Suncor Energy Inc. (SU) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Suncor Energy Second Quarter 2018 Financial Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this call maybe recorded. I would like to turn the call over to Trevor Bell, Vice President of Investor Relations. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Suncor Energy's second quarter earnings call. With me here in Calgary this morning are Steve Williams, President and Chief Executive Officer; Mark Little, Chief Operating Officer; Alister Cowan, Chief Financial Officer. Please note that today's comments contain forward looking information. Actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our second quarter earnings release, as well as our current Annual Information Form. And both of those are available on SEDAR, EDGAR and our website, suncor.com. Certain financial measures referred to in these comments are not prescribed by Canadian GAAP. For a description of these financial measures, please see our second quarter earnings release. After our formal remarks, we will open the call to questions first from members of the investment community and then, time permitting, to members of the media. I'll now hand it over to Steve Williams for his comments.

Good morning and thank you for joining us. Our strong second quarter financial results show the earnings potential of our assets. Although we experienced some operational challenges, we were able to post the best ever second quarter funds flow in our company's history. During the quarter, the business environment had rising commodity prices supported by decreasing global inventory levels. There was also significant volatility in relation to differentials and pipeline egress across North America. This was particularly a case in Canada where short-term impacts of operational disruptions and extensive turnarounds during the quarter created significant volatility for Western heavy and synthetic barrels. However, with industry turnarounds in the region complete and operations ramping up to normal levels, we expect the longer term fundamentals of a wider light/heavy differential to emerge with continued near to medium-term pipeline access restrictions. For Suncor, our tightly integrated strategy coupled with our strong logistics capability allow us to minimize downside and capture value in volatile markets, well positioning us to maximize the value of our oil production over the long-term. Our results this quarter underscore the strength of our business model and we delivered the best second quarter cash flow ever with funds from operations of CAD 2.9 billion and produced operating earnings of CAD 1.2 billion even with the largest turnaround activity in our history. We also mitigated the light/heavy differential with minimal impact on our quarterly earnings or cash flow, and were able to provide pipeline marquee access to accommodate all of our oil sands production including all of the Fort Hills barrels. Turning to our operations, Fort Hills and Hebron ramped up ahead of our expectations and delivered production that exceeded our guidelines in the quarter. Both operations became free funds flow positive in the quarter. And that's a significant accomplishment. And I do want to take just a moment to recognize the teams involved for their dedication, careful planning, and execution in achieving this remarkable result. We completed, as I said, the most significant turnaround maintenance schedule in our history. And while this had a short-term impact on production and cost, our base plant and refineries are now running at full rate positioning us for strong results over the second half of 2018 and into the future. Late in the quarter, Syncrude experienced a site-wide disruption which resulted in a complete shutdown of all processing units. Working with the operator, we outlined a restart plan earlier this month and Syncrude is on target to meet that plan. The first coker with a capacity of 150,000 barrels per day started to produce finished product on the 16th of July. The second coker with an additional 100,000 barrels per day of capacity is expected to return to service in the first half of August and full production with the last coker online is expected in early to mid-September. We were disappointed with the outage and, to be frank, I am not satisfied with the asset's operational performance. We continue to engage with the Syncrude owners on the need to accelerate the necessary strategic initiatives which we believe will drive long-term reliability of this plant. Progress has been made and I continue to believe that all of the operational challenges observed are items that can and will be fixed. We were on this journey with our base plant reliability in the early part of the decade and we learned the path to operational excellence is never a straight line. We set targets for Syncrude's sustainable utilization rate of 90% and cash costs of CAD 30 per barrel or less. I remain convinced that these targets are achievable. However, this recent event emphasizes the need to accelerate Syncrude's strategic plan to ensure reliability. We continue to aggressively pursue the necessary improvements but this does require the full cooperation of the other owners. With the majority of the short-term production issues in the rearview mirror, we enter the second half of the year and what we see in the longer term is a very positive business and operational environment for our business. We remain confident we have made the right and sometimes difficult business decisions. These decisions have positioned the company to provide strong and increasing returns to shareholders whilst maintaining a healthy balance sheet and investing in future value creation. Our confidence is grounded in the fact that our major growth projects which were constructed in a low price environment are now ramping up ahead of schedule (07:37) and doing so in a stronger price environment. Fort Hills and Hebron operations are free funds flow positive in the quarter, ahead of our expectations and their contribution will increase as they continue to ramp up. We have a series of projects in 2020 to 2023 that we believe will grow our free cash flow from our existing assets by CAD 500 million annually, which is CAD 2 billion cumulatively. We have no market access challenges, as we have pipeline access for all of our oil sands production including the Fort Hills barrels. And our downstream business and strong logistics capability will continue to capture value in the long term with light/heavy differentials widening and strengthening diesel demand expected as IMO 2020 standards come into force. We believe that the impacts of IMO 2020 will benefit Suncor. Reflecting our confidence in the second half of 2018 and the anticipated increase in free funds flow, our board has authorized an increase to our existing annual NCIB program to a total of CAD 3 billion. We're also increasing our capital guidance to CAD 5.2 billion to CAD 5.5 billion, as we accelerate growth investments and reflect some increased costs from the recent operational issues. In closing, I want to emphasize that our business model and philosophy, irrespective of short-term volatility, will remain laser-focused on operational excellence, capital discipline, long-term shareholder value creation, and returning that value to our shareholders. I'm now going to ask Mark to provide some color on our operational performance in the second quarter.

Great. Thanks, Steve, and good morning, everybody. As Steve mentioned, the second quarter operational results were mixed and notably we continued with the successful ramp up of our major growth projects. We also saw strong production from our in situ and offshore assets. However, those accomplishments were tempered by the recent challenges coming out of our planned turnarounds and Syncrude. As noted in our release last month, we completed a seven-day test of the Fort Hills facility, running the asset in excess of 90% capacity and successfully proving out the gross nameplate capacity of 194,000 barrels a day. Fort Hills has produced 131,000 gross barrels per day in the quarter and that's 71,000 barrels per day net to Suncor significantly exceeding our second quarter guidance of 30,000 barrels per day to 50,000 barrels per day. Fort Hills also achieved cash operating costs of CAD 28.55 per barrel, which was well below Q2 guidance of CAD 40 to CAD 50 per barrel. With the plant ramping up earlier than anticipated, the team is working now to accelerate the pace of the mine and expects to enter the fourth quarter at 90% utilization. So our target is to achieve 90% utilization for the whole quarter, fourth quarter. That timing has been reflected in our updated full year production and cash cost guidance. I also want to take a minute just to acknowledge the Fort Hills team including our major projects and the operating team and the development functions and all of our contractors. So far, at least from my experience in my career, this has been the best startup we've seen, although, it's not over and we've got to get it fully ramped up and get to our 90%. Our in situ assets continue to perform extremely well during the quarter producing 236,000 barrels per day of bitumen. They also achieved cash operating cost of CAD 7.90 per barrel which marks the fourth quarter in a row where costs were below CAD 10 a barrel. What's more – this was accomplished while advancing MacKay river planned maintenance that has been originally scheduled for the third quarter. Suncor's offshore assets contributed a hundred 114,000 barrels per day to our upstream production and continue to demonstrate their value with our diversified portfolio of assets. In fact, they generated CAD 545 million of funds from operations while other segments of our business were undergoing significant turnarounds. The strong performance from our offshore assets was consistent with the first quarter. Natural declines for some assets and planned maintenance at White Rose were almost entirely offset by the ongoing ramp up at Hebron which averaged 13,500 barrels per day during the quarter. In the downstream, crude throughput was 344,000 barrels per day or 75% of nameplate capacity, reflecting the impact of significant maintenance across our refineries. However, as we discussed in the first quarter, we built refined product inventories to support this planned maintenance. During the second quarter, we completed significant planned maintenance which impacted both our upstream production and downstream throughput. This was the first five-year turnaround cycle for the U1 upgrader at our base plant and the first time we did a full plant Edmonton refinery turnaround at one time for all of the assets. There are a couple of items that extended our turnaround. First, unseasonably cold weather at the beginning of April delayed timelines and impacted productivity. And secondly, we found additional work that exceeded our expectations and given our focus on reliable operations, good decisions were made to address these items before returning to normal operations. With that considered, oil sands operations produced 359,000 barrels a day. Finally, I wanted to spend some time discussing Syncrude which had a utilization of 58% and produced an average of 118,000 barrels per day to Suncor during the second quarter. This reflects the impacts of planned maintenance as well as the power disruption that occurred on June 20 which has been included in the narrowing of our full production guidance, cash operating costs and royalty guidance. While the investigation into this incident is ongoing, we continue to work closely with Syncrude and the other owners to assist in meeting the return to service plan which was outlined in our news release on July 9, and Steve summarized at the start of this. Suncor has contributed numerous senior personnel and resources to support Syncrude with Suncor's VP of Montreal Refinery co-leading the investigation. To-date, Suncor has seconded a total of eight people into Syncrude including the new Vice President of Production Upgrading. As a result of the incident, he is now onsite assisting with the restart. We are supporting Syncrude to improve the asset performance, building on our experience at base plant and we continue to work with the other owners to get better alignment and accelerate the improvement plan. Looking beyond these short-term challenges, we have confidence in the ability of our assets to run reliably. We plan to remain within our production guidance and realize that we need to make up for some of the operational upsets that occurred in the first half of the year. Looking forward, we will continue to research and invest in strategic projects and such, such as the autonomous haul trucks, digitalization, new in situ technology, and cogen opportunities. That work will be focused on the optimization of all of our assets, reducing our carbon footprint and generating additional sustainable cash flow for our shareholders. So with that, I'll turn it over to Alister to provide some context on our financial results.

Thanks, Mark, and good morning, everyone. The business environment as we know continued to strengthen in the second quarter with Brent increasing $7.60 per barrel and both the WTI and New York Harbor 3-2-1 benchmarks increasing $5 per barrel compared to the first quarter. Realizations were also positively impacted by the weakening Canadian dollar, resulting in the average price of oil sands crude basket and our offshore E&P assets both increasing by approximately 15% versus Q1. This translated into more than CAD 500 million of additional upstream funds from operations when compared to the first quarter results even though production was almost 30,000 barrels per day lower, demonstrating our leverage to increasing oil prices. In the first half of the year, the WTI-WCS spread widened by $7 per barrel but as Steve mentioned earlier, this location differential continues to have minimal impact on our results. Downstream achieved strong funds from operations of CAD 884 million, which as Mark noted, benefited from the sale of refined product inventories, strategically billed in advance of the turnarounds. An additional profit of CAD 35 million after tax from the sale of inter-company inventory related to this strategy was also recorded in the corporate segment during the quarter. Suncor also successfully resolved some outstanding historical tax disputes during the quarter and recognized after-tax interest income of CAD 44 million and CAD 235 million of prepaid taxes that will be refunded to us in the third quarter. In total, Suncor generated funds from operations of CAD 2.9 billion, operating earnings of CAD 1.2 billion and the return on capital employed excluding major projects of just under 10%. Together, they contributed to one of the strongest second quarter results on record, which we achieved despite undertaking, as Mark and Steve have outlined, the significant planned maintenance schedule. Our confidence in the performance of Suncor's integrated model for the remainder of the year and the strengthening business environment are expected to result in significant additional funds from operations to return to shareholders, advance our capital projects, and also strengthen the balance sheet. In the first three months of the current NCIB, our stock buyback program, we have repurchased approximately 15.8 million shares for CAD 830 million. With this pace in mind and our confidence in our structural free funds flow growth, we have received board approval to increase our share repurchase program by just under 50% from CAD 2.15 billion to CAD 3 billion over the period of May 2018 to April 2019. This underscores the strength of integrated model and our bias to return that increased value to our shareholders. But we've also allocated some of the increasing free funds flow to capital projects and have increased our capital gains modestly to CAD 5.2 billion to CAD 5.5 billion. As we've stated in Q1, working interest – additional working interest acquired in Syncrude and Fenja combined with the capital versus operating cost treatment of the three-week delay in commissioning Fort Hills took us to the high end of our guidance range of CAD 5 billion. Increasing some spend on growth capital including advancing the purchase of autonomous haul trucks for the Fort Hills mine and pre-sanctioning work at Meadow Creek and Buzzard 2 in the later part of this year amounts to another CAD 200 million to CAD 250 million. And finally, the productivity issues and additional (20:23) work that Mark referred to during a turnaround added an additional CAD 150 million to CAD 200 million to our capital which I consider to be one-off costs and not indicative of general cost increases. In addition to increasing share repurchases and advancing growth projects, we also expect to further strengthen the balance sheet in the second half of the year. Our financial health remains robust and we continue to attract a strong investment grade rating. However, the ramp up of major growth projects combined with heavy turnaround activity and acquisitions in the first half of the year have temporarily impacted our balance sheet metrics. I remain confident, however, that with both growth projects that are generating free cash flow and the heavy turnaround activity out of the way, we are well positioned to generate strong funds from operations for the remainder of the year. And with that, I'll hand you back to Trevor.

Thank you, Alister, Mark, and Steve. There's a couple of items to note before we take questions. We saw the crude price continue to rise during the second quarter. And as a result we recorded an after-tax LIFO gain of CAD 151 million making the year-to-date again CAD 204 million after tax. Share-based compensation expense during the quarter was CAD 117 million after-tax bringing the full year after-tax expense to CAD 199 million. We also saw the Canadian dollar weaken by CAD 0.02 in the quarter which resulted in a non-cash after-tax foreign exchange loss of CAD 218 million. The full year non-cash after-tax foreign exchange loss is CAD 547 million. While Mark and Alister addressed the tightening of our production guidance, cash costs and capital guidance, we have also adjusted the business environment to reflect the actual pricing for the first half of the year and the forward curve pricing through the end of the year. This has resulted in increases in our cash taxes as well as our oil sands operations and Fort Hill royalty ranges. With that I'll turn the call back to the operator to take questions, first from the analyst community then, if time permits, from the media.

Our first question comes from Neil Mehta of Goldman Sachs. Your line is open. Neil Mehta - Goldman Sachs & Co. LLC: Hey, thanks, guys. Good morning and congrats on a good quarter here. First question was related to Syncrude. Just curious, team, how you think about what the lessons learned are from the Syncrude outage and as an investment community, how do we get comfortable that we shouldn't be capitalizing a lower availability or utilization rate beyond 2018 as there have been issues over the last couple of years with the asset?

Hi, Neil. Steve. Thanks for the question. Yeah. Let me try and context the whole of the Syncrude journey because I can tell in your question and, similarly, I'm frustrated with the performance of Syncrude. Overall, we're not seeing any great surprises in what's happened there. We've been on a very similar journey with our base plant. That's why we forecast the 90% utilization and CAD 30 for 2020 and not earlier. And I think there were some questions of us as to why we put that back into 2020. I mean, I'll give you a few specific examples, if you like, of things that we were working through, things like winterization standards. We actually had the electrical and distribution system as part of our program as we were working forward. And so disappointment, no great surprises. And if you recall, we bought Canadian oil sands at a discounted price knowing full well there was a potential for improvement, but that we had to put some hard work in to get that. I've been pleased with the commitments of the partners on that underlying maintenance and reliability program. I'm not so pleased on the aggressive plans that we put forward and the support we are getting for that. So the easiest example is we know we will get a step change in the performance of Syncrude when we put these pipelines between Syncrude and our base plant and we will put that pipeline in. We're not getting the sense of urgency or support we would like from our partners at the moment so we're working hard to try and get that. But there are some areas where we're having to push the partners, because of its governance structure, to start thinking differently. You can tell from the tone of our script we're confident we're going to get there. It is taking us a little bit longer than we expected so we fully expect to get to 90% and CAD 30 by 2020. But we do need their help and cooperation. So all the things we've seen so far would have would have been picked up. Of course the interesting thing about – and the investigation is not fully complete yet. The most interesting thing about this electrical failure is it's nothing really to do with oil sands. It's not – normally, we're talking about the wearing characteristics of bitumen, the difficulty of the process up there. This is about electrical distribution and it's the same there as it is in most other locations where we have similar facilities around the world. So these are soluble problems. I'm comfortable we're gaining to them. But that's why we advise we put it in 2020, not earlier in 2019. Neil Mehta - Goldman Sachs & Co. LLC: That's really helpful. And then one of the places relative to our forecast that this quarter beat was just the strength on operating costs. Fort Hills, oil sands, even Syncrude to some extent given the higher turnaround activity we thought you'd see a higher dollar per barrel operating cost. Can you talk about some of the things that you're seeing on the ground and again how do we take what's happening in the second quarter, the better performance cost and think about extrapolating that going forward?

I mean, you really sort of nailed it in that question. I mean, it is – there are some great underlying news here. Net-net we are not seeing the inflationary pressures you might have anticipated at this time. Not to say there aren't some areas where we're seeing some movement but our overall program has been able to mitigate that and get that trend continuing down. So if you look at Fort Hills, which is operated better than we expected. If you look at MacKay River or Firebag what we're seeing is we're continuing to be able to reduce those costs. The only thing which is pushed the headline number up on the base plan and Syncrude is largely to do with the service factor in the way we're able to distribute the fixed costs. So overall the trends there are in the right direction as well. So that is very encouraging for the mid and long term, bit frustrating in the second quarter which has been noisy, but the underlying direction and trend is very encouraging. And of course, a big piece of that CAD 500 million a year building up to the CAD 2 billion we've been talking about is to do with that program of cost management and cost focus that we've been working on. So we're greatly encouraged by where costs are at the moment. Neil Mehta - Goldman Sachs & Co. LLC: And last question, Steve, when you and I were talking last month a little bit about IMO 2020 and talking about the WCS differential which at that point was tight and your view was that it was going to widen out and it certainly has. Can you just talk about where you think we are from a WCS differential environment recognizing that you're agonistic to it, that certainly has a big implication for the for the overall Canadian oil industry.

Yeah, I mean I'll offer a comment. As you say we are largely agnostic because we can we can mitigate that through the integrated model. We just think the fundamentals will work and they'll be you know as Syncrude is coming back on. As Fort Hill's ramps up to 90% by – as Mark said we're going to average we think 90% for the fourth quarter we're going to start to take up a lot of that pipeline capacity that we have been – the others in industry have been able to take advantage of. So our feeling is that as the industry comes back from turnarounds, us in particular then that market will – that differential will start to increase again. And I think we're starting to see that. And then we could have debates about what that level is but I think we'll get back to the sorts of levels we would expect it to be given that the volumes that will be coming out of the region. Neil Mehta - Goldman Sachs & Co. LLC: Thanks a lot, Steve.

Our next question comes from Phil Gresh of JPMorgan. Your line is open.

Yes. Hi. Good morning. My first question is around the capital allocation framework update you provided in the slides where you went through a higher price level and gave some new thoughts around return of capital and capital spending. And I was just hoping that maybe you could highlight what you would characterize as some of the differences versus the old framework? And I'm thinking get around some of the capital spending numbers at the higher price levels. Should I try and attribute that to an expectation of in situ replication coming on or, Alister, maybe some of the factors you're talking about in your prepared remarks>? Just any color would help.

All right. Thanks, Phil. Let me start and I'll let Alister pick it up if he wants any more detail. I mean, what I would say is, first of all, let's come into 2018 and I think what we've seen is a little bit of pressure for a number of reasons. So we've seen – we bought the Fenja share. We bought an extra share in Syncrude and so, yeah, a portion of capital comes with those. There was a specific event Fort Hills that most people and Alister sort of said it in there, I'm not sure if it came across as clearly as we would have liked it because we haven't put the – because of the three-week delay, accounting rules cause us to classify that expense in February from expense to capital. So the costs never went up. We just transferred them from one section to another. And Alister gave a good explanation this morning but we haven't told that story too much in the past. So it's really just a reclassification. It's not extra funds, but it shows up in that CapEx number. And then the rest of it, I would view as we're buying an option. We're more encouraged about medium and long-term prices. We are not making final investment decisions at the moment on any of these projects. But what we have done is we're going to take the project through its early development stages and you can think of that as Rosebank, as the in situ projects so that we have the option to make a call on those projects next year and the following year. So that's what that modest CapEx increase is about. What I would say, don't think for one second this is a move away from our capital discipline. We are committed to returning money to shareholders. In fact, we have a bias to move to return that money to shareholders. You've seen a significant increase in the share buyback and we are executing against it. So that commitment to the $3 billion. And we've talked over a long period, Phil, about what would get the dividends moving. And of course, what gets the dividend moving is the underlying long-term cash generative capability of the business. So as this production has been coming on then our ability and we talked about testing that sort of CAD 40 a barrel, CAD 45 a barrel type level for affordability. So we're very comfortable. You're going to be – of course, it's a board decision, but you'll be seeing some significant movement in dividend as we take our dividend review in the new year.

Okay. And if I guess, I can just maybe clarify that there was a slide where you said in a higher price level, that the capital spending could be up to CAD 7 billion going forward versus CAD 5.5 billion in prior slide deck? And so just to clarify that.

Yeah. Let me just comment on it and then Alister is champing at the bit to get in here. Yeah, really what we were asked to do was to start to look at a framework because we've always had that chart the one you're referencing on, just looking for the page number there, on page seven in our investor deck. We'd always have up to the sort of mid-range there. We wanted to take it up to a higher level. What this isn't is a commitment that we're spending that money. We're really talking about from an affordability and a priority point of view. We have vast reserves and projects and the capability to grow the business. What we're trying to demonstrate there is you're going to say, your model will show you the cash generation of the corporation at a certain price and we're starting to see it. And it's really just arithmetic from where we are today. So if we were to view that long-term sustained price tag book, what we're trying to say is, you'll see – we're actually trying to look at it the other way. You'll see some caps coming in there. It's not that we're going to that level. You'll see us restricting capital and still continuing to do significant buybacks and move dividends. Alister?

Yeah. Just to comment there, Phil, I mean, the last version, this is a response to lots of question we got down the road as Steve said as people began begin to think the prices may be slightly higher. I really wanted just to point out the last version I think was capped off at $65 and now how WTI and (35:55) CAD 5.5 billion in capital. So you raised the question, $7 billion, well, a CAD 7 billion number, I say, goes with around about an $80 WTI number which would be another CAD 3.5 billion of free cash flow. So I would put it in the context of if you think we're going to spend CAD 7 billion, we're generating CAD 15 plus billion of cash flow. So that's the context you really need to think about that number in, not spending CAD 7 billion and generating CAD 12 billion.

Understood, very fair. And then my second question I guess could be for Mark just on Syncrude. If I looked at the guidance for the year, and if I think can roll in the numbers that you've described for the third quarter; it looks like you're assuming a very high level of realization for the fourth quarter. Correct me if I'm wrong on that was there – I believe there was also maybe some consideration of pulling forward some maintenance at Syncrude, so just any thoughts on that, both elements? Thanks.

Yeah, Phil, thanks for your question. There is some work that was scheduled here for the fall that is getting accelerated into this timeframe. So the focus here is to mitigate this outage as much as possible. We're also looking at – the team is actually looking at what work is going on in 2019, although we haven't sorted all that out at this stage of the game but they're looking at trying to see whether some of the 2019 work could also get accelerated into this period. So with that we are assuming that – and as I mentioned in my comments, we kind of have to make up some ground here, but we're assuming that it runs at high utilizations primarily because planned maintenance is out. And so we're expecting this to run fairly with really no headwinds in there. So the focus now is to get it up and get it reliable and cranking away and Syncrude's history has been that we've seen those periods and we're counting on that happening here as we go into the end of the year.

Right. Okay. Thanks a lot.

Our next question comes from Greg Pardy of RBC Capital Markets. Your line is open.

Thanks. Couple of questions. I mean, most of them have been answered. But Steve, you alluded to the bi-directional pipeline in 2020. And then the gist – I guess the game plan around improve reliability and so on, but is there is there anything else that you think needs to be – other actions that need to be taken at Syncrude in order to get it where you want it?

Greg, I would say there's like a multi-pronged plan in place so some of that is what everyone thinks of is excellent maintenance practice and a lot of that is impro (38:54) and it's been part of a program that's been going for some while and still continues to progress, so imperial focus on that. Over the last few years has been good and strong and is making progress and we believe will yield results. We've got some things we're adding from more expertise in the industry. So the example was the winterization. When we have different winterization standards, we've taken those standards across to the plant and a lot of that work is being executed. So, those programs I'm very comfortable with. There's some of these commercial ones through the joint venture, which it struggles to work quickly. So, we are asking the partners to work with us to focus on that, get through those commercial debates quickly, so that we can start to get the hardware in. And I'm encouraged in the mid and long-term we'll get to that. I'd like to see a little bit more focus on those projects now. We've also got – if you can imagine what I would call a cultural employee program in place where we've been moving some of our practices that we've learned over our 50 years in and Mark talked about a number of senior people going across genuinely to try and help and share some of that experience. We've also done the same in the opposite direction. So we've taken some of the Syncrude leadership and taken them across into Suncor, so they can start to see how we address those issues, and where appropriate, take some of those practices back in. So I would say it is a multi-pronged attack, getting lots of attention and we'd like to see it get a bit more. Mark, just wanted to make another comment?

Thanks, Greg. Maybe I'd just add to that is one of the opportunities as these operations have existed literally across the street from each other for decades. And so one of the opportunities that we're really encouraged about is to see people that are in the region working on the same aspect of the business, getting together and collaborating to try and understand where are the opportunities, because in some cases we're working on the same things but finding we're getting different results or different cost structures and stuff. We've seen some really interesting opportunities coming out of that where it's worker to worker sharing their ideas and practices. And so there are some great things coming out of it. It just – it takes time, and what we don't know is, we don't know what we don't know, right. And part of the challenge with it is, what is it that we haven't yet uncovered, the focus is is we have quite a comprehensive program in place and we continue to aggressively pursue it as Steve said.

Okay. We'll be patient there. And the second one is, I mean, 2018's just been a big, big year in terms of maintenance turnarounds, et cetera. So, is it fair to say that next year, the capital you typically allocate towards turnarounds presumably is going to be towards the lower end? Like it didn't sound like 2019 is going to be a big maintenance year at all.

We were having a discussion early this morning, Greg, and contexting it for ourselves, we think that 2018 is the biggest maintenance year we've had in the last 10 years and it will be the biggest maintenance event we've had for the next 10 years as well. So, and you know part of that was by design as we tried to synchronize the turnaround schedules on these longer runs. So, the first five year run on unit 1 at the base plant was important to us to then get in sync. So absolutely, you'll see 2019 is significantly less than 2018.

Okay, tremendous. Thanks very much.

Our next question comes from Dennis Fong of Canaccord Genuity. Your line is open.

Hi, good morning guys, and thanks for taking my question. Just, firstly, just kind of carrying on from a couple of my predecessors' questions there. With respect to – you've definitely had a few kind of interesting quarters with respect to production. was just hoping to understand kind of the level and the reasons for your confidence in hitting, at the very least, the lower end of your 2018 production guidance from more of an operational kind of standpoint. I understand seconding individuals into the group is going to help, maybe over a more medium-term environment but just over the next six months.

Yeah, all I would say is nothing needs to happen in the next six months that we haven't seen happen in the past. So we've tightened our production guidance to the lower end. But we still believe we can hit it. We got a high degree of confidence in – the base plant is up and operating very, very well. And I think that's a testament to what Mark said that we didn't rush it. We did take the time to do the maintenance of items we found during the turnaround and it's operating very well. So very encouraged. Syncrude is progressing well. I mean, I talked about the first, the biggest of the three units was up on the (44:21) actually producing finished product on the 16th of July. We actually had feed in there on the on the 12th of July. So we're encouraged by where it's going. But we still have to deliver it. So I would say reasonable confidence but we still have to deliver it and that's what we're focusing on.

Okay. And then secondarily, just on returning value to shareholders. Obviously, with the board approval of going to $3 billion on the NCIB this year, how should we think of next year as you guys alluded to that this 2018 is a very significant year with respect to turnarounds, we'll call it production downtime as well as maintenance capital? And given again that slide 7 to kind of illustrate your ability to both increase dividends as well as return value back in share buybacks, how should we think about the CAD 3 billion number characterized next year and presumably a better runtime environment with potentially lower maintenance CapEx?

Yeah. I mean, I would say – I'll make the few comments. Firstly, I do take your point. The first half has been very noisy and very difficult to extrapolate from. What I would say is, and it was the sort of opening comment I made in my prepared words is in spite of all of that, we still generate incredible cash. So even with that noise around the planned turnarounds and some operational issues, we still generated just under CAD 3 billion cash, which gives you an indication of a capability of the machine and why we are confident going forward. And if you'll like – I mean, in a sense, and I know we've had some discussions about it. Based on our long-term sustainable cash generation, in that CAD 40, CAD 45 a barrel crude region, we pay – we set our dividend. We have had substantial increase in that capability through the year and we haven't moved on it yet. So Fort Hills has come on, as Hebron has come on, the base plant is in great shape and Syncrude, although it's not where we want it to be, is not far from where we expected it to be. So the cash generation of the company is coming up significantly and that's what we base the dividend increase. So you'll see us reflecting very hard and probably moving dividend next year. Beyond that, what we use the share buybacks for then is the additional free cash above and beyond that and you've seen us (47:10) we moved on the CAD 2 billion and we've actually been spending at that rate. We've announced the CAD 3 billion and our plan is to spend at that rate. So I think what you'll see is now we've got this, we always said we had 10% growth in the underlying production of the company this year and 10% next year. Actually, in terms of capability, we probably front ended that a bit because Fort Hills has come up a little bit more quickly than we anticipated. So we're very confident as we move forward.

Okay, great. And thanks. If you could just indulge me with one last one there. Just on the tour at Fort Hills, it was mentioned that part of some of the CapEx is going towards the purchase of additional trucks to kind of help with balancing I guess the feedstock and so forth. And given kind of that through the startup procedure you guys have been testing the various pieces of equipment, what's maybe a good kind of timeframe or call it maybe like checkboxes in terms of what you guys need or understanding of the capabilities of Fort Hills and to really try and relay that back to the Street? And I'll leave it at that. Thanks.

Let me start and then Mark will come in if we need any more detail. The Fort Hills is doing extremely well. The simple version of where we are is that we anticipated every plant that started up has started up at certain rates and we predicted the rate that this plant would come up and that would be – the rate of ramp up would be set effectively by the fixed facilities at the back end of the plant. It's the solvent extraction itself. In practice, we've not found that. The plant has come up very well faster than we expected. When literally for the sort of layman's version of it is when you're developing a mine you have a small hole to start with and then it gets bigger. And when you develop that first hole, your ability to get down to the bottom of the pit is related to the speed with which you start to ramp the back end of the plant up. And that becomes important because, if you imagine, as you go down through the oil sands itself, it's soft. And then when you hit the bottom, it's harder and on the hard roads, you can run the trucks. You can run them full and faster. So all that's happened here is we've gone through with – the back end of the plant has been able to take everything we put at it and we tested it up now to its full capability. So all we're having to do is accelerate that that front end piece of developing the pit, getting the tailings ready, and getting the mine down to the floor of the reserve itself. That's going extremely well. That's a business we know a lot about. We've got contractors in there. We're using our own trucks. What it says is you can use more trucks more quickly. So we're just bringing those trucks in quicker that we would have brought in slightly later. So all of that is great news. The other bit of good news is that we're starting to see, still got to run the plant a little bit more to see exactly where it is. We're starting to see that there will be some debottleneck capability here because we haven't hit limits on the plant yet. I don't know, Mark, if you want to add anything to that.

Yeah, I think the only thing is and Steve mentioned in the first quarter earnings call that we are at 150,000 barrels a day with or over 150,000 barrels a day with two trains on and so we know that there's aspects of that plant that can run in the 220,000 to 230,000-ish range. So we're expecting that likely we'll find a debottleneck of 20,000 to 40,000 barrels a day. It's just going to take some time to do it. We want to get the plant fully up, we want to see it in a variety of how it operates in cold weather conditions and warm weather conditions to understand heat constraints, those sorts of things. So it will take a few years to sort it out and do the measurements and plan the project and get it launched. But we do think that within a few years here, we'll figure out a debottleneck on it and we're very excited about it. And in fact, the way we've been starting it up, we've been measuring specific components of the facility to help us understand exactly that. So we've been intentionally moving the constraint around the plant during startup to understand performance of specific units to help us in that assessment. So we're very optimistic about that potential.

Great. Thank you.

Our next question comes from Asit Sen of Bank of America Merrill Lynch. Your line is open. If your telephone is muted, please unmute. Once again, if your telephone is muted, please unmute. Okay. Our next question comes from Jason Frew of Credit Suisse. Your line is open. Jason Frew - Credit Suisse Securities (Canada), Inc: Hi, Steve. I was wondering if you could give us some color on your new board member, Brian MacDonald. Just what skill set he might bring to the organization that isn't already there.

Yeah. No, thank you. I mean, what we've been trying to do, just in general, around the board is, as we've had members retiring from the board, we've been replacing them with what we see as the skills needed in the future. So you've seen a few new board members come on. We've had Denny Houston come on, a long term senior executive with Exxon. He brings with him detailed understanding of refining in North American logistics. In Brian's case, we were very keen to bring somebody on who's very technology and IT savvy. A big part of our program going forward is going to be about, what we call within the company, digitalization which is all of the aspects of artificial intelligence, machine learning, and our ability to move those tools into place quickly. So Mark has been leading a program of digitalization quietly in the background over the last year. We'll start to expose some of the details of that. I guess the first part you've seen, which was the automation of a mine and the truck fleet. That's gone exceptionally well. It's gone – the results we've seen have exceeded our expectations. We're really confidently talking about CAD 1 a barrel now as we bring those automated trucks in. It's a continuation of that program and matching his skills. Brian joined us this week and was able to add some great value. Jason Frew - Credit Suisse Securities (Canada), Inc: Thanks, Steve.

Our next question comes from Asit Sen of Bank of America Merrill Lynch. Your line is open. Asit Sen - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Thanks. Good morning, all. So I have quick follow-up questions on some earlier answers. So going back to slide 7, if oil price trend continues, could we see the replication projects start sooner since two have already been approved or is 2023 a fairly fixed timeline for first oil?

I would say it as a fixed, fairly fixed and probably the earliest. I mean, one of the lessons we've learned through time is that the orderly development and progression of projects is really important. We set some tough guidelines for the economics of these projects and kudos to the group that got these projects to work at a much lower crude price now because of the extra effort that's been put into the design and construction philosophy. So really what we're doing with our 2018 CapEx is buying that option to start up in, we think, 2023. It's unlikely you will see that significantly brought forward. That's not part of our plan. We have a program of other small projects and operational excellence focused initiative which gives this CAD 500 million a year adding up to the CAD 2 billion by 2023 which we think gives us cash flow growth without necessarily growing the production of the company at the same rate. Some of it will be about production but most of it isn't. So it's unlikely you'll see it come forward. Asit Sen - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Great answer. So just wanted to go back to your earlier comments on cost inflation and you alluded to you guys are doing a great job in managing the supply chain, et cetera. But as we look to 2019, 2020 are there any particular areas where cost inflation should be watched closely? What are you watching?

I mean, we watch it closely. We watch labor. We watch materials. We watch gas. There's no red – there's no real alarms coming up there. We're seeing some types of labor are seeing some pressure but we've been able to mitigate that. We haven't seen anything significant on materials because one of our biggest costs is the price of gas itself. And we think gas prices will be relatively low for a very long period. So we keep an eye on it. It's a big area of focus for us as part the operational excellence program. But as we net it, we think overall business continue to see costs come down in the region and part of that we've been helped with because levels of construction have been down so our own firestorm of inflation that we've experienced 10 years ago has gone and we're operating much more within the constraints of the labor and contractor capability here. So overall, we still see prices coming down not going up. Asit Sen - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Great. And what one quick one, Alister, on – appreciate the increased share buyback but wondering if you could update us on your thought process on balance sheet gearing. Is there a desire to drive it lower?

Yeah. I mean I think as we've laid there, we'll continue to see us manage the balance sheet towards the low-end of the range as prices go up. That will take some time. I'm very comfortable with where our balance sheet is today. But over the next two to three years, we expect to see that drift towards the bottom end of the range. Asit Sen - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Thank you.

That concludes our question-and-answer session. I'll turn the call back over to Trevor Bell for any closing remarks.

Great. Thank you, Michelle. So I'd just like to thank everyone again who attended our call this morning. I know it's a busy morning in the markets. So really appreciate it. And just to let everyone know that our IR team is around all day today for those of you who weren't able to ask your questions or have additional questions to take those. So thanks again. And we're signing-off.

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