Good morning, everyone. My name is Clayton Woitas, and I'm Chairman of the Board of Directors of Encana Corp. Welcome to those in attendance today and participating by audio webcast. Before we get started, I want to explain the emergency procedures for this room. The exits are to my left, to your right. In the event of an emergency, please exit through these doors and down the stairs located between the elevators. Once outdoors, cross Centre Street and assemble in front of the Bow Tower. If you are unable to take the stairs, please wait at the elevator for a staff member to assist you. I will now call to order Encana's annual meeting of shareholders. We are going to vote on the matters described in the annual proxy statement dated March 14th, 2019.
After the business of the meeting is concluded, you're invited to stay for a presentation from Doug Suttles, our President and Chief Executive Officer of Encana. Please hold your questions until after the presentation. Sitting with me at our head table are Doug Suttles, President and Chief Executive Officer, Nancy Brennan, Vice President, Corporate Legal, Corporate Secretary. Ms. Brennan will act as Secretary of the meeting. I will appoint Nazim Nathoo and Kirsten Dillon from AST Trust Company (Canada) to act as scrutineers. I'd like to introduce the other directors and officers of Encana with us today. In addition to Doug and myself, the other individuals nominated for directors of this meeting, please stand as I call your name. Peter Dea. Fred Fowler. Howard Mayson. Lee McIntire. Margaret McKenzie. Steven Nance. Suzanne Nimocks. Thomas Ricks. Brian Shaw. Bruce Waterman.
Encana's officers here today, also please stand as I introduce you. Joanne Alexander, Executive Vice President and General Counsel. Sherri Brillon, Executive Vice President and Chief Financial Officer. David Hill, Executive Vice President of Exploration and Business Development. Mike McAllister, Executive Vice President and Chief Operating Officer. Mike Williams, Executive Vice President, Corporate Services. Renee Zemljak, Executive Vice President, Midstream Marketing and Fundamentals. Thank you. I'd like to take this opportunity to personally acknowledge Sherri Brillon, our Executive Vice President and Chief Financial Officer, who will be retiring following this meeting. In her 33 years with Encana, including the last 10 years as CFO, Sherri has been instrumental to the financial stewardship of Encana. On behalf of the board, thank you, Sherri, for your many contributions to Canada. We wish you all the best for the future.
Following Sherri's retirement, Corey Code will become our Executive Vice President and Chief Financial Officer. Corey, please stand. Corey has been with Encana since 1999, has served in various key financial leadership roles, including most recently as Vice President of Strategy and Investor Relations. We turn to the business of the meeting. Ms. Brennan has provided me with proof that Encana has sent a notice of this meeting and related documents to its shareholders. A copy of these materials will be kept with the records. I will ask Ms. Brennan to lead us through the business at hand.
Thank you, Clayton. The scrutineer's report confirms that there are 1,124,547,517 common shares represented today, which is 75.43% of the common shares entitled to be voted. There are 1,741 shareholders present in person or represented by proxy. Based on this report, I confirm there is a quorum. All votes cast today will be conducted by ballot. All registered shareholders and appointed proxy holders are entitled to vote. As you entered the meeting, you should have received a ballot for each matter to be voted on. If any registered shareholder or appointed proxy holder has not received a ballot, please raise your hand now so a scrutineer can provide one to you. Completed ballots will be collected after all motions have been made. The first item is to receive the corporation's audited consolidated financial statements for the fiscal year ended December 31st, 2018, and the reading of the auditor's report.
Copies have been mailed to every registered shareholder and to every beneficial shareholder who requested a copy. The next item of business is the election of directors. Shareholders have been given the ability to vote for or to withhold voting for each individual nominee. The 12 nominees are listed at pages 13 to 19 of the proxy statement and were introduced by Mr. Woitas. May I please have a motion on the election of these individuals as directors of the corporation?
My name is Megan Pearson, I move that the named director nominees be elected to hold office until the next annual meeting of shareholders or until their successors are elected or appointed. My name is Cynthia Larson, I second the motion.
Thank you. Is there any discussion on the motion? Please mark your vote on the ballot provided. The next item of business is the appointment of auditors. I would ask for a motion to approve the appointment of PricewaterhouseCoopers LLP, Chartered Accountants of Calgary, Alberta, for the upcoming year, and to authorize the directors to fix their compensation.
My name is Rana Gill. I so move.
I second the motion.
Thank you. Is there any discussion on the motion? Please mark your vote on the ballot provided. The next item of business is to reconfirm Encana's Shareholder Rights Plan, including amendments made to the plan that were approved by the board on February 13, 2019. For the plan to remain in effect, as amended, this resolution must be approved by a majority of votes cast. May I please have a motion authorizing and approving the continuation of, and amendments to the Shareholder Rights Plan as set out at page 36 of the proxy statement? My name is Liana Ta. I so move.
My name is Cynthia Larsen. I second the motion.
Thank you. Is there any discussion on the motion? Please mark your vote on the ballot provided. The next item of business is to approve the new Omnibus Incentive Plan. The plan was adopted by the board on February 13, 2019, subject to the approval of shareholders at this meeting. May I please have a motion to approve the Omnibus Incentive Plan resolution set out at page 37 of the proxy statement?
Awada, I so move. My name is Jill Patriarch, I second the motion.
Thank you. Is there any discussion on the motion? Please mark your vote on the ballot provided. The next item of business is to approve the compensation of Encana's named executive officers through a non-binding advisory vote, commonly referred to as a say-on-pay resolution. May I please have a motion to approve the say-on-pay resolution as set out at page 45 of the proxy statement? My name is Jamie Vidler, I so move.
My name is Cynthia Larsen, I second the motion.
Thank you. Is there any discussion on the motion? Please mark your vote on the ballot provided.
Thank you, Nancy. We will now collect the ballots. Please assist our scrutineers by raising your hand. While we are waiting for the scrutineers to count the ballots, I turn the meeting over to Doug Suttles for his presentation.
Thanks, Clayton, and good morning, everyone. Before I say anything else, I should also just thank Sherri Brillon, who, 33 years of service to Encana, the last 10 as CFO. The CFO for my entire time with Encana. Not only has she done an outstanding job in that role, but she's also been an important colleague and an important person to consult with as we've guided the company through change. Sherri, thank you very much, and I wish you every success in whatever life takes you to next. It has been a busy day. Early this morning, we released our financial and operational results for the first quarter. I hope you had a chance to listen to our conference call and review our news release and our corporate slide deck. If you have not had that chance, you can find them on our website.
We are extremely excited about our start to 2019, and I will touch on the highlights in just a moment. First, let's quickly take a look back at 2018. One moment please. I forgot to change the slides here. Pop that for me. Our 2018 results are a testament to how we've transformed our company over the last five years. In 2018, we generated free cash flow of CAD 616 million and returned CAD 316 million of cash to our shareholders through a combination of dividends and share buybacks. Although a quite popular movement today, this will actually be the second year that we return cash to our owners. We think our business model is sustainable and aligned with what will drive premium valuations in the E&P business ahead. Our cash flow was up 57% over 2017, with an average margin of over CAD 16 per barrel oil equivalent.
We strengthened the balance sheet and delivered 30% liquids growth. 2018 was also our fifth consecutive year of the safest year ever for the company. If you like 2018, you should like 2019 even more. We plan to again deliver on all these important objectives. Today's Encana has a sustainable model and all of the building blocks of a premium company. Encana is focused on sustainability. In short, this is who we are, and it's part of our DNA. Safe operations, water management, minimizing emissions are always at the forefront of what we do. As I mentioned, 2018 was our fifth consecutive year setting the best safety performance in company history. We will continue to tie our compensation program to our safety results. During the year, about 53% of the water we used in our hydraulic fracturing operations in the Permian was recycled.
One example would be our Davidson 48E pad, which was completed entirely with recycled water. With our acquisition of Newfield and enter into the Anadarko Basin, we have gained water infrastructure, including the Barton Water Recycling Facility. This facility can recycle 30,000 barrels of water per day, allowing us to use that water on subsequent completion operations. In 2018, we conducted 1,750 leak detection and repair inspections in our U.S. operations alone. This proactively identifies and prevents methane emissions. At Encana, we have a sharp focus on sustainability. In late 2018, we announced our strategic combination with Newfield. Why Newfield? We identified a quality play in the Anadarko Basin, where we could apply our cube development strategy to materially lower well cost and grow value. In addition, we quickly identified G&A savings.
The merger fit with our multi-basin strategy and provides us with a third basin to go with the Montney and the Permian. The Anadarko, much like the Permian and the Montney, has scale and a deep inventory of quality locations, which enhances the sustainability of our business model. I mentioned that it's been a busy morning, but what I should have said, it has been a busy start to the year. We are off to a great start and are highly motivated to deliver on our promises for 2019. It is extremely important that our compensation is aligned with the metrics that correlate to creating shareholder value. A full 25% of our scorecard this year is based on integration of Newfield. This is our top priority that will flow through to value and create the value behind the deal.
Since closing, we have achieved our CAD 125 million in annualized G&A synergies through restructuring and the right sizing of the organization. Since then, we have identified an additional CAD 25 million of annual savings, and we continue to look for additional ways to save. We announced today on our first quarter conference call that we have already achieved our target of CAD 1 million per well savings in the Anadarko Basin, and we see opportunities to reduce these costs even more. We are well underway with our CAD 1.25 billion share buyback program. Year to date, we have bought back approximately $91 million of our shares at $7.19 per share. Our dividend to common shareholders was increased by 25%. In 2019, on a pro forma basis, we expect to invest between CAD 2.7 billion and CAD 2.9 billion, which is down 20% from 2018.
Our three growth assets will receive about 75% of this capital, growing liquids by about 15% in these areas. Our track record is sound, and we are confident that our 2019 plan will continue to create value for our shareholders. Once again, 2018 was a very good year. We delivered on our promises and returned cash to shareholders. We met our guidance targets, further strengthened our balance sheet. We intend to deliver again in 2019. Encana has created a sustainable business model with all of the building blocks necessary for a premium valuation. We have scale, discipline, top-down capital allocation, and a track record of giving cash back to shareholders. Our model allows us to navigate through the inevitable commodity price cycles. Simply stated, others are trying to create where we are today. Thank you for listening, and I will now turn the meeting back over to Clayton.
Thank you, Doug. We will now continue the formal part of the meeting. We now have the scrutineer's report on ballot results. Nancy, please read the voting results for us.
Thank you, Clayton. I can report that each of the directors nominated for election have been so elected by a vote of more than 92% of shareholders' votes cast. With respect to the appointment of auditors, I report this resolution has been approved by 96% of shareholders. With regards to the amendment and reconfirmation of the Encana Shareholder Rights Plan, I report this resolution has also been approved by 96% of shareholders' votes cast. Regarding the approval of the new Omnibus Incentive Plan, I report this resolution has been approved by 92% of shareholders' votes cast. Finally, the result of the non-binding advisory vote approving the compensation of Encana's named executive officers has been approved by 61% of shareholders' votes cast.
Thank you, Nancy. I declare all motions carried. This now concludes the formal business of the meeting. Is there any other business to be brought before the meeting? As no further business, I declare this meeting be terminated. We will now begin the question and answer period. As chairman, I will moderate the question and answer period. To accommodate any more questions as possible or as many questions as possible, Are there any questions from the floor? Please raise your hand if you have a question, and an Encana volunteer will bring you a microphone.
Thank you, Mr. Chairman. Michael Graham, a shareholder, longstanding, not long-suffering, longstanding shareholder. I just wondered, Mr. Suttles, could you sketch a little bit the excitement of Newfield, but a lot of shares issued, a whole lot of shares. On a per share basis, cash flow earnings, how much do we get pulled down in the shorter term before we start moving ahead? In other words, the dilutive effects on a per share basis of that acquisition shorter term. Thank you.
I think for those that didn't hear, the question deals with respect to Newfield acquisition where shares are issued. Turn it over to you.
Yeah. Thank you for the question. When we entered the transaction, we believed it would be accretive on a per share basis. As I highlighted in my comments, a lot of this was about the value we could create by bringing our development model to the Anadarko Basin. You're seeing those results quite quickly. In the first 12 weeks, we actually achieved our $1 million per well savings, which we set out for the year. Mike and his team have done an incredible job, as I indicated, we believe we'll probably go beyond that now. Secondly, the overhead savings, which are always there when you bring two enterprises together, we've achieved very early and now believe we will exceed those, which will flow through obviously to our cash flow in the business.
Lastly, when we announced the deal, we said we would actually repurchase approximately 10% of our stock as part of the transaction. As you heard today, we're about 60% of the way through that as of yesterday. I think you'll see those come through quite quickly. The last thing I'd just say is, as I mentioned, when we talk about how our reward is connected to this, 25% of the company scorecard for every employee in the company is tied to delivering those benefits. We've made sure we've sent the signal that this is a key priority for the company.
Thank you, Doug.
Good morning. My name is Laura Gossett. I'd like to ask a question about the company's methane emissions. As you know, methane is a particularly potent greenhouse gas contributing to climate change, and right now, a lot of methane emissions are coming from leaks and venting in the upstream oil and gas sector that could be avoided. Given the financial and reputational risks that methane emissions present, given the incoming sector-wide regulatory changes in Canada, it seems important for Encana to be working on accurately measuring and reducing its methane emissions. As one of the largest producers in North America, I'm wondering about Encana's emissions trajectory going forward. In particular, my question is the company planning to publish targets to clarify what methane emissions reductions it is aiming to achieve? Thanks.
Thank you for the question. Excellent question. Suttles, would you please answer?
Yes. Well, thanks, Laura. One of the things I think we're proud of at Encana, and this goes back a number of years, is that we've always proactively worked with government to figure out how do we actually reduce the impact of our business, but do it in a sustainable way where it's done efficiently. If I go back to, I think it was 2014, we were one of three companies that worked with the state of Colorado to put in place what many people thought were the leading methane and volatile organic compound regulations in the state. We're doing the same thing here in Canada, working with both Alberta and British Columbia as they try to reach this 45% reduction target.
Lastly, I think in my comments earlier, I even mentioned that last year we conducted over 1,750 inspections where we look for leaks, and then when we find them, we fix them. I would also say this is an area we actually believe. In the company, we believe deeply in innovation, and we create value, and we think that applies to these areas as well, and we're currently piloting new techniques to how do we actually find these leaks more efficiently. This is one of the areas of focus we use with regulators, is how do we turn loose innovation, technology, small enterprises to help to do this well? If we don't do it well, then we'll create this problem of energy will become expensive, and that will have a great deal of impact on many others. It's something we value.
We work quite closely with the regulators. We're a part of a group in the U.S. called The Environmental Partnership, which is voluntarily working to reduce. I think as we move forward, you'll see us talk more and more about what we're doing to do this. It has to be focused on efficiency, just like everything else.
Thank you, Doug. Any further questions?
My name is Neil DeRuyter. I'm a shareholder, hoping for a bright future. Taking into account that Mitsubishi owns or has a 50% joint venture interest in LNG Canada, but currently has no natural gas holdings outside of its 40% partnership with Encana. What's your outlook for? How important do you feel LNG Canada will be to Encana? If I can squeeze in a follow-up question, what is our current AECO exposure?
Yeah. First on LNG Canada. For quite a while, we, as a company, have taken the view that being an owner of an LNG facility doesn't fit with our strategy and our capital profile. As a big gas producer, it clearly could benefit us. We've been very supportive of Shell and their project. I personally met with Premier Horgan and expressed that support to him. In long term, the challenge for Canadian gas is just like oil, it needs to find new markets. If I even link back the methane question, environmental impact, which you guys may not know, is we built three new gas plants with Mitsubishi in Northeast B.C., brought them on at the end of 2017. They're run on hydroelectricity. They may be the greenest gas plants in the world.
If you combine gas coming through those plants going through the Shell LNG facility, which a significant portion of its power will come from hydroelectricity, you're shorter distance to market. You actually deliver Canadian natural gas to Asia with a significantly smaller carbon footprint than coming from anywhere else in the world. That's the place to be. We do need to see substantial growth in this. Our historic market of the U.S. has its own gas now. Longer term, we need to find new markets. It should help, it'll be a while. The LNG facility is not targeted until the mid part of the next decade. I see that, though, helpful in the longer term.
In the medium term, our strategy's been focused on gas where we can produce condensate, because condensate's a product consumed by the oil sand currently imported from the States, we can produce it locally. With that, we get a lot of natural gas. I think that there'll be plenty of natural gas available for sale in its
Doug, the second part of the question was our AECO.
Yeah, and I'm gonna look at, where's Renee? Renee, as we introduced earlier, is our EVP of Midstream Markets. Just to make sure I don't get it wrong, I'm gonna let her answer your question.
Closure. We have been working really diligently on our AECO. For the next couple of years, transport to neighboring markets and our hedge program, we have nearly 80% of our AECO.
We only have about 20% AECO.
Thank you.
Yeah, just so 20% goes to AECO prices. Any other questions?
Keith Lynn, Shareholder. From what I have read, you're already quite active in the Newfield development, I was wondering how many rigs and wells that you've already drilled.
Yeah. No, thank you for your question. Well, when we took over operations from Newfield in the middle of February, there were 11 rigs running in the play by Newfield. Our intent was to bring that down to four, which is about where we are right now. Mike, over the course of this year, how many wells will we drill in the Anadarko?
About 100.
Approximately, we'll drill about 100 wells there this year.
Most of these wells are horizontal?
All of the wells are horizontal.
All of them are?
Yes.
To an average total depth, what then?
Well, it's very similar to our other plays. The wells are typically 10,000-foot lateral, so almost two miles laterally. I believe the typical subsurface depth is around 8,000 feet.
For an average production per well?
Well, our forecast today with our type curve is 1.3 million barrels oil equivalent on the typical well.
Very nice. I was wondering, too, I notice a terminology that, being a layman, I'm not really familiar with. The words sweep and scoop or scoop and sweep come up quite frequently. I'd like to have an explanation, please.
Yes. Well, I think, so just to be clear, I'm an engineer, and I think this is the geologists' attempt to confuse all of us so they keep
I'm very easily confused.
It's no different than in the Montney when we refer to areas like Tower or Pipestone. It's just two areas of the play. The play has a number of areas to it, one called the Stack, which is the area we're predominantly focused in on. It's in the oil window of that. The other one is called the Scoop, which is a bit farther south, which we have some interest in, but the majority's to the north. It's very similar to a lot of plays where when they're aerially quite extensive, they end up having local names for areas, and that's all that is.
Doug, for reference, you may want to indicate where this is specifically.
It's a good point. If you look at a map and you see Oklahoma City, the Stack is largely just northwest of the city. It's out in the countryside, but just northwest, where the Scoop is south and slightly southwest, and they're probably 60, 70 miles apart, the areas.
We have time for one more question.
The geographical ownership of Encana, the number of shares, approximately percentage-wise, owned in the U.S., owned in Canada, owned internationally, if you could?
I believe these are rough numbers. We could follow up with you later more precisely. About 60% of the shares are held in the U.S., 30 or a bit more held in Canada, then the rest elsewhere, is roughly the split.
Questions?
Thank you. My name is Laura Gossett once again. Just a quick follow-up question about methane emissions. Just to clarify, as the company thinks about talking more about its activities on reducing methane emissions, as part of that, are you considering releasing some public targets on your methane emissions reductions aims, sort of like what we've seen from some other companies?
Today, that's not in our framework. Instead, what we do is focus on working with regulators to create smart frameworks for hitting these targets as opposed to setting internal company targets.
Thank you, Doug. Thank you, ladies and gentlemen. That concludes our question and answer period. Closing on behalf of the board, I would like to thank the executive leadership team and all Encana staff for the many achievements over the last year. I'd also like to thank Encana shareholders for their continued support. Thank you all for your attendance.