John McKenzie: the opportunity set continues to grow and the 250 locations that we had are not all equal. But you also have to remember too, Mano, we've got two well pads that we're starting up this year as well. And so the pacing and staging of your redevelopment really is limited by the internal constraints that you have inside your plant and your oil and water handling systems. But As we go forward, what you should expect from us at Christina Lake North, as we talked about, is steadily increasing production, steadily decreasing SOR. And then with the additional more steam, you're going to see a material movement in the production. But the pacing and staging of production, redevelopments and redrills, to your point, is not yet optimized, and that's something that we'll lay out when we get into Investor Day in January.
Andrew: I don't have a lot to add, actually, John. It's really an optimization of a fully integrated system between the subsurface and the facilities, and obviously we lean towards the redevs because they come on with instantaneous oil and such low SORs.
Greg Party: Thanks, Andrew. I'll turn it back.
John McKenzie: Great. Thanks, Mano.
Operator: Thank you. Next question is from Alexa Petrick from Goldman Sachs. Please go ahead.
Alexa Petrick: Good morning, team, and thank you for taking our questions. Our first one is just around capital allocation priorities. I mean, as we think about the elevated commodity price environment and incremental cash flow generation, any updated thoughts on how you're balancing debt pay down and capital returns?
Cam: Morning, Alex. It's Cam. I think at the highest level, I would say not a lot has changed. Our framework, I would say we've kind of had intact now for the last few years. I think first, what I would start with is we've set our capital program this year. We've got our plan with our growth projects continue to progress. We've got embedded growth in our business going into the fourth quarter of this year into next year. So that 5% to 5.3% billion of capital spending, you know, you shouldn't expect any change there. That is, you know, even though we are seeing higher prices than what we budgeted for at the beginning of the year, I think our plan as it relates to organic capital is unchanged. I think beyond that, you know, obviously you saw we also increased our dividend. And again, that's kind of normal course, I would say too, that that dividend needs to be sustained and fully funded in a lower price world. And that's really anchored to the growth that you're seeing in the portfolio, not just this year, but even as we think about where we're going to be in 2027, 2028. And then beyond that, really, it comes down to, you know, what is our kind of driver between deleveraging and share repurchases? And I think, you know, what we've outlined before is that we've got a, you know, a guideline in place where as the debt moves from, you know, what is around $8 billion down to $6, we're going to kind of be 50-50 and then we'll move to a higher proportion. of buybacks as we get the debt down further. But one of the things I would say is, you know, clearly this price environment we're in today, you know, it is not what we expected when we started the year. I think we are really viewing it as something that's more short-term in nature. So with that in mind, I think we're probably taking a bit of an opportunity to probably have a bit of a bias towards more debt reduction versus buybacks. Not to say that we don't see a return on the buyback. I think we continue to see a return, and you'll see us stay in market. But when you think about proportions of our free cash flow, I think nobody should be surprised to see us have a little bit higher proportion to deleveraging in the short term.
Alexa Petrick: Okay, that's very helpful. And then our follow-up is really just around West White Rose. I mean, any color there around what the gating items are for First Oil and timing around the cash flow inflection?
Andrew: sure andrew why don't you take that one um and maybe just kind of draw a path between where we are today and first oil yeah sure absolutely um yeah so west white roses john talked in his opening comments projects completed um we've got the operating authority from the regulator and we and drilling has commenced so uh over the next the first well that kind of comes in in three phases phase one is obviously drilling the well so this is a roughly 6 000 meter long well it's a horizontal well we'll do that then we go into the completion phase and then the tie-in phase so drilling completion and tie-in that's what we're saying we should be complete have completed by late q3 of this year and then hence get the first production on stream having done that we immediately go to the second well And then we just continue through a repeat of that program through for roughly 30 to 35 wells, which will take us through the next four years. So we'll see first production here late Q3 this year, and then a steady ramp up of production from West White Rose from current zero up to a plateau of 85,000 barrels a day by late 2028, noting that's the gross volume.
John McKenzie: Yeah, it's a pretty exciting day for us. This has been a long time coming. And going through the commissioning process and the work that was done on SIT really confirmed that the construction was first rate, high quality. And we really got this to a point now where we're in operations. And so the project's now behind us, really happy with how it's functioning technically. Everything is kind of all systems go as we kind of drill the first of seven wells in the first well package. So very exciting day for us.
Andrew: Actually, John, can I just add one thing? I think it's an exciting day for many people. For us as an organization, for our partners, but also for the province of Newfoundland. This is a world-class project that's come on stream that's going to benefit the companies, but also Newfoundland for decades to come. Pretty cool.
Alexa Petrick: Thank you. I'll turn it over.
Operator: Thank you. Thank you. Our next question is from Greg Party from RBC Capital Markets. Please go ahead.
Greg Party: Yeah, thanks. Good morning, and thanks for the detailed rundown. John, I couldn't help but think a little bit about your comments on the regulatory framework and carbon taxes and so forth, and I'm trying to get at the root of that a little bit in terms of has there been any change perhaps in your thinking maybe over the last year or so as it relates to regulatory reform decarbonization, export market diversification, and so forth. How are you and perhaps, well, you can only speak for yourself, I realize, but are you thinking about that differently now than you might have a year ago? Has anything changed that way?
John McKenzie: No, Greg, I think we've been entirely consistent through time. What we have to do, and I think this was part of You know, where the MOU was going is we have to have, you know, a view where pathways, production and pipelines all come together. And the reality is that without comprehensive policy reform that allows for significant investment in this space and the production piece is lacking. And so we need a set of policies that are consistent with investment. We need a set of policies that recognize that we as Canadians compete for capital. And we have to compete in a different way. We have not grown oil sands on a greenfields basis for over 10 years. And if we are going to fill a million barrel a day pipeline to the West Coast, it's got to come with growth. And that growth has to come from capital, and that capital has to be competitively advanced vis-a-vis where else it can go.
Greg Party: Okay. Okay. All right. Thanks for that. I think that's clear. Then, John, in the past, even back at the refinery tour in Ohio back in the fall, I mean, part of the strategic role that your U.S. downstream plays is just the potential for congestion in western Canada. Now, there have been, you know, there's deep bottlenecking underway, there's various initiatives on the main line and so on, but what's the in-house view at Synovus in terms of what maybe the egress picture is looking like out of Western Canada? Is the concern around congestion maybe as much as it was before?
John McKenzie: Yeah, I'm going to let Jeff answer the back part of your question, but you're absolutely right. Our refineries provide us with the most economic egress out of this province versus any other opportunities we have. What is kind of interesting right now is we have a number of opportunities to a number of different locations by a number of different midstreamers that potentially could offer additional egress to producers going forward. Jeff, maybe you can talk a little bit about how you're seeing the environment for egress and midstream participation in ex-Alberta egress.
Jeff: For sure, John. And Greg, I think John hit the high level on it really well, which is, you know, through some pretty hard work over the past couple of years by Synovus and by industry and a number of midstream partners, we are seeing a nice steady flow of creative egress alternatives come to market. I would say, you know, we've seen what's what's come to pass already. So only speak of things that are being worked on or looking to the future. You can quickly name at least three different projects bringing north of a million barrels a day of egress to diverse locations, all potentially in service by the end of this decade. And that's a big change from 2024, right when Trans Mountain came on. And there was maybe a large feeling that this might be the last. I think industry has proven creative and responsive to need. And as we said last quarter, don't be surprised to see Synovus continue to support these initiatives.
Greg Party: Okay, terrific. Thanks very much on both fronts.
John McKenzie: Great. Thanks, Greg.
Operator: Thank you. Next question is from Travis Wood from NBC National Bank. Please go ahead.
Travis Wood: Yeah, thanks, and good morning, everybody. question is kind of back to what Menno was talking about in terms of market capture, but rather than the market capture, would you guys be able to share some thoughts around how you're able to capture some of the physical flow disconnects in global pricing, whether that's shifting how you're moving the crude itself or maybe shifting and optimizing the refined product sales into other markets and on that refined product side, I'm kind of thinking more jet fuel or diesel opportunities that you see kind of as an ad hoc basis through the marketing and trading team as well.
John McKenzie: Yeah. So, so Travis, we're kind of doing this in two places. I mean, one of the places that we have opportunities on the crude side and particularly on the East coast of Canada, where we're seeing the physical and financial markets disconnect and let Jeff talk a little bit about that. And then Eric can kind of fill you in on how we're thinking about the product market and our ability to capture premiums there.
Jeff: Great. So Travis, just in terms of crude side, you know, we all watch and have seen benchmarks do what they do and move around. But when you get into the physical market, there's a lot of things that are less seen. I would say off the East coast, we've managed to find some attractive pricing. Both dated Brent versus Brent. When you get into the more physical nature of things, dated Brent sets that price and you can look for lots of headlines on it. But those prices have been anywhere from 20 to 40 plus dollars greater than Brent. So pretty significant. In addition, as you look to grade and location differentials across all of light crude, we've seen an opportunity to sell at increased differentials of things that would normally be $1 premium moving to $6, $7, and $8 premiums. So we continue to extract that. And then we have a number of assets on the pipeline side that allow us to move crude around. And there's opportunities to move between grades to gather incremental value. It really has shown up really significantly in the physical market, which is less observable than the benchmark. So we just continue to optimize in that range. And I think Eric will go on the refined product side.
Eric: Yep.
Jeff: Yeah, thanks, Jeff.
Eric: And maybe just a little more on the feedstock side, building on Jeff's points. I think you've been able to see some really good optimization as we look at standing up the network. So whether that's understanding how do we really find the optimization opportunities from the upgrader? How do we actually optimize across our entire network with Superior and Toledo and down into Lima? A number of opportunities we see and have been able to capture, I think I would also point to being able to optimize and bust through some constraints inside the refinery to maximize our heavy crude and actually maximize the high tan portion of the heavy crude, which becomes quite advantageous for us. So a lot of good work, even on the feedstock side, optimizing within the network. I think turning to the product side. Continuing to find ways, again, as a network to really optimize across the portfolio. I would point to, as I've spoken before, around the marine facility at Toledo and using that to find new means of egress. Continuing to work to figure out how do we monetize our octane length and find different outlets for octane products as opposed to just finished products. I think it's been a huge opportunity. Really optimizing within our jet and diesel makeup. and making sure the right molecules are going to the right places to get the most advantaged products into the market. And so our jet make is something that I think was really strong as we looked at how do we optimize the kit in the first quarter. And as I spoke to some of the market capture performance, that spoke to seeing the opportunity in the market and then within the physical refinery being able to do that. So I think a lot of different moving pieces that all add up to strong performance in the quarter.
Travis Wood: Okay, no, that makes sense. And I know, John, you've kind of been continuing to talk about 70% market capture. But if the team continues to optimize both organic feedstock for the refiners, optimize global sales from the upstream side and then capture much more robust product pricing downstream. Is there a scenario where you think you could continue to outperform that 70% given the initiatives the team seems to be working on?
John McKenzie: There's always a scenario where you capture more than 70% and there's always a scenario where you capture less. To the point you're making, Travis, we recognize that this is somewhat of a clumsy marker in terms of trying to gauge performance. What we've committed to do is come to you at our investor day in January and provide a lot more fidelity into how this works. I don't want to front-run that, and I don't want to get over my skis in terms of promising something well above 70%. Suffice it to say, we're really pleased. We're really happy. They're really proud of the work that Eric and the downstream have done to achieve the kind of market capture rates that we've got, and we look forward for more to come. We're obviously not finished, but we owe you a better explanation going forward as to how you can gauge and forecast our refining business, and that's to come.
Travis Wood: Okay. Well, we'll wait for January and keep asking you on the quarterly calls. I appreciate the call.
John McKenzie: I'd be disappointed if you didn't, Travis. Thank you, though.
Operator: Thank you. Next question is from Manav Gupta from UBS. Please go ahead.
Manav Gupta: Hi. A quick question. Your weighted average crack spread for the first quarter net of rents was almost down $5 versus the last quarter. I know it's been only probably half a quarter, but can you give us some idea? where this number is trending quarter to date. I would assume it's materially higher, but if you could give us some idea where that number is trending quarter to date for you guys.
Eric: Yeah, this is Eric. I don't have the specific number, but I can certainly speak to a few things. I think, you know, as we saw in the first quarter, January and February were pretty lean. That's expected. That is pretty typical in PAD2 particularly, where you just have some really tough margin environments. We saw the strength start to return in March and operate it into that environment where there's a supply disruption and working to place our products into that market. You know, we've continued to see that strength into, you know, the second quarter here. There's a couple things I think about. You know, obviously, we've got, you know, quite a bit going on in the world. But I think, you know, we look at the supply-demand balance really being pretty tight. I think, you know, you've seen a number of folks move inventory into the markets, inventory at relatively low positions. There's been seasonal maintenance going on, as well as some unplanned maintenance throughout the pad. And so that makes a tight supply demand balance even tighter. And that really starts to strengthen the cracks. And so, you know, we've seen some really, really strong, strong cracks and continue to to put our good operations to work to make sure we're putting our products into that market. But, you know, that supply demand balance that we see, I think, continues to show some strong cracks here in the second quarter.
Manav Gupta: Perfect. And my quick follow-up here is international crude prices are high, international gas prices are super high. Can you talk a little bit about how your international gas assets could be kicking some tailwind, maybe for a couple of quarters from what's going on, if you could talk about your international gas assets exposure over there?
John McKenzie: Yeah. And remember, Manav, that our international gas assets are really on a fixed price basis. So those are low volatility cash flows that we get out of Asia and China and Indonesia. So they don't necessarily see the exposure to the international gas price, but what tends to happen when LNG prices go up is the demand for our gas goes up as well. It's the first gas into Guangdong when LNG prices elevate the way that they have. Now, where we do see some benefit is on the associated liquids. Those trade at a Brent Plus basis. and we do capture additional margin on that. But one thing I say about our Asian gas business, and we love that business because of its low volatility and certainty, but everybody kind of loves it when the international prices of gas are low, and then they always wonder why we're not getting a bigger margin when international gas prices are high. But it's been a fantastic business for us. but we don't necessarily participate in LNG prices as they go up and down.
Manav Gupta: Thank you so much.
John McKenzie: Thanks, Manav.
Operator: Thank you. I would like to remind you that if you are on the phone and wish to ask a question, please press star 1-1. Next question is from Patrick O'Rourke from ATV Cormark Capital Markets. Please go ahead.
Patrick O'Rourke: Hey, good morning guys and thanks for taking my question. Congratulations on another strong operational performance here, especially in the upstream. Hopefully this isn't redundant because you've covered a lot of ground so far, but just taking a look at the downstream here and heavy throughput in the U.S. segment was up in the quarter. Still, if you were to look at nameplate, a little bit of potential upside to that. Was the driver of that, as you spoke to, network optimization, or was this being driven by the heavy crude differential there? What sort of impact does this have on your market capture going forward?
John McKenzie: I'm going to let Eric answer this question, but there's a couple of things that are bubbling beneath the surface. Eric mentioned You know, the cracks were relatively low in January and February, and we obviously optimize our throughput based on commercial considerations. And then, you know, on the asphalt side, asphalt prices haven't necessarily kept pace with feedstock, and so we've adjusted there. So, you know, when you kind of look at that utilization rate, you've also got to think through all the commercial considerations that go in and around that. It's not entirely... and mechanical reliability story. But Eric, maybe you can provide some color.
Eric: Yeah, I think you hit it really well. Yeah, look, we're built and configured to run the heavy crude, and that's what we do. I think as John alluded to, though, when we looked at the market environment and then certainly as the market started to strengthen, the asphalt prices did not follow the crude prices. And so there were some choices we needed to make around how do we position the kits economically in that environment. And so I think in terms of overall reliability, really, really strong quarter. But looking at market factors and understanding, again, some of that secondary pricing I talked to earlier, how is that pricing relative to the price accrued? And then how does that show how you optimize your network? That said, I will highlight a number of things we've been able to do to unlock heavy crude capacity. A lot of that comes down to reliability of our coking units. A lot of really good work to get after the reliability there, get cycle times down, get throughput up. And that really does enable the ability to process more heavy crude, essentially for the same total throughput, which is a big advantage for us. again, optimizing within just constraints in the refinery and just having a mindset to, you know, how do we continue to safely and reliably push our constraints to unlock incremental value? And I think, you know, really seeing some of the talent of the team come through and the ability to unlock those constraints and continue to push the business forward, I think is pretty exciting.
Patrick O'Rourke: Okay, great. And This may be a bit more of a broader philosophical question, but I really appreciate the advocacy for the industry there to start the call. I'm wondering, you've gone through a substantial growth phase here. Growth is, in a sense, tailing off a little bit. What would the specific market conditions and regulatory parameters be that enormous opportunity set within the portfolio where we would see Synovus start to think about upticking the growth profile again here where it would make sense.
John McKenzie: Yeah, and thanks for the question, Patrick. And you're quite right. We have seen some modest growth in the industry, and you've seen some growth of Synovus over the past number of years. But the way I would describe that growth is a lot of it comes from acquisition and mergers, and a lot of it comes from brownfield and de-bottlenecking projects. I think the issue that we have to wrestle with is if we do want material growth, and the province has suggested that it's looking to actually double production, we have to have a competitive market that allows for greenfield development. Greenfield development comes at a higher cost and a higher break-even than the growth that you've seen to date. you know, things like what we've done at Narrows Lake or what we've done at Foster Creek, you know, I would just describe those as optimizations, you know, versus fundamental greenfield growth. So without providing for a competitive set of policies that attract capital into this basin and allow us to meet those hurdle rates, you know, I think we're at a point where, you know, we have to be, you know, pretty thoughtful about a set of policy environments that really do allow us to grow and fill a pipeline that's desirous of moving another million barrels a day to the West Coast. Okay, thank you. Thanks, Patrick.
Operator: There are no further questions registered at this time. I would now like to turn the meeting over to Mr. John McKenzie.
John McKenzie: Great, and thank you, Operator. Obviously, this concludes our conference call, and I'd like to thank everybody for joining. We certainly appreciate your interest in the company and wish you all a great day. Thank you.
Operator: This concludes today's program. You may all disconnect. Thank you for participating in today's conference, and have a great day.
