Suncor Energy Inc. (SU) Q4 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, welcome to the Suncor Energy Fourth Quarter 2012 Conference Call and webcast. I will now like to turn the meeting over to Mr. Steve Douglas, Vice President Investor Relations. Mr. Douglas, please go ahead.

Thank you, Ann, and welcome to everyone to the Suncor Energy Q4 shareholder call. With me here in Calgary are Steve Williams, our President and Chief Executive Officer; Bart Demosky, our Chief Financial Officer; Jolienne Guillemaud, our Vice President and Controller; and, Greg Freidin, our Assistant Controller along with Jenna van Steenbergen, from IR. Before we begin, I need to note that today’s comments contain forward-looking information. Actual results may differ materially from expected results because of various risk factors and assumptions described in our Q4 earnings release, as well as in our current AIF, and both of these are available online. Certain financial measures referred to in these comments are not prescribed by Canadian generally accepted accounting principle and for a description of these financial measures, please see our fourth quarter earnings release. After our formal remarks, we will open the call to questions, first from members of the investment community, and then to members of the media. With that I'll hand over to Steve Williams, our President and CEO.

Good morning and thank you for joining us. The fourth quarter was an eventful one for Suncor both from an operations and a strategic position. I’d like to start with an overview of our performance in the quarter and for the year as a whole. Then I’ll take some time to talk about our key priorities as we turn the page on 2012 and look to the new year. So a record production month at our Oil Sands flat in December helped us reach new highs for both quarterly and annual Oils Sands production. And Stage 4 of our in situ facilities commenced operations well ahead of schedule. At the same time, our refineries continue to run reliably and proved the benefits of our integrated model. In particular, the Edmonton refineries performed so consistently that as of January 1, we officially upgraded the nameplate capacity of the plant from 135,000 barrels a day to 140,000 barrels a day. Now, Q4 presented its share of challenge as well, in connection with maintenance, our Oil Sands upgrading operations in the Terra Nova offshore project. At Oil Sands, our average production reached record levels of 343,000 barrels a day for the quarter, enabling us to reach the lower end of guidance range for the year of 325,000 barrels a day. However, planned and unplanned maintenance reduced the amount of suite upgraded material that we could produce putting some downward pressure on the value of that sales mix. Additional pressure came from a deteriorating price environment for Oil Sands crudes and Mid-Continent petroleum products as a result of supply-demand imbalances and takeaway capacity issues. However, during the quarter, we made good progress towards addressing those issues by developing new infrastructure to enhance the takeaway capacity and marketing flexibility around our Oil Sands operations. These…

Okay. Thank you Steve and good morning everyone. The fourth quarter capped a year in which Suncor made some considerable strides forward on the financial front. It was the year in which we were able to fund our profitable growth program, generate record free cash flow for the organization and as well strengthen our balance sheet, and return significant cash to our shareholders. It was also a year marked by great volatility in oil price differentials that certainly tested the strength and flexibility of our integrated operational model. In Q4, we saw bitumen and heavy crude pricing heavily discounted due to large swings in the supply-demand balance and apportionment in the pipeline takeaway systems and that dynamic has continued into the beginning of 2013 and will impact results across our sectors. For the fourth quarter, Suncor’s operating earnings came in at $1 billion, which is down from our run rate over recent quarters, largely as a result of lower market pricing and a less optimal sales mix at Oil Sands where we experienced some unplanned maintenance in our upgraded complex combined with the reduced production from our offshore assets due to extended turnaround activities at Terra Nova and Buzzard. Now these same factors reduced our cash flows for the quarter to $2.24 billion, but we still managed to generate total cash flow for the year of $9.75 billion, which equaled the record that we achieved in 2011. And over the last couple of quarterly calls, we talked about the economics for the Voyageur upgrader project has been challenged. And as part of our year-end accounting activities, we completed an impairment test on the project and based on an assessment of fair value for Voyageur we recorded an after-tax impairment of approximately $1.5 billion. Now with the impact of this impairment…

Thank you Steve, and thank you Bart. I just wanted to reiterate that our 2013 guidance, which is updated is available on the website suncor.com and just a couple of notes about the financials. The LIFO/FIFO adjustments in the fourth quarter was a net negative of a $104 million or approximately $0.07 per share, and for the year with a negative $154 million or $0.10 per share. Stock-based compensation in the fourth quarter was a net cost of $33 million and a net negative of $283 million for the year, a $0.02 per share and $0.18 per share respectively. Finally the FX impacts, the exchange a negative $80 million in Q4, but a positive $157 million for the year. We will open the lines up now for questions. I'd ask you to keep this at a strategic level for the most part as our typical practice again is that the IR team and the controllers will be available throughout the day for any detailed modeling questions. I'd also ask that we queue the call first to the investor community followed by media at the end of the call. With that Ann, I'll ask you to open the lines.

Thank you. (Operator Instructions) We have our first question from Greg Pardy of RBC Capital Markets. Please go ahead. Greg M. Pardy – RBC Capital Markets: Yeah, hi thanks good morning. So I'll hit you with three quick ones. I guess the first one is just for Steve, in terms of Fort Hills, I hear everything you’re saying in terms of capital discipline. Just wondering if there are considerations other than returns on that project that would properly to do it, I don't know any other way to ask it, but that's the question one. Second one is just on Oil Sands production levels for January, it sounds like harsh weather impacted extraction, but I'm just wondering if you can give us a sense to how things are running currently or levels currently? Then the last question is just on Montréal, so if the Line 9 reversal does come through what are the plans for the Montréal refineries? Thanks very much.

Okay, thanks Greg. Let me just take those three questions. So the first one on Fort Hills, I think by far the most important consideration around Fort Hills is economics. There are some other minor considerations, but none of them really material to the project. So I think you’re asking about some of the regulatory commitments we took about developing that asset. Overall, the deciding factor will be around the economics of the project and it will set the normal sort of hurdle rates that we have. And just the second one, a quick update on operations, and I will take this opportunity also just to briefly speak to Terra Nova. In Oil Sands, the challenge we had in October and November was around the upgraders. We’ve largely and those roll through a little into December. Those are behind us now, none of them were major issues, none of them caused major incidents, frustrating, but we’ve moved through those. The upgrading in January has been very good, so when you see the final numbers, you will see the proportion of material upgraded is much higher. The challenge we have in January again, nothing of any great significance. January is actually a record month for us in terms of Oil Sands production. The issues have been around the mine and extraction and simply we’ve had extended cold weather, so nothing significant, you just have to do more maintenance on those facilities as those weather conditions present. So we are working through those and things are looking good in oil sands now. Just literally, a very quick stop price update on Terra Nova. We’ve had a bit of a breakthrough this morning actually. We now got the second drill center on, we are starting to – which is very good news, we…

No reluctance at all. What I would say is, we've always have the view that there is balanced pass forward for us and if you actually look at the opportunities we have ahead of us. And of course with the cash flows we're talking about and the project portfolio we have, we have the opportunity to start to look at some projects, and I will briefly talk to those for you. If we were and of course we haven't made a decision on Voyageur yet, what happened and we’ve announced is, an accounting impairment that’s there. We will have the decision made before the end of the first quarter. But if there were a decision not to go ahead with that project, you have even more capital available. So in situ we will play a significant part in our plans forward. And let me talk to you just briefly about the opportunities, I mean we have $12.5 barrels of in situ resource. We have and we are working right now on expansion opportunities for Firebag and MacKay River, both of which are below full cost expansion. We also have amongst some of the industry's best other resources in Lewis and Meadow Creek. We are currently working on both of those projects and we have what I will call debottleneck opportunities on the in situ plants that we have, extraction and upgrading the base plant. So we have a full suite of projects. When we come out with the decision on Voyageur at the end of March, my plan is to talk in more detail about these other opportunities. But in either case, whatever happens with Voyageur you will see a rebalancing around in situ, because the in situ projects are looking very attractive at the moment. Greg M. Pardy – RBC Capital Markets: Okay. Thanks very much.

Thank you. Our next question is from Guy Baber of Simmons & Company. Please go ahead. Guy A. Baber – Simmons & Company: Hi, it’s Guy Baber of Simmons, good morning guys. You all specifically noted that in 2013, your Oil Sands growth capital will be at least partially dedicated to building new infrastructure to enhance marketing flexibility and takeaway capacity. I was just hoping you could provide a little bit more color with respect to those specific initiatives you might be undertaking, maybe what the timeline might be for the year, just trying to get a better sense and better appreciation of how those projects might impact your liability of operations going forward and might drive any improvements in consistency of production output, especially given sort of the unplanned downtime that we’ve seen here recently.

Yeah, a lot in that question. So let me just take a step back and put what we’ve announced today in context. Maybe I will take this one step even further back. Right now Suncor relative to its competition is in a good position with takeaway capacity. So rarely this access to market or the large differentials that are in place have a significant impact on our performance, and that's part of our integrated strategy. When there were discounts around particularly heavy products from Oil Sands, we are able to capitalize on that in our downstream because of the degree of integration we've had. So we’re broadly supporters of access to multi-markets from Oil Sands for the industry, that’s east, that’s west, that site and potentially there are some discussions now around north. I think those conversations are reasonably well understood, and I wouldn’t propose here to go into detail other than to say, Suncor has been supporting all of those projects to get access to multiple markets and we think that's important. The announcements we’ve made today are about local connections into the pipeline access. So it's about how we get it from Fort McMurray, way locally or into Edmonton or Hardisty, and so they can get into the bigger pipelines systems. That is about flexibility and about being able to get the best margin for our projects. So it's good news, it further consolidates Suncor’s position in terms of making sure we don't have restrictions and it puts us into the bigger systems which I think you’re very familiar with and we’re strong supporters of those projects. Guy A. Baber – Simmons & Company: Okay, great. And then I'll add a refining question as well, but obviously refinery is incredibly profitable in this environment, thanks to the access to advantage crudes, just wondering aside from Line 9b are there any other initiatives underway I think you’re going to further optimize the feedstocks plates? Any opportunities perhaps to rail crudes, incrementally into some of your western refineries or at this point are you pretty happy with the way those refineries have been supplied?

Very pleased with the quality of the operation and the reliability of the refining assets, of course very important is to be able to match that reliability to when the market offers margin around those business. So, it’s a very strong operation from those guys. Yes, we continuously review, we look at the assets we have in each of those refineries to see if we want to invest and we are continuously doing that and there are some rail opportunities for us to do that. Particularly, on your question about rail, the answer is yes, we are looking in diesel at some rail opportunities, particularly around the Montréal refinery as well, because again, it gives you a great deal of flexibility, particularly around some of the poor quality streams from Western Canada, where you could get those soon and then pipelines could be reversed. And even if pipelines are reversed, you have an opportunity to make a good margin, so it gives you some flexibility. So, you’ll see us talking about rail facilities particularly into Montréal. Guy A. Baber – Simmons & Company: Okay, great, I’ll leave it there and thanks guys.

Thank you, our next question is from Arjun Murti of Goldman Sachs, please go ahead. Arjun Murti – Goldman Sachs: Thank you, just a follow-up question on the differentials and your strategy going forward. So, you’ve highlighted and recently agreed with, you’ve been integrated, you’ve had the upgraders, you’ve had the refineries. As we look out kind of beyond 2015, both Suncor and certainly industry at large, becomes increasingly long Bitumen. Do you have a strategy to want to continue to stay fully integrated and if so, how do you handle that? I know there are lot of announced pipeline projects, but when you look a gateway, I mean on your estimates of 2019 and beyond, I think Houston gets approved within this President’s administration or not is uncertain, it may, or may not, but you’ve been in control and it served you well, how do you think about the desire going forward? And the question really is sort of for the 2015 and beyond growth which I know is some time away, but for you and a lot of others they’re going to be more exposed to these ongoing differentials. I just wanted to understand your thoughts around that. Thank you.

Yeah, great point Arjun. And then I mean strategically we've been very well positioned and the simplest way I think of that at the moment is effectively we have a spare refinery in terms of the integration model right now. So we have some runways ahead of us, in terms of our ability to maintain the ratio of exposure to bitumen and exposure to these (inaudible) refineries are taking advantage of at the moment. Arjun Murti – Goldman Sachs: You’re referring to Montréal obviously.

Yeah, it’s Montréal. So I like our position and we are very well integrated now. We effectively have a spare refinery in the context of integration. We are not necessarily comfortable with that, so we continuously ask ourselves this question. How much integration do we want to maintain as we move towards the 1 million barrel a day and probably beyond. And keep asking it, there is no need to make decisions right at this moment because some of the pipeline decisions are imminent and have a profound impact on the likely future of those margins. So if we access that’s built and sold on this continent we take a look at. We have in our mines some ratios that we’re comfortable with and we will continue to have appointed a few on what we think that market looks like going forward. Clearly we do not expect the type of margins and differentials we're seeing now to stay in the long run. I think whether individual pipelines go ahead, I don't think they will constrain the growth of Oil Sands in the mid and long run and I believe that these differentials will start to collect over time Arjun Murti – Goldman Sachs: Steve, how do you think about rail and other stuff that you can control versus again I mean there is no question of sort of ultimately pipelines get built, but ultimate can be a long time away especially for talking to the West Coast of Canada, I’m intrigued by your going north potential and again to be dependent on a U.S. administration for approvals also a tricky thing when politics come into account. It’s really the kind of the idea of controlling other options whether it’s rail – I guess rail is kind of the one that I’m asking about?

You know one of the things I would highlight is the strength of Suncor’s strategy is our ability to play in that logistics arena. So we have a trading group, strong trading group probably an industry leading trading group around heavies. We have detailed involvement in the pipeline and tankage that occupies the middle brand. We absolutely believe that rail has a part to play in there particularly it gives you flexibility, it gives you pressure relief in the system if there were any particular issues. So I think that rail has a part to play in the short-term. I think if the industry is rational then pipelines will be the solution in the long run. There is no doubt that rail will have an important part to play in the mid to short and mid to long-term through there as well because of course once these rail facilities get built then they have a life expectancy so they will be used. So I think they keep a nice downward pressure on prices as we get into the sort of five, 10, 15 year type periods. Arjun Murti – Goldman Sachs: That’s great. And just a very quick follow up for Bart, there was a – kind of a decent capital outflow. Is that – would that reverse or is that something that just happens and we should count on it going forward?

Yeah, hi Arjun. That's a good question. It's largely due to pipeline and tankage build at Oil Sands, so that would baffle a line. Arjun Murti – Goldman Sachs: I got it. Okay, thank you.

Thank you.

Thank you. Our next question is from Paul Cheng of Barclays. Please go ahead. Paul Y. Cheng – Barclays Capital: Hi guys good morning. Bart, I think in your press release you're talking about a dispute between you and the Federal Government on the first set, (inaudible) can you just give us maybe more detail in terms of what was the dispute and what they are disagreeing with you guys.

, : In order for us to appeal, if there is a reassessment against us and go through that process, we will have to post some form of collateral or cash given our strong views on it, it would likely be the minimum and when you look at that amount of cash relative to the cash on our balance sheet, our cash flows, we wouldn’t expect this would have any impact on our plans for returning cash to shareholders. Paul Y. Cheng – Barclays Capital: Thank you. Maybe this is for Steve.

Yes. Paul Y. Cheng – Barclays Capital:

Okay. Let me just make some broader comments rather than around specific reserves. I mean, we do have some reserves, obviously significant reserves other than Oil Sands. We are looking at the opportunities they present to us. Some of those are particularly strong around unconventional gas, so part of our strategy and we talked about it a couple of calls ago was, as we were selling down our conventional gas business immediately post the merger with Petro-Canada, very successful, we got good prices, we sold somewhere between $2 billion and $3 billion worth of those assets. We still have some of those left as a small round of operations now, but looking at the opportunities around that going forward and then we have an opportunity to move more to an unconventional gas business where this tight gas is a real opportunity and all of the opportunities in downstream is out there, so it’s a significant material resource. We have the possibility to look further down the road of producing from that and if we were going to do that, we would have a similar debate to the debates that are going on at the moment about, do you forward integrate that when LNG plan to different markets. So, lots of opportunities there, nothing particularly that we have to enact the moment. Paul Y. Cheng – Barclays Capital: Steve, on Cardium you set a oil formation or are you looking for oil or that is you are looking for gas?

Sorry about that, Paul. It is oil, but I would not characterize this as material. So really not something we are highlighting at this point. Paul Y. Cheng – Barclays Capital: Okay.

Happy to take that one offline that with you and then some worrying people. Paul Y. Cheng – Barclays Capital: Okay, final question. Steve, you talked about, you are not totally happy with the upgrade or reliability, can you share with us that will top the initiative that you maybe taking to further improve the reliability there? And at this point when you look at that, is the issue that we have seen in the last year or so, is it [half way] related or that is just more of a process issue or just that cultural, personal issue?

Largely, operational excellence is about people, the hearts and minds, the procedures, and the assets themselves. The first two pieces, still working on it, it’s a journey you never get there in terms of the culture and the protocols and procedures. Those are working very well, but still some progress to make. The issue is being around some of the hardware. The good news is, because of the people and the processes, these are the minor events, they are frustrating, but they haven’t led to fires or major upsets from the plant. They have been controlled shutdowns to do unplanned maintenance. The last ones were about cracks in metallurgy and in header downstream of the upgraders. We were aware of it, we were watching it, it was in the next turnaround to put a different design in and because we could see something happenings, we took a control shutdown and did the work preventively. So I am very pleased, that’s why I say underneath, I can see significant indications of improvements. That’s why it takes to the second turnaround to fix some of these things because there are some hardware. All of the issues that we have identified and have designs for, we’ve started to work on those. So we would be either going in and already done the repairs on them or we will plan to do them at the next turnaround. So I see it as a decreasingly important issue, I just can’t get quickly enough if you know what I mean. We’re seeing it improving. We’re having less events. The events that are happening are not quite so material. We won’t get items believe until a world-class on these upgraders until we get to the other side of the next turnaround. The good news is unit one is operating well and we understand it. Within the company, we have a real understanding of this. We’ve just increased upgrading as part of the Edmonton refinery. We’ve actually increased the upgrading capability there, because of what we’ve learned and what we’ve executed. And we’ve moved our very best people across from the downstream into upgrader to accelerate this plan. So I’m comfortable, we understand the issue. We got the right resources on there and I want to put – I’m putting the pressure in to make sure we realize the benefits as quickly as we can. Paul Y. Cheng – Barclays Capital: Thank you.

Thank you. Our next question is from Amir Arif of Stifel, Nicolaus. Please go ahead. Amir Arif – Stifel, Nicolaus & Co., Inc.: Then just first on Voyageur, I’m just trying to get a sense, so this is a simple go or a no go decision or do you have a potential to change the size and scope of the project. So William said that we’ll get 200,000 barrels a day upgrader, is there a minimum size of 50 or 100 that you could envision doing, putting into wages?

Hey, let me just make a few comments around Voyageur. We’re working diligently with our joint venture partner. The relationship is in good health. It’s tough work, because what’s happened around Voyageur is the market substantially changed through – our view of the market has changed substantially, hence we’ve been developing the project. So as we take full account of the consequence of these Mid-Continent crudes coming on then the light heavy margins are being a squeezed in our view. So we’re looking at all of the options going forward and without going into too much detail on the options we're looking at, the booking are at one extreme you could go ahead with the project as it is, at the other extreme you could cancel the whole project and go ahead with nothing and there are whole range of options in between there. The reason it takes a little bit of time for us to work through of course is because for the partners the position is different. For Suncor, because we have assets on the ground, we have the capability of marketing all of the bitumen from our growth plans, with out Voyageur. We understand that market, we have billions available, we have a marketing plan that we now can look. So the options for Suncor are relatively easy to look at, but for our joint venture partner who we are working closely, we want to help through some of these choices, more difficult because their assets underground aren’t the same. That’s one of the benefits of the joint venture partnership. We think we can work together to start identifying which is the best of the options and help them with some of their challenges. So it's going to take us to the end of March to get through that review. I'm very optimistic that we will come to a joint conclusion, but we haven't selected which one of the range of options we will look at or come forward with that at the end of March. There are no at this stage, in a project of this size there is no easy way to go to a half or quarter size upgrader. Amir Arif – Stifel, Nicolaus & Co., Inc.: That helps a lot Steve. Just secondly on Fort Hills, the sanctioning in the second half, will we get a CapEx update with that and should we be thinking of that as a 3Q event or closer to year-end?

Yes it will be normal. The reason I’ve used the phrase second half is, it’s going to be bang in the middle and you know we plus or minus a week or a month into the middle of that six months period, end of the third quarter is slightly behind and we will do all the normal stuff that we will talk about, our view of the range of cost, our view of the economics, and we will talk about schedule in detail. Amir Arif – Stifel, Nicolaus & Co., Inc.: Okay, thank you.

Thank you. Our next question is from David McColl of Morningstar. Please go ahead. David C. McColl – Morningstar Research : Good morning. Two kind of questions here; first on the Voyageur, then Fort Hills. So recognizing the fact you are going to provide a decision in a few months on Voyageur, just wondering if you can give any details on to the financial or other implications if the projects were to be canceled and if we could see some horse trading of other assets to deal with cancellation of Voyageur. And then related to Fort Hills and Joslyn, I'm just wondering what requirements are in place right now or kind of growing outlook say five plus years in order to maintain the Fort Hills and Joslyn leases. In other words, is there any commitment that have to be undertaken in the next five plus years? Thank you.

Thanks. In terms of horse trading, I mean I wouldn't use that expression, but we have venture partners in there and within the joint ventures, we have different partners in each of the venture, we have clearly the Voyageur Upgrader, Fort Hills, and Joslyn. These joint ventures were coming together partners who believe they have a longer term future together. Not just around these assets, but potentially other assets as well. So clearly, wherever we land, it's the booking, whether its to go ahead with Voyageur as we have seen it, whether it is to other bookings to cancel the project. There are all sorts of options and because there are different partners to play, Total being the biggest one, but the other partners in their tech as well I am getting to Fort Hills. Clearly, there are benefits that the partners bring, so there are still some bills to be done around how the final parts of those projects would progress. There is also the opportunity, particularly with Total to talk about other things as well. And I met with Christophe just before Christmas and we were both very optimistic about the long-term future of the joint venture. Clearly, joint ventures are tested most when you have difficult times together, but both of us started from a position of we still support the joint venture, we still see it has value, it has value around the existing assets. And in the future, there maybe the potential to talk about other things, probably have nothing in particular to talk about here and now, all that we are looking at in short and medium term. On Fort Hills in Joslyn, these regulatory approvals are complex. In its simple form, there is nothing that I am overly worried about. Fort Hills have some timing constraints around it, but to be honest that resource is going to get developed. I mean, we’ve talked about, when I spoke on the last call, we talked about the most likely case for the project is sanctioning towards the end of this year with a view to first production in 2017 that is, still the most likely case. We take into correct timing considerations, but you know what, we will always be the best people to develop that project, so I don’t see them being critical to the sanction decision itself. The sanction decision will be made around economics and the good news is, of the three projects this is currently the best one and we’ve been able to make some significant progress with the returns on that project and we will give you some more details when we get to the sanctioning stage. David C. McColl – Morningstar Research : That’s good. Thank you.

Thank you. Our next question is from Mike Dunn of FirstEnergy. Please go ahead. Michael P. Dunn – FirstEnergy Capital Corp: Well, thanks. My questions have been answered.

Thank you. We will now take questions from the media. Our next question is from Jeff Lewis of the Financial Post. Please go ahead. Jeff Lewis – Financial Post: Hi, there. Steve, with the Montréal refinery, do you have a timeline for a decision on which direction you go as far as the addition of cokers, and can you also just talk a little bit about what’s sort of criteria will that investment decision would be based on in terms of whether, would a yes or no on keystone excel accelerate those plans?

Yeah, let me talk first around Montréal and timing. We like the Montréal refinery, very constructive relationship as I say with government and employees. We have a range of the investment opportunities there. Clearly Line 9 has a significant part to play in how far you go to integrate the refinery. In the front end we are already looking at flexibility around rail, the decision to fully integrate clearly is partially depended on Line 9 and Line 9 reversal. I have just talked, speculating as to when regulatory approvals are given for pipelines, because it’s a very difficult call to make We’ve already, as you could imagine in terms of the cokers in Montréal, not only it will have a relatively clear project, we have a lot of the assets already in our ownership, because of the stage of development when Petro-Canada and Suncor merged. So we are in a very advantage position in terms of how quickly we could make a decision and then how quickly we could move. I wouldn’t want to make any more timing calls on that other than it’s dependant on, partially dependant on Line 9, partially dependant on the continued support and we’ve seen great support from Quebec and from the Unions, given we have those things and that the card start to fall in the right sequence, it’s something we can move on relatively quickly. Jeff Lewis – Financial Post: Okay, thanks.

Thank you. Our next question is from Scott Haggett of Reuters. Please go ahead. Scott Haggett – Reuters: Hi, I am wondering if you can give me the sense of what difference a large light oil line to the East Coast would make on your thinking of spreads between light and heavy over the mid-term?

Hi, Scott its Bart. So question on a large light oil lines to the East Coast; Steve earlier mentioned that we are very supportive of all of the options and opportunities to bring access to other markets whether it’d be west, east or south. So we would be supportive of that option as well to the degree that, that line could move I think both light and heavy product and open access up for markets from the west that we would see that as very positive and depending on the timing and size of that line obviously it would work to resolve some of the constrain issues we have now and tighten up those differentials, so we would see it as a positive. Scott Haggett – Reuters: Thank you.

I am mindful of time here operator and I would ask that we take one last question.

Thank you. And our last question is from Nathan Vanderklippe of The Globe and Mail. Please go ahead. Nathan Vanderklippe – The Globe and Mail: I’ll try to sneak in a double-barreled question then. I am just wondering if you might be able to provide just a bit more detail on sort of your estimates on upgrading economics, I think you mentioned the fact of sort of rising light volumes out of the U.S., but if you can provide a bit more detail on that? Is there any specifics you can point to on some of the things you are doing on the ground to bring down your cash cost at the Oil Sands that you could help describe for us?

Yeah, I mean the only thing I would add to upgrading economics is, I think everybody was surprised with the speed with which the mid continent tight crude came into production. What that’s doing is, I think in the – if you go out in the five year and beyond timeframe, clearly what that’s starting to do is, we have a mixed challenge on the continent. And what I mean by mix is that balance of light to heavy. So we have too much light effectively sweet crude, which is what upgraded since synthetic crude effectively is and if anything we have too little heavy crude. That’s quite a change, so it’s a bit of a moving feast in terms of how you make those judgments in point of view. Our view is that that will cause a squeeze on upgrading margins and make a challenge and what will happen in that world this upgrading or these light crudes will start to get exported from a continent, so that's our view on upgrading. And then on the second question on cash cost, yeah, it's really dead center on operational excellence, so it's all of the detailed stuff, but the most important piece around Oil Sands and In Situ, because of the fixed cost associated with them is that you have to make sure you fully utilize your assets. So what you've seen is, as we're starting to more fully utilize the assets, the costs naturally come down, particularly important on In Situ, so the fourth quarter for us was predictably a difficult time, because we brought Firebag stage four on, we had all of the costs and none of the production. So we anticipated cost coming up in the fourth quarter, quarter three was much more of an indicator of…

So, I’d like to thank everyone for participating today and just a reminder here that the IR team and controller’s team will make every effort to be available throughout the day if you have further questions. With that, I’ll say thank you operator and pass it back to you for sign off.

Thank you. The conference is now ended. Please disconnect your lines at this time, and thanks for your participation.