Earnings Call: Q4 2018

Feb 6, 2019

Good day, ladies and gentlemen, and welcome to the Suncor Energy 4th Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. I would now like to introduce your host for today's conference, Mr. Trevor Bell, VP, Investor Relations. You may begin. Thank you, operator, and good morning. Welcome to Suncor's 4th quarter earnings call. With me this morning are Steve Williams, Chief Executive Officer Mark Little, President and Chief Operating Officer and Alistair Cowen, Chief Financial Officer. Please note that today's comments contain forward looking information. Actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our Q4 earnings release as well as in our current annual information form, and 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 4th quarter earnings release. Information on the impact of foreign exchange, FIFO accounting and share based compensation on our results can also be found in our Q4 report to shareholders. Following the formal remarks, we'll open the call for questions. Now I'll hand it over to Steve Williams for his comments. Good morning, and thank you for joining us. Looking back, 2018 market was volatile and certainly very interesting. We entered the year with increasing benchmark prices supported by an improving global supply and demand outlook. However, as we all know, the second half of twenty eighteen saw a significant reversal of those trends. Combined with global trade disputes and market access issues and prices ultimately hitting a low at the end of December before reversing yet again in the past few weeks. The Alberta business environment in the 4th quarter was also volatile with our realized pricing for bitumen and synthetic crudes down over 80% 45%, respectively, versus Q3. Pipelines at capacity, storage inventory near capacity and of course competitor to I know that both investors and analysts want to look forward to 2019, but we do have a great deal of good news to report for the Q4. Once again, the resiliency of our business model in difficult environments was clear as we generated $2,000,000,000 in funds from operations and returned value to our shareholders with over $1,700,000,000 in dividends and share repurchases. We did this and maintained a strong balance sheet. Being able to generate cash flow through a volatile commodity cycle is a strength. We're able to do so because of our long term focus on integration between upstream and downstream assets and because we've secured strategic long term pipeline commitments, mitigating our market access risk. Our ongoing focus on safe and reliable operating performance was highlighted in Q4, and we achieved quarterly and annual performance records in many of our upstream and downstream assets. I'll now hand it over to Mark to provide more context on our solid operating performance. Thanks, Steve, and good morning, everybody. Our 4th quarter operational results demonstrate Suncor's unwavering commitment to operational excellence, which we've talked a lot about. A long list of achievements highlight the production capabilities of our assets with a record total upstream production of 831,000 barrels a day, including record total oil sands production of 741,000 barrels a day. Syncrude had a production record of 210,000 barrels per day net to Suncor or 101% of nameplate capacity and Fort Hills achieved utilization of 94% for the quarter, exceeding our accelerated midpoint guidance of 90%. And Hebron continued its successful ramp up achieving average production of more than 15,000 barrels per day net to Suncor following the completion of the 4th production well. And finally, in the downstream, we achieved record crude throughput at our refineries of 468,000 barrels per day. This performance reflects the hard work of Suncor employees and the contractor community. And I'd like to take a moment just to thank the team and all their personal commitment to operate safely and reliably, which clearly drove the outstanding quarterly results. I'm also extremely proud of the successful ramp up of Fort Hills, which achieved the increased target of averaging 90 percent utilization in the Q4, and we just bumped it up to that level in Q3 of last year and gave the team a new challenge. We also saw a successful return to more reliable operations at Syncrude following unplanned outages earlier in the year. Strong reliability leads to low operating costs and that was certainly the case for both of these assets in the 4th quarter. Fort Hills cash operating costs of $24.85 per barrel and Syncrude cash operating costs of $31.75 per barrel, representing a decrease of 25% 50% respectively from the Q3. Remember, those costs are in Canadian dollars. So converted to U. S. Dollars, Fort Hills cash operating costs were $19 a barrel and Syncrude's were $24 a barrel. As you know, there's some minor operational challenges at our base plant during the quarter. Total Oil Sands operations production of 433,000 barrels per day reflects both planned and unplanned maintenance at our Upgrader 2, which resulted in overall upgrader utilization of approximately 80% for the quarter. The base plant returned to normal operating levels following the completion of the unplanned maintenance in late Q4. Our in situ assets continue to operate reliably, albeit slightly below the record levels achieved in the Q3. This was a result of seasonal volatility and planned upgrade or maintenance. On a full year basis, Suncor's in situ assets achieved a new bitumen production record of 240,000 barrels per day on a nameplate of 241,000 barrels per day. So they had a fabulous year. Moving to the offshore E and P, our East Coast assets were impacted by a severe storm that required all platforms in the region to be safely shut in for approximately 1 week. These events coupled with an unplanned outage at Buzzard, which was resolved by the end of the quarter, resulted in average total E and P production of 90,000 barrels per day for the quarter. On a full year basis, total upstream production of 732,000 barrels per day represents a new annual record and an increase of 7% over our 2017 production. This includes the successful ramp up of Fort Hills and Hebron and the completion of the most significant planned maintenance program in Suncor's history. Looking forward, we will focus on facility debottlenecking, cost reductions and margin improvements that will increase annual cash flow between 2020 2023 with a target of $2,000,000,000 of incremental cash flow per year thereafter. We'll continue our operational excellence journey, including persistently improving our maintenance and reliability practices, reducing operating costs across all our assets and that includes the support that we have for Syncrude on their reliability journey. Deploying and implementing technologies such as the automated haul systems or our tailings management system pass and leveraging digital technology across the enterprise will be instrumental to our continued progress in improving reliability and reducing costs. We also have a number of growth projects in the works. For example, our sanctioned offshore developments off the East Coast of Canada and in the North Sea, pre investment analysis on the replacement of our coke fired boilers with low cost, high efficiency cogen and the construction of the Syncrude bidirectional pipeline, which we expect to be operational by the end of 2020. All of these projects are expected to improve productivity and increase margins and are not affected by current egress challenges in Western Canada. In summary, through cost reduction, margin improvement and production debottlenecks, we have the potential for significant cash flow growth over the next several years regardless of market conditions. And I can assure you that the team is all over it. So with that, I'll pass it on to Alistair and he can provide some color on our financial results. Thanks, Mark. And as Steve mentioned, the business environment during the Q4 was volatile, with average Brent, WTI and WCS benchmark prices declining 10%, 15% and 60% respectively from the Q3 level. While those levels have occurred before, the widening of the Western Canadian light oil differential to an average of all the U. S. Dollars 25 during the quarter was unique and this volatility translated directly into significantly lower price realizations across the upstream energy industry. This declining price environment for crude oil and finished products also resulted in a net $385,000,000 after tax charge associated with FIFO accounting and related inventory valuation adjustment. Despite these headwinds, Sunco demonstrated the resiliency of our business model and we generated $2,000,000,000 in funds from operations and $580,000,000 in operating earnings in the quarter. This brings our annual totals to a record $10,200,000,000 in funds from operations and $4,300,000,000 in operating earnings. These quarterly and annual financial results are a testament to the value of our integrated business model, which is able to capture much of the value of widening differentials with record downstream annual operating earnings and funds from operations of $3,200,000,000 $3,800,000,000 respectively. During the quarter, we saw significant value in our stock price and continued to execute aggressively on the stock buyback program, repurchasing $1,200,000,000 of shares at an average price of just under $44 On an annual basis, we have repurchased more than 64,000,000 shares for $3,100,000,000 which was funded by the $3,900,000,000 of discretionary free funds flow generated in 2018. Given the accelerated purchasing of our stock in the Q4, we expect to complete the current $3,000,000,000 stock buyback program by the end of February. Accordingly, our Board of Directors has approved an additional $2,000,000,000 of stock buybacks. Our Board also authorized a substantial 17% increase in our dividend, which marks 17 years of consecutive annualized dividend increases. This dividend increase is supported by the structural improvements to our free funds flow through strategic countercyclical investments and operating performance of Fort Hills and Hebron and additional interest in Syncrude. Our dividend is not dependent on a high oil price. We are able to fund our dividend and sustaining capital at a US0.45 dollars per barrel oil price. So with that, I'm going to hand you back to Steve for some closing thoughts. Thanks, Alastair. So looking back to 2018, I think the resiliency of our business model was tested through high and low realized price environments. And as Alastair emphasized, we achieved record funds from operations of $10,200,000,000 and returned over $5,400,000,000 of that to our shareholders. So that represents more than a 50% of funds from operations being returned to shareholders. And it's this past performance that provides us with the confidence as we look forward to 2019 beyond. Our business is built to mitigate the volatility the industry has experienced and the cyclical nature of this commodity business, and it allows us to focus on creating long term shareholder value. We will remain capital disciplined. The midpoints of 2019 capital and production guidance represents a flat capital spend compared to 2018 and a year over year production increase of approximately 10%. And that includes effects of the Alberta government mandatory production curtailment. We will also continue to operate our assets in a safe and reliable manner in keeping with our operational excellence standard. We remain committed to returning value to our shareholders, the execution of our $3,000,000,000 stock buyback program, a further $2,000,000,000 stock buyback program and a 17% dividend increase demonstrates the ability of our business model to substantially grow shareholder returns. We plan to invest capital in 2019 through to 2023 to grow production through debottlenecks, enhance margins and reduce costs. In turn, we expect to generate incremental cash flow in each year during this period, culminating in more than $2,000,000,000 of annual cash flow in 2023 beyond. So this will enable us to continue to grow dividends, continue stock buybacks and continue to invest in our business, all whilst maintaining a strong balance sheet. So with that, I'll pass back to Trevor. Thank you, Steve, Alastair and Mark. I'll turn the call back to the operator now to take questions. Our first question comes from Neil Mehta with Goldman Sachs. Your line is now open. Good morning and thanks for taking the time this morning. The first question I had this morning was about the Alberta production curtailments. And I'm curious, Steve, your views on the duration of these cuts. And talk a little bit about what's happening on the ground from your asset portfolio? Where are you curtailing production? And how are you actually executing the mandates that have been provided to you? Okay. Yes. Thanks, Neil. I mean, let me I think I'm going to get a lot of questions over the next half an hour on curtailment. So if you forgive me, what I think I'll do is make a few general comments, which will context the situation, both generally and specifically for Suncor. And I think it will answer your questions, Neil. So the first thing I would say is Suncor is unique in this particular sector because of that integrated model we have. We have the 600,000 barrels a day of upgrading, 460,000 barrels a day of refining. We have strong, very strong pipeline access logistics. So we're very well positioned. Of course, I am on the record. I do not support these curtailments. I'm disappointed in the fact that the Alberta government has got us into this situation, but we are working with the government to make sure that the unintended consequences are minimized. But let me start to answer your question. First off, and I'll take it even higher level than just curtailment. I expect everything else broadly equal that 2019 for Suncor will look very similar financially to 2018. Now that won't surprise anyone because we put out our 2019 guidance and we took into account the curtailment. So our expectation is we will produce between 780,000, 820,000 barrels a day. So that's a 10% growth from 2018 to 2019 and that takes fully into account what we anticipate from the curtailments. Now in direct answer to your question, I suspect, but I mean you have to talk to the Alberta government that what they're seeing is that the unintended consequences we highlighted are happening a bit faster than they expected. So if you look at what's happened, the differential corrected and over corrected very quickly. And the unintended consequence of that is that potential the rail economics are seriously damaged and a lot of the rail movements are stopping or have stopped. That's going to have the opposite impact to what the government want. And what we've seen is I think ahead of everybody's expectations, they started to reduce the curtailment already by that 75 1,000 barrels a day. So our advice to government has been, you're seeing these impacts, We take them through the unique lens that we in industry have on it. And it's time to start planning for what we call a soft landing or a soft exit. The strategy to remove these curtailments, the strategy needs to be fair, transparent and understood. And every indication that we can see is from these first moves, it's starting to happen. So if I summarized all that law, I would say nobody's immune to it. We're relatively immune because of the upgrading, refining and logistics we have. We have the vast majority of all of our materials including products moving by pipelines. So we still think our guidance is good. So we're not anticipating for now moving away from the 780 to 820. And if anything, we see curtailment coming off a little bit early. To paraphrase a little bit, Steve, is what you're saying from a cash flow perspective for Suncor specifically is that the you will see some lost cash flow obviously from the loss in production. But given that the differentials have tightened up, should we think of this as a net neutral from a cash flow perspective of Suncor? I mean, of course, it depends on all of your assumptions in there. I mean, I'd probably say, anything, I'd be a little bit more bullish than that. I mean, it depends on your assumption where you believe differentials end. With differentials moved so significantly, like everyone else in a sense, even with the curtailment, everything else equal, we were a benefactor because the increase in margin applied to 90% of our production. So I think in the worst case, we are neutral, maybe even slightly positive to it. But it depends on where you think the differentials end up. Our view is that these different the market should be allowed to work. These differentials need to even to meet the Alberta government's objectives. These differentials need to come back so that rail economics work. Because right now, there are rail facilities and capable of moving crude and bitumen, which are not in operation. Thanks. And then looking out a little longer term, appreciate the guidance that you provided here on Slide 3, which gives us cash flow growth out through 2023. A couple of questions on this. Is this a cash flow per share CAGR or an absolute cash flow number? And as you think about the pluses and minuses, it seems to us like this could be a conservative number even in the flat price environment where there's some upside risk to it. Just any thoughts on how you think about this long term cash flow guidance? I agree with you. I'll let Alistair answer, but I think you're right. I think it is a conservative number. Yes, Neil. On Slide 3, that's an absolute increase in cash flow over that period of time. So to the extent that we're buying stock and we obviously expect to continue to do that over the next several years, those numbers would increase, yes. So I agree with Steve. I think they're probably conservative. Thank you. Our next question comes from Greg Pardy with RBC Capital Markets. Your line is now open. Thanks. Good morning. Steve, I was just hoping to jump into some of the operating into the operating side of the business, but you did touch on the Syncrude bidirectional pipeline. So it sounds like the commercial side of things is there. Can you just walk us through what the next steps are, when construction might start, that kind of thing? Yes, I'll let Mark take us through the details, Greg. But yes, we're pretty much the partners are pretty much agreed on it. We're actually doing the detailed work on it now, but let Mark take us through what the program looks like. Yes. Thanks, Greg. We went through and ended up getting the agreement in place. And you can appreciate we're swapping commodities between the two sites and picking up the uplifts between the two sites and dealing with maintenance events and all that kind of stuff. So the commercial agreement was actually quite involved to try and sort out, okay, who's paying for the line? How do you split the benefits and those sorts of things? All that's behind us. We're in the process of doing the engineering and such and preparing for the field work. We expect construction to begin in the not too distant future and we'll end up putting the line in service towards the latter part of 2020. So we expect it to be fully in place. That's a little later than what we originally said. We are hoping to have it in place and operational for all of 2020. So it's a little later and a lot of that was just held up on the commercial work. But the work is progressing very nicely now and all the partners are working hard to get that in place because everybody realizes this is significant to us achieving our 90% utilization, our $30 a barrel operating costs that we committed to quite some time ago. Okay. Thanks. And so that will then mean that you'll have feedstock redundancy at Syncrude then that will come from what Fort Hills, Mackay and Firebag? Like will you have just kind of a cocktail in terms of what you can choose from? Well, we will have the ability to do that. Right now, we view that it'll be Firebag is the way that it's kind of constituted now to be able to move it in, but we have the flexibility. Unlikely we would do MacKay, but we certainly have the capability to move in Fort Hills, whether that particular connections in place by then or not is still in debate. But it does give us feedstock flexibility. It also allows during Syncrude turnarounds with their cokers to be able to move bitumen from Syncrude to our base plant and run it and then us export more bitumen or we also have the ability to move sour synthetics from our base plant into Syncrude and hydrotreat them and sell sweet synthetics. So there's a lot of different ways we can manage it. And all the scenarios I just talked about don't account for upset conditions and upset conditions is where you could make very significant amounts of money because it can be the difference between running and not running. Okay. You guys also have a quite a plan with respect to autonomous haul trucks. I think, in your Millennium as well as Fort Hills. Could you talk about that program? And do you see any plan to run autonomous haul trucks at Syncrude eventually? It's interesting. Syncrude, one of the things that opened up the opportunity for us to do autonomous haul trucks right now was we came to the end of the natural life of our fleet. And so we had to decide how we were going to move forward in our view was as if we were going to invest in a new fleet, we should make sure that it was autonomous and we worked all the various technologies. Syncrude isn't at that stage. We would expect that this would be something they would look at significantly and we have a lot of experience with it by the time they get to their fleet turnover, which is several years out. Right now, we have in the North Steepbank mine, we have autonomous haul trucks operating there. And I think we have about 20 autonomous haul trucks that are operational. And we're in the process now of getting ready to start turning on some of that at Fort Hills. At Fort Hills, we never actually hired permanent staff to operate the trucks in anticipation of us putting an autonomous haul truck. So we have some people doing contract work today. And the intent would be over the next several years to be able to roll this through and turn all of our operated mines at base plant and at Fort Hills to fully autonomous. Okay, terrific. Last question for me then is just shifting gears to realizations at Fort Hills, significantly better as we expected. Could you give us any color in terms of where you would have placed those barrels? Was that kind of a combination that of Pad 2 and Gulf Coast? Yes. It's interesting the yield, because we cut off the bottom almost 10% of the barrel, which is Ashville teams and put it back into the ground. A couple of things happen. When that barrel gets run through an upgrade or a refinery, your product yield is about 6% to 7% higher. So you're going to get a premium of 6% to 7% just on yield. Your diluent requirements to ship it on a pipeline are better. And so because of that, it's more efficient, lower cost. And so because we use less pipeline space, so we gain on the logistics. And then the other issue is we were able to send a bunch of that to the U. S. Gulf Coast, not exclusively. And so we were able to access a premium market. So it's product yield, logistics and the premium market that drove the differential. Terrific. Thanks very much. Thanks, Greg. Our next question comes from Paul Cheng with Barclays. Your line is now open. Hey, guys. Good morning. Mark and Steve, if I look at I know that you guys have been driving operational excellency all this year. And if we look at the base mine operation and the upgrader, last year is about 80 percent utilization rate versus that the year before in 2017, you hit close to about 91%. 2016, you're about 75% and 2015, you're roughly about 91%, 92%. So you still it looked like that is remain inconsistent in terms of your reliability. And so if we look back, is there anything that we learn or that we would just say, oh, the low utilization way or the end time downtime is just clearly unlucky or there's something that we learn for that process and will be able to help us in the future in terms of whether it's changing the procedure, the process or that introduce new technologies? No. I would say, I mean, overall, there's nothing sinister about those numbers. So there's not been any major issues there that are concerning us. I think operational excellence are addressing them. I mean, of course, last year was a major turnaround year for us. So I think Mark actually used the words we took across all of our assets, not just the base plant upgrade as we took the largest turnaround program that we've executed. Now not surprisingly in a sense because Suncor has more assets now as we brought on more facilities. But nothing sinister there. We're working on it and we would expect to see those utilizations continue to increase. And Steve, maybe I would just add to that. The other year that you pointed out that was down a bit was 2016, which was also a turnaround year. And right now we're on a 5 year time window. So the next 2 years where upgrading utilization, we expect to be down a little bit as 20212023. And so this is now, Paul, you know, we've talked about a few of the little operating issues and such that we had through this period. So there are some learnings and Mark, so yes, that means that you will Mark, so that means that you will only be because I think the company has been talking about on sustainable basis on a 90% plus utilization rate. Is that what it means is that during the relatively light turnaround year, you could achieve that, but in a heavy turnaround year that you won't be able to do it. So on the average, for a 5 year cycle, you actually would be less than 90% utilization rate? Well, I think, Paul, you noted in there is that we're actually working to ensure that we can achieve 90% over that cycle. And so some years, as you already commented on, it's over 90%, some years it's under 90%. And so we continue to work to optimize this to try and make sure that we maximize the utilization of these assets. So you're still targeting say on an average for the 5 year cycle, you still be able to get to 90% or better? Yes. Okay. You think that you in the next 5 years that, that is achievable? Yes. Okay. And that I know you guys normally don't get into the quarterly production guidance, but given all the curtailment and everything, is there some number that you can share in the Q1? And also that because the curtailment seems like it's asset by asset. So I think actually a little bit surprised that given you anyway that cannot run at the full capacity, is that really have no ability therefore us to push some of the turnaround that we may need to do later the year into the Q1? I mean, as you say, Paul, I mean, for this call and just generally, Suncor is a long term player. Our strategy is all about the mid and long term. We've got our balance sheet in a position where we can manage the long term. So we don't normally get into in a monthly or quarterly guidance. We've been very clear about our guidance. We expect to be $780,000,000 to $820,000,000 for the year, which is a 10% increase year on year taking account of the curtailment. If anything, it could be towards the top end of that as we're seeing curtailment come off a little bit faster than was originally planned by the government. But we wouldn't get into quarterly guidance. Okay. Understand. Paul, maybe I'd just add one point to that is, there's a reason why in late Q4 and Q1, we run everything 100% of the time. A lot of these this equipment has water in it. And so with the very cold conditions, we don't view it safe to be able to take these assets offline. Obviously, if an incident happens and we have to deal with it, we have to deal with it. It's interesting this past week in Fort Mac, I think with wind chill, it was minus 52 degrees Celsius and absolute it was minus 38 degrees Celsius. You can imagine if we shut down during that period just how unproductive it would be and we view unsafe. So that's why we don't do it. Great. Final question for me. For Fort Hill, your production is already 94% utilization rate. So incrementally, the benefit from a higher volume seems like it's going to be somewhat limited. And your cost is about $25 and I think you have a target down to about $20 or less. Assumed moving into the driverless truck we're saving about $1 So what else that we should be looking at that will help you to drive it down to below 20? I mean, it's too early to be doing those calculations from a distance, Paul. The plant is not in equilibrium yet. So we haven't got the mine in equilibrium with the operation. We've been because we came up much faster or at the very fast end of what we were anticipating, we've had to get ahead in terms of the size of the pit and the overburden in a position where we like it. So we still see the costs coming down below CAD20 a barrel, obviously, much less U. S. Autonomous trucks is potentially part of that. And we also haven't talked yet about where we think we can take a plant. So Mark talked about his $2,000,000,000 a year by 2023. Part of that is going to be a much lower than greenfield cost debottleneck of Fort Hills. So we think we've got some significant scope there that we're working on as well. So we think there's much progress can be made on per barrel operating costs. Thank you. Our next question comes from Dennis Fong with Canaccord Genuity. Your line is now open. Hi, good morning and thanks for taking my questions. Just quickly to follow on the Fort Hills component. You've spoken in the past in terms of the about 40,000 barrel a day debottlenecking and given kind of in the past you've mentioned that you're testing the pieces of equipment both in, we'll call it, warmer weather in the summer as well as the cooler temperatures now. Are there any like specific takeaways in terms of saying that you could potentially push that 40,000 barrel a day kind of the bottlenecking volume further than that given how much redundancy you have built out in terms of the mining side of things? I would just say it's just a little bit early Dennis to be coming to any conclusions. Here we are just completing the 1st year when most of the industries plants haven't even been up to full capacity by that stage. We've got it up to full capacity. It's going very well. We can already see that 20000 to 40000 barrel a day debottleneck. We won't rest at that point. We'll be looking for what else is available. Okay. Perfect. And then just quickly, subsequent to that, in terms of, we'll call it, they're obviously fairly capitally efficient projects to kind of unlock that incremental value there. How should we think about, we'll call it maybe trigger points in which you would look at sanctioning some of those projects? The thought shouldn't be, I don't believe, is that you require incremental egress, but it's like what are some of the check boxes that you feel like you need to tick off to feel comfortable sanctioning some of those? Yes. I mean a couple of comments I would make. I mean some of them are capital, some of them are not capital. So some of it is in progress right now and you will start to see some of that cash appear this year and next year, which is sort of the very front end of what you could spend in a capital sense. If you look, we'll obviously talk as we trigger because the capital several reasons why we are doing this program at this time and it's not a coincidence. We viewed that market access would be challenging through this period until Line 3 comes on this year, until the rail capacity comes on and then at least one of the other pipelines comes on. So we deliberately targeted and we've of course we brought big investments on anyway. So as part of our capital discipline, it made sense. Okay, we've made the big investments. Now we'll start to bring that program in. We'll start to focus on projects which don't require their margin projects, not purely production projects. There is a small amount of production in there, but not of the sort of Fort Hills side. So right now, we have all of our production covered by pipelines. We're looking at alternatives. And to trigger the next major capital and major growth phase, we will want to see some real progress on pipelines. And so this program fits perfectly with that. But I don't know if Mark wants to comment, but Mark is right in the midst now of the detail of that program, which is the $500,000,000 each year, adding up to 2,000,000,000 dollars additional cash flow a year by 2023. And we have the detail I wouldn't propose we go through it here, but we can do as we come out on the road. We have the details of that program now and we're very optimistic about being able to achieve that. Okay, perfect. And last question here and maybe this one's a little bit more for Alastair is obviously Q4 had a bunch of kind of FIFO LIFO adjustments and so forth. How should we be thinking about, we'll call it, purchase product costs for the downstream segment kind of going into Q1, but as well as potentially the sourcing of, we'll call it, cheaper diluent and potentially bitumen realizations as you go through on a quarter over quarter basis and maybe even kind of transitioning through the rest of the year? Thanks. Yes, Dennis. On the FIFO, the inventory adjustment service, a net negative $384,000,000 after tax for the quarter. And as you think about it, you started Q4 coming in at roughly just under $70 high 60s WTI and it went down to I think sort of into the mid 40s. So roughly a $25 fall generated that net sort of just under $400,000,000 of FIFO loss. As you see WTI beginning to move back up and we're already up to mid-50s, 54 ish, You're going to see that begin to come back in. There is a roughly 2 month lag between the prices coming up and then getting reflected through into our results. So you'll see some of that come back in Q1. If you don't go beyond the current levels, you're not going to get it all back in 2019. But if we continue to run up into the 60s, you should see most of it come back. So it will take some time, it probably depends on where the price of WTI goes. On the diluent side, I think that just really, yes, certainly that will help us as we move through and move our Our next question comes from Roger Read with Wells Fargo. Your line is now open. Yes. Thank you. Good morning. Steve, I was wondering if we could come back. You mentioned unintended consequences of the proration in the near term. Any thoughts on what some of the unintended consequences may be in the medium and longer term of the proration cut? Well, I mean, I'll take longer term to go beyond these problems we're seeing with rail because I'm guessing that this curtailment will be pulled back quite rapidly to make sure that rail economics can work. Otherwise, it's having the opposite effect to what it was intended to do. I think the biggest one is around confidence and it's the most difficult for anybody to quantify. But I hope what you can see is that our model in a sense is it rises above that. So our discretionary capital is targeted at marginal incremental growth through this period as we just talked about. So we need some pipeline access. But what we've been able to demonstrate and I wish we didn't have to see the extremes of these cycles to demonstrate discretionary our nondiscretionary capital and our dividend at very low crude prices, probably setting the benchmark in the industry. So we've been able to demonstrate confidence in our model. I think the thing I would say is, there has been without doubt an off Canada signal. And I hope what this performance is going to show that we really don't deserve that because we are impacted, but the extent of that impact is largely mitigated by our business strategy and our access. So we really belong in this context more alongside the super majors than we do our peers in Canada because our cash flow is very strong even at the bottom of this cycle when things are difficult. So that's the message you're going to hear us trying to get out there that we are not completely immune, but we're largely immune to the cyclical impacts. I think the other comment I would make is and it's a signal we're trying to get into government is find a way out of this because this is going to start to look very, very difficult. As you've seen from the commentary from the industry, I mean some are affected to a far greater extent than we are And what's most important about this exit strategy is that it's fair and transparent. Okay, great. Thanks for that. And then, I don't know, Mark, this is a question for you or not. I know you don't like to get into the quarterly guidance. But as we think about refining the downstream here in the first half of the year, the much narrower differentials for the heavy crude is obviously going to have some impact on profitability. So as we think about a cash margin, not so much to change LIFO to FIFO, how should we think about throughputs in the downstream, particularly coming off what was a record quarter on volumes? Yes. I mean, particularly, I guess back to my Q1 comment about running the assets. Certainly, our intent is to continue to run the assets hard. The allocation of cash moves around in our model. That's the joy of the integrated model as Steve's talked to. So we do expect a lot of the cash generation to shift back to the upstream out of the downstream. But the joy is that whatever the market conditions are, whether the spreads are narrow or whether there's curtailment or not curtailment, the machine and the integrated model actually generates cash. And I think from an investor's perspective, that's the key point is that in all market conditions, we're generating cash, returning cash to shareholders and continuing to invest in the business and the overall model. So we are expecting the Q1 results that the cash is going to move around in the model significantly as you pointed out, Roger. And but we're expecting that, that will continue to drive cash flow and value for the shareholder. Okay, great. So that helps on the volume thoughts. Appreciate it. Our next question comes from Mike Dunn with GMP Research. Your line is now open. Good morning. Thanks for taking my question folks. Steve, Mark, Alistair, just wondering if you could provide some color or insight as to how the Board is thinking about the sustainability or what you can afford to pay for a dividend. It's the 17th year in a row of dividend increase. You've outlined some paths to growing cash flow even without pipeline egress here. So I'm just trying to understand, I know your slides present a $45 WTI, call it, free cash flow breakeven to fund sustaining capital in the new dividend level. But is that 45 number not a bad way to think about the threshold that's needed going forward for the next few years? Or I'm sure it's not that simple, but is that one of the considerations, a $45 WTI breakeven? Thanks. Yes. I mean, let me just give you a few comments, Mike. I mean, if you go back, the promise that we made was as underlying production and therefore cash generation came up, you would see the dividend come up. And we felt we've been through a relatively heavy capital period with Fort Hills and Hebron. And so we've been in a sense holding back dividend whilst we were going through that program. In fact, the market gave us more cash than the base case we were planning on. So you've seen substantial share buybacks through that period. And as you say, what we like to do is we think we've got a relatively low breakeven price on crude to cover sustaining capital and dividend. And we talked about that less than $45,000,000 And Mark's talked about our programs to get that number even lower if possible. And we've kept the flexibility and you can see even this year through a relatively difficult to forecast and volatile period, We've completed the first we're in the process of just completing the first $3,000,000,000 and we'll be quickly starting this next $2,000,000,000 buyback. So you can see a very high degree of confidence from the Board because we have a track record of when we say we're going to buy back the when we put the program in place, we buy the stock back. I think what it says is, and of course, it's a Board decision in the end dividend, We don't feel as though we've used all of it. We still think we have some firepower there. Very happy through this period. We think balance sheet is in great shape. We're happy with the $2,000,000,000 and the 17% increase in dividend. But you could see all of those continue to move. Because I know in your models and your model is a good one, when you put the numbers in, we talk about similar cash flows this year to last year. So we've been getting up above the $10,000,000,000 cash flows per year even in these markets. You don't have to have big changes before that number can become significantly higher again. So we think there's scope to bring the dividend up further and scope to continue significant share buybacks. Our next comes from Phil Gresh with JPMorgan. Your line is now open. Yes. Hi, good morning. First question is just on the coker project, how you think about that today? I'm thinking about this kind of in light of the production cut impacts and the fact that in an environment where the coker could have been very economic, that got kind of taken away because of the government cut. So do you still see it as a strategic project long term if you want to expand upstream production in the long run? Phil, we sure do. It's interesting with bitumen because a bit of the unique commodity for it to be a value, it needs to be converted into products of value, whether it's jet fuel, diesel or asphalt. And so as production of bitumen increases, it needs to get converted. We think this is a good project. Obviously, it takes literally years to be able to build these assets and get them online. And as a result of that, as we look forward, the curtailment we just view as a little speed bump in the road. If we believe that the Alberta government was going to be in the markets literally for decades, we would this would have a dramatic effect, but we don't view that it's relevant to our investment decision. Is there a particular timeframe where you're hoping to make a decision on the Coker? We're working through it right now and we're expecting that we'll likely make that decision by the end of 2019. Okay, got it. Steve, how about your latest thoughts just on M and A at this point? Are you just mostly focused on these organic opportunities to improve cash flow? Or do you still think there's M and A opportunities this cycle? I mean, Phil, I would say business as usual, judge us by our track record. One of the things we've done through all of what we've been discussing around curtailment and dividend and share buyback, We've kept our balance sheet in a very healthy condition. The biggest impact on it has been on debt has been foreign exchange conversions over the last 6 months. So our record is one of keep a strong balance sheet to the extent you can by counter cyclically if you're going to do it. We screen everything in the downstream on this continent. We stream everything in and around the oil sands business and around our E and P business. We look at step outs on our existing reservoirs or facilities or small bolt ons. That strategy isn't changing. I think if anything is changing out there, there are potential opportunities that we're looking at. There's nothing particular we're looking at right as we speak at this moment, But this market is probably going to throw up some opportunities over the next 12 to 24 months. Not every company has been one of the benefits of this integrated model is it leaves us strong through this period. Not everybody else is through that. Now you've seen even with M and A talked about particularly in oil sands over the last few months, you've not seen Suncor becoming involved in that. And I think clearly Mark needs to express his position through time, but you'll see us sticking to the discipline and the rigor we've applied to M and A. Okay. Thanks. My last question, I guess, this would be for Alastair. If I look at that 2019 guidance for cash for FFO in Slide 11, being flattish with 2018 despite a $7 a barrel reduction in the WTI price. Is that just basically the production benefits and a lower maintenance year? Or are there any other moving pieces we should be thinking about behind the scenes there? No. Phil, it's essentially production increases as Steve outlined where we're at and taking some more costs out of our business, offsetting the fall in the expected price. Okay. Thanks a lot. Our next question comes from Jon Morrison with CIBC Capital Markets. Your line is now open. Good morning, all. Maybe just a follow on Mike's question. Is there anything at this stage outside of a major drop in the crude price or more material widening in Canadian diffs than you might have baked into your base case expectations for the coming quarters that would give you pause to not start moving through the incremental buyback program in a fairly linear fashion, obviously, once you get through the current one that should be done this month? No, nothing we can see. I mean, that's why we're speaking to it so strongly, John. I mean, we've as I say, we're like within days and week, we're close to completing the first 3 $1,000,000,000 you'll see us move straight in to the other $2,000,000,000 So no, we can't see anything on the horizon that would cause us to not do that in a relatively ratable fashion. And of course, one of the things we've always talked about from this very beginnings of our share buyback is we don't want to get caught in that track by where we can't because where we can't afford to buy it when the stock is low. For us, it's a return decision we make versus our other best alternatives. We find our stock very attractive at these prices. And so actually when the price is lower often associated with when day to day, week to week, month to month cash flows are low, that's exactly when we want to buy. And that's why we've been buying heavily through this cycle. So we can't see anything on the horizon which would cause us to hesitate. Steve, you made comments in terms of crude by rail volumes slipping and that's obviously in line with what Imperial messaged last week. Given that backdrop, do you have any concerns about a potential major blowout in this towards the end of the year? Should we see the Line 3 replacement get pushed in any way? And secondarily, do you believe that the is actually going to be able to ramp back up to something in the, call it, low to mid-three 100,000 barrel a day for CVR exports, if it does in fact come down hard in the next 2 to 3 months? I mean, I hear the theory of that question. I would say, there are some seasonal things which happen, which haven't quite been taken into account yet, which will help the situation in the short term, which I think causes this curtailment to potentially come off quicker than is being anticipated. The first one is the industry goes into maintenance as we get into the Q2. So the pressure on the supply side will start to come off. The other piece that happens is as temperatures start to come up, the diluent blending ratios on bitumen start to change. So we don't have to put so much diluent into the blend. So the volumes going down the line will decrease for the same amount of production on the supply side. So you're going to see the pressure starting to come off as we go through the next 2 or 3 months on the supply side. And every indication on Line 3 is it's progressing well. In fact, it could well be calling for line fill, which is quite significant, a lot earlier than the end of the year if the progress continues. So if anything, I think the pressure is coming off. There's always the possibility of it. And my guess is that people this time through, there's a fair amount of crude by rail capacity starting to come on. Of course, it's a major part of some companies' strategies that's around the loading facility, buying the locomotives and getting the manpower to use it. So I think the industry does have the capacity. I also think on the demand side, with what's going on in Venezuela and Mexico at the moment, there's going to be a clear pull for it from a demand point of view. So I think for us, we're in that situation where I think supply can come up, demand is increasing and I think the U. S. Will see a strong supply from Canada as a strategic benefit. That's helpful. Maybe if I could squeeze in one last one and it's probably best for Mark, but there was obviously expected downtime at U2 and then unexpected that came through. Can you give any more color on what the unexpected downtime was? And is there anything there that would give you concern of potential hangover effects in future quarters? Or is all of the comments that you've previously made in disclosures around planned 2019 maintenance largely hold at this point? Yes. We think our disclosures largely hold. Every time there's an unplanned event, there's something that we didn't foresee happen. And a lot of this is related to assets that have been on the ground for very long periods of time. So we deal with that, we learn from it, we mitigate that it happening in other locations and move on. So I think that and the organization has been very disciplined about that. So the disclosures that we have is what we're fully expecting in 2019 and that's kind of where we're at. Thanks, John. Appreciate the color. Turn it back. I would now like to turn the call back over to Trevor for closing remarks. Thank you, operator. So thanks everyone for attending the call today. For those who didn't get their questions answered or have follow-up questions, please reach out to the IR team. We'll be around all day and happy to discuss those. Thanks again. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.