Cenovus Energy Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 26, 2023

There are 16 speakers on the call.

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Cenovus Energy's First Quarter Results. As a reminder, today's call is being recorded. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session.

Operator

Members of the investment community will have the opportunity to ask questions first. At the conclusion of that session, members of the media may then ask questions. Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of Cenovus Energy. I would now like to turn the conference over to Mr. Jason Abate, Senior Vice President, Investor Relations.

Operator

Please go ahead, Mr. Abate.

Speaker 1

Thank you, operator, and welcome, everyone, to Sunosi's 2023 First Quarter Results Conference Call. To the advisories located at the end of today's news release. These describe the forward looking information, non GAAP measures and oil and gas terms referred to today.

Speaker 2

To the operator. They also outline

Speaker 3

the risk factors and assumptions relevant to

Speaker 1

this discussion. Additional information is available in Sunosi's annual MD and A and our most recent AIF and Form 40 F. To the call. All figures are presented in Canadian dollars and before royalties unless otherwise stated. Alex Borbaix, our President and Chief Executive Officer will provide brief comments, then we'll take your questions.

Speaker 1

We ask that you hold off on any detailed modeling questions. You can follow-up on those directly with our Investor Relations team after the call. And please also keep to one question with a maximum of one follow-up. You're welcome to rejoin the queue for any follow-up questions you may have. Alex, please go ahead.

Speaker 1

Thanks, Jason, and good morning, everyone. As I do every quarter, I'm going

Speaker 4

to start this morning's call with our top priority, health and safety. The safe restart of the Superior and Toledo refineries is of the utmost to the Q4 conference call. And over the last few weeks, we've resumed operations at both refineries. On our Q4 conference to the call. We committed to start running crude at Superior in mid March, and we did that safely.

Speaker 4

The refinery is to the line of John. Currently running between 2,430,000 barrels a day and you can expect it to ramp up to full rates through the Q2.

Speaker 3

To the Q1.

Speaker 5

In Toledo, we successfully

Speaker 4

closed the transaction on February 28. We've restarted the smaller 30,000 barrel a day east side to the refinery and expect the larger Westside to be online in May, also ramping up to full rates through Q2. Both of these refineries are currently making on spec product. With the construction of Superior Now Complete and the restoration work of the impacted zone at Toledo Complete. We expect these assets to generate to the segment.

Speaker 4

Significantly improved operating margins through the quarter, approaching breakeven in June and achieving free cash flow by July. I'd like to acknowledge and thank all the teams involved in achieving these significant milestones. These startups were done safely and methodically, to everything we do. Our safety journey is never complete, and we look to continue elevating our performance. Turning to our operating results.

Speaker 4

This was a challenging to the quarter and to be blunt, not up to the standard we've set for ourselves at Cenovus. I want to address this upfront. In the U. S. Downstream, the ongoing costs of getting Toledo and Superior restarted impacted our margins.

Speaker 4

Because of our vertically integrated strategy, not having these refineries running at full rates while differentials widened as much as they did It was especially impactful on our corporate cash flows. Our non operated refineries Wood River and Borger

Speaker 6

to the Q1 of 2019. We ran

Speaker 3

below expectations during the

Speaker 4

quarter, which further impacted cash flow and earnings. This was mainly due to unplanned downtime at Wood River to the December incident, which led to significant costs associated with fulfilling obligations for finished product as well as the remediation work itself. Wood River is now back up and operational with the exception of some planned maintenance scheduled to be complete in the middle of May. Given the operational performance in U. S.

Speaker 4

Manufacturing so far this year, We've adjusted the throughput in our annual guidance down by 40,000 barrels per day at the midpoint, resulting in to full year throughput guidance for the downstream to deliver between 580,000 to 610,000 barrels per day. However, with the many significant milestones now achieved, we are paving a path to successfully deliver on our integrated strategy. We've also updated our annual production guidance for the Atlantic region, reducing it by 10,000 barrels a day. To We are taking a conservative view and have removed Terra Nova volumes from our 2023 guidance. Our full year guidance for upstream production to the Q1 of 2019,000 barrels equivalent per day.

Speaker 4

We continue to progress our strategy with conviction. Our management team is confident the plan will deliver in all areas of our business with the performance that you've come to expect of us and more importantly, the performance we expect of ourselves. We believe you will clearly see the strength of our operations to an integrated strategy in the back half of this year. Let me further speak to the actions we are taking as a company to improve our asset and financial performance. In the oil sands, production from Foster Creek and Christina Lake will benefit from 3 new pads starting up at each asset and contributing to higher production volumes in the 3rd and 4th quarters.

Speaker 4

At our Lloydminster thermals and Sunrise projects, we will continue to optimize our development and operating strategy to support improved production volumes. At our Lloyd Thermals, we have production solidly back over 1,000 barrels per day. While Sunrise will benefit from the first new well pad since 2017 when we start up a pad around the end of 20 to 23. Conventional continues to impress with steady production rates and strong cash flows even with AECO prices declining through the quarter. We have recently drilled some really prolific wells in the Wapiti area, which are testing at record rates.

Speaker 4

These were among the top to Alberta Gas wells in both January February, giving us further confidence in our future development plans. To Asia Pac continues to generate free cash flow and our Offshore segment as a whole contributed $300,000,000 in operating margin this quarter. Moving to our downstream operations, I want to reiterate what I previously mentioned. With Superior, Toledo and Wood River, We expect to see improvement on our overall throughput and utilization rates in Q2. The normalized margins and crack capture rates will become further evident in Q3.

Speaker 4

Though not as robust as previous quarters, we expect to see a strong market for refined products through the rest of the year and our U. S. Refining network will be in a great position to take advantage of this. Canadian manufacturing performed well with the Lloyd Refinery operating at a 99% utilization rate and the overall segment contributing over $260,000,000 to the Q1 of 2019. With the consistent high reliability of these assets, we expect to be able to take advantage of strong product pricing through the year and are well positioned should the heavy oil dips widen.

Speaker 4

Turning to our financial performance, our net debt increased this quarter as expected. This was mainly due to the cash tax payment of about $1,200,000,000 for taxes accrued from last year. Now that we are cash taxable in all jurisdictions, taxes will be paid on a quarterly basis going forward. The increase in net debt also reflects approximately $460,000,000 to close the Toledo deal And the first variable payment related to the Sunrise transaction. Given where we are today and assuming commodity prices remain around current levels, We expect net debt to fall below the $4,000,000,000 floor in the 4th quarter.

Speaker 4

Lastly, Consistent with our ongoing strategy and commitment to shareholders, our Board approved a 33% increase to the base dividend to $0.56 per share on an annual basis. This increase is a reflection of our commitment to assess the base dividend annually and provide our shareholders with a sustainable and growing dividend over time. This dividend as well as our sustaining capital is well covered in a US45 dollars per barrel to WTI Pricing Environment. Today's call is the last conference call I'll be leading for Synovus as I move to my new role as Executive Chair of our Board. You will be in John's steady hands for Q2.

Speaker 4

As he takes the helm, this company is positioned well for long term success, and I know that John will lead Cenovus successfully and continue to execute the company's long term strategic plan. The strategy we set at the beginning of my tenure in 2017 was really simple, to the Q1 of 2019. Optimize our cost structure, strengthen the balance sheet and ensure market access for our upstream production. I can confidently say that we have delivered on all three and then some. And I would like to thank everyone who made it possible.

Speaker 4

Our staff and management team have been remarkable, And I am truly excited to see John lead this company forward. With that, we're happy to take any questions you may have.

Operator

Ladies and gentlemen. We will now begin the question and answer session and go to our first caller, Dennis Fong with CIBC World Markets.

Speaker 7

Hi, good morning and thank you for taking my questions. Maybe just quickly just want to say, I guess, again, congratulations to John and Alex for moving into your new roles later today. The first question I have maybe directed towards John. Just given your background and experience in the refining sector, I was hoping to maybe get your take and even maybe some examples of how Cenovus plans to change Or improve on the maintenance of the refining assets versus maybe the previous operators, Especially now that they're kind of operated or ramping up, kind of throughout the portfolio.

Speaker 8

Yes, sure. And thanks, Dennis, for those kind words and your question. When I kind of look at our portfolio, We're going to be running a portfolio of 5 operated refineries with 2 non operated refineries in Wood River border. And if you kind of look at the trajectory of the performance of the assets that we've had under our stewardship over the past to a couple of years since we purchased Husky. I think you'll see that the Canadian assets have operated really quite well and that we get high levels of utilization to the reliability out of them.

Speaker 8

And similarly, there's been a step change in Lima. And I think that that is really credit to the work that Keith and the group of people that we put into our manufacturing business have been able to do in relatively short order. So my expectation is that when we bring up Superior in Lima, Not only will we work very quickly sorry Superior in Toledo, not only will we work very quickly to optimize them commercially, But you'll see the same kind of operating performance with the people that we brought in from outside as well as the people that we inherited from the Husky acquisition to bring in the same kind of maintenance processes and reliability processes there. But we have a high expectation for what we're going to get out of those assets and a high expectation internally of how they're going to run. And I think that that comes out of a level of confidence that we have from the assets that we've been running for the last couple of years already.

Speaker 7

Great, great. I appreciate that color. My second question here is really around the I guess the current balance of upstream versus downstream within the portfolio. As we kind of look out over the next 12 to 18 months, there is the potential for additional egress, especially with to the Trans Mountain expansion pipeline eventually coming online. How do you look at the balanced portfolio, between the upstream volumes and

Speaker 3

your downstream refining capacity? And do you view that to be what we're seeing

Speaker 7

in the to stream refining capacity. And do you view that to be, we'll call it, I don't want to say necessary, but How do you think about balancing those two items as you move forward, especially just given the nature of the assets and the availability of to Accessing Global Markets.

Speaker 4

Hey, Dennis, it's Alex. I'll maybe just give a couple of comments and then I'll pass over to John. But I would say right now, we feel pretty comfortable with the portfolio we have and the mix we have between upstream and downstream. You've heard us talk in the past about our plans to modestly grow our upstream, but we think we have a really good portfolio of downstream assets that are to largely directly connected, and have the ability to run our heavy oil molecules. And we'll always be opportunistic.

Speaker 4

And If something really compelling came forward, we'd obviously have to take a look at it. But I think right now, we feel pretty good. And maybe I'll pass it over to John.

Speaker 8

Yes. Maybe I'll just add a couple of points on to that, Dennis, because it really cuts to the heart of everything we're trying to do here in terms of creating that heavy oil value chain. But if you think about what we've created here, we've built an upstream heavy oil portfolio that produces about 800,000 barrels a day of heavy oil blend. And once we get Superior and Toledo up and running, we're going to have takeaway capacity for about 600,000 barrels Of that heavy oil, so we'll eliminate the location risk on that. And then within the portfolio, we can consume about 400,000 barrels to the day of heavy.

Speaker 8

So we really like the way that we put this together and we've been able to kind of mitigate the large portion of the location in heavy oil to differentials that we see in the portfolio. And then on top of that, we have about 740,000 barrels a day of refining capacity, which We get the crack value on top of it. So in terms of what we built, getting these 2 refineries up really completes to the asset portfolio that we envisioned when we bought Husky. And we think we built a pretty powerful heavy oil value chain with the assets that we've got. So I don't think there's anything that's really missing from that, that we need to kind of look at above and beyond it today.

Speaker 8

But as Alex mentioned, we do have a desire to incrementally grow the upstream and we'll have to look at the downstream in concert with that. But today, we feel like we've got a really nice moss

Speaker 3

Trevor. Great.

Speaker 7

Appreciate you answering my questions. I'll turn it back. Thank you.

Speaker 4

Thanks, Dennis.

Operator

Thank you. Next, we'll go to Menno Holshof with TD Securities.

Speaker 9

Good morning, everyone, and congrats to the both of you on your new roles. Maybe I'll just follow-up on Dennis' to downstream questions. Are there any specific learnings that have come out of the last couple of quarters with U. S. Refining that you can speak to today and give you more confidence going forward.

Speaker 10

Hey, Manon, it's Keith. What I would say is, maybe we'll just take, build on what John said. We're pretty happy with the improvements to the line of Lima. Lima performed in 2022 producing almost $1,000,000,000 of op margin through the year. Safety performance was down at kind of world class performance around 0.1 on a trip.

Speaker 10

Really happy with kind of the improvements we're seeing there. Obviously, we're not overly happy with kind of the restart to both Superior and Toledo and working very diligently on that. Maybe I'll just hit on each of those separately on Toledo. On March 1, we took over operatorship. The refinery wasn't running at the time.

Speaker 10

We basically performed a couple of additional assessments prior to restarting the refinery. We've completed the repairs associated with to the fire impacted area back in September. We then restarted the east side of the refinery, which is about 30,000 barrels a day. We have that lined out and producing products. And now we're turning our focus to the larger part of the asset, which is the additional 120,000 barrels a day, Which we'll work to bring on through May and ramp up to full rates by the end of the quarter.

Speaker 10

Obviously, Through this period of time when you're not operating, you have a pretty significant impact on free funds flow. You're consuming a lot of OpEx, but you're not generating any revenue. We do look to kind of Q3 being a really transformational time for the Toledo refinery. On Superior, we are demobilizing the construction project. It's essentially complete.

Speaker 10

Teams are ramping down and we're actively working on the commissioning of the FCC. We were able to commission and start up the crude unit. So we're currently processing in the 20,000 to 30,000 barrels a day of crude on the crude unit And producing finished product out of that asset. And then we'll quickly move over to the FCC and start And similar to Toledo, it's been consuming both capital and OpEx in the Q1 without generating any revenue. And so looking forward to kind of the April, May timeframe to get that asset up fully running and into the to the end of June time period to start realizing the full value of those two assets.

Speaker 10

So a lot of focus on safely getting these two assets back up and running. They do complete the heavy oil value chain that John alluded to and are a big part of the ongoing strategy. And we're happy with the teams we have in place And we're confident in our capability to safely restart and run these reliably.

Speaker 4

Yes. Menno, I would just I agree with all of Keith's comments. And I would just observe that for the various reasons we've talked about, particularly with respect to Superior and Toledo. We have not been in a position to demonstrate to the full capability of this machine when we have all of our downstream assets running and our upstream assets to And the incredible impact that having all of that together gives to our operating margin. And you heard me say in my prepared comments, I think everybody should really look forward to the second half of the year because I believe we will see the full value of that engine operating both downstream and stream.

Speaker 4

And I think we're all very happy to be getting through this construction phase and moving into that, Bringing everything online and getting everything lined out.

Speaker 9

Thank you. That's very helpful. Maybe I'll Flip over to Upstream and Sunrise in particular, I'm just eyeballing the slide here. It looks like the incremental 15,000 to 20,000 barrels per day of new capacity is slated for give or take the middle of next year. Can you just remind us of the scope of work for that incremental capacity and maybe even the capital efficiency.

Speaker 9

And if we take it to a higher level, is there anything jumping out in terms of best practices from to Foster Creek and Christina Lake currently being applied at Sunrise.

Speaker 2

Yes. Hi, Nourd Ramsey here. Yes. I mean, not only this year, our production at Sunrise is flat, and there haven't been any new pads drilled since 2017. So what we have is 3 pads actually being developed at the moment.

Speaker 2

And as you said, we plan to have production that beamed up really early next year as we start to actually bring on those pads. What we have been doing is applying our Foster Creek and Christina Lake to Subsurface Strategies. And what we've been doing are drilling longer wells within the reservoir And actually been able to deploy steam more efficiently across the reservoir as we do that. So our SOR, so our steam oil ratio, Which is one of the measures of our operating costs. We see that continuously being driven down the way.

Speaker 2

And similarly, we're applying our to our low cost strategies from an operating viewpoint across the surface facilities, and we see our OpEx coming down as we do this. So going forward, as we drill more wells into the reservoir, we actually plan to get to nameplate within the next 18 months. And from there, we're actually looking at debottlenecking going forward.

Speaker 9

Thanks, Noreen. I'll turn it back.

Speaker 4

Thanks, Menno.

Operator

And moving on, we'll go to Greg Pardy with RBC Capital Markets.

Speaker 6

Thanks. Good morning and indeed Congratulations on the moves to both of you. A lot of focus on the U. S. And I recognize why, Then you've got this great asset called the Lloydminster Upgrader.

Speaker 6

And I wonder whether that one holds further promise for you either in reducing your condensate costs on a go forward basis or what have you. But I'm just wondering what the perhaps the medium to longer term plans might be for Lloydminster?

Speaker 10

Hey, Greg, it's Keith. Yes, great question. We're obviously spending a fair amount of time looking at the opportunities to integrate to our world class upstream assets with the Lloydminster area and complex. We actually are advancing At the refinery, the bottleneck opportunity right now and that'll expand the capacity of the refinery. We're also looking at a second debottleneck that will essentially increase throughput by almost 60% over the next few years at the refinery.

Speaker 10

The refinery is also a feed into our upgrader. So we're pretty excited about, to your point, being able to bring over to some of our higher condensate upstream dilbit and processing at this asset because then we can recycle that condensate, but also looking at the upgrader and pulling out additional diesel production out of the asset as we process more dilbit through the combined infrastructure that we have there. So pretty exciting opportunities that we're seeing there, A robust list of opportunities that we're progressing and ongoing debottlenecking and improvement in those assets.

Speaker 4

And Greg, it's Alex. I mean, I know this kind of goes without saying, but all of those projects that Keith is talking about, As always with this company, we'll return their cost of capital at a $45 WTI price environment.

Speaker 6

Okay, understood. Thanks. I'll see you on that one. And relatively sorry, I missed that, Keith.

Speaker 10

Yes. I was just going to say relatively low capital to to kind of get those debottlenecks done too.

Speaker 6

Okay. Okay, got it. No, thanks for that. And then this is if I look at your Q1, You built 12,500 barrels a day in terms of inventory. AECO prices were high, but they dropped significantly.

Speaker 6

And then the timing on your condensate purchases would have meant that your blending costs were that much higher and so your dry bid realizations were that much lower. Is it fair to say though that as you go through the second As we go through the Q2 here that all of those headwinds are essentially turning into tailwinds, whether it's operating costs or even from the standpoint of realizations?

Speaker 10

Yes, Greg, I think a few things. We will be building a little bit of inventory as we and we're seeing it already as we start the refineries in that infrastructure. We were able to send some additional barrels down to the Gulf Coast to capture some additional margin that we saw kind of coming out of the December January time periods when differentials were wider. But to your point, differentials have now really narrowed in and the spread between condensate and WCS has also narrowed. All of those are now moving over into tailwinds and we've seen the realizations significantly improve over the past couple of months.

Speaker 8

Yes. And Greg, just on the condensate side, I mean, one of the things that we've seen through the Q1 and continuing is condensate on the Gulf Coast has been really discounted relative to Fort Saskatchewan. So we've been taking full advantage of our assets, to bring condensate up to the Gulf Coast, into Alberta to meet our condensate demand with our heavy oil assets as well. So those arbs are still wide open for us.

Speaker 6

Okay, understood. Thanks again.

Speaker 1

No worries.

Operator

To the question and answer queue. And next we'll go to Neil Mehta with Goldman Sachs.

Speaker 3

Yes. Congrats, John, and congrats, Alex, on both of your new roles and wish you lots of luck. My first question is around the net debt levels in the quarter were $6,600,000,000 But I think in your script, you talked about how you You still have a lot of confidence in being able to get to under $4,000,000,000 by the Q4. Can you just kind of walk through some of the assumptions? I would imagine you'll have to some working capital release that should help in addition to the organic free cash flow as refining ramps, but give the market a little more confidence to your ability to achieve that sub-four billion dollars levels.

Speaker 11

Yes, Neil, it's Jeff here and I'll give some color on that. I wouldn't expect a to significant working capital release. That being said, as you did see the build this quarter and that was really driven as we talked about the cash tax to the payment of $1,200,000,000 But that's really underpinned as Keith talked about is our organic cash flow. We do as Nouri talked about, we have pads coming on here At the end of the year back half of the year, we also have the ramp up in Superior and Toledo. And it's really that organic cash flow that will be Having in the generation, we're not relying on significant working capital releases.

Speaker 11

So it is the operations now.

Speaker 3

And remind us the commodity price assumptions that are embedded in getting to that sub $4,000,000,000 numbers.

Speaker 11

Yes. I think we're around $80,000,000 yes. Go ahead.

Speaker 5

No, please. No, please go ahead.

Speaker 11

Yes. No, so the commodity price assumptions you're talking about there, a $75 ish WTI and a Chicago crack of $28 pre rinse and you're probably in around the $20,000,000 $21 mark for the crack go forward for the residual part of the year.

Operator

Okay. That's great. And then

Speaker 3

the follow-up is, as you get to that sub-four billion dollars level and given the stock has underperformed to start the year, how do you think about to the return of capital dynamics and how do you take advantage of most of the volatility in the stock?

Speaker 4

Well, hey, Neil, it's Alex. And I've said this many times and I think this view is shared by the management team and the Board. But all things being equal, we do prefer share buybacks to the variable dividends. And right now at this kind of share price, We are well below our target level for share buybacks And I would we would be alive to the opportunity that would present as long as we're at this kind of share price level. I think we might have lost now.

Operator

Mr. Mehta. Was there anything further?

Speaker 3

Yes, very clear. Thank you.

Operator

Thank you. And moving on, we'll go to John Royall with JPMorgan.

Speaker 12

Hi, good morning. Thanks for taking my question. So my first question is just on the variable payments to BP on the Sunrise acquisition. Can you remind us how those work and what are the expectations going forward. I know it's potential for another $600,000,000 on the variable piece.

Speaker 12

How much do you ultimately expect to pay in the current environment?

Speaker 13

Hey, John, it's Cam. So The way that the transaction was structured is, we would pay every quarter based on where WCS pricing is Above $52 for every quarter. So and effectively take the price difference to $52 and where WCS is and multiply it by $2,800,000

Speaker 7

So

Speaker 13

that Payment does not have a quarterly cap, but it does have an aggregate cap of $500,000,000 And so you should expect there'll be payments Under those terms of those agreements until we hit that $500,000,000 there's also a term. So 2 years After 2 years, the payments stop irrespective of whether we get to that cap or not.

Speaker 12

Okay. Thank you. And then maybe you can speak to just if you have any sort of broad expectations for There are a lot of moving pieces that maybe where you think refinery utilizations will end up in 2Q. And then Another thing we noticed is that the Wood River went into turnaround for 2Q and there was previously no maintenance in the schedule for 2Q. Was this just pushed out from 1Q or is it Incremental to overall guidance.

Speaker 10

Hey, John, it's Keith. Yes, so on utilizations, As we kind of alluded to, the Canadian part of the business is running well. And in the U. S, we would expect utilizations to continue to improve through the quarter And then we have full utilizations in Q3. On Wood River, you're spot on.

Speaker 10

There was a to planned turnaround early in Q1 that got deferred to Q2 as they repaired and restarted from the incident back in December. All of that is progressing well. That should wrap up here towards mid May and then to all of our joint venture assets will be running through the remainder of the Q2 and into the Q3 as well.

Speaker 3

Thank you.

Speaker 4

Thanks,

Operator

to questions. We'll pause for just a moment. And we do have a follow-up from Dennis Fong with CIBC World Markets.

Speaker 7

Hi. Thanks for taking my follow-up. Just as a out of curiosity, now that you're operating, obviously, the to 3 refining assets in the U. S. Can you maybe make a comment on how you plan?

Speaker 7

And I know RINs costs to Have kind of decreased a little bit through the start of this year, but I know that happened to be kind of maybe a pinch point in years prior. How do you plan on managing, RVO requirements as well as RINs costs within your refining assets now that you operate to the refineries. Thanks.

Speaker 10

Hey, Dennis, Keith here. Obviously, we're live to the fact of our blending requirements And we are a participant obviously in the market and kind of ratably offset our requirements kind of quarterly. Obviously, we are continuing to look at are there any additional opportunities to further impact that. But The way our assets are structured and where they're located, there's no evident easy opportunities to do that. So We'll continue to look at it, but right now, we're just ratably offsetting those through the quarters.

Speaker 8

Yes. Dennis, it's John. I mean that's the important piece that Keith just highlighted is we ratably buy and we don't really take a position on rents outside of just managing that RVO requirement.

Speaker 7

Great. Thank you.

Operator

To join the queue. And we'll next go to Chris Varko with Calgary Herald.

Speaker 14

Hi. This is a question for either John or Alex. We heard just a couple of weeks ago that the Trans Mountain costs to complete that project have now gone up to about $30,900,000,000 I'm wondering what kind of impact that's going to have upon your tolls on that project and the economics of it? And can you remind us how many barrels you'll be moving on and once the expansion is completed?

Speaker 4

Hey, Chris. It's Alex. We all of the shippers, we obviously all have long term shipping agreements that provide for some level of sharing. I'm not sure that number or that formula is public. But what I would tell you Is that even at the price we're at now, that this still represents to a good egress asset for us.

Speaker 4

And I think it's really going to help the situation in the province over the long term.

Speaker 14

Just on a separate topic, we saw the federal budget come out a couple of weeks ago with to some changes to respond to the U. S. IRA. I'm wondering whether you thought those changes were sufficient enough for Pathways and for your company to move ahead on your carbon capture projects and some of your other decarbonization projects.

Speaker 4

Chris, this is something I've said many times. I mean, Look, we appreciate the words that the government had in the budget, for example, about the investment tax credit. We are right now in an ongoing discussion with the federal government and the provincial government. It is the ITC was a welcome addition. We very much appreciate to the government stepping out to help us in that way.

Speaker 4

But I think at the end of the day, We are going to need more support from governments. This is an incredibly Just an incredible undertaking that the industry is proposing to do to reduce and ultimately move towards net 0 by 2,050. There's going to be we estimate just for the oil sands that's going to be a $75,000,000,000 cost, But you have to put that against the value that this industry brings to Alberta, brings to the country. I think the last I saw we employ directly or indirectly about 500,000 workers in this country. And just this year, we're going to pay somewhere in the range of $50,000,000,000 in taxes and royalties to all level of governments.

Speaker 4

And we're going to do our part. We are going to fund tens of 1,000,000,000 of dollars of this transition, to But we are going to need more help to do it, especially if we have any kind of hope to remain competitive with other oil producing jurisdictions around the world that I would point out are largely doing nothing to address their emissions.

Speaker 14

Finally, I just wanted to ask you about we're talking about the federal response, but I'm wondering where the discussions are sitting right now with the province. They've had some discussion about maybe expanding their APIP grant to include CCUS. Is that enough or are you looking for something else as it relates the provincial government's involvement.

Speaker 4

I mean, as always, the devil is in the details, Chris. But My we are well in continuing in discussions with the Alberta government. I think those Discussions have been productive. I think both the industry and government Appreciates what we're trying to achieve, and I think they're going in the right direction. And there's many ways The province could support this work we're trying to do.

Speaker 4

The APIB idea is one of them, but I'd probably just hold off On being specific about it, till we have more discussions with the province and the feds.

Speaker 14

Thank you.

Speaker 4

No worries. Thanks, Chris.

Operator

And moving on, we'll go to Peter to Cassie with Duluth News Tribune.

Speaker 15

Well, congratulations gentlemen on finishing work on the refinery in Superior. I'm curious, you said I think that you're running about 20000 to 30000 gallons of crude through the facility right now. Can you talk a little bit about what the throughput will look like when you're at full capacity? And when you expect to reach that, if that's likely to be 2nd or 3rd quarter.

Speaker 4

Hey, Peter, it's Alex Borbe. That was those were barrels, not gallons. But I think what I'll do is I'll turn no worries. I'll turn you over to Keith Chaisson, who is our EVP Downstream, and he can give you the detail.

Speaker 10

Hey, Peter. It's pretty exciting to talk about this asset. We've been since we've taken over the asset in January 2021, we've been in the middle of a to construction project and rebuilding and it's nice to be coming out of the back end of that. I'd tell you that our staff that have been through this to the full period of time, are really excited to restart the refinery. So through this to the next month we've been able to bring on crude to the tune of 24,000, 25,000 barrels a day and ramping to 30,000 barrels a day.

Speaker 10

And then we will start commissioning, the FCC imminently here to bring on the remainder, which She'll take it up to its nameplate capacity of 49,000 barrels a day. The teams have spent a lot of time on training, community involvement and making sure everybody is ready for this restart. So pretty exciting times. And Cenovus may not be that well known in the area yet, But we're working on building our reputation. In Canada, we have a reputation as world class operators And we are definitely planning to replicate that south of the border at our U.

Speaker 10

S. Assets, including Superior.

Speaker 15

Can you tell me how that capacity, the 49,000 barrels a day compares to the facility you inherited before the fire?

Speaker 10

Yes. It's roughly similar, Peter. The only difference is prior to the incident, they were in batch operations. So You'd run a batch and then slow down and change over your crude slate. We've made a lot of improvements In the control systems and the equipment to be able to now run continuously.

Speaker 10

So you should see us having higher utilization rates because of that at a similar nameplate capacity.

Speaker 15

I understand the workforce is also growing. It has been about 200 people. I think you're looking at roughly 350 with this new facility. Can you talk a little bit about why this is more labor intensive? Or is it about safety or I'm asking a number of factors.

Speaker 10

Yes. I think Peter, when you're quoting that type of number, you're also including some of the contract to the workforce that we have and we're also planning on growing our asphalt business in the region. And because we're running continuously, we'll be producing more products. So it just requires a little bit larger of a workforce. And I would tell you as we onboard the people, they've been really excited to Join the company and get ready for safe reliable operations.

Speaker 3

Thank you.

Speaker 4

Thanks, Peter.

Operator

And next we'll go to Patrick Butler with Radio Canada.

Speaker 5

Hi. You mentioned you're taking a conservative view on the Terra Nova and removing Terra Nova from your corporate guidance. Why is that? And could you provide the current timeline for return to production at Terra Nova? Has that changed?

Speaker 2

Hi, it's Nader Ramsey here. I mean, a lot of these questions you probably have to direct to the operator. The operators informed us that they've delayed taking the facility back to Gulfshore. We're continuing some maintenance work at Boulam, which is in Newfoundland. So I'd just refer you to the operator in this case.

Speaker 2

They know They have the information on when they plan to restart.

Speaker 5

And could you also provide an update on to West White Rose. I know there's been a major pour started recently. Can you talk about the operations in our Genshin right now?

Speaker 2

Yes. We're actually very excited about it. There's 2 big pieces of work on West White Rose at the moment. We have On each shift, we have, I mean, literally 1,000 people on 3 shifts working in Agencia, We were actually doing a pour, which will complete the bulk of the gravity based structure. That will take 60 days and notionally in the next 40 days or so that part will be finished.

Speaker 2

The other thing is we've completed and putting together the topsides facilities which are down in Texas. So the project is coming together well, but there's obviously a long way to go before we finally see safe production.

Speaker 5

All right. Thank you. And can I just ask who is speaking just now?

Speaker 2

Sorry, Nouri Ramzi. I run the upstream part of our business.

Speaker 11

Thank you.

Speaker 2

Thanks, Patrick.

Speaker 4

To the operator. Well, thanks very much, operator. And I would encourage everyone who's interested to tune into our Annual Meeting of Shareholders at 11 this morning Calgary time. You can find a link to access the call on our website. With that, our call is now complete.

Speaker 4

Thanks for joining us and have a great day.

Speaker 3

To the operator.

Operator

Thank you. And that does conclude today's call. We'd like to thank everyone for their participation. You may now disconnect.

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Earnings Conference Call
Cenovus Energy Q1 2023
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