Strength through strategy: Suncor’s unwavering focus on capital discipline, operational excellence and profitable growth
President and CEO
Suncor Energy Inc.
Barclays CEO Energy/Power Conference
September 6, 2017
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Steve Williams, President and CEO
Thank you, and good morning everyone. It’s great to be here again in New York.
I always look forward to this conference. Barclays does a great job in bringing us together. A special thanks to you, Paul and the organizers for hosting this event.
A lot has happened since we were here last September.
- On the supply side, global oil output has remained high. That said, there have been strong indications that inventories have begun to draw down in the past couple of months. That’s due, in part, to strengthening demand associated with improving economies.
- Nevertheless, oil prices have remained stubbornly range bound throughout the year, which has continued to put pressure on companies to reduce and/or eliminate costs.
- On this side of the border, this past year brought a Presidential permit for the Keystone XL project. We’re encouraged by the progress to date, and as a supporter of all pipelines west, east and south, we will continue to work with the proponents to advance these projects and of course, support them as they work to get shovels in the ground.
- It’s been a busy year at Suncor. In the past 12 months, we’ve sold our Petro-Canada lubricants business and two Ontario wind farms, entered into equity partnerships with two First Nations for our $1 billion East Tank Farm and purchased a 30% interest in the Rosebank project in the UK North Sea.
- I mention all of this, because of the central theme of my presentation today. And that is: our ability to execute on all of these transactions is the direct result of a business strategy underpinned by a strong focus on capital discipline, operational excellence and profitable growth.
- This morning, I will share with you what we’re doing in those areas, and how our efforts are contributing to a compelling investor proposition.
But first, let me give you some high level detail about Suncor.
- Oil sands mining and in situ production and upgrading
- E&P operations off the east coast of Canada and in the North Sea, and
- a strong midstream business which connects our upstream production with our industry leading refining and marketing business with refineries in Edmonton, Sarnia, Montreal, and Denver.
- We also have a renewable energy portfolio of wind farms and operate Canada’s largest ethanol plant.
- And finally, we’re a leading branded retail marketer in Canada, with our Petro-Canada service stations comprising about 18 percent of the Canadian market.
Our strong financial position has also enabled us to profitably grow the company. I’ve been very pleased with our record of acquisitions and divestments, as they reflect our patient capital allocation, as well as a strategic view of the market.
Those transactions include:
- the acquisition of an additional 10% working interest in Fort Hills,
- increasing our interest in Syncrude to almost 54% through the acquisition of Canadian Oil Sands and the purchase of Murphy Oil’s interest,
- the acquisition of a 30% interest in Rosebank, an off-shore development in the U.K. North Sea,
- the sale of a combined 49% working interest in our East Tank farm to two First Nation partners, and
- the sale of our Petro-Canada lubricants business and select wind farm assets.
Taken together, these transactions reflect a strong record of counter-cyclical acquisitions and divestments.
Our sound strategy, our integrated model and our strong balance sheet provide us with the confidence to look forward with optimism.
With a near term flexible capital allocation plan, we’re well positioned to thrive in various oil price scenarios. Our base case of US $50 to $55 WTI would see us invest in debottlenecking and pre-engineering for in situ and at US $65 WTI, we’d advance development on replication.
At US $40WTI, we’re still able to fund all sustaining capital expenditures as well as our dividend.
In all cases, we’d continue to grow the dividend with production and maintain a 10% CAGR per share production growth target through 2019. We will continue to incorporate a share buyback plan tailored to the business environment.
We have an exciting future ahead of us, as we look forward to first oil approaching for two key growth projects: Fort Hills and Hebron.
At Fort Hills, we’ve seen significant progress. As you heard on our Q2 call, we are moving away from the construction phase and into commissioning and operations for a successful ramp up. Mining, ore preparation, major site infrastructure and primary extraction assets have now been turned over to operations. And the turnover of utilities is in progress.
On the secondary extraction front, where we’re employing paraffinic froth treatment technology to produce a higher quality bitumen that can be diluted and shipped to market, we’re making excellent progress.
All of our work on Fort Hills has been based on a long history of oil sands operations and execution of large, complex projects.
We’ve also learned from our peers. The result is a phased commissioning and start-up plan, which will see the front end of the plant, including water assets, fully tested before the onset of cold winter weather. This will allow for early identification and resolution of issues, which should significantly de-risk the production of first oil late this year. As part of the start-up plan, we expect to achieve production of first froth – an intermediate bitumen stream – in the next few weeks.
Our other major growth project, Hebron, has also marked a series of important milestones. Those include successful tow out of the platform to its final offshore location and safe positioning on the seafloor. Drilling operations have commenced and the project remains well on track to produce first oil by the end of the year as planned. Suncor’s share of production when the project is fully ramped up will be about 30,000 barrels a day.
We know that the next phase of growth after Fort Hills will be at our in situ sites. As the first energy company to receive approval for multiple in situ development phases, we’re looking at ways we can most profitably grow production, leveraging learnings from previous projects.
Replication will be a central focus of this next phase of oil sands growth, with 10 locations identified, which is expected to add approximately 360,000 barrels per day in production. 2022 has been targeted as the year for potential first oil from the initial phase.
As we move towards first oil for Fort Hills and Hebron and look beyond, we’re ensuring we have significant optionality when it comes to getting resources to market.
We currently have ample pipeline capacity for our own production. We also have approximately 80,000 barrels per day of rail shipping capacity which we make use of opportunistically.
And, as part of our integrated model, we have a strong mid-stream group which links our upstream and downstream businesses.
We continue to support all pipeline projects moving toward development, including Keystone XL, TransMountain expansion and Energy East, among others.
A strong commitment to sustainability
Part of our corporate strategy is also about being a leader in sustainability – that is being guided by economic, environmental and social dimensions when it comes to producing energy. As many of you know, we’ve been on this journey for decades. Yet more work remains.
A key focus has been reducing the impact of our operations on the environment and doing our part to address the global challenge of climate change. We’ve made significant progress to date. And our plan is to reduce the overall GHG emissions intensity of our production of oil and petroleum products by a further 30% by 2030. We believe making progress on this front will put us on the path to ultimately bending the curve on our absolute GHG emissions.
Technology and innovation will be key to achieving this goal. We continue to:
- spend over $200 million annually on strategic research and development projects;
- collaborate with organizations like Canada’s Oil Sands Innovation Alliance (COSIA) and Evok Innovations on step change technologies to address GHG emissions and other environmental challenges;
- advance the work of the recently announced Clean Resource Innovation Network, or CRIN, an industry-led network to leverage the oil and gas industry’s strengths in large-scale heavy industrial collaboration. CRIN’s vision is to position Canada as the global leader in producing clean hydrocarbon energy from source to end use.
- And of course, we’re continuing to work closely with joint venture partners to drive improved reliability, safety and environmental performance at our operations.
Transparent and clear-headed climate disclosure is important to understand why we believe our strategy is resilient through a range of forward looking scenarios. In our climate report, we share our view on how we can continue to provide energy on a cost and carbon competitive basis and how we will remain agile through an energy transition. We have a reasonable degree of certainty around the cost of carbon going forward and we estimate the 10 year impact on cash costs to be about 60 cents per barrel.
Reaction to the report has been very positive, and if you haven’t read it yet, I’d encourage you to check it out for yourselves on our website.
As we look ahead, we have good reason to be optimistic:
- we’ve demonstrated strong per annum production growth over the past five years;
- our production profile has been carefully planned to deliver substantial growth with in-flight projects through to the end of the decade;
- thanks to a proven ability to generate cash, we’ve been able to consistently return value to shareholders;
- and finally, we’ve built resilience into the company by managing the balance sheet as a strategic asset.
These and other competitive differentiators, such as our long life, low decline production and reserves, and industry expertise are I believe, reasons to take a closer look at Suncor as a new or expanded investment opportunity.
Our ability to execute our strategy, focusing on capital discipline, operational excellence and profitable growth, is due in large part to an effective senior leadership team and our dedicated employees. Together, they’re focused on creating energy for a better world, and consistently delivering shareholder value in the process.
Thanks for your time today and I’d be happy to answer any questions you may have.