Suncor Energy Inc. (SU)

Q2 2010 Earnings Call

July 30, 2010 9:30 a.m. ET


Rick George - President and Chief Executive Officer

Steve Williams - Chief Operating Officer

Bart Demosky - Chief Financial Officer

John Rogers - Vice President, Investor Relations


Andrew Fairbanks – Bank of America

Arjun Murti – Goldman Sachs

Andrew Potter – CIBC World Markets

Amir Arif – Stifel Nicolaus

Greg Pardy - RBC

Stephen Richardson – Morgan Stanley

Paul Cheng - Barclays Capital

George Toriola – UBS

Mark Polak – Scotia Capital

Carrie Tait - National Post

Francois Dejardins – Le Devoir



Good morning ladies and gentlemen and welcome to Suncor's second quarter conference call and webcast. I would now like to turn the call over to Mr. John Rogers, Vice President Investor Relations. Mr. Rogers please go ahead.

John Rogers

Thank you Colleen and good morning everyone and thanks for listening in to our second quarter conference call. In the room with me today I have Rick George, our President and CEO; Steve Williams, our Chief Operating Officer; Bart Demosky, our CFO; Helen Kelly who works in the Investor Relations Department and from the controller’s department I have John McKenzie, our Vice President and Controller and Jolene (unintelligible).

We’re going to start with the normal process. Rick and Steve and Bart will give us their perspective on the quarter, and then we’ll open it up to Q&A. So Rick, why don’t you kick it off?

Rick George

John, thank you very much. Good morning and welcome everybody. Listen, we’re delighted to have you on the phone call this morning and delighted to report a solid second quarter. We had good strong production and what’s obviously very encouraging for us is the remaining portion of the year looks very encouraging.

The second quarter was really one in which we had significant turnaround work at our oil sands. I can say it was executed very well, and despite the turnaround work that we had when we had our (unintelligible) or down for about a month or a little over. We still had one of the best quarters on record.

I’ll let Steve update you more on the operational side in just a moment. What I’d like to do is kind of concentrate my comments on the merger and the forward-looking strategy. What I want to take you back is one year. I guess it’s always kind of the role of the CEO to take the broader view, and you know we closed the merger on August 1, so just one year and a couple days ago, or a couple days less than one year ago, and what I’ve got to do is kind of give you the report card on where we are. I feel very proud about what we’ve done in that one year. I feel very good about the path forward, and feel very good about being on the right track.

Now in that merger we had announced that we had $300 million of operating synergies. We actually increased that in the intervening period to $400 million. We still continue to make great progress on that front and would expect to exceed that number. We’ll come up with a final update here in the third, fourth quarter of this year and we’ll kind of close that off, but feel very good about that and you should continue to expect to see that flow through to the bottom line as we go forward, certainly through some of the toughest part of that.

We also had a target to sell between $2 billion and $4 billion in assets. I’m proud to tell you that we’re on track with that. Most of the divestitures will be completed here by the end of 2010. To date those divestitures amount to about $2.4 billion. Now you didn’t see a lot of the cash come in during the second quarter, so the cash from these divestitures are going to start to roll in third fourth quarter. There may be a little bit that lags into the first quarter of next year. And our current estimate is that the divestitures in total will be in the $3 billion to $3.5 billion range, so those of you that are modeling that, know that’s kind of where we are.

The transaction metrics we’re seeing are solid, well above plan, and definitely the assets that we would not see in this company long term. So it all kind of fits there. Along with the asset sales and operating synergies, we’re obviously working hard on our overhead costs. We’ve reduced our office size by, our head office size, by about 1,000 people, and what we would expect here is continued drive on efficiencies.

We’ve closed the London office. It actually has, I think, a little less than 100 people currently in the office and we expect to get that totally closed by year end. We are in the process of relocating the staff in Calgary to one building over the next four months. In fact I think we move here in two weeks’ time, we in the finance and CEO/COO’s office. We’re proud to tell you that we’ve already subleased 70% of the space we have in the Sunlight Plaza, where we currently sit.

So the subleasing and moving, getting everybody in one building is actually moving along and you know on that front I’m very happy to tell you that I feel like the team’s really coming together. We really, you know, you never want to declare a success on this but what I would say is I feel very good about the leadership team coming together as one team, really understanding where the strategy is, what the values and beliefs are, what we’ve got to do to make this company a lot more efficient, and feel really great about that.

Now of course there are always challenges ahead before we can actually realize the true long term potential of this company. One of those major enablers is a company-wide ERP system. We are going to a total SAP system. Now that’s the system that Suncor was on, and we went through the challenges of that about four or five years ago. We’ll have the total company converted over to the SAP here by the end of 2011. The first phase of that, it actually comes in four different phases, the first phase of that actually gets enacted this weekend.

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