Cenovus Energy Inc

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 will 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 Second 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, assumptions relevant to these discussions. 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. John McKenzie, our President and Chief Executive Officer, will provide brief comments and 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 then, please keep to one question with a maximum of one follow-up. You are welcome to rejoin the queue for any other follow-up questions you may have. John, please go ahead.

Great, and thank you, Jason, and good morning, everyone. Before we start, you will have seen a few changes to our executive team that we announced this morning. When I succeeded Alex in April, it did create an opportunity for us to move some of the executive group around to really take advantage of their capabilities and versatility. You can read the full details in our news release. However, I'd just like to step you through a few of the changes. Keith Chaisson will become our new chief operating officer, and replacing Keith in the downstream will be Doreen Cole, who's been promoted to the position of executive vice president downstream. Drew Ziegel-Gansberger will become our new chief commercial officer, and Andrew Dullien will replace Drew as the executive vice president of natural gas and technical services. Jeff Hart, who is currently our Chief Financial Officer, will succeed Andrew as the Executive Vice President of Corporate and Operations Services. And finally, Cam Sandar will replace Jeff as our new Chief Financial Officer. I really do feel incredibly fortunate to be surrounded by such a talented group, and we have absolute confidence in their ability to continue stewarding this company. At this time, I'd also like to recognize Canning Falk, who's announced his retirement from our board. I've known Canning for over 10 years and have really benefited from his knowledge and experience. I think further, Canning has played a significant role in the repositioning and success of Synovus over the past two years. We all wish him the very best and really look forward to his continued presence as one of our major shareholders. But now let's move to our results. So as always, I'll start with our top priority, which is health and safety. This quarter posed some unique and significant health and safety challenges, and I couldn't be more proud of the way our people have stood up to the challenge. In this quarter, we focused on the safe and disciplined ramp up of the Superior and Toledo refineries, as well as completing the major turnaround at our Foster Creek asset. I'd like to thank all our people for their continued commitment to safety, and our core values as we completed these tasks. The results were truly exemplary. Similarly in our conventional business, we dealt with a number of wildfires through the quarter. We temporarily shut in 85,000 BOE per day of our natural gas and NGL production through most of May and part of June, and supported our staff and their communities. The company worked tirelessly to keep our people and our assets safe. In addition, We greatly appreciate the actions taken by local authorities and the provincial emergency management teams. Our staff truly demonstrated our core value in protecting what matters. Going above and beyond for each other and our communities is truly something we're all proud of. And with that, I'll take you through our operational results. So starting with our U.S. manufacturing assets, as we mentioned in the first quarter call, our focus has been on bringing the Superior and Toledo assets online. Toledo was fully operational by mid-June, while Superior continues to ramp up with a focus on safely restarting the Catcracker, which is the last of the major units to restart. These assets are incredibly important and meaningful contributors to our integrated heavy oil strategy. Our focus in the third quarter and beyond will be to operate them reliably, efficiently, and profitably. Our limer refinery continued to operate at high rates of utilization through the quarter. while the Wood River Refinery ran well through the quarter following the completion of some planned maintenance. The Borger Refinery is back up to full rates after some planned and unplanned outages over the course of the second quarter. So turning to our Canadian manufacturing, our Lloyd Minster Upgrader and Refinery ran at a combined utilization rate of 86% in the quarter, and they're fully operational as we enter the third quarter. We expect both of these assets to run at high levels of utilization through the remainder of the year. Overall, I'd say we achieved everything we set out to do in the downstream during the second quarter, and we're very confident in our ability to produce reliably and profitably through the remainder of 2023. In the upstream, we revised guidance as a result of the wildfire impacts, which had an annualized impact of approximately 10,000 BOE a day. In our conventional business, And we've also built in a modest decrease of 5,000 barrels a day for our Lloyd thermals, adjusting for the slower than anticipated ramp up in the air. These changes have resulted in overall lowering of our guidance to between 775 and 795,000 BOE per day. At our oil sands assets, we safely completed a large turnaround at Foster Creek early in the quarter. The turnaround was on schedule and on budget, and the asset is now running at pre-turnaround rates. Our focus through the quarter has been on continued execution of projects that support our short and long-term production volumes, with our new well pads progressing as planned. You can see the benefits of our continual effort to optimize these assets with the increased production at Sunrise, and in addition, at Deloitte Thermals, we saw record daily production and quarterly production volumes of approximately 112,700 barrels per day and 106,000 barrels a day respectively. We expect strong production from oil sands in the second half of 2023 with all major maintenance behind us. In Asia Pacific, our volumes over the quarter were lower as a result of planned and unplanned outages. On April 7th, an unauthorized vessel traveling in our dedicated pipeline corridor and struck an umbilical line at the Liwa 29-1 field in China. The line attached is designed, which resulted in immediate and secure shutdown of our subsea wells. Our operating group restored production by the first week of June with no environmental impacts in the surrounding area. And as I mentioned, with the vast majority of our major maintenance behind us and the forecasted continual ramp up of wells across the upstream portfolio, we expect to see elevated and steady production numbers over the remainder of the year. I'd now like to highlight our corporate performance and shareholder returns. We delivered almost $2 billion of adjusted funds flow in the quarter, supported by tighter differentials and increasing oil sands operating margins, partially offset by no recorded sales in our Atlantic region due to timing of liftings and a negative FIFO adjustment of about $170 million, which really impacted our U.S. manufacturing segment. With the dividend increase announced in April and through our base dividend and NCIB, we distributed about $575 million directly to our shareholders in the quarter. As per our June 14th announcement, the warrant repurchase transaction presented us with a unique opportunity to repurchase about 2.4% of our diluted shareholder base at an attractive price, purchasing just over 45 million warrants. I believe we obtained favorable payment terms that provide us with the flexibility to remain within our shareholder returns framework, and we'll continue to dedicate 50% of our excess free funds flow to shareholder returns until we reach our $4 billion net debt target, at which time we'll dedicate 100% of our excess free funds flow to shareholder returns. We continue to focus on running our assets safely and reliably. As we line out our integrated business model, we expect to have strong production and throughput in the second half of 2023, which will continue to move us forward to achieving that $4 billion net debt target. So before we take your questions, I'd also like to update you on our sustainability work. Our 2022 ESG report was released in June. and we announced a new milestone to reduce our methane emissions in upstream operations by 80% by year-end 2028. We see reducing methane as a key near-term action that contributes to our 2035 emissions target. We also continue to advance technologies that will help us address our 2050 net zero ambition. You can read more about those achievements and the progress we've made towards other ESG targets in the ESG report on our website. So in closing, we've succeeded in accomplishing the operating goals we set up for ourselves in the first quarter and are well positioned for a significant improvement in our financial performance in the back half of 2023. And with that, we're happy to take your questions.