Cenovus Energy Inc

Good morning, ladies and gentlemen. Welcome to Synovus Energy's third quarter results conference call. At this time, all participants are in listen-only mode. Following the presentation, we will hold a question and answer session. To queue up for questions by phone, please press star 1 and an operator will contact you. I would like to remind everyone that this conference is being recorded today. I would now like to turn the meeting 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 third 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 are 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, and good morning, everyone. As always, I like to start these calls by highlighting our safety performance in the quarter. The third quarter was a very heavy maintenance period for the company, and we have safely completed three major planned turnarounds on our ahead of schedule across both the upstream and the downstream. I'd like to thank all of our people for their continued commitment to safety and our core values as we accomplish these tasks. Completing this work effectively and on time with an excellent safety record is critical to maintaining safe and reliable operations and positions us well for the remainder of the year and into 2025. Our third quarter results highlight the strength of our operations, our continued focus on execution, as well as our commitment to shareholder returns and to maintaining our strong balance sheet. Our upstream business continued to deliver strong operating results with production of approximately 771,000 BOE per day and an operating margin of 2.7 billion. In our oil sand segment, the volumes impacted by the turnaround at Christina Lake were restored well ahead of schedule as work on some of the phases was completed early and the full scope of the turnaround was completed eight days ahead of plan. As a result, we delivered Christina Lake production in the third quarter that exceeded our forecast by 15 to 20,000 barrels of oil per day. This achievement is a testament to our operating team whose detailed planning and exceptional focus on execution drove incremental value to Synovus. As a result, our oil sand segment delivered 586,000 barrels of oil in the third quarter barrels per day in the third quarter, and an operating margin of $2.5 billion. Christina Lake was brought back online through September and has been performing very well through October. During the turnaround, we completed pipeline tie-in work that will support new production from Narrows Lake next year. This pipeline is now 93% constructed, and the project remains on track to add 20 to 30,000 barrels a day to Christina Lake with first production in mid-25. Combined with the continued development activities at Sunrise and Foster Creek Optimization Project, we expect to see material growth in the oil sands business over the next two years. We expect all of these projects to be highly profitable, even at bottom of the cycle pricing, and they collectively add significant incremental value at very low capital cost. In all, I'm very pleased with the performance of our industry-leading oil sands assets so far this year and expect the operational momentum to continue through the rest of the year and into 2025. The third quarter was also the first full period of operations of the TMX pipeline, which has provided additional egress capacity and access to new global markets for our crude. This has had a positive impact not only for Synovus, but for the whole Canadian economy. We are seeing the benefits of a narrow, less volatile WCS differential, which strengthens the realized price for all Canadian oil production. TMX shipments have gone well, and we have successfully ramped up to full contracted rates. In our conventional gas business, production volumes were about 118,000 BOE per day. Volumes were impacted by turnaround activity at Rainbow Lake and other facilities, which was successfully completed through the quarter. With weak natural gas prices continuing through the third quarter, we have deferred completion of some of our gas-weighted wells towards the end of the year. Our new wells are primarily targeting liquids-rich opportunities. In our offshore business segment, production was approximately 66,000 BOE per day, in line with the prior quarter. Asia-Pacific production continues to exceed our forecast, even with successful completion of the plan maintenance of both the offshore Liwan platform and onshore gas plant. Operating margin from this business was $242 million, and we expect to see benefit from strong regional gas demand going forward. In the Atlantic region, we've completed the asset life extension work on the Sea Rose FPSO at Dry Dock in Belfast. The vessel is now returning to the field with production from the existing White Rose field expected to resume by year end. Completing this work will extend the life of the vessel to 2038 and is a major milestone for the Atlantic business and a very important step in the delivery of the West White Rose project. The entire West White Rose project now stands at 85% complete and remains on track for first oil in 2026. Turning to Canadian refining, our Lloydminster Upgrader and Refinery ran at combined utilization of 92% for the quarter. Utilization was impacted by the turnaround activity at the Upgrader that was completed in early July. Since the completion of the turnaround, both the Upgrader and the Refinery have run at or near full rates. In the U.S. refining segment, crude utilization was 89% in the quarter. Our crude throughput was 544,000 barrels per day and was impacted by the major turnaround at the Lima refinery. The turnaround started in September and was successfully completed on schedule in late October. The operating margin shortfall of $383 million in the quarter included inventory timing losses of about $210 million and about $100 million of turnaround expenses and related expense projects executed during the Lima turnaround. In both the Lima turnaround and the Lloyd Upgrader turnaround completed earlier this year, we made targeted investments to address historical reliability issues. We have addressed coca integrity issues at both sites and completed equipment renewal work on our fluid catalytic cracker at Lima, positioning both sites for improved operating performance and profitability. Our ability to capture available margin in the U.S. refining segment was also impacted by the Lima turnaround where the coker and fluid catalytic cracker units were taken offline in September as part of the turnaround scope. Now with this plan maintenance at Lima behind us, all of our refineries are online. We are firmly committed and focused on improving the competitiveness of our U.S. refining business by improving asset reliability, lowering our cost structure, and capturing more value from the commercial opportunities across the network this work is progressing at pace with an absolute sense of urgency i'd now like to highlight our corporate and financial performance we generated 2.4 billion in operating margin in the third quarter approximately 2 billion of adjusted funds flow and about 600 million of free funds flow capital investment in the third quarter was 1.3 billion as planned spending on our growth and optimization project has ramped up in the second half of the year. Our annual guidance for capital spending of $4.5 to $5 billion remains unchanged. In the month of July, we achieved our net debt target of $4 billion, and at the end of the third quarter, net debt was approximately $4.2 billion. We are aiming to return 100% of our excess free funds flow to shareholders over time, while continuing to steward some net debt of about $4 billion. Through our base dividend and share buyback program, we returned approximately $1.1 billion of cash to our shareholders in the quarter, far exceeding 100% of our excess free funds flow. Shareholders benefited from the excess free funds flow, as well as the working capital release of approximately $600 million, allowing us to return more cash to shareholders than anticipated. In closing, we delivered strong operational results through a heavy maintenance period in the third quarter and continued to make meaningful progress on our growth projects across the portfolio. With our major projects behind us, we expect to see increased upstream production and increased reliability from our downstream in the fourth quarter. We remain focused on maintaining strong operational performance in the upstream, improving the competitiveness of our downstream, and delivering on our growth projects. We have a clear view and a focus of the work in front of us, and we'll continue to progress both our short and long-term goals for Synovus. And with that, we're happy to take your questions.