Good morning, ladies and gentlemen. It is 10:30 in the morning. I would like to call this meeting to order. My name is Jim Simpson. I am Chairman of the Board of Suncor, or as Janice would say, Board Chair. Sorry for that. On the platform with me is Steve Williams, CEO and President of the company. Beside him is Alister Cowan, Executive Vice President and Chief Financial Officer, and Senior Vice President, and General Counsel, Janice Odegaard. On behalf of the directors of the company and management, it is my pleasure to welcome you all to the 2015 Annual General Meeting of Suncor. Before we begin the formal proceedings, I would like to talk for a moment about safety and the procedure in case there is a fire alarm is not to panic, but to wait right here until we are instructed by management of the hotel to exit in an orderly way.
They will be able to guide us and direct us to which of these exits that are clearly marked we should use. What you do is you go straight out through the lobby, and we will muster across the street in the TransAlta Square in front of their building, where there is plenty of room. Anyway, I would like to now proceed with the formal parts of the agenda. To save time at this meeting, we have asked a number of the shareholders to make motions, and also we have asked people to second these motions. We will proceed in that manner. We have opened the meeting to media and other guests. However, only those who are share owners or proxy holders are designated and allowed to vote on matters before the meeting.
If there are any questions that come before this meeting, I would like it if you would stand at one of these microphones, state your name and whether you are a share owner or a proxy holder, and then your question. For general questions, we are going to have a period at the end of this meeting for Q&A that Steve and I will co-host. Questions that are of a nature related to governance, I will address. Those that have to do with operations or some of the business aspects of the company, Steve will answer at the end of the meeting. Let us begin with the formal part of the meeting and the appointment of the scrutineers. Computershare Trust Company of Canada's transfer agent and registrar of the company is represented here today by Connor Doyle and Steve Nogler.
If there is no objection, I will appoint them to act as scrutineers to record a number and percentage of shares represented at the meeting and to record and report on the votes cast and report on any poll that may be taken. You all received notice of the meeting. I will now call on Janice to report on the mailing of the notice.
Thanks, Jim. The notice calling this meeting of shareholders was mailed on March 24th, 2015, to all shareholders of record as of the close of business on March 4th, 2015, and has been provided to each director and to the auditors of the company.
Thank you very much. A copy of that notice and proof of mailing will be filed with the minutes of this meeting. I'm advised by scrutineers that the scrutineers report has been completed, and there is a quorum present for this meeting. I ask the corporate secretary, Janice, would you please read the scrutineers report?
Thanks. The scrutineers report shows a total of 760 shareholders represented in person or by proxy, which represents approximately 952 million shares, which is 65.88% of the outstanding shares.
Thank you very much. I now declare the meeting regularly called and properly constituted for the transaction of business. I propose to take votes by ballot for four items, election of directors, resolutions to confirm amendments to Suncor's bylaw number 1, to confirm adoption of Suncor's amended and restated bylaw number 2, and on Suncor's approach to executive compensation. We'll have ballots for those. I also propose to take a vote by show of hands for appointment of our auditor. Based on proxies received prior to the meeting, if we held a ballot vote on the appointment of the auditors, less than 2% of votes would be cast against that resolution. I now ask that the 2014 annual report, which includes the financial statements for the year ended December 31st of 2014, and the auditor's report be tabled. I think these are available. This is the annual report.
It was mailed to those who requested it's certainly available online. We would be happy to answer any questions concerning the annual report during the Q&A following the formal part of this meeting. Next item of business is appointment of directors. Suncor's bylaws state that the number of directors to be elected at any meeting of shareholders shall be the number of directors then in office or such other number as been determined by the board. The board has determined that 12 directors will be elected at this meeting. You might have noticed two retirements, Paul Haseldonckx, who has been a director since 2009, seven of those 12 years was with Petro-Canada, and Jacques Lamarre, who was elected in 2009, spending five years with the board. I just want to comment and thank those two gentlemen for their exceptional service to the board.
The insight that they brought was highly valued and appreciated. Of the 12 directors nominated, 11 are independent, and one, Steve Williams, of course, is a member of management. Their background and experience, including principal occupations, are described in Suncor's management proxy circular for this meeting. Again, the proxy circular has been mailed out to those who requested it and available online. The meeting is now open to receive nominations for election to the board of directors.
Good morning. My name is Helena Soren, and I'm a Suncor shareholder. I move to nominate the following candidates for election as directors. Mel E. Benson.
Mel, would you stand up, please?
Jacynthe Côté. Dominic D'Alessandro. W. Douglas Ford. John D. Gass. John R. Huff. Maureen McCaw. Michael W. O'Brien. James W. Simpson.
Already standing.
Eira M. Thomas. Steven W. Williams. Michael M. Wilson.
Thank you very much. May we now have a seconder for that motion?
My name is Ryan Clark. I am a Suncor shareholder. I second that motion.
Thank you very much. I now declare the nominations closed. 12 directors are to be elected at this meeting, 12 persons have been nominated. I propose that we vote on this matter by ballot, the corporate secretary will instruct us on voting procedures. Janice?
Okay. Thanks, Jim. On this ballot vote, all shares for which proxies in favor of management have been received will be voted in accordance with the instructions of the shareholders giving the proxies. Only proxy holders and shareholders who have not already returned a proxy or who wish to change their previous instructions have to complete a ballot if they wish to vote. The blue ballot handed out during registration is the ballot to be used for this vote. If you wish to complete a ballot but did not receive one when you registered, please raise your hand now. Okay, there are a couple.
I see we have a few. I'll pause for a moment while the ballots are distributed.
The ballot lists the 12 nominees named in the management proxy circular. To vote or withhold from voting for each director, please complete the ballot by placing an X in the appropriate spot beside the name of each nominee. When you've completed and signed the ballot, please raise your hand, and it will be collected by an attendant and given to the scrutineers for counting. We'll give you a few moments to complete those ballots.
I can see there's still a little time needed. Does anyone require additional time? Couple. Thank you. Okay, well, the ballots are being collected and counted. We'll proceed to the next item on the agenda. The next item is appointment of auditors. Management has proposed that PricewaterhouseCoopers be appointed as the company's auditors. Since auditors are appointed by shareholders, I ask for a motion appointing PricewaterhouseCoopers as auditors.
Good morning. My name is Ryan Danielson, I am a Suncor shareholder. I move that PricewaterhouseCoopers LLP be appointed auditors of Suncor Energy Incorporated to hold office until the next annual meeting of shareholders or until a successor is appointed.
Thank you, Ryan. May we have a seconder?
My name is Serena Davis, and I am a Suncor shareholder. I second this motion.
Thank you very much. Any discussion? No? You've heard the motion. It's been seconded. Those in favor, please indicate so by raising your hand. That's clear that the motion is carried. We have a couple of bylaws that we need to confirm. The next item of business is the resolution to confirm amendments to Suncor's bylaw number one, which increases the quorum requirements for meetings of shareholders and eliminates the ability of the chair of shareholders and directors meetings to have a casting vote in the event of a tie. This was described fairly clearly in the proxy circular. The reason that the board is recommending this is it's simply a good governance practice in line with current best practices for governance. May I now ask that that motion be tabled?
Good morning. My name is Rick Langel and I'm a Suncor shareholder. I move that the resolution confirming the amendments to bylaw number one of Suncor Energy Inc., set forth on page 15 of the management proxy circular of Suncor Energy Inc. in respect of its 2015 annual meeting of shareholders, be approved.
Thank you very much. May we have a seconder?
My name is Alejandra Buquin, and I'm a Suncor shareholder. I second the motion.
You've heard the motion, which has been seconded. Are there any questions or comments? No. We have received proxies representing a total of over 99% of the votes cast on this motion, which direct that they be voted in favor of the resolution. However, we will follow a ballot procedure as described earlier by the corporate secretary. This time it's the yellow ballot that was handed out at the beginning of registration, and that will be used for this vote. Please mark on your ballot an X in the box, either for or against. When you've completed the ballot, please raise your hand and pass it out to the aisle. I see we have a few, so we'll just pause for a moment. Any others need a little time?
Okay, while those ballots are being collected and counted, we'll proceed to the next item on the agenda, which is another restatement, actually, of a bylaw. It's the bylaw number 2, which is described in the management proxy circular, amended and restated. What it does is establishes a framework for advance notice by shareholders intending to nominate directors for election to Suncor's board. The board believes that the amended and restated bylaws sets out a clear and transparent process for all shareholders who intend to nominate directors. The board believes it does this by providing a reasonable length of time to notify Suncor of their intentions to nominate directors and by requiring those shareholders to disclose information regarding their nominee as mandated by applicable security law.
The board will then be able to evaluate the proposed nominees' qualifications and suitability as directors and respond as appropriate in Suncor's best interest. Amended and restated bylaw number 2 is also intended to facilitate an orderly and efficient process for director election at meetings such as this one. May I now have a motion for this resolution?
Good morning. My name is Sandeep Mann, and I'm a Suncor shareholder. I move that the resolution confirming amended and restated bylaw number 2 of Suncor Energy Inc., set forth on page 17 of the management proxy circular of Suncor Energy Inc., in respect of its 2015 annual meeting of shareholders, be approved.
Thank you very much. May we have a seconder for the motion?
My name is Blaine Hodder, and I'm a Suncor shareholder. I second the motion.
Thank you. We've heard the motion and the second. Are there any comments or questions? Yes, sir. Could you go to a microphone, please?
The pre-requirement of nomination for director according to this motion is you have to have 1% or 5% of the share or have the experience to be nominated. This body consists of the general public, I'm going to put a motion on this. That's the reason, because of the audience.
I'm sorry. I didn't quite understand. Did you say-
As I said, I did indicate that this motion basically, in order to nominate yourself as a director, you have to have 5% of the total shares of the company, or 1%, or have the experience to be nominated.
Yes.
That's what the condition. I'm against that motion. This body consists of the general public in general. That's why I'm voting against this motion. I'm just going to put a motion on this as well to change this amendment.
Okay. We have a motion. I'm honestly not clear on what your motion is. I understand the preamble, but not the motion. Janice, did you
The gentleman was commenting that he's not in favor of the motion and explaining that he doesn't feel that it should be passed. Thank you very much for your comment.
Okay. We appreciate your comment. The matter will go for a ballot. You'll have a chance to register your vote. Thus, the motion has been made and seconded. We'll proceed to that. Again, this will be by ballot. We'll follow the same procedure as described earlier by the secretary. This is now the green ballot, where you can express your views. Please mark an X in the box, either for or against. When you've completed your ballot, raise your hand so that it can be collected. Has everyone got a ballot that needs one? Do we need any more time? All set. Thank you. The next item on the agenda is what's commonly known as the say on pay. It's an advisory vote that either supports or does not support the compensation proposals that were made in the proxy. These types of votes are non-binding.
What they are is a vehicle to allow shareowners to provide feedback to the board and the compensation committee for their future consideration. Of course, the board would take any such votes seriously. The form of motion set out in the management proxy circular follows the recommended best practice for the Canadian Coalition for Good Governance. May I ask for a motion to that effect?
Good morning. My name is Wes Johnson, and I am a Suncor shareholder. I move on an advisory basis and not to diminish the role and responsibilities of the Board of Directors that the shareholders accept the approach to executive compensation disclosed in the management proxy circular of Suncor Energy Inc., delivered in advance of its 2015 annual meeting of shareholders.
Great. Thank you. May we now have a seconder?
My name is Serena Davis, and I am a Suncor shareholder. I second this motion.
Good. Thank you. You heard the motion, and it's been seconded. Are there any comments or questions on this advisory vote? We have received proxies representing a total of over 93% of the votes cast in this motion, which direct that they be voted in favor of the approach to executive compensation. We will now follow the same ballot procedure as we have in the other three items. This time it's the pink ballot. Again, mark with an X, whether you're for or against. When you've completed, raise your hand. The ballots will be collected. Does everyone have a ballot that needs one? We're all set according to our scrutineer. Okay. Now it's time to turn to formal remarks by Steve Williams and Alister. Steve?
Thank you, Jim. Good morning to everyone. We can relax a little bit now. The formality is coming towards an end. A few more things for us to do. Thank you for joining us at the AGM. It's an important meeting for us. I'd like to start by adding my thanks and appreciation to the two departing board members, Paul and Jacques. Both have played a really important part in guiding our company and always with the shareholders' interests in mind. They've been active members of our boards, engaging in great debates, and providing a lot of thoughtful input. To both of you, thank you for contributing to our success. I'd also like to welcome our newest board member, Jacynthe Côté. We're excited to have you here, and I'm sure we're going to be having some fun debates.
Our AGM is almost always about providing a perspective over the past year and over the year, which is coming. As we move through 2015, the need for perspective and the resilience to be able to deal with the challenges of the low crude price environment have never been more important. As we've all seen, the drop in crude prices has created a lot of change for us in a very short period of time. Capital spending plans have had to be revisited. Companies have reduced their workforces. Suppliers and contractors have seen their work slow or even stop. Across the country, revenues to governments have also fallen, affecting their ability to be able to fund critical services. In short, the impact of the low crude price environment has been significant and far-reaching for all of us.
Our strategic focus and commitment to deliver value to shareholders has prepared Suncor well to be resilient in this type of environment. We've come into the downturn with a sound balance sheet, an integrated business model, and a very focused strategy. Of course, an unwavering commitment to what we've called operational excellence and capital discipline. Cost management's always been an important focus for us at Suncor. In fact, we've been working hard for many years to drive down our costs. In response to the low crude price environment, we've accelerated those efforts. A billion-dollar reduction in our capital budget Operating budget savings of CAD 600 million-CAD 800 million, and a tough reduction in our workforce of 1,000 positions. It's important to emphasize that we're implementing those reductions without affecting our basic operations.
We're focusing on safety, we're focusing on reliability, and focusing on our environmental performance as we do that. I'm also pleased to announce that the cost management initiatives are really taking effect. We've announced some results last night, one of the headlines you'll be seeing is the impressive cost reductions we've had, particularly in the oil sands business, but right the way across the company. We've achieved a 20% decrease quarter-over-quarter in cash operating costs in the oil sands operation, and that's in a large part due to those efforts. Our Q1 results also included record oil sands production, nearly 440,000 barrels per day, reflecting strong reliability and minimal unplanned maintenance. We also saw record upgrader reliability and robust refinery utilization rates. The quarter demonstrated our ability to generate solid cash flow, even in this low crude price environment.
Cash flow from operations in the first quarter was almost CAD 1.5 billion, or CAD 1.02 per common share. These accomplishments come at a time when others in their industry are grappling with the realities of the lower crude price environment. Whether it's a reduced ability to generate cash or whether it's facing challenges in attracting capital for investment, various companies have had to make very tough choices, often destroying value in the process. At Suncor, our resilience stems from being in a very strong position, and that's due to a number of factors. First, that strategy I talked about, optimizing the base business, pursuing profitable growth, returning cash to shareholders, and being an industry leader in sustainability. You've also heard us talk about the importance of our integrated model, which helps us to capture the earnings across the value chain.
Integration has always been top of mind in the strategic decisions we've made around our operations. That includes the investments we've made in our network of pipelines, in the rail unloading facilities, and in our marine terminal on the St. Lawrence. It has also driven our decision to secure additional storage on the U.S. Gulf Coast. Our integrated model is, without doubt, a competitive advantage, helping us adjust to changing market conditions and deliver value for our shareholders. In 2014, it allowed us to capture global-based pricing on volumes equivalent to 97% of our upstream production. In fact, our analysts just put 100% in because they find in their models it's not worth worrying about the other 3%. Another competitive strength is our rigorous approach to capital discipline. Suncor's unwavering focus on costs has helped to drive the strength of our balance sheet.
When it comes to our capital, the priorities remain the same. Fund the base business, invest in profitable growth, and return cash to shareholders. The decisions we made in 2014 reflect that unwavering focus. Those included the deferral of capital spending at MacKay River 2 and the White Rose extension, and that's pending more favorable market conditions. Together with the project operator, we also deferred a sanction decision on the Joslyn mine while we look to optimize that development plan. These decisions, while difficult, allowed us not only to preserve the health of the balance sheet, but also to increase our dividend for a 12th consecutive year. They also helped us fund long-life projects in flight, including Fort Hills and Hebron. We view both of those projects as essential elements of our profitable growth plan forward.
At our existing operating assets, we continue to make progress on our operational excellence journey. In addition to reducing operating costs, we've seen improved reliability, including the Firebag plant achieving average production rates in late 2014 in excess of its nameplate capacity of 180,000 barrels a day. Safety, a key element of operational excellence, remains a very high priority. We've been working hard at implementing the solutions recommended by our Oil Sands Safety Step Change Task Force following the tragic fatalities early last year. We're conscious of the importance of being trusted stewards of valuable natural resources, and that's why we're driving improved performance on air, water, land, and energy efficiency. We're actively engaged in discussions about broader environmental issues like climate change. We've made progress. For example, we achieved a 20% decrease in water use at the oil sands versus 2013.
We remain keenly aware of the need to be part of that conversation and getting to solutions. The work in these areas isn't always easy, but it's been critically important, and I'm very proud of the Suncor team and what they've delivered in each of those areas. As I look ahead, I remain confident about the strength of the company, its strategy, and our future growth projects. Our progress on Fort Hills gives me good reason. All critical milestones were achieved on the project in 2014, including a majority of long-lead procurement orders being released to the market. Detailed engineering activities are now 75% complete, while construction activities are 25% complete and on their way to being 50% complete by year-end. The project remains on track to deliver approximately 73,000 barrels per day for Suncor, with first oil expected in the first quarter of 2017.
As we grow, we're focusing on market access. We continue to be very well-positioned with takeaway capacity to satisfy our short and medium-term requirements. However, we do recognize the importance of market access to the industry and the Canadian economy, and we're committed to supporting the pipeline infrastructure projects. Now, resilience can be defined as the ability to recover from or adjust easily to misfortune or change. The price drop, which started last year, has certainly highlighted the value of this quality of our business. Suncor has, and will continue, to demonstrate a resilience that our shareholders can depend upon. Thanks to a well-defined plan focused on operational excellence, capital discipline, and profitable growth, we're delivering tangible results for our shareholders. Behind our business strategy is a dedicated and highly experienced team of Suncor leaders and employees. They continue to raise the bar on performance.
They're focused on building and maintaining strong relationships with stakeholders. They collaborate and leverage technology to advance environmental performance. Now, as I turn the floor over to Alister Cowan , our EVP and Chief Financial Officer, I would like to thank you for your continued support and confidence in Suncor.
Thank you, Steve. Good morning, everyone. I am very pleased to be able to present Suncor's financial results for the past year. As Steve mentioned, 2014 was a very significant year of change, especially in terms of the crude pricing environment. Suncor did, however, produce another year of solid results in terms of production, earnings, and cash flow. Those results were the outcome of a sound financial strategy, which continues to be aimed at supporting our business plan of balancing profitable growth and returns to shareholders, managing risk and volatility around our business, and providing financial flexibility. Production in 2014 came in at just under 535,000 barrels of oil equivalent per day, including 113,000 barrels per day in our E&P segment and 422,000 barrels per day in the oil sands.
The operational excellence journey that Steve's described has included a strong focus on reliability and productivity, and it's encouraging to see continued improvement, particularly at oil sands, where our production is concentrated. In terms of our financials, Suncor's financial strength continues to be apparent. That's demonstrated by our 2014 cash flow from operations, which exceeded CAD 9 billion, CAD 5.5 billion of cash on hand, and a strong investment-grade credit rating. As we navigate through this low-price environment, our intention is to continue to live within our means. Our integrated business model is strong and mitigates risk and volatility. Even at today's oil prices, we have the ability to generate sufficient cash flow to cover sustaining capital and the dividend and a large share of our growth capital requirements, as demonstrated by yesterday's Q1 results. The free cash flow we generate continues to distinguish us from our peers.
This past year, we produced free cash flow of almost CAD 2.1 billion. That's significantly more than all of our Canadian peers combined. Operating earnings for the year were just over CAD 4.6 billion, with net earnings of just under CAD 2.7 billion. Our operating earnings, particularly in this current price environment, reflect the strength of our integrated model and the ongoing focus on controlling costs across our business. On the capital side, Suncor has taken a prudent approach to spending that resulted in us ending the year CAD 300 million below our revised capital budget guidance of CAD 6.8 billion. As we move through 2015 and beyond, we will continue to make decisions with a strong focus on capital discipline. Our competitive position is reflected in our strong balance sheet, and our team, led by Steve, remains committed to ensuring it remains that way. Our reason is simple.
A healthy balance sheet backed by a sound strategy and a disciplined approach gives us predictability and flexibility. This is a particular advantage for us as we make strategic allocations around capital. Our low debt and strong liquidity means we're able to invest in the business throughout market cycles, and yet we're acutely aware that capital discipline is about living within our means. That means we don't embark on large capital projects unless we have a high level of certainty that we can fund them through to completion out of cash from our operations or on hand. Fort Hills and Hebron are two great examples of being able to take advantage of this position in a strategic fashion. Our capital allocation priorities remain the same: fund the base business, improving reliability, invest in profitable growth, and return cash to our shareholders.
That approach has served Suncor well, and we believe it will continue to do so going forward. While others are taking on debt with CAD 100 oil, we were generating free cash flow and returning it to shareholders while also building our balance sheet at the same time. Our performance and strategic direction has been recognized by the credit rating agencies, which have maintained our strong investment-grade credit rating. Suncor continues to set ourselves apart from our competitors on the basis of our long life reserves and low decline production, our industry expertise and commitment to sustainable development, the integrated model we operate, and of course, our financial strength. That financial performance has been translated into returns for shareholders of CAD 3.2 billion in 2014. That included CAD 1.7 billion in the purchase of common shares and CAD 1.5 billion in dividends.
The increase in the dividends over 2013 reflected a 40% increase compared to the prior year and highlighted our ongoing commitment to shareholders. The board has endorsed an approach to ensure that dividends will be reliable, sustainable, meaningful, and competitive, and that dividends are expected to grow in line with the growth of the business. Over the past five years, we've achieved a compound annual growth rate of over 25%, and our dividend has increased every year from 2003 to 2014 inclusive. We believe, certainly, that the dividend provides an attractive return for our shareholders and is part of the company's compelling investor proposition. As I said at the beginning, 2014 was certainly a year that saw a significant amount of change. Suncor entered the low-price environment with a strong balance sheet, a focused strategy, and an emphasis on CapEx discipline.
That solid foundation has served the company and its investors well. I believe positions us to continually or consistently return value to our shareholders. I, too, would like to thank you for your ongoing support, and I'll now turn the microphone back to Jim Simpson.
Thanks. Thank you, Alister and Steve. Well done. Now it's time to complete the business of the meeting. We have received the scrutineer's report. Janice, I saw that paper passing up. Would you please read the report?
I would be happy to. Thanks, Jim. Firstly, with respect to election of directors and to expedite reading these reports, I will round the percentages, and for directors, I will declare the percentages in favor of the candidates. Mel Benson, 96%. Jacynthe Côté, 99%. Dominic D'Alessandro, 99%. Doug Ford, 96%. John Gass, 98%. John Huff, 97%. Maureen McCaw, 99%. Michael O'Brien, 99%. Jim Simpson, 99%. Eira Thomas , 97%. Steve Williams, 99%. Michael Wilson, 99%. With respect to the confirmation of amendments to bylaw number one, percentage of votes for the motion, 99.68%, against the motion, 0.32%. With respect to the confirmation of amended and restated bylaw number two, for the motion, 97.35%, against the motion, 2.65%. With respect to the advisory resolution on executive compensation, for the motion, 93.54%, against the motion, 6.46%.
Thanks, Jim.
Thank you very much, Janice. I accept the scrutineer's report and declare the board of directors named in the circular have been duly elected. I also declare that the shareholders have approved the resolutions confirming the amendments to Suncor's bylaw number one and adoption of Suncor's amended and restated bylaw number two. I further declare that shareholders have accepted and support the approach to executive compensation as disclosed in the proxy circular. Okay, if there are no other matters properly brought before this meeting, may I have a motion for termination?
My name is Alexandra Buchet, and I am a Suncor shareholder. I move that the meeting be terminated.
Thank you very much. May I have a seconder?
My name is Ryan Clark, and I am a Suncor shareholder. I second the motion.
Thank you very much. Those in favor of the motion, please indicate your approval by raising your hand. Thank you very much. That motion is carried. I now declare the formal portion of this meeting is terminated, and we'll move into a more enjoyable, I hope, less formal question and answer period to engage with you as shareholders. The floor is now open, and if you would introduce yourself again when you come to the microphone, that'd be great. Before we really start that session, I'd like to take a moment and introduce you to the senior management team of the corporation, partly for recognition for them and the great work they've done, but also in case they're asked by Steve to answer some of the questions directly, I'd like you to know you already met and been introduced to Steve, Alister, and Janice.
I'd like to introduce to you Eric Axford. Eric's the Executive Vice President of Business Services. Mark Little, Executive Vice President of Upstream. Mike MacSween. Mike is Executive VP also of Major Projects. Steve Reynish. Steve is Executive Vice President of Strategy and Corporate Development. Kris Smith, another Executive Vice President for Refining and Marketing, and Paul Gardner, Senior Vice President for Human Resources. Thank you, gentlemen. We'll now take questions from the floor. I might mention those who are on the web, you should see a box in the slide where you see the slide displaying the meeting, the box where you could submit questions, and we'll be happy to take questions from those joining us on the web. Any questions?
No online questions.
We have no online questions. How about questions from the floor? You're going to let Steve off the hook that easily?
I can, because this is the more fun time after the formal piece. It's always difficult to get the first question, but I just happened to think of one for Alister. Sorry about that, Alister. We had our analyst call this morning, and for those of you who've known us for a long time, we've been on a journey of this capital discipline and trying to get our spend predictable and under control. We had one question this morning, which got us all smiling, which was, you've got in the habit, Suncor, of having a low capital expenditure and underspending what you said relative to the guidance at the beginning of the year. They asked us what we would be spending this year and next year. Alister.
Thanks, Steve. I didn't know I was going to answer the first one. I refer back to what I said in my comments. The first thing is our philosophy is deliver within our means. We'll spend what we're able to spend dependent on the cash flow, or that we generate, which is dependent on oil price, obviously, or the cash that we've got on hand. If you look back at the last few years at Suncor, the capital discipline we've applied around capital has been very much in evidence. You've seen the prior year levels of CapEx has been in and around that CAD 6.5 billion. I think I would be fair to say, Steve, that perhaps we've guided on a more conservative basis. Historically, we've always come in at the bottom end of that.
I would say that over the last year, [inaudible], that we've tried to bring our actuals much closer to the guidance and be there. Capital discipline will be very much in evidence. The capital will be quite consistent with what we've been spending.
Thank you. You can't see it from there, but I can see these guys here all relaxing, thinking, we got away with it, no questions. The boss is up there, he's sweating.
No, I'm not. Not necessarily, Steve.
Normally what happens is that we get the questions come in, and now the really difficult ones go straight from ear down to these guys.
We do have another question. I think there's a gentleman behind you there. Number 2?
Yes. Hi there. I have a quick question. Given the most recent volatility in the price of oil, both in 2008 and most recently, is there any intent by Suncor to start a hedging program to protect our cash flows and operations to remove some of the price uncertainty?
Yeah. I think everybody probably heard that about how do we hedge, how do we protect against a future decrease in the price of our products. We do hedge, but not in the conventional way. Most people think of hedging as selling your product on the forward curve. You've locked in a cash flow in order to be able to fund your business and growth. The way we do it, we used to do it that way. We don't do it that way at the moment. That's a very conscious decision. We hedge through two other mechanisms. One is, in the good times, we put some of the cash into our bank account so that we can pull on it. We've hedged without paying a price for it. We've hedged with our own cash. The other hedge we have is the design of that integrated model.
By having a downstream, when the price of crude is low, we're able to shift the profits from the upstream to the downstream. Indeed, that's what's protecting us at this low point. Most of the cash flow has been coming from the downstream for these periods. We hedge by that integrated model and by putting cash into our bank account.
Thanks for the question. Yes, sir.
Yeah. Bob Claire, I'm a shareholder. That was my first question. My second question is, what can you predict, or what do you use to predict, or what are you predicting for the oil price for 2015 to 2016? I know you have to have something out there. Can you?
In fact, that's the question I get most. Alister probably spends a third of our time on the road talking to shareholders or analysts. That question is the one we get most. Our answer is really simple. It's almost impossible to forecast with any degree of certainty what's happening to crude price. We don't bet the company on our guess of the forward price. What we do is we make sure we've got a very robust balance sheet. We've got money in the bank. We've got credit lines ready if we need them, and we use that through the cycle. We don't run the company on spot prices in the crude market. We do have a view in the long run, and our view is that supply and demand will work, and that prices will go back to the long-term supply cost of crude.
Our view currently is that that's in the CAD 80-CAD 100 range. We don't bet the company on that in the short term. We make sure we've got the funds to cover our operations and cover our capital expenditure.
We have one question from the Internet, but we have another one here at microphone two. The gentleman's been waiting for a moment. Yes, sir.
I'm Michelle Paquette, a longtime shareholder. Your major property, oil sands, is landlocked. First of all, Keystone Pipeline is pretty much dead. Gateway Pipeline going west is a long way ahead, and Energy East, going east pipeline, is also a long way away. At some point, aren't you a little anxious or concerned about where exactly your product's going to go since there's not enough [inaudible] to consume it here in Alberta?
The simplest version of the answer is no. We have enough takeaway capacity to take us through into the 2020s. We spend an awful lot of effort getting in a position where our logistics work. We own significant pipelines ourselves. We have contracted volumes on significant pipelines. We work with all modes of transport: road, rail, ship. We're actually, amongst most of the Canadian oil sands companies, the most comfortable in terms of logistics. We're getting close to Line 9 being reversed, which helps us even more. Only two companies benefit from that, ourselves and Valero's got the contracted volumes on it. The simple answer is we're comfortable. Now, we're also supporters of all of those projects, Gateway, Energy East, and Keystone. We're advocating and supporting, but we don't have any dependence on them in the medium term.
Thanks, Steve. Would you wait just one moment? I want to make sure that the web system is working. I have a question for the web that I'd like to state. Do you see any change in the economics of building upgraders in Alberta?
That sounds a really tough one. Do you want to have a go, Mark?
The challenge with upgrading the province is, and the dynamics of it is, you really need more heavy crude to come on relative to the conversion capacity. Upgraders convert heavy crude oil so that it can be used to make gasoline and diesel and usable products. It's really that balance. As more and more heavy crude comes to the marketplace, you need conversion capacity to come on. It's a bit of a challenge in the province of Alberta. Clearly, we stopped our upgrading project up north because the cost structure of building up north is very high, and crude is relatively easy to move. There is the North West Upgrading project that's going on in Edmonton, although that is being funded by the Alberta government because I don't think that the market would justify that. If the heavy crude market gets oversupplied, the economics will be there.
The question is, where's the most economic place in North America or on the globe to be able to upgrade that. I think generally the view is it's not likely in Alberta, but that it depends a little bit on the political infrastructure and such associated with that. We don't see ourselves participating in any significant upgrading in the province in the near future.
Thanks, Mark. Yes, sir.
Hi, Jim. Paul Ziff. There's been mention about the deferral of projects, both your company and a number of other companies in the Fort McMurray area, and decrease in costs. Could you provide an overview of your plans for the next five years for SAGD expansion?
We have extensive growth plans. We've got a very long list of projects with resource in our ownership, that we can develop. In the near term, the two big ones are Fort Hills and Hebron. Both of those are, as you heard us say, are going well. We have a really exciting replication strategy that we're getting ready to roll out this year. Maybe, Mark, you want to talk about. It's a phased program through a long period. Maybe just want to talk a little bit about that.
Sure. Thanks, Steve. The reason we call it the replication strategy is we're trying to come up with exactly the same design plans. We've been looking for pockets of resource where we could have identical plans put down to drive down the cost. The resources there, we're trying to figure out how do you bring it to market at a less costly manner. We've identified nine different pockets that range between 400 million and 600 million barrels with our current program. We've been drilling over the last couple of years to define that resource quality, and they end up in the Meadow area and Lewis, which is up more towards Firebag, and we also have some interest in some other areas there. We're getting very excited about that. We've defined a lot of these areas.
We're now in the process of designing the facilities that could go with it. On top of that, which is kind of the conventional SAGD technology, we're looking at a lot of different technology fronts, from using heated solvents to using radio wave technology to be able to provide the heat, which is very efficient in using solvent to do the production. Non-water-based technologies. We also have direct contact steam generator as a way of driving down the cost of the plant. Not only are we finding the resource, but we're also looking at technology fronts to be able to drive down the total cost structure to bring that to market.
Okay. I think there was a second piece underneath that question, Mike, that you just might want to quickly reference, is about the Fort McMurray region. We're executing CAD billions of projects up there at the moment. We're finding one of the reasons we wanted to build Fort Hills now and move into replication now is that the overall market, we anticipated, would be quieter than other periods. Maybe you want to talk about it, Mike?
Sure. Thanks, Steve. We have seen over the last number of months with the downturn and the capital coming out of the system, availability of labor and a focus on productivity and indirect costs associated with capital expansion being a real driver for us to deliver the projects that are in flight. Certainly we've seen on the revenue side, the pressures with the change in the marketplace. That has alleviated some of the competitive pressures externally with both the engineering firms, the procurement steps, and with the construction in the field. For the projects that are in flight, like Fort Hills, presents us a great opportunity to focus on delivery in a better and more capital efficient manner.
Good supplement. Thank you. Thanks for your good question, Paul. Saeed?
Thanks, Jim. Saeed Tangir, I'm a shareholder. You recently sent a cargo overseas. I just want to know what part of were you focusing and which countries. As well, are you going to increase your transportation by rail?
Okay. I don't know, Kris. It's a question about one part of our strategy is we are able to get our crude onto the ocean and therefore move it around. We announced that we've done the first one of those last year. Do you want to talk about that, Kris and Rail?
Thanks. We have set up capability over the last 18 months to actually take advantage of differentials that we are seeing in Alberta to move some of our production into other markets. We are able to do that in a couple of ways that we were not able to do before. One of that is to move off the East Coast of Canada. We put capability in that we can take production to the East Coast, put it on a boat, and then take it actually to the best market available. Sometimes that actually is a market in North America. One of our cargoes actually went into Europe. The one that Steve's referencing, actually our first cargo, went into Southern Europe. We have the flexibility now to move production to the East Coast. We also have flexibility to get it to the Gulf Coast as well.
We use rail, we use pipe, and we use marine. We take a look at what the economics are in any particular moment, to where we can get the best net back for our production. We are seeing lots of benefit from that, and we are seeing the ability to actually improve that over time as our production grows so that our market access strategy that Steve talked about supports our growth plans as well.
Very good. Any further questions?
One more from the web. It is an interesting one. Are you satisfied with the performance of Syncrude, and any interest in taking over operations management?
I'm sure Joe's actually here making these questions up.
Thanks a lot.
We had this question this morning on the analyst's call. I think, first of all, what I'd say about Syncrude is we have been disappointed with the performance. We've been working really hard with the other owners, Exxon and Imperial, the operator, to get some improved reliability and get the costs down. We've seen some good signs. They're working on the right stuff, it's not delivered much results until we get to this first quarter. We've seen a real improvement. We've seen the costs come down. Of course, what we're really looking for are the costs coming down at the same time as the reliability is coming up. There are indications that that is starting to come. That's good news.
In terms of interest in a larger share or operating it, we currently have 12%, that's a very low level to want to be an operator of a plant. It doesn't make sense for somebody who only owns 12% of an asset to be operating it. The natural question is being, well, would you buy more of a share in it? Really what I would say is it just simply has to fit into our overall strategy, which is we have a track record of relative to most companies, not too many mergers or acquisitions. We've been bigger at divesting assets rather than acquiring them. The reasons for that are that anything we look at has to compete very well with that long list of projects we have in our own ownership.
What we found is, and it's just a general comment, not particularly about Syncrude, is that there is a gap between what sellers of assets are expecting and what buyers are willing to pay. The two deals we have done around the merger with Petro-Canada, and more than 10 years ago, we bought a refinery in Colorado. We tend to buy at the very low end of the cycle. Our view is the gap is still too big. We haven't been particularly interested in pursuing acquisitions right now. We have a look. We look at all of the opportunities in the market. They have to stack up against our own very good organic opportunities.
Good. Okay, well, I think the questions are finished. I'd like to thank you for your interventions. I appreciate your questions. I also appreciate those who are on the web that participated through the internet. Thanks for joining us today. I think it's been a good meeting. We appreciate your interest in Suncor and look forward to connecting with you again this time next year. Thank you, and I hope you have a wonderful day.