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

Good day, and welcome to the Suncor Energy 2024 Business Update Conference Call.[Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Troy Little, Vice President of Investor Relations.

Thank you, operator, and good morning. Welcome to Suncor Energy's 2024 Business Update Call. Please note that today's comments contain forward-looking information. Actual results may differ materially from the expected results because of various risk factors and assumptions that are described in this business update presentation as well as our first quarter earnings release and our current annual information form, both of which are available on SEDAR plus EDGAR and our website, suncor.com. Certain financial measures referred to in these comments are not prescribed by Canadian generally accepted accounting principles. For a description of these financial measures, please see our first quarter earnings release. Following the formal remarks, we'll open up the call to questions. Now I'll hand it over to Rich Kruger, Suncor's President and Chief Executive Officer.

Good morning. As promised, today, we will provide a business update focused on the next 2 to 3 years, specifically 2024 through 2026. What we will show you is tangible, credible, challenging and bold. What we will convey to you is an unwavering commitment and determination to deliver. Here is the agenda. Not a lot of fluff, you're going to get an early morning survey of meat and potatoes, how we plan to win, where we will add value and what's in it for our shareholders. The executive team shown here will tell our story and answer your questions. We, of course, Kris Smith, our CFO; Peter Zebedee, EVP, Oil Sands; and Dave Oldreive, EVP, Downstream. Having led many teams over the last 40 years, this team and the rest of our EL team are as skilled, experienced, collaborative and results oriented as they come. We've worked together for more than a year now, and we've hit our stride. Summarized here are the key takeaways for today. First, our plan includes a continued focus on the fundamentals. We've made material progress but the fundamentals are a never-ending quest, free funds flow improvement of an additional $3.3 billion per year by year-end 2026. The related effect is a reduction in our WTI breakeven by USD 10 a barrel. No significant capital on bitumen replacement in the next 5 years. In fact, we will show you our capital profile reducing through 2026. A revised net debt target for 100% free funds payout increased to $8 billion. Increase reflects our confidence in the plan and the financial resiliency that results. To that end, we've increased share buybacks to 75% of free funds starting in the second quarter. These are the headlines for today in a nutshell. Some executives see strategy as complex. I'm not one of them. I see strategies how you compete and win in creating superior value relative to your competitors, superior value for your customers, communities, employees and last but certainly not least, your shareholders. I believe strategy should create clarity, simplicity and focus, a clear description of what winning means and how it will be achieved. That said, here is Suncor's strategy to win, 1 statement and 5 objectives. Our winning proposition, we create value through our unparalleled integrated upstream and downstream asset base underpinned by large-scale, long-life oil sands resources. It's not long. It's not complex, and it certainly doesn't take a PhD to understand it. Of course, long-term strategy involves making the right decisions at the right time, in the simplest sense, decisions on how to allocate both capital and people's time. However, it's important to note that the vast majority of our workforce focus on today's business, safely and efficiently mining ore, producing wells, upgrading bitumen, running refineries and selling production and products. This one page ensures we are crystal clear in exactly what we strive to achieve, how we plan to achieve it and what we measure to determine winning. This slide depicts our business today and the relative size of each business line. We will communicate plans to add value in essentially all areas shown. A theme to note, you hear us and others reference our integrated business model and the value it adds, a hedge on crude price volatility, stability of cash flow, et cetera. However, all integration is not created equal. What we will say today is like George Orwell's novel Animal Farm, Suncor's integration is more equal. How so, first, our degree of physical integration is a competitive differentiator, Fort Hills PFT to Base Plant, Firebag bitumen to Base Plant, Syncrude Base Plant interconnectedness and so on. This physical connectivity provides us a unique ability to move molecules to maximize value, increase facility utilization and ultimately, lower costs. What we then do with the molecules once we optimize their location is a second competitive differentiator. Think back to that old campus bar you went to in university. They served beer, and it was a high-class joint, maybe some cheap wine out of a box. Now come back to today. While others serve beer, Suncor serves craft cocktails. If our customers want synthetic sour, we got it. Synthetic sweet, coming up. Dilbit on the rocks, here it is. PFT neat, enjoy. You get the point. These are simply a few of our custom crudes, products and logistics that we offer, customization that adds value to our customers and value that is ultimately shared with us. You will hear much more on this differentiating capability and our plans to grow it from Dave. Going back in recent history, Suncor needed to change. It was evident in our performance, evident to those both internal and external to the company. Some of you have seen a page similar to this before. Others have heard me tell the story and a few of you have even written about it, the change at Suncor, a comprehensive reexamination and reintegration of strategy, structure and culture, new leadership, new focus, new priorities, new structure, new improvement plans, new performance expectations and perhaps most importantly, a new attitude, a more focused, competitive, results-oriented team with a winning mindset. Said differently, today's Suncor is increasingly a new Suncor, but I know what you're thinking. In the infamous words of Jerry Maguire, show me the money or, in our case, show you the proof points. Let's look back at the last 12 months. After years of unacceptable results, 2023 was the safest year in company history, including no one getting seriously hurt for the first time since 2015. After several years of disappointing facility utilization, we've moved to the head of the class in both reliability -- or in reliability, both upstream and downstream. After years of not achieving market guidance, we're delivering record volumes, again, upstream and downstream. After years of being labeled big and bloated, we slashed cost, completed a major streamlining and refocusing of our above field organization. We've also played checkers versus chess strategically upgrading our portfolio, consolidating ownership at Fort Hills and shedding noncore assets. And last but not least, we've put money and lots of it in the bank or, more accurately, on the balance sheet and in our shareholders' pockets. Trust and credibility in life are earned by delivering on commitments. It's up to you to decide how much street cred these results have earned the new Suncor. We talked about our objective to improve performance and add value in the context of lowering our overall WTI-based corporate breakeven by $5 a barrel. Today, we're sharing a much higher ambition, in fact, double the original $5. Recognizing calculation methodologies vary, I would ask that you not be fussed with the starting and ending points, but rather focus on the targeted improvement of $10 a barrel relative to 2023. Shortly, we will detail building block by building block how we will achieve this objective in the stair-step buildup to the $10. I'll remind you, though, that we are well on our way with the first approximately $3 a barrel already achieved and more being captured each month. Breakeven is our internal language given it's a product of cost, capital, production margin. Everything and everyone on our team is in this picture. That said, what ultimately matters the most is growth in cash generated or free funds flow. The plans we are about to show you increased free funds flow in all areas with the single biggest driver shown here, 100-plus thousand barrels a day of additional upstream production from 2023 to 2026, but there's much more. In total, we will lay out improvement plans to add an incremental $3.3 billion per year of free funds flow by 2026, $3.3 billion per year. With that, I'll turn it over to Peter to detail our upstream improvement plans.

Thanks very much, Rich. We are working hard across the company to accelerate on the momentum that's been building through 2023 and the first quarter of 2024 to deliver operational excellence and exceptional results. Making up on average, 70% of Suncor's total AFFO, Upstream will play a significant role in delivering the improvements to our corporate breakeven. Upstream improvements will make up half of the total break-even reduction for the company. And to do this, we are focused primarily on these 3 things: number one, improving the efficiency of our mining operations to reduce cost; number two, maximizing the usage of our existing fixed plant assets through improved reliability, utilization and low to no cost debottlenecking to add barrels; and number three, delivering value to our oil sands scale and physical integration, both within the region and end of the downstream, a lot more of that Suncor integration Rich referred to earlier right down to the molecule level. The end result of delivering on our focus areas will be to increase upstream production by over 100,000 barrels a day while holding our controllable costs flat on an absolute basis. This reduces our operating cost per barrel by 8% over the next 3 years. Now that's operating leverage, and that's what gets us up in the morning to deliver, free barrels and a bottom line increase in free cash flow that goes along with it. All assets across the upstream are increasing their production in the next 3 years. And at OS&G, our goal is to set in place sustainable structural cost and efficiency improvements that absorb inflation. We're going to give you a couple of tangible examples to demonstrate how we are bringing these commitments to reality. And you've heard me talk about this before. Given the magnitude and concentration of our mining operations and our total material movements, it's all about scale. Getting enough of the right-sized trucks in the right place will deliver $325 million a year in cost savings and contribute a USD 1 per barrel reduction to our corporate breakeven. The additional capacity provided by these trucks results in the removal of higher dollar, less productive contractor tonnes, and we are seeing a significant dollar per tonne savings advantage on our bottom line by doing this. Size matters and the moves we have made to bring on 55 new ultra-class haul trucks not only displace over 100 smaller third-party contracted trucks. It simplifies and declutters our mining operations, improves safety and results in overall mining efficiency improvement. You are only as fast as your slowest truck. 16 of the trucks are already on the ground that are operating today, and the remaining trucks will be arriving through the rest of the year and into the first quarter of 2025 at Base Plant and Fort Hills. But it's not only about new and bigger trucks. Getting more out of what we operate today is essential and to achieve $225 million annualized cost savings, earlier this year, we put in place a system that allows us to access and action real-time performance data across all of our operating mines. It's a common platform with standardized performance metrics and measurement that allows our teams to rapidly identify and action performance opportunities, learn from others and, frankly, drive a little healthy competition across our sites. We are in the details right from our corporate office to the leaders in the field and taking action on all the little things that add up to a lot in our business. This tool provides performance transparency and enables that industrial engineering approach to improvement that I spoke about in the quarterly call. We can see gaps and take quick action to reduce our queue times, optimize our shift changes, improve our speed and the list goes on. Our Mine Connect tool has quickly become the most utilized app on the Suncor network. Across our mining sites, we're spending $1.3 billion per year on maintaining our mobile equipment, and it's a significant factor of our operating costs in mining. We've taken action to standardize our maintenance strategies for common equipment across the region and work together with our OEMs and equipment dealers to improve reliability of our fleet, standardize our preventative maintenance strategies and extend equipment components benchmarks. Bottom line, more uptime, less maintenance, less cost. We've also been able to negotiate competitive commercial contracts regionally and improve the partnerships that we have with our key suppliers. This has been critical to implement these improvements and reduce costs. All of this adds up to $150 million a year of cost savings. And now moving on to one of my more favorite topics. On May 13, we reached a significant milestone in our transition to autonomous mining. With the first autonomous trucks rolling in our Base Plant Millennium Mine done safely, on time and on budget, I couldn't ask for more. The team has really done a tremendous job of making this happen. And I was already showing Rich last week the early performance data coming through from Millennium, and it's been extremely positive as we built on the productivity gains we've seen in our North Steepbank autonomous operations. In addition to the obvious labor cost savings, the increasing speeds, improved load factors and reduced standby time with autonomous trucks, it's enabled us to free up truck capacity and display 6 rental trucks at a cost of $4 million per unit. That's a savings of $24.5 million already in 2024 and a good step forward on the path for us to deliver $175 million per year in cost savings that we commit from these operations. By year-end, 100% of Base Plant ore will be delivered autonomously. And by Q1 2025, we will transition our overburden material movement as well. Base Plant is set to become the single largest autonomous mining site in the world. Autonomous haulage is a key lever for us to deliver a safer, more reliable and more cost-effective operations. I'm going to shift gears now and move to In Situ. And frankly, I've been truly amazed by these assets since they've become part of my portfolio in 2023. They are amongst our biggest moneymakers for our business and Suncor is blessed with an abundance of in-situ resource that forms a significant part of our reserve base. Our In situ strategy is simple and that's to grow low-cost barrels with minimal investment. That's operating leverage defined. You can already see the impact the improvements the team has delivered with Firebag coming in at a best-ever production of 229,000 barrels per day in the first quarter '24. This was accomplished by the operating team improving the base reliability of equipment and identifying and actioning a series of small practical debottlenecks for very little cost. Many of these have been completed in 2024, and we have many more in the hopper to execute in the coming years. The sum total of all these smaller improvements moves Firebag's stream day rates to 230,000 barrels per day plus outside the turnarounds, and we'll deliver $200 million a year in margin improvement. And with that, I'll hand it over to Dave to talk about the downstream.

Thanks, Peter. With refineries and profitable locations, advantaged logistics and true integration all the way to the final customer, our downstream represents about 1/3 of our AFFO, and there's more opportunity out there. We're focused on cost reduction, but where we can contribute the most is to grow cash returns through generating more value. We will deliver in the range of 25% of the $10 per barrel improvement. Let's start with a large opportunity for both the upstream and the downstream turnarounds. As we discussed in previous calls, I'm co-leading a company-wide initiative to improve our turnarounds. I've been involved in turnarounds my whole career. In fact, my very first role after graduating university was as an inspector on a crude unit turnaround back in '95. That's dating me a little bit. I feel confident we can achieve a substantial improvement, and we're going after this with urgency. There's no secret to successful turnarounds. You need to select the right work and then execute that work efficiently. Each turnaround will start with benchmarking to select a work scope aligned with competitive costs and durations. Risk-based work selection processes will become more focused following industry best practices to ensure the minimum work scope is selected to reliably achieve the run to the next planned outage. This is not only about doing less work. It's about doing the right work. With the workplace locked in, we'll be following a disciplined approach to detailed planning milestones, and we'll be completing that planning early to give us time to optimize the plans to execute efficiently in the field. I'm confident we can deliver between $225 million and $250 million per year in turnaround savings by 2026. Pivoting specifically to downstream improvements, we'll grow our refining throughput by increasing the availability of our assets. Each refinery is focused on reliability road maps with targeted improvements, including equipment-specific plans to eliminate historic bad actors and to reduce both planned and unplanned downtime. Our new leadership team at the Commerce City refinery have been driving reliability improvements, focused on engaging the organization to address winterization, asset integrity and maintenance backlog. We are already seeing improved results with 96% utilization over the last 3 quarters. The turnaround improvements I spoke of earlier are not just about cost reduction. We are delivering shorter outage durations and longer intervals between turnarounds. Our Sarnia refinery is currently wrapping up their spring turnaround ahead of schedule. We recently delivered our turnaround in Montreal 13 days ahead of schedule with safe onetime start-up, and we're now running 8,000 barrels a day more throughput than prior to the event. Edmonton, our most profitable refinery, has already begun executing their reliability improvement road map, breaking throughput records and have delivered over 105% utilization so far this year. Our reliability improvements are backed by our OEMS processes, underpinned by risk-informed equipment strategies, risk-based inspection programs and new simple processes that will help each asset keep the small event small. Our near-term operational availability improvements will increase our throughput and deliver over $100 million per year in margin. Now I'd like to talk about how we will continue to differentiate ourselves and capture more value. We've grown the contribution of our supply, trading and optimization business significantly over the past few years to support our integrated model. You can think of our trading business as about $1 per barrel increased netback to our upstream barrels and another $2 per barrel on our downstream margin versus what we would have earned had we bought and sold in index as many of our competitors choose to do. To be clear, we are relative value or spread traders. This is asset-backed trading. I know some of you like baseball analogies. We hit singles and we steal bases around our assets. This is not large spec trading or swinging for the fences. We will continue to grow our contribution with specific opportunities such as, and as I've mentioned before, capturing the value from the Trans Mountain pipeline into the West Coast and Asian markets, growing our refined product book by removing the middleman, moving our clean fuels compliance obligations from a compliance activity to a commercial one, and further capitalizing on our power portfolio. We are also actively evaluating all of our logistics contracts to challenge if they continue to serve us well. We are looking at leased assets, tanks, pipeline and marine commitments and our rail fleets to ensure they are all generating maximum value. We expect to capture north of $250 million per year in the supply trading and optimization space. We are also excited to grow our power generation capacity as we grow our -- or as we complete our coke boiler replacement, an 800-megawatt cogen project at Peter's Base Plant. This project strengthens our Base Plant steam reliability and improves our carbon intensity. These cogen units also materially increase our power generation capabilities. With this additional 800 megawatts of capacity, Suncor will be the third largest power producer in the province, contributing reliable capacity to the Alberta grid and "generating" an incremental $200 million per year in benefits. Let's move further downstream to our retail business. Per our retail growth plans, we are high grading our controlled Petro-Canada retail network and are on track to deliver $200 million in margin growth by 2026 and secure high-margin domestic outlets for our refined products. Over 20% of our network will be transformed between '24 and '26. We are also rationalizing underperforming locations. We continue to adapt our retail growth plans, enhancing our quick serve restaurant offering with an additional 100 A&W sites, including the new express format concepts. We officially launched our partnership with Canadian Tire in March, linking Triangle Rewards with Petro-Points to deliver stackable loyalty incentives, offering more options for customers to collect and redeem points. We will rebrand over 200 Canadian Tire retail sites to Petro-Canada with integrated fuel supply of 1.3 billion liters per year. We have the best locations to achieve top-tier returns. The pictures show how we are capturing previously untapped potential at a location in Toronto. This previously underutilized asset reopened in December with strong customer response and growth in both fuel sales and non-petroleum revenues. This is a great illustration of the potential of our network. And now I'll pass things over to Kris Smith.

Great. Thanks, Dave. Well, in addition to our upstream and downstream specific improvements, we're also driving improvements in our corporate group, which supports those businesses. As you can see from this slide, the improvements in our corporate group are a material contributor to our break-even reduction and free funds flow improvement. So let's move to the next slide, which shows some more detail. You will see that we've already executed a significant part of the improvement and continue to drive for more. Last year, we made significant reductions in our above the field costs, resulting in about $450 million in cost reductions. With a mantra of clarify, simplify, focus, we not only reduced our above field staff by 22% and our contingent workers by 50%, but we also simplified the organization by reducing layers and increasing spans of control, which also supported focusing our leadership, fewer leaders with more focused accountability. At the same time, with our ERP integration behind us, we took a hard look at our IT spend, refocusing it and ensuring we are not only spend -- or we are only spending what we need to support our business strategies and objectives. This resulted in cost savings of $280 million and a more focused portfolio of high-value investments such as the Mine Connect digital tool that Peter just highlighted. And we're not stopping there. While you could say we took a bit of a chainsaw to our above the field cost last year to affect the major reset that we needed. We continue to drive further reductions in efficiencies and see at least another $150 million of improvement available. But instead of a chainsaw, we're now being more surgical, continuing to drive efficiency across all above field functions. Now all that improvement is impressive and fun to hear about, but let's talk about what it means for the bottom line. As you can see from this slide, the sum of these actions to improve our WTI breakeven through cost reduction, margin improvement and production growth delivers 10% compound annual growth in AFFO from 2023, which has been normalized for price and the onetime Fort Hills tax benefit in that year. This translates into a 15% growth rate on a per share basis as we will be buying back shares through this period, which I will cover in more detail in a few minutes. This is the bottom line. We expect to deliver more than $40 billion of adjusted funds from operations from 2024 to '26 and a USD 75 WTI business environment. Now before going into more detail on the numbers and our financial framework, it is important to be clear that our allocation of that cash flow will be guided by 5 very clear principles. First, we will continue to ensure we have a strong, resilient balance sheet. Second, we will ensure that we sustain our integrated and profitable asset base. Third, we will pay a reliable and growing dividend to our shareholders. Fourth, we will return free funds flow after CapEx and dividends to shareholders via share buybacks. And fifth, we will selectively invest in high-value growth opportunities to our shareholders -- for our shareholders. Our capital allocation decisions will be guided by these principles, and I'll talk about them in more detail. Let me start first with our balance sheet. We are fully committed to ensuring a strong balance sheet that is resilient through the cycle. As you can see from this chart, we've paid down a significant amount of debt in the last 3 years, almost $8 billion, reducing our annual interest payments by almost $340 million. This has resulted in an investment-grade balance sheet that has a long average debt tenor with a very manageable maturity profile. And in addition, we have very strong liquidity at over $7 billion. In the current price environment, our net debt to AFFO is well under 1x. And you should take note that in this presentation and going forward, we will be referring to net debt excluding capitalized leases when talking about our targets. In the past, we've talked about net debt targets, including those leases, but going forward, we will exclude them, which allows for better comparability to our peers. That said, rest assured, we will continue to be focused on managing not just our debt but also our capital lease portfolio along with all aspects of our business. The bottom line is that our focus on ensuring a strong investment-grade balance sheet, along with our strong liquidity positions this company very well going forward. Just as we are committed to a strong balance sheet, we're also committed to capital discipline. Over the '24 to '26 period, annual capital is expected to decline as we continue to invest prudently in sustaining the business while also selectively investing in high-value economic opportunities. There are a number of large economic investments that are in flight and which will be completed in this window, and you can see them listed there on the slide. A few points I want to draw to your attention. First, capital as a percentage of AFFO declines over time, providing more free funds flow for other uses. Second, there is reduced spend in '26 on the larger projects listed on the slide as they're being completed. We do have a number of high-value economic investment opportunities in the queue that would start to come into the 2026 window, but they will be subject to a high bar if they are approved to proceed. Third, this profile excludes the capital associated with emissions reduction related to carbon capture and sequestration. We are fully committed to our GHG reduction targets and the Pathways Alliance, but we need to have an appropriate financial framework, including capital support in place with governments before we move forward with material capital commitments related to those projects. And finally and to be crystal clear, there is no significant base mine bitumen replacement investment in the next 5 years. Some early development spending will be starting in this time frame, but any significant spend will not be until toward the back end of the decade. After capital, we see substantial free fund flow at $75 WTI, including $3.3 billion of incremental free funds flow versus 2023. This is 18% compound growth versus '23 on a normalized basis and 24% on a per share basis when taking into account expected share buybacks. So the question is what are we going to do with all these free funds. So let's talk about our capital allocation framework. One thing that is not changing with our capital allocation framework is our unwavering commitment to a reliable and growing dividend that is sustainable for the long term and through the cycles and which grows over time at an expected annual rate of 3% to 5%. As outlined earlier, we are also committed to ensuring a strong, resilient balance sheet, and we will continue to reduce our debt, targeting 1x net debt to AFFO at USD 50 WTI. This means working down our net debt from where it sits currently at just under $9 billion to at or near $8 billion. Given the current position of our balance sheet, the demonstrated planned improvements in our business, the expected business environment and the distance to our net debt target, we are in a position to return substantial free funds flow to our shareholders. Starting now, we have increased share buybacks from free funds flow to 75%. Once our debt is at or near $8 billion, we will increase those buybacks to be at or near 100%. This net debt target is higher than our previous target and reflects our confidence in the business and the improvements we've laid out today. One other thing to be clear, this free funds flow allocation framework does not include the impacts of any potential future asset sales or acquisitions. If there are any future changes to the portfolio, they will be assessed at the time independently of this framework. In summary, we believe that this framework ensures we maintain a strong balance sheet, while at the same time, providing strong cash returns to our shareholders.

Kris, let me add a comment here. For those of you with models, let me save you time. The plans that we've outlined today with the price environment we've assumed would have us hit $8 billion in net debt sometime mid next year, a year from now. That's just the math. But we're committed to do better. We intend to evaluate every option and pull every lever to accelerate that date and to accelerate the resulting increase to 100% share buybacks. In fact, I can think of no better Christmas present for our shareholders than to get to our targeted net debt level by year-end this year. That's not an unconditional promise. But hear me clearly. It's a priority of this management team. I'll leave it at that for now. Sorry, Kris, go ahead.

No, great. Thanks, Rich. Well, I just have one more slide before I hand it back over to Rich. And putting this all together, this means substantial returns to our shareholders as we strengthen this company and continue to increase the cash flow generation of the business. Specifically, in the $75 WTI business environment, we expect to see a substantial increase in free funds flow, which in turn will lead to growing share buybacks. We will deliver $18.5 billion in total cash returns to shareholders between dividends and buybacks over the '24 to '26 period, being about 27% of the current market cap of the company. We believe this to be a compelling proposition for our shareholders as we drive our plans to improve the performance of the company, ensure the strength and resiliency of our balance sheet and continue to wisely invest in the future, all while generating substantial returns for our shareholders. And with that, Rich, I'll turn it back to you.

Thank you. Let me just make a few final comments before we open it up to your question. The -- in a nutshell, our commitment to you is to continue to drive positive change within this company. Along the way, we will provide the proof points to show you, to prove to you that we're proceeding consistent with our plans. We've talked about and we'll continue to maximize the value of what we believe is an unparalleled integrated asset base. We will execute on the improvement plans that we've described today as well as others that we haven't, all for the ultimate goal of growing our free cash flow per share and significantly increase shareholder returns. Now although I won't go through it, the last page in the deck, Page 37, is simply a rack-up of you take the -- whether they're operating costs, capital costs, margin improvements that we've talked about throughout the deck. If you put them in terms of their free funds flow contribution over this time, this saves you a bit of time and shows how they would stack up. So with that, I will stop, and I'll turn it back to Troy.

Thank you, Rich. I'll turn the call back to the operator to take some questions.

[Operator Instructions] And our first question will come from the line of Dennis Fong with CIBC.

Also appreciate the color and context associated with this business update this morning. My first question derives maybe from the 2022 Investor Day. I know prior to your time here at Suncor, there, Rich. But there was a discussion around some of the headwinds to cost improvements, including increased haul distance and waste movement. I think this was Syncrude specifically. Can you talk towards maybe how some of these cost improvements that you've outlined today help offset again some of those headwinds that maybe are a little bit more intrinsic with respect to some of the assets as well as this inflation piece that you showcase here on Slide 37?

Yes. Let me comment, Dennis, even step back just a little bit further on the kind of the generation of this. The plan you've seen today are not a series of numbers that the folks on this call have pulled out of the year. We have been working for more than 6 months deep in the organization, with the leadership team engaged at multiple levels starting with what's possible, what's possible and what's preventing us from capturing it. And then we worked backwards to eliminate those barriers to put this plan together. So there is a great deal of clarity, alignment and accountability behind this. So what we've said is if we achieve an improvement but we have a headwind that eats it up or evaporates it, that's not good enough. So what you're seeing today are net, the net improvement. So we've looked at, on the Page 37, we've got a little bar that represents assumed inflation. But in all of Peter's numbers, for example, as well as Dave's, anything that would be considered the headwinds, the age of mine extensions or progression of mines, haul distances, they are all in here in terms of having been offset by the improvement plans. You're looking at net numbers here.

Great. Great. Appreciate that. And then my second question dovetails into Firebag a little bit more. Peter, you addressed this a little bit at the Q1 conference call, but I was hoping to dig a little bit further in here. So you've seen a fair number of improvements just from some of these small opportunities against field-driven productivity improvements. Can you talk towards what you feel is the production capacity at Firebag, especially given the excess steam capacity and some of this discussion around infill drilling that you're focusing on that asset?

Dennis, let me start, but then I'll turn it over to Peter, and of course, Shelley is here with us, too, who's got some good history of this. Any of the facilities you look at, it -- and it is just kind of -- industrial engineering, you look at what's the constraint at any point in time. In conventional operations, it typically is well capacity with facility, but it's a bit different here. We work to ensure that with our well pads, we've had the ability to fill facilities, but we're -- now we're taking a very different approach, and we're looking at each individual component, whether that's water handling, steam management. And we're taking each bottleneck and saying, okay, well, what can we do to lift that. And so I don't look at and I don't think Peter and Shelley do look at Firebag as having a fixed capacity. It's just what's the incremental cost and time line to keep ratcheting it up. We have a wealth of resource that we can continue to feed these facilities for a long time, profitable, high-quality resource. So it's literally looking at each component part. Peter and his team have done some just simple -- some simple but magical things on water handling lately that have unlocked 3,000, 4,000, 5,000 barrels a day of additional production, essentially no cost. We're continuing to do that. So Peter, it's like you said, you get excited about Firebag In Situ. I'm sorry, I do too. Do you have anything else you'd add to that?

I think you took most of my examples, Rich.

That's the benefit of being the CEO.

I think at the end of the day, Dennis, so we have a full hopper of these kind of low to no cost debottlenecking opportunities. I wouldn't call them technically complex by any means. And so the ability of the team to be nimble to execute these in the field with very little complexity and almost no cost, we've been successful in the first couple. We've got a few more queued up between now and the end of the year. But it's -- as Rich said, we're in the enviable position of being well along at Firebag, and we're just working on the fixed plant debottlenecking opportunities to unlock those barrels and deliver them into the production ecosystem. So I would say between removing bottlenecks and are diluent stripping, improving our noncondensable gas injection, et cetera, we've got a whole bunch of these queued up, and I'm pretty excited about that.

Shelley, just to add, you and your team months back showed me kind of our inventory of well pads. So we're approaching this. We're not resource limited. We're looking at what's the right time to bring on new well pads. But is that a fair description? Today, it's not the resource that's holding us back. It's the facility to process greater volume.

Yes, absolutely. We have decades of resource in front of us. And one of the real magic elements in In Situ is bringing that subsurface elements and marrying it up with the optimization of the surface equipment. So right now, we do have the ability to optimize on a well-by-well basis hour by hour so that we do optimize water return, we do optimize steam usage. And I think back to that focus and that win mindset within our teams has really allowed us to unlock a lot here.

And this is our lowest cost upstream asset with large long-life resources underneath it. And the other thing, and it's not for today's conversation, but we continue to look at new technologies that can further unlock both resource, lower carbon emissions, reduce steam, look at synergies with the other assets. So you're going to hear a lot more over time about our In Situ, Firebag and all the adjacent resource to it. A lot of opportunities set here for the short term but also for the long term.

Our next question will come from the line of Greg Pardy with RBC Capital Markets.

Thanks for the detailed rundown and the speed with which you delivered that. So I just want to clarify, because I think that Dennis was asked what I was, which is where is some of the growth coming from on the in-situ side. So just to be clear then, you've moved to a 75% payout effectively as of April 1. And then with any luck, as Rich says, you want to be at $8 billion, so effectively at 100% payout come December 31 hopefully.

Yes, Greg. Sorry. Greg, thanks for the question. Kris here. Yes, we've moved to the 75% payout effective this quarter. It's underway. As we move, get at near $8 billion, we're going to go to that 100%. As Rich said, right now, we can do all sorts of math on assumptions of the business environment and that sort of thing. And the math might tell people it will be towards the mid of next year or in the first half of next year. Our focus, as Rich laid out, is to drive that as soon as we can, so pulling every lever we can. So the team is focused on actually working to hit that target towards the end of the year. As Rich said, it's not an unconditional promise, but I'll tell you, it -- Rich has been very clear with us and with the teams that that's what we're driving for. But at the end of the day, we're not going to be able to control the business environment obviously, but that's the framework.

Suncor wants to be a team that beats expectations, and that's not by setting soft expectations but challenging expectations, bringing our collective focus to a goal and over delivering. That's the company we want to be.

Second question is, because you're all currently in, I'm going to ask in an indirect manner, which is what is your plan. Where is your perspective in terms of reserve life index? So is the plan that even with all the growth that you have coming that you would sort of maintain a very similar reserve life index over the coming years? Or is there area for optimization there as well?

One, Greg, we don't target to a number, a specific number. But when you look at what we have, we consider we've got a high-quality resource base, certainly long life. And we have, with the adjacency of all of our operations, there's incremental resource that are not in the 2P numbers. And so the work we have going on now, I would say that would be a bit more of the story line that you would hear as we would give a longer-term update to the market. But I feel quite comfortable as we roll up our sleeves and dig in that we have an abundance of high-quality, long-life resources that we can continue to add that will benefit from the existing infrastructure and the proximity of all our facilities in the Wood Buffalo region. It will have -- as I said, well, that will kind of get into the long-life bitumen replacement thoughts and plans, but we've got an abundance of opportunities, and that, to me, is really encouraging. We don't target to a number. But I think Kris' point on there's no base -- no material bitumen replacement capital in the next 5 years, that's because we have options, and we've got flexibility to determine what's the highest value to plan it, execute it, do it right and continue to deliver in this organization.

One moment for our next question, and that will come from the line of Neil Mehta with Goldman Sachs.

Yes. Congrats on this update. I guess the first question is just around Fort Hills. A big part of getting the upstream improvement is also going to be driving progress at that asset and recognize we'll get a little bit more color later this year. But Rich, what are you prepared to talk about there in terms of how you want to attack this over the next couple of years to get debt back to optimal performance.

Yes. Let me turn it to Peter. Peter, talk about what you and your team are doing to maximize the value of that asset.

Yes. Thanks very much, Neil. And firstly, I'd just like to say, this plant really is a Ferrari, and we fully intend to run it pretty hard. We are right on target with respect to our 3-year improvement plan, and we expect to continue that, of course, in the years to come. We've had a lot of learnings on how we mine this resource with respect to managing the risks that we've experienced historically. The Devonian water inflow as an example, the high wall failures, and we believe we have a very good control and understanding of that. So I would say, as we transition from mining in the south pit, into the north pit, and that's the key focus of our teams right now, is to make that transition successfully in the next couple of years. We've built those learnings in. And we're looking to squeeze out every barrel out of this plant that we possibly can in the coming years. I would also say Fort Hills is a big focus area for improving the efficiency of our mining business that I talked about at the start of the presentation. And that's really where you see us deploying a large amount of these ultra-class haul trucks that we purchased and displacing more expensive third-party contractors. Fort Hills is really one of the nexus points of doing that. And so it's about transitioning to the north pit successfully, continuing to fill the plant and really driving efficiency in our mining business, and we think that's the winning formula for Fort Hills.