Imperial Oil Limited
Q3 2018 Earnings Call Transcript

Published: 2 Nov 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to Imperial's Q3 Earnings Call. [Operator Instructions]. I would like to introduce your host for today's conference, Mr. Dave Hughes, Manager, Investor Relations. You may begin..

[Dave Hughes:]

Okay. Thank you. Good morning, everybody, and thanks for joining us on our third quarter call. In a few minutes, you'll be hearing from Rich Kruger, Chairman, President and CEO. But I'd like to tell you in the room with Rich right now, we have Dan Lyons, the Senior Vice President, Finance and Administration; Theresa Redburn, Senior Vice President, Commercial and Corporate Development; and John Whelan, Senior Vice President of the Upstream. I would also like to note that today's comments may contain forward-looking information. Any forward-looking information is not a guarantee of future performance, and actual future financial and operating results could differ materially depending on a number of factors and assumptions. Forward-looking information and the risk factors and assumptions are described in further detail in our third quarter earnings release that was issued this morning as well as our most recent Form 10-K, and these documents are available on SEDAR, EDGAR and www.imperialoil.ca, and I encourage you to refer to them. So after Rich's remarks, we will be having a Q&A session. And as we did back in July in our mid-year update call, we provided analysts an opportunity to submit questions in advance. So we'll probably start the Q&A with a couple of those presubmitted questions and then move to the live Q&A and then move maybe back and forth through the session. So with that, I will turn it over to Rich.

[Richard Kruger:]

Good morning, and you're so kind to us on our midyear update that we've chosen to do this again with a third quarter earnings call. Before - I trust you've seen the headlines and the highlights. Before I go in and detail some of the specific third quarter results, I'll offer a few comments on the overall business environment. If we look at third quarter market prices using WTI and WCS as references, the third quarter was largely similar to the second quarter. And if you look at year-to-date prices, again, largely similar throughout the year. The big difference, of course, from year to year is WTI is up about $18 a barrel, but WCS, Edmonton is only up about $7, and of course, bitumen prices, which follow it are about - up about $6 year-on-year. So we certainly haven't benefited for the full extent of global crude prices. Now fourth quarter, with differentials shaping up to be a bit different, I'll have some more comments on that a bit later. Downstream and chemicals market conditions and margins remained strong in the third quarter, much like we experienced throughout the first half. So with that said, net income of $749 million in the third quarter essentially doubled our year-to-date to a bit below $1.5 billion, well up from this time last year to June of more than $800 million. On a per-share basis, that was $0.94 a share in the third quarter, bringing our year-to-date to $1.79. In the Upstream, we had quarterly earnings of $222 million, a significant increase relative - or the increase is really relative to the second quarter, and that's driven by volumes growth, most notably Kearl and Cold Lake, and I'll offer more comments at an asset level here shortly. The year-to-date Upstream earnings split from a negative $50 million through the first half to a positive $172 million through nine months, and this is the third quarter with the highest quarterly upstream earnings we've had in four years. Downstream quarterly earnings, $502 million, essentially at the first quarter of '18 level. Results have been driven by historic high inputs of price advantage having crude feedstocks to our refineries. Historically, we've refined 15%, 16%, 17%. Heavies are about 65,000 barrels a day. As we continued to push, given the price advantages we've averaged about 95,000 barrels a day or about 25% of our feedstock as heavy crudes. Other components found in the Downstream quarterly earnings

[Dave Hughes:]

Okay. Thank you. As I mentioned, we did provide an opportunity for analysts to presubmit some questions. So we've got some questions there as well as some folks live. So I'm going to start with a couple of questions that were presubmitted.

[Dave Hughes:]

So the first one comes from Menno Hulshof of TD. Many of your peers are shutting in heavy production through a variety of mechanisms. Should we expect the same from Imperial? Or is that already underway?

[Richard Kruger:]

Okay. No volumes were shut in, in the third quarter due to the current economic environment. Going forward, we do not comment on what we may or may not do other than to say that what we do is always based on value. Our view is - what we're seeing in the market is precisely the market working. I've read and seen what others are saying. Certainly, in market conditions like this, anything on the high cost or marginal end would be at risk. Our view is those situations are the result of choices and strategies and investments that individual companies have made over time. And our view is you live with the consequences of your decisions in your investments. And we're quite happy and that we are an integrated and a balanced company, and we live with and are prepared to deal with whatever market conditions exist at any point in time.

[Dave Hughes:]

Okay. Second question comes Greg Pardy at RBC. In light of your limited capital spending this year, have you revised your estimated sustaining capital? Second part, what's been the silver bullet operating line that's liberated through our bitumen production rates? And then what is the egress plan for Aspen and Cold Lake expansion?

[Richard Kruger:]

Yes. Greg, on sustaining capital, we've talked about over the last couple of years that in rail numbers, Upstream, Downstream, our full corporate would be on the order of $1 billion to $1.1 billion or so per year. Recognizing that, that will vary. The last year or 2, it's been below that. It has largely been below that. I think we've made a number of enhancements at Kearl that we're seeing. So we have not spent the same level of sustaining capital there. We've talked at Cold Lake how we had suspended a drilling program and now reinstated it this year. So this year, sustaining capital, and if I think kind of in the Upstream terms, will be on the order of probably about $3 per barrel on the Upstream. If I look at it over time and I kind of use kind of our outlook for the next five years or so, I think the numbers on average would be closer to $5 a barrel. We'll talk more about this next week at the Investor Day. But I think, you're accurate to note that this year, sustaining is a bit lower, but that doesn't really change kind of how we look at on average about $1 billion to $1.1 billion a year going forward. On Kearl, I think the real - the outcome at Kearl has been a work in progress. We've detailed before on how the changes we've made in ore prep modifications to the crusher and dump hoppers to lessen loads, how we've strengthened drive chains. We've modified crusher teeth and bearings. We've enhanced piping durability, the flotation cells, hydrotransport lines. These have all been things that we have been working on and then largely installed over the last few years. This quarter had very little downtime in it. Our year-to-date average is right at 202,000. It's about where we said would be. So we think we'll have quarters where we're below that 200,000, above that 200,000. And this year and next, we expect we'll average in that or a bit above that 200,000 barrel a day range, but the real step will be when the supplemental crusher and the flow interconnect, and we'll jump up into the 240,000 range or beyond. And was there a third part to that one?

[Dave Hughes:]

Yes, egress plan for Aspen and Cold Lake expansion?

[Richard Kruger:]

Yes. I've seen the expansion as well. There are a lot of assumptions there. The assumption - the first assumptions would be on timing of Aspen or Cold Lake. There's no question that the whole market access is the hottest topic right now. I would say just broadly, I commented a bit on this at the midyear, we consider ourselves to be fairly well positioned. I've talked about roughly the 100,000 barrel a day on heavies that we run at our own refinery - and just maybe I should step back. We produce roughly 300,000 barrels a day of dilbit - or excuse me, of bitumen. So that would be about 400,000 barrels a day of dilbit. About 100,000 barrels a day - kind of it may not be the exact molecules but a run through our own refineries, 25% of that dilbit. We have contracted tight capacity that gives about another 100,000 barrels a day to the Gulf Coast markets. And then our rail terminal has been continuing to ramp up. That was a decision we've made several years ago. You've heard me describe it as kind of an insurance policy. It's one I'm very glad we've taken out, and that is allowing us to also get to Gulf Coast markets at a higher cost than pipe but obviously at a much better realization than head of pipe Edmonton. So as we look to the future and anticipate continued growth, whether that be Aspen or other areas, we'll continue to look at getting the highest - getting crudes or bitumen to the highest-value market, whether that's running at our own refineries, supplemental pipe commitments, and/or continued expansion of the rail terminals. With execution times on projects of three to four years, there's time to work these issues, whether they're resolutions that we can do most directly in our control or whether that's things like new pipeline capacity coming online. But it's - over time, we expect to continue to take the steps to ensure we get our production to the markets that are for the highest realizations for all equally crude.

[Dave Hughes:]

Okay. And now we'll turn it over to the operator to take a couple of live questions.

[Operator:]

[Operator Instructions]. And your first question here comes from Dennis Fong with Canaccord Genuity.

[Dennis Fong:]

Just quickly on Kearl here. Just given the recent performance of the asset and, frankly, the asset's ability to kind of showcase the run time you've seen in Q3 and your expectations in Q4. And this is kind of prior to you getting into this more [indiscernible] and debottlenecking issue for fixes. Is there any further upside to the 240,000 barrel a day expectations that you've initially sent back last November kind of after you've kind of seen this really run thus far ?

[Richard Kruger:]

Yes. Obviously, we're very pleased with the performance on Kearl, and it hasn't been until the last few months that we can talk about their upsize potential because we've been working hard to get it to its current level. When we calculated and determined the difference between the 200,000 and the 240,000, we tangibly looked at where we had been experiencing downtime, whether that was on crusher reliability and downtime, the feed conveyor lines. And when you look at the amount of downtime we had and said, if we had a supplemental crusher and if we had additional feed conveyor belt and if he had interconnected pipelines, we would have had to the tune of 40,000 barrels a day gross less downtime. And that's really how we got at it. So it's quite tangible. And I would say, it's an incremental step-up we're very, very confident in. Now what we don't know is, when you're not busy fighting fires and dealing with unscheduled downtime, what further optimizations can you achieve that can go above and beyond, whether it's the 200,000, where we're currently at or the 240,000. And I don't have numbers on that, but I have a lot of confidence in our organization, that is they spend less time fixing things. They'll find more time to improve things. And so again, I don't really have numbers. We will talk more about this kind of what do we see beyond the 240,000 next week during our Investor Day. And make no mistake about it, we see numbers beyond the 240,000. And what we also know in the mining, if you want to maximize the cash generation, you do it by increasing your throughput because the incremental barrel is far cheaper than the average barrel. And at this higher reliability, we certainly saw that in the third quarter where it drove down quarterly unit cost to an area we haven't seen before, and that's committed - and what we saw in the quarter gives us added confidence looking ahead that both the reliability - or not both, but the reliability, the Aspen throughputs and the driving down the unit cost performance, that will lead to a much better cash generation capacity. The third quarter gave us a good glimpse of what we can expect in the future, and we like what we saw.

[Dennis Fong:]

Okay. Perfect. And then just secondarily here on rail capacity. You're indicating that this is essentially an insurance policy for you that you're, I guess, exercising right now and that you're right at about 100,000 barrels a day plus or minus of transportation of crude by rail. Your facility, I mentioned, has 210,000 barrels a day of capacity plus or minus. Where do you kind of see your current crude by rail capacity volumes potentially trending, especially given, we'll call it, the aggregate apportionment and so forth that we're seeing on - as one of the major pipelines out of Western Canada?

[Richard Kruger:]

Yes. Good question. Well, right now for us to maximize realization in the Upstream or in a general interest basis, it's stuffed on each and every barrel of heavy into our refineries and it's a bit of a left pocket, right pocket there. But then after that, it's getting every barrel to the highest-value markets, and right now, that's the U.S. Gulf Coast. So pipe and rail. Our pipe is largely in place. We've got the contract commitments we have. Rail is the one where we have the ability to continue to ramp it up. For the last six months roughly, we've averaged over that period, and you commented about where we are now about 100,000 barrels a day. It's a little bit more than that now in the month of October. We've averaged about 80,000 for the last six months or so. We're kind of around in the 110,000 or so. We expect as we ended this quarter that we will have averaged about 125,000 to 130,000 in this quarter. We have two rail service providers. We have the agreements for the power and the people to ramp up in place. We've got access really at an unmatched level to a rail car fleet. We have customer offloading facilities. So you will see that ramp up in the fourth quarter. And then as we get into 2019, we're going to continue to work to further ramp it up. You commented on the 210,000 barrel a day capacity. I'd like to use every bit of that capacity because that allows us to get to the highest-valued markets. So I think you can expect over time to see continued ramp-up, and that's exactly what is going on as we speak.

[Operator:]

And our next question here comes from Prashant Rao with Citigroup.

[Prashant Rao:]

I wanted to maybe follow up on that kind of rail question. The 200,000 barrel per day capacity that you have, I just wanted to confirm that's already contracted for the locomotive power. Or do you - would you need to contract in order to move incremental barrels? And if so, I wanted to - the reason I'm asking the question is sort of to put it in context is how we're hearing about the dynamic environment over the past year with the rail providers sort of seeking a determined price on contracts and maybe the - just probably a differentiating point for Imperial. So just wanted to get some thoughts around that.

[Richard Kruger:]

Yes. When we talk about 210,000 barrel a day capacity, it is the terminal specifically. It' the that tracks and the loading arms and the ability to move in railcars, load them and move them out. And to get at that 210,000, that's roughly - that would be about 3.5 to 4 trains a day to do that. So we're talking about the terminal itself. Now what you've pointed out is above and beyond that. You need to have the service providers to provide both the power and the people to pull the cars, and you need to have - and I think, this is one that's not always talked about, it's important that you have offloading facilities at a destination. And we have all that work. We do not have today service provider agreements to get to that full 10. I commented that we anticipate 125,000 barrels to 130,000 barrel a day two unit trains in operation roughly in the fourth quarter. That's what we have in place, and we are continuing to work with rail service providers to expand that service level to more fully utilized terminal overall.

[Prashant Rao:]

Okay. That's very helpful. I wanted to ask another question, a follow-up on Downstream. Fairly robust results and a great environment in terms of the full net pack. As you look at increased Upstream production, and finally, we're getting inflecting Canadian oil price macros, well, just wanted to get your thoughts on where maybe incremental Downstream CapEx spend could be. And I don't want to fun run the Investor Day next week with maybe some high-level thoughts. We've had some questions in the south of the border here in the U.S. on further consolidation in the Downstream, and the Canadian integrated players who have a strong balance sheet are obviously looked at as contenders. So just wanted to see where that would fit in, in terms of uses of capital and capital allocation.

[Richard Kruger:]

Broadly stepping back, and I think you've got it, it's a not only a good quarter too, but we've been on a good run in the Downstream. And it's not only that market conditions but it's been actions we've taken to improve reliability over time. And if you look back over the last 4 or 5 years and you compare that to the 4 or 5 years before that, you will see a market improvement in reliability. That ties also with our product sales strategy of we have attractive markets. Sale into markets will allow us to run our facilities at full capacity. Areas where we've been investing, I mentioned in the Strathcona cogen. We also see attractive asphalt markets and we've - and we will detail a bit more of this at the Investor Day. We've been increasing asphalt sales. We found ways to manufacture asphalt year around and essentially store what I would - I think the best visualization is giant hockey pucks over the course of the winter. So you can melt it in the spring and sell it and pave it. And those are relatively small investments in the scheme of - certainly, the scheme of Upstream, but it continues to enhance both the capacity and the performance in our Downstream, and I think you can expect - Dan Lyons is going to talk about this a bit more next week. Those are the kinds of things that we're going to be looking to do, enhancing our facility kit, also looking at investments in logistics to allow us to access more high-quality markets. I commented on aviation, how we're now selling aviation fuels into Vancouver. So we'll be looking at not only the facilities themselves and what we manufacture but how can we continue to enlarge the radius of customers we reached with - particularly customers and products that offer us the highest value. So it is an area that, I would say, today we are more keen to looking at lovely investments than perhaps we would have been five years ago due to our own performance and the attractiveness of the markets we're competing in and the value we offer our customers through the superior brands and overall product offering that Imperial can provide.

[Prashant Rao:]

And I just have one very last quick one. We've seen news about Ontario cap and trade being taken back, but then perhaps a federal framework that might be in place in the next April. I just wanted to - I know it's a smaller piece of the cash flow or cash out of the Imperial business. But just as long as we have you on the call, just wanted to see if you had any commentary, if you could provide any thoughts around that and how we should be maybe thinking about that.

[Richard Kruger:]

Well, I think you saw when we announced income are that we had an noncash impairment charge of basically remaining credits $33 million, and these were associated with the government of Ontario's change to the cap and trade regulation. So that has exhausted our kind of purchased credits that we had on the books on it. And so wherever we are, we operate both on our planning basis. And in any reporting we do, we estimate costs and we look at it from a capital project standpoint. We use the regulated carbon pricing or policies in whatever jurisdictions we operate in. And where the province may have an existing policy, of course, that's what we'll use and that's what we'll charge to operations. If a jurisdiction doesn't have it but there's like - you commented on a federal backstop, we'll look at it in that way. So I think this is a very active topic not only in our country but globally. And here again, our goal is to ensure we have the highest-performing assets. And whether that's energy efficiency and minimizing failures, energy use, whether that's advantaged investments like continuing to evolve that Cold Lake in our existing operations or looking at new investments like SA-SAGD that have lower carbon intensity, it's the way the world we're operating in now. And what we're looking to do is do everything we can to reduce both the environmental impact of our operations while improving, enhancing the economic impact. I know I've kind of mocked your initial question, but I thought I'd give you a little bit broader context on how we look at the carbon world.

[Operator:]

And our next question comes from Jason Frew with Crédit Suisse.

[Jason Frew:]

Just wondered, if you'd comment on the Chemicals business, why you're not seeing any degradation in margin there given changes in feedstock cost around North America.

[Richard Kruger:]

Yes. Thanks, Jason. As you pointed out, it has been quite strong on the Chemicals and it has been now for some time. And we've had over the last five years or so, I think if any, they're 4 or 5 of our best years ever in our Chemical business, and that's with relatively the same volume. It's not been a volume growth. Some of the things that we've done over that time period is we've continued to improve the cost advantage nature of our feedstocks, refinery offcast. A couple of years ago, we bought in Marcellus ethane and that helped improve our structure there. You have seen, and I think you've suggested it, you've seen some of the ethane cost in the Northeast increase a bit, but the margins in this business have been strong. I commented on polyethylene. I mean, that's our moneymaker, its rotation injection molding. So we have kind of a specialty product there, high use, high specification tanks and different things. It's a strong market. The majority of our customers are within a day's drive of that market. And that gives us the kind of the built-in geographic advantage versus facilities that may have scale over us, facilities that are either in the Gulf Coast or we'll soon be producing in the Gulf Coast. We watch that closely because it does represent a threat to our business as facilities that have perhaps a cost advantage through scale, maybe not necessarily through feedstock, but through scale enter in and can they encroach upon our markets. And to date, we have not seen as much of that as we might have earlier anticipated. So what we continue to do is that's a very integrated site with our Sarnia refinery, do everything to ensure its highest reliability, its operating cost constructive, continue to contract for the cost advantage feedstocks and keep our customers as happy as we can with product quality and product after the sale service, which is key in this business. And I think that's - those are - yes, that's kind of a - those are the - that's the elevator speech and why you've seen strong Chemical performance over the last few years. And it is absolutely our intent to keep doing everything we can to continue that performance.

[Dave Hughes:]

Okay. Let's go back to a couple of more of the presubmitted questions. We have two questions from Jon Morrison from CIBC. They're both related to Kearl, so I'll combine them. How should we think about calibrating forward expectations for Kearl? Output in the quarter was strong. And on the back of extensive operational improvement initiatives, how comfortable are you with the street dialing up run time expectations into the 90-plus-percent level? And are there any major reliability initiatives that still need to be undertaken at Kearl that could leave utilization as choppy on a quarter-to-quarter basis outside of normal maintenance and turnarounds?

[Richard Kruger:]

Jon, I appreciate your questions. And just as I'm sitting here listening to it, I'm reminded by how quickly things change because it wasn't long ago, that folks were - the questions you haven't achieved 200,000 or you're never going to achieve 200,000. And we had confidence and faith because of the actions we were doing. This certainly wasn't a fingers-crossed confidence. It was a, "we knew we were taking steps to achieve that." We did have big quarter. I think the thing we're looking forward at Kearl is we will generally have a material turnaround at each of the two plants once a year. So typically be in either of the second quarter for one and late in the third, early in the fourth quarter for another. So in the quarters that those occur, we will see the impact of those turnarounds. And then so what it means to achieve whatever your annual average is, in the nonturnaround quarters, you got to make hay while the sun shines. And I think, you saw that in the third quarter, and I expect you will continue to see that in the fourth quarter. Now on the calibration of are we going to do better than the 200,000, it's really too early for me to say that. I got to tell you I'm also quite encouraged., John Whelan, the Head of our Upstream, is here in the with the room with me. I'm looking at him as I speak. My own expectations on Kearl have increased, but it's really too early for us to make more quantitative commitments on what we think Kearl can achieve over time. But we won't perhaps be as choppy as we have been because of the reliability enhancements that I articulated earlier over the last few years, but we still will be choppy because of the turnaround schedules and then the higher rates that occur when you're not in those turnaround cycles. It's the nature of the beast.

[Dave Hughes:]

Okay. And a question from Menno Hulshof of TD. With Aspen regulatory approval in hand, what do you need to see to get you comfortable with FID Is it improved visibility on - based on egress and pricing? Or is there something else? And then assuming an FID, what are the updated thoughts on the development time line?

[Richard Kruger:]

Yes. Menno, we are - as I mentioned, the time line on getting the regulatory approvals literally Halloween night. Yesterday, we had an Imperial board meeting, and I've got folks scouring it with a magnifying glass right now to be sure we understand each and everything we would be committing to in that. So we're going through that, and we do that all the time if there's nothing unique to Aspen. But as I say, approvals don't come with just approve, good luck, have fun. They come in with, "here's what we expect you to abide by". We're going through that. It's, we've been waiting a long time for this. So we're not wasting any time in digging in and looking at it. I don't want to presume what the outcome of that is because I haven't seen it and heard it yet, but it is something that in the days ahead that I'll get a good look at. But on Aspen more broadly, if we step back on it, we've talked about the advantaged technology that brings both environmental and economic effects. So certainly, the low carbon intensity, if not the lowest carbon intensity, of in-situ in Western Canada. We've talked about how the Aspen development is right in our wheelhouse with 40 years of experience in Cold Lake and in in-situ drilling and operation. Right now the industry demand for contractors is at a recent low. So to be countercyclical in investments makes sense for us from an efficiency and execution. And we think Aspen, we piece it together, has the lower price resiliency. I've commented before and we look for globally competitive opportunities, interpret that as a double-digit return in a low price of $40, $45 a barrel WTI world, and we have worked hard on the technology and the development planning to construct Aspen to meet all of those criteria. Now we'll look at the regulatory approval. And it - if it ends up like we anticipate, I think, we'll have something to say about Aspen in the near term. But I really don't want to jump the gun on that because I haven't seen the guts and feathers of the regulatory approval, which, as I said, I can assure you we're looking at hard right now, and we'll continue to do that until we complete that work in the days ahead. Okay. So back to the operator for another live question.

[Operator:]

[Operator Instructions]. Our next question here comes from Neil Mehta with Goldman Sachs.

[Neil Mehta:]

First question for me is - and I'm sorry I hopped on a little late, Rich, but your thoughts on the light differentials. This is such an important differentiating factor for your business model in 2019 if the curve stays out here for Syncrude and Edmonton mix suite. So the sustainability of those light differentials, and if you can remind us, again, how much you can process and what - how we should think about the cash flow uplift from that dynamic.

[Richard Kruger:]

Sure. Well, I guess I would say on the differentials, the same way we've been - we've experienced wider heavy differentials in recent years. Now we're seeing that on light. In our view, it's simply the market working. This is - it's supply and demand. We've got limited pipeline access. This is the way markets work and what we're seeing is not out of round for what you may expect. Now actions we're taking and there's - obviously, there's a lot in the press. We're working to increase our own heavy oil processing and I'll give - I know you pressed - I'll get back to that. We're looking at increasing our rail to help because in an overall integrated transportation system, heavies and lights, they kind of come together a bit. Specifically, we have light oil processing throughput today of about 300,000 barrels a day. And when Syncrude is up and running, it produces about 75,000 barrels a day roughly. So we have a light lever of 225,000 barrels a day. So whereas heavies - we're primarily a heavy oil producer, a light oil refiner, we take a hit on the heavier differentials. Well, with light oil differentials, it kind of - it works the other way for us. So it gets back to ensuring our refineries are running at the maximum, extended our capabilities and doing everything to capture what the market has to offer with light oil differentials. Now how long does it last? Well, I'd say what, I read the same things you do. I study the same things you study. It is difficult to predict. I know folks have talked about maintenance that's going on in the U.S. But the fundamental issue is we've got a shortage of export capacity. And until that's addressed in any material way, we're likely to see bigger discounts on both heavies and lights. And while that occurs, we will do everything we can with our integrated and balanced business model to capture value, whether that is in the Upstream via maximizing realizations to get to markets they're offered the most or running whatever feedstocks add the most value in our own facilities. And this is the value of our business model. And what I would just say is, we didn't create it overnight. It was part of a very long-term strategy that looks at our business and the inevitable swings in markets and prices, both production and product markets. And these are choices and strategies that we've made over decades. And when times are good, we enjoy it. When times are bad, we suck it up and improve on it. But the market works, that's what we're seeing, and we are prepared to compete in that environment and to compete with the decisions we've made and the assets we have.

[Neil Mehta:]

That's great. And the follow-up question I have is just - then we talked about this, Rich, a couple of weeks ago when I was up in Calgary, but your thoughts on the M&A market, there's obviously an ongoing transaction potentially up in Canada. But what role do you see Imperial playing in terms of future consolidation in the space? And I just put them in the context of Aspen, which does seem to have a pretty good project breakeven. So the argument could be said that you're better off looking at organic opportunities versus pursuing external ones, but just try to frame that piece out for us.

[Richard Kruger:]

I think you largely answered the question. But I will offer a few comments on it. For us - you and I talked before on it, it's about value. And we are - I think we are fortunate to have a significant inventory of internal, high-quality investment opportunities, and next week in Toronto, we'll have - Theresa Redburn's going to detail those. We'll talk more about it. But we will look at what's available in the market in terms of existing assets and we'll look at our financial strength, which I've commented on, gives us a lot of flexibility, optionality. We can do largely what we think will add most value to our shareholders. But then we will look at that internal suite of opportunities, their cost effectiveness, their capital efficiency, their environmental performance aspect. And we don't necessarily have a bias. The bias is all about the value. But we do like, from an internal standpoint, all opportunities that give us the timing, the flexibility on scope, pace, optionality that goes with that. So we look at everything in the market as we always have. And I think when you - if you haven't seen us do anything in the market, you can infer that we think that what's happening in the market either doesn't offer us value or we have opportunities inside the house that would offer us more value. And really - I've said the same thing, I think I've said all the time on that topic, and we'll comment more on it next week in Toronto. But I don't think I've offered anything new in what I've just said.

[Neil Mehta:]

That's helpful. If I could sneak one last one here, which is just that if you do go ahead and sanction Aspen, it sounds like that's on track to come in the future. Then how do we think about the share repurchase program? Can Imperial continue to buy back stock at the same pace that it did in 2018 and execute at?

[Richard Kruger:]

Well, I'll go back to our capital allocation strategy, what fundamentally is important to us, and it is obviously the maintaining a strong balance sheet, no question about that. It's the paying a reliable and growing dividend. At current rate, our dividend is about $600 million a year. It has been growing. Year-on-year, it's growing for some 24 years in a row now. We paid it for 100-plus years. Those two things are on top of the list. Investing in high-quality growth projects. I think the abnormal period in our history was the period a few years back with the significant, the major, major investments with Kearl and Nabiye that were going on simultaneously. The more normal periods in our history have been like I see us today, where we can maintain that strong balance sheet, continue to grow a reliable dividend. We can selectively invest in high-quality projects, put Aspen in that category. And if and when available, we can return surplus cash to shareholders via buybacks. As I look at it, it's a bit of a crystal ball because we're talking about prices and things like that. But as I look at that over the next several years, I think we're going to be able to achieve a continued balance in those areas where it's not going to be one versus the other. And the magnitudes may vary a little bit but we will detail next week. We'll get into this in kind of the traditional way, perhaps in more detail than we ever have. As we look at our uses of funds, dividend, we'll detail sustaining CapEx, what we see is growth CapEx over the last five years. We'll compare that to what we see cash flow from operations at various price points. So if I can hold you off for a few days, we'll give you a more comprehensive discussion and kind of snapshot of all that. I've said before, we would not have restarted or reinstituted the material share buyback program last year had we not thought there would be some level of sustainability with it including what we saw as our business plans for investment over the coming years. So I don't think those are mutually exclusive.

[Operator:]

And our next question comes from Jon Morrison with CIBC Capital Markets.

[Jon Morrison:]

Is there anything you can share around current initiatives that are being contemplated to get more of Imperial's Upstream production physically tied into your own refineries over the next few years? We recognize that you're well hedged for the current price dislocations in Canada given the integrated nature of the platform and market access that you've talked about. But how do you think about physical versus operational integration? And is running more of your own barrels of feedstock higher in the priority list?

[Richard Kruger:]

And Jon, if I could just ask, when you say that are you explicitly focused on heavy or any and all barrels?

[Jon Morrison:]

Yes. It was more thinking about heavy and would there be anything you would do to structurally clear your own barrels in your own refineries just to remove some of the longer-term noise on volatility and pricing? But any comment you would give would kind of be appreciated.

[Richard Kruger:]

Yes. And I'll step back, I've commented on how we're roughly - year-to-date, we processed a smidgen under 100,000 barrels a day of heavy they're not - that's not necessarily explicitly the molecules, what we produce heavy and getting to our own facility Now Cold Lake, for example, is a very asphalt-conducive crude. So you look to get Cold Lake in our asphalt machines in Strathcona and Nanticoke, things like that. But we generally look to buy the most cost advantageous, read that as cheapest feedstocks, for our refineries and then, on the Upstream, sell to the highest bidder. And if they happen to be one and the same, that's great. But we tend to look at heavy molecules, whether we produce it or refine it or light, they don't necessarily need to be our own molecules so long as the market provides the opportunity to get a heavy feedstock or get a live feedstock. And so what we've been doing on the Downstream has really been more at testing the facilities we have to ensure we can capture the heavy discounts on light. Light's kind of a different topic. But I commented how we've been ramping up asphalt units. We've been choosing to produce asphalt now - not choosing, but we've experimented successfully of producing asphalt year round that - and that those are heavy feedstocks that we've been looking at and testing our blending capabilities with more heavies. We've been testing new crudes to see how can our facilities handle them. So we've really been - because of the incentive that's been there in the market, we've been testing existing operational paradigms to ensure we can capture every dollar of value in the market. And that led to this historic 65,000 barrels a day heavy processing that's been reported and talked about to something that is far closer to 100,000 today. So it's a bit less of getting pipe or connections to facilities, but really utilize the facilities that we have to the fullest extent with access they have on heavies. Now we'll continue to do that. We made a lot of progress going from 65,000 to nearly 100,000. I don't know that I can say that we have that same level of growth opportunity ahead. But now with light differentials expanding, it's all about our refineries making the most money they can with whatever feedstock it can. So we may be in a period here that trying to push more heavies in may or may not be the optimum from a downstream standpoint. And we have a lot of smart men and women that each and every day are looking at optimizing feedstocks to each of our facilities with what they can get in the market, with initial market sales, with aftermarket sales to get the highest value for us. And the storyline up until now has been more heavy adds more value. Now we're in a period of well, let's optimize between the heavy and the light. But here, again, having done this for - not personally, although some days it feels like it, having done this for 138 years, this is something our organization's pretty good at.

[Jon Morrison:]

And is it fair to say that the price realizations that you're getting for heavy because of your market access, it doesn't put you anywhere near a threshold where you have to think about shutting in production like some producers would be having to think about right now just given that they might not have the access and realized pricing is going to be much lower?

[Richard Kruger:]

Well, I think when you look at the publicly reported - what we report for bitumen prices and then you look at spot prices or head of pipe prices and things, what you see is ours is not that head of price , what's in the market at a point in time. It's a weighted average of contract pipe, the net that we get from crudes that we sell in the U.S. less - adjust for quality and the pipeline tariffs. It's the getting Gulf Coast price for heavy on rail barrels that get to the Gulf Coast plus quality adjustment in rail cost. So yes, we do have market disposition, means mechanisms, that again have been part of our strategies and our plans over time to make commitments to build facilities recognizing markets change. But I think we're in a strong - I don't know if it's uniquely strong. I don't understand necessarily what everybody else has, but we are in a strong position there. And then that those incremental barrels are the ones that are sold at the kind of head of pipe Edmonton basis. And our whole objective is to continue to improve our operations, lower their cost, their efficiencies so that we spend good money to develop and produce these assets. And that's what I want to continue doing. We always look at as we - at any point in time, what's the most value. I commented in the third quarter that we did not have any shut-in volumes due to the current economic environment. I don't comment whether we plan to, whether we may or may not in the fourth quarter. But anytime going forward, those are the decisions we make. But we - our whole intent is maximize realizations by the markets we sell in and then improve the operations to reliability and cost performance so that we can make money in whatever business environment we're faced with. And this one is interesting but we've had a lot of interesting business environments over course of our company's life.

[Dave Hughes:]

So that brings us to the end of our time. So Rich, I'd turn it to you for any summary comments.

[Richard Kruger:]

Well, I'd just wrap up with thank you for your interest, and we value your analysis, your interest. I'll just wrap up with kind of where I started it. We said at midyear we had a lot of major maintenance behind us. We were positioned for a strong second half. I feel operationally and financially that's what you saw in the third quarter. I think you can expect more of the same in the fourth quarter. I commented on some of the areas more specifically. No question, the differentials and crude price are going to make things interesting over the months ahead. I believe with our level of - with the quality of our assets, with our level of integration and the balance across that portfolio, that positions us quite well to compete in this environment. Our ability to compete isn't something that just happened. It's something - a series of conscious decisions and investments that have occurred over time, and we look forward to next week on November 7, going through and looking kind of longer out in time in many of the areas talked about today as well as some others, and look forward to spending that time with you. So I'll wrap it up there, but thank you for your time today.

[Dave Hughes:]

Okay. Thank you, everybody. As always, if you have any further questions, don't hesitate to reach out to us directly.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.