Ladies and gentlemen, thank you for standing by and welcome to Imperial Oil Q1 2020 Earnings Conference Call. At this time all participants lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is maybe recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Dave Hughes, VP, Investor Relations. Thank you. Please go ahead, sir.

Thank you, Daniel. Good morning, everybody. Thanks for joining us on our first quarter earnings call. I'm going to start by introducing you to the senior management we have here in our virtual room. We have Brad Corson, Chairman, President and CEO; Dan Lyons, Senior Vice President, Finance and Administration; John Whelan, Senior Vice President of the Upstream; and Theresa Redburn, Senior Vice President of Commercial and Corporate Development. Before we start, I'm going to start by noting 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 can 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 first quarter earnings press release that we issued this morning as well as our most recent Form 10-K and all these documents are available on SEDAR, EDGAR and on our website. So I would ask that you please refer to them. We're going to follow our usual format. Brad is going to offer some opening remarks. And then Dan will give a financial overview of the fourth quarter. Then I'll going to go back to Brad for some more color on the operating performance and then we will get to the Q&A. As I'm sure everyone is aware, we have our Annual General Meeting today at 10:20 Mountain Time. So I just want to note that we will need to end the Q&A at 10’o clock sharp. But if there are any outstanding questions, we will certainly follow-up directly with you after the AGM. And I thank you in advance for your understanding So with that, I'll turn it over to Brad.

Good morning, everyone, and welcome to our first quarter 2020 earnings call. I hope you are all doing well and staying healthy. Before we get started with reviewing the first quarter financial and operating results, on behalf of the employees of Imperial Oil, I'd like to take this opportunity to express our deep appreciation and gratitude for all those working on the front lines of this global pandemic. We can't thank them enough for the sacrifices they are making to keep us all safe and provide us with our essentials. Our industry, as you know, is considered essential, and so Imperial is working hard to ensure ongoing reliable supply of the energy society requires, while at the same time, managing the health and safety of our workforce. But our teams are also doing everything they can to support our communities and keep them safe and resilient during this unprecedented time. The company has recently announced a promotion to provide up to $2 million worth of free fuel to the real heroes in this, the frontline health care workers. The company is also donating 60 tons of isopropyl alcohol to help meet the significant increase in demand for this ingredient, which is used in applications like hand sanitizer, medical wipes and rubbing alcohol. We also raised our matching dollars 2:1 for donations by employees to community charities and not-for-profit organizations through its employee giving and volunteer program. Also, in order to support online learning and to help meet high demand for technology devices while classrooms remain closed, the company is donating 500 laptops to the Electronic Recycling Association in support of the Calgary Board of Education's EducationMatters campaign. We recognize the need is great, and I am very, very proud of how our employees and neighbors have come together to donate…

Thanks, Brad. Our first quarter net loss was $188 million, down $481 million from earnings of $293 million in the first quarter of 2019. The first quarter results in 2020 include non-cash charges of $301 million mainly associated with the revaluation of our crude inventory to market value at quarter end. Excluding these non-cash charges, as Brad noted, earnings would have been $113 million compared to $293 million in the same period last year with the drop mainly driven by the decline in commodity prices. On a sequential basis and excluding non-cash charges, we were down $158 million from the fourth quarter of 2019. Looking at our performance by business line, upstream recorded a net loss of $608 million compared to net income of $96 million in the fourth quarter of 2019, reflecting non-cash charges of around $250 million and the impact of lower realizations. The downstream recorded net income of $402 million, up from $225 million in the fourth quarter of 2019 as crude runs increased with the completion of turnaround activities at Sarnia and Nanticoke and the restoration of the damaged tower at Sarnia. We also benefited from record first quarter crude runs at Strathcona as Brad noted. Chemicals earned $21 million in the first quarter, up $23 million from a loss of $2 million in the fourth quarter of 2019 as margins and volumes increased. I'll now discuss cash generation. Cash generated from operating activities was $423 million in the first quarter compared to just over $1 billion in the fourth quarter of last year. Cash flow was impacted by lower earnings and unfavorable working capital impacts. As Brad noted, we ended the quarter with $1.4 billion in cash. Our strong liquidity position is supported not only by our cash on hand, but also by our industry…

Thanks, Dan. So moving on to operating results, as noted earlier, upstream production averaged 419,000 oil equivalent barrels a day in the first quarter. Now, this represents an 8% increase over the first quarter of 2019 and includes record Q1 production rates from Kearl as production benefited from our new supplemental crushers, which I will talk more about in a couple of minutes. We expect upstream production volumes to be negatively impacted in the second quarter as we deal with an unprecedented drop in demand as Canada, along with the rest of the world, deals with the necessary travel restriction, self-isolation and social distancing measures to address the global pandemic. I'll talk more about how each asset is impacted, but at this point it's too early to determine what the annualized impact of this demand and price reduction will be. Now, I'll comment on the individual assets, starting with Kearl. We've had some very positive performance at Kearl in the first quarter. On a gross basis, we produced 226,000 barrels a day up from 208,000 barrels per day in the fourth quarter of 2019, and up from 180,000 barrels a day versus the first quarter of 2019. I would also note in the month of March, we achieved a rate of 248,000 barrels a day for the month. Now back in January and the fourth quarter call, I expressed how pleased we were with the completion and commissioning of our supplemental crushers at Kearl and how well they were performing. I'm excited to announce that this first quarter result reflects the continuation of this strong performance. These new crushers are performing as well, if not better than expected. As you are likely aware, the first quarter has historically been a lower production quarter for Kearl as we deal with the…

Okay. We’re going to start with a couple of pre-submitted questions, and then we’ll switch over to the live Q&A line. So the first question comes from Mike Dunn at Stifel. Can you quantify recent and Q2 plans for output at Kearl and Cold Lake? And how those levels have been impacted by the drop in prices and demand? And could provide an estimate for the approximate WCS price required for revenues to cover variable costs in each of the assets?

Thanks for your question, Mike. In terms of production outlooks, as I just mentioned, Kearl outlook is 150,000 barrels a day for the second quarter. In terms of Cold Lake, looking long term, we’re still targeting 140,000 barrels a day for the year. But there will be some impacts in the second quarter, but we haven’t fully quantified those yet. We normally don’t talk specifically about breakevens at the asset level. But what I will tell you is that as we look at the external environment and the economics of production what we’re very focused on is ensuring that the current value that we will realize in the marketplace for our products more than offsets or exceeds our variable operating costs. And while the overall total cost of many of our assets can be higher, the variable costs tend to be very low. And without again getting into the details, I would say they’re generally kind of mid-single-digit-type numbers. So in that regard, we are routinely assessing the market conditions and comparing them to the variable costs at each of our operations, and that’s what’s guiding our decisions on trying to optimize the timing of these turnarounds and take full advantage of, if you will, this lower price environment to reduce production, complete critical turnaround work and be ready to take full advantage of the market with response.

Okay. Our next question comes from Jon Morrison at CIBC. Is there any potential that the extended Kearl downtime could be pulled into the third quarter of 2020, depending on crude pricing? And how are you thinking about the decision to run lower throughput at the tow transit Kearl versus shutting one of the trains down for longer post the extended turnaround that we talked about?

Thanks for your question Jon. Let me come at that from a couple of perspectives. First of all, the team has spent a lot of time planning the duration and approach to the turnaround that I just mentioned that is about to start in a couple of days. And in order to ensure the safety and health of our workforce and provide proper distancing and minimal-sized crews, we’ve concluded that the best way forward is to undertake that work over an approximate two-month time frame. We’re just moving into that work. We believe we have a good plan for it. But I would also say that the approaches we’re taking and the measures we need to apply as a result of COVID-19 continue to be very much a learning process for us. And as such, time will tell in the first few weeks if we’re able to achieve the productivity that we expect to. But at this point, we believe we will be able to complete all that work within the two-month time frame. Now once we complete all that work and we find ourself the end of June or early July, the market, we hope, will look much different than it does today. And we want to be positioned to restart that train and resume our path to continue production records at Kearl. But we’ll need to reassess that, and it’s very difficult to predict as we sit here today what those economic conditions will look like at that period of time.

Okay. And Jon did have a follow-up to that one, too, that’s related. Now that we’re through the peak of winter, would you say it’s mechanically easier to have Kearl largely off-line for three, six months without major overhaul work needed for restart? Does idling Kearl become more of an economic question now that you’re in the spring versus the mechanical economic in Q4 and Q1?

Certainly, the operations in the winter months are more challenging. But I would say, relative to other assets in our portfolio as well as in general assets and industry, we do have a fair amount of flexibility with ramping up and ramping down Kearl really at any time of the year. And that’s one of the benefits of having that type of asset in our portfolio in this economic condition is we can make adjustments pretty quickly as needed. And that’s a bit different than in-situ operations, which are very dependent on pressure maintenance and long steam cycles where it’s more difficult to dial them up or down quickly.

Okay. Now operator, we’ll switch over to the live Q&A line, please.

[Operator Instructions] Our first question comes from Manav Gupta with Credit Suisse. Your line is now open.

Hi, guys. A quick question. You talked about the supplemental crushers and how they have helped you with the production side. Can you throw some light on how the supplemental crushers have helped you on the operating cost per barrel side? I mean there was an understanding that as these supplementary pressures come online, they will help you lower the breakeven of the project. So any light you could shed on that would be very helpful.

Yes. Thanks for that question. And as I mentioned, we’re very pleased with the results of the crushers. They did allow us to achieve record production in the first quarter. And I would just say that in conjunction with that, we are seeing a proportional reduction in operating costs. I think in prior calls and at our Investor Day, what we indicated was an objective to reduce US$4 per barrel out of the unit operating cost for Kearl. And so far, everything we have seen suggests that is achievable. And again, these supplemental crushers are a key element of achieving that. What we’ve also said is long term, our goal is to drive that unit cost down to US$20 a barrel kind of all in. And again, the supplemental crushers are key to that. And I’m very encouraged by the progress we’re making.

A quick second follow-up. Your refining results were very strong. Clearly, there is a benefit of the light-light crude differentials widening out in Canada. Can you talk about some of the benefits that your refineries are uniquely positioned when it comes to exploiting that light-light benefit up in Canada?

Yes. That’s a very good question. And as I mentioned, I think we are in a good position with some of these wider differentials. And when you look at our refinery configuration, we are definitely balanced more towards running light crude slates versus heavy. So on balance, as a company, we’re a net seller of heavies and a net buyer of lights. And so at times like this, we’re well positioned. I would also say the location of our refineries is advantageous. We have two refineries on the eastern side of the country near Ontario, where there’s historically high demand for product price – for products that we produce. And then likewise, we also have the largest refinery in Alberta, which is Strathcona. And as I mentioned, we’re seeing kind of record throughput at that facility as well. So I think we’re well positioned. We do leverage our crude – our equity crude, where it makes sense to us. But we also are in a market and acquiring light crudes at discounted prices, and that’s helping our economics.

Thank you for taking my questions.

Thank you. Our next question comes from Menno Hulshof with TD Securities. Your line is now open.

Thanks and good morning, all. I’ll start with a question on inventories and storage. Clearly, there’s a widely held view that we hit tank tops out here within the next several weeks and closer to the end of May in the U.S. So my question is, do you share that view? And the more important follow-up here is, what does Imperial look like a few weeks into that scenario? And what are the levers that could get pulled to mitigate that risk?

No doubt, everybody’s watching inventories very carefully right now, which are directly impacted by this significant reduction in demand that occurred in April, kind of record precipitous reductions, down almost 30 million barrels a day globally. And obviously, that had a significant impact in North America and Canada, specifically. Likewise, the initial supply increases from the OPEC+ countries also exacerbated that balance. And so whereas kind of the supply-demand balance is coming kind of more into check, it’s going to take a long while to get there. And in the meantime, inventories are building as refineries across North America have reduced their utilization and run rates and fewer products being produced and less demand for crude. So inventories are building. My impression is that the build is much more extreme in the U.S. As we monitor inventory levels in Canada, the builds have been, I would say, more moderate. I think the latest Genscape data shows something 30 million, 31 million barrels in Canada, which still is about 20% or so below tank tops, if you will. As we look at our own crude production, the demand from our refineries, the outlets for sales to third parties, we’re pretty well balanced at this point. We’re not concerned with not having storage capacity or logistics to move our crude. So we feel quite confident about that at this point.

Okay. Thanks for that. And then my follow-up question is on Downstream. Where do you stand on refinery utilization today? And what can we expect that to look like across your portfolio for cold Q2?

Well, as I mentioned, we have one of our refineries is undergoing a turnaround right now. The other two are undoubtedly experiencing reduced throughput. I’m hesitant to quote any numbers because those throughputs are being adjusted kind of every day as we see changes in demand. I mentioned what some of the overall product demand scenarios look like with significantly reduced Mogas, significantly reduced jet, moderate reductions in diesel. All of those are impacting our refinery utilization, just like others in industry. But we’re trying to take full advantage of the markets we’re in and maximize the throughputs where it makes economic sense.

Thanks, Brad. That’s it for me.

Thank you. Our next question comes from Benny Wong with Morgan Stanley. Your line is now open.

Thanks, everyone. Thanks for taking my question, and I hope everybody on the line is staying safe and healthy. Just had a follow-up on your comments on product demand, and I appreciate that color. That was super helpful. Just given your perspective on Downstream and your integrated model, just wondering, are we seeing any signs of the foreign demand slowing or even spot stabilization? And is there any observable differences you’re seeing on the eastern and western markets of Canada?

Yes, Benny, thanks for the question and good to hear from you. We are starting to see a recovery, albeit, still pretty slow and measured. Over the last week or two, as we monitor traffic data and utilization in the major metropolitan centers, we are starting to see a gradual increase. And so that is starting to benefit Mogas demand, still very, very depressed, though, overall. But the trend seems to be moving in the right direction. Seems like we have bottomed out there and now making a recovery. On the diesel side, I would say that the reductions were a little bit slower to occur. In fact, for the last several weeks, we were only experiencing maybe a 5% to 10% reduction in diesel. That seems to now have increased to maybe more like 15%, 20%. But again, I think that’s stabilized and will start to recovery. Diesel was not as impact – as severely impacted just because there was a lot of transportation for essential goods that continued as well as some manufacturing and agriculture that continue. We’re optimistic that diesel will rebound pretty quickly now as we get into warmer weather and the agricultural demand starts to pick up. Obviously, the real big impact is the jet fuel. As I mentioned, it’s down 80-plus percent. And that won’t change until health restrictions are lifted and people start flying again, both domestic and internationally. So that will probably be the lowest to pick back up. East versus west, there are some changes there. I think early on, we saw greater reductions in the east than the west. But as I said, they’re both starting to respond positively at this point.

Thanks, Brad. That’s super helpful. My follow-up question is thinking about your CapEx. Obviously, very low level this year. But as I’m thinking a little further out into next year, is the $1.2 billion – $1.1 billion to $1.2 billion, was that sustainable, if we are continuing to be in a depressed oil price environment? Or is there a little bit of incremental spending that needs to be acquired, things like some of the deferred maintenance you mentioned earlier?

Yes. That’s a good question, Benny. To be honest, we haven’t fully updated our plans to look into future years. Where we were last year, as we put together our plans, we expected to be in that $1.6 billion, $1.7 billion, $1.8 billion range for the coming multiple years. We’ve scaled that back, of course, to $1.1 billion to $1.2 billion is above our sustaining capital by probably $100 million or maybe $200 million. So if we found ourself in a very extended period of low pricing that warranted continued reductions in CapEx, I think that is sustainable because we would be able to complete all the safety critical work, if you will, and reliability critical work. So I think that is achievable. But I would say that's not our current outlook. We believe the reductions we're taking for this year are very prudent for this year, but we would expect to return to more normal levels once we get to next year. And we'll be updating those plans later in the year. And I'm sure when we find ourselves at our Annual Investor Day; we'll be in a good position to talk about kind of in the rearview mirror the impacts of COVID-19 and this unique supply-demand situation we're in. But also, hopefully, at that point, we're well on the path of recovery, things returning to normal and then we can have a more, I think, realistic view of what the future looks like.

Thanks Brad. Super helpful

Thank you.

Thank you. Our next question comes from Greg Pardy with RBC Capital Markets. Your line is now open.

Thanks. Good morning. Hey, Brad thanks so much for the rundown. Most of my questions have been answered. Just the only one I'd have for you is that that Mahihka plant at Cold Lake, what would the rough capacity be there?

Yes. Thanks, Greg, and appreciate you calling in. At Cold Lake, we have, I think, four major plants. Mahihkan is kind of one of the smaller ones. I've got John Whelan here, the Senior Vice President of the Upstream, and I'll ask him to answer that so he gives you kind of the exact number.

Yes. I think probably what you're really looking, I think what you're trying to figure out is what do we think the second quarter is going to be. We don't have the full plant off-line. But I would say, generally, we're 140,000 for the year. We have this turnaround in the second quarter. It's not as big as the turnaround we did last year, but kind of in the 15 KBD off-line for the quarter, something like that, that kind of range.

Okay. Terrific. Yes. Thanks very much.

Thank you. Our next question comes from Asit Sen with Bank of America. Your line is now open.

Thanks, good morning. Hi Brad, how are you?

Good. Thanks.

Hey, just thanks for the detail on crude by rail, and good to see that you guys have ramped down significantly in April. Just wondering if you could share your views on the medium, longer term, how rail plays out as more and more pipeline capacity looks like it's going to be available? And any updated thoughts on pipeline projects, particularly on KXL announcement, if you could share your views?

Yes. In terms of rail, when we made the investment in the Edmonton Rail terminal, it was very purposeful that, that would serve as an alternative egress method for us and somewhat of a backstop, if you will, if pipeline capacity was not available to us. And certainly, over the last couple of years, we've been able to take good advantage of that. And we have adapted quite rapidly to the prevailing economics. And there's been several months that the economics were very strong, and we moved a lot of volume by rail and was advantageous, especially if pipeline capacity was not available to us. But there were other times, and we're seeing that right now. We saw late last year, where the arm had completely closed, didn't make sense. And so we very quickly kind of shut it down or scaled it way back. And I see that continuing. The base egress for us is certainly pipeline, and we use this as a bit of a flywheel. We're economic supported, and we don't have better alternatives. Looking to the future, we are optimistic with the progress that has been made on some of the key pipeline projects in Canada and, of course, moving into the U.S. Some very positive announcements on Keystone recently with the Alberta government taking a stake in that project and providing financial support such that the project could move forward. Construction has started. One of the key things to work on was the crossing at the border. And my understanding is that's far advanced, if not completed. There has been in the press some announcement of some setbacks in Montana where some permits have been challenged and withdrawn. I don't know the very latest on that, but I do know that the project is moving forward. And I think that's a very positive sign. And likewise, we are seeing positive progress for Trans Mount, for Enbridge. All those things are very important projects for the industry, and we're very glad to see them move forward. And we'll be a shipper on many, if not all those as well. So it's good for us.

Thank you, Brad for that. And my follow-up is on your asset portfolio. Bottom of the cycle offers challenges as well as opportunities. So when you're thinking about bottom of the cycle opportunities, any thoughts? And we've seen that in prior cycles. Any thoughts on M&A, particularly A&D? How are you thinking about your unconventional portfolio tactically in 2020 or perhaps strategically?

Yes. That’s a really good question and clearly something that is on our mind. Obviously, there are a lot of assets that, unfortunately, are distressed, given these economic conditions. So we always keep the aperture open, evaluating whether there are strategic opportunities for us to expand our portfolio or change our portfolio, and this time is no different. So we continue to refresh our analysis in that regard. I would say, though, that my experience in M&A is that at these extreme points in the cycle, it could be very difficult to transact because buyers and sellers' expectations become very different and view of what recovery might look like and the timing for that is often very different. So it's difficult to transact, but that doesn't discourage us from continuing to evaluate potential opportunities and see if there is something that makes good strategic sense for us. So that work continues.

Thanks Brad. Appreciate the color.

Thank you. And our next question comes from Neil Mehta with Goldman Sachs. Your line is now open.

Hi there. It's Emily Chieng on behalf of Neil here. Thanks for giving the time today. My first question is around the operating cost reductions of $500 million that you have announced. How durable can we think this $500 million reduction is, for example? Can you example? Can you give a sense of what percentage is associated with deferred activity versus what is an actual cost efficiency that we're seeing there, please?

Thanks for your question, Emily. As we approach these efficiencies, we're looking at all things. And there's no doubt there are structural efficiencies that we're pursuing and that we would expect to capture and that would give us long-term sustainable benefits. There are other steps we're taking that no doubt are deferrals, and some of the expenditures are being impacted by pace of activity. I don't have a good percent split between structural versus deferral, but I would tell you that our ongoing objective is to maximize those structural improvements and continue to drive down the unit operating costs of all of our assets. And I'm quite proud of the asset teams and what they've demonstrated just in the last two, three months that, to be honest, I'm optimistic that we're going to see more cost reductions in that $500 million by the time we get to the end of the year.

Got it. Thanks. And just one real quick one, if I may. How quickly can you think – do you think that Kearl and Syncrude can be ramped back up to full capacity once demand starts to pick up again? And I'll leave it at that. Thank you.

Yes. Thanks. To be honest, something like Kearl, where we are taking one train down now to undertake the turnaround. As I mentioned, we expect to complete that work by the end of June. And we will have it ramped back up within a week. It's very responsive.

Appreciate the color.

Thank you. I am not showing any further questions at this time. I would now like to turn the call back over to Dave Hughes, VP Investor Relations for any closing remarks.

Okay. Thank you, Daniel. It is 10 o’clock. As I mentioned, we are going to have to end the call now to move on to our Annual General Meeting. We do have a couple of pre-submitted questions that, as I promised, we will follow-up today, directly. So I'd just like to thank everybody for joining us this morning. And as always, if you have any follow-up questions or want some further discussion, don't hesitate to reach out to the IR team here. And just wish everybody all the best in what could only really be considered as some pretty challenging times. Thank you very much.

Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.