Earnings Call: Q3 2019

Oct 31, 2019

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Antenna Corporation's Third Quarter 2019 Results Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Members of the investment community will have the opportunity to ask questions and can join the queue at any time by pressing star 1. For members of the media attending in a listen only mode today, you may quote statements made by any of the Encana representatives. However, members of the media who wish to quote others who are speaking on this call today, we advise you to contact those individuals directly to obtain their consent. Please be advised that this conference call may not be recorded or rebroadcast without the expressed 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. Thank you, operator, and welcome, everyone, to our Q3 2019 conference call. Let me remind you that this call is being webcast, and the slides are available on our website atencana.com. Before we get started today, please take note of the advisory regarding forward looking statements in the news release and at the end of our webcast slides. Further advisory information is contained in our annual report and other disclosure documents filed on SEDAR and EDGAR. I also wish to highlight that we prepare our financial statements in accordance with U. S. GAAP and report our financial results in U. S. Dollars. So references today to dollars mean U. S. Dollars and the reserves, resources and our production information are after royalties unless we state otherwise. Following our prepared remarks today, we will all be available to take your specific questions. Please limit your time to one question and one follow-up. This simply allows us to get to more of your questions. I will now turn the call over to our CEO, Doug Suttles. Thanks, Steve. Good morning, and thanks for joining us today. Recently, I read a sell side note that was titled Likely a Boring Quarter for Encana. Well, from today's news, you can see it was anything but boring. We generated $250,000,000 of free cash flow, executed exceptionally well across the company and announced a strategic move to establish corporate domicile in the United States that we believe will create long term value as it ultimately better positions our company. Our recent actions have proved positive that we are committed to unlocking the significant value we see in our equity. We will leave no stone unturned to capture this value for the benefit of our shareholders. We have a lot to cover today on today's call, so we will organize it around these key topics. First, we'll cover our Q3 financial and operating performance as well as year to date highlights. We are increasing the midpoint of our full year production guidance on the back of continued strong performance from the Anadarko and the integration of Newfield has gone exceptionally well. In addition to our brief remarks today, there is supplemental information in our corporate presentation located on our website. Next, we'll discuss our recent and significant actions to increase shareholder value. We intend to establish a U. S. Domicile company that will expose us to significantly larger and growing pools of investment. By looking at peer data, this will expose our company to almost 3x the amount of index participation we see today as a Canadian company. It is very important to note that we do not anticipate any material costs to the company in executing this move. In recognition of this significant transformation, we have made to our company, we have also decided to change the name to Aventive. On more of an administrative note, we will also be consolidating our share count in a 1 for 5 exchange to enhance peer compatibility and decrease volatility. 3rd, we will close today's call with some high level thoughts on our outlook and how we are planning to approach 2020. As always, we'll take your questions after our prepared remarks. So let's get started. We continue to deliver outstanding financial results, reflecting the quality of our asset portfolio and our constant drive to innovate and find new efficiencies in our cost structure. In the Q3, we posted net earnings of $149,000,000 or $0.11 per share and generated more than $250,000,000 of free cash flow. When combining the last two quarters, we have now generated 3 $78,000,000 of free cash flow. We generated free cash in 2018, 2019 and we intend to do this again in 2020. As we've said before, many in our industry are trying to navigate to where we are today. As our business matures and we transition to a more industrial business model, we are delivering against broader market competitive metrics such as earnings per share, cash flow per share and free cash yield. We have a growing list of highlights for 2019. Perhaps the most important of these is the successful integration of Newfield. Tomorrow, we'll mark the 1 year anniversary of the Newfield acquisition announcement. Since that time, we have exceeded the identified synergies and they are showing up in our bottom line results. Our people across the company are working as one team and delivering exceptional results. For the 3rd time this year, we today raised our projection for annualized G and A synergies from this transaction, now set at $200,000,000 This compares to our original target of $125,000,000 More telling is the fact that we have now eliminated nearly 90% of Newfield's G and A. Our rapid reduction in stacked well costs from a legacy $7,900,000 to an average of $6,500,000 have moved returns higher and made this play very competitive within our portfolio and the industry. Today, we present longer dated production data from all of our wells showing consistent performance from the play. We have continued our track record of returning cash to shareholders. In fact, we are at the top of the list of E and P companies for total cash returned and we fulfilled our buyback plan in a timely fashion. We've repurchased $1,250,000,000 of our stock at what we believe to be a very compelling valuation. In addition, we raised our dividend 25% this year. As our company and cash flow grows, we expect the dividend to grow as well. We see this as a sustainable practice and a requirement for our healthy investor focused E and P companies on the road ahead. Setting aside the Q1, which was noisy due to the timing of the new field closing, we generated $378,000,000 of free cash flow at current commodity prices, and we estimate additional free cash in the 4th quarter. As we've said before, the first port of call for our free cash flow is the balance sheet and the reduction of short term debt. Consistent with prior practice, we continue to refine and high grade our asset portfolio. And earlier this year, we exited from China and sold a non strategic dry gas asset in the Arkoma. The proceeds went to the balance sheet. In addition, we recently made a few key succession moves with 4 internal promotions and other moves below them to build tomorrow's leaders and ensure continued execution at all levels in the organization. And today, the announcement of our intent to establish a corporate domicile in the United States and our new brand are added to the list and reflect the significant transformation of our company. We are excited about our future and our ability to compete and win in both the E and P space and the broader market. Now I'd like to turn the call over to our President, Michael McAllister, for a brief operations update. Thanks, Doug, and good morning, everyone. As you can see, we post another quarter of strong execution. Our approach to reservoir development, combined with solid operational and commercial execution is what enables us to deliver quarter after quarter. We have a quality multi basin portfolio. Our people have a proven ability to adapt, managing risks and continually shifting resources to generate desired corporate level outcomes. Our 3 liquids rich core growth assets continue to perform very well against our production and cost targets. Our capital efficiency metrics continue to improve through meaningful reductions in cycle times across all core assets. Our total production from the core growth assets averaged nearly 480,000 BOE per day, up about 10,000 BOE per day from the previous quarter. Recorra assets remain on track to deliver 15% year over year liquids production growth. You will notice today that we raised our expectations for full year production, primarily related to continued outperformance from the Anadarko Basin. In the Permian, our 3rd quarter volumes were up 13% over last year's Q3. Although most of our activity has been focused in Midland, Martin and Upton Counties, we have been really encouraged by strong recent results in Howard County. In the Anadarko, we see strong year over year growth in oil and liquids, up 16% when compared to the same period in 2018. The story here is really pretty simple. Production results are consistent and the team continues to find operational efficiencies to reduce costs and cycle times. More on this in just a minute. The Montney averaged 54,000 barrels per day of liquids during the Q3, in line with expectations. This represents a 22% increase year over year. Most impressively, our cycle times in the Montney have improved to the point where we are delivering our stated objectives with just 3 rigs instead of the 4 rigs as we had planned. It's always worth reminding folks that with $4,000,000 well costs, sub-eighty day cycle times, single digit royalty rates and a realized condensate prices at 90% of WTI, our investments here compete with anything in our portfolio. Our base assets are delivering significant free cash flow today and play a critical role in our corporate level performance. Collectively, our base assets produced just over 100,000 BOE per day in the 3rd quarter, up nearly 8,500 BOE per day over the 2nd quarter, with the growth driven by oil and condensate. Our Williston infill program is giving us confidence in a much larger inventory count than we originally estimated. In the Eagle Ford, consistent well performance and solid execution are continuing to produce free cash flow. In the Duvernay, strong well performance from a recent pad led to a 40% quarter over quarter growth. Let's move on with a little more detail on our strong STACK performance to date. Our development in the STACK Meramec is focused on the black oil window in the heart of our contiguous acreage position. This is a dominant acreage position that is early in its ultimate development. Our strong well performance in the area and focus on base production delivered 162,000 BOE per day through October. In addition to our consistent well results, the team continues to find operational efficiencies, deploying our cube development model, resulting in rapidly reduced well costs, cycle times and improved returns. STACK well performance continues to be consistent. The plots on this slide focus on a subset of wells in the Black Oil region. To date, we have pumped 40 high intensity cube style completions. And as you can see, oil production is outpacing our expected oil type curve at 180 days from initial production. Please mark your calendars for a Stack Day event in late January. Since we acquired this asset, we continue to be encouraged by the significant value we're seeing and the competitive returns the PLAY is generating today. By late January, we will have nearly a year of new data from the Anadarko, and we look forward to sharing a great story with you. I will now turn the call over to Corey. Thanks, and good morning, everyone. Let's discuss the list of whys regarding our decision to establish a corporate domicile in the United States. Let me say upfront, this move does not represent a shift in strategy. It is simply about gaining access to deeper pools of investment capital. We believe the opportunity to enhance long term value for shareholders will be greater as a U. S. Domiciled company. Despite significantly and strategically repositioning our multi basin portfolio in North America's top basins, while constantly innovating to improve our returns and corporate financial performance, we believe our valuation continues to be disconnected from our U. S. Peers. This is due in part to the inability to access certain pools of capital in the United States that are limited in investing in securities of foreign companies. As a U. S. Company, we may be able to attract deeper and growing pools of passive investment capital in the United States, particularly if our shares are included in U. S. Indices and other investment vehicles that only include securities of U. S. Domiciled companies. We believe this change will level the playing field with our principal competitors, most of which are U. S.-based companies. There will be a great deal more information in our preliminary proxy statement, which will be filed with regulators next week. Please take time to read this document to more fully understand our rationale and the mechanics behind this planned move. We estimate that we can make this domicile change without material cost to the company, allowing access to the larger pools of investments in the U. S. Capital markets. To remain accessible to both our U. S. And Canadian shareholders, we plan to remain dual listed on the New York Stock Exchange and the TSX exchanges. There's no doubt that passively manage money and the importance of index funds and ETFs is on the rise. Using public data, we estimate that today under 10% of our ownership is comprised of passive accounts, far less than the 30% average for our U. S. Peers. This is not a trend that is likely to reverse and we want to expose our equity to new and rapidly growing pools of money in the U. S. We know that you might have some more specific questions as a shareholder regarding the change, so we have included a frequently asked questions page on our website for you to reference now. Our preliminary proxy statement will be filed next week with more details. I'll now turn the call back to Doug. Excuse me. Thanks, Corey. We are also using this opportunity to rebrand to better reflect who we are today and further break down perceptions that we believe are dilutive to our valuation. This move represents the significant and transformational changes we have delivered. We are an entirely different company today and we are positioned to lead on the road ahead. We are one of the largest independent producers with approximately a quarter of a 1000000 barrels per day of oil and condensate production. We are often reminded that some folks still perceive us as a natural gas company. We are proud of our company's history, but we have meaningfully transformed our business and created a company that is built for today's environment. It is important that our transformation is recognized in our valuation. Make no mistake, we have a long and proud history in Canada and our assets here are world class. And as Mike described, with our cost and productivity, our returns in Canada continue to be every bit as strong as the rest of our portfolio. We will continue to make profitable investments in the Montney and the Duvernay and manage these assets out of our Calgary office. We do not expect any impact on our Canadian workforce, either in the office or the field. We define the new E and P. We have a sustainable business model delivering today what many others are aspiring to do in the coming months years ahead. This business model is generating leading results in our sector and competes head to head for capital and investments in the broader market. We are leading the way in an industry at the cusp of transformation. We have successfully positioned our company to achieve differentiated performance in this market. We are balancing industry competitive liquids growth, disciplined capital allocation to generate free cash flow and a consistent return of cash to shareholders. These are the key ingredients that should lead to long term shareholder value. Our strategy is to produce strong and sustainable corporate financial performance. Since 2013, we have taken great strides to reshape the company and deliver the corporate metrics you can see today. We have greatly increased our multi basin scale, focusing on high value oil and condensate production. Our proved reserves are now 2,000,000,000 barrels equivalent, but more important, they have moved from 15% liquids to 55% liquids. Our oil and condensate production has expanded sevenfold over this time period. We have significant scale with almost a quarter of 1000000 barrels of oil and condensate production that sold this quarter for an average of 95% of NYMEX WTI pricing. When annualizing the 2nd and third quarters, we generated $3,400,000,000 in cash flow. For an illustrative reference, we compare our 2013 results adjusted for the current oil and gas prices and you can see how dramatically our business has improved. Finally, we continue to focus on our strong balance sheet. We have an investment grade rating about $3,400,000,000 of liquidity and a clear path to further deleveraging. We know that the market is growing increasingly more concerned with leverage in testing downside scenarios for lower prices. As we execute our forward plan, we see our balance sheet continuing to delever. It is this transformational execution that underpins the next chapter in our company's life. I'll now turn the call over to Brendan. Thanks, Ted. The framework for our 2020 outlook is highlighted on this slide. Our number one priority will be the generation of free cash flow, delivering modest liquids growth at mid cycle prices. We will do this by allocating capital to the high return liquids opportunities that we have in our portfolio. In a lower price environment, we have tremendous flexibility with no long term rig contracts or HBP requirements. We would adjust our capital accordingly and prioritize free cash flow over production growth. If prices strengthen, this will lead to a higher free cash flow generation. In this scenario, free cash will go to the balance sheet. Thanks for your time today. We're now happy to take your questions. Operator? Your first question comes from the line of Greg Pardy of RBC Capital Markets. Please go ahead. Your line is open. Yes, thanks. Good morning. Really just two questions, I guess. One is from everything you're saying around the change in where the company is domiciled, effectively there's really no movement of people, the name changes, but that's about it. So it's pretty much business as usual. Is that fair, Doug? Yes, Greg. You've got that exactly right. I mean this move is the and purpose and what's driving this is quite simply accessing the capital market in the past and flows that are in it today. But how we operate the business and run the business will not change. There will be no movement in roles or responsibilities, no reduction in staff and actually no change to how we're allocating capital. Okay. You also mentioned just on the share consolidation, the 5 to 1, and you mentioned volatility. But is there broader thinking around that? Well, Greg, it's really around peer comparability. We actually produce one of the largest annual cash flows in the sector. But with our current share count on a per share basis, it looks considerably lower than peers. So we think this just makes sense to do this. At the same time, as we do the domicile and name change, it feels like for comparability and ease of understanding, we think it's a simplification move. Okay, great. And then the second one is really just operation around the Montney. But can you just kind of lay out what the growth trajectory is coming? There's a fair bit of growth as we've got coming in 2021, I believe. Yes. Greg, as you know, we've been working with Keyera to build the gas plant in PRA. That's going very well. That should start up in early 2021. As we're finalizing details and budgets for 2020, the real question is how we ramp into that new facility. And obviously, we want to maximize capital productivity, so not spend capital too far in advance. I would say though that one operational detail here, which is advantageous to it is that we have the ability to route existing production to that plant as well, which means as the timing gets closer and it comes on, we don't have to actually drill wells to start the plant up. We could actually route existing production and then build production into the start up once it's occurred. Got it. Thanks very much. Thanks, Greg. Our next question comes from the line of Brian Singer of Goldman Sachs. Please go ahead. Your line is open. Thank you. Good morning. Good morning, Brian. I wanted to see if you could discuss the oil production trajectory in the Anadarko Basin and oil specifically versus liquids broadly, the well performance that you consistently reported and put in your slides is very strong. It doesn't necessarily always maybe translate into what we see for a total basin quarter to quarter oil. And I wanted to see if you could talk a little bit more about those pieces, the base declines, the timing of completions and then ultimately what that trajectory looks like over the coming quarters. Yes, Brian. I think the two factors I'd highlight, and to be honest, some of the rest of that we may just need to follow-up with you afterwards. But the two things I'd highlight, as you can see in the results Mike talked to, the wells are performing quite well. In fact, with our new high intensity completions, BOEs are on track with the type curve, but oil is above type curve. And of course, that's the product that matters most there. But the second effect, so well performance is strong, But the second effect is obviously entering the year at the time the transaction closed, I believe it was what, like 13 rigs active. Yes, that's right. And of course, we've ramped that down to a more sustainable level. But you can see we actually basically had flat production from 2Q to 3Q despite the drop in activity. But other than that, to be honest, I would probably just need to follow-up with you offline on the rest of your questions. Great. And then the follow-up is a little bit more on the 2020 outlook, how you're thinking about more broadly achieving your free cash flow objectives and the sequential production trajectory that, that would entail? Yes. Brian, I think that by the way, for all of us in the E and P sector and people like yourself who follow it, I think, obviously, the guys like to mess with us at the end of the year by creating maximum volatility in the commodity price while we try to do planning. But one of the things we're very clear on is that we're prioritizing free cash flow first as we look to the business in 2020. Under today's conditions, so the price is similar to what we see right now, we would anticipate modest liquids growth with free cash generation, but we're refining that model as we go into the year. And then, of course, if the world worsened from where it is today, we would continue to prioritize free cash, so we'd pull back on capital. And if it turns out stronger, the additional cash flow will go to the balance sheet. Great. Thank you. Our next question comes from the line of Gabe Daoud of Cowen. Please go ahead. Your line is open. Great. Thanks. Good morning, everyone. Maybe just sticking with 2020 again, so modest single digit liquids growth plus free cash flow on a mid cycle price. So I guess Doug is that mid cycle price kind of what we're seeing on the screen today and then would plan B essentially represent kind of a maintenance level program that holds volumes flat year over year? Yes, Gabe. I would say that what we're really indicating at prices like today because I would say if you think about the 3 pieces, oil, gas and NGLs, oil is probably around what we think mid cycle is. Gas is obviously weak and NGLs are weak. But we still believe even in that environment, we would actually have liquids growth and free cash generation. Now if, for instance, if we can further what we're indicating is we would pull back capital and pull back some of the growth to make sure we still generated free cash flow. I think we've talked before that the business we built in even into the 40s WTI range, we can hold production flat and be free cash flow neutral, which just shows the efficiency of the business. Understood. Thanks for that. And just, I guess, Doug, as a follow-up sticking or going back to the STACK, This year, I think on average, the rig program was about 6 to 7, but then obviously you blew down a number of new field DUCs, which led to on streams being significantly higher. So I guess just trying to think about capital efficiency out of the stack for next year. Do you have to add a lot of activity to achieve your goals there next year? And just given that some of the well cost savings you guys have obviously seen, just trying to figure out how that could potentially move all those moving pieces, how that could move the budget and the STACK actually relative to the number this year, which I think was $825,000,000 to $875,000,000 Yes. It's Gabe, I don't want to go too far here because we haven't finalized plans for the year yet on for 2020 and how we're going to allocate capital across the portfolio. But what we've been trying to do is level load the program like we've done in the Permian and you've seen the efficiency benefits that's delivered. Obviously, we're not going back to 13 rigs, but we're probably in and around where we are today or maybe just slightly higher. We'll see as we do the budget. But we don't intend to go back to 13 rigs, which is where it started the year. Our next question comes from the line of Asit Sen of Bank of America Merrill Lynch. Please go ahead. Your line is open. Thanks. Good morning. I have one for Mike and one for Cory, if I may. Mike, on the Permian, you talked about strong Howard County results. I think you mentioned 28 gross wells online. Any more color as to what you're thinking? And when you're thinking broadly Permian and you're thinking about 120 well till this year. How are we thinking about, again, very early next year and allocation towards Howard County? Yes. Howard County represented about 25% of our program this year. Would expect that not to change as we go into next year. But again, as Doug mentioned, we haven't finalized the budget yet for 2020. The real surprise and real really encouraging results that we're seeing is coming out of the Wolfcamp A in Howard, and it's basically well above our Type Crib expectations. So we're really feeling pretty good about those results. Okay, great. And then, Corey, cash margin per BOE for the quarter was, I think, $14.67 Just wondering if in the current environment, you could rank the 4 different assets, Permian, Anadarko, Mani and the base assets on unit cash margins? And any drivers outside of pricing that could differentially affect margin outlook, again, big picture over the next 12 to 18 months? Yes. Hey, Asin, I said sorry, the if you look across all four of them, they all get to a very similar margin, albeit that's slightly different product mix and well cost. So they all compete really well in our portfolio, and we tend to allocate capital to them on that basis. Okay. Thank you. Our next question comes from the line of Jeanine Wai of Barclays. Please go ahead. Your line is open. Hi, good morning, everyone. Good morning. On the STACK, that's my first question. On the well costs, you cited the same $1,400,000 savings as last quarter, although the Pacesetter wells are under $6,000,000 which is great. It seems like things are continuing to progress well on the cost front in your last update. So are there any completion design changes in the stack that you've been testing that potentially are offsetting some of these continued cost reductions? Yes. This is Doug. I'll make a couple of comments and see if Mike wants to add. And it's a great question because we have put up more intense completions in the ground. Our high intensity completions we've done elsewhere in the company with really strong success. And we do think that's one of the things leading to the strong oil production performance there. And they do add on a like for like basis, they do add cost compared to that 7.9 number. So what we're doing is before we put another new number out there is looking at this balance of where we're going with the completion versus the cost savings. But as Mike indicated, we've had wells under $6,000,000 now. And this is one of the areas you should expect us to talk a lot more about at the stack day at the end of January. Mike, anything to add? Yes. Not a lot here, Doug, other than that. We're working on additional opportunities to reduce costs that will help us continue to drive down to $6,000,000 and below. But offsetting that is we're testing higher intensity completions up to £3,000 per foot and looking at those results. So it's a bit of a balance of a more intense completions, but coming in with different idea number of ideas that we're chasing to drive our cost down per well. And could any of these changes potentially bias you towards the lower end of your 6 to 8 wells per section cube configuration that would enhance returns? And we're just trying to think about any incremental capital efficiency tailwinds that there might be next year that the market is underappreciating. Yes. I think the on the spacing and stacking, the sort of density question, I think, of course, that always moves around on where you're at in the play and how thick the sections are and do you have the Osage underneath you, all sorts of things. The interaction between the completion design and the spacing, I'm not sure is going to have a huge influence at this point. I think what it is what we're looking to see though is if we spend a bit more money on the completion, does it make a better well and therefore generate better returns, which will improve capital at the same time. And as Mike mentioned, actually right across the business, actually we just took our Board on Monday of this week out to the Anadarko and they got to first hand, see what we've been doing. And our teams just continue to innovate all across the business and come up with new ways to execute which improve efficiency. You've probably seen our focus on cycle times. And one of the reasons we do that is a lot of the cost in this industry are paid for on a day basis. So if you can actually do things more efficiently and quicker, it's less expensive. The other thing we get out of that is, of course, we get information back sooner. So, therefore, we can weave that information into our thinking. But I don't necessarily see the spacing and stacking being driven dramatically off these completion designs. It's just can we make better wells, get better recovery for the capital we're investing. Okay, great. Thank you for taking my question. Our next question comes from the line of Jeffrey Campbell of Tuohy Brothers. Please go ahead. Your line is open. Good morning. And congratulations for the quarter and the excitement that sell side didn't see coming. I wanted to ask you about the Anadarko decline rate. I was just wondering, does this just represent better than expected low performance? Or are you doing something proactive to influence the base? Yes, Jeff. Good question. One of the things the team does, if you think about a company of our size, we produce about 600,000 BOEs a day, about a quarter of a 1000000 barrels a day of crude and condensate. And with a large base, you can imagine if you can optimize that base, even a 1% moon is a big number. And in the Anadarko specifically, the team has been doing a very good job of optimizing the base, including things like artificial lift and managing line pressure in a number of things, which are having an impact. And of course, the other piece about that is these are usually at little to no cost. So the economic value is very strong. But we have had some very good results on the base here recently with optimization. And my other question was with regard to the Williston infill well outperformance that you cited. I was just wondering, could you discuss maybe what the prior spacing assumptions were and what it might look like going forward based on these results? Jeffrey, it's Mike here. Yes, prior, we had 13, 13 20 foot inner well spacing and we're fine putting a well in between. So going down to 6 60 foot, actually even testing tighter than that. We're seeing and also you need to understand we're going with larger completions going up to £700 per foot and what we're seeing is significant improvement over the parent well performance. And in fact, we're also seeing enhancement in the offset parent wells, basically improving production after their frac hit by the child wells. So things are really encouraging in the Williston Basin, and we're pretty excited about some of the well results we're seeing. Okay, great. Thanks for the color. I appreciate it. Our next question comes from the line of Neal Dingmann of SunTrust. Please go ahead. Your line is open. Good morning, Doug, and great color this morning. Doug, my question is, what's your for, I guess, as you go into 2020, maybe even 2021, kind of a general leverage target? And then how do you balance this with any potential additional share buybacks? Yes. Neal, it's a good question there. We said pretty consistently at mid cycle pricing that we'd like to be 1.5x or less. As I mentioned, I think earlier on a previous question, we're probably a bit under mid cycle pricing today, which would mean that the leverage looks a little higher. And of course, the other things you have to consider in this is liquidity and you also have to consider when our debt is due. We don't our next debt is not due till 2021, end of 2021. So we look at that. What it means is we're comfortable where it's at. Obviously, the business is generating free cash flow at the moment. So we see it naturally delevering through time, and we're very comfortable with that. So we don't think we have to do anything dramatic to get to that sooner. So, we want to get to that $1,500,000,000 or under, and the business will do that naturally. And when we combine that with the cube development with your cube development in Anadarko. I'm just wondering, do you have an idea of what the ultimate spacing will be in key areas of this play as this becomes more mature? Yes. I think if you had a typical, it's probably the 6 to 8 we're doing today. It will vary a little bit based on the local geology and the thickness and other things. That's true in every play. That's why we always be a bit cautious about putting a single number out there. But the development pattern in spacing, the stacking and spacing piece that we're using today feels about right and it may move a little bit, but this feels like the base case. And of course, this is something on our stack day at the end of January, we'll talk a lot more about. But what we're seeing is very consistent results using that spacing and then just some performance improvement, which we actually believe is tied to the completion design we're using. Very good. Thanks for the time. Our next question comes from the line of Marshall Carver of Heikkinen Energy Advisors. Please go ahead. Your line is open. Yes, good morning. I saw that the costs were coming down in the guidance, a little bit of a downtick on cost per BOE. Which costs are you seeing improvements on? Just wanted to get some color on whether that's LOE, T and G, G and A or what? Yes. Marshall, it's actually in essentially every bucket. We've had great progress here. Obviously, the G and A has come down significantly as we've raised the synergy target from the original 125,000,000 dollars per year to now $200,000,000 per year. You're seeing that flow through. One of the things that may be overlooked in place is just how efficient this organization is. I mean, we produce 600,000 BOEs a day with 2,500 people. And by the way, we essentially operate everything we do, which means that we don't get to that headcount through letting other people run the activities. We do that ourselves. The constant focus on efficiency improvements and innovation, it's actually had a direct impact on our LOE across the business. In our T and P team, we're always trying to optimize the value of the product that we receive and where we sell it with the cost to get it to those markets. There's a bit of give and take in there because in the end of the day in that bucket, what we're really trying to do is the maximum realized price after cost. And but we are seeing it right across the board in every bucket. Okay. Thank you. And when you're thinking about modest liquids growth, do you want to give any extra color on what you think of modest? Is that high single digit, low single digit or any extra color there? Yes. And of course, the trick here is not to guide before we guide. But this will be kind of mid single digits is sort of the range exactly what that number is. It's a little too early to tell as we optimize. And we also need to see over the next couple of months how the commodities shake out as well. And of course, we've updated our the status of our hedge program as well, which has some impact. And so I don't want to give you a precise number because I need to actually have some sense of where price and costs are. And then we're very clear, we're going to generate free cash in 2020. And how we toggle growth against the commodity price to make sure we get there is what we're finalizing on now. All right. Thank you very much. At this time, we have completed the question and answer session. I will turn the call back over to Mr. Campbell. Thank you, operator, and thank you, everyone, for joining us this morning. We're clearly excited about today's results and look forward to seeing you on the road ahead. Thank you.