Suncor Energy Inc.

Good day and welcome to the Suncor Energy second 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 host, Mr. Troy Little, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good morning. Welcome to Suncor Energy's second quarter earnings call. Please note that today's comments contain forward-looking information. Actual results may differ materially from the expected results because of risk factors and assumptions that are described in our second 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 second quarter earnings release. We will start with comments from Rich Kruger, President and Chief Executive Officer, followed by Chris Smith, Suncor's Chief Financial Officer. Also on the call are three of our senior operating leaders, Peter Zebedee, Executive Vice President, Oil Sands, Dave Oldreave, Executive Vice President, Downstream, and Shelley Powell, Senior Vice President, Operational Improvement and Support Services. Following the formal remarks, we'll open up the call to questions. Now, I'll hand it over to Rich to share his comments.

Good morning. The second quarter was a very active time for the company. We made material progress in a number of areas we'll share with you today. First, creating an organization-wide, what I would refer to as focus on the fundamentals of safety, operational integrity, reliability, and profitability. Second, we took a number of tangible actions to construct a simpler, more focused, lower-cost organization that we'll describe today. And last but not least, we found time in the second quarter to deal with a cybersecurity incident. I'll have more on each of these topics shortly. I want to give you a few general comments, though. During our first quarter call, I referenced having visited 50% of our major operating facilities. Since that time, I've continued to go to the field. I've now set foot on essentially all our major sites, meeting operational leaders, engaging frontline employees, touring facilities, been at our mines or upgraders or in situ operations or drilling rigs, refineries, and the Terranova FPSO. In all locations, our conversations were on the fundamentals and what those of us above the field or above the operating site experienced. can do to help improve overall performance. I want to comment on fundamental number one, safety, for a moment. In particular, what did I see when I went to locations? First of all, safety. Why is it so important? We care about people. Management has a moral obligation to provide a safe workplace. And quite frankly, it's good for business. Very strong correlation between safety performance and business performance. So what did I see on site? I saw strong site leadership. I saw worker engagement. I saw very active near-miss reporting. I saw comprehensive root cause investigations. I saw technology highlighting the mines, collision awareness, fatigue management. By the end of this year, we'll have 1,000 pieces of mobile equipment with these technologies installed. that should make us the first to implement these technologies on a full scale in oil sands, and they have been proven around the world to reduce safety risk. Our approach is not hope or faith-based, but relies on tangible actions starting with leadership, engagement, technology, and training. Other observations from the sites. It's evident our company's level of the physical integration is a unique opportunity and unparalleled advantage. But what I like the best is I saw opportunities to improve our financial and operating performance in most all aspects of our business. Also made time in the second quarter to meet face-to-face with several of our major shareholders, had trips to Toronto, New York, Boston, a series of other virtual meetings. shared my approach, areas of focus, initial assessments of the company, highest priority plans, but equally spent time listening to concerns, expectations, and our shareholders' assessment of the company. So bottom line, what I'd say is 120 days in, Suncor is pedal to the metal. Our opportunities are abundant, and they're clear. So let me hit on, let's get to some meat, and I'll talk about some specific actions in the second quarter, and I'll highlight four areas, starting with the leadership team. We announced yesterday a series of changes to the composition and responsibilities of our senior executive team, i.e., those reporting directly to me. The changes are consistent with developing a simpler, more focused, high-performing organization. You'll recall I used those words in our first quarter call. The changes are designed to improve clarity and alignment on strategies, priorities, fundamentals, and execution excellence. We will have clearer accountabilities, fewer internal interfaces. We're de-layering the organization, and we are concentrating centers of expertise. The senior executive team will be eight, including me, four newly externally sourced this year, three of the four on board now. A quick summary of the changes, Chris Smith, CFO, Chris will take on additional responsibilities for IT and supply chain. Peter Zebedee, our EVP oil sands, will be adding in situ and drilling to his remit, giving him all oil sands operations. Dave Oldry, EVP downstream, joined us in June, eliminated a layer of senior management, so all of our refineries now report directly to Dave. Shelly Powell, Senior VP of Operational Improvement and Support Services. Shelly retains her E&P portfolio, but takes on the important role of revamping our operational improvement and associated support functions. Karen Keegans is our new Chief Human Resources Officer, and Jackie Moore remains General Counsel and Corporate Secretary, both individuals with expanded portfolios. We will add a new senior executive role to lead strategy, sustainability, commercial, and development. These changes were enabled by three senior executive retirements, two this month, one later in the year. And I'll step it back a little bit. I once had a mentor who used to say simplicity creates clarity, clarity creates consistency, and consistency creates success. This senior executive team is ready to create success. The next area I'd like to talk about is above-field costs. On June 1, we announced internally plans to reduce above-field costs by $400 million a year. If you think of it on an overall corporate break-even basis, that would equate to about $1.50 a barrel. Staffing will be reduced by 1,500 or 20% by the end of this year based on performance and business need. In the quarter, we took a one-time pre-tax charge of $275 million, about $210 million after tax. This would represent a nine-month payout. This is an internally-led effort, eliminating work we consider to be unaffordable or low relative value. We are looking at what we do, why we do it, how we do it, and the value it adds. Nothing is off-limits. Reductions are occurring at all levels, top to bottom, including the senior-most executives. We are on plan, a third complete as of August 1. 535 individuals have left the company, and a cost reduction of about $125 million so far. Now, I would note these actions, they aren't easy, and they certainly aren't taken lightly, but they are necessary for our competitors. Another area we spent time in during the quarter was a strategy reexamination. In particular, we've started a comprehensive relook at our strategies and our articulated objectives. Where we stand is we judge that our current strategic framework is not or is insufficient in terms of what it takes to win. the lack of emphasis on today's business drivers, and while important, we have a bit of a disproportionate emphasis on the longer-term energy transition. Today, we win by creating value through our large integrated asset base underpinned by oil sands. Discussions have occurred with our board of directors who are supportive of our revised direction and tone, and I would just leave this with more to come but you can expect a sharper, clearer, more tangible articulation of how Suncor plans to win. In addition to the above, we encountered a cybersecurity incident in a quarter. On June 25th, we confirmed a cyber incident stemming from unauthorized third-party access to our IT network. We immediately isolated our operational IT systems as well as backup databases. In the days thereafter, we established a safe, secure IT environment free of incursion and corruption. The incident certainly caused disruption. However, it did not have a material impact on our financial and operating results. Our organization responded extremely well at all levels. Our IT professionals, our operations staff in terms of business continuity, and third-party support teams brought in to assist. Today, we're largely back to normal with a few exceptions and the benefits of significant lessons learned. As I look to the rest of the year, I'll comment on a few areas. These are examples only, not all-inclusive, that you can expect focus from our company. First and foremost, base business. Continued focus on the fundamentals and continuing to determine ways to improve our financial performance, which I would measure in free cash flow per share. Looking at the operational areas, mining fleet management. We have in the order of about 900 trucks operating in five mines to three operational trucks. We're examining the makeup of our truck fleet, sizes, ownership, leased, contracted. We believe there's a material opportunity to lower our overall cost per ton on all earth movements. Peter Zebedee is the senior executive with the ball on this initiative. A second area I'd like to highlight is turnaround planning and execution. And for context, we conduct large annual turnarounds at essentially all of our upstream and downstream facilities. We spend about $1.3 billion per year, roughly 20% of our capital budget. When we look at benchmarks, Solomon and others, we are well below average in turnaround planning and execution. So we see a major opportunity to improve cost, schedule, volumes. Dave Oldreave and Shelly Powell are our senior executive co-leads on this important initiative. Beyond the operation, and when I look a little bit further on the radar screen, I'll flag two areas that are top of the list. Fort Hill's long-term plan. The near-term recovery plan was set last year with clear and definitive actions for the next several years. Given our confidence and the value in this long life resource, our focus is now on years 4 through 40. The key strategic question is, is what is the best, most valuable way to move into the north mining areas? More to come on Fort Hills. The last area I'll comment on is Pathways Alliance. We continue to work to achieve net zero greenhouse gas emissions from our operations by 2050. There is alignment within the Pathways Alliance and increasingly the federal and provincial governments. This fall is key to agree on a competitive fiscal framework for infrastructure investment. Chris Smith and Arlene Strom are the senior executives on this important file. Before I turn it over to Chris, I want to offer a couple comments on guidance. On upstream production, we're tracking to the low end of our range. Our range is 740 to 770, midpoint of 755. Our Terra Nova startup delay and our lower stake in Fort Hills than planned due to the tech acquisition in total add up to about 20,000 barrels a day, which together would take us below the low end of the range. Downstream, our Commerce City refinery recovery from the incident in December of 2022 makes achieving guidance a challenge, although I'll note that Commerce City volumes don't have a proportional impact on downstream profitability, simply given relative value contribution. That said, make no mistake about it, we are focused on meeting our targets and delivering on commitments. There are no revisions to guidance today. Looking ahead, I envision updating when we have information and clarity on which to base any changes, if there were to be changes. And given that turnarounds have such a material impact, both upstream and downstream for us, it makes sense to tend to upgrade after majority are completed each year or at least well underway. For us, for this year, that would essentially mean at the end of the third quarter. So with that, I'll turn it over to Chris.