T hank you for standing by. The conference call is ready to begin. Good morning, ladies and gentlemen. Welcome to Suncor's First Quarter 2015 Financial Results Call and webcast. I would like to turn the meeting over to Mr. Steve Douglas, Vice President, Investor Relations. Mr. Douglas, please go ahead, sir.
Well, thank you operator, and good morning everyone. Welcome to the Suncor Energy Q1 earnings call for 2015. With me here in Calgary are Steve Williams, our President and Chief Executive Officer, along with Alister Cowan, Executive Vice President and Chief Financial Officer. I need to remind you that we will have some forward-looking statements this morning. Please note that our comments contain forward-looking information. Actual results may differ materially from expected results because of various factors and assumptions that are described in our Q1 earnings release, as well as our current AIF. These are of course available on our website. Certain financial measures referred to in our comments are not prescribed by Canadian generally accepted accounting principles. For a description of these, please see, again, our Q1 earnings release.
After our formal remarks, we'll open the call to questions, first from members of the investment community and then, time permitting, to members of the media. I'll now hand over to Steve Williams.
Good morning, and thank you for joining us. These are certainly interesting times in our industry. Oil sands in the first quarter were down about 50% year-over-year, forcing many companies in our sector to take drastic action to weather the storm. We've seen budgets slashed, growth deferred, and debt and equity issued in response to the low oil price environment. Here at Suncor, we've taken decisive steps to sustainably reduce our costs in response to the fall in crude prices. Our balance sheet remains very healthy. Our fundamental strategy remains very much intact. We're continuing on our operational excellence journey, which means steadily improving reliability, reducing costs, and profitably growing our production. It also means an unwavering focus on safe, reliable, and environmentally responsible operations. I'm very pleased with the progress we've made in the first few months of 2015.
During the first quarter, strong reliability and a very light maintenance schedule contributed to company-wide production of over 602,000 barrels per day, a 10% increase versus the first quarter of last year. At the same time, we demonstrated the financial and operational discipline necessary to generate free cash flow yet again, even as benchmark crude prices dipped to six-year lows. We've had a strong start to the year, despite the very challenging market, here are some of the highlights. With a relatively mild winter in Northern Alberta, our oil sands operations ran almost flawlessly. The Firebag in situ plant continued to exceed expectations, averaging almost 189,000 barrels per day and reducing steam oil ratios to 2.6. In the mine, we took advantage of improved ore grade and strong reliability to produce over 318,000 barrels per day.
It all added up to new quarterly records for both total and upgraded production, which increased year-over-year by 13% and 11% respectively. We also continued to drive down the costs of our oil sands operations. Our cash operating costs dropped by more than 20% quarter-over-quarter to CAD 28.4 per barrel. That included a record low of CAD 14 per barrel for in situ production. It's not just unit costs that are falling. Our absolute oil sands cash costs for the quarter were down by almost CAD 125 million, even as we grew production. We certainly benefited from a 50% drop in natural gas prices. More importantly, our controllable costs were down by over 5% on an absolute basis. Our costs are denominated in Canadian dollars.
At prevailing exchange rates, our first quarter cash costs came in below $23 per barrel. Let me just say that again. Our oil sands cash costs were below $23 per barrel. In the E&P, the operation story was also positive. The ramp up of Golden Eagle and stronger reliability from all of our producing assets allowed us to increase offshore production by 2.5% while maintaining operating costs of well under CAD 10 per barrel. We did see some modest production from our Libyan assets, but no liftings were recorded in the first quarter, we continue to exclude Libya from our guidance in light of the ongoing uncertainty in the region. Turning to the downstream, our refineries operated very reliably once again during the first quarter. Utilization rates exceeded 95%, which supported a modest increase to refined product sales.
I'm pleased to say that our cost reduction efforts were not confined to the upstream. In the downstream, we took advantage of lower gas prices and also realized a number of efficiencies that allowed us to lower our operating, selling, and general expense by 8% quarter-over-quarter. All in all, it was a strong operational quarter, as demonstrated by improving reliability, growing production, and declining costs. Our long-term focus on operational excellence is clearly delivering results. At the same time, we're making excellent progress on future growth projects. At Fort Hills, all critical milestones continue to be met. Engineering has surpassed 75% and construction is more than 25% complete, both continue to track to schedule and budget. The current oil price environment presents a number of key opportunities, including lower costs, increased productivity, better resource availability, and improved work quality.
We can capitalize on those through disciplined project execution. This will enhance our ability to deliver the project as per the plan. Meanwhile, construction continued in the first quarter on the gravity-based platform at the Hebron Project off the east coast of Canada. Both Fort Hills and Hebron are on target to produce first oil in late 2017. Together, these two projects will contribute over 100,000 bpd of new volumes once they ramp up to full production. These projects are an excellent fit with Suncor's strategy to profitably and responsibly develop long-life assets that will generate cash flow across multiple price cycles. Speaking of price cycles, I'd be remiss if I failed to comment on the current pricing environment. On last quarter's call, I promised not to get into forecasting oil prices.
Nevertheless, I am asked my view on oil pricing just about every meeting I have with investors and analysts. To be honest, I'm not overly concerned with crude prices, at least not short-term spot prices. Suncor has no impact on global pricing, and I'd rather concentrate my efforts on the things which we can control. We're focused on continually improving the reliability of our operations, taking unnecessary costs out of the business, and profitably growing our production. If we're operationally excellent and capital disciplined, our business will be profitable through all phases of the price cycle. When oil prices are high, as they were the past few years, we'll build cash on the balance sheet as a hedge against low oil prices. When oil prices are low, as they currently are, we'll draw down some of that cash and continue to execute on our strategy.
We'll take advantage of soft market conditions to achieve cost efficiencies in both our base business and our growth projects. Most importantly, we'll live within our means, grow production, and return cash to shareholders throughout the price cycle. We've had a very strong start to 2015, and we're tracking very well against our various guidance metrics. I've summarized our strong operational performance in the quarter. I'm now going to ask Alister Cowan to take a closer look at some of the financial details.
Thanks, Steve. As everyone knows, the first quarter featured the lowest benchmark crude prices in six years. As you said before, Suncor was prepared for the downturn in prices, our integrated business model has proven very resilient. We generated almost CAD 1.5 billion in cash flow from operations. This number was virtually identical to last quarter, even though the average Brent crude price fell by well over CAD 20 per barrel, to average just over CAD 55 this quarter. This underlines the strength of Suncor's integrated business model that captures profitability across the entire value chain. Despite a negative CAD 170 million FIFO accounting impact as a result of the fall in oil prices, the refining and marketing group posted operating earnings of CAD 492 million and cash flow from operations of CAD 678 million. Earlier on the call, Steve made reference to the cost reductions achieved at oil sands and in R&M.
These are just two examples of the cost efficiencies being realized right across the company. In January, as you know, we announced cost-shared operating budget in the range of CAD 600 million- CAD 800 million, including a reduction in our workforce of 1,000 positions. At that time, we anticipated phasing in the budget cuts over a two-year period. With our first quarter results, you can see we've already made substantial progress. Our operating, selling, and general expenses were down by over CAD 160 million, or about 7% versus the same quarter last year. We achieved these reductions while growing production by over 50,000 bpd . We've been focused on streamlining our business processes and permanently removing structural costs.
This is part of a comprehensive exercise that began well before the drop in oil prices, I'm confident that we will continue to achieve and potentially exceed our cost reduction targets in the quarters to come. We're also targeting capital cost efficiencies. As part of our January announcement, we committed to reducing our 2015 capital expenditure by CAD 1 billion, bringing our capital guidance for the year to a range of CAD 6.2 billion - CAD 6.8 billion. With a first quarter capital spend of just over CAD 1.3 billion, keeping in mind the seasonality of our spending, we're on track to meet the target. Significantly, we were able to fund our first quarter capital spending entirely from cash flow from operations and produce almost CAD 150 million in free cash flow.
Even in a quarter where the Brent average price was just over CAD 55 per barrel, we were able to maintain our operations at capacity, continue to invest in our key growth projects, pay a dividend that was 22% higher than Q1 of last year. Most importantly, we continue to maintain a rock-solid balance sheet. Our net debt to cash flow is running at 1.2 x, and our debt to capitalization is at 26%. We finished the quarter with over CAD 4.8 billion in cash on the balance sheet and undrawn lines of credit of CAD 6.7 billion. We continue to attract a strong investment-grade credit rating. Looking forward, our capital allocation priorities 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, return meaningful cash to our shareholders.
We certainly don't anticipate a substantial oil price recovery in the short term, we do anticipate higher prices down the road. In the meantime, we will continue to live within our means and take the necessary steps to preserve cash and maintain our balance sheet strengths. As I said before, our financial strategy is designed to enable us to manage through the inevitable oil price cycles. We will remain committed to capital discipline, operational excellence and profitable growth. I'm confident that we'll continue to produce strong results going forward. With that, I'm going to pass you back to Steve Douglas.
Well, thank you, Alister and Steve. Just a couple of highlights before we go over to Q&A. LIFO/FIFO again, was a factor as we had a falling Canadian dollar during the quarter, and it was a net after-tax negative impact of CAD 170 million in the first quarter. Stock-based compensation was an impact after tax of CAD 93 million in the quarter. Finally, as everyone is aware, the exchange rate was very significant in its impact with the falling Canadian dollar. There was an after-tax negative impact of $940 million to our net earnings based on our U.S.-denominated debt. I should also reference our 2015 guidance. No changes to production or to our capital spending. It's a little early in the year with just three months under our belt to make any changes there. We did adjust some of the assumptions around international tax rates, current tax payable.
All the details are available on our updated guidance on the website. Operator, I'll turn it back to you, and we'll take questions.
Thank you, sir. We'll now take questions from the telephone lines. If you're using a speakerphone, please pick up your handset before making your selection. If you have a question, please press star one on your telephone keypad. You may cancel your question by pressing the pound sign. Please press star one at this time if you have a question. There will be a brief pause allowing you to register. First question is from Guy Baber from Simmons. Please go ahead.
Good morning, everybody, congratulations on a strong quarter. I wanted to start off on the theme of the operational excellence journey. Could you just comment on the exceptionally strong upgrader performance this quarter with the SCO output of 347,000 bpd ? If you could just talk about that improvement and the uplift it gave to your bottom line versus more historical utilization efficiencies. Then if you could talk about how sustainable you believe that is and if you're continuing to run that well on a leading-edge basis, then I have a follow-up as well.
Okay. Yeah, let me answer that for you, Guy. In some ways, there are no surprises for us. We've been working in a diligent way over multiple years to improve upgrader reliability. What we said was that we were expecting to move the whole complex up to above a 90% utilization over a number of years, and that the full extent of that program was going to take us two turnaround cycles. The unit two, where we've seen the big difference, has its main turnaround next year. Some of the results, we've always been a little conservative in terms of what we've been guiding on. Some of the results are starting to come. We haven't re-guided because it's the first quarter, and we do build into our guidance some unplanned work as well as planned work. It is a trend.
We've seen it over a number of years. It is a result of the ops excellence.
We do expect to see that trend continue. In fact, we've seen it continue, although we've got some minor turnarounds going on in the plant at the moment, we've seen it continue into April. Very much on target, very much part of the trend. We expect to see that trend continue through the next couple of years.
Very helpful. Also, obviously great progress on the CAD 600 million-CAD 800 million of cost reduction initiatives. First, congrats on that. Could you just talk a little bit about where perhaps you've been the most successful in reducing costs and what's sitting in the market?
Sure. I'll give you some examples. I would say I'm really pleased with the excellent progress that has been made. I'm a little bit cautious sometimes about the words I use, like successful, because a big part of it was a significant reduction in workforce, which is a difficult thing to have to manage. We targeted 1,000. We've actually realized just over 1,200 as we speak. A lot of what we've been doing has been looking at productivity, not just numbers. The sorts of things that are happening, we're flying less people in and out. We're using far more local labor. We're seeing better quality people come in. We've negotiated savings with contractors. We've reduced overtime by different scheduling. We've reprioritized things like IT spend. To be honest, what we're doing is, it's part of a process.
We're going to overachieve versus the CAD 800 million we've talked about, and we're going to reduce the time we did it in from two years to this year. We will continue because it's part of the search of operational excellence for perfection. Of course, you never quite get there. Very pleased with what we've done. The program is continuing. We will overachieve this year.
Great. Thanks for the comments.
Thank you. The following question is from Greg Pardy, from RBC Capital Markets. Please go ahead.
Thanks. Good morning. Steve, the Base Path synth OpEx number was quite impressive. When you look at the balance of this year and really going ahead, how much of that number do you think is going to be sustainable? Volumes were higher. You're taking absolute cost out of the system. If eventually we will go back into a higher oil price environment, but is this a trend you think we'll continue to see going forward with Base Plant synth OpEx?
Two things I would say, Greg. I think it is a trend, and the best view of the trend you get is if you look at what's happened over the last four or five years. We've come from approximately CAD 40 down to this CAD 28 number. We've had an exceptionally good quarter. Two things have helped us out, or three things, if you like. The basic cost management has done very well, and we're pleased with that. We did have very low gas prices, and we had exceptionally high reliability. Both of those things helped. There's definitely a trend. We've not re-guided for this year because we do have two quarters with not major maintenance, but some maintenance in the upgraded region.
We will take a look at guidance towards the middle of the year in the third quarter to see if we should be reducing it. You can definitely start to assume that we will be at the very low end of guidance if we continue this.
Okay, great. Just maybe staying on the cost front, the Syncrude numbers were also considerably lower. We haven't seen numbers like that for a very long time. Syncrude volumes were good in a quarter, but is there anything around things like deferred maintenance or reclamation that are taking a real bite out of the Syncrude numbers? Was this strictly a volume gain in the Q-on-Q ?
Let me say a couple of things. Of course, you should really address the questions to the operator, but I'll make a few comments. We've been working on operational excellence within Syncrude, the same components are there, better cost management and management of reliability. I'm on the record as having been disappointed with Syncrude's performance over the last three or four years. Also on the record that they have been diligently working on what I believe are the right issues. Your question gets right to the important bit. The most important thing we're looking for from Syncrude is costs coming down and reliability coming up. It was a good quarter, but I'd like to see that improvement continue.
Okay. Thanks for that, Steve. Maybe just the last one. Spending-wise, you guys have been last year's, call it mid-sixes in billions per year. How should we be thinking about CapEx maybe into the end of 2017, with Hebron and Fort Hills finishing up in that year?
I think the best indication of the discipline and the rigor we've had around our capital budget is to look it through what was a fairly big cycle over the last four years. We've kept to our CAD 6.5 billion. You're right. The peak of spending on Fort Hills and on Hebron is next year. Broadly speaking, you will see us applying the same sort of capital discipline. If I go back three or four years, we were talking about that period, I can remember you asking the question about will we be between eight and CAD 9 billion. You're going to see us much closer to the numbers historically we've been spending.
Okay, that's great. Thanks very much.
Thank you. The following question is from Phil Gresh from JP Morgan. Please go ahead.
Hey, good morning. First question is just around the capital cost opportunities on Fort Hills and Hebron. Without making you commit to saying that the capital costs could be lower, maybe just talk about what you're seeing trend-wise given what you've been seeing on the operating cost front.
Okay. You'll recall, Phil, when we said we were going ahead with particularly Fort Hills, and the same logic goes across to Hebron, part of the reason for wanting to go ahead at this time was our view, not that we foresaw the significant down cycle in crude price, but we did see a drop-off in activity in the Fort McMurray region. We anticipated the upward pressure on the cost of major projects would start to come down. Part of the reason we went ahead in this timeframe was to be able to spend the majority of the money on the project at a very low cost time in that particular business and region. That's proving to be the case. You heard me say the project's going very well. Construction's 25% complete. It will be 50% by year-end. Engineering is 75% complete.
What we're seeing, if you think about how we set up, the reason for setting up the joint venture was to de-risk our exposure. We had 40%. There's definitely a de-risking going on on that project. The upside risks are improving relative to the downside risks, which is very encouraging. As we continue to hit the milestones, that continues to be the case. Of course, we've used virtually none of the contingency, which is in excess of a billion and a half dollars on that project. All of the signs are the execution of the project is going very well, and we're seeing real trends up there. The quality of the work, the quality of the labor, the commitment of the contractors has been exceptional.
If you run the current strip through your model on Fort Hills, would you be comfortable that it's still a low double-digit IRR type of profile?
Oh, sure. There are lots of puts and takes on the economics. There are some mitigating factors that you have to look at. You run the strip, and of course, that's the important point. We put the long-term price in. This is a 52-year project. Short-term spot prices through construction are not that relevant to the IR calculation. We redo, and it hasn't moved much from our original numbers when we put current exchange rates and crude prices.
Yep. Okay.
Things are looking pretty good.
Yeah. Okay, fair enough. Just my follow-up question is, how do you think about the long-term growth of the company today? Has anything changed with [inaudible]? Are you still thinking through the cycle, mid-single digit growth? Just coming back to the question about CapEx post Fort Hills. Just how are you thinking about things for that?
The simple answer is yes. What we're looking at is the major growth projects are going ahead. They're about 100,000 bpd , building up in that 2018 timeframe. Considerable growth. The other piece of growth is the continued reliability improvements that I think there was a bit of skepticism about initially, but they're clearly manifesting themselves now. That's what the upgraded production is around. That's what the Firebag improvements have been around. You see that, then we have a long list of growth projects behind that. We owe the market a clearer view of our replication strategy. It's coming along very nicely. We have a complete in-situ replication strategy, which will take us through 10 years through to 2030 sort of timeframe. We have some great conventional E&P projects as well.
Within our ownership, we have lots of opportunity for growth. Of course, one of the benefits of the relatively good performance of our equity is we also have some opportunities in the market. There's nothing we've much liked at the moment. Our view is there still is a bit of a gap between buyers and sellers, but the best position to be in is to have a good balance sheet and be disciplined.
Sure. Absolutely. Thanks a lot.
Thank you. The next question is from Sameer Uplenchwar from GMP Securities. Please go ahead.
Good morning, guys. Congrats on a great quarter again. Quick question on dividend growth. I'm trying to understand, and this is on the prior question. Once Hebron and Fort Hills spending starts coming down starting 2017, how are you thinking about dividend growth and share buybacks? Because capital spend- could be kind of tapering off. Just trying to understand long-term, how are you thinking about that?
I don't think our strategy has changed in a sense. We look at the opportunities we have to deploy the funds, and we compare them rigorously. We look at the returns we get on our projects, the dividend. We've always said we will keep our dividend meaningful, sustainable, growing in proportion to our production. We plan that would continue as the company continues to grow. Opportunistically, we will buy stock back. With the exception of this year, for four years, we've bought back 10% of the company. Our average share price buyback has been in the mid-CAD 30 , CAD 34 a share range. We think that was very successful, and you'll see us using those same tools with the same discipline.
Perfect. Last question, you just mentioned on A&D front, if I have to think about it from that perspective, are you looking at assets within Alberta or is it going to be international? How should I think about that when you're looking at these projects?
To be honest, if you look at our record, our record has been one of disciplined divestment rather than acquisition. We did do the Petro-Canada deal. We did do the purchase of the Denver refinery, both very much at the bottom of the cycles they were in. We're not adverse to doing deals, but recently, we've been more into divesting of assets at the right time. It's not a great time to be selling assets right now. There are lots on the market. We look at how it fits with our business. The first area we look at, and I think of three broad areas we look at. The first one is oil sands. Very difficult for acquisitions to work in oil sands because we have the highest quality resource. We have organic projects which those things have to work against. It's very difficult.
It's very tough for us to make those work. We look at the downstream because we believe in this integrated model adding value, and I think it's doing that. We look at all the assets on this continent to see if they fit with our integrated model. We do look around our conventional E&P, and our strategy has been around approximately the percentage of E&P we have. We are part of the joint ventures with ExxonMobil and Shell off of the East Coast of Canada. Two great opportunities in the midterm there. We do look at other assets, but overall, our view has been there's still a gap between buyers' and sellers' expectations.
Thank you.
Thank you. The following question is from Mike Dunn from FirstEnergy. Please go ahead.
Good morning, everyone. Questions on your upgraded output for the quarter. Your sour SCO sales, I believe, were about 58% of your total synthetic sales ethics. At, I guess, an upgraded output similar to what you achieved, is that a reasonably good number to use going forward?
I think it's fair to say, that's why I said almost flawless, Mike, when I talked about operations. We didn't have a perfect quarter on the hydrotreaters. It wasn't bad. We did well, but we did have one unplanned shutdown there. I don't know, Steve, if you would want to say particular numbers there.
We probably lost something in the area of 25,000 bpd- 30,000 bpd of sweet production over to sour, Mike. That does have an impact. When you're running at close to 100%, you can't expect the entire complex to be at that level. I think as we get to that top end, you're likely to see that sweet sour mix weaken somewhat.
Okay. It's my understanding, folks, that you did have a strong quarter in terms of mine bitumen output partially due to the ore grade, even if that was more of a normalized throughput from the mine, would you have still been able to make that up from Firebag bitumen through the upgrader?
We expected to do over 300, and we did. Firebag and MacKay River run full to the limit of the assets all of the time. We take them to a limit. If we're working on a steam generator, then it's impacted, but our normal strategy is we run all of the bitumen sources full.
Okay, over to your E&P division. Your press release mentioned, are you drilling around Beta right now off Norway? As well, maybe just shed some color on that non-commercial well off Newfoundland that you had the exploration expense for, whether that was something this quarter or from prior quarters.
The answer to your first question is yes, we are in the process of drilling that well, and over the next few months, we would expect to start to see the results. Yes, we wrote down the Aster well. That's part of our normal E&P. Of course, you have to drill a number of those to hit a good one. Very much part of the E&P program.
Okay. Thanks, Steve. That's all for me.
Thank you. The following question is from Arthur Grayfer from CIBC. Please go ahead.
Good morning. Just a few questions. The first one is on the cost side. Can you elaborate a little bit about that CAD 600 million-CAD 800 million? What I'm looking for is how much of those cost savings are really a reflection of the current price environment or the current deflationary cost environment? Really what I'm wondering is, could we potentially see more cost savings just due to a cost deflationary environment? Are all these really just structural changes that we don't expect to come back over time?
Arthur, it's Alister. I would say that Steve gave some great examples of how we're achieving those cost savings. We did take 1,200 people out of the organization. Steve gave some other examples, and they're very much structural changes in the way we're doing our business rather than taking one-time price reductions that ultimately do come back. Our view is the majority of those cost reductions will be permanent structural changes in our cost base.
Okay. Looking at the CapEx numbers, as you said, Alister, that CapEx is CAD 1.3 billion. Taking into consideration that Suncor has a history of putting out CapEx guidance and then coming underneath that, is there a reason why I shouldn't just take that CAD 1.3 billion and times it by four and assume that's what the CapEx will actually turn out to be this year?
That was music to my ears. I'll hand it over to Alister so he can answer the question, but I wish you could see the smile on my face. We've been working for a number of years, particularly in oil sands, against a reputation of project overruns, not being able to do things within our CapEx limits. It was a specific objective of ours to become much more disciplined about capital and to give prudent but realistic estimates. I'm pleased that there is a general realization now that we manage that in a disciplined way. Go on, Alister, you can
Thanks, Steve. As I said in my comments, our CapEx is seasonal. The CAD 1.3 billion was actually in line with what we expected as part of that overall CAD 6.2 billion-CAD 6.8 billion. Don't just multiply it by four. There's going to be some seasonality. We've got some turnarounds coming obviously as we ramp up in the summer work and some of, especially Fort Hills. You'll see that go up in the next couple of quarters. We're still going to hit in that range of CAD 6.2 billion-CAD 6.8 billion.
Okay. The last question from me is, you talked about some planned maintenance in Q2 and Q3. In terms of context of the guidance of the 410,000 bpd-440,000 bpd, talk a little bit about where-
Sorry, you cut out there for just a second, Arthur. You said talk a little bit about?
The planned maintenance for Q2 and Q3, in the oil sands operations. In terms of guidance, 410,000 bpd-440,000 bpd here, volumes like to shake out.
Yeah. Okay. We got it. You are cutting out, I think we have the gist of it. It's true we are right across the upstream producing at or above the high end of guidance, we do have maintenance planned right across the upstream, in the second and third quarters. I would say that we certainly expect to be midpoint or above in our guidance production. You have to have quarters like Q1 in order to hit guidance because we do take that maintenance into account.
Thank you very much.
Thank you. As a reminder, if you have a question, please press star one. To cancel your question, you may press the pound. Next question is from Ashok Dutta from S&P Global Platts. Please go ahead. Ashok Dutta, your line is now open. Please proceed.
Hi, just a very few quick questions. Line 9 and the Montreal coker. Just wanted to find out what's the latest with that, please.
Okay. Line 9, much as we anticipated, we still anticipate it coming on in the second quarter this year, so in the May, June timeframe. It is dependent on a final leave permission to start up from the NEB and that being given to Enbridge. We're working with both of those to try and secure the second quarter startup. I'm waiting to see it actually happen, but it does still look as though signs are encouraging. Of course, the actual regulatory approval for Line 9 reversal was given last year, so still on schedule. Montreal, let me just say that the combination of the rail connection we've put into Montreal and the modifications we made to the Isomax, Montreal had one of its best quarters ever in the first quarter. Of course, as Line 9 gets reversed, then that trend will continue.
The yields that we've got, particularly for distillates around the Isomax, have been above our expectations, which is good news. The coker is a refinery margin project that we will look at at the right time. We're still investing in the development of that project this year. Towards the end of this year, beginning of next year, it will come across my desk to take a look at whether we approve it. Still being developed, but not imminent.
Okay. Just a very quick follow-up. With Line 9 reversal, would you still be looking at getting crude from the U.S. Gulf Coast?
One of the strengths of Suncor is what I call our logistics and our intermediates. We run our trading organization to take advantage of the difference in prices. Yeah, all is possible. We run that model every day and look at where the best trades can be made. We move material up from the Gulf Coast into Montreal. Of course, Line 9 will give us great access to inland crude, both from the western side of Canada, here in Alberta, but also for inland crudes in the U.S. It just gives us extra flexibility, and we will take advantage of all of that.
Okay. Thank you very much.
Thank you. The following question is from Chester Dawson from The Wall Street Journal. Please go ahead.
Yes, thank you for taking my question. Two main points. First, I was wondering if you could tell me what your average realized price for oil sands crude was in the first quarter. Secondly, well, actually, maybe I'll ask you to answer that first.
Steve's just looking up a number for you.
Well, while he's doing that, maybe I'll ask my second question, which is, you mentioned that you don't have any particular interest in oil sands M&A. I'm wondering if you have any insight into whether others might be interested in Syncrude, for example. There's been some talk or speculation that Imperial might want to increase its stake. Are you aware of that? Have they had any discussions with you about that as a major shareholder?
No, I wouldn't have any comment. I can't comment on theoretical competition-type issues. I think the fundamentals are still the same for all of us. One of the challenges around acquisitions is if you hold excellent resource, you have to benchmark other assets against them. I think there still is generally a disconnect between buyers and sellers. Other than that, I would ask other Syncrude owners directly.
Okay.
Okay. Chester, it's Alister. The average realized price for the oil sands in the quarter was CAD 47.67.
Okay, great. Thank you. Lastly, could you give me any update on your crude-by-rail shipments in the first quarter and where you expect them second quarter and beyond?
It's Steve Douglas here. We continued to ship significant volumes to Montreal, 30,000 bpd- 40,000 bpd of rail. Other than that, we really do it, as Steve Williams mentioned, on an opportunistic basis. When there is an arbitrage opportunity, we can actually move anywhere in North America with our rail shipments, we'll continue to do that. We have a large fleet of rail cars, it's really about taking advantage of arbitrage opportunities. We don't move our own equity crude by rail. We have sufficient pipeline access to move it all by pipe.
Okay, just to follow up and clarify, I think last quarter you said it was not efficient to rail it to the Gulf of Mexico. Is that still the case?
It really comes and goes because, of course, we've seen a lot of volatility in crude pricing. It's really a day-to-day optimization exercise.
Great. Thank you.
Thank you. The following question is from Jeff Lewis from The Globe and Mail. Please go ahead.
Hi. Thanks for taking my question. I was wondering about the 200 additional layoffs. Can you clarify from what area of the business those cuts were made?
I would just comment generally, the majority of these costs have been around what I would call our head office and overhead. We've been working for a number of years on streamlining our work processes in the company, and that's where these have come from. Although we set targets, it was very much about how can we still do the critical, important work for the company, but do it more productively, and that's where they've come from. The majority are in Calgary and Toronto around our head office functions.
Just as a follow-up regarding the cost reductions, Alister mentioned that a lot of them were from structural changes. Can you be more specific on some of the areas of the business where you've been able to wring costs? The release mentioned lower gas prices and higher volumes helped drive the per-barrel cost down. What specifically have you been able to change in the business that you see sticking around as the year goes on?
Yeah. Those would be largely a repeat of what I said earlier. It's about productivity. It's about improved processes. It's around better supply chain, IT, HR, finance. It's about how we work those processes better. The changes we've made are permanent with different systems in place, which is why we think these things will largely be sustainable. It's about how you re- I mean, the phrase that used to be used was how you re-engineer or redesign those work processes. It's those types of things.
Would you say the bulk of the savings are coming from things like that or from the higher volumes and lower gas prices?
No, the bulk of the savings are coming from those. That CAD 600 million-CAD 800 million, the gas prices have no impact on that, nor does volume.
Okay, I see. Thank you.
Thank you. The following question is from Scott Haggett from Reuters. Please go ahead.
Yeah. Just to get a little more mundane, can you tell us when you expect the current coker maintenance to wrap up and when you'll begin the vacuum unit and other coker work?
Yeah, just general comments. I think you're talking about the Unit 1 upgrader annual inspection that's going on.
Yeah
On two of the coke drums. It's going very well. The work is on schedule. We'd expect it back online in the next few weeks. In terms of the planned Unit 2 vacuum tower work, we'll be executing that in the fall.
Great. Thank you.
Thank you. The following question is from Sean Pasternak from Mergermarket. Please go ahead.
Would you be interested in increasing your stake in Syncrude?
I think what I would say is I would just look back to our general position. We're not adverse to transactions. We have a long list of excellent organic projects. Anything we look at has to work very well relative to those. If we look at Suncor's track record on, I would call general M&A type activity, we tend to be more in the disposal of assets than in the buying of assets over the last few years, and that's been part of that disciplined strategy about getting to our core business. We do look at all potential opportunities out there, but generally our feeling is there's a big gap between buyers and sellers.
Would you be interested in selling your share in Syncrude?
Same answer.
Okay. Thank you.
Thank you. We have no further questions registered. I'd like to turn the meeting back over to Mr. Douglas. Please go ahead, sir.
Okay. Thank you, operator, and thanks to all the participants. If you have more detailed questions, we're certainly available today and all the time. Thanks for taking part, and we'll look forward to talking again.
Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.