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Imperial Oil Limited (NYSEMKT:IMO)
Q3 2020 Earnings Call
Oct. 30, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Gentlemen, thank you for standing by, and welcome to the Imperial Oil Third Quarter 2020 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference to your speaker today, Dave Hughes, Vice President of Investor Relations. Please go ahead, sir.

Dave Hughes -- Vice President, Investor Relations

Thank you, operator, and good morning, everybody. Thank you for joining us on our third quarter earnings call. To start off, I'm going to introduce the senior management we have here in our virtual room. We have Brad Corson, Chairman, President and CEO; Dan Lyons, Senior Vice President, Finance and Administration; Theresa Redburn, Senior Vice President of Commercial and Corporate Development; and Simon Younger, Senior Vice President of the Upstream. As usual, I'm going to start with the cautionary statement and note that today's comments may contain forward-looking information. Any forward-looking information is not a guarantee of future performance and actual future financial and operating results can differ materially depending on a number of factors and assumptions. Forward-looking information and the risk factors and assumptions are described in further detail on our second quarter earnings press release -- or sorry, third quarter earnings press release that we issued this morning. As well as our most recent Form 10-K and all these documents are available on SEDAR, EDGAR and on our website. So please refer to those. Our format is going to follow our usual format. We'll start with some opening remarks from Brad, and then Dan will take us through the financial results, and then we'll go back to Brad for an operational update. Once that's done, we'll then move to the Q&A.

So with that, I'll turn it over to Brad.

Brad Corson -- Chairman, president and Chief Executive Office

All right. Thank you, Dave. Well, good morning, everybody, and welcome to our third quarter 2020 earnings call. I hope each of you and your families are continuing to stay healthy as we continue to manage through these challenging times. While the third quarter continued to present challenges related to the current pandemic and overall economic environment, we certainly saw material improvement over the second quarter, and I'm pleased to say that we continue to demonstrate our ability to adapt to the changed environment and deliver significantly improved results, a testament to the resilience of our company. Our strong balance sheet and level of integration, coupled with the significant progress we've made toward delivering on our expense and capital spending reductions has underpinned our performance over the past several months. Performance that continues to improve month-over-month. As I've said before, the company is well positioned to capture the value of improving market conditions going forward. The health and safety of our employees and contractor workforce continues to be our top priority. And as we've been doing since this global pandemic began, we continue to take COVID-19 mitigation steps at all of our operating facilities and office locations. And finally, I'd also also like to take this opportunity to once again express our deep, deep appreciation and gratitude for all those working on the front lines of this global pandemic. We can't thank them enough for the sacrifices they are making to keep us all safe and provide us with our essential services. So now let's talk about the third quarter results. While ongoing lower than normal global demand continues to impact crude oil and product prices, we did see demands improve materially through the quarter.

And that improvement, coupled with the steps we're taking to reduce our expenses and reduce our capital program resulted in significantly better financial results versus the second quarter. Earnings for the quarter were $3 million, which represents an increase of $529 million versus the second quarter of this year, reflecting improvement in all of our business segments. With the improving market conditions and our continuing focus on reducing costs and driving efficiencies across the organization, we were able to achieve positive earnings in what continues to be a challenging environment. And this was despite being impacted by substantial turnaround activities in the quarter and a 2-week unplanned outage of a third-party pipeline supplying diluent to Kearl. And while $3 million may not seem like a big number, it's a positive number, and that speaks volumes in this business environment. And as you will see, the organization continues to make excellent progress toward identifying and delivering even more efficiencies. At the end of March, we committed to delivering spending reductions totaling $1 billion, which included a $500 million reduction in capital spending as well as $500 million in lower expenses. As of the end of the quarter, our production and manufacturing expenses are down $813 million versus the first nine months of 2019, helping us to surpass our expense reduction target. And our capital spending is down over 50%, a savings of over $700 million versus the first nine months of 2019. Both of these results show we are significantly outpacing these targets. And given this progress, we're now further lowering our latest annual capex guidance to about $900 million, a reduction of around $250 million from the midpoint of our previous guidance of $1.1 billion to $1.2 billion.

Moving to operations. As I mentioned, we did see demand start to recover in the quarter. And as a result, we saw improvement in both our Upstream and Downstream production and throughput volumes. I would remind you that in the quarter, we also made conscious decisions to advance and extend planned turnarounds to better align volumes with demand challenges and to protect the health and safety of our workforce. As in the second quarter, I'm pleased to tell you that the organization was able to complete this significant planned turnaround activity safely and at lower costs. Now that our major planned maintenance for the year is behind us in both the Upstream and Downstream, we are well positioned to capitalize on any further recovery as the fourth quarter unfolds. And a special note is the performance at Kearl. Despite the added challenge of a 2-week outage of inter pipeline's Polaris system, which supplies diluent to the site, Kearl's performance was nothing short of outstanding. But more on that in just a few minutes. Cash generated from operating activities in order was $875 million, an increase of almost $1.7 billion versus the second quarter. After the first nine months of the year, Imperial has generated nearly $500 million of cash from operating activities. Our capital expenditures were $141 million in the quarter, and as you may know, we declared a quarterly dividend this morning of $0.22 per share, which is unchanged versus the last quarter. I think it's important to highlight that even as we continue to manage through a challenging market environment, our financial resilience, operational strength and flexibility and focus on cost reduction opportunities allowed us to cover our capital spending and our dividend with our operating cash flow, both pre and post-working capital. All in, we saw an increase of almost $600 million of cash on hand, and we ended the quarter with $817 million of cash on the balance sheet.

So at this point, I'm going to pause and turn it over to Dan to go through our financial performance for the quarter in more detail.

Daniel Lyons -- Senior Vice President of finance and administration

Thanks, Brad. Our third quarter net income was $3 million compared to net income of $424 million in the third quarter of 2019. The decrease was driven by lower crude prices, lower refining margins and lower volumes associated with COVID-19. These negative impacts were partially offset by the substantial reductions in production and manufacturing expenses mentioned by Brad. Looking sequentially, results improved $529 million from the second quarter of 2020, which included a noncash gain of $281 million associated with the reversal of an inventory writedown we took in the first quarter of 2020. Excluding this noncash item, we saw a sequential quarter improvement of $810 million, driven by improved market conditions across all our businesses and supported by sustained cost reductions. Looking at performance by business line. Upstream recorded a net loss of $74 million in the third quarter of 2020, up $370 million compared to a net loss of $444 million in the second quarter or an increase of about $600 million, excluding the noncash gain of about $230 million in the Upstream associated with the reversal of an inventory valuation charge in the second quarter. Higher realizations improved results by about $530 million and higher volumes added about $90 million. Turning to the Downstream. Net income of $77 million in the third quarter was up about $110 million compared to a net loss of $32 million in the second quarter. Again, excluding the noncash gain in the second quarter of about $50 million for the Downstream, results improved about $160 million sequentially. The increase was mainly driven by higher margins and volumes. And finally, our Chemicals business continued its positive contribution, earning $27 million in the third quarter of 2020 compared to $7 million in the second quarter. This increase was primarily driven by stronger margins. Looking at cash flow.

As Brad noted, sequentially, cash generated from operating activities improved almost $1.7 billion from the second quarter of 2020 to the third quarter. Cash generated from operating activities was $875 million in the third quarter compared to cash used in operating activities of $816 million in the second quarter. Second quarter cash generation had a negative working capital impact of $170 million, while third quarter cash generation included a favorable working capital impact of $485 million. With this strong performance, our debt balance remained stable, while our cash balance grew by $600 million as we ended the quarter with $817 million of cash on hand. Beyond our cash balance, Imperial's liquidity continues to be supported by substantial undrawn credit facilities and industry-leading credit rating and ready access to commercial paper and term debt markets. Moving on to capex. Capital expenditures in the third quarter totaled $141 million, down about $60 million from the second quarter. Year-to-date capital expenditures totaled $679 million, down $720 million from the same period of 2019, well ahead of our commitment to reduce capex by $500 million. As Brad noted, we expect our full year capex spend to be around $900 million, down from our previous guidance of $1.1 billion to $1.2 billion. Reduced year-to-date spending compared to last year is associated with the completion of the Kearl pressures, lower unconventional capex, the suspension of the Aspen project and lower spending in the Downstream. Regarding dividends. In the third quarter, we paid $162 million in dividends at $0.22 a share compared to $169 million at $0.22 per share in the third quarter of 2019. As Brad mentioned, earlier today, we announced a fourth quarter dividend of $0.22 per share.

Now I'll turn it back to Brad.

Brad Corson -- Chairman, president and Chief Executive Office

All right. Thanks, Dan. So now let's move on and talk about operational performance for the quarter, starting with production. Upstream production averaged 365,000 oil equivalent barrels a day in the third quarter. And while volumes were down 42,000 barrels per day versus the third quarter of 2019. This was mainly due to the advancement and extension of the second Kearl turnaround. As well as the third-party diluent pipeline outage I mentioned earlier, and I'll talk more about that in a minute. These results also reflect a production increase of 18,000 oil equivalent barrels per day versus the second quarter of this year. And once again, we took the opportunity to optimize our maintenance plans in the current environment by advancing and extending the work both at Kearl and Syncrude. So now let's move on and talk about each assets specifically starting with Kearl. In the third quarter, we produced 189,000 barrels a day on a gross basis at Kearl, down from 224,000 barrels per day in the third quarter of 2019, but essentially flat with the second quarter of this year. Last year, as has been typical, we carried out our second planned turnaround in late September, with only a couple of weeks impacting the third quarter production. This year, however, given the business environment, we opted to advance this turnaround and extend it, taking approximately six weeks to complete the work, but entirely within the third quarter. This allowed us to better manage the health and safety of our workforce through appropriate physical distancing. But it also allowed us to complete the work at a significantly lower cost. Also impacting Kearl in the quarter, as I mentioned, was the outage on the pipeline that supplies diluent to Kearl, which occurred at the end of August. Shortly after the outage, we were forced to shut down production operations at Kearl. Ultimately, the line was put back in service after the installation of a temporary bypass around two weeks after it was first shut down.

Upon commissioning of the bypass, we were able to get Kearl back up to full rates quite quickly. In fact, I'd like to highlight the extraordinary efforts the Imperial team took to mitigate the impacts of the outage. They very quickly activated alternative diluent supply options for the site, and were able to establish a level of supply that allowed us to restart one of the trains at minimal levels during the outage. These actions ultimately limited the impact on Kearl production for the quarter to around 41,000 barrels per day on a gross basis. I would also note that in the absence of the pipeline outage, we would have delivered our strongest quarter of 2020 at Kearl. I commented earlier that our third quarter production at Kearl was flat versus the second quarter despite the fact that the site experienced the still outage. And you may be asking if we did our math correctly, but I will assure you that we have done it correctly. If you recall back on the second quarter earnings call, I commented on how well the asset performed in the window between the two turnarounds, averaging over 300,000 barrels per day. I'm pleased to say that this performance has continued since the pipeline was put back in service. This helped us to offset the production loss due to the pipeline issue. I also mentioned on the second quarter call that despite the significant extension of our planned turnaround, Kearl was still able to deliver a first half production record. I can tell you now that post the pipeline outage, Kearl continues to set new production records, delivering an average production rate of 313,000 barrels a day over the 4-week period from restart until mid-October. And through the month of October, we have delivered average production of around 300,000 barrels per day. With this performance in mind and despite the unexpected pipeline challenges, we are reiterating our annual production guidance of around 220,000 barrels per day for Kearl.

Now that we've successfully completed our planned maintenance work at Kearl, we have the opportunity to finish the year strong. I can't tell you just how excited I am to see what Kearl can do over an extended period of time. And we've gotten a window of that in October. And I'm particularly pleased to see that the government of Alberta has lifted production quotas for the month of December. And hopefully, forever. As that removes a potential obstacle to demonstrating Kearl's true performance potential. And finally, with Kearl, an update on operating costs, which is another great story. Unit production and manufacturing expenses at the site are down about 25% versus the same period in 2019. We continue to track well ahead of the $4 per barrel reduction we committed to for 2020 and are within striking distance of the $20 per barrel so per barrel future target we previously communicated. PAUSE We'll talk more specifically about that next step in our cost journey at our upcoming investment date but I am very excited by the potential here. Now moving on to Cold Lake. Production at Cold Lake was 130,000 barrels per day for the quarter, which is up 8,000 barrels per day versus the second quarter when we had planned turnaround work at our Michigan plant. This work carried into early July. Year-to-date production and manufacturing expenses at Cold Lake are down around 5% as a result of the cost efficiencies we've been focusing on there. And at the end of the second quarter, we guided full year production at Cold Lake, would be around 135,000 barrels per day, and we still view this as about where we will end up the year. At Syncrude, we saw an average production of 67,000 barrels per day in terms of Imperial share in the third quarter, which was similar to the same quarter last year and 17,000 barrels per day higher than the second quarter of this year. The increase versus the second quarter reflects the completion of planned maintenance work at this facility. You will recall that the site started the majority of their turnaround work in the second quarter but extended some of that work to late September.

The asset continued to move forward with a bidirectional pipeline, and construction was nearly complete at the end of the third quarter. Commissioning will take place in the fourth quarter. And as you know, this project will provide improved operational flexibility for Syncrude, supporting increased reliability and utilization. So now let's move to the Downstream. We refined an average of 341,000 barrels a day in the quarter, which was up significantly from the 278,000 barrels a day for the second quarter of this year. The 63,000 barrels per day improvement was driven primarily by improving product demands and reduced planned maintenance in the third quarter. The throughput of 341,000 barrels per day equates to a utilization of around 81%, which is fairly consistent with what the Canadian industry was seeing in the quarter. We also completed significant turnaround work in the quarter related to the Coker at Sarnia. This work was predominantly in the second quarter but did carry over into the third quarter. All of it in an environment of fairly narrow light heavy spreads. With the completion of this turnaround work, we remain well positioned to respond to improving product demands and potentially some widening of light heavy spreads. As we discussed last quarter, the adjustments we made to our 2020 planned maintenance schedules and scopes of work have contributed to the cost efficiencies that Downstream has been able to deliver. Year-to-date production and manufacturing expenses are down around 17% versus the first three quarters of 2019.. While I've commented on the improvements we saw in the demand for petroleum products, it's important to note that demands are still not completely back to normal. This continued uncertainty makes it difficult to forecast utilization for the fourth quarter. I'm also pleased to announce that our Cogen project at Strathcona is now complete. With commissioning starting in late September, and the unit is now fully online.

The Cogen unit will produce 41 megawatts of power, enough to meet approximately 75% to 80% of Strathcona needs and will significantly decrease energy consumption from the Alberta grid. Not only will this deliver operating cost reductions but environmental benefits as well, reducing province wide greenhouse gas emissions by approximately 112,000 tons per year, equivalent to removing around 24,000 vehicles from the road. Consistent with what we saw in refinery utilization in the quarter, petroleum product sales increased 92,000 barrels per day versus the second quarter and came in at 449,000 barrels per day. Again, this reflects a level of demand recovery for these products, but demands are still not back to what we would consider normal levels. So now a bit more on industry demands for the various products we make and sell. As a reminder, on the first quarter call at the end of April, I mentioned we were seeing demand reductions in the range of 56% to 60% on motor gasoline, 20% to 30% on diesel and 80% to 90% on Jet. Today, I would say that across the country, we are seeing total industry demand for both motor gasoline and diesel much closer to normal levels. Although the ongoing challenges due to COVID-19 are certainly driving some volatility. However, jet demand continues to lag significantly, although it is experiencing a slow recovery. At this point, I would estimate jet demand to be around 50% of normal. Our Chemical business saw improved earnings in the quarter with $27 million of earnings. This business continues to be profitable in the current market, with the third quarter being the strongest so far this year. Volumes improved versus the second quarter and continue to track very closely with 2019 as COVID-related impacts have not been significant. Margins continue to be tight, but we did see material improvement versus the second quarter of this year. And just before I wrap up, I'd like to take the opportunity to recognize that 2020 represents the 140th anniversary of Imperial oil. In fact, on September 8, 1880, 16 oil refiners in Ontario joined forces to create the company.

And since then, we have been delivering first in the industry. In fact, the first service station, the industry's first petroleum research department and a decade's long association with hockey. Including sponsoring the first radio broadcast of Hockey night in Canada and sponsoring the NHL's three Stars, both of those starting in 1936. Imperial continues to be a leader in applying technology and innovation to responsibly develop and deliver Canada's energy resources. I want to recognize and thank all of the employees of Imperial oil for the last 140 years. It's their creativity, determination and resilience that has allowed imperial to manage through significant changes and challenges over the decades, be that world wars, changing consumer requirements or pandemics. But always coming out stronger. And I'd also like to thank our business partners and customers who have been with us the whole way. We look forward to a strong and prosperous future together. So to wrap up, another tough quarter, but once again, our financial strength and resilience supported improved earnings and cash flow, and we delivered strong operational results, most notably at Kearl. We've also surpassed the capital and expense reduction commitments we made earlier this year as the entire organization continues to rise to the challenge. But we aren't done yet. We're going to continue to find more. And as in the second quarter, we continue to demonstrate our commitment to shareholder returns by maintaining our dividend in the quarter. So when you add all that up, coupled with the fact that our key turnaround activities for the year are behind us, Imperial has substantial momentum as we approach the end of the year. We are well positioned to take advantage of any further recovery in the fourth quarter.

So I'll pause there, and I'll turn it over to Dave to facilitate the Q&A session.

Dave Hughes -- Vice President, Investor Relations

Okay. Thanks, Brad. Operator, we'll take the first question now.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from the line of Neil Mehta from Goldman Sachs. You may begin.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning, team. Thanks for doing this. The first question I had was just around capital intensity and spend. It was exceptionally low in the quarter and capital intensity was very good here. But I would imagine that's not a run rate type of capex number. Can you just kind of help us understand what was it that drove spend lower? And then give us an early preview of what 2021 spend could look like, recognizing you have an Analyst Day here in a couple of days.

Brad Corson -- Chairman, president and Chief Executive Office

Yes, Neil, thanks for that question. Well, in terms of the current spend rate, I think that's very much reflective of both the proactive steps we have taken to manage capital to ensure we're focused on the most -- the highest priority projects, the highest value projects, but at the same time, be selective, recognizing the business environment that we are in today. We have been focused on our sustaining capital, but also limiting our focus on growth, but being mindful that we want to be well positioned for an eventual recovery in the market. Capital expenditures have also been impacted by our ability to execute work. We want to ensure the safety and health of all of our workforce, employees and contractors. And that, in many cases, dictates how quickly we can execute work. How many workers we can have on-site at any one time, what sort of distancing is appropriate and all that impacts pace of activity. So, it's really a combination of that selectivity, capital discipline but also execution pace that is driving the levels we see today. We're quite comfortable with those levels. And that's the reason for our revised guidance so that we can reflect that to the market. As we look ahead to next year, I would expect some increase in levels of capital spending versus that $900 million, which will be driven both by our view that we will be able to improve execution pace as we move out of this pandemic. But at the same time, there are some key activities that we will resume and continue to focus on in 2021. So I hope that's helpful for you. And as you said, at our Investor Day coming up, and we'll give you much more clarity on that plan in November.

Neil Mehta -- Goldman Sachs -- Analyst

No, that's really helpful. And I don't want you to preview too much here, but if you just think at a very high level, 2020 versus 2021, what are the incremental projects that are at the top of the top of the queue for you where you would think that would bridge the spend higher? And why do you think those are good projects that would drive returns higher over time?

Brad Corson -- Chairman, president and Chief Executive Office

Well, Neal, I think a lot of the projects are a continuation of things we already have in the portfolio and that we're already working on. So, it's continued advancement of those projects. We do have some additional projects on the horizon. But I think I'd rather wait until Investor Day, so we can get into those in more detail with you and be able to fully describe the benefits and how they fit into our strategic work plan.

Neil Mehta -- Goldman Sachs -- Analyst

Great. Can I sneak one more in here, which is just your thoughts on the refining environment. And particularly, utilization at Imperial was certainly better than a lot of your U.S. peers. Talk about how you think Downstream plays out in Canada from here? And then also talk about crude and feedstock and whether the profitability of those assets in an environment where light crude, particularly Syncrude could be pretty tight.

Brad Corson -- Chairman, president and Chief Executive Office

Yes. Well, to describe the outlook for refining, it's really driven by demand. And so where are we with demand? As I described for gasoline and diesel, we have seen significant recovery versus where we were kind of at the lowest point in the second quarter. We're still short of historical demands by a few percentage points for each of those products. And then, of course, jet, as I mentioned, we are far below historical demand. So the real driver for refinery utilization for us is going to be what happens with demand going forward. We had been on a trajectory of pretty steady demand improvements across all those products through the end of the third quarter. But now as we find ourselves in the fourth quarter and very unfortunately, as we're experiencing in Canada, but also in the U.S. and key countries around the world, there is a significant increase in COVID cases. And so that is causing a change in behaviors again. So, the question is, what impact will that have? And how long will it last? And we just don't know that. We're obviously hopeful that we'll see demand continue that will allow us to achieve these sort of utilization rates, if not higher, but it'd be premature to commit to that. In terms of crude and feedstock, our Canadian refineries are well positioned to take advantage of lower cost crude streams here in Canada that gives us an advantage often versus U.S. refineries. We also have some level of integration with our own production operations, and that also gives us some advantages. So, with that integration, we continue to be optimistic about the future for our downstream business.

Neil Mehta -- Goldman Sachs -- Analyst

Thanks Brad, thanks team.

Operator

Our next question is from the line of Asit Sen from Bank of America. You may begin.

Asit Sen -- Bank of America -- Analyst

Thanks, good morning. So, just following up on your commentary on capex, Brad. You've gone through all the major turnarounds that are now behind you. And then with all these impressive costs and efficiency gains, particularly at Kearl, how would you characterize your sustaining capex as we get into 2021? How would you characterize that?

Brad Corson -- Chairman, president and Chief Executive Office

Well, I think the sustaining capex we're looking at in 2021 is going to be comparable to what we've seen in historic levels. And I don't have that number off the top of my head. Maybe I'll let Dan kind of chime in with some more specifics. But we see those sustaining capex levels as being quite appropriate to maintain the viability of the business and allow us to continue to deliver these strong reliability and overall performance results. So, I don't know if that answers your question. If you're looking for more quantification as we move to next year, again, I don't really want to share any new targets until we get to Investor Day.

Asit Sen -- Bank of America -- Analyst

Okay. That's fair, Brad. And then a bigger picture question. We're seeing a lot of changes in the industry, both in the U.S. and in Canada and your thoughts on M&A and how do you see opportunities as it relates to Imperial? And what do you see as the potential impediments to this wave of consolidation that we are seeing right now?

Brad Corson -- Chairman, president and Chief Executive Office

Well, you're exactly right. There is a lot of activity in that space. Recently, both in the U.S. And of course, Canada. For Imperial, as I've said before, and it's really no change. We continue to keep the aperture open for any select, uniquely accretive and strategic opportunities that may be available. But honestly, our focus right now is maximizing the profitability of our existing portfolio of assets. And so, that's what we're doing. I highlighted some of the activities at Kearl as an example of that. Talked about Strathcona, the cogen, completing all the turnaround activities and all these structural improvements in operating costs and our discipline around capital, all that is fundamentally lowering the breakeven of our existing assets and allows us to increase our cash flows. And we think that is critically important in this business environment. So, that's our priority. But again, we've got an eye on the aperture is open for any potential M&A, but that's not our priority. And we don't need M&A. Given we've got a deep portfolio of future growth projects as well. But the market is evolving, and that is causing new assets to come into play. And so, it's important to keep an eye on it. In terms of impediments, I think it comes down to what I've talked about before, and that is our potential sellers and potential buyers able to align on value and future views of what the market will be. And fundamentally do the potential buyers have the financial strength to take on more assets. And so today, there's probably a limited pool of potential buyers.

Asit Sen -- Bank of America -- Analyst

Appreciate the color. Thanks, Brad.

Brad Corson -- Chairman, president and Chief Executive Office

Thank you, Asit.

Operator

Our next question will come from the line of Greg Pardy from RBC Capital Markets. You may begin.

Greg Pardy -- RBC Capital Markets -- Analyst

Thanks. Good morning. Brad, with Alberta now lifting curtailment as you pointed toward. I'm just wondering what that means for Kearl, but as opposed to a broad question because I know it needs higher rates. But could you remind us maybe just on not so much the calendar stream capacity because I think that's 240,000, but maybe just what daily capacity rates are and even perhaps what -- some of the highest rates that you've achieved, even if over short periods of time, I'm just trying to get an understanding as to whether the asset certainly sounds like it's operating extremely well. And I'm wondering if that 240 is going to begin to glide up with time.

Brad Corson -- Chairman, president and Chief Executive Office

It's a great question, Greg. And so first, let me start with a comment about curtailment. Certainly, we are delighted and quite pleased that the Alberta government has kind of lifted the quotas for December. We think that's a very necessary step, a prudent step, I would argue, an overdue step but very pleased to see that they have taken that step. I do view it as a partial remedy, though. I very much would like to see the government proceed with eliminating curtailment altogether. Because I think even while it's suspended, it creates this overhang of uncertainty for the industry as it relates to future growth investments. And so I think in order to fully address that going forward, it would be quite appropriate for the government to remove that requirement altogether. But I am pleased with the first step. And so then as we think about how does that affect us, not having a quota in December looking forward for for Kearl's performance. As I described, Kearl has performed extremely well since mid-September. This four-week running record of 313,000 barrels a day, I think that's a strong indication of the potential of Kearl. For the month of October, as I mentioned, we'll probably see something more like 300,000. So we clearly have the potential to exceed 280,000 barrels a day that we've indicated in the past. The question, of course, is how all that kind of lines out over the course of the year where we have seasonal variations. We have turnarounds and other maintenance activities that we have to account for and that will be, I think, a key topic for us at Investor Day to share with you what our latest profiles look like. But needless to say, we continue to feel very encouraged and optimistic about Kearl's capability and so I expect you'll see us continue to raise our views and targets for that asset.

Greg Pardy -- RBC Capital Markets -- Analyst

Okay. Okay. Good to know. Thanks for that. So, we've gone -- let's go from kind of the best to maybe an asset that's still not meeting its objectives. So with Syncrude, the bidirectional pipeline, as you mentioned here, is teed up. That's great from a redundancy -- feedstock redundancy standpoint. I'm curious as to whether you think the bidirectional pipeline put to and better stead than to achieve the 90% utilization rate. But at the same time, from an operating cost perspective, is it going to be enough? Or is this a situation where you really need to begin to take absolute cost out of the equation?

Brad Corson -- Chairman, president and Chief Executive Office

Well, a couple of comments on Syncrude. First of all, I do think the bidirectional pipeline is a significant enabler for that asset. Having that capability that provides additional flexibility for the asset allows greater utilization, I think, is really important, both to volume performance but also cost -- unit cost performance. So, I'm really excited about getting that line commission that started up by the end of the year. Is it enough to achieve our volumes and cost targets? I would say, no. It's certainly a contributor, but we need Syncrude to continue to look for ways to drive their cost structure lower and continue to look for other ways to improve their utilization. 2019, I think, was a really good year for Syncrude, and I think demonstrated what is potential. Obviously, a lot of unfortunate circumstances this year that has hindered that asset. But hopefully, once we get past the COVID implications get past this year, get the bidirectional pipeline on, continued support from all of the owners to ensure we're leveraging our individual experiences and bring it back to the asset. Hopefully, all those things together will get us back on a path of continued performance, continued cost efficiency. That's critically important for that asset.

Greg Pardy -- RBC Capital Markets -- Analyst

Okay. Last one for me, and I'm going to sneak it in like Neill did. Do you think Syncrude recognizes that it's a 80% owned by Suncor and Imperial? Or is it still because it's just your reference to Syncrude has to kind of do this. But at the end of the day, you two guys own it, do you think there's the recognition internally at that organization that it's now an operating asset?

Brad Corson -- Chairman, president and Chief Executive Office

I think very much it's recognized. We have a joint owners committee that works very closely with Syncrude. I think there's clear recognition of everybody's role and their commitment to achieve our mission together. So, it's been a hard road, but everybody recognizes what the potential is, and they're all working together to achieve that.

Greg Pardy -- RBC Capital Markets -- Analyst

Terrific. Thanks a lot, Bradley.

Brad Corson -- Chairman, president and Chief Executive Office

Thanks, Greg.

Operator

And our next question will come from the line of Benny Wong from Morgan Stanley. You may begin.

Benny Wong -- Morgan Stanley -- Analyst

Yes. Good morning, team. Thanks for taking my question. I just wanted to follow-up around the cost reductions, which looks like you've exceeded your target of $500 million. Can you provide any color or thoughts on where maybe your initiative exceeded your original expectations? And any thoughts on what number that will ultimately be by year-end? And any early thoughts in terms of how we think about the potential for more in 2021. I think you mentioned the cogen unit with the cost savings of that be something incremental that shows up next year.

Brad Corson -- Chairman, president and Chief Executive Office

It's a great question, Benny, and I'm quite proud of the organization and what they've achieved since the beginning of the year and since we set that target of $500 million, we are far outpacing that target. As I mentioned, for operating costs, we're already $813 million below where we were in 2019. And honestly, it's difficult to point out one specific place because it's really across the board. Every single asset is demonstrating lower cost this year. And likewise, in our corporate headquarters, we're also delivering lower costs. So, everybody is contributing to that success. I highlighted the Kearl unit cost, just as an example of where we've made just great improvements. And -- so there, we had indicated we're going to try to achieve $4 per barrel reduction this year. We're already well ahead of that and close to achieving our $20 per barrel longer-term goal. But what's driving that? All these efficiencies, all these cost savings, it's a combination of selectivity of what we work on. It's a combination of applying technology. It's making smart choices. We have had reductions in our contractor workforce, and that's contributing. So, it's a wide variety of things. But most importantly, it's across all assets. And we expect to carry a significant amount of those savings into next year.

Benny Wong -- Morgan Stanley -- Analyst

Great. That's very helpful, Brad. My follow-up is, just wanted to get your thoughts, high-level thoughts around the recent headline news that we've seen around Synovus acquiring Husky. What do you think that means in this sort of industry? And do you think that is an indication that we could see some more oil sands M&A? Or is that more of a very unique situation between those two companies? Thank you.

Brad Corson -- Chairman, president and Chief Executive Office

Well, I think we all woke up to a little bit of a surprise on that Sunday morning when it was announced. I have no clue as to how long they've been talking to each other. I'm not surprised that we are starting to see some M&A. We have been at relatively stable prices for the last four months now, probably. And as I've said in the past, the biggest challenge is buyers and sellers aligning on price, but when price stabilizes, that helps to converge. I think every transaction is unique. And I don't think you should read too much into one transaction as to what it means for other transactions. There may be more, there may not be, especially now as prices have have fallen a couple of dollars a barrel that may cause people to step back and think more about it. So time will tell, Benny.

Benny Wong -- Morgan Stanley -- Analyst

Great. Thanks, Bard.

Brad Corson -- Chairman, president and Chief Executive Office

Thank you.

Operator

And we have another question from the line now of Mike Dunn from Stifel FirstEnergy. You may begin.

Mike Dunn -- Stifel FirstEnergy -- Analyst

Thank you. My question is on Cold Lake. I'm just wondering if the Q3 volumes were impacted negatively at all by curtailments? Perhaps as you ramped up Kearl in September and whether or not that's going to be an issue for you in Q4, if you try to shoot the lights out at Kearl at least in October and November, while there are still curtailments in place. Just by my math, I think you'd need to get closer to one 50 for Q4 at Kearl to occur to hit your annual guidance, and I think you had talked is kind of down to 140-ish or lower per year as the kind of current outlook?

Brad Corson -- Chairman, president and Chief Executive Office

Yes. For Cold Lake in the third quarter, we did not have any curtailment impacts. And we delivered that 131,000 barrels per day for the quarter, which was up from the second quarter. Second quarter, we had our turnaround at one of our key plants there, the Michigan plant. As I recall, there might have been some additional minor maintenance that carried into the third quarter. We're currently producing at volumes, notably higher than that 131,000 and really more in line with our prior guidance we have given of around 135,000 barrels a day. And we still feel good about that guidance for the rest of the year. And and are not concerned about curtailment in the month of November. And then, of course, the quota goes away in December.

Mike Dunn -- Stifel FirstEnergy -- Analyst

Okay, thanks, Bard. That's all for me. I appreciate that.

Brad Corson -- Chairman, president and Chief Executive Office

Thanks, Brad.

Dave Hughes -- Vice President, Investor Relations

Okay. And Brad, we did have a couple of questions come in ahead of time, which I'll read out. The first one comes from Matt Murphy from Tudor, Pickering, Holt. Seeing a number of renewable biodiesel projects picking up around the world and in the U.S. Appreciate the part of this is largely a function of less profitability, but can you speak to these projects as a potential opportunity for Imperial in Canada, whether that be from an economics perspective or through an ESG lens?

Brad Corson -- Chairman, president and Chief Executive Office

Thanks for that question, Matt. We're always looking for projects that can efficiently deliver value to our shareholders. And there are a number of different ways that we can participate in renewable fuels. In fact, we already blend ethanol and renewable diesel at a number of our terminals and as you may be aware, we offer products like our synergy, gasoline and diesel efficient that allow our customers to improve their fuel efficiency and reduce emissions. So, this is clearly a focus for us. And we continue to look at other opportunities that can maximize our renewables volumes to reduce emissions. We're focusing on areas that are aligned with our corporate competencies, I would say, as well as the asset portfolio that we have in the businesses that we have in place. We're currently pursuing a number of renewable fuel initiatives across our Downstream that will allow us to deliver more renewable fuel to our customers and really in an expanded set of markets. And if you look a little bit longer term, a little bit further out, there's even some larger initiatives that we're currently evaluating but decisions on those are still very dependent on what happens with evolving regulations like the clean fuel standard as well as market conditions. But clearly, this is a focus area for us. So, I appreciate the question.

Dave Hughes -- Vice President, Investor Relations

Okay. And the second question from Manav Gupta from Credit Suisse. Can you talk about the benefits of PFT technology at Kearl and how it allows you to get higher pricing relative to bitumen?

Brad Corson -- Chairman, president and Chief Executive Office

Yes. Thanks for that question, Manav, and it's exciting to talk about PFT. Imperial was the first to deploy PFT technology commercially. And of course, that is at our Kearl operation. The PFT technology allows us to produce bitumen at a lower cost and a much lower carbon intensity than other oil sands technologies. And as you may be aware and this contributes to the advantages, but it eliminates the need for an upgrader. And that, of course, significantly reduces capital requirements at the front end but also operating costs as we go forward. And so once Kearl bitumen is produced at the site, it, of course, still needs to be blended with diluent before being shipped via pipeline or rail but then it's sold directly to the market and can be run straight in the refineries. So that allows us to achieve prices in line with WCS. So, again, a very favorable technology for us to use at Kearl.

Dave Hughes -- Vice President, Investor Relations

Okay. Operator, any other questions on the line?

Operator

And our last question will come from the line of Dennis Fong from CIDC. You may begin.

Dennis Fong -- CIDC -- Analyst

Hi, Good morning, and thanks for taking my question. It's just really the quest of the question really just focuses around the removal, excuse me, of the Alberta government's curtailment policy. And so I was just more so curious as to how you're thinking about managing or balancing the thought process of ramping up volumes on your various oil sands facilities versus what could eventually become the capacity on egress and the potential impacts around local pricing, specifically unwinding differentials and how you're planning to moderate or mitigate or balance the thought process of ramping up volumes versus transporting them to the various demand markets? Thanks.

Brad Corson -- Chairman, president and Chief Executive Office

Yes. Thanks for that question, Dennis. Our thought process is very much focused on how do we maximize value for all of our products. And what market we direct those products to is driven by what's the value at the destination, coupled with what's the cost of transportation to get it there. And for us, we've been able to manage all of the egress for our products, I mean, mainly our heavy oil. And so the Alberta government removing the curtailment quota just ensures there's no other obstacle or limitation to us maximizing production. So, our thought process is very much how do we maximize production from the existing assets? And then given that potential what are the most economic outlets to place them? And what's the most cost-efficient way to get the product to those locations. Whether that be a choice of pipelines or, of course, our own rail terminal. And so all of those gives us advantages and opportunities to optimize. And as we look forward down the road, we are encouraged by the progress that's being made on the pipelines that will over time, provide even more capacity for shipments between Canada and the U.S., and we're obviously very supportive of that. So, we don't really see any constraints, but it's all about how do we optimize around it. Thanks for that question, Dennis.

Dennis Fong -- CIDC -- Analyst

Great. Thanks.

Operator

I'm not seeing any further questions at this time.

Dave Hughes -- Vice President, Investor Relations

All right. Well, thank you, everybody, for joining us this morning. As always, if you have any follow-up questions or would like any follow-up discussion, don't hesitate to reach out to the IR team here at Imperial. And we look forward to talking again at our upcoming IR day, which is on November 19 at 8:00 Mountain, 10:00 Eastern. Thanks, everybody.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Dave Hughes -- Vice President, Investor Relations

Brad Corson -- Chairman, president and Chief Executive Office

Daniel Lyons -- Senior Vice President of finance and administration

Neil Mehta -- Goldman Sachs -- Analyst

Asit Sen -- Bank of America -- Analyst

Greg Pardy -- RBC Capital Markets -- Analyst

Benny Wong -- Morgan Stanley -- Analyst

Mike Dunn -- Stifel FirstEnergy -- Analyst

Dennis Fong -- CIDC -- Analyst

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