Cenovus Energy Inc. (CVE) Earnings Call Transcript & Summary

Hi. I'm Sherry Wendt, Vice President, Investor Relations at Cenovus. On behalf of the whole Cenovus team, welcome to our 2021 Investor Day. We're so happy you've been able to join us today for our very first virtual Investor Day. We've had an exciting year at Cenovus. We have done what we said we would do. And we're very excited to tell you about what you can expect from us next. Turning to our agenda for today. We are aware that a virtual event like this can feel like a long time in front of a screen, so we're purposely keeping our presentation shorter today than at in-person Investor Days in the past. First, you'll hear from Alex Pourbaix, our President and CEO. Alex will take you through a strategic overview and highlights of our updated 5-year plan and 2022 budget. Next, you'll hear from Jeff Hart, our EVP and CFO; and Kam Sandhar, our EVP, Strategy and Corporate Development. Jeff and Kam will take you through our financial framework, capital allocation priorities and shareholder return strategy. They will be followed by Rhona DelFrari, our Chief Sustainability Officer and SVP stakeholder engagement. Rhona will take you through sustainability and ESG, including our updated ESG targets. We will then take a 15-minute break. After the break, you'll hear from John McKenzie, our EVP and COO. John will give you an overview of our 5-year plan for operations. John will be joined by Norrie Ramsay, our EVP Upstream, Thermal, Major Projects and Offshore; and Keith Chiasson, our EVP Downstream. Norrie will give you more detail on our Oil Sands segment, and Keith will do the same for Downstream. John will then close the operations presentation with an overview of our opportunities in the business and a recap of key outcomes of our business plan. Alex will then provide closing remarks, before kicking off a Q&A session. Members of the equity research community will be joining us on the audio line today to ask questions live. You may also submit questions via the webcast Q&A and they will be replied to following the event. At an in-person event, this is when I tell you about where to find the emergency exits. Today, I'll give you a few technical notes on the viewing platform. You're able to customize your viewing platform, and it's pretty straightforward. [Operator Instructions] And now, we'll turn to the advisory slides. As we'll be talking about future projections and guidance today, please take some time to read the advisories associated with these materials. The advisories describe the forward-looking information, non-GAAP measures and oil and gas terms referenced today and outline the risk factors and assumptions relevant to the discussion. Additional information is available in our most recent MD&A, annual information form and Form 40-F. All numbers are presented in Canadian dollars and on a before-royalties basis, unless otherwise noted. And the 5-year plan is presented on flat price deck scenarios. This is to give you a clearer view of the plan without the commodity price noise. And I'll turn it over to Alex, now, to kick things off with the strategic overview and highlights of our business plan and 2022 budget.

Thanks, Sherry, and welcome, everyone, to Cenovus' 2021 Investor Day. As Sherry said, we're really glad that everyone could join us today. And obviously, this year is going to look a little different with the virtual format. I'm pretty confident you're going to find the event as informative as our past in-person Investor Days, and here's to hoping that this is the last -- the first and last time we have to do one of these virtual things. This is definitely aging on me. Right off the bat, I apologize in advance for my voice. I'm recovering from a cold, not COVID. So, if my voice starts to give out, you guys will know the reason. So, at our last Investor Day, 2 years ago, I talked quite a bit about why I chose to join Cenovus. And what I told you guys then, is that I came to Cenovus because this company has the best oil sands assets, the most experienced and knowledgeable people operating those assets, and I personally saw a really great opportunity for a great Canadian company to thrive again. Cenovus still has all of those qualities. But today, the company looks a lot different than it did at our last Investor Day, having closed the Husky merger at the start of the year. And since the merger, I think we've had the opportunity to demonstrate the benefit of our operating model when applied to assets that are actually new to us. We've increased production from the Lloyd thermals to reach a new production records there, and we've reduced SORs and other oil sands assets acquired through the merger. And it's not just on the acquired assets where we've seen production gains this year. We've continued optimizing Foster Creek and Christina Lake, drilling new well pads and reaching new record production rates, while at the same time, continuing to lower SORs at both assets. You're going to hear a fair bit more on that from John and Norrie later. This year, we've also further strengthened our balance sheet, including achieving our interim net debt target of $10 billion in credit rating upgrades throughout the year. We've also fully delivered now on the $1.2 billion of synergies we committed to when we announced the merger. And on top of that, we've optimized the portfolio with over $1.1 billion in asset sales announced so far this year. All of this, together with the world's continuing recovery from the pandemic, is combined to drive excellent financial results for Cenovus. And with that, we increased shareholder returns announcing an NCIB program and doubling our dividend. In 2019, we talked about 3 really simple priorities, and those were strengthening the balance sheet, enhancing market access and optimizing our cost structure. And those who know me well know that I'm not one for victory laps, but I think most would agree that we have delivered major achievements on all of those and have set up the company to thrive in the business cycles to come. But just like in 2019, we're not done. Those 3 priorities will remain important to Cenovus. With our refreshed strategy and 5-year business plan, we've identified 5 strategic objectives that will drive continued value and returns for our shareholders. And those are: first, top tier safety performance and ESG leadership; second, cost leadership; third, financial discipline; fourth, returns-focused capital allocation; and finally, 5, free funds flow growth. Over the course of today, you're going to hear from us about how we are driving these strategic priorities through our business plan. Before getting into our business plan, I thought I would take a minute to reflect on how we see our role in the global energy diversification that is underway. And to be clear, we believe the responsibly-produced oil will continue to be necessary to meet the world's energy needs for a very long time to come. And even in the IEA Net Zero by 2050 scenario, there is a huge implied supply gap between forecast oil supply and base decline rates in the world's energy needs. From our perspective, we think this represents both a challenge but also creates a tremendous opportunity. And thinking about that continued oil demand, I firmly believe that the Canadian oil sands are well-positioned to be an important part of that energy supply in the energy transition and further that, Cenovus is uniquely positioned to be a supplier of choice. As Rhona will talk about later, the Canadian oil sands have a track record of emissions intensity reductions and Cenovus is a leader in both emissions intensity reductions and emissions intensity today. If oil is going to continue to be a part of the energy mix through the transition, there is a significant decarbonization investment that is going to be required in pursuit of global net zero ambitions. I believe that the Canadian oil sands sector is well-positioned for the kind of investment required, given the Canadian sector's overall large, long-life, low-cost and geographically concentrated oil reserves, as well as our sector's track record of innovation and emissions reduction. I am really confident that Cenovus is uniquely positioned to be an oil supplier of choice, as we move through this energy diversification. I say this based on our track record of leading emissions reductions in the oil sands, our demonstrated leadership in innovation and continuous improvement, our lowest GHG intensity in the oil sands, and with our absolute emissions reduction target and net zero ambition, we are committed to applying these strengths in pursuit of our own emission reductions and in support of Canada's and the world's net zero ambitions. I'm convinced that the Canadian sector, and particularly Cenovus, is well situated to continue being an important and sustainable part of the global energy mix, going forward. So, turning to our updated ESG targets now. At Cenovus, we believe sustainability is essential to the way we do business. To us, sustainability means driving innovation to reduce our GHG emissions, minimizing our impact on the environment, creating a safe and inclusive workplace and partnering with local and indigenous communities. The 5 ESG focus areas we announced earlier this year reflect this, and we have set ambitious targets in each of these areas. Rhona will take you through the various targets a little later. But for now, I'll just take a minute to emphasize the targets we've set for emissions. First, we have affirmed our ambition for net zero by 2050, and you will have seen the oil sands pathways alliance we cofounded in support of that effort. And on top of that, we have adopted a target to reduce absolute emissions by 35% by 2035. We think this is something that sets Cenovus apart, and Rhona will give you more thoughts on this later. Turning to our financial framework now. I hope, by now, that everybody knows to expect financial discipline from Cenovus. At our very core, is grounding our business plan at low cycle pricing. And as always, capital allocation at Cenovus will be returns-focused. Jeff is going to take you through our financial framework in more detail shortly. I firmly believe this financial framework will position the company to grow earnings and funds flow across the price cycles and drive increasing returns to our shareholders. So, turning now to a few highlights of our 5-year business plan. This slide highlights a number of key outcomes that will be delivered by our business plan. We plan to leverage our operating strength to maintain increased production rates in the upstream and provide growth and optimization in the downstream. And you will have all heard John and I talk many, many times in the past, about how we no longer see the need for major growth phases in our Oil Sands business. Later this morning, John and Norrie are going to talk more about how we've been able to apply our operating experience, to begin adding production volumes without the need for new steam facilities. Our 5-year plan leverages that evolution of our business and reinforces a disciplined approach to capital allocation across the business. Our ESG targets and improvements are embedded in the plan, and Rhona will speak to that a bit later. Overall, the plan positions us well to continue increasing returns to shareholders, including through dividend growth and opportunistic share repurchases. Our plan is set to sustain the increased upstream production we've established this year and increased downstream throughput about 14%. We will deliver these increased output while also reducing GHG emissions, and I'm confident that this is a valuable differentiator for Cenovus in this space. We're also continuing our financial discipline. Average annual sustaining capital of about $2.4 billion will be maintained. Incremental capital in the next few years is aimed at high return opportunities in the portfolio, including low capital opportunities to help maintain upstream production rates and modest capital opportunities for optimization in refining. This next slide demonstrates the kind of financial results we believe the 5-year plan is positioned to generate. The slide is a little complicated, thanks Kam, but I will simplify it for you, and Kam will talk more about all of this shortly. The chart on the slide reflects the potential trajectory at 3 flat deck pricing scenarios. Essentially, what the slide shows you, is that across potential price scenarios, our plan drives increasing free funds flow and earnings growth over the next 5 years. We see free funds flow in the $45 WTI scenario, and we see significant incremental free funds flow in the $60 and $75 WTI scenarios. A portion of that will be directed towards deleveraging, but with a smaller allocation as the balance sheet strength becomes even stronger, leaving more available for allocation to returns-focused opportunities, including shareholder returns. And we see significant cumulative free funds flow over the next 5 years, including about $23 billion in the $60 scenario. This positions us well to continue increasing shareholder returns. So, turning now to our 2022 budget announced this morning. We really believe we're delivering on our commitment to maintain capital discipline with a total capital budget of between $2.6 billion to $3 billion. This includes $200 million to $250 million to complete the Superior Refinery rebuild, which we expect to be more than offset by insurance proceeds. We will maintain $2.4 billion as our average sustaining capital requirement for the portfolio. This year's budget also includes some incremental sustaining capital as investment was lower over the last few years, as I know you've heard from John and I and Norrie. The major outcome of the 2022 budget is that we expect to generate substantial cash flow from our asset base this year to support over $2 billion in expected shareholder returns. Today and going forward, expect to see us continue to demonstrate operational strength, financial discipline and ESG leadership. Our operational strength is clear, and this encompasses our industry-leading operating model, our demonstrated leadership and innovation, our world-class assets, our track record of environment -- of operational reliability, and finally, our long history of a strong safety culture. I believe that our financial discipline will continue to be a core strength with the 2022 budget and 5-year plan we delivered today. And we will continue to demonstrate ESG leadership as we move towards achievement of our target to reduce GHG absolute emissions by 35% by 2035 and continue our many initiatives in support of our other important ESG goals. I'm confident that this combination of operational strength, financial discipline and ESG leadership will drive superior value and sustainable growth and shareholder returns. And on that note, I've talked about how we have an NCIB in place for up to 146.5 million common shares. As we noted in our news release this morning, we have started repurchasing shares, and at the current share price, we see a healthy range left to execute on the rest of the buyback program, but we still see share buybacks as opportunistic, and Kam will talk a bit about that later on. And finally, we see a sustainably growing dividend as a permanent part of our shareholder return strategy. Dividend is, of course, always a Board decision, and we consider the dividend every quarter, but I think it's very reasonable to think we'd be taking a hard look at the dividend when measuring up ways to return value to shareholders, along with incrementally investing in the business. Over time, we see capacity at $45 WTI to grow the dividend to about 4x where it is today. I'll now turn it over to Jeff and Kam to take you through our financial framework and shareholder return strategy in more detail. Thanks.

Thanks, Alex. And as Alex mentioned, Kam and I will walk through our disciplined financial framework, which is grounded at the bottom of the cycle or $45 WTI. The framework is based off 4 key principles. I'll walk through the first 2, including our financial resilience and how we think about the balance sheet, volatility reduction through the use of our integrated assets to stabilize cash flows and earnings. And then Kam will speak to our approach to capital allocation and how we plan to sustainably grow shareholder returns. When we speak to financial resilience, let's review our current state and the progress we've made this year. First, we extended and rightsized our available liquidity with committed facilities of $6 billion. Second, we obtained investment-grade credit ratings, all with stable outlooks, which will help maintain our access to capital at a reasonable cost. Third, we issued long-term debt at very attractive rates. And when combined with the liability management activities, we reduced our gross debt by USD 900 million, while extending our average bond maturity to 12.5 years, which has significantly reduced our near-term refinancing risk and provided $55 million per year in annual interest savings. And all of this work provides for greater opportunity to return cash to shareholders and to deploy capital in the business. Improving our balance sheet has been a journey, but we have demonstrated the ability to generate significant cash flow. And this has allowed us to strengthen the balance sheet quickly, and we've correspondingly reduced our net debt by over $3 billion thus far, achieving our interim net debt target of $10 billion. And turning towards our longer-term leverage targets. Our net debt targets are predicated on what our leverage metrics look like at the bottom of the cycle pricing, and obtaining mid-BBB ratings through the cycle. At $45 WTI, our company can generate roughly $5 billion of EBITDA. And in context, we set our interim net debt target at 2x net debt to EBITDA or in other words, our current net debt levels. And we see value in going further, towards 1x to 1.5x net debt to EBITDA, and our targeted mid-BBB ratings over time. And this target is well within our sights on the current strip. That said, it's important to point out that our balance sheet is already in great shape, and we screen well against our peers based on current consensus, as you can see from the chart on the right of this slide. And the foundation of our financial framework is grounding the business at bottom of the cycle pricing, but it's enhanced by the stability of cash flows. As you can see by the charts on this slide, the portfolio of strong, long-life upstream assets, combined with the processing units in Asia business, still provides commodity-exposed cash flows, but we have significantly reduced the volatility, allowing for a stronger, more reliable shareholder return proposition. With the Husky transaction, we stabilized and removed risk to our cash flows through the enhanced integrated nature of our assets. Prior to the transaction, both companies had significantly different profiles of volatility through varying pricing scenarios, as shown by the pale blue and green charts on this slide. The combination has allowed us to significantly increase our operating margin as well. We have been successful in achieving the $1.2 billion of synergies that we anticipated at the onset of the Husky transaction. And that has shifted the distribution of our cash flows to the right. And today, the combined company affords us the best of both worlds, by having an integrated set of assets with much more control throughout the value chain and the reduced costs, we have both increased our expected cash flows and made them more predictable at the same time. Now, as you can see on this slide, if throughout the plan, our capital and other outflows of cash are all covered by adjusted funds flow at $45 per barrel WTI. This, combined with our strong financial position, the reduced cash flow volatility provides excess free funds flow available to allocate to further deleveraging and shareholder returns across all price scenarios above $45 WTI. And our capital allocation will be disciplined through the 5 years and we plan to live within our means. Our financial foundation is strong, and our approach to capital allocation will allow us to achieve our deleveraging targets while generating substantial excess free funds flow as commodity prices rise. I'll pass to Kam now to go into further detail on our capital allocation priorities and our approach to shareholder returns.

Good morning, and thanks, Jeff. As Jeff has talked about financial resilience, reducing funds flow volatility and risk, these are absolute necessary and key pillars to our strategy as we shift towards talking about key areas I'm going to touch on, sustainably growing shareholder returns and returns-focused capital allocation. We are confident that the combined asset base with the lower cash flow volatility, low cost structure, including our sustaining capital is a competitive advantage in positioning the company to be competitive on shareholder returns. As you see on Jeff's last slide, we will be positioned to have significant free cash flow to deploy the 3 key areas: one, increasing shareholder returns, including growing the dividend and buying back shares; two, investing in the base business; and three, looking at opportunistic acquisition opportunities. So let's start with dividends. There's one takeaway on this slide, it's that we have material capacity to grow the dividend, with our plan supporting around $1.2 billion of dividend capacity by the end of the 5 years. I'll spend a few minutes talking about the framework behind our dividend and what you should expect from us. We see the dividend as being a permanent fixture in our capital structure, sustainable through the normal price cycles of the business. The dividend will not be compromised at low prices or what we think of as bottom of the cycle around $45 WTI. It's permanent and a commitment we ensure our capital spending, also our dividend, is fully funded at that $45 WTI price. Rather than focusing on a particular dividend yield or competing on dividends alone, we are focused on delivering a sustainable dividend with ratable growth over time. We recently doubled our dividend to $280 million or approximately $0.14 per share. As we continue to assess the dividend beyond this increase, it will be based on a few key criteria: one, as the debt continues to decrease, our confidence in increasing the dividend will grow; two, the rate of dividend growth will be considered in relation to what opportunities we see in share repurchases, which I'll touch on. As share repurchase opportunities diminish, shareholders should expect dividends to become a greater proportion of our shareholder return strategy to the extent that dividend remains sustainable. And vice versa, to the extent, share repurchase opportunities remain compelling, we will take a more measured approach on the dividend and dividend growth. With all that being said, we believe in any scenario, we have the capacity to grow that dividend comfortably 15% per year or greater over the next 5 years. Nobody should be surprised if we evaluate the dividend with a combination of ratable increases, along with potentially some onetime resets to higher levels along the way. And lastly, we will not be targeting specific payout ratios or dividend yields as we go. Rather, these metrics will become an outcome of the plan based on bottom of the cycle pricing. Moving to share repurchases. Share repurchases are a new strategy for Cenovus, given our focus on deleveraging, as Alex pointed out, over the past many years. It's something we're doing for the first time since the company's inception. We believe our strategy on share repurchases is differentiated. We will be opportunistic rather than buying back shares on a ratable approach. It's something we believe, we continue to have the same level of discipline as we do in all of our investments into our business. We believe it makes the most sense to think about repurchasing shares when you trade at a significant discount to our intrinsic value, and you can buy your shares at multiples below long-term valuations. We will look at the value of our shares based on mid-cycle pricing, somewhere in that $55 to $60 per barrel WTI price. And simply put, if our share price is trading below that value, we see it as a compelling opportunity to enter the market. Today, we see that opportunity to repurchase shares and have accordingly started that buyback program of up to 146.5 million shares. This next slide is a busy slide, and it's really a summarization and illustration of what our shareholders have asked for, in terms of providing our capital allocation framework. As you look at the boxes above the solid line, this is what we would call capital for safe operations. It's our sustaining capital and our sustainable but growing dividend, essentially our committed capital. These are cash outlays that we view as uncompromising in any commodity price environment and should be considered permanent. As you look at the boxes below the solid line, we have, really, 4 choices in capital allocation beyond the committed capital: it's further debt reduction; secondly, repurchasing shares; 3, further investments in the assets; or 4, looking at opportunistic acquisitions. Today, we see ourselves in the column on the far left, where you can see there's a clear allocation of excess free funds flow to deleveraging to achieve our interim debt target of $8 billion, which will happen in 2022. And the other half will go towards shareholder returns. We really have minimal incremental capital in -- for growth in the business today with the Superior Refinery project being the most material, which is going to be largely offset by insurance proceeds. As I mentioned earlier, when we see our share price below our intrinsic value, we will use -- prioritize use of excess free funds flow for opportunistic buybacks over investments in the business. And that's really the position we're in today. As we continue to move towards our $8 billion debt target, we will be allocating less towards the balance sheet. This will leave more allocation to share repurchases, incremental investment in the business and opportunistic acquisitions, should they become available. Allocation between these 3 areas will be returns-dependent. And as I mentioned earlier, the growth rate in the dividend will be dependent upon our ability to deleverage our desire to demonstrate ratable growth over time and relative to opportunities for repurchasing our shares. I'll finish up our thoughts here on the '22 budget. So we plan to sustain our elevated production levels that you've seen during the back half of 2021, with total production at the midpoint this year at 800,000 barrels a day for 2022. And importantly, this is midpoint after the effect of about 17,000 barrels a day of asset sales we completed in 2021. Our downstream throughput midpoint is going to be around 555,000 barrels a day and reflects an annualized utilization rate of just over 90%. Our capital spending for 2022 is expected to be between $2.6 billion to $3 billion, with about $2.4 billion to $2.6 billion in sustaining capital. We still have a belief of our annual sustaining capital requirements, over the long term, to hold this production level, still remains on average, about $2.4 billion per year. In 2022, there is some additional catch-up sustaining capital to compensate for the last few years of more moderated capital. The budget also includes capital progress the turnover project in the Atlantic, as well as completion of the Spruce Lake North facility in the Lloyd thermal areas. And then, there's the capital I've talked about, about $200 million to $250 million to complete the rebuild of the Superior Refinery project, again, with a large chunk of that, being substantially offset by insurance. Lastly, our budget reflects the recently announced shareholder returns. And as Alex walked through earlier, the budget is positioned to generate excess free funds flow above our base spend across all price cycles, and this sets up well for us to execute our NCIB program in 2022. And this last slide is, really, just a reflection of our 2022 budget and the excess free funds -- well, capability, we believe it will generate under the 3 price scenarios, being $45, $60 and $75. As Jeff talked about, we have anchored our plan to live within our means at $45 WTI. And as you can see from this chart, the capital program we announced this morning, along with our revised dividend and other cash outlays, including ARO , are all sustainable within that $45 WTI scenario. I am confident this budget really positions us well to fund our share repurchase program, and continue to achieve $8 billion of debt sometime in 2022. Now, I'll hand off to Rhona, who's going to take you through our ESG framework and our ESG targets. Thanks.

Thanks, Kam. I'm pleased to be able to speak with you today about our environmental, social and governance performance and our commitments that are coming up. So, I've been at Cenovus since its launch. And what I've experienced is an ongoing dedication to doing what's right for our staff, for the environment and for the local communities. It's just part of our culture here at Cenovus, and it's what makes us a sustainability leader. When I look across the organization, I see sustainability in every aspect of what we do. Environmental and social opportunities and impacts are considered in our decision-making. They're central to our project planning and to our capital allocation. Now, this way of doing business supports our track record of continuous improvement, and it keeps us focused on the ESG opportunities that have the greatest contribution to our strategy. To reinforce that connection between strong ESG performance and our long-term success, we link our ESG priorities to compensation for all employees, and to a greater degree, for senior leaders. Today, we released our new ESG targets, along with our 5-year business plan. Following the Husky transaction, we completed a robust materiality assessment to identify the ESG focus areas that our stakeholders, our staff and our Board viewed as the most meaningful for Cenovus. It's because of this thorough assessment, that we're confident in our plan. Now, what you see here are the ambitious targets that we've set across each of the identified ESG focus areas. Embedding these targets in our business decisions enables a realistic path to achieve each ESG target and it supports buy and across the organization. Of course, strong governance and safety and asset integrity performance are foundational to all that we do, and you're going to hear more from my colleagues about our focus on safety after the break. Beyond that, climate and GHG emissions is the focus area that we received the greatest attention for. We are committed to reducing our absolute emissions by 35% by year-end 2035. We've also maintained our long-term ambition to achieve net zero emissions by 2050. These are ambitious goals, and we expect all of you to hold us accountable as we pursue them. Our water stewardship target builds on our strong track record of water management. The new target is a commitment to lower the amount of freshwater used per barrel of oil by 20% in our oil sands and in our thermal operations by 2030. Now, as a reminder, all of our oil sands production is in-situ. We don't have mines and we don't have tailings ponds. So, the water we use at those assets is primarily to generate steam for our SAGD process. It's mostly saline water, and it gets recycled over and over again. Our biodiversity targets include a commitment to reclaim 3,000 decommissioned wells by the end of 2025. The 3,000 well sites represent approximately 70% of our existing reclamation inventory, which we're actively progressing to regulatory closure. We also plan to restore more habitat than we use in the Cold Lake Caribou Range. Our work on Caribou Habitat Restoration in Northeast Alberta has been ongoing since 2008. It includes a voluntary Caribou Habitat Restoration Project that we first announced back in 2016. Now, this target expands that program to 2030 with a $40 million total budget. This is the largest project of its kind in the world. Habitat Restoration is widely understood to be a cornerstone for caribou recovery, and we're very proud of taking a leadership role within our industry and nationally in this area. Our commitment to indigenous reconciliation is another thing that we're really proud of. I'll speak to our targets in this area and the concrete actions we're taking with our indigenous partners in a few minutes. On inclusion and diversity, we have committed to increasing the number of women in leadership roles across the company to 30% from about 24% to date. And we remain focused on our diversity at the board level. We're also addressing diversity beyond gender, and we're committed to setting a target in this area by 2023 after we progress work to set stage for that next year. Now, let's talk about the ESG topic that is top of mind for both Cenovus and for you, as investors, emissions reductions. As Alex mentioned, all credible forecasts indicate oil will continue to be required as part of the global energy mix for many decades. It's going to be a transportation fuel, but it's also a building block of products that we use every day. Now, that's why it's so critical that we continue to make every effort to reduce our carbon emissions, and we've been focused on that for a long time at Cenovus. Our oil sands emissions per barrel have seen significant improvements over the last 15 years, a 25% reduction, and that's including the acquired Sunrise and Tucker assets. Our top-tier assets and best-in-class operating practices have positioned us as an emissions leader in the Oil Sands. We remain at the lowest end of the range, even as the entire industry continues to reduce its emissions. And we're focused on additional reductions across our entire portfolio as we head towards our 2035 target and our 2050 net zero ambition. In our 5-year plan, we expect to sustain our baseline production of about 800,000 BOE per day and increase our downstream throughput approximately 14%, while reducing our absolute GHG emissions by around 5%. That's a really important goal that we've set for ourselves. Over the coming years, we're focusing on the technologies that we know can be implemented effectively in the short term to reduce emissions across the business. Now, at the same time, we're going to be advancing feasibility studies and pilots of additional technologies so that we can make well-informed decisions about the best decarbonization solutions for more significant reductions in the future. As I mentioned, our target is to reduce absolute Scope 1 and Scope 2 GHG emissions by 35% by year-end 2035 from 2019 levels. That sets us on the path to achieving that net zero emissions from our operations by 2050. Methane reductions will be primarily in our conventional business, where we're converting instruments and optimizing facilities for an immediate impact. We've already reduced our methane emissions by more than 45% from 2015 levels, and we'll continue to build on that track record. Of note, methane is not a large source of GHG emissions at our SAGD facilities. Carbon capture and storage, or CCS, is going to be a key technology to achieving our target. We have experience, already, with carbon capture at our Lloydminster ethanol plant and with the Zavante technology that we're piloting at our Pikes Peak South thermal project in Saskatchewan. Further to this, we're progressing 3 new CCS projects. They're expected to be up and running in the next 5 years. Longer term, we've identified downstream opportunities at Lima and at the Lloydminster complex, where CCS projects are currently being evaluated. The final bucket that you see here is portfolio and oil sands decarbonization. This includes future technology options such as large-scale CCS, maybe solvents, or even small modular nuclear reactors, all things that we're continuing to do analysis on. Now, this chart provides a bit more detail to the bars on the last slide. Our phased approach to decarbonizing the business stretches beyond the 2035 target to achieving our ultimate ambition of net zero by 2050. The pilots and feasibility studies we're undertaking in the near term are going to enable us to make the best decision in the mid- to long-term on what technologies will scale up most economically. We're going to remain disciplined in our approach to all investments in the business. This includes to ensure we select the most effective and the most cost-efficient decarbonization technologies. Now, some of the opportunities that you see in Phases 2 and 3 here, require collaboration with governments and with our peers, and that's well underway. Bringing together the technical strength of both legacy Cenovus and legacy Husky gave us the opportunity to reshape and to redefine our strategy around innovation. Our technology development is laser-focused on carbon, cost and revenue, especially when it comes to emissions reduction, no single solution is going to address the challenge. That's why we collaborate with peers, academics, other industries and entrepreneurs from around the world to find innovative solutions. This slide here shows just a few of those partnerships. Through this collaboration, we're able to leverage our technology spend and accelerate the development of multiple technologies that could be game changing. For example, as Co-Founder of Evok Innovations, we invest capital -- venture capital into early-stage clean technologies. These include carbon capture, hydrogen and digital, and artificial intelligence, amongst many others. Through $15 million of investment into Evok, we've leveraged over $250 million to accelerate these technologies towards commercialization. Now, many of you are already familiar with the oil sands pathways to net zero initiative that Cenovus jointly founded. You've heard Alex and me talking about it quite a bit these past few months. It includes Canada's 6 largest oil sands producers, representing about 95% of oil sands production. Our collective vision is to achieve net zero emissions from oil sands production by 2050. Achieving our objective is essential for the long-term success of our businesses and it's essential for Canada to be able to meet its climate commitments. The Pathways foundational project is a proposed CCS system with a CO2 pipeline that runs through the entire heart of the oil sands region to a sequestration hub in the Cold Lake area of Alberta. But this initiative is called Pathways with an S for a reason. CCS is expected to handle a considerable amount of the 68 megatons of CO2 we need to reduce in the oil sands. But other technologies, like some of those I mentioned earlier, such as small modular reactors, are also going to be needed for us to get to net zero in the oil sands. Working together to advance those technologies is also part of the Pathways initiative. Success of Pathways requires enabling policies, fiscal programs and regulations, to provide certainty and support for these types of long-term large-scale investments. Our discussions with the federal and the provincial governments continue to be going well to ensure the necessary support is in place to advance this ambitious vision. I have time now to address just one more of our 5 ESG focus areas today, and that's indigenous reconciliation. This one is especially close to my heart. I grew up in small town Saskatchewan with First Nations communities just down the road from our farm. From a very young age, I was aware of the challenges faced by indigenous people in Canada. Building positive and mutually beneficial relationships with indigenous communities around our operations is important to me, personally, and it's also critical to our business success. Our new target spend of $1.2 billion with indigenous businesses between 2019 and 2025 reflects our commitment to economic reconciliation for indigenous peoples. We have plenty of success stories over the years of working with indigenous businesses to help meet our labor and service needs, while providing economic opportunities for local residents. While doing business directly with indigenous companies is a focus for us and for the communities, it's not the only way that we foster these relationships. For example, we entered into an agreement earlier this year to buy solar power and the associated emissions offset from Cold Lake First Nations and Elemental Energy. This partnership blends our environmental and our social considerations. Another significant initiative we're excited about addresses a major need in communities. After listening to indigenous leaders about their concerns and their priorities, we committed $50 million over 5 years to build up to 200 much-needed homes in 6 indigenous communities nearest our oil sands operations. We're also supporting home construction training for community members. Now, if you watch the video, while you were waiting for Investor Day to start, you would have heard from some of these program participants. There are many more examples I could give. We strive to build these long-term relationships that help ensure indigenous communities benefit from having us as their neighbor. I look forward to progressing more of these initiatives over the next coming years. So, I want to close by reemphasizing our commitment to sustainability and to ESG leadership. We will continue to demonstrate this as we strive to achieve our ambitious targets over the years to come. I encourage you to check out the ESG report that we released today on our website for more examples of the positive impact we're having in communities and for more detail on our new targets. Now, I think you get time to stretch your legs. We're going to take a 15-minute break, and then John and his team are going to be here to talk about our operational plans. [Break]

Good morning, and welcome back. For those of you who I have met or don't know me, my name is John McKenzie, and I am the EVP and CEO at Cenovus. And I, too, have to apologize. I seem to be fighting a bit of a cold this morning, the blame for which, I lay squarely on my boss's feet. But I wanted to start this morning with safety. And I'd say, it goes without saying, but at Cenovus, we value safety above all else. It's reinforced in every decision we make, and we have very high standards for the care, custody and operations of the assets under our control. As we have repeatedly stated in acquiring Husky assets, we did a tremendous amount of due diligence to validate the condition of these assets. We convinced ourselves that Husky is on the right path towards correcting the issues and behaviors that have led to some of the process and operational issues that it had in the past. And now that we've had the chance to consolidate the portfolio, we've had the opportunity to review and implement the best practices, tools and processes for both companies. We've organized and bolstered our available resources in pursuit of our top-tier safety journey. At the end of the day, we are convinced that a good safety culture translates into reliable operations and helps us attract the best people. Keith will go into some detail of the safety initiatives in the downstream, but I first wanted to highlight a few accomplishments. We have achieved several safety milestones in 2021. At our Minnedosa ethanol plant, we reached 7 years without recordable incident at our Bruderheim rail loading terminal maintenance and projects teams completed 2 years without a recordable injury. And between December 20 and March 21, our delineation drilling program successfully delivered the Christina Lake and Foster Creek programs with no significant incidents, recordable injuries or reportable spills, and this is working more than 250,000 hours. Similarly, in our conventional business, we had no recordable injuries in 2021, which is an incredible accomplishment. We've only had one material safety, process safety event in Lima. And we took a difficult decision to temporary close some of our Canadian asphalt terminals until they could meet our asset standards. These accomplishments are worthy of celebration. Our performance has steadily improved over the course of 2021, and we look to continue this trajectory in 2022, as we bring up the Superior Refinery. We are proud of what we've achieved in the safety performance and we'll continue to build our track record of continuous improvement. So, just turning to our operational strategy overview. I'd like to take a bit of time to walk through each of our business segments of our combined company. Our Oil Sands business is the backbone of the company. It's a free cash flow engine, with decades of production and development opportunities to come. With low-cost, reliable production of about 600,000 barrels a day, our Oil Sands business will provide financial stability over the long term. Our Downstream business improves our margins by converting our heavy oil into higher-value products in both Canada and the United States. It reduces our cash flow volatility by providing secure access to multiple markets beyond Edmonton and Hardisty, Alberta. Finally, it optimizes our margins by using midstream assets along the heavy oil value chain to maximize realizations and netbacks. The Conventional business remains a key driver of our short-cycle, high-return opportunities, while continuing to generate free cash flow and having some of the lowest GHG emissions in the portfolio. And the offshore business is a stable, predictable, diversified part of our asset base, with a very low cost structure and high netbacks. With continued highly economic development opportunities and commercial enhancements over the next 5 years, we expect this business will positively contribute to Cenovus' free cash flow for many years. So, just turning to the business plan. What you're looking at is a snapshot of the key outcomes of our 5-year operating plan. So, starting with upstream production. Our experience in operating strategies in the Oil Sands has allowed us to increase production across the portfolio to over 800,000 barrels a day. And as you've heard, we expect to hold production in and around this level over the course of the plan. The majority of our upstream production increases come from the Oil Sands business, primarily at FCCL and in our Lloydminster assets. You'll hear from Norrie later, he'll provide some detail on the operating strategies of the Oil Sands business that we're applying across the portfolio to drive these results, and also touch on some of the key assets in this business. In the Downstream, we expect to achieve 14% throughput growth throughout our 5-year plan, and this is primarily driven by the completion of the Superior rebuild and the incremental refining capacity that it brings on in early 2023. The chart in the middle profiles our capital spend through the period. As we have signaled throughout 2021, there are some incremental sustaining capital requirements in our 2022 and 2023 Oil Sands business, as a result of lower spending in previous years. In addition, there's some incremental spending on safety and asset integrity projects in the downstream that Keith will discuss later. Over the course of the plan, sustaining capital remains in the $2.4 billion range on an average basis, and that's a good run rate for sustaining capital for the foreseeable future. The capital related for growth from the early years of the plan is primarily directed towards the completion of the Superior Refinery, as well as the terminal asset life extension project. Taken together, the charts in the middle and on the right demonstrate the expected improvements that we'll see in our business. Operating margins continue to improve, with modest capital requirements as operating costs decrease on stable production. These operating margins and free cash flow profiles are driving our financial flexibility to enable further deleveraging, execute our shareholder return strategy and incrementally invest in the business. So, let's take a look at some of the detail that's driving this. Unit operating costs and G&A are expected to improve by about 7% over the life of the plan. While we've seen some inflationary pressure on energy and commodity prices, as well as service costs, we believe we can more than offset this with productivity improvements at our assets and in the corporate office over time. I'll remind you that improvements that you've seen in our cost structure at Cenovus, over the past number of years, have been driven by technology improvements and optimizing our operating practices. We have made structural improvements beyond just service cost reductions. We see further opportunities to bring these operational and drilling and completion practices to the acquired assets during the planned period to achieve synergies well beyond the $600 million that were identified at the deal announcement. Similarly, we will complete our systems integration in mid-2022, which will allow us to optimize our internal processes as well as staffing. Finally, the divestments that we made in 2021, together with cost optimization through the future portfolio divestitures will continue to streamline our costs. Just looking at the comparison of our assets to others, as you know, we are the largest and most experienced SAGD operator, with advanced operating strategies applied across the combined portfolio. This is our bread and butter, as well as our competitive advantage. Our low steam oil ratio translates into low GHG intensity, which makes our portfolio more resilient to carbon pricing on a relative basis. With our years of operating experience, we have reduced our unit operating cost by more than 60% since 2014. In acquiring 140,000 barrels a day of SAGD production from Husky, we have the opportunity to apply our technology and operating practices to those assets to deliver further improvements. By continually improving our technology, execution and operating practices in combination with superior geology that we enjoyed at FCCL, this has allowed us to achieve some of the top producing wells in the province in 2021. We have levered this operating experience to drive down our sustaining capital cost to less than $4 to $6 per barrel over the last several years and look to continue on that trajectory. We continue to push our drilling and completion practices to drilling longer wells, further reducing our finding and development costs. The application of longer wells is being applied across our assets. We are planning 1,800-meter wells in our pad developments going forward, where geology allows us to do so, and are pushing the limit further with a pair of wells this year, greater than 2,200 meters. Our focus is to continue to improve our well productivity, thus reducing the overall steam oil ratio. This can be seen in our Q3 results in FCCL, with similar successes to be seen in our thermal assets going forward. In short, our competitive advantage in the application of SAGD technology comes for our years of experience, combined with our superior asset base. So, moving to the business plan. This chart provides a perspective on the production at our 3 largest assets in the Oil Sands segment over the planned period. At Foster Creek, as I've mentioned, we've seen the best rates at Foster, and we expect production to remain strong in 2022 and beyond, with some modest sustaining capital investments. The 5-year plan includes a plant debottleneck at Foster Creek to improve reliability and accommodate the increased production that we're seeing today. We'll also continue drilling of redevelopment opportunities, similar to what we've done this year, and Norrie will speak in more detail on this later. At Christina Lake, we continue to increase production and improve reliability. And you'll see that, that reflected in the plan supported again by our redevelopment drilling program. Included in the 5-year plan is a tieback to Narrows Lake, which is expected to bring on incremental volumes in 2026 at a much reduced capital cost than the original Narrows Lake development would have suggested. At the Lloyd thermals, this year, we increased production to over 95,000 barrels a day in 2021 and reach rates of over 100,000 barrels a day with the application of Cenovus' operating model. We expect that level of production to continue in 2022, with a guidance midpoint of around 100,000 barrels per day for the year. This includes First Oil from Spruce Lake North, which is expected to come on in the third quarter of 2022. The 5-year plan sustains production at Lloyd, with no new plant expansions, whereas 3 were assumed in the legacy Husky development plan. We'll achieve this through the application of Cenovus operating strategies, such as noncondensable gas injection and longer lateral wells with fewer surface pads. Overall, we estimate that this adds more than $1.5 billion of incremental NAV to the Lloyd Thermals. So, Norrie, again, will give you a little bit more detail on our operating model at Lloydminster. So, just turning to the downstream. Keith is going to speak to this in some detail a bit later. But first, I'll share you some of the benefits to share with you some of the benefits that we're seeing with integration, as well as some of the improvements we're looking to make in parts of the business. Adding the Husky Downstream business to our portfolio was a unique opportunity to merge our best-in-class heavy oil upstream business with a largely operated upgrading and refining business. This provides opportunities to optimize margins across the value chain and reduce our exposure to regional pricing dynamics of Western Canada. We continue to see value in owning and operating our downstream assets. This provides the opportunity to fully participate in a full range of refining economics and maintain operational and strategic direction. We saw the impacts of lower product demand in the U.S. this year, which is weighed on our results from this segment in the short term. Longer term, we still see U.S. Downstream as a highly profitable business and a core component of our integrated heavy oil value chain. Looking ahead to 2022, we see an improving outlook for refined product demand. And with the completion of the Superior Refinery, we expect to generate improving operating margins through the plan. The higher downstream capital in 2022 is related to the completion of the Superior rebuild. We continue to show this capital on a gross basis, although we expect most of these costs to be recovered through our insurance policies. And in addition, we've included some minor capital investment to grow margins in both the Canadian and U.S. refining business. As these projects come into service, we expect to see both higher operating margins and lower capital, resulting in the downstream business contributing $1 billion to $1.5 billion in free funds full annually at mid-cycle pricing. And finally, we continue to reduce our exposure to local and heavy oil differentials by ensuring that we have several offtakes for our heavy oil in our proprietary refineries, as well as pipeline access to refining basins with complex refining. Our integrated heavy oil value chain remains the backbone of the company and drives free cash flow profile that supports our deleveraging shareholder return strategy and capital program. Over the course of the plan, we expect to increase the annual operating margin between 2022 and 2026, by a minimum of $1 billion annually through the combination of revenue growth and cost reductions. And it's roughly split between Oil Sands and the Downstream. In the Oil Sands, the key initiatives there are the FCCL debottlenecking that I talked to, and the Narrows Lake tieback to Christina Lake. That accounts for about $200 million of that dollar value, and then applying our operating model to the assets that we acquired from Husky at Lloyd, Sunrise and Tucker accounts for another couple of hundred million, as well as the uplift that we expect to see from the in-service of TMX, which will reduce our exposure to Western Canadian heavy oil differentials. In the Downstream, with the completion of the Superior Refinery and our asphalt marketing business in the U.S., we would expect to see an incremental $200 million from those assets. We have a reduction of turnaround capacity -- or turnaround activity across the portfolio, as Keith and team have kind of optimized the turnaround schedule, as well as maintenance across the assets under their stewardship. That should be another couple of hundred million. And then with the projects that I spoke to briefly around WRB and rewire Alberta, we would anticipate accruing another $100 million of annual operating margin. So, just turning to the Conventional business. The conventional business provides a diversified cash flow stream from the production of natural gas and natural gas liquids. In 2021, we saw an increase in natural gas pricing, the incremental cash flow generated by our conventional segment largely offset the incremental energy costs of our heavy oil business. After rationalizing this portfolio following the consolidation of the Husky Conventional business, we see a lot of opportunities for investment in the portfolio to grow production economically with short-cycle fast payout projects. We'll continue to assess incremental short-cycle capital opportunities that generate high returns with modest amounts of capital. The Conventional business is core to our portfolio, and we see many opportunities to grow this business organically and inorganically through time. And then, just turning to the Offshore. As part of the Husky acquisition, Cenovus acquired offshore operations in Atlantic Canada with the West White -- or with the White Rose project, as well as Terra Nova projects, as well as Asia Pacific operations in Indonesia and the South China Sea. The Offshore business, in particular, Asia Pacific, has provided material free cash flow in 2021 and is expected to do so through the planning period. The Offshore business provides Brent-based commodity pricing for Atlantic assets and Asian LNG production, as well as fixed price gas contracts in Asia Pacific. Together with low operating costs, the netbacks from the Offshore business continue to be very robust. In the Atlantic region, we continue to restructure and derisk the portfolio to manage our capital exposure and late life asset risk. Looking at Terra Nova. This September, we announced that Cenovus would increase its working interest in Terra Nova from 13% to 34% and the remaining partners would sanction the asset life extension project. The project was on economic on its own merits at the bottom of the cycle pricing, but has the additional benefit of extending the life of the project and pushing our reclamation spending from 2022 to 2033. We currently expect production from Terra Nova to resume in 2022, and the net capital to bring this project online, our 34% working interest is approximately $78 million. In addition, for agreeing to increase our working interest from 13% to 34% in Terra Nova, we were able to negotiate a reduction of our West White Rose exposure from 70% to 57.5% with a partner in both projects, assuming certain preconditions are met and the sanctioning of the West White Rose project proceeds. So, just turning to the West White Rose project. Let me say a few words before returning to Asia Pacific. When we purchased Husky, we made a worst-case assumption that we would be fully decommissioning the West White Rose project. And this is still the base assumption that you see in our 5-year plan. The production was halted by Husky in 2020 and is now almost 65% complete. Over the past year, we've taken time to evaluate a number of potential scenarios from full decommissioning, to marginal reinvestment, to a full restart of the project. And what is clear, is that there is no do-nothing spend, nothing option for the West White Rose project. Time constraints and practical realities will lead us to make a decision on this project probably in the spring of 2022. The relevant decision becomes, how do the go-forward economics of investment compete with the abandonment case? So -- it's premature to show you the potential numbers, as we continue to work through potential capital estimates with our partners. Similarly, we continue to have constructive dialogue with the provincial government on potential fiscal terms and conditions. If West White Rose were to restart, we would estimate net production to Cenovus would ramp up in the 2026 time frame. For now, what you see reflected in our 5-year plan is the decommissioning case. If we do choose to proceed, Cenovus' interest in the project would be reduced to 57.5%, assuming certain preconditions are met. Looking at Asia Pacific and in particular, China. China is a wonderful asset, and it's a significant free funds flow contributor, and we look forward to future opportunities there that add value. The reduced rate in China that you see in 2022, '23 is related to the Liwan 3-1 gas sales agreement, reaching the end of the amended contract period, which allows it to produce higher rates through the second quarter of 2022. It is our gas supply contracts that drive production rates rather than the reservoir capability. We are looking at opportunities to increase volumes at Liuhua 29-1, above our GSA to backfill some of this will decline. And this would add volumes as early as mid-2022. There continues to be very strong demand for gas and NGLs in the region. One of the things we haven't talked about is 15/33 block, and this is another development opportunity in China, which we derisked with a successful exploration well in 2021. It has not yet reached sanction, it is not included in our plan, but we'll probably add about 10,000 barrels a day of light oil towards the '25-'26 time frame if we were to proceed, and we expect to reach a decision on this project in mid-2022. So, turning to Indonesia. We have 4 new offshore fields being developed at the Madura Strait, for total capital of about $150 million in 2022. That spend started in -- sorry -- sorry, $150 million total, with that spend starting in 2021 and going through 2023. The new production is dry gas and is expected to increase Indonesian production to about 20,000 barrels a day by 2023 from the 9,000 barrels a day today. And all of those volumes seem relatively small in the company of our size, our Indonesian business is expected to generate in excess of $200 million per year of free cash flow with these projects coming online at the end of 2023. So, very material to us, although the volumes don't necessarily suggest that. Now with that, maybe what I will do, is turn this over to Norrie to walk you through what we're doing on Oil Sands.

Thank you, Jon. And I'd like to take this opportunity to provide a more detailed overview of our operations. I'll show some examples of operational improvements we've delivered over the years and how these improvements are going to help shape our ongoing development plans as we go forward in the next few years. We're always pushing our operational limits at Cenovus, and we'll continue to do so as long as our assets continue. I'm highly confident we can continue to sustain safe, low-cost, high-efficiency developments for decades to come. Now as Jon spoke to earlier, Cenovus is a leader in well design, extended drilling length and operational well control. The benefits of all these years of cumulative operating experience is that we're able to translate operational learnings from that experience into best practices. We continually drive down our already low sustaining development costs, and we'll continue to do so. This slide actually shows our Foster Creek asset, and it illustrates how we've been able to cut almost 50% from our finding and development costs by applying longer well lengths, our zero-based design modules and operate and optimized our pad layouts at the asset level. So we're now delivering sustainable well pads at between $2.50 and $3 per barrel. The map here shows our West Arm, which is in the light blue color. And we actually have more West Arm well packages to bring on in 2022. And these will be followed by the well packages in the Northern area, which is those green boxes, with comparable quality to the West Arm on an economic basis. And this really speaks to the quality of the resource that we have left at Foster Creek. Moving on to Christina Lake. Our focus on continually reducing surface footprint and maximizing the well lengths is resulting in a significant reduction in our development costs at this asset as well. As you can see from the map on the right of the screen, it highlights the various pad developments we've been executing over time. Our upcoming well packages at Christina Lake have significantly larger drainage boxes that you can see. Each of those pads are a lot larger, and they're using longer well designs. And as Jon said, some of them are now 2,200 meters long. This actually compares with the original pads in the dark blue color, where the wells were typically about 600 meters in length. So we're achieving almost 3x that length. So this results in improvements on our per well productivity basis. And there's significantly less wells, pads, the surface modules that we have, and that drives down these development costs as well as the environmental footprint. Now we actually have a very large portfolio of pad developments at Christina Lake, and I'm actually excited about the opportunities to further improve our delivery performance with the decades of opportunities to come. So in addition to drilling new well pads, we actually have a strong well redevelopment program. And we are in the -- that we've actually been processing for a large number of years at Foster Creek and Christina Lake. The approach essentially utilizes the existing surface equipment that we have in place to pick up additional reserves in areas that have already been heated using our SAGD operation. We are the most experienced operator in this space, and we're applying this expertise to the legacy Husky assets from day 1 of the merger. The redevelopment program wells are rapidly applied to reduce our sustaining capital costs as we leverage off existing infrastructure. In addition, utilizing the heat that's already in the reservoir allows us to produce these barrels at a steam-oil ratio of around 1. And the development cost is subsequently about $1 a barrel for these type of well developments. So this approach also provides environmental benefits of lowering the emission intensity because of the low SOR, and it's much more efficient from a land use viewpoint. So as you can see from the chart, there has been significant contributions in volumes from this program over the last 5 years. And this approach continues to be applied broadly across our assets. By the end of 2021, we will have 6 redevelopment wells completed in our new Lloyd thermal asset area, with a broader campaign, as you can see, across all of our assets in 2022. So we continue to focus on extending our steam reach, which is really how far we can actually put our pipelines with the steam out to the pads. This allows us to access high-quality resources further away from our central processing facilities. Now this creates a huge value as that avoids the need for new processing facilities, which also reduces our emissions intensity. In this -- on this slide, the map on the right-hand side of the slide shows that Christina Lake will now able to extend our steam reach and tie back the production from our Narrows Lake development area in the -- back to our central processing facility. This unlocks over 1 billion barrels of proved plus probable reserves. It materially reduces our capital spend, and it adds -- adding over about $1 billion in value, using a $45 WTI for our Christina Lake business. And I'll just emphasize, it's completely avoiding the need to put large central processing facilities up at the Narrows Lake asset area, which was the original plan. Now similarly, we see opportunities across our Lloyd thermal assets to sustain production volumes for longer by accessing resources at greater distances than were originally planned. The map on the left-hand side shows, within our Lloyd thermal area, our Bolney asset. Originally, we plan to build a new facility on the left-hand side of the picture. You will see now that this tieback of the development to the existing central processing facility is going to take place. And what that does, it avoids the need for that new central processing facility. But equally important, it accelerates the development timing while materially reducing the costs of the development. So overall, between Narrows Lake and Lloyd thermal, we've managed to save a significant amount of future planned capital costs while tying back that resource to existing facilities instead. It's been a positive shift in the economics and is one of the ways we're stewarding to our goal in reducing our absolute greenhouse gas emissions profile going forward. Applying our Foster Creek and Christina Lake development and operating strategies specifically to our Lloyd thermal asset, as an example, is reducing the development costs while delivering stronger production, as Jon mentioned, and lowering our operating costs. And our Spruce Lake development, as an example, the 2 maps show a before and after view of how we plan to develop the remainder of this resource. We're accessing the same amount of resource with a completely different development plan, and we are doing so, as you can see, with half the number of pads and nearly half the number of wells. By applying wider well spacing, longer wells and optimized pad layouts, this allows us to do this. And for Spruce Lake alone, we're removing over $400 million in sustaining pad and well costs over the life of this asset and another $160 million by removing the processing facility that was in the original plan. Now we've done this everywhere in the Lloyd asset area. Dee Valley, as an example, has also savings of around $270 million for context. So we're really driving significant change here. And it's one of the major ways we're going to continue to leverage value from these assets by driving down our sustaining costs. So through these examples I've shown in the previous slides, we've been able to collectively increase the net asset value of this business area by approximately $1.5 billion, which is an even more impressive accomplishment, recognizing that, this year, most of our staff were working virtually while managing the integration. So this example for Lloyd thermal assets show just how we're leveraging our expertise in operating wells, managing the reservoirs and developing new pads and resources. Our operating improvements include how we run the wells, the pumps and our late-life gas injection plans. And the operating cost improvements include optimizing our workforce, our maintenance activities and our ongoing operations. We're also applying this approach on our Sunrise and Tucker assets, so there's more to come. And with that, I'll turn it over to Keith to speak in more detail on the Downstream. Thank you.

Thanks, Norrie, and good morning, everyone. I'm Keith Chiasson, and I lead our Downstream business. I'm going to start today by talking about our safety performance, including where we see our operating capabilities today and how we have begun our journey to become, first, a top-quartile performer, on our way to a world-class operator. The acquisition of the Husky Downstream assets brought with it some history of operating incidents, and it was imperative to the Cenovus leadership team that any risks associated with these assets were well-understood and steps made to mitigate these concerns post merger. Let me take you through some of the actions we've taken so far this year. We continue to build our organizational capabilities. We have added experienced downstream leaders that will drive our culture of safe, reliable and profitable operations. Also, through the year, we have completed third-party process safety risk assessments by engineering and risk consultants to assess the current state of our operations, identify associated risks and proposed mitigations. Through the work of our external consultants and our own internal risk reviews, we will prioritize spend on facility renewal projects across our manufacturing assets to ensure we have safe and reliable operations. These projects include enhancing our environmental performance, improving integrity and reliability of the assets and driving down the potential for process and occupational safety events. Along with planned turnarounds at our Lloyd Upgrader and Refinery, the facility renewal projects in our Canadian assets will result in onetime increases in our operating expenses for 2022, but they will trend down across the 5-year plan. Our base operating expenses through the plan will be flat year-over-year. Our 5-year plan addresses investments needed to deliver safe, reliable operations and mitigate known risk while setting a strong foundation on which to continuously improve and move forward with quick win, value capture and growth opportunities. Let me try to explain this detailed chart. Our downstream strategy focuses on owning the right set of assets, connections and optionality to move our production and products to market, reducing volatility, lowering cost structures and maximizing profit. Our expanded portfolio, as a result of the Husky transaction, has enhanced our ability to optimize margins. This slide walks you through how we take the 800,000-or-so barrels a day that are produced in our upstream assets and get them to market, either by pipeline, rail or by upgrading and refining them into different products. Our value chain is structured to maintain the position of profitable, low-cost operator in the short and medium term as well as, over the longer term, in anticipation of energy transition impacts on hydrocarbon demand and cyclical periods of low margins. We now have improved ability to purposefully place our upstream production in liquid markets with lower volatility, which includes our own integrated value chains. With the broader portfolio, we have created a competitive advantage to create optionality and flexibility and have the commercial expertise to capture market share and profit and price dislocations. Over time, we will continue to optimize the mix of assets. However, our operating model is commercially responsive to ensure that we are optimizing our production, transport and storage, refining and sales. We were able to quickly turn up or down production rates and refinery throughput, make decisions to store or sell and choose the most optimal transportation mode between pipe and rail to access markets. A few recent examples of how we were able to pivot quickly to utilize our flexible rail capacity was during the recent flooding that caused the transportation event on a pipeline to the West Coast. We quickly turned on 20,000 barrels a day of our rail capacity to move product to market in that scenario. Another structural example is within PADD II, whereby we have 3 pipeline connections to reach that market. Once there, we have the opportunity to exercise our option for molecular integration, running it through our refineries, selling to PADD II market or use our U.S. Gulf Coast pipeline connectivity to reach other markets. A final example is on our U.S. Gulf Coast transport pipeline. Due to apportionment on the mainline system, we developed makeup rights on the U.S. Gulf Coast pipelines. But you have to nominate to use those makeup rights. We were recently awarded significant volume that allowed us to move additional barrels to the U.S. Gulf Coast, capturing the higher U.S. Gulf Coast price relative to Alberta pricing as the differential in Alberta widened. This increased our realized price relative to selling those barrels in Alberta. Given the volatility we have seen in the market over the past year, many of you have asked us about what our U.S. refining business might look like in a more normalized demand environment. We put together this chart casting the 5-year plan across 3 price decks to help show you the type of earnings power we can expect from the business. Our current mix of refining assets are well positioned to take advantage of Canadian heavy crude oil. In addition to the Superior Refinery coming back online in early 2023, which I will discuss in more detail later, we will be concluding a couple of small-growth projects that will increase our throughput and improve margin capture at our refineries. This includes the Wood River gasoline hydrotreater optimization and hydrocracker yield optimization projects that will start up in mid-2022. These will add heavy crude capacity and improve clean product yields at the refinery. At Borger, we are upgrading our end-of-life crude heaters that will increase throughput and improve energy efficiency. We continue to challenge ourselves to explore low-capital opportunities that drive margin growth across the plan and have several opportunities under evaluation. As Jon spoke to, these margin expansion opportunities, combined with the normalizing demand for refined products, will drive significant cash flow from our Downstream business while providing the integration for our business that reduces our overall volatility. Our 5-year plan delivers safe, reliable, responsible and profitable operations while driving additional value capture growth and strategic opportunities. We talked to you earlier in the year about some of the opportunities we saw to increase integration in our Upstream business with the Lloydminster Upgrader and Refinery, and I want to provide an update on some of the work we are doing there. This is a great industrial complex, and we continue to look at ways to extract more value out of this site. Rewire Alberta is about margin expansion, and we have a suite of projects that are available to us. The first is a debottleneck of the refinery, which we anticipate will add approximately 2,500 barrels a day of increase -- and increase our annual operating margin. The capital for this project is already included in our 5-year plan at $25 million in 2022. The second opportunity is a further expansion at the refinery. It has the option to change the feedstock from Lloyd barrels, which typically are higher quality as it is a lower-TAN crude, and replaced with barrels from Foster Creek and Christina Lake. There is opportunity here to increase margins on FCCL barrels that go through the refinery as well as on Lloyd barrels that can be sold into the market at a premium quality feedstock. Very modest capital evaluation work is included in the plan for 2022 and 2023, but future project costs are not yet included in the plan. The other opportunities we are exploring are a debottleneck at the upgrader, which could include a future expansion and an opportunity for a full feedstock replacement with FCCL barrels. We will progress these lower capital, margin-enhancement projects through our gated development process and continue to evaluate additional opportunities to fully exploit this excellent industrial complex that is situated essentially next to our world-class upstream resources. Lastly, I'll give you an update on the Superior Refinery rebuild. The project is over 70% complete, with planned start-up in early 2023. And I'm pleased to say the project is coming in on both time and on budget, and we expect the capital to be substantially offset by insurance proceeds. The completion of the rebuild will increase our heavy oil conversion capacity by approximately 35,000 barrels a day and will diversify our product mix with increased asphalt production. The refinery is unique in that it is one of the first stops on the Enbridge mainline, which positions us well to access discounted feedstock, consume the barrels we produce and take advantage of heavy dislocations when they arise. With that, I'll hand it back to Jon.

Great. And thanks, Keith, and maybe just before I turn this back to Alex for some closing remarks, I'll round out the conversation with a snapshot of just a few of the organic opportunities in our portfolio. So what you see in this chart is a reflection of what we believe is a deep inventory of high-return opportunities across our value chain. The chart shows you the IRRs across the portfolio at $45, $60 and $75 WTI flat price decks. The dark blue bars are included in the plan that we've laid out today, and the light blue bars are not embedded in the plan currently but are under evaluation. What makes this portfolio unique is the inventory of sustaining projects that are used to fill in natural declines, specifically at Foster and Christina, but growing more so into Lloydminster and what we expect at Tucker and Sunrise as well, which greatly mitigate the economic risk of decline. As Keith mentioned, there's a small amount of capital included in the 5-year plan for Rewire Alberta, but we're still taking the time to evaluate project opportunities before committing capital beyond that. But we're obviously very excited about the opportunities that we see in Lloyd. So I think, to sum up, we're slowly growing our production base of 800,000 barrels per day, increasing throughput volumes in our downstream and growing margins across our value chain and reducing absolute emissions at the same time. So to be clear, while this is a slow growth story, we are focused on margin improvement in our core business while reducing absolute emissions. We think this continues to improve the business, while maximizing free cash flow generation to support the shareholder return strategy, deleveraging our balance sheet as well as providing for future investments in our business. We think we've built a really exciting company. We think we've built a very good company. And with that, I'll pass this on to Alex for some closing remarks.

Thanks, Jon. I thought I'd now finish with that slide I spoke to earlier this morning when I talked about what you could expect from Cenovus today. We believe that Cenovus' value proposition is clear. Through this company's operational strength, financial discipline and ESG leadership, we are positioned to deliver compelling excess free funds flow to support sustainably growing returns to our shareholders. I am highly confident that our strategy, 5-year plan and 2022 budget establish a solid path for Cenovus to achieve that outcome. And with that, why don't we move to the Q&A session. As a reminder, to members of the equity research community, you've been invited to join us on the audio line for the Q&A portion of today's event. And questions may also be submitted in the Q&A chat box on the virtual event platform. So why don't we move on to it? I think Jon and I will kind of start out. And if there's anything that goes to any of the specific presenters, we'll ask them to answer.

[Operator Instructions] Our first question comes from Greg Pardy.

Thanks for the rundown on everything. Very, very thorough. Jon, you mentioned in the U.S. Downstream, right, there's a preference for a 100% working interest in these refineries and then in operatorship. But that exists essentially in, what, 2 of the 5 once you got Superior back up. So is this -- is the U.S. Downstream perhaps the biggest area that we should expect to be reshaped with time through transactions? Or how should we think about that?

Yes, Greg, one of the things that we wanted to accomplish with the Husky acquisition was, we acquired the ability and the intellectual capability to run downstream operations. If you remember in Cenovus, all of our downstream operations were of the nonoperated variety. And we've kind of acquired that, I think, both in Canada and the U.S. with the upgrader and refinery in Lloydminster, married up with the Lima Refinery and the Superior Refinery, which will come on in late '22, early '23. So when we think about what is the best way to hold refining assets inside the new company, we're certainly giving a lot of thought to what is the value proposition of owned and operated refineries versus nonoperated third-party interests. And as I think I indicated, one of the things we quite like in owning and operating refineries is that you participate in the full range of refining economics. A lot of refining profitability happens before you reach the plant gate and as you place your products beyond the plant gate. And then having strategic control, both on an operational and sort of a strategic basis going forward, is quite important for us. So it's something that we're absolutely looking at and something that we think quite seriously about.

Okay. And then just the other question was just on Spruce Lake North. How big is it, and essentially, if that really just aims at offsetting declines with time?

Yes. Why don't I turn that one over to Norrie. So what I would tell you, Greg, is we acquired this, it was kind of 3 quarters complete. It had been halted as we acquired Husky, and the economics of it are really quite compelling. But Norrie, why don't you take a crack at the question?

Yes, certainly. It's designed as a nameplate 10,000-barrel-a-day plant, which is very standard for the region. We tend to operate them with our debottlenecks at about -- up to 14,000 barrels a day. And as the slide I showed, we are actually trying to use very, very high efficiency pads to maximize the production from this area. So it's in our business plan. It will come in steam on the third quarter of 2022. So it won't kind of make a material impact on the year, but it will, within 2023, you should look to about a 12,000 barrels a day of production ongoing from that business area.

Our next question comes from Menno Hulshof.

Thanks for the rundown. Just -- I believe this is a question for Jeff and Kam, just on divestitures. You've already exceeded the estimate that we were internally carrying for the year. And now we're at -- depending on the day, but generally trending higher on oil prices. We have line of sight to $8 billion of net debt in 2022. So can we safely assume that asset sale activity will slow down over the coming quarters? And then on a related note, now that you've had a year or to digest the Asia Pac assets, how are you feeling about that part of the portfolio? Would you say you're generally more or less committed to that region relative to earlier this year?

Menno, it's Alex. Maybe I'll start off just on the A&D front. And as you noted, I think I had always been using this sort of benchmark of many hundreds of millions of dollars. And obviously, we have passed that by a large measure. I would say, with respect to kind of the coring up of our business, we're not done yet. The -- I think people should not be terribly surprised to see some more work coming out on the A&D front. And with respect to Asia Pac, I think you heard Jon talk -- it really gave a great story about just what an excellent asset that has been to us. And that is certainly not something that I think people should be thinking about in 2022 as a divestiture candidate for a number of reasons that we've talked about previously.

Yes. And maybe I would just add on Asia Pac. These assets have been a really pleasant surprise for us. So we've got a very good working relationship with our partners in Asia. But I think one of the unique things in both these assets that is really quite valuable is you really don't need to worry about the late life management of these assets. So when the PSC is complete, these assets revert back to the PRC, and you've paid along the way for your decommissioning. So unlike other assets, where you've got to deal with late life and decommissioning issues, these are fairly clean. And as I said, they've provided a tremendous amount of cash flow for us. And you can see in the plan that we're still seeing that value through the plan period.

Terrific. And I'll just follow up with a question on decarbonization capital, energy transition capital, whatever you want to call it. Would you be willing to provide a ballpark estimate on what it could cost on a gross basis to achieve a 35% absolute reduction by 2035?

Did you want to take a shot at that, Jon? Or do you want me to?

Why don't I let you? You live and breathe that every day, so I'll let you.

I mean, I thought Rhona's slides did a really good job of kind of talking about the opportunities. And I always talk about it that we have -- we have a lot of tools in our toolbox to reducing our GHG intensity. And you've seen already that we have a number of initiatives that we're actually able to implement with little to no capital. And you've seen, for example, what Norrie has been able to do to the SORs on the legacy Husky assets. And then, there are a number of initiatives that are relatively modest capital. And then there are those larger, chunkier projects, whether that would be large-scale CCUS, the Pathways foundational CO2 pipeline and sequestration project, and maybe much further in the future, small modular nuclear reactors. And I think in this 5-year plan, we have put a modest amount of capital into the plan, kind of in the range of several hundred million dollars, but really quite manageable. And we think that is ample to get us through to the initiatives that we've talked about so far in the presentation.

Our next question comes from Dennis Fong.

The first one is just more on the rock refining side. Obviously, taking into account some of the, I guess, Rewire Alberta opportunity as well as addressing a little bit of the potential, we'll call it, operated versus nonoperated ownership of refineries. How are you guys thinking about the refined product demand dynamics as well as how you guys are feeding into your Downstream operations, especially in light of, we'll call it, today's refined product demand levels? And how you think about that strategically going forward? And how are you looking to reposition Cenovus, kind of, through that period of time?

Thanks, Dennis. Why don't we pass that off to Keith to -- give your thoughts on. Keith?

Yes, sure. Thanks, Alex. And thanks for the question. When we think about product demand, obviously, 2020, 2021 has been a bit of a challenge for the U.S. refineries. What I would reflect on, though, is that demand in Canada, and especially in Western Canada, through the assets that we have there, has been relatively strong. So when we think about how we integrate our world-class upstream oil sands assets and the Rewire Alberta projects, it's exactly that. We have a fantastic industrial complex sitting in Lloydminster with the refinery and with the upgrader. And we're looking at ways to further integrate, through those Rewire Alberta projects, expanding the refinery, looking at future expansions potentially at the upgrader. Longer term, we obviously are aware and do believe that demand for finished products will change. But in the near term, in this 5-year plan, obviously, we don't see that as a material impact. When we look at Downstream U.S. refining, we have actually seen demand coming back relatively strongly. The remaining one is, and has been, a bit around the jet fuel demand. But we're through a lot of turnaround activity in our operated assets and nonop assets and really positioning ourselves well for a strong run in 2022. The other thing I would add is kind of a Superior coming online, it will produce finished products, but it also diversifies us further into the asphalt business, which we think demand will be strong, especially when we think about some of the infrastructure investments that the U.S. governments are announcing and kind of those infrastructure investments transacting in the road-building type of work. So we're going to be well-positioned in 2023 to take advantage of that through our Superior restart.

Great. Great. Really appreciate that color. My second question here is just on Narrows Lake. Thank you for the incremental information around kind of pipeline costs as well as the ability to, we'll call it, extend the reach of steam. How does this potentially, in terms of reconfiguring the development plan around Narrows Lake, adjust with respect to the implementation of things like solvent-based recovery development and implementation of new technologies?

So why don't you take a shot at that, Jon, or maybe pass it on to Norrie.

Yes. Well, Norrie, why don't you take a crack of that one? I know this is something that you guys have been working on over the past 6 months.

Yes. Thank you. We have ongoing solvent pilots at our Foster Creek facility, and we see opportunities to potentially commercialize these. So our Narrows Lake development is actually very complementary to this. As you can see in the slide that I showed, what we're doing is taking the steam up to Narrows Lake, which is -- pads are between 15 and 17 kilometers from our central processing facilities, and then bringing them back. But in the future, we are actively looking at the suitability of this new area for solvent technology as well. So as we work through the pilot, we're kind of making that decision kind of going forward. So it's kind of right in the top of our minds as it helps reduce our CO2 intensity and other absolute emissions kind of going forward. So yes, you're right on the money. That's the kind of things we're looking at, at the moment.

Yes, and maybe -- go ahead, Jon.

Sorry. What I was just going to add to that is, what really went into our thinking around Narrows was this was a way to high grade the quality of the resource extraction by getting at some of the highest-value deposit in Narrows Lake quickly, but taking a significant amount of capital out of the asset plan going forward. And it's something we've been thinking about for a period of time. But there's nothing that we're doing today that prevents us from going to sort of a pad-based solvent recovery strategy in the future. As Norrie mentioned, that's also -- things that we continue to look at and continue to evaluate. But we haven't closed the door on that by announcing what we did today that we're moving forward with a tieback of Narrows into Christina.

Yes. And I -- that was largely my comment. The only thing I would have added to that, I think, I think it'd be fair to say, in the work we've done with solvents, I don't think any of the management team have any concerns about the viability of the technology. I think we've done enough work that we're pretty confident that it works as hoped for and represented. And the other observation I would have is that it does work a lot better on new and less mature areas, which I think is kind of another point Jon was alluding to. Narrows, with that new resource, may potentially end up being a very attractive place to roll out solvent at a large scale. Just a couple of comments. I noticed we have a number of written questions. Maybe what I'll do is we'll just try to get through the verbal ones with the analysts, and then I'll jump to the written ones at -- if we have some time at the end.

Our next question comes from Neil Mehta.

This is Nicolette Slusser on for Neil Mehta. So we recognize that sustaining average CapEx is around $2.4 billion regarding the 5-year plan. Is there any inflation risk associated with that level? Is Cenovus currently seeing any pressures in either the U.S. or Canada?

Yes. Maybe I'll take a crack at this one, and if you want to chime in, Alex, feel free. But certainly, we're seeing everything that everybody else is seeing in terms of wage pressures, in particular, as well as some commodity price inflation in some of the basic commodities that we consume at all of our facilities, both in the upstream and downstream. What I would say, to date, this has been largely manageable. And particularly, with the Superior rebuild project, we've done almost all of our procurement prior to agreeing to restart that project back in January. So we're seeing it. It's not necessarily being reflected in the cost that you're seeing. Because one of the things that we've been able to do is take significant amounts of capital out of the plant as well as used technology to improve our overall cost structure. And one of the things that I think is really important, where some of the slides that Norrie was showing, whereby going to larger well lengths and going to an entirely different development plan, what we've been able to do in a lot of our assets is take out the need for things like CPUs and reduce our drilling cost by going to longer wells and reducing our capital need for well pad design by going to the zero-based design and the like. And I think as a company, we've had a history of beating back inflation. And I think that, that continues today. So we certainly see it. But by the same token, by improving technology and improving the way we operate, we have been able to beat a fair amount of impact. I think the other place that I would just highlight that we are seeing it is on energy costs, and we are a big consumer of gas. And certainly, that gets reflected in the operating costs that you see in our heavy oil business, but we do also have that direct offset in our conventional business. So maybe I'll leave it there, unless there's something you wanted to add, Alex.

No, I was just going to make the point that if you take a look at nonfuel op costs, that is a message that Jon and I send to our senior people when we're doing budgeting. One of the challenges to them is to try to eat inflation and keep those operating costs stable. And as you've seen in our 5-year plan, that's largely what we're going forward with.

Yes. Maybe I'll just add something else. I mean one of the things that we do, and Norrie's been very deliberate about this year, is we have standards as to how we delineate reservoirs and map them so that when we do apply capital to them, we have very high degrees of certainty that the capital that we're putting into the ground is going to be as productive as we think. And we've taken a lot of time this year to really do a lot of work in mapping the Lloydminster resource and putting some money into doing the delineation drilling and doing what was required to properly map those reservoirs. So we have a much higher degree of comfort in the capital that we're putting there is actually going to give us the results we're looking for. And similarly, in Sunrise and in Tucker, we've still got some work to do to map those resources and evaluate the subsurface. But that will ultimately give us a much greater degree of comfort in capital productivity, which, again, tends to beat back inflation.

And then just a follow-up would be on China and the gas sale agreement, specifically. Are there any general price points for the contracts that are being discussed, maybe, relative to historic conversations? And just any broader color you can provide on key factors in pursuing those opportunities versus others in the portfolio?

Yes. Maybe I'll start, and Norrie, if you want to chime in, you can add some additional color. But the gas -- the gas paradigm has changed, obviously, over the last few months, where the price of gas internationally exceeds the fixed price gas that we have in China. And although we're very happy with the contracts, [ we've seen ] Mainland China to increase the volume of gas that it's looking for from the Liwan and the Liuhua fields that we share with CNOOC. So what we're looking at is increased gas sales contracts related to 29-1. They're reasonably incremental. They're kind of in the 3,000, 4,000, 5,000 barrel a day range, but they're highly profitable. So the pricing that we're looking at is -- I really don't want to get into that on this call, but it's in and around where we are today. But what's really interesting about it for us is it comes at almost 0 capital. So this is revenue that just falls to the bottom line in the form of free cash flow, which is something that we're really pleasantly surprised with -- with those Asian assets is, opportunities like this just kind of continue to pop up that add incremental value for almost no OpEx or no CapEx.

The only addition as well -- okay. So I was going to say, the only addition is, as well as the dry gas, the 29-1 block is a very liquids-rich opportunity. So we're actually able to maximize our sales price at Brent plus in the Chinese market. So it's a very, very strong market for that -- for liquids as well as the dry gas.

Our next question comes from Manav Gupta.

My first question is, whenever you acquire an asset, there is always some pleasant surprises and there are 1 or 2 things which you thought would probably turn out better. Now that you have been operating Husky assets for about 11 months, where do you think you have been pleasantly surprised where you thought the performance is now coming on even better than what you thought when you took the position? And then 1 or 2 areas or just 1 area where you probably think more work is now needed than when you actually acquired the asset?

I have my own views, Manav. I'll maybe jump in, and I'm sure Jon will have some thoughts. But I think in terms of pleasant surprises, I would first talk about just the overall integration of the 2 companies. And I've been involved in a lot of very large mergers and acquisitions. And my experience is that it usually takes kind of in that 12- to 14-month period to really achieve the integration. And we were able to accomplish that with Husky in -- basically in 6 months and did that in the middle of a pandemic. And that's a tribute to both the staff of the 2 legacy companies. So that was a huge positive. The other thing that I would say, the revenue synergies that we're starting to see, and Jon has obviously talked a little bit and Norrie talked a bit about what we've seen, in the legacy Husky thermals. But that's a situation where we think we're adding the better part of well over $1 billion of NPV to those assets beyond what we had in the original acquisition model. So that's been a real positive. I would say, in terms of challenges, I think, right out of the gate, we had some safety challenges, and those were very concerning to the team, and a couple of them literally within days of the deal closing. And since that time, Norrie, Keith, Drew, Jon and their teams -- a huge effort, really focus on safety and really integrating the safety programs of the 2 organizations. And we have been on a much improving trend since then. Still a couple of issues that have occurred recently that just remind us we have to remember to continue to be disciplined and resolute in going after the safety opportunities to improve safety. But that would be about -- be the only thing that I've really been -- that would be problematic. I don't know, Jon, did you have anything to add?

Manav, I forgot about your last point, but I would echo that one. That has probably been the only area that was troublesome when we first closed this transaction, that we've put a lot of time and effort into getting on top of over the last 11 months. But you have to remember, and I think Alex has talked to this a lot, is when we did this transaction, we had almost 9 months of due diligence to do on these assets and because of that, there really weren't that many surprises. And the other thing I would kind of tell you is that, where Husky got themselves into trouble is that they were trying to do a major project on the East Coast that became all-consuming in terms of absorbing a lot of their free cash flow. It had to go out to the East Coast to continue that project. So a lot of the assets that we acquired were underinvested in, that actually give you more opportunities than not in terms of how you want to develop them going forward. I think we've also said that, when we bought this company and we came into it eyes wide open, and we kind of identified 3 problem children that we knew we were going to have to deal with. One was Superior, and we dealt with that quickly and restarted that project. And that rebuild has gone well, and we still expect that asset to be in service in 2023. And that's very high priority for us in 2022, to make sure we have the safe rebuild and restart of that asset. I think we're coming to a conclusion in the spring of this year on West White Rose, and we knew we would have to deal with that. We made some very conservative assumptions around it. And then the third area was called EOR, where you've got some old technology and some high operating costs related to about 20,000 barrels a day of production around Lloydminster. But I think Kam and Norrie have done a great job of identifying areas of divestment as well as areas where we actually can invest in that at some very impressive economics and rethinking about that part of the world in terms of things like carbon sequestration. So I would echo Alex's comments around safety has been sort of the area that disappointed. But other than that, I think we've been as planned and better across the asset base.

Perfect, guys. One quick follow-up here is, it's becoming very clear you will hit your $8 billion net debt target in 2022. I'm just trying to understand, once you get there, is that the absolute level or you could probably go a lot lower? And if that is the absolute lower, I mean, level of $8 billion, would that somewhere mean that you would basically allocate everything else to shareholder returns? Or as one of your peers have said, some portion of the excess cash then remains in the balance sheet for possible bolt-on opportunities. If you could help us walk us through that surplus cash flow once you hit that $8 billion target of yours.

Thanks. What I'll do -- I certainly have my views on this. But I think what I'm going to do is call to the bench for Kam. Kam is the -- in many ways, the author of our financial framework. And it'd probably be worthwhile for Kam to take a couple of minutes and kind of walk through how we look at that.

Sure, Alex. So I think just to hit the nail on the head, Manav, like I think a couple of things I would say. First off, we do believe, if you look at current commodity prices, that we'll get to the $8 billion target sometime this year. And as I highlighted, I think for 2022, we've made it very clear that we're intending to get to that $8 billion, could be middle of the year, could be the end of the year, depending on commodity prices. But more importantly, for this year, 50% of our free cash flow or excess free cash flow is going to be directed towards the buybacks that we've announced and the dividends. And that's largely premised around the compelling opportunity we see in the buyback, given where our share price is today in relation to what we deem as intrinsic value, which is meaningfully higher than where we trade today. As you go past this year, and as we continue down the path on further deleveraging, I would say, as Jeff pointed out in his materials, we do have a desire, I'd say, to get the debt down below $8 billion over time, sort of in that 1x to 1.5x at the bottom of the cycle, which equates to somewhere in the $6 billion to $8 billion range. But I think the pace of deleveraging that we've seen to date likely will slow, with a more balanced view on where that free cash flow will go. And as we go into 2023, we'll continue to assess what level of free cash flow goes into buybacks, how we're going to grow the dividend and potentially looking at further investments in the business or even opportunistic acquisition opportunities. But it is going to be situational. Like if we're sitting here 12 to 14 months from now, one of the things I would say is you should expect us to continue to grow the dividend under the premise we'd hit $8 billion or lower. Secondly, if the share price continues to trade where it is, it's something we'll continue to evaluate as a potential add-on to the program that we've announced to date.

Thanks, Manav. I think what I might do, maybe I'll break in with a couple of the written questions. And the first one -- and I'll -- I think I'll throw it to Jon, and Kam, you may want to weigh in, too, but it's from Tyler Reardon. And the question is, can you elaborate on criteria for acquisitions? Could these be outside of the oil sands?

Maybe I'll start. Why don't you start, Kam, and I'll come back to that.

Sure. Look, I think, at the end of the day, we're always going to continue. One of the things I think Alex touched on earlier is, we've been very disciplined on how we allocate capital across the business, whether that's in the business, whether that's acquisitions and even divestments. I think importantly, if and when we do decide to look at acquisition opportunities, the criteria in which we look at those is no different than how we look at investing in our assets. It's opportunities that make money at the bottom of the cycle, and it's opportunities that are kind of leveraging our core competencies inside of our business. I'd probably won't get into what types of opportunities and where, but I think, at the end of the day, we've got a fairly diverse asset base. I think we see opportunities, I think, across all areas, but we'll be thoughtful about how we do that and when we do that. And I think the important part is we're not going to compromise some of those strategic objectives. We've talked about whether that's giving cash back to shareholders, ensuring the balance sheet remains strong and looking at opportunities that create value over the long term.

Yes. And the other thing I would add, I think, is -- one of the themes of this Investor Day is about margin improvement, margin expansion and hardening our margins. So when we think about the portfolio, we probably think about our upstream heavy oil assets together with our downstream assets and the value chain that, that creates. And potential acquisitions that meet economic thresholds that are kind of opportunistic and add value in hardening those margins and derisking the company are, I think, things that we think about. I think we also, outside of the oil sands, think about our conventional business. And I think we have a desire to grow that through time as well. So nobody should be surprised that we look at asset acquisition opportunities right across the portfolio. But at our core, we are a heavy oil-integrated company.

Okay. Why don't I -- maybe I'll do a couple more and then we'll go back to people online. Now the next one is from Trevor Bolland. And it is, are the FCCL opportunities not included in the plan related to each phases from your last Investor Day? And how do those compete relative to Narrows Lake? And Jon, I'll throw it to you. And you may want to add, Norrie, an answer, if you want.

Yes. One of the things that we've really thought through since our last Investor Day is the value of phased expansion. And you'll remember, we talked about each phases and the ability to incrementally increase production by about 50,000 barrels a day for capital in the $1 billion range or about 20,000 barrel -- flowing per barrel efficiencies. And one of the things we've really thought through since that time, and Norrie's really spearheaded this work, is there are more capitally efficient ways or capital efficient ways to get after growth in the oil sands through smaller scale debottlenecking or thinking through things like noncondensable gas and redevelopment and redrill opportunities. So I think our thinking has evolved. And what you see on the chart there is not the economics related to phased expansion of kind of the magnitude that I've talked about, but more so opportunities that we have inside the portfolio today to modestly grow production and offset declines. But why don't I turn it over to Norrie, and he can probably give you more color on that.

Yes, just what Jon is saying, I mean, rather than focus on long, large investment opportunities, what we're finding is, by actually focusing on smaller scale, very fast debottlenecking opportunities, we can actually deliver the production faster, cheaper with higher accretion. So it's an alternative to doing large phases. I think you would -- you'll see in the next few years that our production, as we increase, for example, Christina Lake, you'll see by 2025, we'll be up about 250,000 barrels a day. And we're achieving that by actually using longer tiebacks, using debottleneck opportunities, and it's avoiding the need for billions of dollars of large investments in these phases that we originally thought was the way forward.

Yes, I might just add one thing, which is, in the sort of 4-plus years that I've been here, even when I started, what we're doing with the Narrows Lake would have not even been considered. And I just think it's an extraordinary innovation and then a tribute to our operators and our technical people that we've been able to advance that technology for moving emulsion and steam the way we have, that we're able to avoid these billion-dollar projects with their 5- and 6-year time scales and achieve the vast majority, or if not all, of the operational benefits. So it's a pretty amazing outcome. Why don't we move back to the online questions? I think we might have 1 more.

We do have a question from Phil Gresh.

Alex, just thinking bigger picture about how you're looking at the company over the next 3 to 5 years. How do you think about the M&A piece of this as you look ahead? Is it something that you think would be more bolt-on in nature? Do you think -- if we look at what you did with Husky, that was a transformational deal. So as you assess opportunities, how large scale are you thinking about here? Do you have a lot of forecasted cash flow over the next 5 years? So any thoughts there?

Thanks, Phil. Maybe I'll start off by going back to a comment that Kam made about M&A or A&D work. And that is -- there's a couple of really fundamental principles that we kind of govern our strategy by. And the first is that we really look at M&A activities as very opportunistic. You saw in the first 3 years that Jon and I were here, we really didn't pull the trigger on anything. And then when there was a compelling value opportunity in the form of the Husky transaction, we moved very quickly and with a lot of resolution to get that deal done. And so we're not interested in just top line growth. We're interested in value creation for our shareholders. And we will always be open to that, either organic or by M&A, if that's where the opportunity presents itself. But the other thing I would say is really about that discipline, about how we go about this. We are laser-focused on shareholder value here. And if we find those opportunities, we'll take a very hard look at them. But they have to be value creating at the bottom of the cycle and really be synergistic with our businesses. So that's really how I think we look at it. Jon, anything you'd add there?

Yes, I mean, the thing about M&A as well is you really never know or you don't have control of the timing. And it takes a buyer and a seller and the right circumstances, as Alex mentioned, for things to come together. So you can have desires on the M&A front, but you really have to -- have the complementary buyer/seller willing to execute to make anything happen. I do think that as an industry, we're probably added more into a world of consolidation. That probably makes sense. And what I think that we've accomplished in this company is we've probably moved ourselves into a pretty good position, if that environment does continue to evolve, to have those opportunistic discussions. But as Alex mentioned, it's all about shareholder value, being disciplined and putting yourself in a position when opportunities could present themselves, you can execute.

Got it. Okay. That makes sense. Just one more, just on the buybacks. I fully [ appreciate ] desire to buy back stock when it intrinsically makes sense. At the same time, many other energy companies are giving more explicit frameworks around return of capital above and beyond the dividend. So I guess my question would be, without trying to pin you down too much, if the intrinsic value, part of it, was still there in the sense that you thought it made sense to buy back stock, and we looked ahead to '23 and '24, is there any reason to think that what you're doing in 2022 would not be at least repeatable in future years?

Maybe I'll start, and I'm sure Jon will have some thoughts on this, Phil. But as you heard from Kam, I mean, our intention -- our stated intention is that we're going to move 50% of our free cash flow towards shareholder initiatives in the coming year. And as we kind of push through that $8 billion net debt target, you -- as Kam alluded to, you're going to see that percentage allocated to shareholders move up. And I am very, very loath -- one thing I would say, and I think most of our investors know this by now, when we say something in a forum like this, people should very much assume that what we said was intentional. And we believe it is very, very important that we follow through on the commitments we make to the market. So when we say things or when you hear Kam say that our intention is to increase that percentage to shareholder returns, I think you can take that to the bank. And when you -- furthermore, when you hear that statement that we think, as we push through $8 billion and ultimately down perhaps as low as $6 billion, that frees up the opportunity to increase our dividends by potentially as much as 4x. People should always consider that there was intention behind those statements. And we are loath to give a very, very specific kind of breakdown. And it's kind of, Phil, for the reasons you mentioned, NAV moves -- our share price moves around, share repurchases come in and out of the money and conditions change. But what I think everybody can rely on is that we are going to be absolutely focused on doing the shareholder actions that will maximize our share price and our value to shareholders. Jon, anything you'd add?

Yes. And I think the only thing that I would add is, I think that this management team, in conjunction with the Board, feel that we are very good allocators of capital. And since we've come to this company 3, 4 years ago, I think we've demonstrated that. And rather than give you a very prescriptive capital allocation framework that can lead companies to do things that are value-destructive, I think what Kam and Alex have laid out is a thoughtful framework as to how we think about capital allocation in certain situations. But I think the other thing I would take away from what's been laid out is the primacy of the balance sheet and never putting this company in a position where we're putting the company at risk through an overleveraged position.

Well, thanks, Jon, and thanks, everybody, for all of your questions. I'm getting the notice that I'm getting the hook here, and our time is running out for our Investor Day. So first off, I want to really thank everybody for your attendance and your interest in the company. We really appreciate you joining us for this virtual Investor Day presentation. And as I said at the start, we have put a lot of thought and analysis into this 5-year plan, this capital budget and all the materials you've seen today. And hopefully, it gives you a really good understanding of where the company's strategy is going. And I hope that the Q&A has been able to give some more insight. So with that, we'll probably end the Investor Day call. And as I said, thanks, everybody, and enjoy the rest of your week.