Canadian Oil Sands Limited 2016 Budget Conference Call. December 1, 2015

Transcription

1 Canadian Oil Sands Limited 2016 Budget Conference Call December 1, 2015

2 Advisories Forward-Looking Information In the interest of providing Canadian Oil Sands Limited s (the Corporation ) shareholders and potential investors with information regarding the Corporation, including management s assessment of the Corporation s future production and cost estimates, plans and operations, this presentation contains forward-looking information (as defined in the Securities Act (Alberta)) and statements (collectively, forward-looking statements ) that are based on expectations, estimates and projections as of the date of this presentation. These forward-looking statements can often, but not always, be identified by the use of forward-looking terminology such as plans, predicts, expects or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, anticipates or does not anticipate, or believes, or variations of such words and phrases, or statements that certain actions, events or results may, could, would, might or will be taken, occur or be achieved. Examples of such forward-looking statements in this presentation include, but are not limited to: expectations regarding future production, operating expenses and capital expenditures; the estimated 2016 cash flow from operations; the belief that even at a $US45 per barrel West Texas Intermediate ( WTI ) oil price, the Corporation s 2016 cash flow from operations is sufficient to fund capital expenditures and the current dividend; and the belief that the Corporation covers all costs and the current dividend in 2016 at oil prices of approximately US$43 WTI per barrel. Although the Corporation believes that the assumptions and expectations represented by such forward-looking statements are reasonable and reflect the current views of the Corporation with respect to future events, there can be no assurance that such assumptions and expectations will prove to be correct. The factors or assumptions on which the forward-looking statements are based include, but are not limited to: the assumptions outlined in the Corporation s 2015 and 2016 guidance documents as posted on the Corporation s website at as of the date hereof and as subsequently amended or replaced from time to time, including without limitation, the assumptions as to production, operating expenses, capital expenditures and oil prices; the successful and timely implementation of capital and maintenance projects; Syncrude s business, maintenance and spending plans; the ability to obtain regulatory and joint venture owner approval; the continuation of assumed tax, royalty and other legislative and regulatory regimes; and the accuracy of the estimates of the reserves and resources. In addition to being subject to a number of assumptions, forward-looking statements in this presentation involve known and unknown risks, uncertainties and other factors that may cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements. Some of the risks and other factors which could cause actual results or events to differ materially from current expectations expressed in the forward-looking statements contained in this presentation include, but are not limited to: volatility of crude oil prices; volatility of the synthetic crude oil ( SCO ) to WTI differential; the impact of the anticipated Syncrude cost reductions not materializing; the impact that pipeline capacity and apportionment and refinery demand have on prices for SCO and the Corporation s ability to deliver SCO; the impacts of legislative and regulatory changes especially those which relate to royalties, taxation, tailings, water and the environment; the impact of new technologies on the cost of oil sands mining; the impacts of rising costs associated with tailings and water management; the inability of Syncrude to obtain required consents, permits or approvals, including without limitation, the inability of Syncrude

3 Advisories to obtain approval to return water from its operations; various events which could disrupt operations including fires, equipment failures and severe weather; unsuccessful or untimely implementation of capital or maintenance projects; the impact of technology on operations and processes and how new technology may not perform as expected; the obtaining of required joint venture owner approvals from the Syncrude owners for expansions, operational issues and contractual issues; labour turnover and shortages and the productivity achieved from labour in the Fort McMurray area; uncertainty of estimates with respect to reserves and resources; the supply and demand metrics for oil and natural gas; the variances of stock market activities generally; currency and interest rate fluctuations; volatility of natural gas prices; the Corporation s inability to either generate sufficient cash flow from operations to meet its current and future obligations or obtain external sources of debt and equity capital; general economic, business and market conditions; and such other risks and uncertainties described in the Corporation s Annual Information Form dated February 24, 2015 and in the reports and filings made with securities regulatory authorities from time to time by the Corporation which are available on the Corporation s profile on SEDAR at and on the Corporation s website at You are cautioned that the foregoing list of important factors is not exhaustive. Furthermore, the forward-looking statements contained in this presentation are made as of the date of this presentation and unless required by law, the Corporation does not undertake any obligation to update publicly or revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Additional GAAP and Non- GAAP Financial Measures In this presentation, we refer to additional GAAP and non-gaap financial measures that do not have any standardized meaning as prescribed by Canadian GAAP. We refer to cash flow from operations, which is an additional GAAP financial measure. Please refer to the Corporation s Third Quarter 2015 Report, which is available on the Corporation s profile on SEDAR at and on the Corporation s website at for more information regarding additional GAAP financial measures. We also refer to gross margin, which is a non- GAAP financial measure and is defined in this presentation. Oil and Gas Information In this presentation, reference is made to the metric reserve life. Reserve life is the ratio of reserves divided by the current annual production rate. Reserve life is included for users as a measure of the Corporation s sustainability. Reserve life does not have any standardized meaning and should not be used to make comparisons. As a result, readers are cautioned as to the reliability of disclosure of reserve life. proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. NI further identifies the certainty level for proved reserves as at least a 90 per cent probability that the quantities actually recovered will equal or exceed the estimated proved reserves. NI means National Instrument Standards of Disclosure for Oil and Gas Activities.

4 $ millions $/bbl Cost Outlook is Below Market Expectations 1 Capital Expenditures Operating Expenses $425 $40 $400 $375 $39 $350 $38 $325 $37 $300 $275 $36 $ Average $ Consensus Canadian Oil Sands (COS) Consensus Canadian Oil Sands (COS) The market consensus view is lagging the pace of demonstrated cost reductions at Syncrude This expectation gap represents approximately $250 million per year over COS 20-year proved reserve life 2 1 Consensus estimates reflect the average of 14 sell side research analysts as polled in November, Proved reserve life is calculated by dividing 696 million barrels of proved reserves (see COS Annual Information Form dated February 24, 2015) by the current 2015 annual production estimate of 34.9 million barrels (net to COS) 4

5 C$ Per Barrel Gross Margin (Sales less Operating Expenses): Comparing Syncrude SCO and Bitumen $70 $60 $50 $40 $30 $20 $10 $65 realized price 1 $37 $40 realized price 2 $12 $28 $28 Operating expenses required for bitumen producers to achieve same margin as Syncrude SCO $0 Syncrude SCO Gross Margin Operating Expenses Bitumen Syncrude s fully-upgraded, light sweet synthetic crude oil (SCO) costs more to produce but attracts a significantly higher sales price than bitumen To achieve the same gross margin as Syncrude, bitumen producers require operating expenses of about $12 per barrel, or less For context, Fort Hills estimated operating costs are about $24 per barrel 3 1 Syncrude SCO realized price and operating expenses per COS 2016 Budget released December 1, Assuming bitumen value of approximately 60% of Canadian dollar WTI price, equivalent to the January to October, 2015 generic bitumen value used by Alberta Energy to determine Crown royalties 3 Per Suncor s Fort Hills investor presentation published October 31,

6 Competitive Cost Structure With Syncrude s current cost structure, COS covers all its costs and current dividend at oil prices of approximately US$43/bbl 1 : C$/bbl Operating expenses 37 Regular maintenance capital expenditures 7 Crown royalties 2 2 Development expenses and reclamation 3 Total Syncrude costs 49 US$ 37/bbl 3 Interest, insurance and administration 5 Current COS dividend 4 3 Total COS costs 57 US$ 43/bbl 3 Reflects costs to produce fully-upgraded SCO, which attracts a much higher sales price than heavier blends or sour products Syncrude s cost structure is very competitive and reflects the established production base, low sustaining capital and non-declining production profile 1 Based on 2016 Budget released December 1, 2015 (except Crown royalty rate) 2 Assumes Crown royalties calculated at 26% of net bitumen revenues 3 Assumes a 0.75 US$ / Cdn$ exchange rate 4 Assumes a $0.05 per share quarterly dividend 6

7 C$ millions Cash Flow from Operations $1,200 $1,000 $800 $600 $633 million $400 $200 $0 $45 $50 $55 $65 US$ WTI price per barrel Capital Expenditures Current Dividend ($0.05/share/quarter) Excess Cash Flow For 2016, we estimate $633 million of cash flow from operations, approximately $240 million in excess of estimated capital expenditures and the current dividend Even at a US$45 per barrel WTI oil price, cash flow from operations is sufficient to fund capital expenditures and the current dividend

8 8 COS Offers More Upside to Crude Oil Prices COS Share Price Sensitivity to WTI (Last 5 Years) $28.31 $30.05 $31.59 $33.73 $9.70 $12.07 $13.48 $17.38 $5.76 $6.19 $8.60 $10.97 $16.03 $18.30 $19.23 $19.75 $35 - $45 $45 - $55 $55 - $65 $65 - $75 $75 - $85 $85 - $95 $95 - $100 >$100 WTI Range (US$/bbl) Suncor Share Price Sensitivity to WTI (Last 5 Years) $37.75 $39.90 $40.67 $39.63 $43.45 $45.06 $46.08 $46.75 $32.93 $32.72 $31.37 $35.75 $25.28 $27.40 $28.01 $29.05 $35 - $45 $45 - $55 $55 - $65 $65 - $75 $75 - $85 $85 - $95 $95 - $100 >$100 WTI Range (US$/bbl) Source: As per Bloomberg; between October 2, 2010 to October 2, 2015

9 Production Improvements are Underway Bitumen Production Hydrotreating Upgrading Lost Barrels 1 Initiative / Project Completed Rebuild, redesign and expand mine trains 11 - Retrofit, reconfigure and debottleneck froth centrifuges 13 - Replace heat exchangers in hydrogen plants 6 - Modifications to CO boiler design Current Focus 6 2 Coker performance Current Focus 8 - Pipe and Vessel Leaks Turnaround execution Current Focus 14 2 Inspect critical pipes and vessels Current Focus Syncrude has made significant progress on its production improvement plan: Identifying root causes of outages Replacing, modifying and reconfiguring equipment as required Syncrude is developing stronger leaders and a well-trained and engaged workforce to support these initiatives 1 Millions of barrels, gross to Syncrude 9

10 Annual SCO production, gross to Syncrude (mmbbls) 10 Business Plan Shows Increasing Production Actual Forecast The owners have endorsed a business plan for Syncrude showing a gradual trend of improving reliability and increasing production Syncrude s operations are at an inflection point Minimal capital is required to execute this plan