Ovintiv Inc (OVV) 2021 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2021 Second Quarter 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 expressed consent of Ovintiv. I'd now like to turn the conference call over to Jason (inaudible) from Investor Relations. Please go ahead, Mr. (inaudible).

Thank you, operator, and welcome, everyone, to our second quarter '21 conference call. This call is being webcast, and the slides 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 prepared remarks, our very strong performance is clearly seen in our substantial and recurring free cash flow generation. With almost $900 million of free cash flow through the first half of 2021, we have proven our business is capable of generating quality returns, significant cash flow and free cash from net debt target before year-end, a full year ahead of our original timeline.

The achievement of this milestone will mark almost $3 billion of net debt reduction since the second quarter of 2020. In the same tone, we set a new debt target of $3 billion and increased shareholder returns by raising our dividend 50%. With that said, none of these tremendous financial achievements would be possible without the operational excellence delivered by our teams. A focus on operational efficiencies and industry-leading cost management is allowing us to more than offset economy wide inflation pressure and continue to deliver industry-leading capital efficiencies. This is clearly demonstrated by raising a full year production guidance with no change to our capital budget.

Ultimately, it is our culture of innovation that is providing a true competitive advantage and driving performance across the business. The team's ability to innovate in real-time is unmatched. We have been through a lot over the past few years and Ovintiv has persevered through it all from a global pandemic to negative oil prices and a freak winter storm, our team has not only survived, but thrived in the face of adversity, a true testament to the culture and the strength of what we have built.

Extending on our proven track record, 2021 is expected to be our fourth consecutive year of free cash flow generation. We have generated almost $900 million of free cash flow year-to-date and expect to generate over $1.7 billion on a full year basis at current strip pricing. This substantial free cash flow is driven by our operational performance and our high-quality multi-basin portfolio. As Greg will highlight later, our team's culture of innovation is continuing to achieve leading edge efficiencies, allowing us to reaffirm our $1.5 billion capital budget despite inflationary headlines across the economy, while also raising production guidance. With our reaffirmed capital budget and over $3.2 billion of estimated 2021 cash flow at strip prices, we are achieving a reinvestment ratio of less than 50%, substantially below our 75% investment framework. These outstanding results allow us to reinforce our commitment to shareholder returns as we return our efficiency gains to our investors.

Yesterday, we announced a number of new actions that reflect the sustainability of our business model and the tremendous performance of our organization. First, we are increasing our base dividend by nearly 50%. This substantial increase reflects the confidence we have in the growing cash flow capacity of our business. As a reminder, not only did we leave our dividend untouched during the recent downturn, but this raise marks the second increase since 2019.

We are delivering on our commitment to return cash to our shareholders and we are -- we see a growing base dividend as an important part of the value proposition for our owners. Second, we have set a new debt target of $3 billion to be achieved by year-end 2023. Over the last year, we have made tremendous progress deleveraging our balance sheet, and we are rapidly approaching our $4.5 billion target, which as I noted earlier, we expect to achieve before year-end, which is a full year ahead of our original plan.

Third, we published our 2020 environmental performance and safety performance metrics on our website, marking our 17th consecutive year of sustainability reporting. We made significant improvements in our ability to measure and manage our ESG metrics and our strong year-over-year performance demonstrates our focus on driving results across this evolving part of our business.

We are relentlessly focused on delivering consistency, transparency and continuous improvement in our environmental and safety performance and reporting. Finally, we increased full year crude and condensate production guidance to 190,000 to 195,000 barrels per day. This increase is entirely driven by asset outperformance and comes with no additional capital spending. As I noted earlier, our capital budget remains unchanged at $1.5 billion.

As I hand the reins over to Brendan McCracken, I cannot be more confident in Brendan, our executive team, the entire organization and the future of our business. It has been an honor and an incredible privilege to lead this great team. With that, I'll now turn the call over to our Chief Financial Officer, Corey Code.

Thanks, Doug. Q2 was yet another quarter of strong results. We are firing on all cylinders and delivering on our promises to drive value creation. During the quarter, we reduced our net debt by $1.2 billion resulting in a current net debt balance of $5.2 billion and bringing us within striking distance of our $4.5 billion year-end 2021 net debt target. We generated substantial total cash flow of $733 million, which was ahead of consensus. And as Doug noted, we have been generating significant free cash flow achieving $350 million in the second quarter and almost $900 million so far in 2021. Our capital spend totaled $383 million in the quarter. As Greg will highlight later in the call, we have seen inflationary attention on certain items, but are more than offsetting these pressures with operational efficiencies, leaving our original full year capital guidance untouched.

Finally, I want to highlight our strong production performance during the quarter. We achieved 201,000 barrels a day of crude and condensate despite closing on our Eagle Ford and Duvernay asset sales in the quarter. Additionally, I think it's worth highlighting our balanced commodity mix. We have substantial exposure to multiple revenue streams, and we produced over 1.6 Bcf a day of natural gas and 86,000 barrels a day of NGLs during the quarter. Our multi-basin and multi-product production profile generates cash flow from multiple sources and provides us with robust market optionality. As evident by our new $3 billion net debt target, debt reduction remains our top priority. The combination of free cash flow and asset sale proceeds will see us drop our net debt by almost $3 billion from mid-year 2020 to year-end 2021.

Not only does debt reduction drive costs out of the business, it also improves our resiliency during periods of market volatility. In June, we redeemed $600 million of our 2022 senior notes. And in July, we provided notice to redeem $518 million of our 2021 senior notes, August 16. The redemptions represent over $1.1 billion of long-term debt repayments and will generate more than $50 million a year of annualized interest expense savings. Soon, our next debt maturity will be July of 2024. Our business is in a very strong position financially, and we are committed to preserving the strength. We have an attractive balance of free cash flow generation, quality corporate returns and a track record of returning cash to shareholders.

This model stands to be differentiated by the market on the road ahead. I'll now turn the call over to Greg Givens, our Chief Operating Officer, who will discuss our operational results.

Thanks, Corey. The teams continue to deliver industry-leading well cost and strong operational performance across the board. Wrapping up the first half of the year, drilling and completion costs for the core assets remain below guidance, reaffirming our confidence in hitting the $1.5 billion full year capital budget. These costs are approximately 11% lower than our 2020 program average.

We achieved these costs despite a continued increase in inflationary pressure during the quarter. Driven by the global economic recovery and rising commodity prices, we are seeing an increase in demand for raw materials leading to higher diesel and steel costs. Also, like most other industries, we are starting to see the impact global inflation is having on the labor market. That being said, our teams are operating more efficiently than ever before. Our ability to continue setting the bar higher operationally is more than offsetting today's inflationary pressure. In addition, through strategic contract structuring, local sourcing and improved logistics, we have lowered the cost of sand and water. During the quarter, we achieved numerous pacesetter performances. We drilled six of our fastest wells to date in the Montney and completed our entire STACK program using Simul-Frac.

We are accomplishing new milestones across our portfolio and across all operational disciplines. These pacesetter wells are accomplished through our unique culture that fosters innovation and cross-functional learning. In fact, many of today's average cost, real-times and completion efficiency metrics were pacesetter performances less than a year ago.

Slide 8 is a great example of how this culture of innovation has transformed our Permian program. Compared to just two years ago, we have made significant strides in every aspect of our operations. Driven by wellbore design optimization, new bottom hole assembly technology and a laser focus on flat or idle time reduction, our second quarter rig released wells in the Permian averaged over 12,000 feet of lateral length and nearly 2,000 feet of drilling per day. This is over 30% longer and 15% faster than 2019.

On the completions front, in-basin wet sand has provided a reliable source for Simul-Frac operations and has driven down sand costs by 40%. With faster well tie-ins and resourceful savings through equipment redeployment, our Permian facilities team has driven down cycle times and reduced facilities cost by $180,000 per well since 2019.

This evolution has been powered by innovative thinking and collaboration and has a strong competitive advantage, but we are never satisfied where performance currently stands and are constantly pushing the envelope to get faster, more efficient and ultimately cheaper. We also wanted to provide an update on the outstanding results from our Bakken program and the operational advancements we have made in the basin. Not only have we lowered drilling and completion costs by 14% since 2019, but we are now efficiently delivering a more reliable oil well configuration capable of handling our unique high rate, high-intensity completion design.

The three wells we brought online in the second quarter have shown exceptionally strong real-time performance, averaging 1,235 barrels of oil per day through the first 60 days of production. We are currently projecting these wells to pay out in less than six months. When you combine our high-quality acreage position, the basin's oil leverage and today's pricing environment, we are delivering portfolio leading returns in our Bakken program. This asset will generate substantial free cash flow for us in 2021, and we plan on continuing to operate a rig in the basin for the remainder of the year.

As noted earlier, we are raising our 2021 production guidance for the same $1.5 billion capital budget. Our team's relentless work to optimize our base production profile and unlock additional resource through a thoughtful development program have driven outstanding results. Additionally, our world-class multi-basin asset portfolio is continuing to deliver advantaged operations. With over 200,000 barrels of crude and condensate, 86,000 barrels per day of high-value NGLs and over 1.6 Bcf of gas per day produced during the second quarter, we have exposure to multiple cash flow streams that enable us to maximize returns.

I would now like to turn the call over to Brendan McCracken, our President and incoming CEO.

Thanks, Greg. We are focused on generating free cash flow and delivering quality returns. We are powered by our unique culture of innovation, teamwork and discipline, and we relentlessly innovate to drive efficiency in every part of our business and today's results show we have the key components to deliver differentiated return to our shareholders. We are committed to maintaining capital discipline and delivering significant free cash flow. Our 2021 capital is unchanged, and we are highly confident in our ability to more than offset cost inflation for the rest of the year. Our low level program is also highly repeatable as we look ahead to 2022. We remain committed to returning cash to our shareholders. We see today's 50% dividend increase as an important step in delivering what we believe will be a regular, sustainably growing return of cash to our owners. Our stakeholders expect continuous improvement on ESG and enhanced disclosure from our sector and our company, and we are delivering on this challenge.

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 and it is incredibly powerful because every person in our company plays a part. We see this as a competitive advantage and it is a big part of the reason we are confident we can continue to deliver on our priorities.

Finally, we have the size, scale and portfolio necessary to succeed on the road ahead. Our multi-basin optionality, commodity diversification and deep drilling inventory offer multiple pathways to deliver the best corporate outcomes and drive quality returns.

Before we move to the Q&A, I'd like to take this opportunity to thank Doug for his tremendous leadership over the last eight years. His leadership will have a legacy impact on our company that will serve us well for many years to come. I feel fortunate to have had eight years working very closely with one of the great leaders of our industry, and I wish him all the best in his retirement. This concludes our prepared remarks. Operator, we are now prepared to take questions.

(Operator Instructions) Your first question comes from Neil Mehta with Goldman Sachs.

Good morning and Doug, congratulations. Brendan, congratulations to you as well as you take on this new role. So, that's probably a good place to start Brendan as you have had some time here to think through strategic priorities as the new CEO of the business. What do you see as the two or three most important focus areas for you? Should we view this as stay the course or are there areas of focus that you think are needed as we enter a different phase of the commodity cycle.

Yes. Thanks, Neil. As you know, I've been deeply involved in setting the strategy and direction of the company for some time. And so today, our strategy and priorities are unchanged. We are laser-focused on delivering free cash flow and quality returns. And you see that today in the new debt target and the increase of cash returns to our shareholders. Also, our business is performing very well, and we've been accelerating on those targets and adding to them, and so I feel quite confident in the direction that we're headed in and the ability for the company to perform.

Then, the follow-up is, how should we think about excess free cash flow deployment beyond the base dividend and the debt reduction? Specifically, any thoughts around share repurchases given that you guys are trading at one of the highest free cash flow yields in the industry right now?

Yes. Neil, since last year, we've been laser-focused on debt reduction and so you've seen us outperform there and accelerate that target forward. And so today, what we've done is reset that debt target to $3 billion, but also introduce increased cash returns to our shareholders. And so obviously, as we accelerate towards that $3 billion target, we've got all the options on the table, and we'll be considering those as we go forward.

Your next question comes from Arun Jayaram with JPMorgan Chase.

Good morning Doug and Brendan. I guess I do have a follow-up to that. You guys have outlined $1.5 billion of debt reduction from the end of the year through the end of '23, kind of using a $50 and $2.75 deck. Now, if you assume Brendan, our cumulative free cash flow in '22 and '23 would be $3.7 billion, which would provide $2.2 billion of incremental free cash flow beyond that $1.5 billion deleveraging target. So again, I'd love to hear your thoughts on how you're thinking about cash return beyond the dividend because certainly it seems you could walk and chew gum here with a 20% type free cash flow yield.

Yes, Arun, appreciate the confidence you are expressing there, and you are quite right. We've given that new debt target out of $50 and $2.75 deck and clearly, as the business continues to drive efficiency and prices could be higher through that period, we would accelerate that, and that's fantastic. That's a great outcome. Like I said, the options are on the table as we get there, but I think you should expect our discipline on capital to continue. We've not changed our capital guidance for 2021, and we don't see the macro conditions that would change that thinking in the world today. There's still a lot of excess global capacity and of course, many parts of the world are still dealing with the pandemic. So, we will certainly be thinking about those options as we get closer to achieving that target.

Brendan, a recent theme in the industry has been kind of the continued transfer of assets from private to the public. I wanted to get your thoughts on the company's A&D strategy and how you are thinking about your current inventory depth and just broadly about kind of industry consolidation.

Yes, Arun, we've been very deliberate about creating the portfolio that we have today. Many of the transactions that you referenced have been aimed at creating the advantages that we've already got in the company. And so really, our emphasis today is on delivering on the priorities that we've laid out, generating free cash flow and delivering quality returns, and you can see that in our actions today.

Your next question comes from Josh Silverstein with Wolfe Research.

I was going to touch on the same thing. You can certainly look at additional return on capital with the free cash flow profile, but how would you think about the use of cash in terms of acquisition purposes, just for bolt-ons and what about next year?

Well, I think, Josh, the answer is the same. As we get towards that, we've got options on the table. Today, what we've laid out is a pathway to achieve that debt target and increase our cash returns to shareholders. I think as Greg outlined, we've continued to be able to drive efficiency gains everywhere we operate. Teams had great success in coring up our acreage through cashless swaps and trades, and we really like that increases the returns we are generating and adds premium inventory lets us drill longer laterals, and so I expect we'd continue to look for ways to do that going forward.

Got it. And then there was no mention of volume growth in the forward outlook as well, but I imagine that could also be a use of proceeds from free cash flow getting redeployed. Can you just talk about how you would think about volume growth in a 65% environment relative to the $50, $2.75 environment that you've outlined here?

Yes, Josh. I mean, certainly, that's an option as well but today, we don't see the macro conditions that would shift our thinking. Like I said, there's still excess global capacity today, and many parts of the world are still dealing with the pandemic. So, these are things we are watching closely, but you should expect us to continue to be very disciplined with capital going forward.

Your next question comes from Brian Downey with Citigroup.

Thanks for taking my questions. I maybe starting on the CapEx front. Could you give us an update on the efficiency versus inflation views that you had highlighted from last quarter. I'm curious, any second half puts and takes this year as it seems your well cost and pacesetter results to date seem to compare pretty favorably with guidance, how that's shaping up versus any inflationary trends you are seeing through the rest of the year and whether we should still expect ratable spend for the remaining two quarters?

Yes, Brian. I mean, like you and the rest of us, we see inflationary pressure in our everyday lives, and it's showing up in a few spots in our business. Greg highlighted really in places like the tangible goods and diesel and starting to be there in the labor piece as well but really, our focus for a long time has been on driving efficiencies to offset that inflation and you can see that in the results where we are more than offsetting the inflation, we've seen to date, and we are confident that we are going to continue to do that. Maybe I'll ask Greg to just talk on a couple of the highlights of how the team is doing that.

Yes, thanks Brendan. As we've said, we're seeing some inflation on the steel side, but our supply management team is very sophisticated and they are being proactive in getting out ahead and purchasing pipe ahead of our program, which is allowing us to lock in reasonable cost. One of the other ways we're pushing back on that is, as we highlighted, not only in the Permian, but in other areas of the field, steel is a major input component to our facilities.

And so we're reusing a lot of our existing equipment, tying in new wells to existing facilities. That allows us to actually reduce our facilities cost and avoid some of that inflationary pressure. We are also working really hard as we always have on reducing cycle times. As you know, days in this business are dollars, and so the faster we can drill and complete our wells, the fewer days we have on location, the less cost we incur from our vendors, but also on the frac side, Simul-Frac. By completing a well in half the days, you are using quite a bit less diesel and it allows you to avoid some of the inflationary pressure. So, while we're seeing the pressure, we feel very confident that we'll continue to be able to offset that and deliver on our targets in the second half.

Brian, I'd just add that Greg highlighted the impact that Simul-Frac's been having in our business and how we are now in some places all of the program or 90-plus percent of the program is using that technology for us but I think what's important to note here is that it's not just implementing Simul-Frac and stop there. The teams have continued to find ways to make Simul-Frac itself better. And you can see we've put some incremental disclosure in our appendix deck where you see things like in the Montney, we're now delivering pump times of 22 hours a day just by making that Simul-Frac technology better as we go.

Great. And maybe just given the new debt target, any updated or different thoughts on how you are approaching hedging. It looks like based on your hedges in place for 2022, you are further along on the natural gas side than oil. Any different thoughts there as you continue to de-lever the balance sheet.

Maybe just a couple of things there, Brian. So, really, as a refresh, the rationale for our hedging is to ensure we can deliver on our strategic priorities and manage balance sheet risk. That's why we hedge. And so what you can see as a characteristic in our '22 book, it is a focus on three-way structures that can give us protection to manage those priorities and the risk to the balance sheet, but also exposure to the upside as prices improve, and maybe the last thing I'd say there is, as we continue to reduce debt, we'll adjust the amount of hedging we do. In the last couple of years, we've had really robust hedge books to ensure we could deliver on those strategic priorities and clearly, as we do that, we look to reduce the size of that hedge book going forward.

Your next question comes from Jeoffrey Lambujon with Tudor, Pickering, Holt & Co.

My first one is just at the asset level for the Montney. Can you remind us what the landscape looks like there in terms of access to gas capacity over the next several years to just speak to the production profile and potential of that asset specifically? And then I've got a follow-up on some of the discussion from earlier.

Yes, Jeff, we're in great shape there. The infrastructure expansions that we undertook several years ago set us well up in the play. And so we've got full access to market with our production, and you can see that in the performance.

Great. And then for my follow-up, and I am sorry to tap on here again, but just want to make sure we are thinking about it appropriately as it relates to 2022. Just given the increase in baseline capacity at OPEC and the uncertainty on the demand recovery, just given things like the delta variant plus the priorities, you continue to highlight on debt reduction, return of cash to shareholders, would maintenance production be a good placeholder for 2022 at this point in time just based on those conditions you're seeing and that you've highlighted?

Well, I think sitting here in July, it's still a bit early to set expectations for the 2022 budget, and we'll make sure we communicate that on as we go through the year, but like I said, we'll continue to emphasize capital discipline, and we've been very clear about what the strategic priorities that we have are.

Your next question comes from Greg Pardy with RBC Capital Markets.

First up, Doug, all the very best in your retirement. I can't believe eight years has gone by so fast and congrats again and Brendan on the new role. Look, a lot of great questions. The only thing I'd kind of ask is you've got the big three, and then you've got this circuit 25,000 BOE a day sitting out there with Bakken and some of the other non-core assets. So do they -- I'm assuming it's really about harvesting free cash flow at this stage. Do they eventually move out of the portfolio. No rush. Happy to have them in there. How should we sort of think about the minority in the portfolio?

Yes. Thanks, Greg. Well, like I said, we've been very deliberate about creating the portfolio that we have today. The Bakken plays an important role there. It's a great free cash-generating asset, high-margin, oil rich, and as Greg highlighted, some of the same efficiency gains that we've been delivering elsewhere in the portfolio, we are now bringing to bare on the Bakken and seeing great results both on the cost reduction side, but also on the well performance side, we are seeing really strong well performance there, and so while it's small, it's mighty, and we like how it fits into our strategy going forward. So, I think you should expect us to continue on with the portfolio we have today.

Okay, terrific. And then you've kind of answered it around really driving towards sustaining capital. So, in the environment we're in, you are continuing to advance efficiency gains as you mentioned. You are offsetting inflation. So, is kind of maintaining, sustaining at around $1.5 billion or so, is that what the thinking is internally or do you think you can actually continue to take that sustaining capital number down?

Well, I think, Greg this is something that we work on all the time, and the approach that we are taking today is that efficiency gains are flowing to the investor and we like that model, and that's how we'll be continuing to run the business going forward.

Your next question comes from Nitin Kumar with Wells Fargo.

First of all, congrats Doug on the retirement and Brendan on the new role. I am going to take a little shot at 2022 here. One thing I noticed is your -- and you mentioned this, you are tracking a little bit below your planned D&C per foot numbers in the Anadarko and the Montney. Does that change the thinking on returns for 2022 and capital allocation between the Permian and other basin.

Yes. Thanks, Nitin. I think really, at this point, the point to put out there is we're really pleased with how the business is performing. And we just need to watch how the macro has gained towards 2022, and whether it's great to have options as we look at that.

Okay. And then you noticed you've hedged quite a bit of your gas, but you are just starting to work on the oil side to some additions as you mentioned on the calls. Should we expect the company to hedge more in line with prior years on the oil side as well as the year progresses for 2022?

We'll evaluate that Nitin as we go. I think my comments earlier around as the debt comes down, need to hedge to deliver on those strategic priorities shifts. So, I think, look to us for further guidance on that as we go through the year.

Your next question comes from Neal Dingmann with Truist Securities.

My question is kind of interesting. I noticed -- I couldn't help but notice that now on the latest presentation, the Bakken, you're getting [bigger than that]. Bakken is just behind your Permian on the latest slide deck and obviously, Greg, also walked through just some of those key highlights that certainly are noticeable versus -- I don't think it was highlighted as near as much on the deck about a year ago. So, I'm just wondering, do you all now consider this the second highest sort of priority in the portfolio, and maybe a question for Greg, what he would consider as sort of the most dramatic changes of that play in the last 12 months?

Yes. Neil, I wouldn't read anything into the slide order there, but I think what you are seeing is when we took the operational pause in 2020, we didn't have a lot of activity in the Bakken program, and so coming into this year, we've now resumed activity in that play. I am just really pleased with the results that we are seeing and reporting out on that. Maybe I don't know, Greg, if you wanted to address with some clarity.

Yes, Neil, I think the thing to keep in mind is we really like the returns from all of our assets. We've been most recent times focusing on the core three, but we've always liked the Bakken. We just took the pause as Brendan noted, and really now that we are getting back to it, we are just catching up to where we've been in our other basins, using some of the same technologies. And what I think it really proves is that our operational philosophy works across multiple basins. It's not only transformed what we had in the Permian. It's done great things in the Anadarko, and I expect it to do good things in the Bakken as well. So, this gives us confidence in our operating philosophy and how well the teams can perform when they are given an opportunity.

It makes total sense. And then just one follow-up. Just wondering, given this has been kind of pulled out quite a bit today, you guys even mentioned it -- given to me what appears to be just really the certainty of your future free cash flow, and I'd couple that with the low-cost of your current debt, I guess the natural question is why not pay out many more shareholder return near-term versus continuing to pay down that debt.

Yes, Neal, this is remember a long-term piece that we've been working on. This is now the fourth consecutive year of free cash generation. So, this is not new for us. And like Doug highlighted in his comments, the increase of shareholder returns is not new for us either. So, this is clearly something we are going to look to do going forward.

Your next question comes from Doug Leggate with Bank of America.

Thanks for getting me on. Doug, we're [passing] the floor to you as well. So, congratulations and Brendan we look forward to chatting with you again soon. Guys, I guess I want to go back to one of the very first questions on free cash flow yield, and it was observed obviously that you have got one of the highest free cash flow yields in the sector. It seems to us as a function of market perception of portfolio sustainability. So, when you talk about maintenance capital, the follow-on question is do you have up for how long. So, I just wonder if you could give us a quick refresh as to where you see inventory depth across the full assets including the Bakken.

Yes, Doug, This is something we spend a lot of time thinking about, and we've got great inventory depth across the portfolio. We have a decade of inventory across the core assets and so -- and I highlighted before how the teams continue to build on that through coring up our acreage in each of the basins we operate in.

So, specific to the Bakken, Brendan?

Yes. In the Bakken. Really, the Bakken and for us of course is a smaller asset scale relative to the core and it doesn't have as much inventory, but still has quite a number of years of go-forward inventory at the levels we are investing into it today.

Okay. My follow-up then is, I guess, it's kind of a cash fall for the debt paydown visibility of the free cash flow and so on. If you are in a kind of a maintenance more, then the balance sheet has got a pretty good trajectory. How does that impact if at all your philosophy on hedging, if you are not protecting capital program, so to speak, and the balance sheet is in better shape, what is the thinking of how you navigate hedging (inaudible).

Yes, Doug, we're very clear the hedging program is to manage balance sheet risk and ensure we can deliver our strategic priorities. So, to your point directionally as the balance sheet improves, the hedging program can be smaller.

Your next question comes from Paul Sankey with Sankey Research.

Doug, all the best in the future. Brendan, thanks for taking the question. Can you outline the investment case for Ovintiv here because I think one of my questions is how you think about the cost of debt and the cost of debt relative to the cost of equity just as far as debt is so cheap now. I was wondering why you are not pursuing a more aggressive cash return strategy given the amount of free cash flow you are generating. And Brendan could you roll that into really what is exciting about Ovintiv if I am trying to sell the company to a new investor. What is your competitive advantage? What's great about Ovintiv that I can go out there and say you've got to buy this stock? Thanks.

Yes, thank you, Paul. I mean we've been really clear about this. Our strategy is to deliver significant free cash generation and quality returns, and we're backing that up with return of cash to shareholders highlighted by today a 50% increase to our dividend, and so I think that's the answer to your question.

The dividend is still very low, right? I mean I can't have people buy out with whatever it is 2% yield. Is it going to be the growth in the dividend that's going to be the really exciting thing?

I think really, Paul, the piece to highlight on here is that the efficiency gains that we are delivering in the business are flowing through to our investors. And so today's dividend increases a step on increasing that cash return to shareholders.

And could you just address that issue of how you see the cost of the debt versus the price of the equity. Is it really a great idea to be paying down debt because interest rates are just so low. I figure that maybe you might be tempted to run with a higher debt level and a higher cash return.

Paul, we've been laser-focused on this debt reduction piece for over a year now, and it's had an incredible impact to our equity performance, and we see that continuing to translate going forward.

Your next question comes from Noel Parks with Tuohy Brothers.

I wondered if you could talk a little bit about your thoughts on the NGL market, just what you are sort of assuming the scenarios are as we head into the end of the year?

Well, Noel, I mean we've seen a robust NGL market through the year here. We produced 80,000 barrels a day of NGL. So, it's a significant part of our production mix and great to have that exposure. So, it's definitely helping increase cash flow and part of the reason we are on track to deliver over $1.7 billion of free cash this year.

Great. And regarding the ESG disclosures that you've updated, I was curious about the methane emissions intensity, significant year-over-year improvement there. And considering sort of the different vintage of your various plays in basins, I was just curious, do you have a particular region that is more of a focus for improvement going forward or is the way forward relatively similar across them?

It's happening across the portfolio, Noel. We've seen big gains as we've been enhancing our leak detection, reducing our flare and vent volumes. And so those are having a direct effect on our results, and you see that in our 2020 performance. And I would just tell you that's continued across the portfolio this year.

At this time, we have completed the question-and-answer session. And we'll now turn the conference back over to Mr. (inaudible).

Thank you, operator, and thank you, everyone, for joining us today and for your continued interest in our company. Our conference call is now complete.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.