Suncor Energy Inc Q3 FY2024 Earnings Call

Good day, and welcome to the Suncor Energy Third Quarter 2024 Financial Results Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Troy Little, Suncor Energy's Senior Vice President of External Affairs. 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 our website, suncor.com. Certain financial measures referred to in these comments are not prescribed by Canadian generally accepted accounting principles. 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 Peter Zebedee, Executive Vice President of Oil Sands; Dave Oldreive, Executive Vice President, Downstream; and Shelley Powell, Senior Vice President, Operational Improvement and 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.

Good morning. Let me start with happy holidays, more on this later. Three months ago, I stated our second quarter was about execution and momentum, execution of major planned turnaround events and momentum in targeted improvement areas. Conversely, our third quarter was about performance and delivery. Performance, largely unencumbered by major maintenance activities and delivery on commitments articulated during our May 21st Investor Day. As usual, Kris will detail quarterly results, I'll provide some commentary, starting with safety. Personal safety, core value, top priority, continues to be strong year-on-year. Lost time events down 40%, recordables down 23%. Rates are at or near our best ever. Similarly, process safety performance year-to-date is at a best-ever level that positions us within the first quartile in North America. I'll highlight our oil sands team for their third-quarter performance, particularly those at Firebag. In early July, with wildfires in the region, we moved Firebag to essential personnel only. As a precaution, we shut in production site-wide. Thereafter, we started the least affected well pads; it was touch and go for several weeks. Our teams worked closely with local and provincial authorities and responders. Our number one focus was to protect our people and protect our assets. I'm pleased to say the entire situation was managed incident-free, a credit to our people, procedures, and site leadership. The production impact was material, however, but limited to July only at 60,000 barrels a day for the month. Every quarter I talk about reliability or asset utilization because the incremental barrel produced or refined is the most profitable barrel produced or refined; it's delivered at little to no incremental cost and essentially flows to the bottom line. At today's Suncor, full utilization of installed capacity closely follows safety in our priorities. As full utilization is achieved, we turn to low-cost debottlenecking. This clear, simple operational framework is delivering tremendous value company-wide. I'll illustrate with refining throughput and upstream production. Refining throughput in the third quarter was 488,000 barrels a day, up 25,000 barrels a day or 5% compared to a strong third quarter of 2023. It was the best quarter of any quarter in company history. In fact, there isn't even a close second. It is 20,000 barrels a day or 4.3% higher than our previous best quarter, achieved with 105% overall refining utilization in the quarter. This was our highest overall network utilization in any quarter in history, and all four refineries achieved 100% or higher at every facility, led by Commerce City at 109% and Sarnia and Montreal with best-ever performance both at 106%. Year-to-date utilization is 98% compared to 88% at the same time last year. We're on pace to blow away our previous high. High reliability and resulting throughput enable us to confidently and aggressively market and sell the results in refined product sales of 612,000 barrels a day in the third quarter, the highest quarterly sales in our history in our first quarter ever with sales above 600,000 barrels a day. For those that are keeping track, this is now back-to-back-to-back quarterly records. Upstream production for the third quarter was 829,000 barrels a day, up 138,000 barrels a day or 20% from the third quarter of last year. It was our best third quarter in company history, within 6,000 barrels a day of our best quarter ever. Performance exceeded our prior best third quarter by 67,000 barrels a day, achieved despite a 20,000 barrel a day wildfire impact I mentioned at Firebag and a 10,000 barrel a day turnaround impact at MacKay River. Upgrader utilization in the third quarter was at an unprecedented 99%. Recall that each additional 1% utilization adds $20 million a year in free funds flow. Year-to-date utilization is at 96%, including the impact of turnarounds. Our best prior annual average was last year at 92%. We're set to beat that in 2024. Bottom line, third quarter and year-to-date reliability or asset utilization has been exceptional, on trend for best ever across the board, upstream and downstream. Here again, a credit to our people, their expertise, their teamwork, and their determination. Profitability. Kris will cover overall profitability. I'll highlight cost management and operating leverage. Year-to-date 2024, total operating costs and general expenses is $9.65 billion, down $340 million versus year-to-date 2023. However, upstream production is 87,000 barrels a day higher year-on-year. Refining throughput is 49,000 barrels a day higher year-on-year, and refined product sales are 51,000 barrels a day higher year-on-year. You get the message: free barrels, higher absolute volumes, lower absolute cost, the Oxford dictionary's definition of operating leverage in a nutshell. Every business segment or major operated asset, upstream, downstream, corporate, is at lower absolute and/or unit costs in the first nine months of this year compared to the first nine months of last year. I'll offer you another perspective on year-on-year cost performance. Let’s assume for a moment our fourth quarter 2023 acquisition of Total’s 31% interest in Fort Hills never happened. In other words, take out all impacts in 2024 of the additional ownership so we’ll have an apples-to-apples, year-on-year performance with the exact same asset base. Total operating costs and general expenses year-on-year is down $880 million, yet upstream volumes are up 34,000 barrels a day, and refining, of course, is up 49,000 barrels a day. I’ll repeat that, apples-to-apples $880 million lower cost year-on-year with higher volumes. Bottom line, operating leverage is being achieved any way you slice it. I’ve said it before, cost management is about attention to detail, discipline, and accountability, a mindset that every dollar matters, cost-conscious, determined, and results-oriented; today’s Suncor. During our May 21 Investor Day, we detailed a number of our improvement plans. I’ll provide an update on a few. Turnarounds, we previously stated the second quarter was our biggest turnaround quarter in 2024, with 80% of the year’s activity planned. Recall we had four big events, $800 million, completed on budget and 10% shorter in duration. We’ve now completed the bulk of the year’s remaining activity, specifically base plant U2 upgraders annual maintenance in MacKay River, combined the two events, again, on budget, ahead of schedule. For the year, total turnaround spend will be under $1 billion, down 20% from the prior five-year average. Mining, we’ve described our mining strategy in a nutshell as fewer trucks, bigger trucks, autonomous trucks, operated better, maintain cheaper. An update on the 55 new 400-ton trucks that will replace twice as many smaller, less efficient third-party trucks. The first 35 are now in operation, two more will arrive at Fort Hills shortly, and the final 18 will arrive at the base plant throughout the first quarter of 2025. These 55 new trucks will lower annual operating costs by more than $300 million a year. In situ, for several quarters, I’ve talked about the value of our in situ operations. Performance records keep piling up, particularly at Firebag. Through the first nine months of 2024, two record quarters in five record months, including August at 238,000 barrels a day and September at a whopping 247,000 barrels a day at Firebag. Last quarter, I highlighted an opportunity that the Firebag team identified— a $1 million modification to diluent stripping capacity to increase bitumen production, with the expected impact of 3,000 to 5,000 barrels a day in increased annual average production and $50 million in additional free funds flow per year. The opportunity was implemented in the third quarter. It was completed in mid-August ahead of schedule at a cost of $500,000 versus $1 million. Incremental production to date has been more than double the 3,000 to 5,000 barrels a day expected. Consequently, the incremental free funds of greater than $100 million a year. This is Suncor’s version of a double-double, half the cost, twice the value. Fort Hills, we just passed the one-year anniversary of the Total Canada acquisition. The primary asset was a 31% working interest in Fort Hills, bringing our ownership to 100%. We’ve articulated the benefits of production reserves, long-term bitumen supply tax pools. I’ve got another example of value added from this acquisition. Recall that Fort Hills applies the PFT process technology which partially decarbonizes produced bitumen, removing the heavier asphalt tin molecules that result in a premium value in the market. Our physical integration allows us to either direct Fort Hills directly to the market or to our base plant upgraders. Until recently, we were pipeline limited to a maximum of 65,000 barrels a day to the base plant. However, our team identified an opportunity to increase this capacity. So for $1 million, we have increased Fort Hills to base plant capacity from 65,000 barrels a day to 100,000 barrels a day. We debottlenecked the pipeline with improved hydraulics, completed the work in six weeks with the use of surplus equipment. This adds both operational flexibility and incremental financial value, specifically $50 million to $100 million a year in additional free funds flow depending on use. This is another tangible example of a competitive differentiator; our peers can’t replicate. I’ve said before there is integration and then there is Suncor integration. This is an example of the latter. These Fort Hills and Firebag examples are representative of the focus within the company today—the laser-like focus on asset utilization, testing facility limits, capturing value, debottlenecking, adding low- or no-cost barrels upstream and downstream. Our teams company-wide are literally raising the ceiling on both our performance and our potential. With that, I’ll turn it over to Kris.

Great. Thanks, Rich. Good morning, everyone. Before providing a brief overview of the financial and operating performance for the quarter, I want to go back to how Rich opened the call and start with happy holidays. You will remember that during our investor update in May, Rich talked about a Christmas present for our shareholders, specifically achieving our net debt target by year-end. As you can see from our third quarter financial results, Christmas has indeed come early. This is a significant milestone for our company and shareholders and starting in Q4, as per our capital allocation framework, we will move to 100% return of excess funds to our shareholders. This past May, at our Investor Day call, we announced a new $8 billion net debt target. That was underpinned by an ambitious plan generating substantial incremental free funds flow. Today, not only are we executing that plan, but we’re ahead of it, enabling us to meet our net debt target well ahead of many external forecasts. We do this by being laser-focused on what we can control: production, costs, capital, and working capital. I want to congratulate the entire Suncor team, which did an amazing job delivering this result. Now, by way of recap, at the beginning of the year, we were returning 50% of excess funds to our shareholders. In May, we reset our net debt target to $8 billion to reflect our improved performance and business plan and increased to 75% return of excess funds. Now that we've hit our $8 billion target at the end of September, we are increasing to 100% return of excess funds starting in Q4. Our shareholders ask for a new Suncor, and this is yet another example of how we're delivering. Continuing on the subject of net debt, subsequent to the quarter in October, we successfully completed a bond repurchase tender, retiring $1.1 billion in principal. With interest rates coming down, building cash doesn't drive value. The tender captured significant economic value by retiring a large portion of our 2038 maturity tower. As a result, we locked in annual interest savings of $70 million a year for the next 14 years. We optimized the timing of retirement of the higher interest U.S. debt and reduced our largest maturity tower by half while lowering our WTI breakeven and strengthening the resilience of our balance sheet. This was a win-win for both Suncor shareholders and bondholders, allowing us to strategically deleverage the balance sheet to manage our $8 billion net debt target while providing liquidity to our bondholders. Now that we've hit the $8 billion net debt target, you may still see our net debt move up and down from quarter to quarter around that number driven by working capital movements that are a reflection of Suncor managing our business. That said, you can rest assured we will be allocating at or near 100% of excess funds on an annual basis while managing these fluctuations and are committed to ensuring maximum return of cash to shareholders while prudently managing our business and balance sheet. Now, before handing back over to Rich, I will provide a brief overview of the financial and operating performance of the quarter, beginning with the business environment. Crude oil prices came down during the quarter with WTI averaging US$75 a barrel. The light-heavy differential steady at US$14 a barrel, and the synthetic premium decreased by US$1.50 a barrel, averaging a premium of $1.30 to WTI. On the refining side, 211 cracking margins decreased, reflecting global supply and demand. However, our 5-2-2-1 refining index remained strong at US$26.05 a barrel, which was $0.65 a barrel below Q2, driven primarily by lower benchmark cracks offset by lower crude oil pricing. Natural gas, a key input cost to our operations, also came down in the quarter, averaging $0.65 a GJ. Now, as Rich has already gone through the operational performance in the quarter, I won't go through it in detail other than to repeat that we saw strong operating performance in the quarter. As we said, this included 829,000 barrels per day of upstream production, 776,000 barrels a day from oil sands, and 53,000 barrels a day from our exploration and production segment. This was the best Q3 upstream volumetric performance in company history, including record Q3 upgrader utilization and Firebag monthly records in the quarter. Fort Hills was right on plan at 166,000 barrels per day, and we remain very pleased with the progress of the asset and the focus of the Fort Hills team on delivering against that plan. We also achieved 488,000 barrels per day of refining throughput and 105% refinery utilization in the downstream, which is our best quarter ever. As well, we saw 612,000 barrels per day in refined product sales, also a quarterly record and 101% margin capture on a LIFO basis when compared to our 5-2-2-1 refining index. The company continued its tight cost focus with total operating costs and general expenses of $3.1 billion in the quarter, which are down quarter-over-quarter while production is significantly up. Again, as Rich pointed out, this is operating leverage in a nutshell. As for CapEx, it was $1.5 billion, excluding capitalized interest in the quarter, which is down from last quarter driven by fewer planned turnaround and maintenance activities across the business and is on plan for the year. We continue to prudently invest in sustaining our integrated asset base and advancing key projects like base plant cogen project, the Upgrader 1 coke drum replacement project, Fort Hills North Pit development, and the Mildred Lake West mine expansion. This record operational performance underpinned our strong quarterly financial results. Despite the drop in crude price from Q2, we generated $3.8 billion in adjusted funds from operations or $2.98 per share in the quarter and adjusted operating earnings of $1.9 billion or $1.48 per share. In the quarter, we returned $1.5 billion to our shareholders, including $690 million in dividends plus $790 million in share repurchases, while, as I've already mentioned, hitting our net debt target. Overall, the third quarter was a continued demonstration of the new Suncor's focus on delivery of the fundamentals of safety, operational reliability, cost and capital discipline, and profitability, including strong financial returns for our shareholders. And rest assured, the Suncor team is focused on finishing this year strong and carrying that momentum into 2025. And with that, I'll hand it back over to you, Rich.

Thanks, Kris. Before we continue with comments on full year guidance, I don't have any new numbers for you today, but I'm going to leave that horse right up to the water. Third quarter complete six weeks into the fourth upstream production; we continue to track above the high end of our guidance. Refining throughput; we also continue to track above the high end of our guidance. Refined product sales; same message to continue to track above the high end of our guidance. Operating costs and general expenses and CapEx; we continue to track within or better than our guidance ranges. I’ve repeatedly said today’s Suncor is a new Suncor. Tangible improvement plans backed by a growing list of performance proof points and a clear, comprehensive roadmap in determination to compete and win. During our May 21 Investor Day, I stated that with the plans we had outlined at that time, we projected hitting at or near $8 billion net target sometime mid-year 2025. I also stated that we were committed to doing better; that we would pull every lever to accelerate achieving that target and the subsequent increase in buybacks. Some of you have reminded me I went so far as to say that I couldn’t think of a better Christmas present for our shareholders than to achieve that target by year-end 2024. Well, as Kris described, Christmas is coming early this year at Suncor. I’m sure each of you on the call had the same confidence I had that we would achieve this. Another example of today’s Suncor, focus, determined, and results-oriented. Troy has even offered to sing Michael Bublé, Santa Baby to celebrate, but in the interest of time, we’ll skip that. So, Troy, back to you to kick off the Q&A.

Thanks so much, Rich. I’ll turn the call back to the operator to take some questions.

Thank you. And our first question will come from the line of Dennis Fong with CIBC. Your line is open.

Hi, good morning, and thank you for taking my questions. First and foremost, congratulations on, obviously, a very strong quarter and the achievement of your net debt target well ahead of schedule. I would love to see a live streaming of Troy singing Santa Baby. First and foremost, Rich, I appreciate the context you provided in kind of the prepared remarks, especially on individual opportunities that the team has seized. And frankly, knowing you, I’m sure it’s never too early to ask, what are the opportunities you’re most excited about coming up next as we kind of look into 2025 and frankly beyond?

Thanks, Dennis. I think what we continue to find as we create this intense focus on asset utilization and our unique level of physical integration, we keep finding examples. They don’t always translate into a barrel, but they translate into dollars. When you take PFT to the base plant, we get a yield uplift and we get a higher-valued product, for example. The way our operating teams are integrating, looking at our world as an entire system in capturing value wherever it lies, that, to me, is quite exciting. The best way to judge us going forward is on the incremental free cash flow we generate. We’ll bring along barrels with it upstream or downstream. But I’m seeing value in many, many areas in our business. I share some of the examples on the call. For everyone I shared, there are another 10 of the teams working together to create value. It’s – I’ve been in this business a long time, Dennis, and I’ve seen a lot of ups and downs. This is as exciting a personal opportunity as I’ve ever been a part of.

Great. No, I appreciate that color. The other item that I wanted to kind of ask about was the Cogeneration facility. I wanted to maybe get an update from you guys there and what you think is the opportunity or benefit once that facility or part of your baseline plant ramps up?

Yes. Great. So this is a really exciting project for Suncor. And I think for the province as well. When it comes online, it’s going to increase the reliability of our steam system at base plant. It’s also going to improve the carbon intensity of our barrels. It’s going to allow us to also export additional electricity, which is going to head to the Alberta grid, and I think really serves all well. We’re in the final stages of the project. We’re well into commissioning. Things are looking good. We’re in the final push to get things up and going before the cold weather sets in at Fort McMurray, but we’re really happy with how this is coming together.

And we expect that we will do that. We’re into the winter, we’ll have this system up and running.

Great. Thank you for the color. I’ll turn it back.

Thank you. And that will come from the line of Greg Pardy with RBC. Your line is open.

Yes. Thanks. Good morning. And then just to echo the last comment, I mean, just an outstanding quarter. Rich, I wanted to dig into what you’re talking about from an operating standpoint. What I’m trying to better understand is, is that when you look at the upstream and downstream levels we’re seeing – operating levels we're seeing versus history. Is this a function just of underutilization, so the assets simply were just running in a slack manner? Or are you re-rating the assets like Firebag?

I think it’s more of the latter, Greg. What we’re seeing is teams going in and the integrated nature of how we work today with our technical teams, our operational teams, and our central teams that bring a level of expertise where they’re looking at assets and identifying where the bottleneck is. Where is the limiting constraint? And then what does it take to modify or change that? I’ve used several examples throughout the year at Firebag. I’ll use an example earlier in the year coming out of a turnaround at the Montreal refinery. We’re incrementally literally changing the capacity or re-rating the facilities as we go. I won’t repeat it, but we all know those are the most profitable barrels. They’re the lowest cost. We’re trying to continue to drive down our capital intensity. When we have the teams focused on this, we keep seeing examples. I'm pleased at the identification of the examples; I’m even happier with the pace at which folks are capturing them. I’ve said before, Suncor is double-double: half the cost, twice the value; this is what our teams are accomplishing. I feel a little remiss on these calls because I have so many examples I could share across the company; recognizing exactly what our teams are doing. So I think it's more of the – we're re-rating, we're raising the ceiling on the potential of this company.

Okay. Understood. Thanks for that. And then related, how have you reengineered the maintenance approach? Both upstream and downstream, and turnarounds have been a bigger focus quicker, faster, and cheaper or what have you, but your safety record has been extremely strong as well. So there's good integrity to what you're doing. But is there a philosophical change in how you now do maintenance?

Absolutely. I’ll turn it over to Dave and Shelley here in a second. But I mean, it all starts with safety and integrity. There's not a thing we’re doing that jeopardizes safety and integrity in the interest of money and cost efficiency. So it starts with that. But I think our teams, again, are fundamentally looking at how we maintain our equipment. We’ve talked about turnarounds, but let me—David and Shelley, why don’t you comment again about the mindset or the psychology on how we’re executing our work.

Yes, absolutely, Rich. And thanks for the question, Greg. I think about it a couple of ways. We've talked about turnarounds before. The way we're approaching turnarounds is the same way we approach maintenance. You could argue some of our sustained non-turnaround sustaining capital is largely the same approach. There's no secret to turnaround; you have to select the right work and execute it efficiently. It all begins with benchmarking. We need to understand what competitiveness looks like. We need to select a work scope that's aligned with those competitive costs. We’re seeing a couple of things with that. Benchmarking allows us to set really focused and aggressive targets for the turnaround or the maintenance activity of the capital work. It also shows the whole organization what's possible because they know other people can do it. It's a great rallying drive for the organization to get involved. Our risk-based work selection process has become much more focused and applies to turnarounds, to maintenance, and as we work going forward into our sustaining capital, non-turnaround sustaining capital. We ensure the right work is selected to reliably achieve the run. It's really about doing the right work at the right time. We're getting better at locking our work list in earlier. We're applying our new OEM processes with detailed planning milestones, which gives us the opportunity to optimize the turnaround or the maintenance activity. A good example is on our Montreal turnaround; we challenged the team. They realized they had a non-competitive duration on their turnaround and looked at how they could pre-build some components for their furnaces in more of a plug-and-play approach. That was the secret to shaping 15 days off that turnaround. We have had some good turnarounds so far this year. I see that moving into next year and even better as we get further down our competitiveness journey. I see that applying into maintenance and sustaining capital over time.

It gets back to the whole cost attention to detail, critically looking at what we do, how we do it, and how do we compare externally? If the vision is to be the best of the best, you need to know who the best is. The benchmarking that both Shelly and Dave are bringing into the business allows us to look beyond just how we did before, but how does the best in the business do it? It is a cultural change, and we're driving that wide and deep, and we're seeing results. As I've said before, we're seeing results faster than I would have expected. I give all credit and tribute to our people because they want to be the best of the best, and that is exactly what we'll be.

Yes. I think I would underline the improvement that's really being driven by our operational excellence management system, I think it really ties into what Dave said and it's underpinning how we're seeing the entire system come together. For example, on the maintenance side, we have a new process that we've implemented: managed threats to availability. Key people from different functions in our operating areas get together every morning. They look at what's happening, discuss potential threats, and figure out how to get in front of them before they turn into losses while ensuring we maintain the safety of our operation.

Excellent rundown. Thanks very much.

And that will come from Neil Mehta with Goldman Sachs. Your line is open.

Yes. Good morning, Rich and team, appreciate the good updates here. The first question is just around working capital. It was a nice tailwind in the quarter. The question is, is this structural or is this more temporary that can wind back? I think you guys have done some work around accounts receivables and payables, for example, that feels more structural, but more color around that would be helpful.

I’ll ask Kris to comment on it. This has been a focus area now for us for some time. This is structural in nature, but Kris please comment on the outstanding work your team has been doing.

Yes. Hey, Neil, thanks for that question. It’s not a surprise that might be asked out there. As Rich just said, working capital can move around from quarter to quarter. We all know that commodity changes or inventory management, those types of things. We’ll continue to see working capital move around, but the key point, Rich just made it, and you just said it in your own question, there are structural changes built into this. As I mentioned in my remarks, this has been driven by our focus on the controllables. It’s a well-managed area and our confidence in going to the 100% payout is our view of Q4 and 2025. We know that working capital can move around, but we also have a lot of confidence that it’s well in hand and in the zone, and we’re in our net debt target zone.

While some watched football on Saturday, Troy, Kris, and I were going door-to-door collecting accounts receivable.

Great color. Then the follow-up is just around Fort Hills. And so Rich, it’s obviously been challenging on the southern part of that asset. But the view is, as you move towards the mid and then open up the north pits, things should really start moving in your direction. So just talk about what’s happened on the ground there. And how you see this evolving over the next couple of years?

Yes, sure. You’re absolutely right. We’re just finishing—excuse me, the final mining in the south pit now and transitioning our ore delivery to the center and the north pits. The key factor there, as we stated a number of years ago now, is ensuring we have really solid mine health, good minable ore inventory in front of us with adequate options. As we transition from the south pit to the center and ultimately, the north pit, we’ll open up large strike areas for good, productive mining and ensure that we have lots of blend options in front of us that will ultimately translate into more barrels through the fixed plants. I’m really happy with the fixed plants. It’s an excellent asset. It’s got significant potential to deliver high volumes. So that’s not where our focus is. It’s all in the front end, and it’s all in the mine.

We’re just about two years into a rebased three-year plan. Month after month, quarter after quarter, that Fort Hills team is hitting the milestones.

They’ve been bang on every single month regarding our budget and production volumes. So we’re really pleased with the Fort Hills team delivery.

Not to put any added pressure on Peter, but now we’re increasingly looking at how we can continue to debottleneck and support the plant with added ore over time. So while we were on this three-year plan, we’re spending much more time now thinking about longer-term and how we can get the most out of this asset, and we’re pretty excited about the opportunity slate we have there.

Awesome. Great pump-up sound too.

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

Thanks and good morning, everyone. I’ll start with a question on your $3.3 billion incremental free funds flow target by 2026 that was first talked about in May. How are things tracking internally relative to that target? Does $3.3 billion still feel like the right number because it is predicated on slightly more constructive macro outlook than we’re seeing today and also because you seem to be flowing through all of your other targets? So any update there would be good. Thank you.

Yes, Menno, you may recall that on May 21, we referred to as the normalized. We gave a set of the market parameters, so you could use that to track how we’re doing. We wouldn’t want to hide behind or take credit for whatever market changes. As we’re looking at that, we are ahead of pace on essentially every commitment we articulated on May 21. We said we would have about a $4 a barrel reduction in our corporate breakeven in 2024; I don’t have a new number yet, but it will be bigger than $4. We said in 2024, we will grow the free funds flow from about $5 billion. I think the number on the chart was $6.3 billion. We will be above that $6.3 billion for 2024. So what we likely plan to do on an annual basis is give tangible updates on how are we doing versus that plan? And where we stand right now? On all of the 2024 commitments, we are ahead of pace in capturing those. What we’re really looking at now are what are those things that are out there later in 2025 and 2026 that we can do to accelerate their capture and bring that all forward.

Okay. Thanks for that, Rich. And then maybe along a similar track, and it sounds like you’ve answered this to some degree, but maybe just confirm that you still see CapEx trending to less than $6 billion, right, 2026 excluding capital leases? And then similarly, when you look beyond the next five years, where we could, key word being could, start to see brownfield spending on new bitumen capacity, is there a rough ceiling on annual spending towards the end of the decade that you could share today? Or is it still too early?

That capital profile that we outlined in May still remains. This year, I think our guidance range was for 2024, $6.3 billion to $6.5 billion. We're tracking quite frankly, on the low end or below that. It's not because we're altering our plan; we’re scrutinizing what we do, how we do it, and finding the most cost-effective ways to do it. The next several years would be very consistent with our May 21 Investor Day. I think longer term, that’s still a work in progress. I want to give you just a little bit of context on that. Here’s the issue we face. If we were to elect to maintain the capacity of this enterprise at roughly 800,000 barrels a day, the base plant contributes about 30% of that or round numbers, just walking around numbers. The corporation faced is how do we replace 30% of our production in a decade. If we all jumped on a plane and flew to Midland, Texas, and pulled all the operators around the room, they’re faced with how do they replace 30% every year. I'll take our replacing 30% in a decade anytime. I have a lot of confidence, as we go through the internal suite of opportunities we have to debottleneck and expand a Fort Hills to continue to get more out of the rock star of Firebag. I have a very high confidence that we will address that challenge in the most economic manner for our shareholders when the time is right in the right ways, and we will do that within a very disciplined capital construct that will allow us to compete and to continue to return significant capital to our shareholders while making the investments that make this company strong for the long term. We talked about it at Investor Day and we showed some charts. I'm looking forward to what folks stop asking me about what’s going to happen a decade from now because what I can assure you is it will be in the shareholders' best interest. We will be very, very thoughtful. I'm not losing any sleep over that; I think we have a wealth of opportunities.

That’s very helpful. Thanks, Rich. I’ll turn it back.

Thank you. One moment for our next question and that will come from the line of Manav Gupta with UBS. Your line is open.

Good morning guys. My first question is, it looks like both Syncrude as well as the base mine are doing very well, exceeding expectations. Can you help us remind what role is that bidirectional pipe playing in the outperformance of both these assets at this point of time?

I’ll make a couple of comments, and then I’ll ask Peter if he has anything to add to it. One of the things just broadly that we have constructed here that is quite unique relative to our peers or competitors is this physical integration where we can move barrels when we have maintenance in the mine at the base plant. We can backfill the upgrader with Firebag barrels, and increasingly, I’ve described Fort Hill's barrels, and we get an even uplift when the Fort Hills barrels come in. We’ve created the base plant and the upgraders much like a refinery that can be fed through multiple feedstocks. That is part of our winning formula. As we’ve extended in the bidirectional pipeline to Syncrude, we’ve let them in on that party too. When Syncrude has challenges in the mine, we can keep the upgraders full and maximize the value each and every molecule. So that’s to say that’s been important to the performance at Syncrude. Peter, anything you would add to that on the bidirectional mine?

Yes. No, I think a good way to think about it is that it really helps buffer out variability in the upstream. We like to keep those upgraders running extremely steady; that’s where they run the best. Having the ability to flexibly move bitumen has differentiating power. You’ve seen that start to manifest in the very high upgrader utilization that we see both at Suncor and at the base plant. As an operator, it offers yet another degree of operational flexibility and allows us to keep the overall system stable. We are hunting for every bit of value of every barrel, maximizing our margins on that integrated production system.

Just to comment on that, keeping the upgraders full is essential because the dependent on whether it's Syncrude or the base plant, they operate at $5 or $6 a barrel; generally different processes, similar costs. They take a low-value bitumen product and upgrade it to a high-value product. The uplift is tremendous. Job one is to keep the upgraders full. That’s one of the reasons you’re seeing record utilization rates—our organization recognizes where value is created. When we put barrels into the upgraders, we actually reduce our total production due to consumption, the shrinkage that goes through, but we greatly enhance the value. Those are the examples why I keep saying that I think they just judge us on the value we keep creating because that’s how we have the entire organization focused, is on value.

Perfect. My quick follow-up here is, if we adjust for the FIFO, your refining earnings were almost flat quarter-over-quarter. Now when I look across the North American comp group, earnings are down in some cases, 60%, in some cases, 90%. How have you been able to achieve a relatively flat quarter in refining while all your peers are down 60% to 70%?

I’m going to turn it over to Dave. Wouldn’t you rather have our downstream than anybody else’s? I sure would. Dave, do you want to comment on that?

We continue to make our downstream better. I think of it in two aspects. One, we delivered record rates in the quarter, and that certainly helped. We also had strong margin capture; both contributed to strong free funds flow. Rich mentioned the records of 488,000 barrels a day, 20 KBD over a prior record. We set monthly and quarterly rates in Montreal. Commerce City ran 109% in the quarter. Edmonton ran into a few speed bumps but still delivered 100% utilization for the quarter. I’d say a record performance in the downstream; I wouldn’t attribute it to just one thing. It’s a combination of things. Our clear and focused priorities are really helping remove distractions at our assets and our teams. My teams tell me that every day. It may sound a bit cliché, but our leaders are able to act as leaders and our engineers get to be engineers. It’s a lot of fun for them and they get to push through constraints. We’re using benchmarking, improving our turnarounds, and have a culture of busting through constraints. A couple of examples highlight how structural some of these improvements are. For Sarnia, we completed our turnaround in the second quarter and increased the size of a feed control valve on our crude unit, adding 3,000 barrels a day of capacity. That’s about a $20 million value for less than a $100,000 investment.

Thank you for a detailed response. I’ll turn it over.

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.

Yes, thanks. Good morning. A lot of the stuff has been covered here. But I think the question I’d like to go is you’ve done a lot on the cost side, right? A portion of that is clearly running better. So you lower your per barrel or per unit cost. Another part is you’re taking costs out of the system. If you’re running your refineries above 100%, probably not a lot more we’re going to get on the top side there. Just curious, as you look at the downstream and upstream operations, what’s the next thing you want to do in terms of improving the overall cost structure?

I think it’s a combination, continuing to operate well. It’s been mentioned a couple of times, Shelley mentioned it. Our new operational excellence management system digs into the details of how we manage threats to availability, turnarounds, conduct safe operations, and more. It’s just continuing to do everything better; that is part of it and that’s what the best do. The other aspect of it is continuing to find those large and small opportunities that just keep adding value. It's interesting; I like the nature of these calls. A year ago, 15 months ago, it was more about getting back on your feet. Now folks are asking how high can we take this? We believe we can continue to take this enterprise higher. But it's no one or two things; it’s 15,400 people focused on adding or creating value. That’s cultural. We don’t talk about culture a lot, but increasingly, we’re fundamentally changing the culture of this organization. After this call, this team is meeting with 450 leaders in our company to talk about leadership, culture, and what it’s like at today’s Suncor. That’s all part of it. So where is the limit and what’s next? I don’t know what the limit is next, but I think there continues to be a lot of areas for us to add value.

Let me follow up on that just one other way. Other companies, very large oils, and even some of the smaller refining companies, have carved out underperforming assets, right, dispositions, addition by subtraction in a sense to help out costs and margins. You haven't really had to move out of a lot of stuff. You've actually probably consolidated a little bit. So I'm just curious, are there we should think about maybe a pairing in the future a little bit here and there to improve the structure?

Our model at the essence is we like to operate with 100% ownership through an integrated asset base. For all the examples, I won't go through them again on where we can add value. We’ll continue to look at opportunities that align with that. And anything that is not aligned, we will continually ask and look at its performance and say, are our assets worth more to us or others? We haven’t had anything of a material nature since the sale of our wind and solar operations about a year ago, and our North Sea assets. We’ll always be looking at the asset base where we can enhance it and/or determine what doesn’t fit with our proposition to win.

Thank you.

One moment for our next question. That will come from the line of Doug Leggate with Bank of America. Your line is open.

Thank you. Thank you everyone. Appreciate you taking my questions. Rich, nothing short of impressive delivery as you— as everyone has pointed out this morning, but I’ve got two questions I was hoping you could clarify. We’ve obviously—weather is always a factor when you look at utilization rates and your things seem to be a bit of a tailwind this year. I’m trying to understand what inning do you think you’re actually in on a normalized basis on execution, and I guess it’s another way of asking, how much of the $10 do you think you’ve actually achieved? At what point will you give us the upside case?

In the $10 a barrel, we designed that; we showed you in the May 21 update that we projected about $4 in 2024, two in 2025, and four in 2026 tied to our activities and work. We’re capturing more than we expect this year, and looking at the things on our radar for 2025 and 2026, we’re eager to see how we can accelerate their capture and progress. On the utilization rates, we know we operate within our environment. We’re taking steps to create a level of immunity to the weather conditions. We're looking to build operations that perform predictably and consistently. Our goal is to maintain our cost structures and operational performance; we've made strides toward achieving that.

I know it’s a work in progress and a tremendous effort all around is showing up in the numbers, obviously. But I guess my follow-up is a little bit selfish, question, Rich. And I know we’ll get a chance to get into this next week. But if you could forgive me this one, a very large company with a very long runway, it’s kind of hard to move the needle in terms of market recognition of value from a DCF standpoint. Obviously, the breakeven coming down is a big positive to free cash flow, but our sense is market recognition value flows through the dividend. So when you talk about the $10 drop in dividend breakeven, my question is, what happens to the dividend policy as you deliver the reduction in that breakeven? What happens to your dividend growth story as you go forward?

What I’d say fundamentally, we want to have a track, a predictable, reliable, growing dividend. Do we want it to be the highest yield? No, we prefer to have a fundamentally high underlying share price. We want the dividend predictable, reliable, and growing over time. We want to ensure we’re buying back shares at a rate equal to or greater than the fundamental growth rate of our dividend per share. This is a way to not only maintain the growth of dividends but also enhance overall shareholder value.

It’s a great summary, Rich. We absolutely view that this dividend will grow over time. It will grow reliably and predictably on the back of us continuing to grow free cash flow in this business. As Rich said, buying back shares provides another flywheel to that dividend, while we’re driving down our breakeven to make sure we operate our company resiliently.

The dividend is extremely important to us.

Thank you. One moment for our next question, and that will come from the line of Patrick O'Rourke with ATB. Your line is open.

Hi, good morning. Can you hear me? It's an update on behalf of Patrick here — thank you. Thanks for taking my questions. I have two questions for you. My first question is about Firebag performance. The nameplate capacity is approximately 215,000 barrels per day, and in your updated presentation, you mentioned over 30. We have seen that asset operating significantly above that on a full month basis in September. What is the current run rate for the asset? And what has been the highest single day production from the asset this year?

Firebag is the gift that keeps on giving as we keep finding opportunities to increase it. September was a monthly record high at 247,000 barrels a day. If I were to slip and let the cat out of the bag, I might say October is even higher than that. We're still finalizing some of the numbers, but we're having stream days in excess of 250,000. We’re focused on threats to availability and looking to debottleneck to increase capacity further. I think Firebag epitomizes our strategy and the results it produces. I didn’t say I was going to slip out of the bag that October was better; I couldn't help myself. Second question?

Second question is on Syncrude operating costs in the quarter; obviously, very good. Could you provide a breakdown between what was structural and durable there and what was helping to support some of those lower energy input costs?

Yes, I would say not just the Syncrude but across the region. We’ve focused on improving the productivity of our mining business. That is the single-largest cost driver at all of these assets, certainly, the mining assets. The more we can do with what we have already offsets more expensive alternatives that we would have to bring in to complete the required work. I’m confident that these cost savings are structural and sustainable. Improving mining productivity drives costs down for both Syncrude and the base plant.

Peter, keep me honest here; when delivering a barrel to the market of product, if you break Syncrude or the base plant into three pieces: the mining, extraction, and upgrading. The mining is the highest single-cost component; depending on the asset, upgrading or extraction are closer to similar numbers. Our strategy is centered on driving mining costs down and maximizing upgrading utilization. That’s the difference at Suncor—we’re focused with lasers to identify where the biggest prize is, target, capture it, and then move on.

A focus on mining performance is absolutely critical because it results in bottom line cost savings. We have done this by benchmarking, both externally and also internally through our Mine Connect program. We can benchmark small details of our mining operations and really look to optimize across various mines. Focusing on the small things in a business that moves 1.3 billion tons a year adds up to a lot on the bottom line. We’ve been aiming for even just an extra kilometer an hour faster on the haul cycle or an extra ton on the truck, and that adds up given how much we move.

Thank you for your color. And I’ll turn it back.

I’m showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Troy Little for any closing remarks.

Yes, I’m going to briefly turn it back over to Rich.

Yes, I’ll just wrap up quickly. Thank you for your questions today. The themes I’d like you to recall are cross-functional teamwork with a level of clarity and focus on results and value that is part of an evolving or today’s Suncor. This is the culture increasingly of this company, and our job is to continue to promote that culture to institutionalize it deep in the fabric or DNA. That’s what the folks on this phone call today are working on each and every day. So with that, thank you. Troy?

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. Operator, you can end the call.

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