Suncor Energy Inc. (SU) Q3 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Suncor Energy Third Quarter 2018 Financial Results 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. I would now like to introduce your host for today's conference, Mr. Trevor Bell, Vice President of Investor Relations. Sir, you may begin.

Thank you, operator, and good morning. Welcome to Suncor Energy's third quarter earnings call. With me here in Calgary are Steve Williams, President and Chief Executive Officer; Mark Little, Chief Operating Officer; and 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 third quarter earnings release, as well as in 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 third quarter earnings release. Information on the impact of foreign exchange, FIFO accounting and shared-based compensation on our results can be found in our third quarter Report To Shareholders. Following formal remarks, we'll open the call to questions first from members of the investment community, then, if time permitting, to members of the media. Now I'll hand it over to Steve Williams for his comments.

Good morning and thanks for joining us. We certainly live in interesting times. On our call last quarter, I expressed confidence in our operating performance in the second half of this year as we came out of the large turnaround period, in fact, the largest in our company's history. I'm very pleased to report that with our strong Q3 performance, achieving operating earnings of CAD 1.6 billion and record funds from operations of CAD 3.1 billion, we're very much on track to meet those expectations. Our Oil Sands business achieved a new quarterly production record of 476,000 barrels per day, while our downstream delivered a 99% utilization rate and a quarterly record of 1.1 billion of funds from operations. The value of our integrated business is evident in our third quarter results with minimal exposure to widening Canadian heavy differentials. Let me just say that again. I'm sure it's going to be a subject of discussion on the call today. We have minimal exposure to the widening Canadian heavy differentials. The ramp-up at Fort Hills has exceeded our expectations and is currently producing in excess of 90% of its nameplate capacity. It's important to note that we have sufficient pipeline access to move all of our Fort Hills barrels to market that extend to the U.S. Gulf Coast where we can obtain the maximum value for our product. In Syncrude, all three cokers have come back online, as we outlined in our Q2 call, and the operations are fully lined out with current production in excess of 90% of nameplate capacity. I'm also very pleased to be able to announce that the Syncrude owners have agreed in principle now on the key commercial terms of the two bidirectional pipelines between Syncrude and Suncor's base plant, and we're now just working on papering the detailed agreements related to the project. We believe that the pipeline is required to drive the long-term reliability of the plant and advancing this project supports our conviction that we can safely obtain 90% reliability and cash costs of CAD 30 or less at Syncrude. And that pipeline is currently expected to be in operation at the back end of 2020. I'll now hand over to Mark to provide more context, and I'm sure he's going to enjoy talking about what was an excellent quarter.

Thanks, Steve, and good morning, everybody. As Steve mentioned, we completed the most significant planned maintenance scheduled in Suncor's history last quarter and our third quarter results reflect our continued focus on operational excellence and on performing the work required to ensure safe, efficient and reliable production. We remain confident in achieving our full-year production guidance despite several unplanned events in the first half of the year. As Steve mentioned, record third quarter Oil Sands production contributed to total upstream production of 744,000 barrels a day. Our in-situ assets continue to produce above nameplate capacity with cash costs were CAD 8 a barrel, marking the fifth consecutive quarter below CAD 10 a barrel. In addition, upgrader reliability in Oil Sands was 95%, despite some planned maintenance on Upgrader 2 that occurred late in the third quarter. These strong operational results drove Oil Sands operations cash costs down to CAD 22 a barrel, which in U.S. dollars is less than CAD 17 a barrel. Fort Hills produced 69,000 barrels per day, which was in line with our guidance in Q2, and reflected our plans to expand the mining capacity. At the same time, we advanced and completed some planned seasonal maintenance originally scheduled for the fourth quarter. We also completed a further capacity test on Fort Hills plant during the quarter, and once again achieved the full design capacity, but that test went on for several days. As expected, Fort Hills' cash operating costs increased in the quarter as a result of expanding the mine capacity and increased maintenance work advanced – that we advanced into the third quarter. So, Fort Hills is currently operating in excess of 90% nameplate capacity and we expect it to achieve 90% utilization for the entire fourth quarter. Syncrude produced 106,000 barrels per day net to Suncor which equates to 52% utilization and reflects the return to service following the power disruption late in the second quarter. The restart of the cokers was consistent with the plan we originally communicated. Some planned maintenance at Syncrude was originally scheduled for the fourth quarter and the first half of 2019 was advanced to coincide with the return to service timing. Most importantly, several changes have been made to ensure that if the same sequence and challenges face Syncrude again that the site would not lose full power. We continue to progress workforce collaboration and process improvements with the other owners and we remain committed to achieving our reliability and cost targets once the inter-connecting pipeline is in place. Suncor's offshore assets contributed 92,000 barrels per day to upstream production, which was lower than the second quarter due to planned maintenance on Hibernia, Buzzard, and Terra Nova. We continue to be pleased with Hebron's progress which produced 14,000 barrels per day in the third quarter, and began drilling the fourth production well in September. We have several other sanctioned offshore development projects, including West White Rose, Fenja, Oda, Buzzard Phase 2 that will add further value to our E&P portfolio going forward. In the downstream, crude throughput was 457,000 barrels per day, compared to second quarter throughput of 344,000 barrels a day, which was lower due to the planned, major maintenance that we had in the second quarter. All planned maintenance is now complete and we expect the strong operating performance to continue into the next quarter. With that, I'll turn it over to Alister.

Thanks, Mark. During the quarter, Suncor generated operating earnings of CAD 1.6 billion and record funds from operations of CAD 3.1 billion. So, as Steve said, I once again demonstrated the strength of our integrated business that continues to deliver value through the Canadian crude differential volatility. The third quarter presented us with a bit of a mixed business environment. Brent and WTI improved, which was captured in the price realizations of our offshore assets, along with our upgraded bitumen products and heavy crude that had pipeline access (9:37) Alberta. Obtaining pipeline or committed pipeline capacity was a very strategic decision that we made several years ago with the long-term view of ensuring market access for our significant growth projects. Supporting pipeline development through long-term commitments is essential to allow new pipelines to progress that benefits, not only Suncor, but also the industry and Alberta. With an average realized price of CAD 64.33 per barrel for Fort Hills bitumen, the value of this strategy combined with the improved quality associated with the PFT barrel can be seen. During the third quarter, the WTI-WCS price differential continued to widen, but once again, as Steve said, it did not have a material impact on our results and as our refining gross margin benefited from lower feed stone costs. These strong financial results were underpinned by the reliable operations and stable cost structure that Steve and Mark spoke to earlier. We continue to show strong capital discipline in the allocation of the resulting discretionary free funds flow as we have demonstrated over the past several years. We remain disciplined and focused on cost management and are maintaining our cash costs and capital guidance. In the quarter, we strengthened the balance sheet by repaying CAD 1.2 billion of short-term debt that was incurred to fund several acquisitions, the completion of the heavy turnaround activity in the earlier part of the year and the successful ramp-up of our major growth projects. This repayment contributed to lowering our total debt to capitalization to 26.7% from 28.5% and increasing Suncor's liquidity to around CAD 6 billion, up from CAD 4.5 billion at the end of the second quarter. And just as importantly, we continue to return value to shareholders through accelerated share purchases of almost CAD 900 million during the quarter. In the first half of the current NCIB program, we repurchased approximately 37 million shares for CAD 1.8 billion of value. We continue to see significant value in our stock and are confident we will complete the full CAD 3 billion of share repurchases approved by our board by next spring. With that I will give you back to Steve for some closing comments.

Thanks, Alister. So with our growth projects in production, our integrated assets operating reliably, and our focus on capital discipline in this low inflationary cost environment, our ability to increase sustainable free funds flow is very significant. In such an environment, we would plan to grow dividends, continue further share buybacks and invest in our business – and all of that whist maintaining a strong balance sheet. We're confident that the operational momentum demonstrated in the third quarter will continue and even strengthen further into the fourth quarter and into 2019. Today, some may question the longevity and the strength of the Western Canadian oil sector. Suncor historically made decisions to invest in upgrading and refining capacity in Alberta, or if I put that another way, we placed value-add activities associated with Alberta resources in Alberta. Significant capital was invested to increase the complexity of our Edmonton refinery, to expand our upgrading capacity and to develop Fort Hills. And I think those demonstrated economic, environmental, and social leadership. Those investments have created job opportunities for tens of thousands of employees and contractors, and generated significant economic benefit for all Albertans and Canadians. Now we made these investments in our business to mitigate the impact of the types of challenges facing the Western Canadian oil industry which include, of course, widening differentials due to limited market access. Suncor has 1 million barrels of processing capacity, of which over half is heavy oil processing in Alberta. The remaining capacity is within our refineries which have the ability to process sweet and sour synthetic crude oil and diluted bitumen. In addition, we have sufficient committed pipeline access to remove all of our Fort Hills barrels to market that extend right away down to the U.S. Gulf Coast. Investing in our upstream and downstream assets along with our proactive midstream strategies has resulted in our ability to mitigate the impact of price differential volatility. That combined with our experienced trading and logistics team, who continuously work to further mitigate this volatility by using our vast midstream and downstream flexibility. As a result, whilst we do retain some exposure, our third-quarter funds from operations of CAD 3.1 billion is clear evidence that the differentials are not a significant factor in running and investing in our business whilst continuing to return cash to shareholders. Now modeling the financial impact of differentials on our results is very complex with multiple variables and assumptions. So let me try to put some numbers in context for you. While heavy and light differentials have widened substantially compared to Q3, if I use Q4 strip pricing of CAD 68 a barrel for WTI, CAD 29 a barrel for WCS, and CAD 47 a barrel for SSP, combined with anticipated Q4 production volumes, we still expect to generate funds from operation in the fourth quarter that are comparable to our record-setting third-quarter results. Finally, I want to emphasize that our business model and philosophy, irrespective of short-term volatility, will continue to remain laser-focused on operational excellence, capital discipline, long-term shareholder value creation, and returning that value to our shareholders. So with that, I'll pass back to Trevor.

Thank you, Steve, Alister and Mark. I will turn the call back to the operator to take questions, first from the analyst community and then, if time permits, from the media.

Thank you. Our first question comes from the line of Neil Mehta of Goldman Sachs. Your line is now open. Neil Mehta - Goldman Sachs & Co. LLC: Hey, guys. Congrats on a good quarter here. Steve, no shock in what my first question's going to be here, which is light crude sensitivity, and I think a lot of investors just want to understand what the implications of the widening Syncrude differential is, how many barrels are exposed, and then sort of how do we frame out that risk. I think your message today is that you have a lot of different outlets to mitigate it, but would love a little more color around that.

Yeah. I mean what we're trying to say is, there are so many modeling assumptions in there. Now we're very happy to go through it in detail, but for today the broad messages are clear, if you like. As you say, rightly so, we have a huge amount of flexibility. We have a million barrels a day of processing capability. If you think about that, like 550,000 barrels a day of upgrading, we have 100,000 barrels a day of Fort Hills, which is the PFT bitumen, which in itself is partially upgraded, and we have 450,000 barrels of – 460,000 barrels a day of refining. So we have immense flexibility. And what I've tried to do is cut through – I know the number that everybody wants, and I'm a little bit reticent to give it just because it doesn't easily reflect what is happening. What I'm trying to do is cut through that by – with the strip number – the strip pricing we've given you, showing you and demonstrating it's having little impact on our fourth quarter performance, and we'll continue to update on what that looks like going forward. So really for us, it's largely immaterial. We've had this debate every quarter this year. We've had virtually no impact from these differentials. It's slightly different going forward. We are amongst the best positioned in the industry to manage it. So we tried to cut through it and make it as clear as we can. It's not having a big impact on our performance, but we're very happy off of the quarter to take you through that in more detail. Neil Mehta - Goldman Sachs & Co. LLC: No, that's great, and I think you drilled that home very clear just now. The second point is just on CapEx. I appreciate you guys breaking out this growth capital versus sustaining capital and I guess the range in the crude price we're in right now is, call it CAD 4.5 billion to CAD 7 billion, which is a pretty wide fairway. As we think about 2019, if I was to take the midpoint of that range it kind of gets you to the CAD 5.5 billion to CAD 6 billion range, is that a good early look at how capital spend is going to trend in 2019? Or any thoughts on that would be helpful.

Yeah. What we've tried to indicate on that capital discipline matrix in the pack there is, we have a huge range of options in front of us. So, we've got lots of choices of, you know, start from a relatively low sustaining capital base, then we have lots of optionality around projects, and we're trying to demonstrate – and you've seen it in practice what our capital discipline looks like. I think you've read it exactly as we intended. We are going through the final bits of the process and will guide before the year-end. You're going to see no significant change in CapEx in 2019. You've sort of set the range that we tried to indicate at this early stage in the process. Neil Mehta - Goldman Sachs & Co. LLC: Yeah, and, Steve, I guess the last question for me is that as we model out your numbers here over the next couple of years, we've got at the curve you generating more free cash flow after the dividend than the CAD 3 billion buyback would imply. Is there a scenario if we stay in the CAD 70 to CAD 80 Brent type of environment where there could be upside to the share repurchase program?

Oh, yeah. I mean, I would say, you know, our capital allocation principle, as we've clearly demonstrated, we see a real strategic benefit in having a healthy balance sheet. We've demonstrated in the past that what that's enabled us to do is sell high and buy low and so we keep a healthy balance sheet for that reason in this cyclical business. You then look at how we allocate capital beyond that. We clearly will invest in the sustaining capital because we want to keep the business operationally excellent and predictable. So low cost and reliable. Beyond that, your calculation is absolutely right. What we've said in the past is that we will increase dividends in a sustainable way related to the underlying cash flow. Clearly, that cash flow, as we've come out of the higher capital spend period of Fort Hills and Hebron, we have cash available. It's a board approval for dividends, but you should expect to see a significant dividend increase in the New Year. And on top of that, we will then balance with share buybacks. And clearly, at current prices, in the current high performance of the business you can see we're generating enough cash to go beyond where we've been. Neil Mehta - Goldman Sachs & Co. LLC: Thanks, Steve.

Thank you. Our next question comes from the line of Phil Gresh of JPMorgan. Your line is now open.

Hey, good morning.

Hi, Phil.

I guess first question would be a little bit of a follow-up on the capital, but maybe just digging in a little bit more in terms of where your head's at with the types of projects you're thinking about to the extent you are spending growth capital in 2019. Obviously, I know there's some money that might be spent to achieve the CAD 2 billion of CFO improvements, but where do you stand on the coker and maybe some of these E&P projects that are out there today? It would be helpful to hear how you're thinking about these things.

Okay. Yeah. I mean – thanks, Phil. Let me make two or three comments. I mean, in general, given the cash generation of this business, I would still say we're in a relatively capital-light position for the next few years. What I mean by that is we've finished the Fort Hills project and the big Hebron project. We still have a lovely suite of capital projects in our hopper that we can pull from as options. But let me talk about where the focus is. So in that capital-light period, the majority of the focus you're going to see is going to be on what I would call operational excellence. And by that, I mean it's making our business run even better. So, you're going to see – we've talked about this focus on operational excellence, reducing costs, increasing reliability and maybe in there some small focused de-bottlenecks, particularly around the assets that we just brought on where we can start to see some opportunity. So you're going to see – and that we talked about each year, for the next four years, generating an extra CAD 500 million a year cash recurring, up to – and that adds up to CAD 2 billion over the four-year period. The good news is that program is going reasonably well. We're exceeding our expectations. We now are starting to have the defined projects, and that is – it is looking good. We also have the opportunity around these upstream E&P projects, which are with partners to come in – and Mark outlined what our program is there. We are also in the current – as we see the environment going forward, the Montreal Coker is looking very attractive again. So you'll see us start to develop those projects as we go into next year and then you'll see us start to cool off any capital associated with those. But the number we talk about, that – Neil used the number CAD 5.5 billion to CAD 6 billion there, which is broadly in the range for 2019 – that includes the development of those projects.

Great. Okay. Okay. Very helpful. And then I guess I'll try Neil's question maybe a slightly different way on the differentials. If I told you my model said it was maybe 150,000 barrels a day of type upstream, net upstream exposure to Syncrude, is that number wildly off? And then, obviously, I know there's a lot of mitigation strategies that you're taking. Just curious if you can maybe elaborate a little bit on what you think you can do to further mitigate it, because obviously, you've given a CAD 20 million light-heavy disk exposure and then it feels like every quarter it's darn near zero. So, it seems like you've done a really good job of mitigating it on the heavy side. So would be interested to hear anything you might be able to do.

I mean, you know, we need to go through your model in detail; I know you've been doing that with Trevor – so we could make a more detailed comment. I would say, from my understanding, that's too high. We're able to handle it better than that, but very happy to go through and comment in more detail.

Okay. And mitigation opportunities?

Yeah, I mean, we have – our whole strategy has been around managing an integrated business, which gives us lots of optionality. So if you look at the upgrading, if you look at our ability to move materials into our refineries, if you look at the capacity we have to get these volumes down to the Gulf, we are able to substantially mitigate the impacts of these differentials. And that's why I was comfortable to say, rather than here work through the line-by-line detail, we've given with a couple of headline assumptions in there, some guidance on what we expect our cash flow to be in the fourth quarter, with these differentials. So, to underscore your point, we are largely immune to these differentials because of that flexibility we have.

Yeah, I appreciate it. Thanks for the 4Q color. Thanks for that.

Thank you. Our next question comes from the line of Prashant Rao of Citi. Your line is now open.

Hi. This is Joe on Prashant. Thanks for taking our questions. Just a quick one on the E&P. Your returns came in a little bit below our expectations due to the turnarounds; could you talk about what the turnaround costs came in versus your expectations?

I mean, I can just talk broadly. I don't think they were significantly different than expectations. I think they were pretty much as we planned, but they did happen in the quarter and therefore, the volumes were slightly depressed than the costs were. The operating costs were slightly up because of the divisor. But overall, they went very much to plan.

Okay. Got it. And sticking to the Syncrude, WCI dips (29:13), could you talk about like when do you think that this is going to normalize to the long-term trend?

Yeah – no, I mean, a great question. I mean, I think that the market is working. You've heard about the higher-cost operators are starting to pull in volumes and of course, when I talk costs, I mean the costs to get it to the customer, not just well-head but right the way through to the customer. So the market is working, the higher-cost guys who are seeing themselves not making a margin on those barrels are starting to pull in. The refineries are starting to come back online again, so demand for these products is coming up. Rail is starting to – rail movements are starting to ratchet up, and of course, we had good news this last week about Line 3 progressing. So we see it as the differentials will improve towards year-end, but they'll still – until we get – this is a market access issue – until we get to the circumstance where more of these pipelines are brought on, they will not be fully mitigated. So I think we see reduced levels versus where we are now, through the fourth quarter and the first quarter, you'll see it start to reduce as rail comes up and then as Line 3 comes on, you'll see another improvement. But it won't be fully mitigated until, I think, the next pipeline comes on after that, either Trans Mountain or Keystone.

Got it. Thank you.

Thank you. Our next question comes from the line of Matt Murphy of Tudor, Pickering, Holt. Your line is now open. Matt Murphy - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning and thanks for taking my question. On your ability to manage upstream Likert exposure, it appears that you guys have a bit of a unique ability to blend Synbit in lieu of Dilbit for non-upgraded Firebag barrels. So just wondering if this is one of the things you guys are looking at doing today or perhaps doing already, in light of obviously constrained egress?

Yeah. No. We do do that. You're absolutely right. And it's not like we woke up and suddenly had this flexibility. I mean it was a sequence of strategic choices we made. In terms of the acquisitions we made, in terms of the midstream capacity we had, in terms of the modifications to the Edmonton refinery to be able to manage circumstances. We didn't have a crystal ball, we didn't completely foresee these circumstances, but we knew the value in an integrated model of having the option. So it's very much consistent with our plan and strategy to be able to manage this circumstance. Matt Murphy - Tudor, Pickering, Holt & Co. Securities, Inc.: Great. Thanks. And switching over to the refining side, just wondering if you could comment on impacts to the Alberta diesel market, you're seeing, if at all, from ramping volumes from the surge in refinery and maybe just the overall health of that market.

Yeah. Just a general few headline comments. Of course, there's no surprises; we've been planning on the basis of the Upgrader coming on. No, we haven't seen any significant differences and it's going to be interesting as the marine standards start to change and the demand for diesel starts to change; it's going to be a very interesting period for us. And as you know, when we put in our debt in that circumstance, we think we will be a benefactor of it because we have the diesel available to supply to market. Matt Murphy - Tudor, Pickering, Holt & Co. Securities, Inc.: Great. Thanks very much.

Thank you. Our next question comes from the line of Dennis Fong of Canaccord Genuity. Your line is now open.

Hi, good morning and thank you for taking my question. Just quickly I wanted to ask about given the relatively muted impacts to your cash flow and bottom line due to the amount of integration that you guys happen to have how, how should we be thinking about the NCIB? I mean, you guys have been chipping away at it quite significantly, but given kind of the windfall in cash and the insulation from the near-term differential situation, how should we think about your evaluation of it going into not just Q4 but the first part of next year? Thanks.

I mean, you will see us continue. I think it's reasonable to expect, as we've been saying for a number of years, as the sustainable cash flow came forward and it was very predictable, it would be happening in the third and fourth quarter and then – this year and then into the future, you would see our underlying dividend increase. So you can expect a dividend adjustment in the New Year. We then said where – and we expect that to be sustainable in the approximately CAD 45 crude world. We then said, where the market gives us more cash than that, we will look at the share buyback. So you can see us continuing to aggressively return money to shareholders.

Okay. And then more so in the near term, I mean, it seems if – the current commodity price kind of holds, relative to the forward curve there, that there should be some incremental free cash flow above what you've already discussed as your standing the remainder of the gulf – the growth capital you're spending this year, the dividend as well as your NCIB. Is the expectation initially that we should see that go to the balance sheet first and then, you as both management and board, will make a decision as to how you will further allocate that? Or is that more going to be more of a focus given where your current leverage happens to be at, likely going to be allocated toward shareholder return?

Yeah. No, Dennis, it's Alister. The balance sheet's in great shape. You saw it take some debt down there. I've continually said that we would over time progressively increase the strength of our balance sheet. You've seen us do that. Yeah, we – on the CTOS (35:35), the dividend, so that's pretty clear where we expect to go on that and on the stock buyback, you can expect to see us continue at the pace we're at for the next few months.

Perfect. And then just finally, just kind of back on to that debt side, given the fact that your balance sheet happens to be in a really good position, and technically, I guess you could be called as building dry powder. And then, in addition, your track record of doing countercyclical acquisitions here obviously, with depressed heavy oil and to a lesser degree, light oil, pricing in western Canada, is this an environment that you guys feel is appropriate to think about utilizing some of that dry powder to increment either resource or bolster your asset profile? Thanks.

Yes. I've commented on the last two or three calls in terms of the spread between seller's expectations and our willingness to buy. We continuously scan the market. So we look in the Canadian Oil Sands business, which is the heart of our business. We look at that integrated to market. So we look at the downstream and midstream piece of that as well. We also look around E&P. What I can say is we are, we're constantly doing that screen. We're not looking at anything in particular at this moment.

Okay. Perfect. Thank you.

Thank you. Our next question comes from the line of Roger Read of Wells Fargo. Your line is now open.

Thank you. Good morning and apologies because I missed the first part of the call. Kind of a busy morning for us here on the sell side. But looked like a good quarter. Congrats on that. I'd like to follow-up a little bit on the prior question there on the M&A side or acquisition side. If you have competitors that are forced to shut in production, it would argue that they've got either lesser operations, reserves or they have a cost issue. As you look at your own performance, your own cost structure here, are there additional improvements that you think you can make? Or do you feel like most of that's in? And as you look at some of these other operations, I know you said nothing on the front burner. But do you look at the other operations and see potential for making real changes there? Or given the structure of Oil Sands, that's simply a difficult leap of faith to make, let's say.

You know, I would say it's a combination of both. So if you look – as you say, our integrated model is well-balanced and operating very well. We don't view it in this quarter, next quarter. We have a view of the world for the next on to 50 years we are investing against. So we're buying and selling assets occasionally against that view of the world. We've talked about this CAD 500 million a year per year for four years. So a CAD 200 billion increase in our cash flow of things we can do within our own business and our own control. So we still have some substantial increase to value we can add to those businesses, and we are working that. That's not consuming a significant part of our balance sheet. So we have organic opportunities and inorganic opportunities. We've talked about the possibility of, as we go longer bitumen, in the long run, looking for some potential downstream capacity. We've not been prepared to buy refineries at the high prices they've been at. So we're now looking at our organic options, and we'll look at some modifications to our Montreal refinery. We do look at the market, and the way we value the M&A opportunities, when we look at those, is exactly as you describe. We look at what extra value can we gain by putting those assets within our integrated model, and we look at those. And it's against that background, I say, particularly in the Canadian sector, there's nothing specific we're looking at at the moment because we don't see that value add.

Okay. Thanks. Again, like I said, I apologize for missing the earlier part, but operations at Syncrude, were you able to, or can you provide any sort of update on sort of the – the call it the change of management, maybe your greater influence on the management of that particular operation?

Yeah. If I summarized it, I was frustrated in the last quarter because I wasn't seeing the progress I wanted. I did say in my words, I'm delighted to say we've got a step improvement in terms of the cooperation. We've moved nearly 15 people across into the operation (40:55) to help and we've taken some Syncrude people back into Suncor so that we can start to cross-fertilize the cultures. So first of all, at the operating level, the plant is now fully operational and today it's operating at full capacity. We've got the teams in place to start to do the grounds-up improvement program we've talked about, and the partners are cooperating very well on that, and that is looking good. We've also come to an agreement on the principle commercial terms now for the interconnecting pipeline which is a critical part of confidently predicting and get that reliability up to 90%. So I'm very encouraged now, and what's in crude is start looking like going forward.

Okay. That's great. Thank you.

Thank you. And our next question comes from the line of Mike Dunn of GMP FirstEnergy. Your line is now open.

Thanks. Good morning, everyone and I have to apologize as well, I was jumped on this call late, so just tell me if this question's been asked so I can catch up with Investor Relations after. But I know you've talked about having locations secured and egress secured for your Fort Hills barrels. Can you say the same for your non-upgraded bitumen blends that you sell to market from Oil Sands operations? And if not, I mean, I'm just wondering whether or not it makes sense for you guys to turn the dial back there a little bit temporarily on production at Firebag, let's say.

No, I mean a great question, Mike. And it gives me the opportunity just to summarize maybe and repeat a few things I've said. We have full pipeline access to market for all of our production, including Fort Hills. And that was a strategic decision we made that we didn't want to expose ourselves to those markets, so we invested in those a number of years ago. So the guys who are having to look – and I have a great deal of sympathy for where the market is, and I understand the pressure that others are under – we invested for this circumstance to make sure it had – it's not zero impact but minimal impact on us. So what's happening is the market is working. The higher-cost producers are having to pull back because they're not making any margin on their last barrel. We're not in that circumstance. If we were to get in that circumstance, we wouldn't hesitate to pull through, put back. But our marginal bow is making a profit and making cash.

Thanks, Steve. If I can maybe ask it a different way. How should we expect to see your fourth quarter non-upgraded bitumen price realizations? Are they largely not impacted by the wider WCS dips, or is this a case of those discounts will be wide in the oil sands but there's a benefit to your downstream?

Yeah. It's a function of the integrated model. So we have a million barrels a day of processing capability; 550,000 barrels of that is conventional upgrading, 100,000 barrels a day of that is PFT, so the paraffinic extraction partially upgrading, and we have 450,000 barrels a day of refining. So within that complex, we've been able to largely accommodate these differentials. It's not that we have zero impact. So because of the complexity of it, I don't know if you heard the part of the call where I went through it, what we said is that the bottom line is that we would expect with the differentials we're seeing and the strict prices that we would produce around about the same amount of cash as we produced in the third quarter.

Thanks, Steve. That's all for me.

Okay. Thank you.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to Mr. Trevor Bell for closing remarks.

Great. Thank you everyone for joining us. I know it was a busy morning with releases. Appreciate your time, and we'll talk to you soon. Bye-bye.

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