Cenovus Energy Inc. (NYSE: CVE) Third Quarter 2022 Results Conference Call November 2, 2022 11:00 AMm. ET
Participating companies
Sherry Wendt – Vice President, Investor Relations
Alex Pourbaix – President and Chief Executive Officer
Keith Chiasson, Executive Vice President, Downstream
Rhona DelFrari – Director of Sustainability
Jeffrey Hart, Executive Vice President and Chief Financial Officer
Norrie Ramsay – Executive Vice President, Upstream
Andrew Dahlin – Executive Vice President, Corporate and Operational Services
Jon McKenzie, Executive Vice President and Chief Operating Officer
Conference Call Participants
Greg Pardy – RBC Capital Markets
Menno Hulshof – TD Securities
John Royall – JPMorgan
Dennis Fong – CIBC Global Markets
Chris Varcoe – Calgary Herald
Nickel bar – Reuters
Robert Tuttle – Bloomberg News
Operator
Good morning girls and gentlemen and thank you for being here. Welcome to Cenovus Energy’s third quarter results. As a reminder, today’s call is being recorded. At this time, all participants are in listen-only mode. After the presentation, we will have a question and answer session. [Operator Instructions] Please note that this convention call may not be recorded or reproduced without the explicit consent of Cenovus Energy. .
Now I’d like to speak with Ms. Sherry Wendt, Vice President of Investor Relations. Please continue, Mrs Wendt.
Jerez Wendt
Thank you, trader, and welcome everyone to Cenovus’ third quarter 2022 earnings convention call. See the notices at the end of today’s press release. These statements describe the forward-looking information, non-GAAP measures and petroleum and fuel referenced. today. They also describe the threat points and assumptions applicable to this discussion.
Additional data can be obtained in the Cenovus Annual Management Discussion and Analysis and in our most recent Annual Information Form and Form 40-F. All figures are in Canadian dollars and before royalties, unless otherwise noted.
Alex Pourbaix, our President and CEO, will provide brief comments and then we will respond to your queries. We ask that you do not make detailed inquiries about modeling. Please keep them updated, directly with our investor relations team after the call. also stick to a consultation with a maximum of one follow-up. You can register in the queue for any other query.
Alex, please go.
Alexandre Pourbaix
Thank you Sherry and good morning to each and every one. As I do with each and every quarter, I will begin this morning’s call with our most sensible priority, which is health and safety. We are devastated by the news of the death of two employees there and our thoughts are with their families and colleagues. It’s a heartbreaking reminder that protection will certainly have to be basic to our business. It is our duty as an industry to ensure that all of our staff who start working return home safely every day.
Our focus on the Toledo refinery remains twofold. We will continue with our joint venture spouse as well as the staff and each and every one on site in every way possible. We will also continue to work intensively with our spouse to assess the damage and further perceive the way forward.
Investigations into the cause of the fire are ongoing, but early indications from aerial and drone photographs suggest the damage is located in a small domain of the refinery. Restricted access to the site has limited the operator’s ability to fully assess the damage, but the refinery will remain closed in a state and we will provide additional updates when we can.
Looking ahead to the third quarter, we continue to deliver strong and consistent financial and monetary results, even with increased volatility in commodity prices. The tar sands segment led with Christina Lake returning from its second-quarter recovery and generating more than 250,000 barrels consistent with the day.
We have safely postponed our review at Foster Creek until the current quarter of 2023. However, there are still some mandatory planned maintenance paints that affected the quarter’s production. There was also a challenge with the water reservoir that reduced production in August, but production returned to overall rates in September and continues at that level.
In the thermal baths of Lloydminster, Bruce Lake North produced its first oil in early August and has since reached rates well above its nameplate of 10,000 barrels consistent with the day. Remember that when we acquired Lloyd Thermals, the combined assets generated around 80,000 barrels consistent with the day with the addition of Spruce Lake North and proceeding to apply Cenovus’ SAGD consistently, we now see Lloyd Thermals consistently at closer to 110,000 barrels consistently with the day.
We also concluded the Sunrise agreement in the quarter, under which we acquired the remaining 50% direct interest in this SAGD facility. We are reporting one hundred percent of Sunrise volumes since August 31. And we just drilled two of the longest wells to date at this site with detours of 1,600 meters.
In the traditional segment, we effectively completed a major turnaround of our Elm Worth plant incident and rebooted our progression platforms out of demolition. Base wells.
In the offshore sector, our partners recently brought MDA-MBH fields online in Indonesia. We expect them to develop in the fourth quarter. Additional new fields will be maintained to bring overall net volumes closer to 20,000 boe consistent with the day in 2023, doubling the previous run rate. In the U. S. downstream, performance increased with a usage rate of 87% compared to 75% in the second quarter, as we had the highest number of second quarter closings.
The Lima refinery operated through Synovus continues to perform well after its major recovery last year with 94% usage in the third quarter. However, there were disruptions at non-operating refineries during the quarter with recovery activity in Wood River and Toledo. In addition, Toledo was disconnected on September 20, following the incident I mentioned earlier.
The Lima operations showed significant improvement during the year, and we intend to continue to demonstrate this point of operational capability in our U. S. refining operations. We restarted the Superior refinery and took over the Toledo operation. Our priority for the U. S. refining businessA strong track record of safe and reliable performance. This is one of the company’s biggest short-term opportunities.
Let’s move on to our back line. The adjusted fund for the quarter was about $3 billion, while the available fund was about $2. 1 billion. offset through net income recorded at the end of the retail fuel network.
Commodity value volatility in the third quarter manifested itself in two main ways: first, in the tar sands operating margin. And here, the lag in the value of condensate was observed in the learned value in oil sands assets, where higher-value condensate was purchased in recent months. was mixed and included in sales volumes for the quarter.
Second, in the U. S. production operating margin. In the U. S. , processing crude oil purchased in earlier periods at higher prices and produced later in the quarter when prices declined had an impact of about $420 million. The increase in unit load throughput decreased compared to the current quarter. However, commodity price volatility has had a much greater effect on downstream operating margins in the United States. We also began incurring construction expenses for the commissioning of the Superior refinery, which, combined with the Toledo blackouts, resulted in increased performance operating expenses.
Excluding stock and FIFO earnings in the current quarter, as well as FIFO losses in the third quarter, the U. S. production segment is still in the U. S. UU. se performed better this quarter than the last.
We also experienced headwinds in money flows similar to the higher-priced commodity and condensate charge of prior periods included in our revenue and sales volumes for the quarter, or in other words, FIFO impacts. This dynamic is a tailwind for our effects in an environment. of emerging prices, but a headwind in an environment of falling prices, as we just experienced in the third quarter.
In line with our shareholder return framework, we allocate some of the flexible third-quarter excess budget flow to shareholder returns. This adds to our fundamental dividend. We also continued our opportunistic and disciplined buyback rate technique in the quarter. This resulted in a return of approximately $660 million to shareholders through the NCIB program.
In addition, the Board of Directors approved a variable dividend of approximately $220 million, or approximately $0. 14 consistent with a non-unusual percentage consistent with this variable component, fulfilling our commitment that 50% of excess loose cash flows will accrue to consistent shareholders.
The existing NCIB program will expire in early November. As we announced this morning, our Board of Directors approved the NCIB program application. It will offer the ability to repurchase approximately 136 million additional common shares over the next year.
We also finalized a tender transaction in the quarter, purchasing approximately $2. 8 billion of debt, which raised our overall rescue notes this year to $4. 3 billion. This solution mitigated the threat of refinancing for the company until 2027. It also lowered our weighted average coupon rate and saved approximately $200 million in annual interest prices in the future.
Our net debt relief accelerated this quarter through a current capital release and now stands at approximately $5. 3 billion. And to put things in perspective, we started this year with $9. 6 billion in net debt. This represents relief of $4. 3 billion in net debt in just 3 quarters.
The third quarter is another wonderful example of how our monetary and percentage shareholder function framework was met and, adding the third quarter, we will have returned about $2. 9 billion to shareholders this year through our base dividend, percentage buybacks, and variable dividends, all at the same time. Same time. also deleveraging.
At the same time, by paying off our debt and offering returns to our shareholders. We also make contributions to the government. When the oil and fuel sector does well, Canada does well. Recent research by Peters
To put this in perspective, our sectors anticipate that government contributions this year will be equivalent to more than two-thirds of the investment of all hospitals in Canada last year. This is a time of high demand under the strain of COVID and Cenovus and our peers are further strengthening the economy by reinvesting our revenues into our businesses, supporting jobs, and offering economic benefits to suppliers and brands in each and every province.
This same research through Peters
We are in a position to move forward with more complex investment decisions in vital decarbonisation projects once governments have ensured that mandatory policy mechanisms are in place. to fulfill the shared purpose of reducing emissions.
We are committed to making an investment in our business, adding decarbonization projects and delivering strong returns to investors. These two things combined are what will strengthen the oil and fuel sector in this country and allow us to continue to make a significant contribution. to the Canadian economy for a long time.
Let’s recap what we’ve accomplished at Cenovus this quarter and where we’re headed. Our consistent upstream operations continue to build momentum toward 800,000 barrels consistent with the day and above and provide significant price and return on investment. Our downstream functionality has yet to fully show what it can do in this environment. And that will be the management for the fourth quarter and 2023.
Overall, we had another solid quarter, evidenced through strong operating effects and even more extensive deleveraging towards our $4 billion net debt floor. In the existing strip, we hope to succeed at this point by the end of this year. We look to the future to offer one hundred percent of the excess loose funds to our shareholders for the periods we are at this point.
And with that, we are satisfied with your questions.
Q&A session
Operator
[Operator Instructions] We will turn to Greg Pardy of RBC Capital Markets.
Greg Pardy
Yes. Thank you. Hello. Thank you Alex for the summary. Just a few questions for you. I guess the first is the subsequent innovations they’re focusing on. If we only communicate about the initial stages for a minute, do you continue to see a favorable rate of operational replacement?And if so, where is it happening?
Alexandre Pourbaix
Of course. No, I’m happy to communicate about upstream and will probably pass it on to Jon, Keith and Norrie at some point. But I think, Greg, how do I see it, since we were going to close the deal with Husky, we’ve had a very smart race to locate a lot of what I would call brownfield opportunities to continue to ramp up production, decrease our operating costs, decrease our SORs. And we picked some fruit by hand. But I think from my point of view, we see this opportunity continues. I think Sunrise will see vital things about Sunrise in the future. But maybe I’ll pass it on to Jon and he can give his opinion.
Jon McKenzie
So, Greg, one of the things that this industry and this company haven’t actually done in the last five or six years, the commodity cycle recession, is to invest a lot of cash or invest cash to develop production and harvest some of the hanging berries that Alex mentioned. And that goes for Cenovus, but it also goes for the assets we acquired as part of the Husky acquisition.
So when we take a look at our portfolio, we see a lot of opportunities for further expansion that start to think again about your charging base and recalibrate not only the production, but also the charging base that goes with it. So Alex discussed that Sunrise, this is a wonderful example, hasn’t had a new well rig since 2017. And we acquired the other part this quarter, and we see great expansion prospects for marginal capital and in our traditional business, we see the same thing happens there.
So I think what you can expect from us is similar to what we just did at Spruce Lake North and what we did in Indonesia and what we’re about to do with Terra Nova is add more production over time that comes with relatively modest capital requirements, but it supplies that 5% expansion rate over time.
Greg Pardy
It is ok. Great. Thanks for that. And I will. And so a small special dividend,
How do we view special dividends compared to fundamental dividend growth?Because clearly, you have the monetary means to build the fundamental dividend now.
Alexandre Pourbaix
Greg, that’s a smart question. And I think I would say that, in the long run, I see that one of the main tactics of corporations like Cenovus to raise the price is by expanding their base division. and its rear line. And he listened to Jon, we think we can continue to grow at a fairly moderate rate as Jon describes it, just attached to our fabric with those kinds of biological opportunities and wastelands.
But I think we see, we see an opportunity over time to build the base dividend. And obviously, there will be opportunities for variable dividends, in fact, the purpose of management would be to continue to increase the base dividend as well.
Jon McKenzie
Maybe something will go to that, Greg. I mean, the two things are a little synergistic. You invest in the business and generate profits of $45, which gives you more ability to increase your dividends over time. The investment he makes in the business only supports that expansion that Alex talked about about the base dividend over time, which is at the core of this business in terms of cash return to shareholders.
Greg Pardy
Heard. Thank you so much.
Alexandre Pourbaix
Yes. No worries. Thank you, Greg.
Operator
We’ll take our next Neil Mehta with Goldman Sachs.
unidentified analyst
Hi, I’m Nicole Wesser [ph] from Neil Mehta. Thank you for taking your time. So, just do one type of tracking on the capital allocation side. Can you give an overview of when you will succeed in the net C$4 billion?Debt target on the curve? And so, can you think of any kind of postponement implications after the announced variable?
Alexandre Pourbaix
I mean, I think I discussed it in my call notes, however, we see ourselves achieving $4 billion, all things being equal, probably towards the end of the year. And we are, if there is something we seek to demonstrate discipline. , we have committed that once we get to those four billion, we will move to one hundred percent payment, and that is still our intention, not to replace it there.
unidentified analyst
Super. Merci. Et then, as a follow-up, I’m just curious about how you think about next year’s spending prospects. And also, what if we had some sort of diversity of up-to-date maintenance capital due to peak costs?
Alexandre Pourbaix
Do you want to communicate about that, Jon?
Jon McKenzie
Oui. Je I think we have been transparent and will provide a more formal set of budget rules by the end of next month. But I think we’ve been pretty transparent that the strategy is pretty defined and we’re seeing additional dollars going to growth, yet that’s precisely what’s going to be marginal and incremental. So don’t think that next year’s budget will be very different from this year’s.
I think you’ll get a budget after some of those convenient completions that we talked about that allow us a 5% expansion rate across the enterprise, upstream, downstream and conventional. So I think we’re going to nail that down next month. And sorry, I forgot the moment component of your question.
unidentified analyst
It’s in the maintenance capital range, is there any kind of upgrade we can think of?
Jon McKenzie
Yes well. As for maintenance capital, you’ll remember that when we acquired Husky, we proposed C$2. 4 billion, as the amount needed to maintain solid production and keep our old plants in a solid state. What we’ve done this year, if you think about the assets we’ve acquired, the other part of Sunrise, our expected acquisition of Toledo and then some allocation for inflation.
We expect that number to increase in some sort of range from 2. 7 to 2. 9. But I think it’s a smart number to move forward. We’ll provide even more color in this once we’ve finished budgeting. But it’s kind of an execution figure that you think about for the next five years.
unidentified analyst
Hey, great. Thanks for the clarification.
Operator
Thank you. We’ll take the next one from Menno Hulshof of TD Securities.
Menno Hulshof
Thank you all and good morning. Maybe start with the shapes. In the press release, he spoke of Canada being under intense pressure on CCS from the United States, Norway and the Netherlands. So, maybe you can give us a glimpse of where Canada is now. . And I think everybody on the call has a clever concept of what that looks like for the United States. But where do we stand in relation to Europe?And then he also discussed that government discussions are ongoing. But just in terms of the path to resolution, is it imaginable that we will see something before the end of the year?Or is 2023 more realistic?
Alexandre Pourbaix
Sí. No, that’s a smart question, I’Menno. Je ll give you my opinion and Rhona can intervene with a little color. But listen, I mean, where we are now, we’ve been having ongoing conversations with the federal government and the provincial government for many, many months. Earlier this year, those kinds of initial end results proposed by the federal government for investment tax credits for CCUS.
And I think we actually saw that as a strong commitment on the part of the federal government. And it was something he most equated to the fortified Q of the United States that they gave to carbon capture. Since then, the U. S. government has been able to do so. The U. S. has issued the Inflation Reduction Act, which has added significance for commercial decarbonization through, among other things, CCUS. And that, right now in the U. S. , they’re getting manufacturers in the U. S. to do the U. S. U. S. citizens obtain capital investment and operating costs.
And I think, from our point of view, this purpose of decarbonizing not only the oil and fuel industry, but also all primary heavy industries in Canada, is a daunting task. It’s a huge elevator. The industry will spend billions of dollars on itself, yet nearly every jurisdiction in the world that is interested in carbon capture and storage does so with significant participation in multiple degrees of government. You heard me talk about the United States, Norway is in a similar position.
I mean, I think Canada wants to improve competitiveness. This is an incredibly vital undertaking for the Canadian economy and for Canadians. And like I said, we’re going to do our part, and we’re doing our part. But additional debates are needed with either degree of government. I don’t know, Rhona, if you have anything to climb to that.
Rhona Del Frari
And I think the importance of what you said, Alex, is that the focus has to be on the capital charge and the operating charge. And that’s what we’ve noticed in examples around the world, where large-scale CCS projects have advanced. There has been between two-thirds and a maximum general government through the project. These are decades-old projects, so the capital is excellent. Operating prices over the life of those projects, because that is the maximum vital component of them.
But CCS is the focus right now because it’s a proven technology. And all over the world right now, there’s CCS everywhere, our corporations have experienced it when it’s similar to enhanced oil recovery, because then it makes sense to move forward without having to marry the government. But that, genuinely, we’re looking for in the CCS projects that we’re talking about, where it’s not tar sands in marriage with Enhanced Oil Recovery. These are joint projects that we need to do with the government. This is infrastructure for Canadian products. And it is infrastructure that will create tens of thousands of jobs that will be the next boom in Alberta’s genuine fabric. So there are so many degrees of advantages to those projects moving forward.
Alexandre Pourbaix
Just, thank you, Rhona. Et Menno, just one last one, just to answer your last query about the weather. My kind of assumption about it is that there are a lot of discussions with the government. And given the complexity of this challenge and the desire to make sure that everything is done correctly and that we deliver what is desired. I guess it will be bigger in the new year.
Menno Hulshof
It is ok. Thank you both. That’s very helpful. I’m going to move on to the higher rebuild allowance than you still aim for when the first trimester restarts. Where do you see the threat in the acceleration process, if any?style to use in the first part of 2023?
Keith Chiasson
Hi Menno, I’m Keith Chiasson. Yes, we are really satisfied with the progress of the project. We expected an acceleration until the first quarter of 2023, and we are still on this path. We are moving from structure to start-up.
We took our first set of crude oil to Superior’s tanks and floated the tanks’ roofs and filled our inventory. Therefore, we are preparing imminently to start up and start the crude oil unit. the first quarter of 2023, as we have been saying for several quarters.
Menno Hulshof
Thank you Keith.
Operator
Thank you. [Operator Instructions] We’ll move on to John Royall with JPMorgan.
John Royall
Hi, hello, guys. Thank you for accepting my question. So, downstream, if I heard correctly, I think you argued that the effects were greater than 2Q in 3Q when you remove FIFO and stock impacts. Can you communicate about the pilots there? And I know you had less downtime and higher performance overall, but is there anything you see in the cargo aspect or the margin aspect that took a step forward in the third quarter?
Keith Chiasson
Hi, John, I’m Keith Chiasson. We have noticed a very high performance at our refinery in Lima. We really set a performance record in the quarter in Lima. Obviously, the cracks are also very favorable in the quarter.
As we think about what the vision looks like going forward, we are excited about this asset package, because at this point we still incur a lot of prices without any performance on Superior. And as you know, with the tragic Toledo fire, we were at a quarter high in assets operated through this joint venture.
So, as those assets go into production, we are even more encouraged by the functionality of the U. S. structure. U. S. As you know, with WCS spreads, where they are, those refineries are well stocked to consume the Canadian heavyweight, whether it’s Superior, Toledo our joint venture in WRB and Lima.
So, a constructive course on that, as well as a very constructive kind of rift. So, it’s a pretty exciting time for U. S. manufacturing. Those assets return to production and continue to operate.
John Royall
Genial. Gracias. Es useful. And then, just transfer it upstream. When I look at the royalties of Foster, Christina, and Sunrise, it turns out that all three went up in terms of rates in the third quarter compared to the second quarter, despite the price drop, assuming I do my calculations correctly. Just point out that you’re increasing those rates in the third quarter compared to the second quarter.
Jeffrey Hart
No, here is Jeff. No, there is nothing structural. I will only remind you of the frame. It is – the – Foster Creek and Christina Lake are after payment. Then they will go from 25% to 40% of a payment there. So, basically, your profit minus your operating costs, minus your CapEx.
They are around 30%, but there is nothing structural. It is only taken into account. And when we are in postpaid, it is an annual calculation. So there are only changes and other elements, but that’s how you deserve to think about it.
John Royall
Heard. Thank you.
Alexandre Pourbaix
Thank you, Jean.
Operator
We’ll take our next one from CIBC World Market’s Dennis Fong.
Denis Fong
Hello. Hello and thank you for answering my questions. The first for me is the percentage buyback program. I know you talked earlier about focusing on intrinsic pricing at mid-cycle prices. to review or update your outlook on what is “middle the cycle” and how would you like to think about percentage buybacks?
Alexandre Pourbaix
Again, I return to this concept of being disciplined and conservative in the way we think about things. We still think of the middle of the cycle as around $60 WTI. And I mean, I think at this point, I’m not convinced that the world may not return to where it has been for the last 50 years. So we’re moving to 60 as a kind of proxy for mid-cycle commodity values. And I remind everyone that, from our perspective, we prefer buybacks, all things being equal, to variable dividends when trading with intrinsic value. And I think, as other people think, even until we get to $4 billion and then $4 billion, it’s like thinking about the value of inventory, if that value of inventory looks like $30, other people deserve to expect a lot of variable dividends. And vice versa, whether that inventory will be worth the trend below $20. They deserve to be waiting for buyback percentages. It’s the way we think about it.
Denis Fong
Super. Super. Thank You. And my follow-up here is possibly just to navigate Greg’s query above. I know I’ve made pretty smart progress in optimizing your existing assets, whether it’s Cenovus Historic and Husky. I’m just curious whether or not you can supply us with an update on more complex projects, such as, say, connecting Christina Lake-like elements, where it potentially is, or where the next step in upstream optimization may also come from Exxon’s journey. Thank you.
Norrie Ramsay
Yes, Hi, Dennis, I’m Norrie Ramsay. Yes, we’re making progress in Christina like the pipeline coming together; for the next 3 years we will link Narrows Lake with Christina Lake. So it deserves to be waiting to see the production coming from that northern region. Also, at Sunrise, John discussed earlier, now that we are one hundred consistent with percentage ownership, we have a lot of flexibility, and there hasn’t been any drilling since 2017. So we are making smart progress in the next 3 masses. of well platforms there. I will be expecting them to appear in the next 24 months. And at the same time, we do a lot of regional surveys on Sunrise domains. So we haven’t done that for several years. So we have this, I mean, on the other hand, we have a Terra Nova Atlantic coming back from an extension of asset life, which we’re looking for by the end of the year, which has another 10,000 barrels a day. And I think, I mean, in the Drew domain of Indonesia, we have –I don’t know, Drew, if you need to mention it.
Andres Dahlin
Yes, of course. Yes. Dennis, we have the MDA-MBH assignment that has just started. We have the MAC box going into this very flotation production unit here in the middle of next year. So, you will see that Indonesian production will double, very low capital for that type of investment because the FPU has been leased. So we’ve got a lot of smart stuff going back to John earlier about brownboxes, a very effective use of capital to have continued expansion here for a while, where we know it makes sense that even in the traditional world, don’t be surprised. if you see us adding about an additional C$100 million next year to continue to push the functionality of this business as we fill more and use much of our infrastructure that hasn’t been invested in the last five or six years. No, it’s not just their OpEx unit that’s actually improving, it’s their capital power that’s improving, and therefore their underlying net source of income and monetary ability to keep up with a little expansion, but fundamentally maintaining the underlying ability. one of the assets to generate pocket money in the long term is a really smart business. And then we have a lot of those opportunities in almost every single facet of our upline.
Denis Fong
Excellent. Excellent. Thank you. I’m going to come back.
Alexandre Pourbaix
Thank you Denis.
Operator
Thank you. This is how the analyst of Part Q will conclude
Chris Varcoe
This is a query for Alex. Alex, last week we saw Federal Environment Minister Guilbeault ask the Canadian oil industry to start spending more money on blank energy instead of buyback percentages, those are his words. Meanwhile, in the US, we’ve noticed President Biden calling for increased industry production and tracking an income tax providence if they don’t, how do you see that kind of industry observation and complaint?
Alexandre Pourbaix
I think, Chris, you heard my opening remarks in which I talked about the contribution that the Canadian oil and fuel industry is already making. As I said in the opening comments, we are: Peters
So I think we have a very. . . we have a very progressive formula in Canada, which is quite different from the US. In the US, where as industry money increases, the contribution to government coffers increases. Contributing is fundamentally inaccurate.
That said, I think our industry has shown that we take decarbonization very seriously. We, the federal government’s efforts to achieve significant emissions discounts in our country toward net-zero emissions through 2050. We have the same purpose at Cenovus and with our peers at the Pathways Alliance. But I believe that achieving it must be a practical and realistic technique to reduce emissions to protect jobs, investments in Canada and assistance to ensure some global energy security. So, I just need. . . I just need you to take a look at those things. Yes, I think I will give it back to you.
Chris Varcoe
Of course. Just to stick to that then. The federal government is expected to release its fall fiscal update, I think, later this week. What do you expect, or expect to see from Ottawa regarding your CCUS investment tax credit?
Alexandre Pourbaix
Chris, we’re still in the discussion and consultation phase with the federal government, let’s recognize that, with the moves that the U. S. government has taken, we’re still in the discussion and consultation phase. With the U. S. government in its legislation to reduce inflation, this is something Canada will have to consider in terms of having a program that is competitive with the U. S. program. U. S. But I don’t expect anything provocative in the fall here tomorrow.
Chris Varcoe
And just to, I suppose, ask him one last question regarding that front. Do you want to see adjustments from the federal and provincial governments for Pathways Group to give the green light to those projects?¿Is. . . Are we at a standstill right now?
Alexandre Pourbaix
No, I don’t think we’re at a dead end. I think, as I said, we’re having pretty productive discussions. We have, I mean, like I said, you heard me speak, I think it’s vital that the government’s contribution is equivalent to what’s going on in the United States. And at the same time, we are surely determined to embark on this path of decarbonization.
We just want some certainty in everything, in terms of various government programs. And when I say that, I mean I’m not just referring to the federal government, and I’ll give you an example would be a porous space. To continue with our basic CCUS assignment for Pathways, we want to be absolutely certain that we have this pore space. They are required, whether we go down a federal or provincial road.
These are decisions that will have to be made before the industry. We are not in a position to get those projects out until we have more certainty about those issues. But I think the discussions are going very well. I say that all ultimately actions the goal of reducing emissions from the industry, and I think we have, I think so far everything has been productive. And in the end I see a path that I think if everyone is reasonable, I think there is a path to a solution that works for governments, for industry and for the province.
Chris Varcoe
Thank for
Alexandre Pourbaix
Thank you Chris
Operator
We’ll take our next Rod Nickel with Reuters.
Nickel rod
Hi, Alex. Me wondering if you could elaborate a little on your: keeping $60 as the mid-cycle value, the futures value band would seem to imply that the street rarely expects a value like that for several years at least. Can you perhaps take a more cautious view of values in the future?
Alexandre Pourbaix
Rod, 4 years ago, the front band did not expect a value higher than $ 60. So, it’s attractive to me to know what the futures market is speculating on the direction the value is taking. I’ve focused beyond anything other than protection in this business, it’s discipline, and it’s investment discipline, monetary discipline and achieving what the company promised to deliver to its shareholders. And if you look back, I haven’t looked at the numbers. Recently, however, if you look at the average value of the last 10 years, I’m sure it’s well below $60 per barrel. So we can hope for the best, but we have a plan for reality. And I think at this point, the right thing for our company right now is to think of $60 as kind of average value in the market.
Nickel rod
And I guess that’s why it would have a very similar modest increase, if anything, in its capital budget next year that’s still kind of a cautious technique about where costs might go in the next 12 months.
Alexandre Pourbaix
Well, we’re probably a little more disciplined in our investment decisions. And when we take a look at all the primary investment decisions, investments have to roll back their capital burden to what we would call a low-value cycle or a resilience value, and that’s more of a $45 WTI. And I would tell you the good news is that all those projects that Jon and Norrie communicated about on this call, everything we’re proceeding to invest in, are facing that hurdle, so they’re very lucky to have opportunities for continued expansion of production that have superior returns and maintain even the lowest commodity values.
Nickel rod
Thanks Alex
Alexandre Pourbaix
Thanks Rod.
Operator
We’ll take our next Robert Tuttle with Bloomberg News.
Robert Tuttle
Hello smart tomorrow. I wonder a little bit about the value of Canadian heavy oil, I mean, we have all the pipelines in the pipeline areas, there’s been very little distribution. And yet, here we’re close to $30 consistent with the barrel spread, you see that, it’s been very low for a long time. I mean, more than $20 at least the summer. And which points would return the value to a more general point or the differential to a more general point?
Alexandre Pourbaix
No, I’m happy to give an opinion on that, Robert. I mean, I think the first thing I’d say and it’s a little different from our old experience. But for now, it would be that those relatively giant gaps between light trucks and heavy-duty trucks are handled more through global problems, which is very different from recent years in Alberta, where many of those giant gaps were really driven by pipeline restrictions. outside Alberta.
And just to. . . I’m going to give you an idea of what kind of creation of a source imbalance in the heavy market. But the global view, at the moment, the top charge of refining, the quality of taste in Asia and Europe, you know that this is due to the increase in the prices of herbal fuels in those markets, fuel being an obviously vital input in the remedy of the heavy.
At its most sensible, it has limited heavy processing capacity due to a number of planned and unscheduled maintenance at refineries globally and in North America. And then, I guess the last point I would talk about would be the strategic oil reserve. And I think everyone is aware that the U. S. government is not going to be able to do so. The U. S. has dramatically raised those volumes to 1 million barrels per day from the strategic oil reserve.
And those are: the majority, I think, about two-thirds of those crudes that come out of the SPR are medium and heavy acids, and that exerts more transient pressure. So I don’t think it’s, I think it’s in the end anything that is resolved. It would be a transitory challenge that could persist until 2023. But I think in the end, is it resolved how do you solve the challenges I referred to?
Robert Tuttle
It is ok. Great. One more thing. You have all these CCUS projects planned, and they’re all going to evolve at the same time, those big structure projects. How are you going to handle that with all the manpower resources?I mean, how is this?it’s going to happen, when everything is built at the same time. I mean, it looks like $24 billion or something like making an investment in a very. . .
Alexandre Pourbaix
Oui. Oui. Je means it’s a smart question. And the only thing I’d like to tell you, Robert, is that this industry has learned a lot over the last 20 years of structure structure and project management in overheated environments. I think one of the. . . That’s one of the reasons we’re advising the government to make everyone understand the upstream ambitions to reduce emissions. But we also want to think about other disorders that can get worse if they move too quickly.
And one of them would be that if there’s a crazy rush to get to the door on CCUS allocations, it can vary greatly, see capital costs rising, but also delays in allocations. There is only a limited amount of artisanal labor and trades and, frankly, source and other problems. So, I mean, I think we’re very aware of this challenge historically.
I think one of the benefits of bringing in combination the partners of Pathways is that it gives us a forum, where we can work in combination, for example, in. . . in this basic assignment of CCUS and capture in the Cold Lake area, it provides us with the ability to do some coordination, hopefully, and to make sure we minimize that. But the key is that we have a moderate timeline for decarbonization.
Robert Tuttle
Thank for
Alexandre Pourbaix
Yes. No worries. thanks Roberto
Operator
As it seems, there are no additional questions. I would like to speak to Mr Pourbaix for closing remarks.
End of questions and answers
Alexandre Pourbaix
Well, I think I would like, as I do, to thank the investment network and our shareholders for their continued interest in the company and the time they give us today to hear us talk about the quarter and our plan. With that, I wish you all a good morning, and let’s get signed.
Operator
Again, this concludes today’s conference. Thank you for your participation. You can now log out.