Suncor Energy Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 9, 2023

Key Takeaways

  • Safety improvements: Recordable injuries fell 10% and lost-time incidents dropped 33%, with zero life-threatening injuries in 2023 and the downstream segment achieving its first injury-free quarter.
  • Fort Hills acquisition: A revised $1.468 billion deal to acquire Total Canada secures long-term bitumen supply, creates operational synergies, and follows a safely executed five-year full plant turnaround on budget and schedule.
  • Turnaround execution: Major maintenance campaigns—including the U2 upgrader and multiple refinery turnarounds—were completed safely, on time, and on budget, demonstrating improved predictability against internal targets.
  • Mining fleet modernization: The addition of 55 ultra-class 400-ton trucks, strategic agreements with Cat and Komatsu, and plans to operate 91 autonomous trucks by year-end 2024 are expected to reduce corporate breakeven by $1/barrel.
  • Cost reductions: Above-field cost cuts totaling $450 million annually (12% above target) and a 1,500-person workforce reduction deliver a $1.20/barrel breakeven improvement.
AI Generated. May Contain Errors.
Earnings Conference Call
Suncor Energy Q3 2023
00:00 / 00:00

There are 13 speakers on the call.

Operator

Good day, and welcome to the Suncor Energy Third Quarter 2023 Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your host, Mr. Troy Little, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and good morning. Welcome to Suncor Energy's 3rd 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 Q3 earnings release as well as in our current annual information form, both of which are available on SEDAR, EDGAR and our website, 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 Q3 earnings release.

Speaker 1

We will start with comments from Rich Krueger, President and Chief Executive Officer Followed by Chris Smith, Suncor's Chief Financial Officer. Also on the call are 3 of our senior operating leaders: Peter Zebedee, Executive Vice President, Oil Sands Dave Oldreeth, Executive Vice President, Downstream and Shelly 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.

Speaker 2

Thanks, Troy. 3rd 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, Our 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 0 life threatening or life altering injuries in 2023. We've had improvement in each and every business segment.

Speaker 2

And that said, I'd like to call out our downstream. Our downstream had 0 Horrible injuries in

Speaker 3

the 3rd quarter, 0, the

Speaker 2

1st 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, Just fundamentally about a culture change. We are on target for all Suncor leaders to be trained on HOP By year end 2023, comment on procedures in mining in the Q3, we completed 4,000 critical control verifications, it's a big number. The important number is it's 20% higher than the 2nd quarter.

Speaker 2

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 in 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 $1,468,000,000 This is an improved deal versus the original deal.

Speaker 2

Specifically, we no longer have a contingent payment provision in the acquisition. Similar headline valuation to the earlier tech deal, but we've got additional benefits. Commercial pacings 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, It also enables additional value creation, value creation through regional synergies with mobile equipment deployment, value creation through Directing higher yield PFT from Fort Hills to our upgraders, a number of incentives. And as I said, we're quite pleased with the deal.

Speaker 2

Continuing with Fort Hills from an operational perspective, we executed our 1st 5 year full plant turnaround during the Q3 safely, On budget and on schedule. Production, we're bang on expectations as per our 3 year improvement plan. We're continuing to progress mining through the center pit. We're starting north pit opening cuts. And of note, it is success on past Lessons learned, 0 water or 0 issues with water seeps or slope instability.

Speaker 2

And now with 100 percent ownership and full control, We will be striving, driving for further and faster improvements. On the Q2 call, I highlighted Several areas that were considered high priority were improvements, specifically turnaround performance, mining fleet management and above field cost. Let me start with turnaround performance. As a reminder, we complete large annual turnarounds at most all of our upstream and downstream sites And spend on the order of $1,300,000,000 per year or about 20% of our CapEx on turnarounds. I've shared before that we benchmark using Solomon and other sources as below average in performance, cost schedule, Volumetric impact.

Speaker 2

So to describe our efforts as an intensified focus, I can assure you that would be an understatement. So how do we do in the Q3? We'll base plant the U2 upgrader or U2, massive turnaround nearly 1,000,000 hours, $500 plus 1,000,000 55 days. We completed it last week as per plan. I mentioned Fort Hills, the first full plant turnaround, dollars 60,000,000 25 days completed in the 3rd quarter, Again, as per plan, Syncrude, we had a large turnaround in the second quarter that was completed per plan, And we had a smaller third quarter turnaround completed early and under budget.

Speaker 2

Montreal and Edmonton refineries, We had events that overlapped between the 3rd and the start of the Q1. 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. And as we drive further and we look at our second, core competency for the company.

Speaker 2

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 for the start of extraction, that's our single highest cost component in the production of bitumen. Today, we move about 1,300,000,000 tons of earth per year to support production, And we've got a competitive cost gap versus best in class. Comprehensive efforts 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.

Speaker 2

So 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, 3rd 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 U. S.

Speaker 2

In addition, in the Q3, 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 PC-nine thousand series for mid-twenty 24 delivery at Fort Hills. Lastly, in mining, I'll comment on autonomous operations. Today, we have 31 trucks operating at base plant autonomously. By Q2 2024, it will be 45 and by year end 2024, it will be 91.

Speaker 2

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 is tangible, focused on safety, fleet efficiency, We have composition and overall reliability. Let me continue with above field costs and organizational effectiveness. During our Q2 call, we discussed plans to reduce above field costs by $400,000,000 per year Via workforce reduction of 1500 people to be completed by year end 2023, if you recall in the Q2, we took a one time charge $275,000,000 Our approach was 100% internal, no consultants, advisors Focused on eliminating low value or unaffordable work.

Speaker 2

Today, I can share that this effort has been completed 2 months ahead of schedule. Annual cost reductions starting in 2024 of $450,000,000 will be achieved 12% or $50,000,000 above target, in part due to additional reductions of contingent workers or above field contractors. The impact of this action equates to $1.20 per barrel U. S. Reduction in our corporate breakeven.

Speaker 2

As the process unfolded, it certainly hasn't been easy on our organization, neither those that left the company nor those that stayed. However difficult, we recognize it was necessary for our competitiveness. Now, we look ahead. Coupled with executive leadership team changes, Under structural changes, we are a simpler, more focused organization, positioned to compete and win, and that's exactly what we intend to do. Guidance.

Speaker 2

During our Q2 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 turnaround impact All turnarounds have, 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 a day level. Final comments before I turn it over to Chris. I suspect you've noticed a few references today to turn in terms of our Per Barrel.

Speaker 2

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 talk 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 Chris.

Speaker 4

Great. Thanks, Rich, and good morning, everyone. To start with, I'd like to make a few comments on the business environment that we saw in the Q3. It 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 US82 dollars a barrel in the quarter and the light heavy differential narrowed versus Q2 averaging About $13 a barrel.

Speaker 4

As well, 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 and particularly for distillate cracks And our 5,221 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 at GJ in the quarter, While Alberta power prices remain robust. Now with respect to our financial performance, with this constructive business environment and Suncor delivered a strong financial quarter. They delivered $3,600,000,000 in adjusted funds from operations Or $2.80 per share and adjusted operating earnings of $2,000,000,000 or $1.52 a share.

Speaker 4

During the quarter, we also returned nearly $1,000,000,000 to shareholders in dividends and share repurchases. And since the beginning of the year, we've bought back over 3% of our common shares outstanding as at December 31, 2022. Also during the quarter, we reduced our net debt by $1,400,000,000 with net debt at $13,000,000,000 as at the end of the quarter. Turning now to operations. We saw solid operations in both our upstream and downstream segments.

Speaker 4

Our upstream delivered 691,000 barrels per day of total production in the quarter. Oil Sands had strong operations with With 646,000 barrels a day of production and delivering $2,900,000,000 of adjusted funds from operations With average price realizations of CAD106 a barrel or 97 percent 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. And we continue to see strong in situ Production including 99% utilization at Firebag.

Speaker 4

As Rich mentioned, the Fort Hills asset came out of its 5 year full plant turnaround with strong operations and delivered as expected with high asset utilization. Our E and P business segment generated $372,000,000 In AFFO in the quarter, production of 44,000 barrels per day and average price realizations of $121 a barrel Canadian or 104 percent of Brent. The Terra Nova FPSO completed its life extension work in the quarter And has now returned to station where it has commissioning and start up activities 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 $1,500,000,000 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.

Speaker 4

And 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. With respect to overall costs, despite inflationary pressures this year, we continue to see progress on reducing costs And along with the benefit of low natural gas prices are trending toward the bottom end of our oil sands cash cost per barrel guidance ranges for the year. As for CapEx, it was $1,500,000,000 in the quarter with spend primarily focused on planned turnaround and maintenance activities And mine and tailings development, including the Mid Woodard Lake West Mine Extension Project at Saint Crook. As well, we are completing the Terra Nova Asset Life Extension project that I mentioned earlier, while also beginning investments on West Whiterose. And despite inflationary pressures this year and the extension of the Terra Nova work and the unplanned repairs which we had at Commerce City earlier this year, we We expect to remain within our capital guidance range and though we will be towards the top end.

Speaker 4

Now as mentioned, our net debt was $13,000,000,000 at the end of the quarter. With the anticipated close of the TotalEnergies Canada acquisition, which Rich spoke about earlier in his comments, We expect our net debt to end the year between $13,500,000,000 $14,000,000,000 depending on commodity prices. As mentioned, we've delivered nearly $1,000,000,000 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. Now 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 0.

Speaker 4

We remain focused on delivering against our 2,030 emission reduction goals and our longer term objective of net 0 by 2,050. 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 and the pathways alliance to net 0, 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.

Speaker 4

And 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.

Speaker 1

Thank you, Chris. I'll turn the call back to the operator to take some questions.

Operator

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

Speaker 5

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 I don't know, 6, 12, 18 months.

Speaker 2

Greg, I think we've got the right team. We've got the right leadership. We know this game. We I think we're

Speaker 3

about, geez.

Speaker 2

We're in the

Speaker 5

first half of the game. Sorry about that.

Speaker 2

Yes. We got 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 about it. As I sit here 7 months in, I feel better than I did in the 1st month.

Speaker 5

Okay. No, thanks for that. I'm going to completely shift gears maybe And ask Peter another questions, but as it relates to Fort Hills then, 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 on and what can we expect?

Speaker 2

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

Speaker 3

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.

Speaker 3

We've been able to reestablish healthy mine inventories. And so far year to date, we're bang on our production plan and expectations in addition to executing the 1st 5 year turnaround on time and on budget. So really happy with that. Just a reminder that we're in the 1st year of our 3 year plan to reset the Fort Hills operation. The 1st couple of years do entail higher costs and lower production, but we're ultimately driving to those higher Run rates down the road.

Speaker 3

So I think to sum it all up, I'm really happy with Fort Hills, but we still got some work ahead of us to get it to where we want it to be.

Speaker 5

Understood. Thanks very much.

Operator

Thank you. One moment for our next question. And that will come from the line of Dennis Fong with CIBC. Your line is open.

Speaker 6

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 improved logistics Within the facility and the asset base as well as more broadly with respect to your oil sands operations?

Speaker 2

Sure. Let me I'll make a couple of comments and then if Peter wants to add on to it. I think one of the things, we now have such a concentration Of assets in the mining world, things that sound fairly simple, but like fleet deployment, we have a higher A percentage of smaller leased trucks at Fort Hills. And I described in my comments kind of the strategy of fewer, bigger. So our ability to optimize things as simple as where heavy equipment goes is an opportunity for improvement.

Speaker 2

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 more a holistic oil sands Fron, Peter, would you anything you'd add

Speaker 3

to that? No. I think I'd just reinforce, Rich. I mean, if the production optimization opportunities are

Speaker 2

significant, I think you've seen us do that over certainly over the

Speaker 3

last year. I think you've seen us do that over certainly over the last year and our ability to keep those upgraders full and have really high utilization This 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, and we see quite a beneficial yield uplift through the upgraders as a result of running that PFT through them.

Speaker 6

Great. I appreciate that color and context. My second question is maybe shifting gears towards The Downstream assets, with respect to Q3 results, you guys hinted quite a strong Downstream Operating margin there. As we look forward through to the end of the year, can you remind us about, A, the flexibility that you have in terms of

Speaker 2

Dennis, on our end, it cut out. I don't know if you can hear us, but you're ending with the flexibility we have, but then it went Silent.

Operator

Yes. Dennis disconnected his line.

Speaker 1

Okay. Operator, why

Speaker 7

don't you move to the next question, please?

Operator

Thank you. Our next question will come from Neil Mehta With Goldman Sachs, your line is open.

Speaker 8

Yes. Maybe I'll try to build off of Dennis on refining. 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 and what are you hearing on TMX?

Speaker 8

And in the meantime, Are you able to keep the business relatively neutral from a sensitivity standpoint? Thank you.

Speaker 2

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

Speaker 7

Yes, sounds good. Yes. Thanks for the question. In the downstream for Suncor, we're a little less exposed to G2D or to lower gasoline cracks than maybe our competition is.

Speaker 6

We've got a

Speaker 7

pretty low G2D 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 So we're significantly less exposed to lower gasoline cracks than many others. That being said, we certainly have seen the gasoline Market drop, we expect to continue to be able to run full through the Q4, buying crude to make high value diesel and making sure the gasoline Clear, but we see a good strong Q4 ahead of us.

Speaker 4

Great. And hey, Neil, on your question about WCS and TMX, mean, obviously, we've seen the WCS that light heavy start to widen out quite a bit. Here's what in the Q4 and a lot of drivers behind that. Obviously, refinery turnarounds, production out of the basin as well as we go in as you probably know, as you go into the winter Season just that diluent ratio has an impact on that light heavy dip, so it's got some seasonality in it. But we do see when TMX It will obviously be constructive to narrowing that light heavy diff.

Speaker 4

And right now, every indication is That line is going to be in operation towards the end of Q2 or early Q sorry, the end of Q1 or early Q2 of next year. They're really 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. So They've made great progress on the project. It's 97% complete.

Speaker 4

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. And as I said, I think it's going to be quite constructive. We would expect light heavy dips. There's always going to be some seasonality and some things which affect it, But TMX is going to, I think put that light heavy diff more towards a mid teens as an average and really it's going to be about less volatility in it.

Speaker 8

Okay. That's great color. And 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?

Speaker 8

And How should trucks be a consideration in that estimate?

Speaker 2

Yes. I think the we'll be coming out here In the next few weeks, I guess it is, something like this with our guidance. And Troy has been sharing with me kind of what folks Consensus is, and I would say that I don't think there'll be any surprise. It'll be a bit bigger than this year as we bring about some of these structural improvements, Driven by particularly mining and then of course the other component part of it is the incremental ownership that goes with Fort Hills. But I think if you kind of think about 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.

Speaker 2

And the other thing I'd just comment on the trucks itself, we're really looking at Any incremental spend in terms of its payout period. And these trucks, the displacing 2 for 1 and all the efficiency go with it, They are a very rapid payout. They are independent of oil price and there are things that we're quite confident that we get back quite quickly. So any incremental, quite frankly, any money, we're looking at it very, very closely in terms of Bang for the buck and how quick it provides accretive or value added. But I think in a nutshell, that's kind of what you can expect when you see 2024 guidance.

Speaker 8

Thanks, Rich. Appreciate it.

Operator

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

Speaker 9

Good morning, everyone. Thanks very much indeed. Rich, congratulations on the changes you're making clearly having an impact. But obviously, you're not done yet. So my question is related to the $5 improvement.

Speaker 9

And I guess you talked about $1.20 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.

Speaker 2

Thanks, Doug. You mentioned the I mentioned the buck in the above field cost that has been captured as we go into it. I commented on another buck That Peter as he gets bigger and fewer more efficient trucks is another buck. And literally the way we are Talking here and looking at it is Peter has a display or a spectrum of opportunities And we look at timing, what it will cost, what it will deliver. Dave is developing the same thing in the downstream.

Speaker 2

And then beyond that, we're looking at corporate, Whether that's further efficiencies and we know to get you referenced $5 as a kind of initial target. We know to get that, Our inventory list has to be much bigger than that, because some things won't happen, they won't happen on the timeline. But I think this the how you're hearing us talk about the improvements in the dollar per barrel terms, kind of get used to that because that's the way we're going to be going for a while. And of course, that comes from cutting costs, spending less sustaining capital, increasing volumes, increasing margins. There's a lot of levers To achieve that, but it's really it's the way we're looking at almost all aspects of our business now.

Speaker 9

I 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 Q4 to achieve the 7.40, 770 range for oil sands For upstream, can you give us an idea what the stair steps are to get there as you did not change the guidance for the year?

Speaker 2

Sure. And I've said we're going to be at or around the low end of that range. The 770, 770, those numbers aren't going to happen. But as we look at completing the Q3, all the big works behind us, All the operations are up and running. No maintenance work planned.

Speaker 2

You commented on Total. Of course, we had Total In our original guidance and with the tech deal, 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. And the rest of it's just it's running full out and running efficiently through the rest of the quarter.

Speaker 2

I do all the math. I know exactly what it takes literally from not only the quarter, but from here on. And we continue to believe it's achievable. And that's exactly what we have everyone in the organization focused on.

Speaker 9

Great stuff. I appreciate the answers, Rich. I can update of your strategy, David. I appreciate any update on that. Thank you.

Operator

Thank you.

Speaker 2

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

Operator

Thank you. One moment for our next Question? And that will come from the line of Menno Holshof with TD. Your line is open.

Speaker 10

Thanks and good morning everyone. I'll start with a question on shareholder capital returns. It looks like you're 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 buyback more aggressively here And land above your target for the year?

Speaker 1

Yes. Chris, you want to comment on that? Yes. Thanks, Rich.

Speaker 4

Hey, Meno. Thanks for that question. You're right in that when you look at the shareholder returns and particularly the buybacks, we had quite large numbers in the early part of the year. We're managing towards that allocation target that we have out there fifty-fifty. That doesn't mean that we're going to dial back Further on the buybacks that you've seen in the Q3, but certainly we want to make sure that we're balancing against that capital allocation in the 4th quarter.

Speaker 4

We are probably going to end the year probably a little more balanced towards share buybacks versus debt reduction quite frankly. We'll probably close The sixty-forty on an annual basis, but with the transaction in the quarter and the other drivers, we're looking to make sure that we We're in the zone of that capital allocation as we're managing the balance sheet to the exit of the year. And then we're going to continue with that capital allocation framework into 2024.

Speaker 10

Perfect. Thanks, Chris. 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?

Speaker 2

Peter, you want to comment on that?

Speaker 3

Yes. So thanks, Meadow. Yes, 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've taken kind of the first step where we've taken a lot of the waste out of the system so far and now we're looking at more sophisticated examples of Integrated planning and scheduling, and kind of maintenance scheduling activity to drive further efficiencies. So do I think there's more?

Speaker 3

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 and every day. It's easily measurable and it's Something that my team is focused on quite heavily to drive further cost efficiencies over and above what we've already done so far. And if

Speaker 2

I could this is Rich. If I could add to Peter's comment, it kind of gets into the Fort Hills again. The idea of operatorship and 100 percent ownership Or more immediate control on things. As it looks as we look at contractors, whether it's the contractor efficiency, deployment just like equipment, I mentioned Finning and SMS, strategic contractors for us. We're able to look at things on a scale Yes.

Speaker 2

That the efficiency or improvements can come in some pretty material numbers. And we're able to do that because of the Full scale and scope of our operation and that we indeed operate them. And I think when you start putting all that together, That's where you start to get kind of a snowball effect on what's possible.

Speaker 10

Appreciate the thoughts. I'll turn it back.

Operator

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.

Speaker 11

Yes, thanks. Good morning. Maybe just to 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?

Speaker 11

And does any of this have to do with the accounting convention meaning that the close will be backdated to April 1? Or Does it matter when the transaction closes this quarter?

Speaker 4

Hey, Roger, it's Chris. Let me just It's not about the April 1 effective close date. So when we set the guidance at the beginning of the year, we had an assumption on The Teck transaction, which we completed and we've built that into guidance. You may recall that Total actually exercised its ROFR. And so, we ended up actually having less production than what we had anticipated in our guidance, but we didn't reset our guidance.

Speaker 4

And so what Rich was referring to is obviously now we're completing the transaction for Total, which includes The volumes or the interest that they took from Teck. And so we'll be including the newly acquired working interest in For the balance of the quarter, which is we expect that to close here later in November. And so when you look at it, it's a wash At the end of the day, and so that was just that point. And so when we stack that up and then look at our operations just to underline what Rich was saying, It's all hands on deck. We got a big quarter in front of us, but we got the assets available.

Speaker 4

Peter and the team Are pushing hard. We like what we see from the assets. So, we're standing at the bottom end of the guidance, But where you believe we'll be

Speaker 2

at or near it. And I'd just add to that, it's we've talked about Fort Hills now being a wash. The profile is different from the time of the year to the end. But really, if you dig into it, there's some puts and takes, strong in situ performance in other areas. The real big difference in all that is the absence of turnover For the year.

Speaker 2

There are some other things that are generally kind of small ups and downs, but Terra Nova is the difference between being kind of Middle of guidance and at the lower end of guidance.

Speaker 11

Okay. Now that helps. And then back to your comments about the Performance on the turnarounds this quarter coming in on budget, but wanting to do better. My kind of broader question is, Does the budget get tougher going forward? I mean, is that part of the process here of becoming, call it, an 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

Speaker 2

Yes, absolutely. And what and I'm looking at Dave and Shelly here, who are 2 executive leads on this across Upstream and downstream, in kind of the first point I made it and I said it kind of quickly is get a level of predictability and stability relative to our own targets, The cost, the schedule, the work we have to get executed, that establishes just confidence Improving the performance and moving from a 3rd quartile, 3rd or 4th quartile, depending on whether you're looking at cost schedule And then moving that up higher into a second quartile or above, it does deal with the processes, our risk based work selection And the execution. So stability with where we are now, our own expectations and then concerted improvement in Areas where we know we have a gap. And I think we certainly won't declare victory, but what the second and third quarter have shown Yes, we are getting better at predictability and actually delivering on the commitments we've established for ourselves. Now it's time to get better.

Speaker 2

Shelley, Dave, anything you'd add to that?

Speaker 7

I think you said it well, Rich. And maybe the only thing I would add is just An example of how we're going to get better using benchmarking. We do benchmark our turnarounds, but often it's later in the process when the scope is already defined. We want to do is go early as we're planning the turnarounds in the very early stages, put our benchmarks in place, challenge the organization to deliver. And John, as you said, more challenging targets, put that in early and then plan the turnaround on that basis.

Speaker 7

And I think from with that change alone, we're going to see some significant

Speaker 2

And so, we don't have numbers to share on it, but how does it look like when we get there? We're safer. We have a shorter duration because of the selection of the work and we have lower cost. And then when you do that, Then you have more days where you're back up and running in production. So there this is a huge opportunity for us.

Speaker 2

And as I said earlier in my comments that to say we've been acute focus on this, that would be a big understatement.

Speaker 11

No, I appreciate that clarity and look forward to seeing the execution on that front. Thank you.

Operator

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

Speaker 12

Hi, good morning. Thanks for taking my question. So my first question, 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 There's obviously the increased working interest in Fort Hills.

Speaker 12

They've got the loss of U. K, the Terra Nova restart, just a lot of moving pieces and Not really sure how to think about the maintenance side. So maybe you could help us frame how to think about production for next year? Sure.

Speaker 2

And it's coming on. Troy is looking at me like don't let the horse out of the barn early, it's coming. But take where we project we're going to end up this year In the 7.40 range. And the same asset base, Terra Nova wasn't part of it. Flash forward to next year, We have an incremental ownership at Fort Hills and a modest growth overall at Fort Hills.

Speaker 2

And then we've got Terra Nova back on for we expect to be essentially the full year. We'll ramp up as we bring on Well Centers a little bit in the year, But we have that on. So if you take and add those three numbers together, you're not far off from what we'll be expecting the 2024 to look at look like.

Speaker 12

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 and you've given some guidance on year end net debt. So any view on the timing there?

Speaker 4

Yes. Thanks, John. It's Chris here. So as I mentioned in my Comments, we expect to exit the year somewhere between 13.5% 14% because of the transaction. And depending on commodity price, we expect that the $12,000,000,000 net debt to be somewhere in the back end of 2024.

Speaker 4

I mean, it depends obviously on your view of the price deck going into 2024. We do expect A strong year on production next year and higher volumes as Rich just said as well as we're driving a lower cost structure. So that's certainly going to help accelerate that, but that's kind of the notional timing you should think about.

Speaker 12

Great. Thanks, Chris.

Speaker 4

Yes.

Operator

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

Speaker 2

Okay. Thank you. Well, okay. First of all, folks, you've got to blame what I say here on Greg Pardy. He started it out with a baseball question.

Speaker 2

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. 8 days ago, a team called the Texas Rangers won the World Series, best team in baseball.

Speaker 2

2 years ago, they were last in their division. They were one of the worst teams in baseball. Now they are the world champs. How did they do it? Same game, big turnaround.

Speaker 2

Well, They got a new coach, a little bit of gray hair there, lots of experience, kind of a no nonsense kind of guy. They got a few new players. They took some

Speaker 10

of the current

Speaker 2

players and put them on the field where they could succeed the most. What else? They created intense focus on the goal Of winning, a culture of winning and endless focus on the fundamentals. So what does any of this have to do with Suncor? Maybe nothing.

Speaker 2

But to our investors who have stayed the same, they've cheered us on, held on to their season tickets, 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.

Operator

Thank you.

Speaker 1

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

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

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