Cenovus Energy Inc. (CVE) Q4 2022 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Cenovus Energy's Fourth Quarter and Year-end 2020 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. Sherry Wendt, Vice President, Investor Relations. Please go ahead, Ms. Wendt.

Thank you, operator, and welcome, everyone, to Cenovus' 2022 Year-end and Fourth Quarter Results Conference Call. Please refer to the advisories located at the end of today's news release. These describe the forward-looking information, non-GAAP measures and oil and gas terms referred to today. They also outline the risk factors and assumptions relevant to this discussion. Additional information is available in Cenovus annual MD&A and our most recent AIF and Form 40-F. All figures are presented in Canadian dollars and before royalties unless otherwise stated. Alex Pourbaix, our President and Chief Executive Officer, will provide brief comments, and then we'll take your questions. We ask that you please hold off on any detailed modeling questions and follow up on those directly with our Investor Relations team after the call. And please also keep to 1 question, with a maximum of 1 follow-up. You can rejoin the queue for any other questions. Alex, please go ahead.

Thanks, Sherry, and good morning, everybody. Before we talk about our fourth quarter and annual results, I thought I'd take just a minute to discuss our other news that we announced this morning. After our AGM at the end of April, I will be shifting to the role of Executive Chair. John will become our next President and CEO. This is something that I've been working with the Board on for quite some time, ensuring a robust plan for executive succession, including developing strong internal candidates has been a key focus of mine and the rest of the Cenovus' Board. And I am very proud to say, in my entire career, I have never worked with this capable a leadership team as I am lucky to have here at Cenovus today. When I joined Cenovus, the feedback we received from shareholders was that the company had a -- historically, lacked a strong succession plan. One of my very early acts as President and CEO was to bring on John as CFO to help achieve 3 key priorities we've set for Cenovus. Optimize our cost structure, expand our market access and strengthen our balance sheet. And as many of you know, when and -- when John joined the company, he and I weren't strangers -- in fact, we've known each other for the better part of our careers. And I knew that John's towering strengths of discipline, accountability, work ethic and deep knowledge of the energy business would be of huge help to me as we embarked on delivering on those priorities. The entire leadership team and all the people in this company came together to deliver on those priorities, culminating with the Husky transaction and John's move to COO. I won't say it's all been a walk in the park. The reality is that we've worked through some incredible challenges along the way. But I can say with complete honesty that John and I have never been misaligned on what we believe is best for the company. I think it's fair to say we come at problems from different perspectives. And I think this diversity has actually made us a really successful team. Since the Husky acquisition, we've achieved many milestones together. I'll take a moment to revisit just a few. We delivered above and beyond our targeted synergies from the Husky deal. We continued to aggressively reduce debt, and we implemented and are executing on our shareholder returns framework. We've also evolved the asset portfolio with opportunistic A&D transactions, this to better position the company to maximize the heavy oil value chain, which will support further growth in cash flow and shareholder returns. But I think, most importantly, we've been able to create a low-cost, resilient, integrated energy company that is profitable at all parts of the commodity cycle. John has been instrumental in these efforts and our vision for Cenovus. With his breadth of experience, strategic thinking and incredible commercial acumen, there is no better person to be the next President and CEO of this company. While I could have stayed on in the role for another year or 2, Cenovus is in really great shape, and I think John has earned the right to lead Cenovus. And I don't think there could be a better time for this leadership transition. Thanks, John.

Well, thanks, Alex, and maybe I'll chime in, and thank you for those kind words. And you're right, this company has accomplished a great deal over the past 5 years under your leadership. You've really built a much more resilient Cenovus and something that I'm really proud of is we have a reputation for delivering our commitments under your stewardship. In my view, you've left the CEO chair and the company in a much better condition than you found it, which is really a great measure of success. So I'm very much looking forward to the next phase of Cenovus and continuing on the path that you've set us on. As you said earlier, you and I have known each other for the better part of our careers, including working closely together on other projects prior to us getting together at Cenovus. And through that time, we've been good friends. So I'm thrilled that you're staying on as Executive Chair and continuing your ongoing support and advocacy for Cenovus, and more broadly, the Canadian energy industry. And I'm grateful to continue working closely with you over the coming years. So thank you very much.

Well, thanks, John. As many of you are aware, an increasing -- increasingly significant proportion of my time is being spent on external efforts, including actively partnering with governments to help support Canada in achieving its climate goals, while also remaining a competitive economy in which Canadians can thrive. And next to safety, there is nothing more important to Cenovus in our industry than reaching a durable solution between government and industry to achieve our emission aspirations. Once I move to the executive chair position, I intend to dedicate even more time to this pivotal external issue for both Cenovus and our industry. Besides my Board governance responsibilities, I will also continue to work closely with John to progress the strategic direction we've established for Cenovus. I really can't tell you guys how happy I am for John in his new role and how excited I am about my continuing role with this great company and our people. So with that, maybe I'll turn to the year-end and quarterly results. And as I do every quarter, I'm going to start with our top priority, health and safety. I would like to recognize our well delivery group, which reduced its recordable injury frequency from 0.91 in Q1 2022, down to 0.53 over the full year. This performance improvement comes with focus and dedication and I am really proud of what this group has been able to accomplish as we continue to ramp up our drilling activity. Similarly, our recordable injury frequency at our Lima refinery fell to 0.1 from 0.5 in 2021. This is an absolutely outstanding result, and we are all proud of our team in Lima for this achievement. That being said, some of the recent incidents at our nonoperated refineries are an important reminder to us that we must never become complacent or take our safety performance for granted. We will be unrelenting in our efforts to ensure that Cenovus' strong safety culture is embedded at every site where we operate. This includes Toledo, where we expect to close the acquisition of the refinery at the end of this month, and at Superior as we commence start-up. Turning to our operating results, I'll begin with the upstream. Looking back on the year, there was a lot of A&D activity that helped us streamline our upstream business. By acquiring the remaining 50% of Sunrise, we now have full control to deploy Cenovus' operating model and take that asset from about 45,000 barrels per day today, back up to its nameplate production of 60,000 barrels a day and beyond. This is an excellent opportunity for Cenovus to show our SAGD expertise and the benefits of our operating model. We also sold the Tucker oil sands asset in the Wembley conventional asset this year for total proceeds of $950 million combined. These sales helped accelerate our deleveraging efforts through the year. It also allows us to focus our capital spend on higher return projects. Looking at the Q4 operating results, total production averaged over 806,000 BOE per day, up about 30,000 BOE per day from the third quarter. This is a significant achievement of our operating teams who did an exceptional job of managing through extreme winter weather in December. The conventional business contributed about $250 million of operating margin in the fourth quarter while keeping production rates relatively flat. This winter, the team was focused on adding new wells, some pre-purchasing of materials that were slated for 2023, and advancing some infrastructure projects to support multiyear development in this segment. The Asia-Pac region also contributed to the quarter-over-quarter production increase. In China, we saw our partners draw gas above daily contract rates and additional production came online in Indonesia from new wells recently completed. In the Atlantic segment, production remained relatively flat. However, with the Terra Nova FPSO asset life extension now complete, we are expecting the Terra Nova field back online in the second quarter of 2023. Turning to the Downstream. I will start by highlighting some of the successes we achieved at our operated assets over the year. The Lima refinery continues to run reliably and achieved record throughput in 2022. It generated about $1.1 billion in operating margin this year and also delivered its best ever safety performance. These results reinforce our philosophy that strong safety performance drives strong reliability, which, in turn, drives strong financial results. The Lloydminster upgrader and refinery continued to demonstrate strong utilization through the year even with turnarounds at each asset. The upgrader was able to take advantage of a wide synthetic to heavy oil diff, while the refinery continued to capture strong asphalt margins. Together, these 2 assets delivered almost $700 million in operating margin in the year. We also made significant progress on the Superior rebuild with start-up underway. The refinery began circulating hydrocarbons in mid-February, with throughput expected to start mid-March. The refinery remains on schedule to ramp up to full operations in the second quarter of 2023. And, at Toledo, the acquisition of the remaining 50% of the refinery remains on track to close by the end of February. The repair estimate stemming from the September fire is not significant, and the refinery is expected to get up to full rates by around mid Q2 this year. Turning back to our Q4 results. As we announced in early January, our downstream operations were affected by some extremely cold weather, unplanned operational events and a third-party pipeline outage back in December. This morning, we provided a detailed update in our news release, highlighting that almost all of our downstream assets were back up and running at normal rates. The exception is the Wood River refinery, where an incident in December reduced throughput modestly. The refinery's utilization has steadily increased since the 1st week of January, and is currently running at a very substantial proportion of its normal throughput rates. We expect the refinery to return to normal rates during the second quarter. Turning to our Q4 operating margins. Oil prices were lower in Q4, which impacted oil sands pricing and margins. Sales volumes were less than production as we look to avoid wider differentials in December, driven by the third-party pipeline outage. This also impacted oil sands operating margin in the quarter. However, those inventory volumes should serve as a future tailwind when sold. In U.S. manufacturing, the fall in commodity prices through the quarter resulted in a negative FIFO impact of roughly $180 million in Q4. The U.S. manufacturing operating margin includes operating costs of about $40 million to $50 million a month for Toledo and Superior. And this is really important for everyone to keep in mind given that those operating costs have been coming without any throughput to offset them. As these 2 refineries come back online and start generating revenues, the per barrel metrics of the U.S. Manufacturing segment will significantly improve. Turning to our annual financial results. I want to highlight some of the achievements we hit in 2022. I'll start with earnings, which increased tenfold from 2021. Annual adjusted funds flow was $11 billion, which we put to good use, reducing debt by more than half and investing about $3.7 billion in the business. That capital investment supports other businesses and directly generates jobs and economic benefits in the areas where we operate. The financial discipline and continued focusing on deleveraging also led to ratings upgrades by 2 of the credit rating agencies in the fourth quarter. We also tripled our base dividend in Q1 2022, and rolled out our shareholder returns framework. Overall, we delivered more than $3.4 billion to our shareholders this year through a combination of share buybacks and dividends. At the same time, we will contribute over $6 billion in taxes and royalties to Canada and $100 million of taxes in the U.S. Moving now to our fourth quarter financial results. Adjusted funds flow was about $2.4 billion and free funds flow was $1.1 billion. Net debt came down another $1 billion over the quarter and landed at just over $4.3 billion as of year-end. Under our shareholder returns framework, we've allocated half of Q4 excess free funds flow to shareholder returns, which has been delivered in the form of share buybacks during the quarter. Looking ahead, there's a couple of factors that will increase net debt in the first quarter. The first is a cash tax liability payment in Q1 of about $1.2 billion for taxes that were accrued over 2022. Secondly, we expect to close the Toledo refinery purchase for another USD 300 million, plus closing adjustments, including working capital at the end of this month. Now that we are cash taxable in all jurisdictions, taxes will be paid on a quarterly basis going forward. We have become increasingly confident we might get under our net debt floor of $4 billion around the end of the fourth quarter. However, the extreme winter weather, third-party pipeline outages, and operational challenges in December were unanticipated and ultimately prevented us from getting all the way there. Net debt has been forecast to increase in Q1 2023 above the net debt floor based on the 2022 cash tax payment alone. The issues we experienced in December delayed our forecast timing of reestablishing the net debt floor in 2023 by about 2 months. Given where net debt sits today, and assuming commodity prices remain around current levels, we now expect net debt to be above the $4 billion floor until around the end of the third quarter. While some impacts from weather and unplanned outages continued into early 2023, we remain confident in our key operating targets. Our 2023 corporate guidance remains unchanged. Turning to our plans to reduce emissions. Cenovus and its peers at Pathways Alliance, reached an important milestone in Q4. We've entered into an agreement with the government of Alberta that allows us to start a detailed evaluation of the proposed storage hub for our carbon capture project. This work is necessary to get us to the next stage in the regulatory process. A significant amount of work is underway with the Pathways Alliance as we progress feasibility studies, environmental assessments and early engineering work for the carbon capture and storage project and also advance other technologies. Conversations with the provincial and federal governments about their role in partnering with us to advance these decarbonization efforts also continue to go well. Within Cenovus, we continue to advance our own emissions reduction strategy, including progress on carbon capture and storage project plans for several facilities. Cenovus is also focused on helping support economic self-sufficiency in indigenous communities. Last year, we spent the equivalent of about $1 million a day on goods and services from Indigenous owned businesses, and we are already halfway to our target of spending at least $1.2 billion with these businesses between 2019 and the end of 2025. Now I'll do a quick recap of the year before we move to Q&A. 2022 was a really successful year for Cenovus. We improved our safety performance across the business year-over-year. We generated adjusted funds flow 53% higher than the year before. Meanwhile, we reduced net debt by more than half, while also reducing cash -- increasing cash returns to shareholders to 6.5x the prior year. That's almost $3 billion in incremental shareholder returns year-over-year. Our balance sheet is in great shape entering 2023, and we look forward to delivering even greater returns as we grow cash flow and pursue our net debt floor. So with that, we're happy to take questions.

[Operator Instructions]. We'll go to Greg Pardy with RBC Capital Markets.

And I think first is, Alex and John, congratulations to you both. Fantastic job and great to see, Alex, that you're going to continue to be involved on a go-forward basis. So maybe what I'll do is I'll pose a question that I'm getting, which has been a little surprising, but that is mainly related to just acquisitions as it relates to Cenovus. And then specifically in the upstream, and to get even more granular, it's been suggested that you may be looking in the deep basin. But as opposed to just sort of addressing the acquisition question, I'm interested in how -- what aspects of the business do you want to reshape? I'm assuming the downstream is probably predominant in that equation, but just any color would be great on that front.

Sure, Greg. Happy to talk about that. I mean like -- maybe I can kind of simplify this for people. And I'll really talk about what do I view as the key priorities for the company in 2023. And right off the bat, and I'll say this til I'm long gone, but safety is #1 for this company. And you heard me talk about the work that we've done and what we've been able to accomplish, and it is everybody's focus on getting the new assets in the company to the same level of safety that we've enjoyed in this company for all these years. So on top of that, I would say, I have 2 real focuses. The first is getting to $4 billion as soon as we possibly can. And I think John made this comment in his remarks, but people, when we really pride ourselves, when we say something, we really mean it, and we intend to deliver on it. And that $4 billion target, that is sacrosanct to us. And we're not going to sacrifice anything to get to that target. The next priority for me beyond that is really getting this new portfolio we have in the Downstream, getting it operating, once again, at the same level of operational sort of efficiency and safety and quality as we experience in our upstream business. We're bringing -- as you heard me talk about, we're bringing Superior back. We're already starting to bring it back. The Toledo deal is going to close very shortly. And everybody in this company, and particularly John and Keith, are just laser-focused on bringing those assets in and showing and demonstrating to our investors that this downstream business can perform as well as we know it can. So those are the priorities. We're not going to sacrifice anything for those priorities. And we always look at M&A transactions. I've always said we're opportunistic about that. But we will not -- we would not ever do anything from that perspective. that would materially move us from that target, that $4 billion target I've said, that is our focus.

We'll take our next question from Dennis Fong with CIBC World Markets.

I'd also like to reiterate what Greg said and just congratulate the 2 of you on kind of the next half of your career. My first question here is just related to your -- the combination of both the balance of integration, but also more specifically the refining operations. Just given what you've seen more recently with respect to some of the downtime on pipelines as well as outages by various refineries, how are you guys thinking about the flexibility of your marketing assets going forward as well as were there any albeit near-term learnings from some of the downtime experienced with Q4 that you'd like to implement on the various assets going forward?

Dennis, it's Keith. Thanks for the question. It was a pretty interesting time in December, obviously, with the weather impacts, but that also coupled with our third-party pipeline going down. I actually think the teams responded pretty aggressively and pretty well. We were actually able to ramp up our rail program in the matter of a couple of weeks and start shipping crude by rail to alleviate some of the concerns that we're starting to see in Alberta. We were able to store some barrels, that's why you saw some of the inventory growth in the fourth quarter and resell those later on at a higher market. So I think from a marketing and commercial capability standpoint, really happy with what the team was able to do. When I think about the future, and think about Superior and think about Toledo coming online, they're served by the mainline system, which is going to be really interesting for us to get our crude out of Alberta and into an integrated refinery set of assets that consume the molecules that we produce. So we see that integration as being beneficial for a heavy oil producer. And we're also pretty excited about what we're seeing even at our Lloyd refinery and Lloyd Upgrader and being able to integrate our oil sands production into those 2 assets. So that integrated value chain is pretty valuable for us, and we'll utilize both the conversion assets, but also our marketing activities to maximize that value.

Dennis, this is John. I'll just add a couple of things to what Keith said. And I completely agree with Keith that those downstream assets really give us the flexibility and optionality to perform differently in times like we saw in December when the Keystone pipeline went down and more broadly with the wider differentials. Those assets, particularly our operated assets, and performed really well. I think one of the reinforcing thoughts that we would have going through December, and we've talked about this before, is that we still have a strong desire to own and operate those assets that we're participating in. So we see the U.S. downstream is absolutely core to our strategy. And we really look forward to putting Superior and Toledo into our stable of refineries and bringing those up over the next few weeks.

Dennis, it's Alex. And now I'm going to sound like I'm really gilding the Lily here by being the third person to comment on your question. But the one other observation I would make is, I think the ability that Keith talked about to mitigate the impacts of those challenges, if we had not done the Husky transaction, we would not be remotely in the position to manage these kind of circumstances. Cenovus just did not have all of those storage resources, the other pipeline takeaway opportunities. So I -- the whole -- when we did that deal, as I said, the goal was creating a much more resilient company. And I think the response to the company during what was really a pretty significant incident was really good.

Great. Great. I appreciate that color and context from all 3 of you. My second question, maybe you followed along the lines a little bit of what Greg was asking as well. I think I kind of know the answer to this in terms of your current portfolio. But just given, as we look forward, there is, over the next few years, a ramp-up of potentially volumes out of the variety of your oil sands asset, really from kind of low cost optimization, narrows like tieback and debottlenecking. How should we think about, or how are you guys thinking about the balance of upstream exposure versus downstream exposure on an ongoing basis, especially given the multiple shifting macro environment throughout North America?

Dennis, I don't think anything has really changed. As Alex mentioned, we're kind of in a world right now where we look at our downstream exposure as well as our takeaway capacity from Alberta as keep -- putting us in a relatively beneficial spot. So I don't think that we would be of the view that we need to materially increase our takeaway capacity or materially increase our refining capacity. We're quite happy with the balances that we've got. I think, I just kind of reiterate something that Alex was talking about is and I know people are thinking about growth. But what we are really focused, on over the coming months and particularly Q1 and Q2, is getting our net debt back to $4 billion and getting these 2 refineries online and producing positive free cash flow. So I think the growth part of the agenda that seems to be coming up as a theme is something that we can probably talk about in future quarters. But right now, we are focused on getting our debt down and getting our 100% shareholder returns intact together with getting our downstream operating well.

We'll take our next question from Neil Mehta with Goldman Sachs.

Yes. Congrats Alex and John. It's awesome to have you in the role. I just wanted to start off on capital returns. Alex, you've been pretty clear that you want to take a countercyclical approach to buying back stock and didn't want to buy back stocks at the local highs. Stock shares have pulled back here a little bit. So just your perspective on the preferred return of capital mechanism versus buying back versus a more variable component as the business inflects closer to that sub-$4 billion mark?

Yes. I mean, look, we've said this many times. Our preferred method of returning cash to shareholders is through share buybacks. And I think, at the kind of valuations that we're seeing right now, we're obviously in that range where I think there's compelling value to buy back shares. But at the end of the day, we're committed to get those returns back to shareholders. And if we are trading at significantly above our NAV, we will always be thoughtful about whether we're creating value by those share buybacks. And if we're of the view that we're not, then we're still going to return that money through variable dividends. But the priority has been and remains share buybacks.

That's helpful. And the follow-up is just on the macro. We've seen a lot of volatility in the WCS differential. I recognize that you guys are much more protected than you were when you first came in, Alex, into that spread, but curious on how you see that playing out and the moving pieces? And maybe you can also comment on TMX because that's going to move the needle potentially a year out?

Well, why don't I pass it over to Keith because he can just repeat to you what he says to me every morning when I walk in his office.

Neil, thanks. Obviously, we saw the differential widen out there for a period of time and tighten back up more recently. We kind of look at it as 2 parts. We look at it as the transportation or location spread between Alberta and the Gulf Coast, and then we look at the light heavy differential in the Gulf Coast. And the good news is, obviously, with the third-party pipelines back up and running, us heading into the summer turnaround seasons and heading into a lower condensate requirement, egress out of Canada is looking pretty good right now. So we're seeing that component of the differential tighten. Down in the Gulf Coast, we're also seeing the differential tighten with Chinese demand coming back, some of the SPR releases slowing down. And then I guess the other one would be just natural gas prices coming off, which enables more processing in complex refineries and better value from processing heavy barrels. So all those things are constructive to an improving differential, and we're starting to see that and expect that to continue through 2023. TMX coming on, on the back end of 2023 is obviously going to be another help for narrowing that differential. We're really encouraged with seeing that pipeline come up. We're a large shipper on the pipeline. So really looking forward to getting barrels into a new market and actually being able to access the world with those barrels. So pretty exciting times.

We'll go next to Menno Hulshof with TD Securities.

I'll follow up with a question to Dennis is on the 5-year plan for thermal growth and Sunrise optimization and the Narrows Lake tieback in particular. I'm just looking at the slide deck. It looks like they will add 35,000 to 50,000 barrels per day over the next, call it, 2, 2.5 years. But what key deliverables should we be looking for over the next year? And what would you need to see to get to the top end of that range at 50,000 barrels a day?

It's Norrie Ramsay here. I mean, we've laid out our plan to grow notionally 3%, 5% per year. We have -- we're seeing great success actually, as we move our pipeline at Christina Lake up to the Narrows Lake area. And our plan is in place to actually start drilling up in the Narrows Lake area within the next 12 months. In optimization at Sunrise, we've seen actually great success in applying our historical Cenovus methodologies at the site. We're pleased actually to have 100% of the equity, which allows us a lot more flexibility. We have 4 pads, for example, drilling just now. So this is setting us up to fill the process plant over the next 18 months or so. And along with that, as we apply our Cenovus subsurface methodologies, examples are things like we've just drilled 2 wells that are 1,600 meters in the reservoir rather than, historically, they've only been able to maximize 800. So that really cuts the cost to give us bigger wells and more flexibility. So it's a very steady build plan. We have a lot of flexibility as we kind of go forward. And as you say, Christina Lake is going to grow. We're also going to grow at Foster Creek just through our increased number of pads that we have, and Sunrise is there. Just completed Lloyd Thermal, again, we've been applying our subsurface methodologies, looking to tie back greater distances than originally they had planned. So again, steady growth across the whole portfolio.

Menno, it's Alex. And just from kind of the way -- kind of where you went with the question, I just maybe wanted to make one thing clear, like that extension into Narrows Lake, nobody should think of that as kind of a high risk, high capital sort of phase expansion of the oil sands. This is Norrie's guys, they've already built -- the road has been built in there. They're building the pipelines. The pad work is something we've done, obviously, dozens, if not hundreds of times. So I -- we just see this as a relatively low-risk kind of natural extension of Christina Lake. So just want to sort of make sure people aren't thinking of this as some new or relatively high-risk capital project that we've embarked on.

Alex. And maybe I'll just move on to Asia-Pac. Could we get an update on regional pricing dynamics given the regional -- sorry, the recent volatility? And on the contracting side of things, and with the understanding that your largely fixed price across your Asia-Pac portfolio, is there anything that we should be aware of in terms of ongoing contracting activity or price resets? I think the answer is nothing material, but maybe you can confirm that.

Sure, Menno, it's Drew. So you're correct. Like on the contracting side around price, it's fairly set from a range bound standpoint. That will still play out for a number of years. Interesting load, you're kind of getting to the point that I think we are seeing that just before Christmas, even in December, actually, we started to see buyers and the demand really start to increase. And so we've actually been over kind of selling even on our contract volumes since December. And that's carried through here into the first quarter. And it is really around what you're alluding to here is we're seeing demand really pick up over there. So we're in a really nice circumstance at the moment actually, that we are in conversations about potentially some more supplemental agreements like we've had in the past. So those conversations are happening literally as we speak. But in a true day-to-day, week-to-week reality, we've been actually producing and selling above contract volume. But from the pricing perspective, it is price bound as per the longer-term contracts.

Menno, it's John. We actually gave you a fairly good snapshot of the netbacks that we get from our Asia Pacific business and some of the supplementary information that we send out. So to Drew's point, the gas in Asia and Indonesia is relatively fixed, but we do float on the NGL side. So you will see some variance from quarter-to-quarter depending on how much of the NGLs we sell and what price we get for them, but they're usually kind of a Brent plus basis for the liquids.

Yes. And just to finish with that, Menno, the netbacks are north of $70 per BOE equivalent.

[Operator Instructions]. We will take our next question from John Royall with JPMorgan.

Congratulations to John and on the new roles. So just if you could maybe speak to the overall impact of the Keystone outage on upstream. I know it sounds like you've built some inventories. Is it necessary? Or is there a plan to draw those inventories back down from here? And I think reports we've seen that only spot volumes are currently impacted on Keystone. So maybe you could just confirm if you're back shipping on that pipe to the levels you were prior to the spill?

John, it's Keith. Yes, obviously, the impact of Keystone through the month of December impacted both our upstream and our downstream assets. We did choose to -- if there was an apportionment on the mainline driven by some of that as well. So we had a few decisions to take in the December period. And a couple of those were to ramp up our rail program. So we're able to ship on 9 unit trains through the December, January time period. And now we're ramping that program back down. Keystone's back flowing. So egress out of Canada, we're seeing the differential come back in because of sufficient egress out of Canada. So I would say, all of our downstream assets are being fed and the inventory that we built, we will sell off into the market at higher values than if we had to try to sell it in a distressed market in December.

Yes. And just to put a finer point on it, John. And sorry, it's John McKenzie speaking. The assets worked as designed in terms of what we've built in our midstream and downstream business, as we talked about earlier. So because of the outage that we had on Keystone, we inventoried about 18,000 barrels a day of heavy oil. We expect to relieve our inventory of that in Q1. And then the other impact that we would have seen with Keystone is they did have to cut rate on the WRB refineries, which are fed off the Keystone pipeline, which would kind of be a secondary impact from that outage as well.

Great. And then just thinking about the downstream side and little bit more kind of near term on the throughput guide, and I understand you guys -- you give only annual guidance, but just hoping maybe some high-level color, and it sounds like you're getting superior with partially at some point, mid-quarter and maybe a little later for Toledo. You also have lower rates, you mentioned in Wood River, and I think some maintenance. So I realize you don't get quarterly guidance, is there any kind of high-level way of helping us think through where you might be on throughput or utilization for 1Q maybe relative to 4Q, or any other way we can think about it?

Yes, John, it's Keith. I think the way I would be thinking about it is, we had some challenges, both due to the Keystone outage as well as the weather impacts, but all of our operated assets came back up by mid-January and have been running well since then. On our nonoperated assets, Borger was back up and running at good rates by mid-January. And then with regards to Wood River, the rate cut due to the incident in early December, you should think of that as ramping up through the first quarter substantially getting back to normal throughput. Then you have to remember that there are some turnaround activities happening across our assets in the second quarter. With regards to Superior, we're happy with the progress. Obviously, this asset has been down since 2018. We've been doing the rebuild since the Husky merger, and we're now at a point where we're introduced hydrocarbons and we're working to bring in crude in the mid part of March. That will take a little time to line out, and we will work on ramping up the refinery kind of through the second quarter. Toledo, we're ready to take the ball on March 1, and we don't think we'll lose any progress on the repair and rebuild of that asset. And those repairs are looking like that will happen by the end of April, and then we will start working on restarting that asset through the May, June time frame. So all of it's coming together, a lot of it at the same time, but that's kind of how it's looking over the next several months.

[Operator Instructions]. We'll go first to Chris Varcoe with Calgary Herald.

This is a question for Alex. Alex, why did you make the decision now to step down as CEO and moving to the executive chair role as you said, you could have stayed on for maybe another year or longer, but why now?

Well, Chris, that's a good question. I would tell you -- I sort of said it at the start, but I think that a thoughtful and measured succession plan is a hallmark of a well-managed company. And I know my board thinks of that. When I joined the company I remember telling the Board that they could count on me for 5 to 7 years. And I'm kind of probably a little more than halfway through that. I'm heading towards 6 years in the company. But I would say -- I think all companies benefit by a thoughtful succession plan. And in this case, John has been such an instrumental part of the strategy and the execution of the things you heard me talk about today in my comments. I think he has amply earned the right to have a shot at leading this company. And it's not lost on me. John and I are not too far apart in age. And if I were to decide to stick around for another 2 or 3 years, I could really put John in a situation where he might time out and not be able to have a good run at leading the company. And I don't think that would be fair to John. I don't think it would be fair to the shareholders because I think they're all going to be great beneficiaries of his leadership over the coming years. So at the end of the day, I think what's best for the company and what's best for the shareholders needs to take a little bit of precedence over what might be best for me.

Just to follow up on that, I want to ask you about your new role. You talked about the fact that you're going to focus on advancing the industry and policy. I guess what do you see as those key issues that you're expecting to tackle in that role as Chairman? And why do you feel it's necessary to speak out or advocate at this time?

Well, Chris, it -- those priorities are those things you and I talk about so regularly. But it -- as I think a lot of people appreciate, over the last 2 or 3 years, an increasing amount of my time has really been spent on working on pathways on a larger scale for the industry, but particularly focused on Cenovus' GHG reduction plan. And I am a very meaningful part of pathways discussions with the various levels of government in this country about that. And I've actually been very, very lucky to have a leadership team like I have that they've been able to pick up the slack while I spend an increasing amount of time on that issue. I think it is absolutely vital that industry, the federal government, the provincial government come to some type of durable agreement as to what our emission reduction ambitions are, and that we put in place a structure to make sure that industry can do that while maintaining this incredibly important industry for the country, for Canada, for Alberta. I suspect this industry is probably going to represent somewhere around 10% of the country's GDP this year. And I think it's just incredibly important for Canadians that we find a way for this industry to be able to continue to thrive. And the way we're going to do that is by constantly improving our environmental leadership.

Finally, I just had a question for John. John, what will be the key issues for you going forward? And I guess, I'm particularly curious in what significant changes or differences in focus will we see, if any, under your leadership, whether it's in terms of production, downstream expansion or anything else?

Yes. So as Alex mentioned in his opening notes, he and I have worked very closely together over the last 5 years. And what I've really focused on is running the day-to-day of the company, where Alex has been more overly focused, particularly over the last period of time, with this involvement in pathways. So I would tell you, Chris, that both Alex and I have our fingerprints all over the corporate strategy, and that we develop this in a partnership together with the rest of our leadership team. So I don't think you're going to see much of a change. I think it's -- is going to be very similar to what you've seen before as we kind of continue on the trajectory that we've been on for the last 5 years.

We'll take our next question from Ashok Dutta with S&P Global Platts.

I had a question for Keith, if I may, please. Keith, do you want to take a guess or share what would be Cenovus' views on WCS and TI differentials average for 2023?

Tell me too, Keith.

I think if I could guess that, I may not be sitting here, but I think it was kind of in my previous answer to the differential question. The structure of the differential is improving, both from egress out of Canada. We head into the summer months, upstream production comes offline for turnaround activity. The barrel gets a little lighter with less condensate so there's actually less barrels that move out of the province. So that differential is narrowing. And then I think just from a U.S. Gulf Coast fundamentals, if natural gas prices coming off and the SPR releases slowing down and Chinese demand coming back, we're seeing a firm bid on WCS out of the Gulf Coast. So those 2 things coupled together, I think we're more likely to see the differential narrow then widen through 2023.

Okay. Understandable. A quick follow-up. So you talked about 9 unit trains, how easy or difficult was it or was it a challenge to get rail cars back on track?

Yes. It's an interesting question. We built a lot of flexibility into our rail program when we laid it up back in the 2020 time period. And it's a testament to the marketing commercial folks on quickly being able to set up agreements and restart the rail program. So when Keystone went down, and we started seeing inventories build in Alberta, we quickly turned on our rail program, and we're able to load 9 unit trains and offload them down in the Gulf Coast. So -- and then we're quickly able to turn that program back off. So it's just a testament to the flexibility that the company has built over the past few years.

And 1 last question. When was the last time crude on rail?

We're continuously moving some crude by rail. There are some refiners that are not pipeline connected. So it's an ongoing program, but the ramp-up was a little bit different.

That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Mr. Pourbaix for any additional or closing remarks.

Well, thanks very much, operator. And I have to say with all of the excitement about John and I, a number of our shareholders and other followers might have missed a very important thing that also -- we also did this quarter, and that was we promoted Rhona DelFrari to Executive VP as she was already Chief Sustainability Officer. And I -- from my own perspective, she literally demonstrates the top decile professionals in this field, and we are very happy to do that and happy to give her that promotion. So with that, I will -- I'll pass it back to you, operator, and thank everybody for your time and listening to us today.

Thank you. That will conclude today's call. We appreciate your participation.