Cenovus Energy Inc

Good morning, ladies and gentlemen. Welcome to Synovus Energy's fourth quarter and full year 2024 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 Reed, Vice President, Investor Relations. Please go ahead, Mr. Reid.

Thank you, operator. Good morning, everyone, and welcome to Synovus' 2024 year-end and fourth 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 on Synovus' annual MD&A and our most recent AIF and Form 40F. And as a reminder, all figures we reference today on the call 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. Thank you, Patrick, and good morning, everyone. I want to start by highlighting our 2024 safety performance, which as always remains core to our success and fundamental to everything we do. In 2024, Synovus achieved its best ever process safety performance. We reduced the number of Tier 1 and Tier 2 process safety events by 44% compared to 2023. This world-class result was achieved in a year in which many sites operated alongside Brownfield growth projects, and we successfully executed four major turnarounds at Christina Lake, Deloitte Upgrader, the Lima Refinery, and Rainbow Lake. On top of this, we decreased the number of lost time injuries by 23% compared to 2023. These are incredible achievements, and the entire company is very proud of our operating teams who delivered these fantastic results. 2024 was a very important year for the company and we achieved many significant operational and financial milestones. In the upstream, production grew by about 2.5% from 790,000 BOE a day to 797,000, sorry, 779,000 BOE a day in 2023 to 797,000 BOE per day in 2024. Included in this was a best-ever year for oil sand segment, where production increased by about 3% year-over-year to 610,700 BOE per day. This growth was fueled by production increases at Sunrise and our conventional heavy oil business, as well as new annual production records at Foster Creek and Lloydminster Thermal Assets. Total offshore production increased to about 67,000 BOE per day, despite having the CROs off-station for all of 2024 as it underwent its life extension work. This included around 59,000 BOE per day from Asia Pacific business, which continues to operate with a high level of predictability, generating approximately $1 billion of free funds flow for the fourth year in a row. In the third quarter of 2024, the company successfully completed a major turnaround at Christina Lake and returned the asset to production well ahead of schedule. Now, this was also the first full year of operating our downstream assets after restarting the Toledo and Superior refineries in 2023. Our total crude throughput increased by 87,000 barrels per day year over year, to 647,000 barrels per day in 2027. In our U.S. refining segment, throughput increased by nearly 100,000 barrels per day to 556,000 barrels per day, which translates into full-year utilization rate of about 91%. As a result, per unit operating costs in the U.S. refining, excluding turnarounds, decreased by 18% relative to 2023. We also completed major turnarounds in 2024, both the Lloyd Upgrader and the Lima Refinery. Our assets have performed very well coming out of the turnarounds, and we expect to see continued improved operating performance in 2025. Corporately, we generated over $8 billion of adjusted funds flow in 2024, and we returned about $3.2 billion to shareholders through dividends, share repurchases, and the redemption of preferred shares. Importantly, we also achieved our $4 billion net debt target in 2024. This was a significant milestone for Synovus, and as a result, we are now paying out 100% of our excess free funds flow. So now turning to the fourth quarter results. In the quarter, we generated $2.3 billion of operating margin, approximately $1.6 billion of adjusted funds flow, and about $125 million of free funds flow. Notably, we returned over $700 million to shareholders in the quarter through dividends, share buybacks, and the redemption of our Series 3 preferred shares. Our net debt at the end of the year was $4.6 billion, an increase of about $420 million from the previous quarter, reflecting a weakened Canadian dollar, a temporary build and inventory of around 22,000 barrels a day related to the timing of sales, along with the redemption of our Series 3 preferred shares. We'll continue to steward towards our net debt target of $4 billion while paying out excess cash flow generated to our shareholders. In the upstream, our production was over 816,000 BOE per day and was an increase of 6% quarter over quarter and up 1% relative to the fourth quarter of 2023. This included record quarterly production from our oil sand segment of 628,000 or 629,000 BOE per day. Oil sands operating margin over 2.3 billion in the fourth quarter was down slightly from about 2.5 in the prior quarter, partly a result of lower commodity pricing as well as a difference between production and sales. Offshore production in the fourth quarter was about 70,000 BOE per day, a 6% increase from the prior quarter. And in Asia Pacific, volumes from Indonesia were up 23%, driven by increased production from our MA seed field. Turning to the downstream, in the fourth quarter, our weighted average crack spread, net of RINs, averaged $8.20 US per barrel, a decline of 45% compared to the third quarter. In addition, the price differential for heavy oil, which makes up a significant portion of the volumes we process, has narrowed with the startup of the TMX pipeline earlier this year. As a result, our downstream operating margin in the fourth quarter was a shortfall of $396 million, which includes an inventory timing loss of $45 million, about $132 million of turnaround costs, and a shortfall of $95 million from our non-operated refining assets. We're already seeing some signs of improvements in refined product prices this year, and anticipate returning to more normalized seasonal crack spreads heading into the spring. Our focus in the downstream continues to be on improving what is in our control, and we are making real progress with a real sense of urgency. In U.S. refining, fourth quarter throughput was 562,000 barrels per day, which represents a utilization rate of 92%. This was an increase of 3% quarter over quarter, and 17% relative to the fourth quarter in 2023. Our operating expenses in U.S. refining, excluding turnaround costs, were Canadian dollars, $10.89 per barrel in the fourth quarter. This improved 18% quarter over quarter and about 15% relative to the fourth quarter of 2023. Driving costs out of the business while improving our reliability and margin capture is a key focus for us. And we are seeing the benefits of the work done to date, and we'll see more in 2025 as we continue to drive towards more profitable operations and competitive U.S. refining business. Canadian refining throughput was 104,000 barrels per day, which represents a utilization rate of about 97%. This was an increase of 5% quarter over quarter and 4% relative to the fourth quarter in the prior year. Operating expenses of $12.26 per barrel, excluding turnarounds, improved by about 13% from 2023. Since completing the upgrader turnaround in early Q3, both the upgrader and the refinery have run at or near full rates. With the next major turnaround planned for 2028, we expect to see an extended period of sustained strong operational performance from our Canadian refining business. In the fourth quarter, we also achieved some important milestones on our major projects. We reached mechanical completion of the Narrows Lake pipeline and now have the infrastructure in place to access some of the highest quality resource in our portfolio. We'll begin steaming the Narrows Lake pads in the spring and anticipate first production around mid-year. On the West White Rose project, we reached mechanical completion on both the concrete gravity-based structure as well as the top sides and finished the life extension work on the Cedar Rose FPCO. The FPSO will resume producing from the White Rose field by the end of this month. The West White Rose project is now 88% complete and we're well on our way to producing first oil in 2026. We also made significant progress on the Foster Creek Optimization Project, which is now 64% complete, and we expect first oil in early 2026 and to fully ramp up production in 2027. At Sunrise, we expect to see higher production starting in late 2025, with volumes continuing to increase through 2027. With these milestones achieved in 2024, all of our growth projects are progressing well and remain on budget, and on schedule. I'd now like to touch on our outlook for 2025. In December of 2024, we outlined a budget for this year of $4.6 to $5 billion of capital investment. This includes about $3.2 billion of sustaining capital and $1.4 to $1.8 billion of growth capital. This marks the final year of a three-year growth investment cycle, which we began in 2023. At that time, we embarked on several highly profitable multi-year projects, which we identified as having the potential to be significant drivers of the company's free funds flow growth at a very efficient capital cost. Two years later, with a lot of work to deliver these projects now behind us, we have clear visibility to bringing on about 150,000 BOE per day by 2028. which will deliver growth and free funds flow for the year. In 2025, we'll start to see the impact of these growth plans with higher production from the startup of Narrows Lake and continued development of Sunrise and conventional heavy oil. Now, this is reflected in our production guidance range of 108,000 to 145,000 BOE per day, representing approximately 3% growth relative to 2024. In the downstream, our total crude throughput guidance of 650,000 to 685,000 barrels per day also represents a 3% increase from 2024 levels. As these volumes increase, we are driving costs down, and we are guiding to year-over-year reduction in unit operating costs, excluding turnarounds of 15% and 5% for the Canadian and U.S. refining business, respectively. 2025 is a much lighter year for turnaround maintenance versus 2024. We have two major turnarounds planned in 2025 at Foster Creek and the Toledo Refinery, which will take place in the second quarter alongside smaller planned turnaround activities or maintenance activities at Christina Lake and Sunrise. With the conclusion of the turnarounds in the first half of the year and the growth capital's spend declining later in the year, we expect to see both production and free funds flow increasing, in the second half of 2025. Now in closing, we ended 2024 on a strong note operationally with record production from our oil sands assets and improving downstream operational performance. We expect to build on this momentum through 2025 and deliver on the guidance we released in December while continuing to execute our major growth projects. With our disciplined capital budget, low cost structure, we're on a clear path to grow free funds flow and provide significant returns to shareholders. Now with that, we're happy to take your questions.