Cenovus Energy Inc. (CVE) Q3 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Cenovus Energy's Third Quarter 2014 Financial and Operating results. As a reminder, today's call is being recorded. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of Cenovus Energy. I would now like to turn the conference call over to Ms. Susan Grey, Director, Investor Relations. Please go ahead, Ms. Grey.

Thank you, operator, and welcome, everyone, to our third quarter 2014 results conference call. I would like refer you to the advisories located at the end of today's news release. These advisories describe the forward-looking information and non-GAAP measures referred to today and outline the risk factors and assumptions relevant to this discussion. Additional information is available in our annual information form. The quarterly results have been presented in Canadian dollars and on a before-royalties basis. Brian Ferguson, President and Chief Executive Officer, will begin with an overview of our quarterly results and then turn the call over to John Brannan, Executive Vice President and Chief Operating Officer, who will provide an update on our operating performance. Brian will then provide closing comments before we begin the Q&A portion of the call. Please go ahead, Brian.

Thank you, Susan. Good morning. Before we discuss details of our performance, I would like to offer condolences on behalf of everyone at Cenovus to members of the military across this country. We've shared a decades-long relationship with the military because of our operations on the Cold Lake Air Weapons Range and CFB Suffield here in Alberta. The events in Ottawa and Québec this week are appalling, and our thoughts are with those men and women who serve our country and their families. Now onto our results. In the third quarter, we continued to deliver predictable and reliable performance. As detailed in our September news release, we achieved first production from Foster Creek phase F expansion. This expansion phase bears a significant amount of infrastructure and reduces the execution risk of the next 2 phases. We also provided an update on capital costs, which John will discuss in more detail. Despite a weaker commodity price environment in the third quarter, we continued to generate significant cash flow from our upstream business. We completed a small-scale planned turnaround at Foster Creek with minimal impact on production and continue to bring on new wells, including wells using our Wedge Well technology. Both of our oil sands plants ran very well over the last 2 months, averaging near nameplate capacity. Our downstream business faced headwinds in the quarter, resulting in lower realized margins. We reported $64 million in operating cash flow from Refining during the third quarter. Using the LIFO method as U.S. refineries do, our operating cash flow would've been $53 million higher or $117 million. Year-to-date, our Refining business has generated over $400 million in free cash flow, highlighting the value of our integration. Our Conventional oil and gas business performed very well, generating $283 million in free cash flow. We completed a divestiture of approximately 2,800 barrels per day of heavy oil near Wainwright. This deal closed on September 30. Net proceeds to Cenovus were $234 million. We booked $137 million gain on the divestiture. These assets were non-core and not part of our long-term strategy. We will continue to evaluate our portfolio for other divestitures of non-core assets. We have provided an update to our corporate guidance, reflecting actual results for the first 9 months and our expectations for the fourth quarter, based on updated commodity prices. For the year, we now expect total cash flow to be in line with combined capital expenditures plus dividends. This leaves us in a very solid financial position towards the bottom end of our targeted debt ranges. I'll ask John Brannan, our Chief Operating Officer, to provide additional details on our operations during the third quarter.

Thank you, Brian, and good morning. Operationally, we had a very strong quarter across all of our assets. And I'm extremely pleased with the way our Foster Creek and Christina Lake plants ran. As previously released, we had some minor plant downtime in July at Foster Creek. However, August volumes were strong, averaging approximately 119,000 barrels per day growth with no production contribution yet from phase F. We also completed a small-scale planned turnaround at the end of September. The impact on production was minimal as we ran the volumes through the new phase F plant. September volumes were approximately 120,000 barrels per day growth. In the third quarter, we brought on another 12 wells using our Wedge Well technology at Foster Creek, along with some additional sustaining wells. As is normally the case, we are experiencing some flush production from new Wedge Wells. We expect to bring on another 10 Wedge Wells in the fourth quarter and exit the year with approximately 5,000 barrels per day growth from phase F. We are pleased with recent production, but continue to guide to longer-term expectations for plant utilization to run between 90% and 95% during the calendar year. Steam to oil ratio, or SOR, during the third quarter was 2.8 at Foster Creek, slightly better than expectations, despite the new 90-day steam circulation start-up procedures. In September, we provided an update on capital cost at Foster Creek. With phase F final cost and revised estimates for phases G and H, we expect all-in cost, including optimizations to be in the $35,000 to $38,000 per flowing barrel range. This includes between 15,000 and 35,000 barrels per day of optimization, expected after completion and ramp-up of phases F, G, and H. The biggest driver of the capital cost increase was additional scope related to the incorporation of lessons we learned from phases A to E into future expansions. This was largely focused on plant reliability, as well as down-hole items to improve well conformance. Other design changes include some work to meet new regulatory requirements and enhance safety measures. Operating costs at Foster Creek in the third quarter were lower than the first half of this year and comparable periods of the prior year. This was due to lower workover costs, higher production, and lower fuel cost. In addition, during the quarter, a review of our 2014 re-drilling programs at Foster Creek was performed, and it was determined that the work undertaken was beyond the normal scope of recurring maintenance and in fact enhanced the future production capabilities. As a result, about $9 million net of these costs have been capitalized in the third quarter, which reduced our overall quarterly operating cost per barrel. Year-to-date operating cost of $17.65 per barrel are indicative of our current run rate and in line with our guidance for the fourth quarter. Christina Lake continues to demonstrate strong performance, operating near nameplate capacity during the third quarter. Our success is due to strong well productivity and SOR performance. SOR averaged 1.7 in Q3, better than expected. It is important to note that this is without any pads on blowdown and only 10 Wedge Wells on production. While we certainly look to replicate this performance going forward, as with Foster Creek, we continue to aim for long-term plant utilization of between 90% and 95%. Christina Lake operating cost declined about $1 per barrel in the quarter. This was primarily due to an increase in production, lower SORs, improved performance of our facilities, and a decline in fluid and waste handling and trucking costs. We believe this is one of the best SAGD operating cost in the industry. Several factors reduced profitability of our refineries in the third quarter, including lower throughput due to planned downtime with Wood River and unplanned outage at border and lower crack spreads compared to earlier this year. Of the $114 million in inventory gains we booked in the first half of 2014, because of the rising price environment, we have now offset $53 million and it was reversed out in the third quarter using the First-In, First-Out method, as benchmarked crude oil prices fell significantly throughout that period. As Brian mentioned, year-to-date free cash flow from Refining has still been very strong at over $400 million. In -- on the transportation and marketing side of the business, we increased unit train shipments to 18 during the third quarter using our firm capacity on the USD-Gibson rail loading facility at Hardisty. We continue to believe that having the option to move barrels by rail to complement our portfolio of pipeline commitments over the next few years will be beneficial and feel that continuing to develop new markets by rail will improve our oil sands netbacks. The Canexus Bruderheim facility has resumed loading unit trains after the tie-in of the Cold Lake pipeline. This takes our total rail loading capacity to 30,000 barrels per day. We're pleased with our third quarter operating performance and our focus remains on maintaining predictable and reliable performance. I will now turn the call back to Brian.

Thanks, John. Our planning for 2015 is currently underway. We will hold a conference call on December 11 to discuss our budget for next year. Our 2015 capital program will be more oriented to assets that generate near-term cash flow and earnings, and less on longer dated barrels in our inventory. We expect 2015 capital to be similar in magnitude to 2014. We will maintain flexibility and optionality in our capital program in light of the current weakness in commodity prices. Our projects are still expected to generate strong economic returns due to our low supply costs. Our focus remains on total shareholder return, including a dividend growth strategy. Over the summer, we spent a good deal of time assessing the potential of our fee lands and royalty production. It is clear that there is more potential on these lands than we are currently realizing. We are assessing our options to maximize shareholder value and expect to announce a decision next quarter on what our plans will be with regard to our fee lands and to our royalty interest production. With that, the Cenovus team is now ready to respond to your questions.

[Operator Instructions] Your first question comes from Greg Pardy with RBC.

Brian, can we just go through the last point you mentioned. So just to be absolutely clear then it sounds that you would see much higher value than for your fee simple lands and royalties and so forth outside the company as opposed to retaining it? Is that fair?

I think to really relay what I said is, we think that there is a lot of potential on the lands and there are further opportunities than what we're currently pursuing. We have not made a decision yet as to what and how we will proceed, but we will be doing that as part of our budgeting process. And as I said, I expect to be in a position to make a decision next quarter.

Okay. Really, a bunch of granular questions because it was a standout quarter for sure. Just in the downstream operations sector, I'm curious whether Wood River has come back up and how much heavy oil you would've processed on average or ballpark through the quarter?

I'll ask Bob Pease to respond to that question.

Yes. The Wood River turnaround has progressed well at completing through the turnaround and actually coming into startup phase right now. So things went well during the turnaround. We're encouraged by what we expect out of it. As far as how much heavy crude will be processed, the refineries do optimize based on the economics of the different crude choices. In the past quarter, we saw some improved economics on some of the other grades besides our bitumen heavy grades. So we expected to -- the bitumen to be a high portion of the total crude range. But whether or not we'll see an increase will be driven by market economics and values at the refinery.

Okay. Just interest with the workovers or the capitalizing the workovers then, should we think about Q3 as sort of being a one-off? And by and large, on a go forward basis, I know you mentioned $17 op cost at Foster Creek is a run rate. But generally, was that more of a one-off in terms of the adjustments you made in 3Q?

Yes, Greg. This is John Brannan. Yes, that was a one-off. Typically, we have done that quarter-to-quarter. For some reason it ended up getting done 2 quarters in the third quarter here. And we expect it -- clearly, we had about $1.60 or so adjustment there. But we have about $4 down on our overall operating cost. So both between -- the steam to oil ratio are a little better than we expected. Our volumes are clearly a little bit better than we expected. Gas prices were down. And in general, we are having fewer workovers. We caught up on all of our backlog and new completions and other things that we put in there are performing better. So we are spending less on the way forward for workovers. I would expect somewhere around $17 to $17.50 operating cost on a way forward with these gas prices.

Okay, great. And then just, if you'll oblige me, 2 other quick ones. In terms of the -- you got 11,500 barrels a day on TMX. Was that generally production that would've come from Foster Creek and Pelican? I'm just wondering because there is a pretty significant difference in the realizations quarter-to-quarter.

Yes, this is Bob again, Greg. The volumes we have moving down Trans Mountain come from across our portfolio and not just a single site. So we look to optimize which markets we move the different barrels to and we have some flexibility and some trading capability to get different grades to different markets, depending on which is most optimal.

Okay, great. And last one is just Pelican Lake still looks like it is dragging its behind. Can you give us just maybe any update in terms of the performance of the polymer flood, number of rigs, and just how you're thinking about capitalizing that one going ahead? And that would be the last one for me.

Greg, actually, I'm starting to be more and more encouraged every day when I get the production results from Pelican Lake. The numbers for the previous -- for this quarter were a little bit down than expected. But that was due to -- we had in the past month a bit of a turnaround and that cost us a few hundred barrels of production. But actually, August was the best month at Pelican Lake. And we're doing strong again now in October. So, I think, we'll come at the end of the year, 25 plus kind of number. So it's starting to come up a little bit. We do have a 1 rig program there. That's clearly offsetting the declines and helping us to grow a little bit. The high pressure pads that we're focusing on with that 1 rig have performed as expected. And we are still filling up and pressuring up the lower pressure ones. And as those pressures start to come up, we'll see some performance out of that. But at this point, it's a 1 rig program. We don't expect to accelerate that at all.

Your next question comes from Benny Wong with Morgan Stanley.

If crude prices stay at the current level in the foreseeable future, how you guys think about your growth plans and capital allocation between your assets? Is your conventional assets the first option to reduce CapEx? Or does it make more sense to slow down the spending on further oil projects like Narrows Lakes or Grand Rapids? And I got a quick follow-up.

Thanks, Benny. As I mentioned in the call notes, we expect that our capital expenditures in 2015 to be a similar magnitude to this year. We have very strong supply cost, low supply costs on all of our oil sands, as well as our Conventional production. It's obviously easier to choose how many rigs you want to run on the Conventional program rather than phases on our oil sands. We are, at this point, as you are aware, completing the expansion at Foster Creek which will add 90,000 barrels a day to take us to 210,000 barrels a day. So we're committed on that to complete that in 2015, 2016. At Christina Lake, we're proceeding with the optimization next year. And as subsequent phase, which the regulatory approval of 50,000 barrels a day. So we're committed on those programs. We will look to make sure that we do have flexibility in our looking at overall balance sheet to make sure that we remain in a very solid financial position despite what commodity prices may be doing.

And just a quick question. Can we expect an update on the cost for the future phases of Christina lake, F, G, and H in the near future?

Yes. We will be reviewing that and we will provide an update in the future.

Your next question comes from Phil Gresh with JPMorgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: First question is with respect to just the pricing and there was 1 question before just asked. Someone was asking about the realizations that you're seeing. It's actually been 2 quarters in a row that they've been pretty solid. So just can you provide just any color in general about what's been driving that relative to the industry benchmarks?

I'll get Bob Pease to respond to that.

There were 2 basic components of this. There is a market component and we've seen it strengthening overall of Alberta-based crudes as the WCS to WTI prices narrowed. For a lot of reasons, the increased capacity online and the lime fields associated with that additional rail capability. Additionally, we've been taking a number of actions to increase our realized revenue relative to those benchmarks, principally through increased market access. We're moving a higher percentage of our barrels away from being marketed just in Alberta, and we've seen those to be profitable for us. As we've expanded our customer base, we're seeing improved relative prices. Our discounts associated with high-TAN crude have narrowed almost like a barrel here in this past quarter. We've also seen some lower cost of getting to market as we've got more efficient around our rail operations and our marine operations as well. So it's a combination of both -- just market fundamentals and specific actions we've been taking to expand our access to that. Phil M. Gresh - JP Morgan Chase & Co, Research Division: And as you increase your rail access, how would you expect that delta to be impacted?

Well, we expected like anything that have some relative volatility. I mean, right now, the rail uplift is diminished and -- but it comes and go. We think it's a very fundamental component as we look forward. So we see these -- you'll see us increasing our ability to market more barrels outside of just the Edmonton and Hardisty locations. And we expect that to remain profitable component of our portfolio. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay. Second question is just with respect to the downstream. The fourth quarter guidance was essentially breakeven cash flow. I was wondering if you could maybe -- if some of you break out some of the components of the -- behind that outlook, obviously there's the outage impact. But are you assuming that industry fundamentals worsen in the fourth quarter or just anymore color you could provide around some of the moving pieces there?

Right, right. Actually, we still expect even though we're seeing headwinds against Refining margins for the fourth quarter. For the full year, we still expect to be right on guidance. As Brian and John indicated, we're ahead thus far. So the only thing we're really looking at that the turnaround as we indicated. Wood River is coming to an end. It looks very good. And so our capability to process through the fourth quarter looks very solid. So our projection is simply based on the current view. If you look at the forward curve, if you look at the strip, the crack spreads is just depressed currently in the fourth quarter, principally gasoline cracks. And we're seeing WCS price again, which is good for the company is being a very strong relative to a lot of other grades in the U.S. But that offsets in opportunity to the refinery. So this is really just a market perspective at this time. From an operational standpoint, we look very solid. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Got it. You said there are no carryover inventory effects in the fourth quarter as well relative to what you had in the third quarter?

Well, no, we will probably see if prices stay where they are, an additional negative FIFO adjustment having to take place in the fourth quarter because prices have declined relative to where they finish the third quarters. That is a component of the forecast as well.

Your next question comes from Paul Cheng with Barclays.

Just sort of quick question. On -- in terms of the rail operation, can you tell us that in the third quarter, what this the uplift in your price realization on those that you ship?

That's a -- I think for competitive reasons, we'll probably better not to give you a specific price uplift on rail in third quarter, but it was positive.

Okay. Brian. In terms of your -- the fee lands and the royalty fee position, can you just remind us that how much is the contribution to the company currently from those position from those lands?

Yes, we haven't given a specific cash flow contribution from those, but we've got approximately just under 8,000 BOE a day that is currently royalty production from our lands.

And that -- do you also have -- 8,000, it's just for own production, right?

That's our share of the royalty production, yes.

Right. Is there any production -- right, I mean, you just sold 2.8 -- 2,800 [ph] barrels per day to someone else you said. Is that 8,000 including whatever is the third-party production in your land position?

No. That sale was effective September 30.

No, I understand that. I'm saying that you're inefficient. I'm trying to understand that the 8,000 you're talking about is it all currently you're producing or that's including whatever is the third-party that your producing in your land already?

Yes. That's correct. It is third-party.

Okay. So you're just including everything?

Yes.

Okay. And based on Brian, your earlier comments in terms of the CapEx. It seems like if oil price stays here, you feel pretty comfortable. You're not going to change your CapEx program. So can you give us some kind of idea that at what pricing condition and how long they will sustain before you start -- we're looking at your program.

Thanks, Paul. So we do have, as I mentioned, committed capital that is well underway in terms of expansions at both Foster Creek and Christina Lake. So we'll certainly be proceeding with that. That is running approximately $2 billion of committed capital, which is our safety, our maintenance capital, our capital complete already approved expenditures. So that's kind of a base level of capital. Beyond that, we have discretion on what we choose and how we choose to invest. Before we make any decisions with the regard to growth capital, we take a look at our dividend and what our commitment is there currently. It's a little over $800 million annually. And as I mentioned, we do have a dividend growth strategy. We'll then take a look at -- based on our overall balance sheet capacity, what we think is a prudent level of capital investment to invest in -- reinvest in continuing to grow our business. So that's a general process in terms of capital allocation. We do have several weeks yet to go before the end of the year we'll see how things continue to unfold. But you should really expect us to be very prudent in terms of any decisions with regard to that growth capital beyond $2 billion as to how much we actually choose to invest in 2015 or subsequent years as well, depending on the macro environment, which we're facing. So we do have a lot of flexibility there.

Your next question comes from Mohit Bhardwaj with Citigroup.

Brian, just wanted to sort of get to your thoughts on the process that you followed over the summer while assessing. Obviously the market conditions -- the PrairieSky IPO and your fee land position? Just -- could you just walk us through the process, what did you think, how are the assets as far as your core plan is concerned? What was the process that you went through?

It's -- thanks for the question, Mohit. Rather then getting into a lot of specific details here on the conference call, I'll describe in general, what we've really being doing is to me the most important thing for us to do was to, really, make sure we understood very clearly exactly what the potential is on our lands. And on our fee lands, and all of the nature of the agreements that are currently in place there. So said that -- as we review that and we've got about 70% of our conventional lands are fee lands and we've got -- we see lots of potential there as we go forward. So wanted to make sure we clearly understand that before we make any decisions with respect to how we may structure that as we go forward. As said, we are currently assessing how we believe we can optimize the shareholder value. And I expect that I will be making a decision next quarter on that, that we are in a position to announce what our specific plans are.

No, thanks -- thanks for clarifying that. And just on Telephone Lake, the regulatory process has taken a little longer. Just any thoughts on that?

Yes. As we mentioned in the news release, we expect to get regulatory approval there soon. And certainly, this quarter. So things, I think, are proceeding well. We have not experienced any concerns or issues from the regulator, and I think we're very comfortable at the progress we've made.

Yes, and, I think, you guys have answered this question in different ways so far. So it seems like the acceptance of Christina Lake blend along with your hedging program is working well. If you look at the realizations that you're getting specially for Christina Lake as a percentage of WCS, that's improving. And, I think, if you could just clarify one more time. Is just the acceptance is increasing and also just in general the WCS pricing has been strong. Are those the main reasons why that's happening?

This is Bob. I would say that's an accurate statement. It is both the combination of the market. But again, as a market, the tightness on the differential is a result of actions taken by ourselves and others to get more access, increase pipeline space, increase rail capacity. A wider spread of customers to get a better base and an opportunity to move grade. So, yes, I mean, it's all those factors. And we are very pleased with the direction it has been moving.

[Operator Instructions] Your next question comes from Arthur Grayfer with CIBC.

I have a few question for you. They are a bit all over the place. The first question is on the royalty land. With the fee production do you have 8,000 barrels a day? Can you talk up to what is the cash flow from that 8,000 barrels a day?

Yes. Year-to-date, 122 million.

Okay. So roughly -- okay. $40 million a quarter, give or take. Okay. The second question then really is -- say for arguments sake that you were to look at spinning out the fee lands or even pursuing a sale in -- and you received something of that other participants in the marketplace enjoy for multiple. What would you do with those proceeds? What are some of the options you'd look at doing with those proceeds?

All right. Arthur, thanks for question. As I mentioned, we expect to make a decision next quarter on how we plan to maximize shareholder value rather than get into speculation right now as to what we might do in terms of use of proceeds. Clearly that would be one of the key criteria we'll be looking at as we go forward. But I would not want to get into speculation on that at this point.

Okay, it's fair enough. You do highlight that next year's CapEx would be similar to this year's. And you do have a dividend growth view, right? So can we talk a little bit about how should we think about what that dividend growth can look like? What are the parameters that we can think about? Would it be simply 10% per year? I don't think that would be that simple, but what do you need to see that dividend growth?

All right. Just to reiterate. In each of the last 3 years, we have increased our dividend by 10%. We will be making a decision and the recommendation to the Board of Directors in the first quarter of next year as to what level, we believe, is sustainable as we go forward. As a general guideline, I think as we continue to mature as an organization, and we have a higher proportion of sort of our base level production that if we would've planned to pay out somewhere between 20% to 25% of after-tax cash flow on a sustained basis, I think that that's kind of a reasonable parameter. As it relates to any particular year, we will be making that decision for 2015 in February.

Okay, great, that's helpful. And the last question is you highlighted that the budget for next year will look similar to this year with a focus on near-term goal projects. You've repeatedly said that you're not going to -- Foster Creek and Christina Lake expansions and optimizations are going forward. But how do I think about the longer-term growth profile? If you're spending more money on near-term projects, how does that affect maybe Narrows Lake or anything kind of post-2017 time frame? Does that mute that growth profile? And what are your thoughts there conceptually speaking?

Right. I think what you should expect from us, Arthur, is to continue to look at how we bring forward the many different projects and phases that we have. There -- our additional phases at Christina Lake, there's potential additional phases at Foster Creek. We have also, as you're well aware, regulatory approval at Narrows Lake, which is 130,000 barrels a day gross. At Grand Rapids, we currently have, which is 100% Cenovus project. We have 180,000 barrels a day. Regulatory approved project there for 100% Cenovus. Telephone Lake, the first phase there is 90,000 barrels a day, which I mentioned. We expect to have regulatory approval on that very soon, this quarter. So it really gives us a portfolio of opportunities in which we can choose how we want to allocate capital. We are -- our growth rate has and will be an outcome. It is not a target for us. We want very much focus on value. We want very much focus on continuing to improve our cost structures. So those will be the key things that we'll be focused on. But as a general parameter, it's got to be value-driven and accretive to shareholders. So we're not going to target a specific production growth rate.

Your next question comes from Fai Lee with Odlum Brown.

Brian, in terms of your supply cost in your slide deck presentation, it shows about $35 to $65 range. If I to look out on a WCS basis, how much does that range actually decrease, if any?

So that -- those supply costs are based on clearing a 9% after-tax rate of return on the various projects. So there's a number of variables in there in terms of differentials, WTI equivalent natural gas prices, those sorts of factors. And the ranges that we've got out of that $35 to $65 we think is still pretty good range to be thinking of when you're thinking about Cenovus' future investment opportunities.

Right. But is that done on a -- at WTI basis because, I guess, the differential moves around and that's why I'm curious.

Yes, that's correct. That's a WTI equivalent.

Okay, so it's actually in lower in -- on a WCS basis, I would assume?

Correct.

Okay. And FX, can you comment on -- that could also change because I don't know what time -- I don't remember what FX rate you're using at the time to calculate that. Has it changed significantly?

FX would've been in the $0.95 range.

Okay, that's great. And in terms of the accounting change for the 2014 drilling program, has that already been cleared by the auditors? I'm just wondering if there's any risk at some point saying that may be reverting back to expensing it or is that kind of already been cleared by the auditors?

It has been discussed and agreed to with the auditors.

We will now take questions from the media. [Operator Instructions] Your next question comes from Harry Mateer with Barclays.

I submitted that before the media request, but 1 question for me. Just how should we think about the room you currently have between your leverage sit today and the top end for your range? Is that something that you think provides you with strategic flexibility? Or is it more about providing your commodity price downside protection?

It's very much more of the latter. We will continue to be very prudent. We are currently BBB plus with S&P and BAA too with Moody's, maintaining a strong investment credit rating is very important to us, and we do not intend to push the leverage on our balance sheet.

Okay, and then when I look at your debt, I mean you have no near-term maturities, but you did some fairly chunky coupons on the -- some of the original debt that you issued back in '09, the 19s and 39s. Are there any opportunities to potentially take those early and refi them given the rate environment we're currently in?

I'll ask Ivor Ruste, our Chief Financial Officer, to respond to that.

Thank you. No. We like our capital structure. We've been pushing that out taking advantage of some pretty long-dated debt with 30-year notes. I think our average coupon rate is close to 5%, 5.5% on all of that debt portfolio. So we continue to monitor opportunities to buy back any of that debt if appropriate in circumstances. But at this point in time we don't see any specific need to do that.

Your next question comes from Eliot Caroom with Bloomberg.

I was just wondering -- I see that you have committed service on plan against [indiscernible] which you're expecting at 50,000 barrels per day in the fourth quarter. Since we're getting there, I was just wondering if you've had any insight into the timing of the startup and whether you still impact average 50,000 barrels a day in the fourth quarter or less than that if it starts later?

Yes, this is Bob Pease. That is correct. We do have 50,000 committed space. The startup -- we're in the middle of line fill right now and expect full deliveries to begin in December. So for the quarter the average obviously won't be that high. But so far, our ability to find the customers to move those volumes looks good. There's always the issue of potential or apportionment on lines and issues upstream of a given segment of a line, which could impact the total number. But we expect to be able to fully utilize our space into attractive markets in the Gulf Coast starting in December.

Your next question comes from Jeffrey Morgan [ph] with Financial Post.

My question relates to the Canexus terminal, which ties into the Cold Lake pipeline system, which has been delayed a couple of times and news this morning that -- further delay. How does this affect the company's business and deliveries out of the Cold Lake?

I'll ask Bob Pease to respond to that.

Yes, we have no issues at all with moving all of our Cold Lake or any of our other production. The delays in Canexus have obviously decreased our total amount of rail movements. But we're in a position now -- Canexus is returning this quarter to us. We have the ability to move 30,000 barrels per day. Again, if the current economics, a little bit of delay right now is not significantly impactful. But it is part of our key long-term strategy. And we're comfortable that, that terminal is coming back to the level of operations that we expect of it.

[Operator Instructions] There are no further questions at this time. Mr. Ferguson, I turn the call back over to you.

Thank you for joining us today. That concludes our call.