Imperial Oil Limited (IMO) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Imperial's Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to your host. David Hughes, Investor Relations. You may begin.

Thank you and good morning everybody. Thanks for joining us on our second quarter earnings call. I'll start by introducing you to who is in the room. We have Rich Kruger, Chairman, President and CEO; Dan Lyons, Senior Vice President, Finance and Administration; and Theresa Redburn, Senior Vice President, Commercial and Corporate Development. Just before we get going, I want to start by noting that today's comments may contain forward-looking information. Any forward-looking information is not a guarantee of future performance, and actual future financial and operating results could differ materially depending on a number of factors and assumptions. Forward-looking information and the risk factors and assumptions are described in further detail in our second quarter earnings release that we issued earlier this morning, as well as our most recent Form 10-K, and all those documents are available on SEDAR, EDGAR, and on our Web site. So, please refer to them. When we get started here, Rich is going to open up with the business overview, and then turn it over to Dan Lyons, while is going to provide a financial overview for the quarter. Then Rich will provide some further details on the operating performance, and once we are through that, we will turn it over to Q&A. We have had some questions submitted via the Slide O application earlier this morning. So, we will be mixing those in with live Q&A. So with that, I will turn it over to Rich.

Good morning. Before I start detailing the second quarter results, I would like to offer a few comments on the overall business environment, and I will focus my comments in two areas: crude prices or the price environment, and then, politics and policies. First of all, prices, WTI about $60 in the quarter, a bit higher 5 bucks a barrel are still so higher than the first quarter. And about $8 a barrel lower than it was a year ago. So somewhere in the range of what we will spend a lot of time comparing to. You saw the Canadian light or MSW up -- essentially the same, $5 a barrel quarter to quarter, and then Canadian heavy or MSW was up about $7 a barrel in consecutive quarters. Average $49 in 2Q. So consequently if you take quarter-over-quarter differentials, they have remained essentially flat year to date. The MSW to WTI at about $5 a barrel for both the first and the second quarter, and then the Canadian heave or WCS to WTI averaging between $11 and $12 a barrel across the two quarters. On politics, on April 16, Jason Kenney was elected the new premier of Alberta. And I would characterize it as that his government has not wasted any change in many -- any time in making pro business changes. Some of the changes most notable for the oil and gas industry, bill number one, which repealed the prior administrations carbon tax, this will result in annual savings for our company. The amount remains to be determined. And bill number three, which reduced corporate income tax rate from 12% to 8% over four years starting this year, this is detailed -- or is detailed in our second quarter release we will talk more about, this reversed an increase four years from 10% to 12%. The government of Alberta's curtailment program has remained in effect with modest easing of constrained volumes over time, and I'll offer more comments on this program and its impact on us throughout the review. So with that, I am going to turn it over to Dan to go through the financial performance before I come back and talk more about operational performance.

Thanks, Rich. Good morning everybody. I will start with our net income. Second quarter net income was slightly over $1.2 billion which included a $662 million favorable impact from the Alberta corporate tax rate change that Rich referenced. On July 28, Alberta government's bill 3 received Royal Assent and came into effect. So Imperial has substantial deferred tax liabilities, and the rate reduction reduced those liabilities and generated that one-time gain. The $660 million roughly benefit is split between $690 million benefit and the upstream actually a slight negative for downstream of $10 million and a slight negative for corp and fin of about $20 million. Now excluding this impact, Imperial earnings were $550 million, up $257 million from the first quarter of '19, and up $354 million from the second quarter of 18. Relative to the first quarter of '19, upstream earnings increased more than $900 million. Excluding the tax impact, upstream earnings increased almost $240 million to just under $300 million. That was driven by higher prices and higher volumes. Relative to the first quarter, downstream earnings were flat as higher margins were offset by planned maintenance and a fractionation tower incident at Sarnia that we will talk about more later. Moving on to talk about cash, cash generated from operating activities was $1 billion in the second quarter essentially the same as the first quarter of '19, so, for the first-half just over $2 billion of cash generation. That's the highest cash generated from operating activities for the first-half since 2014 where we generated just under $2.1 billion. It's interesting to note that Canadian heavy or WCS averaged $79 a barrel in the first-half of 2014 five years ago whereas in the first-half of 2019 it averaged just $46 a barrel. Clearly, our integration and balance across the upstream, refining, and petroleum product sales continues to support the strength and resiliency of our cash-generating capability across a range of market conditions. Moving to capital expenditures, in the second quarter, those totalled $429 million, bringing the first-half of 2019 to $958 million. Upstream expenditures of $673 million represented 70% of the total in the first-half. We had spending on key projects in both the upstream and downstream, these included the Kearl crusher, Aspen, albeit in the case of Aspen rapid down, it includes the Strathcona Cogen project and the Alberta products pipeline, those together totalled $420 million in the first-half. Recall after the first quarter we modified our CapEx guidance for the full-year to take account for the slowdown of the Aspen project our guidance at that time was a $1.8 billion to $1.9 billion for the full-year. Our current outlook is consistent with that guidance. Moving to dividends and share buybacks. Our capital allocation strategy remains unchanged. We want to maintain a strong balance sheet pay a reliable and growing dividend, invest in attractive growth opportunities and return surplus cash to shareholders through buybacks. Our balance sheet remains strong. We have $5.2 billion of debt, 70% debt to capital ratio at the end of the quarter we had $1.1 billion in cash. In the second quarter, we paid $147 million in dividends at $0.19 a share an increase from $132 million and $0.16 a share in the second quarter of 18. In July, just a month or so ago we paid $169 million in dividends at $0.22 a share consistent with our announcement in April to increase the dividend by an additional $0.03 a share from the dividends paid in the second quarter. We continued share buybacks in the second quarter, consistent with our Toronto Stock Exchange approved normal course issuer bid program, allowing us to purchase up to 5% of outstanding shares over the June 2018 to June 2019 period. We fully utilize this program by purchasing the maximum allowable shares at about $40 million returning almost $1.6 billion in cash to shareholders over the 12-month period. In June of this year, we received approval from the Toronto Stock Exchange for a new normal course issuer bid running from June 19 to June 2020. That approval allows us to repurchase just over 38 million shares, again 5% of outstanding shares between June 27, 2019 and June 26, 2020. We plan to continue to execute our buybacks ratably roughly 9 million to 10 million shares per quarter. ExxonMobil also intends to continue to participate, maintaining its overall ownership at 69.6%. At Imperial we continue to see our share purchases as a flexible way to manage our capital structure and distribute surplus cash to our shareholders. With that, I will turn it back to Rich to discuss our operating performance.

Very good, I'll start with the upstream production. Production averaged 400,000 oil equivalent barrels per day in the second quarter, and this is up 64,000 oil equivalent barrels a day or 19% from the second quarter of last year. Relative to the first quarter we were up 30% or 12,000 oil equivalent barrels per day. The second quarter, represented our highest second quarter in over 25 years, and it was the fourth highest of all quarters over the same 25-year period. The second quarter typically includes major turnarounds and this year was no exception. We had turnarounds at Cold Lake and Kearl, I'll comment more on those in a moment and for context over the past three years with fundamentally the same operating asset base. Second quarter production has averaged about 332,000 barrels a day. So we were 17% higher this year with the typical major maintenance performed but also without a series of unplanned outages that have occurred in recent years, most notably at Syncrude. So if I step back for most any angle this second - this year's second quarter production of 400,000 oil equivalent barrels per day I would characterize as an exceptionally strong. For the first-half we average 394,000 oil equivalent barrels per day compared to 353,000 in the first-half a year ago and an average of 361,000 over the prior three years, so 9% to 10% higher than the more recent years. Liquids in the quarter in the second quarter were 377,000 barrels a day, 94% of total production in the first-half. They were 370,000 barrels a day. If I look ahead to the third quarter, we anticipate total production in the same range as 2Q plus or minus 400,000 barrel a day range. We do have major maintenance plan in the third quarter, both at Kearl and at Syncrude and our detail those more here in a moment. The outlook includes some estimated impact of the government of Alberta's ongoing curtailment program and we continue to work with the government to minimize any curtailment impact recognizing the third quarter typically includes some of our highest individual months of production each year. Continuing with Kearl, on a gross basis, we produced 207,000 barrels a day at Kearl in 2Q, up from 180 in 2Q a year ago. This was by far the highest second quarter in the assets history. And it was the third highest of any quarter in the assets history. It was also achieved despite completing the largest turnaround Kearl has ever had. The turnaround impacted gross production by an estimated 46,000 barrels a day in 2Q or on a year-to-date basis, about 23,000 barrels a day. The turnaround itself was completed ahead of schedule. It was on budget and most importantly, it was completed injury free, which included a peak workforce of more than 1500 individuals on site. Scope normal inspections repairs some supplemental crusher work, some preparatory tie-in for those crushers, total cost our gross basis a bit over $100 million, about $72 million Imperial's share, it was completed in 30 days versus the plan of 32 mid-May to mid-June and it compares similar in cost and scope to the turnaround Kearl had a year ago. Now coming out of the turnaround, since essentially mid-June, we've had quite strong performance for reference for the assets top 10 highest ever production days have occurred all days in excess of 320, we had a 338 kbd maximum daily rate in there, and post that turnaround, we've averaged essentially 215,000 barrels a day throughout the second-half of June and through July. So at 207 in the second quarter, well above our earlier guidance that had pointed you more toward about 180,000 barrels a day for 2Q, our full-year outlook for 2019 remains confident that will be above 200,000 barrels a day. Consistent with last year's 206 and at the halfway mark, we're at 193,000 barrels a day on a gross basis and a year ago we were at 181. So we're well positioned and I'd add that through July, adding another month the data, the year-to-date has now increased to literally 200,000 barrels a day versus a year ago through the first 7 months, we were at 190. So it all signs with point towards our confidence in being at or above that 200 where we were last year. So may be suggesting we'd be higher than that. We do have another turnaround plan for the other plant at Kearl. That will start in the first-half of September. It's about a 5-week scope of work, quite similar to the work we completed here in the second quarter. It will have an impact, that will effect volumes in both 3Q out a little bit of a carryover to 4Q. When we take all of that into account, we're anticipating Kearl to be in the range of 215 to 220 thereabouts for the third quarter. Our supplemental crushing capacity project in the flow interconnection work that is designed to take us from the 200,000 barrel a day annual average to 240 or beyond, is on schedule and everything is pointed toward the year end '19 start-up that we've communicated consistently now for some time. At Cold Lake, we produced 135,000 barrel a day in 2Q, it was down 10 from the first quarter and up 2 kbd from second quarter of a year ago. We had previously communicated in our first quarter call that we anticipated second quarter production to be in the range of 130 to 135, we had major turnaround work at Mahkeses plant and we perform, excuse me, we performed at the upper range of our expectations. Mahkeses is one of Cold Lake fired plants it averages about 32,000 barrels a day or so on average, the scope of work there that we do on a five or six-year cycle regulatory inspections, some line cleaning base repairs, fundamental maintenance we completed that over a 32-day period from late April to late May cost was about 30,000 or excuse me $30 million in the production impact was round numbers about 12,000 barrels a day in the second quarter. Here, again we had a peak workforce of 700 individuals on site, the work was completed four days ahead of schedule and I'm very pleased to say injury free. A year ago, we had a turnaround at the Maskwa plant, which was similar in scope duration cost to this year's work. With this work now behind us in the third quarter, we expect to average somewhere in the 145 to perhaps as high as 150,000 barrels a day at Cold Lake, relatively flat over each of the months in the third quarter. Turning to Syncrude, our 25% share of Syncrude production averaged 80,000 barrels a day in the in the second quarter compared to 78,000 barrels a day in the first quarter and 50,000 barrels a day in the second quarter of last year. The 80 for this quarter was consistent with what we had previously communicated and consistent with our expectations for the quarter. With the reliability, we've now been experiencing at Syncrude, the first-half at 79 is the highest first-half in the assets history. The previous best was in 2011 at 75,000 barrels a day. And when you take into account last year's fourth quarter, we're now on the strongest 9-month run again in the assets history. Syncrude is a designated operator in Alberta. So what that means is, it's subject to specific orders associated with the government of Alberta's mandatory curtailment program and the negative impact of these orders have been largely - although not entirely offset by purchase production quotas, credits from other operators and we as Imperial have contributed to providing those credits to the Syncrude asset. In the third quarter, our share of production at Syncrude is expected to be in the 60,000 to 70,000 barrel a day range. It will be impacted by scheduled turnaround work, specifically there'll be a turnaround. I want to Syncrude's 3 Cokers B81 [ph] that will start in the third quarter and continue into the fourth, a very large scope of work. Our share of cost is estimated to be in the $85 million range. So you can see the gross, gross cost is in the $350 million plus or minus range. It's along scope of work 75 days. It will start in the second-half of August and we anticipate it will go in early into November, about a 10 kbd impact in the third quarter and we would estimate at this point in time a comparable impact in the fourth quarter. Crude by rail, with a little bit of history here with market forces working unconstrained pipelines full, you recall industry crude by rail out of Western Canada, it increased rapidly in late '18 in a peaked in excess of 350,000 barrels a day in December. Then came the government of Alberta's mandated curtailment order, crude by rail economics nearly instantly eroded and so you saw a lot of volatility a bit of a roller coaster for industry and our Edmonton rail terminal as well where came off of those peaks industries crude by rail was half of the December level by March, and now has moderately increased a bit over the second quarter, and we've seen similar performance for us to the extent that we averaged 64,000 barrels a day crude by rail in the second quarter but it was an increasing profile of we were in the mid '30s in April and the mid-80s in June. And that's what got to the average over the course of the quarter. All of our decisions are economic base and so in February when we had the terminal shut down, it didn't make any money. And in the second quarter when we've increased it, we're back in the black making money, but I think it's important to note the volatility here both in - what you see from us, but as important overall the industry the volatility really highlights what we consider to be a very negative unintended consequence of the curtailment order. If I step back and look at where the province is right now, in terms of provincial crude inventories there have been progress in reducing the inventories at the end of the year, we were essentially the industry was essentially have tank tops 34 million - 35 million barrels in crude inventories. We saw some variation over the first several months of the year, but we remained high at 34 - 35 through April and into May. Now most recently publicly reported numbers have suggested inventories have dropped to 27 million barrels plus or minus in the middle of July we commented in our first quarter earnings call that we would anticipate that, particularly with a lot of the major maintenance that would be occurring, but where we are today is the lowest provincial inventory since November 2017. And our view is this restores much needed flexibility within the system, so back to curtailment specifically the original orders for the Government called for a 325,000 barrels a day withheld across industries effective January of this year, there have been a series of allocation increases over time reducing that 325 to a 175 through July - August industry was given another 25,000 barrel a day increase and now we receive the orders for September, which provided a further 25,000 barrel a day increase. So the 325 has been reduced by about 200, suggesting there is still curtailment orders that would withhold about 125. We believe with the inventory cushion that now exist that the government of Alberta can and should further reduced curtailment levels, if you do some math a 100,000 barrels a day over 30 days is 3 million barrels with inventories 7 million or 8 million barrels below tank tops. We think there is flexibility in the time is now to test this system and see what differentials do in response and in particular what rail movements do if the incentives are provided to sustainably move crude by rail. Our conversation with the government our focus on achieving this further relief and ultimately the elimination of the curtailment program entirely. Switching to refining throughput averaged 344,000 barrels a day for us, it was down about 19 from a year ago it, it's up about 19 or 20 from the prior three-year average. So, we're between what kind of mid-range over the last three years, but if I look at year-by-year, or year-over-year, there were two factors as to why we were lower this year. We did have major turnaround work at our Sarnia refinery. But we also had the impact of an incident with a fractionation tower also at Sarnia, which occurred earlier in the quarter, specifically April 2 and I mentioned that in our first quarter call and I will detail it more fully here in a moment. Regarding the turnaround itself, this is part of normal ongoing maintenance activities typically completed over plus or minus 4 year cycles work concludes catalyst change-outs reliability upgrades any replacement of end to end of life equipment. The cost us was $60 million to $65 million that is essentially as planned. However, the time for the turnaround was extended due to the tower incident itself volumetrically if I isolate the turnaround we met most all of our petroleum product sales over the period with pre-planned third party purchases, but the impact on Refining, we would characterize as 20,000 to 25,000 barrels a day due to the turnaround as expected. The more material in the unexpected impact in 2Q was associated with the fractionation tower incident. And in short, what this is a tower, more than 100 feet tall. It was taken out of service in preparation for the turnaround, it overheated, buckled, and fell over inside the plant boundaries. Fortunately, no one was hurt. There were no air emissions or hydrocarbon spills associated with it. The towers used to manufacture jet fuel and gasoline components. It was installed in the late 60s and has been opened by previous times without incident. The investigation concluded that work performed in 2011 that modified internal components we call it packing within the tower, it increased for the potential for [indiscernible] ignition or set differently. Accumulation of materials, which can ignite under heated conditions when exposed to air. So the turnaround preparation activities, didn't adequately anticipate or prepare for this potential. Suggestion is there's a lot of learnings that have come it. We expect a full-year impact of this incident to be about $80 million to $90 million of OpEx and CapEx for the repairs and the replacements. And in addition, we estimate a margin impact from last production to be on the order of $100 million over the course of the year. And we've already absorbed about two-thirds of that margin impact in the second quarter with the remaining third, essentially all in the third quarter. The refinery was initially shutdown, later restarted, reduced rates under a rug revised configuration overtime throughput has increased so now where it's 105,000 to 110,000 barrels a day. This is about 5 or 10 kbd, lower than normal rates. A new tower is being built, expected to be operational in the fourth quarter. And as a result of the incident we would assign refinery throughput impact to be about 35,000 barrels a day in the second quarter. In the third quarter, we are starting to have a bit lower rates. We would expect the impact to be about 5,000 to 10,000 barrels a day. Performance with our other two refineries, Strathcona and Nanticoke was quite strong with utilization at or above 90% in the second quarter, but overall performance was certainly overshadowed by Sarnia. If I look out over the remainder of the year, we do have two additional maintenance turnarounds plan, Nanticoke early September for about 50 days $70 million to $75 million cost. Of course, they'll be a margin and volume impact as there always is. And some more work at Sarnia that had always been planned in a two-step manner with a second turnaround. Also late September for about 55 days $45 million to $50 million cost here with three major refining turnarounds in 2019, it is a higher than typical plan maintenance year. Generally a typical year would include two significant refining turnarounds at our three facilities overall, so a bit higher than normal. On petroleum product sales, we averaged 477,000 barrels a day in 2Q flat with the first quarter but it was down about 33 from the second quarter of last year. You may recall, our second quarter of last year had 510. It was an essentially a modern day high, a 30 year quarterly high at the time. For perspective, second quarter sales have averaged over the last five years about 485. So we're within a percent or two of that this more recently historical average. But any shortfall this year, I would attribute to the Sarnia refining issues that I've just highlighted. Throughout the quarter sales volumes grew. They were most - they were lowest in April at 441. With the Sarnia instant turnaround going to 488 May and 502 in June. First-half, we averaged 477 down a bit from the first-half of last year. And again, I wouldn't factor the experience at Sarnia. For context, the last five years, our first-half sales have averaged 481 versus these years for 477. In the third quarter, we expect performance to rebound a bit from the second quarter as refining throughput increases. And as I would figure today, I would anticipate sales volumes in the range of 482 to 500 in the third quarter, quite consistent with the prior five-year average. So with that summary, I think I'll pause and a couple of comments before we start the Q&A. I would characterize our second quarter in the first-half overall as the financial and operating performance was generally strong. Not without a few hiccups that we have overall resolving. Strength particularly in the upstream and here again I'd say particularly as Dan highlighted in cash flow from operations and the continued strong shareholder distribution. And I just reiterate that with the integration and the balance we have across our portfolio, from production refining petroleum product sales, you are seeing the resiliency in whatever market conditions happen to exist with our ability to continue to generate cash in most any of those environments. So with that, I'll turn it over to Dave. Dave, and he will describe and kickoff our Q&A process.

Okay, thanks. As I mentioned at the start, we did have some questions pre-submitted. So I think I'll start with a couple of those and then we'll move over to the live Q&A. So the first question is from Prashant Rao from Citigroup. Given the K2 turnaround, strong production of 207 barrels per day was a nice surprise, can you talk a bit about the drivers of the outperformance, and then given that we are already at 193 year-to-date with less overall maintenance work and better weather conditions in the second-half, do you consider the 200,000 barrels target a bit conservative?

Okay. I've hit on a number of that in my comments, but what I would say is we had several years running, where we were underperforming expectations. And when we did, we communicated in late '17, the cumulative scope of work we had completed at that time to enhance reliability with some -- with crushers, with transport lines and a number of things, and coming out of '17 that gave us a great deal of confidence that our plan for '18 and '19 at or above 200,000 barrels a day, we had a lot of confidence in that. And of course from year-end this year and beyond supplemental crusher will bump it up again. I think what we're seeing we certainly saw it in the second-half of last year and we also saw it coming out of our -- the turnaround to this quarter is those upgrades we've made, modifications, operating practices, enhancements to equipment and maintenance procedures haven't continued to deliver the intended results. I'll feel better when we get through the third quarter turnaround this year. It's a bit bigger in scope than our third quarter turnaround last year. So there'll be a little bit more volumetric impact, but certainly where we're positioned through the first-half, and I commented on where we are through July, gives us very high confidence in the year. And whenever find that 200 and say, we're going to be to 210 or so, again, I think it's a little bit too early to call that, but the strong performance, I would be disappointed if we don't meet or perhaps exceed where we ended up a year ago.

Okay. We've also received a number of questions related to crude by rail. And also you did comment extensively on it, but I'll try to summarize the questions. There's really two particular ones coming through, number one is around our utilization of crude by rail. Can we offer something about July and then through the rest of the year, and the second one is more on the incentive side, a comment on our view of the economics of crude by rail?

Sure, I think it's a good question, because it is -- it has been volatile over the last seven or eight months, and it's -- as I commented on, this is one of the unintended and I've characterized as negative unintended consequences coming out of curtailment. Because if I step back and I'll get to the question more explicitly here, but market demand for Western Canadian heavy crude remains robust, particularly in the Gulf Coast, with supply capacity exceeding takeaway capacity. We saw, and it's recognized that the potential for volatile pricing dynamics certainly was shown late last year and exists. You can work this two ways. You can increase take away capacity, or you can curtail supply. I think folks know what I think about curtailing supply. We've tried that. It certainly bolstered prices, but it's been slow in coming with other consequences on first initial inability to reduce provincial inventories. The erosion of rail economics in our view is current pipeline capacity has been optimized, our partners in the pipeline business have and continued to do a good job at fully utilizing those facilities. So, expanding rail is the only real rail -- or only real short-term option for us. And what we need is a sustainable economic incentive to do that. And one of the best indicators I'd have, we talk about -- parties have talked a lot about differentials, and I think it's important that when you do you talk about what are you talking about? Often WTI versus WCS is compared, but when you're looking at rail economics, I would urge folks to focus on WCS in Hardisty and WCS in the Gulf Coast. You look at those two prices and you look at the differential. And if the differential is wide enough to cover rail cost, rail will move. If it's not wide enough, you lose money on each barrel you sell. And so that differential has actually been quite tight over the first-half of the year oscillating around $10 to $12 a barrel. It increased a bit in the second quarter and we responded by increasing rail. Right now, it's back at or below $10. Parties including us have variable cost in their rail system, but you don't invest money on a variable cost basis. To grow it, you need to have a whole cost recovery. And I said before that we look for something that creates a sustainable rail incentive of like a differential or an arbitrage between the same barrel in two occasions of $15 to 1$12 a barrel. And we are not there. So what we are doing right now July was about where June -- May and June was in the mid 70s or so. But our outlook for August and September is will ramp down rail because it is not economic to move those barrels on rail. In this ragged edge of up and down, pardon the pun, but it's not way to run a railroad. We need a sustained incentive to increase rail capacity; we and industry. And that's one of the reasons I will go back to curtailment. We think it's time to loosen up the curtailment pursestring allow more oil to flow to the barrel, straighten or solidify differentials in a range where rail is clearly incentivized. And we think that's the best answer in the foreseeable future as we all await uncertain future pipeline capacity additions, okay? Operator, I think we will go to the Q&A line now please.

Thank you. [Operator Instructions] And your first question comes from Emily Chieng from Goldman Sachs. Your line is now open.

Thank you. So my first question is just around egress, it's sort of a tripod question here. One, what do you think of the government's rail contract and is there any potential in Imperial potentially having a look at that? And then on just what the government is thinking -- how the government is thinking about curtailment levels? And what's the thought on whether or not they continue to ease curtailments or cut them completely? And then just on the final egress pace, there has been a little bit of noise around line five, what sort of the thought around the impact Imperial if that does get potentially shut down?

Thanks for your questions, Emily. First, the government rail contracts, we agree with the government that we think the rail business is best left in the hands of industry. So, the government subjective intent to remove themselves from the rail business, we have supported that all along. Now in the process of assigning or taking on those rail contracts, we like others are reviewing those. We are working with the government. I can't really comment on those specific contracts themselves. We are under confidentiality agreements in doing that. But I think their direction of getting industry participants to take on those rail contracts to support a sustainable healthy rail sector for the foreseeable future, I think it's a good thing to do. Now, specific to loss, we got in the rail business when getting in the rail business wasn't cool We got in it several years ago of anticipating some of the uncertainties on pipe we wanted to that -- I have described it before as an insurance policy if and when we needed it. And lo and behold, we are glad we had insurance policy because we and industry have needed it. So we got in that early. We built a rail terminal. We negotiate contracts with CMCP. We have not only the loading points, but we have offloading points. We have a very efficient unit train operation that allows us to get the market and get empty cars back here fast. So we feel that we have an advantaged rail situation. And if we are looking to an enhance or add to that in any way whether that's through the government taking on part of their contracts or other things, we're going to want to ensure it is just as economic and just as efficient as what we've been over to build -- what we've been able to build over the last several years. Now on curtailment levels, I think I've commented on this the first several months of the year didn't give a lot of flexibility. Here we had the industry had was working under curtailment but low and behold because rail had ramped down their inventory levels maintain themselves at or near tank tops for largely the first four or five months of the year with major maintenance work and increase in rail in the second quarter, I've commented about specific numbers how the inventory levels have been brought down and we think there's a lot of flux in the system right now. And now is the time to see what that that means, I comment on how 100,000 barrels a day for 30 days is 3 million barrels, there is 8 or 9 million barrels of inventory. I would let out the curtailment at this point time the month of August, the month of September and I would let them see what does the market do? If there's concerns that it's getting back to your tank tops and parties start suggesting differentials will blow out and the anxiety rises. The government has flexibility to do that but we'll never know unless we try and I think the market conditions, physical conditions are ripe to instead of 25,000 barrels here and there. I would go further than that and we've had conversations, very good conversations with the Government on that. So ultimately their decision, but we would like to see that curtailment level if not eliminated certainly reduced in the near-term and let's see what market conditions develop in particular can we get to where this rail incentive is clear, sustainable and not a month-by-month decision? Line 5 this is -- I won't recap the situation that folks are aware of the situation in Michigan with the Governor and most notably the Attorney General. Line 5 is a critical piece of infrastructure to Ontario Quebec refineries as well as key parts of the Midwest. We are a shipper on Line 5. The majority of our light crudes go through Line 5 that supports our Sarnia and Nanna Coke refineries. We get some light crudes in other pathways and heavy crudes come in a way unaffected by Line 5. So it's an important topic to us and we're working very, very closely with Enbridge the operator on whatever help they support, they need from us as they progressed the legal and operational challenges that they're receiving from the State of Michigan as it relates to Line 5. I really stopped there. I think specific comments on Line 5. I would defer to Al Monaco and Enbridge on that but important piece of infrastructure quite important not only for us but the industry on the supply balance in Southeast Ontario and parts of the Midwest and finding a good long-term resolution here is in the best interests of consumers both north and south of the border.

Great thanks. And just one quick follow-up, how should we think about Aspen and when that decision may be to bringing that back into construction mode. I will leave at there. Thank you.

Okay, thank you. Just a recap there for those that missed it late last year we funded Aspen a $2.6 billion project best-in-class technology for carbon intensity reduction or water intensity reduction, a globally competitive project that has a lot of resiliency under a low price world, we are quite pleased. Then sadly for us government intervention through the mandated curtailment program came into place. It kind of what destroyed rail economics for us within a several year period, we looked at Aspen over a range of scenarios getting into the current pipe system, gap space and incremental pipe capacity but the ace in the hole was always rail as a way to get it to market with the curtailment and what it did on rail economics, that shattered our confidence in that. We worked with the prior administration on getting some assurances that Aspen would be able to when it came online, that we'd be able to produce it, the current curtailment rules wouldn't do that. They're based on historical production. A new project has zero historical production. We were not able to get the assurance that we sought for our shareholders, for an investment of this magnitude and sadly that led us to ramp down Aspen project activities in an orderly way so that we could be positioned when we think the time is right to restart it. And I've said before that we're going to be looking at what happens on subsequent actions around intervening in the market curtailment specifically certainly what happens to rail incentives, rail economics and then just our overall confidence in market conditions. And I would say that does include as we look at progress on the new pipes whether that be Line 3, Trans Mountain and or Keystone XL we will be looking at all of that. And when we feel the time is right to resume the ramp-up in full scale investment, we will do that. And we have not concluded at this point in time that that time is right to ramp back up. Operator?

Thank you. And our next question comes from Benny Wang from Morgan Stanley. Your line is now open.

Hi, good morning. Thanks for taking my questions. My first question is really on your perspective of integration on option production to downstream throughput. It looks like you guys are well-matched but most of your option volumes and future growth is largely on heavy production while you're mostly a light oil refinery. So just want to get your view on that as it makes sense to have more heavy processing capacity at some point. What is that balance still makes sense going forward because a lot of global production growth is really light?

Yes, very good. You have described it well we're roughly a 400,000 barrel a day equity producer. This quarter was quite convenient. When I say that because that's exactly what it was, we're roughly 400,000 barrels a day largely a light oil refiner. And then of course the 450,000 to 500,000 barrel a day petroleum product sales. So you at a glance you see certainly the integration in the balance but as you appropriately point out the mix of fact is heavy production oriented and light refining. Now what we've done over the last few years with incentives with discounted heavy crudes, we have incrementally increased our heavy throughput in our facilities from roughly 65,000 barrels a day to when it made good strong economic sense. Last year we were tipping 100,000 barrels a day, so almost 25% of our capacity. We've got a Coker at Sarnia, we've got asphalt facilities at Nanna Coke in Strathcona and the incentives were there to push every bit of heavy molecules into those facilities and that's exactly what we did. Now with heavy and light differentials, we optimize that on any given day, we do see demand for heavies continuing strong particularly in the Gulf Coast. So it's all about getting the heavies there and we don't necessarily run our own production in our own refineries. Our upstream is charged with maximizing the value of each and every barrel they sell to whoever they can sell it to. If that's our own facilities, so be it and our downstream is charged with getting the most price advantaged feedstocks heavy or light from whoever they can get it from. So we with our not only with our operations but with our commitments on infrastructure certainly the common carriage in Enbridge but we also have contract commitments with base Keystone, Gulf Coast Access and then our investment in the rail terminal, we are quite active in maximizing the value. However it happens to go. I think for the foreseeable future, we'll continue to look at if the economic incentive is there is how can we get more heavies into our existing facilities? But as I sit here today, I look at coking capacity in other parts of the world. It's harder for me to see a clear economic incentive that we would want to make large investments to materially modify our facilities as opposed to continuing to work to optimize them. Now that's as conditions change and particularly when you have some confidence that market condition changes, aren't short term in nature or aberrations and particularly when they've not been caused by artificial interventions then when you have that confidence, we re-evaluate that and we look at it does it make sense to invest more in the downstream or the other downstream investments more recently have been in things like Cogen reliability enhancements things that can strengthen what we already -- what we believe is already a strong downstream business. And they've been less to take our downstream business and convert it to something that it's not today. But I hope I hit on your -- I hope I hit on your question.

Yes, I know that was great color and very thorough answers. So appreciate that. My next question is on Aspen again and I know you just previously touched on it and I know you're really focus on Egress before you really move forward. I just want to take that question a little one step further particularly in a world that doesn't value growth like it used to. I think some investors would argue that they would prefer Aspen being deferred further and definitely free up more capital for even more cash returns. So just want to get your perspective on that. Do you think that's a little shortsighted because you're managing a long-term business or has the world and the market change enough for that argument to have some validity?

No, I know fair question, we have a large and diverse shareholder base and what I've found in the 6.5 years I've been in this job, I get no shortage of advice from people on how to run this business whether it's debt reduction, whether it's increased dividend, whether it's increased buybacks, whether it's investments no investments. And we take all that in and what we do is we strive to enhance the long-term value of this enterprise. Now obviously we deal with short term market disconnections, dislocations. But that integration of balance we have positions us extremely well. So now if I just do a little bit of math, we have roughly $1 billion, to $1.1 billion, $1.2 billion a year in requirements of sustaining capital to care and feed for our existing corporate asset base. Our dividend at current rate which the last two increases have been the highest two increases we've made in our history; it roughly consumes about $600 million a year at current rate. So you add the two those together you get $1.6 billion, $1.7 billion a year. Dan commented through the first-half of the year, we've generated $2 billion in cash in a not necessarily the most advantaged market environment. Oil price is a bit higher but differentials lower. If you look back over the average of the last 10 years that's closer to $3.3 billion to $3.4 billion a year but we have been enhancing the cash generation capacity in this enterprise where it's more consistently looking on the higher side of that, $3.5 billion to $4 billion. So if you've got about half of that is sustaining capital and dividend. The question comes down to what do we do with the other half of it? For the last two years now we have maximized share purchases under the TSX approved program, 5% of our outstanding shares. We maximize it in the first program and we maximized it again and lo and behold we look at the end of each quarter and we still have a $1 billion or so of cash on hand. So in this year's capital is more than that sustaining is select growth. So our view is from ability to balance and meet our capital allocation priorities, dividend, sustaining capital, highest quality selective growth and some level of share buybacks. We see the ability to do all of that under a wide range of market conditions. And when we launched Aspen last fall, we detailed the amount of capital it would require over a three-year period, it's going to be roughly $700 million or $800 million a year. We anticipated, we would continue to be able to do buybacks. Did I say at the time, we'd be able to maximize the program. No, because it depended on market conditions, but I think we're quite confident we can find a selection of all of those priorities continued dividend growth. Take care of what we have, continued share buybacks. And if and when the time's right to resume Aspen, I think we'll have the financial capability to do all of those. It's just a matter of when is the time right.

That's great color, Rich. Thank you very much.

Thanks Benny.

Thank you. And our next question comes from Greg Pardy from RBC Capital Markets. Your line is now open.

Yes, thanks. Good morning and Richard, you guys have gone from never having done a call to probably one of the best from an informational standpoint. So please keep that going.

Greg, I appreciate that. I like everything you said except the one of the best.

Something to strive for, so I've asked you before just to round out the exact curl but I'm looking at your numbers and we won't get the actuals until next week. But realizations look good. We understand the downstream you hit the cover off the ball with the curl volumes. If you were to look at the run rate OpEx ex the turnaround impact, are you now in the lower, I don't know, low '20s U.S. or thereabouts just from an operating cost standpoint?

Yes, Greg, we're not there yet with I'll tell you a little bit of this year, a bit of the first-half of this year has some - a little bit of an artificial aspect to it, because we've been doing a lot of work that is - has been preparing for the supplemental crusher at the end of the year, increasing the size of our truck and shovel fleet because when we go from 200 to 240 we're going to need more trucks, more shovels, so you can't, you can't go to Home Depot and get those on December 31. So we've been doing some of that. We've been also with all of the work we've done in the last year or two on reliability. We've been ensuring that we've been quite proactive on a lot of our maintenance practices in taking care of that fleet and John Whelan described a year ago at our Investor Day in November in Toronto, and he outlined a series of initiatives that we referred to as Kearl profitability improvement. And so, we have been spending money on getting Kearl in a position not only where it can sustain the 240 but we also outlined a pathway last November on how, what's beyond 240. How do we get it to 270 to 280 we described how that was not some big bang capital project, but it was a series of things and we have been working on those series of things? So taking the first-half of this year at Kearl and comparing it to the first-half of last year. It's not quite an apples to apples but I think the thing I would say is the confidence of commitment we have on Kearl and the number we've advertise for lot for a long time now is the $20 a barrel in U.S. and sustaining that nothing has wavered in that. The supplemental crusher, I think we've advertise we think that is going to be about a $3 a barrel drop in Kearl OpEx nothing has suggested that would change and these other things we do continue to drive it. So we have an advertised explicitly what Kearl cash unit costs are year-to-date. There - actually they are slightly higher than they were last year but then what I go back to the - my first set of comments on money's we have been spending that you haven't directly exceeding those cost will be for reflected in the barrels yet because there what comes as we get to the end of the year with the crusher and beyond, but nothing has changed in terms of our focus in confidence where we think this asset will be for the long-term nor our pathway and the timeframe to get there.

Okay, that's great. I mean the second one is really kind of coming out of the Syncrude conference call. I mean they increase the OpEx guidance on Syncrude, I think there was some disappointment in the market as to whether cost could really get down there, given the utilization rate we've seen turnarounds that at Syncrude for many, many years. Typically in the third quarter, is there anything unique from a. I don't know. From a sustainability or performance-enhancing basis that's going to occur with the turnaround, you talked about in September.

And now just to be clear, Greg, are you talking about at Kearl or back to Syncrude.

I'm sorry, sorry. Sorry, sorry. Yes. I know just all at Syncrude

Yes, I haven't seen everything - I haven't analyzed everything that Syncrude said on it. The turnaround September is a big deal. What pretty euphoric of late on the the performance at Syncrude, so I don't really have anything to offer that there is a fundamental change on the ongoing operating cost level it it's Syncrude is a difficult one at least over the last several years to kind of chart trend lines because they've been so many one-offs, but we're. When I look at where they are and certainly, where they on an all-in, we're quite pleased, certainly with the reliability. We've spent money to achieve that reliability and as long as we - as it continues to perform like that. We continue to be quite confident in the outlook for Syncrude is not materially different than what we've had in our own internal plans. In fact, I would say, I'm looking at the table right now. Kind of where we are year-to-date versus where we thought we would be year-to-date and we're internally we're out moderately optimistic lot internally, we can talk to hard nose fellows like you we might temper that a little bit, but our own internal expectations and were spot on in Syncrude from a cost standpoint and from a production standpoint with exactly where our plan through the first 6 months would have been.

Okay. Last quick one from me, you guys looked at the diluent recovery unit, I think back in 2015 attached to the Edmonton rail terminal. I guess, and then it just went away is it DRU you something that you'd contemplate or is effectively the Paraffinic treatment just so good from jumping up the heavy molecules. It's not a pathway to ever go down.

Yes, you're right. We've looked at that before and I think what's important on the DRU the math. or the economics on the DRU deal with a series of differences between our whole bunch in numbers. So what's the cost of pipe or rail and transportation and of course a diluted barrel has more volumes of roughly a third more volume. So if you save transportation on that. Well, what type of transportation what's a rail cost versus a pipe cost. What's the diluent cost and when we looked at it, we did a pretty good scrub on it, it's not, it wouldn't be an inexpensive investment to go at scale and at that point in time we thought even before some of the things that have occurred more recently, there is a lot of variables in this marketplace deal you and supply with some of the unconventionals how much do you get from the Gulf Coast of the US rail versus pipe economics and we concluded then that there is validity to this project. But our own assessment at that time On the economics on it in the uncertainties we're too high to take it to the next level of commercial progression. And I would say now we still have that we dusted off the shelf now and then we look at some of those key assumptions, but I think you've described it I would never say never, but right now, it's not a front burner opportunity for us.

Okay, terrific. Thanks for that.

Thank you. And our next question comes from Mike Dunn from PNF Energy [ph]. Your line is now open.

Hi, good morning, Rich. Some of your competitors have commented recently that they would be supportive of the Alberta Government linking and operators increased production allowance to an increase in their crude by rail shipments. Can you comment on how you guys feel about that and what's your of had discussions.

Sure, we've had discussions with the industry and we've had discussions with the government and might about if I step back far enough, we do it. As I said this earlier in my comments that expanding rail capacity in an economic and sustainable way is the winning formula for the foreseeable future that. We can't - there still so much uncertainty on new pipe rail is the answer near term, and so my earlier comments I talked about we don't think the government being in the rail business is the best way to go and similarly when you let market forces work and you get the right level of economic incentive industry will take the actions invest in growth. The specific what you've talked about is the linking of allowances to rail, the government details it's how you do it, and at one level I can hear. Okay, the government linking additional allowance to additional rail that sounds a lot like continued government intervention to me. I like the idea of letting the market work letting differentials expand by relieving the pressure and reducing curtailment and I think the market will get there, but I do get concerned about how, when you talk about specifically linking things because then the government is back in the rail business in a big way, just in a different way, So yes, I support the industry's comments of what they're trying to achieve. But I can't say on there yet on what I understand how it's a work in progress. We're working in collaboration with other industry players and the government on this, how we do it I think is going to be very important too, because the last thing we want to do is in grain, the concept of curtailment that you get relief for curtailment if you get rail I want relief from curtailment and no curtailment I want to done and I think the industry can be in that position sooner rather than later. And I'm looking forward to that day.

Thanks, Rich. That's all from me.

Thanks, Mike.

Thank you. And our next question comes from Manav Gupta from Credit Suisse. Your line is now open.

Thanks for squeezing me in guys, just a very quick question. Any update you can give us on the progress of the supplemental crushers and what I'm trying to also understand is, you can do 220 without the supplemental crushers and I understand the guidance with the supplement crushers will average 240 but I must the on signed, what could be the peak production for a month. But the supplemental crushers so assuming no turnaround in a particular month, how high, could you go with the two supplemental crushers coming on.

Yes, fair question. When you say when you say an annual average of 200 at Kearl what you typically get is you get a lower first quarter because it just like we had because oftentimes affected by extreme cold weather and what the challenges that offers in a mining environment you often get a artificially lower second quarter because a major maintenance so weather warms up we all get a lot of work done this year was a very strong second quarter last year had been the previous high at about 180 then in the third quarter all that maintenance behind it. You get after it and the months of July and August have typically been the best months of the year. Oftentimes, we've had some maintenance that starts in September and October. For the quarter tails off a little bit and then the fourth quarter can also be quite good that a little bit dependent on when you get into the later in the year. What's the weather, so the profile of the mining operation. Please say 200 or 240. It's not a flat line at either one of them. Now the best months we've had at Kearl with our supplemental crusher were last July and August and we averaged a smidgen over 260. I think it was 262 and 263, the quarter last year was I think the third quarter like 243 or something like that, and it had two months of 260 in it without supplemental crusher. We have long talked about the downstream aspect of the Kearl, processing capabilities of having two parallel strains that have 300,000 barrels a day capacity and I increasingly reference that we've had, the number of days we've had that not only at 300 but beyond 300, we had 4 of those best days in the second-half of June. So when we have the supplemental crusher you take the bottleneck in constraint out of the front-end and you start to balance across that. So what's a good month with supplemental crusher in place I think 300,000 barrels a day is a very achievable month when we don't have other downtime in there, but you will still have that quarter-to-quarter profile, you will still have maintenance in the spring and in the fall that -- in that, but then of course is still up whether to deal with but the 300,000 barrel a day months are certainly achievable. We've had weeks that have approach that now and that's supplemental crusher will largely deal with what's prevented us from having longer periods of time at that range. I know there's a lot of folks are saying that you guys are you had this big second quarter you did better last year. Come on 240. You guys are going to be able to do better than that and you guys is prompting us leads me to ask those same questions of my team. So thank you for that like sounds they my cheek as I say that I, we're not ready to commit to more than that, but I certainly see the potential with the stability that the up in the redundancy the supplemental crushers will add to allow us to do more than that on an annual average basis. And once we get those things up and running. That's exactly what we start talking about what now, do we think we have, but I think what take away from that a great deal of confidence in the 240 with the supplemental crushing capability.

Yes, thanks for taking my questions.

You're welcome.

Thank you. And our next question comes from Phil Gresh from JPMorgan. Your line is now open.

Hey, good morning. Just a bit of a follow-up to Greg's question on the OpEx side of things, obviously your pre-investing here Kearl. There is some pre-investment, I guess you'd call it at Syncrude as well that was discussed if I look at the absolute levels of the OpEx that we're seeing here in 2019. Is that the run rate that we should be thinking about for the year and then I realize the per barrel will come down as a supplemental crusher come online, but I presume there's going to be some absolute increases from there. So I'm just kind of trying to baseline myself and think about the cost outlook for. Thank you.

Good question. And we've talked a bit before about kind of the, when we, what's the incremental barrel cost and then what is the incremental cost barrel cost when you add new kit, which in this case, they will be the supplemental crusher and stuff that's still work in progress, but I think whether that run rate is exactly what you've seen in the first-half. I think it's indicative of what you'll see. We've got a lot of efforts that as we've done this pre-work or pre-investment take some of those costs out of it that are more one-time but it a run rate that's at a higher level than what we saw last year more indicative of the first-half. That's not unreasonable and you hit on it but along with that is going to come higher production. So when you start looking at the unit cost, we would expect that. And this quarter was an example of much, much higher production in our unit costs on a year of this year versus year of last year for the first 6 months, the unit cost despite higher absolute cost. The unit cost was at or below what we were a year ago with a lot higher production. So we really manage the business on unit costs. We sell barrels, we produce barrel. So we're interested in what the cost per barrel is, but I think the absolute cost kind of the more - the first-half run rate is probably not unreasonable. I hope I get to tell you at the end of the year that we did better than that, but for modelling standpoint, that's probably fair.

Okay, I appreciate that. The follow-up, it might be granular. So if it is happy to take it offline, but I just noticed in the past few years that you guys had very low cash taxes and you have NOLs and things like that. So I'm just wondering how you foresee that kind of mathematically planning out as we move into 2020. I think you will have worked through a lot of those NOLs. But is there a way to think about book and cash tax rates and the growth rate.

I think I'll ask Dan Lyons to comment on that a little bit and if I can offer a few comments. But if there is more granularity as you say, we could do it offline.

Yes. Phil at a significant tax loss carry-forward balance last couple of years which has really minimized our cash taxes, as our profitability. It's been pretty solid those are running down and you can look in our Q, which will come out here in a week or selling and see the balances. They are coming down and we anticipate being cash tax paying a pretty shortly, but obviously to depend on prices and other things. So, we benefited from that. We still have some tax loss carry forward. So, we're using, we obviously are still benefiting from accelerated depreciation, but our rate of cash tax paying at these prices should start going up in certainly in 2020.

And any order of magnitude relative, I think your book tax kind of mid '20s recently in the order of magnitude relative to that - you would kind of ratio of cash to book.

Yes, I would go. I don't have a number on that. Suffice it to say once we run out of tax loss carry - our cash tax rate is going to be closer to our book tax rate.

Yes. Okay, all right, thanks very much.

Thank you. And our next question comes from Dennis Fong from Canaccord Genuity. Your line is now open.

All right. Good morning. I know we are getting for longer in the 2Q but I'll keep my - couple of questions short. So this is just a bit of a fall along on in terms of the OpEx question at Kearl. So essentially it sounds like you guys were implying that there was some kind of pre-spend to kind of perhaps for the supplemental crusher and then kind of going back to the Investor Day. There's obviously a shortlist there of future upcoming projects that you could, we'll call to further de-bottleneck to 280,000 barrels a day plus I suppose the question for me really here. They, how much of that, have you actually completed thus far and is incorporated essentially in your - we'll call elevated OpEx right now. And how much could potentially come in the next few years and how you guys see the decision around sanctioning or allocating capital towards that component of the bottleneck here. Thanks.

I mean if Dennis take the last part of your question first. In terms of the decision you may recall from the investor deck we've - we wrapped up investment opportunities We have and we use just a very simple indicative cost per flowing barrel kind of a measured just normalize and we described Aspen, we describe a couple of phases of Aspen Cold Lake expansion and we had the supplemental crusher on there and then we had what we think kind of investments are spending that might take us from 240 to 280 at Kearl. And those incremental redundancy reliability investments are extremely attractive. The supplemental crusher at kind of the advertise what I've said about it from a price standpoint, our cost standpoint, the incremental and the incremental production, it comes with it. We talked about $15,000 to $16,000 per flowing barrel. So there are quite - that's a quite attractive and we'll look at it, not only on the individual economics. But what it does. The enterprise and its ability to more confidently sustained cash generation. So but there also to the point after the supplemental crusher it's, they are quite small. So we're looking at a kind of bit by bit, it's not like there is a $500 million project or a $300 million project, their component part things and we have been doing some of those, some of them, you could say that well they reduce maintenance intervals maintenance requirements, but some of them, I could say they support that higher capacity from the 240 to 280 and I'll give you one that I haven't really talked about my upstream lead John is not the room with me, he might cringe we're working long and hard on the turnarounds we're doing this year and next year to see as opposed to an annual turnaround at each of the two big plants, can we get those extended where we have a - and every two year cycle on those and that would be huge not only from the OpEx cost you would say, but also from the incremental volumes that that would shed in a given year. Not ready to say we're going to be able to achieve that yet, but we've been spending some money on whether that strength materials and key components where we've went in on annual cycles because we felt the need to check and see what erosion has been. If we modify some of that and we operate per year look at and say, wow, it's, there's not much change those kind of things can give us the confidence to go to longer and longer cycles between turnarounds and that's a winning formula, here because not only saves the OpEx of a turnaround, which as I described at Kearl was a $100 million growth and then the quarterly impact on production at 46. So you save that $100 million OpEx and you don't have the annual average 10,000, 11,000, 12,000 barrel a day impact for production. So we've been working on that we haven't talked much about it, I think I just did right now. So that means probably this fall, we'll get to talk more about it, but those are some of the things you're seeing in the OpEx run rate that we really, it's not just higher cost at Kearl. It's things we're doing that we're absolutely convinced, will lead to higher value at Kearl for the longer term. I'm probably on that -- probably walk through the end of that limb on that one, but we're going to later this year we'll pull investors together again and analysts and we'll talk in more detail and I promise you now we'll talk in more detail about what we are and have been doing in those areas.

Okay, perfect. Thank you. And then the second question that I have is just with respect to a comment that you made earlier in the call on Syncrude and the, essentially allocation of production quarters, how should we think about that going into Q3 and the remainder of this year. Just given that you do have some levels of heavier turnaround at some facilities and how are you guys thinking about balancing out, I guess, the production on a corporate level notwithstanding a potential significant change from the mandatory curtailment plans from the government. Thanks.

Yes, good question, and I'll comment our mix my comments a little bit industry and then our specific in us specific - when you take the quotas were assigned a quota for coal and cold lake combined as an operator and Imperials, the operator of those two assets. Then we have at our discretion on the month-to-month basis to decide if we're bumping up against those limits how and what we produce between Kearl and Cold Lake. And our Syncrude is a designated standalone operator. So they have no ability to trade off between other assets, it's Syncrude and so with the turnaround work for example that we had at Kearl. In the first quarter with some of the operational challenges on cold weather that we had both at Cold Lake and Kearl in the first quarter, I'm sorry, the turnaround in the second quarter, we were a net seller of credits during both are much of that time period and we sold many of those to Syncrude, so that we could optimize our Imperials overall performance. As we get into the third quarter, I commented, we're out of the turnaround at Cold Lake out of the turnaround and where we're roaring loud at Kearl, Syncrude had some turnaround weight in the period, but these orders are month by month. And so we see it's going to be pretty tight it was tight in July. It's going to be tight if not tighter in August. And this is true not only for us, but industry at large. I wouldn't expect there is going to be a lot of credits traded in the - at least for the next month and a half or so in the quarter until others start to do maintenance work again or they have other situation or the government continues to release incremental quota to industry. The third quarter, we've always from a year ago, we looked at and thought that the toughest time in this world not knowing what would happen on curtailed volumes will be in the third quarter, we saw that at the beginning of the year and we're here now and that's exactly the way we continue to see it.

Thanks. Thank you.

I think we have one more.

Thank you. And our last question comes from Jon Morrison from CIBC Capital Markets. Your line is now open.

Morning, all. Rich, if were to government were to ask Imperial, what was the right WCS Hardisty to WCS Gulf Coast if to target from an optimally functioning market perspective IE all production is clearing the market through the transact the pipe rail and domestic refining capacity but pricing is also protecting industry cash flows and arguably sustainability for the broader group of companies, what would you say. And do you believe that the government can dial back curtailments to walk into that pricing scenario or you believe that they need to just effectively removed curtailments let it go wider and let CVR ramp to get there.

Yes, I can tell you what I'd say, because I've said it, and if you take WCS Hardisty WCS Gulf Coast for a healthy, sustainable growing rail sector that parties will plan and invest in, we think that number needs to be $15 to $20 and that's kind of a full cost model on any point in time to incent rail one month versus another month many parties will operate under the their variable costs the okay, if I don't do it. I'm going to incur this level of fixed cost because I have take our commitments or whatever. So at any point in time, the industry is not operating off of a full cost recovery model, but our number in there and I like that. One thing, I mean I have the best memory. But I'm very consistent. I think I've said $15 to $20 for some time now, and I still see that math. The same way and that's what we've described to the government would get us in a world of clear economic incentive sustainable rail activities and then parties wouldn't be worried about what's going to happen. Month-on-month like they are today. Now the second walking into it this is a tougher one. But what I go back to my inventory comments with 8 million barrels or so inventory that is now exists 100,000 barrels a day for 30 days is 3 million barrels. Now is the time to test it. We do not believe if you put that incremental production in that the differentials will blow out over it. If you get at or near tank tops It's a lot more difficult to predict, because there is no place to put oil and you get into things like shut in economics. But we think the time to, let's, what's our muscles was a little bit and see if can we lived in a non-per-tail world, we think the time is right now to do that. And that also happens to be something I've shared in a very productive manner. We have good conversations with the government on this, but they've got a lot of things to consider, but that is the exact that differential and what we think could and should be done in the short term is exactly what I talked to the government about as recent as a couple of days ago.

I appreciate the color. Maybe I'll just ask one follow-up, which is Devin Jackfish there is obviously a decent amount of investors who would have liked to have seen you bought that asset rather than push forward with Aspen at some point down the road. Can you just share any color around, whether it was of interest to you. And it was just a function of price that didn't really get you there or, it really wasn't on the table in the context of the market that we're in a curtailed world.

Well, I think the ability to grow, grow shareholder value. And I'll globally competitive long-term sustainable way is of high interest to us in all environments and we described a bit of what we have from an internal opportunity inventory Aspen Phase 1 Phase II Cold Lake expansion Kearl supplemental crusher other Kearl enhancements we've talked about how we compare that to other things in the market, you commented on one year. We've looked at several others. So I won't specifically get into Jackfish itself that we've got our nose and ears to the ground, we evaluate far more things than we ever talked about publicly, and we don't, - we're not opposed to making a move when we're convinced can add shareholder value, but I'll go back to some of the things that I've just said is, there is a lot of uncertainty out there and we would like, not the least of which is they have ability for the market to act of operating a free market world, we'd like to get in that world, we'd like to see some supplemental pipe we'd like rail economics to be sustainable and I think then you'll see us with more appetite than we have right now for spending new capital money

I appreciate the color. I will turn it back.

Thanks, John. Okay. So that's the end of the questions. So thank you everybody for calling in. As always if you have any further questions, please don't hesitate to give us a call.

Thanks, folks.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.