Cenovus Energy Inc. Q1 FY2021 Earnings Call

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Cenovus Energy's First Quarter Results. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Please be advised that this conference call may not be recorded or rebroadcast without the express consent of Cenovus Energy. I would now like to turn the call over to Ms. Sherry Wendt, Vice President, Investor Relations. Please go ahead, Ms. Wendt.

Thank you, operator, and welcome everyone to our 2021 first quarter results conference call. I'm here this morning with our President and Chief Executive Officer, Alex Pourbaix; Executive Vice President and Chief Operating Officer, Jon McKenzie; Executive Vice President and Chief Financial Officer, Jeff Hart; and Executive Vice President, Strategy & Corporate Development, Kam Sandhar. Due to COVID-19 physical distancing guidelines, the rest of our leadership team members are in listen-only mode today from other locations. We look forward to having everyone back in the same room once protocols allow. I'll refer you to the advisories located at the end of today's news release. These describe the forward-looking information, non-GAAP measures, and oil and gas terms referred to today and outline the risk factors and assumptions relevant to this discussion. Additional information is available in Cenovus's annual MD&A and our most recent annual information Form and Form 40-F. All figures are presented in Canadian dollars and before royalties, unless otherwise stated. You will find our updated guidance posted on cenovus.com under Investors. Alex will provide brief comments and then we will take your questions. We ask that you please hold off on any detailed modeling questions, and instead follow up on those directly with our Investor Relations team after the call. And if you could please keep to one question with a maximum of one follow up. You can rejoin the queue for any other questions. Alex, please go ahead.

Thanks, Sherry, and good morning, everybody. Today marks an important milestone for Cenovus. We're reporting our inaugural results as a newly combined company after closing our transaction with Husky on January 1st. The entire company has been working diligently to integrate the legacy organizations and I and the rest of the team are extremely pleased with the progress we've made in such a short time. And I just want to make a really important point that this has come without personal impacts to our staff. Since the closing of this transaction, we've had to make difficult decisions about workforce reductions as we drive to deliver on our plans and synergy targets. I'd like to acknowledge the professionalism and contribution of Cenovus people through this period, including those who have left the company. I've really been impressed by the grit and determination of our staff who have pushed forward our integration with a sense of urgency, even with the incredible challenges posed by COVID-19. Through it all, our staff have continued to reinforce that they're the most talented and dedicated team that I've ever worked with, and they continue to drive the exceptional performance of our assets. You may recall the workforce reductions represented the bulk of the planned $600 million in operational cost reductions included in our initial target of $1.2 billion in annual run rate synergies. In the first quarter, we completed about two-thirds of our planned workforce reductions with the balance to occur later this year and into 2022. Combined with our 2021 capital budget, which set us to deliver the $600 million in capital synergies, we are on track to achieve the combined $1.2 billion annual run rate synergies by the end of this year. And we're already seeing synergies in the operations that were not included in the initial annual run rate. In the quarter, we demonstrated the benefits of applying Cenovus’s thermal operating expertise on assets brought into the portfolio through the Husky transaction, which resulted in increased production rates at the Lloyd thermal assets. I'll speak to that in a little more detail shortly. One thing I want to make clear before we get into our results is the safety performance including asset integrity remains our highest priority. We're harmonizing the two legacy safety programs, which is an important focus of our integration work and we're driving for continued improvements in our safety performance. With COVID-19 cases rising across Canada, including the areas where we operate, the health and well being of our workforce remains a critical priority. Our sites are operating safely and efficiently. We're continuing to work closely with governments, health authorities and industry to protect our people and we have the necessary protocols in place to help ensure worker health and safety across the company. Our goal is to make Cenovus a top tier safety performer and to achieve this, we'll continue to prioritize safety above all else. Turning to operational results now, as I mentioned, the combined assets have been performing exceptionally well. Starting with the upstream production of 770,000 barrels per day in the first quarter, it was at the higher end of our full year guidance range. In our oil sands business, Christina Lake and Foster Creek continue to be the foundation of our operations. These two assets were key to our $1.9 billion operating margin for the quarter, contributing the majority of the $1.1 billion of operating margin from the oil sand segment, with net backs of $25.60 per barrel at Foster Creek and $27.28 at per barrel at Christina Lake. Christina Lake's steady performance continued through the quarter. At Foster Creek, we commissioned the most prolific well pads ever in our oil sands operation and production grew steadily through the quarter, with March averaging 171,000 barrels per day. As I mentioned earlier, we're starting to see some of Cenovus’s operating strategies pay early returns at the Lloyd thermals. Cenovus has a long track record of continuous improvement at the Foster Creek and Christina Lake operations and we're bringing this mindset and experience to the safety and thermal assets acquired through the Husky transaction. To put this into context Cenovus has drilled over a third of all safety wells in Alberta. At mid-April this year, the Christina Lake integrated team completed the longest SAGD lateral well in history at 2,234 meters. With this well, Cenovus now holds all of the top 16 spots for longest SAGD wells drilled in the industry and this latest well is 23% longer than our previous record. With the expertise and data that comes from the company's collective experience, Cenovus has established leading operating practices including improved conformance, subcool strategy and bottom water management. Now Cenovus’s operating strategies are being implemented at the assets acquired through the Husky transaction and these shifts are beginning to show early results in the first quarter, including supporting increased production rates at the Lloyd thermals. Production was up to an average of 96,000 barrels per day in the quarter, including a few days where we actually achieved over the 100,000 barrels per day mark. Overall, that strong performance saw the Lloyd thermals contribute about a quarter of the total oil sands operating margin in Q1. Conventional operations continued to provide strong operating margins. We've benefited from our Q4 winter drilling program coming into production coupled with marketing activities, allowing us to take additional advantage of higher oil prices. Meanwhile, our assets in the Asia Pacific region continued to demonstrate stable production and strong net backs of $58.53 per barrel, which contributed to operating margin of more than $344 million from the offshore business. In downstream, recovery of refined product demand lagged the recovery of crude oil pricing in the quarter. There were also some significant weather impacts on US operations. Moving to the downstream segments in Canadian manufacturing, the upgrader and Lloydminster asphalt refinery continued to deliver reliable operating performance, running near capacity through the quarter and with an average utilization of 96%. In US manufacturing, economic run cuts to balance throughput with lower demand earlier in the quarter, as well as winter storms resulted in overall lower utilization rates, hindering financial results. Escalation of the cost of RINs also weighed into what we captured on the crack spread. While refining margins were challenged in the quarter, we're now seeing pretty clear signs of the demand recovery for refined products will happen at an accelerated pace through the rest of the year, especially in the United States. As a result, we expect stronger results from US manufacturing for the remainder of 2021. Rounding out the operational discussion, the superior refinery rebuild is progressing well on track to meet our schedule and budgeted capital before insurance proceeds. Turning to our financial results, we reported adjusted funds flow of just over $1.1 billion or $0.56 per share with free funds flow of just about $600 million. But I'd ask everyone to keep in mind if you added back the transaction-related costs that hit adjusted funds flow for the quarter, our adjusted funds flow for the period would have been nearly $1.5 billion, which would equate to about $0.75 per share and similarly free funds flow would have been about $950 million. Turning to our net debt position, I'll reiterate that deleveraging remains a top priority for Cenovus. You might recall that when we put out our fourth quarter results in early February, we talked about an opening combined net debt position of about $13.1 billion on January 1. Net debt rose slightly quarter-over-quarter driven by a working capital build of almost $900 million driven mainly by the rise in commodity prices over the period. In addition, we have the transaction-related costs that I just mentioned. With current commodity prices and having a significant portion of the transaction-related costs behind us, we expect to make substantial progress on our deleveraging through the rest of the year. Meanwhile, we have already seen net debt come down below $13 billion since the end of the first quarter. And assuming the forward curves play out, we have line of sight towards our interim net debt target of $10 billion by the end of the year, opening the door to consider other forms of capital allocation, including increasing shareholder returns. That said, the bulk of free funds flow will continue to be applied to the balance sheet until we have achieved our longer-term target net debt level at or below $8 billion. Switching gears to ESG, we're encouraged by the potential for government support for GHG reduction opportunities that will benefit our industry. We've been vocal in our position that government involvement at all levels, working with partners in the industry will be critical to finding solutions that allow our industry to play an important role in helping Canada meet its climate goals. As we work through a refreshed business plan for the newly combined company, we've conducted a thorough assessment of our significant ESG areas. Safety and asset integrity, along with a robust government framework remain the foundation of our ESG strategy, and underpin the five ESG focus areas we've identified for the combined company. These are climate and GHG emissions, indigenous reconciliation, water stewardship, biodiversity, and inclusion and diversity. We're working to establish meaningful ESG targets for each of the five focus areas embedded as part of our business plan for the expanded company and we expect to announce them later this year. Looking forward, we remain well on track to achieve our budget commitments and production targets with the strength of our upstream operating margin in the first quarter and the outlook for accelerated refined product demand recovery over the rest of the year. We have a runway for meeting our first net debt target of $10 billion sooner than we originally expected. We're very confident that we will achieve our initial target run rate synergies, and we have already started assessing opportunities that could create additional efficiencies in 2022 and beyond. And with that, we're happy to take anyone's questions.

Thank you. We will now begin the question-and-answer session, and go to the first caller from Greg Pardy at RBC Capital Markets. Please go ahead.

Yeah, thanks. Good morning. Thanks for the rundown, Alex. I’ll just, maybe just hit the two elephants in the room. I guess, one is, could you provide any color maybe around your asset disposition process? And then the second is related, which is how are you thinking about just the Conoco news this year or news this week, and then just the potential for buybacks?

Okay, sure. I'll talk about the asset disposition process first, Greg, and I've said this a couple of times, but nobody who follows this company should assume the fact that we've been relatively muted in talking about specific assets for sale or target prices or targets for divesting assets, nobody should mistake the fact that we've been relatively quiet about that with a lack of interest or attention. We are laser-focused on getting our debt down to $10 billion and below and we recognize that getting the asset sales of non-core assets can accelerate that very meaningfully and free up lots of optionality for the company going forward. So I think I'm happy to say that we are well-advanced in our thinking and actions around asset divestitures. And as before, we're just not going to talk about any specific issues. On Conoco, I'll give some thoughts and others may jump in. As I have said for many, many years, we always knew Conoco was not going to be a long-term shareholder. So, the decision to divest doesn't surprise us. I will say, we were a little bit surprised in the manner and in the decision as to how they intend to do it. I mean, we have been in close contact with Conoco the entire time that I've been here, and we've indicated many, many times that we'd be very willing to work with them and offer up any ideas we had as to good ways to do that. I know my team has also talked to their counterparts over there. So we'll see where that goes. And as I said, kind of at the start of talking about asset divestitures, the whole goal for this company is to drive our net debt down. And if we're successful doing that, and if we can accelerate doing that, that opens up the opportunities how we could be helpful, potentially, with the Conoco share block.

I think one of the things we always knew is that how and when Conoco chose to come or choose to come to market is really their prerogative. And they've got to do what they feel is in the best interest of their shareholders. As Alex mentioned, we've had numerous conversations through the years with Conoco. But at the end of the day, we'll continue to take a disciplined approach to this. And, as Alex said, look out for the best interest of our shareholders in all respects.

Terrific. Thanks very much.

Thank you. The next question comes from Neil Mehta at Goldman Sachs. Please go ahead.

Good morning. This is Carly on for Neil. Thanks for taking my questions. The first one was just kind of a status check on the Husky integration process. It seems like the synergies are progressing nicely here. You mentioned in the prepared remarks, the synergies coming through that weren't initially identified or able to provide any more color there and kind of frame the upside potential.

Jon, why don't you take this one?

Sure. So one of the things that we've really tried to signal through all of this is that, and we've said this many, many times and the synergies that we identified and called out the $1.2 billion, were those synergies that we had very high confidence in achieving in a very short period of time. If you look at our capital numbers in Q1, and you look at our guidance going forward, the $600 million of that $1.2 on the capital obviously, we're very, very confident and we think the street will get more confident in that as we prove that out. Of the $600 million of operating synergies, about $400 million of that relates to staffing reductions, and we're currently above 70% of the way through that in the first quarter, in the residual $200. We have a lot of confidence that that will be realized in very short order. So, the message, I think to you is that the $1.2 was a number that we were very, very confident getting in a very short period of time, and where we're turning our attention to are some of the integration opportunities that weren't part of that original synergy calculation. I'll give you a great example of this. We alluded to it in Alex’s note, and we alluded to it in the press release. But if you look at Lloyd, for example, Lloyd was an area that we wanted to get on top of very, very quickly post-acquisition. We want to do that for two reasons. One, we really liked the asset. We think that small scale thermals in the Lloyd area are going to be very prolific economically for a long period of time. And we think we can add a lot of value to what's already there. The other reason we want to get on top of it very quickly is it had a reasonable capital program this year about $250 million, which we felt we could optimize. So within the first 90 days, what we've done is we've reduced that capital program by about $50 million. We've also got on top of the drilling program that was going on there pretty quickly. So, in that first 90 days, we've changed the drill spacing, we've got longer wells going in, and we're completing those wells with our liners and using our completion techniques, and we're seeing productivity gains there. We also thought that there was a real opportunity on the operation side, which is very capital light, to reduce the sub calls, reduce massive jobs, and to do things that increase our productivity on the existing fields. We think in a short period of time, what we've done is increased the production in Lloyd to about 1,000 barrels a day, and we think that's sustainable with a bit of upside in very low capital, simply by bringing what we do best to the application in that field. So we're very comfortable that there's more of this to come. And we're very comfortable that other assets inside the portfolio are going to provide this as well. But this is kind of all of above and beyond the $1.2 billion that we originally identified.

That's great. Appreciate that color. The follow-up is just around wins. It's been highly topical, given where prices have gone. So just wanted to get a better sense of an overseas exposure to rent that the US downstream and how you might be seeing that impacting margin captures this year?

Yeah. It's our view, and I think it's widely held in industry, I think as well as with the regulator that the RIN's is really embedded in the crack. And when you see the Chicago crack today, it's around $22, I believe last time, and, I look. The RIN's are really a pass-through to the consumers of gasoline and diesel. So I think RIN's have actually increased about $8 over the last 48 hours. So the real realized crack that we receive is kind of that $22 less $8. That's the way we think about it, it's a pass-through to the consumer, it's a straight-up reduction from the crack. And we really don't see that, there is any kind of arbitrage on the blend, we think this, it's kind of pretty straightforward, that arbitrage has really been bid away.

Thanks for the color.

Your next question comes from Phil Gresh at JPMorgan. Please go ahead.

Yes. Hi. Good morning. Just a bit of a final question to Greg, around the debt reduction versus the Conoco shares, just to clarify, I guess, are you saying that for the year of 2021 absent any asset sales, do you think it makes more sense to just focus on getting the debt down to the $10 billion number before you would participate in anything?

We have consistently stated that reaching $10 billion is our absolute priority. We anticipate achieving this in the second half of this year without any proceeds from asset sales, although selling assets could significantly speed up the process. Once we believe we are approaching that milestone, share repurchases will be one of the options we consider for returning value to our shareholders.

Okay. And if you were to succeed with an asset sale, there's usually no time required between a deal announcement, the announcement and getting cash in the door. So, do you have a line of sight that an asset sale has been completed of the different size...?

We're getting pretty granular Phil, but we'll look at all those things and consider when we kind of feel we've met that target we talked about.

Okay. Fair enough. People are definitely worth picking up for them. I guess my last question just be with respect to the quarter, was there a material FIFO benefit on refining side? I didn't see anything in the releases. But usually there's moving back to that.

Yes, it's Jeff here. We did notice some FIFO, but this relates to our inventory price risk management. As we source crude for the refineries or decide on exports, we ensure that we mitigate risks or lock in the time spread to achieve the economic results while sourcing crude for the refineries or exporting from Canada. While we did observe some FIFO in the refineries, we manage the shipment timing to prevent FIFO losses through our risk management strategies. We did see some FIFO, but it did not have a significant impact on cash flow given our position.

Okay. All right. Great, thank you.

Thank you. Your next question comes from Manav Gupta from Credit Suisse. Please go ahead.

Hi. So, I want to first quickly focus on the CapEx, you came in below consensus. You also mentioned in your remark previous comments that you're able to lower the Lloyd CapEx a little. So I'm just wondering if there's a possible downside to the annual CapEx number, or is this just a quarterly thing and next few quarters could be a little higher? So, we should stick to the annual CapEx guidance for now?

Yes. What I would tell you Manav is that we are focused on cost control right around this business. Alex mentioned our desire to get down to $10 billion of net debt quickly. So we are being very judicious in the way that we spend our capital in the way that we operate our assets on the OpEx side as well. What I would also tell you is that you should be sticking with CapEx guidance for the year. There is some phasing in the Q1 numbers. So you shouldn't take that as a run rate. In longer term in terms of sustaining capital, though, will be under this year, you should still be using the $2.4 billion as kind of your run rate for sustaining capital going forward.

Okay. Perfect. My quick follow here up is, when we looked at the netbacks on your supplement, what we're seeing is that Foster at $25, Christina is $28 and surprisingly, other oil sands that $28. So I'm assuming that Tucker and Lloyd. And again, the way you were thinking about this is that Foster and Christina would be higher netback barrels than some of the others like Tucker and Lloyd. So was there something in this particular quarter? How should we think about the netbacks between those assets?

Yeah, I think what you should think about is the quality differential of the crudes from the various places that we produced. So Christina has a heavier higher tank crude than what we have at Lloydminster, for example, and we have higher operating costs in the Husky assets than we have in the legacy Cenovus assets and we'll bring down those operating costs in the Husky assets over time as we get the SOPs down and we optimize those assets. But the other thing that really affects those net backs, Manav, is the royalties, and the Cenovus assets at Foster Creek and Christina Lake are post payout, whereas the Husky assets are pre payout. So you'll notice very different royalty rates on those two things.

Okay. Thank you for taking my question.

Your next question comes from Prashant Rao of Citigroup. Please go ahead.

Hi. Thank you for the opportunity to ask a question. My first question is about the risk management program. Since your last report, the outlook for oil prices has improved, and downstream demand in North America appears to be much stronger. I was curious if and how you plan to adjust your risk management program as we move towards a more stable supply-demand environment. I will pause here and have a follow-up afterward. Thank you.

Yes. It's Jon McKenzie. I'll take a crack at this and then if Alex or Jeff want to chime in, they can. But post acquisition of Husky this business carries around 40 million barrels of inventory at any given time. One of the things that we do on a daily basis is, we make decisions as to whether we're going to sell barrels into the spot market, or we're going to put those barrels into a pipeline and take them to the US, usually pad two or pad three, or we're going to take those barrels and we're going to put them into a tank, because we're going to forward sell them for a higher price. Typically, on about 15 million barrels, what we'll do is, we will price protect those, if the decision that we're making is to put them into a tank or into a pipeline. What you'll see over time, is that when TI goes up, you can expect us to have hedging losses on those barrels. We still get the uptick in the decision we've made, we've simply locked in the economics and TI has moved up and when TI goes down, you'll see us with hedging gains. So, at the end of the day, all we're doing is locking in a better netback for our barrels by putting them in a pipe or putting them in a tank and we're taking off the WTI price risk there. So you should think about that as a continuing and ongoing program. That's what we call our inventory management through optimization program. What I would say is unique to this quarter, which you won't see again, is an unwinding of the Husky inventory management program. There's about a $90 million, $95 million hedging loss associated with that. That's a one-time cost for this business related to the acquisition of Husky.

Okay. And just to clarify there. So the integration value that Husky provides is sort of a natural hedge to some degree as well. So that's kind of where I was going with the question. But I think I got it from the way you talked about it and pointing out highlighting the one-time is also helpful. My follow-up…

Look… So let me touch on that before you bring up your next question. Because, I think that's actually kind of important. One of the things that we did in the quarter was we moved a lot of our barrels on Husky transportation to the U.S. And so we've optimized and if you have a look at our transportation and blending fees, you'll notice that they're down, because we were able to optimize that. Similarly, you’ll remember legacy Husky had quite an exposure to WCS asset at Hardesty and in today's world on a blended basis, that exposure is much smaller. So as the differentials have widened to above $15, today, we have a much lower exposure to that differential than we would have had just 90 days ago.

Thank you, Jon. I appreciate that. My follow-up concerns carbon pricing. I understand that there are many opportunities for you, especially with the carbon price in Canada affecting upstream activities like carbon capture and CO2 injection. I would like to understand how we should consider the capital that will be invested in these long-term projects. Are these higher return projects in line with the capital needed, taking into account the scale of your upstream assets? Additionally, do you have any exposure to Canada's low-carbon fuel standards that are set to be enforced in 2022 and 2023? I'll leave it at that. Thank you.

Thanks, Prashant. I'll take a shot at it. And Jon may have a few comments. But, I think the first thing I would say, when you think about it maybe, I'll first talk about just carbon tax and the impact on our business. And then, I'll talk about some of the opportunities and the capital associated with them. And but then, I'll probably forget your last comment, you're going to have to remind me, but …

That's fair enough.

One observation I have is that many people tend to overestimate the dollar per Boe equivalent impact on us when they hear about a $170 a tonne federal carbon tax. In our current situation, due to the provincial Tier compliance costs, our facility being best in class means that our carbon costs are actually quite low, representing a small part of our operating costs. Our modeling suggests that this will remain true even if those carbon costs eventually rise to $170 a tonne. Regarding the carbon tax's impact on our decarbonization plans, especially on the upstream side of the company, we are undertaking several initiatives. You've heard about the successes we've had at Lloyd over the past few months. Many of our efforts not only boost production but also improve our SOR and significantly reduce our carbon intensity or GHG intensity per barrel, and we believe there is still much more we can do to enhance our carbon footprint. The Canadian government has announced various initiatives, including a tax credit for carbon capture utilization and storage, which would impact our industry as it does for most industries globally. The costs of implementing carbon capture and storage will be considerable. The major expenses are not in transportation or injection into the ground, but in capturing and producing a relatively pure stream of CO2 and pressurizing it. If Canada aims to achieve its goals, the costs will indeed be substantial. The recent government announcement acknowledges that reaching these targets requires collective effort from everyone involved. We are exploring numerous initiatives, and this has been ongoing long before my tenure. For instance, we are advancing our solvent pilots, which could offer another viable option for decarbonization when they become more economical. Enhanced oil recovery technologies would demand less subsidy than pure carbon capture and sequestration. There are many opportunities available, and while I'd like to be more specific regarding the range of capital costs and efficiencies, we are making substantial progress on various fronts, from short-term operational improvements in our lower-performing assets to medium-term options like solvents, and ultimately, larger-scale, more capital-intensive solutions such as carbon capture. This is how we are approaching these challenges.

Okay. Thanks. And yes, that last part of that was the system, more of a just wanted to check quickly on the Canadian low carbon fuel standard that looks like…

Yes, I knew I was going to forget something. Yes, the government made a decision several months ago that the gaseous industrial fuels would not be part of the low carbon fuel standard. So, particularly, the SAGD in our situation, because it does not apply to gaseous industrial fuels, does not particularly impact us now. It does impact us on the downstream side and obviously, on the downstream side, we'll be passing those costs through to ultimate consumers.

Okay. Thanks very much for the time and the answers. Appreciate it.

Yes, no worries Prashant.

Thank you. Next question from Chris Tillett at Barclays. Please go ahead.

Hey, guys. Good morning. Thanks for taking my question. I guess just first quickly for me on the balance sheet, appreciate all the commentary so far. But I just want to be absolutely clear. Is it fair to characterize the approach at this point as you're aiming to get to $10 billion sort of as quickly as prudent, and then the march to $8 billion, we should expect capital allocation in that window to be a little bit more balanced between balance sheet, shareholder returns, CapEx, etc?

Yeah, I think that's basically correct. One thing I would say and this is something I know, Jon and I have said quite a bit. But living through the past year, as we have done has probably made I think, both of us, we're balance sheet hawks from the start. Living through the past year has really taught us the advantages and benefits of running with an under-levered balance sheet. So for today, we have these targets out there of $10 billion and $8 billion, but ultimately, I think none of our investors should be terribly surprised to see that $8 billion ultimately trend to a lower number. But we think we got plenty work ahead of us with the two targets we have in front of us right now.

Yeah. Chris, you're absolutely right. Those sub $10. We've always said there's room for a more balanced approach on capital allocation between shareholder returns and marginal investment in the business as well as that reduction.

Got it. Okay. That's helpful. That's it for me, guys. Thank you.

Thanks, Chris. Take care.

Your next question comes from Chris Varcoe at Calgary Herald. Please go ahead.

Hi, Alex. Wanted to talk this week about the shutdown or potential shutdown next week of line five. I'm just wondering whether you have any concern about that, how that would impact either your company, more broadly the industry or oil prices in Alberta?

Yeah. I mean, it's a good question, Chris. I think that this is – if people are – if this were to proceed, people will very quickly find out the importance that oil and gas, propane, butane still have in the economy of both Canada and the US. You know, this is a pipeline that has operated safely for decades, and is in the process of being replaced by what will almost certainly be the safest pipeline, perhaps ever built in North America. So I would actually view this as just an incredibly bad decision if the governor were to go ahead and shut down that pipeline. I think all you're going to be doing is you're not going to be improving safety. What you are going to be doing is damaging the economies of that area of both Canada and the US.

Is there any specific impact that you have looked at for your company? And in terms of getting barrels down into central Canada? And have you done any analysis at all on the potential impact of a bottleneck in Western Canada on Canadian oil prices coming out of Alberta?

I mean, I think in our case, given our highly integrated nature, Chris, and the location of our assets, we would not perceive this to be an unmanageable problem for Cenovus. I do think that if it were to proceed, you can see how it could potentially have some knock-on effects pushing back into the basin. But as I said, thankfully, with our integrated portfolio and with our firm pipeline commitments out of the province, we feel this is manageable for us.

Thank you.

Thanks, Chris.

Thank you. Your last question comes from Robert Tuttle of Bloomberg News. Please go ahead.

Yeah, I was wondering about your retail divestiture of retail, do you have any progress on that? I think you put it on hold earlier.

Yeah, it had – yes, we put it on hold the Husky, the predecessor owner of that business was engaged in a process. We put it on hold. It would be, you know, I've talked in the past about having a going through a process with all of our assets to determine what is core and what is not core or alternatively what might may have more value in other people's hands. So the retail businesses, we're engaged in that process with the retail business, but I'm not going to comment on specific assets at this time. As I said earlier, we will announce decisions when decisions are made.

Okay, Thank you.

No worries.

Thank you. That concludes today's Q&A session. I will now turn it back over for closing comments.

Well, thanks everybody for taking the time to listen into our inaugural Q1 analysts call. We really appreciate your interest in the company and everyone. Have a good rest of your day. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines. Thanks for the rest of your day.