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Executives

John Rogers - VP of IR

Rick George - President and CEO

Bart Demosky - CFO

Analysts

Andrew Fairbanks - Banc of America/Merrill Lynch

Arjun Murti - Goldman Sachs

Andrew Potter - UBS Securities

Paul Cheng - Barclays Capital

Amir Arif - Stifel

Greg Pardy - RBC

Carrie Tait - The National Post

Justin Amoah - Argus Media

Barbara Betanski - UBS Global Asset Management

Nathan Vanderklippe - The Globe and Mail

Suncor Energy Inc. (SU) Q4 2009 Earnings Call February 2, 2010 9:30 AM ET

Operator

Good morning ladies and gentlemen and welcome to Suncor's fourth quarter and year end conference call and webcast. I would now like to turn the call over to Mr. John Rogers, Vice President Investor Relations. Mr. Rogers please go ahead.

John Rogers

Thanks Joe and good morning everyone and thank you for listening in to our fourth quarter conference call. I have a large group with me this morning Rick George, our President and CEO; Steve Williams, our Chief Operating Officer; Bart Demosky, our CFO; off course Helen Kelly from the Investor Relations Department; Maureen Cormier, our VP Controller; and [Joleen] from the Controller Department.

We will follow the normal format. Rick will give his commentary on the quarter. Bart will give a bit of an update on how is that financially we are doing, I'll talk a bit about the outlook which was included in the quarterly release and then we will open it up for question. So Rick wanted to start it off.

Rick George

John, thank you very much and good morning everyone. I am going to talk this morning of impairments the way I think about what Suncor is. Currently it's kind of in three pieces. 2009 was really about getting the merger done, 2010 is around, our whole issue is around, divestments around driving efficiencies in this company, its also around continuing to work hard and delivering on operational excellence and as you are getting ready for 2011, 12 in terms of growth. And so what I m going to talk about little bit today is those three segments so just starting of with 2009 and it was really about pretty within Suncor, particularly in the second half of the year. And again 2010 will be about realizing the benefits of that.

So you will remember a year-ago this time we faced one of the more challenging economic environments of our current careers what we responded that it would look like most of the industry pulled back on spending in terms of both capital and expense. We didn't take advantage of Contango at that point in terms of Suncor through 2009 and well above spot prices to try to make sure we figure the balance sheet and obviously crude did recover in 2009 and the hedge did negatively impact us later in the year. On the other hand it did what it was supposed to do and that is protect the balance sheet during those kind of very, very uncertain times a year-ago.

Then in March of last year, we announced the merger of Petro-Canada and I have been asked a few times lately if I would do that deal today, given what I know on the rear view mirror some nine months, and the answer would be absolutely yes. So it's like where this deal leaves us in terms of a company. And I continue to see many benefits including the fact that it gives us a very solid core of downstream integration assets that integrate back with our oil sands operation, and ones that are definitely keepers even in the environment here where we continue to see shut downs at refineries in North America and we'll see some in Europe as well.

The merger also has given us financial strength and the cash flow that has and will spin-off from the merged assets means that we have the strength, number one but also that lowered our average cost production of the merged oil assets, in oil production and across the entire company to about $23, which will help us in terms of the ability to handle low parts of the cycle in terms of the commodity prices in the future. So you can expect us to hedge a lot less than you've seen us in the past.

We do have a few, there are very small amount on hedges in 2010, and then after that and so do not expect to see do a lot of hedging from here. I we will write this out. The natural gas business after divestments this year, we think would be a solid foundation which will give us a hedge, a natural hedge against the gas consumption we have in our other businesses here particularly in Alberta.

The synergy value that we've announced initially was some $300 million; we got that to $400 million and still expect to get a $1 billion a year in capital savings for a year on a go-forward basis here. All of that looks very solid to me. So if you think about we announced this in March, we actually then spent about a 120 days which is a record time in terms of getting the deal done. We actually got shareholder approval from both of the shareholders overwhelmingly; we closed the deal on August 1, which isn't that long ago and of course the volume after 60 days were really about getting the organization set. It is a strategy well known by both the employees, importantly management team and all of the outside stakeholders as well. We also during the final 90 days of the year put that strategy in place started to have employees leave the organization.

What I would say though is the work is far from over, a lot of 2010 is really about how we move this company to be the efficient current company that we want to come as we then get a way to ramp up growth.

So, before I move to 2010 on the more solid basis, lets talk about the fourth quarter and certainly we have made some very significant strides this year in the implementation of operational excellence, safety, reliability cost, environmental performance, all the indicators and we market this in great detail outlook to be improving on a continues basis. Higher levels of production and lower costs were certainly evidenced to much of the year. And we have taken some very major steps on the environmental performance side, notably with the new tailings technology we announced in the fourth quarter where we expect on a longer term basis to see huge environmental and cost benefits.

Steve Williams, our Chief Operating Officer and all of the employees of our operating groups have and continue on a relentless pursuit of operational excellence. Now we do have the one incident on updated number two in the fourth quarter, obviously we are very disciplined by that and are not making excuses for that.

I'll say that we had our whole number of employees and contractors who have worked tirelessly over the holiday season in January through what was some brutal winter temperatures and I am happy to say that all the repairs have finished, we are in startup mode and these is in the unit as of this morning. So we feel good about giving that unit back on line so it did have a big impact on the fourth quarter its had a big impact on us in terms of our feelings about where we are we know operational instances not a point destination but a journey we still feel like we are on a very strong journey to deliver that. So there are a number of other things in the fourth quarter in terms of results and adjustments and I think part of this is the noise around the merger Bart is going to go through that in some detail with you in terms of what that is. And so [and you get] enough comments from the around fourth quarter at least at the moment until we get Q&A.

Now 2010 is about completing a transition of the company and realizing the benefits of the merger that we continue to work hard organizationally on realizing the synergies by the end of 2010 I expect we will realize the continuous yearly reduction of our overhead and operating cost of some $400 million per year. And driving efficiency and effectiveness is obviously a big part of that equation as I mentioned earlier we also expect fully to get a $1 billion per year of capital cost savings as well.

So the one thing I would say is that it is obvious that divestments are a big piece of work in 2010, the natural gas divestments are getting a high level of interest from potential buyers and not surprising these are good assets but don't put Suncor in terms of its current strategy or our key component of our current size, so but we are seeing a good take up in terms of interest in those and we though that we did announce that we sold the Colorado US National gas assets, we are also getting a lot interest in some of the other packages we have out there. So from my view point I do not see any difficulties in terms and we are very much on target in terms of reaching our objective of $1.5 billion to $2 billion divestments of North American gas assets by the end of this year.

In addition, we should be always [have to loose] on our Trinidad & Tobago assets, and these are gas assets that just don't fit us long-term, they are a good assets, small but don't fit us. And we are also giving lots of interest in our non-core North Sea assets. Overall, divestments are going very well. from that spring down base we begin to implement our strategy of growing oil sands by some 10% to 12% per year which will drive an overall company growth rate of 7% to 8% through 2020. So you got to look at 2010 as a year which we have build in a solid foundation in the base which we are going to drive this company forward.

So one of the first part is to go with Firebag 3 construction is progressing as we speak and we anticipate seeing in early 2011 so just a little over year from today. Millennium Naptha Unit which is a project that we have shut down in the first part of 2009, has restarted this well that project will be completed again in early 2011. The other things that I have note on other projects that we have underway is the Syrian gas project in our gas field that will be on stream in the second quarter. We expected to be on stream with second quarter of 2010 and our doubling the size of our ethanol plant in Ontario should be completed on stream about this time next year as well. So we have a number of projects in place as well as the planning around where we go from there in terms of particularly well sense growth in 2011, 2012.

Now one of the reasons in some of the forecast that you see on the look forward is 2010 is certainly a big year for turnarounds. In the international offshore business we have big turnarounds in the East Coast and on Buzzard in the North Sea. We have turnarounds in the upgrader number two in oilsands and a very big year in terms of turnarounds at all four of our refineries and now that's an unusual year. It's just a coincidence. We will get this spaced out a little bit more evenly on a go forward basis. And again as prior discounts, some of the fundamentals that we got to get straightened in terms of this new company.

That pretty much sums up 2010. And I do expect some noise around earnings in the first quarter or two here of 2010 as we go though divestments and as we work our way through theses assets. The financials are going to get much stronger in the third and the fourth quarter here. We should be through most of those turnarounds. Most of the one time merger costs will be behind us and then we can look forward from there in terms of where we go.

We will be making decisions later this year on what follows Firebag 4. So after 3 we will go to 4. We're actually doing the engineering work as we speak and so as a matter, we haven't running out the exact timing of 4 startup, but yes there is a secret to this. We continue to work hard on a number of projects that includes Fort Hills, Firebag 5 and 6. We're also looking at Fort McKay expansion and even looking at the Lewis lease, which we have environmental approvals for development. So the good news is we have environment approvals for many projects already in place. It's a matter of picking which ones are best for us on a go-forward basis.

So, as the world continues to dig its way out of this economic slowdown and I think at some point the market will turn its to dealing in oil resources and certainly I see Canadian oil sands at the center of that future development in terms of what resources will be brought on. It's a very large resource in a secured place in the world and we are demonstrating, have demonstrated and will continue to demonstrate a continuous record of environmental performance. That's our job for sure.

So I do like our position, it is up to us to execute, serving the entire organization here at fields like that. I know that the [aims] that we had here in middle of December is certainly a bit of a setback for us but I see it as a bump along the road that we're going to be able to recover from to keep moving forward.

So that was really my comments, Bart over to you to talk a little bit more about the financials.

Bart Demosky

Thanks, Rick and good morning everyone. Our Q4 certainly was a milestone quarter for Suncor and its marks the first full quarter of validated financial results post merger for the company. So that was obviously very exciting for us.

As I look at the quarter with financials though, I think as Rick mentioned, we're not happy with the results achieved. A couple of comments on that, just considering the impact on productions on the upgrade of fire oil sands and some of the tail end turnaround work in our offshore assets. As well as a number of one-time accounting adjustments for this quarter all of which were related to the merger which included adjustments to fair market value for some of our assets, a couple of dry holes and as well as adjustments to royalties relating to prior periods. Adding that all up certainly our operating earnings could have been higher. A lot of that though stems from our legacy assets and programs so we do not expect to see adjustments of the same order of magnitude in the future.

As Rick mentioned, the numbers this quarter are impacted at the upgrade of fire at oil sands. We will continue to see the impact of this in Q1 on our results as we absorb the impact of lost production in January and the cost to repair the damage and I just want to touch on that briefly. The cost to repair the damage are not significant. We're estimating at about $60 million. We are in the process now of starting to work through the insurance claims for both property damage and business interruption and I would expect there would payouts on both fronts but not likely until the second or third quarter. So we are going to have a bit of a mismatch in terms of when we have cash going out of the door with cash coming in.

Having said all of that, we are where we are and all of the things being equal; I know we are headed in the right direction. So although this quarter was certainly a challenging one financially, I did see a number of positives and I just want to touch on a couple of those. Firstly if we look at November as a standalone month both operationally and financially it was very strong. It was a month in which we didn't have any turnarounds asset sales or merger related costs of really any magnitude and we generated very strong results. So looking at that I've seen that potential the organization and I am quite excited about it.

Second, the significant crude price hedge that we had on in 2009 has now rolled off. We do have about 50,000 barrels a day in 2010 of [colors] so there shouldn't be as much of an impact on cash certainly going forward and as Rick and I have both said, we're not anticipating that we're going need to be putting further strategic hedges ongoing for given our much lower cost base and the ability that gives us to withstand any kind of lower end commodity prices during the cycle.

Looking forward, there are going to be a number of challenges in 2010 primarily in first half. As Rick said, we got major turnarounds at a considerable number of our larger up stream assets. On the asset sale side, we are anticipating selling about 75,000 barrel a day equivalent from our upstream portfolio during 2010. Of those divestiture, the large portfolio in the first half, so that will impact our earnings and cash flows on a go forward basis and as well there is going to be continued merger related costs through the year.

Once we're through that merger integration work and divestiture work flow, again primarily in the first half, I think we're really going to be in a position to start achieving and seeing the kind of financial results that the organization is capable of.

A brief comment on synergies. We do expect the fourth quarter of 2010, by then we will have in place annual savings to run-rate of $400 million and it does appear to be more upside to that number. By the end of 2010, I am expecting that the synergy savings on the operating side will have started to exceed the merger cost. So going into 2011, we should see a positive net run-rate for Suncor on synergies. So that's our plan there.

And as Rick mentioned, the $1 billion per year in capital synergy is a very solid number. So all told, if commodity prices hold this year and we get the performance that we're anticipating out of the business and the asset sales are completed and I do still expect we'll be in a position to get our debt paid down towards the $10 billion range by the end of 2010, and that being the case in 2011, that's when we can start to, well the board can start to consider a dividend increases going forward. So those are the financial objectives for 2010 and a bit overview financially where we were in Q4. With that all, I'll turn it over to John. John?

John Rogers

Just a few comments on the outlook. It is in the quarterly release. The total production, the 644 certainly reflects two things primarily the turnarounds, during the year almost all our upstream assets and downstream assets, but our upstream assets second in production are going to go through major turnarounds during 2010 and that does reflect that.

Many of you have asked what we would estimate to be the impact of the divestitures that's clearly set out for you about 75,000 so that 644 does not include any divestitures and that we will actually update that number as we go through the year and give you a better idea where that looks. Oil sands of 300,000 it does reflect the 40 day turnaround for you so we are expecting 300,000 barrels a day. We continue to make progress in terms of bitumen feed for the upgrader. We do expect to end the year somewhere in the neighborhood of 340,000 barrels a day so, haven't changed at all that particular view in terms of moving ahead. That oil sands is just the impact of the turnaround versus to about 300,000. That also brings the operating cost, the cash operating cost in the neighborhood of $35 to $39 which is higher. We would expect by the end of the year, we would be back in that $32, $33 range with the higher levels of production but again, during the year this is impacted by the turnarounds.

The realization 475, 575 not far off what we actually had experienced this year in terms of realizations. Distinctive production of 38,000 barrels a day basically kind of stands on its own there. Natural gas at 680 million cubic feet of [Mcf] per day. We are expecting we will sell in the neighborhood of 300 million feet of that. So we're going to be down to somewhere in the neighborhood of about 380 to 400 by the end of the year.

East Coast production again impacted by the turnarounds with around 55,000 barrel a day as this international 138 if impacted both by turnarounds and by the Libyan assets by the OPEC quarters. So the only other thing I was going to mention is the LIFO/FIFO adjustment. If we had used LIFO in the downstream, our earnings in the downstream would have been lower by about $52 million.

So that's all I was going to say. We can open it up to people's questions. Again we would ask that what we do, do is we keep these questions respect of (inaudible) and everybody on the call to a strategic nature Helen and I, Maureen and Jolene will be very happy to deal with all your individual detail modeling questions subsequent for the call and as you called them before, we're very responsible to get right back to you. So, Joe if we can open it up to questions that would be good.

Question-and-Answer Session

Operator

(Operators Instructions). The first question will be from Andrew Fairbanks from Banc of America/Merrill Lynch. Please go ahead.

Andrew Fairbanks - Banc of America/Merrill Lynch

I had a question around the oil sands and the pace longer-term that you think you can grow there. I mean obviously you are going to be getting a lot of sales proceeds coming in and I was just curious if operationally you've looked forward and do you think that you'd be able to do too for example Firebag phases simultaneously I mean I know they are going simultaneously but overlapped currently but do you think operationally within the organization you would have that capability if you did chose to go ahead and accelerate the pace of the build out.

Rick George

So listen what I really wanted the organization to focus in on is on doing these projects in a cost effective manner and so I think what we want be really careful of is to not to create our own firestorm of inflation next go round and so I just view these going in a sequence but not in overlapping sequence. So that in any one time you'll have a project or two in engineering, you'll have others that are starting construction, have others that are finishing construction. So, what I see is just a sequence where you will not at any one point in time have two many projects out there to get over extended where you get very worried about where your balance sheet is again or any of those issues.

So what I see is more of a sequence of projects. We have projects that extend out well through 2020 and so rather than try to rush it to create our firestorm of inflation, if we get too many people onsite that also impacts productivity. What I see is just going at this at a very steady state and then you've probably may have heard me talking talk about this, but I think the oil sands industry, well first of all its going to be dominated by four or five big players. Obviously Exxon, Shell, ourselves, CNRL are among those big players. And I think what you're going to see as we go forward here, is a more disciplined approach to this which I think is good for everyone. It means when I go through these boom bust cycles, you can work on safety and on productivity issues. And we look at this much more as a long-term growing business than this kind of cycle up and down which is kind of where I am worried about going.

So my view Andrew is, you're just going to go on a sequence and its benefit or for the engineering firms or the contractors we deal, because they only have a very good planned steady worker as opposed to worried about at the end of this project, they don't have another project to go through those kinds of issues.

Andrew Fairbanks - Banc of America/Merrill Lynch

That's great, thanks. That's helpful. I guess just one other quick one, if I could. On the Voyageur upgrader, you mentioned that you'd be open to looking at a potential joint venture there. And I was just curious if there has been any activity or interest along those lines.

Rick George

Yes there has been some interest, we've been talking to a number of players. I'm not going to identify who those are but, after there has been some interest there and I certainly think that that would be among the first if not the first of the upgraders of the projects to restart. However, having said that it may be a little while yet before we can announce it getting it started up there.

Operator

The next question will be from Arjun Murti from Goldman Sachs. Please go ahead.

Arjun Murti - Goldman Sachs

Just a follow-up to your comments on the divestitures. I believe you mentioned there's been quite a bit of interest in the gas properties that you've got up for sale in North America. Any update on how the international asset sales are progressing? I think you have a package in the North Sea. And then your latest thoughts on keeping versus divesting Syria and Libya. Thank you.

Rick George

So on the international side first of all, we are expecting to announce something on Trinidad & Tobago here in the first or very latest or early in the second quarter here in terms of the divestments of that. We do have a small package of UK assets that are out there, that are very, very small package and then we do have the Netherlands. So those are the three assets that we're working hard on divestments, and as I look at Syria and Libya, they are not on our divestment list currently. The Syrian project actually looks relatively good to me. I have been over there, we actually have five gas wells that average over each well over 30 million cubic feet a day. We also have three oil discoveries on that same block that looks particularly good and as I mentioned earlier, that part will actually be producing, we expect here in the second quarter of 2010.

So that looks very solid to me, and not a divestment candidate currently, and Libya have also been there, done a lot of homework on that. We currently have no plans except to move ahead there and fulfill. I do like our position there in terms of it is in the fair way It is oil; it's not gas. Obviously we still have some homework to do there, but currently not up on the divestment basis. I would say we have a lot of low hanging fruit in terms of what we see in terms of divestments that don't fit our portfolio on a go forward basis. We're working on those first.

Operator

The next question will be from Andrew Potter from UBS Securities. Please go ahead.

Andrew Potter - UBS Securities

Just looking for a little bit more color on Lewis. I was kind of curious about the comments you made there. I think you mentioned that you have environmental approvals. But what else would need to be done to kind of move this along as a credible project? Where is it at in terms of delineation drilling and maybe a few comments in terms of how the quality stacks up versus McKay and Firebag and some of the other opportunities.

Rick George

I don't know really have that answer today. It's still kind of under review in terms of how that fits into our and I know yes, I get a lot of questions from a lot of people, okay, where does [Fort Hills] fit and you know what, we're still doing our homework on that. I don't think we're in a position yet to ask him out that late this year, do expect us to put a lot more color on that, but we're actually trying to make sure before we say a lot that we get our homework done, that we know the actual sequence here, and then we'll able go from there.

Andrew Potter - UBS Securities

Sure, and then just one question on taxability. I was a bit surprised how low the cash tax number was in 2010. I think you are saying $800 million to $900 million. Any thoughts on how that splits out between the oil sands and the rest of the company? And maybe if you can a little bit of color in terms of what we should expect for cash tax guidance in the medium term as well.

Rick George

Yes, Andrew if I can actually get back to you specifically I just don't have that topic in front of me but I will be very happy to inform you right after the call and give you that details.

Operator

(Operator Instructions). The next question will be from Paul Cheng from Barclays Capital. Please go ahead.

Paul Cheng - Barclays Capital

Two quick questions. Rick, I know that you are not ready to talk about Fort Hills, but if I look at the remaining of the oil sands portfolio, McKay expansion, Voyageur, Firebag 5 and 6, how you will rank after the Firebag 3 and 4, I mean if we look beyond that, I mean how we should rank, which one is more likely is going to get proceed first, and that what condition change may lead to a change in that order?

Rick George

Okay, so Paul I think I've mostly answered that question already and I got to be careful because we do have contractual obligation with our partners in one of those projects anyway, but here is what I say listen, this is around applying the technology that we know we have in our genes here in terms of applying those against each of one of these projects and then its really down to a return on capital calculation and so as this is literally that simple. But what I want the time to do is to make sure that we do that extremely well so that we're not second guess later on why we picked the sequence we are. So, it's really quite clear. We will be using our most up to date technology and just look at this, and what gives us the highest return on capital for our shareholders on a go-forward basis. I am quite comfortable with the fact that we can be long bitumen and so in this world that we see at least for the next half a dozen if not whole decade here, we believe the likelihood is you're going to have smaller light heavy differentials and so that's why we're putting bitumen in production projects ahead of upgrading projects at the current time. Now that won't stay forever. There will be other opportunities but that's certainly our current position.

Paul Cheng - Barclays Capital

So we should assume that after the Firebag 3 and 4, you would probably go for the MacKay River expansion and Firebag 5 and 6 before you look at the other two?

Rick George

You're like leading the witness Paul. Do you have a law degree as well as the financial degree? No, I didn't say that. What I said was we are going to look at all the projects and we are going to go over there.

Paul Cheng - Barclays Capital

Okay, that's fair. The second question is that you folks have talked about $400 million of the annual savings run rate by the year-end on the operating costs and $1 billion on the cap year saving, on the annual run rate. Can you give us maybe a little bit more detail in terms of either by segment or by functionality, how much of them is human cost related, material or efficiency gain, that kind of information, so that we will be having a better understanding. And also that where you see what area that may have the upside opportunity.

John Rogers

Paul, first of all you did catch on there is potentially more benefit than the $400 million that we are going to start to realize in the fourth quarter. Many of those synergies do come from divestures and so we are making divestitures in all of the assets that we're going through both the international and the North American gas. We are going to see some cost reductions there. We are also going to see cost reduction in terms of better purchasing and the ability to actually reduce our cost through that so those are the two primary pieces that you would actually…

Paul Cheng - Barclays Capital

Sorry to interrupt, so is the $400 million is actually including the associated costs with the asset that you disposed? Because from that standpoint, you don't really flow through into the bottom line, because you are also losing the revenue. So did I interpret it wrongly from what you said?

John Rogers

We do have some cost that are associated then we will be able to reduce those cost they are not correctly with that producing property is that you mean? We are incurring some cost, we are going to reduce from that.

Paul Cheng - Barclays Capital

Okay so you are just saying that the G&A cost related to certain property and when you reduce the property you can reduce the G&A cost and not the actual production cost related to those properties?

John Rogers

That's correct.

Paul Cheng - Barclays Capital

You have a rough percentage that I mean I left the $400 million say by segment or by the function on line and also the [inventory]?

John Rogers

I couldn't give you that right now Paul but we will update you as we have those.

Operator

The next question will be from Amir Arif from Stifel.

Amir Arif - Stifel

You sort of touched on this just in your last answer but can you just tell us your thought process on the mix between bitumen and synthetic production is just outside of the fact that heavy oil differentials are largest longer term with downstream operation you have now?

Rick George

That's a question I think you have to kind of answer over time and so if you think about this on a go-forward basis if anything in the last couple of years have been a little bit short so we got plenty of capacity and we certainly have got rooms in terms of through the operational excellence now and now if you want to chip in here in terms of increase in our rate capacity with the assets we have right now. I think what I would say is listen, we have the capacity at oil sands for moving 250,000 to 350,000 barrels a day of capacity. And I think John mentioned we expect to finish this year in the 340 range. I would be very comfortable even at 100,000 to 200,000 barrels a day or more, of just a pure investment plan that is marketable into the market. And its that kind of a range that I would be very comfortable with over time.

Now as I said, the issue is like every differentials is one that has cycled historically. So I'm not trying to say that there is never going to be another cycle to this and we certainly can add upgrading capacity. Its important to remember also we have, I think its 25,000 barrels a day of total capacity at the Edmonton refinery and we've run a lot of the products coming out these upgrades right into Edmonton and the Sarnia and into our Denver refinery. So you have to kind of look at this in an integrated mix and I'm just saying, and I think what I'm trying to say is I don't see for the next half a dozen years a limitation on our being able to export bitumen even if we were 100,000 to 200,000 barrels a day long as long as we've got the diluent and the piping assets to get into the market I think that is kind of an upgrading risk that I would take. We still, if you look at it in that way, we're biggest upgrader in this whole industry and have more flexibility with our assets than any other player. So we feel pretty comfortable with that in terms of (inaudible) strategy basis.

Amir Arif - Stifel

Okay. And is there any key lease expiration dates, whether it is Fort Hills or Lewis or any other large oil sands projects that are coming up in the next five years?

Rick George

No, I think the only one that knows I think, if I recall back the agreements and this kind of from memory is that I think there was an agreement with the former Petro-Canada that we would have Fort Hills on production I think its 2018, 2019 and so but I don't see that being an issue. And the leases have any expiry dates at all.

Amir Arif - Stifel

And then just on your strategy of the hedging was going forward, is that, I understand that process now, but I just ramping up your capital or some of these new growth projects? Is that going to change or is that something as long as you are looking within cash flow you are comfortable living unhedged.

Rick George

Yes, I think there were part of benefits of this merger that is size and scale in our financial strength and I think if you look at our track record over the last 10 years of when we have done hedges they have not worked well. So, listen I'm definitely on the conclusion side of the fact that listen this is not something that a large company needs to be doing. So, I think again if you take a look at it, we are now the fourth and fifth largest oil and gas company in North America. But we have a lot of different assets and the financial strength to go through the whole part of the cycle, especially given the fact that we do now have some international production with a much smaller cost base. I would take that risk rather than have it in the risk of hedging I thinking its smarter than the market which has been proven obviously wrong so far.

Amir Arif - Stifel

Sounds great, thanks.

Operator

Thank you. The next question will be from Greg Pardy from RBC. Please go ahead.

Greg Pardy - RBC

Yes, hi good morning. I know you didn't want to get too much into some of the details, numbers, and things, but the $35 to $39 cash cost, it just seems to be high. So, what I'm wondering is whether you are being conservative there or whether that's just how the numbers shake out as you go with the turn around and then with the additional cost for the repairs.

Rick George

So, with Steve Williams our Chief Operating Officer here with us and Greg your question will turn over to Steve.

Steve William

Greg, thanks we are being realistic, there are three things we're factoring into that cost. One, is we have substantial turn around activity on the plant this year the second one is we've had a disappointing start and we do have freedom to the unit now. But we are going to have to carry that cost through the year and the third one is we will have the full year cost of MacKay River bitumen in to the plant now. So if you take those three into account they are not so reasonable range.

Greg Pardy - RBC

Okay thanks and just around the downstream and maybe I can get this offline after from John but you said basically its we start to looking at 30-day turn arounds across the border with most or all of your refineries?

John Rogers

Yes we are Greg.

Greg Pardy - RBC

Okay and Rick just the last question I know you obviously like what you see with Syria obviously from a growth standpoint and cash flow I am sure how does Syria just want to find out how you are thinking about Syria in terms of said which way the company is going or is there something that you are going to look at and say, we'll see how it performs that we got a date we will look it like I just want to understand how married you are to the asset.

Rick George

I think I am pragmatic on this. First of all I think our job is to get this project on line we still have an exploration rate going out there we got we are going yes currently we had at least two more oil well locations we have one other block that we have run 3D seismic on that we will have interpreted by April. So I see this coming together kind a mid-year where we'll actually know exactly what we have. And so right now I am not in the divestment mode. First of all I think you are going to get your capital out of this quite readily we are very close to the finish line in terms of the parts and I'm very proud of the work with the guys over there done to get that lined out.

You can actually do business in Syria. I am absolutely convinced of that. It's a place that honors their contract, they've been relatively good to work with. And so it's a place that I am not particularly afraid of. And we got a big investment there. What really our challenge here is to make sure that we maximize the opportunity there. And we got the time and the best to that. So again on personal inspection on being there on seeing the work on the ground and seeing the plan on the assets, I really want make sure that we actually maximize that value and that could include staying, and that maybe one of the options that are available to us.

Operator

The next question will be from Carrie Tait from The National Post. Please go ahead.

Carrie Tait - The National Post

Whether or not you consider sticking with Voyager all by yourself or now that you have explored joint ventures does that seems to be the way to go?

Rick George

You know I don't know, the real answer to your question. So I think we have all options under consideration Carrie. And what we do know is we are not proceeding right now with that upgrade as I mentioned earlier we are focusing in on actual oil production more than upgrade the kind of time but there's an option on the table that we can pull anytime in terms of moving that forward.

Carrie Tait - The National Post

I'd certainly go into my next question, I was going to ask with the intention to stay bitumen long, what is the timing on Voyager look like?

Rick George

Unknown, the current time until we get a little bit further along, I would say that we do not see restarting that in the next 12 months. When we get back to actually announcing the sequence of project late this year we will be in a position to discuss a little bit more.

Operator

Thank you the next question will be from Justin Amoah from Argus Media. Please go ahead.

Justin Amoah - Argus Media

I was just wondering with Shell announcing plans to convert its Montreal refinery into a terminal, what are the next steps for Suncor in trying to get Line 9 reversed.

Rick George

That is a great question, listen we are very strongly in favor of reversing Line 9 going into Montreal is something what we will be working on its an issue that the whole industry will look at. So its not our decision alone but its something that we certainly favor. As you will recall Line 9 and for those of you that are on the phone may not know what that is. It is a pipeline that runs between Ontario and Quebec particularly Montreal. And it originally did run crudes from Ontario from the west into Quebec. It currently runs finished products so it flows the other direction from back into Ontario. Certainly something that the industry is looking at in terms of reversing that pipeline back to its original state, its certainly something that we are in favor of. It may take a while to get that lined out.

Operator

We have one question here from Barbara Betanski from UBS Global Asset Management. Please go ahead.

Barbara Betanski - UBS Global Asset Management

You had mentioned briefly your target for reducing debt this year, and I just wonder if you could detail that a bit in terms of your debt reduction targets. And you mentioned also a plan to review the dividend around year-end, and I'm wondering longer-term how you are sort of thinking about the dividend policy and when you look at how much cash will be needed to direct towards your 7% growth target, how you would like to grow that dividend.

Bart Demosky

Sure Barbara its Bart Demosky here. Both good questions. Just thinking about the debt side of things. First our target is to take the proceeds from asset sales this year. And we are planning to complete most of the planned asset sales that we've outlined this year and by those proceeds towards that reduction so we would see our year-end debt level are getting towards $10 million range.

Now that lines up very well with what our long-term objective is which is to manage our debt-to-cash flow at to a two times target at the bottom of the (inaudible) but which we see at about $60 a WTI. So I'm feeling very comfortable based on what we're seeing so far on the proceeds side from the asset sales that will be well on our way and should achieve that target by year-end.

When it comes to dividend what we've said on the past and this will give at least directionally the plan going forward that as we grow our production base and the growth as Rick has outlined is largely going to come from the oil sands side. And we grow our cash flows we'll look to then grow our dividend. So the next phase of growth that we have coming on stream will be Firebag 3 and that's in Q1 of 2011, we'll start to see cash flow from that. And that's why we wouldn't plan to talk to the board about considering increases and dividends until that time. But the overall plan would be to grow dividends again as production and cash flows grow.

Operator

We have a question from Nathan Vanderklippe from The Globe and Mail. Please go ahead.

Nathan Vanderklippe - The Globe and Mail

I'm just curious on your new tailings technology what your ambitions are for using that elsewhere. Is that something you can see being used at, say, Syncrude or selling to other oil sands players?

Rick George

I think that's a great question. And I can't speak for other operators. I guess first of all we are very committed to this. We have actually spent about three years developing this technology. There are patents around it. I can't really speak for whether other operators are interested in it. We are extremely excited about this in terms of its future, in terms of us being able to reclaim onto them at a much faster clip. And the vision is this is not an announcement but the vision is that we'll eventually get to a point here where we only have one active ongoing at a time. And it will actually be able to reduce our cost by having much short haul of distances and much less kind of movement of tailings around a very wide footprint. So there is some really big reward as we get this to work but that's a five to seven year journey, that's not a journey that comes overnight but I can't speak for really whether other operators are interested in it or not.

Operator

There are no further questions registered at this time. So I'll turn the meeting back to Mr. Rogers.

John Rogers

Great thanks John. Thanks everyone for listening in and again Helen and Maureen and Joleen and I look forward to your detailed calls later. So everybody have a good day.

Operator

Thank you. The conference call has concluded. You may disconnect your telephone lines at this time. We thank you very much for your participation.

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Source: Suncor Energy Inc. Q4 2009 Earnings Call Transcript
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