Q1 2023 Ovintiv Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by.
Following the presentation, we will conduct a question and answer session.
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I would now like to turn the conference call over to Jason.
Some investor Relations. Please go ahead Mr <unk>.
Thank you operator, and welcome everyone to our first quarter 'twenty three conference call.
This call is being webcast and slides are available on our website at <unk> Dot com.
Please take note of the advisory regarding forward looking statements at the beginning of our slides and in our disclosure documents filed on SEDAR and Edgar.
Following prepared remarks, we will be available to take your questions. Please limit your time to one question and one follow up.
I will now turn the call over to our President and CEO Brendan Mccracken.
Good morning, Thank you for joining us.
We kicked the year off with great momentum, we delivered net earnings of $487 million cash from operating activities of $1 1 billion and.
Free cash flow of $241 million.
And cash flow per share of $3 44.
Beating consensus estimates.
We also returned approximately $300 million to our shareholders through share buybacks and base dividends.
This represents a cash return yield of nearly 15%, which is very competitive in today's market across both industry peers and the broader economy.
Production during the quarter came in at 511000 BOE per day, we exceeded guidance on oil gas and NGL.
In at the low end of guidance for capital.
This result was driven by strong well performance across our portfolio and combined with some impressive capital savings from our innovation and efficiency focus.
So once again push the leading edge for industry on drilling and completion speed.
We also announced two compelling transactions that enhance our capital efficiency grow our margins and simplify our portfolio and extend our premium inventory depth.
First we entered into an agreement to acquire core Midland acreage and added over 1000 locations to our inventory.
We entered into a separate agreement to sell all our assets in the Bakken for $825 million.
The combined transactions are immediately and sustainably accretive on all key metrics, including cash flow per share free cash flow per share shareholder returns NAV and inventory life.
In conjunction with the transactions, we also announced a 20% per share increase to our base dividend.
I'll speak more to the transactions later in the call, but we are reiterating the projections we made at the announcement it remain on track to close both deals before the end of June .
I want to thank our team for delivering an impressive quarter in all aspects across every asset.
These results demonstrate that our strategy is working and our execution is translating into value for our shareholders.
Our team is focused on execution and delivery of our 2023 program is designed to maximize free cash flow will load leveling our activity through the year.
The beat in our first quarter production volumes reflect the intense focus of our teams on executing that plan and delivering strong well performance. We saw great results across the portfolio with especially strong productivity in the Permian.
Greg will speak to more to this more in a minute, but the work our teams are doing to enhance completions design is clearly showing up in our well results.
Our culture of innovation amplifies these operational successes as learnings are quickly transferred across the portfolio.
In addition to strong volumes. We also saw a significant margin enhancement from our market access strategy.
We continue to successfully manage our gas flow assurance and price risk across the portfolio.
With over 90% of our Montney gas priced outside the basin and 65% of our production physically accessing downstream markets. We were once again positioned to benefit from premium pricing out in the Lynn CMS Dawn in Chicago.
This diversification allows us to capture some of the high West coast gas prices, we saw in the quarter.
<unk> had in a pre hedge natural gas price realizations of more than 140% of Nymex for our Canadian gas across the whole portfolio, we realized 111% of Nymex after hedges.
I'll now turn the call over to Greg to discuss the operational highlights from the quarter.
Thanks Brendan.
Brenda noted capital efficiency remains a key focus for our operating teams as we work to efficiently convert our inventory into cash flow and generate durable returns for our shareholders.
Our efforts on completion design and particularly on stage architecture delivered stellar well performance across our Permian acreage this quarter.
This continues to well performance momentum we generated in the second half of last year.
The chart on the right shows our results across 2020 to the first quarter of this year and our first year excuse me our full year 2023 performance expectations were.
We are actively working to increase resource recovery through our culture of innovation at our cross basin learning approach.
The Permian Wells, we turned online in the quarter had an impressive IP 30 rate of 1165 barrels of oil per day on a 10000 foot normalized basis.
This level of oil production per foot of lateral is in line with our strong fourth quarter results and is among the highest we've ever delivered in the Permian It's.
It's important to stress that we continue to utilize our cube development approach to achieve these results.
Also important to note that these results are spread out across our acreage footprint and we are pumped these completions without added well costs above our budget.
We are very encouraged by the year to date results. We are seeing in the play. However, we recognize its early and we have not yet underwritten this performance and our guidance numbers for the rest of the year.
We continue to set the efficient frontier and operational performance in the Permian.
Our track record of continuous improvement has resulted in both cost efficiencies and productivity improvements.
After navigating a challenging operating environment in 2022, our team has put us back on track in 2023 with some significant completions milestones.
For example, our year to date average completion speed at well over 3000 feet per day is about 25% faster than our average speed over the last three years and tops the performance quoted by peers.
Using the same timeframe comparison, we now put up 65% more proppant and 35% more fluid.
Our enhanced performance efficiency means that these higher intensity completions are not resulting in higher well cost.
We are also demonstrating industry, leading drilling efficiency ranking second in an independent Midland Basin peer review of drilling feet per day over the last 12 months.
And our business time is money and these achievements mean, we spend fewer days on location with less downtime, improving our capital efficiency and reducing our cost.
Our strong performance in the quarter was not limited to the Permian.
We are continuing to deliver impressive results across our portfolio.
Nowhere is this more evident than in the Montney.
Over the last 12 months <unk> has dominated the list of most productive wells in the play on a total Boe basis.
One of our recent lower Montney wells posted a 30 day IP rate of more than 5300 Boe per day comprised of 1150 barrels per day of condensate and 25 million a day of natural gas.
There are very few plays in North America that are capable of delivering multi product yields likes us from a single well.
The economics in the Montney remain extremely robust.
Even with the current strip pricing, we expect to generate well level returns of more than 100% across the 2023 program.
These great returns are driven by our superior well productivity low D&C costs and strong price realizations.
During the quarter, our Montney condensate realized price was greater than 100% of <unk>.
And as Brendan mentioned earlier, our Montney gas realized prices were more than 140% of Nymex on our pre hedged basis.
The Anadarko is also outperforming our expectations our reduced activity levels in the play this year enabled the team to innovate and refine our completion design improved well targeting and optimize base production.
Our activity has been focused on the oily as highest margin parts of the acreage.
We've also done a great job in shallows out the base decline rate in the play to about 20% further improving the cash flow generation of the asset.
The Anadarko continues to provide great product optionality and stable base production with ample market access and strong price realizations.
In the Uinta, we are gearing up for an active program in the second half of the year. We are currently running two rigs in the play and drilling a nine well pad, which we expect to bring on production in the third quarter.
Are you into land base of approximately 130000 net acres is about 80% undeveloped and is primed for cube development.
It has multiple stacked horizons with about 1000 feet of collective pay this translates into a significant inventory runway.
We continue to generate industry, leading well results comparable to those in the Delaware basin and outpacing our peers by about 50%.
So overall, we are very pleased with the operational performance across the asset base and we remain intensely focused on delivering our targets for the remainder of the year.
I'll now turn the call back to Brendan Thanks.
Thanks, Greg.
The Permian acquisition, we announced last month checks all the boxes for our durable return strategy.
<unk>, our future inventory runway in our core area and is immediately accretive across all key financial metrics and will also enhance our capital efficiency lower our cash cost per Boe.
Importantly, we maintained our strong investment grade rated balance sheet.
Although commodities have been volatile since we announced the transaction. It is important to note that the original accretion metrics were calculated before the OPEC supply cut announcements using March 30 strip pricing, which was actually a few dollars below today's WTO strip the metrics, we highlighted remain as robust or even slightly better today.
Located in some of the best rock in the Permian. These assets have demonstrated leading well performance and are a natural fit with our existing Martin County acreage the.
The blocked up acreage sits in the core of the northern Midland Basin is about 85% undeveloped.
It is also well delineated with more than 180 horizontal wells producing today.
That is an ideal setup for our team.
The transaction will add 1050, net well locations to our Permian inventory.
The land position offsets our current acreage in Martin County, we have a deep understanding of the resource here and we will be able to leverage our existing operations now close we will nearly double our Permian oil and condensate production.
The acquired assets immediately compete for capital across our program and we expect to run two to three rigs on the acquired acreage for a total of five rigs in the Permian.
While the performance of the acquired asset stands on its own we do see several potential upsides.
We will apply full scale cube development across the acreage, we'll be deploying our proven optimization techniques around completion design simulcast <unk> stage architecture artificial lift and accelerated cycle times.
We will also be optimizing development in logistics across our combined Permian position versus the three separate operating companies that were planning and executing work each on each of their individual footprints previously.
We anticipate reduced offset frac hits, as we significantly reduce activity across the position.
As I noted earlier the transaction is progressing as planned we are targeting a mid June closing date, if we get regulatory approval in a timely manner.
With an effective date of January one for both the Permian acquisition and the Bakken sale, there will be typical purchase price adjustments, which which are typical for these types of transactions.
The acquired assets are expected to be free cash flow negative in the first half of the year, while the Bakken assets will be free cash flow positive as a result, we will pay an adjustment for both deals.
This anticipated these anticipated price adjustments were baked into our evaluation of the assets and their purchase price.
And were also incorporated into our accretion metrics teams have been focused on seamless integration and we look forward to closing.
Yesterday, we provided our second quarter guidance and updated our 2023 full year guide in the second quarter, we expect to see production grow to roughly 515 to 535000 Boe per day.
With associated capital spending of $590 million to $630 million.
We have provided our Q2 guidance under the assumption of a June 30 closing date. However, we have the potential to close a couple of weeks earlier in mid June and we've provided a guidance sensitivity for that scenario.
Assuming we close both transactions in mid June we would expect to add on a net basis, roughly 5000 to 6000 barrels of oil and condensate to our second quarter production guidance and we would expect to add capital of about $70 million to $90 million to our second quarter capital guidance.
Our full year guidance remains unchanged from the update we provided in April when we announced the transaction.
In the Permian, we expect to shift from a 10 rig program at the time the acquisition closes two a five rig program by the fourth quarter with most of the transition happening in Q3.
As a result, Q3 will be our highest quarter of capital spend.
In addition to increased capital efficiency the.
The transaction will also drive increased cash cost savings we.
We are divesting a relatively higher operating in TMP cost asset in the Bakken and adding a relatively lower cost asset in the Permian.
We anticipate company level savings of 3% to 5% for both Opex and TMP in the second half of the year.
While our hedging philosophy has not changed we have layered in additional <unk> and Nymex protection to reflect the additional scale and the debt of the company post transaction.
We now have about 50% of our pro forma wty exposure hedged using a combination of swaps in the mid to high seventies.
Collars with floors in the mid sixties with upsides into the eighties, and three ways with soft, Florida, and the mid Sixty's and upside to 90 plus.
On the gas side, we have layered in production through a mix of structures again, many with attractive upside.
Next year, we expect to run a low level development program, producing more than 200000 barrels of oil and condensate per day with a capital range of $2 one to $2 5 billion.
To put that into context next year, what we would spend roughly the same amount of capital is at the midpoint as our original 2023 guide.
But that Capex will produce an additional 30000 barrels per day of oil and condensate.
We believe that long term value creation in the E&P space will come from companies that can demonstrate durability and both the return on invested capital and the return of cash to shareholders.
Generating durable returns requires a deep inventory of premium return drilling locations, the culture and expertise to convert that resource to free cash flow at a superior rate of return.
And disciplined capital allocation to make sure that value flows through to the bottom line.
We check all three boxes are leading capital efficiency is underpinned by our multi basin multi product portfolio, which provides the operational and commodity diversification cross basin learnings and premium inventory depth.
Following the close of the transactions, we will have anchor positions in four basins the Permian.
Montney and a quick cycle time, and multi product asset in the Anadarko and our high margin high return emerging oil play in the Uinta.
We are delivering outstanding results, we are well positioned for today's volatility we take great pride at producing safe affordable reliable and secure energy, while delivering superior returns to our shareholders.
That concludes our prepared remarks, operator, we're now pleased to take questions.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
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That you limit yourself to one question and one follow up.
Your first question will come from Doug Leggate Bank of America. Please go ahead.
Thanks, Good morning, everybody I appreciate you taking my questions Brendan.
Two two quick ones, if I may I want to pick up on your comments about the effective date.
On the cash outflow in the acquisitions in the first half of the year can you just clarify.
What are you what is what are you anticipating assuming June 30th close that the net cash outflow is actually going to be is that a material delta relative to the acquisition price.
Yeah, Hey, Doug I appreciate the question so.
As I said, we're seeing customary closing adjustments here, but a bit different than some other situations since we're simultaneously selling one asset and buying another.
So based on today's commodity prices and assuming the June close.
And our expectation of activity pre close here, we'd estimate the closing adjustment on the Permian acquisition to be under $100 million.
And that is a net outflow from us since the assets running free cash flow negative during the interim period as a whole.
And it's important to note there is some potential here for working capital to swing that number around a bit and of course, the the closing timing will have a little bit of an impact, but that's our best estimate today.
And then on the Bakken side since we're the operator, there we know those numbers a little more tightly.
And again with today's commodity prices, we would expect the closing adjustment there to be a little over $100 million and again, that's a net outflow for us since the Bakken has been free cash flow positive during the interim period.
And just.
As a reminder, we expected these adjustments and we baked them into how we priced the transaction.
And so they don't impact the economics of the overall transaction and we also accounted for those.
Closing adjustments in the accretion metrics that we've reported.
Got it thanks for the clarification I guess my follow up is I want to revisit something we've asked you about many many times in the past Brendan so apologies for that but you've talked about durable cash returns that street out of our playbook on how do we think about valuation, which is durable our sustainable free cash flow when you.
Yeah.
Your portfolio today post deal on a run rate basis, what do you see is the sustaining capital on the durability in terms of inventory depth of the combined portfolio.
Yes, I think the.
Again appreciate the question Doug.
Maybe what I'll do here is focus a little bit on how we see the scale of crude and condensate unfolding and thats, probably the way to back into your your sort of maintenance level question pro forma so.
With the deal announcement, there we gave some steering on the pro forma numbers for both 2023 and then.
For full year 2024, and we've reiterated those same numbers with this Q1 release, so no change there.
We see 2023 pro forma averaging 185 to 195000 barrels a day and so if you look at our Q1 actuals and then now our Q2 guide that lines up with US producing 210000 barrels a day in the third and fourth quarters of this year.
And then looking out into 2024.
I think we want to provide some context for how we see the combined business shaping up and so we expect to produce over 200000 barrels a day for the full year and we're targeting an activity plan that would see us start 2024, a little higher than that and then reach a stable production level for the second half of 'twenty four and so.
Recognize its a little bit early to start formally guiding to 2024 and exit rates and there are a bunch of moving parts here, but.
For Big round numbers, we see the pro forma business setting up into a new state flat level of about 200000 barrels a day of crude and condensate.
And that would translate through to that $2, one to $2 $5 billion of capital.
Your next question comes from Josh Silverstein.
Please go ahead.
Hey, Thanks, Good morning, guys, maybe just on the sustaining capital number you mentioned that Q1 to two five for for next year.
Can you just talk about any sort of.
Well cost in there, whether it's deflationary relative to what Youre seeing now.
And then you talked about.
The well cost on changing on the current completion design.
Going forward into next year is that kind of a similar trend that you would be are you factoring that into that guidance for next year as well.
Yes, that's right Josh So we have not built any deflationary assumptions into that.
Either into our 2023 guide yet or are obviously down the road yet so.
I think it's early days.
I think like others, we've seen this service pricing plateau and in a few places start to retreat a bit.
But quite early so we have not counted on any of that deflationary.
Pressure coming into the market in our in our forward looking steering your guidance.
Got it.
You mentioned being able to rejigger. The completion designs of the acquired assets. We are acquiring three different asset can you just talk about how quickly you can implement your new designs, there and maybe what the current well performance.
Performance looks like versus what you might be able to see under the new completion designs.
Yes, Josh I appreciate it so again, we have not counted on as step change in well performance.
Obviously, that's one of the upsides to the transaction here and we certainly look forward to getting the keys in and getting in there and implementing the innovative approaches that our team takes so.
There's a little process here Theres, a 120 odd wells in progress so.
Those have been drilled cased and targeted with the prior management teams and so we know we will be working with those well designs initially but.
As far as the rigs will be jumping right into our well design and targeting basically from day, one on that front. So once we work our way through those wells in progress then we'll be into the full <unk> of designs from there.
Your next question comes from Neal Dingmann.
Please.
Please go ahead.
Good morning, guys. Thanks for the time.
Brian My first question just on this shareholder return program, specifically could you talk about your thoughts on sticking with the formula rate plan, which I like versus I know some others more recently I'm just we've seen here.
For earnings others taken a more opportunistic approach stepping into buybacks such as flooding.
Thoughts on potential changes on the <unk>.
On the shareholder return.
Yeah, no appreciate it Neal.
And you're quite right. We've left the shareholder return Fame Rick exactly as is so no changes to that and if if we kind of call back to when we initially put that in place one of the designing principles that we felt was really important was to have a transparent program that shareholders could understand and therefore value but also.
How long that would be durable and not have the b sort of swinging around so I think we accomplish that I think the program has some flexibility in it in terms of how we return cash to shareholders.
Just for the sake of restating the obvious we've been firmly in the buyback world because our view has been that's the best value.
Available to us in allocating that that return of cash and so we.
We see the current.
Equity valuation well below the intrinsic value of the business out of mid cycle pricing. So buybacks continue to screen very favorably in our minds.
And so we think that shareholder return framework has worked well and looks to continue to work well for us. So you should expect us to be be consistent with that.
No that's great to hear and then maybe my second one for Greg just on the U S a bit.
You've got that slide eight that shows.
The robust I like that last.
A table that shows that the uinta competing with the Delaware.
The core Delaware and I'm, just wondering maybe if Greg can talk about maybe just thoughts on how that does compare from a return perspective to get I think obviously expectations are high for your Permian that sort of speaks for itself I'm. Just wondering how does <unk> compete against that when youre looking at returns.
Yes.
Yes, thanks for the question Neil.
I think the first thing I'd say on the U S. As you know, we're really just getting ramped up here on that program as I said in my prepared remarks were.
<unk> drilled a few wells in the first quarter, we have two rigs running there now.
But we continue to be just really impressed with the results from the wells. This is an over pressured reservoir somewhere to the Delaware, So youre going to get high initial rates, but that does come with slightly higher costs. We think as we continue to optimize our program get the services, we need going in the basin, we feel like it's clearly compete.
Cost wise with the Permian, maybe slightly higher but not not not where you would see in the Delaware.
So putting all that together with the takeaway that we've secured we're seeing really good success moving barrels both the salt Lake City and on rail down to the Gulf Coast. We think the returns here are going to be incredibly competitive in our portfolio, which would put them up there with anybody in the industry. So.
Look forward to having more news on that later in the year, but just things that play really competes well in is a good fit in our portfolio.
Your next question comes from.
TD Cowen. Please go ahead.
Thanks, Hey, good morning, everybody. Thanks for the prepared remarks.
I was hoping we could maybe just go back to the Midland acquisitions.
Just the three assets could you maybe just give us a sense of.
Oil production is currently given the target of 75000 BOE a day close I guess.
75000 Boe a.
A number.
Exiting the quarter or is that a quarterly average.
What does the activity look like from.
I guess now until close or even just the first half of the year.
Yes, Gabe so.
The activity level is consistent with where we were at the acquisition announcement.
Announcement dates with seven rigs.
And we get weekly production updates and those are all tracking.
<unk> against plan relative to that 75000, Boe's a day at close and that was at close so it's the exit of the quarter.
Because there is a ramp up through the quarter for sure with that activity level.
Okay. Okay. Thanks, Brian Thats helpful.
And then I guess, maybe for Greg going back to <unk> results out of the Permian you highlighted the three pads. There could you maybe just talk a little bit about some of the differences youre dealing on that.
Youre doing on the completion side and then also have any of the cubes changed at all whether whether it's adding new zones.
Or may be tinkering with the spacing some of the existing zones. Thanks Scott.
You bet thanks for that question.
Yes.
Really proud of what our team has accomplished here in the Permian over the last few quarters.
We remain committed to our <unk> strategy there because we firmly believe the co developments the best way to optimize our recovery and returns from our acreage, but we have made some changes to our completion designs.
Little tweaking to the wells targeting.
We're really focused on our stage architecture and what that means is we're just adjusting the stage link slightly working our perforating schemes. The perf clusters, how we how many perhaps where the perps are placed and we're also adjusting our sand and water mix.
Resulting in as we said in the prepared remarks over time, we started pumping a little more sand.
Which is really very economic for us because of our wet sand supply we have their local in the basin, but also our unique on location San storage system that allows us to pump really large volumes of sand with very minimal downtime.
The approved efficiencies we've seen in the play are pumping faster has allowed us to pump a little bit more sand, a little bit more fluid and not improved or increased.
<unk> increased our cost.
On the targeting piece, we're not really adjusting our spacing. There is really just slightly tweaking where the wells are located to help improve drilling performance, but also help well performance. So it's just a lot of little things that add up to a really strong results.
But again every cube is custom designed to optimize.
The output from that section of land and get the best return from the well. So overall just really proud of what the team's doing generating great results and look forward to using these same techniques on the acquired assets when we take them over later in the year.
Yes, Gabe I would just add because I think this is really important because theres been a lot of moving parts in industry on attacking the stacking and spacing in the Permian and how that plays with well performance and so.
I think this is the reason we've been in cube development mode for as long as we have is we feel like this is absolutely the right way to target the resource for value and returns and so we have not been up spacing or widening out spacing here as Greg says we've been doing as you know.
Just finding better ways to land the wells within the benches to both drilled faster, but also boost productivity. So.
Really by Greg says happy with how things are going.
Your next question comes from Nicholas Pope.
Pork research partners. Please go ahead.
Good morning, everyone.
Good morning.
I was hoping you could talk a little bit more about the share.
Share repurchase kind of in light of.
The credit facility being.
Kind of increased as you're as you're repurchasing shares and as you look at that balance right now trying to understand a little bit about where.
That credit facility.
What that interest rate risk rate looks like right now and as you look at kind of progressing through the acquisition divestiture.
Here yet.
If you're thinking about where that.
GAAP might be funded.
What the expectation is for our credit facility versus the bridge financing.
And kind of what those rates look like and how youre thinking about that relative to the share repurchase right.
Yes, Nicholas I. Appreciate the question. So I think that's really a financing question on the transaction. So I'll flip it over to Corey can kind of walk you through where we're out on that front and how we see that coming together.
Sure. Thanks, Brandon so on that front just to be clear that framework that Brendan walked through earlier on the share buybacks, that's kind of our method of returning capital to shareholders. So it comes on the trailing basis of that free cash flow in the prior quarter, but as we think about the acquisition.
<unk>, we've got that bridge in place and our intent is to put permanent financing in.
Rather than drawing on that bridge, we've spend a little bit of time, describing the run rate EBITDA of the new business is about $4 billion at mid cycle pricing.
If you look at our debt structure today that.
Long term debt number we've talked about.
<unk> four 1 billion excuse me, we think about that being kind of like the 2030 timeframe and beyond so if you look at our structure today, we've got about $2 7 billion in that 2030 and beyond timeframe. So it leaves us about $1 three of space in there to have a long term number we like and the shorter end of that would be.
Stuff that we could repay rather quickly with free cash flow as we generate that through the business. So that's kind of how we're thinking about putting permanent financing in place.
Got it.
Rates are you looking at right now with your credit facility.
Is it kind of stands now.
Yes, I mean, obviously short rates are are higher right now so it's probably in the 6% range on the credit facility, but we do have a commercial paper program as well that mix between the two trying to optimize the shorter term cost.
Got it alright I appreciate the color. Thank you.
Thank you.
Your next question comes from Noel Parks at Troy Brothers Investment Research. Please go ahead.
Hi, good morning.
Hey, good morning.
Of course, you're you're just on the verge of.
Major transactions.
<unk> suggested in the portfolio.
But one thing that.
We know there's a bit of a.
Some of the larger producers multi basin producers.
And the last.
Months or so is that you have been quite a few acquisitions were.
Slotted in.
Properties, sorry, not on there number one maybe not even there number two basins, but.
Some of the smaller less asset basin and presumably because.
There aren't a lot of bids.
Out there and.
They can they can offer scale and get.
A good price.
Looks like they've been really successful as far as upgrading technology and so forth. So.
As you as you look at sort of beyond mountain.
In.
Are you seeing things that.
Even though.
A handful of short term that could be potentially compelling.
Thank you Lisa.
No I appreciate the question I think you should expect us to be very focused on the portfolio that we have and then what we said is in the near to medium term here, we're going to be pretty focused on allocating free cash flow to debt reduction and shareholder returns.
Obviously, you need to stay opportunistic and always looking for value, but I think the the near term focus is going to be on that debt reduction and shareholder returns.
Great.
And.
As one of the few.
Large operators.
Both sides of the border substantial U S and Canadian operations.
As far as ESG mandates projects goals initiatives.
<unk> is on the Canadian side are there any particular.
Higher priorities that you need to address.
They're like I said, even through through mandate or just through your own plant.
Sure.
Just wondering if theres any different sort of thing in relative spend you see for instance between the Permian and the mountain.
Any.
No I think for a long time now we've worked that.
Our goals and objectives, there holistically and haven't differentiated between the U S and Canadian assets, we've taken a similar approach in both places obviously theres specific regulatory differences between the two but.
If we took you too.
I'll say it in a facility in Canada, and a well site and facility into the U S.
Aside from the different pressure temperature and fluids, you really wouldn't notice a difference in terms of the design philosophy and operating philosophy. So I don't think we see an appreciable difference in either the approach, we're taking nor the nor the cost of of of.
Any emission mitigation, which.
Just use this opportunity to remind folks that for us we've been delivering.
Significant greenhouse gas.
Emissions reductions synergistically or at least at very low costs. So this has not been a burden on our business and we don't see it becoming a more.
Meaningful burdened at least in the near to medium term.
Your next question comes from.
At Jpmorgan.
Please go ahead.
Yes, good morning, Brendan I wanted to.
See if you could highlight.
Some of the integration work that Youre doing.
On the newly acquired assets, obviously, hasnt closed yet, but what I would talk about your plans to kind of integrate the midstream and marketing of those assets.
As you move forward.
Yes, that's all in motion Arun, obviously, a whole number of processes at work there, but our team has.
Working as pretty intensely across a whole number of categories everything from the drilling and completion plan sort of the obvious stuff too.
How do we integrate this into our it systems and our operational control centers too.
The back office.
Financial accounting and so forth. So all of that is moving well, including the.
The midstream and marketing I expect the transition on the marketing is going to be pretty snap acting.
And.
We're well set up on the midstream side to both.
All three of the Encap operating companies had good relationships with midstream or is that we also work with and have a longstanding relationship with so.
Yeah.
Working all of those details and the team is for sure on top of it but don't see it.
As an area of concern sitting here today.
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Great and then Corie for you thoughts on free cash flow generation.
This year next year.
And.
You look to target.
Debt reduction down to that $4 billion number.
Yes, I guess, just give a little bit of the how we're thinking about that.
Permanent structure of the financing really that's just to give us the flexibility to use that free cash flow to pay the debt down to two 4 billion. So between our commercial paper credit facility and the term debt that will be sort of five years and in well have lots of opportunity to repay it with with minimal to low cost so.
We think it's a good structure balances the long term.
Capital structure of having long term debt, but also getting closer to $4 billion quicker when there is excess free cash flow.
At this time, ladies and gentlemen, we have completed the question and answer session and I will turn the call back to Mr. Jorge.
Thank you operator, and thanks, everyone for joining us today, our call is now complete.
Ladies and gentlemen, this does conclude your conference call for this morning, we would like to thank you all for participating and ask you to please disconnect your lines.
Sure.