Ovintiv Inc. (OVV) Q4 2018 Earnings Report, Transcript and Summary

Welcome to Encana Corporation's Fourth Quarter 2018 Year End Results Conference Call. As a reminder, today's call is being recorded. At this time all participants are in a listen only mode, following the presentation we will conduct a question and answer session. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast without the express consent of Encana Corporation. I would now like to turn the conference call over to Corey Code, Vice President of Investor Relations. Please go ahead, Mr. Code.

Thank you, operator, and welcome everyone, to our 2019 guidance and 2018 results conference call. This call is being webcast, and the slides are available on our website at Encana.com. Before we get started, please take note of the advisory regarding forward-looking statements in the news release and at the end of our webcast slides. Further advisory information is contained in our Annual Report and other disclosure documents filed on SEDAR and EDGAR. Encana prepares its financial statement in accordance with US GAAP and reports its financial results in US dollars. So, references to dollars mean US dollars and the reserves, resources and production information are after royalties, unless otherwise noted. In addition Encana will be filing its Form 10-K later today. Following our prepared remarks this morning members of our executive leadership team will be available to take your questions. As always please limit your time during Q&A to one question and one follow up. And before the turning the call over to our President and CEO Doug Suttles, let me introduce Steve Campbell as the new Head of Investor Relations and Communications. Many of you likely know him already and he looks forward to working with you. Over to you, Doug.

Thanks Corey and good morning everyone, and thank you for joining us. Before I start I do want to thank Corey for serving as our Head of IR and actually to welcome Steve Campbell to Encana as he picks that role. Corey will be our Head of Strategy both, both Corey and Steve will be reporting directly to me. By now I hope you've had a chance to review our news release with 2018 financial and operating results as well as our 2019 outlook. Before getting into today's slides, it's important to understand how we performed against our key objectives in 2018. Our results are a testament to how we have transformed our company over the last five years. In 2018, we generated free cash flow, strengthened the balance sheet, delivered liquids growth and returned cash to shareholders. Encana has a sustainable model, all of the building blocks of a premier company E&C company. First, we have scale, our multi-basin liquids rich portfolio is generating liquids growth and free cash. At year-end 2018 our pro forma proved reserves were 2 billion barrels of which 55% were liquids. Today, we are one of the largest liquids producers in North America with inventory depth to drive growth and cash flow for years to come. Second, we are disciplined in our capital allocation process. For 2019, we will direct more than 75% of our capital budget to our core liquids plays. We call these our core three, the Permian, Montney and our newest basin the Anadarko. Next we have a unique combination of discipline and innovation to drive efficiency and everything we do. We are also fulfilling our commitment to return cash to shareholders through our share buyback program and our expanded dividend and lastly our plan is underpinned by a strong balance sheet. Over the last few weeks the majority of our large cap peers have reported results and issued their outlooks. Most companies have pledged to moderate growth, find a path forward to live within cash flow and eventually return cash to shareholders. These stories all sound pretty good but there is one difference, Encana is doing all of these things today. Our track record is sound and we are confident that our plan will create value for shareholders. Our industry is rapidly reinventing itself. Gone are the days where production growth and large cash flow outspins were rewarded by the market. Growth should be a product of making the right capital investment choices and our industry is being forced to compete for capital today across all industries. We must be able to manage through the volatility in the inevitable commodity price cycle. Encana can. We have all the key building blocks required of a premium company. Let me share a little more on each of these before handing the call that Mike McAllister to cover some of our operating results. The scale across our multi-basin portfolio is a distinct advantage. Our strategic combination with Newfield provides us with a strong position in a third high-quality liquids play. As we have visited with a great deal of our shareholders over the last three months a rationale for the deal is resonated. It's pretty simple, we've proven our ability to generate top tier margins and returns in unconventional plays and to be a leading operator in every play we're in. Encana's track record in the Montney and Permian can be instantly applied to the Anadarko. Unconventional plays today all have similar challenges and our proven practices are a key competitive advantage. Time and again, Encana has applied lessons learned faster than its peers. We anticipate both risks and opportunities. Our unique combination of innovation and discipline unlocks value for today and tomorrow. Cube development works, we pioneered the surface benefits in the Duvernay with multiple rigs and pressure pumping crews on a single pad, lowering costs and reducing cycle times. In the Eagle Ford, we enhanced well performance with high intensity completions, and in the Permian, we demonstrated the value of developing in 3D optimizing both spacing and stacking, we are now applying these learnings to the Anadarko. Supply chain management keeps costs low, ensures we get high quality services and have access to the services we need when we need them. We were an early leader in self sorting critical products like sand and chemicals. In the Montney and Permian, we have lowered our D&C cost by 25% since 2015. Our methods work and we have already seen early in material gains in our newest areas of the Anadarko basin. Mike and his team are confident in their ability to lower well cost in the Anadarko by at least $1 million by midyear. Getting our wells completed in online it's just the first step. The next is market access. When looking at realized prices in the fourth quarter of 2018, including the benefit of basis positions, the realized oil price in the Permian our realized oil price in the Permian was 101% of WTI, and our Canadian gas sold for 87% of Nymex, which is more than double the echo price. Our proactive steps to ensure access to premium markets added value to the bottom line. Our 2019 capital budget is $2.7 billion to $2.9 billion, about 20% lower than 2018 and significantly less than Encana and Newfield would have likely spent independently. The core three liquids plays will get over 75% of the capital, you'll see the collective assets have grown liquids at a 30% CAGR since 2016. For 2019, we expect to grow core three liquids production by approximately 15%, representing production adds of 20,000 to 30,000 barrels per day that's a size of today's small and mid-cap companies. Scale and quality matter and Encana's business model is sustainable. We have created the right mix of profitable liquids growth and free cash that can be returned to owners. Our portfolio beyond the core three assets, primarily the Eagle Ford, Duverney and Williston are high quality. They have high margins and returns, but the role in the portfolio is clear. Given their limited size, we run these assets to maximize efficiencies to generate sustainable free cash flow given this the shape of their capital programs will largely be front end loaded. I won't spend too much time on this slide, as we talked about it before, but it's the framework for our disciplined approach to capital allocation. Our first priority is a strong balance sheet, over the last few years, we have successfully sold $13 billion of mostly gas assets, repositioned the portfolio to liquids, and strengthened our balance sheet. We don't intend to move backwards. Priorities two through five explain how we think about the use of available future cash flow. We are committed to our dividend and would like to increase it as sustainable cash flows grow. We will be opportunistic in buying back our shares, which today we see has a great value. Our balance sheet must remain strong and growth in investments will be liquids focused and focused on strong returns. As oil prices rise and our cash flow increases, this framework will largely guide our capital allocation choices. When you look at how Encana stacks up today, we provide one of the most intriguing value propositions in the market. We are not promising to get to free cash flow at some point in the future. We are there today for the second year in a row, and have a multi basin portfolio that supports a sustainable business model, without geographic or commodity concentration risk. This chart depicts the disconnect in Encana's valuation. Among a solid list of peers, we have the second highest estimated free cash yield in the lowest trading multiple. Our margins are strong, our growth rates are competitive, and we are generating and returning cash to owners now. Our $1.25 billion buyback further returns cash to owners. Our 2019 plan reflects the quality of the underlying business, a strong balance sheet, a deep high quality asset based in or focused in three of North America's top plays, a track record of delivery underpinned by a combination of innovation and discipline and a business that can grow and generate free cash flow in the low to mid-50s oil price. This is not a promise but where we are now. The previous slide paints a compelling valuation proposition to why we want to buy back our equity today. This slide shows our commitment to return cash to our shareholders. Our company is remarkably different today, as I said earlier, we sold approximately $13 billion of natural gas assets. We transformed our proved reserves and production base to high-margin liquids, we acquired quality assets and demonstrated our ability to make them better through our proven development and commercial practices that are transferable across plays. These strategic steps have built a business which can grow and return cash to shareholders. For the 2018 and 2019 period, we estimate that we will return a cumulative $1.7 billion to our shareholders. Since 2013, we worked hard to improve our financial strength. Long-term debt was reduced by about $3 billion and long-term commitments by $4 billion. We now have more than $5 billion of liquidity between our undrawn revolver and our cash on hand. Our recent discussions with the rating agencies have been encouraging, our multi-basin portfolio reduces concentration risks, our production and reserve bases are substantial and growing, our coverage ratios are in our target range. Our recent upgrade by Fitch to triple B shows the agencies are taking notice of our business strategy and solid track record of our execution over the last five years. When we announced our strategic combination with Newfield last November, we identified $250 billion in annual synergies split evenly between G&A expenses and Anadarko well cost. We moved rapidly to integrate Newfield with Encana. Eight days, once again eight days after closing, we completed reorganizing the combined company. We can already report that the majority of the G&A savings have been realized through the elimination of duplicative roles and the streamlining of the total combined company. In total, we reduced the executive and senior management roles by 35% and total positions by 15, the senior team of the combined company today is smaller than Encana's senior team was before the merger. These benefits will begin to show-up in our 2Q results. Mike will cover in a few minutes the well cost savings. The key elements of our 2019 plan are summarized on this table. We will soon be commencing our $1.25 billion and I'll stress US dollar share buyback program and our dividend to common shareholders was increased by 25%. In the table, we show Encana and Newfield on a pro forma basis for 2018, with a comparison to our 2019 guidance. Notice the capital investments are down nearly 20% or $600 million and our liquids production is up 20,000 barrels per day at the midpoint of guidance. We have included some additional modeling assumptions on our website that will help you understand reportable results post the closing of the Newfield transaction. In 2019, we expect more than half of our production will be liquids. Our core three will grow liquids by an estimated 15% benefit from lower cost and generate free cash flow. I'll now turn the call over to Mike McAllister, our chief operating officer to give you some highlights from our core three liquids plays.

Good morning, everyone. Over the next few minutes, I'll give you an update on the significant operational progress we're making in our three core liquids plays. But first let me share a little context on how we approach operations. As Doug mentioned in his opening remarks scale is critical today. The scope of work we have with service providers across the multiple basins allows us to control job quality, safety, and negotiate favorable service agreements. Resource plays are all about creating incremental efficiencies at every step to enhanced margins. Second, we're able to apply our best practices across multiple basins. We are rapidly applying the lessons learned in cube development into the Anadarko basin today. We are very encouraged by some of the early wins were seeing in Oklahoma. Third all of these unconventional liquids plays are more alike than different. Our skill sets and targeting specific intervals, properly spacing wells within the cube and effectively stimulating the rock can be applied across all of our plays. Operational gains in one foot basin can rapidly be applied to another. The rocks don't know their county, state or country boundaries. Since the day we announced our combination with Newfield, we have been integrating our teams and working to identify ways to improve returns. Most of our activity this year will be in the stack. We now control a large contiguous acreage position that is prime for rapid application of Encana's proven practices. Doug and I were just in the Anadarko earlier this week. We both left very encouraged about the direction of this play and our ability to impact operations. We are confident we can reduce well cost by at least $1 million. With just two weeks since the close of the transaction, we have already renegotiated key service contracts and moved to self source in basin sand. This alone reduces costs by $350,000 per well. In addition, we see ways to increase pump rate efficiencies by incenting service contractors with performance-based contracts like we do in the Permian. And applying supply chain logistics to reduce cycle times. We expect to fully achieve our estimated savings in the second half the year and are targeting well cost of about $6.9 million. Lower well cost will have a significant impact on returns. We estimate that a $1 million reduction in well cost will improve returns by 30% and make our Anadarko economics competitive with any unconventional play in North America. We entered 2019 with high activity levels inherited from Newfield. As we level load the program and shift rigs to cube development, we expect about two thirds of our Anadarko basin capital will be spent in the first half of the year. Our first Encana cube in this stack will be spread early in the second quarter. In the Anadarko, we expect to place about 100 net wells on production this year. Current production is about the 140,000 BOE per day. In the Permian, we've been improving our practices since 2014. This has been a tremendous area of growth for us where production has more than tripled to over 100,000 BOE per day. Encana is leading the way in the Permian, after drilling more than 500 wells and driving per well cost down by 20%. Our cost advantages stem from all areas, from decreasing drilling and completion times, optimized completions, the application of low-cost water management solutions and self sourcing key consumables like sand and chemicals. Our well productivity continues to improve, as an example, we brought on the new seven pad in Martin County, that is outperforming our type curve by over 20% with an average IP90 of 1,050 BOE per day, including 800 barrels per day of oil. Looking into 2019, we expect to complete about 150 net wells in the Permian, about 75% of those wells will be drilled in Midland, Martin and Upton. Our liquids growth in Montney is impressive, since 2015, we've built 275 net wells and grew liquids volumes by nearly 350%. This self-funded development generates free cash flow at today's commodity prices. We successfully converted this legacy dry gas play into a core growth liquids play. Encana's core competencies have dramatically improved returns in the Montney. Since 2015, we reduced D&C cost by over 30%. For 2019, we expect completed well cost to be about $4.3 million, while results continue to impress with the average fourth quarter well producing greater than 500 barrels per day of liquids to its first 90 days of production. For 2019, we expect the place about 75 net wells on production. In Western Canada, basis differentials today are wide, we recognized this several years ago and created substantial natural gas production, through a combination of physical out of base and transportation arrangements and basis hedges of approximately one BCF per day. However, beyond that level, our incremental gas sales do not generate a lot of cash flow. This is another proof point of why we believe our multi-basin portfolio is a key advantage for our owners. We can quickly reallocate capital to improve our plan. We have a proven track record of delivering. I will now turn the call back to Doug.

Thanks Mike. Before taking your questions, let me take a moment to close with a few key takeaways. 2018 was a very good year for Encana. We delivered on our promises and returned cash to shareholders, met our guidance targets and further strengthened our balance sheet. We intend to deliver again in 2019. Encana has created a sustainable business with all of the building blocks of a premium company. We have scale, disciplined capital allocation based on our core three and a track record of giving cash back to our owners. Our model allows us to execute across the commodity price cycles. As simply stated others are trying to navigate to where we are today. That concludes our prepared remarks and now we would be happy to take your questions.

[Operator Instructions] Your first question comes from Gabe Daoud with Cowen. Your line is open.

Good morning, everyone. I appreciate all the prepared remarks. Doug maybe just starting with portfolio rationalization it's obviously been a big part of the story over the past several years like you hit on so can you maybe just talk about the portfolio today, obviously spending capital in just three core areas so are you getting in bound in some of the non-core assets today and really just trying to get a sense of we could see Encana perhaps divest something this year to further enhance capital returns to shareholders?

Yeah Gabe, thanks for the question. And of course partly you probably know my answer already but if you look at, you think about those assets we sold over the last five years and compare those to essentially these three other assets today, things like the Eagle Ford and the Williston, which are very high quality assets, the Duverney is in the same bucket. They have high margins, they generate high returns, but obviously they don't have the scale of our core three. So we're very clear on how we're going to manage those assets. They are great free cash generators for the company, so our goal is to maximize the efficiency we're reducing capital to maximize sustainable free cash flow. Our portfolio evolves overtime, I think really we are really clear that just because of the scale the business in the future will largely be based on that core three, but as you know, we never really talk about things like divestments until we actually do something.

Understood, thanks Doug. And I guess just the follow-up in the Anadarko basin, could you just talk a little bit about the rig allocation across the STACK and the SCOOP and then I guess in the STACK, can you talk a little bit about spacing and completion design with the first couple cubes here in 2Q?

Yes, I'll make the couple comments and hand it back to Mike. But largely the capital program is focused in the STACK this year, Mike will probably talk about the shape because we are the rig counts are relatively high right now were in the process of bringing down. But I want to share a story with you guys. Mike mentioned that he and I were out in the field in the Anadarko on Monday and Tuesday than it was one of those best things I've had in a long time that's a pumped up group of people that are really excited by this combination, but to show you how fast we're moving, on Monday of this week, which is less than two weeks after we close this deal we set a new record for number of barrels pumped in the day, we already have 2 fracs spreads pumping self source sand and chemicals saving us over $350,000 a well, and we have started to make some changes to well design we already pumped our first stages at over a 100 barrels a minute, which is part of our high intensity completion design, and obviously the point I'm trying to make here is this is not something that is coming in 2020 or 2021. This is something that is happening in February, but Mike maybe you have a few other comments.

Yeah, you bet. Just from a rig count standpoint, currently we have 10 rigs running in the basin that'll be going down to 4 here over the course in Q2. As Doug mentioned most the rigs are in the stack and we've been moving very rapidly to implementing our logistics and completion designs. In fact, we reworked a couple of the pads today to actually incorporate in basin sand and in and sandboxes and we've seen significant efficiencies as a result of that. With respect to spacing we're looking, as we look out here forward into Q2 we're probably looking at the six to eight wells per section spacing on and will be testing that and see how that works as we implement our completion design, new completion designs I should say.

Yes, and I'd probably just to add one comment. If you remember when we announced this transit action and talked about it we said our focus was really on taking cost out at least $1 million a well, we're well on the way to having that accomplished and that we were using what we believed was proven spacing in the play and actually the type curve that Newfield was delivering. So the spacing or type curve improvements are all upsides to the deal, because we based the foundation is taking cost out which we've very confident we're going to do.

Awesome, thanks Doug and Sharon.

Your next question comes from Greg Pardy with RBC Capital Markets, your line is open.

Yeah, thanks, good morning. Just one for me I mean significant proven reserve growth this year, just on an SEC basis and I understand really not much impact from economic factors, so is there any color you can provide around that, as to you know which areas were more prevalent than others.

Yeah Greg, I'm glad you hit on one thing. It really wasn't anything to do with price. Really it was driven by two things as you know as we moved the portfolio to focus on essentially the Permian and the Montney the last couple of years, and the way the booking rules work, basically the technical certainly is moved to the point now where we're able to book those barrels. That's the single biggest driver and the other piece that's impacted this year is, as you know, we didn't have a lot of A&D last year, which we had in the previous years, which impacted reserves. But I think the reserves are now really reflecting the portfolio we have today. And I think as we mentioned on the call the proved reserve numbers now 2 billion BOE over half of which are liquids.

And just unrelated follow-up, but just to come back to the STACK for a second. The $200 million spend is from Newfield I think you semi addressed it anyway that the program is going to be front end loaded but is there just any context you can put around that.

Well, you know and I think this is partly the benefits of bringing these two companies together, but you know I think they were pursuing a plan, which if they were independent is the one they would've done, where we look at is we balance growth with free cash generation and more level loaded. So we probably if we'd been running it in January we would not have been running 10 rigs it would have been at a lower level. So we're bringing it down to that sustainable level which balances growth and free cash generation.

Sounds good. Thanks very much.

Your next question come from Asit Sen with Bank of America, your line is open.

Thanks. Good morning. I have two quick ones. One on STACK and the other on Permian. So on STACK just going to spacing and stacking work Mike, could you talk a little bit about the target zones, target intervals and when you see evolution of cube in STACK how do you see that evolving relative to where you are in the Permian?

Sure Asit, thanks very much for the question. Yeah in the Anadarko we are really focusing right on the Merrimack, upper and lower Merrimack will be where our focus will be initially and then looking down into the Woodford as we move on. But the core will be on the Merrimack for right now and sorry I didn't catch the second question on the Permian, if you could just repeat that.

Evolution of the cube style in Anadarko relative to how you've progressed in the Permian, how do you see that evolving?

Well we've had tremendous learnings in the Permian as you can really point to our results in and so we're benefiting from not only the well spacing and stacking understandings and type curve development, but it will also be learning from the cube development and the on surface cost savings that are going to be applied as well. So it's I think we'll will be able to accelerate our learnings and I think we've proven that in the first week of operations.

And just to add a couple of things and the great thing is we get to see this in action earlier this week but you know the cube model has a number of key components too, part of them are all on the surface, which is about maximizing efficiencies, keeping capital cost low. So it's everything from how we designed the facilities to how we use multi rigs and multi-frac spreads and get the savings and the cycle time benefits to that, So obviously thinking about 3D and the sub surface because wells the parent-child relationship is not just laterally it's also vertically and as Mike said, the nice thing is we've been now doing this for four years in a number of plays. We were out in the field, we have a great mix now of heritage Encana people with heritage Newfield people and the teams so everything from construction to superintendents bringing our latest thinking on how you build the well pad, to mixing our drilling and completion engineers and superintendents into that group, and what that's allowed us to do is literally a few days after closing to start to make a shift and bring those learnings to bear. So I think we'll see the first full cube done in early 2Q, and of course start to have well results, because you guys know we don’t talk about IP 24s not even sure what they mean, we like to talk about IP30s and IP90s. So we will wait until we have that kind of data to talk about whether and how the cube development approaches adding benefits to the well performance.

Appreciate the color, Doug. And then on Permian the full rig of program. Could you talk a little bit about the completion cadence this year and what would it take conceptually for you to add or drop a rig in the Permian, and finally, any thoughts on the lateral length of 8500 feet looks like average for this year about, we think you might is that were optimal you are in place to move higher?

I'll just pick-up the piece about adding or dropping rig, and let Mike cover the rest. First of all, I think it's pretty unlikely there's much change to our capital program, we feel good about the balance we've achieved between getting growth right and actually generating free cash, so for instance if prices were stronger I wouldn't envision us having any real material movement to the program. The nice thing is we’ve spent a lot of time on supply chain management. We design our contracts to give us a lot of flexibility to flex our programs both up or down and a good example of that we are already now using some of the key suppliers we used in the Permian in the Anadarko and are leveraging contracts across the two plays, one place we've already done that is with sand and we probably will be doing in other areas very soon as well. But Mike, maybe you have few other comments.

Yes, with respect to the cadence on completions we have three spreads running right now in the Permian we will be flexing down to two and in between two and three spreads here through the year as the pad drilling dictates. And just to add more color with the Permian, Eagle Ford and now the Anadarko gives us tremendous leverage to start looking at moving services across those three plays, realizing additional efficiencies that we actually didn't -- we wouldn’t have seen in the pre-merger company.

Yes, and underneath all that, just last thing I would add is and we've try to convey this in Mike's comments about recall we are really trying to get to a pretty steady state program in all three plays because what that allows us to do is maximize efficiency and then in the other assets we're actually to get efficiency there, because those are smaller programs what we tend to have to do is concentrate the activity in a smaller part of the year. A great example of that would be somewhere like the Eagle Ford where if we're going to run a one rig program for the year. It's a lot more efficient to run two rigs for six months than one rig for 12. Because we are extremely focused on efficiency, it guides us, it's how you generate returns, it's how you actually maximize capital efficiency and it’s actually how you expand margins.

Your next question comes from Brian Singer with Goldman Sachs. Your line is open.

One short-term question and one long-term question. On the short term, in the Anadarko basin it looks like you're planning to complete more wells then you are planning to drill, usually when switching to cube strategy I think is it sometimes the reverse initially is that just a function of reducing that rig count from the highs at the beginning of the year over the course of the year and you can just talk about the impacts that the completion has and the timing of completion versus drilling would have on a quarterly trajectory for production?

Yes, Brian you kind of nailed that yourself there it really is the fact that we've got 10 rigs and actually ended last year in higher activity levels. So were not a duct company, we've never done that played that game. So this is a matter of completing these wells that have been drilled and get on that steady cadence. And of course it will create a little bit of a bulge in the production profile as we go through the year.

So I assume production would then probably start high, come off and then we would see more of the ramp over the course of 2020 as the cube strategy plays out?

That's exactly right. Brian, you will see the effect of this higher completion activity more over turned in line more in the middle of the year. Then as we go to the second half of the year and into '20, you'll see more of a steady-state, more like what you've been seeing from us in Permian.

And then longer-term you talked for the 2019 guidance here. But how do you think about the optimal production growth relative to free cash growth with the new assets been how sustainable do you think those are, how long can you keep whatever the target the optimal growth rate is?

We do have a really strong deep inventory across these three plays, it does as you know it allows us to manage some risks which are hard to control as well. So it gives us flexibility to ensure that the top line of the company is doing what we wanted to do as we manage the details underneath. We kind of come to the view that high single-digit growth rates while generating strong free cash is the model, because one of the things it does, it also allows over time to sustainably grow the dividend. Obviously we will take that view based on a very conservative view on commodity price, but we think that's the right balance. We think the business can do that for very long time and of course our intent is to constantly drive efficiencies, we've been doing that pretty steadily over time and that creates additional upside. So we think we got the right portfolio. We obviously have the right balance sheet today and I think we've got the business model, with the execution behind that we feel we have all of the building blocks.

Great, thank you.

Your next question comes from Jeffrey Campbell with Tuohy Brothers, your line is open.

Good morning, Doug congratulations on closing this mammoth acquisition. I want to just, we've talked a lot about the other plays being cash flow, free cash flow generators, I just wanted to know which of the core three plays are currently free cash positive and if any of them are not when do you expect them start to generate free cash.

You know I actually love that question, cause I know there's lots of discussion with some of the pure play companies about when they'll get there, everyone of our plays is free cash positive. In fact our Permian has been there for a couple years so every place we operate today that we invest capital is, it actually generates more cash flow than it consumes. And that I think underpins the quality of the asset base we have and the way we've been executing. So our Permian is free cash positive, it was free cash positive last year, the Anadarko's that way and the Montney is that way as well.

That’s great, within the other category, I just wanted to ask is the spend being spread evenly or one or two of the basins within the group getting the lion's share of investments?

Yeah there is a little bit of a pie chart in the deck, which will help you in some more detail in the backup but with the end, the Permian is the biggest, Anadarko just, the other one's okay. The other assets I don't have that off the top of my head what the split is, but I think the Eagle Ford gets a bit more but it's also a bit bigger.

Okay, that's what I would have expected, thanks a lot, I appreciate it.

Your next question comes from Dennis Fong with Canaccord Genuity. Your line is open.

Hi good morning and thank you for taking my questions. So the first is just a read in from a previous question there, so just given kind of the view of a high single digit production growth with potentially incremental margin or efficiency savings from the CapEx or even from the OpEx side, how should we think about magnitude of potential dividend growth and it's your forward given that's kind of baked in the half priority that you have on your listed capital allocation.

Well you know, if you look at how we built the business and I want to be careful is I am not forecasting what we'll do with dividends and that's a decision obviously we have to take with the Board. But if you look at it, if we can grow our liquids volumes in the high single digits and you look at the quality across our plays that the margins and returns are quite similar that probably gives you some indication of what's possible over run of, the run of time.

Okay perfect, and then just kind of moving back into the asset side of things, with respect to some of the changes in completion strategy outside of the -- just moving towards the key developments, are there any other significant examples in terms of well design that you guys are pushing forward and how could that potentially impact individual well productivity on an individual basis while driving a lower well cost?

Well I think that you know we actually think as you, as you try to optimize development this interaction between spacing and stacking completion design is really important. So what we've been moving to over the last few years is how do we keep the frac energy close to the wellbore cause that maximizes recovery if you do that. So if you look at our designs really what it works out to is tightly clustered our type per cluster spacing, we try to get long stage spacing so we keep the well cost low, we tend to use a lot of fine-grained sand and we also use very high pump rates. One of the reasons we do that is allows us to use longer stages and get the diversion we need, we're actually starting to test that design in the Anadarko literally right now. So we've already put that to work we'll see exactly how it performs, but as Mike said these different plays that are actually more alike than they are different. So we have a lot of confidence that this formula is going to work and will -- and the other thing is we really don't like this idea that some people talk about pilots because the way unconventionals work is you're constantly learning and want to be applying those learning's in real time to the next few cube you drill and that's one of the reasons we focus on cycle time, part of it is of course it helps returns, but the other piece is, it means we get information back faster because we don't standardize anything today we're constantly evolving it, so there is no one standards spacing or stacking in any of our plays today and that kind of mental mindset about pilots than go plug-and-play it everywhere. We just think it is very suboptimal way to manage unconventional plays.

Your next question comes from Mike Dunn with GMP First Energy. Your line is open.

My apologies if this was addressed earlier in the call, I jumped on a bit late but if you could walk us through I guess, how flexible or dynamic that share buyback program might be within the free cash flow that you're generating depending on commodity prices?

And obviously we're not going to give any detail on how we execute that program, because of some fairly obvious reasons. But what I can tell you is, we have the money in the bank right now. So we have well over $1 billion in cash on hand today. So this buyback is not dependent on the free cash we generate in 2019. I think because we have indicated we'll be beginning the buyback essentially immediately once we clear by blackout which is Monday.

Okay, so in other words, based on like just the current forward strip your intention is to execute that program in full?

Yes, it is. I think it would take some pretty unusual circumstances, something like a radical reduction in the price of oil for us to not execute that program this year.

Your next question comes from Josh Silverstein with Wolfe Research. Your line is open.

A question on the return of cash to shareholders. I know you're focused on trying to grow the dividends but I was curious about how you're thinking about Encana's free cash flow yield relative to the market if there is a number you're trying to target there whether it might be mid-single digits or kind of the longer-term with the same lines your production growth there or if there might be another way of thinking about it as far as based on how much of free cash flow you guys may have will look to return 20% of it or 30% of it just any sort of context around that will be helpful?

Yes, Josh and I think we all know that one of the challenges as you think about that question is how you deal with commodity price, because that obviously is a huge mover on cash flow and what I think we're trying to demonstrate is that how we think about priorities and how we expect the business to evolve over time. And clearly the first port of call particularly in any business, but particularly in a commodity based business is the strong balance sheet, the commitment to the current dividend and actually sustaining the current business scale and then as we get further down the list it's actually about how we can sustainably grow the dividends and that's really as the business grows and we look at cash flows with very conservative view on commodity price. And then lastly how you think about being opportunistic on share buybacks, given we are commodity-based enterprise you need to think about that there is a track record of buybacks in the industry generating value is mixed and partly that is, is when they are executed. And then course, the other two pieces there is high return and high quality investments to sustainably grow the dividend, combined with continue to manage the balance sheet, so that's how we think about it and I think as we look at the yield we believe will be in a very attractive range. Not only compared to oil and gas companies but compared to any industry.

The concept of special dividend really hasn’t been talked about from the industry. I'm just wondering if that might be something you guys would consider as well just to allow some flexibility with the commodity price too. Is that something that would be on the table?

Well, it's kind of hard to say Josh but you're right it hadn't been talked about a lot and at this point and where we are in our life cycle that isn't something we considered so far, but I wouldn't completely rule it out either.

And then just a question on the Montney it's taken a little bit of I guess the flat line on the liquids production from 4Q '18 levels. Can you just talk about those the long-term growth of this asset? I know there was discussions of new facility commitments and the ability to go further step up the liquids growth so I just wanted to see if those were still on the table or those are kind of pushed back for now?

We are obviously and we've talked about this at the beginning, we sort of redrawn the line on how we balance growth with free cash flow. So, that's the kind of 20% reduction year-over-year in capital. And obviously some of that was in the Montney, but we are still pursuing in building out our new Pipestone plant, which is 2021 that going actually very well, it's off to a fantastic start, the cost look like they will come in lower than we originally anticipated, and I think we've got a pretty good track record on building these plants. Remember, that's our partnership with Keira, they actually own that facility but were actually building it. So that's still part of the plan but also and Mike talked about the quality of some of our recent results in the Montney and with these tower wells we had come on in 4Q and some we've had come on earlier this year are performing incredibly well. Some of them over 2000 barrels condensate per day. So it's just really, really strong wells. And but Mike mentioned this, we position the business. We anticipated some of the takeaway challenges in Canada. Luckily, we target our business for the most valuable product the country produces which is condensate and we built the business around not requiring additional takeaway. But once we get above around 1 BCF a day range we essentially don't make any money on that gas, and so that also an opportunity for our growth profile, so in the near term, it looks relatively flattish until we bring on the Pipestone facility here in a couple of years.

We have time for one last question. Travis Wood from National Bank Financial. Your line is open.

Good morning guys, and thanks for taking my question. If I could, could you help us understand how are you thinking about the intrinsic value of Encana and how that looks on a return profile as you consider the buyback and benchmark that against development drilling or is the dividend as you look to deploy that free cash?

Yeah and Travis I think you know what this year is probably a great example of that. So I think what we've done is when you think about the cash on hand we have, some of that is from the free cash we generated last year, some of it's from the divestments we did and then how we balanced organically the underlying sustainable business and getting the balance right between free cash generation and growth. We think we struck this right. We clearly intentionally put a slide in our deck about relative valuation which we think makes a case for buying back shares today. We think that has to be part of the thinking when you do buyback shares but we think we struck that balance in the right place. And it's something we think you just constantly have to look at, look at the conditions in the business and in the market. But we think we balance those three factors today.

Okay, and would you have a sense of what that return profile would be, buying back stock today from a 25% return profile as you're considering the value of Encana, is that a fair question to ask at this point?

Well, it's kind of difficult to answer because I think we're an incredible buy in the market today because the underlying Encana is still here and now we have this powerful combination with Newfield and I hope we've already given you some confidence that the benefits of moving these two companies together we're actually realizing right now in the first two weeks. So it's hard to put a precise number on it, but we think it's a very compelling value. I can also say the management and Board of this company also believe it cause we all bought a lot of shares ourselves.

Okay, appreciate that Doug, thank you.

At this time we have completed the question and answer session and would like to turn the call back over to Mr. Code.

Thanks Denise, this concludes our conference call for today, thank you.

This concludes today's conference call, you may now disconnect.