Suncor Energy Inc.

Good day, and welcome to the Suncor Energy first quarter 2023 results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Troy Little, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good morning. Welcome to Suncor Energy's first quarter earnings call. Please note that today's comments contain forward-looking information. Actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our first quarter earnings release, as well as in our current annual information form, both of which are available on CDAR, EDGAR, and our website, suncor.com. Certain financial measures referred to in these comments are not prescribed by Canadian generally accepted accounting principles. For a description of these financial measures, please see our first quarter earnings release. We will start with comments from Rich Krueger, President and Chief Executive Officer, followed by Chris Smith, Suncor's incoming Chief Financial Officer, and Alistair Cowan, Suncor's current Chief Financial Officer. Also on the call are three of our senior operating leaders, Peter Zebedee, Executive Vice President, Mining and Upgrading, Shelley Powell, Senior Vice President, In-Situ and E&P, and Arnel Santos, Senior Vice President, Refining and Logistics. Following the formal remarks, we'll open up the call to questions. Now, I'll hand it over to Rich to share his comments.

Thanks, Troy. Good morning. Thanks for joining us. I know many of you on the line, and I look forward to reconnecting. For those of you that I don't know, maybe a very brief background. I come to Suncor with nearly 40 years in energy. 31 of those were with ExxonMobil around the world, and then the last seven of those nearly 40 were with Imperial Oil here in Canada as their chairman and CEO. Background includes everything from operations, capital projects, commercial, corporate strategy, etc. Upstream, downstream, oil gas, onshore, offshore, conventional, LNG, oil sands. And the geography started out in North America, Southeast Asia, Middle East, West Africa, former Soviet Union, and now back to right where I am supposed to be, North America and Canada. So I would never say that I've seen and done it all, but I think it's pretty fair to say I've seen and done a lot. Personality, what can you expect from me? I strive to be quite clear. I hope you find me candid, transparent. I live in a fact-based world, and I tend to be quite focused. Last but not least, I consider myself to be reasonably decisive and very competitive. I play to win. My assessment, this is week six on the job. It's been quite a time. I see a very proud company here at Suncor, excellent people, quality assets, some very unique competitive advantages, but I also see a company with untapped potential. I see a gap between our current performance and what I would consider best in class in many, many areas. So what is my objective? It's really quite simple. Lead the company to be the best of the best. The undisputed industry leader, number one. I think in our business that there's four kind of foundations or pillars that are key to that. Safety, operational integrity, reliability, and profitability. If you read the press release this morning, you probably noticed I said that three, two, if not three times. That's because I believe in it, and that's what I've learned over the course of my career. I strive for us to be a company that delivers on its commitments and delivers long-term or superior long-term shareholder value. I never forget the shareholder. I can promise you that. Will this be easy? No. But quite frankly, I wouldn't have come out of retirement to be here had it been easy. So what can you expect from Suncor going forward? This focus on the fundamentals, starting with safety, operational integrity, you can expect an intense focus on costs, organizational efficiency, and then operational support from our center. We will become a simpler and a more focused organization. And I think it's important to note that we basically produce a series of commodities, commodities subject to price cycles, and those who have the lowest cost structure have the greatest resiliency to compete in whatever business cycle we happen to be in. We will look hard at reducing spending where value isn't added, whether that's operating costs, OPEX or CAPEX. In terms of capital allocation philosophy, for those of you that know me, you've heard this before, believe in a strong balance sheet, very much believe in a reliable and growing dividend, selective high-quality, well-timed investments, and returning surplus cash to shareholders. I believe in rewarding our shareholders for their faith and ongoing commitment to the company. So said succinctly, you can expect a lot of words around clarifying, simplifying, and focusing what we do, why we do it, and how we do it. And I would end with last but not least, you can expect a sense of urgency, an urgency to improve, strengthen our competitiveness, produce results. My first five weeks on the job have been quite busy. I visited about 50% of our major facilities. I met with men and women who wear hard hats and boots for a living, our workplace leaders. I've observed, I've listened, I've learned, I've started coaching. My general sense is this organization is ready. It is ready to respond. It is ready to step up and perform. I'm quite honored and excited to lead it. And I can assure you we won't leave anything on the table. So with that, I'll turn it over to Chris.

All right. Thanks, Rich. And good morning, everyone. Well, first of all, I'd like to acknowledge all of the achievements that our company and employees have made over the last nine months, as I've handed the reins over to Rich as our permanent CEO. We took decisive action to address our safety performance and drive increased focus on operational excellence. We refocused our portfolio through the sale of our renewable power and international E&P assets in Norway and the UK. And meanwhile, we acquired an additional stake in Fort Hills at an attractive price and recently announced our transaction with Total Energies to acquire its Canadian upstream assets, including its stake in Fort Hills. We also presented a Fort Hills mine improvement plan in November that enables us to improve long-term asset performance and drive down unit costs. and we continue to work across our entire portfolio to drive improved performance. Now, we have more work to do, but I'm confident that we will build on that momentum under Richard's leadership and deliver strong performance and results for our shareholders. I'm very excited about what the future holds for Suncor, and I look forward to working with all of you in my new role as CFO following our AGM. Now, before handing it over to Alistair, I would like to update you on three transactions we recently announced, as well as provide a brief operational update. As mentioned, two weeks ago we announced the acquisition of Total Energies Canada for $5.5 billion Canadian. The transaction, which remains subject to the exercise of a right of first refusal, includes a 50% non-operated working interest in Sermont and a 31.23% working interest in Fort Hills. This transaction adds 135,000 barrels per day of high-quality bitumen production capacity to our portfolio and strengthens our long-term free cash flow potential. The transaction is accretive to adjusted funds from operations per share and delivers attractive returns at mid-cycle pricing. As for Surmont, it is a high-quality in-situ asset with top quartile steam oil ratios, a 50-year reserve life, and low cash operating costs per barrel, which will improve Suncor's cash margins and provide a reliable source of funds through the commodity cycle. With the two recent acquisitions of additional Fort Hills interest between the tech and total transactions totaling 46%, as well as bitumen production at our Firebag and Mackay River operations, Suncor will have sufficient owned bitumen volume with an oil sands reserve life of 29 years to keep the base mine upgraders full post the projected end of base mine life in the mid-2030s. In addition, Suncor has now eliminated the need to replace the base mine's production with new developments, which also provide optionality for future growth if that is the best use of investors' capital. The transaction will be fully funded via debt and is expected to close sometime in Q3. With a more resilient pro forma business supported by incremental production and cash flow potential, Suncor's board of directors intends to approve an increase in the quarterly dividend of approximately 10% after the close of the transaction as contemplated. Also, consistent with Suncor's strategy of refocusing on our core business, we announced the sale of our UK E&P assets at Canadian $1.2 billion, including $338 million in contingent payments, and excluding working capital adjustments. The transactions expect to close soon, and we look forward to it. And lastly, we announced last week that Suncor will become the primary long-term fuel supplier for Canadian Tire's retail fuel sites. Consistent with the retail optimization plan presented in November, by bringing two iconic Canadian brands and loyalty programs together in Petro Canada and Canadian Tire, This strategic partnership provides long-term value to Suncor by expanding our non-controlled retail fuel network and securing long-term supply to protect refinery utilization and maximize sales volumes. Now, switching to current operations, we're pleased to report that our Commerce City refinery returned to service as scheduled at the end of Q1 after a progressive restart that commenced in February. For Terra Nova, the FPSO is undergoing additional work side in Bullarm, Newfoundland to ensure that it is ready for safe and reliable operation in the field. Based on this and looking forward to the remainder of the year, we're removing any expected production from Terra Nova from our 2023 E&P production guidance. An updated plan for reaching first oil will be available after mid-year once we are further through the additional work. With the removal of production volumes from Terra Nova, As well as the impact of acquiring a lower-than-expected stake in Fort Hills with respect to the acquisition from tech, and the potential early closing of the sale of our UK North Sea assets as expected, we expect to be near the bottom of our 2023 upstream production guidance range. Once we have further progressed the acquisition of Total's Canadian upstream assets, we will update shareholders further on production guidance for the year. Now, just before I close, I would like to thank Alistair for his tremendous leadership as Suncor's CFO over these last nine years, and in particular, to thank him for his support of me over these last nine months. Congratulations, Alistair. I hope you enjoy a well-deserved retirement, but you still have a little bit more to do, so back over to you.

Thanks for the kind words, Chris. Yeah, a little bit more to do. I've certainly appreciated all of the relationships I've formed with members of the investment community over these last nine years while I've been at Suncor as well as before that time. And I'm very thankful for the support of my colleagues in the finance team during my time here. Now, enough of that, and let's get on to the quarter highlights. Overall, we generated $3 billion of adjusted funds from operations. The all-sand segment delivered $2.6 billion of adjusted funds from operations, with production of 675,000 barrels per day. This performance reflects a new quarterly in-situ production record of 261,000 barrels per day, and average base plant and sink operator utilization of 93%. At Fort Hills, we completed the acquisition of the additional working interest of tech resources in early February, and production remains on track to ramp up in Q2 prior to starting a five-year turnaround in July, consistent with the restart plan. Oil sands realizations average $91 per barrel, or 89% of WTI. This reflects the $7 U.S. per barrel decrease in the benchmark WTI rate offset by small U.S. dollar, one U.S. dollar per bottle, not only in the WCS heavy differentials versus Q4 of last year. Our E&P segment generated adjusted funds from operations of $500 million with production of 67,000 bottles per day and an average price realization of $108 per bottle, or 98% of break. Downstream generated adjusted funds for operations of $1.2 billion on a FIFO basis. Excluding the $130 million of FIFO losses would be about $1.3 billion on a LIFO basis. Refinery utilization averaged 79% and margin capture was strong at 102%. Overall stagnant performance was in line with our expectations, and it obviously impacted by the downtime of the Commerce City Refinery that started at the end of Q4. But utilization of our Canadian refineries was a solid 94% during the quarter. During the quarter, we returned $1.6 billion to shareholders, including $700 million in dividends and $900 million in share buybacks. Dunker's net debt position as of quarter end was $15.7 billion, which primarily reflects working capital use of $2 billion and the earlier than expected closing of the acquisition of the stake in Fort Hills from Tech, which all in, including leases, was $1 billion. Our final 2022 cash dropout payment was $500 million, as we paid the majority of our cash taxes of $4.2 billion throughout 2022. And as Chris mentioned, we expect to receive the $1.2 billion of gross proceeds from the sale of the UK E&P in the near term. As stated previously, with the acquisition of Total's Canadian upstream assets, we're now expecting to remain at a 50-50 capital allocation between share buybacks and debt reduction until we return to $12 billion of net debt, at which point we will switch to 75-25 allocation. And with that, thank you all. And I'll turn it back to Rich.

Before we get to your questions, I'd like to commend Chris for his leadership over the last nine months, the focus he's brought to this business, particularly safety. I've seen that in my site visits. And also, I can assure you, Chris and I are going to work very well together. We have been engaged since before I showed up. or weeks before that, and I think we're going to make a very strong team. And lastly, thank Alistair for his dedication and leadership for nearly a year. As is said, he'll be missed but not forgotten. Look forward to working with each of you and the investment community at large, and with that, I'll turn it back to Troy to kick off our question period.

Thank you, Rich. I'll turn the call back to the operator to take some questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment while we compile the Q&A roster. And our first question will come from the line of Greg Party with RBC Capital Markets. Your line is open.

Yeah, thanks very much. Good morning, everybody, and thanks for the rundown, and indeed, all the very best to you, Alistair. Rich, and welcome. You can't imagine how happy I am to have you back in the chair. So a couple of quick ones. So, Rich, particularly as you've looked at the business, I'm wondering if there are areas upstream or downstream where you see low-hanging fruit from an operating performance perspective, so either higher throughputs or lower operating costs. And if so, what those might be and how long do you think some of that might be to achieve better performance?

Greg, I missed you too, so it's good to be back. Thank you. You know, I've seen opportunities across the organization. And, you know, I think let me start on the downstream a little bit. There's a baseball analogy that I want to share quick is – You know, the downstream here and in Canada has done very, very well. I'm a baseball fan, and somebody told me, you know, we didn't hit a triple. We were born on third base. We have a lot of structural advantages right now, but what is important are we operating to the best of our ability. And I think as I look at the downstream, I see reliability is still an opportunity. I think our cost structure is. Turnaround performance, turnarounds we spend a lot of money, and of course the time offline. So I think there it's just getting incrementally better at the fundamentals, the basics. In the upstream, I mean, you know, the mining, mining is tough business. We know that. We've got aging mines. We've got more challenges on haul distances and things. But I spent a lot of time with Peter in looking at his kind of improvement plans all the way from reducing contractors to enhance efficiency and efficiency. and, you know, reduce costs, improving the performance of our fleet. So, you know, Greg, in those areas, I would say it's lots of little things. And so I don't know if I'd maybe describe them as low-hanging fruit, but I think they're very tangible and things that we have and will continue to have a very intense focus on. I hit at it in my comments, just fundamentally our cost structure is looking at ensuring that all our people, everybody above the operating units are focused on what they do to support the operating units. And I think there's some low-hanging fruit there in really looking at what we do, how we do it. And we're making small improvements. I'll have more to say about that in the next couple of months ahead. But I wrapped up my comments with this sense of urgency. We need to get on with it, and I don't see anything in my first five, six weeks that will prevent us from bringing about material improvement from inside, from focusing on those things that we control.

Okay, understood. The second quick one, well, maybe it's not a quick one. The pace at which you run the baseline is coming up a lot, and there is a fairly defined view it would seem out there that it's really all about managing aro that you're going to have to slow down the mind to manage aro how are you guys kind of thinking about that decision like how should we think about how fast that baseline is going to run over the next you know few years

Well, you know, I'm going to turn it over to Peter here in a second to, you know, maybe give you a little bit more specific on it. But I think if you, you know, you look at, you look at, Chris described the recent deal we've done, looking at longer-term bitumen supply. You know, the most valuable barrel through an upgrader is the incremental barrel, the last barrel. It's much like a refinery. So ensuring that we utilize those facilities to the fullest is And then it becomes, what's the most economic way to do that? And whether it's continuing to mine and extend the life of the base mine, whether it's bringing a bitumen supply from outside the lease. And I would say those are all kind of works in progress. But it's all about value. It's all about determining what is the most valuable barrel to fill up those upgraders with. But Peter, maybe if you want to add any further color to my comments?

Yeah, so maybe a little bit more information, Greg. I think in the short term, and I mean, you know, between now and 2026 and 2027, the rate of mining at base mine will continue as is. And so we'll be running to maximize volumes out of the base mines. This is a tailings-driven facility, and so until we're able to open up our tailings plan and we look to secure an additional piece of variability around potential for water management and recycle, we don't have a lot of ability in the short term to throttle the rate of mining. Post that, in our long-term plans, we are looking to see what the rate of mining is that will maximize the value coming from the asset, taking into consideration viewer body operating costs, et cetera.

Terrific. Thanks to both. Thanks, Greg.

And one moment for our next question. And that will come from the line of Dennis Fong with CIBC. Your line is open.

Thank you. Good morning, everyone. And again, congratulations to Chris and Rich on your new roles, as well as Alistair for a well-deserved retirement. The first question I have is, during the quarter, it looks like you had about 5,500 barrels a day of Fort Hills production that was processed at the base plant upgraders and about 1,800 barrels a day of oil sands off the volumes that were processed at Seam Crude. Can you talk towards, again, some of the impacts of feeding those barrels through the various upgraders and processing facilities, and maybe what some of the considerations may be in the future for shifting the destination of barrels across your portfolio?

Dennis, this is Rich. I'll maybe start out with that again. Then I'll probably turn it to Peter for more specifics. But it's all about value. And I think one of the things I said in my opening comments is that I really look forward to working with here is the unique competitive advantages that we have through the physical integration of our upstream through our upgrading and actually quite frankly all the way through refining and logistics. We've got an asset base that is quite hard, well it's unparalleled and it's hard to replicate. And so those kind of decisions are about incremental, what are bitumen prices in the market, what's the sour crude, what's the synthetic price, and how can we move molecules around to maximize the value of each and every barrel. Maybe I'll turn it to Peter, though, to kind of get into, like, how do we really, how do we do it, and how real-time are those decisions to make the most money?

Thanks, Rich, and thanks, Dennis. And it is indeed a really dynamic process, and frankly, it is all about margin optimization and generating the maximum value for those molecules. Dennis, we really look at it, I would say, on three time horizons, you know, starting from the long-range kind of the business planning process and the budgeting process that really optimizes extraction at all of the bitumen production facilities. the utilities and takes into consideration major maintenance outages for the year. So it's that kind of macro level planning. And then zooming in on much more of a short-term planning process where we look at production planning and consideration of all the risks we have in our facilities on kind of a one to 12-week time horizon. And that really allows us to optimize on market-based conditions through differentials, logistics, downstream demand, etc., And then finally, it's really in the here and now. It is that shift-by-shift optimization that's done by our production planning team, and we have an integrated production planning team across the upstream assets in the region and extending down into the downstream, into the refining, and production coordinators on a 24-hour shift-by-shift basis. So this is very dynamic, very real-time, and it's all about making the most from the molecules that we produce.

Great. Great, appreciate that caller. Maybe shifting focus towards the downstream side and maybe a little bit more specifically Commerce City. I know the facility itself was impacted by, we'll call it a very unique circumstance with respect to winter conditions in the region. I was just curious as to whether or not there were any learnings from the events that occurred there, and if there were any changes to operations or operating procedures that were being implemented to maybe limit the risk of future kind of downtime, as well as anything else across the platform.

Thanks. Yeah, you know, Dennis Rich here again. You know, there have been a lot of learnings, and I think, you know, the best organizations, whenever you have things like this happen, that's how you get better, is through the learning process. In fact, I'll say, just literally real time, we went through a pretty comprehensive discussion with the CENCORP board of directors yesterday on the learnings on it. And the learnings, they fall into a variety of buckets, but the competency of individual operators, have we had sufficient training? And the uniqueness of what happened, the temperature drop over the very, very short period, was an extreme. If you look at the temperature range itself and the low ends of it, that's not necessarily, you know, out of the, you know, the realm of history, but it's how fast the temperature changed and then what that impacted on control systems, steam generation, and our ability to keep things hot, keep things warm with that. And so as we lost capability, there was a little bit of a cascading effect, and the judgment was made, and it was before I was here, but I look at it, I think it's exactly the right judgment to take that entire facility down, and that was made out of concern, out of safety and operational integrity. And that, you know, to me was the right decision. But now you've got a facility in extremely cold weather that you're not able to be keeping warm anymore. And so it's kind of a damned if you do, damned if you don't. If you continue to operate, you'd run risk that in those extreme conditions, you could have some type of loss of primary containment and further escalating event. But also you knew when shutting it down, now you've taken things to ambient temperature. So I would say there have been a lot of learnings. And what we're trying to do right now is take those learnings and incorporate it into the facility, whether it's operator capability and training, whether it's heat tracing, some things that we would do in preparation for the, you know, Apparently every year there's winter in Denver. And before the next season, so that if we were to experience something as unique as this, we would be far better equipped to handle it. So, yes, lots of learnings, and we're plowing it right back into actions to ensure that this consequence doesn't happen again.

Great. I appreciate the incremental color you provided there, Rich. We'll turn it back. Thanks.

And one moment for our next question. And that will come from the line of Neil Mehta with Goldman Sachs. Your line is open.

Hey, welcome back, Rich. We missed you, sir.

Thank you, Neil. It's good to be back.

All right. Congrats to everyone and Alistair on your retirement. The first question is just around retirement. the transactions, both Surmont and Fort Hills from Total. Maybe you can dive into what attracted you to this asset, why now, and dig more into the upside case associated with the deal and how you're mitigating some of the risks associated with it as well.

I'll give you a little bit of color commentary, but I'm really going to turn it over to Chris, because Chris and Alistair were the ones that, you know, made this happen. I was brought into this thing literally within an hour of my announcement on February 21st. And by then, you know, things had been, you know, things had moved along. As you know, we look at it, it's, we've talked about the long-term bitumen supply and the value in keeping the upgraders full and the uplift you get from that. Now, we have other internal alternatives. We looked at those alternatives, whether they're developing incremental mining capacity or in situ, but we looked at this and we saw a significant value in it. We saw a material dimension of risk management in it of in terms of not having to plan and execute large-scale capital projects, the timing of it. It brings barrels immediately, and it's accretive. So to me, it looked at it, and it was pretty clear that this is a win-win. Why don't I ask Chris to comment any further on it?

Well, thanks, Rich. I actually don't have too much more to add because I think you covered the major points. When we looked at, Neil, when we looked at the opportunity of this transaction, I mean, it was checking a lot of boxes for us. And first of all, obviously, we know the Port Hills asset really well. We have a lot of confidence in the long-term value of that asset and the plan we have for it. Surmont is a high-quality bitumen asset, as I mentioned in my remarks. We're also well, you know, we're a very good operator in situ ourselves. We see a real opportunity to actually work with the operator and bring both of our advantages to that asset. And then as Rich mentioned, you know, from a strategic, there's just a great strategic fit. There's a lot of industrial logic involved. related to this transaction and long-term bitumen supply into the region. So we saw it as a really nice fit for our portfolio. As Rich mentioned, accretive to shareholders, we see very good long-term returns from this investment at the price we paid. So we just saw it attractive on all sorts of dimensions when we entered into the deal.

And I'll make one other comment on it. We're all aware that ConocoPhillips has a roper on Sermon. We reached out the morning of the announcement, and one of the overriding messages is we would be a partner, a very willing partner, that would look to invest and grow value in this asset. We have tremendous respect for ConocoPhillips as an operator, and we think there would be synergies that we could bring that would add value to both the Surmont operation as well as our fire bank back and forth, that together we could make this more valuable than either of us individually. So, you know, we'll see what goes on in that, but we would very much look forward to being in that partnership.

Yeah, that makes sense. That's the follow-up is, as you highlighted in the presentation, there are significant tax pools associated with this. To the extent that Conoco does execute a right of first refusal on Sermon only, do the tax pools exist at the asset level, or are they at the consolidated level? Does that make sense?

You know, I'll do one comment, and then I'll ask Alistair if he wants to supplement it a little bit. But, you know, With the ROFR still out there, kind of anything that might happen in the future is kind of speculative. You know, if this, then that. And I would say, you know, all those remain to be seen. It kind of depends on what happens. But, you know, Alistair, would you have anything you'd want to add there for a later date?

No, you got it right. I mean, it depends on how it gets executed, what happens to the tax losses, etc. They would, on the face of it, be lower by the amount of the roper, but beyond that, we have to see how it was executed. Yeah.

And one moment for our next question. And that will come from the line of Doug Lagade with Bank of America. Your line is open.

Good morning, everyone. I love the exotic version, but congrats to all you guys. And Alistair, I'm glad we were able to get our trip squeezed in before we walked away. So thanks for your time again. Guys, I wonder if I could follow up on Neil's question on the ROFA, but I want to be a bit more specific about the tax benefits that you guys are acquiring. Chris, this might be for you, given it's more of a technical accounting question, but But I'm trying to understand who owns the tax losses. Is it the total entity that you're buying the shares of or do the tax losses sit at the asset level? In other words, if ConocoPhillips did preempt, do you hold on to the majority of those tax losses or do they get transferred with the asset? Any technical explanation of how that might work would be really appreciated.

Yeah, thanks, Doug. So as you pointed out, we're doing a share transaction. We're purchasing the entity, so the tax pools are at the entity level. Now, as Alistair mentioned in his answer to the earlier question from Neil, I mean, certainly if the roper's triggered, it then is going to move into a different sort of transaction at an asset level, and then I think the tax pools are going to be looked at quite differently. They're going to be lower, but we're transacting at the entity level, so as we're looking at the tax pools, they're on that basis.

Okay, so we're going to have to wait and see how it plays out. Are the tax pools split proportionally to the value of the assets included in the transactions? Two-thirds, one-third?

They're at the entity level.

Okay, I'll wait and see how that plays out. I guess, Rich, my question for you is that obviously you're inheriting a lot of legacy reliability issues. Not all of those, or rather a large part of those one imagines are structural related to the age of the mine. So how do you anticipate closing some of those reliability gaps given the obvious more structural challenges of the mine life?

Well, first of all, Doug, I would say that, you know, Advanced age is no excuse for poor performance, so I'm saying that a bit tongue-in-cheek. You know, I think you take the minds, yes, what you're saying is obviously there's aging equipment. I think the issues are a little bit more complex. Things like haul distances and, you know, and ore quality in different areas. Because if you look at it, I was up with Peter just a couple weeks ago, and I went into the maintenance phase at each of the, you know, the base mine at Syncrude, Fort Hills. And you talk about, you know, how we maintain things. We basically, like, rebuild trucks constantly. over time. So, a truck is not old because over a period of, you know, a relatively short time, it's rebuilt. And now, upgraders are a different thing, but look at refineries. Refineries across around the world have been operating, and they can operate very reliably despite age. It comes down to maintenance, comes down to best practices, operational discipline, and And so, yes, we have an aging set of assets, and, yes, we have increased haul distances, but I think that just means we just have to get smarter and more creative about how we manage costs and improve reliability. So I really don't look at that as a – certainly Peter doesn't either. I know we don't. We don't look at that as an excuse or as a, well, you know, a limitation on what we can achieve. I think it just means we need to get more thoughtful and more creative, and it really means executing the fundamentals extremely well. Our maintenance programs, our reliability programs, looking at risk-based work selection on turnarounds, it's just the blocking and tackling in our business that we've learned for decades. is whether we've learned that in refining or whether you've learned it in mining, but executing extremely well. And I hope and I think you've heard in my comments, you know, that's going to be our plan, looking at how we do the thing, what we do, how we do them, and then ensuring that those folks that are not at the asset, that they're providing the highest level of support, whether that's for rotating equipment, whether that's, you know, near-term, mid-term, or long-term mine planning. So it's really, you know, it's a focus on the basics, but just doing the basics extraordinarily well. So I know, you know, it's kind of a long answer to it, but I just, you know, my premise is the age of our facilities and ultimately is not going to be a material inhibitor.

Great perspective. Thanks. Thanks and good luck. Peter, go ahead, please.

Anything you'd add to that, Peter? Well, I would just say, and especially in the mining operations, really our approach is threefold. Across our portfolio, we're moving 1.3 billion tons of material every single year to generate the products that we do. And so little things make a big difference. And that means squeezing the efficiency out of our own operations every shift, every single day. It means reducing our exposure to more expensive tonnages executed by our third-party contractor. I would say the last tranche of that really is around the implementation of new mining technologies, like the autonomous trucking technology we have active in our base plant today, and we'll be scaling up across all of our assets in the near future.

And, Doug, Rich, again, you know, you got me going here, so I got to say one more thing. I think, you know, we haven't talked today so much, but our focus on safety and improving safety, safety is a huge factor. productivity driver. Not only do we have a moral obligation to people and we care about people, that's why, but it affects productivity. So activities that Peter has going on on safety system, collision avoidance, fatigue management, we've talked about autonomous vehicles over time. All of these things not only ensure a safer workplace, but they provide a more productive workplace. And so I think those things, you know, they... Safety, operational integrity, reliability, and profitability, they're all very interlinked. And so I think the other things we're working on add to that same reliability aspect, particularly in mining.

Appreciate your answers to that, guys. Thanks so much.

Yep. Thanks, Doug.

And one moment for our next question. And that will come from the line of Menno Holschoff with TD Securities. Your line is open.

Thanks, and good morning, everyone. Rich, you talked about driving clarity and simplification throughout the organization. Can you just elaborate on what is meant by that? It felt like those words were carefully selected, and what specific steps could we see over the next year to achieve that?

You give me too much credit, Menno. I don't know that they were carefully selected. But what I believe is I believe everybody in the organization needs to have a line of sight to how do they support making money. And I very much believe in making money. We are in business to make money and as much of it as possible. And everybody starting with me needs to see how they do that. And that... So what I believe here, and I've been here a short while, but I'm proof testing a lot of things, is that we can enhance our clarity about what the workforce does to support, whether it's safety, integrity, reliability, or profitability. And I think we can eliminate work. I think we can do away with work that doesn't add value. I think we can look at things like service levels and service level support, but all with a keen eye on how it enhances bottom line business performance. So, you know, if my words came across as carefully selected, they're not really intended. We're early in this, but I just see a lot of opportunity here. for organizational efficiency. And if that's, you know, focusing on higher value activities, so be it. If that's eliminating low value added work, awesome. It's combinations of all of that. And I do think above the field in an organization, you can create an energy, a motivation through clarity and focus that people can move mountains. And I think fundamentally, you look at our business, our business has a It kind of involves moving mountains in many cases. And I think this organization is ready for that. I think they're asking for it. And that's exactly what I intend to provide.

Okay. Thanks for that, Rich. And then having seen all of the inner workings at Exxon and Imperial for decades, are there any best practices that have been shortlisted for rollout at Suncor today? over the near to midterm. And I guess as a follow up to that, do you think there are ways that Suncor and Imperial could work together even more effectively?

Yeah, I think I'm a big believer in benchmarking and best practices. How do you know if you're the best unless you've got some kind of a scorecard to it? And so when I think of best practices, whether it's safety systems, integrity systems, there's kind of three categories I think about. First, the system design itself. Is it a quality system? And in my short time here, I think we have quality systems. Our safety systems, our operational excellence systems, I think, are quality. Now, can they be improved? Can they be made better to implement? Absolutely. Are they as simple as they can be to apply in the field? Those are questions. But we have sound systems. So then you get into the application of the system. That's where, in a short time, but I've seen variability. in how well we've applied systems at different sites. And my vision there would be we reduce variability to the highest standard of performance. And once you have a quality system, once you've applied that system, then it comes into the effectiveness. Are your systems delivering the intended result? And that's where you put that return feedback loop in place to enhance the system, strengthen the leadership that goes with the applicability to produce better results. So on the application of what I think are our quality systems, we have work to do to reduce variability. And then along with that is measuring the execution quality, the effectiveness of our application. Those are the two areas where I plan to focus on, you know, early on. And other best practices, I think I'm a big one for learning. You look over the lease line to learn. And for collaboration, whether that's in operation refineries, whether that's in operation of mines, I believe that for the oil sands, well, for Suncor to be a winner in the oil sands, the oil sands also has to win and compete on the world stage. You know, the consumer, when they put a nozzle in a car, a truck, or the side of an airplane, quite frankly, they don't really think about where that MoGas diesel or jet comes from. Does it come from an oil sand, West Texas Intermediate oil? So we have to be globally competitive about and the oil sands, and then our goal is to be the best of the best in the oil sands. So to be globally competitive, that comes with collaboration. And I think Pathways is a great example of that. But I think there's other more fundamental examples of how do we run and operate mines? How do we maintain dikes and dams and tailings? How do we treat? How do we collaborate with the... federal and provincial governments on sound public policies that achieve the objectives, but also ensure or maintain the competitiveness of what is a critical industry for not only Alberta, but Canada overall. So that's a long answer. You got me going there, Meadow, on a topic I'm passionate about. But I think collaboration and application of standards and best practices is very much a part of a winning formula.

Appreciate the thoughts, Rich. I'll turn it back.

And one moment for our next question. And that will come from the line of Harry Mateer with Barclays. Your line is open.

Thank you. Good morning. First one, I see slide four about the capital allocation, and it looks mostly similar to what the company had previously, but At the same time, Suncor is coming out of the gates with a debt-funded acquisition and going above the $12 to $15 billion net debt range, at least for a period of time. So, Rich, for the credit investor community, we'd like to get your perspective on the balance sheet, how you think about optimal leverage for Suncor, and perhaps where in the investment grade category you think the right place is for Suncor's ratings to be.

Yeah, I think some of the specificity of what you've asked for maybe is beyond what I can comment on today. But fundamentally, I believe in a strong balance sheet. We produce a basket of commodities. Prices go up and down. And how you have the resiliency to get through the inevitable cycles is by having a strong balance sheet. And when I look at covering what my priorities are, The care and feeding of the existing asset base, the sustaining expenditures are, you know, you need to do those in the short term and the long term. And as I commented, a reliable and growing dividend. Dividend is very, very important to me. So I want to ensure that we have a cost structure. which includes level of debt and financing costs on debt, so that we can withstand those ups and downs and financially deliver. Maybe you dial back on high-quality investments at periods of low prices. Maybe you use the flywheel of returning surplus cash to shareholders is modified. but that you don't put at risk taking care of what you already have and you can still continue with a reliable and growing dividend, you know, in periods of up and down. Maintaining a strong credit rating is key, obviously, for, you know, the cost. And I think coming out of DAISY is a bit of a reflection on confidence that we have in the corporation. And I think that's all important. Maintaining our ability to borrow confidence when we can and should leverage for opportunities, keeping a strong credit rating, our credibility in the marketplace, and then getting our cost structure where we can withstand the inevitable ups and downs you see in our business. It's the business we've chosen. You know, Harry, I'm not sure if I was specific enough for you. Alistair, if you have anything else to add or bolster that or refute it.

No, I feel like you summarized it very well. And I would just, you know, emphasize the work the rating agencies went through, our total acquisition and no changes to our ratings. I think that demonstrates their commitment to a strong balance sheet and getting the debt back down in a relatively short order. Yeah, exactly.

Okay, thanks for that. And then, you know, follow-up, I'm not sure for Alistair or Chris, but, you know, given the planned debt financing, you've noted in the slides, I mean, Suncor has a pretty clean maturity slate in the next couple of years. So, yeah, how are you thinking about staggering that financing? Are you comfortable issuing some longer-term debt or, you know, are you thinking, you know, more like issuing shorter-dated notes or bank debt to provide a bit of a glide path to gross debt reduction in the next couple of years?

Yeah, as you noted, Harry, you know, our maturities have been in the short term. We've essentially taken most of those out with the debt buyback last year. We'll focus more on the shorter end. Obviously, we think we can accelerate the debt repayment, so we'll be focusing on our ability to be able to repay debt as quickly as we can. We will issue some longer-term stuff as part of the package, but the focus will be on the shorter end.

Okay. Thanks very much. Thanks, Carrie.

And we do have time for one final question. And that will come from the line of Roger Reed with Wells Fargo Securities. Your line is open.

Yeah, thanks for working me in here. I guess what I'd like to really kind of understand, Rich and Chris, is, you know, so much of the forward focus is going to be on reliability, safety, and the general systems are in, how much visibility do you have today or certainty do you have of what needs to be done in terms of, you know, making things work the way you want them to work and improving the overall performance? And what I'm really just getting at is, you know, they had the investor day at the end of last year, and then we've had obviously some pretty significant changes here at the top. And I just want to kind of understand, you know, are we looking at something that It should really be a very quick impact. Are we looking at things that, well, let's think about it more as a 24-25 kind of event? Anything you can do to help us with the timeline, I'd appreciate.

Yeah, I think in terms of what needs to be done, A lot of it is not, and I don't mean to oversimplify it, but it's not rocket science either. It gets back to, and I'm looking down the table at the executive VPs and the senior VPs responsible for our operations. It's the kind of things we talked about. It's applying best practice. Well, it's executing our work exceedingly well. That is not... necessarily complicated. It's ensuring that people have the skills, abilities, the time, the support to do what we know it takes to operate and maintain facilities. Yes, it is also getting smarter and looking for creative financial solutions, whether that's our truck fleet at Fort Hills, for example, or getting better at You know, the turnaround expenditures. We spend, for example, nearly a billion dollars a year on plant turnarounds across our massive asset base. Well, it seems like that should be something we become really, really good at because you save money and if you shorten timelines through risk-based work selection, you get online quicker and you start making money while you take facilities down. So, you know, I think... I would love to be able to say, you know, how fast and what to expect. I'm just, you know, Roger, I'm not there yet. But I think the, you know, the what we need to do and what we need to focus on and equally important, what we need to be sure we don't focus on to allow the attention to where the biggest bang for the buck is. I think that's getting clearer and clearer. I think the senior leadership team and I are rapidly getting aligned on that, and we will be pursuing any and all improvement opportunities with a sense of urgency. I know I didn't give you a timeline or numbers, but this is when you started saying 24, 25 years, That ain't my timeline. You know, there's no better time than the present. And so I think, you know, I would hope that we start seeing, hope's not a very good strategy, by the way. So, you know, I would expect that we will start to see incremental improvements, you know, with time. And that time's not, you know, just the future. That's sooner rather than later. I just signed you guys up to deliver, folks. I'm looking at my team down there, and I just signed them up. I can tell there's a little tightness being formed down there at the end of the table, but they're all smiling, so that's a good thing.

Yeah, I appreciate that. Yeah, just as a quick follow-up, it's been kind of hammered already, but the rofer that Conoco has, if they exercise that, it obviously alters the transaction. Would we anticipate... then you would obviously with a lot less debt would be likely to move back to a 75-25 payout more quickly. I mean, that seems like a natural progression if that happens. And I'm just trying to kind of anticipate what the changes might be if that piece of the total transaction does not occur.

Well, again, what Conoco may or may not do, we'll all learn that here in the relatively near future. But if I step back from it more broadly, if we go back to what I described on capital allocation, If we have surplus cash, we'll look at what's the best way to return that to the shareholder. And that will be combinations of continuing to look at our dividend and or share buybacks and or debt reduction. So undoubtedly, if we didn't have this big acquisition, our debt would be back closer to where we've talked about targeting it. But it would be that combination of events that we would just look at what What do we believe is the highest value of the shareholder? And I can assure you, you know, Roger, everything we have done and will continue to do will always have the shareholder, you know, at the front of the windshield, not looking at that, but looking forward. What's in the best interest of the shareholder? That is our mantra.

Appreciate it. Thank you.

You're welcome.

Thank you. I would now like to turn the call back over to Mr. Troy Little for any closing remarks.

Thank you, Operator. Thank you for joining us, everyone. Please don't hesitate to call us with any follow-up questions. Operator, you can now end the call.

Thank you all for participating. This concludes today's program. You may now disconnect.