Earnings Call: Q4 2015

Feb 4, 2016

Good morning, ladies and gentlemen, and welcome to Suncor's 4th Quarter 2015 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. Thank you, Melanie, and good morning, everyone. Welcome to the Suncor Energy Q4 shareholder call. With me here in the meeting room are Steve Williams, our President and Chief Executive Officer and Alistair Cowen, Executive Vice President and Chief Financial Officer. Just before we begin, I'd ask that you note that our comments today contain forward looking information and the actual results may differ materially from the expected results because of various risk factors and assumptions described in our Q4 earnings release as well as our current AIF and those can be found online at SEDAR, EDGAR and suncor.com. Certain financial measures we refer to are not prescribed by Canadian GAAP. And for a description of these, again, please see our Q4 earnings release. After our formal remarks, we'll open the call to questions first from members of the investment community and then, if time permits members of the media. With that, I'll turn over to Steve Williams for his comments. Thanks, Steve, and good morning and thank you all for joining us. For some time now, I've been telling you about Suncor's commitment to capital discipline and our journey to operational excellence. We've been working relentlessly to become the most reliable and the lowest cost operator in the sector. We've built a balance sheet that could sustain us when the inevitable downturn in crude pricing came along. 18 months ago, that downturn arrived and has punished our industry, leaving many of the weaker players struggling to survive. Now I'm not going to tell you that we welcomed these much lower for much longer prices. But what I would say is that we see this period as just as much an opportunity as a threat. Our goal is to use this period to build an even stronger company, a competitively advantaged company that's poised to benefit significantly when oil prices finally recover. In 2015, we took important steps to strengthen the company. Our operational excellence initiatives continue to drive cost out of the system and increase production and reliability to record levels. Our integrated downstream business succeeded in maximizing the value of our production as it generated well over 40% of our cash flow in both the quarter and the full year. And of course, we took further strides to profitably grow the company by closing the purchase of an additional 10% of the Fort Hills project from Total and by advancing the offer to purchase Canadian Oil Sands Limited. Now I'd like to take a closer look at our performance and how we've set ourselves up for continued progress going forward. In the 4th quarter, our total production averaged 583,000 barrels a day, that's a 5% increase versus the same quarter in 2014. That brought our annual production to 578,000 barrels per day and that represents an 8% annual production increase and put us in the upper range of our guidance for the year. In Oil Sands, the firebag in situ plant continued to outperform averaging just under 200,000 barrels per day of production in the Q4. Those results were enabled by strong infill well performance, advanced reservoir management and the completion of a minor debottleneck project. The project involved the repurposing of equipment originally intended for the Voyager Upraider project. It allowed us to increase the water treatment capacity at the plant for a very modest level of investment. As a result, we were able to sustain production well above previous levels and increase the nameplate capacity of the fire bag plant from 180,000 barrels a day to 203,000 barrels a day and that's effective from January 1 of this year. So what that means is that we've allowed we've been able to add 23,000 barrels per day of production at a capital efficiency of less than 5,000 per flown barrel, which I think by any standard is a remarkably cost effective growth project. At the Mackay River plant, we were able to increase quarterly production by over 20% versus last year as the debottleneck project completed earlier in the year, increased name capacity by almost 20% to 38,000 barrels a day. Strong reliability and record production drove down our quarter over quarter in situ costs by 70 percent, so to just over $11.65 per barrel. Meanwhile, our base plant operations continue to achieve strong reliability from both the mining and upgrading assets following planned maintenance completed in October. With the solid Q4, we wrapped up a year at the base plant where for the first time in our history, average mining production exceeded 300,000 barrels per day and upgrading throughput surpassed 90% of capacity. Now this high level of performance represents the early fulfillment of a 5 year goal we set back in 2012. Our major turnaround maintenance this spring includes investments in the U2 complex that will help to sustain reliability at the high levels we've reached in 2015. So overall oil sands cost for the quarter were $28 per barrel, bringing our average oil sands cash costs for the year to $27.85 And that's a year over year reduction of almost 20 percent. And of course, that's measured in Canadian dollars. In U. S. Currency, it equates to less than 20 dollars per barrel. And I want to say that number again. So in U. S. Currency, we've now got the costs down to just under $20 per barrel at current exchange rates. So the net result for Oil Sands operations was a very strong year. Our overall production came in at the high end of our guidance. Our costs were below the low end of guidance and we simultaneously achieved record reliability. In exploration and production volumes for the Q4 came in at 112,000 barrels per day, bringing our average production for the year modestly above our original guidance range at 114,000 barrels a day. We saw continued strong low cost production from Buzzard and Golden Eagle in the North Sea, while most modest natural declines continued to production off the East Coast of Canada. So let me turn to the downstream. Our refineries once again operated reliably in the Q4 and that's despite maintenance in both the Montreal and Edmonton plants. And we achieved average utilization of 93% in the 4th quarter. During the Q4, we were pleased to see Enbridge's Line 9 pipeline to Montreal begin operations. We now have the ability to supply our Montreal refinery with a full slate of inland crude and to integrate supply planning across our entire refining and marketing network. As we move forward, this development is expected to drive significant value. So looking back on 2015 as a whole, I'm pleased with our overall operational performance. A number of points stand out to me. This was our best year for personal safety since the Suncor Petro Canada merger in 2,009. Recordable injuries and lost time injuries were exceptionally low levels, reflecting a focus on safe and disciplined operations. And be assured safety will continue to be front and center for Suncor as we strive to continuously improve our operations. We increased our overall production by 8% year over year. Thanks to steadily improving reliability across our operations. At the same time, we reduced our operating costs by almost €1,000,000,000 year over year by streamlining processes, eliminating the lower priority work and closely collaborating with our suppliers and business partners. We also reduced our capital spending by well over €1,000,000,000 versus our original guidance, while still managing to execute our critical maintenance projects and of course advance our key growth projects. On this last point, I'm pleased we have been able to progress our major growth projects despite the extended low oil price environment. During the Q4, construction on the Fort Hills project surpassed 50% with all activities tracking to plan. Off the East Coast of Canada, the Hebron project also moved forward at pace. Both projects continue to target first oil late in 2017. And of course, the other development on the growth front was our offer to purchase Canadian Oil Sands Limited in an all share deal valued at approximately 6,600,000,000 dollars We made the offer early in Q4 and in mid January, the Canadian Oil Sands Board agreed to support our amended offer. We're now working together to reach out to Canadian Oil Sands shareholders and encourage them to tender their shares before tomorrow's deadline, which is at 4 pm Mountain Time. While the Syncrude assets have performed and are certainly challenged at these current price levels, we do take a long term view on the value of these long life assets. With a 49% ownership stake, Suncor will devote experienced personnel to work closely with the operator to drive major performance improvements and realize significant long term added value for both Suncor and Canadian Oil Sands shareholders. This transaction is an excellent fit with our Oil Sands growth strategy and a prime example of our ability to create value during the oil price downturn in order to build an even stronger company. A year ago, we were in the early stages of the oil price collapse and I made the following comments about oil prices. Today's and the first one was today's low oil prices should not come as a surprise. On the contrary, it was the stable pricing the last the stable price in the past few years, which represented the anomaly. We planned for a low crude price environment and we're prepared to manage through it. We've taken prudent actions to accelerate our cost reduction initiatives and defer discretionary capital spending until a definitive price recovery is evident. These actions will strengthen our operating model and help us to maintain or improve our competitive position. These thoughts remain true today. This is a challenging time for the entire industry, but it's a challenge that Suncor is meeting head on. We will continue to focus on safe and reliable operations to drive cost out of our business, to live within our means and to position ourselves to take advantage of an eventual oil price recovery. So with that, I'll pass along to Alastair to go into more detail on our financial results. Thanks, Steve. The final quarter of further drop in global oil prices, which has certainly continued into the New Year. Our average price realizations across the upstream business fell sharply quarter over quarter. We saw price declines of over 35% in oil sands on the East Coast and in the North Sea. Strong Downsea Margins along with continued cost reduction initiatives right across our business and a further decline in the value of the Canadian dollar partly offset the impact of the low crude prices. We generated $1,300,000,000 in cash flow from operations and did post an operating loss of $26,000,000 for the quarter. That brought our total cash flow for the year to $6,800,000,000 and our operating earnings to $1,500,000,000 Now that $6,800,000,000 of operating cash flow more than covered our sustaining CapEx of 2,600,000,000 and our dividends of $1,600,000,000 leaving over $2,500,000,000 to invest in our growth projects. We recorded a net loss of approximately $2,000,000,000 for the quarter, driven by non cash impairment and derecognition charges of $1,600,000,000 and an unrealized foreign exchange loss on the revaluation of U. S. Dollar denominated debt of $382,000,000 As a result of the deteriorating crude price environment, we recorded impairment charges of approximately $800,000,000 in E and P related to offshore projects. Now this represented a portion of the increased value of the merger bump that was allocated to these assets at the time of the Suncor Petro Canada merger. And we also recorded an impairment of just under $400,000,000 on various oil sands projects, the largest of which related to a share of the Jocelyn mine. And additionally, we recorded an impairment charge of 4 $1,000,000 against the Libyan assets due to escalating political unrest and increased uncertainty we suspect to the company's return to normal operations in that country. Now this charge in Libya brings the net book value of those assets to 0. During the Q4, we maintained our focus on cost management as we continue to see the opportunities to reduce both capital and operating expenses. On the capital front, we invested $1,900,000,000 in Q4, bringing our total CapEx for the year to 6,200,000,000 dollars This represented a saving of about $1,300,000,000 versus the midpoint of our original guidance. It does speak to our commitment to exercise rigorous capital discipline and to continue to live within our means, as Steve said. We've taken an equally disciplined approach to managing operating costs. You'll recall that about a year ago, we announced the planned production of $600,000,000 to $800,000,000 of operating expenses, and we expect you to realize these savings over a 2 year period. In fact, we were able to advance that and able to capture nearly $1,000,000,000 in savings in 2015 alone. And you've seen our total operating, selling and general expenses fall from over $9,500,000,000 in 20 14 to $8,600,000,000 in 20.15. And the majority of these savings we believe are controllable and sustainable. Yes, I just want to jump in here to reinforce the points Alastair has just made. Whilst I was very pleased at our accomplishments on the cost management side, it's very clear to me that the job is not done. In fact, I'm not sure the job of cost management is ever done. You've heard us use the phrase, this is not a crash style, it's a change in lifestyle. And for that reason, we've now taken further steps to reduce costs and preserve capital. We've decided to defer discretionary capital spending originally planned for 2016, resulting in a further reduction to this year's capital spending forecast of $750,000,000 These spending cuts will not affect our production in 2016 or our major growth projects scheduled to come on stream and ramp up in 2017 2018. We have also reduced our 2016 operating expense budget by a further €500,000,000 The process of driving our costs is relentless and continuous. With each cost reduction initiative, we identify further opportunities as we continuously strive to improve our business processes. With this new target, we expect to see our 20 16 operating, selling and general expenses drop towards the $8,000,000,000 number. So moving forward, we will monitor the price environment closely and make further adjustments to our spending plans as the situation warrants. Spending within our means and preserving a strong balance sheet will continue to be one of our top priorities. Thanks for that, Steve. So as Steve says, let's look at the balance sheet, it remains in very solid condition. We finished 20 15 with just over $4,000,000,000 in cash and net debt to cash flow of 1.7x and a debt to capitalization of 28%. Now we also have approximately $7,000,000,000 of unutilized lines of credit and therefore we have ample liquidity to see us through even a much lower for much longer crude price environment. Having said that, it's clear that the rating agencies are proposing to take significant downward action across the industry. And my hope is that they're able to clearly distinguish between companies that have and continue to demonstrate capital discipline and financial conservatism and those that have knowledge. Our long term capital allocation priorities do remain unchanged. Fund the base business as it continues its operational excellence journey to lower costs and improve reliability, invest in long term profitable growth in our core business areas and return meaningful cash to shareholders. Now while this low crude price environment is yours, we'll certainly continue to take the but our major growth projects are continuing to track to plan. But our major growth projects are continuing to track to plan. There's no change to the quarterly dividend, which we increased midway through last year. And at the current level, we believe the dividend is competitive and certainly sustainable. To sum up, our financial strategy remains sound in the face of a very difficult crude price environment. We're making prudent proactive moves to preserve cash and liquidity and maintain our balance sheet strength. Suncor continues to be well positioned to not only weather the storm of low crude prices, but to seize opportunities during this downturn in order to strengthen and grow the company and we plan to do just that. Now with that, I'm going to pass you back to Steve Douglas. Well, thank you, Steve, and thank you, Alastair. Just a couple of notes before we open the microphone. Obviously, with continually falling crude prices again in the Q4, we did have a LIFO FIFO expense. It was after tax $77,000,000 and for the year an expense of $286,000,000 Stock based compensation, as folks know, our shares performed well relative to the energy index throughout 2015. It was a net expense after tax of $59,000,000 in the 4th quarter and $234,000,000 for the year 2015. And finally, the Canadian dollar continued to weaken in the 4th quarter throughout the year. So the FX impact to us was an expense of $382,000,000 in the 4th quarter and $1,930,000,000 for the full year 2015. I just refer you to changes to our guidance. Steve and Alistair did mention them. No changes to production outlook, but we have reduced the capital expenditure range by $0.75 billion for the year. We've also made reductions in the assumptions on oil price and associated impacts of taxes and royalties to reflect those lower price assumptions. And of course, you can see full details on suncor.com. I would note that the guidance excludes any impacts of the Canadian Oil Sands Limited transaction, which obviously is still in process. With that, I'll turn back to Melanie to open the microphone for questions. Thank you. We will now take questions from the telephone The first question is from Neil Mehta of Goldman Sachs. Please go ahead. Good morning, guys. Congratulations on a strong 2015 in the face of a really tough macro. Want to dig into capital spending. You've reduced the CapEx here from $6,700,000,000 to $7,300,000,000 to $6,000,000,000 to $6,500,000,000 How much of that delta is due to change in timing at Fire Bag? And then how much flexibility is there to move that lower given the growth projects that you have? I mean, these are approximate numbers, Neil, but think of somewhere in that $50,000,000 to $100,000,000 range for the fire bag and the balance of it is other action we're taking. In a few categories, you'll see the Montreal coker project and in situ replication slipping 1 year. You'll see we're working very hard on improved review of the projects which are in flight at the moment. It's the biggest spend year for the Fort Hills project and we're hoping to be able to work with contractors there to get some further improvement in the terms of those contracts. So it's a group of items and 5 bags, as I say, is about 50 to 100. And this might be too early to say, but once you add Canadian oil sands in there, how much incremental CapEx do you anticipate that would add? Incrementally, we think it's about $250,000,000 as we stand today. And of course, depending on the crude price, then that's a very low level of capital to support an asset of that size. All right. Last question for me is related to Canadian oil macro just broadly. And at the current forward curve, there's a lot of debate around whether Canadian oil production will grow in 2016 2017. Obviously, there are a number of big projects of which you guys have some of those. At the current forward curve, do you oil production in Canada will grow over the next couple of years? And at what point would you actually see Canadian oil sands broadly production shut in or is there no price point that would actually trigger that? You do have to add as an overlay on to your question, the timing. So I have no doubt that Canadian oil sands will grow because there are major capital investments in flight that will be completed and it makes absolute sense to complete those for a couple of reasons. 1, these are very long life assets and we're viewing them over the life of the project. The other one from a pure execution point of view is this is a very productive time to be investing, to be spending that money because we're getting good productivity and very good quality results from the construction in the field as we speak. So I think you will see growth in the short to medium term. The mid to longer term then is a different period and a different question because that depends very much on the view of the long term view of crude. Suncor's point of view is the market does work. We've positioned ourselves to be able to run our company this year at an average price of $36 a barrel, which we think puts us in a very strong position. And from that, we got 8% growth 2015 on 2014 and we have depending on where the Canadian oil sands is included in this number continues to grow right the way through until Hebron and Fort Hills comes online. So I see short and mid term growth. The longer term growth will depend on pricing. Our view of pricing is that through multiple cycles this will come back up to the supply full cost which we view through that period to be somewhere in the 70 to 90 range. So more optimistic about the long term. It's a question of when the long term actually arrives. Your final question then was around shut in economics. And I think what everyone has to remember is that the fixed costs on a lot of these assets are up in the 70%, 80% range. So even if you shut down, you don't take a lot of the costs out. So these numbers where we are our cash operating costs are below US20 dollars a barrel, we certainly don't see ourselves shutting in. All right. Thanks a lot guys. Thank you. The following question is from Paul Cheng of Barclays. Please go ahead. Hey, guys. Good morning. Maybe this is a number of quick one. For Steve, if we look at $35 oil, not surprisingly, everyone will see cash burn. And we estimate that for you guys including assume the Canadian oil sand acquisition go through, maybe a cash burn somewhere in the 4 $1,000,000,000 So should we assume as a result to preserve your balance sheet by now you're pretty much done on the M and A fund or that you want to stretch your balance sheet further? I mean the first, I think it's the right good question to ask. If you actually look, what I said earlier was we have looked to finance the company this year at that price you said, Paul. We've used 36, but we're in that mid-30s range. That covers at that price, our dividend and sustaining capital is covered and a significant contribution to our growth is covered. And I think me and you have had the conversation a number of times about the reason for putting so much cash on the balance sheet early on was effectively to pre fund the major growth projects. So I don't particularly like it. It's tougher than we anticipated when we started. But our plan is to be able, even at mid-30s prices to be able to take those 2 projects through to completion. One of the attractions of the operational excellence and the stringent capital discipline we've had in place is that our stock has outperformed peers through the period. So what we've been able to use to our advantage through the Canadian Oil Sands discussions has been the strength of our equity relative to Canadian Oil Sands. So it hasn't stressed we are reasonably cautiously confident that the deal is going to be progressing. But we haven't in a sense stressed our balance sheet by going through that activity. So to the extent that there are other opportunities out there, if they are share opportunities, we will take a look. We have nothing immediately that we're involved in, but we will continue to see if that makes good sense going forward. Steve, second question on the debottleneck on the fire bag. So we in terms of the debottleneck opportunity, is it pretty much done? And then the next wave of growth will need to come from the new project sanction on the SECD side or that you have additional, you think, opportunity that this could be quite meaningful? We have we're continuing with the initiative. It is a very much an intrinsic part of what we do now to get the assets we have very reliable and then try to find what the bottlenecks are so that we can selectively and at low cost push them backwards. I would say, if you remember those conversations we were having a couple of years ago, we were looking at putting 20, I think we used the numbers then 20, 25,000 barrels a day on fire bag. Clearly, we've been able to get that at an even lower cost than we anticipated. The next bit is a little bit tougher. We have not completely finished yet. We think there are other opportunities well below full cost, but those will not happen quite as easily and in the same timeframe. So I think in a year or 2's time we could be talking about a modest further increase in fire bag. If you then look around the rest of the plants that we have, it's an ongoing process. So we talked about effectively debottlenecking upgrading by getting reliability up. Very proud of what the team have achieved up there. They've got it up into the 90% levels for the upgrade and the mine is operating at a very high reliability level. So we're going to continue to push those and we are looking at opportunities around the upgraders themselves to see if there are some debottlenecks, but no major ones in the very short term. Steve, just curious that are you now feel like you have right sized your organization or that given the activity levels that you may still have more room for you to work on the organization size? I'll just take the opportunity, Paul, to be a little bit clear on what we've actually done because it's a very important question, particularly around where costs are. This time last year, we committed from a relatively cold start that we would be taking significant costs out and that the people component of that would be approximately 1,000. And that would be a mix of PSAs and full time Suncor employees. So all people who were fully dedicated in their employment to running Suncor's businesses day to day. We significantly overachieved. So we actually took just over 1900 people out. And as part of our growth process, we were able the first thing we worked very hard to do was to redirect the skills of some of those people to our growth projects. So we took the expertise across into in our case primarily Fort Hills. And we moved about 200, 250 across. So the net reduction in 2015 was about 1700 people. So we almost doubled what we set as an objective at the beginning. And that's an indication that it wasn't about a numbers target. It was about really working on our underlying business processes to become more productive. And we had been investing for a few years on systems that would help us do that and we were able to take full advantage of them in 2015. So although I'm talking about €500,000,000 going forward, that is largely not about more people. That is largely about the processes and the supply chain and getting better our business. So yes, we're towards the end of those reductions. Okay. A final question, if I may. On the next wave of the SEDD growth project, what kind of timeline and what need to happen in order for you to be able to sense or feel comfortable to sense on those projects? Thank you. Okay. We're in tremendous shape, Paul. We've been working steadily in the background about two main parts to the selection criteria for it. We are starting to see really exciting new technologies appear. So Mark Little and his team have been working hard on piloting at reasonable scale those technologies so that we can make the right process choices as we go into replication because we really do want to do it once and then replicate it 10, 15 times. We've also in parallel with the technology choice gone off and looked at the resource base. And of course, that's where Suncor has a tremendous advantage because it's one thing having a replication philosophy, it's another one having the volume and quality of resource that you can just put these standard manufactured plants onto. And we're already up to having identified 13 or 14 of those. So if you remember, we were talking about a 30,000, 40000 barrel a day plan. We were talking about 10 plus of those. So the program in design is going very well. And the only difference the announcements we've made about CapEx today will make is we will take a little bit more time around that technology development and selection and then we'll move into the replication program 1 year later in the early 20s. Thank you. Thank you. The following question is from Yi Baer of Simmons. Please go ahead. Good morning, everybody. I apologize in advance for asking about 2017 CapEx after you just gave us 2016 16 CapEx guidance. But I do think that understanding the evolution of capital spend over the next few years from what's supposed to be a peak year this year is really a critical consideration. And I just want to be sure that we're understanding the moving parts in terms of the longer lead time spending commitments that are falling off, but also understanding some of the CapEx that has been deferred that you guys will have to spend in 2017 2018. So if you could just give us any updated color on the progression from this point, even at a high level, that would be appreciated. Okay. Thanks. And what I would do is just sort of refer to our track record. If you look at our track record, we have established the principles that we've talked about are not just goals and objectives we sat there. We've actually adhered quite closely to them now over the last 4 or 5 years. So this principle of getting operational excellence working, getting the ops cost stand, generating the cash and then living within our means. And that means that so we've been developing the projects we want to develop. We've been maintaining the plant to the highest of standards and increasingly until this current cycle downturn happened, we've been returning that money to share the balance to shareholders through two means, through the share buyback and the significantly increasing dividend. You will not see us change away from those major principles. So our plan is to be prudent to spend within our means and be very disciplined as we go forward. Now as you rightly say, a significant piece of our capital budget last year and this year are discretionary growth projects, which we have the full intention of completing. But what that leads is, if you just take those out, then you have a significant amount of additional cash available at any reasonable crude price. So everything from that point will be discretionary and you will see the same capital discipline exercised. So clearly is heavily dependent on crude price, but the same principles and the same priorities around capital allocation will be there. It is going to be much more difficult in that period given what we've just gone through to be spending money on growth projects unless you have a high degree of confidence in crude price going forward. Got it. That's very helpful. Longer term, you've previously talked about 3 point $5,000,000,000 to $4,500,000,000 for the portfolio being a sustaining CapEx level. Is that still a good number? Or is there downside to that number from deflation? For modeling purposes, I would say that range is still pretty good. I mean, there is some deflation and as you get more reliable, then your maintenance bill does start to come down because you're doing more and more maintenance on a planned basis rather than an unplanned basis. But I would say for modeling purposes, that 3.5%, 4.5% is still good. Okay, got it. And then last one for me. You mentioned the importance of the dividend. And I was just hoping you could talk about that a little bit more around thoughts around the dividend in a capital constrained, low oil price type world. Just an update on how you're thinking about it, whether you look to hold at current levels or if a progressive growth policy is still something that you guys are looking to drive forward. Just latest thoughts there in light of the current environment would be appreciated. Okay, Guy. I'll answer that one and then Steve probably will jump in. Steve outlined our principles and that is around one of the key ones is making sure we're returning cash to shareholders in a reasonable manner, whether it's through the dividend or it's through store buybacks. When we want to have a competitive dividend that's sustainable, we wanted to grow in the long term. Growth obviously will depend on where we get to with oil prices, but we feel very comfortable with where we're at in the dividend today. As you recall, we increased it last summer. I'm very comfortable with that. I think the yield is very competitive. And given where we are and even at any even at $36 oil, we are more than covering our dividend on our sustaining capital. And as Steve said, leaving some for growth. So I'm comfortable with that. I think if you look forward, we'll see where the oil price grows, but we are committed to increasing the returns to the shareholders. Thanks very much for the answers guys and congrats on a strong year. Thank you. The following question is from Jason Fruh of Credit Suisse. Please go ahead. Good morning. Thanks for taking this. I would like to ask a little bit about the downstream. Maybe if Steve, you could help reconcile some of the fundamentals there. Seems to be more debate around exposure to different product types and consumer trends in gasoline and diesel. And I just wondered if you could shed some light on how Suncor is positioned to move through that? Yes. Thanks, Jason. I mean, we are really pleased with the model we have and we put together. We think the integrated model is really proving how valuable is through this downturn. We're particularly proud of the downstream. I mean, it really has earned the position as the number one downstream in North America now. And what comes with that is a great deal of flexibility around the supply and supply logistics to the refineries and the operation of the refineries themselves. I think if you look at Q4 this year, it was a little bit strange, as Steve said, because there was a big FIFO loss in there of just under €80,000,000 There were also some one time costs that you can see around severance and inventory. So actually when you take those into account, we did much better in the quarter. But I think your points are on the money. I think the view is with the spreads between Brent and WTI and with the outlook for diesel in particular, the refineries will make I think modestly less going forward. What I really love about the Suncor position is we're positioned to take best advantage of that. So whatever the market gives to us, we will be best positioned. And of course, the connection of Montreal into Line 9 was not just about the Brent and the WTI spread. It's actually to a spread of inland a much broader basket of an inland discounted crudes. So I'm still very pleased we did that piece of work and so still I'm confident it will yield benefits going forward. So I hope that helps. Yes. Thank you. Thank you. The following question is from Mike Dunn of FirstEnergy. Please go ahead. Steve, maybe just to pick up on Jason's line of questioning. Wondering if you can talk about what you're seeing for demand trends in your Eastern, I guess, your Ontario, Quebec markets and what you're seeing out in the West. I mean the data that's available is pretty minuscule with respect to that. I would assume that with the weak economy at West and Alberta you'd be seeing maybe a weakening in demand and I'm not sure about the East, the margins in Ontario look pretty darn good right now. Thanks. Yes, I mean you've sort of nailed it there Mike. I mean if you look at generally what we've been able to see is and I'll take a step back and so this is the umbrella and then I'll talk about Western demand as we've been seeing it. Generally what we've seen is as prices particularly for gasoline have been coming down, We've seen a modest increase in demand for product. And I think that's been reflected through if you look at the statistics around auto purchases, they've been up and there's been a slight shift back to the bigger SUVs particularly in the U. S. So we've seen that. We've seen a reasonably healthy demand. Now that is stronger East than it is West and we've seen exactly as you say. As the general economic activity in the West has come down, particularly here in Alberta, we've seen a softening on diesel demand and that's meant we've been exporting that material, the majority of it down to the U. S. But some further field. So you're right. And we expect it's not easy to see that turning around very quickly. Thank you. The following question is from Chris Cox of Raymond James. Please go ahead. I'm sorry, Mr. Cox, we're unable to hear you. There's some static on the line. I think maybe if Chris could call back in and we'll take the next question. Certainly. The following question is from Brian Birche of Legal and General Investments. Please go ahead. Hi, good morning. Just to go back to the dividend again, your comments about, I guess, not cutting the dividend and not expecting to. And I guess the expected cash burn this year and potentially next if oil prices continue to stay at these levels seems direct contrast to you, I guess your comments with regarding maintaining balance sheet strength. I guess we're looming I guess in rating agency downgrades, some fear multiple notches. I guess is there a level that you need to see before you would consider cutting the dividend? I mean, I think Alastair spoke to the general principles there, Brian. And what we're doing is, I mean, if you look at the sequence of things we are able to control, we deliberately came in with too much cash on our balance sheet, to be honest. And that was absolutely to be able to protect Fort Hills and Hebron. And for a while we were running at the $5,000,000,000 $5,500,000,000 of cash there. And so it was always part of our plan to modestly run that down to our target, which is nearer $3,000,000,000 We've done aggressive OpEx cuts. We've done aggressive CapEx cuts and we are balancing within our plans our finances at $36 a barrel for this year. So we have to see if on average, the average price that we saw last year was $54 So we keep a very, very close eye on that. Of course, the other piece we have is for non core assets, we have the opportunity for asset sales during the year. So we have just quietly in the background positioned some of those non core assets to be of further assistance. So Alastair was right. We are you can never say never because we don't know exactly what the crude price will be. But for any circumstance, we can currently see coming out at the moment, we believe we will be able to protect that dividend. And we have this OpEx, CapEx and asset sales that we're lined up to do. So has the Board actually met already with regards to the dividend or is it upcoming? Yes, the Board we've had Board meetings this week and we announced yesterday to continue the dividend. Okay. And once again with regards to the rating, certainly we're seeing significant decreases in ratings across the energy spectrum. I guess what's your pain threshold with regards to it? You certainly have outlined some of your cash preservation efforts, but nonetheless leverage is still rising no matter how you look at it. And at some point you need to consider taking those. Let me give you I'll give you the let me give you our view on it. I mean clearly there are industry conversations going on with the debt rating agencies around current ratings. Suncor is in a very strong position because we have a high are not obviously not aiming to, but even if we were part of that downdraft and we took a downgrade, we would expect it to be one conceivably it could be more, but that wouldn't seem to be appropriate for Suncor right now. That still leaves us with quality investment grade credit ratings. For a lot of the industry, I think, there may well be credit downgrades which take them from investment grade to a junk status. So we're working hard to protect that. We've got the capital we've got the plans in place and the discipline to execute them. But I think, as you say, the industry outlook in the short term is a difficult one. So it's difficult to separate yourself apart from that completely. We're hoping we'll get some recognition for the discipline we've exercised. Okay. Thank you. Thank you. The following question is from Neema Bilu of Veritas Investment Research. Please go ahead. Good morning. A quick question, why stop at COS? If you're one of the best operators in the oil sands and I think you've done a very capable and competent job and you're looking for growth and have a constructive view on more material oil prices, why not MEG Energy and Cenovus? I think they'd make ideal targets for Suncor and I think you could bring the same expertise to bear that you would to COS and you'd be able to fund their growth for many years. Thanks for the question. I mean, you make a very interesting point. We're very pleased and as I say, cautiously optimistic around the Canadian oil sands deal progressing later this week. We have a very active M and A group that keeps a watch on companies that operate within our core businesses and we think there may be synergies with. As I say, there are no plans in place for an immediate follow-up to the Canadian oil sands potential deal. But we continue to look. That's why in my general comments, I think the words I used were we see this as much of as an opportunity as a threat. And so we look to see if there are areas where we could add value. So nothing in our no details in our plans at the moment, but your question is very valid. And thank you very much. And one final question. You've done an excellent job on the refining side, but I just want to sort of poke into the granularity a little bit. Your operations are most levered to Chicago crack spreads, yet refining has continued to demonstrate strength. How much of that cash flow resiliency is driven by other crack spreads in general? How much of it is driven by the benefits from an FX tailwind because FX has been favorable for you guys. I just want to get a sense as to the source of that resiliency because those spreads are certainly contracting for Chicago. Structurally, Brent WTI spreads should be contracting in the future because the U. S. Can now export WTI. So WTI prices will be going up. And Iranian oil could potentially be in European markets bringing Brent down. So I just wanted to get a sense as to why the refining segment held up so well? Nimi, it's Steve Douglas here. And I'll just give you a summary comment and then we can pick that up offline if you'd like. But what I would say is, the link to Chicago is not that strong. If you look at refining orbits like Denver or Edmonton, they're essentially logistical islands, which can sustain strong margins and strong location differentials relative to the Gulf Coast or Chicago or New York for extended periods of time. So we're really not bound by Chicago cracks. And we have set up our business such that, A, we have, I'll say advantaged feedstock supply costs, access to a range of inland crudes and b, such that we're sold out. So we run at capacity most of the year. But happy to pick that up further in a follow-up. With that, we have run out of time. So I'm going to say thank you to everyone for participating. And obviously, as always, the Investor Relations team remains open to calls and emails. So we'll look to follow-up with you after the call. Thank you. Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.