Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2021 First Quarter Results Conference Call. As a reminder, today's call is being recorded. [Operator Instructions]. I would now like to turn the conference over to Steve Campbell from Investor Relations. Please go ahead, Mr. Campbell.

Thank you, operator, and good morning, everyone. Welcome to our first quarter 2021 conference call. This call is being webcast, and the slides we will use today are available on our website at ovintiv.com. Please take note of the advisory regarding forward-looking statements at the end of our slides and in our disclosure documents filed on SEDAR and EDGAR. Following our prepared remarks today, we will be available to take your specific questions. As always, limit your time to one question and one follow-up as this allows us to get to more of your questions in a timely fashion. I'll now turn the call over to our CEO, Doug Suttles.

Thanks, Steve. Good morning, everyone, and thank you for joining us. We're eager to share our results today on another strong quarter. Following our prepared remarks, as Steve said, we'll be available to take your questions. As outlined in our prerelease a few weeks ago, and again in today's results, our business continues to perform exceptionally well. We are rapidly paying down debt. We finished the quarter with less debt, generated significant free cash flow, and exceeded our divestiture target with the announced sale of our Eagle Ford and Duvernay assets. Our Duvernay asset closed yesterday and our Eagle Ford sale is on track to close later this quarter. We weathered the winter storm, Uri, with minimal impacts in the quarter and no impact to our full year forecast. We are highly confident in our ability to deliver the plan we've laid out for 2021. Our 2021 outlook remains consistent with our investment framework and reiterates our key priorities of debt reduction, maximizing efficiencies and maintaining the scale of our business. What a difference a year makes. This time last year, in the face of the pandemic-related destruction of global oil demand, we were making real-time decisions to reduce capital spending, shutting in production and quickly implementing new safety measures to protect the health of our people. Despite the uncertainty, we were very confident we could not only manage the challenge but emerge stronger and more efficient, positioning the company to thrive as demand for our products returned. We were prepared for volatility, and our business had tremendous flexibility that aided our decision-making. The proactive steps we took a year ago have positioned us very well today, and it is coming through in our results. In the first quarter, we delivered net earnings of $309 million, generated total cash flow…

Thanks, Doug. As Doug mentioned, we're positioned to generate about $1.5 billion in free cash flow in 2021 at current prices. This will allow us to reduce debt, improve leverage ratios and repay our upcoming bond maturities with cash on hand. When you combine the proceeds from our asset sales and the free cash flow we expect to generate, we should have enough cash to pay both of our upcoming debt maturities, the first of which is par callable starting in August, and repay a significant amount of any short-term commercial paper or revolver balance. We are very pleased with the acceleration of our debt repayment strategy. We know this is the best thing we can do for our shareholders, and this has been reflected in the performance of our equity year-to-date. Our 2021 outlook equates to a reinvestment rate of about 60% of cash flow at $50 WTI oil and $2.75 NYMEX natural gas. And at current strip pricing, the reinvestment rate is just above 50%. Over the longer term, we will continue to steward our business to a leverage ratio of 1.5x net debt-to-EBITDA or less at mid-cycle prices. We think this level of leverage is appropriate for an E&P company and consistent with an investment-grade credit rating. The credit rating agencies have taken notice of the strong outlook for our business and the acceleration of our debt reduction efforts. As such, we have recently received positive credit rating outlook changes from all of the rating agencies. And as a reminder, our strong financial performance is further bolstered by our declining legacy cost profile. We have again outlined the cost trajectory in the appendix, where, on a cumulative basis, you will see approximately $1.8 billion of legacy cost reductions from 2021 to 2025 when compared with our 2020 run rate. There is no risk associated with these cost reductions. They simply roll off over time improving our cash flows. I'll now turn the call over to Greg Givens.

Thanks, Corey. We continue to deliver industry-leading well cost reductions in our core 3 assets. The recovery in the global economy has led to increased demand for fuel as well as other raw materials. And as a result, we did see modest cost inflation during the quarter on commodities like diesel and steel. Our centralized supply chain management team anticipated these cost increases. Their efforts in procurement and contracting, along with operational efficiencies in the field, allowed us to fully mitigate the impact of cost inflation during the quarter. Year-to-date well costs in the core 3 assets were either in line with or below our full year targets. These costs are roughly 12% lower compared to 2020. Despite continued pressure on select items, we fully expect to meet or beat our capital guidance of $1.5 billion for the year. We entered the year with significant operational momentum across all of our assets. During the first quarter, our teams continued to deliver pacesetting spud-to-rig release times and record lateral lengths. In the Permian, drilling efficiency gains and Simul-Frac completions continued to drive our strong performance in the play. This included a new drilling pacesetter with less than 7 days spud-to-rig release time. In the Anadarko, we had another record of cost performance. In the STACK, D&C costs averaged $4.40 - sorry, excuse me, $440 per foot, about 4% lower than our full year 2021 guidance, and 8% lower than our 2020 average. The team also achieved a record operational quarter with a 9-day average spud-to-rig release time and a 6.2-day pacesetter well. In the SCOOP, we brought on 5 Springer wells in the quarter with average D&C cost of $5.2 million per well with oil performance exceeding type-curve expectations. Moving north to the Montney, our D&C cost averaged $380 per foot,…

Thanks, Greg. As Greg has just pointed out, our efficiency gains are continuing in 2021. We often get asked about how we consistently deliver these gains. We look for efficiency in everything we do and our entire team is relentless about innovating to make our business better. This is a key part of our culture to identify what limits our performance today and then unleash innovation and technology to eliminate those barriers. There are several recent examples of this across the company. Our supply chain management team is harnessing data analytics and machine learning. This approach streamlines our back-office work, but it also gives our team direct visibility into pricing for comparable products and services across our portfolio, allowing our team to drive down costs. Our drilling and completion teams are updating their designs in real-time using proprietary mobile apps to access and visualize live data. This translates to fewer days on location and more effective completions, driving lower cost and better wells. And our production operations teams are using cloud-based technology to optimize chemical pump rates and gas lift compression. Our proprietary code behind this automation works in combination with our operating control center, which provides 24/7 surveillance and automation of our wells and facilities. This translates to lower LOE and higher uptime. Each of these innovations plays a role. And in combination, they add up to meaningful value. We've created a capability where we break down complex problems and find ways to make things work better. It's happening in every part of our business, from drilling, Simul-Frac, wet sand, artificial lift, to how we market our products and to our supply chain. And the most powerful part of this approach is that every person at the company can contribute. And we see this as a competitive advantage. It's a big part of the reason we're confident we can deliver on our 2021 targets. I'll now turn the call back to Doug.

Thanks, Brendan. Ovintiv remains at the forefront of our industry's transition to a new, more sustainable business model. We believe we have all of the components to deliver differentiated returns to our shareholders. We are on track to deliver free cash flow for the fourth consecutive year. We are committed to a disciplined approach to allocating capital and are on track to deliver free cash flow - significant free cash flow, for the fourth consecutive year. We remain committed to returning cash to our owners. We believe our dividend is a key component to returning cash to shareholders, and we did not touch it through the challenges of 2020. In the near term, we believe strongly that the best way to increase value for our shareholders is through reducing our debt, and we talked extensively on the significant progress we've made over the past 3 quarters and the progress we expect to make over the balance of the year. We are committed to industry-leading ESG performance. Our teams are incredibly focused on reducing emissions and using technology and innovation to unlock further gains. Our flaring and vending volumes have dropped dramatically over the last 12 to 18 months and are today amongst the lowest in the industry and well below limits being discussed in many jurisdictions. And we are on track to deliver early on our 33% methane intensity reduction target. We believe reducing emissions is the first and most important role of our industry today in addressing climate change, and we are and intend to remain a leader in this area. We also see tremendous opportunity to accelerate industry efforts through collaboration with our peers. Efficiency has and always will be crucial in our business and we have the proven ability to drive leading efficiencies and continuously improve to enhance returns, grow margins and generate free cash flow. We do this in many ways, but none are more important than innovation. Our operational excellence and sophisticated risk management are differentiated and continue to create value quarter-over-quarter. Finally, we have the size and portfolio diversity necessary for future success. Our world-class core 3 assets in the Permian, Anadarko and Montney provide multi-basin and commodity diversification, cross basin learnings and more than a decade of inventory at our current development pace. This concludes our remarks. And operator, now we'd would be happy to take questions.

[Operator Instructions]. And go to the first caller from Neil Mehta at Goldman Sachs.

Congrats on a great quarter. It's great to see the debt reduction time line accelerated and the path to incremental shareholder returns improved. When you discuss various options for returning capital to shareholders once you get your balance sheet in good shape, how are you thinking about increasing the base dividend versus implementing a variable dividend of sorts or a share buyback program? Is there any method that you think screens more attractively? And at the forward curve, when do you think we're going to be in a position to start having these conversations?

Yes, Neil, thanks for joining us and your question. And by the way, I just like the question because it recognizes the progress we've made on debt, and it sounds like the confidence folks have that we'll continue to make that progress. I think the first thing I'd say, though, is we need to get to our debt target of 4.5%. It's clearly accelerating. It's clearly getting closer, but we need to make sure we get there. Then I'd add just 3 things. First, as we've said many times, with our Board, we're discussing a number of options and nothing is off the table. But I would emphasize 2 things. We believe the base dividend is absolutely core to our offer to shareholders. I mentioned that despite the challenges last year, we didn't touch our dividend. Our shareholders could count on that check every quarter and it showed up every quarter. But it's a core component of the offer, and we need to make sure it's set in the right place, that it's sustainable. But it also is a consistent source of cash returned directly to shareholders. And the second thing we need to assess is this $4.5 billion the right level of debt? Or should we actually take it further? So more on this in the future. Clearly, we're making great progress here, but we need a bit more time to mark our progress and then continue these assessments. But I would highlight that, that base dividend and making sure our debt's in the right place are probably the 2 highest priorities we have.

And then turning to the assets, it seems like you're allocating more activity towards the SCOOP region of your Anadarko Basin assets relative to past. Is there a scenario for greater liquids uplift as a result? And just can you provide some color around the cost efficiencies you expect to see there, given well costs traditionally have been higher in that part of the country?

Yes. I think, first, we have a - obviously, our bigger position is up in the STACK and the SCOOP. And but we have and we'll continue to develop the SCOOP, but the inventory is more limited. So we'll be doing this as it makes sense. But our efforts there like our efforts everywhere are actually continuing to unlock new locations, which is encouraging. But the cost thing is pretty amazing. It wasn't very long ago when SCOOP wells were $10 million, $12 million, $13 million. And as you heard Greg talk about, he just talked about $5.2 million. But maybe I'll hand over your question about efficiencies to Greg here.

Yes, thanks for your question. And we're continuing to see the same kind of efficiency improvements in the SCOOP that we've seen in the STACK and that we're seeing across all of our portfolio. And we're - just the teams have been relentless at focusing on driving down cost and driving down the amount of days we spend on our wells. And that's resulting in lower well cost and better returns. And so we think we're going to continue to see that across the SCOOP, the STACK and all of our portfolio.

Next question comes from Brian Downey of Citigroup.

Maybe I'll start a question on your capital spending. I believe your prior commentary suggested a relatively level-loaded capital program for 2021, which, if we annualize, the first quarter spending is running a little below your full year guidance. I'm wondering if there's any timing noise within the remaining 3 quarters, the comments you made about potential sources of inflation versus efficiencies or disproportionately affecting the remainder of the year. Or if you just want another quarter under your belt of strong cost performance and efficiencies before formally adjusting that? So that's there. And then any early reads on how those trends could play out for next year in terms of capital efficiency or absolute spend.

Yes, Brian, thanks for the question. I think that we are - it is still April, actually. So it feels a little early to be adjusting guidance. We're pleased with the progress. But I have to say that Greg and his team, they know the expectation is we're going to get more efficient regardless of the environment. If we have things like inflation, we have to double down on efficiency gains elsewhere. I mean one of the coolest things he just talked about was this wet sand mine in Howard County. And that's a fantastic example of things we do, which offset inflationary pressures and net-net drive costs down. By the way, he didn't mention, I don't believe on that, but something else that's very good. We all know silica dust is a concern in the industry. And when we use wet sand, we actually have no silica dust. That this is great progress on health and safety and not just on cost. Let's - we had a little bit of noise in the quarter around activity, but mostly it was driven by inflation. Let's get a bit more time under our belt before we actually reset or reconsider resetting the capital target. So I think we're comfortable with where we are. The other thing, just to reiterate is, we didn't have any capital allocated to the Eagle Ford or Duvernay. So those divestments didn't shift the number as well.

Great. And then maybe one for Greg. I'm curious your experience with Simul-Frac in the Montney now that you're using it on the vast majority of wells. That seem to be an area where both the D&C cost trends and production trends were solid in the quarter. So we'd love to hear any early learnings from the Montney on Simul-Frac and what we can expect going forward regarding that technology.

Thanks for your question. And yes, I think one of the great things about the way we execute on our wells and innovation here at Ovintiv is we get an idea in one area and find out that it works, and then we quickly move that around the organization. So as you know, Simul-Frac started down in the Permian. And the teams saw great success. We moved it to the Anadarko and now we've moved it to the Montney. It's a really simple innovation. It's not high-tech at all. We're simply splitting the flow that comes out of the wonder of the well and sends it to 2 wells. And so we're able to frac 2 wells at the same time. It doesn't change the intensity that we use on the wells. We're using similar pounds per foot and gallons per foot as we normally would. But we adjust our stage spacing or stage links in order to get a very efficient completion in those operations. But it allows us to - while we're fracking one well or one pair of wells, to complete the other pair of wells with a perforating and a plug setting. And so we're able to do kind of a dual-track and complete - frac one well while we're prepping the next well. And that allows us to really speed up our cycle times. So our cycle times in the Montney now, we're routinely pumping up to 20 or more hours per day, which allows us to get just significantly more utilization out of our frac equipment and allows us to really reduce the number of days we're able to suspend and completing a well. And as you know, days are dollars in our business. And that's one of the main drivers behind the costs coming down in our Canadian operations is completing those wells significantly faster with Simul-Frac. And we're seeing really good consistent results. The Simul-Frac technique has not reduced our performance. If anything, we're seeing as good, if not better performance out of the wells that we're using Simul-Frac on. So we're very pleased with the results. And again, a great example of just taking and innovation from one part of the organization and quickly moving it around to all the different basins, so we get the full advantage of that new innovation.

Next question comes from Jeanine Wai at Barclays.

My first question, maybe just a follow-up to Neil's question. Doug, you indicated that you need to make sure that the base dividend gets to the right place. Can you provide a little more color on what metrics you're looking at to determine what the right place is for Ovintiv? For example, some of your peers, they talk about limiting the base dividend, to call it, maybe 10% of cash flow and then supplementing above that. Others talk about just trying to have a competitive yield to the broader market, which is tough because there's a stock price component in that. But just wondering if you could give a little more color on where you think the base dividend could ultimately go to.

Yes, Jeanine, and - I definitely don't want to front run our Board here, that wouldn't be wise. So - but I think this is - there's really 2 things we have to think about, which is, and sort of what we always refer to, as sort of a mid-cycle world, how do you think about what proportion of cash flow should be returned to the shareholders through the base dividend. And there's a range in there. You've talked about it. It's been talked about in the industry. I'm not ready today to talk about exactly where that is. The other thing we believe strongly, and it served us incredibly well last year, is we also need to make sure it's consistent and stable through the cycle. And what that means, the way we look at that is you need to test its sustainability at lower prices so that you're not having to pay that from debt, but you can pay it from cash flow. So we're doing that assessment today. And when you combine that as we close in on our debt target and consider whether we need to further reduce debt beyond that, we'll be talking more about it. But that's how it's framed. And I think - I don't think it's prudent to be talking today about a variable dividend when we first need to make sure the base dividend is set in the right place.

Okay. Very fair. My second question, maybe just hitting on divestitures quickly. You sold the Duvernay and the Eagle Ford, which is great, accelerated the debt reduction, what everybody wants to see. Would you consider selling any more of the base assets? I think it's interesting that recently, we've heard some operators are reconsidering selling assets given current oil prices allow them to deleverage faster versus valuations that they're seeing in the market on a backward-dated strip might be a little bit lower. And so they're trying to accelerate the deleveraging, so they could do that better by keeping the assets. So I just wanted to touch base on where you were on the other base assets.

Yes, Jeanine, I think you - first of all, I could use the famous quote from George Popovich, and just between you and me. But I think what we really think about on assets, and this included the Duvernay and the Eagle Ford, it first has to make sense strategically. It's not a tactical effort just to reduce debt. So if it didn't make - if it made sense that those assets needed to be retained in the portfolio strategically, they would have stayed. But when those 2 events combined, it made sense to divest them. We believe the portfolio is in the right place today. We believe, as we talked about in the multi-basin portfolio, we also believe in a multi-product portfolio. And we're there today. So I'm very comfortable where we are at. I believe we have high-performing assets in the portfolio. And I believe what we're doing today extracts the most value from those assets for our shareholders.

Next question comes from Neal Dingmann at Truist Securities.

My first question is really just on the flexibility of your current plan, specifically, I think the last, you continue to say you're running 4 Montney, 3 Permian, 2 Anadarko rigs. And I'm just wondering is there any flexibility, would you think about changing this depending on what - if NGL prices continue or other things sort of continue. Or is this pretty much the plan for at least this year?

Yes. We don't really - as you know, if you're focused on returns, the price on the screen at the moment isn't what really drives returns. It has to be - you think about the price you're going to receive over the balance of the life of that asset versus the capital you've put in. So I don't see today movement there. As you know, there was some optimism in the natural gas market coming into the year, that turned out not to be the case. And of course, we didn't adjust our capital with that short-term optimism. We take a much more fundamental look at this. So I don't see that affecting it. We, also, are committed to this multi-basin portfolio. And we're able to fund our core assets. One reason is because they have very similar returns in those - they do have slightly different product mixes. And as you've highlighted, we produce a lot of NGLs, over 80,000 barrels a day. And that market, particularly for propane and butane, has been very strong, not only by recent standards but by standards over the last 5 to 10 [Technical Difficulty].

[Technical Difficulty] solving these problems and I'll just maybe use the winter storm, Uri, as an example. And one of the things I spoke on a few minutes ago was the proprietary code we've developed to automate our gas lift systems. And so as that storm began to hit and then impact operations in Texas and Oklahoma, the automated controls on those gas lift systems were a big part of helping us keep production on longer and then bring it back on sooner as a result because it meant that we didn't have to have boots on the ground at every well site and facility in the field, we were able to drive that autonomously through our centralized control room. And so this has been a backbone that we've been building in the company for a long period of time. And so now the expertise that's being deployed against it is adding new sophistication as we go.

Great. And I was wondering, just given your sort of deep knowledge in the basins you're in, not to mention, basically you have past experience in. I mean do you envision - I guess, I'm thinking especially about real-time completion data. Do you envision that or other tools having the ability to possibly expand the footprint of any of your plays? I'm just thinking about some of the more complex geology in the STACK or just deposition so thin that it wouldn't be practical to pursue them before, but now actually might be workable.

Yes. No, it's actually a great question. It's actually pretty strategic as well. The - if you look at - we kind of - maybe all of us in the industry kind of maybe don't quite appreciate what we've accomplished over the last 5, 6, 7 years. We've taken a new play concept to make it one of the biggest sources of supply of oil and natural gas in the world and leading efficiencies in doing that. And on almost every front, whether that's about cost or whether it's about emissions and other things. And it's all driven by innovation. It's all driven by constantly thinking about new ideas. It's that old Wallace Pratt, who is a famous geologist 80 years ago. He had a great saying, which is, "Oil is not found in the ground, it's found in the minds of men and women", which is what you see happening every day. But what we've been able to do, and the STACK is a fantastic example of it, clearly a play that was out of favor. But through innovation, Greg highlighted the movement of learnings across the portfolio. We've got a play which generates competitive returns with any play. And tied to your question, we are now drilling in areas, which, just a few years ago, you would have not thought would have justified the application of capital. And that's a combination of what we've been able to do on cost. Your earlier question about using big data to understand what drive results, a lot of that now is about completion design. There's still a great deal of learning happening about how to make a better well. And it's a lot more than just pump a lot more sand. It's how you actually execute that job and design that job. And what it's doing is, it is unlocking new opportunities within our portfolio. Our inventory essentially right now stays flat every year because through this application of innovation, technology and cost reduction, we unlock new opportunities, at least of the scale of the ones we drilled in the last year, creating a bit of a perpetual motion machine in this space. Now it won't go forever. But this rate of innovation, I do not expect to stop because at least in our company, it's why people come to work every day is to be a part of that and to drive it.

At this time, we have completed the question-and-answer session. And I will turn the call back over to Mr. Campbell.

Thank you, operator, and thank you, everyone, for your coverage and investment in our company. Have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines at this time. Enjoy the rest of your day.