Suncor Energy Inc. (SU) Earnings Call Transcript & Summary

I'm calling the meeting to order. My name is Michael Wilson. I'm the Chair of the Board of Suncor Energy Inc. In light of COVID-19 and Suncor's purpose to care for each other, we're hosting this year's AGM through this virtual meeting platform, accessible to our shareholders regardless of physical location, which allows them to participate, submit questions and vote. I'd now like to introduce Suncor's senior leadership team in attendance. We have Mark Little, our President and Chief Executive Officer; Alister Cowan, Chief Financial Officer; and Arlene Strom, Chief Legal Officer and Corporate Secretary. On behalf of Suncor's directors and management, it's my pleasure to welcome you to the 2020 Annual General Meeting of Shareholders of Suncor Energy. I'd now like to turn it over to Arlene Strom for a traditional territory acknowledgment.

Thank you, Mike. As you may know, many of Suncor's operations are located on the traditional lands of indigenous peoples, and we're committed to meaningful relationships with them. Together, we hope to be on a journey of discovery and reconciliation, guided by treaty rights, the constitution, the recommendations from the Truth and Reconciliation Commission and our own purpose and values. We're looking to find ways to build meaningful long term and equally beneficial relationships. We're pleased to acknowledge that, while today's AGM is virtual, Suncor's corporate office is located on the traditional territories of the Blackfoot and the people the Treaty 7 region in Southern Alberta. They are the Stoney Nakoda, the Tsuu T’ina, the Siksika, the Kainai and Piikani nations. The city of Calgary is also home to Métis Nation of Alberta, Region 3. This protocol has been in place for many generations in indigenous communities, and we believe that observing and acknowledging a traditional territory in meetings like our AGM is a small but important way to show our respect for indigenous peoples. In Alberta, where treaties 6, 7 and 8 cover the province, we are all treaty people. With Suncor, we seek to walk side-by-side with indigenous peoples and to remember that we are united in seeking a better world for our children, our grandchildren and the generations beyond.

Thank you, Arlene. Before we begin the formal business, I'd like to explain how the voting and questions will work for this meeting. We'll conduct the vote on matters before us by virtual poll. Every eligible shareholder has one vote per share that can be voted on each matter. All will be open to all resolutions at the same time. This will allow you to choose to vote on each resolution immediately. We'll wait until the conclusion of any discussion on each resolution prior to casting your vote. There will be an opportunity to ask questions on each resolution in turn. Once the items of business have been presented, I'll give you an additional time to enter your votes and declare the voting closed on all resolutions. We'll run through each of the items on the agenda in turn, responding to questions on that item of business while it is before the meeting. Thank you for your attention, and we'll now proceed with the business of the Annual General Meeting. There are several matters on the agenda this morning. To help move things efficiently and in order to limit the number of people participating in person here in accordance with Health official guidance, 2 of our shareholders agreed to make and second all the formal motions. This online meeting is accessible to guests. However, only registered shareholders and proxyholders may participate in the business through our virtual platform, including asking questions. If you have any general questions, you may submit them online, and they'll be addressed at the question-and-answer period at the end of the meeting. Let's proceed with the business of the meeting, starting with the appointment of scrutineers. Computershare Trust Company of Canada is the transfer agent and registrar of the company and is represented today by Marilyne Paynter and Chris Parsons. If there's no objection, I will point them to act as scrutineers for this meeting to report on the number and percentage of shares presented at this meeting and to record and report on the votes cast on any poll that may be taken. You've all received the notice calling the meeting. I'll now ask Arlene Strom to report on the mailing of the notice.

The notice calling this meeting was mailed on March 20, 2020, to all shareholders of record as of the close of business on March 9, 2020, and has been provided to each director and to the auditors of the company. Suncor issued a news release on April 14, 2020, announcing the change in the meeting from a physical location to a virtual-only format.

A copy of the notice, proof of the mailing and news release will be filed with the minutes of this meeting. I'm advised that the scrutineers' report has been completed and a quorum is present. Arlene, can you please read the scrutineers' report?

I have received the scrutineers' report, and there are 817 shareholders by proxy representing 1,159,932,338 shares present today.

Very precise. Thank you. The scrutineers' report will be filed with the minutes of the meeting. I declare the meeting regularly called and properly constituted for the transaction of business. 2019 annual report, which includes the financial statements for the year ended in December 31, 2019, and the auditor's report have been tabled. The annual report was mailed to shareholders requesting the report. We'd be happy to answer any questions concerning the annual report in the Q&A session following the formal part of the meeting. We're now moving to matters to be voted upon. I now declare the polls open on all resolutions. First item of business to be voted upon is the election of directors. Of course, bylaws state that the number of directors to be elected at any meeting of shareholders shall be the number of directors then in office or such other number as has been determined by the Board. There are currently 10 directors in office. The Board has determined that 10 directors will be elected at the meeting. Of the 10 directors nominated, 9 are independent and 1, Mark Little, is a member of management. Their backgrounds and experience, including principal occupations, are described in Suncor's circular for this meeting. May I have a motion to nominate for election to the Board of Directors those candidates named in Suncor's circular for this meeting?

Morning. My name is Shawn Poirier, and I'm a Suncor shareholder. I move to nominate the following candidates for election as directors: Patricia M. Bedient, Mel E. Benson, John D. Gass, Dennis M. Houston, Mark S. Little, Brian P. MacDonald, Maureen McCaw, Lorraine Mitchelmore, Eira M. Thomas, Michael M. Wilson.

Thank you. Can I have a seconder to the motion?

My name is Joel Thompson, and I'm a Suncor shareholder. I second the motion.

Thank you. I declare the nominations closed. Ten directors are to be elected at this meeting, and 10 persons have been nominated. I'll pause now to see if there are any questions from the virtual platform. If there are no questions, Arlene will give additional instructions on the voting procedure.

On this vote, all shares for which proxies in favor of management have been received will be voted in accordance with those instructions. The 10 nominees named in the management proxy circular are listed on our virtual platform. To vote or withhold from voting for each director, please complete the ballot by clicking either For or Withhold in the appropriate spot beside the name of each nominee.

Please cast your votes on the appointment of directors. Again, you may submit your vote on this item now or wait until the end of all motions before submitting them at the same time. [Voting]

We'll proceed to the next item on the agenda. The next item of business is the appointment of auditors. Management has proposed that KPMG LLP be appointed as the company's auditors. Since auditors are appointed by shareholders, I ask for a motion appointing KPMG LLP as auditors.

My name is Shawn Poirier, and I'm a Suncor shareholder. I move that KPMG LLP be appointed auditors of Suncor Energy Inc. to hold office until the next annual meeting of shareholders or until a successor is appointed.

Thank you. Can I have a seconder to the motion?

My name is Joel Thompson, and I am a Suncor shareholder. I second the motion.

Thank you. Any questions? If there are no questions, please cast your votes on the appointment of auditors. [Voting]

We'll now proceed to the next item on the agenda. This item of business is the advisory vote on our approach to executive compensation. These types of advisory votes are often called say-on-pay resolutions. The results are considered nonbinding but are a vehicle to allow shareholders to ensure their views are made known to the Board. As noted in the circular, in considering the company's approach to compensation in the future, the Board will take into account the results of the vote together with any feedback it receives from shareholders in the course of Board's engagement activities. The form of motion set out in the circular allows the recommended best practice of the Canadian Coalition of Good Governance. I now ask that a motion be made.

My name is Shawn Poirier, and I'm a Suncor shareholder. I move on an advisory basis and not to diminish the role and responsibilities of the Board of Directors that the shareholders accept the approach to executive compensation disclosed in the management proxy circular of Suncor Energy Inc. delivered in advance of its 2020 annual meeting of shareholders.

Thank you. Can I have a seconder to the motion?

My name is Joel Thompson, and I'm a Suncor shareholder. I second the motion.

Thank you. We've received proxies representing a total of over 94% of the votes cast on this motion, which direct that they be voted in favor of the approach to executive compensation. We've heard the motion. Are there any questions or comments? If there are no further questions, please cast your votes on the approach to executive compensation. For those of you who have not voted on all of the resolutions, please do so now as we will shortly be closing the poll. It is now 10:41 and the polls will close on all resolutions in 1 minute to allow time for votes to be cast. [Voting]

Polls are now closed. We'll move on to other business while the results are being calculated. I'd now like to turn the meeting over to Mark Little, Suncor's President and Chief Executive Officer; and Alister Cowan, Suncor's Chief Financial Officer.

Great. Thanks, Mike, and good morning, everyone. Thank you for joining us today. The fact that we're gathered online for today's AGM is certainly an indication that these are unprecedented times. And to everyone listening, our hope is that you, your families and your colleagues are keeping safe and healthy. I'd also like to extend a special thank you to all of the essential workers from multiple industries who are working to keep us healthy, safe and supplied. These individuals are a strong reminder that we are all part of a global community and effort to combat this pandemic. We, like many, have been part of that effort, and I'm grateful to work with many capable and dedicated people across Suncor. This morning, I'd like to take a few moments to speak to what we have been doing during this time to keep people safe and healthy. And then Alister will outline the financial health of the company, and then I will provide our perspective on the path forward. Now before I get into my remarks, I would like to take a quick moment to recognize Eric Axford, our Chief Sustainability Officer. In fact, our first Chief Sustainability Officer, who's retiring after today's Annual General Meeting. Eric has played a significant part in helping Suncor bring executive-level focus and commitment to our sustainability initiatives over the years. And in recent weeks, his strategic focus has been particularly helpful as we've navigated the challenges of the pandemic and the market downturn. Eric, thank you for your contributions and support. You've done an absolutely amazing job, and we wish you and Diane all the best in retirement. I would also like to officially introduce Martha Hall Findlay as the Chief Sustainability Officer for Suncor. Martha joined us in January and brings a tremendous knowledge and experience to the table, and we very much look forward to working with Martha in this role. She's off to a great start. And as we think of the greater good and focus on working together, I'm reminded of the connection to Suncor's purpose: To provide trusted energy that enhances people's lives while carrying for each other and the earth. Over the years, we've strived to bring focus and clarity to how we operate our business, minimize our environmental footprint and engage with communities. Our purpose is the standard we hold ourselves to every day and, together with our values, has become the lens through which we make decisions and drive action across the company. This holds true during the pandemic. For our employees, early on, we made the decision to have essential personnel only at worksites. As a result, the vast majority of our workforce have been working remotely. And for those workers who need to work at site, we've taken numerous steps to protect people by providing prescreening surveys, conducting temperature testing, following physical distancing guidelines and adhering to strict protocols. At our lodges, we have enhanced cleaning. We've moved to full-service cafeterias, closed all the gyms and common areas. We've also adjusted shift schedules to minimize the number and frequency of commuters to our sites. And we continue to remind all of our workers, regardless of whether they are at site or working remotely, to take care of their mental health, and we're providing resources to assist with this. The steps we've taken to protect employees ensures we're able to continue to provide critical energy for our customers. And for our customers, we also launched a $3 million program through Petro-Canada designed to help meet the needs of local communities. It's our way of saying thank you to essential workers across the country. This includes ensuring truck drivers who deliver essential products have a place to rest, refuel and take a break as needed. For our communities, we're honoring all of our existing community investment commitments through the Suncor Energy Foundation and looking at how we can work with our community partners to help address the needs through this crisis. In addition and together with our employees through the SunCares program, we've donated over $2 million to organizations addressing COVID-19-related causes in 2020. In some cases, we have found unique ways to support communities. One example was our donation of masks to the federal government, which we also delivered to remote northern communities in Canada before they ran out of these critical supplies. All of these and other efforts come from an understanding that caring for each other will be critically important as we immediately respond to this crisis as we help with the recovery effort and ensure we remain resilient in the long term. Resilience continues to be top of mind for us as we navigate COVID-19 market challenges and even the recent flood that hit one of our critical communities of Fort McMurray. Remaining strong as a company is vital to long-term shareholder value creation, and it's also critically important as we provide an essential service, the energy that our society needs to heat homes to provide lighting and do critical goods and services, like medical supplies. Watching our employees respond across the company has been incredibly inspiring, and I'm very proud and appreciative of their efforts. And as we navigate the downturn, we continue to prove our ability to weather the storm, building on a solid foundation of operational excellence, a strong balance sheet and capital discipline. And with that, I'll turn it over to Alister, who'll speak about our financial health of the company. Alister?

Thanks, Mark. Our focus is to create shareholder value by maximizing the margin for each barrel produced through our integrated operations from the reservoir to the end customer. In 2019, our upstream production totaled 777,000 barrels of oil equivalent per day, an increase of 6% over 2018. At a combined digitalization of 88% and the refinery utilization was 95%, allowing us to maximize high values in better crude oil and minimize lower-value bitumen sales. Turning to our financial performance. We again demonstrated our proven ability to generate cash. In 2019, funds from operations were a record $10.8 billion, surpassing the $10.1 billion received in 2018. The capital expenditures were $5.4 billion in 2019, which included a $3.2 billion spend on asset sustainment and maintenance and $2.2 billion in economic investments. Our strength was also highlighted by the $4.9 billion in discretionary free funds flow we generated during the year, driving $4.9 billion in cash to shareholders, $2.6 billion in dividends and $2.3 billion in stock buybacks. In total, we returned 45% of funds from operations to shareholders. Our financial discipline and focus on capital allocation also includes our balance sheet. As at December 31, 2019, net debt to funds from operations stood at 1.5x with total debt-to-capital at 30% and liquidity of $6.7 billion. Our performance demonstrates the strength of our integrated model and the flexibility of our assets as well as our strong marketing expertise and midstream logistics assets and capabilities. This combination of attributes, together with our financial and capital allocation discipline, enables Suncor to be more agile than many others in the industry. Now as Mark described, 2020 is a significantly more challenging year. I think it's important to note that as we move through this and the resulting economic downturn, we'll be focused on mitigating the impacts of lower demands from the end customer need for refined products, back up through the integrated chain to upstream production. Our focus on cost-reduction opportunities and lowering capital spend remain key levers for us to respond to the economic downturn. And we'll continue to keep a close eye on market conditions and make further adjustments as required. That's why we announced a $1 billion or 10% reduction in operating costs from 2019 levels. We've also reduced our total capital expenditures by $1.9 billion or 33% from the midpoint of our initial guidance range. Our revised 2020 capital spend is concentrated on sustaining capital and continuing with a limited number of low capital intensity, value-creating projects, like the interconnecting pipeline between Suncor base plant and Syncrude, the deployment of autonomous haul trucks at Fort Hills and improving the underlying systems and processes of the company to drive further operating and sustaining capital reductions. We will also complete some high-value offshore production wells that are currently underway. Our financial strength, which includes access to liquidity, is a key element in our strategy. In early 2020, we took proactive steps to enhance our liquidity, securing an additional $2.8 billion of 24-month term credit facilities from our key banking partners. At the beginning of April, we also completed a $1.25 billion 10-year medium-term note offering. It was the largest offering in Canadian oil and gas history during an unprecedented time in the markets, which we believe reflects well on Suncor. This additional liquidity will help ensure the financial health of our company through these volatile times. Based on recent events, the resulting economic downturn and its impact on crude oil demand and pricing, management and the Board believe it's necessary to lower our crude oil cash breakeven price required to cover operating costs, sustaining capital on the dividend to USD 35 WTI. As a result, combined with the significant actions taken on the operating cost and capital expenditure, management and the Board believe it is also necessary to reduce the dividend. We will not compromise the long-term financial health or value of the company by overlevering. Therefore, effective for the June 25 payment, we will reduce the dividend by 55%. Taking this proactive measure will preserve balance sheet strength on the company's financial health and drive down the crude oil cash breakeven of the company in a time of lower oil prices. Management and the Board recognize the importance of cash returns to shareholders, including the dividend to our shareholders, but we also recognize that maintaining the financial strength and health of the company is an equally important objective. Our commitment to creating shareholder value and returning cash to shareholders via the dividends and stock buybacks remains unchanged. We will continue to balance both objectives as the economic downturn evolves. To conclude, our 2019 performance demonstrates the strength of Suncor's integrated business model and our ability to continue to deliver value for shareholders. We remain one of just a few Canadian producers in this position, which continues to affirm our competitive advantage even in these challenging times. Thank you, and I'll now turn the microphone back to Mark.

Great. Thanks, Alister. And Alister spoke to the actions we've taken to maintain the financial strength of the company. We'll continue to strengthen the company as we progress Suncor 4.0, the next phase of the company in which we are leveraging digital technologies and transforming our culture to accelerate operational excellence and drive value. In 2019, we made further investments in technology development and deployment, including digital transformation, progressed a number of initiatives already underway, and in fact, during this period of COVID-19, we were able to accelerate some of these initiatives. I'm looking forward to the possibilities ahead. And as we've said before, technology alone won't get us to where we want to be. It's the people and the culture that will help us drive our ambition. We know that continued success for Suncor requires us to take a long view and leadership role, and that means maintaining our deep commitment to sustainability. Our purpose holds us to that commitment. Energy is at the core of our business, and we know it helps create quality of life in terms of heating and cooling and mobility and overall economic prosperity. On its own, moving barrels of oil and electrons to consumers isn't enough. Society is looking for us to do more. They expect us to leverage technology and innovation to reduce our environmental footprint. They want us to collaborate, and they want us to find meaningful ways to engage with indigenous peoples and businesses as well as communities and stakeholders. The good news is that we're well down that path. That said, some might question whether the market downturn and pandemic have altered our plans. As you've heard, we've had to delay the timing of some initiatives like the replacement of our coke-fired boilers and the 40-mile wind project to protect the financial health of the business. But let me be absolutely clear. Our commitment to creating shareholder value, continuing with our strategy and our focus on sustainability, has not changed and will continue to be at the heart of everything we do. One of the biggest challenges of our time, climate change, remains a focus for Suncor as we plan for our future. Canada has a strong, diversified and resource-rich economy. We also have world-leading financial sector and excellent capacity for innovation. By harnessing these advantages, Canada can be among the leaders in global transition to a low-emissions future. I have no doubt that we can be a trusted source of climate-smart solutions, expertise and investment. Suncor will continue to evolve our climate ambition, and we remain committed to our climate goals we've set to lead through this transition. We will also build on our long history of technology and innovation at our existing assets and invest in new sources of energy to drive down our environmental footprint. We'll lead the way with initiatives like our announcement of Canada's first electric highway. We'll continue to collaborate with others through organizations like Canada's Oil Sands Innovation Alliance and the Clean Resource Innovation Network. And we'll engage with all levels of government when it comes to meaningful public policy dialogue. We know that delivering economic and environmental benefit can't come without attention to the health and well-being of our communities. And with that in mind, we'll continue to work with others across society through the Suncor Energy Foundation in an effort to address complex social challenges. Through our social goal, which is focused on changing the way we think and act towards indigenous peoples, we'll continue to listen and to learn. A key part of that effort will be to explore innovative ways to engage with indigenous communities. We will also maintain our focus on finding new business opportunities with indigenous partners. One example that comes to mind is the Fort McKay First Nations and Mikisew Cree First Nation's investment in our East Tank Farm. Another is the 39 Petro-Canada stations that are now owned and operated by First Nations across the country, including 2 that are part of Canada's electric highway. As we continue our sustainability journey, we know you want to see how we're doing and where we're heading, and we'll report on those efforts through our report on sustainability and our climate risk report and through our financial reports. And we'll provide context in our perspective on the opportunities and challenges ahead. The progress that we've made over the years is certainly due to our commitment to sustainability, our integrated model and our focus on operational excellence. In closing, I have seen through the pandemic and economic downturn what an incredible team we have here at Suncor. It's been truly inspiring to see our team respond in such tremendous energy and enthusiasm and professionalism. They're living our purpose through their everyday actions. Seeing our employees in action makes me proud to lead this company. They have demonstrated remarkable innovation and resilience when faced with both adversity and opportunity. And given that, I remain optimistic about the days, months, years and decades ahead. We will emerge from these extraordinary circumstances stronger together. On behalf of our leadership team and all of us at Suncor, thank you for your support. And I'll now turn the floor back to Mike.

Thank you, Mark and Alister. It's now time to complete the business of the meeting. We've received the scrutineers' report for the votes cast for this meeting. The secretary will now give the results of the voting.

We have received proxies from shareholders representing 76.05% of the issued and outstanding shares. I will read the percentage of the votes cast for each of the motions. Patricia M. Bedient, 99.9%; Mel E. Benson, 98.3%; John D. Gass, 99.4%; Dennis M. Houston, 99.5%; Mark S. Little 99%; Brian P. MacDonald, 99.9%; Maureen McCaw, 97.1%; Lorraine Mitchelmore, 99.9%; Eira M. Thomas, 98.1%; Michael M. Wilson, 99.6%. And for the appointments of KPMG as auditors, 99.8%. For the advisory resolution on executive compensation, 94.6%. Thank you, Mr. Chairman.

Thank you, Arlene. The scrutineers' report will be incorporated in the minutes of the meeting. I accept the scrutineers' report. I declare that the Board of Directors will consist of 10 nominees named in the circular. I declare that the shareholders have approved the appointment of KPMG as the auditors. I also declare that the shareholders have accepted the approach to executive compensation disclosed in Suncor's management proxy circular. If there are no other matters to be properly brought before this meeting, I have a motion that the formal part of the meeting be terminated.

My name is Shawn Poirier, and I'm a Suncor shareholder. I move that the meeting be terminated.

Thank you, Shawn. Can we have a seconder to the motion?

My name is Joel Thompson, and I'm a Suncor shareholder. I second the motion.

Thank you, Joel. Ladies and gentlemen, I now declare the meeting to be terminated. I'd now like to open the floor to view and respond to your questions. But before we get started, I'd like to take a moment to introduce Suncor's senior executive team. Here in the room at a safe physical distance, our President and CEO, Mark Little; Chief Financial Officer, Alister Cowan; Chief Legal Officer and Corporate Secretary, Arlene Strom. Listening in online are Eric Axford, our Chief Sustainability Officer, who Mark has mentioned is retiring today. We will miss you, Eric. Martha Hall Findlay, our new Chief Sustainability Officer we're happy to have join our team. Bruno Francoeur, Chief Transformation Officer; Paul Gardner, Chief Financial -- sorry, Chief People Officer; Mike MacSween, Executive Vice President of Upstream; Steve Reynish, Executive Vice President, Strategy and Operations Services; and Kris Smith, Executive Vice President, Downstream. We'll now take questions submitted from our virtual platform. A reminder that only registered shareholders are able to submit questions. To do so, simply enter the question in the platform tool. As I note that there are no questions, I'd like to thank everyone for joining us today. We appreciate your interest in Suncor, and we're looking forward to connecting with you again. Thank you. Stay safe, and have a great day.