Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Brian Dutton - Credit Suisse
Brian Dutton - Credit Suisse
Looking at the downstream I was wondering if you could give us some insights on two fronts, one where you saw or see the downstream business going over the next several months and two if you could also give us some insight into the opportunity that you think your Petro-Canada downstream business brings to the new merged Suncor.
Ron Brenneman
Maybe just as a bit of background I can, to help answer your question, give you a little insight into things that went on in the quarter that caused the results to come under what we would normally expect as a running rate and then I can comment on where those factors might unfold here over the next little while.
So normally in our downstream we would expect about $100 to $120 million a quarter and you’ll see that we came in at negative $18 million so we’re off considerably from what we would have expected. And a goodly portion of that about $90 million of it is actually because of lower cracking margins.
So this is really the supply/demand situation for products really in the whole North American refining market and you’re seeing that across all of the refining businesses. There’s another factor in crude differentials particularly here in Canada so we’re talking about sour sweet spreads and also the spread between WTI and Brent which impacts our downstream.
And then we have a factor that is somewhat unique to us and that’s what I would categorize as lower refining yield and that’s partly because we’ve had to turn down the Edmonton refinery because of reduced demand particularly on distillate.
We’ve also had some operational issues which you read about in the newspaper that we’re sorting through and also the operational issues at Syncrude have impacted our ability to access our synthetic crude feedstock so any time we have to replace our normal running feedstock we suffer a bit of a debit on that.
Offsetting that we had much lower operating expenses. We’ve had a real push here on operating expenses across the company and the downstream has really come through on that. And we’ve had pretty strong retail and lubricants margins so there’s a bunch of moving parts here in the downstream.
I would say that if you look for the remainder of the year here, there’s no reason to expect that those lower cracking margins are going to turn around any time soon or the crude differentials. So I think that we could expect our downstream to continue to run below that $100 to $120 million of run rate earnings in a quarter.
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