Good morning, ladies and gentlemen, welcome to the Suncor Energy Second Quarter 2017 Financial Results call and webcast. 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. If anyone should require assistance during the conference, please press star then 0 on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Steve Douglas, Vice President, Investor Relations. Mr. Douglas, please go ahead.
Thank you, Michelle, good morning to everyone. Welcome to the Suncor Energy Second Quarter Earnings Call. With me here in Calgary this morning are Steve Williams, our President and CEO, along with Alister Cowan, our EVP and Chief Financial Officer. I'd ask you to note that today's comments contain forward-looking information, that our actual results may differ materially from expected results because of various risk factors and assumptions described in our second quarter earnings release, as well as our current AIF. Both of these are available on SEDAR, EDGAR, and our website, suncor.com. Certain financial measures that we refer to in these comments are not prescribed by Canadian GAAP. For a description of these financial measures, again, see our second quarter 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 ask Steve Williams for his comments.
Thanks, Steve, good morning, thank you to everyone on the line for joining us. I think it's important right up front to acknowledge that our second quarter results were somewhat mixed, both from an operational and a business environment perspective. The past few months have brought us a combination of a falling crude price and a strengthening Canadian dollar. These trends and continued volatility, I think, simply underline the importance of concentrating our efforts on those things which we can control. In Suncor's case, that means a continued focus on disciplined cost management and, of course, capital allocation. Those two add up to what we call operational excellence. On the positive side, I'm very pleased with our continued success in taking costs out of the business. We're steadily moving the entire company towards a sustainably lower cost base that's positioning us to be globally competitive.
At the same time, we continue to exercise capital discipline while executing on our growth programs, buying back shares, and maintaining a strong balance sheet. Our downstream and offshore business delivered strong operational and financial results. However, as I said, I'm not satisfied with the operational performance of our oil sands assets in the second quarter. The first major maintenance turnaround at Firebag units three and four, after five years of operations, encountered a number of challenges, resulting in a significantly slower restart and ramp-up than expected. At Syncrude, the planned April turnaround was advanced due to a fire in a pipe rack in March, then had to be extended as a result of repairs associated with the fire, as well as several other more minor operational issues. Syncrude also advanced coker maintenance originally planned for this fall in order to take advantage of the downtime.
The end result was lower oil sands production than we had planned for in the quarter. However, it's worth saying that I am confident that the learnings from these events will assist us in better understanding these assets going forward, and we are planning for a return to strong, reliable production throughout the second half of the year. It's important to note that even in the quarter where our oil sands production fell short of plan and average oil prices were below expectations, Suncor still generated funds from operations of over CAD 1.6 billion. This just demonstrates once again what a powerful cash generation machine the Suncor integrated model is. Let's get into the details of our second quarter. At Oil Sands, we produced a total of just over 350,000 barrels a day, including 290,000 barrels a day of upgraded product.
We completed major planned maintenance activities at Firebag and the Unit 2 upgrader, and held our cash costs to just CAD 27.80 per barrel. That's the lowest second quarter oil sands cash costs in over a decade. With the bulk of our oil sands maintenance for the year now complete, our oil sand operations have been running at full rates in July. We expect to meet our production guidance for the year and have actually lowered our cash cost guidance to CAD 23-CAD 26 per barrel, thanks to our strong year-to-date performance. At Syncrude, planned and unplanned outages reduced Suncor's share of production by over 100,000 barrels a day in the quarter. Whilst, again, this performance is not acceptable, I remain confident that we can achieve the long-term operational goals we have set.
We always knew that the road to operational excellence would not be a straight line, that there would be some setbacks like what we've experienced in the quarter. However, we will continue to work closely with Syncrude and other owners to execute on a plan that we expect will drive utilization rates above 90% and cash costs below CAD 30 per barrel by 2020. Those original commitments we're confident in. In E&P, we continue to see excellent performance in the second quarter. Our total offshore production year to date is tracking 4% ahead of last year. At the same time, cash operating costs have come down 22%, with average operating costs year to date on the East Coast below CAD 10 per barrel, and in the North Sea, well below CAD 5 per barrel. Remember, of course, those are Canadian dollars.
As a result of this strong performance, we've raised our 2017 production guidance for E&P twice this year by a total of 20,000 barrels per day. In the downstream, our refining and marketing business turned in another excellent quarter. Utilization rates at our refineries rose to 94%, which drove a 10% increase in production and a 6% drop in unit operating expense versus Q2 of last year. The increased production supported strong retail sales and set a Suncor record for the first half of the year. Despite market concerns around gasoline demand, our downstream business is squarely on track to deliver another year of strong earnings and cash flows. Turning to our growth projects, it's an exciting time at Fort Hills and Hebron as they rapidly approach first oil. Our focus is increasingly on commissioning, startup, and operations as we move into the last few months of construction.
At Fort Hills, we've been tracking to previously announced budget and schedule. The mining ore operation, major site infrastructure, and primary extraction assets have all been handed over to operations, and the turnover of utilities is now in progress. Just two weeks ago, the East Tank Farm, which will support the Fort Hills operation, was commissioned and declared ready for service. That just leaves secondary extraction, the paraffinic froth treatment, as the final area where construction activities are currently concentrated. We recently identified some opportunities to accelerate the construction schedule in order to take best advantage of productivity and further de-risk the full plant start-up. This would result in some capital spending originally scheduled for 2018 being brought into 2017. Accordingly, you'll have noted that we have adjusted our guidance. Alister will go into the details a bit later on the call.
Remember that we're proceeding with a phased commissioning and start-up plan that will see the front end of the plant, including the water assets, fully tested prior to the onset of cold winter weather. This allows for early identification and resolution of any issues that may arise. As a result, we expect to significantly de-risk the production of first oil late in 2017. Approximately 85% of operating personnel have been hired, including all critical frontline positions. Training activities are well advanced, and we have greatly benefited from attracting experienced staff in the PFT process. There has been one recent development on the Fort Hills project that is a little disappointing. Our partner, Total, has chosen not to approve or provide additional project sanction funding for the Fort Hills project. As a result, we are now in the early stages of a commercial dispute with Total.
Given the fact that construction is now 92% as of the end of July, we're not anticipating that this issue will impact the plan to achieve first oil by the end of the year. Our other major growth project is, of course, Hebron, off the east coast of Canada. During the second quarter, the Hebron platform was successfully towed back to its offshore location and safely positioned on the sea floor. Drilling operations commenced just last week, and the project remains well on track to produce first oil by the end of this year as planned. With all operations back up and running, and our major growth project expected to deliver first oil by year end, we're well set for a strong second half to 2017.
Perhaps the one other thing that seems most top of mind to investors is the M&A climate in light of recent transactions in the sector and the much lower, for much longer, oil environment. What I would say is that beginning over five years ago, Suncor has maintained a strong balance sheet, and as you've seen, we treat this as a strategic asset.
We generate discretionary free cash flow, that is after sustaining capital and dividend above a $40 U.S. crude, U.S. WTI price. We allocate that cash in a disciplined manner with a focus on returns between organic growth, M&A, and share buybacks. As you look to the future, judge us by what we've done in the past. We will continue to make disciplined choices, always targeting the best returns for shareholders. With that, I'll hand over to our Chief Financial Officer, Alister Cowan, to go into some more detail on our financial performance.
Thanks, Steve. As Steve mentioned earlier in the call, in the second quarter, we saw average benchmark crude prices fall by about US$3.50. Towards the end of the quarter, we saw the Canadian dollar strengthen sharply against the U.S. dollar. Nevertheless, we did produce solid financial results once again. We generated, as Steve said, over CAD 1.6 billion in funds from operations and approximately CAD 200 million in operating earnings. Notably, our E&P business produced well above expectations and generated approximately CAD 440 million in funds flow. Our refining and marketing delivered over CAD 500 million in funds flow, despite a negative FIFO impact as a result of falling crude prices. This was very consistent with last year's strong second quarter in R&M, after adjusting for FIFO impacts and the lubricants sale, which was completed in the first quarter of this year.
Our funds from operations for the quarter more than covered our sustaining capital spending of CAD 891 million and our dividends of approximately CAD 530 million, leaving almost CAD 200 million in discretionary free cash flow. Over the last 12 months, we've generated over CAD 3.6 billion in discretionary free cash flow. As Steve said, that's after sustaining capital and payment of the dividend. A key contributor to the free cash flow generation is our continued success in reducing costs across the business. Everyone's aware of the steady reduction in our oil sands cash costs in the past few years, and that is certainly a very considerable accomplishment. I just wanted to emphasize, it's not only in our oil sands operations that we're improving productivity and driving out costs. Right across the company, we've been steadily streamlining business processes, eliminating non-value-added work, and increasing productivity.
In the first half of 2017, our total operating, selling, and general expenses were more than 10% lower than the first half of 2014. At the same time, our total production increased by almost 19%. The result, as you've seen, is lower breakeven costs and increased cash flow. On the capital front, we've invested close to CAD 1.7 billion in the second quarter, bringing our year-to-date total growth and sustained capital spend to almost CAD 2.9 billion. Progress on the Fort Hills project accelerated during the quarter, and we now see the potential to advance work that was planned for early 2018 into this year. Accordingly, we've increased the capital spending guidance range for 2017 to CAD 5.4 billion-CAD 5.6 billion. We'll be honest, we've had some concerns about this, let me assure you that this is simply an adjustment in the timing of the spend.
The 2018 capital budget will be reduced commensurate with the increase in this year's spend. Our balance sheet continues to be a key strength for Suncor. We finished the quarter with approximately CAD 2.4 billion in cash and over CAD 8 billion of liquidity. During the quarter, we repaid $1.25 billion of long-term debt. Our net debt to cash flow decreased to less than two times, and our debt to capitalization fell to approximately 27%, both within our target ranges. We expect debt levels to continue to decline organically as our production and cash flow increase moving forward. On our last call, we announced the initiation of a CAD 2 billion, one-year share buyback program, which we commenced on May 1st. We've been aggressively executing on the program for almost three months now.
To give you a bit of an update, as of today, we have repurchased and canceled over 11 million shares for approximately CAD 450 million. We've been quite aggressive in July on this program. The buyback program was premised on an oil price in the low $50 US range, with funds coming from our discretionary free cash flow. As everyone's aware, the oil prices fell during the quarter. While the short-term trend in those oil prices has not influenced the repurchases, we do believe it's prudent to flex the program based on the discretionary free cash flow in light of the current business environment. Irrespective of oil prices, you can expect Suncor to continue its focus on reducing costs, carefully allocating our capital, and delivering competitive returns for our shareholders. I'm going to pass it back to Steve Douglas.
Well, thank you, Alister and Steve. Just a few things to note before we go to the questions. There was a falling crude price, as Alister noted, there was a FIFO expense of CAD 38 million after tax.
That brings year-to-date to very close to zero, a CAD 5 million positive year-to-date. Stock-based compensation during the quarter was an after-tax expense of CAD 19 million, bringing the year-to-date total to CAD 91 million after tax. The FX impact was actually a CAD 278 million gain in the second quarter, bringing us to a CAD 381 million gain year-to-date. There are, as Steve and Alister mentioned, a number of changes to our guidance. The updated guidance is available on our website, suncor.com. A few of the highlights. We did, as mentioned, increase the capital spending range to CAD 5.4 billion-CAD 5.6 billion for the year, and we will be reducing our 2018 budget accordingly.
Due to strong performance and outlook, the E&P production range has been raised by a further 5,000 barrels per day, and as a result of the extended outage at Syncrude, the production range there has been lowered by the same amount, 5,000 barrels per day. The net impact is no change to our 2017 production range of 680,000-720,000 barrels per day. The Suncor Oil Sands cash cost range has been reduced by CAD 1 to CAD 23-CAD 26 per barrel as a result of strong year-to-date cost management. Syncrude cash costs have been increased to CAD 42-CAD 45 per barrel, reflecting the impact of the extended outage. Cash taxes have been increased by CAD 100 million, and that's primarily to reflect the higher cash taxes associated with increased North Sea production.
I should note that the range excludes the cash taxes associated with the lubricants and wind farm sales earlier this year. There's also a number of small changes made to the business environment assumptions, and those are simply based on year-to-date actuals and expectations going forward. With that, I'll turn it back to Michelle to take questions. Thank you.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star, then the number one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Greg Pardy with RBC Capital Markets. Your line is open. Please go ahead.
Thanks. Good morning. Steve, really just want to dig into a couple of areas, not surprisingly, probably just Syncrude and Fort Hills, but maybe just before that, in terms of the capital increase that you've got this year, how much of that is related to the Syncrude repair work? It sounds as though you'll be able to recover a bunch of that through insurance. Is that right?
Yeah, we haven't been explicit about the breakdown, but yes, in excess of CAD 100 million is to do with the work at Syncrude, of which a large proportion of that is CapEx. We would expect to get a recovery. We can't be absolutely sure of the timing of the recovery. We've been prudent in the allowance. The CAD 500 million is the balance of Fort Hills and Syncrude. As Alister said, the Fort Hills piece is really just timing. We're still anticipating on Fort Hills that we will come in towards the top end of the range we guided on earlier in the year.
Okay, great. Just with Syncrude, can you touch maybe on just what's going right, what's going wrong, and just how you're thinking about the ramp-up coming into August?
Yeah. First of all, perhaps it's worth just giving a snapshot of where we are operationally today, and I'll do it a little bit broader than just Syncrude. Syncrude is already up at between 70%-80% of its nameplate capacity this morning. We're already exporting well in excess of 250,000 barrels a day, and there's another move planned later today. It's already in that 70%-80% range. Worth adding, whilst I'm talking current operations, the base plant Firebag, MacKay River are up at full throughput and have been for most of July. Although I found the results unacceptable to me through the second quarter, they're very much back on target already in the third quarter. To get back to your comments, Greg, overall, I'm not completely surprised by the Syncrude performance. We did talk about it not being a straight line.
We had very good operation, and even when we had the good operation last year, I said we couldn't build that into expectations every day just yet. We are absolutely confident in the 90% utilization and sub-CAD 30 a barrel in that 2020 time range. We are working those programs in detail. Great work going on between ourselves, Imperial Exxon and Syncrude itself. We will bring that and take you to
Later in the year, we'll bring that out and show you that in a lot more detail. It's also quite clear to us that the synergies are higher than we've anticipated, both in the day-to-day operation of the plant and the way we believe we will manage it going forward, but also in terms of those other synergies I talked about, how we connect the plants, how we can get when we increase the utilization of the Suncor base facilities, it was how we got security of bitumen supply from three or four sources rather than one. We can do some of that with Syncrude by cross-connecting some of the bitumen spot supplies. We can keep the upgraders and export to market going longer by having connections on the product side between the plants. Those projects are moving ahead with some pace now.
I'm very comfortable in the long term. Disappointed, but not completely surprised in the short term.
Thanks for that. Maybe just the last one is, you touched on the commercial disagreement with Fort Hills. Can you elaborate on that at all?
It's a little bit early. We're only a few days into the discussion, so it's too early for me to comment in detail on the dispute itself. What I would say is, the plant is 92% complete as of today. We're really on the final stretches. Suncor and Teck remain completely aligned in our approach to the project, and I am not anticipating any impact on cost and schedule. If anything, the result of what we've discussed today because we're getting progress, very good progress, on the project. What we're planning to do is to finish off the bulk of it this year. What that means is it positions us much better then for no water introduction through the winter. It'll be done all pre-freezing season. We'll be able to move into the startup with a higher degree of confidence.
The project itself, the brick-and-mortar piece of it, is in really good shape. We're still talking about the possibility of a first intermediate product sometime in September or October. We're still talking about the first train up at the end of the year and then progressively starting the other two trains up in the early part of next year. Bodes very well for the ramp-up next year.
Thanks, Steve.
Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open. Please go ahead.
Good morning, guys. First question is related to the FX strength, the CAD USD. We recognize that you lowered the cost guidance here today as part of the release. Could you just talk about how that exchange rate change makes you think about the cost structure going forward? I have a follow-up.
Yeah, Neil. The change in the operating cost guidance we gave on the Oil Sands operations it's got nothing to do with the FX rate, it's all to do with us driving costs out of the business in a sustainable manner. On the FX, with the pluses and minuses, we take some negative impacts on the oil prices we translated back into Canadian dollars, but you saw a big FX gain offsetting that as we translate our US dollar debt. On a net-net basis, we manage it through the balance sheet. We don't typically go forward and look at how we hedge it, and we don't really see big of an impact on the operating cost structure of the business.
That's great. Second is, the strength in E&P has surprised us over the course of the year. Can you just talk about where you're seeing that strength? Is it at Buzzard, Hibernia, elsewhere? How sustainable is that going forward?
Hi. Yeah, we are very pleased with both the production and operating costs in that offshore business. As you know, it is a highly cash generative business. We have been investing, albeit at not very material levels to Suncor, but we have been investing in a very selective, targeted way, and we're starting to see the strong returns from those investments. You'll see us continue to do that. It's all of those, if you like. It is broadly across the operations. They've done exceedingly well. As we move towards the end of this year, you're going to see the ramp-up of Hebron as well. Although it's a very important part of our business, I often get questions about the divestment of that business, and I've said we do see it as part of our integrated business.
It gives us some diversity so when we see some trends in other parts, it's a very robust cash generator for us. I'm pleased that strategy has been working and one we plan to continue with.
Great. Last question for me is just around share repurchases. Going back to your comments, Alister, it sounds like, if I'm interpreting what you're saying is, if oil stays around CAD 50 a barrel, we should assume that you continue to execute the program. If it falls to the lower end of a range, let's call it CAD 45, you take your foot off the pedal a little bit. If it goes above CAD 50, you get a little bit more aggressive. I might be putting words in your mouth, and I'm trying to create a formula where there might not be one, but any comments there would be great.
Let me just do it from, if you like-- You've heard Alister speak there. Let me just give you a slightly different cut. I think you've nailed it in a sense. The flex we have in our capital allocation is, we are committed to our dividend. We have capital expenditure on organic stuff, which is starting to come to an end. Those programs are disciplined and executed over a period, and we tend not to slow down or speed those up. The piece of flexibility in our capital allocation is share buybacks. We've never given specific targets per se, but I think we were quite clear. We talked about CAD 2 billion in the range we were looking at, which was in that CAD 50, mid-CAD 50s type range. You'll see us just be prudent and flex share buybacks up and down.
That's great.
I would just add to that, Neil, we have bought just under CAD 500 million of stock in the last three months. When our prices were in the sort of, certainly the lower end of the range. The flex is there, we will utilize it when we need to.
Perfect. Thank you.
Thank you. Our next question comes from the line of Roger Read with Wells Fargo. Your line is open. Please go ahead.
Thanks. Good morning. Hopefully you can hear me. Okay, good. I just wanted to come back on some of the OpEx questions, but maybe starting with Syncrude. As you had the downtime planned, you had the fire. As you've gone through the restart process and the work, is this something we can identify as an equipment issue? Is it a process issue within Syncrude? Are we talking about too few or maybe not quite the right people in place?
No, this is a specific equipment issue which is unlikely to be repeated. That's why I'm confident about the longer term. This was what we in the industry call a process dead leg. Because there's a valve in a line, there's a line that has no flow in it. We specifically understand the issue, not likely to be repeated, and we've worked across the plant to identify and remove them. No, it's a once-off. It's unfortunate, but not reflective of what you're going to see in terms of the improved utilization and the reduced costs. As I say, not a complete surprise because you do get these things happen occasionally, but it's why I'm so confident we'll get to our 90%+ utilization and CAD 30 because this shouldn't interrupt that program.
Okay. Actually, that kind of steps into my next question. As you think about the OpEx performance over the last year, I think in the press release, some of that is obviously due to lower natural gas prices. Where do you think you are in sort of the, where you are today, where you want to be with OpEx as a sort of a percentile marker? I'm thinking both the oil sands and the E&P side of business.
Okay. Let me just give you some general comments. Clearly, as an industry, we've benefited from lower gas prices for a number of years now. They haven't changed significantly through this period. The costs you're seeing quarter-on-quarter and year-on-year are not largely driven by reduced energy costs. They're primarily driven by a structured program of working hard to drive systematically costs out of the system. Both in oil sands and E&P, and in the downstream, you're seeing. In fact, in the corporate center as well. We have a program in each of those areas. In terms of the cost reductions, we could be more specific off of the call if you like, but just generally, something like approximately 70% of those costs we think are systematic and irreversible. Those have come out and will stay out. We haven't finished yet.
It's a continuous program. We've made some good strides, particularly in the oil sands business, again, in this last quarter. You're going to start to see that in future quarters as we go forward. In terms of long-term objectives, I'll just talk about our base oil sands operations. I still have set an ambitious target for the guys to get us at some stage below CAD 20 operating cost. It's a mid to longer term project. We're still working towards it. I can see us getting there. The strides we're making are fantastic. I think the next set of progress we'll make, some of it will be
Further refining our people systems, our processes, the way our supply chain works. We've also got some technology things we've been working on. If you think of all the work we've been doing on autonomous trucks, if you think of all the work we've been doing on different in situ techniques, they come with commensurate reductions in operating costs as well. We've still got the program, we're working really hard at it, and there's more to come.
Okay, great. I appreciate it. Thank you.
Thank you. Our next question comes from the line of Phil Gresh with JP Morgan. Your line is open. Please go ahead.
Hi, good morning. This is John Royall sitting in for Phil. On the CapEx raise, could you tell us how much has already occurred in 2Q versus to come for the rest of the year?
Sorry, John, could you repeat the question? I didn't quite catch that.
Yeah. The CapEx raise. Just wanted to know how much of it is related to things that have occurred in 2Q versus raises for the second half.
Yeah. We're pretty much on budget as of today or year to date. Most of that will be an acceleration in the second half of the year.
Okay, great. Then I think you talked about driving towards a longer-term CAD 5 billion all-in CapEx number. Is that still a good number to think about, particularly in light of everything that's going on with Syncrude? Would it be as early as 2018 that you would think about that number?
No. We're talking broadly CAD 5 billion, and we've talked about it. That's a good number to put in your model. We talked about that for 2018 and 2019. They're good numbers. Of course, what Alister Cowan said this morning, and they're obviously approximate numbers, but you can expect the money we brought forward to come out of the 2018 budget. You will see a decrease from that CAD 5 billion.
Okay, great. I know you've touched on it a little, but could you go into some more detail on the nature and the scope of exactly what you're doing in Fort Hills related to the CapEx raise?
Sorry John, your line just broke up slightly at the end. Could you repeat your question?
Yeah. If you could just give a little more detail on the scope of what you're doing at Fort Hills with the CapEx raise. I know you mentioned it a little in the remarks.
It's simply, we've got the opportunity. What we're finding is that the progress we're making on secondary extraction is above the targets we had in. We've been able to see the opportunity by retaining the workforce more this year to be able to get the major pieces of that project complete and all of the hydro testing complete this year. We'd always planned that for the first train. There are two other trains. It looks as though we're going to be able to do that with the productivity we have this year. It's simply bringing that back from 2018 into 2017.
Great. Thank you.
Thank you. Again, ladies and gentlemen, if you have a question at this time, please press star then one on your touch-tone telephone. Our next question comes from the line of Frank McGann with Bank of America Merrill Lynch. Your line is open. Please go ahead.
Yes, thank you very much. Yeah, if I could go back to the Total dispute. Just to get a little bit more clarity on, is this primarily commercial, strategic, technical? Is it primarily related to the CapEx increase? What is actually driving that? Assuming that they were not to go along with all of the spending, would that change the eventual ownership percentages as a result of a carry that you might undertake for them?
Yeah. As I said, it's too early for all of that. We're a few days into it. As I said, we're 92% complete, so they're not very material conversations in terms of the context of the project. It is a commercial discussion, not a technical discussion. I think, I got asked several times last time on the call, are Total looking to sell parts of their project. We know that they have been looking at various strategies. In this case, this is a commercial discussion between ourselves and Total. Too early to talk about the detail. The reassuring message I would like investors to take away is we're 92% complete. We're not anticipating this affecting either the cost or the schedule of the remainder of the project. Frustrating at this stage, but not that significant.
Okay, thanks. If I could just follow up, just in terms of overall cost trends, are you seeing any signs of pressure in any parts of your business?
No, not particularly. We're seeing particularly operating costs and capital costs still continue to move in the right direction.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Travis Wood with National Bank Financial. Your line is open. Please go ahead.
Yeah. Good morning, guys. Just a question around the E&P business. It looks like results have been a bit better than expected. Can you help us understand, as Hebron comes on and the ramp of that and what that could look like to the aggregate E&P production profile over that ramp period?
Yeah, Travis, I think we've been clear that it's a 3-year ramp-up on Hebron. As we drill the additional wells or the production wells over the next few years from the platform. That will ramp up in 2018 to about 10,000, 2019, 2020, and then about 30,000 a day in 2021. Obviously that will offset some of the declines that we're obviously going to see in the whole E&P portfolio, but that's a ramp-up on Hebron.
Okay. Do you think that more than offsets the other declining parts of the portfolio?
Yeah. To a certain extent, yes. We should see some increases in E&P production. I would caution you, it's not the whole thing. There are some declines coming in over the period as well.
Okay, great. Thank you.
Yeah, that sees that business remaining where it is or maybe even slightly better through to the middle, maybe slightly beyond, of the next decade.
Okay. Thank you. Appreciate that. Thanks, guys.
Thank you. Our next question comes from the line of Dan Healing with The Canadian Press. Your line is open. Please go ahead.
Good morning. Thanks for taking my question. I was just wondering if you can be a bit more specific on what the dispute with Total involves. You said it involves funding. Is that funding for the portion of the capital cost that had been moved forward, or is that for funding farther down the line?
No, we're at the very early stages of the dispute. It's inappropriate for me to talk in any more detail than I have done. The project is 92% complete, we're very close to the end of the spend. It's a commercial discussion, which is not that unusual at this stage in a project of this size. Most of the spend is really set to the end of the project. We have 7,000 people on site finishing it off, and it's the three-quarters of the plant is in the hands of the operators and is being started up. It's not unusual to have these discussions at this time.
Okay. If it's not unusual and these kinds of things happen all the time, I guess I'm wondering why you're bringing it up on a conference call, Steve.
We're very transparent about where we are, and we think it's important to keep our investors fully appraised of where the project is.
Okay, thanks.
Thank you. Our next question comes from the line of Jeff Lewis with The Globe and Mail. Your line is open. Please go ahead.
Hi. I just had two quick questions. One about the share buyback. Can you just clarify, are you suspending the share buybacks now or just signaling that you have room to sort of tap the brakes on those?
We're not suspending the share buyback. As Alister said, we bought about CAD 500 million worth of our shares back over the last period. We're still buying as we speak today. We buy our stock back with our free cash after all of our other commitments. As that cash flow fluctuates, depending on our spend and the price of crude, we'll flex the buyback up and down. We're still committed to the program.
Still the CAD 2 billion, I believe it was, level for the year?
That's our target, but it will depend on free cash flow.
Just quickly, TransCanada has launched another open season for Keystone XL. Do you see that project as still being necessary in today's market, given some of the changes that we've seen?
We generally support all of the projects which are currently seeking access to market. We support Keystone, we support Trans Mountain, we support the Enbridge Line 3 project. All three of them seem to be making steady progress which I'm encouraged by. I think we certainly need these projects, and it depends on what time they come into service. No, I think the projects are still needed in the industry, and Suncor is supporting them.
Are you a shipper on Keystone XL?
Yes. We're already a shipper on the lower half of Keystone.
Right
which is already operational.
I think we can go to the next question, operator.
Thank you. Our next question comes from the line of Nia Williams with Reuters. Your line is open. Please go ahead.
Hi there. Can you give us a sense of what level WTI Suncor needs to break even in its oil sands operations? I know you've spoken about operating costs, but I'm just wondering once you put in G&A costs and transportation and blending , what the break-even number is.
Okay. I think we've been very clear on this, that the break-even cost for Suncor to cover its operating costs and sustaining capital is around $30. If you add in the dividend, it's $40. For you, I would use $30.
Okay, thanks.
Thank you. I'm not showing any further questions, and I'd like to turn the conference back over to Steve Douglas for any further remarks.
Thank you, Michelle, and thanks everyone for joining us today. If you have further questions or detailed modeling questions, of course, we're available and welcome your call. Thanks again. We will sign off.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.