Earnings Call: Q4 2017

Feb 8, 2018

Good day, ladies and gentlemen, and 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 Liddell, our Chief Operating Officer and Alistair Cowen, 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 Q4 earnings release as well as our current AIF, and 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. But 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. So we have a great deal of positive news to report on both from the year gone by and the year to come. So let me get started. I'm going to kick off with the financial and operational highlights followed by a strategy update. I'll then pass over to Mark Little and Alastair Cowen to provide some additional detail on our operational and financials respectively. The 4th quarter marked the first time in Suncor's history that we've exceeded $3,000,000,000 in quarterly funds flow. This broke the previous record of $2,900,000,000 which was set in the Q1 of 2014. Interestingly, when WTI oil price averaged just under $100 a barrel, almost 80% higher than this past quarter's average of 55 dollars per barrel. So clearly, we've taken some significant steps to increase the profitability of our business in the past 3 years. Our assets operated reliably during the quarter with upgrading at our base plant and Syncrude hitting utilization rates of 93% 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 2nd highest ever, falling just shy of our record 3rd quarter and 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 1,400,000 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 3 secondary extraction trains and began producing high quality PFT bitumen, which has a lower life cycle carbon lifecycle carbon footprint than the average barrel of oil refined in the United States 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 US. So that lower carbon production is shipped by pipeline to the East Tank Farm where it's blended and sent to market. At East Tank Farm, of course, a significant project in its own right. Suncor built and operates the $1,000,000,000 state of the art facility for blending, storing and shipping Fort Hills bitumen. And in a landmark deal which closed in the Q4, Suncor created a partnership with the Fort Mackay and Miccosukee First Nations, which saw them acquire a combined 49% interest in these assets. And 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 about approximately $300,000,000 and that equates to a capital intensity of about $69,000 per flown barrel. So our working interest in Fort Hills is now just over 53 percent. As everyone knows, Suncor has a capable and experienced development group. We're one of the few companies to be able to take advantage of low oil prices back in 2015 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 shortfall 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 Cambrian Energy Inc. To exchange all of Suncor's Northeast British Columbia Land Holdings and consideration of $52,000,000 for a 37% equity interest in Cambrian. This transaction is fully consistent with our philosophy of natural developer. So placing the assets in the hands of those with the best technical expertise and focus to develop them both safely and efficiently. And it allows us to share in the new value that's created while maintaining our focus on our core areas. So we expect the deal to close later in the Q1. So we've clearly been very active, steadily growing the company both organically and inorganically. But this has not been as you've heard me say before for growth 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. And 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 and 4th, a strong financial position and balance sheet with management focus on capital discipline and adding value. So we closed out 2017 with a record 4th quarter. With rising production and declining capital spending and our strong integrated business model, were set up for continued success in 2018. So 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 Q4. Mark? Thanks, Steve, and good morning, everyone. As Steve noted, our assets operated reliably throughout the 4th 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 and P production was slightly down in the 4th 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 and P production came in 3% higher than 2016. Looking forward, we expect the ramp up of Hebron production to help offset the natural declines 18 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 4th quarter to $24.20 and 10% for the full year to $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 $10.50 per barrel, mining costs were down 14% to $22 per barrel and upgrading costs were down 33% to just $3.59 per barrel. And remember, these numbers are for the full year, so they include maintenance downtime and associated costs. In E and P, we also saw year over year declines in operating expenses with costs down 11% on the East Coast to 11 point $2.4 per barrel and costs in the UK North Sea dropping by 18% to just $4.62 per barrel. And finally, with record throughput for the year at our refineries, we were able to reduce operating expenses by 1% to $5.05 per barrel. So 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 3 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. And finally, driving forward on Syncrude improvement and integration program to maximize the value of the operation. So we have a lot on our plate from an operations perspective and I know we're up for the challenge. So with that, I'll pass it along to Alastair Cowen to provide some color on our financial results. Thanks, Mark. The 4th quarter featured the highest benchmark crude prices since the Q2 of 2015 And the strongest benchmark refining crack for our Q4 since 2012. And 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 when they average and they average 62.2 $7 per barrel. And our integrated model protected us from the widening differential towards the end of the year. Syncrude realized prices were also up 15% and averaged $73.64 per barrel. Realized prices in the offshore were up roughly 20% quarter over quarter, averaging $81.49 per barrel off the East Coast of Canada and $76.46 in the UK 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 and the net result was a very strong set of financials for both the Q4 and the year as a whole. We generated over $3,000,000,000 in funds from operations and $1,300,000,000 in operating earnings in the quarter. That brought our annual totals to $9,100,000,000 in funds from operations and $3,200,000,000 in operating earnings and our return on capital employed improved to 8.6% pre major projects in progress. Our funds from operations both for the Q4 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 $4,100,000,000 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 the 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 of the entire company for 2017 came in at just $9,200,000,000 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 percent as we announced yesterday. This will be the 16th consecutive year of dividend increases for Suncor and 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 $40 to $45 per barrel oil price. Going forward, we expect to be in a position to continue to increase the dividend, but 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 refund 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'll recall that on the Q3 call, I indicated that we were aggressively buying and in the Q4, Suncor repurchased and canceled 18,700,000 common shares for a total of $835,000,000 Since launching the $2,000,000,000 stock buyback program on May 2 last year, we have repurchased approximately 35,000,000 shares for a total of approximately $1,500,000,000 The current buyback expires at the beginning of May and we expect to complete the $2,000,000,000 by then. I'm also very pleased to say that the Board has approved a further $2,000,000,000 buyback in addition to the current $2,000,000,000 program. So just to be clear, that will be $4,000,000,000 of stock buybacks in total over 2 years. During 2017, we were able to further strengthen our balance sheet to the early repayment of approximately $3,200,000,000 in debt scheduled to mature in 2018. Year over year, we reduced our total debt by $1,900,000,000 and we now have no significant debt payments or repayments due until 2021. We finished 2017 with approximately $2,700,000,000 in cash and over $7,000,000,000 of liquidity. Our net debt to funds from operations fell to 1.4 times and our total debt to capitalization dropped below 26%. Both these metrics are well within our target ranges we've outlined to you. So as Steve noted earlier, with our balance sheet in great shape, our production increasing, capital spending decreasing and our strong integrated business model and mitigating differential increases. We're 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 bear we'll 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 Q2 of the oil sands base plant number 1 upgrader and at the Edmonton refinery. But of course, all these are factored into 2018 guidance and we remain confident we will meet our commitment. With that, I'm going to pass it back to Steve Douglas. Thanks, Alastair, Mark and Steve. And just before we go to the back to the operator for calls, a few notes from the quarter and looking forward. So on LIFO FIFO, in Q4, we had $180,000,000 net positive to earnings and cash flow. And for the year, it was $157,000,000 of course, with crude price rising throughout the year. On stock based compensation, Suncor's share price rose both in the Q4 and throughout the year. So in the Q4, it was an after tax expense of $85,000,000 and for the year, $279,000,000 expense. FX, the Canadian dollar weakened slightly in the 4th quarter, and so it was a $91,000,000 expense. But for the year, the dollar strengthened, and it was a net gain of $702,000,000 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 Q1, of course, is always impacted the cash flow by our stock based compensation payout. Typically, that would be in the $300,000,000 range. And also, we are, as we've been saying, building inventory through the Q1 in order to manage through the Edmonton refinery turnaround. And so that will mean increases in eliminations and earnings and cash flow effectively deferred from the Q1 into the Q2 as that inventory is sold in the Q2. But 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. And our first question will come from the line of Neil Mehta with Goldman Sachs. Your line is now open. Good morning, team, and congrats on a good quarter here. I wanted to ask a couple of questions here on the slide deck that you posted along with your comments today. In Slide 8, you show what the cash flow expectations would be at $60 WTI in 2018, which was ahead of slightly ahead of consensus here. But there are 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 the Q3 you did something like $3,000,000,000 quarterly, which would imply $12,000,000,000 annualized. We're just trying to frame what a more normal year looks like because 'eighteen is pretty noisy. No, absolutely not, Neil. I mean I say it sort of jokingly. I mean we don't formally guide on cash flows and I also know that your math is much, much, much better than mine. But 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 mean, I'd just pick out a couple of numbers for those less familiar to put into their calculations. We generated just over $9,000,000,000 of cash flow in 'seventeen at a WTI price average of $51 So it's not too difficult to adjust from there. We've talked in the past about an increase of $10 per barrel is worth just a little bit more than $2,000,000,000 in cash flow for us. So it doesn't take much math to get to your $11,000,000,000 $12,000,000,000 I'd say 2 of the bigger questions that we've been asked regularly have been around pipeline and light heavy differentials. And it's probably worth me making those points right upfront. Suncor is not exposed to the current pipeline issue. We have market access including all of the production from Fort Hills and we've built that into our forward future growth beyond, but we're in a very good position. So it would need something significant to change for us to be moving any substantial volume on to rail. So 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 is blown out on some days to 30 plus dollars We are largely not exposed to that differential. When Fort Hills is fully up and then it's possible on a day we could have some minimal exposure, but relative to the industry, you can see through the Q4, we have little to no exposure. We put some numbers in that slide deck, but again, they're relatively conservative. I appreciate the color there. And then the follow-up is on the buyback. You re upped the number by $2,000,000,000 Just trying to can you help us frame, Steve, how aggressive you want to be around prosecuting that number? I think the last $2,000,000,000 number came out last May and the goal was to get it done within a year. So should we think 1 year out would be the goal all else equal recognizing the volatility of the commodity tape? Absolutely, you've nailed it, Neil. I mean, our strategy is, as Alastair said, we want 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 as 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 $2,000,000,000 we are well on target to buyback in this 1st year. We fully expect to buy all of that $2,000,000,000 back in the 2nd year period. Thanks guys. Thank you. Thank you. And 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 option to add cooking capacity there, given where WCS differentials are and approaching IMO fuel regulation. Does that become a more attractive project to you or 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. So 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 it below normal upgrading costs, but we currently have no plans to do that. It's on our list. Great. Thanks for that. And 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 $1 per barrel in op cost savings. When should we expect that to be fully achieved? And on the sustaining CapEx side, how do we think about that? Is there any change in that directionally? Thanks. Yes. I mean, I'll just give you a few headline comments. I know that Mark took put a press release act last week and gave quite a few of the details and you sort of played them back very well. It is a multi first of all, the test runs have gone extremely well, which is why we're so confident. So kudos to Mark and his team for doing the work, getting those test runs done and being the 1st 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. So Fort Hills, we never recruited all of the drivers to run the trucks in anticipation of this opportunity. So we've got people on short term contracts out there, so relatively easy. So 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. So that's very important to us. It is a multiyear program. It will roll out over 6 years. It will start with the steep bank mine, then it will go through various stages through Fort Hills and probably finally the Millennium mine and then we'll start to look further in terms of opportunities where we venture with others to share some of that experience. The big headlines and I wouldn't be too much more specific than this, it's markedly safer, it's 10% more productive and we think when you run the numbers through on an SCO basis, you get to $1 a barrel savings. So it's a substantial impact on our operating costs. So I would sort of ramp it in a linear way through that period. Thanks, Steve. Thanks. Thank you. And our next question will come from line of Paul Cheng with Barclays. Your line is now open. Hey, guys. Good morning. Good morning, Paul. Maybe the first one is for Alastair. Alastair, if you're looking at I mean, 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. So we look at your balance sheet. Is there any desire that to bring your balance sheet gearing much below your current level or that you think you've reached an optimum level already? Yes, that's a good question, Paul. We do generate substantial momentum 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 $2,000,000,000 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. But clearly, we like to retain the flexibility of the balance sheet as we go forward. That's been a strength of Suncor. And when you talked about earlier that on the future dividend increase will be a function on the structural improvement on a higher production and all that. Do you measure in a nominal base or you measure those based on upon a per share matrix? Well, I think it's a combination of both, both in absolute terms and the amount of additional free cash flow that we'll generate and I think we have a slide in that in our Investor Day, what we expect over the next several years And clearly that will translate then into a per share number combined with the benefits of the stock buyback. A final one for me. This is probably for both Steve and Mark. You guys have done quite a lot. And so what is the next step? Is there in terms of the step function change in your cost structure, is that a big grand prize either in the area or the technology? I mean, it's great that the ultimate trucks that are bought up, but that doesn't seem like it's a step function change. So if there's anything out there that we should watch out that is going to see you smash by another 30%, 40% on your cost structure? I mean, I think it is a gradual progressive process. So you will see us continuing to it's top of our agenda. We know that a lot of it is to do with reliability and getting the reliability out helps distribute the costs and then we have a whole list of so if I think about looking forward, I like the way Steve is now portraying in the deck. We talk about 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. Then 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. Now some of those will be a cash flow equivalent in cost reduction. So you're going to see as we put more closely integrate Syncrude and Suncor, as we put the bidirectional line in, as we start to implement the new tailings system. And then you're going to see some more of that debottleneck stuff we talked about. You can obviously, we've got the scope now on Fort Hills. You're going to see some of it in E and P. We've talked about some of the steps out in Oda, Rosebank and White Rose and buzzards where we have similar opportunities. So it's a whole we'll give more color on those as we're getting towards them, but it will be all of those things. So I do see it continuing. I think Mark's giving me a good warning here, which is, of course, we went for the low hanging fruit first. So we did the bigger, easier pieces. So it's hard to work now, but still some significant progress, I think. Thank you. Thank you. And our next question will come from the line of Roger Read with Wells Fargo. Your line is now open. Thank you. Good morning. Just a 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, but 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. And 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? And then 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. I mean you've seen in the Q4, 94% utilization, the costs have come down to 32.80 a barrel. So 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 improvement, But it's very difficult to be month to month specific. So that's why we said, you can plan in your model 90% utilization and a $30 cost in that 2020 timeframe. So to draw a straight line, but you will see, you've seen periods where we've had this reliability up very high and then we're steadily working on the underlying issues and I'll give you a real example. The cause of the problem last year with Syncrude was to do with its winterization and then a nice plug in a process dead leg falling out. We've put the 2 standards together of Suncor and Syncrude and we're now going in and upgrading some of the facilities there. So you'll see the utilization come with those benefits, but it's a slow, steady process. So Syncrude work is going very well. Dorian Coal is now in there as the leader of Suncor executive. We're swapping technical and leaders in both directions. The collaboration is working. Mark and myself are meeting with Rich Krueger on a bimonthly basis and I continue to be very encouraged. So, no, I think we'll make steady progress. Okay, great. Thanks. And probably as a follow-up to Paul Cheng's question about the balance sheet and then quite obviously the heavily discounted WCS barrels locally there. Does this open up an opportunity for acquisitions? And 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? I mean, 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. So I wouldn't want to go on and speculate about acquisitions and such, but 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 and I think it's underappreciated. I really just want to talk about the positive side for Suncorp that hopefully the 3rd and particularly the 4th quarter is making it very clear that when we 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. So this $25,000,000 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. So what I would say is that has helped us have a healthy balance sheet, which has historically made us able to make these countercyclical, not massive acquisitions, but acquisitions where it's fitted very well with our business. So 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. And do you want to I guess it is a big question with investors right now, the exposure to the light heavy. Kind of 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? Yes. No, I mean, I would just say, I mean, Steve will give us the details. But it's just evident now. Hopefully, you can see it. You've seen in the Q4 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. So hopefully it's becoming really clear how it works. But there are 2 most important pieces, Steve will take you through. Yes. Roger, Steve Douglas here. I mean the real simple explanation and it is a fairly complex set of factors that goes into it related to royalties and transportation differentials and so on and so forth. But real simple thumbnail, we produce between 750,800,000 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? No, it makes sense to me. I was just doing it so you could help yourself here. Yes. No, absolutely. And we have taken and tried to outline that clearly in the deck this quarter. So we actually have a slide that kind of shows where our production goes and how only 20% maximum is exposed to Hardisty heavy pricing. So thank you for that. Thanks. Thank you. And 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. So Steve, I mean, you've characterized obviously Fort Hills and Hebron lock things in for the next year or 2. But 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 in the SAGD side and that you'll infill that with probably brownfields in various parts of the business. And then from a spending standpoint until we're into next decade, are we sort of in and around $5,000,000,000 a year? Okay. Yes. Thanks, Greg. Yes, I mean, you've sort of approximately nailed it there. So I think we talk about 2021 is lean periods in terms of growth. But let me say some things about that. And we're going to 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 2 years, so largely Fort Hills, Hebron and Syncrude as that 20%, so 10% a year. So we've always looked at the years following is smaller than that. But what I've tried to say is they're actually quite considerable in terms of growth. So 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% to 6% growth annually through 2021 as well until we kick in with the next phase of bigger projects. And that will be through a combination of autonomous haul trucks, the Syncrude pipeline, the different tailings, the oil sands debottlenecks, Fort Hills debottlenecks, the small relatively small step out projects in the conventional E and P. So Oda, Rosebank in the UK, White Rose in Buzzard and that fill those come in, in those sorts of periods. Then you've got that we've already got 2 replication phases approved, Meadow Creek East and one phase submitted for Meadow Creek West. There are 4 further phases in Lewes that we anticipate relatively soon. So that's the next bigger wave of investment and they'll start to likely come in, in that back end of 'twenty two, 'twenty three period and you'll start to see if this program goes ahead on this, I mean a lot could happen between now and then, You'll see one of those come on every 12 to 24 months. So 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. So I think the base case, the one I've just outlined is very good. There may be some even better options present themselves. And then just on the CapEx side, I mean if you're $10,000,000,000 $11,000,000,000 a year of cash flow even at reasonable oil prices, your spending is around $5,000,000 I mean you're it's a pretty clear path, but is 5 a reasonable number to be thinking about until you get into, but let's just say up to 2020? If I were in if that world unfolded, I would say you're in the zone, it's probably 5.5. 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. Canada is having to 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. And we're having those conversations with levels of government at the moment that other jurisdictions are doing much more to attract businesses in. So Canada needs to up its game. And so absent some changes and some improvement in competition, you're going to see us not exercising the very big capital projects that we just finished. And our next question will come from the line of Guy Baber with Simmons. 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. But 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. But then beyond 2020, you don't have the volume guidance, but you have identified some pretty meaningful cash flow improvement initiatives. So 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? Yes. I mean, it's very well put. 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, which is 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. So what we've been doing is positioning ourselves to get that very healthy balance sheet and to continue this program going forward. Yes, that's helpful. And then the follow-up is you have an interesting slide in your deck slide 14 on regional synergies for existing assets between Firebag, your baseline, 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. So we've in terms of molecules and the real opportunities, we've been moving materials into Syncrude. We've moved materials from Syncrude to the base plan and we've moved materials from Fort Hills down to the base plan. All of those initially were by trucks. So 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. So we've seen the opportunity and we're able to size it. We haven't taken full advantage of it. So 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. So lots more to come. Okay, great. Then last one for me. I did want to mention the downstream or ask about the downstream just given how strong the performance was 4Q 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 4Q? Any specific assets stand out? And then 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? Yes, I mean, what I would say, and I'll let Steve pick up on some of the finer points of your question there. But let me just take a step back on the downstream. First of all, I mean, thank you. I think it's done a tremendous job. I think it's underappreciated in our portfolio and Suncor has been a clear outperformer for a number of years now. And 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? And 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. But in terms of the integrated business model and its ability to help us take advantage of all of the margins that are available has 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? You could get and the discussion was you could get $4,000,000,000 $5,000,000,000 for it. I hope it's starting to become clear in our humble judgment why we kept it. But actually we believe that not only it was a good business, it is a good business. And if anything, with the import export balance on this continent, it's looking even better going forward. So 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 and 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 were being exported. Now with products freely moving in and out of the US in particular, it bodes I think reasonably well for refining and marketing. So 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 detail of downstream? Well, thanks, Steve. I just had a couple of comments. As it relates to Suncor specifically, we've seen terrific demand, but not including 10% increase year over year in distillate demand in Canada, but not just demand, but channel mix, where more of the demand is coming through the higher channel higher value channels like retail. Then secondly, on a macro level, we're seeing a very positive go forward outlook for refining. And I think there are 2 or 3 things that contribute to it. Low gas prices for the foreseeable future, advantaged feedstock costs because of surplus crude, structural exports to Latin America, which is keeping margins higher and keeping refineries running full. And finally, the marine sulfur regulations coming at us in 2020, which we think will lead to strong distillate demand. So to your question of where is it going, we've been generating $2,500,000,000 to $3,000,000,000 of cash flow out of the downstream for the last few years and we think it's more of the same. We have a very positive outlook going forward. Thanks for all the color. Thank you, Guy. We'll take one more question, and then we need to close. Yes, sir. Our last question then 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'm always fascinated by. And 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. Yes. I mean, assuming the capital CapEx numbers we talked about, the trucks are funded. They're relative to the sorts of capital we're talking about. They're 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 3rd party numbers. They're not our numbers. So Steve, I don't know if you want to talk about the actual source you get the reports, but we can reference you those, Paul. Those are independently verified outside of Suncor. They're not our numbers. Yes, I apologize if I didn't 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, but 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 steep bank 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. So we bought them with that capability and 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. So towards the front end of the program, Fort Hills, we'll also start to change over to autonomous once we start to get the plant lined out and then we'll finally move through to the mines. We did talk, I'm not sure if you missed it, we talked about the Yes, I apologize, sorry. No problem. We did talk about the benefits from it and it's about they're about clearly a lot safer, about 10% more productive and a dollar a barrel savings when you run it through to that SCO number we normally quote. Are there any other savings, sorry to go on, but are there any other savings of the dollar plus nature that you can see given that you've got costs so low now? Is there any other big items that you could point us to for you getting perhaps below $20 a barrel of cash cost? I would say it's a lot of smaller things, but a lot of 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 in the each year in the 2021 period, a significant proportion of that is going to be a continuation of the cost reduction or margin improvement. So you will see the autonomous trucks, you'll see the bidirectional lines to thin crude will certainly help because it keeps the plants full and then you can so you're able to distribute the cost and the new tailing system we're putting in is much more cost effective than the old one. And 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