Earnings Call: Q3 2017

Oct 26, 2017

Good day, ladies and gentlemen, and welcome to the Suncor Third Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call may be recorded. I would now like to turn the conference over to Steve Douglas, Vice President, Investor Relations. Sir, you may begin. Thank you, operator, and good morning, everyone. Welcome to the Suncor Energy 3rd quarter earnings call. I have with me here in Calgary this morning Steve Williams, our President and Chief Executive Officer and Alistair Cowen, Executive Vice President and Chief Financial Officer. I'd ask you to note that today's comments contain forward looking information. Our actual results may differ materially from the expected results because of various risk factors and assumptions, and these are described in our Q3 earnings release and our recent annual information form, and they're both available on SEDAR, EDGAR and our website, suncor.com. Certain financial measures referred to in these comments are not prescribed by Canadian Generally Accepted Accounting Principles. For a description of these, please see our Q3 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 hand it over to Steve Williams for his comments. Good morning and thank you as well for joining us. On our last call, I'm sure you remember I indicated that we expected improved performance in the second half of the year. I'm pleased to report that we were very much on track to meet those expectations. In the Q3, we achieved reliable low cost operations across our entire asset base and set a quarterly upstream production record of 740,000 barrels per day. And we took advantage of a relatively positive business environment, particularly in the downstream to produce very strong earnings and cash flow. We generated almost $2,500,000,000 in funds from operations and $867,000,000 in operating earnings. So let's get straight into the details. At Oil Sands Operations, we produced a quarterly record of 469,000 barrels a day and upgrading averaged 93% utilization. And that's despite several weeks of planned maintenance at Unit 1. Firebag returned to service in July after its 5 year turnaround and it produced at record rates in August September. The strong production was complemented by excellent cost management. Our Oil Sands operations cash operating costs came in at just CAD21.60 per barrel, the lowest in over a decade. And this brings our year to date oil sands costs to 23.65 per barrel and that's less than $0.19 per barrel. So it's putting us in great shape to hit the lower end of our cash cost guidance, which was revised down just last quarter. Syncrude also returned to normal operations in July and ran at full rates through August September. And thanks to strong reliability, cash operating costs decreased to $35 per barrel for the quarter. We're seeing material progress at Syncrude as Suncor works collaboratively with the operator and other owners to execute on the performance improvement plan. Just this week, you will have heard that Syncrude announced the appointment of Suncor's Doreen Cole, replacing the President and CEO, Mark Ward. Doreen will assume the title of Managing Director of Syncrude Operations reflecting the owner's focus on operational improvement at Syncrude. Doreen has extensive experience in asset management most recently as the leader of Suncor's upstream maintenance and reliability team. And I'm confident that with Dorian overseeing operations at Syncrude, we will achieve the significant performance improvements that we've targeted by 2020. Our E and P group continued to deliver reliable low cost production in the Q3 and thanks to strong performance in the first half of the year from all of our offshore projects, we twice increased our 2017 E and P production guidance. With a solid Q3 now on the books, we're on track to meet the revised production guidance range. And our offshore operating costs continue to be amongst the lowest in the industry, averaging less than $7.50 per barrel year to date in 2017. In our downstream, refinery utilization rates actually exceeded 100% as we achieved record refinery throughput for the quarter of almost 467,000 barrels per day. And this helped reduce operating expenses to just $4.50 per barrel. The strong reliability enabled us to take advantage of sharply higher refining cracks, our Canadian wholesale and retail sales volumes set yet another record during the Q3. I mean interestingly in a year when many people expected refining and marketing results to decline, Suncor's Downstream has actually generated increased earnings and cash flow year to date versus 2016. And these results have been achieved even when taking into account the lost earnings and cash flow associated with divesting our lubricants business at the beginning of the year. So in summary, the Q3 was extremely strong from both an operational and financial perspective. I think some observers were a little surprised when we didn't revise our production guidance downwards after the challenges we experienced in the Q2. However, we were confident that we could produce reliably in the back half of the year. So turning to our growth projects, the primary focus at both Fort Hills and Hebron has shifted from construction to operations. Both projects continue to track to previously announced budgets and schedules with first oil still anticipated at both sites by the end of this year. At Fort Hills, 80% of the plant has now been turned over to operations and the remaining construction activities are now concentrated in secondary extraction. We've already completed 2 out of 6 test runs on the front end of the plant and produced several 100,000 barrels of froth. The froth is loaded into tank trucks and then shipped to our base plant for further processing. And so these test runs are allowing us to prove out the mining or preparation, major site infrastructure, utilities and primary extraction assets. To date, no significant issues have been identified and our confidence in the high quality of construction continues to be confirmed. The test run also helps us to de risk first oil in December and the ramp up of production through 2018. We have a high degree of confidence in a relatively smooth production ramp up. And we plan to be sustainably operating the plan at 90% of capacity by this time next year. Now you recall, we previously informed the market of 2 challenges that at Fort Hills. In the secondary extraction area of the plant, we encountered a significant issue with the structural steel passive fire protection and the costs associated with resolving that issue were part of the reasons the Fort Hill budget was increased back in quarter 1 of this year. We recently filed a statement of claim to recover the additional costs from the supplier. There has been no impact to the overall project schedule. We're on track to mitigate the fire protection issue prior to starting up the secondary extraction as planned by the end of this year. And as you know, we simply do not compromise employee safety. In our Q2 call, we discussed a commercial issue that had arisen with one of our partners on the Fort Hills project. We've made progress towards a resolution of this issue, but I do want to repeat what I said again. It does not involve a material sum of money in the context of a $17,000,000,000 project and it will have absolutely no impact on the construction and start up schedule. Our other major growth project is of course Hebron off the East Coast of Canada. It continues to progress according to plan. During the Q3, the first production well spudted and first oil is anticipated by the end of the year. So our major growth projects are in good shape and we're set to reduce our capital spending in 2018 while growing production by more than 10%. Now we've been very interested in recent market commentary suggesting that investors are pushing companies to live within their means and focus on returns rather than just growth. As you know, this is a philosophy that Suncor has embraced for a number of years. Some may remember that more than 5 years ago, we said that for Suncor, the days of growth for the sake of growth were over and we began to focus on free cash flow generation and returning more cash to shareholders. It's clear to us that the industry has moved from an environment of resource scarcity to one of resource abundance. Now in that world, an oil producer can still thrive, but setting production growth targets becomes far less important than generating free cash and earning returns. So this means continually reducing our costs and our environmental footprint while exercising steadfast capital discipline. And of course, the oil sands advantage, a low decline, long life reserve base, the costs and carbon that is cost and carbon competitive on a global scale is a huge asset. I mean you'll hear me talk more about that the oil sands advantage as we move forward. But for now, I'll hand over to our Chief Financial Officer Alastair Caron to go into further details on the financial performance. Thanks Steve. While we had strong operations in the Q3 as Steve outlined, commodity price environment was somewhat mixed compared to the Q2. Benchmark crude prices were flat to slightly higher, but the Canadian dollar strengthened a further $0.06 on average roughly 8% versus the U. S. Dollar. And that resulted in lower realized prices for our basket of oil sands products. On the positive side, refinery cracks did increase by about $5 per barrel versus the 2nd quarter, leading to sharply higher downstream profitability. On balance, it all added up to our best quarterly financial results since the Q1 of 2014 when WTI was over CAD100 per barrel. As Steve mentioned, we generated almost CAD2.5 billion in funds from operations and CAD867 million in operating earnings. Our funds from operations for the quarter easily covered our sustaining capital spending of $816,000,000 plus our dividends of $531,000,000 leaving over $1,100,000,000 in discretionary free cash flow. In the past 12 months, we have generated almost $3,800,000,000 in discretionary free cash flow, plus over $1,500,000,000 from non core asset sales. A big driver of that free cash flow is our continued success of taking cost out of the business. Steve mentioned earlier that our oil sands cash operating costs dropped to 21 point $6.0 per barrel in the Q3 and Syncrude's cash costs fell to $35 per barrel. Our offshore business is also demonstrating strong cost management. And if you look at our latest IR deck, we show that Suncor's U. K. Offshore production ranks number 1 in the peer group on operating costs. Year to date, we've averaged just $4.27 per barrel there. On the Downstream side, our refineries are equally cost conscious with operating costs dipping below $5 per barrel this quarter. And these results are consistent with the overall cost reduction trend that's taking place across the company. About 3 years ago, we started working in earnest to reduce our company wide expenses. This effort included significant business process reengineering together with the implementation of enabling technologies. It involved examining almost everything that we do and looking for opportunities to improve efficiencies. This included not only our internal processes, but also our interaction with suppliers, customers and other stakeholders. And you've seen that we've made a great deal of progress. Year to date in 2017, Suncor has increased production by 27% versus the same period in 2014, while reducing our total overall company expenses by 6%. But you know that embracing good cost management is not a task where you check the box and move on. It has to be a culture change and it's simply got to become the way that we do things. So that's the philosophy here at Suncor. And our sense is that analysts and investors are just beginning to recognize that our business has become cost competitive on a global basis. And make no mistake, we intend to continue our relentless focus on cost management and productivity across the company. We're also working equally hard to manage our capital expenditures. In the Q3, we invested approximately $1,500,000,000 about 45% of which went to growth projects. That brings the total capital spend year to date to just under $4,400,000,000 With spending on our major growth projects ramping down as we approach First Oil, we're on track to meet our guidance range of $5,400,000,000 to $5,600,000,000 for the year. With a strong financial quarter in the books, our balance sheet remains very solid. We finished the quarter with approximately $2,800,000,000 in cash and over $8,000,000,000 in liquidity. Our net debt to cash flow decreased to 1.6 times and our debt to capitalization fell to approximately 26 percent, both well within our target ranges. On our last quarterly call, I indicated that we plan to scale back our share buyback program as a result of lower crude prices. However, with crude moving back up in September and flow is very strong, we've continued buying at a similar pace to Q2. As of today, we're about 6 months into the 1 year program and we've spent over $700,000,000 to repurchase and cancel over 17,000,000 shares on an average price of just over CAD40 per share. The commodity prices remain at current levels and cash flow continues to be strong, We expect us to execute aggressively on the buyback in the months to come. Now regardless of oil prices, we'll continue to focus on the things which we can control. We will continue to manage cost out of the business. We will continue to allocate capital in a very disciplined manner and we will continue to maintain a very healthy balance sheet. And that will allow us to continue to return significant cash to our shareholders. With that, I'm going to pass it back to Steve Douglas. Just a couple of things. Thanks, Steve and Alistair. A couple of things before we open the lines. LIFO FIFO, not a big factor this quarter or this year. It was an after tax expense of $27,000,000 in the 3rd quarter, bringing the year to date to an after tax expense of $22,000,000 dollars Stock based compensation expense impact in the 3rd quarter was an after tax expense of $103,000,000 year to date that brings us to an expense after tax of $194,000,000 As everyone knows, the Canadian dollar has continued to strengthen in the Q2 excuse me, in the Q3, with an after tax expense of $412,000,000 and year to date 793,000,000 There are very few changes to our guidance. The only thing we have done on guidance is adjust crude prices and the business environment to reflect year to date and the expectations for the remainder of the year and that had one knock on effect. It has increased our cash tax range for the year. And I'd remind you that the cash tax range does not include taxes paid, one time taxes on the gains associated with the sale of our lubricants business and our Cedar Point wind farm earlier this year. With that, we'll open the mic to questions, beginning with analysts. Operator? Thank you. Of RBC Capital Markets. Your line is now open. Thanks. Good morning, everybody. Just a couple of questions for me. I guess the first one is, is how are you thinking about your 2018 capital program? We're in normal cycle, Greg. So we'll be guiding the market formally after our November board meeting in a couple of weeks. But everything I'm seeing is very much as we talked about last quarter. So we're still anticipating this quarter being in that sort of 5.4 to 5.6 range, probably towards the top end of that and still expecting as we mentioned before to be below 5, probably in that $4,500,000,000 to $5,000,000,000 range for next year, but nothing formal yet. Okay, great. And Steve, the second question is just with Syncrude. Is the fix there after having reviewed everything that's gone on over the past couple of years? Is it really just more about people culture as opposed to any kind of hardware upgrade? No, I would say it's a mixture of both. I mean definitely the governance of Syncrude was a hindrance in some ways to the operations. So we've been working with the partners to sharpen up the ability for transparency between the various owners that's progressed very well. So there are some governance, some culture or people issues and part of that is getting the very best expertise in the region to be able to help and us working closely with Imperial and Exxon and getting the leader of that business in place now is definitely a big step towards that. But there are the secondary and tertiary steps as well. The secondary ones, I'll just give you a couple of examples are the connecting the plants better. We've been able to this year for the first time, we were able to keep the upgrade running by moving some unhypertreated material across to the Suncorp base plant. Then there was a period of bitumen shortage. We've been able to put some Mackay River bitumen in there. So those types of connections are working very well. We've got a project in the system now for a bidirectional pipeline, which will enable us to move materials both ways and expecting that to start up in 2020. So that's the second category. Road because we don't have any plans for new mines in the near or mid term than to be able to rationalize leases and get some of the advantages from just developing the lease next door rather than having to invest in a complete greenfield mine. So that mix of benefits and we're seeing significant progress on all fronts. In the Q3, so you've been able to see that return certainly for the as it came up in July, we've then gone to full throughputs in August September and it's very encouraging. We're seeing those sorts of levels right away across oil sands, not just Syncrude continue into this month as well. That's great. Thanks very much. Thanks. Thank you. Our next question comes from Phil Gresh of JPMorgan. Your line is now open. Hi, good morning. This is John Royall sitting in for Phil. Just had one very quick one. You guys talked a little bit about the ramp for Fort Hills, 90% utilization by this time next year. Can we think of that moving up ratably each quarter? And then is there any similar color on how Hebron will ramp throughout 2018? For modeling purposes, John, I'd say, yes, pretty much have a straight line up to 90% through the year. You know Suncor well enough. We tend to and over deliver. There is a degree of conservatism in there. The targets I've set for the plant are quite different than those, but we're confident. You put those in the model and that should work. In terms of Hebron, it's slightly different. Think of it as a third, a third, a third. So we get 30,000 barrels a day, so it's 10 next year, 10 in 2019 and 10 in 2020. Great. Thank you. And actually one more. Can you give any color on maintenance across the system in 2018? Anything you're planning? I mean just when we come out with volume guidance later, we'll give you more detail. But it is a reasonably large maintenance year with Unit 1 taking its full it's the first of its 5 year turnaround. So it's a relatively big turnaround. Good news was when we did the work on U1 in this quarter, we found the coke drums in very good condition. So very encouraging for that work next year. And then there's a number of bits of work on the refineries, particularly on Edmonton. Great. Thank you very much. Thank you. Our next question comes from Guy Baber of Simmons and Company. Your line is now open. Thanks very much for taking the questions and congratulations on the strong results. So to start off, I just wanted to probe a little bit more on one of the questions. So regarding the Fort Hills ramp up, but can you just talk about, I think, how I mean, you touched on it, but how the confidence in the pace of that ramp has maybe evolved for you guys over the last few months and the degree to which that has been derisked? And then maybe more specifically, with 5 or 6 major project areas operating right now there, where do you see the risks to a quicker than expected ramp up to 90% utilization a year from now? And then I have a follow-up also. Yes. I mean, I'll just talk generally about the project. I mean, it is a large project with big integrated assets. If you look at the so we've talked about the 80% which is now in operator's hands. I mean effectively that is 95% started up. Now 95% of those bits of equipment have been started up. The boilers, the cogens, the primary extraction facilities and we've actually the test runs are designed to test various elements of the operation. So it takes individual pieces up to its full capacity. It takes it up to the quality we need. And because we don't have a secondary extraction plant, we run it, we fill up tankage and then we shut it down, then we go in and do any work we have to and then we move that product down to the base plant and then on to the market and then we repeat that process. So our increasing confidence there is coming from the fact that those runs have exceeded our expectations. It's too early to extrapolate that right the way through and say it's going to be a flawless start up. But we're very encouraged by those first test runs. We've had it up to full product quality requirements and we've had it up to high levels of throughput, which has been very confidence inspiring for us. So very high degree of confidence in that front end and it's meeting or exceeding most of the design criteria we had in place. The secondary extraction, which was always scheduled to come on in a phased way after primary extraction, is also going fairly well. We've largely finished all of the hydros on all three of the trains. We're in the very last pieces now of mechanical completion on the first train for oil. And that's why we are using words like confident in oil first oil this year and then becoming increasingly confident in the ramp up as we go forward. So it's based on a lot of real evidence now in terms of how the project has been handed over to operations and is performing. That's very helpful detail. And then my follow-up, you highlighted that cash costs, obviously, you highlighted down to a 10 year low, so impressive performance on that front, but you also highlighted the focus on continuing to take those costs lower. So as we think about the next few quarters into 2018, 2019, I'm really wanted to ask about what you see as the opportunity to continue to drive those costs lower and if there are some specific initiatives that you can point to give us confidence that trend continues to progress from what is already pretty impressive cash cost reductions? Yes, sure. I mean, I would say, 1st of all, I mean, we do guide on cash costs and we do try to take everything that's happening in the year into account when we're doing that. As you point out, we're actually challenging the lower end of the re guided numbers. The most important part of getting the cash costs down is reliability. And we have seen we're becoming again increasingly confident in the levels of reliability we're seeing for the plant. If you look at last quarter disappointed us, but if you looked at the last 8 quarters, you'd see that we've been doing very well consistently through that piece. We haven't finished in terms of reliability. We're continuing to work on it. You've seen what Firebag has done as it's come back from its turnaround. These 5 year runs are working and then the plants are coming back in a very reliable condition, which is very encouraging to us. We're continuing to work on what I would call the nuts and bolts of our business. So as the reliability comes up, we can start to look at where we put our priorities, where we put our manpower and we've been able to reduce costs through that piece steadily. It gets tougher as you go on. I mean you clearly go in and get the low hanging fruit first and then you move on to the more difficult issues. But we still have lots of things we're working on. So generally, you will see that trend continue. If you look at things like mining, you know we've been working on a program of automation there, which I'll use this one by way of example, automation which lowers maintenance costs, increases the productivity of the vehicles, increases the production of the mine. So that has gone very well. It's commercially successful. So you'll see us continue to work on initiatives like that where we steadily get reliability up and reduce real costs. I mean Alastair pointed out that we've actually with all the capacity increases we've had since 2014, 25% plus, We have actually reduced the absolute costs even accounting for that 25% increase in production. So it's been significant. You're going to see more of that. As we finish these big investments, we also get the opportunity to refocus again. So these are a project the size of Fort Hills takes a considerable amount of attention. Some of that attention is going to come back into our base operation as we consolidate our base operation again and integrate those operations into the business. So, yes, I'm confident you'll see a slow but steady trend on costs down and reliability up. Very helpful. Thank you. I'll leave it there. Okay. Thanks. Thank you. Our next question comes from Neil Mehta with Goldman Sachs. Your line is now open. Good morning, team. Good morning. Question I had Steve was first one was around share repurchases. You came out with a $2,000,000,000 share repurchase authorization buybacks in the quarter, run rating less than that. Do you see the potential to accelerate share repurchases as you think about the call it the next 6 months of the program? It's part of our capital discipline. We will flex share repurchases against 2 criteria at least. 1 is how well the business is performing and the cash it is producing, our plan is to have a very healthy balance sheet through this piece. So we're looking to fund those repurchases from good free cash flow. So when after the Q2, we had some challenges. We wanted to make sure we got the operation back reliable. We have, so we've increased the pace of them again. And you'll see us doing that next year. I mean the general trend is going to be with current performance and what we're expecting in the Q4 to see those share purchases continue at the higher end of the scale. That's great. And then, Steve, one of the questions we've been getting a lot as Canadian production continues to ramp and some questions around timing of pipes on WCS differentials. You guys are more protected, given the integrated nature of your portfolio. So but if you could remind us again differentials and just thoughts on how those spreads will evolve, that'd be great. Yes. I mean the first thing I would say is, I mean in terms of diff, it's a really answer. We're not exposed to the differentials because of the way our business is integrated and the way we run it. Diffs have virtually no impact on Suncor. We actually put a number in our shareholder book, which is on the website, but it's $2,000,000 for 1. So it's a very low number and you're almost best in your models to ignore the fact of differentials. On pipes, similarly, we're not particularly exposed. We are supporters of all of the pipelines and are actively out there trying to encourage the construction of those pipelines. But Fort Hills has always been in our plans. So we have access to market right the way through Fort Hills ramp up and when it gets up to full volumes, the vast majority of that will go on pipeline. There may be occasions when we put some on rail, but we feel very covered. So pipes and differentials are not something I lose sleep over. Last question for me on Syncrude, as you mentioned new leadership of the asset with the new managing director coming in, in December and I believe somebody that was with the Suncor organization before. Can you just flush this out a little bit in terms of where you see the ability to drive out cost and where you stand with synergies and how this leadership change can fit into that strategy? First of all, the leadership change, yes, I mean, during Cole is a very seasoned and experienced industry individual. Her experience was she worked for Shell for 17 years. She ran the Scotford Upgrader as part of her development. She came across some other jobs, she then came across the Suncor. As I said, she ran a big part of our reliability and maintenance organization across the company. So we're very, very confident that Dorian brings the skills we need for this next level. It also gives us an integration back into Suncor where when we can help, we will put that help forward. So we have some of the industry's best miners. We have some of the industry's best operators, literally a stone's throw from the Syncrude plant. So it's just another step in working together. And I do have to say, it was very much in cooperation with Imperial and Exxon that we've made the changes. Personnel need to change over time. This was the time for the leadership change and Doreen was the best candidate that the company has put forward. So very healthy process of development. Then all I would say is, I mean it's largely the answer I gave before. We will flesh out a little bit more through time, but we have a comprehensive accelerated program of improvements that Dorian Cole has been working on by the way with Mark Ward for the last 6 or 9 months. That's about all of the sorts of things that we've talked about. And some were already going on in Syncrude, some will take a new emphasis. So it's things like the reliability focus, the maintenance focus, the integration of processes, the coordination of supply chain like we now Suncor system handles the lodging and the transportation of individuals. It just helps and you get economies of scale when you get to the sum of the 2 companies that you can't get with 1. So lots of things like that and they're going fine and we're starting to see the benefits. The second ones are then the hardcore integration of the plants moving products and intermediate streams from one place to the other. And the third are these leases. We have comprehensive programs of those. I mean this probably isn't the place but if needs be we can take you through those in a bit more detail. Thank you. Our next question comes from Roger Read of Wells Fargo. Your line is now open. Thank you. Good morning. Good morning. And I guess maybe delve in a little bit, obviously, you're going to see more changes with Syncrude, the management change and all the other things you mentioned. I was just wondering though, we're going to see in the Q4 a fairly high level of utilization. Should we think about that as potentially the right way to say that's the new baseline and we stair step up from there as we think about improvements in Syncrude over the coming years? No, I think we have to be realistic. We've been progressing from a level which for the last 4 or 5 years has been in the mid-seventy percent utilization. Our plans we think get us to in the low 90% by 2020 and we think it will be a relatively straight line between here and there. So we're expecting to move up into the mid-80s next year and then move towards the 90s as we get to 2020. So you will see periods where we're running very high. We have been running it very high for the last 2 months of Q3 and for October. So you will see it for periods at those very high levels, but it does need plant maintenance as well. So I'd be a little bit more conservative on your assumptions. All right. I just wanted to test you a little bit there, but thanks. That's it for me. Okay. Thanks. Thank you. Our next question comes from the line of Travis Wood of National Bank Financial. Your line is now open. Yes, thank you. I wanted to revert back to Fort Hills ideally. I'd like to understand a couple of things and this is more high level and kind of structural as you went through the test run. But what type of data were you looking for during the test run and what output was studied once it was completed? How many days did it run for? And then with that data, were there any changes that you talked about in terms of operating plans or some of the components in terms of going back to the plant? Okay. I'll give you the overview here and then if you want more detail, don't hesitate to come back to us during the day. The 2 or 3 main pieces of focus for these early test runs. The first ones are mechanically to get it going. There's the beauty of the way we executed this project was that it wasn't all finished on day 1. We were able to get pieces. We can work through those and inevitably you will find issues, you'll find pump alignment issues, you'll find control loop issues. The The beauty of what we're doing is you fix all of those, but it doesn't have any impact on the full operation when you get to the point of having secondary extraction available. So we've mechanically gone through significant parts of the plant and I'll give you a clue as to the pieces we've been. So we've been running the sizes, the slurry prep, the separation cells. The 3rd test run actually runs the thickness, which is in progress over the next couple of days. And we've been running the tailings lines. So that's on the primary extraction side and what we've been doing is running those mechanically and testing the quality of the materials and they've been working very, very well. Then if you look at utilities, we've got boilers, cogens, water treatment and we've been running all of those and all of those main facilities have now been run. And then the answer to how long, it depends. I mean we've run it on an integrated basis producing. As I said, we produced between 23 100 1,000 barrels already and we ran it the first one for just under 50 hours and then our tanks and then we got to where we wanted to be and then the third one we ran to a higher level and we commissioned the road trucking facilities, which were only temporary to get the product out so we can continue to run these things. But as I've always said, the front end of the plant is very well designed and large and we've been running up in some cases to full capacity. So we can take you through the design of those six test runs, but the overall summary is that front end is looking very good. Okay. No, I appreciate that. And this sounds like it's the foundation to the confidence around first oil and then the ramp up through 2018? Yes, that's right. Thank you. Thank you. And our next question comes from Paul Cheng of Barclays. Your line is now open. Hey, guys. Good morning. Steve, I think for some times that you guys have been targeting your own upgrader utilization way at 90% and you certainly I think that by now hopefully you become more comfortable that you can achieve this. So is that the Holy Grail or do you think we actually should be able to do better than there is there a new target in terms of sustainability where that you can? And also whether there's any debottleneck opportunity for the upgrader that is no cost for that one? I mean, yes and yes, Paul. So I mean, to start with, you get the low hanging fruit again. You work through those and what we're doing is then we take the plant to that level and we run it and we find what the next level is and we look at what the resolution of that bottleneck is. Yes, there is still further to go. We've got comfortable on average in these low 90 ranges. There's still capacity. I mean an upgrader in terms of comparison, it's not a fair comparison, it's more comparable to refinery than it is to a mine. And you've seen in our refining, we've been able to get it up to for extended periods at 100% type levels. Can't do it continuously, but we can get it up there for periods. So you will see further creep, although it obviously can't be at the same pace as the early reliability moves. In terms of debottlenecking, yes, we are looking at the next opportunities for debottlenecking. Our view always was that the first debottleneck was to fully utilize the assets you have. At that point, you can start to see if there are any lower than full greenfield investment type levels that you can debottleneck out. We're looking at those and as we go through this next couple of years, I expect us to identify some of those, some real opportunities between Syncrude and Suncor, but particularly getting the Syncrude assets up and some of that's by connectivity into the base plan. And we think, I wouldn't plan into next year, but we think there are real opportunities around Fort Hills as well that we'll be looking at. So you're going to get 10% growth next year, 10% growth the following year and then you'll see us start to push on these debottleneck opportunities. I know Steve is probably way too early, but is there any preliminary somewhat estimate that how big is the opportunity set on debottleneck in your base upgrade in your own operation? And what kind of capital cost that we may be talking about? Yes, it's too early, Paul. So I mean as that becomes clearer, we will talk, but it is a little bit too early for us to be talking specific numbers and costs. Okay. On Fort Hill, I think previously that you guys talked on a full operation, dollars 25 in the cash cost. I think sustaining CapEx maybe $5 or $6 transportation cost may $4 So that get to about $35 round number, dollars 33 to $35 in the total cash cost. That means that today's oil price you won't generate much of a cash. So is that really the best that we can do or you think those is just the starting point we can actually push it below? Paul, it's Steve Douglas here. Actually, what we talked about for cash costs at the time we sanctioned the project was $20 dollars to $24 and we haven't adjusted that range. So I kind of look at that as the range until such time as we've ramped it up and reforecast. Then on transportation costs, yes, that's probably in line. But I think that gets you to more of a high 20s Canadian number rather than a low 30s number. Okay. And is that the best that you guys think that we will be able to do or do you actually think that there's still room there to be able to push it down substantially? Absolutely not the best we can do. No, I think that's a good planning basis and you will see us apply exactly the same approach to Fort Hills. You'll see us start to grind those costs down. And a great example is when we approved the project, we were talking about manned vehicles. And as you know, we put temporary contractors in there for pre purchased automated vehicles. We're now looking at the possibility of using those in an automated fashion. And we'll come out in the next 3 or 6 months and talk about how the test fronts have gone and what that transition might look like. A final one for me on the M and A front. Steve, do you see the market bid pass today is favorable or this does too wide apart? I think there's been as prices are coming up, expectations from sellers are coming up. I think in the main, purchasers have been patient. And I think what I would say for us is, we have no need to do M and A. We are in good shape. We will look dispassionately at the allocation of capital from we've got no major organic growth planned in the next year or 2. So we will then look in a very disciplined way at what projects might look like, what projects look like, what M and A looks like, what share repurchase looks like. So you'll see us move between the 3. What we're seeing at the moment is M and A is not particularly encouraging for us. We're very selective and so that's why we've been favoring share buybacks and we've been talking about the potential for a dividend increase next year. Thank you. Our next question comes from Jason Fruh of Credit Suisse. Your line is now open. Hi, thanks. Actually all my questions were answered. So thank you. Thanks Jason. Thank you. Our next question comes from Dennis Fong of Canaccord Genuity. Your line is now open. Good morning, guys. Just a couple of quick questions. First on the Syncrude baseline bilateral pipeline. What's kind of the path that we need to take from here to kind of sanction the project? It looks like you have like a preliminary cost estimate, I suppose, for the time being. Like is there engineering work complete? Is there commercial negotiations that you have to complete? Can you kind of like frame maybe a bit kind of a path to the actual sanction of this pipeline? Yes. Hi, Dennis. Steve Douglas here. And we did in fact put in the IR deck approximately a $200,000,000 or less spend. That's quite preliminary. There is a substantial amount of permitting work that has to go on even though it is a very short line. And there is we're really only in that's a pre engineering estimate. So we have to go through detailed engineering and there's also commercial discussions that have to be completed between the owners. So we are at the front end of this path, which is why we expect it to take until 2020 to actually have lines in place and operational. Okay, perfect. And then just with respect to the integration on the operations side, like with the potential relocation of Syncrude Staffing to the Suncor Energy Center, What are you guys doing at a field level with respect to, call it, best practices or doing very something similar within Fort McMurray? I mean on most fronts we have cooperative best practices. So if you think of safety or environmental, we work very closely together and then each company has slightly different operation integrity systems, but not completely coincidentally, Exxon's system and Suncor's system has many very similar components. So we'll take the best of the best and use them for Syncrude. So that's where you get some of the benefit where you have best practice there. And some of it is geography as well. We do have in some cases, we have a clear leadership. In some cases, Imperial or Exxon would have a clear leadership. And one of the best things about what's been going on is we've been just saying who is the best leader on this and it does there's no ego, if that's Exxon, let Exxon do it, if that's Suncor, let Suncor do it and then where everything else is equal, if there are geographic benefits then we that persuade. But it's been very much using the best of the best, not going in with dogma. And I think I've had a number of questions is when you just go in and take over operatorship. That was never our objective. Our objective was to get the plant very reliable and low cost as quickly as we could And there are lots of skills that Imperial and Exxon bring to the party and lots of skills that Suncor bring and we're trying to make the best of both. Okay, perfect. And then just last question here. With respect to Fort Hills, you talked about trucking some of, I guess, the bitumen froth from Fort Hills down to the upgraders. Approximately, like how much trucking are you guys talking about? And maybe even a volumetric number therein? I mean I wouldn't I'll give you a number on average. The detail, I wouldn't worry about too much. Think of it as about for the Q4, you could think about 8000 to 10000 barrels a day equivalent. Maybe I just supplement that, Dennis, with the objective here is not an economic one. So the numbers really aren't that material one way or the other. It's more about fully testing the front end of the plant in a comprehensive way to derisk the full plant startup and ramp up. That's our real goal here. Our next question comes from Amir Arif with Cormark Securities. Can you just remind us us after Fort Hill is fully ramped up to its production at the end of 2018, what your total oil sands production is, your upgrading capacity and your heavy oil refining capacity? But we will be guiding in November for 'eighteen, but I'm happy to come back to you offline with specific numbers. Okay. So I was just trying to follow-up with a previous question in terms of exposure to WCS. Okay. Yes. So we will currently, we sell about 100,000 barrels a day of bitumen to 3rd parties. With Fort Hills, that will close to double, because we have close to 100,000 barrels a day of bitumen coming out of Fort Hills as Suncor's working interest and that will or the equivalent of that will go to 3rd parties. So we essentially double our exposure, but we remain not materially exposed to the light heavy and we can walk through that and we will in our IR deck and presentations going forward. Okay. That sounds good. And then just as I think about longer term growth beyond 'nineteen, should I think about more just capacity creep at some of the mining operations or does greenfield SAGD start to become economic and competitive current prices based on new cost structures? I mean, yes, think about to start with the 10% next year and then the next 10% following the year coming from Fort Hills and Hebron coming to full capacity. Also factored in there is Syncrude starting to increase reliability as we move up towards the 90% level. Then think about other debottleneck opportunities and we'll clarify those as time goes on. And then beyond that, you can start to think about in situ replication. We've had our approvals for Meadow East, which was 2x40,000 barrel a day unit. We've had Meadow West is now in for approval. So that gives you 120,000 barrels a day. And then beyond that, we will have certainly in the next 6 months our applications in for a property we called Lewis, that's 4 times 40,000 barrels a day, so 160. So in total, we have replication in situ projects mapped out for 280,000 barrels a day beyond that. So we have lots of exciting opportunities. Could you share what your capital efficiency assumption would be on new thermal side? Or is it too early to do? I mean, I'll tell you what the objective is I've set the businesses is I'm looking for a $50 crude breakeven on those projects. And they're starting to get it was when it started, it was probably near a 70. It's now down into got down around the 60, maybe in the sub-sixty level. And I'm looking for it to have a breakeven down at 50 for approval. Thank you. And this concludes the question and answer session. I would like to turn the conference back over to Steve Douglas for closing remarks. Thank you, operator, and thanks to everyone for participating. I know we do have a few questions still lined up. And as always, we are available throughout the day. So but we do need to sign off here. So thanks to everyone for participating, and we'll talk to you again.