Ladies and gentlemen, thank you for standing by and welcome to the Suncor Energy Third Quarter 2020 Financial Results Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Trevor Bell, Vice President of Investor Relations please go ahead sir.

Thank you, Operator, and good morning. Welcome to Suncor's Third Quarter Earnings Call. With me this morning are Mark Little, President, Chief Executive Officer; and Alister Cowan, Chief Financial Officer. Please note that today's comments contain forward-looking information. The 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 our current annual information forum and both are available and could be found at 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. Following formal remarks, we'll open up the call to some questions. Now, I'll hand it over to Mark for his comments.

Great. Thanks, Trevor, and good morning, everybody. Thanks for joining us. On our call last quarter, I expressed confidence in the momentum of our business and the decisions we made to lower our cash breakeven costs. Our ability to maintain financial health and deliver strong cash flow through these continued volatile times. The resilience of our physically-integrated model was demonstrated again in the third quarter as we exited with over 95% refinery utilization, our downstream business delivered solid results and we're confident in the momentum and performance of the downstream for the remainder of this year and into 2021. Across the company, our costs and capital spend is tracking very well with our revised guidance. Despite the operational challenges, our model allowed us to fully fund our capital, our dividend and reduce debt in the quarter. Moving to operations. From the outset, let me say our third quarter operational performance does not reflect our commitment to operational excellence and the incident at base plant was extremely disappointing to all of us. But as you will hear in this quarterly update, our team is focused and committed to operating our assets safely and reliably and we're well along the path to improved reliability. At base plant, our work to ensure that our response to the August fire was grounded in operational excellence. We restored the full bitumen production capacity of the plant within a few weeks, but decided to constrain the plan to ensure that we're not putting too much sediment or fine sand particles into the upgrader. This decision prioritizes reliability and capital discipline by protecting the long-term health and value of our assets. I'm pleased to say that all the repairs are substantially complete and we expect to be operating at full mining rates of approximately 300,000 barrels a…

Thanks Mark. At the end of March, you'll recall we announced a $1 billion reduction to our operating costs in 2020 compared to 2019. As you seen during the quarter, we continue to progress towards this goal, as evidenced by a decrease in cost guidance for both Fort Hills and Syncrude, all of which we have shared in our September update release. Our absolute cash cost across the company are tracking and aligning with a $1 billion reduction target. On capital spending with a significant plan dimensions activities, [indiscernible] approximately $910 million in the third quarter. Our year-to-date capital spend of $2.9 billion positions us well to deliver a capital plan that's in the current guidance range of $3.64 [ph] billion dollars. Within this reduced capital guidance range, we continue to invest in assets to improve the efficiency of our business, reduce future operating and sustaining capital costs and drive towards a $2 billion incremental free funds flow target by 2025. The incremental free funds flow target includes Suncor Syncrude connecting pipelines that Mark previously mentioned. These initiatives are expected to contribute to increasing shareholder returns in the future, as the vast majority of the $2 billion free funds will benefit this as a result of structural cost and productivity changes in our business and is largely independent of commodity prices. During the third quarter, we generated $1.25 billion of cash flow provided by operating activities. This covered all our capital expenditures and dividends. We achieved this despite the operational performance issues that Mark discussed and based upon some significant plan maintenance and before we ramped up the volumes at Fort Hills and Firebag that Mark mentioned. We recorded an operating loss of $300 million in the quarter, of which approximately half is related to higher the recognition charges of…

Great. Thanks, Alister. Early in October, we shared with Suncor employees plans to reduce our overall workforce by 10% to 15% throughout the next 18 months. We did not take this decision lightly as we know this has real impacts on our employees who have worked hard to contribute to the strength of the company. However, we are making decisions that take into account the long-term health and sustainability of Suncor, which is pivotal for our future success. These reductions are primarily associated with the process and technology improvements and will occur with the implementation of these improvements across the business, and our part of our progress to achieving our $2 billion of free funds flow from operation initiatives. But COVID has accelerated certain aspects of these changes. These technology investments reduced manual work, standardize processes, increase efficiency and clerical accuracy while reducing the need for supervision and review. It also includes expanding our autonomous haul truck fleet in our mines. Further benefits are seen through reduced management layers, improving communication, enhancing flexibility and decision-making, and better engaging employees on the front line. We communicated internally on Monday that most positions in our downstream business currently located in Mississauga and Oakville will now be based at our headquarters in Calgary and will result in workforce reductions, which is part of the overall company reductions. This transition is expected to largely be completed in 2021 although we will adjust accordingly to make sure employees stay safe during this uncertain time. As we head into the final quarter of 2020 with over 95% refinery utilization, we have confidence that the strong performance of our downstream business will continue to lead the recovery. We believe our downstream business is best-in-class. While we recognize the challenges to refining complexes across North America, our business…

Great. Thank you, Mark and Alister. I'll turn the call back to the operator now to take some questions. Operator?

Yes, sir. [Operator Instructions] And your first question is from Greg Pardy with RBC Capital Markets.

Yes, thanks. Good morning, and thanks for the rundown. Couple questions. Maybe the first one, Mark, is just to pick up on the bidirectional pipeline. Just curious how close that is going to get you, I think to the objectives you laid out a few years back, which would have been sort of a sub $30 OpEx and 90% utilization rate. Is that going to do it or do you think there's a lot more work to do there?

Well, it's interesting, Greg, and thanks for your question. We've made a lot of great progress and the Syncrude team in 2019 delivered their second best-ever utilization. So on the reliability side, our target of 90%, I think this will actually give us the infrastructure we need to be able to deliver it. On the cost side we said $30, we have more work to do. The owners have been working hard to figure out how do you collapse the cost structure to get to that $30. And so there's lots of discussion going on amongst the owners and quite frankly, I'm really encouraged with some of the stuff that's going on recently and hopefully, we'll make some progress and get that across the goal line.

Okay, terrific. And then the second thing is that I just want to pick up on the integration - the physical integration you guys have in the business, which really extends into the 1,600 retail sites you have. So in the world in which we're living in, whereby you want to take your debt down and so on, how critical is it that you would own all of those stations or would it suffice to have control over them? A few years ago, you sold retail stations off for a huge price. Just curious how you think about that now?

Well, I think it's important to note that half of those stations we don't own. So we only own about half of them but one of the things we're finding, Greg, is and you see them the downstream results when we're 15% above the Canadian market, we think this direct connection to the consumer and seeing the change in consumer habits and behaviors and stuff has been a real advantage and being able to deliver the downstream results. So at least in the near term, we don't see this as a priority.

Okay, terrific. Thanks very much.

Your next question is from Neil Mehta, with Goldman Sachs.

Great. Thanks, guys, for taking the question. The first question is just on refining. You guys came out with a few - a couple months ago, I think some of us were skeptical of that now oil would be sitting here at $35 and that your refining utilization would be inflecting. I guess the oil is in here $35 and refining utilization was at 87% [ph]. Can you just talk about the durability of that refining utilization as you see it and given how challenged most of North America refining is right now, whether you see your ability to sustain that as we go through 2021?

Yes, Neil, great question. Nobody really knows the second wave of COVID as a bit of a challenge. I think the relative performance of us relative to the market, we're extremely confident and because of the physical integration you talk about, the good thing about it is we're seeing right now in the markets gasolines off something like 5% in North America, probably 5% to 10% on the distillate side jets [ph] off 50%. So, could this often if we get a big wave, and everybody shuts everything down? I think it could. Do I see it going back to where we were in the second quarter? I don't, because lots of governments are working very hard to keep their economies going. I think it's far more apparent now that we're really balancing three challenges, the COVID physical health issues, the mental health issues, and then the economic issues and the economic issues are very significant as you know.

Very clear on that. And Mark, you said in the press release, but I think a lot of folks agree that the operations this year has been not where you want them to be. You obviously had some volume guides, and some of your peers have been outperforming you from an upstream performance perspective. When you do the look back of what's gone wrong, what do you think is the core of it? And how do you think about the pace of inflecting going into 2021?

Yes, great question, Neil. Part of the issue is, anytime an incident occurs, you look back and find something where we didn't have the discipline that we needed to be able to do it. We could literally sit and look at the last decade where we've made, I think, huge progress on improving the operational excellence and execution of the company. Was it perfect? No, it hasn't been because we had these incidents. But it's amazing how when we go and look at other fundamental indicators, like right now we're on track, probably to have the best safety year in the history of the company. So there's lots of positives that are happening. Yes, this incident happened. This just needs to be 24 hours a day, 365 days a year, a relentless focus by our operating organization. That's the conversation that us as a leadership team, and I've been having with all the operational leaders in the company and it has our 100% focus to deliver and meet the expectations of our shareholders.

Okay, thanks, Mark.

Thanks, Neil.

Your next question is from the line of Manav Gupta with Credit Suisse.

Hi, guys. Thank you for taking my question. In the past, you have highlighted some of the issues of ramping up Fort Hills because of the production curtailments. Now that these curtailments are gone and you talked about it earlier in the call, do you actually see Fort Hills performing up to your expectations as to it can run in the way you designed it initially? Would these production curtailments getting removed help you out at Fort Hills?

Yes, Manav. Thanks for the question. Essentially, we fully expect Fort Hills to get to full rates and performance originally designed. The question is this, how fast will we get there? And part of the issue with it is we've shed an enormous amount of cost through this. We took $200 million out of OpEx and $100 million dollars out of CapEx this year. So by bringing on the second training going to 120,000 to 130,000 barrels a day, we essentially retain that benefit. So we're not spending that money and what we're wanting to do is ensure that as we step up, it's done in a disciplined way so that we're collapsing the cost structure. That's what we need to focus on in 2021. So quite frankly, I'm not really expecting it to get there in 2021, but this is an area that we're continuing to work with our owners and we'll let you know as we get out with guidance.

A second quick follow up is you guys actually generated about $400 million in free cash in refining, which I don't think any refiner out there is able to match up. But you also have a unique perspective. You are operating both in Canada and in U.S., and I just wanted to understand, is there a big difference in the refining margin capture in the Canadian assets versus the U.S. assets? Because most U.S. refiners are really struggling on the free cash flow front and you as a company were able to make about $400 million in free cash in Q3. So I'm just trying to understand what's driving that?

Well, it's interesting because, Manav, every customer or every refinery actually has its unique signature because it's the crude that runs and the market dynamics and those sorts of things. All of our refineries, actually good performing refineries and so it depends like our Edmonton refinery tends to be a little stronger, but partly because it runs very heavy, crude and physically integrated with oil sands. That's not true of Denver as an example. So it's not nearly as good as in Denver as what we would see in Western Canada but Denver's competitive with some of what we see in eastern Canada. So it just depends on crude slates market dynamics market competition, but you know, Denver is doing fine.

Thank you for taking my questions.

Your next question is from the line of Phil Gresh with JP Morgan.

Yes. Hi, good morning. First, question on the workforce reductions and the expectation that they'll contribute to the cost savings initiatives that you've laid out. How much I apologize if I missed that. Did you quantify how much you expect that to contribute starting I would think in 2021?

Yes, in 21, it's a little hard to say Phil. When you go and look at it, we said we were going to increase our cash generation capability by a billion dollars. If you look at the cost reductions, we have from headcount right now, it would add something like $300 million to $400 million of structural change in our cost structure and then even some of the implementations that we did this year, we think about 30% to 40% of that structural. So if you take our headcount reductions, what's the structural cost reductions we ended up getting this year, you're getting very close to our 2023 target. But some of these reductions won't happen until early 22. So it's going to be a little noisy. As we go through some of these changes, you will see part of this and in 21, but some of that may just get offset with restructuring charges and such that we would expect to show up.

Right, okay. And with respect to the comments you made about the turnaround schedule, every five-year turnaround schedule for next year. How do we think with a 10% increase in the production that's coming? How do we think about the mix of that in terms of where the turnarounds are, and how much is upgraded production growth versus not upgraded?

Well, when we when we go down, because we're taking our big operator [ph] at oil sands offline for its one in five-year turnaround. And when we go down with that, a bunch of the mine production will go down at the same time. So I think you'll see stronger relative upgrading performance next year versus this year, just because of this incident that we've had. And, and it's one of the reasons that our productions only up 10% because if it wasn't for the turnaround, we'd be up further.

Right. And then just one last question on the balance sheet, I mean, how are you thinking today about the longer-term target leverage level? Whether it's the debt the cap commentary initially or debt to EBITDA? Just what do you think is the right level to be at all the oils in the 40s?

Yes, I mean, it fell [ph]. So I would say that we're getting very close to the level at which we are able to move forward and start to increase both shareholder returns and capital investment. I'm very comfortable with where we are today, particularly if we're in this sort of low $40 oil price level. You know, there's lots of noise going on around the debt account metric, particularly when you saw some of the impairments who have taken some of the accounting issues. I really think a cash flow or EBITDA metric is the one. And it's obviously really critical here. But as I said, I'm pretty comfortable with where we are today, around little $40 oil prices. And I think we have a great capacity to be able to start to look at what we want to do and shareholder returns as we move into 2021.

Great, thanks.

Your next question comes from the lineup [indiscernible] with CD Group.

Hi, good morning. Thanks for taking the question. I wanted to touch back on the downstream I know it's been asked about already a couple of times on the call but your margin capture has been quite strong, particularly versus your sort of adjusted indicator all year, even stronger than it was sort of in 2018 and 2019. And I think we have some of the pieces in the answers that you've given here. But I sort of just wanted to ask it another way. If we were to bridge the moving parts, how would you think about how much is sort of, let's say, at the refinery itself, in terms of how you're operating the assets versus the midstream and logistics and the retail pieces that are also part of that segment? I think we all have started to appreciate the contributions from the different components that are. So any color would be helpful, particularly with reference to sort of this quarter and this year really?

Yes, thanks for the question. You know, it's interesting, because we tend to look at the integrated margin, we will pull it apart to look at the performance of each segment of that, but not necessarily on a quarterly basis associated with it. What one thing I would tell you, though, is, if you look at refining as an example, you know, it's a very substantial fixed cost business. And so part of the issue with it is if you can't get your utilization to like notionally 80%, although we were below that in generated cash in the second quarter but it's very difficult to get these machines to actually make any money. So utilization is super important. So the integration with the retail consumer and our ability to get our utilization rates up above the market is super important for us to be able to generate cash flow. So I don't have a great answer for you. But the focus is really around that entire system operating at higher utilization rates is one of the key reasons why this big set of assets is generating cash.

Okay, thanks. I appreciate the remark and then just a follow up on the upstream. Just sort of looking at the Q on Q movement in oil sands, volumes are down 6%, obviously had some operational issues that you've come out of now. But you managed to keep your cost per barrel fairly controlled. I sort of wanted to dig down a little bit into just broadly speaking across the oil sands asset base. Could you give us more color on what drove this? And specifically, if we should be thinking about elements here, to keep in mind as we think about Q4, and going forward, maybe upgrading costs or last or if there's other things that you were able to livers, you were able to pull that that may be a little more readable as we go forward here?

I'll take that one, Mark. I think it's a general focus across all parts of our business, not just all sounds, but then in the downstream and in the corporate functions, around making sure that we only spend what we need to spend. Looking hard at everything that is going out the door and a real focus on reducing that as we go forward and we've talked about that, really, as part of that $1 billion OpEx reduction that we announced in March and we're making great progress on that. So that's really my overall answer as we look forward into 2021. We've announced some additional structural reductions, but as Mark said, some other benefit will be offset by restructuring charges. But we are taking the underlying cost structure of this business down and I will be consistent with our $35 breakeven costs.

And maybe the one thing I would add to that is, it's interesting, because we've been talking about this now for, I don't know, a couple of years where we've been talking about generating this incremental $2 billion and such. And I think to some degree, that conversation has been relatively abstract. Now we're seeing the implications of it. As we start to restructure the company, we were reducing our head counts and such. And so these are real structural changes that are fully driven by our journey around Suncor, 4.0, and such some of the timings just getting adjusted based on COVID. And but we're very excited about the change going forward, despite the fact that we know how challenging This is on our people.

Alister and Mark, thank you very much for the time, appreciate it.

Your next question comes from the line of Asit Sen with Bank of America.

Thanks. Good morning. Mark thank you for the little bit of a peek into 2021 capital spending scenarios, just about sustaining capital. I think in the past you have highlighted a number between 2.75 billion and 3.7 5 billion each year. How should we think about that number in 2021 given footholds [ph], some of the other changes that's taking place in the portfolio as well as cost cuts?

Well, we fully expect it to be in that range. It's going to be higher in that range right. This year, in 2020 with the cuts that we did, we went below that range. I think we're sitting somewhere between $2.2 billion and $2.4 billion this year. You know, next year, I think it's going to be in the mid-threes. We have - not only do we have our largest upgrade turnaround, Syncrude has their big coker offline next year as well. So you know, there's a lot going on next year. But - so our capital mix is actually changing quite a bit as we go into next year, but it will be in that range.

Got it. Thanks. And then Mark, Suncor has a significant offshore asset base, is there a scope to rationalize some of these portfolio whether it's the North Sea or east coast of Canada?

Well, it's interesting, because I guess the question is, is the asset base getting rationalized right now, like you heard, you heard Husky [ph] talk a little bit about through this merger and such talk about the plans for West White Rose, we really have no money in there associated with it. But at all points in times, we're looking at our asset base and trying to figure out can we get more out of it than we would if we just carried on in the current course and path. So, you know, we were always asking ourselves those questions. But we like the offshore base, because it actually generates - we're so physically concentrated in a very small geographic area that it gives us some really good diversification to our cash flow resilience, which has been important during the forest fires, it was important during COVID, quite frankly, and so we like the asset base, and we think it's a real good complement to the company.

Thanks, Mark. If I can squeeze one - one in on consumer channels, who you were very clear on, we talked about ethanol and retail. How about EV charging station initiative? You've talked about that in the past? Could you elaborate what's going on in that strategy?

Yes, right now, we don't have any specific plans to be able to increase that, although we're looking at it and spending quite a bit of time just trying to understand how all these assets are performing. So this - we're actually just coming up to a session to talk about all these investments that we've made, and - and how their performance - so we're - so I actually don't have this specific information for you. But we're not planning to invest more until we understand how it's performing in some detail.

Appreciate the color, thanks.

Your next question is from the line of Mike Dunn with Stifel FirstEnergy.

Thank you. Good morning, everyone. I guess maybe two or three questions, if I - if I could, first probably for Mark. Forgive me if I missed it, but did you or can you address the root cause of the incident there in August, and maybe talk about the symptomatic changes since then? And I've got a couple follow ups.

Yes, I mean, part of the issue with it is we had some vapor exit of tank that ignited. And that was the cause of the incident, it should not have happened with all the standards and such that are in place. And so, for sure, every single time we have an incident, we go through and try and understand, how could this happen with all the controls and processes we have in place? We then try and understand, okay, well, what happened? Then we go and look at well, where are we doing this across the rest of the company. And do we have the proper standards in place to ensure that what we learned from this incident is factored in, so it doesn't happen again. And so we're going through that process now. And like I said, every single time they're there we don't use the word or try not to use the word “accident,” because we know that with proper controls, all of this can be done and done safely. So that's the process we're into now.

Okay, and then, you know, I do recall, I guess earlier this year, when you and all your other peers, kind of changed the - had to modify your, I guess your workplaces for COVID and whatnot, and there were questions that came up about whether or not any of that would lead to operational interruptions or mistakes? Do you think that had anything to do with this incident?

No, not at all. It's interesting because in so many aspects of our operations, you're seeing the operating discipline strengthening through this period of time, which is very interesting. As I mentioned in my text, this will be the best safety performance in the history of the company, at least that's where it's at today. So, you know, the diligence we're seeing and the operating organization is excellent.

Understood. If I can move on to the downstream, certainly appreciating your clearly explained views on the strategic importance of your retail network. I just wanted to clarify on comments you and your colleagues have made about the real time feedback I guess you're getting that's helping you plan your final utilization. Am I to understand that if you didn't own half of your retail stations that would be diminished? Is that a fair way to think about it?

We think that with - if we didn't own the stations, the cash generation capability would be impaired beyond what you would just think of a retail station. Yes.

Okay. Okay, that's all for me. Appreciate that. Thanks, Mark.

Thanks.

Your next question comes from the line of Chris Tillett with Barclays.

Hi, guys. Good morning. Just one question for me, if you don't mind, if I look at your cash flow on the quarter, net of CapEx and dividends, it was effectively 0, and you guys reported average WTI during the period of just north of $40. So I was just wondering if you could help us bridge the gap between kind of that breakeven that you reported this quarter at roughly $40 versus the typical $35 level that you talk about? Is that due to some of the outages and incidents in the period or are there other factors we should be considering?

Yes, Chris, I'll take that one. Effectively, I would say there are three things. Clearly our production was down in the quarter. Then what we assumed as a $35 rate, the cracks were lower, as you would have seen, then, I think, we were assuming $12 cracks and $35. And then the exchange rate was significantly higher. The Canadian Dollar has obviously strengthened quite a bit in the last few months. So those would be the three key things that are why it's higher than the $35. And also, I would say Chris, yet, assuming you taking into account all the capital that we spend, that $35 is just on sustaining capital and the dividend, not every dollar, we're spending significant dollars on growth capital related to driving cash flow growth going forward.

Okay, understood. That's fair. That's all for me, then. Thank you.

Your next question comes from the line of Menno Hulshof with TD Securities.

Morning, everyone. I just have one point of clarification, you talked about a 10% bump on production into 2021, despite the five-year U2 turnaround. So my question is are there any other turnarounds embedded in that 10% year-over-year increase? And then as a follow-up to that maybe you can just remind us of the scope and duration of the five-year turnaround itself? Thanks.

Yes, I mean, we're just trying to get this all finalized, so it wasn't intended as a guidance comment, it's just directionally correct. If you look at it, we'll provide some of this when we get into guidance, Menno, as we go forward here. But when you look at it, yes, like Syncrude is offline with their big coker next year, so that's actually the biggest event that they have is when the big coker goes off, and U2, like I said, is the biggest event that we have in oil sands when we go through this. So those are the two big ones. And then you have to remember that like we have Terra Nova, our assumption next year is at this stage of the game is that it doesn't return to service. So we were not showing any production from there. So there's a - there's a few other contributing factors to that.

Perfect. Thanks, Mark.

Thank you.

Your next question is from William Lacey with ATB Capital.

I just want to step back for a second, you talked about how you like the diversification of the international and the offshore assets in terms of your cash flow, and generally diversification is a good thing. You guys are very material consumer of natural gas and obviously, we've seen that market shift pretty materially to the upside. What are your views in terms of having potentially a bit more of a balance to your overall production profile in terms of inputs for the oil sands operations?

Well as at this stage of the game, you're right, natural gas prices have strengthened through this period of time. We think this is somewhat temporary that over the next 18 months or so, as we go through COVID, and such because essentially, all shale and associated gas associated with the incremental drilling has been shut down. So we think this is a bit of a temporary phenomenon. We understand the risk management associated with it. A $1 change in the natural gas price is about $230 million of cash flow. But at this stage of the game, we don't see ourselves changing the products that we mix or getting into a different line of business.

Okay, fair enough. Thanks.

There are no further questions in queue. Mr. Bell. I would like to turn the call back over to you for any closing remarks.

Great. Thank you, operator and thanks, everyone for attending the call. I know it's a busy earnings day today. So I appreciate it, and I and our team will be around all day. If you have further questions, please reach out. Thank you again for attending.

Ladies and gentlemen, this does conclude today's call. You may now disconnect.