Cenovus Energy Inc

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Synovus Energy's first quarter results. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. You can join the queue at any time by pressing star 1. Members of the investment community will have the opportunity to ask questions first. At the conclusion of that session, members of the media may then ask questions. Please be advised that this conference call may not be recorded or rebroadcast without the express consent of Synovus Energy. I would now like to turn the conference call over to Ms. Sherry Lentz, Director, Investor Relations. Please go ahead, Ms. Lentz.

Thank you, Operator, and welcome everyone to our first quarter 2020 results conference call. Today's call is a slight departure for us. Since we've all been working remotely for the last several weeks due to COVID-19, we are coming to you today not from our conference room downtown, but via cell phone from our respective home offices. If we have any technical issues, We hope he'll bear with us. To keep it simple and limit background noise, we have our President and Chief Executive Officer, Alex Porbet, our Chief Financial Officer, John McKenzie, our Executive Vice President Upstream, Nori Ramsey, and our Executive Vice President Downstream, Keith Chesson, on the call to answer your questions. The rest of our leadership team is in listen-only mode today. I refer you to the advisories located at the end of today's news release. These advisories describe the forward-looking information, non-GAAP measures, and oil and gas terms referred to today, and outline the risk factors and assumptions relevant to this discussion. Additional information is available in our annual MD&A and our most recent annual information form and Form 40F. The quarterly results have been presented in Canadian dollars. and on a before royalties basis. We have also posted our results on our website at synovus.com. Alex will provide brief comments, and then we will turn to the Q&A portion of the call with Synovus's leadership team. We would ask analysts to hold off on any detailed modeling questions and follow up directly with our investor relations team after the call. We would also ask that you keep to one question with a maximum of one follow-up question and then rejoin the queue for any other questions. Please go ahead, Alex.

Thanks, Sherry, and good morning, everyone. I hope that all of you, your friends, and your families are staying safe and healthy during this challenging time. Before I get to our quarterly results, I wanted to touch briefly for a second just on the steps we've taken in response to the COVID-19 pandemic. to protect the health and safety of our staff and service providers and the continuity of our business. Virtually all of our office staff and some of our field staff who don't need to be at site for our operations to continue running safely and smoothly have been directed to work from home. At our field operations, we've reduced the number of staff on site, established extensive physical distancing measures, stepped up cleaning procedures, implemented active screening, for people traveling to site brought in mandatory self-isolation policies, and we've restricted business travel. To date, we have not had a confirmed case of COVID-19 at Synovus, and we're doing everything we can to reduce the risk of that happening. Turning to our first quarter operating and financial results, I expect you've all seen our news release this morning, so I'm not going to spend a lot of time walking through the numbers. I do want to provide you with some color on what's behind the financial results we reported this morning. And I want to talk about how Synovus is positioned to navigate through the rest of this current downturn, what I think our potential is over the longer term. These are obviously unprecedented times for our industry. During the first quarter, the combination of a global pandemic that sharply reduced demand for oil and a supply dispute between two of the world's largest producers, Saudi Arabia and Russia resulted in a significant drop in benchmark prices for oil and refined products. And while we expect the supply-demand imbalance to be relatively short-term in nature, it has led to a rapid decline in share valuations for global energy companies, including Synovus, and has temporarily impacted financial results for our industry and for our company. As you know, the balance sheet has always been a top priority for us. And in this economic environment, that is more true than ever. Over the last few years, we've been relentlessly focused on paying down debt, reducing costs and maintaining capital discipline. And as a result, we came into this downturn with a relatively strong balance sheet. We also have ample liquidity in place to see us through this downturn. Right now, our number one priority is protecting the health of our staff. After that, our focus remains on preserving our balance sheet, maintaining liquidity, and continuing to manage our business to drive our cash flow break-evens as low as we can. During the first quarter, the combination of the sharp decline in benchmark oil prices and widening light heavy differentials in Alberta contributed to a more than 50% drop in realized pricing for our barrels compared to the first quarter of 2019. It has also resulted in a number of temporary impacts to our financial results. For example, the condensate we used to blend with our heavy oil was purchased a few months ago when prices were higher, which negatively impacted our upstream results. And the same principle applies to refinery feedstock, which negatively impacted our refining and marketing results. In addition, due to the rapid decline in oil prices during the quarter, we recorded significant non-cash inventory write-downs and asset impairments, which combined with a non-operating foreign exchange loss contributed to the operating and net losses we reported this morning. Inevitably, we know this pandemic will pass, the markets will recover, and as benchmark prices begin to return to more normalized levels, we expect to see these price-driven impacts to our business begin to reverse themselves. And I fully believe we'll see share prices for our industry follow suit. What's not clear is exactly how long that's going to take. While we can't influence the macroeconomic environment, there's plenty we can do to protect our balance sheet during this challenging period, and that's exactly what we've been doing. We were in a strong financial position coming into 2020. We had net debt of $6.5 billion, down almost $2 billion from a year previously. We had and continue to have among the lowest cost structures in the industry. And in 2019, we demonstrated that in a West Texas intermediate environment of $45 US or more, we have significant cash generating potential. In 2019, we delivered $2.5 billion in free funds flow. I believe that reflects the true underlying strength of our assets, our financial position, and our business plan. And of course, we are not in a $45 WTI world at the moment, so we've taken decisive steps to improve the resilience of our business and protect our balance sheet for the duration of this downturn. On March 9th and again on April 2nd, we took advantage of the flexibility in our business to make significant adjustments to our 2020 budget and business plan. We reduced our plant production volumes for the year and are actively managing production levels as market conditions change to optimize the value we receive for our products. We cut plant capital spending by $600 million and reduced our forecast operating results for this year to by about $100 million. We trimmed our planned G&A costs for the year by about $50 million, which includes pay reduction for me, our board, and our executives, and to a lesser degree, our staff. We deferred final investment decisions on growth projects and have now essentially ramped down our Crewed by Rail program. We suspended our dividend, which we've always said would be sustainable, at a West Texas intermediate price of $45 U.S. or more. And we've worked to improve our already strong liquidity position, adding another $1.1 billion of committed capacity with some of our lenders this month. Together with our largely undrawn existing committed credit facilities and uncommitted bilateral credit lines, we have liquidity to sustain our operation through an extended period of low oil prices. To sum up, we've been proactive about protecting our balance sheet and enhancing our liquidity. And I believe we are in a relatively strong position to navigate the current commodity price environment. While the significant changes in the macroeconomic and business environment over the last couple of months have impacted our recent financial results, the underlying strength and value of our business has not changed. And with that, let's get straight to your questions. One thing I I should say, since we're all not together in a room, what I'm going to do is I'll probably do a little quarterbacking and either take the call or I'll direct who I think should answer it just to try to make things a little more easy. So with that, let's open it up for questions.