Cenovus Energy Inc

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Synovus Energy's second 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 Wentz, Director, Investor Relations. Please go ahead, Ms. Wentz.

Thank you, Operator, and welcome everyone to our second quarter 2020 results conference call. Due to COVID-19 physical distancing guidelines, we do not have the entire leadership team together in the conference room downtown. Here with me is 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. They will answer your questions while the other leadership team members are in listen-only mode today from other locations. 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, Alex will provide brief comments and then we will turn to the Q&A portion of the call. 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, Sharon. Good morning, everybody. I hope all of you are continuing to stay safe and healthy. And although our economy is starting to open up, it's clear we're still far from being able to look in the rear view mirror at the impact of COVID-19. I wanted to start first off by giving credit to our staff at Synovus for keeping our operations running safely and reliably and for adapting to all the additional measures we've put in place in response to the pandemic. It really has been incredible to witness the resiliency of our people and their dedication to looking out for one another. The field staff have been diligently following the new procedures to prevent the spread of the virus at our sites and camps, and staff have embraced technology to remain productive while working virtually. Through all of the changes, our teams remain focused on safety performance. And as an example of that, we had zero significant incidents across our operations in the first half of the year, and our deep basin team achieved a milestone of zero recordable injuries for an entire year, which I think is truly impressive given the conditions that our employees and staff have had to work under. Well, some of our staff who were working remotely have gradually started returning to their regular job locations. we're proceeding cautiously to help ensure the safety of our people and the reliability of our operations. I want to provide details now about our response to the recent downturn. Likely the worst quarter our industry has witnessed in recent memory. The second quarter presented commodity price instability beyond what anyone I think ever could have predicted. The sharp drop in oil demand and resulting unprecedented low oil prices experienced early in the quarter had a significant impact on our financial results. But the extreme volatility also highlighted what set Synovus apart from our peers. It presented an opportunity for our marketing and upstream teams to demonstrate why shareholders should have confidence in this company. We are able to leverage our low-cost structure and the flexibility of our assets to strategically access the highest returns for our products, and maximize value for shareholders. In response to the sharp decline in oil prices in April, we quickly reduced production volumes at our oil sands operations while continuing to steam and store the mobilized oil in the reservoir. When the average price of Western Canadian Select increased almost tenfold in June compared with April, we acted fast to ramp up our oil sands production back up to take advantage of the improved pricing. A low-cost structure means that with WCS prices at current levels, we are generating free funds flow and strengthening our balance sheet. During the quarter, essentially all the inventory that we wrote down in March was sold, and we realized the inventory write-downs. That reduced adjusted funds flow and free funds flow by $529 million. Excluding the impact of these write-downs from the first quarter we would have had positive adjusted funds flow of nearly $70 million in Q2. We've also been purchasing low-cost production credits from peers so that we can produce above our curtailment limit. That allowed us to push our June oil sands production to more than 405,000 barrels per day, including record volumes at our Christina Lake facility. I cannot overemphasize the value of our ability to to take advantage of rapidly changing market conditions. In April, when WCS prices were less than $5 per barrel, we voluntarily reduced oil sand production to an average of just under 344,000 barrels a day. In June, when prices were nearly 10 times that, we ramped up production by 60,000 barrels a day, a more than 17% increase that happened over just a few weeks. At Christina Lake specifically, there was an 80,000 barrel per day difference from our lowest daily production in the second quarter to our highest day in June. Our downstream business is designed for flexibility as well, providing opportunities in terms of both timing and location of sales. This meant that in addition to timing our production over the past months, we're also able to use our diversified transportation and storage portfolio to defer sales from April into June when we were seeing higher price signals. The close working relationship between our marketing and operation teams are giving us a competitive advantage. Their quick action in June resulted in free funds flow for the month of more than $290 million. Meanwhile, the flexibility of our refineries meant that refining runs could be adjusted to take into account refined product demand signals to maximize value for our shareholders there as well. We're on the way to recovery from the low point in the downturn in April, although we expect commodity price volatility for the foreseeable future. We are not counting on a swift recovery. Second only to the safety of our staff, balance sheet strength remains our priority. This downturn demonstrated the value of our relentless focus on paying down debt reducing costs, and maintaining capital discipline over the past years. You will continue to see that discipline at Synovus. We finished the quarter with net debt at around $8.2 billion. We remain committed to getting net debt down to $5 billion or below over the longer term. Given the outlook for pricing in the second half of 2020, we anticipate the level of net debt at the end of the second quarter to be the high point for the year. We have worked to ensure we continue to have ample liquidity to withstand a continued period of low oil prices if necessary, and we remain focused on disciplined capital spending. We will be sticking with the reduced 2020 capital budget we announced in April, even if the price environment improves over the coming months. Before I turn to your questions, I want to encourage everyone to check out our environmental, social, and governance report that we released last week on synovus.com. This report provides context for the analysis we performed before setting our ESG focus area targets earlier this year, as well as details of our 2019 sustainability performance. We are committed to achieving those targets and to continuously improving our ESG reporting to ensure our shareholders and other stakeholders are fully informed about our performance. I feel this report really raises the bar for our industry when it comes to sustainability disclosure. With that, I'm happy to take your questions.