Nov 3, 2011
Executives
Steve Douglas - Vice President of Investor Relations Richard L. George - Chief Executive Officer, President and Non-Independent Management Director Bart W.
Demosky - Chief Financial Officer Steven W. Williams - Chief Operating Officer
Analysts
Greg M. Pardy - RBC Capital Markets, LLC, Research Division Joe Citarrella - Goldman Sachs Group Inc., Research Division Andrew Potter - CIBC World Markets Inc., Research Division Brian C.
Dutton - Crédit Suisse AG, Research Division George Toriola - UBS Investment Bank, Research Division
Operator
Good morning, ladies and gentlemen, and welcome to the Suncor third quarter conference call and webcast. I would now like to turn the call over to Mr.
Steve Douglas, Vice President, Investor Relations. Mr.
Douglas, please go ahead.
Steve Douglas
Thank you, Thomas, and thank you, everyone, for joining us this morning. I have with me here in the room in Calgary our President and CEO, Rick George; our Chief Operating Officer, Steve Williams; our Chief Financial Officer, Bart Demosky; our Controller, Jolienne Guillemaud; our Assistant Controller, Greg Freidin.
Just before beginning, I do need to give you a legal advisory. Please note that today's comments contain forward-looking information.
Actual results may differ materially from expected results because of various risk factors and assumptions described in our third quarter earnings release and MD&A as well as our current AIF, which is available on SEDAR and EDGAR and our website. Certain financial measures referred to in these comments are not prescribed by Canadian Generally Accepted Accounting Principles and for description of these financial measures, please see our second-quarter MD&A.
With that, I'll hand over to Rick George.
Richard L. George
Steve, thank you -- thank you very much. Good morning, everyone.
Delighted to be here with you this morning and obviously, very delighted with our third quarter results. Bart and Steve will get into the details a bit later but the headlines are obviously a very positive and a real indication of where our company is, and a lot of indication, I think, about where it's going.
So if you look at the quarter, we had record oil sands production of over 325,000 barrels a day, record operating earnings of almost $1.8 billion and a record cash flow of over $2.7 billion. So obviously, our base operations are performing very well.
We came out of, if you’ll remember that significant turnaround quarter, the second quarter, and have produced very reliably through the third quarter. We also managed to get to the bottom of our hydrotreating issues and having been experiencing -- that we experienced in the first quarter end, that little bit in the second quarter, and started to maximize our higher-value sweet production towards the end of the third.
We recently set a record production for in-situ, and I'll let Steve give you the good news about that, which is terrific; continued also with outstanding performance in the downstream with 97% utilization rates and over $2 billion of cash flow from operations generated year-to-date. We also had great strong contributions from our Exploration and Production group, which also have the $2 billion year-to-date cash flow from operations.
At the same time, our growth projects are moving ahead in great, great shape. Firebag 3 is ramping up; Firebag 4 is on schedule for initial production in the first quarter of 2013; the North Steepbank extension and the Millennium Naphtha Unit are nearing completion, and will provide us with increased flexibility and -- to support continuous improvement on reliability.
A lot of that will start showing up in the first quarter of 2012. We're still over a year away from sanction of our new mines, that is Fort Hills and Joslyn, and the Upgrader.
But we're encouraged by the way the planning work is progressing and the synergies we're seeing in our joint venture with Total. We really feel like we've de-risked the growth plans, spread out over a manageable time frame and clearly, we're generating a cash flow to largely fund that program internally.
And most importantly, and I think a lot of people don't think of us this way, we're focused on investing this capital efficiency to get the highest return for our shareholders. Obviously, if we cannot accomplish that, because of a change in conditions, we won't spend the capital.
Now turning away from oil stats for a moment. I know investors are going to be asking questions or interested in developments in the Middle East and North Africa and how they may affect us.
It's important to remember that this is actually a relatively small part of our portfolio and we're continuing to take a cautious approach. Safety of our people -- employees on the ground is, obviously, always our first consideration.
Through this period, we maintained steady production and profitability in Syria, while complying with all sanctions. In Libya, we've been encouraged by recent developments, obviously.
We're working hard with our joint venture partner, Harouge, as we work to establish reliable production again. We're not in a position today to give you any numbers or any assumed kind of levels of production in 2012, but just know that there's certainly more upside than downside from here, and we're working hard with our partners to move those things forward.
Stepping back, I just want to take a second and go back to strategy. It's always something I love to talk about.
And I know people have been very concerned about how volatile the crude oil prices are, what's going on in Europe, other conditions. But you know, I think, this quarter really highlights what we've been talking about for a year or 2, or really since the merger.
The strength of this integrated strategy right across all of the business cycles that we see coming down the road. Suncor strategy again is an integrated oil sands growth strategy.
It's a flexible operating model that allows us to optimize oil sands per barrel -- margin and to maximize cash. Low-cost offshore production and integrated downstream generate significant free cash flow for investment in future growth.
And that growth, in our opinion, is lower risk. We have the resource, we've obviously got the experience and the knowledge, we've got very strong partners on the projects we have partners on and obviously, have the balance sheet to make -- to execute on that.
So the 2011 year-to-date cash flow from operations is higher than any full year in the company history. So we made more money in the first 9 months than we have in any prior 12-month period.
I would also say, and maybe this kind of comes out of our competitive spirit, Suncor generated almost the same amount of cash that the next 2 largest companies in Canada generated. So virtually, equal to the next 2 in terms of cash flow from operations.
We've also, and this is a very important thing to note, our return on capital has risen to 13.4%, as we come out of the merger and the re-rating of some of our assets and I’ll guarantee you, we are going to continue to focus on achieving strong return on capital for our shareholders. To sum up, listen, we're on track for the best year ever at Suncor.
But we also know we can't get ahead of ourselves. We remain very focused on the 5 key priorities I've been talking about: operational excellence across the entire business; the improving performance of our Firebag in-situ projects, and you're going to see that, Steve will talk to that; reducing and managing our cash cost at oil sands and in-situ; the effective project execution on our projects particularly near term, that's Firebag 3 and 4; and obviously, the implementation of our Total joint venture and growth plan.
All in all, very exciting period for Suncor. Steve, I'm going to turn it over to you to take over.
Steven W. Williams
Okay, thanks, Rick. And I'm pleased to pick up on the back of Rick's report there and say that the continued focus we've had on operational excellencies, clearly starting to pay off now.
Of course, our reminders, the foundation of operational excellence is safety and we continue to make progress on that journey to 0 injury. In 2011, year-to-date, across all of Suncor operations, we have reduced the recordable injuries by 17% and our lost-time injuries by 45%, and the number of high-risk incidents by 74%.
And it's another foundational element of operational excellence. And our results in that area have also been very positive.
Year-to-date, in 2011, we've managed to reduce both our incidents of regulatory noncompliance and loss of containment by over about 30%. So it's those steadily improving safety and environmental results that have laid the ground work for the strong operational performance across the business that we've seen.
As Rick said, we came out with a very successful turnaround on Unit 2 to generate record production at oil sands in Q3 and that's continued into October. In August, we resolved our hydrotreating issues at the oil sands base plant, so that's allowed us to improve our sweet/sour mix in September, and it's setting us up very nicely for improved production into the fourth quarter and then into 2012.
We set oil sands production records while safely completing the in-situ turnaround and some significant annual coker maintenance and upgrading. In in-situ, with planned maintenance completed at MacKay River and at Firebag, and initial production from the infill wells starting from Firebag, we've recently talked the 100,000 barrels a day in-situ production for the first time.
And for exiting 2011, we're now targeting a total in-situ production of 110,000 barrels per day. In the downstream, our Refining and Marketing group had another great quarter as the refineries were able to run at a 97% utilization rate so they took full advantage of the record-breaking crack spreads we've been seeing.
The E&P operations produced reliably with the exception of Buzzard, where we believe our joint venture partner has now resolved the operational issues and expects to produce at full rate for the remainder of the year. Of note, we're in the midst of 4-week turnaround at Terra Nova and so far, that's progressing to plan.
Cost management remains a top priority and we continue to target oil sands cash costs in the mid-$30 a barrel range. Quarter 3 came in at $36.60 a barrel, as we experienced upward pressure in a number of areas.
Increased Firebag operations costs because we're in the midst of the start of the Firebag 3, so we have a very limited production at this stage, as the full plan is coming on. Higher mining costs, as we begin to work through a leaner ore grade in the Millennium Mine, and we'll be managing that carefully through the next 12 months.
And of course, the increased maintenance to successfully resolve the hydrotreating challenges we'd had earlier in the year. So effectively managing the costs of both our base business and our growth programs is a huge priority for us and we're making progress, and I'll give you a few specific examples.
The North Steepbank expansion is coming online in quarter 1 of 2012. It gives us access to 600 million barrels of reserves.
We'll produce 125,000 barrels a day at bitumen and the project development costs of $500 million equates to about $4,000 per flowing barrel. So there's the sorts of costs you can have when you're de-bottlenecking existing facilities.
We're also excited about our learnings in in-situ and the promise of new technologies to lower costs and increase production. And for example, the initial production from our infill wells at Firebag is proving very promising to us.
So we are maintaining a relentless focus on cost management and keeping a downward pressure on inflation. Looking forward, we're well-positioned for a strong finish through the year and continued success in 2012.
The ramp-up of Firebag 3, bringing on that North Steepbank expansion and starting up the Millennium Naphtha Unit, which is getting close to completion. We'll continue to focus on safe, reliable operations and that gets us to this relentless downward pressure we're putting on costs in our business.
And we'll leverage our flexible portfolio in oil sands to make sure we optimize the margin rather than simply maximizing up production. So with that, I'll hand over to Bart.
Bart W. Demosky
Great. Thanks, Steve, and good morning, everyone.
As Rick already highlighted, just an outstanding financial quarter for the company with record operating earnings of $1.8 billion in cash, from ops of $2.7 billion. I think something to emphasize is that this really, I think, does highlight the profitability and the power of Suncor’s integrated model, which I think is the essence of this quarter's results.
Now let me give you a few examples of what I'm talking about from a margin perspective. If we look at the upgrading part of the business, with bitumen prices having fallen into the mid-40s range late in the quarter, we're now seeing upgrading premiums approaching $50 per barrel for our oil sands upgrading business.
At the same time, our inland refineries, which ran full-out for the quarter. We're able to capture cracked margins that averaged over $30 per barrel in the quarter, those are our inland refineries.
And not to be outdone, our E&P operations, which leveraged their low operating costs and a brand oil price that was over $110 for the quarter, they were able to generate average cash margins, and these are after-tax and after sustaining CapEx of over $40 per barrel. We also get the benefit of a very strong midstream and renewables business, and those assets and expertise help us to maximize the netbacks on our crude production.
Earnings there are picked up in our corporate segment. And for the quarter, they were $65 million, and year-to-date, $171 million.
So that part of our business is a very strong contributor as well. So as we move forward from here, we believe our integrated portfolio approach to optimize in the oil sands barrels are really going to continue to produce superior results for the company.
And those results are producing a lot of cash and our balance sheet is in terrific shape. Net debt today is at $7.7 billion.
We've got a debt to cash flow number now that's down to 0.8 versus the target for us of 1 to 2x. And we have cash on the balance sheet now of -- in excess of $3.3 billion.
So I think the message I'd leave you with there is this company has lots of capacity and drive power to execute on its strategy, accommodate any kind of market volatility and for other strategic uses as well. Which obviously, begs the question then, what do we plan to do with that cash?.
The first thing I'd say is that it's a nice problem to have but we do plan to stay the course and maintain our priorities, first of which is to fund the base business. And clearly, we're doing that and we're focused on relentless management of our cash operating costs.
Second is to fund our strategic growth plan. And at current oil prices, and in fact, quite a bit below current oil prices, we are able to meet capital requirements from internally generated cash flow.
Continue to manage the balance sheet conservatively and we look to maintain our conservative debt ratios and ample cash on hand. And then, subject to board approval, return more cash to shareholders as well.
And our plan to date has been to do that through dividend increases in line with production growth and those are regular increases, but also opportunistic share buybacks as well. And our current share buyback in the market is an example of how we plan to manage some of this excess cash and use it to drive shareholder returns.
The strategy behind the current program is really to soak up dilution since the merger. It's a $500 million buyback and we feel it was well-timed to take advantage of what we believe is a very undervalued share price for Suncor.
We’ve purchased in excess of $180 million [audio gap] of over a third of the way through the program, only 2 months in and we do plan to continue purchasing as we believe today that the shares still remain very much undervalued. Our capital spending program is right on track and being fully funded from internal cash flows, $6.7 billion is the budget for the year and we're right on track with that.
And for next year in 2012, we see a range of around $7.5 billion, that's subject to board approval, of course, which we will be meeting with the board next week. Now, some of you may have expected a higher capital number but one of the things that we are working very hard on is to both spend capital efficiently and to spend only within our means.
And those are objectives that we believe are reflected in next year's budget number, and will be reflected in the budget numbers in years beyond. So our focus is going to remain strongly on cost and quality.
And we won't spend the capital, as Rick said as well, unless we can achieve a strong return for our shareholders. So with that, in summary, we are very well-positioned to meet or exceed all of our targets for 2011.
There's no material changes to the guidance issued today. We do plan to issue 2012 guidance next week, following a review at our Board of Directors meeting.
And again, our expectation is that capital will be in the $7.5 billion range, as I've already mentioned. We should expect to see production increasing somewhat as Firebag 3 ramps up and we continue to see the benefits of operational excellence in our oil sands base business and, as well, cash costs coming down modestly as we do not have any oil sands turnaround activity in 2012, or major activity, but we will be carrying, of course, the full burden of Firebag 3 costs as those ramp up.
So with that, I will turn it back to Steve. Thank you.
Steve Douglas
Thank you, Bart. And thank you, Rick and Steve, also.
Just before we go to Q&A here, I should reference that the updated 2011 guidance that Bart mentioned is now available on the website. 2012 guidance will be available next week.
And I want to provide you with a couple of numbers that are unusual items. The LIFO/FIFO impact was a negative impact of $82 million in the quarter.
That's an after-tax number and year-to-date, that puts it at about $166 million positive. Couple of others, stock-based compensation was after-tax in the quarter, an increase of $186 million, which puts it at $41 million positive year-to-date.
And finally, we had a negative after-tax impact of exchange rate on U.S. denominated debt of $533 million in the quarter, for a year-to-date of $317 million.
I should note that as we go to Q&A here now, I'd ask you to keep the questions that are detailed, modeling-type questions. If you'd hold those and the IR group and the Controllers group will be available throughout the day for those types of questions.
With that, I'll ask the operator to open up the line to questions.
Operator
[Operator Instructions] Our first question is from Joe Citarrella from Goldman Sachs.
Joe Citarrella - Goldman Sachs Group Inc., Research Division
On the 2012 budget comments, if you're able, any rough split, I guess, first there between maintenance and growth capital? And second, can you update us on the capital cost environment more broadly speaking?
What, if anything, are you seeing today or building in next year in terms of inflation and can you give us some color around your cost-containment efforts for your growth projects specifically?
Bart W. Demosky
Joe, it's Bart here. I'll answer the first part and then I'll turn it over to Steve.
So the $7.5 billion that we mentioned, it's broadly balanced between -- sorry, I'll turn it over to Rick, broadly balanced between growth and then sustaining CapEx for the organization. So I'll turn it over to Rick for the strategic part.
Richard L. George
Yes, so on the second part of that question around inflation, generally, I mean, we always think about it in 2 buckets: One is on the operating side and what I would say about that is our goal here is to eat our inflationary costs we're seeing on the operating side. And now you may not see that quarter-to-quarter but, I mean, that's generally the trend that we hope to accomplish here over the next several years.
On the capital side, we have not really seen the kind of inflation, I know the market is worried about. And what I can't do is promise you it's not going to come.
I wouldn't do that. But I would just say, here in 2011, we haven't seen that kind of massive increase, if I said it was out there, it's 3%, 4%, 5%, it's not double-digit numbers.
We don't actually see a big push in 2012, certainly through the early part of the year. And beyond that, I can't actually give you a forecast other than to know that we, as well as a lot of the other operators, are working hard to make sure we don't go into that period, back in that high-inflation period we had '05 to '08.
And again, back to what both all 3 of us here have been talking about is these projects we're going to do -- we're going to be focused on quality and costs, not on schedule. And we're going to watch these thing extremely carefully.
And I think Steve, Bart and myself have all said it in different ways but it's all the same intent.
Joe Citarrella - Goldman Sachs Group Inc., Research Division
That's helpful. And then just a follow-up on that, if you're not schedule-focused, is there anything in terms of -- I think, you were speaking to previously $8 billion to $9.5 billion per annum, roughly, in CapEx, so is there anything that is getting pushed back in 2012 or is the growth plans, as it stands now, broadly on schedule and on track and the CapEx is nearly lower for next year?
Richard L. George
What I would say is I think that's gotten misinterpreted over time here. If anything, we see these projects probably pushing out.
I'm not thinking here of Fort Hills, Joslyn and the Upgrader. We have no, nothing, to announce.
Again, we're going through this very methodically and where -- again, we do not make schedule the primary issue. And so what I would say, if anything, you'll probably see these capital costs flatten out, not increase from where we are or the expectation, but we still have a lot of work to do, okay?
And until we sanction these projects, which is still a year away, we won't be able to actually give you that number. Just know it's a big focus of ours.
We do not want to peak on manpower, on-sites and construction projects. We're very well aware that we can create our own firestorm here.
And so these things are going to be very carefully managed as we go through the next 2 or 3 years.
Joe Citarrella - Goldman Sachs Group Inc., Research Division
Great. And quickly following up on the comments on uses of cash.
Should we think about an upside, as repurchase program, as a potential use of cash beyond funding CapEx and the dividend in the event that oil prices remain high and you're generating free cash flow, or do you see potential for any other uses, just trying to think about prioritization beyond CapEx and dividend and the current repurchase program?
Bart W. Demosky
Yes, Joe, it's Bart here, again. So couple of things.
First, to go back to your earlier question on the capital budget for next year. I think the $8 billion to $9.5 billion that you were referring to was a comment we might have made last quarter, a couple of quarters ago.
That was really for the 2013 and forward period. 2012, we had always intended to have a lower capital number because the projects are really starting to ramp up after next year.
The big focus next year is Firebag 3, of course, and getting that project completed. So the $7.5 billion is consistent with what our plans have been.
On the use of cash, I wouldn't see a big ramp up right now. I mean, we're focus on executing on the buyback that we have in place.
And then, of course, as I’d outlined in my priorities though, for uses of cash, once we've accomplished those first few things, we'll look at dividend increases and buybacks, but they'll be strategically positioned.
Operator
Our next question is from Andrew Potter from CIBC.
Andrew Potter - CIBC World Markets Inc., Research Division
Just looking for a little bit more color on the infill wells at Firebag. I don't know if you can talk to any rates just yet and maybe a little bit more color in terms of plants, how many wells in 2012 and what is -- how many infill wells could you drill on the Firebag 1 and 2 sites?
Steven W. Williams
I can give you a little bit of color, Andrew, but I will limit the detail I'll go into for this call. So we have the opportunity to drill in excess of 15 wells.
The first 4 or 5 are in the very early stages of going into operation. They're producing very well versus our expectations.
Don't want to talk about specific numbers at this stage. And of course, numbers for Firebag, going forward, will be quite difficult to segregate because we integrate the parts of the plant now.
Just to say, when we add all of those effects of the infill wells, Firebag Stage 3 coming on, it's exceeding our expectations as we go into this first stage of the start-up.
Andrew Potter - CIBC World Markets Inc., Research Division
Sure. Then just one related question.
Can you talk about if you already have any plans to look at solvents or test solvents on Firebag?
Steven W. Williams
Yes, we have a comprehensive technology program in place. We're working on approximately 10 projects, and a number of those are solvent projects and we will talk to those in the future.
Operator
Our next question is from George Toriola from UBS.
George Toriola - UBS Investment Bank, Research Division
This question is for Rick. It pertains to the Keystone pipeline.
So there’s reports that, I mean, to the extent that, that pipeline has to be rerouted, the scheduled impacts here. So just wondering how you're thinking about your growth projects and the possibility that Keystone is delayed and how you would be addressing this?
Richard L. George
Yes, George, actually, I knew that question was likely to come up. What I would say is, listen, Keystone XL is a TransCanada pipeline project, so you really, you should talk to them.
Obviously, we're very supportive of the project that they're going through, and for the purposes of both North American energy security supply and jobs, we're hopeful that the politicians make the right decision here. There's lots of kind of Plan B's, and I don't want to go through them in great detail, but it's reversal of line 9, ultimately Gateway.
But there's also a reversal of lines between Cushing and the Gulf Coast that are available and a number of other options. So this industry is very inventive.
If you see a differential large enough, we'll get the crude moved around one way or the other. So I don't want to go into great lengths about all that Plan B, but there will be -- there is and there will be a Plan B in case this does not go forward.
George Toriola - UBS Investment Bank, Research Division
Okay. And then just a quick question on the -- I wonder if you can sort of quantify the impact of the hydrotreater that you'll be putting in service here.
What would be the impact of that to 2012 and beyond cash flows and production mix?
Steven W. Williams
I mean, I'll talk to it a bit because it's heavily dependent on what the margins are at the business. So what [audio gap] the differentials are between sweet and sour products.
We've designed operational flexibility deliberately into the plant and that's the reason that we're bringing the hydrogen plant on in the fourth quarter this year rather than next year with the hydrotreater itself. So we'll take the hydrogen, we'll put it into a common header and then we can take that hydrogen and put it to Unit 1 hydrotreaters, Unit 2 hydrotreaters or into the MNU hydrotreaters.
So it gives us a great deal of flexibility to start to take full advantage of the margins in the prevailing market condition. But we don't plan to talk about specific numbers for that unit.
Operator
Our next question is from Greg Pardy from RBC Capital Markets.
Greg M. Pardy - RBC Capital Markets, LLC, Research Division
Maybe just as a follow up to George's question, synthetic sour production has been a bigger proportion of the mix this year but once that third hydrotreater is on, what would you expect as a run rate in terms of the synthetic sweet versus sour mix?
Steven W. Williams
Well, all I’d say is if you could hold onto that Greg. Next week, we're actually going to give specific guidance including the Millennium Naphtha Unit online.
So we'll give you some clearer indications following the board meeting next week.
Richard L. George
Clearly, the percentage of sweet is going up. I mean, that I can take.
We will definitely get to that next week.
Greg M. Pardy - RBC Capital Markets, LLC, Research Division
Okay, no problem. And so when is the budget coming out then, can you…?
Steven W. Williams
After close of business on November 8.
Greg M. Pardy - RBC Capital Markets, LLC, Research Division
On November 8. Okay.
Maybe just a couple of other questions. You talked about the CapEx how should we be thinking about base oil sands operating costs for next year, or is it just too early?
Steven W. Williams
Well, yes, let me -- I mean, we've said, we're targeting broadly in the mid-$30s as the long-term run rate. And Rick mentioned there, that includes attempting to eat inflation, certainly for the next few years.
Next year, there are going to be some impacts, and I did talk about one of them and we'll clarify the size of those next week. And that is: we are going through -- we've got 2 things going on in oil sands next week, which will put upward pressure on that $35.
One is we're going through a lean part or a region in the Millennium Mine where the concentration of bitumen to the volume of oil sands we have to move slightly decreases, so we'll be going through that lean patch for about 12 months. And of course, we've got the Firebag start-up where we get into the most important part of the Firebag 3 startup and Firebag 4 starts to come on.
So those are the 2 things we put some upward pressure on the 35 and we'll give guidance next week. But broadly speaking, in the long run, we are targeting $35, or thereabouts.
Greg M. Pardy - RBC Capital Markets, LLC, Research Division
Okay. And maybe just the last question for Rick, perhaps, is your interest in Syncrude still core?
You knew I was going to ask that.
Richard L. George
Yes, Greg, you always ask that, it's a good question. So yes, listen, first of all, we're proud of those assets.
We do see some synergy value in terms of the exchange of ideas of technologies and a whole bunch of things. We have real faith that Exxon is going to do a much better job operating this down the road.
And so our current position is: those assets are not for sale. Now that does not mean that, that will hold forever.
But it's 8% of our production, or something like that, it’s an important piece. Right now, there are no plans to sell.
Operator
[Operator Instructions] Our next question is from Brian Dutton from Crédit Suisse.
Brian C. Dutton - Crédit Suisse AG, Research Division
Just wanted to get a little more clarity on the downstream business. And in particular, the rack fore [ph] business being very strong, very consistent over the past 12 to 18 months and I was wondering if we should be anticipating those kinds of earnings to be generated on a go-forward basis?
Steve Douglas
Maybe I'll pick that up, Brian. It's Steve Douglas here.
We don't break those out to the nth degree, if you like. But I think, what we do talk about an awful lot is obviously, with the inland refining network, we're enjoying very, very strong profitability because of lower crude cost inputs and global finished-product pricing.
And part of that is certainly a transfer, if you like, of profitability from the upstream to the downstream. And so if at some point in the future, as we fully expect WTI and Brent to come back together, we see some of that margin and profitability accruing back to the upstream.
In terms of the rack forward, you're correct, it has been very steady. And that's been a phenomenon, if you like, of the last couple of years here when we’ve stopped seeing the cycling of pricing that was so prevalent in the earlier 2000s.
And you're correct, there has been steady profitability. Never predict the future though.
But certainly it has been a steady source of income in the last couple of years here.
Steven W. Williams
The only comment I would add, Brian, is following the merger, we did, as you know, restructure the retail network and that restructuring has proved to be very positive. So we've seen volumes hold up very well both on gasoline and on the other sales through the service stations.
Operator
We have no further questions at this time. I would now like to return the meeting over to Mr.
Douglas.
Steve Douglas
As mentioned earlier, we would welcome any further calls or detailed questions. Both the Controllers and the IR group will be available throughout the day.
With that, I'll thank you again and sign off.
Operator
Thank you. The conference has now ended.
Please disconnect your lines at this time. We thank you for your participation.