Suncor Energy Inc.

Good day and welcome to the Suncor Energy fourth 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. Mr. Little, the floor is yours.

Thank you, operator, and good morning. Welcome to Suncor Energy's fourth 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 fourth quarter earnings release, as well as in our 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 fourth quarter earnings release. We will start with comments from Rich Krueger, 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.

Thanks, Troy. Good morning. The fourth quarter, I would characterize it as strong results across the board, safety, upstream production, downstream reliability, cost management. We finalized the Fort Hills purchase. It was about delivering on commitments for our company. Chris will detail the fourth quarter, but first I'd like to provide a little bit of a look back at 2023 overall. For context, on my first earnings call 10 months ago, I outlined four things you could expect to see from Suncorp. One, an intense focus on the fundamentals. Two, a simpler, more focused organization. Three, a shareholder-oriented executive leadership team. And four, an overall urgency to improve performance. So how are we doing? Let me start with a focus on the fundamentals, and first and most importantly, the fundamental of safety. The fourth quarter of the year was our safest quarter in 2023, and 2023 was the safest year in the company's history. We had no life-altering or life-threatening injuries for the first time since 2015. We had a nearly 50% reduction in lost time incidents year on year. We had our best ever recordable incident rate in the downstream and our second best ever in the upstream. How? leadership, workforce engagement, risk management, procedures, and technology. I'll continue with a second fundamental, asset reliability, starting with the upstream. Our bitumen upgraders, or our moneymakers, full-year utilization of 92% are best ever. We had 91% at the base plant, 93% at Syncrude. This is the first time in our history that both assets are were at or above 90%, and combined, they were 3% higher than our previous best ever. How? Operational excellence by our site teams and our unique intersite physical integration. I'll continue with the downstream liability. Crude unit utilization, 90% for the full year. Nothing to brag about, but it's a tale of two halves. 82% utilization in the first half and 99% utilization in the second half. For the full year, Sarnia Refinery had its best ever utilization. Edmonton had its second best ever and Montreal its third best ever. How? Again, leadership workforce commitment to perform. I'll continue with delivering on commitments and I'll highlight upstream production. We finished the year at 746,000 barrels a day, second highest in our company history, including 808 KBD in the fourth quarter. We achieved external guidance for the first time in six years, highest ever annual production at Syncrude in its 45-year history, and at Firebag in its 20-year history. Fort Hills delivered on year one of a three-year plan. Full year was at 147,000 barrels a day, and the fourth quarter at a very strong 186,000 barrels a day. How? I'll begin to sound like a broken record. Leadership, clear priorities, workforce focus. We understand that trust and credibility are based on delivering on commitments. The secondary I highlighted you could expect from Suncor was a simpler, more focused organization. Well, we have a new executive leadership team, smaller at eight versus previous nine. Four of us were new in 2023, a fifth in 2022. Individually, the functional expertise on this team is outstanding. But we're even better collectively or in terms of a team competency. Our newest member of our team, Kent Ferguson, joined us here a month or so ago as our Senior VP of Strategy, Sustainability, Commercial, and Development. And Kent's in the room with us this morning as well. We reorganized and refocused our above field or our non-operating workforce, a 20% reduction in headcount completed in five months last year between June and November. And we did this through the elimination of work, work that was judged to be low priority or simply unaffordable. We spent $275 million in severance cost to achieve a $450 million annual savings starting this year, $50 million above our target. You do the math on that, that's about an eight-month payout. Our central above-field teams have clear priorities, and they are very intensely focused on operational support and improvement. Another change we made above field is we consolidated corporate-wide strategy, commercial, sustainability, and development work, not only to increase efficiency, but even more importantly, to ensure we focus on the highest value work. Simultaneously in the second half, an area we haven't talked about, we restructured and reorganized our upstream and downstream operational site teams. So we now have a common site design across the company, operations, maintenance, engineering, etc., with crystal clear site accountabilities. The benefits of this are common operating standards, applications of best practices, and natural improvement networks across the company. I would say the early results in this are positive, greater clarity, accountability. We're seeing it in the improvements in the execution of our work. An example, although early 2023, our cost per barrel was at or below guidance across all upstream oil sands sites. And for the first time in company history, we executed our turnaround scope upstream downstream $1.3 billion in aggregate on budget and on schedule. Third area I promised you could see was a shareholder oriented executive leadership team. Well, in the year, we high-graded our asset portfolio to strengthen our competitive advantage and add shareholder value. We did that in part by acquiring the remaining 46% interest in Fort Hills in two separate transactions that totaled $2.2 billion. Both transactions we consider to be at attractive prices. The second one, Total Canada, also provides large and immediate tax benefits as articulated in our release. These acquisitions address our long-term bitumen supply uncertainty, but in addition, they enable material regional synergies with a large footprint of our operations. In the year, we also sold non-core UK North Sea upstream assets for $1.1 billion and the solar and wind business for about $700 million, or a combined $1.8 billion. In the year profitability and shareholder returns, we had AFFO of 13.3 billion, the second highest in our history, despite oil prices being the seventh highest over the same period of time. We generated free funds flow of 7.5 billion, second highest, and we executed a $5.7 billion capital program, again, within our guidance. We distributed $5 billion to shareholders, 2.8 in dividends, 2.2 in buybacks, and when combined, this is a 9.1% cash return in the year. Where we are today and going forward, continued priorities are to lower our overall corporate WTI breakeven and increase free cash flow, free funds flow per share. In terms of continuing to improve and the urgency to do that, I'll talk a bit more about that when Chris is done, but I would say that despite overall strong financial and operating performance in 2023, I look at it as we also left some on the table. We missed our refining utilization guidance by a couple percent, really attributed to a slow recovery in the first half of the year at Commerce City. And we had disappointing project execution at Terranova and the subsequent delayed startup with the ramp-up of that asset now going on. So in summary, 2023 I would say was a good year in many areas, very good in other areas. but I believe we can do better, and that's exactly our plan. So I'll come back to 2024 in a few minutes, but first I'll turn it over to Chris, who will talk about our fourth quarter summary.

Great. Thanks, Rich, and good morning, everyone. Well, while we saw crude prices and refining margins weaken versus the prior quarter, the fourth quarter still saw a robust price and margin environment. WTI averaged US $78 a barrel in the quarter, while the light heavy differential widened versus Q3, averaging about $22 a barrel U.S. We also saw synthetic crude oil premiums retreat in Q4 on the back of strong regional upgrading production and egress constraints across the basin, averaging about 30 cents a barrel U.S. above T.I. On the refining side, while we saw weakening gasoline cracks in the quarter, distillate cracks continued to be strong, and our 5-2-2-1 refining index was US$33.45 a barrel, which was about $2.55 a barrel below Q3. Finally, natural gas, which is a key input cost to our operations, remained low, with ACO averaging $2.15 Canadian a GJ in the quarter. With this business environment and very strong operations, Suncor delivered strong financial results in the fourth quarter, generating $4 billion in adjusted funds from operations, or $3.12 a share, and adjusted operating earnings of $1.6 billion, or $1.26 per share. During the quarter, we also returned nearly $1.1 billion to shareholders. This was comprised of $704 million in dividends, which represented a 5% increase over the previous quarterly dividend, as well as $375 million in share repurchases. In 2023, we bought back $2.2 billion of shares, which was almost 4% of our float. Our net debt ended at $13.7 billion, reflecting the closing of the acquisition of Total Energies Canada in the quarter for $1.5 billion Canadian, plus closing adjustments and closing costs. And we continue to remain focused on our capital allocation framework of allocating free cash flow to continued debt reduction and cash returns to shareholders through share buyback. Turning now to operational performance in the quarter, we saw very strong operational performance in both the upstream and downstream as outlined by Rich. Our upstream delivered total production of 808,000 barrels per day in the quarter, the second highest in our history. This included 875,000 barrels per day in November and 904,000 in December, which were the highest months of production in company history. The fourth quarter also saw record quarterly production in our oil sands segment. The base plant upgrade or two turnaround was successfully completed on time and on budget early in the quarter, while we also completed our firebag turnaround successfully. As well, Syncrude had a very strong upgrade in quarter, achieving over 100% utilization, another record. With the successful completion of the Fort Hills full plant turnaround in Q3 and the mine plan being set up to maximize ore delivery in the quarter, we saw very strong production at Fort Hills, with total production averaging 160 186,000 barrels per day, or about 96% utilization, a quarterly record. In addition to high reliability across our oil sands assets, we also optimized inter-asset volume transfers to maximize value across those assets. This included internal bitumen transfers of about 45,000 barrels per day in Q4, demonstrating an increased level of integration within oil sands. This increase was primarily driven by bitumen transferred from Fort Hills to the base plant upgrader. taking advantage of the SCO yield uplift from the paraffinic froth treated Fort Hills barrels. Also in the quarter, we saw the return to operation of the Terranova asset in our East Coast E&P segment, and that asset continues its ramp-up of production into this quarter. With respect to the downstream, refining utilization was an impressive 98% in the quarter, which included two smaller turnarounds at Edmonton and Montreal that were successfully completed. Downstream margin capture was strong in the quarter at 103% on a LIFO basis when compared to Suncor's 5221 refining index, primarily driven by higher realizations from seasonal diesel differentials over the previous quarter. And with diesel cracks continuing to outperform gasoline, Suncor is structurally advantaged as our network produces a higher distillate cut when compared to the average North American refining. As mentioned, we closed the purchase of Total Energies Canada on November 20th for $1.5 billion Canadian before closing adjustments and other closing costs, making Suncor the sole owner of Fort Hills. In the quarter, we recognized an initial tax benefit of $880 million associated with the transaction, which supports the strong acquisition economics. With the asset now in 100% Suncor ownership, we are focused on continuing to drive the mine improvement plan and maximizing value through integration with our other regional operations. Now for a brief update on the oil sands pathways alliance to net zero carbon capture and storage project. And we continue to work closely with federal and provincial governments on necessary fiscal and regulatory framework. Major regulatory applications for the CO2 transportation network and storage hub are being prepared and are expected to be filed in the first half of this year. While front end engineering and design of the proposed CO2 transportation line is now more than half complete. As well, more than 2,000 hours of environmental field work have been completed so far, and formal consultation with Indigenous groups along the proposed transportation corridor and storage hub began in 23 and continue. Now, finally, before handing it back to Rich, I just wanted to make a few comments on our 2024 guidance released this past December. As set out in the guidance, we expect production to grow by about 6% or 44,000 barrels per day versus 23%. The key drivers to that are the ramp up in Fort Hills production as we move into the second year of our improvement plan, our increased ownership in Fort Hills as we move from effectively 70% of gross production in 23 to 100% in 24, and increased SEO production at base plant as it has a shorter maintenance schedule this year. As well, while we sold our UK E&P business in 23, we now have Terra Nova ramping up, which has us guiding fairly flat with 2023 E&P volumes. That guidance includes a number of large plant's maintenance activities in the year. At base plant, we have a large turnaround in Upgrader 1 in the second quarter and Upgrader 2 annual coker turnaround in Q3-Q4. And at Syncrude, we have an annual coker turnaround starting in late Q1. And in the downstream in the second quarter, we have large turnarounds at the Sarnia and Montreal refineries this year. With regards to our cash operating costs for 24, we're essentially holding our costs flat with 23 while bringing on additional Fort Hills working interest and growing production. That's an example of moving costs in the right direction, and we continue to be laser focused on driving costs down across the company. And finally, our capital guidance for 2024 is $6.3 to $6.5 billion. This includes asset sustainment and maintenance capital largely consistent with what we saw in 2023, and higher economic investment capital versus prior year, which reflects a number of key investments that will drive value for our shareholders. These include the Fort Hills Mine Improvement Plan, the Upgrader 1 Coke Drum Replacement Project, Mildred Lake Mine Extension at Syncrude, finishing up the Base Plant Cogeneration Project this year, the West White Rose Project and Sea Rose Asset Life Extension, our sales and marketing growth plan, and investment in new mining trucks at Fort Hills and Base Plant, including the continued rollout of autonomous trucks at Base Plant. I'm confident that the team is 100% focused on delivering against these commitments and is building on the strong momentum we had finished up in 2023. And with that, Rich, I'll hand it back to you.

Thanks, Chris. Okay, 2023 in the books, it's all about 24 and beyond. Let me talk about what we're doing right now to continue to add shareholder value. As we look at the year, I think first and foremost, it is achieve our volume growth commitments. I won't go through those in detail. Chris just did. It's 6% year-on-year versus the midpoint of our guidance. That will require continued strong upgrader utilization. continued strong in situ, and then, of course, the growth that comes along with Fort Hills. In the downstream, we're about a 4% year-on-year growth versus midpoint of guidance. This will require continued strong performance at each of the Edmonton, Sarnia, and Montreal refineries, and a full year of successful operations at Commerce City. And then, of course, last but not least on volume, it's about executing the turnarounds across all of our major sites. A second area that I've talked about before I want to give you a bit of an update on is mining. Fundamentally, we as a company, we will improve our cost performance as our mining business improves its performance. For context, again, I've said it before, the cost of moving ore from a mine to a crusher, that's the single highest cost component in bitumen production. And where we sit today, we know exactly what our unit cost competitive gap is relative to best in class. And there's really two components, a structural gap that's due to the relative age and configurations of our minds and deals with things like hall distances and strip ratios. And then there's a performance gap that's related to simply how well we plan and execute our work. Peter has a very definitive plan focused on closing our performance gap with a specific list of tangible actions to bring about improvement. And what we're doing is we're also evaluating alternatives to address our structural gap via alternate mining scenarios or different technologies in our mines. More to come each quarter on the mining business. But I want to share two specific examples on closing the mining performance gap, the how we plan and execute our work. We've mentioned the trucks, the addition of 55 new, the 400-ton ultra-class trucks through the rest of this year. New and bigger trucks, 55 will displace about twice as many less efficient, smaller third-party trucks. We've received and are operating 13 of those 55 trucks, or about 25%. They're the Komatsu 980s. And recall that I've said before, with all 55 in operation, that will lower our overall corporate breakeven about $1 per barrel U.S. when they're all up and running by the end of the year. I've also commented on autonomous operations. We're continuing to ramp up autonomous operations, the haul trucks and our base mines. The last time we talked about three months ago, we had 31 trucks operating autonomously. Today it's 45, and we'll be at 91 by the end of the year, where in essence, by the end of the year, 100% of the ore at the base plant will be moved autonomously. And recall that conversion delivers about $1 million per truck per year in sustainable annual cost savings. So it's a material improvement. We will also get with autonomy what we believe to be a productivity increase where we will effectively moving the same ore tonnage but with fewer trucks. Specifically, our estimate is it will be the equivalent of three free 400 ton haul trucks through the conversion to autonomy and you recall these trucks cost you know 10 million plus each. What we will do in practice is move these surplus trucks to displace higher cost third party vehicles you know elsewhere in our operation. So you know the winning formula in mining continues to be fewer trucks bigger trucks, more efficient trucks, autonomous haul trucks, but coupled with an industrial engineering-like focus on all aspects of today's business, existing fleet availability, utilization, maintenance, all the ancillary equipment reliability across the board. And maybe in the Q&A, I can ask Peter to address some of the specific things we're working on to bring about further improvement. I'll comment a bit more on turnarounds, which I've shared, give you a bit of an update on our effort there. You will recall I mentioned we have formed a new central group under Shelly Powell in 2023, and they're singularly focused on turnaround performance. Dave and Shelly combined, Dave Oldry and Shelly are our executive co-leads across both upstream and downstream to elevate our overall accountability on turnarounds. We are completing extensive third-party benchmarking to identify our improvement opportunities and establish expectations. We are holding monthly reviews on scope, cost, duration, and readiness, where previously these reviews had been held at an asset level. And along with our theme and our unique competitive value proposition, we're capturing regional synergies or efficiencies because of the proximity of our operations, the ability to coordinate turnarounds. Examples early on, but some of the improvements we're seeing, I'll use refining as an example. Montreal, second quarter this year, we've got a material turnaround dealing with heavy crude processing. Through benchmarking, pre-planning, we've cut the duration from the original 62 days to 53 days and are very comfortable with it. A second example I'll share is at our Sarnia refinery, where, again, we have a second quarter turnaround. Looking at risk-based work selection, our scope challenge, we've cut 66,000 hours out of that turnaround, 15%. That would equate to about a $21 million cost avoidance And because we'll be up and running earlier, another $12 million or so in value addition. It's early in our improvement process here, but I want to share some of those examples. We're already starting to see the benefits. And as I said, our goal is to be best in class in turnaround performance. across our business bottom line there's big prizes here lower cost shorter durations higher margins and to achieve those it's about benchmarking knowing you know who's the best and why. Quality risk assessments advanced quality pre planning very clear accountability and then high quality discipline execution. Now, as I wrap up, I want to share with you two less visible, but also I believe very, very fundamental changes we have and are making at the company that will contribute to continued improved performance. My objective from day one was to create a level of alignment between our strategies, our organizational structure, and our corporate culture, with the goal being to achieve a team-based, results-oriented, high-performance culture. So, with that in mind, in the second half of 2023, we implemented a new redesigned employee performance evaluation system designed to evaluate an individual's performance based on their impact versus their effort or the activity behind their work. The goal is to better differentiate individual performance and recognize and reward individuals accordingly. The outcomes of the performance evaluation system are directly linked to individuals' compensation in terms of base salary increases and the individual component of their annual incentive. Also effective going into 2024, we are implementing a new redesigned employee annual incentive program. Our previous program had multiple scorecards, even at the level of those sitting around the table with me this morning. each with a separate series of measures. Our new program has one single Suncor scorecard. We win and lose as a team. It will be applicable to all and it will have far fewer but very priority measures. What measures? Surprise, the fundamentals. Safety and environmental performance, production and throughput, cost and profitability. We want to ensure that we incentivize what's most important and that we have an entire workforce focused on delivering on commitments and that our performance parallels the experience of the shareholder. Our new annual incentive program is very much aligned with my philosophy to clarify, simplify, focus, which I think is the key to delivering, consistently delivering superior results. So as I sit here today, I feel as an organization we've got the right people, the right leadership, we're focused on the right work, and we're committed top to bottom to perform. My final comments, employees, I'd like to thank our employees for first and foremost working safely and their commitment and dedication to making Suncor the best it can be. Our shareholders, I'd like to thank our shareholders for their trust and confidence. We don't take it for granted, and we know it must be continually earned. So with that, I'll pause and I'll turn it to Troy.

Thank you, Rich. I'll turn the call back to the operator now 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.

Thanks. Thanks. Good morning. Rich, there's a lot of content in there. I don't think I could write fast enough. I've got a couple of questions for you, but maybe just before I start, obviously a big welcome to Mr. Ferguson now in the Suncor biz. There's really two things. I want to come back to the question I asked you the last time, and I think a lot of the things you've already said would reinforce this change that's going on in the company, but What inning do you think you're at now maybe versus when you arrived? That was probably the first inning when you arrived. But I'm curious where you're at now in terms of the turnaround. And then what are the steps you need to take maybe over the next year or two to maybe get back to the leadership position that Suncor used to be in?

Thanks, Greg. If I look at it, I would say 2023, there was just a large amount of change, and we've talked about that. But I would describe a lot of that change as disruptive and potentially distracting. New leadership team, people coming and going. We had a workforce reduction. A lot of things that could distract people from performing. So given that, I'm really proud of the organization, how it did perform professionally. despite that so as we get into the uh you know as we turn the page on 2024 i think we built a lot of momentum in the fourth quarter i think our starting pitcher is throwing strikes and we uh you know i think we're um we're well into the game i uh i think the momentum that we've created and i can comment on how we're doing through the first half of the first quarter if folks would like I think we're in a really good position to focus. Some of these other things that I mentioned, we've got a lot of very tangible operational things, but a lot of these things that I would refer to as cultural, the performance evaluation system, the annual incentive program, things like this, I think those are part of the secret sauce to getting 16,338 people focused like a laser on performance. And I feel really good that we put a lot of that in place now. And our best days are ahead of us. And I don't think it's so much of a, I don't think it's a, you know, trust us, believe us, have faith. I think you're going to start seeing that. I think the fourth quarter gave you a pretty good glimpse of that. What's next? just doubling down on things we're doing, keeping the pedal to the metal on improvement efforts, lowering that cost structure, maintaining the highest levels of operational excellence and safety, and just continuing to create value. And we've got examples, and maybe I'll let Dave and Peter comment on some of the things we're doing to create that clarity deep, deep into the organization about what we're trying to achieve. So I got to tell you, Greg, I wake up every day, feel pretty excited to come to work. 10 months in, I feel more excited every day than I did 10 months ago.

Very good. And then maybe just to shift gears a little bit, because you touched on the first quarter. So I guess the simple question would be, how much of a weather, how much did favorable weather impact fourth quarter production, because, you know, it's warmer, and this quarter has been different. And then within that context, could you give us an update just on how ops are going thus far in 1Q?

Absolutely. I mean, we did have good weather in the fourth quarter, but typically we don't have a lot of our most severe time. The mining business likes it when it's minus 10, 15. Everything operates the best. They don't like it when it's minus 43, which it was in January. So I would say the fourth quarter weather played a bit of a role, but not... Not a big bit, but when we came into the new year, the first couple weeks, we had a very uniquely cold spell there. Seems like we would expect that, but what I'm really pleased about in that is although we had some issues with the mobile equipment, fuel filters, plug-in, things like that, the plants kept running really, really well. The upgraders, they've kept all the refineries up and running. So yeah, we had a bit of a slow spot in the mining in the first couple weeks of the year. But as I sit here, as we sit here at the midpoint of the first quarter, refining is at 98% utilization for the first six, seven weeks of the year. I'll let you do the math on throughput, but they are continuing the very strong performance we saw in the second half of last year. And on the upstream, despite a little bit of slowdown in the mining the first week or two of the year, we are now at or above for the first quarter to deliver a quarter that is higher than our fourth quarter was. So we started out a bit slow the first couple weeks, but we're gaining week by week. So I don't know exactly where we'll end the first quarter, but I think when we put it in the books, you're going to see that that operational momentum has continued, quite frankly, through the entire second half of last year and on into the first quarter.

Terrific. Thanks very much.

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

Hi, good morning, and thanks for taking my questions. My first one here focuses on Fort Hills. Production in Q4 reached near nameplate capacity, and we understand that the focus in 2024 is, and maybe the early part of 2025, is opening up two faces in the north pit to access sufficient ore more consistently into the facilities. My question here is, can you discuss how you see the opportunity set at Fort Hills once you've, we'll call it, fixed or remediated the feedstock bottleneck in addition to applying to more trucks and smoothing out operations? Thanks.

Yep, thanks Dennis. I'll turn it over to Peter in just a second, but I think what the fourth quarter showed is when we can feed the plant just how good that plant is. We average, what, 186 or something for the quarter. You know, if you squeeze Peter hard, he would tell you he had days over 200. So that plant is quite strong. So you've rightly said that the challenge is ensuring that we feed it. And that's why the opening the two pits in the north mine is so important. So we're able to do that. But Peter, you want to maybe comment a little bit on kind of the whole, the mining, you know, where you are in the mining and confidence in

continuing to feed this beast yeah no thanks rich and thanks dennis i think it is a good point richard's absolutely correct uh fixed plant assets at fort hills are uh extremely robust and uh we're confident that we can push high volumes through the back end of that facility our focus is indeed on the mine as you said it is opening up ultimately delivering ore from the North Pit and reducing the mining bottleneck. And hence, our focus at Fort Hills is really on mining efficiency improvements. The purchase of the Ultra Class haul trucks obviously helps that, but beyond that, we're really focused, as Rich would say, we're focused on the fundamentals. We're really focused on the little things that drive mining efficiency, that extra ton on the trucks, that extra kilometer per hour in the haul cycle, and leveraging that efficiency not only to deliver ore into the production facility, but to reduce our unit costs and remove higher cost mining volumes out of our fleet and delivering that with our own trucks.

And the two pits in the north mine will give us that opportunity to blend ore so we won't have the natural up and down variation of a variable input. So I think it's As we improve the capacity to deliver ore, we'll also have a bit of a stability in it because of the approach Peter's taking in mining it.

One of the key factors is to reestablish a robust inventory of mineable oil sands in front of us. We have lots of options for the shovels that we can bring into the fixed plants. That has been key to the success that we've seen at Fort Hills. That team has done a fantastic job at that. opening up those pits, reestablishing the inventory, managing the risks, and now driving productivity improvements.

Great, great. Really appreciate that color. My second question, and shifting focus more to the base mine, and Rich, really appreciate the context around the oil sands mining fleet. as well as any adjustments you're making to operations to drive controllable costs lower. I know in a previous conference call, Peter discussed cadence of production through time, as well as the need to balance that with sourcing ore to build tailings ponds and other earth-based infrastructure. Can you talk a little bit about how, again, some of these tweaks and changes to improving controlling costs may impact or affect or even maintain or improve some of the flexibility and development, specifically with North Steep Bank and the other areas of the base mine?

Sure. I'm going to give Peter the opportunity here in a second, but one of the things I want to start a little broader, Dennis, with now with 100% ownership of Fort Hills and our level of physical integration, Fort Hills bitumen to the base plant, firebag to it, we increasingly are looking at this basin regionally as one large bitumen supply source and what's the optimum way the lowest cost the greatest value way to do it and what that does is it gives us flexibility at each individual site where we're optimizing the whole versus what would previously have been an optimizing of the site So that's where the options at the base plant come in. I've talked about we're moving to more autonomy. We're looking at where we deploy new trucks and shovels. We're looking at the rate at which we deplete the remaining ore at the base plant. And so it's that physical integration that allows us to do this. And everything we're going to be looking at is going to be ultimately automated. Peter Haslund, value long term value on it, but, but maybe that's that's kind of a broad setup to your question, but Peter if you want to maybe comment, a little bit more specifically on on some of the things at the base plan.

Yeah, no, absolutely, Rich. And as you said, really, a base plant is the nexus of our bitumen supply into the region. We are leveraging that integration with Fort Hills and with Firebag to really be able to flex which bitumen is going to the upgraders when. That obviously translates back into additional mining flexibility at base plant. And I think with the investment that we made in the trucks, as I mentioned before, and the productivity improvements the team is driving, coupled with autonomous, that gives us more mining flexibility. And it will give us more choices in the future on the rate in which we want to mine bitumen at base plant. And that's something that our teams under Kent are evaluating as we look to what we're going to do in the future with respect to the base plant line.

I've got maybe just another comment. It's a little bit away from the base plant, but I mentioned we produce 746,000 barrels a day. I know all of you on the line had complete confidence with us last fall that we were going to meet guidance. I know that. But Peter, running his upgraders at record high utilization, he actually put more bitumen from Firebag and Fort Hills into it that have a shrinkage component to it. So, you know, because there's more value in it, but absent that, Peter would have been over 750,000 barrels a day. But there again is an example of that physical integration, and it's all about value for us, not volume. And I think that was a, to me, as I saw, you know, through the fourth quarter, as they redirected barrels to capture what was in the market, that again is something that makes us, you know, different. Yeah. I know that's not on your question, Dennis, but I couldn't help but go there.

No, I appreciate the color as always. Thanks, Rich and Peter. I'll turn it back.

Thank you. One moment for our next question. And that will come from the line of Doug Legate with Bank of America. Your line is open.

Thank you, Rich. Tremendous continued progress, so congratulations to everything you've done and the changes you've made. I feel like I ask you this question every quarter, so forgive me for being predictable, but I guess I'm not sure I've seen the analyst payday yet, so maybe we'll get it there, but the $5 target you originally set out, where do you think you are? I guess it's a different way of asking the question about what inning you're in that was asked earlier, but How much of the $5 do you feel you've now achieved at this point?

Yeah, you know, I think, Doug, we've talked about things like the workforce reduction, which was, you know, more than a buck, about $1.50. So that has happened. And I think with many of the other things, I think we've captured a couple bucks of that already is kind of where I'm at. And, you know, we do have some headwinds. We've got inflation. and things like this but our but our five dollar goal is a net goal we've got to offset whatever headwinds we're facing on it and so you know i think we've captured a couple of that but we have an urgency over the rest of this year with the new trucks we've talked about improvements in turnaround performance uh dave oldrieve's got a list of things of value he's capturing on the downstream so you know i don't have a an absolute timeline on the five dollars But no better time than the present. And so I think this will be a big year in continuing to see that accumulate. And quite frankly, you know, when we get to five, well, what number is better than five? Six is better than five. Seven is better. So, you know, it's going to be a continued priority. But I think we're off to quite a good start on it.

Am I right in thinking you haven't given us an analyst day-to-day? Troy's going to kill me for that, but maybe we'll get clarification later.

Doug, you're always right.

I was going to say, so here's what we're thinking of doing, and Troy looking at me, and I hope this is what you're thinking. We have some big, big decisions, some big analytics, the base mine, the The rate at which we mine it toward depletion. We've got some big things that we're tackling right now. What's the priority on our continued development? I'm looking long and hard at in situ opportunities. I like what I see. And so we can hold an analyst day sooner and tell you the things we're looking at or we could hold it later and tell you where we land on these so what we're inclined to do right now is have a uh sometime probably in the second quarter a pretty comprehensive update i don't know what we'll call it it wouldn't be a full-blown analyst day but we dig in in detail for particularly think about this five dollars a barrel etc and then later this year have a a full-blown analyst day that looks at answering a lot of these longer-term key strategic questions. Don't think we can wait until late this year and do all that. So I'm feeling we're going to need to give you something sooner. But that's where Troy and I's heads are right now, and we're trying to land on those dates. But that's what we're thinking.

Well, Rich, I didn't intend not to do my second question, but you did address some of the portfolio questions, which I guess you haven't resolved yet. So, yeah.

You get another one done.

Oh, I do? No, no, no. Go ahead. It was actually then... That was a freebie. It's kind of on that exact topic, actually, because when you and I have chatted about this before, you've said, look, we don't necessarily have to replace bitumen because we could use that capital commitment to buy back an enormous amount of stock with the capital and basically shrink the share count And I guess my question is, were you any further forward in that thought process? And I guess you've kind of addressed it in your last question, but any updated thoughts on that would be appreciated.

Well, I think you're spot on. You know, for us, it's all going to be about value. And I think the one area that is just pretty intuitively obvious to us is keep the upgraders full. Because in doing that, the value uplift from a barrel of bitumen is to a barrel of synthetic crude, whether it's sweet or sour, is kind of obvious by inspection that that creates tremendous value. Going beyond that, it's just like anybody else, whether we were in West Texas or, you know, the South China Sea, does adding new capacity make economic sense? So we don't have a bias toward maintaining production levels at a given level or not, but it will be about value. Now, I also do believe that as we have good, valuable development opportunities, they can create more long-term value. But we don't have a, you know, it's not a bias one way or another. The upgrader is full, yes. anything beyond that will have to stand on its own two feet in terms of the value it creates to shareholders. And we're going to look at that at the end of the day on pre-cash flow per share.

Terrific. We'll look forward to that when it comes. Thanks so much, guys.

Thank you. One moment for our next question. And that will come from the line of Menno Holschoff with TD Cowan. Your line is open.

Thanks, and good morning, everyone. I'll start with a question on upstream OPEX, given your comments, Rich, on the mine performance gap. Has your thinking changed at all in recent quarters in terms of where longer-term per-barrel OPEX could land over the next several years? And I'm thinking along the lines of oil sands ops, Syncrude and Fort Hills, and if not, maybe you could just remind us of what the current goalposts are. Thank you.

You know, I don't know, Meryl, that I would say our outlook has changed. Obviously, I won't go back over the examples, but our intent is to drive them down. I do think, you know, if I take Fort Hill specifically, we would have been driving it down, if we go back a year or two ago, a little bit faster. The opening of the two pits in the North Mine has kind of delayed that a year or so. And, you know, we got specifics. I'm looking at Peter if he's got anything to say on it. We do believe... in our existing business by executing the day-to-day work we do we can continue to bring about improvements. And that is, so I don't know if that translates. I think if we talk about this $5 a barrel, Peter himself is talking about $5 a ton. Excuse me, a dollar a ton, which would be equivalent of $5 a barrel. He's targeting that in the mining. I've kind of hedged my bets saying, well, Peter's going to give me a big chunk of that. Dave's going to give me some more of that. So our corporate number is $5 a barrel. But Peter has an inventory list that would largely give him the $5 a barrel or $1 a ton just with all the things he's pursuing. Peter, do you have any other comments on our outlook on OPEC?

Yeah, thanks, Rich. And I think, you know, we talked a lot about the mining efficiencies and improvements, and really that is the big gearing to reducing our operating costs. But beyond just, you know, investment in haul trucks, driving mine productivity, we're looking at lots of dimensions in our mining business. So whether that's our light civil strategy, whether that's our maintenance and reliability expenditures, the benefits that we're going to get from the autonomous haul trucks that Rich spoke about earlier, fuel contractors, everything we can to As it relates to the operating costs build up for mining is where our focus area is. The team is challenged to go out and find a dollar a ton. That's quite a substantial amount of cash if you project that over how many tons we move in the year, which is more than a billion tons a year. And that is the objective, not just at one site, but in the whole mine operating sites across our upstream portfolio.

So, Peter, comment on what's different today about how we're going about this than, say, maybe, you know, a few years back before your time here on mining. your perception of how the company was going about it. I'm really thinking about the, you know, looking at your little chart here, the tangible nature and the accountability by the component part. So I'm giving you the cue on how to answer the question. You take it from there.

There's a very high degree of specificity in the tactics that we are taking to drive efficiency in the mine. I mentioned it earlier. This isn't just something that we look at on a monthly basis in our performance stewardship. This is a day-by-day, shift-by-shift, and dare I say even by hour-by-hour driving efficiencies and improvements in our operation. That's owned by the operating leaders at the sites. They understand what the targets are. They have a strong commitment to deliver, and they understand what the big picture is and how that fits into driving the overall corporate performance.

And going back to a comment I made earlier on, is with a common organizational structure at all of our sites now, upstream and downstream, whether that's a maintenance opportunity, an operational reliability, an engineering technical solution. We have natural networks now across the company who can collaborate on sharing ideas and bringing about in a faster way the execution of an idea company-wide. And you might say, well, why weren't you organized like that before? Well, That's a different question, but we are now, and I think that will help not only identify new opportunities, but accelerate their implementation.

I think one of the clear things on when we reorganized through the back half of 2023 and really crystallized the accountabilities for a site, so that has enabled us to implement very efficient work processes, not just within a given site, but indeed across the breadth of the Suncor operating assets. given role, and my assets are very similar to or exactly the same as what Dave has in the downstream and refining assets. Shelley's central team is focused on delivering value to the assets. It's a very asset-centric organizational design, and it's enabled by consistent work processes. So we are very clear on what's required, who's accountable to deliver it, and what a measure of success looks like. And that archetype is showing to deliver some really good results for us across our operations.

Terrific. Thanks for that. That was a very thorough rundown. So maybe the second question for Rich, you've been in the seat for almost a year. So I have a question on your take on strategic fit for the four refineries. I think the fit is really obvious for Edmonton and Sarnia, but maybe a little bit more nuanced for Commerce City and Montreal. So the question is, how core do you consider Commerce City in Montreal? And if we look across the entire downstream portfolio, what are you seeing in terms of near-term opportunities to further enhance margin capture? Thanks.

Well, you know, I think any of our assets, wherever they are, they're about the value they can provide. And I would go a step further and say, is there something unique about our capabilities, our competencies? We've talked a lot about physical integration. Is there a unique level of value that we can bring to owning and operating an asset? versus an alternative. Now, I mean, I think Commerce City is a bit more of an island compared to the rest of our operations, but it's in a strong market and it's got some logistical advantages there that we believe can add and create value. So the key for us over the last year and a half there is keeping that thing up and running. And when it's up and running, it generates a lot of cash. I would say you look at the East Coast operations kind of in the same way. You've got the dichotomy of Hebron and Hibernia, non-operated, different kind of operations, and then you've got the two floaters. But again, it's the idea of Can we keep these assets up and running with high reliability, high integrity? And when we do, they can add, you know, material value to the enterprise. So, you know, we look at our assets individually, collectively, and it all comes down to what kind of value do we believe they can, you know, how well can we operate them and what kind of value can they provide to us?

Thanks, Rich. I'll turn it back.

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

Yeah, good morning, Rich and team. My first question is just around your framework for capital allocation. So that's slide five. Maybe, Rich, you can step back and talk big picture about how, as you're balancing the operational turnaround, you're also prioritizing return of capital. And we've anchored to this $9 to $12 billion being the right net debt level at which you shift to a 75% versus 50-50 payout. But how are you tracking towards that, and are those the right levels as you spend more time thinking about it?

You know, Neil, I'm going to ask Chris to comment here in a second, but I want to step back again and frame it in the context of why we keep talking about this $5 a barrel. You know, our breakeven now is kind of 50-ish or low 50s, and we want to take $5 out of that so that we have a greater level of financial resiliency and, you know, the inevitable ups and downs of this business that, you know, we're in. And so in doing that, that allows us from a capital allocation standpoint to weather the storms when we get in weak market conditions and be more opportunistic when maybe others are in a bit more of a difficult position. So the $5 a barrel objective we have aligns with Then having a, you know, ensuring we have a strong balance sheet, we have financial resiliency, we can, you know, pay all of our bills in good times and bad. I put dividend in those bills and then have the, you know, the added flexibility of continuing to return money. return, you know, cash to shareholders. But, Chris, you maybe want to talk more specifically about the current, you know, structure we have and our thoughts?

Yeah, sure. Hey, Neil. Yeah, I mean, as you pointed out, our capital allocation structure is pretty clear. You know, when we hit 12 billion net debt, we go to 75-25 buyback and reduction, and then once we get to 9 billion. And that is a net debt basis, including capitalized leases. We're focused on that framework, I think, to, you know, piggyback on Rich's comments. What we're trying to do is drive more free cash flow out of the business so we can drive to those targets even more quickly. Now, obviously, you know, it's all going to be dependent on where commodity price lands and people will take varying views of when we're going to hit the $12 billion, but we're focused on driving that debt down while continuing to return cash to shareholders. I mean, I think to your other question about will the targets change, I mean, we're always looking at the resiliency of the business and do these targets make sense. But in a commodity business like this, as you know, having really strong balance sheet, and we want a balance sheet in a place that's going to weather not even mid-cycle, low, below mid-cycle pricing. And that's really what the $9 billion is driving towards. But we're continually looking at our capital position. We're driving, but the allocation framework isn't changing at this time.

Thanks, Chris. And then the follow-up is just on slide 13. It is a pretty heavy year for economic investment capital between West White Road, the WellPads, Mildred Lake, the Drum, HoGen, and then Fort Hills and the truck. So maybe you could just talk about that set of projects, how they're tracking relative to expectations and update on the investments that you're making here.

I think, you know, on West White Rose, I'll let the operator maybe comment a bit more on that. But I think, you know, we do have a lot of things going on. The co-foiler replacements will be wrapping up later this year as we approach startup. Well pads are... quite economic investment for us. And so, you know, we're wrapping some things up and now we're really looking at kind of what goes on from here forward in terms of what is the right level of CapEx. But, you know, maybe if there's any In terms of the execution, Shelly, you want to comment a little bit on the capital projects and or Peter, the bulk of the monies in you guys' areas. Any comments you'd offer there?

Yeah, I think you've hit the high points. The execution for all of those major projects is on track, proceeding as we expect them to be. Some of the, certainly the coal boiler replacements, we're into system turnover, starting to commission some of those key systems. We're expecting that spend to progress as we expected it to be.

You know, one of the things I'd comment on projects. Projects is just like operations and others. It's a specialty expertise that goes with planning and executing projects. You know, shame on us. We learned a lot through Terra Nova, but as we've been learning it, we've been strengthening our execution capability in other areas. And although turnarounds are different, they also have a lot of similarities in the importance of pre-planning, ensuring you have the necessary resources, you know, scheduled out in time. So this is a whole area of emphasis for us on planning and executing our work. And that applies really across the board, but you'll really see it tangibly in project execution.

Thank you, sir.

Thank you. One moment for our next question. And that will come from the line of Patrick O'Rourke with ATB Capital Market.

Hey, guys. Good morning and congratulations on a strong quarter. Thanks for taking my question here. You spent a lot of time going over sort of mining operations, but you touched on in situ opportunities earlier in the call. I'm sure a lot out there just like myself have been watching very impressive results at, you know, Firebag, Amakay, And you're running from what I can see very close to nameplate capacity there So I'm just wondering if you could kind of maybe unpack a little bit more What the opportunities in the thermal units are are they growth are the capital efficiency? Are they on the operating cost side and what that could look like going forward?

Sure, you know if you look back over our last ten years we had a such intense focus on mining with the initial investment at fort hills and things and it's not i'm going to use a word i don't mean it quite as strong but but you know in a sense our in situ kind of took a bit of a back seat in some regards because we had so many other capital needs but as we look at the quality of that operation Firebag's a rock star. I wish we had a couple more of them. And we do have opportunities to continue to de-bottleneck at lower relative cost per flowing barrel at Firebag. We've got opportunities for new developments, Lewis or Firebag South. And what we're doing right now, and this gets in kind of to the investor day, we're doing a lot of work right now to answer some key questions there about what's next, what's the most capital efficient, and when. And I'd love to have those questions earlier rather than later, but it's going to take us the bulk of you know, the spring and the summer to get there on some of those. But I think in situ plays into our future in a bigger way. So that, you know, your question's a good setup. You're gonna hear more from us about in situ. Some of the opportunities are very much low cost, be bottlenecking at the fire bank plant in itself, water handling capability, whatnot, where you can spend a small amount of money and open up, you know, two, three, four, 5,000 barrels a day of additional capacity. We're also testing solvent technologies. You know, solvent to me is a winning formula. If you can convince yourself you get equal to or better recovery, you lower carbon emissions with it, you lower steam use. So we've got some pilot work, some of it that's wrapping up this spring. And so you can expect to hear more on that. And the greenfield developments, Like Lewis, for example, we're looking at synergies given its proximity to the base plant with surplus steam utilization. So here again, it comes back to the concentrated geographic footprint of our assets, the physical integration of what we have, And the ability to do things or add value that are above and beyond what our competitors can say. So, you know, you answered or you asked a great question for me because in situ is something you're going to be hearing more and more from us about in the, you know, in the months and the quarters ahead.

Okay, great. Thank you. And just to follow up here. Just looking ahead at the year, I know a lot of these risks are completely unpredictable. We've had things like wildfires in the past, but one of the things we've been watching is drought conditions here. Athabasca River water levels and flow rates look okay so far, but just wondering if you have any contingencies or any concerns on that end.

Yeah, I'm going to ask Peter to comment on that specifically, because obviously the importance of water to our resource, and of course our operations are where the vast majority of the source of water is in Alberta, and we in industry use a relatively small fraction of that source. But Peter, you want to comment a little bit about kind of our overall approach around water use and management?

Yeah, absolutely, Rich. I think I'd like to start by just saying, you know, at In our operations today, we're recycling 94% of the water we use in our operations, and we are very careful in the amount of water that we're drying off the river. We have contingency plants in place, yes, absolutely, and we're also casting our eyes to the future to look at investments that will reduce our water intensity across our operations. First and foremost, as a base plant, we'll look to develop a potential water treatment plant and bring that on towards the end of the decade here. So first, in our operations, it is all about efficiency and scarcity of use, heavy focus on recycling and building the contingency in so that we can weather through these drought conditions that we are going to see across the province this summer.

Thank you very much.

One moment for our next question. And that will come from the line of Manav Gupta with UBS. Your line is open.

My first question here is it looks like you don't have too much downtime in the refining segment in 1Q. Your fourth quarter capture number was 103%. Every time the capture goes over 100%, we view that very favorably. Looks like a lot of North America is in a turnaround, and you are running all out in one queue. Does that set you up very well for at least the first half of the year as far as downstream earnings are concerned?

Yeah, I think, you know, we like the 100% too. That's good, right, Dave? We like more than 100%. You know, I'll ask Dave to comment. We do have turnarounds at Montreal and Sarnia that come on this year in the kind of second quarter-ish. You're right, for the rest of the bulk of the first quarter, we're going to be up and running. Dave, comment on that, but I also want, we've, you know, I've asked you to give your quarter a pint of blood on the $5 a barrel, so answer that question, but then also talk about what the downstream is doing to contribute to our $5 a barrel corporate business. break-even reduction. So, Manav, sorry, you still get another question, but I want Dave to comment on what his team is doing in that regard as well.

Sure. Thanks, Rich, and thanks, Manav, for the question. Well, that's actually a lot of material to go work with. I could probably spend a bit of time on this one, but you mentioned margin capture, and I think the story for the first quarter is going to be fairly similar to the story for the fourth quarter. And for the fourth quarter, we delivered at you know, a strong margin capture. And when I think about it, we, you know, Chris mentioned some of the reasons why we were able to run our refineries full and why they're economic, and we've got some structural advantages in terms of our G2D, our location, our connectivity to our upstream as well as our retail business. But, you know, we ran full and saw strong margin capture. I'd also put that around, you know, Running full allows you to capture strong margin capture. Strong margin capture gives you the economics to run full, and we saw both. In the downstream, in the fourth quarter, we have optimization that our downstream teams do aggressively every day, and we saw some really good examples of that. First off, reliable operations allow us to optimize our molecules through our refineries and integrate a value chain to the customers. We were also able to give economic full signals to all of our refineries despite falling gasoline prices. That was assisted by deeper West Can crude discounts, particularly on SCO, our lower G to D ratios relative to our competition, and our ability to export diesel across both coasts. And that will continue through the first quarter as well, that ability to move diesel across both coasts. An ability to move volume between the two regions east to west on rail is a real good advantage for us to allow us to take advantage of that. Our Edmonton refinery is highly integrated with our upstream assets, and we optimize that every day to make sure that we fill out the refinery to all of its constraints as well as try to tailor the mix to meet our customer demands. And that's a unique capability in the industry. Our training organization has done a great job in the fourth quarter, continues in the first quarter to move volumes off the coast at really good netbacks. We saw that in December. We see that through January while gasoline cracks were low. Gasoline cracks have picked up. That should continue to help us. And our RAC Forward business just continues to be strong and provides a nice cushion. It also provides a little bit of a cushion in a falling pricing market, which we saw through the fourth quarter in our wholesale pricing. When our street price kind of like wholesale pricing so so really good fourth quarter in terms of margin capture we'd expect that to continue. Through the through the first quarter, you know, in terms of value capture that's a really, really exciting thing for us in the downstream you know we think about you know where our opportunities. Peter talks a lot about how we reduce costs of mining. That's the big opportunity in the upstream. In the downstream, our volumes are a little bit smaller, and the cost of production is a smaller piece to work with to begin with. So there's some opportunities in the dollar per barrel OPEX side of things, but our bigger opportunity is our ability to capture value. And that's really where we're focused, and our team is really excited about it. We're building plans to capture value in a number of key areas. And that value will turn into cash, and it's all about cash, which to the bottom line of the enterprise, which overall helps our break even for the enterprise. We're looking at structural reliability improvements at all of our assets in the refining business. We're looking at supply and logistics opportunities. We're taking a look in the supply side at a lot of our contracts that maybe we haven't looked at in a number of years and checking whether they still serve us well. And we're seeing some opportunities in that space. We spend a lot of money in logistics, moving large volumes of product all across North America and even at export. There's vessel leases, there's rail car leases, there's pipeline contracts. All of that stuff, there's a lot of money being spent there. We think there's some opportunity to squeeze some of that and find some really good value there. Our trading organization is world class and we've been growing that over the last few years and we continue to see opportunity to capture more value through that organization. On the refining side, we have a number of kind of really small investment opportunities, low capex, high return that we're going to look at at each of our assets. to continue to grow that. And, of course, folks are aware of our retail growth strategy. We began implementing that in 2023, and that is actually delivering very well for us. We're seeing some really promising signals on some of the early sites that we've developed, and we're going to continue that through the next few years. So we see a lot of opportunity to contribute upwards of a couple dollars a barrel to that $5 a barrel challenge over the next number of years through downstream value capture.

I just wrote that down, Dave. Thank you. The best for the bank, Rich.

My quick follow-up, and thank you for the detailed response. My quick follow-up is it looks like the net debt just went up a little because of the FOTLs. I think you took on some more debt for that transaction, and maybe there were some lease liability things. I'm just trying to understand now that FOTLs is in there, you're crossing higher volumes, like what would be an optimal debt level after which you would say, you know, we are very comfortable holding to this amount of debt, and then most of the other proceeds can just go to buybacks?

It's Chris here. Similar to the question we had earlier from Neil Mehta, our capital allocation framework is quite clear. So we're driving to $12 billion net debt as our next target, and then we'll change the capital allocation framework from 50-50 to 75-25. And our goal is to get down to $9 billion net debt, including capitalized leases. So that's the framework we have in place. And as I said earlier in the call, this is all about it. As you've listened for the last period of time, we're looking to release as much free cash flow as we can so that we can actually drive to that net debt target and return more cash to shareholders.

And the net debt only went up because of the portals transaction, right? I just want to clarify that.

Yeah, that's right. I mean, our net debt at the end of the day was flat year over year, and we had the acquisition, which was $1.5 billion Canadian plus closing adjustments and closing costs. And as you pointed out, there were some capitalized leases that came with that. So when you look at it on that basis, we did the transaction, we kept the net debt level. Our debt excluding capitalized leases actually went down.

Thank you so much.

Thank you. One moment for our next question. And that will come from the line of Roger Reed with Wells Fargo.

Yeah, good morning. I'd like to just follow up on one thing, as you mentioned, being able to supply four Hills and fire bag, you know, kind of. I guess place plan and others. Does it matter? what you're putting through the upgraders in terms of bitumen and bitumen quality, what's the flexibility there as we think about the long-term question of replacing base plant production? You know, I know it's a, you know, next decade kind of question, but it's out there. And so I'm just curious, are you learning something about the ability to be more flexible with the feedstock?

You know, Roger, thank you. The upgraders have the capability of handling whatever the feed is, but the cocktail that comes from Firebag is not exactly the same as the cocktail that comes from Fort Hills. And what we've learned with the paraffinic froth treatment at Fort Hills that basically is taking the heavier asphaltenes out of it before it comes, What Peter is getting at base plant when he runs that through, we've talked in the past about getting an uplift in volume that when it goes through there, but literally we've been testing that long and hard and with more Fort Hills barrels going through. Peter, keep me honest. We've talked about the volumetric uplift of bringing a Fort Hills barrel in on kind of the 4% range. Increasingly, we're thinking it's more than 6%. And what we think is we're getting that four, but as you stir those Fort Hills barrels in with all the other barrels, they have a synergistic effect that get an uplift from a larger volume. And so there again lies what's the value proposition when you can look at where a paraffinic froth treatment bitumen gets in the market versus a fire bag. We have the ability to move barrels literally day-to-day, week-to-week to get the highest value. So all barrels are not created equal. Peter, do you have anything you'd add to that? I love this topic.

This is awesome. And actually, that is what the results are showing. North 6% yield uplift on those paraffinic frost treatment barrels from Fort Hills. Again, we can bring those into the upgrader at a maximum of 60,000 a day right now. And that's one of the things the teams do is look every day on where we're going to generate the most value for the company and what the mix is, what the cocktail is that we're bringing into those operators.

So I guess just as a follow-up on that, I mean, does that imply as you're looking out 10-plus years that there's actually a lot more flexibility in the way to think about bitumen supply? Absolutely.

Absolutely.

Yeah, no, no doubt about it. We will look at the most holistic way so that we ensure we can accurately, you know, see what value can be captured. And here again, I think this is part of what makes us a bit different than others is the way we can look at a barrel of bitumen and what we can do with it. We have options, and that will be part of as we look forward on, you know, what are the best long-term sources of bitumen. That will be very much a consideration as we look at where value can be created.

All right. I appreciate it. Thank you.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call over to Mr. Rich Krueger for any closing remarks.

Yeah, I'll just wrap up very quickly before giving it back to Troy. Thank you for the time, the questions today. We had a lot to cover. I'll just reiterate really where Greg started us. Where we are right now as we get into 2024, I believe we've got the right leadership, the right people. We're focused on the right work. We have an inventory of things that can make a good operation great. And that's exactly what we intend to do. So with that, I'll just turn it back to Troy.

Thank you, everyone, for joining our call this morning. If you have any follow-up questions, please don't hesitate to reach out to our team. Operator, you can end the call.

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