Ladies and gentlemen, thank you for standing by and welcome to the Suncor Energy fourth quarter 2019 financial results call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Trevor Bell, Vice President, Investor Relations. Please go ahead.
Thank you, operator, and good morning. Welcome to Suncor's fourth quarter earnings call. With me this morning are Mark Little, President, Chief Executive Officer, and Alister Cowan, Chief Financial Officer. Please note that today's comments could 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 fourth quarter earnings release, as well as in our annual information return. Both of those are available on SEDAR, EDGAR, and our website, suncor.com. Certain financial measures referred to in these comments are not prescribed by Canadian GAAP. For a description of these financial measures, please see our fourth quarter's earnings release. Following formal remarks, we'll open the call up to questions. Now I'll hand it over to Mark Little for his comments.
Good morning, everybody, and thanks for joining us today. Even though the commodity market continued to be volatile in 2019, Suncor generated quarterly funds from operations of CAD 2.6 billion and ended the year with CAD 10.8 billion of funds from operations, a new annual record, even with WTI down nearly 12% year-over-year. The last two years demonstrate the resilience of Suncor's business. 2018 highlighted the strength of our integrated model through market volatility, while 2019 built upon this foundation by focusing on value over volume as we operated in a production-curtailed environment. For the second year in a row, we generated annual funds from operations in excess of CAD 10 billion. We continue to deliver on our commitment to increase shareholder returns. Suncor returned CAD 1.1 billion in the fourth quarter and CAD 4.9 billion in 2019 in dividends and share repurchases to shareholders.
This represents approximately 45% of our annual funds from operations. With our board approving an 11% increase in our dividend, 2020 will be the 18th consecutive year of dividend increases. The dividend increase is supported by our strategy to grow the structural cash flow of our business by CAD 2 billion annually by 2023, and our board has also extended the share buyback program by up to CAD 2 billion over the next 12 months. Now, moving to operations. Across our oil sands assets on a full-year basis, we recorded the highest SCO volumes in the company's history, which generated an additional CAD 800 million of additional funds flow for Suncor relative to 2018.
This is a result of our strategy to maximize value at Base Plant and at Syncrude, as well as improved reliability at Syncrude. 2019 was the third-best upgrading utilization at Base Plant in our history. Year-over-year production volumes were relatively flat. There was approximately a 12% increase in SCO production. This has put pressure on our 2019 production volumes and cost per barrel metrics, the result of this strategy is higher margins and cash flow. At Syncrude, we marked the second-best annual production in the asset's history, which is quite something when you consider that it was in a year where mandatory production curtailments impacted the operations. This performance supports our multi-year journey to 90% utilization and CAD 30 per barrel cost at Syncrude. Syncrude has had its own challenges, we're encouraged by the progress that Syncrude has made in 2019.
Fort Hills continued to be curtailed during the quarter, which restricted its performance and its potential to 88,000 bpd , thereby increasing the cash cost per barrel metric. Offshore assets had a solid quarter with 116,000 bpd of production. Hibernia returned to normal operating levels, while Hebron and Oda both continued to ramp up, partially offset by natural declines in the U.K. North Sea. 2019 marks a new annual record for downstream funds from operations of CAD 3.9 billion. In fact, Q4 2019 marks the 10th consecutive quarter with funds in excess of CAD 750 million. Refinery operating expenditures continue to remain low at CAD 5 per bbl, reflecting our focus on costs. Despite all that, we had two issues in the quarter. As most of you are aware, on December 19th, we were notified by the regulator in Newfoundland and Labrador to shut in Terra Nova.
This is a regulatory issue, and we are working diligently with the regulator to get the issues satisfactorily resolved, and only when that occurs do we expect the asset to return to operations. I'll remind everyone that our value of safety above all else, it's foundational to everything we do at Suncor, and at no time did we operate unsafely. We did have an operational issue in the quarter related to MacKay River, which is disappointing. The facility has been out of service most of December and is currently shut in for repairs. In light of the continued mandatory production curtailments in Alberta, the downtime is anticipated to have no material impact on our 2020 guidance. With that, I'll pass it along to Alister to provide some additional financial context, including an overview of the impairment that we took in the quarter.
Thanks, Mark. As you previously highlighted, Suncor was able to generate CAD 2.6 billion of funds from operations in the quarter, despite the impact of continued mandatory production curtailment and planned maintenance downtime. These results demonstrate the strength of our integration and flexibility within our business model. During the fourth quarter, price realizations in oil sands were lower than the third quarter as differentials widened. However, our integration mitigated the majority of such price volatility. Our production and cash costs per barrel across oil sands were impacted by mandatory production curtailments, our focus on high-cost, yet higher-value synthetic oil production, and increasing natural gas prices in the quarter. With the expected removal of curtailment in 2020 and its impact on how we operate our assets, you can expect us to remain focused on driving down costs throughout our business.
Due to the decline in our forecasted heavy crude oil pricing and the increase in the capital cost estimate for the West White Rose project, we recorded non-cash asset impairments in the fourth quarter for Fort Hills and White Rose of CAD 2.8 billion and CAD 400 million after-tax, respectively. These assets continue to perform operationally and deliver free cash flow. We executed on our share buyback program during the quarter, spending approximately CAD 450 million to repurchase 11.1 million shares. As Mark said, in 2019, we returned CAD 4.9 billion to shareholders, including CAD 2.3 billion in share buybacks, repurchasing 3.5% of our outstanding shares at an average price of CAD 41 per share. For the full year, our dividend and buyback program equated to a total shareholder return of nearly 8% using an average share price for the year.
With a strong balance sheet, which includes over CAD 400 million of debt reduction in 2019, we continue to focus on increasing shareholder returns, as evidenced by the 11% dividend increase and the extension of the buyback program, as Mark mentioned earlier. It's important to highlight the strength of our shareholder returns. Over the last three years, we have returned approximately CAD 14 billion to our shareholders. This amounts to cumulative returns of CAD 9 per share or approximately 20% of our current share price. These returns are reflective of our strong financial position, no near-term requirement to pay down debt, and the resilience of our free funds flow. As we look forward, the combination of this foundation and the CAD 2 billion increase in funds flow goal will set up the company to generate tremendous value and increase shareholder returns for years to come.
Mark, I'm going to turn it back to you for some closing comments.
Perfect. Thanks, Alister. As you would expect, in line with our capital discipline principles, we're carefully evaluating future projects. We take into account the current environment of volatile commodity prices, market access challenges, and government intervention into crude markets. While at the same time, we're making progress on new technology developments, which has the potential to significantly reduce capital and operating costs, greenhouse gas emissions, and water use. With these factors in mind, we have decided and identified a number of opportunities to debottleneck Firebag, including the completion of our emulsions handling project this year, an integrated well pad development program, and expanding our solvent SAGD program. Our near-term expectation is to have actual Firebag annual production at nameplate capacity of 203,000 bbl/day in 2021, assuming no production curtailment.
We have the potential to add another 20,000- 30,000 bbl a day of lower capital intensity production by the time we get to 2024 and 2025. Some of this is in execution and some of it is still being scoped. As a result of this opportunity, we will defer Meadow Creek in-situ replication sanctioning until 2023 at the earliest. For downstream, given project economics and the deferral of significant bitumen production growth, we have decided to no longer progress the coker project at Montreal Refinery. That said, we continue to look at alternative lower capital investments across our refineries to support our integration strategy.
Lastly, we expect to file a regulatory application in Q1 for the Base Mine extension to potentially replace our Base Plant mines as they reach their end of life around 2035. I want to emphasize, this application is not a project sanction and understand that the Base Mine extension is only one of many options under consideration with a final sanctioning decision approximately one decade away. We feel that filing in 2020 is prudent under the current regulatory process, including the effects of the new Impact Assessment Act, to ensure adequate time is provided for the regulatory process. Should we choose to extend the mine, the plan is expected to incorporate non-aqueous extraction technology, which significantly reduces the cost and environmental impacts of mining oil sands versus our current operations.
If sanctioned, the extension would significantly contribute to our commitment to reduce the emissions from our operations, and it's in line with Canada's global commitments and takes advantage of Canada's important strategic resource. These decisions continue to advance our strategic priorities while demonstrating capital discipline and a deliberate approach to maximize shareholder returns from each of our investments. Looking at the year ahead, we will remain focused on safety and reliably operating our assets. We will execute our plans to grow our free cash flow by CAD 2 billion annually by 2023 while continuing to make progress on our ESG targets.
Our 2020 plans include completing deployment of autonomous haul trucks at Fort Hills, beginning construction of the cogeneration unit at Base Plant, continued deployment of our past tailings management technology, optimizing our supply and trading organization, and completing the Suncor and Syncrude long-awaited interconnecting pipeline in the H2 of 2020. As part of our digital strategy, we have completed the planning for a data-enabled enterprise-wide processes that will improve the effectiveness and efficiency of our business. We expect this program to deliver approximately CAD 250 million in annual benefits at a cost of approximately CAD 450 million, which is included in our capital guidance. Sanctioned projects, along with this initiative, currently represent approximately CAD 1.5 billion or 75% of the CAD 2 billion 2023 funds flow goal. We understand the need to provide more clarity on our commitment to achieve our CAD 2 billion target.
To accomplish this, we will host an investor showcase in Toronto on May 20th to highlight the details and focus on our ESG targets and performance. More information will follow on this half-day event. As we move into the new decade, I'm excited and optimistic about the future we're building at Suncor. We are focused on what is necessary for us to be profitable, resilient, and relevant over the long term. We're making investments in high-return projects in the core of our business, which will increase our cash flow in a sustained way without being dependent on oil prices or egress. Our history of counter-cyclical investments have funded large and increasing shareholders' returns, as demonstrated by our 11% dividend increase and our extension of the CAD 2 billion buyback program this year.
While at the same time, we're continuing our multi-decade history of being a leader in ESG and deepening our relationships with the Indigenous and non-Indigenous communities where we operate. With that, I hope you can appreciate why I'm optimistic about entering this new decade. With that, I'll turn it over to Trevor.
Great. Thank you, Mark and Alister. I'll turn the call back to the operator to take questions, first from the analyst community and then if time permits, from the media. Over to you, operator.
Thank you. As a reminder, to ask a question, you will need to press star then one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Neil Mehta with Goldman Sachs. Your line is now open.
Good morning, team. Thanks for taking the question. The kickoff question I have for you is your CapEx range for 2020 is CAD 5.4 billion-CAD 6 billion. It's a wide fairway. In light of the lower commodity price environment we find ourselves in today, do you think there's a scenario where you could be on the lower end of that range? As it relates to CapEx, you made some comments around West White Rose. Anything you can provide around that would be helpful as well.
Thanks, Neil. Appreciate the question. There's no question that we're going to be looking at all aspects of the business around cash generation, operating costs, capital, and such. That said, a lot of these, like the cogen project and the wind project and many of these projects we're in the middle of execution, we're committed. One thing we do know is to drive shareholder value, we need to stay the course. One of the joys we have is a strong balance sheet to be able to allow us to, when we initiate a project, follow it through. Shutting these projects down to conserve cash, although if you go back in our history, we did that a decade ago and suffered the consequences associated with it. One of the things is we'll be looking to manage any discretionary investments and such associated with it.
We will be looking at our cost structure and looking at maximizing cash flow, of course. We don't expect it to be fundamentally different. I would expect you're still going to see us in the declared range. The fairway that you described is consistent with how we've done our capital forecast in the past. Last year, if you recall, we ended up lowering the upper end of our capital range from five six to five four in the second quarter, and then came in at the higher end of the modified range. We'll look for opportunities to do the same thing as we go through 2020.
Perfect. Oh, sorry, go ahead.
Sorry. White Rose. I think, as we've said before, one of the challenges we had is we were not happy with how this project was getting executed. I think in the last quarter, I said that although this was overspending, this was not what we would consider normal overspending, and so there was a substantial move outside of what we viewed was a reasonable range for project execution. That's a key factor in driving the impairment on White Rose. That said, we believe the operator has intervened and been able to put together a project execution plan that we believe in, and that this project is on track to get finished up based on the estimates and stuff that we've put in place. All of that was factored into how we positioned White Rose and the impairment that we took.
The follow-up is, you're talking about a path to higher production of Firebag and walking away from the Montreal coker. One of the things that's made Suncor more defensive and differentiate over time is the degree of portfolio integration. So just talk about the importance of integration to Suncor and how you manage that on a go-forward basis.
Well, it's interesting because we've talked about our range of integration and such, and we're sitting within that range. We're in the low 70s now around the amount of volume that we have integrated into the portfolio. One of the reasons that we were looking at some of the bigger integration steps, like Montreal, that would take 40,000-50,000 bbl a day of bitumen into Montreal was the fact that we had a substantial investment program coming around replication. With pushing that out, we think that shutting down the coker project, we don't view this as a temporary step. We see this as a permanent step in Montreal, looking at all the various factors there. We have other opportunities to integrate barrels, so we'll continue to work it. These are enhancements around the integration, the range we find ourselves in, where we are right now.
We're very happy with how that's playing out and where we're positioned in it.
All right, guys. Thanks so much.
Thank you. Our next question comes from the line of Greg Pardy with RBC Capital Markets. Your line is now open.
Yeah, thanks. Good morning. Mark, your Base Mine RLI has kind of come up as a question of late, so I'm glad you addressed that. It's also been seen as kind of a motivating factor to potentially acquire, and MEG has kind of come up in that mix. Could you maybe just elaborate a bit more on the game plan you've got in terms of resource runway, and then just how acquisitions may or may not fit into that strategy?
Yeah. It's interesting. One thing I will tell you is if we're going into acquisition, it won't be for resource. We have an enormous amount of resource that if you take all our contingent resource, we have, at current production rates, about 100 years of resource. The reason that we would look at acquisitions is really for three key reasons. One is a top-quality resource and cost structure that would be better than actually building something. Secondly, there would have to be synergies associated with it. Thirdly, and I think we've proven this in the actions and investments that we've taken, is we need to ensure and feel very comfortable we're going to get a solid return for our shareholders.
Resource, like when we look at the resource to put behind it, we have a lot of resource, and the resource we have is right within proximity to our upgrading complex, which is what's fed by the mine today. If you look at it relative to the cost of the other options and stuff on the street, we view that buying resource through M&A right now is very expensive, and it's one of the reasons that people have asked us for quite some time about whether in Fort Hills or Syncrude and such, and transactions literally have been rumored for years, and nothing's ever happened. It's just a difference between valuation and how we look at it.
Our plan right now is, we think especially with the technology advancements that we're making, both in the in- situ side as well as in the mining side, we think that it's going to be far better for our shareholders to pursue the path that we're on, at least at this stage.
Okay, great. You talked about essentially debottlenecking Firebag. I haven't heard about Firebag 5 or 6 for some years now. Is that going to use solvent-aided SAGD then essentially, and would that be just one incremental phase of 20,000 or 30,000? How firm are you on doing that?
Well, it's interesting, Greg. I'm glad you asked that question because I think maybe one of the things I didn't describe well is both in the mine replacement as well as at Firebag, we're leveraging a lot of the existing assets that are on the ground. It's not like what we did at Fort Hills, where you're building a fully independent mine at grassroots cost. We can leverage a lot of the existing assets from energy utilities, infrastructure, tankage, and even some of the extraction facilities associated with it. It's very different than what we did at Fort Hills in the mine. At Firebag, we're not talking about Firebag 5 and 6. Those would be grassroots investment where most of the infrastructure. Yes, we'd get a little bit on utilities and tanks and infrastructure, but those were independent builds.
What we're really talking about is enhancing the performance of the first four phases of Firebag through debottlenecking the facilities and those sorts of things. One of the things we're doing right now is improving the water handling capacity at Firebag, as an example. This would be substantially lower cost than what we would do if we were building Firebag 5 or 6.
Okay. It's firm or it's not firm that you'll go ahead with that?
Well, we feel very optimistic that we're going to make this work. Some of this activity is underway. It's one of the reasons in 2021 we'll see our volumes creep up. I think what we will see ultimately, and we need to get a firmer plan in place, but you'll see our volumes start to drift up over time until we get into 2024, 2025, where you'll see the final steps up where we think we can get up to 230,000- 240,000 bbl a day. That's actually the path that we're on right now. Some of it is firm, some of it is still being scoped and worked, but we're optimistic enough that we pushed out the replication strategy because we think that we'll be able to do it a lot more economically for the shareholder at a lot lower cost.
Obviously we would want to do that before we spend grassroots to grow volumes.
Okay. Last one for me, if you'll accommodate. Is you got a lot of stuff going on. What's the max CapEx we should be thinking about between kind of 2021-2024, just like an annual basis? Are you going to be through a CAD 6 billion or CAD 6.25 billion number, or the number's going to be generally at or south of that?
We don't give multi-year guidance, Greg.
Yeah, that would be fun, Mark.
I know it would be. I know, and I'm sure I'll get the question three more times to see if we mess it up. I think if you look out though, the range that we're in this year is kind of where we expect to be in the year ahead, and I think it's a good proxy for how we move forward. Obviously, I think that a lot of the concern comes out around, oh, you take what we're doing and then you add on top of it replication, then you add on top of it the coker, then all of this stuff, and people go, "Wow, this isn't affordable." It's true. We have to make some decisions, and some of which I communicated this morning.
Okay, terrific. Thanks all.
Thanks, Greg.
Thank you. Our next question comes from the line of Dennis Fong with Canaccord Genuity. Your line is now open.
Hi, good morning, and thanks for taking my questions. The first one just maybe falls along lines of what Neil was kind of maybe hinting at there. You essentially moved away from the Montreal Coker Project. Is there still consideration around the Edmonton potential debottlenecking and so forth around Strathcona? How should I be thinking about that, obviously, from a context of if there is some optionality around mine life plan and the extension around Base Mine and potentially introducing, we'll call it, in situ volumes as a potential replacement for some of the component out of the mine, then obviously the level of integration isn't as required as much on a go-forward basis. How should I be thinking about kind of Edmonton and how that plays into that construct? I've got a follow-up. Thanks.
Thanks so much, Dennis, for your comments and questions. It's interesting. I see where you're going with this. Maybe the best way to characterize it and just talk about is we're always looking through our facilities to find debottleneck and opportunities. Because if we can figure out how to enhance the volume or performance of the assets by some amount at CAD 0.25 on the dollar to greenfield, for sure we're going to do that. Quite frankly, I'd say some of the concern we see from the investors is, "Wow, you're going to plow CAD 2 billion into Montreal. Are you sure?" We've spent a lot of time thinking about that and running all the analysis and concluded that actually wasn't the prudent investment for the shareholder. We have quite a significant complex in Edmonton.
We are looking for continued opportunities to debottleneck, enhance it, as we have at Fort Hills, and I've talked about Fort Hills before. We can't really get to it until we can run the facility full, and we can't run the facility full because of curtailment. We've been delayed. I thought we would have a plan at this point in time to debottleneck Fort Hills. Now coming back to your other question about the mine. Part of the issue with technology, as we see it, is we've always considered mining technology to be in a certain type of resource and in- situ technology to be a very different type of resource.
Now when we're looking at things like radio wave technology and solvent with low pressure in-situ recovery with, in some cases, some of the technologies we're looking at have no steam at all associated with it. Greenhouse gas emissions are fundamentally different, 50%-80% lower. When you look at it that way, a lot of this resource, it's just which technology should we apply to which resource? The integration strategy, yes, if you go back 50 years when we started up the operation, the upgrader was needed to be able to move the mine bitumen.
If you look at both the mining technology I talked about, the non-aqueous extraction, not only does it produce a barrel, but the way we envision the technology and the way we're testing it is it's kind of like a Fort Hills, is that we literally extract carbon from the barrel, put it back in the ground. The upgrader doesn't have the same cleaning requirement, but it has the same financial requirement. Really the integration strategy for us is maximizing the value of the barrel and being able to manage the commodity price risk of the light heavy spread. The upgrader and the refineries are still needed, even if it's an in- situ barrel or if it's using this new mining technology. Does that answer your question?
No, I think so. I think the point is essentially utilizing existing assets to be able to grind out the most value out of them.
For sure.
The second question is just around the buyback and kind of the timing around the board renewal, essentially on the CAD 2 billion from March forward, as well as kind of the discrepancy in timing as where you guys have TMX approval up until I think mid-May to complete the 5% there. How we should be thinking about the, we'll call it the cadence of share buybacks. I know in the past, your program has never really been robotic and has been definitely more opportunistic. How should we be thinking about this over the next couple of months? Thanks.
Thanks, Dennis. I'll take that one. First thing I would say is we're in the normal timing for when the board looks at both the dividend and the buyback at the February meeting. We set those annual sort of guidance and targets going forward. That's really what the board has done. It said for the next 12 months, we can see us purchasing up to CAD 2 billion of our stock buyback. I would say that's the key number you guys need to look at. There's an administrative piece that you mentioned that goes around getting TSX approval to buy stock back. That is purely an administrative exercise. Don't think that is a different set of approvals, and it's on a slightly different schedule, as you noted. It's a May timeline.
The key thing for you guys to know and investors to know is what has the board authorized us to buy back? It's the CAD 2 billion starting in March. In May, we'll review the TSX stuff, that's just as I said, administrative. On a cadence perspective, we are typically opportunistic, as you said. We're not robotic. We have buying bands at certain levels, at lower levels of our stock. We'll buy more back. If the stock price is low, as we saw in Q3 last year, we'll buy more back. If it's at a slightly higher level, the pace slows down a bit. Overall, we're targeting to buy up to CAD 2 billion a year back.
Great. Thanks.
Thank you. Our next question comes from the line of Phil Gresh with JPMorgan. Your line is now open.
Yes. Hi, good morning. First question, just to follow up on the buyback question, just a slightly different way. Given the current oil prices are a bit lower than your framework of $55 WTI at the moment, how do you think about buybacks versus balance sheet if we are in a lower price environment? Is this something where on a short-term basis, you'd like to stay committed to the CAD 2 billion range and you just leverage the balance sheet if necessary? Is it something you want to be ratable each year on understanding opportunistically quarter- to- quarter? Thanks.
Yeah. Thanks, Phil. If you look at our investor deck and the sort of capital allocation matrix that we've laid out, somewhere between CAD 50 and CAD 60 of a WTI level, we say we will spend between CAD 1 billion and CAD 2 billion of buybacks. It is ratable compared to where the oil price is going to be for the year. There's no doubt about that. We've always said that we would like to target CAD 2 billion. Oil prices are extremely volatile. Today we're at CAD 50, CAD 51. Three weeks ago, we were heading over CAD 60. I don't think I'm prepared at this point in time to call off where we think it's going to be, and I still believe CAD 2 billion is achievable.
Yeah, sure. Understood. Okay. The second question is just on the CFO improvement opportunities. Mark, appreciate the additional color to the CAD 1.5 billion number at this point. I think if we rewind back to when you initially laid out these targets, the idea was that it'd be ratable at about CAD 500 million per year from 2020 through 2023. As we look at the 2020, I think it's slide six where you have the FFO expectation for the year at CAD 55 WTI. I'm just trying to understand some of the moving pieces behind that. Is there some kind of embedded CAD 500 million, the first CAD 500 million is embedded in that guidance? Are some of these things a little bit later because of the timing of the Syncrude pipeline, or just any thoughts you have there on that guidance? Thanks.
Yeah. Thanks. It's interesting because I would say it's getting a little bit skewed. It's a little bit later. I think the interconnecting pipeline is one that's now towards the end of this year. Originally, we thought it'd be at the start of this year, so we'd get the full year benefit associated with it. We continue to push forward on the autonomous haul trucks, although we're working to accelerate that and get it all the way in at Fort Hills and such. It's skewed a little bit towards the back from the original ratable CAD 500 million a year that we originally said, Phil. The thing that I really like about it is we have real plans funded. They're in execution, and it's moving forward and the teams are really working it. I think to some degree, you see it in the fourth quarter in capital.
Once we approved the cogen and the wind farm, the teams were all over it. That's a couple hundred million CAD of what we spent in Q4 were projects that were approved in late Q3 and Q4. The teams are moving forward to get this stuff executed, but it's a little later than anticipated.
Got it. If we look at that guidance for 2020 FFO, it basically looks to me like CAD 2 lower on the price stack, but 5% higher in the production due to less curtailments, and those are the main moving pieces embedded in there. Is that reasonable?
Yes. We haven't modified our guidance. Yes, that's how we put it out.
Yeah. Okay. Thanks a lot.
Thanks.
Thank you. Our next question comes from the line of Benny Wong with Morgan Stanley. Your line is now open.
Hey, good morning, guys. Thanks for taking my question. My first one is on the results on the downstream. The other margins, which I think includes supply and marketing lubricants, was a bit weaker than we anticipated. Just want to get a sense of how much you think this is kind of attributed to the seasonal weakness. We've been hearing that retail margins in Western Canada has been a bit under pressure from new entrants, so just wanted to get a sense of how persistent this could be, if at all.
Yeah. We really see this as a seasonality issue associated with it. We think this is kind of normal course. The downstream really had a great job. Their focus on driving market and really securing the market share and moving forward on some of that was really good. They've done an excellent job of running the refinery, second-highest refinery utilization in the history of the company. They've done a really good job. I'm proud of the team there. This is just normal seasonality, Benny.
Yep, understood. Appreciate those thoughts. My follow-up is, it looks like you guys are putting a little more money into ventures that are a little bit more sustainability focused, like the wind farm, the EV charging station, and the equity interest in the biofuels. Just wanted to get your thoughts, Mark, on the long-term strategy here. Is there a long-term mix or balance that makes sense to strive for? As you look at these projects, how do you approach it? Maybe a sense of what metrics you use when evaluating these projects against more conventional oil and gas opportunities or even shareholder returns.
Yeah, it's interesting because those I would put into some different categories associated with it, because I think the one thing that's abundantly clear is that the world needs more energy. 700 million people globally are still in extreme poverty, and they need food and energy and medical support and such. We need more energy, but we need a lot less emissions. Some of these are technology plays when we look at it to try and understand, is this a technology that could be part of the future? When you look at some of these little equity positions that we've taken as we explore some of these technology pieces, when you get into the electric highway, our view was is that, the world's changing. We can be a part of this.
We put that in to see how the response would be, because one of the biggest challenges with an electric vehicle is, can you drive long distances? Clearly, people can drive short distances, and we felt the electric highway across Canada was a real positive complementary to it. The third one you mentioned was the wind farm. If you stand back and look at that, if you recall, six years ago, we committed as a company to reduce our greenhouse gas intensity by 30% by the time we get to 2030. I think everybody knows that, yes, we might spend a bunch of time thinking about our goals, but when we set a goal and bring it forward, we are going to work on it.
When you look at it, in the last eight months, we've made two investment decisions that will essentially accomplish 1/3 of that or 10%. So far we've achieved 10 of the 30%. The next 10% is related to the cogen investment and the wind farm that we're in process of executing, and the remaining 10% is still getting worked and scoped out. I feel very comfortable that we're executing the plans that we committed to six years ago, and the wind farm is part of that overall plan. This is just normal course. We're fulfilling the commitments that we've made as we go on our journey. What we do know, though, is 2030 doesn't solve everything, and there's more that needs to be done. So some of these technology pieces are really exploring some of the options for the future.
Great. Thank you.
Thanks, Benny.
Thank you. Our next question comes from the line of Asad Syed with Bank of America. Your line is now open.
Thanks. Good morning, everyone. I just wanted to follow up on the earlier question. Mark, you have given some specific numbers on these clean energy investments, 40-mile wind project, CAD 300 million, 25% spent in 2019, and also on Enerkem, CAD 73 million. My question to you is, these investments have clearly been a strategy at Suncor, but could you frame for us how big, in terms of CapEx, these projects could be on a ratable basis, and where do you see this going in a five-year framework?
Yeah. Thanks, Asad Syed. The real focus around it is, and the focus as I just mentioned on this is trying to figure out how are we going to hit our 2030 goal that we committed to six years ago. When you see it right now, we have with the wind farm and the cogen, so we're now 2/3 of the way, or we have in execution, 2/3 of what we had committed to, so there's another third left. If you look at the cogen was CAD 1.4 billion and the wind farm was CAD 300 million, it's CAD 1.7 billion to achieve 10%. Obviously there's a lot more to it because it wasn't just greenhouse gases. Both of these we think are going to drive good returns for our shareholders, and they were both done in unique ways to be able to maximize that value for the shareholders.
In those cases, we're spending money and finding economic ways to achieve the environmental goal that we set out. When you look at Enerkem as an example, CAD 73 million, it's a technology play. We thought it was prudent to explore the future as we start thinking about what is the world of energy. If you go and look at it, crude oil demand's growing about 1% a year. This year, it's quite a few people with coronavirus believe that it will be negative this year. This isn't a market that's growing. I think people are concerned about lots of companies talking about growing oil production forever. We know that can't happen. We're trying to explore the future. Do we see massive money going into this? Certainly not into the future because these are technology plays.
If something becomes commercial and we're going to look at it as an investment, then we would be able to lay out an investment path forward. At this stage of the game, we don't see that as a huge part of it. The wind farm is something that's unique because our emissions in Alberta, we can use the credits from a wind farm in Alberta, but we don't see onshore wind at this stage being a significant part of our future.
Thanks for the details, Mark. Appreciate it.
Thanks, Asad.
Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Your line is now open.
Hi, guys. I have a little bit of a macro question. There were a few developments in the last week which were regulatory positive for two of the pipelines, TMX expansion as well as Enbridge Line 3. I'm just trying to understand how do you view these developments? What's your outlook for any of these pipelines to start up in the next two to three years?
Yeah. Thanks, Manav. I appreciate it. I think we've been consistent for as long as these conversations have gone on that we support these lines. Line 3, Trans Mountain, as well as Keystone XL. We have been supportive of these particular ones. We have always thought that they'll move ahead and get executed. Timelines are what we've spent most of our time talking and debating. Generally, we've been later than what the operators have been saying on these lines because we know that in today's world, there isn't a straight line between two points trying to do some of this big infrastructure. Now in saying that, Line 3, they have the approvals. The Canadian portion is operating today, so we have about 100,000 bbl a day of capacity on that line. There's an incremental 270,000 bbl a day to go.
With the latest hurdles getting cleared, there's a chance we could see it by the end of this year. Maybe it'll get delayed further. From our perspective, we're certainly not betting any of our shareholders' money on any particular timelines. Trans Mountain, really encouraging to see it moving ahead. We've appreciated the support that the federal government's been putting behind it, and it's nice to see that project under construction. The courts continue to reinforce and support that. Will that decision get appealed? Maybe it will. It was a unanimous decision by the court, so we're encouraged by that. They're on track to get this all executed. I think it's going to take a little longer than what the operator says, just for the challenges of execution and maybe there'll be some further court challenges associated with it.
Again, we stand by our position that it gets done, and it just might be a little later than originally anticipated. Keystone XL, it's another one that's got some significant approvals recently. We're encouraged by that, and it looks like Enbridge is getting ready to push ahead. All of those projects, Keystone XL is probably the latest in that whole thing. Line 3 looks like it'll be first and Trans Mountain in the middle.
Thanks, guys. A quick follow-up on similar lines. We saw the year start with looking at December, the inventory in Alberta was building all the way to CAD 38 million. We believe it's come down about CAD 5 million, CAD 6 million. In the near term, do you see rail ramp plus what you mentioned on Enbridge to put the inventory more in control and it trend down, or do you see a scenario where it actually moves up and pressures the differentials?
No, I think you're going to see inventory continue to decline. I saw another report last night that said it went down almost another million barrels week on week. We're making some progress there. We will get some advantage as well when the diluent blending changes here a little bit as we come into spring. That said, the ARB's open, rail's economic, and so you're seeing quite a bit of liftings. We've seen some record volumes now on the rail lines moving oil, which I think is encouraging. To the extent that the spread comes in, I would expect you're going to see a whole bunch of rail get laid down, too. It'll be interesting to see how that plays out.
Production's come up as rail's gone up because of these special production allowances by the province, and we've been very thankful for their support in putting that program in place. I think we're going to see inventories continue to decline slowly. It wasn't that long ago that we were sub 30 million bbl, and one pipeline issue took us to tank top, so things can change quickly.
Thank you for taking my questions.
Thanks, Manav.
Thank you. Our next question comes from the line of Mike Dunn with Stifel First Energy. Your line is now open.
Thank you. Good morning, everyone. Thanks for taking my questions. If I could, I'd like to just ask a bit of detail about the mine extension at the Base Mine, Mark. Should we think about that as extensions of the North Steepbank side and/or the Millennium side of the mine? Is this on lands already held by Suncor? Not considering any potential pushing onto the lease 29 boundaries. I have a second question after that.
Yeah. The resource that we're talking about is on the west side of the river by where the upgrader is. That's actually the resource that we're talking about filing the application on. I guess this just emphasizes the importance of what I said about, "Hey, we're just filing an application to move this thing forward." We're a long ways from a project sanction on this, because we filed this application over a decade ago as an expansion project, as a growth project like Fort Hills was. Now we're treating this very much as I mentioned before. This is just a sustaining project, so the amount of investment, the amount of assets that are required to be able to produce this resource is significantly lower.
We see new technology that we're working on that would collapse the cost structure further along with the greenhouse gas emissions and such, and also allow us to alter the carbon content of the crude, which would help with Scope 3 emissions. There's some really exciting technology plays associated with it. The resource we've had in our portfolio for a substantial period of time. The resource we control, obviously the regulatory process we don't. We're allocating a substantial amount of time, consistent with how we see applications being processed. We're going to file conventional technology like we have at Fort Hills. The reason we're doing that is because we have to provide the details, and it's hard to do that on the new technology. We're outlining the new technology in the application to tell people what we're trying to do.
Right. This is the Voyager South resource?
Yes, it is.
Mark. Okay. Second question. 18 years of straight dividends, dividend increases. I think in the past, you folks may have talked to what you need for a WTI price to fund the dividend and sustaining capital. Do you guys have a target for what you can fund, I guess if you do, what is it, and what is it relative to the dividend and not just half cycle, but full cycle sustaining capital?
Well, maybe I'll come back and clarify on sustaining capital, it's CAD 45 WTI. What we look at is sustaining capital plus our dividend at CAD 45, we should be able to fund it. That's actually how we model it. We look at the growth of the cash flow of the company and then test it against this benchmark to ensure that we view that it would be affordable even at low prices. That's the methodology. It really hasn't changed. This is what we've been doing for quite some period of time. It's interesting when you say full cycle and sustain. One of the joys of our asset is we have very long cycles.
Like Fort Hills, when we started up Fort Hills, we believed that it would produce, and it has a resource to produce for 50 years, which is very different than if you look at the most short cycle capital in our business is shale. Essentially there, to maintain your volumes and such, you're playing a full cycle capital game 100% of the time. One of the joys of it is this capital is on the ground. It has a very long cycle, and we can sustain the assets and continue to generate cash flow. When you say full cycle, I think about, okay, so when the resource runs out at Firebag, which honestly we don't see happening for many, many decades, you have to start thinking about, okay, the fundamental cost of replacing it.
Even when you look at Voyager South and the example we've talked about, it's not even full cycle, although it's much higher than what it would be in our normal sustaining, where we're not building assets to open up a whole new ore body. We can do it at much lower cost. Why? Because we're leveraging all the infrastructure that's still on the ground. Our cost right now, if you look at our sustaining capital, we would view that this is characteristic. It'll be a little higher in 2030+ period as we decide how we're going to put the resource in place to sustain the operation for the next several decades to come. Right now, our sustaining capital really is sitting in this CAD 3 billion- CAD 4 billion range. I'd say CAD 4 billion when we get into the big turnaround years. Next year is a big turnaround year.
This year isn't. The sustaining capital can move around. When we look at our CAD 45, we're looking at kind of a normalization of that.
Okay. I guess, Mark, what I meant probably on full versus full cycle is historically you haven't really included any capital for your E&P business in your sustaining capital definition.
Yeah.
I think it was last year that you started to exclude the drilling of any sustaining well pads at SAGD from your definition. Combined, there's no perfect number, I would peg those numbers at closer to CAD 1 billion a year, likely, over the medium term needed.
Mike, let me just clarify something that clearly is not understood out there. We do actually, well, our definition externally for sustaining capital, it doesn't include the well pads. We do include them when we calculate our breakeven at CAD 45. Just to clarify that, the well pads are in there when we're calculating the CAD 45 breakeven in WTI. You're absolutely correct, we don't include E&P. It's a very lumpy business. From that perspective, they're all economic in our view. We either decide to do them or not to do them. We don't really consider them to be sustaining capital projects.
Okay, thanks for clearing that up. That's all from me. Thank you for taking my questions.
Thank you. Our next question comes from the line of Jon Morrison with CIBC Capital Markets. Your line is now open.
Morning, all. Can you just talk about the heavy CapEx spend in Q4, whether that was purely a function of kind of pulling things from 2020 into Q4, given some of the unexpected outages like MacKay River, where logistically it would make sense to do that maintenance work since there was downtime anyways? Was there any other major factors at play there?
Jon, I think there's really three factors that are driving it. What you're saying is okay at MacKay, there's a very little bit, but I would say it doesn't even show up in here. One is the fact that we approved some projects late in the year and started moving on them quickly. You saw quite a bit of spend with the cogens and the wind turbines in the fourth quarter, which I don't think people fully appreciated. The other issue with it is there were some things that got delayed in the year, unfortunately, a lot more capital got spent in Q4 than what was originally planned. This is an area that we're working with our organization because it's much better for this to be ratable, and that's an area that we'll be working with the organization going forward.
It's really this sum of the capital getting delayed on some of the projects for various reasons, and then bringing the cogen and the wind turbines in. That's why Q4 is so high. Obviously, if you look at our range for next year, what we did in Q4 isn't characteristic of the quarters that we'll have going forward.
Would it be fair to assume that Q4 reshapes 2020 at all, or largely the guidance that you put out holds?
No, no, our guidance holds for sure on capital for 2020.
Okay. Alister, any color on why you guys elected to take the Fort Hills write-down in the quarter where we didn't see that out at Total? Is that just a difference in accounting standards, price deck assumptions, or are you being a little bit more conservative in kind of your forecasting of CGUs?
Well, I'll maybe comment on that, Jon, and then hand it over to Alister to provide a few of the details. Part of the issue with it is when the price went down in 2014, I don't think people realized that we literally were going to go in year for year and year. When you looked at the way that we did the test for impairment previously, our cost or the price of crude that we assumed when we did those tests was much higher. Now you look at it and yes, the crude price is bouncing around and some forecasts it's going up and some forecasts it's going down. When you look at it year-over-year, we're literally bouncing around but trading sideways.
When we look at the markets, we think, "Hey, we're sitting in this same range going forward for a foreseeable future." Our view was, let's go test our books against that. It's really in adjusting the price forecast down, which is about a CAD 10 adjustment in kind of the global crude price when we look at it. That's where this impairment took place. I don't know, Alister, do you want to add to that?
Yeah, the only thing I would say, it's really a price-driven view as we look forward. Just confirming what Mark said. I can't make any comment to our partners on whether or why they're taking any impairments. They have their own views from price. Remember, everybody has a different starting point from a capital perspective, whether they bought in at a high price. It's up to each individual partner as to what they take or not take.
Okay, appreciate that. Mark, in terms of the diversification efforts that obviously aren't new and they're part of the historical DNA, but maybe are of growing importance. Do you have a different return threshold for those projects? Maybe X, the Enerkem investment, which is a bit of a different animal?
When you look at it, you have to factor in all the various views around carbon pricing and all that kind of stuff associated. Will we have different criteria? On a risk basis, I would say no, although the risks are often very, very different associated with it. You have to keep in mind that a lot of these technologies, whether it's Enerkem or LanzaTech and such, you'll find out that, okay, but these, I wouldn't consider them commercial technologies. We're just trying to understand how can we move forward and find some of these solutions for the future. When you look at commercial deployment of technology, our expectations are going to be very similar. It's just that the risks that we factor into it are very different on some of these investments.
Perfect. Maybe just a final one for me. Just clarification on the dividend bump that was announced. Is it fair to assume that that would have been the increase that would have happened independent of whether WTI was oscillating at $50 or $60? As again, it's really just being calibrated on bottom-of-cycle pricing, and you might have taken greater comfort at a $60 level, the bump would have been the bump independent of where the price was coming into the decision?
Yeah. We view this as just this is what the expectation would be, and it didn't really matter where we were in the price range associated, but we view this as part of the fundamentals of where we think the price is going to be.
Okay. Appreciate the color. I'll turn it back.
Thank you. This concludes today's question and answer session. I would now like to turn the call back to Trevor Bell for closing remarks.
Great. Thank you, operator. Thanks everyone for joining us today. My teams around and I are around all day. Please, if there were questions that we didn't get to, please reach out to the team, we'd be happy to do that. Otherwise, everyone have a great day, and thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.