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Edited Transcript of ECA.TO earnings conference call or presentation 31-Jul-19 1:00pm GMT

Q2 2019 Encana Corp Earnings Call

CALGARY Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Encana Corp earnings conference call or presentation Wednesday, July 31, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Corey D. Code

Encana Corporation - Executive VP & CFO

* Douglas James Suttles

Encana Corporation - President, CEO & Director

* Michael G. McAllister

Encana Corporation - Executive VP & COO

* Renee E. Zemljak

Encana Corporation - EVP of Midstream, Marketing & Fundamentals

* Steve Campbell

Encana Corporation - SVP of IR

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Conference Call Participants

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* Arun Jayaram

JPMorgan Chase & Co, Research Division - Senior Equity Research Analyst

* Asit Kumar Sen

BofA Merrill Lynch, Research Division - Research Analyst

* Brian Arthur Singer

Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst

* Gabriel J. Daoud

Cowen and Company, LLC, Research Division - Senior Analyst

* Greg M. Pardy

RBC Capital Markets, LLC, Research Division - MD and Co-Head Global Energy Research

* Jeffrey Leon Campbell

Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services

* Marshall Hampton Carver

Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research

* Paul Benedict Sankey

Mizuho Securities USA LLC, Research Division - MD of Americas Research

* Ross Payne

Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Encana Corporation's Second Quarter 2019 Results Conference Call.

As a reminder, today's call is being recorded. (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 Steve Campbell, Senior Vice President of Investor Relations. Please go ahead, Mr. Campbell.

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Steve Campbell, Encana Corporation - SVP of IR [2]

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Thank you, operator. And welcome, everyone, to our Second Quarter 2019 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 our 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 statements in accordance with U.S. GAAP and reports its financial results in U.S. dollars. So any references to dollars means U.S. dollars, and the reserves, resources and production information are after royalties, unless otherwise noted.

Following our prepared remarks today, we will be available to take your specific questions. As a reminder, please limit your time to one question and one follow-up. This simply allows us to get to more of your questions on the call today.

I'll now turn the call over to our President and CEO, Doug Suttles.

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Douglas James Suttles, Encana Corporation - President, CEO & Director [3]

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Thanks, Steve. Good morning, everyone. Thank you for joining us for our Second Quarter 2019 Conference Call. I am joined today by the other members of our executive team. Following my opening remarks, Corey Code, our CFO, will cover our financial results for the quarter. Mike McAllister, our Chief Operating Officer, will then follow with an operational update.

I hope you've had a chance to read through our news release, our supplemental filing and the detailed slides we provided on our website. We plan to reference these materials during our prepared remarks this morning.

Our strong performance has positioned us to meet or exceed all of our 2019 guidance targets. Our 3 core growth assets continued to perform exceptionally well and we achieved record production levels in the Permian and Anadarko, and grew our Montney liquids production by 55% year-over-year.

Our integration of new fields has gone extremely well. As you can see in today's release, we have exceeded our identified deal synergies in both G&A and STACK well cost. STACK well costs are down about 20%, and we have line of sight to additional improvements as we implement our proven practices in the Anadarko. These savings have materially increased our rates of return, and today make STACK competitive with any liquids rich play in North America.

Our commitment to return cash to shareholders this year through our repurchase of $1.25 billion of stock was nearly fulfilled by the end of the second quarter, and our substantial issuer bid will allow us to pick up the remainder shortly. We see compelling value in Encana shares today.

Finally, we continued to refine the portfolio with the announced divestiture of our Arkoma dry gas assets and our exit from Newfield's legacy position in China. Because we are running slightly ahead year-to-date on our production targets, we are able to sell these assets and leave our guidance ranges unchanged.

Our operating and financial results have been strong, yet this has not been reflected in our valuation. I've been on the road meeting with investors quite a bit lately, so let me raise the key questions that commonly come up. One of the most common questions is around cube development in the Anadarko. Cubes have proven to be effective in all of our developments. In simple terms, cube development is nothing more than a group of codeveloped wells that are properly spaced and optimally completed and are executed in a very efficient manner. Our long-running Permian and Montney successes are prime examples. Cube development is working exceptionally well in the Anadarko today. In today's materials, we provide a direct comparison to our new results versus the legacy 2018 results. Our high-intensity completions are creating better oil wells at significantly lower cost. Our cube development approach is a demonstrated winner to reduce cycle times, lower cost and enhance returns. Mike will speak further on this in a moment. But you are seeing cube results today in the Anadarko.

Another frequently mentioned topic is the timing of additional asset divestitures. Our recently announced agreement to exit China and sell the Arkoma, demonstrate our ongoing commitment to portfolio alignment with our strategy. We have a long track record of managing the portfolio consistent with strategy. Our base assets are high-quality, fill an important role in our portfolio. Combined, these oil-rich assets produce about 100,000 BOEs per day and are about 2/3 oil and condensate, and provide exceptional returns in free cash flow.

The final topic where we get questions is around our leverage metrics. We have always prioritized maintaining a strong balance sheet, and liquidity in our credit ratings represent this. On an annualized Q2 basis, we would include a full 12 months of EBITDA from the legacy Newfield assets, our leverage ratio would be 1.7x. We recently repaid $500 million in senior notes, with proceeds from a more cost-effective commercial paper program. Our business plan has our free cash flow growing in the second half of this year, and we intend to use this to strengthen our balance sheet and fund the remainder of our buyback program.

With the noise of transaction costs and the partial reporting now behind us, our Q2 results provide a good analog for what you can expect from the business going forward. Consistently strong execution, capital discipline, prudent financial management, free cash generation and a return [to] cash to shareholders. If we keep delivering on these elements, we believe the value of our equity will come to reflect that of a premium E&P company.

I will now turn the call over to Corey to provide an overview of our financial results.

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Corey D. Code, Encana Corporation - Executive VP & CFO [4]

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Thanks, Doug. It's important to note that each of our assets will generate free cash flow at the asset level. Each asset has a distinct role to play in the portfolio and collectively they help us deliver the desired corporate outcome. As Doug highlighted earlier, we had free cash flow of about $127 million in the second quarter, demonstrating the strength of our assets and the sustainability of our business model.

For the quarter, we had net earnings of $336 million, or $0.24 per share. When excluding the impact of certain items, our non-GAAP operating earnings were $290 million, or $0.21 per share. Cash from operating activities for the second quarter was $906 million. Non-GAAP cash flow was $877 million, or $0.64 per share. Our total cost performance, excluding the impact of long-term incentives and restructuring cost, was $12.78 per barrel and in line with expectations. We expect total costs to remain under $13 per barrel for the remainder of the year. We remain on track with capital spending.

At the beginning of the year, we indicated that the capital profile would be front half weighted for a couple of reasons. First, we inherited a much higher level of STACK activity from Newfield and we have now level loaded the program. Second, the activity levels in our base assets were front end loaded to maximize operational efficiency and free cash flow. About 60% of our total pro forma CapEx was spent in the first half of the year. With disciplined capital allocation, production momentum and cost control, we expect to have significant free cash flow in the second half of the year.

Our market diversification strategy continued to enhance cash flow margins in the quarter, adding $0.96 per BOE in the quarter and $1.23 per BOE year-to-date. Our Permian oil realized price including hedge, was strong at about 105% of WTI, more than $4 per barrel higher than the Midland benchmark, thanks to our downstream marketing efforts. Our Canadian realized gas price was about 87% of NYMEX, including the benefit of our downstream marketing arrangements and hedges.

Strong production from our 3 core growth assets more than offset the impact of selling China and Arkoma, which together produced more than 16,000 BOE per day in the second quarter. These transactions are expected to close in the third quarter. Our full year production guidance remains on track, despite the impact of these transactions.

On capital, we expect to come in at the midpoint of our pro forma 2019 capital budget of $2.8 billion.

Our cash flow continues to grow through a combination of increased liquids mix, our relentless focus on cost efficiencies, pulling through the synergies from our Newfield acquisition and our approach to maximizing realized prices. Our second quarter cash flow margin came in at $16.27 per BOE. We are committed to preserving our strong balance sheet. Our trailing net debt to EBITDA ratio has improved since the first quarter, and we expect this to continue through the balance of the year as we're able to include additional EBITDA contributions from the legacy Newfield assets in our leverage metrics.

Our second quarter EBITDA run rate would imply a normalized net debt to EBITDA ratio of approximately 1.7x. As a result, we expect our reported net debt to EBITDA ratio to improve in subsequent quarters.

Our strong operating performance is driving the leading corporate financial metrics for returns and free cash flow. This is clearly visible on Slide 6. We plotted here our free cash flow yield and return on capital employed against our peers. Encana has an attractive balance of free cash generation, quality corporate returns and growth in high margin liquids that support our record of returning cash to shareholders. Again, this is the model that should get differentiated by the market on the road ahead.

I'll now turn it over to Mike McAllister for an operational update.

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Michael G. McAllister, Encana Corporation - Executive VP & COO [5]

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Thanks, Corey, and good morning, everyone. The second quarter of 2019 marks another strong quarter of operational performance for Encana.

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Across the portfolio, our teams are meeting or beating their production and capital targets while finding new ways to innovate, drive down costs and maximize

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Encana's track record as a leader in unconventional development has been proven over a sustained period of time. Today, we are the second largest unconventional player in North America with nearly 600,000 barrels equivalent of daily production, and more than half of that is liquids. I think people may often overlook that our oil and condensate production today is more than 230,000 barrels per day. We are growing a commodity that matters.

Let me give you a quick asset update starting with the Anadarko where we have seen strong growth in our oil production. Last quarter we reported that $1 million per well cost reduction target has been achieved well ahead of schedule and that we saw room for further improvements. Today we are consistently drilling wells for about $6.5 million. That's 5% below the original target and nearly 20% below the legacy Newfield costs. We actually have some recent pacesetter wells coming in below $6 million, or around $2 million below legacy Newfield costs.

Anadarko production came in at a record 163,000 BOE per day this quarter, with liquids up 47% from the first quarter of 2018. STACK oil production is up 63% from the same time period

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Our rapid and recent growth is due to a combination of strong well performance and a very active drilling program inherited from Newfield. We have slowed production from 11 rigs in February to 5 rigs today, and we're preparing to drop our fifth rig and will get to a steady-state 4 rig program for the remainder of the year.

Consistent with our plan and guidance, production peaks midyear, directly related to the reduced activity levels.

Applying the Encana advantage has allowed us to reduce STACK well costs by $1.4 million in a matter of months. These cost reductions can be seen in detail on Slide 9.

It's important to note that we continue to see both strong and consistent well performance. Notice that we're showing you 120-day well performance from all 89 wells brought on production in 2019. We're dramatically improving our rates of return and making STACK very competitive with all plays in North America. Our rates of return on STACK are more than 50%.

STACK well performance continues to impress. Our liquids cut and oil yields are moving in the right direction and are in line with expectations. High-intensity completions we have been employing since taking over the operations are showing strong early time production results.

As shown on the graph in the blue curve are the first 18 wells Encana completed, spaced at 6 to 8 wells per section. These wells are significantly outpacing the cumulative oil production of legacy Newfield wells over the first 100 days of production. These first 18 wells were completed with Encana cube design and high-intensity completions. Well costs were reduced by $1.4 million as described in the previous slide.

In the Permian, our production in the quarter was about 104,000 BOE per day, and we are currently producing at record levels of 110,000 BOE per day. Our production today is up nearly 20,000 BOE per day from the first quarter. From the first quarter average, I should say.

Since 2015, we have grown our production in the basin by more than 2.5x. Again, this is an asset that is delivering both oil growth and free cash flow. Running at a flat 4 rig program for the remainder of the year, we expect to see continued production growth and free cash flow generation in the third and fourth quarters.

We've put 38 net wells on production during the quarter and continue to see strong and consistent performance. Our success in the Permian continues to be driven by our cube development approach. This approach allows us to exploit maximum value from our STACK pay resource while delivering volumes as efficiently as possible. We brought on two new cubes in the second quarter, including a 14-well HNC 248 Cube, which delivered a record oil production rate of 17,000 barrels a day after 60 days. Since entering the Permian in 2014, we have successfully drilled more than 2 dozen multi-well cubes. We have demonstrated continual improvements in results year-over-year. This continued operational out-performance is what gives us confidence in our cube development model and our ability to dramatically improve returns in the Anadarko.

Moving to the Montney. We remain on track to grow our average annual liquids volumes by about 20% year-over-year. Liquids volumes averaged 54,000 barrels per day during the quarter, with total volumes coming in at 203,000 BOE per day. Production volumes in play were down about 6,800 BOE per day due to planned maintenance and third-party outages. These issues have been resolved and are not expected to impact Q3 volumes.

During the quarter, we placed 32 net wells on production. Recent well performance continues to be very strong, outperforming our type curve by about 25%.

The improvements in cycle times that we achieved in the Montney are truly impressive. Rig and frac crew efficiencies have brought our cycle times down 44% year-over-year. We now estimate that we can execute our 2019 program with one less rig than originally planned.

That concludes my operations update. I will now turn the call back over to Doug for closing remarks.

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Douglas James Suttles, Encana Corporation - President, CEO & Director [6]

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Thanks, Mike. Before we get to your questions, I'd like to highlight just a few things from today's call. First, Encana is performing extremely well today and we are firmly on course to deliver our 2019 objectives and guidance. We have quickly exceeded the key synergies we identified in the Newfield transaction, pulling through the value we saw in this combination. Our strong financial results today, which include significant free cash flow, are being driven by the quality of our portfolio and our never-ending focus on efficiency and performance. We've built a business which is sustainable and can thrive in today's commodity environment.

So with that, we conclude our formal remarks and would be happy to take your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Greg Pardy from RBC Capital Markets.

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Greg M. Pardy, RBC Capital Markets, LLC, Research Division - MD and Co-Head Global Energy Research [2]

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Very nice operational quarter and so on. Question really had to do just around Western Canada and condensate prices. You guys [have] certainly amongst the most sophisticated market group. How are you thinking about condensate pricing on a go-forward basis? This may be a question for Renee, but . . .

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Douglas James Suttles, Encana Corporation - President, CEO & Director [3]

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Yes. Thanks, Greg. Renee's here with us. I'll let her pick it up. But I think broadly speaking, we don't see it moving outside where we've seen for quite a while. But Renee, would you like to pick that up?

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Renee E. Zemljak, Encana Corporation - EVP of Midstream, Marketing & Fundamentals [4]

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Sure. As Doug said, we're not really worried about condensate pricing in Canada. We've seen differentials throughout the year trade right around minus $4. And when we look forward, we see demand continuing to outpace the supply growth that's coming on. So we're not concerned about condensate pricing; we're quite positive about it.

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Operator [5]

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Our next caller is Brian Singer from Goldman Sachs.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [6]

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As you've highlighted from the beginning of the year, the 2019 CapEx program was always meant to be front end loaded, and you reiterated that on the call here. With second half liquids production expected to be flattish to slightly down relative to the second quarter, what impact do you see the reduced second half CapEx and activity run rates having on production trajectory as we look into the first half of 2020? And how do you view the importance and opportunity of production growth versus free cash flow beyond 2019?

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Douglas James Suttles, Encana Corporation - President, CEO & Director [7]

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Yes. Thanks, Brian. It won't be too many more years before we start talking about the next year in January of the current year. But I think we've been saying for a while, in this sort of commodity environment, we expect the business to grow at a modest rate and generate significant free cash flow. That's what you're seeing this year, and I think that's what you should expect in the years to come.

Little early to be specific on 2020, but the shape of the year is what we expected. We are working to more level load the programs going forward, and we'll be looking to that as we shape the 2020 plan. But at this point, you should expect continued growth of our liquids with significant free cash flow generation from the business.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [8]

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And does the cost savings that you're seeing in the Mid-Con in particular, but potentially elsewhere, offset the lower activity from a keeping production flat perspective? Or do you view yourself below maintenance, kind of below maintenance capital in the second half of this year?

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Douglas James Suttles, Encana Corporation - President, CEO & Director [9]

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Yes. Brian, what we've said for a while is kind of maintenance capital is sort of in the low $2 billion range. So you can kind of do the math. On the full year basis, obviously if we have capital grow in the second half, that's roughly the run rate. Each asset's slightly different. As you know, some were more front end loaded, some were level loaded like the Permian. But when you work through, the year is kind of playing out exactly as we expect it to. But we're not changing the capital program. Mike highlighted efficiencies are improving across our business, including cycle times. But we're firmly committed to staying around right at the midpoint of our guidance that we've given for the year.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [10]

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That's great. And then one more if I may. Can you talk about the flexibility that you have with regards to continuing to add to the share purchase program, particularly this year? And can you refresh us on the priority of where you see leverage and how significant net debt pay-down could be?

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Douglas James Suttles, Encana Corporation - President, CEO & Director [11]

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Yes. As you know, we have the SIB out there, which is a bit more than $200 million. So we're going to be out executing that program through the balance of the summer here. So we'll continue to buy back shares. And of course, we're generating significant free cash here in the second half of the year, which will do a combination of help fund that program and also continue to reduce our net debt.

If you look at on a run rate basis - I think Corey highlighted this - our leverage is about 1.7x, and that continues to reduce over time. As you also probably know, it's not very cost efficient to prepay long-term debt. Our next maturities are late 2020, '21. So we'll look at that as we get there. But as we see it right now, we're continuing with our buyback program and we're actually accumulating some cash on the balance sheet.

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Operator [12]

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Our next caller is Arun Jayaram from JPMorgan.

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Arun Jayaram, JPMorgan Chase & Co, Research Division - Senior Equity Research Analyst [13]

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I was wondering if you could give us maybe a little bit more details on what you're seeing on the well productivity front in the Anadarko Basin as you apply some of your enhanced completions versus Newfield's design.

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Douglas James Suttles, Encana Corporation - President, CEO & Director [14]

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Yes. Mike'll pick that up. One of the things obviously we're trying to highlight today, I think some people have been waiting to see cube results in the Anadarko. What we're trying to highlight is you're seeing them now. There were several areas which are essentially our cube approach to development, which now are approaching 90 days of production history. So you're seeing the benefits of the way we execute in taking cost down and now you're seeing the benefits of our completion design at the well spacing, the well density we at this point expect to develop the Meramec STACK oil window with. But maybe, Mike, highlight some of this recent performance.

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Michael G. McAllister, Encana Corporation - Executive VP & COO [15]

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Yes. You bet you. You bet you, Doug. So on Slide 10, we kind of provide the graph that shows our first 18 wells that we brought on under our completion design and under our cube operating model. And you can see for the blue line on that curve that the wells are significantly outperforming the historic well performance, and all of those were completed with high-intensity completions, better cluster spacing, higher water rates. And we're really pleased with what we're seeing on those initial results.

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Arun Jayaram, JPMorgan Chase & Co, Research Division - Senior Equity Research Analyst [16]

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Great. Great. Just a follow-up. You talked about either reducing activity according to the plan, going down to 4 rigs. How should we think about volumes in the Anadarko basis in Q3 and Q4? And just your overall thoughts and just manage some of the seismic issues that we've seen in the play over the last couple years.

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Douglas James Suttles, Encana Corporation - President, CEO & Director [17]

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Yes, just a couple of points. I think that essentially the production is kind of following the cadence of activity. So we came into the year with Newfield operating 11 rigs in the play. As Mike highlighted, we're at 5; we're about to go to 4 as part of the plan. Production sort of peaking here at the middle of the year, and we'll see a little bit of decline naturally, as you'd expect, from that lower activity in the second half. But that was all built into the plan for the year and the guidance and in the second half guidance.

Mike can pick up the questions about the recent seismicity in the basin, which, by the way, is a known factor and something the industry's been working through and dealing with for quite some time.

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Michael G. McAllister, Encana Corporation - Executive VP & COO [18]

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As you might be aware, there's an array in the basin that allows us to continuously monitor any seismicity activity. In our recent operations on the Kenneth Michael cube, we saw seismicity show up. We ended up mitigating that with longstanding protocol as we have done on past operations, and made the decision to move those [frac] spreads off of that pad to another pad that we had available.

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Operator [19]

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Our next caller is Gabe Daoud from Cowen.

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Gabriel J. Daoud, Cowen and Company, LLC, Research Division - Senior Analyst [20]

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Maybe just on the STACK well cost savings, could you just talk a little bit more in detail about what's driving those additional savings that you realized from the 1Q average? You hit this a little bit in the prepared remarks. But just curious how you've been able to drive down well costs while still pumping high-intensity completions.

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Douglas James Suttles, Encana Corporation - President, CEO & Director [21]

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Yes. Gabe, thanks for the question. I'll let Mike pick it up. I just want to highlight one thing that we've always believed by just getting the cost out of these wells that they would compete for capital with any play in North America. And I think you're seeing that. When you combine, we have relatively low royalty rates here in the high teens. We have actually shown what we can do with well cost. Operating costs in this play are quite low on a relative basis compared to places like the Permian. And of course, we get a good price for our products here, particularly relative to other plays across North America. And when you roll that up and just use the type curve we've published here and not even the improved performance you're seeing on the oil side, you'll find that those returns compete very effective.

But Mike can talk some more about how we continue to drive cost out here, despite pumping more intense completions.

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Michael G. McAllister, Encana Corporation - Executive VP & COO [22]

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Yes. Thanks for the question there, Gabe. So there's a number of factors that our play allowed us to drive our costs down by $1.4 million. We went to in-basin sand, which took about 30% out of the sand cost from where we were previously. Also then went to rearranging our sand deliveries, going to sandboxes. And that again allowed us to drop our costs and come out significantly more efficient from a scheduling standpoint. Increased our pump rates from 80 to 100 barrels a minute, which then allowed us to get our stages off quicker as well as giving us a much more effective stimulator reservoir volume. And with that, we also went [none below] our frac contracts in terms of separating supplying our own sand and supplying our own chemicals, which allowed us again to drive cost down.

And the last thing, and we're relentless on this in both our drilling and completions across the company is we really focus on nonproductive time. And when the pumps aren't running, that's waste. And so we've driven our pump times from 17 to 20 hours per day. All of that allows us to be on the lease for a much shorter period of time and again allow us to drive our cost down.

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Gabriel J. Daoud, Cowen and Company, LLC, Research Division - Senior Analyst [23]

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That's great color. Thanks, Mike. Just a quick follow-up. I know, again, you hit on this in the prepared remarks. But just curious how we should maybe be thinking about any additional portfolio optimization for 2019. Thanks, guys.

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Douglas James Suttles, Encana Corporation - President, CEO & Director [24]

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Yes, Gabe. If you look at our history, we've always been, I think, very disciplined about managing the portfolio. And obviously we've announced the exit from both China and Arkoma. I just want to highlight one thing. With both of those leaving, we did not reduce our production guidance, which shows that the rest of the business is outperforming this, because we've been able -- that's about 16,000 BOEs a day that were with those assets. So we've obviously covered that with outperformance elsewhere in the portfolio.

When we look across the portfolio, essentially we have now some very high quality base assets, things like the Eagle Ford and the Bakken and even the Duvernay. These are areas which are not growth assets because of the size of them, but they're very high quality. They're very oily. They have very high margins and, where we do deploy capital, very high returns. And they play an important role in the company as we balance growth with free cash generation. So I think we feel very good about the portfolio we have today.

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Operator [25]

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Our next caller is Asit Sen from Bank of America Merrill Lynch.

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Asit Kumar Sen, BofA Merrill Lynch, Research Division - Research Analyst [26]

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I have a quick follow-up on the activity cadence. Looks like 38 wells came on stream in the Permian in 2Q, and I think the 1Q number was 33. How should we think about the split between 3Q and 4Q in the Permian?

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Douglas James Suttles, Encana Corporation - President, CEO & Director [27]

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You know if I could -- I don't have that data at my fingertips. We'll have someone from Steve's team follow up with you.

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Asit Kumar Sen, BofA Merrill Lynch, Research Division - Research Analyst [28]

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Okay. And then a quick one for Corey. Corey, now that the operations become more ratable, could you update about your thoughts on maintenance CapEx to keep, let's say 2020 liquids production flat versus 2019 level?

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Corey D. Code, Encana Corporation - Executive VP & CFO [29]

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Yes. It's Corey here. We're still building out the 2020 capital program. I think Doug gave you a good overview on what we see for the whole business in the low $2 billion range. So that's kind of the extent of the detail we've been providing so far.

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Operator [30]

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Our next caller is Jeffrey Campbell from Tuohy Brothers.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [31]

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I was wondering what portion of the additional G&A and operating cost savings that were announced today is related to the announced asset sales as opposed to from ongoing operations?

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Douglas James Suttles, Encana Corporation - President, CEO & Director [32]

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Yes. Thanks for the question. Actually it really isn't from the enhanced asset sales; that's effectively separate. I mean what we've shown, I think you probably know the numbers. But originally we said we'd get $125 million of G&A out, then we raised that to $150 million. Now we've raised it to $175 million. And most of that is already out of the business today. The exit of China and Arkoma really don't impact those numbers. And I think we've indicated there may be even additional savings here; we continue to look for it. We're actually quickly approaching the entire G&A of Newfield, [feeling] that one of the strengths of this combination, kind of one plus one can basically be one, not two.

And then, of course, Mike's highlighted, by applying our proven practices, which have worked everywhere we've done it, we've shown we can take cost out of the development activity and deliver very strong well results.

So I think we're sort of demonstrating what we think are core competencies of the company.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [33]

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Okay. Great. Thanks for that color. On Slide 8, I noticed that the SCOOP production looked relatively stable. I was just wondering, does this illustrate a low decline rate? Or are you doing some workovers or some other activity to maintain flattish production?

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Douglas James Suttles, Encana Corporation - President, CEO & Director [34]

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Yes. I don't really have a lot of detail to share on the SCOOP. There is a little bit of activity down there. The majority of the capital of course is up in the STACK. I would highlight, though, one of the challenges that we got and one of the questions that was out there was growing oil production out of the Anadarko. And we said this was really an issue about focusing capital in the right places and sort of extreme version of capital discipline, which is put our money where the oil is and be very disciplined about how we do that. So as Mike was highlighting, the majority of the capital is going into the Meramec oil window, but not all of it. There is some activity in the SCOOP as well.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [35]

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Okay. Great. Thank you. Appreciate it. And congratulations on the quarter.

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Operator [36]

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Our next caller is Marshall Carver from Heikkinen Energy Advisors.

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Marshall Hampton Carver, Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research [37]

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So in the Anadarko Basin you've had a big ramp-down as expected, in the rig count from what you inherited from Newfield to the second half of the year. So your average rig count's going to be a good bit higher for 2019 than where it would end the year. As we think about 2020 and the rig count being more level loaded, what should we think about in terms of average activity? Should it be higher than the 4 or 5 rigs in the back half of the year? Or do you have any comments there on what a level-loaded program might look like?

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Douglas James Suttles, Encana Corporation - President, CEO & Director [38]

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Yes. Marshall, it's kind of early, if you will, in the planning and budget cycle for 2020. I think the early indications are is it'll be a little higher than the 4 to 5 we're running now. But I really don't want to take you too far down that path yet, because we're still working on the plan. But like the total business, we would expect to continue to see modest growth in liquids while generating free cash, not only at the corporate level, but in every single asset in the business. I mean one of the things which we're very pleased about - I think Corey lightly touched on it - was every asset in the company essentially today is generating free cash flow, both those that are growing and those that form more of our base today, which just shows the strength and the quality of the portfolio.

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Marshall Hampton Carver, Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research [39]

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All right. And then a follow-up as well, please. So looking over the last 3 quarters, you've had some down time or third-party issues in the Montney that have gotten resolved by the time of the conference call and were sort of described as not impacting production heading forward. But it has been 3 quarters in a row of some down time. How should we think about risking that asset heading forward in light of the history of surprising impacts?

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Douglas James Suttles, Encana Corporation - President, CEO & Director [40]

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Yes. Well, I'd highlight really one important thing there, Marshall. When we do have these impacts in the Montney, they have very little impact on cash flow. And the reason for that is we still have some dry gas in the play. And of course you know we don't invest into that. But effectively, we're able to manage those outages by prioritizing our liquids rich production, our condensate rich production. So that's why you don't see it impacting financial performance.

A lot of this in the Montney, there's some that's going to continue because a lot of this is around the NGTL system as it continues to be debottlenecked. But it will have some impact to the reported volumes, but I don't see it as any real material issue to the financial performance of the company. And in fact, despite the 6,800 BOEs a day we talked about in 2Q, we're right on track on where we expect to be, if not stronger, for the year.

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Operator [41]

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Our next caller is Ross Payne from Wells Fargo Securities.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [42]

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Given the price of natural gas, can you guys talk about your current hedge positions for the remainder of '19, and what you're looking at for 2020?

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Douglas James Suttles, Encana Corporation - President, CEO & Director [43]

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Yes. Ross, I tell you what. It's actually in the materials online. I don't have the full detail at my fingertips here. But it actually is in the materials we released today. So we've got good production on this year and then some production for next year.

The other thing just to also probably notice and it's reported in there is, is one of the things we did to manage gas price risk is we diversify the markets we sell into, and that helps us with the exposures. But those numbers are actually in the materials.

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Operator [44]

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We only have time for one more caller. Your next caller is Paul Sankey from Mizuho.

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Paul Benedict Sankey, Mizuho Securities USA LLC, Research Division - MD of Americas Research [45]

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Doug, you mentioned that you've been on the road quite a bit talking to investors. It seems like the biggest problem you guys face is the share price. I was just wondering what suggestions do you get, in the course of those conversations that you spoke about, from shareholders as regards some sort of actions to get a better share price and a better valuation.

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Douglas James Suttles, Encana Corporation - President, CEO & Director [46]

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Yes, Paul. Yes, clearly, and we've highlighted this, I think when you look at the company's performance against our peer group and you compare that to the valuation, the valuation just doesn't make sense. Financially, we're performing incredibly well whether you look at free cash generation, whether you look at returns. Now clearly, there have been some questions about the Anadarko. I think we're showing the competitiveness of that asset today.

When we meet with shareholders, I think the biggest thing they tell us is keep executing, keep doing what you're doing, communicate very effectively and show the benefits. Because we keep coming back to this point, you cannot deliver these bottom line results if you do not have a quality portfolio that you execute well on. I mean we're now doing what other people are trying to do. We just generated $127 million of free cash in the quarter. We expect to generate considerably more through the balance of the year, and we're doing that while actually growing quite strongly. And we see this formula going forward. And we have a lot of flexibility to adapt to the market as it moves and changes.

And so I think we don't get pushed around about why don't you manage this piece of your cost or you're not allocating your capital properly. I think the push is continue to execute well, maintain the discipline and then communicate those results effectively to the market.

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Paul Benedict Sankey, Mizuho Securities USA LLC, Research Division - MD of Americas Research [47]

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Yes. Sure. And ultimately, I guess buy back stock. Is there any potential for M&A? I assume you're not going to buy anyone. Can you sell the company or merge? And I'll leave it there.

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Douglas James Suttles, Encana Corporation - President, CEO & Director [48]

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Paul, is that just between you and me, or are we going to include others?

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Paul Benedict Sankey, Mizuho Securities USA LLC, Research Division - MD of Americas Research [49]

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Yes, do share it. Yes, and, in fact, we have to tell everyone all at the same time, so . . .

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Douglas James Suttles, Encana Corporation - President, CEO & Director [50]

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Paul, look, we think we've built the E&P company of the future and it's here today. We've talked a lot about this, that we think the commodity market today could look like this for a while, and we have a business which can perform exceptionally well in that. And we're also obviously in a very nervous energy tape and I think we just have to be patient and go out and execute and deliver, and the value will get recognized and it'll show through. I mean this business generates a lot of cash, it's growing, it generates free cash, it has very competitive returns. And that's not just in our sector. Those numbers compare very favorably with other sectors as well, and we think that will get recognized.

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Operator [51]

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At this time, we have completed the question-and-answer session and we'll turn the call back over to Mr. Suttles.

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Douglas James Suttles, Encana Corporation - President, CEO & Director [52]

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Thanks, everyone. Appreciate you taking the time to join us today and look forward to seeing you in the future.