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 over to Mr. Jason Abate, Senior Vice President, Investor Relations. Please go ahead, Mr. Abate.

Thank you, operator, and welcome everyone to Synovus' 2023 first quarter results conference call. Please refer to the advisories located at the end of today's news release. These describe the forward-looking information, non-GAAP measures, and oil and gas terms referred to today. They also outline the risk factors and assumptions relevant to this discussion. Additional information is available in Synovus' annual MD&A and our most recent AIF in Form 40F. All figures are presented in Canadian dollars and before royalties unless otherwise stated. Alex Bourbet, our President and Chief Executive Officer, will provide brief comments, then we'll take your questions. We ask that you hold off on any detailed modeling questions. You can follow up on those directly with our investor relations team after the call. And please also keep to one question with a maximum of one follow-up. You are welcome to rejoin the queue for any follow-up questions you may have. Alex, please go ahead.

Thanks, Jason, and good morning, everyone. As I do every quarter... I'm going to start this morning's call with our top priority, health and safety. The safe restart of the Superior and Toledo refineries is of the utmost importance to us, and over the last few weeks, we've resumed operations at both refineries. On our Q4 conference call, we committed to start running crude at Superior in mid-March, and we did that safely. The refinery is currently running between 24 and 30,000 barrels a day, and you can expect it to ramp up to full rates through the second quarter. In Toledo, we successfully closed the transaction on February 28th. We've restarted the smaller 30,000 barrel a day east side of the refinery and expect the larger west side to be online in May, also ramping up to full rates through Q2. Both of these refineries are currently making on-spec product. With the construction of Superior now complete and the restoration work of the impacted zone at Toledo complete, we expect these assets to generate significantly improved operating margins through the quarter, approaching breakeven in June and achieving free cash flow by July. I'd like to acknowledge and thank all the teams involved in achieving these significant milestones. These startups were done safely and methodically, and we appreciate the focus by everyone involved. We apply the same attention to safety that we did with these startups to everything we do. Our safety journey is never complete, and we look to continue elevating our performance. Turning to our operating results, this was a challenging quarter, and to be blunt, not up to the standard we've set for ourselves at Synovus. I want to address this upfront. In the U.S. downstream, the ongoing costs of getting Toledo and Superior restarted impacted our margins. Because of our vertically integrated strategy, not having these refineries running at full rates while differentials widened as much as they did was especially impactful on our corporate cash flows. Our non-operated refineries, Wood River and Borger, ran below expectations during the quarter, which further impacted cash flow and earnings. This was mainly due to unplanned downtime at Wood River related to the December incident, which led to significant costs associated with fulfilling obligations for finished product, as well as the remediation work itself. Wood River is now back up and operational, with the exception of some planned maintenance scheduled to be complete in the middle of May. Given the operational performance in US manufacturing so far this year, we've adjusted the throughput in our annual guidance down by 40,000 barrels per day at the midpoint, resulting full-year throughput guidance for the downstream to deliver between 580,000 to 610,000 barrels per day. However, with the many significant milestones now achieved, we are paving a path to successfully deliver on our integrated strategy. We've also updated our annual production guidance for the Atlantic region, reducing it by 10,000 barrels a day. We are taking a conservative view and have removed Terra Nova volumes. from our 2023 guidance. Our full year guidance for upstream production is therefore 790,000 to 810,000 barrels equivalent per day. We continue to progress our strategy with conviction. Our management team is confident the plan will deliver in all areas of our business with the performance that you've come to expect of us. And more importantly, the performance we expect of ourselves. We believe you will clearly see the strength of our operations and integrated strategy in the back half of this year. Let me further speak to the actions we are taking as a company to improve our asset and financial performance. In the oil sands, production from Foster Creek and Christina Lake will benefit from three new pads starting up at each asset and contributing to higher production volumes in the third and fourth quarters. At our Lloydminster thermals and Sunrise projects, we will continue to optimize our development and operating strategy to support improved production volumes. At our Lloyd thermals, we have production solidly back over 100,000 barrels per day, while Sunrise will benefit from the first new well pad since 2017 when we start up a pad around the end of 2023. Conventional continues to impress, with steady production rates and strong cash flows, even with ACO prices declining through the quarter. We have recently drilled some really prolific wells in the Wapiti area, which are testing at record rates. These were among the top Alberta gas wells in both January and February, giving us further confidence in our future development plans. Asia Pac continues to generate free cash flow, and our offshore segment as a whole contributed $300 million and operating margin this quarter. Moving to our downstream operations, I want to reiterate what I previously mentioned. With Superior, Toledo, and Wood River, we expect to see improvement on our overall throughput and utilization rates in Q2. The normalized margins and crack capture rates will become further evident in Q3. Though not as robust as previous quarters, we expect to see a strong market for refined products through the rest of the year, and our U.S. refining network will be in a great position to take advantage of this. Canadian manufacturing performed well, with the Lloyd refinery operating at a 99% utilization rate and the overall segment contributing over $260 million in operating margin. With the consistent high reliability of these assets, we expect to be able to take advantage of strong product pricing through the year and are well positioned should the heavy oil diffs widen. Turning to our financial performance, our net debt increased this quarter as expected. This was mainly due to the cash tax payment of about $1.2 billion for taxes accrued from last year. Now that we are cash taxable in all jurisdictions, taxes will be paid on a quarterly basis going forward. The increase in net debt also reflects approximately $460 million to close a Toledo deal and the first variable payment related to the Sunrise transaction. Given where we are today, and assuming commodity prices remain around current levels, we expect net debt to fall below the $4 billion floor in the fourth quarter. Lastly, consistent with our ongoing strategy and commitment to shareholders, our board approved a 33% increase to the base dividend to $0.56 per share on an annual basis. This increase is a reflection of our commitment to assess the base dividend annually and provide our shareholders with a sustainable and growing dividend over time. This dividend, as well as our sustaining capital, is well covered in a $45 US per barrel WTI pricing environment. Today's call is the last conference call I'll be leading for Synovus as I move to my new role as executive chair of our board. you will be in John's steady hands for Q2. As he takes the helm, this company is positioned well for long-term success, and I know that John will lead Synova successfully and continue to execute the company's long-term strategic plan. The strategy we set at the beginning of my tenure in 2017 was really simple. Optimize our cost structure, strengthen the balance sheet, and ensure market access for our upstream production. I can confidently say that we have delivered on all three and then some, and I would like to thank everyone who made it possible. Our staff and management team have been remarkable, and I am truly excited to see John lead this company forward. With that, we're happy to take any questions you may have.