Inside Suncor’s Transformation: A Conversation With Rich Kruger
This week on the podcast, our guest is Rich Kruger, President and Chief Executive Officer of Suncor Energy Inc.
Rich explains key messages from the company’s recent Investor Day presentation, including its transformation in safety, operations, and financial metrics over the past three years.
Here are some of the questions that Peter and Jackie asked Rich: What is Suncor’s production now, and what is your 3-year growth plan? How do oil sands costs stack up against U.S. shale? How much capital are you returning to shareholders, and how do you respond to criticism that Suncor should be investing more capital in Canada versus sending it to investors? What are the reserves of Suncor, and how do these compare to those of other companies? With pipeline proposals advancing west to tidewater and south to the United States, where should Canada focus its efforts? Are you concerned about Venezuela creating competition for Canadian oil in the United States? What are your thoughts on US shale oil? Do you expect the growth to slow? With active discussions underway on carbon pricing and the Pathways Carbon Capture project, what is your perspective on Canada’s future carbon policy and competitiveness? How does the federal government’s shift in tone affect your investment outlook, and does it meaningfully reduce greenfield project risk?
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Episode 322 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. Well, as is customary, we need to date stamp our podcast. So we are recording Friday the 10th of April, 9:30 in the morning. As we speak, the price of WTI oil is about 98.50, and there’s many distortions in the market going around. For example, Brent Oil, which is a North Sea oil, typically trades a couple dollars higher, but over the last week or so, it’s been trading a couple dollars lower, which really speaks to complex dynamics. And I would just say that the current energy crisis in the world, which does not seem frankly to be getting any better, is rerouting, recreating supply chains as people around the world, particularly the other side of the world, scramble for vital supplies of commodities, including oil, natural, gas, aluminum, fertilizer, you name it. Okay. So now that we have timestamped, we’ve got also some criticism.
Jackie Forrest:
Yeah. So we’ve had some criticism that we’ve been really focused on oil and gas and a concern that, well, we need to care about emissions and climate, and we haven’t been focused on that as much on the podcast in the last four weeks.
Peter Tertzakian:
Emissions, climate, and more broadly, the environment in general. Yeah. Well, so I think I would respond to that by saying it’s bad news and a good news here for, say, things like renewable energy and decarbonization. So the bad news, I’ve already led into it in my little preamble there, but we are in the midst of two hot wars, one in the Ukraine, one now in the Middle East, and as I said in my last podcast, being a veteran of the Cold War myself, I would suggest to you that we’re actually in a very low grade World War III and we better wake up. We now have the biggest energy crisis since the 1970s, and some pundits would argue that it’s the biggest energy crisis ever. Actually, I personally fall into that camp. I think this is serious and the after effects of what has happened and what is continuing to go on has yet to be realized.
But behind all that, we have a breakdown of global institutions such as the United Nations. I mean, do you any hear anybody calling for the United Nations to settle what’s going on in the Middle East right now? The World Health Organization that I would even argue is the breakdown of the Paris Agreement, which is now a decade old. So from an international relations parlance, we’re moving very much from a liberalist society to a realist society where it’s every country for themselves. And indeed, I would refer to Prime Minister Carney’s speech about the rupture and the breakdown. Really, that’s what he’s talking about is a new world order and breakdown of global institutions. And this is profound, if not existential, the pressures on many middle powers such as Canada, and certainly the middle powers on the other side of the world that are heavily dependent upon the energy sources that come out of the Middle East.
So the bad news is that we need to wake up and understand that there’s a reprioritization of what’s important right in the here and now. The good news is, if it can be construed as good news following bad news, is that there is nothing that accelerates innovation more than a crisis. And that’s particularly true if you look at the history of energy, even over the course of centuries, and certainly in the 1970s. And what is going on right now, and we’re going to talk about this more in a subsequent podcast, is really an accelerant to innovation that is a far greater force than any carbon policy could have ever dreamed to have achieved. In other words, that a response to this kind of crisis is to rapidly try and think of alternative energy systems for countries to diversify and to become less dependent upon singular sources of energy wherever they may come from.
So stay tuned on that. We’re going to talk about that. But I think that we really need to wake up to the current situation. We are not, Jackie, you and I here, diminishing the importance of environmentalism and whether it’s climate change, biodiversity or what have you, but that we actually need to wake up as a middle power such as Mr. Carney describes us and acknowledge that we need to reorder our priorities and deal with the situation as it is today. So spoiler alert, we are going to talk about oil and gas again because it is incredibly important and we are going to be joined by a very special guest, someone who can talk about Canada’s oil production and our productive capacity and what we can offer the world in this time of crisis. So I want to welcome someone whom I’ve known for a long time, Rich Kruger, President and Chief Executive Officer of Suncor. Welcome, Rich.
Rich Kruger:
Thank you, Peter.
Jackie Forrest:
Okay. Well, welcome, Rich. It’s great to have you on the show.
Rich Kruger:
Thanks, Jackie.
Jackie Forrest:
And I know you just passed three years in the job, so congratulations on that.
Rich Kruger:
I did. It was last week and time flies when you’re working your tail off.
Jackie Forrest:
Yeah. Well, and you’ve been busy. So you’ve obviously had a lot of changes and you just released your new three-year goals in your investor day, but you also announced that your previous three-year goals, you actually achieved a year early. So maybe talk about, as you reflect on all that progress, and you really have had a lot of progress in the company, I think in your investor day, you described it as a transformation in a very short time. When you look back on it, what change stands out as the most meaningful?
Rich Kruger:
Well, I think when you reflect on the story of Suncor, we’re a company, a big company, a very, very good company, and we had fallen down on our luck for a number of years. We simply were not performing to our potential. And that was the attraction that quite frankly pulled me out of retirement to lead this great company. But what I’ve found in the three years, we have incredible people. We have extremely competitive assets. And as a company, you need to get those in sync. You need to provide the right leadership, the clarity of your goals and objectives, the right organizational structure to how you can compete and win, and ultimately create the culture that drives people to perform. And so what stands out the most for me is just to see how this organization has responded to the priorities, to the focused areas, and materially changed or improved performance in what I think most would say is a very short time.
Jackie Forrest:
Yeah, for sure. For instance, and I just want to highlight your safety because that was an issue for the company prior to you joining. Injuries and incidents are down 75% over the last three years. I mean, that’s no small task because really I think changing safety is a change of culture and you have tens of thousands of people that work at the company, whether it be contractors or employees. How can you make a change in culture in that kind of timeframe?
Rich Kruger:
Well, I think just philosophically, in my mind, you cannot be a great oil and gas company unless you are a safe oil and gas company. They go hand in hand. So how we approached it is we looked in the mirror at the leadership that we were providing. We looked at the priorities in terms of what are we asking people to do, the work processes, how they go about it. So we approached improving safety in a very holistic manner. Our procedures, the commonality of our procedures in the field, do they put workers first? And what we’ve seen is, of course, our workforce embraced that, but you’ve seen this tremendous improvement. So we literally went from when we were one of the least safe companies, oil and gas companies in North America three or four years ago, to now we are literally one of the safest oil and gas companies in North America.
Peter Tertzakian:
And there’s a lot of industrial metrics. I mean, more broadly speaking, like the TRIF or something like that, there’s these metrics on safety, the chemical industry and else. How do you rank?
Rich Kruger:
There are. And it’s a good point, Peter, because a lot of times or historically the industry has looked at safety incidents. When people have gotten injured, engaged it. That’s like trying to drive your car looking in the rear view mirror. Those are important and you need to learn from those, but you also need to look at all of those things that are indicators of safe practices or unsafe acts, even though they may not have resulted in a safety incident. So we measure a lot of data in our business. We certainly measure anytime an individual is injured or gets hurt anyway, but we look at all those things called near miss, the potential. And we extrapolate and say, “Well, if we’re not for luck, what could have happened here?” And so we treat those almost as if something did occur and what can we learn from it and incorporate back into how we do our work.
So it’s really a reversal of how we approach safety at very fundamentals. And we’ve learned a lot, not only from others within the industry, you mentioned the chemicals industry, industrials broadly. Today’s Suncor very much looks at and embraces best practices from the outside wherever they are.
Jackie Forrest:
Well, let’s talk about your other metrics because when you read these safety books and people have views on safety, they believe that if you can get the safety right, then a lot of other things in the company improve. Your operations improve, your financial metrics improve. Has that been your experience and why do you think that is?
Rich Kruger:
I totally subscribe to that. And when you talk about safety, there’s really two dimensions of it. There’s the personnel safety, but process safety. Do you keep hydrocarbons where they’re supposed to be in tanks, in vessels, in pipelines? And so we have put an intense focus on both, and those improvements that were referred to earlier have been both personnel and process safety. So when you have higher process safety, you also have higher reliability of your assets. We’re a very capital intensive industry, and the winners utilize their existing assets to the fullest extent. So we’ve achieved record high levels of asset utilization or reliability.
And then when you start getting more predictable and rateable in your operational performance, of course, the financial performance comes with that, the reliable and ratable cashflow performance. So I believe safety is one barometer, but they’re also interconnected. And I think these are lessons in this industry. The formula for success in oil and gas, quite frankly, I don’t think it’s changed much over the last hundred years.
Jackie Forrest:
In terms of if you can get the safety right and the… Yeah.
Rich Kruger:
When you get the fundamentals right. Safety, operational integrity, asset utilization and profitability. When you get those right, all of the other things that are important tend to come along with it. But if you don’t get those fundamentals right, you don’t have much of a chance to succeed.
Peter Tertzakian:
Let’s go back up to, so I’m going to call it 50 or 100,000 feet and just talk about Suncor. Suncor, I think, correct me if I’m wrong, is the child of Great Canadian Oil Sands, which started in the 1960s. Tell us about Suncor where it is today. And it’s not just an oil sands producing company. It’s got refining capacities and other operations. Give us the thumbnail.
Rich Kruger:
We produce roughly 850 to 900,000 barrels a day of upstream production. We are, on any given day, the largest refiner in Canada. And we have three refineries in Canada, one in the US with a combined capacity of about 500,000 barrels a day, and then we have petroleum product sales of more than 600,000 barrels a day. That makes us the largest refined product sales in the nation. So we’re extremely integrated. We’re moderately balanced across that value chain. And as you rightly point out, we started out, it was not that many years ago. We were a modestly small company, but we’ve grown materially. The acquisition merger with Petro-Canada, for example, the taking over the operatorship of Syncrude. More recently, the development and expansion of our Fort Hills operation. Our East Coast, we have offshore East Coast operations. We have some modest, but international operations as well. So the company went from being a relatively small entity to now more than a $100 billion enterprise.
Jackie Forrest:
And you have the Petro-Canada retail stations as well, right? Which-
Rich Kruger:
We do. We are the nation’s largest seller of retail gasoline. And we have about round numbers, about 1,500 petro Canada sites coast to coast. We also have the Petro-Pass or the large truck stops across the country and electric highway. You can charge electric vehicle from coast to coast at our sites.
Jackie Forrest:
And actually you have some of the highest rated ones.
Rich Kruger:
We do. Folks want convenience in life and whether that’s going into a convenience store or to fill their tank, charge their batteries, do it quickly so they can get on with what they’re looking to enjoy in their life. So we put a priority on what do our customers want, need, and how can we provide that to deliver the highest value to them.
Jackie Forrest:
All right. Well, let’s talk about oil sands. Although you did talk about you have other upstream, but oil sands is the majority of your production.
Rich Kruger:
It is.
Jackie Forrest:
There is a common, I think, misperception that oil sands are high cost. And I did listen to your investor day and I will put a link to that in the show notes as well as the transcripts. And I encourage people to hear your whole presentation, but you made the case that your oil sounds are actually very low cost. So what are the economics and why do you think this misconception exists?
Rich Kruger:
I’ve, over the course of a more than 40 year career, I’ve lived and worked in 20 some countries around the world, and the oil sands, not only are they uniquely large, but they’re also unique in their character. And in terms of extraction techniques, what skills, abilities does it take to produce oil and gas, whether it’s mining, whether it’s in situ operations. Also, their cost and capital profiles are unique relative to unconventional oil and gas or things. So we may have larger upfront investments, but then we have a very low or modest decline for the long term. We put projects on and we regularly anticipate 30 and 40 year lives. And I would say that would be the envy of the majority of the oil and gas world to be able to have that longevity of your resource space.
But what is key is we need to recognize we are in a global commodity and we need to compete. We need to compete in not only the capital cost, but the ongoing operating cost. Mining by its nature has a higher ongoing operating cost. In situ tends to have a lower cost, but in situ projects to the initial capital may be higher. So it’s the trade off of capital and operating costs that is really, that’s the uniqueness of the oil sands.
Peter Tertzakian:
Yeah. Well, maybe for our audience, I’ll put this all into perspective. So the mining obviously occurs for these sands that have oil in them, hence oil sands. The geology is such that there’s a surface component and then the oil sands dip gently in the Fort McMurray area and as they dip underground, there’s also a tremendous amount of resource into which you now drill. But because the oil sands are so viscous that when they drill, they actually inject steam to soften up the oil-
Rich Kruger:
Exactly.
Peter Tertzakian:
… and bring it out when it’s heated. And that’s what you call the in situ.
Rich Kruger:
In situ. So when mother nature deposited this, you’re exactly right. It’s really toward the west, the deposits were shallower toward the surface and the sand sediment is saturated with a hydrocarbon and oil and you mine that and then you extract, you separate the oil from the sand and sediments. And then as you go to the east, it gets deeper where it’s no longer economic to mine, so you drill wells in more of a conventional way. But what’s not conventional is because of the viscosity of that oil, you have to thermally heat it to lower the viscosity so it’ll flow. So these are technologies that are largely unique to Canada and the oil sands. There’s some similar technologies in other areas, Venezuela, for example. There were parts, there’s thermal and Indonesia and things, but the technology set that’s been developed to profitably develop the oil sands, I think you can say that as Canadian through and through.
Peter Tertzakian:
Yeah. Yeah. And this is a unique resource. I mean, you can think of oil sands as just partially cooked oil, right? I mean, the deeper the oil goes, which is the case for most of the rest of the world, it’s what we call conventional oil, the more pressure and heat there is underground to make it lighter and lighter. And I want to focus in on one thing is that the oil sands in Canada are really a story of technology and innovation. I mean, it’s quite a high tech story in terms of the engineering processes. And it was very high cost. I mean, to Jackie’s point, I mean, it was a very high cost extraction methodology for decades. The great Canadian oil sand story is one of the original ways of thinking about how to chemically engineer and break down the oil to make it into lighter oils.
But for so long, it could never compete with, say, the Saudi lights and the other light oils and to coming out of Texas and places like that. But what’s really happened is the technological push, I would argue over the last 20 years, the engineering processes, companies such as Suncor really reducing their op costs through technology that it is now not only competitive on a global scale, but it also has very low replacement cost. In other words, when you drain a reservoir, you have to continuously replenish it to maintain your production. So talk about the sustaining nature of it versus say light oil.
Rich Kruger:
I think that’s right. For one of the things, most jurisdictions around the world, they have a finding and development cost. They have finding, meaning the exploration phase. And for every 10 exploration wells drilled around the world, eight or nine of them are unsuccessful. We don’t have an exploration risk. We know the resources there, so it comes down to the economic extraction. And if you look over that history, technology has played a huge role in it, but it was the necessity is the mother of invention behind it. It was all premised at points in time that the world will ultimately run out of these lighter conventional oils and the world will need these oils.
And we found the world’s resource space has continued to grow, but for Canada to compete, the innovations that have been brought, I’ll use a couple examples in mining. Mining is a bit of a brute force process, but now the more recent mines have been developed with an advanced technology that literally removes the heaviest asphaltenes or the heaviest carbons before it goes on for further processing or in the pipeline. It’s called Paraffinic Froth Treatments, a fancy phrase, but our Fort Hills mine was developed with that technology. And it’s one example, you can move on to the drilling or the in situ, and there are also a series of examples of technology lowering cost and extending the life and longevity of this resource base.
Peter Tertzakian:
Yeah. Yeah. You mentioned Venezuela. You’ve worked in Venezuela.
Rich Kruger:
I have. Yeah.
Peter Tertzakian:
And so can you contrast for our listeners Venezuela versus Canada’s oil sands?
Rich Kruger:
I think if you start with the subsurface, the technology set to extract the resource in Venezuela is quite similar to what we have in Canada, but it’s when you get to the surface where it starts to change in terms of the political and regulatory regime, the stability and durability of terms. And that book is well written over history of the challenges international companies have had doing business in Venezuela, but the resource is quite similar and quite large.
Jackie Forrest:
Let’s talk about breakevens, just to put this in perspective. There’s a lot of analysts that look at the US and I think shale oil up until now, or at least the last five, 10 years, has been the big competition for oil sands, and maybe it’s going to be Venezuela or other places going forward, but a lot of people say because shale oil in the US is starting to get a bit longer in its development, that you might need $60 US or even some views of $70 US to continue to see growth from shale oil in US. How would your number for when people talk about those breakevens compared to that?
Rich Kruger:
Well, breakeven is this common denominator that the industry uses to compare ourselves in terms of resiliency. What kind of an oil price world can we still pay our bills, take care of our assets? And when we talk about breakeven, we also think of our shareholder, pay our dividend. So three years ago, our number was in the low to mid $50 barrel range. We’ve lowered that by $10 a barrel over the last few years to the low to mid-40s. That is extremely competitive on the world’s scale. Now, because of the long life low decline of our assets, we will be able to sustain that production for a long, long time without putting massive new investments in to develop new capacity. That’s where the difference with the unconventional is because they have a very steep decline. It’s not unusual to drill a well, and in the first year, you experience 50, 60% decline.
So just to stay even, you need to continue to reinvest on an ongoing basis. Well, if oil prices, if your breakeven is in the 40s or 50s, you can do that. But if you want to return on that investment, you’re going to need oil prices that incrementally get higher. And so a lot has been written about there’s a a toggle point for the unconventionals close to the $60 a barrel range. The other thing you see is companies are rational. They pursue their highest quality opportunities first. So as they deplete or exhaust those opportunities, the marginal cost of the next opportunity tends to go up requiring a higher oil price. So here again is an area where I think the Canadian oil sands have a unique competitive advantage so long as we can keep our cost structure down and because of the large longevity and really the low decline of the resource base.
Jackie Forrest:
I don’t think there’s too many other basins in the world where you can say the breakeven costs have gone down over that period of time. Everyone else has been having inflation, so that is really pretty incredible.
Rich Kruger:
Well, I think it gets back to the earlier comments you made about getting the fundamentals right. When you have higher operational performance, higher reliability, higher utilization of existing assets, you’re increasing the denominator, the incremental barrel is always cheaper than the average barrel. So as you add more barrels with the same facilities, you drive down that cost.
Peter Tertzakian:
Well, you just mentioned not long ago dividends, you mentioned returns to the investors. So under that broad umbrella of returns to investor, you just had your investor day. But let’s talk about, as I said, this broad investor returns or shareholder returns, the criticism comes about, well, why are you giving so much money back to investors, be it in dividends or share buybacks versus putting money back into more development of the resource and more production. So what is your counter to that?
Rich Kruger:
Yeah. And just for context, in 2025, we had a capital investment program of about $6 billion, and we also returned about $6 billion to our investors through dividends and buybacks. It was roughly 50, 50 in that six billion. So it was quite balanced. And then of course we paid taxes way beyond the six billion taxes and royalties. So that’s the macro financial balance. If you look at our industry over time, there have been periods where the investment community rewards growth because the belief is demand for our products will continue to rise and we want you to grow and the belief is an incremental barrel will be a very valuable barrel to the shareholder.
That has been turned on its ears over the last 10 years or so where there were questions about the longevity of the industry and investors said, “Well, okay, we want you to continue to be profitable, but we also want a return of capital, share buybacks and dividends.” I honestly think if I take your opening comments, Peter, there’s going to be another reexamination of the world and what the importance of energy, particularly oil and gas, and what the investment community may like. We may get back into a period of time where rewarding growth is what investors want.
Peter Tertzakian:
I’m already hearing about that. I do think that International Energy Agency and others are going to make the call because the world’s supply sources and supply chains for oil and gas-
Rich Kruger:
Are disrupted.
Peter Tertzakian:
… are been disrupted, they’re likely to change. I want to get back to the proportions, because I can say that just from an industry perspective broadly, the ratio is about one third, one third, one third under normal pricing. One third goes to royalties and taxes, one third goes to shareholders, and one third goes to capital expenditures back in the ground of the discretionary capital that’s available to be allocated at your boardroom table. So what has to change-
Rich Kruger:
To alter that balance?
Peter Tertzakian:
… to alter the balance? Does it take trips to Wall Street, Bay Street, and talking to your investors? I mean, we know the corporate governance hierarchy, shareholder, board of directors, and management. So in that hierarchy, you’re number three in the chain. So do you have to seek permission from investors to alter this ratio?
Rich Kruger:
There’s an answer for the industry overall broadly, but then there’s even a more specific answer for Canada. And if I say, investors want a return on the investment, they’re going to look at investing in oil and gas versus their other alternatives, whether it’s energy or non-energy. And so we need to be profitable and competitive to attract capital or capital will go elsewhere, other industries, other jurisdictions. So that’s a part of it. But like any industry, when your investment community believes you have growth potential and if volumes represent your growth and that will create value, they will support that.
In Canada, candidly, for the last decade, there’s been a big, big question mark on that. The regulatory and fiscal regimes, the policies that have been put in place have sent loud signals to the oil and gas investment community that Canada doesn’t see itself as growing and increasingly competing in the world markets. And I think that rhetoric is starting to change. And so I think that could be quite good for Canada over time, but for the last decade, the investment community has preferred that we not invest in new growth, but that we extract the maximum value from what we’ve had and we return capital to them.
Jackie Forrest:
Well, you do have in your three-year plan that you announced a growth forecast, but it is pretty modest really, 100,000 barrels a day over the next three years. Alberta and Ottawa have committed to streamlining approvals and there is a One Project, One Review draft plan out there and there’s going under public consultation, but it does seem that the way it’s drafted that we all have an Alberta-led review process and the Federal Impact Assessment Act won’t be used for even something like you had your Base Mine Extension in that process, I think for several years already. Do you think with this change, you would consider investing more and growing because you now think the regulatory system, if it works out, could be easier to predict?
Rich Kruger:
Give you a little bit of context. Over the last two years, we’ve grown production 114,000 barrels a day from about a 750 base to 850, and now over the next three, another 100,000 within the same asset base. No new projects. This is just doing our work better and better. And in investor day, we also shared what a suite of opportunities we have to develop further capacity that we think makes sense, but we also flag that if we’re in a different world, the further growth potential we have. So what would that world look like? Capital hates uncertainty and unpredictability. So when you have regulatory processes that there’s ministerial discretion or unknown standards, it’s hard to put the seed capital upfront to advance multi-billion dollar projects, not knowing if at the end of the day, you’re going to get an approval or not. And all you have to look at is the pipelines, Energy East, Northern Gateway, Keystone XL, a little bit different to see where proponents have put large amounts of capital at risk only to be disappointed at the end.
So we’re looking for clarity, predictability, and efficiency. And so time is also money. So if approvals take multiple years and they’re uncertain, that just scares capital. So shorter time periods, quicker approvals, clearer requirements, that will certainly create an environment that is more supportive of investing new capital.
Now, the other part of it I’d say, I think the regulatory regime is a key part of it, but we always, anytime you’re in a global industry, you always have to be looking at your fiscal construct, taxes, royalties, and just fees in general. And you can be very efficient on approving projects, but if the projects don’t deliver the same kind of economic return as you could get elsewhere, that capital still won’t come. So I think it’s both that are required. And I would say I’m more encouraged today than I probably would’ve been a year ago. The words are out there. We just need to see the actions to go with it.
Jackie Forrest:
It’s worth just briefly talking about your reserve life because it was incredible some of the numbers you shared.
Rich Kruger:
It’s quite staggering. This again is something that makes Canada uniquely different. So our proved and probable reserves, which for the audience, those are the highest confidence. You fundamentally know you’ve looked at them, you’ve had third parties look at them. We have a 25-year life at our existing production rate. That is more than double what the average international oil major has in terms of reserve life. But on top of that, we have a contingent resource, which means it’s discovered, you know where it is, As you know what it is, it’s developable with today’s technology and know how and expected future prices. And when I say expected future prices, I’m talking about 65 to $70 a barrel at WTI, not the current price environment. We have 30 billion barrels or nearly a century of life with our contingent resource base.
Jackie Forrest:
Yes. 100 years. Yeah.
Rich Kruger:
That would be the envy of the world. And I mean, that is the kind of potential that Canada and the Canadian companies have before it.
Jackie Forrest:
Right. So when the province talks about wanting to get to eight million barrels a day, the reserves are there.
Rich Kruger:
The reserves are there.
Jackie Forrest:
But right now you don’t have plans to develop a lot of those reserves.
Rich Kruger:
Well, we have plans that shared at our investor day to develop 400,000 barrels a day of new capacity over the next 15 years. That’s about half of our current capacity. That’s a pretty material. There’s a lot of money, but we have the reserve that could go well beyond that if the right economic climate were in place.
Peter Tertzakian:
Mm-hmm. So let’s bring it to today’s climate, which is one of the energy crisis. Are you getting a lot of inbound calls from foreign buyers and saying, “Hey, you guys have these tremendous reserves and reserves potential. We’re looking for another alternative and reliable supplier. What can you do for us, Rich?”
Rich Kruger:
Yes. One of the things, Peter, if you go back, we had our last investor day in 2024. We had a little chart in there where we showed that we had the ability at that time to supply crude or products to 21 countries around the world at that time. Today, we can do that with 45 countries. And Russia-Ukraine was a bit of a catalyst for us thinking that, okay, you can get these acute or unique market dislocations. You can create a shortage of diesel in Scandinavia. Well, if we have the ability to provide that, why should we not? And today, it’s even more acute. For example, we have provided diesel into the Philippines recently, jet fuel into Costa Rica. The diesel off the west coast into Peru. These were markets that Suncor, and I would argue Canadian companies had never reached before, crude into China and India.
And I think when you look at what’s going on in the Middle East, those customers, they’re going to look for safe, reliable, long-term supplies. And I think we as a company and the industry overall can provide exactly that.
Jackie Forrest:
Well, and what changed for you is the Trans Mountain Pipeline, I guess. That’s what enabled you to access more customers for your products. So as you know, we have this pipeline debate. It seems like there’s always a pipeline debate in Canada, but one where we’re talking about actually building more capacity to tidewater, whether expanding the existing Trans Mountain, even a new greenfield pipeline. But at the same time, there’s competing projects that want to send more crude to the United States. How do you look at that? And when you consider the need to diversify supply for many Asian buyers, what do you think Canada’s focus should be on?
Rich Kruger:
Yep. There’s no doubt about it. Our largest and most reliable customers are in the United States. And I particularly think that it’s called PADD 2, but that greater mid-continent Chicago area where refineries have literally been modified over the last few decades to accommodate Canadian crude. They’re designed for what we provide and they are large, they’re reliable, and they provide the bulk of the products to much of the US. And I think it’s important to note, all crudes are not created equal. A very light crude and a very heavy crude, they produce different product mixes. No jurisdiction, including the US, doesn’t need all of one or all of the other. It’s this right balance. So the US, I believe, will always be a very, very large, the largest market for Canadian crude. But just like the earlier conversation, there are other markets. And when you’re in a producing business, you want access to those markets.
So TMX, Trans Mountain, has been a real enabler for us. We move both crude and products through it. There are plans on the drawing board to expand that in a couple of different ways. There are also plans to expand capacity on the mainline system into the US, a bit of a renaissance perhaps of the South Bow on what was previously called KXL. And we’re looking for the most cost efficient expansion of market access.
Jackie Forrest:
What about Venezuela though? Are you concerned that they’re going to grow their production and put more pressure on you in the Gulf Coast and in the US?
Rich Kruger:
I think this gets back into this comment that all crudes are not created equal. And so heavy crudes have a unique place in the world’s oil supply. And if you say, “Well, where do they come from?” Well, certainly Canada, Venezuela, Mexico produces a number of heavies.
Peter Tertzakian:
Iraq.
Rich Kruger:
… and Iraq, Southern Iraq, in the Basra area. I mean, those are the four sources, but if you go back 10, 15 years ago, there were growth plans in Venezuela. There were growth plans in Iraq that haven’t materialized. That has been a huge opportunity for Canada. So those resources are there, but I don’t view them so much as a threat. If we continue to do our work, do it well, do it cost effectively, if our barrel is the most economically competitive barrel, there will be a place for the Canadian barrel. So resources come and go, but Venezuela, it’s not like we just woke up and found out there’s resource there. It’s been there a long time. I guess that’s a long way of saying I’m not losing sleep that they will take away market share in the short term.
Peter Tertzakian:
Well, I think it points to another dynamic as Canadians that I’ve talked about on and off on this podcast is why are we scared to compete? We love to compete in hockey, bring them on, we’ll beat them, but that type of attitude does not seem to prevail in our corporate culture, certainly does not seem to prevail in our oil and gas that says, “Oh my God, the Venezuelans are coming.” And instead of being scared of them, I say, “Bring them on. We’ll compete with them. We’ve developed this technology here in the oil sands and driven the costs down. Bring them on.”
Rich Kruger:
Peter, you hit on a topic that has really been core to this transformation of Suncor over the last few years to create a culture that’s driven to compete and win. In a business, the goal is to win. I agree with you that the Canadian psyche to having a, no, we’re going to win and we’re going to compete and win, and we have the people, the technology, I think we have all the ingredients to do that, and we should not be afraid of other markets. Those should be, “All right, we just have to get better.”
Jackie Forrest:
Well, one of the reasons we haven’t been competing is we haven’t had a lot of support from the top. We’ve had a federal government that was lukewarm to oil and gas at best. Things seem to be changing with the Mark Carney liberals. With the MOU, they’re interested in advancing a one million barrel a day West Coast pipeline along with Alberta. They’re talking about fast tracking projects. They’ve put LNG into this major projects office as projects they want to advance as part of the national interest. So how important is this shift in leadership, do you think, in terms of us competing?
Rich Kruger:
Well, I think it’s true at companies. It’s true with sports teams. It’s true with government’s leadership. You do not always win with great leadership, but you almost always lose without it. So I think leadership is absolutely essential. And in my mind, there’s a reason I’m an engineer and not a politician. But if I look at the construct here and I look at Canada and it’s tremendous resources, resources that the Canadian population could not use or consume over centuries, we have a unique role to economically prosper and strengthen geopolitical alliances around the world by providing affordable, reliable, environmentally responsibly produced energy to world markets. That is the opportunity.
And then if I look at the economic parameters of Canada overall, and I look at what sector can move the needle the furthest and the fastest, I go right to the energy sector. And so I think that change in the belief or the psyche at the top and then being a driven to compete and win, that’s what it’s going to take for this industry and for Canada to achieve its full energy potential. And I see absolutely no reason why we can’t. The only reason we wouldn’t do it is because we stumble over our own shoelaces, and to me, that’d be a very sad outcome.
Peter Tertzakian:
Talk about carbon pricing, because that’s central to the federal platform. It’s very hard to reverse industrial carbon policy, even though they reversed the retail policy. There’s discussions going on behind the scenes talking about the carbon pricing and so on. Talk about the carbon price escalation over time and how it affects you and what your thoughts on that whole construct are.
Rich Kruger:
The dilemma here is to ensure that we are cost competitive in a global market, and particularly with the federal government’s ambitions of being carbon competitive. That’s the needle we need to thread is to achieve both. So with carbon pricing, if that is a part of the equation, where we are on the competitive cost curve, we need to look at, okay, well, what can we do to offset that, to counteract that? So it gets back to the MOU that’s been signed is Pathways project, a large carbon capture and sequestration project is part of that, along with a expanded market access to be a new pipeline. But all of that only makes sense if there is the economic production growth behind it. So I think we need to be quite thoughtful that as we look at carbon price escalation, as we look at the stringency on the barrels it’s provided to, that we achieve the objective of getting real technologies and emission reduction, but that in doing that, we don’t kill the goose that lays the golden eggs. That’s the balance that needs to be provided.
Peter Tertzakian:
So what you’re saying and is part of this whole conversation is that we’re product competitive with the barrels that we sell. We are cost competitive because of the efficiencies. Companies like yours, Suncor, and under your leadership really driven the costs curves down. We’re capital competitive because there’s investor interest, but to layer on carbon competitiveness, depending upon the degree of carbon pricing, then all of a sudden potentially compromises capital competitiveness and cost competitiveness. Is that what you’re saying?
Rich Kruger:
For the rest of the world, it’s just looked at as another cost. It’s quite frankly, it’s not something that my customers, wherever they are right now, are demanding a lower carbon barrel, particularly in the world where we’re in right now where energy reliability and security is at boards. This has moved down the list globally on the consumer standpoint. Now that doesn’t say we should change that on the Canadian side of it, but if we want to provide the incentive for the industry to lower emissions, carbon intensity, we just need to be sure we do that in such a way where we don’t disadvantage the industry so it can’t compete outside of our borders.
Peter Tertzakian:
Right. So let’s explore for just a minute, like this notion of carbon competitors, because you’ve worked all around the world, you said 27 countries. The only other country I think that has a carbon price is Norway, and they produce a very light oil, not a heavy barrel. I mean, what other countries have carbon constructs?
Rich Kruger:
They don’t. We are very unique in this and in the global context, it’s an added cost. It doesn’t create a product that’s more valued by our customers. It’s a cost that quite frankly, we can’t pass through. So it requires that we get even more efficient in all the other areas to offset it.
Peter Tertzakian:
Yeah.
Jackie Forrest:
So some of our listeners might be thinking, you just talked about how competitive you are that your breakeven costs were in the mid-40s and we compared that to shale oil, which maybe is $60. So what would you say to people who say, “Well, your costs are so low, you could afford to pay for the Pathways and the carbon price and you’d still be competitive.”
Rich Kruger:
I think it’s a little bit of apples and oranges there. The cost for us to break even right now are in the low-40s and then the shale would be to develop new capacity, you need something in the 60s. For us to develop new capacity in a material way, we will be looking at new greenfield projects will need oil prices above $60 a barrel. What we have the advantage of is with this low decline, we can sustain our business in a lower price world, but we don’t have the economic incentive to invest and grow our business in that same low price world. In a 40 to $45 a barrel world, I cannot invest and grow and develop any kind of a return for the company, for the shareholders. I can’t break even with new investments at that lower price.
Why it was so important for us to do that though is we were not competitive on an ongoing basis in a 50 to $55 barrel world. We needed to get stronger and more resilient and quite frankly, put our company at less risk by driving down our breakeven.
Peter Tertzakian:
Well, we’ve talked about a lot of stuff and as you’ve been very gracious with your time. One thing I want to ask you, because again, of your international experience and particularly your American experience, what is the status of the Permian? I mean, a lot of pundits would say that it’s rolling over in terms of its productive capacity. What’s your take on what’s going on in the US?
Rich Kruger:
It’s fascinating that the knowledge of the resource and the unconventionals has been there forever. I used to run a domestic business in the US and I sold a lot of that because years ago, because it was viewed as uncompetitive or uneconomic. But here again, technology has enabled, whether it’s hydraulic fracturing, horizontal drilling, these have enabled access to these resources. However, investors, they will pursue the highest quality first. And I think it’s increasingly written that there’s a limit to this. It’s unlike the oil sands that have just tremendous undeveloped potential, the next incremental development in the Permian gets more marginal. They either need to drive costs down further or they’ll need a higher oil price world. How long that runway is, I don’t really know. I don’t think it is as enduring or have the longevity of, quite frankly, nowhere near the longevity that the oil sands could offer.
Jackie Forrest:
Mm-hmm. Although I was just at CERAWeek and there was discussion of how they could increase their recoveries because today I think they only recover 10% and there’s new technologies and new techniques being used to try to increase that. Do you think that there’s potential for there to be more oil there too?
Rich Kruger:
That’s been a huge story, quite frankly, around the entire world is because the oil in place fundamentally isn’t changing much. What changes is our ability to… What fraction of it can we recover? That’s been a huge part of the oil sands. At points in time when the oil sands started, the in situ or the drilling wells, in many cases it was viewed as you could recover 10, 15, 20%. Now you have companies, including ours, that are getting more than 50% of the oil in place. So the opportunity to recover hasn’t changed, but the ability to recover is materially changed. And I do think those continued technologies, whether it’s in the unconventionals, the oil sands, we’ve seen the same thing in offshore operations. As mankind gets smarter, wiser and brings new techniques and technologies, we increase the longevity of this resource space. So that’s a long answer to, yes, I think there could be potential in that. I don’t think it has the same length of life as the oil sands. The oil sands are just so enormous.
Jackie Forrest:
And the fact that the Americans can continue to innovate, like I said, is another reason coming back to your competitiveness point, that we always have to keep our costs low because even if it seems like they’re higher costs now, that could change through innovation.
Rich Kruger:
This industry has been built on technology and innovation from the get go. If you look at a drilling rig on the surface may look the same today as it did 50 years ago, but now that drilling rig can drill horizontal sections that go for kilometers. Whereas previously, I drilled Exxon’s first horizontal well in 1984 and we went out several hundred feet. My son is now drilling horizontal wells for Exxon that go out 10 plus kilometers. So it’s an example of technology and innovation continuing to help it provide affordable, reliable, abundant energy resources to the world. I think this industry has done its job extremely well, and the world’s going to need us to continue to do our job extremely well, or we will affect the health wellbeing, the economic livelihood of the entire world.
Peter Tertzakian:
Yeah. And it’s drilling out 10 kilometers and putting the drill bit through a set of [inaudible 00:46:36] with such great position and that the accuracy-
Rich Kruger:
Navigating it with precision to hit targets and avoid it is… I started out as a drilling engineer literally 45 years ago, and it’s night and day different what the industry can do today. And it’s one of the reasons I love the industry. It’s just fascinating.
Peter Tertzakian:
Yeah. Okay. Listen, we’re going to wrap up here, but I think I would be remiss if I did not bring this back to my opening comments. And the price of oil is not $60 anymore. We know there’s going to be some resolution hopefully sooner than later to the situation in the Middle East, but right now the long end of the forward curve is indicating $70-ish for barrel of West Texas Intermediate. How are you and your peer CEOs in the industry thinking about where oil prices are heading? What are you going to say at your next board meeting?
Rich Kruger:
I can’t speak for the others, but what I’d say, Peter, again, I’ve been in the industry long enough. I’ve seen high, I’ve seen $140 barrel oil and I’ve seen oil in the teens, but the fundamentals still work. So if you look back over the last 25 years, for example, the average price of WTI was about 65 bucks a barrel. I look out over the next 25 years, I don’t know what it’ll be. I know it won’t be 65, it’ll be above or below, but if you plan this industry on something where you’re confident you’re spending capital wisely, then you’ll have periods of time where you enjoy higher prices as a producer. You’ll also suffer through lower prices.
I think the fundamental question you’re asking, which I would say the jury’s still out, is what’s going on in the world right now? Does this create a fundamental reset? Is there a new floor? And I don’t know. I do think you said in your opening comments that this is probably the most unique or extreme situation in energy, certainly we’ve seen in my lifetime, but I don’t know what the overall market response will be. You would certainly think it would put a premium on the product because of the uncertainty.
Peter Tertzakian:
Well, it’s too soon to say, but whatever the outcome, I think you’ll have a lot to talk about at your next board meeting.
Rich Kruger:
Yeah.
Peter Tertzakian:
Rich, thanks so much for your time. I mean, we’ve talked about so many things. Suncor is one of Canada’s major success stories in the corporate world. I don’t know exactly where it ranks in the scheme of market capitalization of banks and so on, but you’re one of the top 10 Canadian companies. And as I said, we should be proud of it as you compete, not only continentally, but globally, which is becoming increasingly important. You’ve done amazing things with the corporate culture in terms of safety. We talked about that. Competitiveness, whether it’s capital competitiveness, product competitiveness, cost competitiveness, and of course carbon competitiveness. So thanks for taking an hour out of your busy day and joining us today.
Rich Kruger:
Well, thank you, Peter and Jackie for having me. I enjoyed it.
Jackie Forrest:
Yeah, and thank you. And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
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