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 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 Mr. Patrick Reid, Vice President, Investor Relations. Please go ahead, Mr. Reid.

Thank you, operator. Good morning, everyone, and welcome to Synovus' 2024 second quarter results conference call. On the call this morning, our CEO, John McKenzie, will take you through our results. Then we'll open the line for John and other members of the Synovus management team to take your questions. Before getting started, I'll refer you to our 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 and Form 40F. And as a reminder, all figures we reference on the call today will be in Canadian dollars unless otherwise indicated. You can view our results at synovus.com. For the question and answer portion of the call, please keep to one question with a maximum of one follow-up. You're welcome to rejoin the queue for any other follow-up questions you may have. We also 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. I will now turn the call over to John.

John, please go ahead. Great, and thank you, Patrick. Good morning, everybody. I'm going to start this call by highlighting some safety achievements in our second quarter. We completed the largest turnaround in the history of the Lloyd Minster Upgrader. The turnaround was completed with approximately 1 million man hours and peak mobilized workforce of about 3,200 contractors. This was no small feat. And what I'm most impressed about was our safety performance. Our planned 49-day turnaround was done with no incidents, and I want to acknowledge all of our staff and contractors for their incredible commitment to the safety and success of this turnaround. We've also seen a number of wildfires recently across northern Alberta and in some cases in close to proximity to our oil sands sites. We are prioritizing the safety of people working on the site and are closely monitoring the evolving situations. While we had limited our staff at Sunrise Asset for a short period of time, with the recent rainfall and firefighting efforts, we're in a better place. We have now returned all our staff to Sunrise Site, and all of our assets continue to operate at normal rates. So today marks a significant milestone for Synovus and our shareholders. In the month of July, we achieved our net debt target of $4 billion, and we are now moving to returning 100% of excess refunds flow to shareholders as per our framework. I'm very proud that we'll be delivering a substantial increase in shareholder returns going forward. And while this company has been on a Z-leveraging journey for a number of years, achieving the target is a direct result of our financial discipline and resilience. It really sets the stage for continued growth in our shareholder returns over time. Our second quarter results are underpinned by the strength of our operating performance and continued focus on controlling costs and our ability to deliver on our plans and drive value for shareholders. Our upstream business continued to deliver very strong operating results with production of over 800,000 BOE per day in line with the prior quarter. Production for the first half of 2024 continues to trend at the higher end of our guidance range. In particular, the operating performance at our oil sands assets continued to be exceptional in the second quarter. This was achieved while completing some initial scope work scope on the Christina Lake turnaround and taking a short outage at sunrise in May for well pad tie-ins. In the second quarter, oil sands produced around 610,000 barrels a day and generated an operating margin of approximately $2.7 billion, an increase of over $500 million from the prior quarter. Looking to the third quarter, we're ready to execute the turnaround of Christina Lake beginning in September. The turnaround is anticipated to reduce third quarter production by about 45,000 barrels a day. We also remain on track with our execution of oil sands growth projects. This includes the Narrows Lake tieback to Christina Lake, which continues to track on schedule. The pipeline is now 88% constructed, with the first segment hydro tested and mechanical completion expected to be finished by the end of the year. We've also completed the drilling of the first two well pads at Narrows Lake Resource Area, and we're on schedule to deliver first oil in mid 2025. In addition, the Foster Creek Optimization Project remains on schedule for our targeted 2026 startup, with most modules and major pieces of equipment in place and piping installation well underway. At sunrise, the first of four new well packages is nearly complete. Within the first well package, we've ramped up one well pad, and we're expecting to bring on two new well pads later this year in the fourth and early 2025. The remaining three well packages continue to progress as per schedule. In our conventional gas business, production volumes were around 123,000 BOE per day, an increase of 2,400 BOE per day relative to the prior quarter. Our conventional business also reduced per barrel operating costs primarily as a result of focused efforts to improve the cost efficiency of the business. In our offshore business segment, production was approximately 66,000 BOE per day, an increase of 1,300 BOE per day compared with the prior quarter. In Asia, the operating margin was $264 million, and we continue to see the benefit from strong regional gas demand. In the Atlantic region, production from the non-operated Terra Nova asset increased by about 1,200 barrels per day relative to the prior quarter, and the operator continues to work towards ramping up towards full rates. Now the Sea Rose FPSO is currently a dry dock for its regulatory maintenance. This work is progressing well, and we are fast approaching project completion. We expect the Sea Rose to return to the field late in the third quarter of this year, and resume production in the fourth quarter. We also achieved a significant milestone for the West White Rose project in the second quarter, with the concrete gravity structure reaching its final height and structural completion of the topsides. The West White Rose project is now 80% complete and remains on track for first oil in 2026. With our upstream businesses continuing to produce at the higher end of our guidance range, we've updated our full year upstream production guidance. We've increased the lower end of the range by 15,000 BOE per day for an overall upstream guidance range of 785 to 810,000 BOE per day. I'm very pleased with the performance we've seen year to date and remain confident in the executing the work that remains ahead of us for 2024. We expect to be exiting this year well above 800,000 BOE per day following the Christina Lake turnaround. In addition to increasing our production guidance for the year, we've also reduced our operating cost guidance in several of our business segments based on year-to-date performance and our continued focus on cost leadership across this company. The guidance for capital spend of $4.5 to $5 billion remains unchanged. with planned spend for our growth and optimization projects ramping up slightly in the second half of the year. Now moving to our downstream segment. In the second quarter, Canadian refining results were impacted by the planned turnaround at the Lloyd Minster Upgrader. As I mentioned earlier, safety and operational execution of the turnaround was outstanding amidst some of the weather-related delays that impacted productivity and schedule by about a week and elevated the overall cost. The upgrader has since completed its ramp up to normal rates and is operating steadily. In addition to regulatory and maintenance work undertaken during the turnaround, we also implemented seven large projects at around $50 million of capital spend that enable us to further enhance reliability at the asset, including advancing automation of our systems. In the US refining segment, combined crude utilization across the assets was about 93% in the second quarter. We have made some progress on reliability, and there is more work to do. We are continuing to focus on the reliability, cost structure, and profitability of the downstream business going forward. In our US refining businesses, the narrower light heavy differential combined with some planned and unplanned outages impacted operating margin in the quarter. The continued focus on driving value in our downstream business has led the company to optimize plant turnaround activity in the second half of the year. During the Lima turnaround this fall, we'll be leveraging the integration of Lima and Toledo to minimize crude unit downtime. Additionally, some plant maintenance has been deferred to 2025. Now as a result of the performance in the U.S. refining business year to date and the optimization of the turnaround activity going forward, we've updated our full year downstream throughput guidance to 640,000 to 670,000 barrels a day. This is an increase of about 10,000 barrels a day to the lower end of the range. Now to our corporate and financial performance. Synovus generated $2.9 billion of operating margin in the second quarter. approximately $2.4 billion of adjusted funds flow, and $1.2 billion of free funds flow, which reflects higher benchmark crude oil prices and a narrowing light heavy differential. Through our base dividend share buyback program and variable dividend, we paid over $1 billion in shareholder returns, and at the end of the second quarter, net debt was approximately $4.26 billion. And as I mentioned, in the month of July, we achieved our $4 billion net debt target. This is a significant milestone, and overall, this has been another strong quarter for the company. We have a clear view of the work in front of us, and we're looking forward to delivering on the growth projects we've set out to accomplish and increase production guidance for the 2024 that we shared with you today. Now, with that, we're happy to take your questions.