Earnings Call: Q3 2016

Oct 27, 2016

Good morning, ladies and gentlemen, and welcome to the Suncor's Q3 2016 Financial Results Call and Webcast. I would now like to turn the call over to Mr. Steve Douglas, Vice President, Investor Relations. Mr. Douglas, please go ahead. Well, thank you, operator, and good morning, everyone. Welcome to the Suncor Energy Q3 earnings call. With me here in Calgary are Steve Williams, our President and CEO as well as Alastair Cowen, our EVP and Chief Financial Officer. I'd ask you to note that today's comments contain forward looking information. Our actual results may vary materially from expected results because of various risk factors and assumptions, and they're described in our Q3 earnings release as well as our current AIF, and these are both available on SEDAR, EDGAR and our website, suddincorp dotcom. Certain financial measures referred to in these comments are not prescribed by Canadian Generally Accepted Accounting Principles. And for a description of these measures, please see our Q3 release. Following our formal remarks, we will open the call to questions from members of the investment community and then if time permits, members of the media. With that, I'll hand over to Steve Williams for his comments. Thank you, Steve, and good morning and thank you to everyone for joining us. I'm pleased to be reporting on a strong Q3 for Suncor with very positive results on the financial, operational and strategic fronts. Let, as normal, let me start with the operations. First of all, we achieved safe, reliable production across all of the operations in the Q3. At Oil Sands, our facilities returned to full production by early July following the post forest fire remobilization and completion of the major turnaround activities on Upgrader 2. We achieved strong production averaging 434,000 barrels a day for the quarter and an 86% upgraded utilization and that's despite the planned coker maintenance that reduced throughput in September. And importantly, we continue to take costs out of the system as overall oil sands cash costs came in at just over $22 per barrel. And that's our lowest cost per barrel in over a decade. In situ performance was very solid as Firebag averaged just under 200,000 barrels a day for the quarter and that was with an SOR of just 2.6. Percent. Mackay River turned to normal operating rates after 3rd party pipeline issues in July and planned maintenance in August and cash costs for in situ dropped to $10.45 per barrel effectively matching our lowest quarterly costs on record. At Syncrude, following the post fire remobilization and completion of turnaround maintenance, production ramped back up by mid July and ran at record levels for the remainder of the quarter. The strong production combined with continued cost reduction initiatives resulted in average cash costs per barrel for the quarter of 27.65 again the lowest in almost a decade. The reliability improvement plan that was already in progress when Suncor increased its ownership stake earlier this year has clearly begun to pay off. Together, Suncor, Syncrude and Imperial are leveraging the best of our combined knowledge and experience. Now it's much too early to declare victory, but we are certainly encouraged by the progress to date. And I just want to take a moment to recognize the efforts of the Syncrude employees and leaders who have been key to this recent success. Of note, we continue to work with Syncrude and Imperial on a plan to sustainably improve reliability, reduce costs and drive synergies between our operations. We are strongly aligned on the outcomes and we are focusing on specific initiatives and milestones. And as I said before, we plan to come out with a summary of that plan by year end. In E and P, our offshore production continued to track ahead of plan despite turnaround maintenance during the quarter at Buzzard, Golden Eagle and White Rose. We saw strong reliability and cost management during the quarter from all of our offshore projects. As a result of this performance, we have increased our E and P production guidance for the 2nd time this year. In the Downstream, record refinery throughput of 465,000 barrels a day drove low unit operating costs and strong financial results helping us overcome a decline this quarter in refining crack spreads. And there seems to be a great deal of pessimism around North America refining and marketing, but Suncor's downstream continues to exceed expectations. At the beginning of this year, we forecasted a 20% to 25% drop in downstream cash flow versus our exceptional performance in 2015. Our forecast was based on an expected decline in distillate demand as a result of the mild winter and reduced E and P activity. With 3 quarters now in the books, we are actually tracking ahead of our forecast and enjoying another year of industry leading downstream performance. Turning to our major projects growth, both Fort Hills and Hebron are entering the home stretch with construction over 70% complete and first oil expected by the end of the year of next year. For both projects, off-site fabrication and modularization programs have been completed. So the global risk is now safely behind us. At the beginning of Q3, Fort Hill's on-site activities ramped back up after the project was demobilized for approximately 1 month due to the regional forest fires. Now, as I have said before, this project is very large and complex with many moving parts and it's now in the final stages of construction. Approximately 50% of the operating systems will be handed over to the owner by the end of this year. However, I remain confident and that's an important emphasis I want to make today. I am confident we will deliver on the original sanction commitments. And specifically, that's first oil by the end of 2017, a capital intensity of $84,000 per flowing barrel and safe and reliable production ramp up in 2018. In addition to our organic growth projects, Suncor has also taken full advantage of low oil prices to invest approximately $9,000,000,000 in acquisitions over the past year. We have increased our working interest in Fort Hills project by 10%, taking our ownership to 51%. We have acquired 2 additional stakes in Syncrude, bringing our working interest up to 54% and we purchased a very low cost option on future North Sea production with the Rosebank project. We have also been active on the disinvestment front with 2 asset sales announced this quarter relating to the East Tank Farm and the third, the sale of our lubricants business well advanced. I am particularly pleased with the agreements we reached with the Fort McKay and Miccosukee First Nations in regard to the East Tank Farm, which is being built in conjunction with Fort Hills. We signed an agreement to sell 49% of the East Tank Farm to the 2 First Nations for a total of approximately $500,000,000 As a long time operator in the region, we've worked for many years to cultivate strong, mutually beneficial relationships with our aboriginal neighbors. This partnership is unprecedented in scope and scale for First Nations, Suncor and the industry. The First Nations will take ownership in a world class terminal asset, which is expected to generate solid returns for the next 50 years or more. All of these transactions are consistent with Suncor's well established track record of countercyclical acquisitions and divestments. By exercising patience and discipline and being very clear on what is core to our business, Suncor has added significant shareholder value through acquisitions and divestitures at the right points in the price cycle. That said, there seems to be some considerable concern in the investment community with regard to potential future transactions that Suncor might undertake. There have also been a number of rumors in the market, in the North Sea, period. We are not and I'll repeat that, not marketing our retail assets. And we are not and I will repeat that again, not currently involved in any sales process for a refinery. Rumors and speculation will always be with us. But what I would say is simply judge us by our record. We are not out to build an empire or grow for the sake of growing. Our goal is always to add long term value for our shareholders. We will continue to evaluate every opportunity that comes along. But to be clear, I think that with prices recovering to the $50 level, there is beginning to be less pressure on sellers and the window of opportunity may well be closing. Certainly for Suncor, this is likely to be the case because we will not chase deals. And to be very frank, we don't need to do any further M and A. With our increased stake in Syncrude already generating strong returns and Fort Hills and Hebron are progressing to completion, Suncor is growing both quickly and profitably. We expect to significantly exceed 800,000 barrels per day of production by 2019 and that's over 40% growth in just 4 years and represents a 6% per share compounded annual growth rate between 2015 2019. It's also growth that significantly increases our leverage to oil prices and we expect it to put us amongst the industry leaders on free cash flow yield at forward strip crude prices. So, the future is bright, but in some respects, the future is already here with over 728,000 barrels a day production and $2,000,000,000 of operating cash flow this quarter at an average Brent price of less than $46 per barrel. Suncor is once again firing on all cylinders. Our 5 year major maintenance program, oil sands base is now safely behind us and we are looking forward to continued strong, reliable and profitable production in the coming quarters. So I will now hand over to Alastair to provide some additional color on the Q3 financial results. Thanks, Steve. With the Q3 results, as Steve said, Suncor has returned to generating in excess of $2,000,000,000 of operating cash flow, even though Brent crude average less than US46 dollars per barrel. At Oil Sands, we produced over $1,200,000,000 in cash flow, thanks to reliable operations and reduced operating costs. Our 54% working interest in Syncrude contributed almost 45% of that cash flow. Syncrude posted record production rates, sharply lower cash costs, price realizations on a par with WTI at over CAD58 per barrel. In E and P, we generated $365,000,000 of cash flow as our offshore projects continue to produce ahead of plan with low operating costs and realized prices very close to the benchmark. In the Downstream, we achieved a cash flow of $595,000,000 despite lower refining cracks as Steve said and a FIFO loss associated with the drop in the average crude price during the quarter. The fact that our refineries were able to process record volumes of crude at an average cost per barrel of just CAD4.55 a big factor in our strong financial results. As usual during the Q3, we maintained our focus on cost reductions. Dollars 2,200,000,000 of total operating, selling and general expenses were up by a bit less than 8% versus the same quarter last year, reflecting the acquisitions Steve outlined, partially offset by further cost reductions. However, when you compare an 8% increase in total expenses to a production increase of almost 29% quarter over quarter, you can see that efficiency has increased. We're on track to finish the year with total operating, selling and general expense of approximately CAD9 1,000,000,000 That includes $1,300,000,000 of costs associated with an increased share of Syncrude. This will increase our cost savings up to $900,000,000 for 2016. That's well ahead of the $500,000,000 cost reduction target we set at the beginning of this year. Going forward, we'll continue to make sustainable cost reductions and increase productivity to all priorities across the company. And of course cost reductions are not limited to operating expenses. We're equally focused on cost savings and the execution of our capital spending programs. We have reduced our 2016 capital guidance for the 2nd time this year and we now expect to come in between CAD5.8 $1,000,000,000 for the year and that would be after absorbing approximately $300,000,000 in additional capital spending as a result of the Syncrude acquisition. Going forward, we anticipate a significant reduction in our capital program in 2017 to around $5,000,000,000 as spending on Fort Hills in Hebron Rammstein and the project's commence operations. With strong cash flow generation, reduced capital spending, Suncor's balance sheet remains in very good health. We have approximately $9,800,000,000 of liquidity and that includes $3,100,000,000 of cash on hand. On a trailing 12 month basis, our net debt to cash flow was 3 times and our total debt to capitalization is 28.8%. Now those numbers include the significant impact of the forest fires, which resulted in deferred cash flow of approximately $500,000,000 Our strong balance sheet continues to attract a strong investment grade credit ratings. In June, we issued approximately CAD2.9 billion in equity in order to fund the purchase of Murphy's 5% working interest in Syncrude and to bolster the strength of our balance sheet and the expectation of continued low prices. With the benefit of hindsight, given our very strong financial results and the recent increase in crude prices, the equity raise may look to some as overly conservative. As Steve made clear earlier, we see a low likelihood of further M and A at this point, so it's unlikely we will deploy those funds in an acquisition. Nevertheless, we're comfortable maintaining excess capacity on the balance sheet given the high levels of uncertainty around forward crude prices and the wide range of perspectives on global supply and demand balance. With our recent divestment announcements in regards to the 49% of the East Tank Farm and the sales process for the lubricants business being well advanced, we are on track to exceed the $1,000,000,000 to $1,500,000,000 target for divestitures that we set at the beginning of this year assuming of course that these transactions close as expected over the next few months. You will notice in our financial disclosures that we have now listed further assets with a net book value of approximately 2 $75,000,000 as held for sale. This relates to the likely sale of some of our non core wind assets within the next 12 months. These various divestments for Suncor's efforts to refine our portfolio of assets and focus squarely on the strategic core of our business. They will contribute to further reductions in our operating costs and are not expected to have a material impact on future cash flow generation. So as we get towards the end of 2016, it's worth revisiting the commitments we made at the beginning of this year. We set a goal of reducing operating expenses by CAD500 1,000,000 compared to 2015. We're on track to achieve almost double that level of cost reduction and have reduced our oil sands cash cost per barrel guidance accordingly. Importantly, we do believe that the majority of these savings are structural in nature and will be retained going forward. We set a capital budget range of CAD6.200 billion to CAD6.8 billion and we now believe we will deliver the capital program for between $5,800,000,000 $6,000,000,000 And of note, this includes sustaining CapEx of approximately $300,000,000 associated with our increased ownership stake in Syncrude. We set out to purchase additional working interest in Syncrude and to drive performance improvements and synergies with Suncor's oil sands operations. The early returns on these acquisitions are looking very positive indeed and every indication today suggests that Suncor will realize more than the anticipated benefits and the COS and Murphy deals will prove highly accretive. We announced the goal of divesting CAD1 1,000,000,000 to CAD1.5 billion worth of non core assets within 12 to 18 months and we're on track to exceed the upper end of that range with the divestments announced to date. So in summary, we're steadily working to increase long term shareholder value while remaining focused on capital discipline and operational excellence. We'll continue to set aggressive goals and we'll continue to deliver on them and we look forward to a strong finish to 2016. With that, back to Steve Douglas. Well, thank you, Alastair and Steve. And just before we go to the phone lines, a few things to note. The impact of the U. K. Tax reduction was an increase of $60,000,000 to our cash flow from operations in the Q3. LIFO FIFO with a falling slightly falling crude prices was an after tax cost of $86,000,000 bringing the total this year to just a $3,000,000 cost after tax. Stock based comp with the share price rising was a $51,000,000 after tax charge in the Q3 and for the year to date is $182,000,000 charge. Finally, FX with the Canadian dollar weakening in the 3rd quarter was a net charge to us after tax of $112,000,000 but year to date is actually a gain of $746,000,000 We have made, as both Steve and Alistair mentioned, a number of updates to our 2016 guidance. The key ones are as follows. All upstream production ranges have been adjusted, resulting in total production increasing to 610,000 to 625,000 barrels per day for the year. All capital spending ranges have been reduced, resulting in total CapEx declining to 5.8 dollars to $6,000,000,000 for the year. Oil Sands' cash operating costs have dropped to $25.50 to $27.50 per barrel. And this is despite the impact of the forest fires, by the way. It's reduced versus our original. Syncrude cash operating costs have also dropped, this time to $37 to $39 per barrel. And benchmark oil and gas prices have been adjusted upwards, refining cracks modestly reduced to reflect the most recent forward trends. There are a number of other refinements to the guidance. I'd encourage you to look them up on our website, suncor.com. With that, I will turn it back to the operator to open the lines for questions. Thank you, Mr. Douglas. We will now take questions from the telephone lines. Our first question is from Guy Baber with Simmons. Please go ahead. Good morning, everybody. I just wanted to further explore some comments that you made in the prepared remarks, but the cash flow this quarter obviously fully covered CapEx and the dividend $45 a barrel oil. So you're on the cusp of some pretty significant free cash flow with CapEx headed lower, production moving higher and oil prices moving above 45. So can you just reiterate for us the priorities for the usage of that excess cash flow and if anything has changed on that front, specifically if you could rank dividend growth, buybacks, acquisitions and organic growth investment, but it sounds that you're being pretty clear that acquisitions have slipped maybe to the back burner versus what may have been the case earlier this year with oil prices having improved. So, if you could just make some comments there, that would be great. I mean, my first comment, Guy, would be that was a great summary of the messages we were trying to get out. So the only piece I might just correct you on, it's not really a correction, it's just a point is, we are covering our sustaining capital and our dividends at $40 not $45 So everything above there is potentially free cash. And then I mean, I would just reiterate, if you like, what Alistair and myself have said. And I'll keep it really clear, because I think it's best that way. If you look at organic growth, you should not expect Suncor to be approving any major organic growth projects in the foreseeable future. That means at least the next couple of years. And lots of reasons for that, that I won't go into, but I don't see us pursuing major organic growth. You can never be you can never absolutely shut down what opportunities the market will bring to you. But I think I was pretty clear there. I see the window of opportunity shutting. I see the speculation about us building up a war chest for further acquisitions as being overcooked. We have a very healthy balance sheet. There is still a little bit of uncertainty in the market around crude prices and we would accept that we have been a little bit conservative through this piece. But we prefer to have a it's part of our hallmark. Our capital discipline is to have a healthy balance sheet there because of the cyclical nature of the commodity market. So that really only leaves a couple of places then. That leaves dividends, which obviously are the domain of the Board and share buybacks. You should expect to see if things continue the way they look to be continuing, you will see movements on both of those fronts. And it could be sooner than perhaps we had anticipated. If you look at $2,000,000,000 of cash at mid-40s dollars then you don't have to do too much math to see we could have significant free cash available next year. I mean, Alastair, although we are not formally guiding on CapEx for next year until later in November, Alastair gave a clear indication that we will be in the region of $5,000,000,000 So, you add the dividend on to that and at reasonably low crude prices, you have significantly significant free cash available for dividends and buybacks and that's what you'll see us doing. Very helpful, Steve. And then my second question was Syncrude, obviously, was a big story this quarter. You have the summary plan which sounds like you're going to announce by year end. In the interim, is there anything you can share there with respect to how we should be thinking about base case expectations for that asset as we think about performance in 2017 from a utilization perspective, from a cash cost perspective. Anything new to share in terms of what you're learning about that asset, how confident it's trending that would be helpful? Okay. I mean, what I'll do is give you some directional comments, because as you say, we will be coming out by the year end with some clear and much more specific plans. I mean, what I would say is, first of all, the Syncrude governance structure has been in place and has been working hard for a number of years on reliability and costs. And clearly, they are getting some traction from that program and Suncor is very fortunate to be a bigger owner of that partnership at this stage. So lots of good, but you've heard me say repeatedly, Exxon, Imperial are an excellent operator. My first objective was to work very closely with them to be able to get even sharper focus on operational excellence, reliability and costs. And I have to say, it was one of the easier conversations I have taken. The governance at Syncrude is much simpler now because of the structure we have with ourselves and with 2 very experienced oil sands operators taking a much clearer position. I have been extremely impressed with Imperial and Syncrude's alignment with us and there are no roadblocks to making further progress. So I would say, great start. It's not we couldn't expect to operate at this level continuously yet. That's our objective to start to move the plant up to these utilizations in the 90%, but incredibly impressed with the way Syncrude and Imperial have worked alongside us to make those moves. So very encouraged. That's one piece. On the other front, we talked about the synergies, the opportunities from cross connections because of proximity, the opportunities of utilizing particularly Suncor and Imperial's corporate structures in a different way, so that we didn't have to duplicate within Syncrude and with looking at those the details of how we might run the plants given the supply chains, the similar supply chains they both have. We are quite excited by what we have been seeing. There is considerable upside. And I will just give you the simplest of example. If you look at what actually happened in the 3rd quarter, one of the reasons Syncrude were so successful with the level of their operation and in getting their costs down was because they had a store of upgraded, but not hydrotreated products. So all they had to do was hydrotreat it. Their hydrotreating capability is nearer 400,000 barrels a day than 350,000 barrels a day. Suncor has lent in unhydratreated material. If we can find a commercial arrangement, which is acceptable to both parties, then there is a huge potential utilization of that asset in a different way. That was an additional one to the ones we were looking at around bitumen supply and utility supply. So, that's a really long way of saying, I like the base case, the operational excellence piece. I like the synergies and I am really very pleased with the way governance is going. Very helpful. Thanks, Steve and congrats on the quarter. Thank you. Thank you. Our next question is from Anil Mehta with Goldman Sachs. Please go ahead. Hey, good morning, Steve. Good morning. Steve, can you talk a little bit about where we stand from a major capital project standpoint, particularly on Fort Hills and Hebron, both in terms of cost and timing? Okay. And again, I'll take bits because we've been, as you would expect at this stage, very, very considered in what we've said and how we've presented it. But I hope you're going to get a clear feeling from the sort of tone of my comments. I mean, we said, well, first of all, don't underestimate the fact that how good it is that we are at 70%. The international logistics around the manufacturing and transportation of the modules is wholly behind us. All of the materials for the Fort Hills project are in Alberta and the materials now for Hebron are local to that project as well. So that's one of the bigger risks of the projects being removed. So pleased with that. I wanted to make the point that although we talk about 70% completion, in fact, we are probably near 70 roads, almost half of those systems will be handed over to operations by the end of this year. In fact, well in excess of the first 20, 25 of those systems are handed over now. So, operators are in place and starting to run those facilities. So, we are getting towards the end. Now I have made some very specific comments. I mean, clearly, for Hebron, Exxon are the operator and I am encouraged by the way that project is going. It looks to be broadly on cost and on schedule and praise to Exxon for that. Back to Fort Hills specifically, we've given you deliberately 3 very specific pieces of information to try and take some concerns away. Previously, we were very clear that there were currency pressures. When we authorized that project. The exchange rate was near a 1, near a parity. So clearly, there's been some exchange rate pressures on the project. The wildfires caused us to shut down construction activity for a month and we are mid flight on a absolute capital number, but I have given you 3 bits of information to take away the vast majority of any concerns people have. We are still planning and I am confident that we will deliver on $84,000 a flowing barrel, the project. We've given you a CapEx number for 2016, which is now down to between $5,860,000,000 so the second time we brought that number down. And Alastair has given you a clear indication that CapEx for 2017 will be circa $5,000,000,000 which says we're not expecting any significant blowout on any of our projects through that period. So, we're feeling it's not that there haven't been pressures. It's not that there is nothing, but it's this is not material to there is not a material overrun to Suncor on that project. I appreciate those comments, Steve. This follow-up is on cash costs. It was an excellent quarter, not just at Syncrude, but also at the core oil sands business. How much of this is sustainable versus tough to repeat? Can you provide us some on the ground granular color about the drivers of the cash cost performance? Yes. I mean, what I would say is that, it clearly when you look at the size of the cost decrease we've taken out, you can't continue at that place. The answer is not we're not going to get it to 0 to 5. But we haven't finished yet. And the fact that you can see it across Syncrude, you can see it across Suncor, you can see it across the mining operations, you can see it across the in situ operations, gives you a feel for the breadth of it. And what I would do is just take you back a year or 2 ago when we were talking about some of the we've been talking about operational excellence, the pursuit of reliability, because in a business where fixed costs are so high, getting the divisor down is very important. And we've been on those programs continuously. We've been talking about we were putting new systems into the corporation, which went all the way into the businesses, but a better supply chain process, a better IT process and we have been quietly working on that in the background for the last 4 or 5 years. All of those things are starting to deliver now. So, in terms of what is sustainable, I would say it's very difficult to be exact. We think 50% to 60% of the cost reductions we've got are sustainable and we haven't finished. So, we still got more to come. What we are finding is that as we are getting more reliable, we are able to look at the next best opportunity and we are still finding opportunities in progress. So, I still anticipate seeing some more. Now clearly, the Syncrude 1 did benefit by a very high divisor because we ran off those intermediates. So, all of what you've seen is not sustainable on a go forward basis, but the trend certainly is. So, I'm very encouraged with the absolute cost reductions that people are making and that literally is item by item in the supply chain and things differently. So buying things at cheaper prices, setting up our systems of work in different ways. We've had the other 30%, 40% help we've had is partly to do with a very low gas price through the period. But I'm comfortable we're making real progress. We've got more to come and I think 50%, 60% of it will stick. Thanks, Steve. Our next question is from Greg Pardy with RBC Capital Markets. Please go ahead. Yes, thanks. Good morning. Steve, maybe just come back to Fort Hills for a minute. If we do back into the math, then the capacity would be somewhere around 180,000, 182,000 barrels a day gross. Is there a chance that when you ramp that up that it will be in excess of that kind of number? 1, I guess that somebody would get to if you fix 2 years of CapEx and fix 84, then something has to give. If you look at it, Greg, I mean, I am not sure if you have been up there recently, but it's difficult to explain to people haven't seen a $15,000,000,000 project how vast it is. I mean, it's the size of a small city. So, what happens is, you start with a design intent and with a range of cost and as you start to get into the detailed design and execution, you find natural opportunities to do things. I suspect we will have some capacity creep on the unit. I would expect to when I give the update probably in the first with the 4th quarter results in the Q1, we will give you a bit more clarity on that. But I think what you will find is, you are going to see a little bit of movement on the capacity of the unit. You are going to see a little bit of flexibility on the systems and that's why I highlighted we have 50% of the systems will already be in operators' hands by that point. I think we're going to have some opportunity because of the proximity of our base plant to do some other things as well in terms of moving materials up and down in order to give us a smoother start up. So I will give you more detail as we get closer to the start up. But yes, I think you'll see a little bit of flexibility on the capacity and the way we start that unit up. Okay, fantastic. And so, let's just I just want to come back, it ties back into the M and A and it to some extent kind of comes back to the equity deal back in the June timeframe. So I mean, is it fair to say that when you did that equity deal, the thinking was A, conservatism and then B, potentially a more open M and A window. And I think what you're saying now is, look, big M and A is just not on our radar screen. Is that fair? I mean, I think that's fair. All I would say is that if I look and I think the 2 Syncrude deals, the Total deal on Fort Hills, time will show them to have been very opportunistic and very accretive to our performance going forward. Part of the ability to do those is to have a bit of flexibility in your balance sheet. But when we the primary purpose of us issuing that equity was to fund the Murphydale, the market offered us significantly more than we expected because of the view it took on our position. And I think me and Alistair have had this debate. We think with the benefit of hindsight, we were a conservative. And maybe people thought we were reloading the balance sheet for more aggressive M and A opportunities or for other things. That is not the case. So our character is deep. We are cheap. We tend to buy. We buy on the cycle. We found it easy to do these things at the low end. We will not I genuinely see that window as starting to shut. So, I think the probability of major M and A has significantly decreased since that time. Okay, great. And lastly just to make a comment, when you say cheap, I think he was only a short price. It should be inexpensive, right? Last question for me maybe to come back to the refining side. So you're going to become increasingly long bitumen like with Fort Hills, call it another 90,000, 100,000 barrels a day or so. Got to dilute that, it's an even bigger number. So how are you thinking about the balance between sort of your upstream and your downstream? And if there were an opportunity, if it's a Gulf Coast opportunity, does that start to make sense if the price is right? It's possible, but not probable. The refining cycle is out of sync with the upstream cycle. We have there is no surprise about Fort Hills. We've known for a long time we were moving into a position of length. We have a ton of flexibility because of the location and capability of the Edmonton Refinery. We have effectively in our ownership already at Montreal a potential upgrading project and home for material. And we've been I think you've heard me say a few times, we're really quite comfortable with logistics through that. I'd like to see some of these pipelines start to get approved and I am hopeful that, that will be happening. But logistically, we have ways of moving that material. Of course, if you think of the Syncrude increase in volume, all of that material is upgraded. All of that material had a home anyway. It really is that heavy material from Fort Hill. So I am comfortable. We did a strategic study that we talked about a couple of years ago which gave us a range of refining volume as related to oil sands, because what we are is, we are not a downstream company. We are an integrated oil sands company. And a few people have sort of underscored that for me recently and I accept that point. We are in the range we like to be in. We don't like to be long defining. We like to be slightly short and have the flexibility. And with that Montreal asset, we have the capability. So, we're reasonably comfortable. And of course, if you've got if you're very comfortable, you don't need to do deals, that's often when they come along. But we have we as I say, I couldn't be more explicit, we are not engaged in any downstream conversations currently. Okay. That's great. Thanks so much, Steve. Thank you. Our next question is from Phil Gresh with JPMorgan. Please go ahead. Hey, good morning. Congratulations on a great quarter. I just wanted to kind of come back to your discussion around the potential to start putting buybacks in the mix. And I know, Alistair, you talked about the balance sheet and where you would want that to be. But is there kind of a specific level you're thinking of on net debt to cap, net debt to CFO type of basis that you want to get to before you'd start doing buybacks? Thanks, Phil. No, there's nothing specific around that. As Steve said, we already believe we've got a very strong balance sheet and our metrics are just improving all the time. So nothing significantly better than where we're at today. Steve talked about capital allocation. And if you look at the numbers that we're generating and what we're generating as we go forward, these oil prices, as Steve said, I think you can expect to see is with the lower CapEx that I talked about for next year and in 2018, you're going to see us move on the dividend and the stock buyback question. Okay, great. Second question is just on the last call, Steve, I think you talked about some opportunities to grow via debottlenecking. And I was just wondering if maybe you could elaborate a little bit more specifically on what those would be and perhaps when and how much? Sorry, the only thing that you just broke up as you mentioned debottlenecking. Was there anything specific around that? Sorry about that. Maybe I'll rephrase. You had talked about debottlenecking in the last call as another growth and what the projects would be and just general potential timeframe for all of that? I wouldn't be specific about volumes yet. But what I would say is, if you think of I remember when we came out a few years ago and said, we've got these debottlenecking opportunities there. And it was sort of confusing until we came out with the plan, said, well, actually this could be 100,000 barrels a day. And then, of course, no one believed it until we actually started to deliver it. And the opportunities are quite exciting, because we have even more assets within our capability now. So, I can see small debottlenecks at Firebag, at Four Hills already. I can see some around the base plant. So, one of the great benefits of your operations becoming smoother is you can really start to focus with a laser on where the opportunities are. So, there is that sort of debottleneck. There is also still and I wouldn't call it debottleneck, I call it margin type improvements that we can start to see. So, the technology work we've been doing in the background around in situ, the technology work, we now have the industry's first fleet of autonomous trucks operating 7 days a week, 24 hours a day in the base plant. So the opportunities from these things and I like those projects because they are completely within our control. They reduced our costs and so there are things that we can control ourselves. There are lots of opportunities of those. And I think when we talk normally, when we're talking around that $5,000,000,000 level, there is a steady stream of those benefits coming, which is why I think you've But there is also, we although I've said probably for But there is also we although I have said probably for this decade, you are not going to see us approving major capital projects, we do have the next suite that we're working on. So, the replication in situ with the new technology is also looking very encouraging. And we talked about trying to get those projects down to the sort of 30,000, 40,000, 50,000 barrel a day dollars of flowing barrel for these 30,000, 40,000 barrel plants. It's looking quite encouraging. So I think by the time I think I see a few years of us with this sort of format, low organic growth, low if not no M and A and then the balance of stuff on these small projects and returning money to shareholders. And then as we get into 2020, 2021, you can start to see us looking at the bigger projects again. So encouraging, I think that will be quite significant when you add them all up. Thanks. If I could sneak in one last one. With respect to the last question on the downstream integration, I believe the Montreal coker project, in the past, I believe you said $2,000,000,000 you can correct me if I'm wrong there, but some of these opportunities that are out there on the market publicly are kind of $1,500,000,000 or maybe even less depending on where this whole thing ends up. So I guess is there a reason that those types of opportunities don't compete with what you have internally? So, no, do you want to pick that one, Steve? Sure. No, they absolutely do compete. And whenever we're investing capital, we're looking at that trade off on returns, organic, inorganic or buyback. So absolutely, we put up those inorganic opportunities against our organic growth opportunities on a returns basis. And that competition is alive and well. We're not though at this point involved in any 3rd party sales process in the downstream. Okay. Thanks. Thank you. Our next question is from Paul Cheng with Barclays. Please go ahead. Hey guys, good morning. Good morning, Paul. Yes. I have to apologize, I came in a bit late. So in case if the question I asked you already covered, just let me know I will read the transcript. Steve, earlier on the question talking about the debottleneck, you mentioned the base can the base mine operation. Is that also including the cooking capacity or that on the upgrader? And also that whether you also see debottleneck low cost opportunity in Singkru? All of those, Paul. So, there are opportunities we are looking at the moment for lower cost debottleneck of the existing Unit 1 and Unit 2 at the base plant. We are looking at particularly margin or cost reduction projects around the base mines. And I have no doubt that there are some real opportunities around Syncrude as well. It's really been quite exciting as Syncrude, Imperial and ourselves have been putting our shoulder to that to see some of the opportunities. So, and I think, of course, they become much more clear and much more attractive as that utilization and reliability comes up because it gives the owners more confidence. But I think there will be opportunities there as well. So, yes, that was a good summary. Okay. And I think there is some market rumor from media recently talking about you may be interested selling your retail, which I thought you were not. So, just want to see whether you can clarify on that? Yes. You did miss that in the transcript, Paul and I said 3 things that were in the market, but that's speculation at the moment and perhaps I'll just they are so important, maybe I'll say them again anyway. We have never considered a transformational deal in the North Sea, period. We are not, repeat, not marketing our retail assets and we are not currently involved in any sales process in a refinery. And what I was trying to say is that we don't have empire building ambitions. Our objective is to add value for shareholders. And lots of rumors and there will always be rumors in speculation, but judge us by our track record. Okay. Final one for me. Alastair, do you have a preliminary target for Senku and your own Suncor Oiisan cash unit cost for 2017? Paul, not at this point. We'll be coming out with guidance on November 21. The only thing we've given you a sneak preview of today is when I said that we would we expected our capital for next year to be around the $5,000,000,000 level, which should be significantly lower than this year's level. Or maybe let me ask you in another way. Next year, you should not have happy turnaround schedule in your base operations. And so That's correct. And we do not have WiFi hopefully. And so everything else, YECO, is there any reason not to believe your UNICOR at least and I guess at least in your own mining operations should be lower? Paul, you're trying to get me to tell you a number and I'm not going to do that. But there's no reason to believe that with a good production we should be on comparable levels to this year excluding those items. The only caveat Paul is whatever your assumptions would be on natural gas and diesel prices, which are 30% of our costs. Very good. Thank you. Thank you. Our next question is from Jason Proulx with Credit Suisse. Please go ahead. Hi, Steve. Maybe just to follow-up a little on the technology side. Just wondering about the technology process at Suncor and how you view leveraging third parties versus perhaps doing more in house? Jason, we look at all of it. If you look at let me start with I mean, we are original partners of COSEA, the Innovation Alliance for the Oil Sands Industry and we are actively involved in the vast majority of their projects. We are very happy depending on the particular pieces of technology, we would see ourselves to be at the leading edge of the in situ technology development and probably and at the leading edge to be honest of the mining technology development as well. Some of those we do in partnership with others and we are very happy to do that. Those partnerships are within the industry. They are with academia. They are with other companies, world class companies like General Electric and we are happy to look at all of those and we will continue to do so. Within that, the CapEx this year and the $5,000,000,000 Alastair talked for next year, we have funded our technology projects at a modest level because we believe there is significant upside from those new technologies as we move forward. Okay. Thanks. And with that, we hit up against our timeline here. I know there are a number of further callers on the line, and I'd encourage you to give Investor Relations a call. We will be available throughout the day. Operator, thank you very much for joining us. Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.