentioned, we're continuing to look for what are the further steps even beyond that, that ultimately allow us to progress a net zero pathway. Thanks a lot, Brian. Thanks, Benno. Your next question comes from the line of Chris Tillett from Barclays. Your line is open. Hi, guys. Good morning. Thanks for taking my call. I guess, first for me would be on the cost breakout for the upstream assets. Are you able to provide any color, I guess, specifically at Kearl, how much of that looks like $35,000,000 year over year is what you would classify as sustainable or just otherwise due to operational changes? Yes. Thanks for the question, Greg. I don't have that detail in front of me. But what I would tell you about Kearl's expenses, of of course, we see, you know, some, seasonality in those costs, you know, as as I mentioned, due to weather considerations. And, you know, as we move into the second quarter, there'll there'll be turnaround considerations. So, you know, you'll see some volatility from from quarter to quarter in those, in those asset level metrics. But I think most importantly is to talk about the pathway that we're on for significant reductions in Kearl's operating costs. You know, over over the the last, you go back to twenty nineteen, Kearl's unit operating costs were around $28 per barrel, on a US all in basis. We've made significant improvements in that last year, driving it down to something in the $22 range. And what we laid out at investor day was a commitment and a plan to achieve $20 a barrel this year. So, you know, whereas you may see some some noise in those numbers from quarter to quarter, what's most important is the pathway we're on and the commitment we've made to achieve $20, annual average for this year. Okay. And I guess maybe just to clarify, you do expect that 20 to be an annual average and not just sort of a benchmark you might hit by the end of the year? Correct. Annual average. Got it. Okay. Thanks for that. And then maybe just turning downstream for a second here. Thanks for the commentary thus far on outage at Strathcona. I guess just in terms of the product sales there that are occurring while the asset is under maintenance, from a mix perspective, how much of that is already locked in? Or I guess in other words, is it fair to assume that the product mix there during the maintenance period will be similar to sort of what we've seen through the first quarter so far? Well, I commented, one of the advantages of kind of our downstream kind of program is we plan these turnarounds many months in advance. And through that, we will build inventory that will allow us to maintain our product supply commitments because those relationships are critically important to us. And so in the case of Strathcona, we've taken those same steps hence, we'll be able to fulfill all our supply commitments. I don't have readily available how much of that is already locked in versus might be variable and opportunistic in nature. But I think largely, it's going to follow a pattern you've seen in the past. So kind of looking to this quarter and last year. Yes. Okay. And then just last for me. I appreciate all the commentary from a prior question in reference to buybacks. I guess, would just be curious to hear your thoughts or understand where your heads are at in terms of to the extent that there may or may not be secondary offering coming, is that something that Imperial may be interested in? Or would the preference be more sort of open market purchases? Dan, do you want to comment on that? Yes. Look, open market purchases through the NCIB are our go to move. It's a very efficient way to repurchase shares. But look, prices are strong, they could get stronger. So obviously, our intentions, as we've said for a long time, are to return surplus cash to shareholders. We have a reliable and growing dividend. Beyond that, share buyback is the next tool. So to the extent the NCIB is tapped out, we'll if we're in that situation and the cash flows are strong, we'll certainly look at other options. Understood. Okay. Very helpful, Thank you very much. Thank you. There are no more questions at this time. Presenters, you may continue. Okay. Thank you, operator. We did have two more questions pre submitted that I guess we can wrap up with. They came from Manav Gupta at Credit Suisse. Now Manav's first question is with respect to refined product demand in Canada. Brad, I think you answered that question in response to Carly Davenport's question a few minutes ago. So maybe we will just wrap up with Manav's second question. There is gain some noise on Enbridge Line 5. Do you think the line can continue to operate? Yes. Well, that's a good question, Manav. And I know it's something we've talked about on prior occasions. Obviously, it's a situation we're watching very closely. Line 5 is a critical piece of infrastructure, kind of the entire Ontario Eastern Region of Canada, but also with implications to The US. Specifically for Imperial, you know, we we moved crude, to Sarnia and Anticoke, through that line. I think as I I mentioned, on the last call, we have put contingency plans in place to address a scenario of a line five shutdown, and and we continue to refresh those scenarios. But, I would say, and most importantly, we we consider that to be a low probability. You know, that that infrastructure is is so critical. And when you look at, you know, the the underlying, kind of legal case around shutting it down, you know, we we just don't see that that it's supportable. And, you know, we we think kinda cooler minds will prevail, and, and that line will stay in service. You know, we're quite pleased to see that, the Canadian government has recognized the value of that line and are clearly, engaging with governmental, kind of counterparts in The US, to ensure that that supply security is maintained. So again, we view it as a low probability. But should it happen, we will be prepared. All right. Well, that's it for the questions. So I guess on that note, on behalf of the management team here with us, I'd like to thank everybody for joining us this morning. As always, if you have any further questions or want to have any follow-up discussions, please don't hesitate to reach out to the IR team here. And with that, I wish everybody a good weekend and stay safe. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.