Good day, ladies and gentlemen, and welcome to the Suncor Energy Fourth Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

[Operator Instructions] I would now like to introduce your host for today's conference, Mr. Trevor Bell, VP, Investor Relations. You may begin..

Thank you, operator, and good morning. Welcome to Suncor's fourth quarter earnings call. With me this morning are Steve Williams, Chief Executive Officer; Mark Little, President and Chief Operating Officer; and Alister Cowan, Chief Financial Officer. 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 fourth quarter earnings release as well as in our current Annual Information Form, and both of those are available on SEDAR, EDGAR and our website, suncor.com.

Certain financial measures referred to in these comments are not prescribed by Canadian GAAP. For a description of these financial measures, please see our fourth quarter earnings release. Information on the impact of foreign exchange, FIFO accounting and shared-based compensation on our results can be found in our Q4 report to shareholders.

Following the formal remarks, we'll open the call for questions. Now, I'll hand it over to Steve Williams for his comments..

Good morning and thank you for joining us. Looking back, 2018 market was volatile and certainly very interesting. We entered the year with increasing benchmark prices, supported by an improving global supply and demand outlook.

However, as we will know, the second half of 2018 saw a significant reversal of those trends, combined with global trade disputes and market access issues and prices ultimately hitting a low at the end of December before reversing yet again in the past few weeks.

The aggressive business environment in the fourth quarter was also volatile with our realized pricing for bitumen and synthetic crude stem over 80% and 45% respectively versus Q3; pipelines, capacity, storage inventory, near capacity and of course competitor uneconomic production being shut in.

These headwinds while strong in the quarter have occurred before. I know that both investors and analysts want to look forward to 2019, but we do have a great deal of good news to report for the fourth quarter.

Once again the resiliency of our business model in difficult environments was clear as we generated.$2 billion in funds from operations and returned value to our shareholders with over $1.7 billion in dividends and share repurchases. We did this and maintained a strong balance sheet.

Being able to generate cash flow through a volatile commodity cycle is a strength. We're able to do so because of our long-term focus on integration between upstream and downstream assets and because we secured strategic long-term pipeline commitments, mitigating our market access risk.

Our ongoing focus on safe and reliable operating performance was highlighted in Q4 and we achieved quarterly and annual performance records in many of our upstream and downstream assets. I'll now hand over to Mark to provide more context of our solid operating performance..

Thanks Steve good morning, everybody. Our fourth quarter operational results demonstrate Suncor's unwavering commitment to operational excellence, which we've talked a lot about.

A long list of achievements highlight the production capabilities of our assets with a record total upstream production of 831,000 barrels a day, including record total oil sands production of 741,000 barrels a day.

Syncrude had a production record of 210,000 barrels per day net to Suncor or 101% of nameplate capacity and Fort Hills achieved utilization of 94% for the quarter, exceeding our accelerated midpoint guidance of 90% and Hebron continued its successful ramp-up achieving average production of more than 15,000 barrels per day net to Suncor following the completion of the fourth production well and finally in the downstream, we achieved record crude throughput at our refineries of 468,000 barrels per day.

This performance reflects the hard work of Suncor employees and the contractor community and I'd like to take a moment just to thank the team and all their personal commitment to operate safely and reliably, which clearly drove the outstanding quarterly results.

I'm also extremely proud of the successful ramp-up of Fort Hills, which achieved the increased target of averaging 90% utilization in the fourth quarter and we just bumped it up to that level in the third quarter of last year and gave the team a new challenge.

We also saw a successful return to more reliable operations at Syncrude following unplanned outages earlier in the year. Strong reliability leads to low operating costs and that was certainly the case for both of these assets in the fourth quarter.

Fort Hills' cash operating cost of $24.85 per barrel and Syncrude cash operating cost of $31.75 per barrel representing a decrease of 25% and 50% respectively from the third quarter. Remember, those costs are in Canadian dollars. So converted to US dollars Fort Hills' cash operating costs were $19 a barrel and Syncrude's were $24 a barrel.

As you know, there's some minor operational challenges at our base plant during the quarter. Total oil sands operations production of 433,000 barrels per day reflects both planned and unplanned maintenance at our Upgrader 2 which resulted in overall upgrader utilization of approximately 80% for the quarter.

The base plant returned to normal operating levels following the completion of the unplanned maintenance in late Q4. Our in-situ assets continue to operate reliably albeit slightly below the record levels achieved in the third quarter. This was a result of seasonal volatility and planned upgrader maintenance.

On a full-year basis, Suncor's in-situ assets achieved a new bitumen production record of 240,000 barrels per day on a nameplate of 241,000 barrels per day. So they had a fabulous year.

Moving to the offshore E&P, our East Coast assets were impacted by a severe storm that required all platforms in the region to be safely shut in for approximately one week.

These events coupled with an unplanned outage at Buzzard, which was resolved by the end of the quarter resulted in average total E&P production of 90,000 barrels per day for the quarter. On a full-year basis, total upstream production of 732,000 barrels per day represents a new annual record and an increase of 7% over our 2017 production.

This includes the successful ramp-up at Fort Hills and Hebron and the completion of the most significant planned maintenance program in Suncor's history.

Looking forward, we will focus on facility debottlenecking, cost reductions and margin improvements that will increase annual cash flow between 2020 and 2023, with the target of $2 billion of incremental cash flow per year thereafter.

We'll continue our operational excellence journey, including persistently improving our maintenance and reliability practices, reducing operating costs across all our assets and that includes the support that we have for Syncrude on their reliability journey.

Deploying and implementing technologies such as the automated call systems or our tailings management system pass and leveraging digital technology across the enterprise will be instrumental to our continued progress in improving reliability and reducing costs.

We also have a number of growth projects in the works, for example our sanctioned offshore developments off the East Coast of Canada and in the North Sea, pre-investment analysis on the replacement of our coke-fired boilers with low cost high efficiency co-gen and the construction of the Syncrude bidirectional pipeline, which we expect to be operational by the end of 2020.

All of these projects are expected to improve productivity and increase margins and are not affected by current egress challenges in Western Canada.

In summary, through cost reduction, margin improvement and production debottlenecks, we have the potential for significant cash flow growth over the next several years regardless of market condition and I can assure you that the team is all over it. So with that, I'll pass it on to Alister and he can provide some color on our financial results..

Thanks Mark and as Steve mentioned, the business environment during the fourth quarter was volatile with Brent, WTI and WCS benchmark prices declining 10%, 15% and 60% respectively from which it's sea level. While those levels have occurred before, the widening of the Western Canadian light oil differential does not resemble the U.S.

$25 during the quarter was unique and this volatility translated directly into significantly lower price realizations across the upstream managing industry.

This decline in price environment for crude oil and finished products also resulted in a net $385 million after-tax charge associated with FIFO accounting and related inventory valuation adjustment.

Despite these headwinds, Suncor demonstrated the resiliency of our business model and we generated $2 billion in funds from operations and $580 million in operating earnings in the quarter. This brings our annual totals to a record $10.2 billion in funds from operations and $4.3 billion in operating earnings.

These quarterly and annual financial results are a testament to the value of our integrated business model, which is able to capture much of the value of differentials with record downstream annual operating earnings and funds from operations of $3.2 billion and $3.8 billion respectively.

During the quarter, we saw significant value in our stock price and continue to execute aggressively on the stock buyback program, repurchasing $1.2 billion of shares of average price of just under $44.

On an annual basis, we repurchased more than 64 million shares of $3.1 billion, which was funded by the $3.9 billion of discretionary free funds flow generated in 2018. Given the accelerating repurchasing of our stock in the fourth quarter, we expect to complete the current $3 billion stock buyback program by the end of February.

Accordingly our Board of Directors has approved an additional $2 billion of stock buyback. Our Board also authorized a substantial 17% increase in our dividend, which marks 17 years of consecutive idealized dividend increases.

This dividend increase is supported by the structural improvements and free funds flow through strategic countercyclical investments in operating performance of Fort Hills and Hebron on additional interest in Syncrude. Our dividend is not dependent on high oil price.

We are able to fund our dividend and sustaining capital at a US dollar $45 per barrel oil price. So what that, I am going to hand you back to Steve for some closing thought..

Thanks Alister. So looking back up to 2018, I think the resiliency of our business model was tested through high and low realized price environments and as Alister emphasized we achieved record funds from operations all $10.2 billion and returned over $5.4 billion of that to our shareholders.

So that represents more than 50% of funds from operations being returned to shareholders and it's this past performance that provides us with the confidence as we look forward to 2019 and beyond.

Our business is built to mitigate the volatility the industry has experienced and the cyclical nature of this commodity business and allows us to focus on creating long-term shareholder value.

We will remain capital disciplined the midpoints of 2019 capital and production guidance represents a flat capital spend compared to 2018 and year-over-year production increase of approximately 10% and that includes the estimated effects of the Alberta government mandatory production curtailment.

We will also continue to operate our assets in a safe and reliable manner in keeping with our operational excellence standard.

We remain committed to returning value to our shareholders, the execution of our $3 billion stock boy back program, a further $2 billion stock buyback program and a 17% dividend increase, demonstrates the ability of our business model to substantially grow shareholder returns.

We plan to invest capital in 2019 through to 2023 to grow production through the bottlenecks, enhance margins and reduce costs. In turn, we expect to generate incremental cash flow in each year during this period, culminating in more than $2 billion of annual cash flow in 2023 and beyond.

So this will enable us to continue to grow dividends, continue stock buybacks and continue to invest in our business all whilst maintaining a strong balance sheet. So without that, I'll pass back to Trevor..

Thank you, Steve, Alister and Mark. I'll turn the call back to the operator now to take questions..

[Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs. Your line is now open..

Good morning and thanks for taking the time this morning.

The first question I had this morning was about the Alberta production curtailments and I was curious Steve, your views on the duration of these cuts and talk a little bit about what's happening on the ground from your asset portfolio? Where are you curtailing production and how are you actually executing the mandates that have been provided to you?.

Okay. Thanks Neil. Let me -- I think I am going to get a lot of questions over the next half an hour on curtailment. So if you forgive me, what I think I'll do is make a few general comments, which will context the situation, both generally and specifically for Suncor and I think it will answer your questions Neil.

So the first thing I would say is Suncor is unique in this particular sector because of that integrated model we have. We have the 600,000 barrels a day of upgrading and 460,000 barrels a day of refining. We have strong, very strong pipeline access logistics. So we're very well positioned.

Of course I am on the record, I do not support these curtailments. I'm disappointed in the fact that the Alberta Government has goes us into this situation, but we are working with the government to make sure that the unintended consequences are minimized, but let me start to answer your questions.

First off and I'll take it even high-level in just curtailment, I expect everything else broadly equal, the 2019 for Suncor will look very similar financially to 2018. Now that won't surprise anyone because we put our 2019 guidance and we took into account the curtailment.

So our expectation is we will produced between 780,000 barrels and 820,000 barrels a day. So that's a 10% growth from 2018 to 2019 and takes fully into account what we anticipate from the curtailment.

Now in direct answer to your question, I suspect but you have to talk to the Alberta Government, but what they're seeing is that the unintended consequences we highlighted are happening a bit faster than they expected.

So if you look at what's happened, the differential, corrected and overcorrected very quickly and the unintended consequence of fire is the potential, the economics are seriously damaged and a lot of the rail movements are stopping or have stopped.

That's going to have the opposite impact to what the government want and what we've seen is I think ahead of everybody's expectations they started to reduce the curtailment already and buy that 75,000 barrels a day. So our advice to government has been you're seeing these impacts.

We take them through the unique lens that the industry have on it and it's time to start planning for what we call a soft landing or a soft exit that the strategy to remove these curtailments, the strategy needs to the fair, transparent and understood and every indication that we can see is from these first move is it's starting to happen.

So if I summarize all that, let's say nobody is immune to it. We're relatively immune because of the upgrade in refining and logistics we have. We have the vast majority of all of our materials including products moving by pipeline. So we still think our guidance is good.

So we're not anticipating for now moving away from the 780,000 barrels to 820,000 barrels and if anything, we see curtailment coming off a little bit early..

To paraphrase a little bit Stevie, is what you're saying from a cash flow perspective for Suncor specifically, is that you will see some lost cash flow obviously from the loss in production, but given that the differentials have tightened up, should we think of this as a net neutral from a cash flow perspective of Suncor?.

Of course it depends on all of your assumptions in there. I mean I'd probably say if anything, I'd be a little bit more bullish than. It depends on your assumption where you believe differentials.

With differentials moved so significantly, like everyone else in the sense even with the curtailment everything else equal, we were a benefactor because the increase in margin applied to 90% of our production. So I think in the worst case we are neutral maybe even slightly, slightly positive, but it depends on what you think the differentials end up.

Over view is that the market should be allowed to work with differentials need to even to meet the Alberta Government's objective these differentials need to come back so that real economics work because right now, there are rail facilities and capable of moving crude and bitumen, which is not in operation..

Thanks.

And then looking out a little longer-term, appreciate the guidance that you provided here on Slide 3, which gives us cash flow growth out through 2023, couple questions on this, is this a cash flow per share CAGR or an absolute cash flow number? And as you think about the pluses and minuses, it seems to us like this could be a conservative number even in the flat price environment, where there's some upside risk to it, just any thoughts on how you think about this long-term cash flow guidance?.

I agree with you and I'll let Alister answer, but I think you're right. I think it is a conservative number..

Yeah Neil, those are on Slide 3, that's an absolute increase in cash flow over that period of time. So to the extent that we're buying stock and we obviously expect to continue to do that over the next several years, those numbers would increase yes. So I agree with Steve. I think they're probably conservative..

Our next question comes from Greg Pardy with RBC Capital Markets. Your line is now open..

Thanks. Good morning. Steve I was just hoping to jump into some of the operating and the operating side of the business but you did touch on the Syncrude bidirectional pipelines. So it sounds like the commercial side of things is there.

Can you just walk us through what the next steps are, when construction might start that kind of thing?.

Yeah, I'll let Mark take us through the details Greg, but yes, we're pretty much -- the partners are pretty much agreed on it. We're actually doing the detailed work on it, but I'll let Mark that us through what the program looks like..

Yeah, thanks Greg. We went through and ended up getting the agreement in place and you can appreciate we're swapping commodities between the two sites and picking up uplift between the two sites and dealing with maintenance events all that kind of stuff.

So the commercial agreement was actually quite involved to try and sort out okay who is if for line, how do you split the benefits and those sorts of things, all that's behind us. We're in the process of doing the engineering and such and preparing for the fieldwork.

We expect construction to begin in the not-too-distant future and we'll end up putting the line in service towards the latter part of 2020. So we expect it to be fully in place. That's a little later than what we originally said, we're hoping to have it in place and operational for all of 2020.

So it's a little later and a lot of that was just held up on the commercial work, but the work is progressing very nicely now and all the partners are working hard to get that in place because everybody realizes this is significant to us achieving our 90% utilization, our $30 a barrel operating cost that we committed to quite some time ago..

And so that will then mean that you'll have feedstock redundancy at Syncrude then, that will come from what Fort Hills MacKay and Firebag, like will you have just kind of a cocktail in terms of what you can choose from?.

Well, we will have the ability to do that. Right now we view that it'll be Firebag is the way that it's kind of constituted now to be able to move it in, but we have the flexibility. Unlikely we would do MacKay, but we certainly have the capability to move in Fort Hills.

Whether that particular connections in place by then or not is still in debate, but it does give us feedstock flexibility, it also allows during Syncrude turnarounds with their cokers to be able to move bitumen from Syncrude to our base plant and run it and then us export more bitumen or we also have the ability to move sour synthetics from our base plant in the Syncrude and either treat them and sell sweet synthetics.

So there's a lot of different ways we can manage it and all the scenarios I just talked about, don't account for upset conditions and upset conditions is where you could make very significant amounts of money because it can be the difference between running and not running..

You guys also have quite a plan with respect to autonomous haul trucks I think in your Millennium as well as Fort Hills.

Could you talk about that program and do you see any plan to run a ton of the salt trucks Syncrude eventually?.

It's interesting.

One of the things that opened up the opportunity for us to do autonomous haul trucks right now is we came to the end of the natural life of our fleet and so we have to decide how we were going to move forward and our view was is if we were going to invest in a new fleet, we should make sure that it was autonomous and we worked all the various technology.

Syncrude isn’t at that stage. We would expect that this would be something they would look at significantly and we have a lot of experience with it by the time they get to their fleet turnover, which is several years out.

Right now, we have in the North Sea bank mine, we have autonomous haul trucks operating there and I think we have about 20 autonomous haul trucks that are operational and we're in the process now of getting ready to start turning on some of that at Fort Hills.

At Fort Hills we never actually hired permanent staff to operate the trucks in anticipation of us putting in autonomous haul trucks.

So we have some people doing contract work today and then attempt would be over the next several years to be able to roll this through and turn all of our operated mines at base plant and at Fort Hills to fully autonomous..

Last question for me then is just shifting gears to realizations at Fort Hills, significantly better as we expected, could you give us any color in terms were you would have placed those barrels? Was that kind of a combination then of a pad too in Gulf Coast?.

It's interesting the yield because we cut off the bottom almost 10% of the barrel, which is tins and put it back into the ground. A couple of things happened. When that barrel gets run through an upgrader or a refinery, your product yield is about 6% to 7% higher. So you're going to get a premium of 6% to 7% just on yield.

Your diluent requirement to ship it on a pipeline are better and so because of that, it's more efficient, lower cost and so because we use less pipeline space, so we gain on the logistics and then the other issue is we were able to send a bunch to the US Gulf Coast not exclusively and so we were able to access a premium market.

So it's product yield logistics and the premium market that drove the differential..

Our next question comes from Paul Cheng with Barclays. Your line is now open..

Mark and Steve, if I look at, I know that you guys have been driving operational excellency on this year and if we look at the -- base my operation and upgrader last it was about 80% utilization rate versus that year before in 2017 you coast about 91%, 2016 you were about 75% and 2015 you were roughly about 91% 92%.

So you're still, it looks like that is remaining consistent in terms of your reliability and so if we look back, is there anything that we learn or that we would just say all the low utilization way or the downtime is just purely unlucky or is there something that we learn for that process and would be able to help us in the future in terms of what is changing the procedure, the process or that introduce new technologies?.

No, I would say overall there is nothing sinister about those numbers. So there has not been any major issues there that are concerning us. I think operational excellence are addressing them. Of course last year was a major turnaround year for us. So I think Mark actually used the words, we took across all of our assets, not just the baseline upgraders.

We took the largest turnaround program that we've executed. Now not surprisingly in a sense because Suncor has more asset than ours and brought on more facilities, but nothing sinister there. We're working on it and we would expect to see those utilizations continue to increase..

And Steve, maybe I will just add to that, the other year that you pointed out that was down a bit was 2016, which was also a turnaround year and right now we're on a five-year time window.

So the next two years we're upgrading utilization we expect to be down a little bit as 2021 and 2023 and so this is now Paul you know we talked about a few of the little operating issues and such that we had to this period.

So there are some learnings and things that we incorporate and continue to strengthen on, but the biggest issue in that pattern is the turnarounds..

Mark so that means that you will only be because I think the company has been talking about on a sustainable basis on a 90% plus utilization way.

Is that what you mean is that during the relatively light turnaround year, you could achieve that, but in a heavy turnaround year, that you won't be able to do it, so on average for a five-year cycle, you actually would be less than 90% utilization rate?.

Well, I think Paul you noted in there is that we're actually working to ensure that we can achieve 90% over that cycle and so some years as you already commented on, it's over 90%. Some years it's under 90% and so we continue to work to optimize this to try and make sure that we maximize the utilization of these assets..

So you're still targeting say on an average for the five-year cycle you would still be able to get to the 90% or better?.

Yes..

You think that you in the next five years that, that is achievable?.

Yes..

Okay. And that I know you guys normally don't get into the quarterly production guidance, but given the curtailment and everything is there some number that you can share in the first quarter and also that because the curtailment seems naïve, it's assets by assets.

So I think I actually a little bit surprised that given your anyway that cannot run that at full capacity, is that will have no ability for us to push some of the turnaround that we may need to do later in the year and into the first quarter?.

As you say Paul, for this call and just generally, Suncor is a long term player. Strategy is all about the mid and long-term. We got our balance sheet in a position where we can manage the long term. So we don't normally get into in a monthly or quarterly guidance. We've been very clear about our guidance.

We expect to be 780,000 barrels and 820,000 barrels for the year which is a 10% increase year-over-year taking account of the curtailment. If anything, it could be towards the top end of that as we're seeing curtailment come off a little bit faster than was originally planned by the government, but we wouldn't get into quarterly guidance..

Paul, maybe I'll just add one point to that is there's no reason why in late Q4 and Q1, we run everything 100% of the time. A lot of this equipment has water in it and so with the very cold conditions, we don't view it safe to be able to take these assets offline. Obviously if an incident happens and we have to deal with it, we have to deal with it.

It's interesting this past week at Fort I think with wind chill it was minus 52 degrees Celsius and absolute it was minus 38 degrees Celsius. You can imagine if we shut down during that period, just how unproductive it would be and we view unsafe. So that's why we don't do it..

Great. A final question for me, for Fort Hills your production is already 94% utilization rate. So incrementally the benefit from a higher one it seems to me is going to be somewhat limited and your course is about $25 and I think you have a target down to about $20 or less, assumed moving into the truck was safe about boarder.

So what else that we should be looking at that would help you to drive you down to below $20?.

It's too early to be doing this calculations from a distance Paul. The plan is not in equilibrium yet. So we haven't got the mine in equilibrium with the operation because we came up much faster or very fast end of what we were anticipating. We've had to get ahead in terms getting the size of the pit and the overburden in a position where we like it.

So we still see the costs coming down below $20 Canadian dollars a barrel obviously much less U.S. Autonomous trucks is potentially part of that and we also haven't talked yet about where we think we can take the plant. So I talked about is $2 billion a year by 2023.

Part of that is going to be a much lower than Greenfield cost debottleneck of Fort Hill. So we think we got some significant scope there that we're working on as well. I am sure we think there is -- much progress can be made on per barrel operating costs..

Our next question comes from Dennis Fong with Canaccord Genuity. Your line is now open..

Just quickly to follow on, on the Fort Hill component, you've spoken in the past in terms of the low 40,000 barrel a day, debottlenecking and given kind of in the past you've mentioned that you're testing the pieces of equipment both in we'll call it warmer weather in the summer as well as the coolest temperature or colder temperatures now.

Are there any like specific takeaways in terms of thing that you could potentially push that 40,000 barrel a day debottlenecking volume further than that given how much redundancy you actually have built out in terms of the mining side of things?.

I'll just say, it's just a little bit early Dennis to be coming to any conclusions. Here we are you just completing the first year when most of the industries plants haven't even been up to full capacity by that stage. We've got up to full capacity. It's going very well. We can already say that 20,000 barrel a day to 40,000 barrel a day debottleneck.

We won't rest at that point. We'll be looking for what else is available..

And then just quickly subsequent to that, in terms we'll call it, there are obviously fairly capitally efficient projects to unlock that incredible value there. How should we think about we'll call it maybe trigger point in which you would look at sanctioning some of those projects.

The thought option I don't believe is that you require incremental egress but it's like what are some of the checkboxes that you feel like you need to check off to feel comfortable sanctioning some of those?.

A couple of comments I would make. Some of them are capital, some of them are not capital. So some of it is in the progress right now and you will start to see some of that cash appear this year and next year, which is on the very front end of what you could spend in the capital sense.

If you look -- we'll obviously talk as we trigger because the capital -- several reasons why we are doing this program at this time and it's not a coincidence.

We viewed that market access would be challenging through this period until line three comes on this year until the rail capacity comes on and then at least one all the other pipelines comes on. So we deliberately targeted and we course we brought big investments on anyway.

So as part of our capital discipline it makes sense, okay we made the big investments, now we'll start to bring that program in. We'll start to focus on projects which don't require -- there are margin projects not purely production projects. There is a small amount of production in there but not of the sort of Fort Hills size.

So right now we have all of our production covered by pipelines.

We're looking at alternatives and to trigger the next major capital and major growth phase, we will want to see some real progress on pipelines and so this program fits perfectly with that but I don't know if Mark wants to comment but Mark is right in the mix now of the detail of that program, which is the $500 million each year, adding up $2 billion additional cash flow here by 2023 and you know we have detail, I wouldn’t propose we go through here, but we can do as we come out on the road, we have the details of that program now and we're very, very optimistic about being able to achieve that..

And last question here and maybe this one's a little bit more balanced.

Obviously Q4 has a bunch of FIFO-LIFO adjustments and so forth, how should we be thinking about we'll call it purchase product cost for the downstream segment, going into Q1, but as well as potentially other sourcing of we'll call it cheaper deal or wins and potentially bitumen realizations as you go through on a quarter-over-quarter basis, using kind of transitioning through the rest of year, thanks..

On the FIFO, the inventory adjustment, there was a negative $384 million after tax for the quarter and as you think about it you started Q4 coming in at roughly just under $70, high $60s WTI and it went down to I think into the mid $40s. So roughly a $25 fall generally, so just under $400 million of FIFO loss.

As you see WTI, we're already up say to mid $50s, $54-ish. You're going to see that begin to come back and so these are roughly two month lag between the price coming up and they getting reflected through into the results. So you'll see some of that come back in Q1. We don't go beyond the current arrivals.

You're probably not get it all back in 2019, but if we continue to run up into the $60, you should see most of it come back. So we'll take some time, it probably depends on where the price of WTI goes. On the diluent side, I think I just really certainly that would help as we move through and move our product in.

The price I don't think it has significant impact to it..

Our next question comes from Roger Read with Wells Fargo. Your line is now open..

Steve, I was wondering if we could come back, you mentioned unintended consequences or the proration in the near term, Any thoughts on what some of the and longer term of the unintended consequences maybe in the medium and longer term of the proration cut?.

I'll take longer term to go beyond you know these problems we're seeing with rail because I'm guessing that this curtailment will be pulled back quite rapidly to make sure that rail economics can work otherwise, it's having the opposite effect to what it was intended to do.

I think the biggest one is around confidence and is the most difficult for anybody to quantify but I hope what you can say is that I am our model in a sense is it rises above that. So our discretionary capital is targeted at marginal incremental growth through this period that we just talked about.

So we need some pipeline access but what we've been able to demonstrate and I wish we didn’t have to see the extremes of these cycles to demonstrate is that you know we are a very tax generative company. We were able to cover our non-discretionary capital and our dividend at very low crude prices probably setting the benchmark in the industry.

So we've been able to demonstrate confidence in our model. I think the thing I would say there has been without doubt an off-Canada signal and I hope what this performance is going to show that we really don't deserve that because where we are impacted but the extent of that impact is largely mitigated by our business strategy and our access.

So we really belong in this context more alongside the super majors than we do our peers in Canada because our cash flow is very strong even at the bottom of this cycle when things are difficult. So that's the message you're going to hear us trying to get out there that we're not completely immune but we're largely immune to this cyclical impact.

I think the other comment I would make and it's a signal we're trying to get into government is find a way out of this because this is going to start very difficult.

As you've seen from the commentary from the industry, some are affected to a far greater extent than we are and what's most important about this exit strategy is that it's fair and transparent..

And then Mark if this is a question for you or not, I know you don't like to get into the quarterly guidance, but as we think about refining the downstream here, in the first half of the year, the much narrower differentials for the heavy crude is obviously going to have some impact on profitability.

So as we think about our cash margin, not so much to change LIFO to FIFO, how should we think about throughputs in the downstream particularly coming off what was a record quarter on volumes?.

Particularly I get back to my Q1 comment about running the assets. Certainly our intent is to continue to run the assets hard. The allocation of cash moves around in our model that's the joy of the integrated model as Steve talked to.

So we do expect a lot of the cash generation to shift back to the upstream out of the downstream, but the joy is that whatever the market conditions are, whether this spreads are narrower or whether there's curtailment or not curtailment, that the machine and the integrated model actually generates cash and I think from an investor's perspective, that's the key point is that in all market conditions, we're generating cash, returning cash to shareholders and continuing to invest in the business and the overall model.

So we are expecting the Q1 results that the cash is going to move around in the model significantly as you pointed out Roger but we're expecting that, that will continue to drive cash flow and value for the shareholder..

Our next question comes from Mike Dunn with GMP FirstEnergy. Your line is now open..

Steve, Mark, Alister, just wondering if you could provide some color or insight as to how the board is thinking about the sustainability or what you can afford to pay for dividend it's a 17th year in a row of dividend increase. You've outlined some paths to growing cash flow even without pipeline egress here.

So I am just trying to understand -- I know your slides present a $45 WTI call it free cash flow breakeven to fund sustaining capital and the new dividend level, but it that $45 number not a bad way to think about the threshold that's needed for the next few years or I'm sure it's not that simple, but is that one of the considerations a $45 WTI breakeven thanks?.

Let me just give you a few comments Mike, if you go back, the premise that we made was as underlying production and therefore cash generation came up, you would see the dividend come up and we felt we've been through a relatively heavy capital period with Fort Hills and Hebron and so we've been in a sense holding back dividend whilst we were going through that program.

In fact the market gave us more cash than the base case we were planning on.

So you've seen substantial share buybacks through that period and as you say what we like to do is we think we got a relatively low breakeven price on crude to cover sustaining capital and dividend and we talk about that less than $45 and Mark talked about our programs to get that number even lower if possible.

And we kept the flexibility and you can see even this year through a relatively difficult to forecast the volatile period we completed the first -- we're in the process of just completing the first $3 billion and we'll be quickly starting this next $2 billion buyback.

So you can see a very high degree of confidence from the board because we have a track record of when we say within a buyback, when we put the program in place, we buy the stock back. I think what it says is, and of course it's a Board decision in the end dividend we've used all of, we still think we have some firepower there.

Very happy through this period.

Our balance sheet is in great shape, we're happy with the $2 billion in the 17% increase in dividend, but you could see all of those continue to move because I know in your model and your model is a good one, when you put the numbers in, we talk about similar cash flows this year, the last year, so we've been getting up about the $10 billion cash flows per year even in these markets.

You don't have to have big changes before that number can become significantly higher again. So we think there is scope to bring the dividend further and scope to continue significant share buybacks..

Our next question comes from Phil Gresh with JPMorgan. Your line is now open..

First question is just on the Coker project, how you think about that today. I am thinking about this kind of in light of the production product impacts and the fact in an environment where your Coker could have been very economic, like I kind of taken away because of government.

So do you still see it as a strategic project long-term, if you want to expand production in the long run?.

Phil we sure do. It's interesting with bitumen because it's a bit of unique commodity, for it to be of value, it needs to be converted into products of value, whether it's jet fuel, diesel or asphalt and so as production of bitumen increases, it needs to get converted.

We think this is a good project, but obviously it takes literally years to be able to build these assets and get them online and as a result of that as we look forward the curtailment we just view is a little speed bump in the road.

If we believe that the Alberta government was going to be in the markets literally for decades, we would -- this would have a dramatic effect, but we don't view that it's relevant to our investment decision..

Is there a particular timeframe that you're hoping to make a decision in the Coker?.

We're working through it right now and we're expecting that we'll likely make that decision by the end of 2019..

Steve how are your latest thoughts just on M&A at this point? Are you just mostly focused on these organic opportunities to improve cash flow or do you still think there's M&A opportunities this cycle?.

Phil, I would say business as usual judges by our track record, one of the things we've done through all of what we've been discussing curtailment and dividend and share buyback, we've kept our balance sheet in a very healthy condition. The biggest impact on it has been on -- there has been foreign exchange conversions over the last six months.

So our record is one, keep a strong balance sheet to the extent you can by counter-cyclically if you're going to do it. We screen everything in the downstream, we stream everything in and around our business and around our ENP business. You know we look at step outs on our existing reservoirs or facilities or small boat-on.

That strategy isn’t changing. I think if any -- if anything is changing out there, there are potential opportunities that we're looking at. There is nothing particular we're looking at as we speak at this moment, but this market is probably going to throw up some opportunities over the next 12 to 24 months.

Not every company has been -- one of the benefits of this integrated model is it leaves us at least strong through this period. Not everybody else is through that.

Now you've seen even with M&A talked about particular in oil sands over the last few months, you've not seen Suncor becoming involved in that and I think clearly Mark needs to expresses his position through time, but you'll see us sticking to the discipline and the rigor we've applied to M&A..

My last question I guess this would be for Alister, if I look at that 2019 guidance for cash for FFO in Slide 11, being flattish with 2018 despite a $7 barrel reduction in the WTI price, is that just basically the production benefits and a lower maintenance year or are there any other moving pieces we should be thinking about behind the scenes there?.

No, Phil it's essentially the production increases as Steve outlined where we're at and we've taken some more cost out of our business considering the fall and the expected price..

Our next question comes from Jon Morrison with CIBC Capital Markets. Your line is now open..

Maybe just a follow-on to Mike's question, is there anything at this stage outside of a major drop in the crude price or more material widening in Canadian than you might have baked into your business expectations for the coming quarters that would give you pause for not start moving through the incremental buyback program in a fairly linear fashion.

Obviously once you get through the current one, that should be done this month..

No nothing we can say, that's why we are speaking to it so strongly Jon. As I said, days or week, we're close to completing the first $3 billion. You'll see us move straight in to the other $2 billion.

So no, we can't see anything on the horizon that would cause us to not do that in a relatively ratable fashion and of course one of the things we've always talked about from this very beginnings of our share buyback is we don't want to get caught in the trap by where we can't because where we can't afford to buy when the stock is low.

For us it's a return decision we make versus our other best alternatives. We find our stock very attractive at these prices and so actually when the price is lower, often associated with when day-to-day, week-to-week, month-to-month cash flow, so that's exactly when we want to buy and so that's why we've been buying heavily through this cycle.

So we can't see anything on the horizon, which cause us to hesitate yes..

Steve you made comments in terms of crude by rail volumes and it's one thing that's obviously in line with Imperial message last week, given that backdrop do you have concerns about potential major blower and disk towards the end of the year? Should we through the replacement get pushed in anyway? And secondarily, do you believe that the industry is actually going to be able to ramp back up to something in cal it low to mid 300,000 barrel a day for CBR exports.

If it doesn’t try to come down hard in the next two to three months?.

I hear the theory of that question. I would say there are some seasonal things, which happen which haven't quite been taken into account it, which will help the situation in the short term, which I think causes this curtailment to potentially come up quicker than it's being anticipated.

The first one is the industry goes into maintenance as we get into the second quarter, so the pressure on the supply side will start to come off. The other piece that happens is as temperatures start to come up the blending ratios on bitumen start to change. So we don't have to put so much into the blend.

So the volumes going down the line will decrease for the same amount of production on the supply side. So you're going to see the pressure starting to come off as we go through the next two or three months on the supply side and every indication on line three is it's progressing well.

In fact it could well be calling for line fill which is quite significant a lot earlier than the end of the year as the progress continues. So if anything I think the pressure is coming off.

It's always the possibility of it and my guess is that people this time through there is a fair amount of crude by rail capacity starting to come on, plus it's a major part of some company's strategy that's around the loading facility, buying the locomotives and getting the manpower to use it. So I think the industry does have the capacity.

I also think on the demand side, with what's going on in Venezuela and Mexico at the moment, there is going to clear pool from a demand point of view. So I think for us we're in that situation where I think supply can come up, demand is increasing and the US will see a strong supply from Canada as a strategic benefit,.

Maybe if I can squeeze in one last one and it's probably best for Mar, but there was obviously expected downtime and then unexpected that came through.

Can you give any more color on what the unexpected downtime was and is there anything there that would give you concern of potential handover effects in future quarters as there is all of the comments that you previously made in disclosures around planned 2019 maintenance or actually hold at this one?.

Yeah, we think our disclosures largely hold. Every time there's an unplanned event, there's something that we didn't foresee happen and a lot of this is related to assets that have been on the ground for very long periods of time. So we deal with that, we learn from it, we mitigate that it's happening in another locations and move on.

So I think that -- and that organization has been very disciplined about that. So the disclosures that we have is what we're fully expecting in 2019 and that's kind of where we're at..

I would now like to turn the call back over to Trevor for closing remarks..

Thank you, operator. So thanks everyone for attending the call today. For those who didn't get their questions answered, have follow-up questions, please reach out to the IR team and we'll be around all day and happy to discuss those. Thanks again..

Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program. You many now disconnect. Everyone have a great day..