Suncor Energy: Our Time
Presentation by Steve Williams, President and CEO, Suncor
Tuesday, Sept. 4, 2012
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Thank you, Paul and good afternoon everyone.
It’s a pleasure to be here with you today.
Barclays does a tremendous job of pulling this event together. This conference really is a great opportunity to learn more about the energy and power industry and discuss emerging trends and issues. And on behalf of Suncor, we’re pleased to be part of that conversation.
For many of you, I’m sure that the first question that comes to mind is what to expect, given that I’ve been in my role as President and CEO for just a few months.
It’s important to remember, though, that while I’m relatively new to this position, I’ve actually been a part of designing Suncor’s plans for more than 10 years. Especially in the last five years during my time as Chief Operating Officer.
It’s our strong strategy, integrated business model and focus on reliability that I believe have positioned us extremely well to develop energy and create value for our shareholders. With this in mind, we believe this is “our time” as a company.
Competitive Differentiators: Suncor is well-positioned
When we say “our time” we mean it’s:
- “our time” to demonstrate how reliable operations can lead to increased profitability and highlight our disciplined approach to an impressive suite of growth projects….
- “our time” to leverage the strength of our integrated business model to create shareholder value …. And
- “our time” to embrace technology and collaboration to further drive improvements in environmental, economic and social performance.
And we say that with the confidence of some key competitive strengths.
To begin with, we have an enviable resource base, including the largest position in Canada’s oil sands. It provides a foundation for us to generate profits and grow in a disciplined manner for decades to come.
To give you a sense of that magnitude, if we assume that all 7.1 billion barrels of our proved and probable reserves are produced at the 2011 production rate of 546,000 barrels per day, we could maintain production for more than 35 years. Add to that our contingent resources of 21.9 billion barrels and that could mean production for more than 100 years.
And we’re working hard to monetize our reserves through a balanced portfolio of mining, in situ and upgrading projects. That balance is important, because as you know, markets can go through pronounced cycles. And, the relative economics of each approach shift up and down, meaning no single approach will consistently outweigh the others.
A second key strength is our integrated model, which includes oil sands and offshore production, upgrading, refining and marketing through the Petro-Canada brand, as well as a growing renewables business.
This model, as well as the integrated nature of our planning is unique to Suncor and we consider it a distinct advantage over our competitors.
Let me explain further. The bulk of our production comes from oil sands. Although it has higher extraction costs, our business has lower geological and political risks relative to most conventional oil. And, our integrated model means we’re not solely dependent on bitumen prices.
We upgrade most of our current bitumen production into more valuable crude blends, and we have made significant investments in our refineries to process these barrels into refined fuels and specialty products. We are also geographically diversified by having offshore and international oil and gas production which is sold into premium-priced markets.
In the past year, when bitumen prices lagged against WTI, which in turn lagged against world crude oil prices, our upgrading capacity enabled us to capture some of the spread between WTI and bitumen prices.
Our refining network, meanwhile allowed us to capture a large portion of the spread between WTI and world oil prices (since refined product prices are tied to global markets).
At the same time, our diversified assets across Canada’s East Coast, the North Sea, and the Middle East have been selling into the world market at Brent Crude related prices.
Overall, this ‘ground-to-gas-station’ structure means we have many sources of profit, helping to balance volatility caused by fluctuating market conditions and reducing our financial risk through both good and bad economic cycles.
The bottom line is that thanks to our integrated model, we’re able to realize about 95% of global prices for our output, the majority of which comes from Canada.
And, thanks to solid performance both operationally and financially, we are in the best position we have ever been to produce energy and maximize shareholder value going forward. This is reflected in our strong balance sheet, supported by revenue streams from both the upstream and downstream.
Another of Suncor’s strengths, and one I’m particularly excited about, is our focus on technology. Through this focus area we are improving efficiencies and also driving down our environmental footprint.
And when I say technology, I’m talking about more than new machinery or software programs, I mean big, game-changing innovations like TRO, our tailings management approach, which will allow us to reclaim land in a third of the time required by previous technologies.
But all of these competitive strengths are only as effective as the team that makes them possible. And I’m incredibly thankful for the 13,000 plus employees at Suncor – the true pioneers of the oil sands – whose energy and enthusiasm continually remind me of their unwavering commitment to our shareholders, customers and stakeholders.
It’s their dedicated efforts that give me confidence in our ability to deliver on our business strategy, which is focused on:
- profitably operating and developing our oil sands resources – remember we do this through demonstrating reliable operations and disciplined growth
- optimizing value through integration
- achieving industry leading unit costs in each business segment – again, delivering on reliable operations is key to our success, and
- being the industry leader in sustainable development – part of our success here is through delivering on innovative technology and collaborating with our industry peers.
We continue to deliver on that strategy. In 2011, we achieved record cash flow, earnings and production. And that strong performance continued into 2012, as evidenced by our strong results in the first half of this year.
Our 2011 results included operating earnings more than doubling to a record $5.7 billion. And, our cash flow was the highest ever at almost $10 billion.
Looking at Q1 and Q2 of this year, cash flow from operations was a very healthy $4.77 billion, a 9% increase from the first half of last year.
These results allow us to make significant capital investments, entirely funded from internal cash flow, and still maintain an exceptionally strong balance sheet.
Oil sands production in 2011 was 304,700 barrels of oil equivalent per day. And in 2012, our guidance is for a range of 325,000 to 355,000 barrels in oil sands excluding our share of Syncrude, and total production in the range of 530,000 to 580,000 barrels of oil equivalent/day.
We remain on track to meet our overall production targets.
In our Q2 conference call, you may have heard me mention from a growth perspective that I am not focused on getting to a million barrels a day of production by 2020.
That said, I have no doubt that we will eventually get to that level of production and beyond. The key for me, and for Suncor, will remain on achieving strong results for our shareholders.
One thing I want to stress is that, while our growth plan includes goals and targets, these will not come at the expense of returns on capital.
This capital discipline is based on our commitment to generating long-term shareholder value and delivering our growth projects in a responsible and cost-effective manner.
With that, I believe our financial performance bodes well for Suncor’s capacity to deliver sustained and profitable growth.
As you can imagine, in today’s world, our financial and operational performance is only one part of the equation.
I mentioned a key part of our strategy is sustainability.
For us, that includes improving our environmental performance which is not only the right thing to do; it makes good business sense.
Every barrel of water that we conserve and every emission that we reduce at our operations means lower input costs and supports our license to operate and grow, which in turn translates to value for our shareholders and stakeholders.
And I’m pleased to say we’re making real progress. Here’s just a few quick examples:
- Greenhouse gases per barrel at our mining operations have been cut in half since 1990.
- We’ve reduced our freshwater intake by more than 30% over the past six years. Our fresh water use is now the lowest since 1998 in absolute terms, despite tripling production.
- We’ve made great strides in reclaiming land and are proud to have announced the successful surface reclamation of Pond One, our first tailings pond - now known as Wapisiw Lookout.
- As part of our climate change action plan, we’ve also committed to developing renewable energy. Today, we’re one of Canada’s biggest investors in wind power, with six wind farms and Canada’s largest ethanol plant as important parts of our operations.
Going forward, our focus on improvement will continue. In 2009, we set some environmental goals for 2015, including:
- Reducing fresh water consumption by 12%
- Increasing reclamation of disturbed land area by 100%
- Improving energy efficiency by 10%, and
- Reducing air emissions by 10%
All of the reductions are absolute, with the exception of energy efficiency, which is intensity-based. We believe we are on the right track, but know we still have a long way to go and we remain committed to continuously raising the bar.
Industry collaboration: COSIA and other partners
We’re also encouraged that we have been joined by others in responding to the environmental challenge.
You may have heard earlier this spring that Suncor joined 12 other oil sands companies to announce the formation of Canada’s Oil Sands Innovation Alliance, or COSIA. That number has since expanded to include even more oil sands producers.
COSIA is our industry’s public commitment to our stakeholders. It’s meant to say we are ready, willing and able to respond to our stakeholders’ expectations and accelerate the pace and scope of our environmental performance improvement.
It’s a fantastic concept where energy companies share environment-enhancing technology to improve the entire industry’s impact.
To our knowledge, COSIA is the largest collaborative effort of its kind in any industry, anywhere in the world. Early days are encouraging and we’re looking forward to more progress in the days, months and years ahead.
Looking forward: It’s Suncor’s time
As many here know, success in the oil sands is achieved by taking a long-term view. Our industry is a young one, but I firmly believe that we’re now hitting our stride.
The abundant resource wealth that I’ve outlined, produced and operated reliably …. the sound investor proposition that Suncor has created, delivering value through a fully integrated model…. and the exciting environmental collaboration underway… point to a bright future for Suncor.
Suffice to say, we’re excited about where we are and where we’re headed as a company.
I hope that I’ve given you good reason to take a closer look at our company, particularly as we leverage the strengths I’ve outlined in developing energy and creating shareholder value in the process.
Thanks for your time today. I’d be happy to answer any questions you may have.