Suncor Energy Inc Q3 FY2023 Earnings Call

Good day, and welcome to the Suncor Energy Third Quarter 2023 Results Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host, Mr. Troy Little, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning. Welcome to Suncor Energy’s third quarter earnings call. 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, both of which are available on SEDAR, EDGAR and our website, suncor.com. Certain financial measures referred to in these comments are not prescribed by Canadian Generally Accepted Accounting Principles. For a description of these financial measures, please see our third quarter earnings release. We will start with comments from Rich Kruger, President and Chief Executive Officer; followed by Kris Smith, Suncor’s Chief Financial Officer. Also on the call are three of our senior operating leaders, Peter Zebedee, Executive Vice President, Oil Sands; Dave Oldreive, Executive Vice President, Downstream; and Shelley Powell, Senior Vice President, Operational Improvement & Support Services. Following the formal remarks, we’ll open up the call to questions. Now, I’ll hand it over to Rich to share his comments.

Thanks, Troy. Third quarter characterize it as strong results across our business: safety, upstream, downstream, turnarounds in particular, Fort Hills acquisition and some organizational improvements I’ll comment on. Let me start with safety, core value, number one priority, safety of our people, employees, and contractors alike. Recognizing that safety is a never-ending journey, I’m pleased with and proud of our team. Year-on-year, recordable injuries are down 10%, lost time incidents are down 33% and, most importantly, we’ve had zero life threatening or life altering injuries in 2023. We’ve had improvement in each and every business segment. And that said, I’d like to call out our downstream. Our downstream had zero recordable injuries in the third quarter, zero, the first quarter injury-free in our company’s history. It is a very focused effort involving leadership, training, procedures, workforce engagement and technology. A few highlights on the leadership and training front, implementing human and organizational performance leadership training, which is fundamentally about a culture change. We are on target for all Suncor leaders to be trained on HOP by year end 2023. On procedures in mining in the third quarter, we completed 4,000 critical control verifications. It’s a significant number — 20% higher than the second quarter. And so, the significance of that is that we are engaging our workforce to focus and safely execute our higher risk activities. In technology, I’ll just comment once again on mining, where we are installing and employing collision awareness and fatigue management systems. We now have collision awareness equipment installed on over 1,000 pieces of mobile equipment. I’ll continue with Fort Hills. On October 3, we announced a revised deal to acquire Total Canada for $1.468 billion. This is an improved deal versus the original deal. Specifically, we no longer have a contingent payment provision in the acquisition. Similar headline valuation to the earlier Teck deal, but we’ve got additional benefits. Commercial patience and persistence were key here, and we’re pleased with the deal. We’re on track to close the transaction later this month. It addresses long-term bitumen supply uncertainty associated with our upgraders, fills our upgraders for the long-term, but also enables additional value creation through regional synergies, with mobile equipment deployment. Value creation through directing higher yield PFT from Fort Hills to our upgraders, several incentives, and as I said, we’re quite pleased with the deal. Continuing with Fort Hills from an operational perspective, we executed our first five-year full plant turnaround during the third quarter safely, on budget, and on schedule. Production will meet expectations as per our three-year improvement plan. We’re continuing to progress mining through the center pit. We’re starting North Pit opening cuts. And of note is success on past lessons learned — zero issues with water seeps, slope instability. Now with 100% ownership and full control, we will be striving for further and faster improvements. On the second quarter call, I highlighted several areas that were considered high priority for improvement, specifically turnaround performance, mining fleet management, and above-field costs. Let me start with turnaround performance. As a reminder, we complete large annual turnarounds at most of our upstream and downstream sites and spend about $1.3 billion per year or about 20% of our CapEx on turnarounds. I’ve shared before that we benchmark using Solomon and other sources; we are below average in performance, cost, schedule, volumetric impact. So, to describe our efforts as an intensified focus, that would be an understatement. So how do we do in the third quarter? We’ll base plant the U2 upgrader, or U2, massive turnaround — nearly 1 million hours, over $500 million, 55 days. We completed it last week as per plan. I mentioned Fort Hills, where the first full plant turnaround was $60 million over 25 days is completed in the third quarter, again, as per plan. Syncrude had a large turnaround in the second quarter that was completed per plan, and we also had a smaller third quarter turnaround completed early and under budget. Montreal and Edmonton refineries had events that overlapped between the third and the start of the first quarter. Smaller in scope, also completed successfully. My message in all this is, we have more work to do, certainly to become best-in-class. But first, we need to improve our performance relative to our internal cost and schedule commitments. As we drive further and we look at our second and third quarter performance, I would say we’re on track here. Ultimately, our vision is that turnaround performance should be a differentiating core competency for the company. Let me move on to mining fleet performance for context. The cost of physically moving ore from the face of a mine to a crusher is our single highest cost component in the production of bitumen. Today, we move about 1.3 billion tons of earth per year to support production, and we’ve got a competitive cost gap versus best-in-class. Comprehensive efforts will be made to lower our cost per ton. The winning formula, fewer trucks, bigger trucks, more efficient trucks, and, of course, companion or compatible shovels, that’s our mining improvement strategy in a nutshell. This year and throughout 2024, we will add via a combination of purchase and lease 55 ultra-class 400-ton trucks to our total fleet, displacing nearly twice as many smaller third-party, less efficient, higher cost vehicles. Each truck will be pre-equipped for ultimate driverless or autonomous operation. The cost for these acquisitions and leases are in our guidance for this year, as well as our guidance that we’ll issue shortly for 2024. Once in place, this action alone is expected to lower our overall corporate breakeven by $1 a barrel. In addition, in the third quarter, we executed a new long-term strategic agreement with Finning, our Caterpillar equipment provider, to deliver value through a win-win framework associated with equipment and parts acquisition, maintenance practices, and fleet reliability. We’re also working with our equally important strategic partner, SMS Equipment Komatsu, on improvements, including finalizing the purchase of the world’s largest hydraulic shovel in production today, the PC9000 series for mid-2024 delivery at Fort Hills. Lastly, in mining, I’ll comment on autonomous operations. Today, we have 31 trucks operating at base plant autonomously. By the second quarter of 2024, it will be 45, and by year-end ‘24, it will be 91. If our data is correct, this will be the largest single mine fleet of autonomous ultra-class trucks globally. Stay tuned for more. Our plans for materially improving mining costs and competitiveness are tangible, focused on safety, lead efficiency, fleet composition, and overall reliability. Let me continue with above-field costs and organizational effectiveness. During our second quarter call, we discussed plans to reduce above-field costs by $400 million a year via workforce reduction of 1,500 people to be completed by year-end 2023. If you recall, in the second quarter, we took a one-time charge of $275 million. Our approach was 100% internal, with no consultants or advisors focused on limiting low value or unaffordable work. Today, I can share that this effort has been completed two months ahead of schedule. Annual cost reductions starting in 2024 of $450 million will be achieved, 12% or $50 million above target, in part due to additional reductions of contingent workers or above-field contractors. The impact of this action equates to a $1.20 per barrel reduction in our corporate breakeven. As the process unfolded, it certainly hasn’t been easy on our organization, neither for those that left nor for those that stayed. However difficult, we recognized it was necessary for our competitiveness. Now, we look ahead. Coupled with executive leadership team changes, other structural changes, we are a simpler, more focused organization positioned to compete and win, and that’s exactly what we intend to do. Guidance. During our second quarter call, I mentioned that although tracking at or near the bottom end of guidance, we were focused on meeting our targets and delivering on commitments. I also said that given the material fall turnarounds’ impact, it made sense to update, if necessary, each year after the majority of our major maintenance work was complete. With that work now behind us and executed well, we are maintaining our guidance unchanged with full-year upstream production tracking at or near the 740,000-barrel-per-day level. Final comments before I turn it over to Kris. I suspect you’ve noticed a few references today in terms of per barrel. This reflects a new and evolving vocabulary within the company, thinking about and communicating the impact of our actions, plans, and improvements in unit per barrel terms. In addition, a subset of us similarly talks about the impact in per share terms. Our vocabulary is part of creating clarity and focus, developing a results-oriented, high-performance culture. With that, I’ll turn it over to Kris.

Great. Thanks, Rich, and good morning, everyone. To start with, I’d like to make a few comments on the business environment that was in the third quarter. It was a very constructive one with both crude prices and refining crack strengthening versus Q2 on the back of healthy supply-demand fundamentals. We saw WTI average at about $82 a barrel in the quarter, and the light-heavy differential narrowed versus Q2 averaging about $13 a barrel. Additionally, we continue to see synthetic crude oil trade at a premium of about $3 a barrel to WTI. On the refining side, while we saw weakening gasoline cracks in the back half of the quarter, it was a good quarter for refining margins, particularly for distillate cracks. Our 5221 refining index was $2 a barrel stronger than Q2. Finally, natural gas, which is a key input cost to our operations, remained low, with AECO averaging $2.50 a GJ in the quarter, while Alberta power prices remained robust. Now, with respect to our financial performance, in this constructive business environment, Suncor delivered a strong financial quarter, achieving $3.6 billion in adjusted funds from operations, or $2.80 per share, and adjusted operating earnings of $2 billion, or $1.52 a share. During the quarter, we also returned nearly $1 billion to shareholders in dividends and share repurchases. Since the beginning of the year, we’ve bought back over 3% of our common shares outstanding as at December 31, 2022. Additionally, during the quarter, we reduced our net debt by $1.4 billion, with net debt at $13 billion as of the end of the quarter. Turning now to operations. We saw solid operations in both our upstream and downstream segments. Our upstream delivered 691,000 barrels per day of total production in the quarter. Oil Sands had strong operations, with 646,000 barrels per day of production, delivering $2.9 billion of adjusted funds from operations, with average price realizations of CAD06 a barrel, or 97% of WTI. Now, Rich has already talked about the very good turnaround performance in the quarter, so I’m not going to repeat that, but I would like to highlight a few things. Outside of planned maintenance activities in the quarter, our upgraders operated at over 100% utilization. We continued to see strong in-situ production, including 99% utilization at Firebag. As Rich mentioned, the Fort Hills asset came out of its five-year full plant turnaround, with strong operations, and delivered as expected, with high asset utilization. Our E&P business segment generated $372 million in AFFO in the quarter, with production of 44,000 barrels per day, and average price realizations of CAD121 a barrel, or 104% of Brent. The Terra Nova FPSO completed its life extension work in the quarter and has now returned to station, where commissioning and startup activities are well underway, and we expect it to begin production later in Q4, ramping up for the remainder of the year and into 2024. As for our downstream segment, it had its strongest financial quarter of the year so far, generating $1.5 billion in adjusted funds from operations on a FIFO basis. We saw very strong performance across the entire refining network, with average refinery utilization rates of 99% post the Q2 turnaround season. While retail and branded wholesale sales were impacted by the cyber incident earlier in the quarter, overall refined product sales were solid at 574,000 barrels per day, and we saw margin capture averaging 88%, similar to the same quarter last year. Regarding overall costs, despite inflationary pressures this year, we continue to make progress on reducing costs, and along with the benefit of low natural gas prices, we are trending toward the bottom end of our oil sands cash cost per barrel guidance ranges for the year. As for CapEx, it was $1.5 billion in the quarter, with spend primarily focused on planned turnaround and maintenance activities, and mine tailings development, including the Mildred Lake West mine extension project at Syncrude. We are also completing the Terra Nova asset life extension project that I mentioned earlier while also beginning investments on West White Rose. Despite inflationary pressures this year, the extension of the Terra Nova work, and the unplanned repairs we had at Commerce City earlier this year, we expect to remain within our capital guidance range, and though we will be towards the top end. As mentioned, our net debt was $13 billion at the end of the quarter. With the anticipated close of Total Energy’s Canada acquisition, which Rich spoke about earlier in his comments, we expect our net debt to end the year between $13.5 billion and $14 billion, depending on commodity prices. We delivered nearly $1 billion in shareholder returns in this quarter. We remain committed to our capital allocation framework, delivering value to our shareholders through competitive dividends and share buybacks while maintaining a strong balance sheet. Before handing it back to Troy, I just want to make a few comments on Suncor’s progress on our decarbonization plans and the Oil Sands Pathways Alliance to Net Zero. We remain focused on delivering against our 2030 emission reduction goals and our longer-term objective of Net Zero by 2050. A prime example of that is the progress we’re making on our base plant cogeneration project, which is on track to be complete in late 2024. When operational, that project will reduce our direct GHG emissions by about 1 megaton a year, while also providing lower emissions intensity power to the Alberta grid. A key part of our decarbonization plan is our work with our industry partners in the Pathways Alliance to Net Zero, which is advancing an industry-leading carbon capture and sequestration project. As we continue to advance early engineering work on the project, we’re working closely with both the Canadian federal and Alberta provincial governments to get the necessary fiscal and regulatory frameworks in place to support it. We look forward to being in a position to advance the next phase of the project in 2024, which would include ordering materials for the carbon pipeline. And with that, I will now turn it back over to you, Troy.

Thank you, Kris. I’ll turn the call back to the operator to take some questions.

Thank you. Our first question will come from the line of Greg Pardy with RBC Capital Markets. Your line is open.

Thanks. Good morning. Thanks for the rundown. Rich, what inning of the turnaround? Do you think Suncor is in at this juncture? And then what are some of the next steps you’re going to be taking in the turnaround six, twelve, eighteen months?

Greg, I think we’ve got the right team. We’ve got the right leadership. We know this game. I think we’re in the first half of the game.

I put you on the bottom. Sorry about that.

Yes, we have a lot more work to do, Greg, but I feel really good when you talk about the things I’ve reiterated in terms of safety, integrity, reliability and profitability. I feel very, very good on that. We’ve got more to do. But I think we have a business plan that we’ll be talking about in the not-too-distant future that has continuous improvement. As I sit here seven months in, I feel better than I did in the first month.

Okay, no, thanks for that. I’m going to completely shift gears maybe and ask Peter another question. But as it relates to Fort Hills, could you give us an update on just how that mine remediation plan is unfolding? Are you seeing the things you want to see right now? And so what can we expect?

I will turn it over to Peter. We were talking about this yesterday. Go ahead, Peter.

Thanks, Rich. And thanks, Greg. Yes, actually, we’re really pleased with the performance at Fort Hills year-to-date. As Rich stated in his comments, some of the risks that have manifested themselves in earlier years around water seeps and pit wall stability, our risk mitigation activities have been entirely successful. We haven’t seen any of that show up in our operations so far year-to-date, so I’m really pleased about that. We’ve been able to reestablish healthy mine inventories. And so far year-to-date, we’re on our production plan and expectations, in addition to executing the first five-year turnaround on time and on budget, so really happy with that. Just a reminder, though, we’re in the first year of our three-year plan to reset the Fort Hills operation. The first couple of years do entail higher costs and lower production, but we’re ultimately driving to those higher run rates down the road. So, to sum it all up, I’m really happy with Fort Hills, but we still got some work ahead of us to go to where we want it to be.

Yes, understood. Thanks very much.

Thank you. Our next question will come from the line of Dennis Fong with CIBC. Your line is open.

Hi, good morning, and thanks for taking my questions. My first one probably follows along that second question from Greg. So, as you’re about to close the Fort Hills consolidation later this month, can you maybe highlight or even provide some examples of how owning the entire asset both improves logistics within the facility and the asset base, as well as more broadly with respect to your oil sands operations?

Sure. I’ll make a couple of comments, and then if Peter wants to add on to it. One of the things we now have is such a concentration of assets in the mining world, things that sound fairly simple, but like fleet deployment. We have a higher percentage of smaller leased trucks at Fort Hills, and I described in my comments kind of the strategy of fewer and bigger. So, our ability to optimize things as simple as where heavy equipment goes is an opportunity for improvement. The ability to make decisions faster and more effectively, diverting Fort Hills to the upgraders to get the uplift that comes with a PFT on the processing. So, I think it allows us to do things faster and think of it in a more holistic oil sands context. Peter, anything you’d add to that?

No, I think I just reinforced Rich. I mean, if the production optimization opportunities are significant, I think you’ve seen us do that over – certainly over the last year. Our ability to keep those upgraders full and have really high utilization is really enabled by the interconnectivity of our bitumen-producing assets. And I think with 100% ownership of Fort Hills, that only enables that further. We see quite a beneficial yield uplift through the upgraders as a result of running that PFT through them.

Great, I appreciate that insight. My second question is about the downstream assets. Regarding the Q3 results, you reported a strong downstream operating margin. As we look ahead to the end of the year, can you remind us about the flexibility you have?

Dennis on our end, it cut out. I don’t know if you can hear us; you were ending with the flexibility we have, and it went silent.

Yes, that is disconnected his line.

Okay, operator why don’t you move to the next question, please.

Thank you. Our next question will come from Neil Mehta with Goldman Sachs. Your line is open.

Yes. Maybe I’ll try to build off of Dennis on refining. I’m just curious on the team’s view of the setup here in the near-term for downstream operations. We’ve got this big bifurcation between distillate and gasoline. Are you guys able to run and capture the stronger diesel margins? And then, as it relates to WCS, what do you think is going on there? What are you hearing on TMX? In the meantime, are you able to keep the business relatively neutral from a sensitivity standpoint? Thank you.

Dave, why don’t you take the downstream marketing standpoint, and then when we get to the WCS, I’ll ask Kris to comment on that.

Yes, sounds good. In the downstream for Suncor, we’re a little less exposed to G-to-D or to lower gasoline cracks than maybe our competition is. We’ve got a pretty low G-to-D across our refining network with high-cracking technology at all of our refineries. It really helps us swing our gasoline to distillate around. We’ve got about a 1-to-1 G-to-D, which is much lower than the competition. You add the production of diesel from the upgraders, and that takes it to about a 0.8, which is also significantly lower. That being said, we’ve certainly seen the gasoline market drop. We expect to continue to be able to run full through the fourth quarter, running crude to make high-value diesel and making sure the gasoline gets cleared. But we see a good strong fourth quarter ahead of us.

Great. Neil, on your question about WCS and TMX, obviously we’ve seen the WCS, that light-heavy differential widen quite a bit here in Q4 with a lot of drivers behind that. There are refinery turnarounds, production out of the basin, and as you probably know, as you go into winter, that diluent ratio impacts the light-heavy differential, so it’s got some seasonality in it. However, we do see when TMX comes on, it will be constructive in narrowing that light-heavy differential. Right now, every indication is that line is going to be in operation towards the end of Q1 or early Q2 of next year. They’re literally down to the last few kilometers of pipe, and they got the latest approval just to reroute. I think it was about 1.5 kilometers that they needed to deal with. They’ve made great progress on the project; it’s 97% complete, so the finish line is in sight for us. We’d expect the call for line fill to be coming here in Q4, and that line fill will start in Q1 of next year. TMX is going to put that light-heavy differential more towards the mid-teens as an average, and really it’s going to be about less volatility in it.

Okay. That’s great color. And the follow-up is on ‘24 CapEx. I think you gave us a lot of nuggets around it. But as we think about building to the ‘24 CapEx number, any early thoughts that you can provide, and how should trucks be a consideration in that estimate?

Yes, I think we’ll be coming out here shortly in the next few weeks, I guess it is, with our guidance. Troy has been sharing with me kind of what folks’ consensus is. I would say that I don’t think there will be any surprise. It will be a bit bigger than this year as we bring about some of these structural improvements driven by particularly mining. The other component part is the incremental ownership that goes with Fort Hills. But, if you think about it in terms of where we are this year and add increments for those two things, it gets you right in the range of what you can expect. The other thing I’d just comment on: the trucks are really looking at any incremental spend in terms of its payout period. These trucks, displacing 2 for 1, and all the efficiency that go with it, they are a very rapid payout. They are independent of oil price, and there are things that we’re quite confident will give back quite quickly. So, any incremental spend, quite frankly, any money, we’re looking at it very closely in terms of bang for the buck and how quickly it provides accretive or value added. But I think in a nutshell that’s kind of what you can expect when you see the 2024 guidance.

Thanks, Rich. Appreciate it.

Thank you. Our next question will come from the line of Doug Leggate with Bank of America. Your line is open.

Well, good morning everyone. Thanks. Thanks very much indeed. Rich, congratulations on the changes you are making clearly having an impact. But obviously you are not done yet. So, my question is related to the $5 improvement. And I guess you talked about $20 this morning. For the balance, how much do you put down to efficiency gains? What are the kind of gating items that we should be watching to have line of sight on the timeline to achieve that?

Thanks, Doug. You mentioned the improvements in above-field costs that have been captured as we go into it. I commented on another dollar that Peter as he gets bigger and fewer more efficient trucks is another dollar. The way we’re talking here and looking at it is Peter has a display or a spectrum of opportunities. We look at timing, auto costs will now deliver. Dave is developing the same thing in the downstream. We are looking at corporate efficiencies. To get the inventory list has to be larger than that because some things won’t happen, they won’t happen on the timeline. So, how we’re looking at improvements, is we will advocate per barrel going forward.

Appreciate that. And I don’t want this to count as a second question. But perhaps you could give us some idea on your latest thoughts on when you will come to market with your strategy plan that would be helpful for our diaries. My second question is actually on your guidance. Obviously, Fort Hills has not closed yet, but you left the full year unchanged. And it leaves you with quite a big ask for the fourth quarter to achieve the 747, 770 range for oil sands or for upstream rather. Can you give us an idea of what the stair steps are to get there as you did not change the guidance for the year?

Sure. I have said we are going to be around the low end of that range. So, the 760-770 numbers aren’t going to happen. But as we complete the third quarter, all the major works are behind us. All the operations are up and running, no maintenance work plan. You commented on Total: of course, we had Total in our original guidance and we didn’t get as much of it. Now, later this year as we complete it, it will kind of come back. So there’s a part of it with closing the deal, that will be additive for the last quarter. The rest is just running efficiently through the rest of the quarter. I’ve done all the math and know exactly what it takes. We continue to believe it’s achievable. That’s exactly what we have everyone in the organization focused on.

Great stuff, Rich. And on the date of your strategy, David, appreciate any update on that. Thank you.

I just maybe comment on that quickly, Doug. We are looking at right now kind of when in the New Year we come out with an Investor Day or whatever we want to call it, getting a lot more granularity on the strategy and what we are sharing as we go along tidbits of it in the actions. But as we get into the New Year, we will put it all out there in terms of exactly what we are trying to achieve.

Thank you. One moment for our next question. That will come from the line of Menno Hulshof with TD. Your line is open.

Thanks and good morning everyone. I will start with a question on shareholder capital returns. It looks like you are tracking well ahead of your 50% target for the year. So, is it fair to assume Q4 could be more focused on that reduction or with the pullback in oil and crack spreads and even your share price? Is it possible that you get after the need to buy back more aggressively here and land above your target for the year?

Kris, do you want to comment on that?

Yes. Thanks, Rich. Hey Menno. Thanks for that question. You’re right, in that when you look at shareholder returns and particularly the buybacks, we have large numbers in the early part of the year. We are managing towards that allocation target that we have out there, 50-50. That doesn’t mean that we are going to dial back further on the buybacks that you’ve seen in the third quarter. But certainly, we want to make sure that we are balancing against that capital allocation in the fourth quarter. We are probably going to end the year a little more balanced towards share buybacks versus debt reduction, quite frankly, closer to 60-40 on an annual basis. With other drivers, we are looking to make sure that we are in the zone of that allocation. We will continue with that calculated allocation framework into 2024.

Perfect. Thanks Kris. And then my follow-up is on the 20% contractor count reduction. Can you just confirm that 20% is still the right number longer term, or could we ultimately see something in excess of that? And with the understanding that this was only completed recently, I believe what are the sort of positives and negatives that have come out of this in terms of impact to day-to-day execution?

Peter, do you want to comment on that?

Yes. So, thanks Menno. We did achieve that earlier this year. I continue to believe that there are more efficiencies in our contractor base across the breadth of our operations. I think we have taken kind of the first step where we have taken a lot of the waste out of the system so far. Now we are looking at more sophisticated examples of integrated planning, scheduling, and maintenance scheduling activity to drive further efficiencies. Do I think there is more, yes, absolutely. But this stuff is a bit more difficult to go after than the kind of the first tranche. But that is something that we keep top of mind in our operations each day. It’s measurable and something my team is focused on quite heavily to drive further cost efficiencies over and above what we have already done so far.

If I could add to Peter’s comment, it kind of gets into the Fort Hills again. I mean operatorship and 100% ownership provide us more immediate control. As for how we look at contractors, whether it’s the contractor efficiency, deployment, just like equipment I mentioned with Finning and SMS for us, we’re able to look at things at scale, that efficiency or improvements can come in significant numbers. We are able to do that because of the full scale and scope of our operation, and that we indeed operate them. When you put all that together, you start to see quite a snowball effect on what’s possible.

Appreciate the thoughts. I will now turn it back.

Thank you. One moment for our next question. That will come from the line of Roger Read with Wells Fargo Securities. Your line is open.

Thanks. Good morning. Let me just follow back up to make sure I understand the guidance items for the full year production and what’s included in that. So, at the time you came out early May, Fort Hills consolidation was anticipated, but now it’s 100%. So, maybe how does that compare? Is any of this have to do with the accounting convention, meaning that the close would be backdated to April 1, or does it matter when the transaction closes this quarter?

Hey Roger, it’s Kris. Let me clarify: it’s not about April 1. When we set the guidance at the beginning of the year, we had an assumption on the Teck transaction, which we completed, and we built that into our guidance. You may recall that Total actually exercised its ROFR. We ended up actually having less production than we anticipated in our guidance. We didn’t reset our guidance. What Rich was referring to is, now we are completing the transaction for Total, which includes the volumes or the interest that they took from Teck. We expect to include the newly acquired working interest in Total for the balance of the quarter, which we expect to close later in November. So, when we stack that up, it’s a wash at the end of the day. So, that was that point. And just to underline what Rich was saying, it’s all hands on deck, we have a big quarter in front of us. Peter and the team are pushing hard. We like what we see from the asset. So, we are standing at the bottom end of the guidance but believe we will be at or near it.

I’ll just add to that. We’ve talked about Fort Hills now being a wash. The profile is different from the time of the end. But if you dig into it, there are some puts and takes: strong in situ performance in other areas. The major difference here is the absence of turnover for the year. There are some other things it’s generally small ups and downs. But turnover is the difference between being kind of middle and at the lower end of guidance.

Okay. That helps. And then back to your comments about the performance on the turnaround this quarter, coming in on budget. But wanting to better understand the broader question: does the budget get tougher going forward? I mean is that part of the process here of becoming, call it upper quartile or upper quintile performer on turnarounds, that it’s not simply hit your budget, but you actually need to refine the budget down in terms of how turnarounds are executed?

Absolutely. We are here with Dave and Shelley, who lead our efforts in both upstream and downstream operations. The first important point I want to mention is the need for predictability and stability regarding our targets, including costs, schedules, and the work we need to complete, which builds confidence. Our aim is to enhance performance and improve our position from the third quartile to the second quartile or higher, which involves refining our processes and approach to risk-based work selection and execution levels. Maintaining stability with our current expectations is crucial to achieving this goal. I believe we are becoming better at predictability and meeting the commitments we've made for ourselves. We are on the path to improvement. Shelley, Dave, do you have anything to add?

Like you said, well, Rich, and maybe the only thing I would add is just as an example of how we are going to get better using benchmarks. We do benchmark our turnarounds, but often it’s later in the process when the scope is already defined. What we want to do is go early in planning the turnarounds in the very early stages, put our benchmarks in place, challenge the organization to deliver. Set more challenging targets, put that in early and then plan the turnaround on that basis. With that change alone, we expect to see significant turnaround improvements.

We don’t have numbers to share, but how does it look like when we get there? Are we safer? We have a shorter duration because of the selection of the work and we have lower costs. When you do that, then you have more days where you are back up and running in production. This is a huge opportunity for us, and as I said, early in my comments, that to say we have an acute focus on this would be a big understatement.

I appreciate that clarity and look forward to seeing the execution on that front. Thank you.

Thank you. Our next question will come from the line of John Royall with JPMorgan. Your line is open.

Hi, good morning. Thanks for taking my questions. I think I’m going to borrow Neil’s question on ‘24 CapEx and just make it a production question. So, maybe you can go through some of the moving pieces on the upstream production side, thinking about bridging to next year. There’s obviously the increased working interest in Fort Hills. You’ve got the loss of UK, the Terra Nova restart, just a lot of moving pieces and not really sure how to think about the maintenance side. So, maybe you can help us frame how to think about production for next year?

Sure. It’s coming. Troy is looking at me like don’t let the horse out of the barn early. But take where we project we’re going to end up this year, in the $740 million range. For the same asset base, Terra Nova wasn’t part of anything in this year. Flash forward to next year. We have incremental ownership at Fort Hills and modest growth overall with Fort Hills. Then we’ve got Terra Nova back on for the full year. We’ll ramp up as we bring on well centers a little bit into the year, but we have that on. Take and add those three numbers together, and you’re not far off from what we’ll be expecting 2024 to look like.

Great. Thank you. And then, just maybe if we could have an update on when you expect to get to the 75% level on capital allocation. You have the visibility now for what you’re paying for Fort Hills. You’ve given some guidance on your end net debt. So any view on the timing there?

Yes. John, it’s Kris here. As I mentioned in my comments, we expect to exit the year somewhere between $13.5 billion and $14 billion because of the transaction. Depending on commodity pricing, we expect the net debt to be somewhere at the back end of 2024. It may vary depending on commodity pricing into 2024. However, we do expect a strong year on production next year and higher volumes as Rich just said, as we’re driving a lower cost structure. That certainly helps accelerate that, but that’s kind of the timing you should think about.

Great. Thanks, Kris.

That concludes our Q&A session for today. I would now like to hand the call over to Mr. Rich Kruger for any closing remarks.

Okay. Thank you. First of all, folks, you’ve got to blame what I say here on Greg Pardy. He started it with a baseball question. The two questions I get asked the most are, can Suncor turn it around? And if so, how fast? We all know by now I’m a sports fan. I love teamwork, strategy, competition and winning. Eight days ago, a team called the Texas Rangers won the World Series; they were the best team in baseball. Two years ago, they were last in their division and one of the worst teams in baseball. Now they are the World Champs. How did they do it? Same game, big turnaround. They got a new coach, a no-nonsense guy. They got a few new players. They took some of the current players and put them on the field where they could succeed the most. They created an intense focus on the goal of winning and a culture of winning. So, what does this have to do with Suncor? Maybe nothing. But to our loyal investors, thank you for your confidence and your patience. Our goal is to reward you with the trophy. That’s all we’ve got for today. This team needs to get back on the field.

Thank you, everyone, for joining our call this morning. If you have any follow-up questions, please don’t hesitate to reach out to our team.

Thank you. This concludes today’s program. Thank you all for participating. You may now disconnect.