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

Thank you for the opportunity to present InvestNow's shareholder proposal. My name is [ Gina Papano. ] I am a shareholder of Suncor Energy, and I'm asking fellow shareholders to vote for proposal #1. Attacks on the oil and gas sector are coming from all fronts. Celebrities, social media influencers, radical activist shareholders, governments, banks, ideologically driven financial alliances and well-funded nonprofit organizations are all calling for divestment and promoting the elimination of the Canadian oil and gas sector in the next 25 years, an objective they've dubbed net zero by 2050. Net zero by 2050 is currently the #1 ideological political and financial goal in Canada. Governments and regulatory agencies are creating and implementing policies to phase out oil and gas and our financial institutions and corporations are following suit. This costly and economically ruinous crusade is based on dogma and ideology, not on what's best for shareholders or Canadians at large. Attempts to implement net zero by 2050 will have negative consequences for real people. This is why we are asking Suncor Energy to end its pledge to achieve net zero by 2050. Suncor has continuously improved on emissions. Why commit to an arbitrary goal like Net zero. Net zero by 2050 means massive declines in the use of coal, oil and natural gas. It commits to radical changes in very short time frames. It's not legally mandated and has no clear connection to increased shareholder value. To pledge net zero by 2050 is to ask shareholders to believe that eliminating one of our country's most productive sectors will somehow benefit Canada and reduce global CO2 emissions. The facts suggests the opposite. In 2022, 82% of the world's primary energy needs were met by oil, natural gas and coal. And global demand for these fuels is increasing, not decreasing. If the oil and gas the world wants and needs is not supplied by Canadian energy companies like Suncor, it will be supplied by authoritarian regimes in poorly regulated undemocratic countries that are less responsible and less environmentally friendly. Emissions will go up and environmental performance will go down. There will be more hardship for everyday Canadians as our economy is hobbled, businesses and industries shut down, people lose their jobs and the price of energy stores. Meanwhile, global demand for oil and gas will be satisfied by countries other than Canada. Why would Suncor and its shareholders want to commit to that? As one of the largest and leading oil and gas companies in Canada, Suncor should be producing more oil and gas and getting it out to more customers in Canada and around the world, and they should do this unapologetically. In the face of a supply-demand imbalance, Suncor should increase our energy supply, reducing energy costs for Canadians and the world. Oil and gas is central to Canada's economy and prosperity. The sector is essential for the healthy functioning of our economy, for jobs, for innovation and in fact, for global emission reductions. Canadians from the hundreds of thousands, who work in the sector, to the millions, all of us, who depend on it for our standard of living, expect that Suncor Energy will put their customers and shareholders' interests ahead of the pursuit of a political goal like net zero by 2050. We believe Suncor Energy has an economic and moral imperative to do so. Please vote for proposal #1. I move that the proposed resolution set forth on Page A1 of Schedule A of the management proxy circular of Suncor Energy Inc. in respect of its 2024 Annual Meeting of Shareholders, be approved.

Thank you, Gina. Could I have a seconder for that motion?

My name is [ Cameron Lubeck, ] and I second the motion.

Thank you. I'll now ask Jon Mitchell, Suncor's Chief Sustainability Officer to speak to Suncor's position on this motion.

Our strategy, including our net zero ambition and commitment to sustainability leadership is clear, precise and focused. Suncor's full response to this proposal is set forth in the management proxy circular. Suncor's board and management have recommended that shareholders vote against this motion.

Thank you. You've heard the motion, which has been seconded. Are there any questions or comments? If there are no further questions or comments, I propose that we now vote on this matter by ballot. We'll follow the same ballot procedures as described by the Corporate Secretary earlier. For complete -- please complete the ballot by clicking either For or Against in an appropriate spot beside shareholder proposal #1. We have received proxies representing a total of 98.92% of the votes cast on this motion, which direct that they be voted Against shareholder proposed #1 -- shareholder proposal #1. We'll now proceed to the next item on the agenda. The next item of business is the consideration of the shareholder proposal for Suncor to disclose audited results assessing a range of climate transition scenarios. I understand that a representative of investor for Paris Compliance, a proxy holder and authorized representative is Salal foundation, the shareholder that submitted the proposal, is in attendance to speak to that. May I ask that you now share your remarks and make a motion to approve the proposed resolution set forth on Page A3 of Schedule A, this management proxy circular for this meeting.

Yes. My name is [ Duncan Kenya, ] and I'm with investors for Paris Compliance, the proxy holder for Salal Foundation, Suncor shareholder. As one of Canada's largest integrated oil and gas companies, Suncor is subject to significant risks with respect to the response to climate change and the market changes, disruptions that are coming with this energy transition. Unfortunately, Suncor has been found warranting on climate reporting as the investor-led Climate Action 100+ recently released an evaluation of 10 global oil and gas companies and their transition strategies. And while none of them scored very well, Suncor did receive the lowest score. We filed this shareholder proposal with Suncor to get at the issue of whether the company is truly grappling with the financial risks unfolding with this market change and the energy transition. As Suncor's oil sands production faces a dual challenge of being amongst the highest emitting and highest cost sources of oil in the world, the market change with the energy transition will impact Suncor's assets liabilities and profitability. Suncor needs to report on these financial impacts through key metrics, for example, like estimated future oil price and the corresponding future impacts on revenue and margins, changes to predicted production, impact on production growth, reservoir evaluation and estimates, asset retirement obligations, et cetera, et cetera. This proposal is not a request for Suncor to do something extra, but rather a request for it to live up to the emerging financial reporting standard. The International Financial Reporting Standard, which will soon be implemented in Canada, requires companies to consider the material climate-related matters in their financials. KPMG, who is Suncor's auditor, says that when material impacts to companies are occurring, they need to provide key judgments and estimates affected by climate-related matters and to achieve a fair presentation and financial statements. Other oil and gas companies like Shell, BP, Repsol, et cetera, who are already reporting to the International Financial Reporting Standard, provide good examples of how Suncor might report on material impacts in its financial reporting. Take Shell's oil price scenario analysis, for example, where the company compares its mid-price oil price assumption to 4 other price -- oil prices based on different climate scenarios and then reports on the financial impacts of these other oil prices in its 2023 and -- on the oil -- rather reports on the impacts of its 2023 and 2022 financial results. Suncor faces even greater risks since Shell, as its business is largely focused on oil sands production and refining, a high cost and high emitting form of oil. These greater risks make it even more critical for Suncor to account for the impacts of the market changes with the energy transition in their financial reporting. Gone are the days when a glossy ESG Report is enough to satisfy investors that a company is on track to sustainability and climate action. The market changes from the energy transition are a major economic driver of business success over the coming years. And the material impacts from this change require accurate and relevant metrics to demonstrate whether companies like Suncor are adapting to the opportunities this presents, or at risk of failing by remaining stuck in the past. With that, I move that the proposed resolution set forth on Page A3 of Schedule A of the management proxy circular of Suncor Energy Inc. in respect of its 2024 Annual Meeting of Shareholders, be approved. Thank you.

Thank you. Can we have a seconder for that motion?

My name is [ Cameron Lubeck, ] and I second the motion.

Thank you. I'd now ask Jon Mitchell, Suncor's Chief Sustainability Officer to speak to Suncor's position on this motion.

Our strategy, including our net zero ambition and commitment to sustainability leadership is clear, concise and focused. Suncor's full response to this proposal is set forth in the management proxy circular. Suncor's Board and management have recommended that shareholders vote against this motion.

Cameron, you've heard the motion, which has been seconded. Are there any questions or comments? There are no further questions or comments, I propose that we now vote on this matter by ballot. We will follow the same ballot procedure as described by the Corporate Secretary earlier. Please complete the ballot by clicking either For or Against in the appropriate spot beside shareholder proposal #2. We received proxies representing a total 88.45% of the votes cast on this motion, which directed they be voted Against shareholder proposal #2. For those of you that have not voted on all the resolutions, please do so now as we will shortly close the polls. Now 8:53, I will close the polls on all resolutions at 8:54 to allow time for votes to be cast. [Voting]

We'll now complete the business of the meeting. The Secretary will give the results from the report on proxies.

[indiscernible] on the election of directors: Ian Ashby, 99.9% in favor; Patricia Bedient, 99% in favor; Russell Girling, 97.4% in favor; Jean Paul Gladu, 97.7% in favor; Richard Kruger, 99.9% in favor; Brian MacDonald, 99% in favor; Lorraine Mitchelmore, 96% in favor; Jane Peverett, 98.9% in favor; Daniel Romasko, 99.9% in favor; Christopher Seasons, 99.2% in favor; Jacqueline Sheppard, 98.9% in favor. On the appointment of auditors, 99.8% in favor of KPMG. On the say-on-pay resolution on executive compensation, 87.18% in favor. Shareholder proposal #1, 98.92% against. On shareholder proposal #2, 88.45% against. We will file final voting results on SEDAR today and the final scrutineers' report will be incorporated into the minutes of the meet.

Jacquie -- I declared that the Board of Directors will consist of 11 nominees named in the circular. I declare that the shareholders have approved the appointment of KPMG as the auditors and I declare that the shareholders have accepted the approach to executive compensation disclosed in Suncor's circular. I declare that the shareholders have not approved resolution proposed in shareholder proposal #1. I also declare that the shareholders have not -- the resolution proposed in shareholder proposal #2. 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 [ Cameron Lubeck, ] and I move that the meeting be terminated.

Thank you. Can I have a seconder for that motion?

Name is [ Sinay Sital, ] and I second the motion.

Thank you, ladies and gentlemen. I now declare the meeting terminated. Before we begin the question-and-answer period, I'll turn the microphone over to Rich Kruger, Suncor's President and Chief Executive Officer; and Kris Smith, our Chief Financial Officer, for some remarks.

Thank you, Russ. 2023 was a year of tremendous change for our company, changes that included new executive leadership who are resharpened focus on the fundamentals, the fundamentals of safety, operational integrity, reliability and profitable -- profitability. These and other changes are intended to ensure Suncor is a profitable, high-performing company today and a profitable, high-performing company into the future. My priority since joining Suncor in April 2023 can best be summarized by 3 words: clarify, simplify and focus. Clarify what's most important to the company, simplify how we pursue our work and focus on improving overall performance. With clear priorities and focused efforts, we create tremendous value through our unparalleled integrated upstream and downstream asset base underpinned by large-scale, long-life oil sands resources. This in a nutshell is our winning proposition. We create value for our shareholders via financial returns, our customers through quality products, society by providing much-needed energy, communities through employment and business opportunities and our employees through career development and being part of something meaningful. So how did we do in 2023 focusing on these fundamentals? I'll start with safety. Strong safety performance and strong business performance go hand in hand. I'm pleased to report that 2023 was the safest year in the company's history with no life-threatening or life-altering injuries of any kind and lost time injuries down nearly 50% from 2022. I'll continue with reliability. In 2023, we operated our bitumen upgraders at a 92% utilization rate, our best ever full year performance. Our refining network achieved a solid 90% utilization rate for the year, but an exceptional 99% in the second half. Continuing with delivering on commitments, we achieved our 2023 upstream production guidance provided a year earlier to the investment community with production of 746,000 barrels per day, the second highest annual average in our history. Recognizing we operate in a commodity business, disciplined cost management is essential to our success. In 2023, we simplified our organization and eliminated work not aligned with our priorities, reducing above field costs by $450 million per year in the process. This is one example of many initiatives to lower our overall cost structure, improve competitiveness, increase financial resilience and deliver long-term shareholder value. We also improved our asset portfolio in 2023, aligning it with core competencies and competitive strengths. Specifically, we sold noncore assets in the North Sea and our renewable power business for a combined $1.8 billion. While purchasing the remaining interest of our Fort Hills asset for $2.2 billion. 100% ownership builds on our best-in-class physical integration, ensuring long-term bitumen supplies to our upgrader facilities. Kris Smith, our CFO, will detail 2023 financial performance shortly. I'll simply note that we generated $13.3 billion in funds from operation, the second highest in company history. We also made material progress in reducing emissions from our operations in 2023. In the near term, our new $1.7 billion cogeneration facility at the Oil Sands Base plant will replace coke-fired boilers with lower emissions natural gaps. This project will be complete in 2024 and supporting our 10 mega tonne per annum emissions reduction objective for 2030. Longer term, we continue to collaborate with the industry pathways alliance to pursue a large-scale carbon capture and storage, or CCS, which will be a key enabler of our objective of achieving net zero greenhouse emissions from our operations by 2050. CCS has enormous potential to decarbonize the oil sands, but requires a competitive fiscal framework for the investments in conjunction with the federal and provincial governments. I'll now turn it over to Kris Smith, our CFO, to review 2023 financial performance in more detail.

Thanks, Rich, and good morning, everyone. I'll now speak in more detail to the financial performance of the company. In 2023, we delivered $13.3 billion in annual adjusted funds from operations, or $10.19 per share, the second highest in the company's history, along with $7.5 billion in free funds flow. Our adjusted operating earnings were $6.7 billion or $5.10 per share. We continue to strengthen the balance sheet through debt reduction while delivering strong shareholder returns, returning $5 billion of cash to shareholders through dividends and share repurchases, resulting in a 9% cash yield to our shareholders. As a demonstration of our board's confidence in the continuing improvement of our business and financial resiliency, we increased Suncor's quarterly dividend last year to $0.545 per share. This has resulted in the highest dividend per share in the company's history with total per share dividend payments being 12% higher compared to 2022. With respect to our share buyback program, in 2023, we repurchased $2.2 billion of common shares, representing 52 million shares or approximately 4% of our issued and outstanding shares as at December 31, 2022. Over the last 3 years, we have bought back 15% of our common shares and reduced our debt by approximately $6 billion, while continuing to invest prudently in strengthening and growing our business. These actions reflect our unwavering commitment to executing capital discipline, maximizing shareholder returns, strengthening our balance sheet. We're releasing our first quarter 2024 results later today, and we look very forward to sharing those with you. And with that, I'll now turn the floor back to Rich.

I'll wrap up by first thanking my colleagues at Suncor, employees and contractors alike. Thank you for your expertise, your dedication and your commitment to working safely and efficiently each and every day to make Suncor the best it can be now and into the future. We will work to providing energy to Canadians and others worldwide, [indiscernible] people's lives, bolstered our economy supports local communities, promote relationships with indigenous peoples and rewards our shareholders. You have a tremendous responsibility and should be celebrated, celebrated for what you do and how you do it. I am proud to be on your team. I would also like to thank the company's Board of Directors. Thank you individually and collectively for your wisdom, oversight, guidance and support. And finally, to our shareholders, we recognize that you have choices in where to invest. Thank you for the trust and confidence you place in us to manage your investment. We don't take it lightly, and we're committed to earning it each and every year. Thank you.

Thanks, Rich and Kris. Before moving to questions, I'd like to acknowledge Suncor Directors who have recently retired Eira Thomas, Dennis Houston and Michael Wilson. Michael, who served specifically as Chair of the Board from 2017. The Board and management would like to thank Ms. Thomas, Mr. Houston and Mr. Wilson, significant contributions to this company over a number of years. I'd now like to open the floor for questions. We'll take questions submitted online. A reminder that only those who have logged on in as registered shareholders or as proxy holders are able to ask questions. [Operator Instructions]. Seeing there's no more questions, I'd like to thank everyone for joining us today. We appreciate your interest and support in Suncor, and we look forward to connecting with you again. Thank you again. Stay safe, and have a great day.