Good day, ladies and gentlemen, welcome to the Suncor fourth quarter 2017 financial results conference call. At this time, all participants are in a listen-only mode, and an operator will be happy to assist you. As a reminder, this conference call may be recorded. It is now my pleasure to hand the conference over to Mr. Steve Douglas, Vice President, Investor Relations. Sir, you may begin.
Well, thank you, operator, and good morning, everyone. Welcome to the Suncor Energy Q4 earnings call. With me here in Calgary this morning are Steve Williams, our President and Chief Executive Officer, Mark Little, our Chief Operating Officer, and Alister Cowan, EVP and Chief Financial Officer. I'd ask you to note that today's comments contain forward-looking information. Actual results may differ materially from expected results because of various risk factors and assumptions, and these are described in our fourth quarter earnings release as well as our current AIF. They're both available on SEDAR, EDGAR, and our website, suncor.com. Certain financial measures that we refer to are not prescribed by Canadian GAAP, but for a description of these measures, please see, again, our Q4 earnings release.
Following our formal remarks, we'll open the call to questions, first from members of the investment community, and then if time permits, members of the media. With that, I'll turn it over to Steve Williams.
Thanks, Steve. Good morning, and let me add to Steve's thanks to you for joining us. The first call of the year is always a little bit different. We certainly want to provide color on the very strong operational and financial results we delivered in 2017. This call also marks the beginning of the new year, and I know that both investors and analysts are looking forward with great interest, particularly in light of the improving global supply-demand balance. We have a great deal of positive news to report on, both from the year gone by and the year to come. Let me get started. I'm going to kick off with the financial and operational highlights, followed by a strategy update. I'll pass over to Mark Little and Alister Cowan to provide some additional detail on our operational and financials, respectively.
The fourth quarter marked the first time in Suncor's history that we've exceeded CAD 3 billion in quarterly funds flow. This broke the previous record of CAD 2.9 billion, which was set in the first quarter of 2014, interestingly, when WTI oil price averaged just under $100 a barrel, almost 80% higher than this past quarter's average of $55.40 U.S. dollars per barrel. Clearly, we've taken some significant steps to increase the profitability of our business in the past three years. Our assets operated reliably during the quarter, with upgrading at our base plant and Syncrude hitting utilization rates of 93% and 94%, respectively. Our refineries also averaged 94% utilization for the quarter, resulting in record throughput for the year as a whole. Total upstream production in the quarter was Suncor's second highest ever, falling just shy of our record third quarter.
Notably, we recorded a total of almost 8,000 barrels per day of production from startup operations at Hebron and Fort Hills. We were very pleased to see Hebron's first production come online in November, about a month ahead of schedule. Development drilling will continue, and we expect the project to contribute close to 10,000 barrels per day to Suncor's production this year. At Fort Hills, we completed multiple test runs of the front end of the plant and produced over 1.4 million barrels of froth, most of which was shipped to our base plant for further processing. In late January, we successfully started up the first of three secondary extraction trains and began producing high-quality PFT bitumen, which has a lower lifecycle carbon footprint than the average barrel of oil refined in the U.S. today. Now, let me just repeat that.
The lifecycle carbon footprint of Fort Hills bitumen is actually lower than the average barrel of oil currently refined in the U.S. That lower carbon production is shipped by pipeline to the East Tank Farm, where it's blended and sent to market. The East Tank Farm, of course, a significant project in its own right. Suncor built and operates the CAD 1 billion state-of-the-art facility for blending, storing, and shipping Fort Hills bitumen. In a landmark deal which closed in the fourth quarter, Suncor created a partnership with the Fort McKay and Mikisew Cree First Nations, which saw them acquire a combined 49% interest in these assets. This represents the largest First Nations business investment ever made in Canada, and it sets a new standard in terms of how natural resource companies and First Nations can work together for mutual long-term benefits.
During the quarter, we were able to reach agreements with our partners in the Fort Hills project to resolve the previously announced commercial dispute. Under the terms of the agreement, Suncor acquired a further 2.26% working interest in the project for a payment of approximately CAD 300 million. That equates to a capital intensity of about CAD 69,000 per flowing barrel. Our working interest in Fort Hills is now just over 53%. As everyone knows, Suncor has a capable and experienced development group. We were one of the few companies to be able to take advantage of low oil prices back in 2015 and 2016 to make some significant acquisitions at very attractive valuations, while still maintaining our strong balance sheet. We continue to evaluate market opportunities as we have through the crude price cycle. We do have news today on the natural gas front.
As everyone who follows Suncor will remember, several years ago, we made a call on natural gas and divested substantially all of our gas-producing assets prior to the sharp fall in gas prices. At that time, we retained a significant set of leases in the Montney with a view to potential development at some point in the future. Today, I'm pleased to announce that subsequent to the end of the quarter, Suncor reached an agreement with Canbriam Energy Inc. to exchange all of Suncor's Northeast British Columbia land holdings and consideration of CAD 52 million for a 37% equity interest in Canbriam. This transaction is fully consistent with our philosophy of natural developer, placing the assets in the hands of those with the best technical expertise and focus to develop them both safely and efficiently.
It allows us to share in the new value that's created while maintaining our focus on our core areas. We expect the deal to close later in the first quarter. We've clearly been very active, steadily growing the company, both organically and inorganically. This has not been, as you've heard me say before, growth for growth's sake. We're focused on strengthening our core business, taking advantage of integration opportunities across our asset base as we start to assert what we're calling the Suncor Advantage. The Suncor Advantage lies primarily in 4 areas. A long-life, low-decline resource base that is competitive and increasingly carbon competitive, not just cost competitive.
A highly efficient, tightly integrated downstream that maximizes the value of every oil sands barrel of production and helps to cushion us from the effects of Western Canadian crude price differentials and largely mitigates the impact of crude price differentials. A highly profitable and focused offshore business that provides geographic and funds flow diversification. Fourth, a strong financial position and balance sheet with management focus on capital discipline and adding value. We closed out 2017 with a record fourth quarter. With rising production and declining capital spending and our strong integrated business model, we're set up for continued success in 2018. I'm going to ask our Chief Operating Officer, Mark Little, now to go into a little more detail on our operational performance in the fourth quarter. Mark?
Thanks, Steve, and good morning, everyone. As Steve noted, our assets operated reliably throughout the fourth quarter, resulting in near-record production from the upstream and record annual crude throughput in the downstream. The strong quarterly performance put a cap on a very solid operational year for us, and I just wanted to highlight a few of these details. Total oil sands production was up almost 12% year-over-year, averaging almost 564,000 barrels per day. With continued reliability improvements anticipated at Syncrude and the ramp-up of Fort Hills production, we expect a further increase in 2018 of about 15%. Our E&P production was slightly down in the fourth quarter, primarily due to the unplanned outage at the Forties Pipeline, which shut in Buzzard production for a good part of December. For the full year, however, E&P production came in 3% higher than 2016.
Looking forward, we expect the ramp-up of Hebron production to help offset the natural declines in 2018 and enable us to reach our guidance range of 105,000 to 115,000 barrels per day. In the downstream, we continue to run our refineries at full rates to take advantage of strong market conditions as we set a record for annual crude throughput and utilization for the year of 96%. Strong reliability generally leads to low unit costs, and that was certainly the case for Suncor in 2017. Our oil sands operations cash costs per barrel were down 3% in the fourth quarter to CAD 24.20, and 10% for the full year to CAD 23.80, representing 10-year lows for both periods. For the year, we achieved cost reductions in every area of our oil sands operations. In situ cash costs were down 4% to CAD 10.50 per barrel.
Mining costs were down 14% to CAD 22 per barrel, and upgrading costs were down 33% to just CAD 3.59 per barrel. Remember, these numbers are for the full year, so they include maintenance downtime and associated costs. In E&P, we also saw year-over-year declines in operating expenses with costs down 11% on the East Coast to CAD 11.24 per barrel, and costs in the U.K. North Sea dropping by 18% to just CAD 4.62 per barrel. Finally, with record throughput for the year at our refineries, we were able to reduce operating expenses by 1% to CAD 5.05 per barrel. All in all, a very strong year for operations in 2017, and we're looking to build on that success, obviously, in 2018. As you know, we did encounter some challenges to begin the new year.
In early January, during a time of extreme winter weather conditions, the Oil Sands Base Plant incurred a power interruption, which resulted in a controlled shutdown of extraction and upgrading. We executed on a very disciplined recovery process and returned the assets to service with no lasting impact to overall operations. We are now back at full production rates, and we remain on track to meet our guidance commitments for the year. Looking forward, there are three areas of our operations where we're putting particular focus. First, continuing our operational excellence journey, including steadily improving our maintenance and reliability practices and reducing operating costs. Technology, such as the recently approved automated haul systems in our mines, will be critical to our continued progress in this area. Secondly, successfully ramping up and stabilizing operations at Fort Hills at a minimum of 90% of capacity by year-end.
Finally, driving forward on Syncrude improvement and integration program to maximize the value of the operation. We have a lot on our plate from an operations perspective, and I know we're up for the challenge. With that, I'll pass it along to Alister Cowan to provide some color on our financial results.
Thanks, Mark. The fourth quarter featured the highest benchmark crude prices since the second quarter of 2015 and the strongest benchmark refining crack for a fourth quarter since 2012. We were able to take full advantage of the positive business environment that we were in. Oil sands operations realized prices increased in Q4 by approximately 15% compared to Q4 in 2016 and they averaged CAD 62.27 per barrel. Our integrated model protected us from the widening differential towards the end of the year. Syncrude realized prices were also up 15% and averaged CAD 73.64 per barrel. Realized prices in the offshore were up roughly 20% quarter-over-quarter, averaging CAD 81.49 per barrel off the east coast of Canada and CAD 76.46 in the U.K. North Sea. Downstream refining margins increased by 38% quarter-over-quarter, led by record wholesale volumes in Canada and a 10% increase in distillate sales.
Mark talked earlier about our strong cost performance across the business. The net result was a very strong set of financials for both the fourth quarter and the year as a whole. We generated over CAD 3 billion in funds from operations and CAD 1.3 billion in operating earnings in the quarter. That brought our annual totals to CAD 9.1 billion in funds from operations and CAD 3.2 billion in operating earnings. Our return on capital employed improved to 8.6% pre-major projects and progress. Our funds from operations both for the fourth quarter and the year as a whole easily covered our sustaining capital plus our dividend, leaving a very significant tranche of discretionary free funds flow to invest in growth and increasing returns to shareholders.
For the full year, we produced almost CAD 4.1 billion in discretionary free funds flow, which equates to a discretionary free funds flow yield of 5.4%, which rises to 8.2% if you exclude the dividend payment. A continued focus on reliability and cost management has been a big factor in this strong free funds flow generation. As Mark pointed today, we've reduced our unit operating costs across both the upstream and downstream businesses. We've also been able to steadily drive efficiencies across our corporate functions. As a result, our total operating, selling, and general expense for the entire company for 2017 came in at just CAD 9.2 billion. That's more than a 5% reduction since 2014 at the same time as we've grown our production by almost 30%.
With increasing production, reduced capital spending, and disciplined cost management driving structural increases in our free funds flow, we were very comfortable raising the dividend by 12.5% as we announced yesterday. This will be the 16th consecutive year of dividend increases for Suncor. It maintains our commitment to pay a competitive, growing, and sustainable dividend. In our view, to be truly sustainable, the dividend must not be dependent on high oil prices. We're able to fund both our sustaining capital and our dividend at $48 to $45 U.S. per barrel oil price. Going forward, we expect to be in a position to continue to increase the dividend. Increases will be driven by structural improvements to our free funds flow, driven by production growth, sustaining capital and operating cost reductions, and margin enhancement initiatives, not by rising oil prices.
To the extent that we generate excess free funds flow over and above our dividend commitments, in the near term, we will look to return that cash to shareholders through our stock buyback program. You will recall that on the third quarter call, I indicated that we were aggressively buying. In the fourth quarter, Suncor repurchased and canceled 18.7 million common shares for a total of CAD 835 million. Since launching the CAD 2 billion stock buyback program on May 2nd last year, we have repurchased approximately 35 million shares for a total of approximately CAD 1.5 billion. The current buyback expires at the beginning of May. We expect to complete the CAD 2 billion by then. I am also very pleased to say that the board has approved a further CAD 2 billion buyback in addition to the current CAD 2 billion program.
Just to be clear, that will be CAD 4 billion of stock buybacks in total over two years. During 2017, we were able to further strengthen our balance sheet through the early repayment of approximately CAD 3.2 billion in debt scheduled to mature in 2018. Year-over-year, we reduced our total debt by CAD 1.9 billion. We now have no significant debt payments or repayments due until 2021. We finished 2017 with approximately CAD 2.7 billion in cash and over CAD 7 billion of liquidity. Our net debt to funds from operations fell to 1.4 times. Our total debt to capitalization dropped below 26%. Both these metrics are well within our target ranges we have outlined to you.
As Steve noted earlier, with our balance sheet in great shape, our production increasing, capital spending decreasing, and our strong integrated business model mitigating differential increases, we are well positioned for success in 2018, leading to further value creation and further increased shareholder returns. That said, I should remind everyone that the first half of the year does tend to be a little noisy, as we will be bearing the full operating costs of Fort Hills and Hebron with limited production in the early days of operations as we ramp up. Also, we have the major maintenance turnarounds in the second quarter of the Oil Sands Base Plant Number 1 upgrader and at the Edmonton Refinery. Of course, all these are factored into our 2018 guidance. We remain confident we will meet our commitment. With that, I am going to pass it back to Steve Douglas.
Thanks, Alister, Mark, and Steve. Just before we go back to the operator for calls, a few notes from the quarter and looking forward. On LIFO, FIFO, in Q4, we had CAD 180 million net positive to earnings and cash flow. For the year, it was CAD 157 million, of course, with crude price rising throughout the year. On stock-based compensation, Suncor's share price rose both in the fourth quarter and throughout the year. In the fourth quarter, it was an after-tax expense of CAD 85 million. For the year, CAD 279 million expense. FX, the Canadian dollar weakened slightly in the fourth quarter. It was a CAD 91 million expense. For the year, the dollar strengthened. It was a net gain of CAD 702 million after tax. We have posted, looking forward, our guidance for the year.
There was just one change this quarter, one update, and it was to reflect the U.S. tax legislation that went through recently. Our U.S.-based tax has been adjusted down from 35% to 21%. A couple of other things to think about going forward. Our first quarter, of course, is always impacted, the cash flow by our stock-based compensation payout. Typically, that would be in the CAD 300 million range. Also, we are, as we've been saying, building inventory through the first quarter in order to manage through the Edmonton refinery turnaround. That will mean increases in eliminations and earnings and cash flow effectively deferred from the first quarter into the second quarter as that inventory is sold in the second quarter. Again, these things are factored into guidance.
With that, I will turn it back to the operator to take calls from analysts.
Thank you, sir. Ladies and gentlemen, at this time, if you would like to ask a question over the phone lines, please press star and then 1 on your telephone keypad. To everyone participating in today's question and answer session, we ask that you please limit yourself to one question and a brief follow-up. If your questions have been answered or you wish to remove yourself from the queue, simply press the pound key. Our first question will come from the line of Neil Mehta with Goldman Sachs. Your line is now open.
Good morning, team. Congrats on a good quarter here. I wanted to ask a couple questions here on the slide deck that you posted along with your comments today. In slide eight, you show what the cash flow expectations would be at $60 WTI in 2018, which was slightly ahead of consensus here. There's some one-timers in here, heavy maintenance. You had the ramp up at Fort Hills. Can you give us a sense of what the cash flow power of the company would look like ex some of these one-timers? Recognizing that third quarter, you did something like $3 billion quarterly, which would imply $12 billion annualized. We're just trying to frame what a more normal year looks like, because 2018's pretty noisy.
No, absolutely not, Neil. I say it sort of jokingly. You know we don't formally guide on cash flows, I also know that your math is much better than mine. I think the underlying tone of your question is right. We've probably been conservative in what we've estimated as cash flows, even allowing for the noisy year. I'll just pick out a couple of numbers, for those less familiar to put into their calculations. We generated just over CAD 9 billion of cash flow in 2017 at a WTI price average of $51. It's not too difficult to adjust from there. We've talked in the past about an increase of CAD 10 per barrel is worth just a little bit more than CAD 2 billion in cash flow for us. It doesn't take much math to get to your CAD 11 billion, CAD 12 billion.
I would say two of the bigger questions that we've been asked regularly have been around pipeline and light heavy differentials, it's probably worth me making those points right up front. Suncor is not exposed to the current pipeline issue. We have market access, including all of the production from Fort Hills, we've built that into our forward commitments. We're active advocates of the pipeline. We definitely are supporting them. We want them for future growth beyond, but we're in a very good position. It would need something significant to change for us to be moving any substantial volume onto rail. We're not exposed to this current pipeline debate that's going on. The other one is the big question mark is about the light heavy differential, which has blown out on some days to CAD 30-plus. We are largely not exposed to that differential.
When Fort Hills is fully up, then it's possible on a day we could have some minimal exposure, relative to the industry, you can see through the fourth quarter, we have little to no exposure. We've put some numbers in that slide deck, again, they're relatively conservative.
All right. I appreciate the color there. The follow-up is on the buyback. You re-upped the number by CAD 2 billion. Can you help us frame, Steve, how aggressive you want to be around prosecuting that number? I think the last CAD 2 billion number came out last May, the goal was to get it done within one year. Should we think one year out would be the goal, all else equal, recognizing the volatility of the commodity take?
Absolutely. You've nailed it, Neil. Our strategy is, as Alister said, when we make that dividend commitment, we're confident we can cover it with cash flows at the low end of the cycle. We've used buybacks, particularly through these periods of high capital spend and such price volatility on crude. We've used it as a way of flexing the return to shareholders. You've seen that the first CAD 2 billion, we are well on target to buy back in this first year. We fully expect to buy all of that CAD 2 billion back in the second-year period.
Thanks, guys.
Thank you.
Thank you. Our next question will come from the line of Benny Wong with Morgan Stanley. Your line is now open.
Good morning. Thanks, guys. Just wondering if there's an update on how you're thinking about the Montreal refinery and the option to add coking capacity there, given where WCS differentials are and the approaching IMO fuel regulation. Does that become a more attractive project to you? What's preventing you from moving forward?
It's there on our list. It's not at the top of our list in terms of investments. We recognize it as an option. If our view of spreads and coking margins were to significantly change in the future, we still have the main vessels there ready to install. We've done some work on the design. We could execute that project. We think at below normal upgrading costs. We currently have no plans to do that. It's on our list.
Great, thanks for that. Maybe can you speak a little bit about the autonomous trucks you guys are moving towards and the benefit it brings? I think in your slides you indicated you think you'll get about CAD 1 per barrel in OpEx savings. When should we expect that to be fully achieved? On the sustaining CapEx side, how do we think about that? Is there any change on that directionally? Thanks.
Yeah, I'll just give you a few headline comments. I know that Mark put a press release out last week and gave quite a few of the details, and you sort of played them back very well. First of all, the test runs have gone extremely well, which is why we're so confident. Kudos to Mark and his team for doing the work, getting those test runs done, and being the first in the industry to commercially execute on the rollout of these trucks. We've worked very closely with the union through that, and you may have noticed over the years, we've been talking about steps we've taken to minimize the impact to our employees. Fort Hills, we never recruited all of the drivers to run the trucks in anticipation of this opportunity. We've got people on short-term contracts out there, so relatively easy.
We're working very closely with the union to minimize the impact on our employees, and I'm hopeful that with the combination of demographics and other growth in the company, that we will largely be able to retrain employees and look after them. That's very important to us. It is a multi-year program. It will roll out over 6 years. It will start with the Steepbank mine, then it will go through various stages through Fort Hills and probably finally, the Millennium Mine. Then we'll start to look further in terms of opportunities where we venture with others to share some of that experience. The headlines, I wouldn't be too much more specific than this, it's markedly safer, it's 10% more productive. We think when you run the numbers through on an SCO basis, you get to a CAD 1 a barrel savings.
It's a substantial impact on our operating costs. I would sort of ramp it in a linear way through that period.
Thanks, Steve.
Thanks.
Thank you. Our next question will come from the line of Paul Cheng with Barclays. Your line is now open.
Hey, guys. Good morning.
Good morning.
Maybe the first one is for Alister. Alister, if you're looking at the We can make an argument that what is the oil price going to look like, but you do generate quite a lot of cash in free cash. If we look at your balance sheet, is there any desire to bring your balance sheet gearing much below your current level? Or that you think you reach an optimum level already?
Yeah, that's a good question, Paul. We do generate substantial amounts of free cash flow. I think the balance sheet where we're at today is in a good position. I think that's why we have increased the dividend, and we feel comfortable with the CAD 2 billion stock buyback that I talked about and then Steve expanded on. I don't see any need at this point in time to significantly improve the balance sheet. I think over time, as prices potentially go higher, you will see that drift down towards the bottom end of our ranges. That's what we've always said. Clearly, we like to retain the flexibility of the balance sheet as we go forward. That's been a strength of Suncor.
Mm-hmm. When you talked about earlier that on the future dividend increase will be a function on the structural improvement, like on a higher production and all that, do you measure in a nominal base, or you measure those based on a per share metrics?
Well, I think it's a combination of both in absolute terms and the amount of additional free cash flow that we'll generate. I think we have a slide in that in our investor deck, what we expect over the next several years. Clearly that will translate then into a per share number combined with the benefits of the stock buyback.
Mm-hmm. A final one from me, this probably for both Steve and Mark. What is the next step? In terms of the step function change in your cost structure, is that a big grand prize either in the area or the technology? It's great that the ultimate trucks that are bought up, That doesn't seem like it's a step function change. Is there anything out there that we should watch out that is going to see it smashed by another 30%, 40% on your cost structure?
I think it is a gradual progressive process. You will see us continuing to. It's top of our agenda. We know that a lot of it is to do with reliability, Getting the reliability out helps distribute the costs. We have a whole list of. If I think about looking forward, I like the way Steve is now portraying it in the deck. We talk about the 20% growth over the next couple of years. We know that's the ramp-up of Fort Hills, the ramp-up of Hebron, and the delivery of the synergies which come with Syncrude. What we're starting to talk about much more clearly now. We've talked about 100,000 barrels a day or equivalent in margin of projects. Some of those will be a cash flow equivalent in cost reduction.
You're going to see as we more closely integrate Syncrude and Suncor, as we put the bi-directional line in, as we start to implement the new tailings system. You're going to see some more of that de-bottleneck stuff we talked about. Obviously, we've got the scope now on Fort Hills. You're going to see some of it in E&P. We've talked about some of the steps out in Oda, Rosebank and White Rose and Buzzard, where we have similar opportunities. We'll give more color on those as we're getting towards them, but it'll be all of those things. I do see it continuing. I think Mark's given me a good warning here, which is, of course, we went for the low-hanging fruit first. We did the bigger, easier pieces. It's harder work now, but still some significant progress, I think.
Thank you.
Thank you. Our next question will come from the line of Roger Read with Wells Fargo. Your line is now open.
Thank you. Good morning.
Morning.
Just to follow up on the Syncrude, I believe it is page 19 in the handout. Realizing the near-term synergies, your comments, low-hanging fruit may already be there. This is both a throughput as well as a cost reduction story. The guidance doesn't look like a lot of change in cost for 2018 versus 2017. I was just curious how much of that is because throughputs aren't changing a lot, or is there something else going on in Syncrude? How do you think about it, say, to 2020, where we should see things going?
No, I would just say it's prudent. I mean, we're seeing steady progress. You've seen in the fourth quarter, 94% utilization. The costs have come down to CAD 32.80 a barrel. We're making real substantial progress. All we're doing is being a little bit measured in what we're saying. We are seeing the opportunity for improvements, but it's very difficult to be month-to-month specific. That's why we said, you can plan in your model 90% utilization and a CAD 30 cost in that 2020 timeframe. Just draw a straight line. You've seen periods where we've had this reliability up very high, and then we're steadily working on the underlying issues. I'll give you a real example. The cause of the problem last year with Syncrude was to do with its winterization and then an ice plug in a process dead leg thawing out.
We've put the two standards together of Suncor and Syncrude, we're now going in and upgrading some of the facilities there. You'll see the utilization come with those benefits. It's a slow, steady process. The Syncrude work is going very well. Doreen Cole is now in there as the leader, a Suncor executive. We're swapping technical and leaders in both directions. The collaboration is working. Mark and myself are meeting with Rich Kruger on a bi-monthly basis, I continue to be very encouraged. No, I think we'll make steady progress.
Okay, great. Thanks. Probably as a follow-up to Paul Cheng's question about the balance sheet, then quite obviously, the heavily discounted WCS barrels locally there. Does this open up an opportunity for acquisitions? How do you see acquisitions competing for capital as you look at, obviously, an oil price affecting to some degree what you'd spend on CapEx and then the commitment both to the dividend and the share repos?
The first thing I would say is it clearly gives Suncor an advantage. We have virtually no exposure to the light heavy differential, and our competitors are exposed to that because of their different business models of integration and proportion of upgrading or refining to the oil sands barrels they're producing. I wouldn't want to go on and speculate about acquisitions and such. To the extent that we're not exposed to it and others are, and therefore their earning capability in these periods is constrained, there is an impact. I think it's underappreciated. I really just want to talk about the positive side for Suncor. That hopefully, the third and particularly the fourth quarter is making it very clear that when we've said it, we meant it. We are virtually not exposed to the light heavy differential.
We put some numbers in there for when Fort Hills is fully on, this CAD 25 million, which would put us at the very low end. I would be quite surprised if we actually ever get as high as that number because we are largely able to mitigate it through the business plan. What I would say is that has helped us have a healthy balance sheet, which has historically made us able to make these counter cyclical, not massive acquisitions, but acquisitions where it fitted very well with our business. To that extent, it may present us with some of those opportunities in the future, but we're not looking at anything in particular.
Okay, thanks. Because it is a big question with investors right now, the exposure to the light heavy. Can you give us that quick overview of why you're not exposed to it, just as a quick summary to people who are, let's just say, a little bit skeptical of Canadian heavy oil producers in general?
Yeah. I would just say, Steve will give us the details. It's just evident now. Hopefully, you can see it. You've seen in the fourth quarter the light heavy differentials blow out, and they've had virtually no impact. We've had a record-producing quarter at relatively low crude prices through that period compared to some that we've seen since. Hopefully, it's becoming really clear how it works. There are two most important pieces. Steve will take you through them.
Roger, Steve Douglas here. The real simple explanation, it is a fairly complex set of factors that goes into it related to royalties and transportation differentials and so on and so forth. Real simple thumbnail, we produce between 750,000 and 800,000 barrels a day of bitumen, and only about 150,000 of that is actually exposed. By that, I mean is sold at a price that's influenced by the Hardisty light heavy differential. The rest is either upgraded or refined in our system or sold into a global market like the U.S. Gulf Coast, where it attracts a Maya differential. Does that make sense?
It makes sense to me. I was just doing it you could help yourself here.
Absolutely. We have taken and tried to outline that clearly in the deck, this quarter. We actually have a slide that shows where our production goes and how only 20% maximum is exposed to Hardisty heavy pricing. Thank you for that.
Thanks.
Thank you. Our next question will come from the line of Greg Pardy with RBC Capital Markets. Your line is now open.
Thanks. Good morning. We're getting just a lot of questions around your longer-term growth profile. Steve, you've characterized obviously Fort Hills and Hebron lock things in for the next year or two. In terms of growth, is the right way to think about this that the next major phases are really going to take advantage of next-generation technology, i.e., 2023, with solvents and so forth on the SAGD side, and that you'll infill that with probably brownfields in various parts of the business. From a spending standpoint, until we're into next decade, are we in and around CAD 5 billion a year?
Okay. Yeah, thanks Greg. You've sort of approximately nailed it there. I think we talk about 2021 as lean periods in terms of growth. Let me say some things about that. As we come around on the road shows over the next few months, we'll paint some more color on this. Think of production growth through the next two years, largely Fort Hills, Hebron, and Syncrude as that 20%. 10% a year. We've always looked at the years following as smaller than that. What I've tried to say is they're actually quite considerable in terms of growth. If you think about it just in cash flow as opposed to just production, because some of these will be margin projects which are completely within our control.
You can think of 5%-6% growth annually through 2021 as well, until we kick in with the next phase of bigger projects. That will be through a combination of autonomous haul trucks, the Syncrude pipeline, the different tailings, the oil sands debottlenecks, Fort Hills debottlenecks, the relatively small step-out projects in the conventional E&P, Oda, Rosebank in the U.K., White Rose in Buzzard, and that field. Those come in in those sorts of periods. We've already got two replication phases approved, Meadow Creek East, and one phase submitted for Meadow Creek West. There are four further phases in the Lewis that we anticipate relatively soon. That's the next bigger wave of investment, and they'll start to likely come in in that back end of 2022, 2023 period.
You'll start to see if this program goes ahead on this, a lot could happen between now and then. You'll see one of those come on every 12 to 24 months. That's then the big structured organic investment. Back to the last comment, many opportunities may present ourselves. If we see the market where some are exposed to these very large differentials, there may be other opportunities. I think the base case, the one I've just outlined is very good. There may be some even better options present themselves.
Just on the CapEx side, if you're CAD 10 billion, CAD 11 billion a year of cash flow, even at reasonable oil prices, your spending is around CAD 5 billion, it's a pretty clear path. Is CAD 5 billion a reasonable number to be thinking about until you get into, let's just say, up to 2020?
If that world unfolded, I would say you're in the zone, it's probably CAD 5.5 billion. We put a matrix in to say, we will factor it according to if crude is at certain prices and cash flows are at certain levels. From a strategic point of view, I see this as a period of returning more funds to shareholders. We've talked about, in mining, we don't see in this period big investments in mining. We're having to look at Canada quite hard. The cumulative impact of regulation, higher taxation than other jurisdictions, is making Canada a more difficult place to allocate capital in. We're having those conversations with levels of government at the moment that other jurisdictions are doing much more to attract businesses in. Canada needs to up its game.
Absent some changes and some improvement in competition, you're going to see us not exercising the very big capital projects that we've just finished.
Okay. That's great. Thanks very much.
Thank you. Our next question will come from out of Guy Baber with Simmons. Your line is now open.
Thanks, and congratulations on a good year here. I wanted to go back to the dividend to just make sure that I understand the message. Obviously you've been increasing the dividend meaningfully. You have this meaningful production growth guidance you referenced through 2020, which has given many confidence in these above-average dividend raises continuing in the near term. Beyond 2020, you don't have the volume guidance, but you have identified some pretty meaningful cash flow improvement initiatives. Just wanted to clarify here, should we be still thinking that even though the production growth rate might slow post 2020, you could still continue to see pretty meaningful dividend increases given some of these cash flow initiatives that you're progressing that aren't attached to volumes necessarily?
Yeah. It's very well put, Guy. The answer is yes. You can expect to see steady, affordable, sustainable dividend increases throughout this period. Now, clearly, it's a board authority. Our strategy has to unfold, and we have to deliver the results. But if you look at the growth in cash flow, and sustainable cash flow, which is the driver for the dividend and share buyback program, you're absolutely right. You should expect to see In fact, I would say, to be perfectly honest, we've been reasonably conservative this year at 12.5%. What we want to do We don't want to be big increases in backing off. What we've been doing is positioning ourselves to get that very healthy balance sheet, and to continue this program going forward.
Yep. That's helpful. Then, the follow-up is, you have an interesting slide in your deck, slide 14, on regional synergies for existing assets between Firebag, your base mine, MacKay, and Fort Hills now. Can you talk about to what extent you may have already captured some of those synergies in 2017, and what lies ahead? Just trying to better understand the potential there. It seems meaningful, but if you could help quantify it maybe, that would be helpful.
I would say we're dipping our toe in. We have moved some materials around. In terms of molecules and the real opportunities, we've been moving materials into Syncrude. We've moved materials from Syncrude to the Base Plant, and we've moved materials from Fort Hills down to the Base Plant. All of those initially were by trucks. They test the logistics. They make sure, molecularly and from a chemical engineering point of view, it works, and it has. Now what we got to do is make the real connection. We've seen the opportunity and we're able to size it. We haven't taken full advantage of it. You will see those progressively roll out as Syncrude integrates more into the region, and as Fort Hills ramps up and we integrate that more with the business as well. Lots more to come.
Okay, great. Last one from me. I did want to mention the downstream or ask about the downstream, just given how strong the performance was for Q relative to some of the indicators that we track, but also relative to a lot of peers. Would you highlight any notable specifics that contributed to such good delivery during Q4? Any specific assets stand out? Maybe just talk about how you view the refining macro framework for your assets in this environment, and what you feel the outlook is for cash generation capability there.
Yeah. What I would say, and I'll let Steve pick up on some of the finer points of your question there, let me just take a step back on the downstream. First of all, thank you. I think it's done a tremendous job. I think it's underappreciated in our portfolio. Suncor has been a clear outperformer for a number of years now. We've always found. If I think of this time last year, we were talking about, "Wow, gosh, it's been a fantastic business, but how can it sustain that going forward?" In recent history, year after year, it has performed at these levels. From an operating point of view, it's done very well in terms of reliability and cost.
In terms of the integrated business model and its ability to help us take advantage of all of the margins that are available, it's been outstanding. If I think of last year, the questions we were getting on this call was, others are selling their retail businesses. Why don't you do it? The discussion was you could get CAD 4 billion-CAD 5 billion for it. I hope it's starting to become clear in our humble judgment why we kept it. That actually, we believe that not only it was a good business, it is a good business. If anything, with the import-export balance on this continent, it's looking even better going forward. When I look in the market as a potential acquirer in the downstream, sellers' expectations are high, and that's because the market has had good margins for a while.
I think people are starting to view the future of it slightly differently than may have been anticipated, where demand peaked on the continent, products weren't being exported. Now, with products freely moving in and out of the U.S. in particular, it bodes, I think, reasonably well for refining and marketing. We're very pleased with how it fits with our business. We're very pleased we kept the integrated chain right the way through to the customer, and we think it advantages. I don't know, Steve, whether you'd want to say anything in particular about the detail of downstream.
Well, thanks, Steve. I just had a couple of comments. As it relates to Suncor specifically, we've seen terrific demand, including 10% increase year-over-year in distillate demand in Canada. Not just demand, but channel mix, where more of the demand is coming through the higher value channels like retail. Secondly, on a macro level, we're seeing a very positive go-forward outlook for refining, and I think there are two or three things that contribute to it. Low gas prices, for the foreseeable future, advantage feedstock costs because of surplus crude, structural exports to Latin America, which is keeping margins higher and keeping refineries running full. Finally, the marine sulfur regulations coming at us in 2020, which we think will lead to strong distillate demand.
To your question of where is it going, we've been generating CAD 2.5 billion-CAD 3 billion of cash flow out of the downstream for the last few years. We think it's more of the same. We have a very positive outlook going forward.
Thanks for all the color.
Thank you. We will take one more question, and then we need to close.
Yes, sir. Our last question will come from the line of Paul Sankey with Wolfe Research. Your line is now open.
Hi, good morning, everyone. Thanks for fitting me in. Steve, just on the costs, I was wondering about your autonomous truck program, which I am always fascinated by. Can you just give a bit more clarity on your assertion that CO2 emissions from your production are lower? I just wondered if you could add a little bit more definition around that comment. Thank you.
Assuming the capital CapEx numbers we talked about, the trucks are funded. Relative to the sorts of capital we are talking about, they are not big numbers. The numbers we talk to when we talk about Fort Hills being a lower carbon footprint than the average barrel of crude on this continent now are third-party numbers. They are not our numbers. Steve, I don't know if you want to talk about the actual source you get the reports. We can reference you those, Paul. Those are independently verified outside of Suncor. They are not our numbers.
Yeah, I apologize if I missed this on the call, but did you talk about autonomous truck numbers and penetration of the trucks into your mix?
We did talk a little bit, Paul, all we said was that assume that the autonomous truck program will be executed over about a 5- to 6-year period. The first parts will be in our Steepbank mine. I know when we last met, we chatted about how we'd almost pre-positioned Fort Hills. In terms of the mine design and in terms of we bought autonomous trucks there, so they're capable of switching from autonomous to drivers. We bought them with that capability. We didn't recruit the drivers. What we did was just recruit short-term contract drivers so that the flip at the appropriate moment could happen. Towards the front end of the program, Fort Hills will also start to change over to autonomous once we start to get the plant lined out. Then we'll finally move through to the mines.
We did talk, I'm not sure if you missed it. We talked about.
Yeah, I apologize. Go ahead.
No, no problem. We did talk about the benefits from it, they're clearly a lot safer, about 10% more productive, and CAD 1 a barrel savings when you run it through to that SCO number we normally quote.
Are there any other savings, sorry to go on, are there any other savings of the CAD-plus nature that you can see given that you've got costs so low now? Are there any other big items that you could point us to for you getting perhaps below CAD 20 a barrel of cash cost?
I would say it's a lot of smaller things. When we come around, we'll take you through the detail of the program. The 5% to 6% cash flow improvement we're talking about each year in the 2020, 2021 period. A significant proportion of that is going to be a continuation of the cost reduction or margin improvement. You will see the autonomous trucks. You'll see the bidirectional lines to Syncrude will certainly help because it keeps the plants full so you're able to distribute the cost. The new tailings system we're putting in is much more cost-effective than the old one.
Thank you.
I think we'll wrap it up there. Thank you, everyone. Operator?
Thank you, sir. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody have a wonderful day.