Imperial Oil Ltd

TSX:IMO

Earnings Call Analysis

Imperial Oil Announces Strong Quarter, Dividend Hike

Imperial Oil reported a robust fourth quarter with $1,365 million in earnings and record Upstream production of 452,000 barrels per day, the highest in over 30 years. Refinery utilization hit 94%, reflecting solid Downstream performance despite slightly weaker margins. Over the year, the company's net income reached $4.9 billion, which, although a decrease of $2.451 billion from 2022, is still the second-highest in its history. It executed a $1.5 billion shareholder return in December and raised dividends by 20%, marking the 30th consecutive year of dividend growth. Capital expenditures slightly exceeded guidance, totaling $1.778 billion for 2023.

Imperial's Strong End to 2023

Imperial concluded 2023 on a robust note, demonstrating notable operational and financial achievements. The company reported substantial earnings of $1,365 million for the fourth quarter, thanks to consistent operational performance and a record production at Kearl, though this was offset by softer commodity prices. The full year was remarkable as well with earnings nearing $4.9 billion, which ranks second in Imperial's history. Investors can be encouraged by the highest level of Upstream production in over 30 years and the company's disciplined approach to capital allocation and shareholder returns.

Dividend Growth and Shareholder Returns

Reflecting the company's confidence in its strategic and operational capabilities, Imperial announced a dividend increase of $0.10 per share, marking a 20% enhancement and its 30th consecutive year of dividend growth. This echoes Imperial's commitment to delivering industry-leading returns which was evident in the total shareholder returns of $4.9 billion in 2023, including $1.1 billion in dividends and $3.8 billion in share repurchases.

Upstream and Downstream Performance Highlights

Record-setting performances define Imperial's productive year, especially with Kearl's highest ever quarterly and full year production. A tight lid on costs and the roll-out of high-return projects like the Strathcona renewable diesel project and Grand Rapids Phase 1 further demonstrate Imperial’s operational excellence. The Downstream business crucially benefited from wider crude discounts, owing to the company's advantaged Canadian position, and showcased high refinery utilization even in the face of significant planned turnaround activity .

Strategic Future Outlook

As Imperial turns the page to 2024, the outlook appears optimistic. Management’s focus remains on strategic plan execution, continuous operational enhancement, and sustained shareholder value generation. The prior year's achievements, such as the dividend increase and successful completion of high-magnitude turnarounds, bolster investor confidence. They're entering the new year with a solid foundation, upheld by unwavering capital discipline and a strong balance sheet, promising another year of powerful performance.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and welcome to the Imperial Oil Fourth Quarter '23 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Peter Shaw, VP, Investor Relations. Please go ahead.

[Peter Shaw, executive]

Good morning, everybody. Welcome to our Fourth Quarter Earnings Conference Call. I'm joined this morning by Imperial's senior management team, including Brad Corson, Chairman, President and CEO; Dan Lyons, Senior Vice President, Finance and Administration; Sherri Evers, Senior Vice President of Sustainability, Commercial Development and Product Solutions; and Simon Younger, Senior Vice President of the Upstream.

Today's comments include reference to non-GAAP financial measures. The definitions and reconciliations of these measures can be found in Attachment 6 of our most recent press release and are available on our website with the link to this conference call. Today's comments may also contain forward-looking information. Any forward-looking information is not a guarantee of future performance and actual future performance and operating results can vary materially depending on a number of factors and assumptions. Forward-looking information and the risk factors and assumptions are described in further detail on our fourth quarter earnings release that we issued this morning as well as our most recent Form 10-K.

All these documents are available on SEDAR +, EDGAR and our website. So I would ask you to refer to those. Brad is going to start this morning with some opening remarks and then hand it over to Dan, who is going to provide a financial update, and then Brad will provide an operations update. Once that is done, we will follow with a Q&A session. So with that, I will turn it over to Brad for his opening remarks.

[Bradley Corson, executive]

Thank you, Peter. Good morning, everybody, and welcome to our Fourth Quarter Earnings Call. I hope everyone is doing well and your new year is off to a good start. Today, I'm pleased to report that Imperial delivered another very strong quarter, capping off a very strong year for the company. Kearl continued to deliver excellent production results and set many new records and this performance drove higher Upstream volumes. At the same time, our Downstream business with our structurally advantaged Canadian position, continue to capture significant value from wider crude discounts.

It was a very solid quarter. And as we look to 2024, we feel very confident about the strategic plans we've laid out as well as our operational capabilities to execute those plans and our ongoing ability to generate value for our shareholders. I hope you see a reflection of our confidence in the dividend increase we've just announced today. Reflecting on the entire year, I'm very pleased with Imperial's performance across 2023. Specifically, we continue to have safe and reliable operations across all our assets, a strong execution of all our planned turnaround activity and continued focus on reducing operating costs. We took action to implement measures to address the environmental incidents at Kearl including expanding our monitoring and enhancing our engagements with local communities.

And throughout the year, we maintained our capital discipline as we advanced high-return growth projects such as the Strathcona renewable diesel project and the Grand Rapids Phase 1 project, both of which remain on track. And for shareholders, we delivered another outstanding year of returns. So over the next few minutes, Dan and I will detail the results of this very strong quarter.

So now let's review the fourth quarter results. Earnings for the quarter were $1,365 million, with cash from operating activities of $1,799 million when excluding working capital impacts. These results reflect continued strong operational performance and record production from Kearl, offset by weaker commodity prices.

Full year 2023 saw strong operating performance and successful execution of our planned maintenance activities, which contributed to full year earnings of nearly $4.9 billion. Following 2022's record earnings performance, this is the second highest earnings in Imperial's history. We achieved total Upstream production of 452,000 gross oil-equivalent barrels per day in the fourth quarter, the highest quarterly production in over 30 years when adjusting for the divestment of XTO Canada. Our results in the Upstream this quarter were underpinned by a record performance at Kearl, which delivered 308,000 total gross barrels per day of production, the highest quarterly production in the asset's history. This is just one of many records we set at Kearl. I'll talk about each asset in more detail in a few minutes.

In the Downstream, we continue to see strong operating performance. Refining throughput averaged 407,000 barrels per day, which equates to a refinery utilization in the quarter of 94%, inclusive of the planned turnaround in Sarnia, which began in mid September and was safely completed ahead of schedule and below budget by the end of October. This is especially notable because the joint refinery and chemical plant turnaround was the largest turnaround ever undertaken by our Sarnia site in terms of scope, workforce size and total spend. I'd like to recognize the hard work of all of our teams in Sarnia for not only delivering this exceptional outcome, but doing so in a way that ensured nobody got hurt.

Our continued focus on financial discipline across the company resulted in lower overall cash operating costs even beyond the reductions we saw from lower energy costs. I've been very pleased to see the progress our teams have made on reducing costs, which is especially notable because our company was able to deliver record production while at the same time successfully executing significantly higher planned turnaround activity compared to recent years. Our strong balance sheet allowed us to continue to maximize shareholder returns. We completed our annual NCIB, our normal course issuer bid on an accelerated basis by mid October and then successfully executed our third SIB or substantial issuer bid in 2 years returning another $1.5 billion of cash to our shareholders in December.

In addition, we paid $288 million in dividends in the quarter for a total of $1.1 billion for the year. In total, we returned $4.9 billion of cash to shareholders in 2023, our second highest year for shareholder returns following our record $7 billion in 2022. I'm also pleased to highlight that this morning, we announced a dividend increase of $0.10 per share or 20% payable on April 1, which positions us for our 30th consecutive year of dividend increases. A reliable and growing dividend is the cornerstone of our commitment to deliver industry-leading returns to shareholders. And since the beginning of 2021, we have nearly tripled our quarterly dividend. With that, I'll pass things over to Dan.

[D. Lyons, executive]

Thanks, Brad. Starting with financial results. For the full year, we recorded net income of $4.889 billion, a decrease of $2.451 billion from 2022, reflecting lower realizations in the Upstream, lower margins in the Downstream, higher turnaround activity and the absence of the gain realized on the sale of XTO in 2022.

Looking at the fourth quarter, we recorded net income of $1.365 billion, down about $360 million from the fourth quarter of 2022. The decrease is primarily driven by lower refining margins in our Downstream business. Moving to a sequential quarter comparison, our fourth quarter net income of $1.365 billion is down about $240 million from the third quarter reflecting weaker bitumen realizations in the Upstream and lower Downstream margins. Looking at each business line. Upstream earnings of $770 million are down about $258 million from the third quarter, primarily driven by lower bitumen realizations, partly offset by higher volumes. Downstream earnings of $595 million are up $9 million from the third quarter, mainly reflecting higher volumes post planned turnaround activities at Sarnia refinery, partly offset by weaker refining margins.

Finally, our chemical business generated earnings of $17 million, down $6 million from the third quarter, reflecting lower volumes from the Sarnia gas cracker turnaround that was completed in October.

Moving on to cash flow. In the fourth quarter, we generated about $1.3 billion in cash flows from operating activities excluding working capital effects of about $500 million. Cash flow from operating activities for the fourth quarter was about $1.8 billion, down about $150 million from the third quarter. Full year cash flows from operating activities were $3.7 billion. As you will recall, we made a $2.1 billion income tax catch-up payment in the first quarter of 2023, driving an unfavorable working capital impact. Full year cash flows from operating activities, excluding working capital, were about $6.4 billion, down about $2.6 billion from 2022, in line with earnings. We ended the quarter with about $900 million of cash on hand.

Now discussing CapEx. Capital expenditures totaled $469 million in the fourth quarter and $1.778 billion for the year, just over our full year guidance of $1.7 billion. The additional spend was primarily attributable to increased capitalized interest as interest rates increased significantly over the course of the year. In the Upstream, fourth quarter spending focused on smaller projects to sustain and grow production at Kearl, Cold Lake and Syncrude as well as progressing the in-pit tailings project at Kearl, and the SA-SAGD Grand Rapids project at Cold Lake.

In the Downstream, fourth quarter spending mainly included progressing our renewable diesel project at Strathcona. Shifting to shareholder distributions, we continue to demonstrate our longstanding commitment to deliver industry-leading returns to shareholders, a reliable and growing dividend is the foundation of our cash distribution strategy. And as Brad already noted, this morning, we declared a first quarter dividend of $0.60 per share payable in April, an increase of 20% or $0.10 per share compared to our fourth quarter dividend. In addition to our dividend in the fourth quarter, we completed our most recent accelerated NCIB program with purchases of about $950 million in October, and we completed a substantial issuer bid in December, repurchasing about $1.5 billion in outstanding shares.

In total, throughout the course of the year, we completed shareholder returns of $4.9 billion, the second highest in our company history, including $1.1 billion in dividends and total share repurchases of $3.8 billion. Our total share repurchases over the year represent over 48 million shares and about 8.3% of our outstanding shares. Now I'll turn it back to Brad to discuss our operational performance.

[Bradley Corson, executive]

Thanks, Dan. Upstream production for the quarter averaged 452,000 oil-equivalent barrels per day, which is up 29,000 barrels per day versus the third quarter and up 11,000 barrels per day versus the fourth quarter of 2022. As I mentioned earlier, this is the highest quarterly production in over 30 years when adjusting for the divestment of XTO Canada.

This higher production for the quarter was driven by stronger performance across all 3 major assets. And in the quarter, we saw WTI prices soften and the WTI to WCS differential widen. As we start the new year, we have seen some tightening of the differentials, and we would expect to see further tightening with the completion of TMX in the coming months.

So now let's move on and talk specifically about Kearl. Kearl's production in the fourth quarter averaged 308,000 barrels per day gross, which was up 13,000 barrels per day versus the third quarter and up 24,000 barrels per day from the fourth quarter of 2022. This represents the best ever quarterly performance at Kearl surpassing the previous record which we set just last quarter. And the records at Kearl don't stop there. Kearl also achieved record full year production of 270,000 barrels per day and record second half production of 301,000 barrels per day, and record December production of 321,000 barrels per day, and record single day production of 363,000 barrels per day on December 25.

How about that for a Christmas present and a string of records? I'm so proud of the Kearl team and what they have been able to achieve. It's really been an outstanding year for Kearl, which provides a solid foundation to continue driving low-cost production growth and achieving our target of 280,000 barrels per day in 2024.

And now turning to Kearl cash operating costs, which is also another great story. Unit cash operating costs in the quarter were USD 17.94 per barrel which represents a decrease of over USD 2 per barrel versus the third quarter due primarily to the strong production and ongoing focus on operational efficiencies. We also saw a decrease of about USD 9 per barrel versus the fourth quarter of 2022. And for the full year, unit cash operating cost at Kearl are just over USD 22 per barrel, which is USD 6.60 per barrel lower than 2022 or approximately USD 4.50 per barrel lower when normalizing for energy cost and ForEx. Going forward, we are focused on further unit cost reductions as we grow volumes and achieve further operating efficiencies.

So turning now to Cold Lake. Cold Lake production for the fourth quarter averaged 139,000 barrels per day, which was 11,000 barrels per day higher than the third quarter and 2,000 barrels per day lower than the fourth quarter of 2022. Higher fourth quarter production was primarily driven by the absence of the planned Nabiye turnaround completed in the third quarter as well as steam cycle timing.

And moving to the Grand Rapids Phase 1 project, I'm pleased to share that we successfully commenced steam injection on December 1, delivering on our commitment to accelerate the project start-up by 1 year to year-end 2023. The steam circulation phase is expected to last until the end of the first quarter of this year after which, production will start to ramp up over a period of several months. Once fully up and running, Phase 1 of the project is expected to deliver profitable production of approximately 15,000 barrels per day and support our emissions reduction strategy. By using SA-SAGD technology, Grand Rapids production is expected to achieve an emissions intensity that is up to 40% lower compared to existing cyclic steam technology in use today. This project is an important milestone for us and our journey to reduce emissions at Cold Lake by continuing to deploy next-generation solvent recovery technology.

I'd also like to take the opportunity to provide a brief update on our Leming redevelopment project. The drilling of all wells was completed in 2023, and our focus through 2024 is on well completions and facility construction. Start-up is planned for 2025 with the project expected to average about 9,000 barrels per day of production at peak. Leming will use SAGD technology and similar to Grand Rapids, we expect to be able to achieve an emissions intensity that is up to 35% lower than existing cyclic steam technology.

And now a few comments on Syncrude. Imperial share of Syncrude production for the quarter averaged 85,000 barrels per day, which is up 10,000 barrels per day versus the third quarter and down 2,000 barrels per day versus the fourth quarter of 2022. Higher production in the fourth quarter was due to early completion of the fall planned turnaround by about a week as well as favorable mining conditions and strong upgrader utilization. Throughout 2023, the interconnect pipeline continued to add value by enabling incremental production of Syncrude suite premium from imported bitumen, helping to maintain high upgrader utilization rates and resulting in the highest ever full year shipments of SSP in the joint venture's history.

So now let's move on and talk about the Downstream. In the fourth quarter, we refined an average of 407,000 barrels per day, which was down 9,000 barrels a day versus the third quarter and down 26,000 barrels per day versus the fourth quarter of 2022, reflecting a utilization of 94%. As I noted in my opening remarks, we completed the largest turnaround in starting in Sarnia site history at the end of October, below budget and ahead of schedule and all 3 of our refineries delivered very high utilization in the final months of the year. In addition to high utilization, the refining business benefited from advantaged crude pricing across heavy, lights and synthetics contributing to strong value capture in the quarter. For the full year, our refineries achieved 94% utilization, which was the high end of our annual guidance and we saw all our refineries achieve various full year production records, including record gasoline, jet and distillate production at Sarnia; record diesel production at Nanticoke; and record paving asphalt production at Strathcona, among many other production and process records.

At our Strathcona refinery, we continue to advance our renewable diesel project and as we finish the year, most of the underground infrastructure has been completed and the aboveground tankage is also nearing completion at this point. We continue to progress towards a planned start-up in 2025.

Petroleum product sales in the quarter were 476,000 barrels per day, which is down 2,000 barrels per day versus the third quarter and down 11,000 barrels per day versus the fourth quarter of 2022. We continue to see gasoline demand around 99% to 95% of historical levels and jet at about 110% of historical levels. Specifically, jet demand was supported by strong sales into Toronto's Pearson Airport. And on diesel, demand in the quarter was between 85% to 90%. Diesel crack spreads remained relatively strong in the fourth quarter, supported by low inventories, whereas gasoline cracks were more subdued. While overall crack spreads were lower quarter-over-quarter, as Dan mentioned, our Canadian-based refinery network enhanced overall product margins through the capture of crude discounts with access to wider differentials that affected all crude grades in Western Canada. Currently, we continue to see steady demand for our refined products and overall refinery margins remain robust.

And that brings us to chemicals. The business delivered $17 million in earnings in the fourth quarter, which was down $6 million versus the third quarter and down $24 million versus the fourth quarter in 2023 -- I'm sorry 2022. The lower earnings were driven by the gas cracker turnaround that occurred between mid September and the end of October as well as a softer margin environment. Despite these pressures, our chemical business still delivered solid full-year earnings of $164 million. And finally, I'd like to highlight the publication of our annual sustainability report.

To be successful in today's world, energy providers must find ways to balance energy security, affordability and environmental protection while capturing opportunities in the energy transition. At Imperial, this includes our commitment to advancing our sustainability priorities, including developing pathways in support of a net 0 future, enabling economic reconciliation and meaningful partnerships with indigenous communities, protecting water resources and promoting biodiversity and cultivating a workforce where everyone's perspectives are valued, and people are prepared for tomorrow.

The sustainability report provides an update on our progress towards each of these priorities.

So to quickly wrap up, this was another very strong quarter to finish another very strong year, underpinned by reliable operations across our integrated business model. We continue to deliver on our commitments and achieved our guidance for the full year. As we look ahead in 2024, I'm optimistic and excited about delivering another very strong year. As you can see from the completion of the accelerated NCIB as well as our successful SIB completed in December, and now the announcement today of another material dividend increase, our commitment to shareholder returns remains a top priority for us. We're also committed to delivering on our plans to reduce emissions and generate value. I'm excited as we near first production from Grand Rapids and with the progress we are making with our Strathcona renewable diesel project.

I look forward to continuing to bring you updates on these attractive opportunities as we continue to focus on maximizing the value of our existing businesses, while at the same time, responding to the changing needs of our customers and communities. So as always, I'd like to thank you once again for your continued interest and support. And now we'll move to the Q&A session. So I'll pass it back to Peter. Thank you.

[Peter Shaw, executive]

Thank you, Brad. As always, we'd appreciate it if you could limit yourself to 1 question, plus a follow-up so that we can get to as many questions as possible. So with that, operator, could you please open up the phone line for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Manav Gupta with UBS.

[Manav Gupta, analyst]

Good morning, guys. Congrats on a very strong results. I'm actually going to start with Downstream. When I look at your corporate guidance, it appears you have insignificant amount of downtime in the first quarter and a very small amount of downtime in the second quarter. And when you look across the border, we have significant amount of downtime in this U.S. refining system for the next 3 to 4 months. So I'm trying to understand, if you're running hard and cracks are good,and across the border people are not running hard, does that set you up extremely well for the first half of 2024 as it relates to refining.

[Bradley Corson, executive]

Yes. Thanks for the question, Manav. Yes. Certainly, as we look to the first quarter, the first half of the year, we're encouraged by all of the key fundamentals, including the ones that you mentioned, having completed a fair amount of maintenance activities this last year, we feel we're well positioned as we move into this year. Our business, as you know, is well integrated. We're well connected to the market with strong infrastructure and all that positions us to take full advantage of valued feedstocks, lower crude prices, we expect high reliability. We expect to capture high-value product margins in the market. We put all that together, and it's a strong formula for success. So thanks for that question.

[Manav Gupta, analyst]

Perfect. My quick follow-up on Kearl and congrats on getting that cost below 20. You promised people, you'll do it and the results are very impressive. My question here is your guidance for 2024 is $275 million to $285 million based on the kind of records you talked about earlier in the call, should we naturally think of this as more of a $285 million versus the $275 million. So just trying to understand if top end of guidance is making more sense given the records you're setting at Kearl.

[Bradley Corson, executive]

Well, thanks for your confidence in us. And like you, I have great confidence in the Kearl team and as noted, with so many records, they continue to outperform and excel. And that positions us quite well to deliver on what's been a long-term objective and commitment around 280,000 barrels a day. So I have high confidence that we'll achieve 280,000 barrels a day. Certainly, there is the potential that we will achieve more and that's reflected in the higher end of our guidance.

And so we're working towards that every day. We're early in the year, but I'll also tell you we're off to a good start in January. So let's continue to deliver strong results. We'll continue to talk about the potential for even higher volumes, not just in this year, but as we look to the future. Thank you.

[Operator]

Your next question comes from the line of Greg Pardy with RBC Capital Markets.

[Greg Pardy, analyst]

Thanks. I mean like great results again, and it's becoming just consistently you are putting up big numbers across the board. I wanted to dig in a little bit, Brad, to the record set in the fourth quarter and then in December. And I'm trying to better -- want to understand what were the factors that supported that? I mean, obviously, we know weather conditions were extremely warm, at least from what I understand, and so forth. So we've seen big numbers elsewhere. What was sort of the special sauce maybe of getting to the 363 or the 321 in December?

[Bradley Corson, executive]

Yes, Greg, thanks for acknowledging our super strong results and the consistency of those results. And thanks for your question on Kearl. In terms of secret sauce, I think it really comes more down to a lot of fundamentals. We have continued to improve the reliability of that operation for several months and even years now, we continue to focus on all of the contributing factors to maximize production, which go all the way back to mine performance, the productivity in the mine. Certainly, weather was a positive factor for us is it allows kind of full productivity in the mine.

Certainly, our autonomous haul fleet is contributing to that. We have the benefit of mining some high-quality ore grade. And then -- so all that ensures the front end is fully loaded and then we're managing that through the crushers. And then when we get to the plant, we're seeing very high reliability there. So it's a combination of a lot of factors. And actually, if there is a secret sauce, I'd say it's our people at Kearl that are hyper-focused on delivering these sort of results, and they're very excited and motivated to continue to set these records. They're extremely proud of what they're doing there, and we're quite proud of them.

[Greg Pardy, analyst]

Okay. The second one is I've asked it before, but I think it was considered proprietary. But I'm just curious, are you a shipper on Trans Mountain? And maybe if the answer is we're not telling you -- can you perhaps just kind of walk us through how you see sort of TMX impacting the business top to bottom?

[Bradley Corson, executive]

Yes. Thanks for the question. I don't think we view it as proprietary whether we ship or not, I'm happy to tell you that we are a shipper on TMX. What's normally viewed as proprietary is the volumes that we plan to ship in terms of total volume split between crude and products.

So I won't get into those details with you. I will tell you, though, that relative to other shippers were relatively minor in terms of the capacity reservations that we've made on the system. We are quite excited about the start-up of TMX, which we view as imminent and targeting sometime in the second quarter, of course. There was recent news at the beginning of this week about some delays, but we're still very optimistic that, that system will start up in the second quarter. And when it starts up, certainly, it gives us, as a company, additional capacity for crude volumes, which again is not significant for us. It gives us additional capacity for products which is more significant for us, maybe not in volume, but just more potential to access some higher-value markets with efficient transportation.

But more importantly is the broader impact the start-up of TMX will have on the industry providing significantly additional capacity for egress out of the basin. And that will have, we believe, as I commented, we believe that will result in a tightening of the WCS differential and will place higher value on WCS crude, which, of course, we're a major producer. So the biggest benefit for us is not the individual barrels we ship, but our view of the impact it will have on our true value. We continue to see maximum value, primarily shipping ARPU into the Mid-Continent into the Gulf Coast. And so we'll continue to move most of our barrels in that direction, but always looking at where are the highest value markets and making sure we're positioned to capture those over the long term. And that's where having optionality to go west, go south, puts us in a great position.

[Operator]

Our next question comes from the line of Dennis Fong with CIBC World Markets.

[Dennis Fong, analyst]

First off, I just wanted to reiterate what Greg said and congrats on a very strong quarter and continued strong operations from Kearl. My first question here is just around autonomous haul. You indicated last quarter that you had completed the installation and the start-up of autonomous operations at Kearl. I just was hoping to pick your rate on any potential takeaways that you've seen now that you have over a quarter of run time from the fleet and where you think you are in terms of further optimization?

[Bradley Corson, executive]

Yes. Thanks for the question. I mean, we're quite excited about the value that this is bringing to our business. And as you noted, we're now 100% autonomous in the mine with our heavy haul trucks, a total of 81 trucks. And we are seeing kind of that transition, the use of autonomous or driverless trucks as delivering all of the value that we expected in terms of lower unit operating costs by around $1 per barrel.

We see increased safety and reduced safety risk because of fewer human machine interfaces and we're seeing increased productivity as well. And so there is no doubt that having that autonomous haul fleet has contributed materially to our ability to achieve these record volumes as well as significant improvement in operating costs. And we're still, I think, kind of realizing the full potential of that because it's only been in the last quarter or so that we've completed that full conversion. And now at the same time, we're also looking for, well, where can we expand this autonomous concept beyond just the heavy haul trucks.

And so we have a lot of work underway as to where else we can leverage this to further improve productivity, reduce costs, improve safety. And I think that will be a key element of our discussion when we get to our Investor Day later this year to really talk about kind of the potential that this technology is bringing and how we can expand it further.

[Dennis Fong, analyst]

Great. I appreciate the color there. My second question, kind of continuing on with Kearl there is you've shown very strong production, and you've discussed opportunities to potentially continuously or at least average maybe 300,000 barrels a day sometime in the future. Can you talk towards the secondary recovery initiatives as well as the mine optimization opportunities that helped kind of drive you to that 300,000 barrels a day. And where are you at with respect to the engineering and the development of those next steps?

[Bradley Corson, executive]

Yes. Thanks for the question. We are very focused first on getting to 280,000 barrels per day. That's job #1. When it comes to volumes at Kearl. We just delivered our highest annual volumes at Kearl with 270. Now we got to get to 280. And then we'll get to 300. So it's kind of one step at a time. But this evolution takes several years of planning engineering, in some case, investment.

So we are progressing steps to get us to 300,000 barrels a day. I plan for us to talk more specifically about what that roadmap looks like when we have our Investor Day. But certainly, we're focused on what are the next steps in reliability. What are the next steps in optimizations around turnaround durations. We're looking at additional steps in debottlenecking our processing facilities. We're looking at how can we extract even more bitumen out of all of the ore that we extract through further processing of core sands tailing. And so it is a whole suite of activities.

We've talked about flotation column cells. At that specific project, we have detailed engineering, well advanced. We're targeting a start-up in 2026. It will be a major contributor to the next step after 280 and moving us towards 300. So a lot going on there. And I'm really excited about it because again, I think when you look at what we've achieved in the second half of the year, what we've achieved in the fourth quarter, certainly monthly and daily records. It continues to demonstrate just the potential that we have with this asset. Now again, the challenge is to link together all of those records over an entire year, right? And a significant driver still in our overall production for the year is the annual turnaround. And so we have to not only achieve those sort of records, but then we have to offset kind of any plant maintenance, turnaround or other plant maintenance over the course of the year. But I have confidence we'll get there. So thanks for that question.

[Operator]

Next question comes from the line of Doug Leggate with Bank of America.

[Douglas Leggate, analyst]

I don't know if you've looked at your share price this morning, but this dividend bump we continue to believe that is a huge mechanism for market recognition of value. So congratulations on that decision. My question is, where do you think your dividend burden needs to be to have a competitive yield versus your peers?

[Bradley Corson, executive]

Yes. Thanks for your -- first, your recognition of our dividend strategy, the impact it's having. And yes, I can assure you, I've looked at my share price today. I look at it every day as I expect. And we're quite pleased with the market receptivity to the Board's decision to raise our dividend. And maybe I'll give Dan a chance to make some comments about our dividend strategy.

But first, I think you can see that consistency of our strategy with continuing to raise that dividend now for 30 years, and you can see the materiality of those increases for the last few years, obviously underpinned by our strong performance. I'll let Dan talk about the future.

[D. Lyons, executive]

Yes. Doug, thanks for acknowledging the dividend. I know you're a dividend growth lover from our prior conversations. So we always listen to you. But as we've said, the dividend -- a reliable and growing dividend and competitive dividend is sort of the foundation of our shareholder return strategy. And if you look over in the last number of years, our compound annual growth rate is very competitive and above most of our peers.

So we continue to be focused on growing our dividend. But for us, it's really critical that it's sustainable. And so as we look out into the future and look at relatively conservative assumptions. We look at that kind of analysis, we look at our competitors who are doing and that drives our recommendations to the Board and ultimately the Board's actions. So it's certainly an area of focus for us. We're glad we're delivering that kind of growth to the market. But I can't say there's a particular target or payout ratio or burden level that we're exactly targeting. Obviously, it's dynamic, but we look ahead and we -- and our focus is on reliable and growing and making sure we're never in a situation where we have to cut it.

[Douglas Leggate, analyst]

I hope that the operator doesn't take this is my second question. It's more of a clarification point. Where do you think your dividend breakeven is right now? Because I do have a separate follow-up question.

[D. Lyons, executive]

Well, we say with sustaining capital and our dividend, we're about $35, that's WTI U.S. dollar. So that's where we are. So a pretty good spot, I would say and leaves open room for growth over time.

[Douglas Leggate, analyst]

Perfect. My follow-up is actually on Kearl, but a slightly different question. You're the only -- I think I'm correct in saying this, you're the only major mine project left that's still pre-royalty. Given all the moving parts, potentially the fact that you're outperforming obviously, and there's obviously some growth options down the road. To the extent you can give out any visibility. How long do you expect to stay pre-royalty -- you've got you through the end of the decade. I'm curious if you can offer any color on that, and I'll leave it there.

[Bradley Corson, executive]

Yes. Thanks for the comment, Doug. I'll defer that one to Dan as well.

[D. Lyons, executive]

Yes. Obviously, it depends on prices, Doug. But our outlook is to be pre-royalty and I think we would -- ended a decade is -- or even more is probably very reasonable. But it's very sensitive to prices. If prices get really high, we'd get there sooner. But for the foreseeable future in reasonable scenarios, I think we will continue to be pre-royalty which is a significant benefit for us on a cash flow basis for sure.

[Operator]

Your next question comes from the line of Menno Hulshof with TD Securities.

[Menno Hulshof, analyst]

Maybe I'll just start with a question on Grand Rapids Phase 1, which, of course, is solvent assisted. You did, Brad, touch on the emissions reduction in your prepared comments, but can you just elaborate on some of the KPIs for this project, including SOR's OpEx and how much solvent is actually getting recycled through the system? And then as a follow-up to that, how much do you think you can scale up solvent-assisted over time?

[Bradley Corson, executive]

Yes. Thanks for the question, no,I don't necessarily have those details at my fingertips on those metrics for Grand Rapids, I'll maybe defer to Simon, who's here beside me to see if he has those. And if he doesn't, we may have to follow up with you off-line on those.

But I will say that from a very macro standpoint, what is most important is we do expect to deliver 15,000 barrels a day from this asset. It's very high return economically by its design, it relies on lower steam production, which is more economic for us and lower emissions intensity. So those are the macros that are most important for the project and how it fits into our overall strategy to increase production, reduce operating costs, reduce greenhouse gas emission intensity. But now I'll see if Simon has any of those more details he can share with you.

[S.P. Younger, executive]

Yes, no worries, Brad. I can take a bit of a run at some of those. I mean, as Brad shared, in terms of the greenhouse gas intensity, for Grand Rapids Phase 1 when we started up. We expect it to be at least 40% lower than our heritage CSS process. If you compare it, though, to conventional SAGD with the addition of SA, the solvent assisted depending on how we evolve that and optimize that through time. Think about that as anywhere from sort of 10% to 20% improvement over conventional SAGD by virtue of the solvent addition.

So that would be a key sort of KPI as you were asking about. Another one, of course, is the solvent recovery, which will only be known over time and through experience, again, as we optimize the operation. But certainly, we're looking at numbers north of 85% or even 90% on the solvent recovery will be a key KPI. You mentioned unit cost. I think if you look across industry at the most competitive SAGD operations, sort of as low as $10 a barrel, I'd certainly expect us to be targeting that and even improving on that, again, aided by the benefit of the solvent-assisted the solvent addition to the SAGD process, which, by the way, we piloted for several years at Cold Lake, which gave us the confidence to proceed with a full scale investment at Grand Rapids.

And then I think another part of your question was sort of what's the running room. And I would say it's substantial. I mean we're starting with our first pad here. It's got 21 well pairs we're currently steaming and that's across 2 wings. We're currently steaming one of those. But we have -- there's running room if this -- if the Grand Rapids resource development proves successful, we've got running room of several more pads up to as many as 10 additional pads. So it's -- yes, really exciting and the whole organization is super excited to see across this first quarter of this year how we bring that new asset online.

[Menno Hulshof, analyst]

Terrific. Appreciate the detail. And for my second question, I'm just going to follow up on Dennis' and your comments on autonomous haul and I'm probably getting a bit ahead of things. But is conversion of the dozer fleet still in the cards and to the extent that it is, how would that compare in terms of scale with what you've done so far on the truck side of things? And any initial high-level thoughts on timing and upside would be helpful as well.

[Bradley Corson, executive]

Yes. Thanks for that question. I mean it is an example of the next evolution of autonomous or driverless that we are looking at. And we are actively piloting driverless dozers. So it's really exciting. We see huge benefits to that across the whole range of considerations I mentioned earlier starting first with safety as well as cost productivity.

We're very early in that pilot test work. So I think it's premature for me to quantify it, but our early experience with our pilot work is very encouraging. So we're continuing to progress that work. And again, I think we'll be in a better position to talk about that at Investor Day. And I'll just remind you that the evolution of the autonomous haul trucks at Kearl took several years. And so I would anticipate as we look at expanding that technology and approach to other pieces of equipment. It takes time because we obviously want to make sure that not only we get the full benefit, but that we are in no way compromising the safety of the operation. So stay tuned, more to come.

[Operator]

The next question comes from the line of Patrick O'Rourke with ATB Capital Markets.

[Patrick O'Rourke, analyst]

Congratulations on the dividend increase and a great quarter. You've obviously unpacked a lot between the prepared remarks and a lot of the very detailed questions we've had. So perhaps this first question is going a little bit off the board. But -- so we're seeing industrial -- we're in drought conditions in Western Canada. We're starting to see industrial water use restrictions that are coming about. Are there sort of any commercial risk to your business? And how are you preparing for those going forward here in 2024?

[Bradley Corson, executive]

Yes. Thanks for the question. And I mean, you're right, it's not something we maybe normally talk about or get questions on. But it's not off the board for us because we take water consumption very seriously in all of our operations. We have a long history of continuing to reduce water consumption. And so that's a priority for us. In fact, when you look at both Kearl and Cold Lake, our 2 primary water users, those teams have made exceptional progress towards reducing water usage in the range of 30% to 40% reductions since 2020. And that comes through the result of increased recycling as well as reduced consumption.

And so I'm quite pleased with that. I think as we look to risk of drought and impacts that has on water supply, we're going to continue to have to manage that carefully. For Kearl, our primary source of water, of course, is the Athabasca River. We have agreements in place for the implications of reduced water availability and how we manage that. And similarly with Cold Lake, which is the source -- primary source of our water for our Cold Lake operations. We have agreements in place there for low water levels. And so I have no concerns with respect to our operations, but it is something we manage quite carefully and something we're very diligent about. And obviously, more broadly, we want to make sure we are contributing in a positive way to sustainability when it comes to water use, especially in drought conditions.

[Patrick O'Rourke, analyst]

Great. And then my second question here, there's no sort of formal update on Pathways in the release, although you did touch on it a little bit. Are you able to provide a bit of an update on the project where you stand here? Because I think from yourselves and some of the partners, there had been discussion about -- especially with the long lead items being on pretty short cycle in terms of time frames, in terms of meeting decisions in order to get the project on and meet some of the 2030 time frames that have been in place.

[Bradley Corson, executive]

Yes. Thanks for the question, and I'm glad I have an opportunity to comment on Pathways because there is a lot of activity underway. And it often doesn't get publicized, doesn't get maybe external recognition, but maybe just summarize it a bit. I would characterize as 2 main kind of streams of work activity.

The first is kind of the ongoing engagement with the government, both federal and provincial regarding all of the fiscal support and regulatory certainty that is required to underpin these significant investments. And so those discussions continue. You're obviously aware of the 50% investment tax credit offered by the federal government. More recently, the Alberta province has announced a 12% support for projects like this. And there's -- the discussions are continuing around further support that's needed and all of the details that go around that. But equally important is another big work stream around progressing the physical aspects of the project. So there's significant engineering and design work underway, both regarding the main pipeline as well as individual companies are working on their own capture projects, which all will feed into that pipeline.

We're working on environmental field work and studies that are integral to the permitting of the pipeline. There's significant community engagement and indigenous consultation underway where the front-end engineering and design, the FEED work, as we refer to it, for the 400-kilometer CO2 pipeline is now more than 50% complete. That positions us to ultimately order the line pipe once we have all the fiscal support in place from the government. And we're also working on a major kind of regulatory application related to kind of the whole CO2 transportation network, but also the storage hub, and that's an important part of this project as well. So a lot of activities underway.

Our Pathways team, including the CEOs are meeting on a weekly basis, several aspects of the project they're meeting multiple times a week on it. So we're making progress. And all of this is consistent with a multiyear project of unprecedented scale. So these statements take time, but we're intensely focused on delivering this project, which is a key enabler to achieving net 0 by 2050. And all of our member companies have their own interim targets and for Imperial, in addition to net 0, we've also announced a target of 30% reduction in greenhouse gas intensity for our oil sands by 2030. So we're all focused on those interim targets as well. So thanks for that question and really kind of a shout-out to the Pathways team that is doing a lot of work in this space.

[Operator]

Your next question comes from the line of Neil Mehta with Goldman Sachs.

[Neil Mehta, analyst]

Yes. My congrats on the dividend bump and the strong results as well. I guess, Brad, maybe I want to talk to you about the return of capital via the SIB. You've been pretty consistent about doing that over the last couple of years when you have excess cash. Just how are you thinking about the timing of that? And based on what we see in the forward curve, is it fair to assume that's more likely a back half event than a front half event?

[Bradley Corson, executive]

Yes. Thanks for the question. As we've talked on many calls and other occasions, returning surplus cash to our shareholders is core to our strategy. It's a key priority for us. And that return of cash starts with the dividend and ensuring that, that is not just reliable but also growing. And obviously, you've seen the decision we've taken on that today. And then historically, we have turned next to the NCIB.

But of course, for that, we're limited to 5% per year of share buybacks. But we do see that as a very efficient and advantaged way to return cash to shareholders. So that's why that has been kind of our next go to, and we've done NCIBs consistently for many years now. And then, of course, in the last couple of years, we've had further surplus cash beyond what's needed to support the dividend program and the NCIB program. So we've turned to SIBs.

The decision on timing for the SIB and magnitude of the SIB in the past has been very much driven by both of our actual and projected cash flows as well as where we are with the NCIB because again, we have to do -- we want to do that preferentially and we can't be doing them both at the same time. And then on top of that, to execute an SIB, there are prescriptive blackout periods that we have to work around. So all of those things factor into our decision as to when we will do and when and if we will do an SIB. So I'm not going to forecast at this point the timing of the future SIB, but we'll be looking at all those factors. We'll be reviewing those with the Board on a quarterly basis. And will certainly be continuing to discuss the status of those plans with the market. And maybe I'll just see if Dan has anything else to add to that.

[D. Lyons, executive]

No, well said, Brad. And of course, it really depends on prices, right? Commodity prices are -- we assume we have continued strong operations. So whether we have surplus cash above and beyond the NCIB is going to be driven by commodity prices primarily. So to the extent we generate surplus cash, our commitment is to return it to shareholders in a timely way. So we'll just have to see how things play out over the year. I think that's where we're at.

[Neil Mehta, analyst]

Yes. That makes sense, Dan. And just a follow-up is just your perspective on differentials. I know in the prepared remarks, you talked a little bit about when TMX comes online, you expect some of these differentials will tighten up. But maybe you could talk about both the outlook for WCS, but also the outlook for Syncrude and Edmonton suite because those light crude diffs have been a little softer than many would have expected.

[Bradley Corson, executive]

Yes. Thanks for the comment. I always want to avoid forecasting too much around differentials because there are just so many factors that come into play. I made the comment around TMX because there is kind of a major structural shift that's about to occur. When you bring that much additional capacity onto the system, that, I think, will have a structural impact on heavies. I think there will be, if you will, kind of a carryover impact on light differentials as well. And so we will see likely some tightening of those as well.

Of course, in our case, we're well integrated across the Upstream and the Downstream. And so the financial implications of that is muted, if you will, in our company relative to others. When we see extremely strong pricing in the Upstream. Certainly, there is a bit of a hit in the Downstream. But the net-net of that is positive for us, and we would expect that to continue. And I guess the same with Syncrude and SSP. it's obviously a bit unusual that, that's currently trading at a discount to WTI. It normally trades more at a premium. And I think longer term, there's a few short-term things in the market, I think, that are driving that longer term. I think we would expect it to settle in at a premium over WTI like it's been historically. So that is probably the most I could say kind of, again, given the normal volatility uncertainty in the market.

[Operator]

This concludes today's question-and-answer session. I would now like to turn the call back to Peter Shaw, VP of Investor Relations for any additional or closing remarks.

[Peter Shaw, executive]

Thank you. And so on behalf of the management team, I would like to thank everyone for joining us this morning. If there are further questions, please don't hesitate to reach out to anybody on the Investor Relations team and we'll be happy to answer your questions. And with that, thank you very much, and have a great day.

[Operator]

This concludes today's call. Thank you for your participation, and you may now disconnect.