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…

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…

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…

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…

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…

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…

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…

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…

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.