AGM 2018

May 1, 2018

Good morning. Moitis, I'm the Chairman of the Board of Directors of Encana Corp. It is my pleasure to welcome you to our Annual Meeting of Shareholders. I would also like to welcome those shareholders participating in the audio webcast. Let's take a moment to outline the emergency procedures. Exit doors are clearly marked and are located on the right hand side of the room to my left. Please take a moment now to find the exit door closest to you. In the event of an emergency, while leaving the room, please proceed down the stairs located between the 2 elevators and once outdoors move away from the building. If you are unable to take the stairs, we will assist you to the elevator. I will now call to order the formal part of Encana's Annual Meeting of Shareholders. We will vote on the matters in our proxy. After the formal business of the meeting, you are invited to stay for a presentation from Doug Settles, our President and Chief Executive Officer of Encana. I ask that you hold your questions until after his presentation. Now I'd like to introduce the head table. Sitting with me to the far left is Doug Settles, President and Chief Executive Officer Sherry Breeland, Executive Vice President and Chief Financial Officer and Nancy Brennan, Vice President, Corporate Legal and Corporate Secretary. Mr. Brennan will act as secretary of the meeting and I appoint Sylvia Staake and Kirsten Dillon, representatives of AST Trust Companies Canada to act as scrutineers for the meeting. Let me also introduce the directors and other officers of Encana. In addition to Doug and I, the other individuals standing for election as Directors will please stand as I call their name. Peter Dee? Fred Fowler, Howard Mason, Lee McIntyre, Margaret McKenzie, Susan Nimitz, Brian Shaw and Bruce Waterman. Thank you. Encana's officers in attendance in addition to those seats at the head table are Joanne Alexander, Executive Vice President and General Counsel David Hill, Executive Vice President, Exploration and Business Development Mike McAllister, Executive Vice President and Chief Operating Officer Mike Williams, Executive Vice President, Corporate Services Rene Zemnak, Executive Vice President, Midstream, Marketing and Fundamentals. I also welcome to the attendance of Ryan Lundin, Cal Jacober and Michelle Chu from PricewaterhouseCoopers. Thank you. Turning now to the business of the meeting. The Secretary has provided me with proof of mailing of the notice of this meeting and all required documents. A copy will be kept by the Secretary with the records of this meeting. To simplify the meeting, I will now ask Brandon to lead us to the business at hand. Thank you, Mr. Reuters. Ciner's report confirms that there are 754,000,000 743,719 common shares represented here today. This is 73 77 point 7 3 percent of the common shares entitled to be voted. There are 20 shareholders present. Based on this report, I advise that 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 that a scrutineer may provide one to you. The completed ballots will be collected after all motions have been made. The first item is to receive the audited consolidated financial statements of the corporation for the fiscal year ended December 31, 2017, and the reading of the auditor's report. Copies have been mailed to every registered shareholder and to every beneficial shareholder who requested the copy. Approval of the financial statements is not required, but if you have any questions, you may raise them following Doug's presentation. 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 10 nominees are listed at Pages 12 through 17 in our proxy statement and they were introduced by Mr. Waitas at the beginning of the meeting. May I please have a motion on the election of these individuals as Directors of the corporation? My name is Robbie Robinson, and I move that the named Director nominees be elected and hold office until the next Annual Shareholders Meeting or until their successors are elected or appointed. My name is Andresina Tiava and I strike on 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 as set out at Page 31 of the proxy statement. May I please have a motion? My name is Rana Gill, and I so move. My name is Jill Patriarca and I second the motion. Thank you. Is there any discussion on the motion? Please mark your vote on the ballot provided. The next side of the business is to approve the compensation of Encana's named executive officers through a non binding advisory vote. This is often referred to as a say on pay resolution. I will now ask for a resolution to approve the say on pay resolution as set out at page 33 of our proxy statement. My name is Cynthia Larson and I so move. My name is Michelle Lee and 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 raise your hand and the scruiters will collect it from you. While we are waiting for the scruiteners to count the ballots, Doug Settles, the President and Chief Executive Officer of Encana, will provide a brief presentation. Thanks, Clayton, and welcome, ladies and gentlemen, to our Annual Shareholders Meeting. In late 2013, we launched a transformational strategy and a 5 year plan to build a resilient business that could thrive through the commodity cycle. Today, I will show you how the company we set out to build has arrived. First, I will review our strategy, how it continues to be the right path forward for Encana, delivering strong financial and operational performance and driving our 5 year plan to deliver significant free cash flow. 2nd, I'll speak to the culture. While others can try to replicate our strategy, they can't duplicate our culture, which is what sets us apart from our peers. 3rd, I will discuss Encana's commitment to delivering value to our shareholders. Our strong financial and operational performance and future trajectory are the results of the proactive steps we have taken since 2013. When we launched our strategy, it was built on fundamental ideas. It started with a focus in North America. When we looked around the industry and around the world, we found that the potential, the returns, the margins, the scale of North American unconventionals were very competitive with the best opportunities around the globe. This continues to be the case today. We wanted to limit the number of plays participated in focusing on the best plays with scale so we could drive efficiency. We also said we were going to be highly disciplined with capital allocation to drive margins and returns. Our 4 pillars, best rocks, markets and fundamentals, execution excellence and capital allocation, were chosen because they are the core building blocks to consistently delivering quality returns. These key principles have been in place for almost 5 years now and have changed haven't changed with the volatility in the marketplace. Today, our multi basin portfolio comprised of 2 of the best plays in Canada and 2 of the best in the United States is a tremendous competitive advantage. In parallel, our ability to quickly deploy and direct capital enables us to respond to risk and seize opportunity on both sides of the border. We constantly test our plans to ensure we are deploying our capital into the highest margin opportunities and to deliver quality returns to our investors. We have a deep inventory of high margin opportunities across the portfolio, along with a track record of innovation and leading performance. Our market fundamentals team is seamlessly integrated with our operations and constantly look for opportunities to manage risk and maximize the values of our products. Through a combination of active hedge program and diversifying our markets, we continue to lower risk and increase the margin of our products. Financial discipline is a foundation of our strategy. We have a strong balance sheet with total debt levels decreasing and leverage dropping steadily. Our investment grade credit rating enables us to make highly efficient contracts with our counterparties. This includes everything from our supply chain agreements, our midstream and transportation agreements and our hedging programs. Our focus on returns is not a new part of our plan. It's been there since the beginning. And as a result, we are very well positioned to outperform. Having delivered on the targets, our first 5 year plan within 3 years, we are now firmly on track with an updated 5 year that keeps getting better on every measure. We have a balanced production mix and a strong balance sheet. We are positioned to deliver significant growth within cash flow and generate about $3,000,000,000 of free cash through our 5 year plan. Demonstrating our commitment to shareholder returns as well as our confidence in our plan, we announced a $400,000,000 share buyback program earlier this year and have already begun executing on this plan. In every regard, the company we set out to build has arrived. At last year's AGM, I outlined our objectives for 2017. They included a shift to growth, what we call the midyear bounce from production decline to production growth. Said we would deliver at least 20% production growth in our core assets from the Q4 of 2016 to the Q4 of 2017. We also said we would hang on to the efficiencies we had worked so hard to create in the previous years, and we would make 2017 the safest year in the company's history. I am pleased to report that in 2017, we met or exceeded on each of those targets. We grew our core asset production by 31% from the Q4 of 2016 to the Q4 of 2017, significantly above our original target of more than 20%. Our core asset growth drove an increase in liquids mix to 46% by the Q4. To give you a sense of where we've come from, this is up from about 8% when we launched our strategy in 2013. We delivered a 60% increase in cash flow and an 81% increase in cash flow margin from 2016 to 2017. Our full year 2017 cash flow margin was $11.75 per barrel oil equivalent, well ahead of our target of $10 We drove down year over year costs across the business, transportation and processing by 6%, administrative expenses by 6% and operating expenses by 14 percent when LTIs are excluded. And we had the safest year in the company's history for the 4th consecutive year. In 2018, we are setting up for another strong year. A disciplined and focused capital program of $1,800,000,000 to $1,900,000,000 will be balanced with expected full year cash flow. More than 95% of our capital is being focused on our core assets. We expect to drive liquids and total production growth, particularly through the second half of this year, with core assets delivering between 400,000 and 425,000 barrels of oil equivalent per day in the 4th quarter. Our per unit costs continue to drop as our focused growth benefits from scale and continued focus on efficiency. The exception here is with our transportation and processing cost, which we are guiding at a higher rate than last year. This is because of our approach to diversifying our markets for products and maximizing our margins. Our unit revenue is expected to exceed these costs and reduce overall risk and reliance on a single market sales point. Continued cash flow and margin growth driven by efficiencies, operational excellence as well as prudent risk management and a market diversification program. We had a great start to the year as we announced this morning. We released solid financial and operational results for the Q1, which reinforce our confidence in the year and keeps us on track with our 2018 targets to grow within cash flow. Cash from operating activities were up more than 200% from the Q1 of last year. Cash flow and cash flow margin both up over 40% compared to the same time last year. These numbers reflect our balanced production mix and growth in higher value oil and condensate. Our total liquids grew over 30% from the Q1 of last year, with Permian oil production growing 52% year over year. This performance strengthens our confidence for our 2018 plan, where we are focused on 2 key deliverables: delivered self funded growth, which will set the stage for significant free cash flow growth in 2019 and throughout our 5 year plan and for the 5th year in a row, deliver the safest year in the company's history. Our results the past 2 years have proved that Encana is amongst the highest performing E and P companies in North America. I'm truly convinced that our consistent industry leading performance and efficient strategy execution is driven in part by our culture. We don't control oil and gas prices, but we can manage our own cost and productivity. We do this through innovation, which is hardwired across our business and in our culture. Our teams are innovating in all aspects of our business from resource capture phase to a value maximization phase. The most successful EAPs will create tremendous value by unlocking the resource on their acreage more efficiently than the competition. We utilize our deep capabilities and unconventional resources to continuously improve our efficiency and believe the efficiency race will be won through innovation. Our culture and structure promotes cutting edge thinking, rapid transfer of ideas and lets us try many new technologies at the same time across our multi basin portfolio. This accelerates our learning in all assets as we rapidly transfer knowledge within the company. We've spent significant time on culture and leadership. We've driven commercial acumen deep into our organization. The same conversation we have with investors about creating value by delivering quality corporate returns is the same conversation we constantly have within the company. Our strategy, execution, ability to organically generate returns without price sell has resulted in a business that in many ways is unique in our industry. All of this contributes to delivering strong growth and quality returns, ultimately driving value for our shareholders. Encana has been developing unconventional resources for over a decade and is one of only 3 companies which have drilled more than 5,000 horizontal wells. This long history means we have been drilling multi well pads for many years and optimizing logistics of above ground execution. As an example, in one of our prior assets, we drilled pads as large as 64 wells. This level of development created a culture and an organization that understands the logistics required to operate very large pads safely with competitive cycle times. The cube is our framework to maximize net present value from our portfolio of resource plays. It is an evolution of the multi well pad design that previously existed for single zone plays. The cube is a way of thinking about the recovery of the resource in three dimensions and if you consider time, 4. It is well accepted that the return on individual wells is higher with less dense development. If Encana wanted to maximize only the returns from individual wells, we would drill and complete wells at very wide spacing. This would deliver high individual rail returns but would not optimize the value from our acreage. It is also well accepted that at some point, the center well spacing becomes too tight and you end up overcapitalizing. These criteria can change by play, by zone and with completion design. So for this spacing discussion, so far, the spacing discussion is only mentioned to single zone. In stacked resource plays like the Midland Basin, we must evaluate the optimum design and strategy that captures resources both vertically and laterally across our lands. This means considering the overlap of fracture networks within a zone alongside them and above and below them. This is where we use the cube approach to determine the best well spacing, stacking and completion design to maximize value of the stacked zones rather than simply chasing individual single well returns. Maximizing value means that we are deliberate about which zones are drilled in each occupation. We consider the impact of development on both the current and future well returns. This is the heart of the much talked about parent child relationship. Talking about wells, not just our children here. Our approach to cube development will continue to evolve and reflect changes in commodity markets, new technologies, innovations and innovations in completion design. Our culture of innovation means we are always learning from our own data as well as our competitors. Our multi basin advantage means we are able to rapidly transfer learning between plays, which we operate to continue to make the cube even better. Our strong financial and operating performance has enabled us to accelerate discussions about the best way to maximize shareholder returns. As we see it, there are broadly 3 different categories of actions we can take. 1st would be a direct return of cash to our shareholders. This could be through dividends or share buybacks. 2nd, our portfolio value creation options that would have to be accretive to our 5 year plan. 3rd is a category we call resiliency. This would include options that reduce our risk to lower commodity prices. In our view, it makes sense to keep all of these alive, and we often revisit these choices in the context of both the company strategy and the macro environment. At the start of this year, after careful review, we decided to initiate a $400,000,000 share repurchase program. This will be funded from cash on hand and represents a disciplined approach to optimizing shareholder returns. Equally important, it reflects our confidence in the business we've built and our ability to execute on our plan. I'm pleased to report that we have been active in the market, repurchasing some of our shares since receiving formal stock exchange approval. We have been repurchasing shares at a pace that would see us fully utilize our $400,000,000 repurchase program level over the course of the year. Encana's business is built on the knowledge that strong environmental, social and governance performance contributes to increased efficiency, higher performance and value creation for our shareholders. While many organizations develop stand alone sustainability strategies, Encana has deeply embedded these principles into its day to day decision making and its operations. Our sustainability strategy is driven by our high standards as well as the expectations of our stakeholders. I'm proud of the way we keep our people safe. In 2017, for the 4th consecutive year, we set record low rates for personal injury, process safety and motor vehicle accidents. In addition, we continue to undertake meaningful initiatives to minimize our impact on the environment and be a good neighbor in the communities where we operate. Equally important, I'm proud of the way we have ensured each of these areas help drive greater efficiency, performance and value from our operations. In doing so, every part of Encana's strategy is truly sustainable. For example, in the environment, use of hydroelectricity to power 3 new Montney gas plants is reducing CO2 emissions by 860,000 tons per year. These plants are critical to our 5 year growth plan in the Montney with upgraded hydroelectricity infrastructure benefiting residents in the region with a strengthened and more reliable energy grid. In the Permian, we've developed our own integrated water hubs. In addition to lowering our completion costs by around $300,000 per well, This ensures adequate supply and reduces our need for fresh water. In 2018, we expect that up to 45% of the water in our new completions will be recycled water with that being as high as 80% in some areas. Our companywide Courtesy Matters program focuses on being good neighbors in the areas where we operate. We have a responsibility to manage local impacts of our operations through rerouting traffic, dust and noise suppression and site cleanliness. The initiative includes mandatory training for field employees and contractors as well as a hotline for residents in our operating areas. Strong corporate governance plays a critical role in our culture. This is more than a mechanism to ensure we meet the laws and regulations. But strong governance promotes integrity, accountability and transparency throughout the company. Our approach to sustainability is delivering strong business performance, responsibly sourced and affordable energy to consumers and creating value for our shareholders. In closing, the company we set out to build in 2013 has arrived. We built a business that can generate quality returns through the commodity cycle. We have built a world class portfolio, lowered cost, maintained a strong balance sheet and consistently demonstrated industry leading financial and operational performance. We have a highly disciplined and agile capital program. Our multi basin portfolio positions us to manage risk and seize margin enhancing opportunities. Our short cycle business and deeply embedded agility enables us to quickly and efficiently shift capital without changing our guidance. We are on track to deliver quality and efficient growth in high margin liquids while spending within cash flow in 2018. Our results over 2017 and into this year prove our strategy is working and give us tremendous confidence in our 5 year plan. Driven by disciplined capital allocation, consistent performance and innovation, we continue to deliver industry leading returns. In 2019, we expect to generate approximately $500,000,000 of free cash flow and a total of approximately $3,000,000,000 through our 5 year plan. Our 5 year plan demonstrates our commitment to shareholder returns and our ability to deliver value through the commodity cycle. The $400,000,000 buyback program that we plan to complete this year is just the beginning. Thank you to our shareholders and our board for your support in 2017 and to all of the team in Canada for delivering a very strong year. I will now pass back to Clayton and Nancy for our voting results. Thank you, Doug. We will now continue with the formal part of the meeting. I have received the scrutineers report on the ballot results. Nancy, I would ask you to please read the voting results for the meeting. Thank you, Mr. Reuters. I can report that each of the directors nominated for election have been so elected by a vote of more than 97% of shareholders votes cast. In respect of the appointment of auditors, I can report that this resolution has been also approved by 97% of shareholders votes cast. Finally, we have the results of the non binding advisory vote approving the compensation of our named executive officers. I can report that this resolution has been approved by 89% of shareholders votes cast. Thank you, Nancy. I declare all the motions carried. This now concludes the formal part business of the meeting. Is there any other business to be brought before the meeting? As there is 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 as many questions as possible, we ask that you keep your questions concise. 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. Hi, I'm Leanne Norman. The question I have is we hear a lot in the media about pipeline issues. What sort of impact does that have for Encana on the production pipeline side of things? No, it's a very good question. The one of the things we set out to do with our strategy was to try to make sure that we had not only flexibility to adjust how we deploy capital, but we weren't dependent on things that were largely out with our control. So you look at our 5 year plan, it's not dependent on any of the new pipes that you hear discussed in the media today. But I would say we're actively working with industry colleagues to make sure that not only do we have a competitive environment here in Canada to invest into today, but we have one well into the future. And that will include expansion of infrastructure over time. But over our 5 year plan, we're not dependent on new pipes. Other questions? And Voca, of course, is not quite as strong as it used to be. My name is Neil de Reiter. I'm a shareholder. I'd like to know about your current AECO exposure both in terms of revenue and volumes. Yes. That's also a very good question. If I think I mentioned it in the talk, but one of the things we laid out the strategy, we have this thing we call our 4 pillars. And we think there are the 4 things as an oil and gas company. If you do well, you can actually succeed through the commodity cycle and generate quality returns. The first of those is you got to be in the right place, the right basins, the geology really does matter. We also talk about we have to execute well in this industry and our business uses a lot of capital, so we have to use that very efficiently. We also need to be disciplined. But the 4th leg, which many companies don't talk about, are markets and fundamentals. And Rene Zimlak is our EVP of Markets and Fundamentals. And we spent a great deal of time trying to manage risk. And we do that through a number of ways, one of which is we try to diversify the markets we access. And AECO is a great example of that. So even though we're one of the largest Canadian gas producers, only about 20% of our production is priced at AECO. We've used a combination of physical transportation, in other words, capacity on pipelines to leave the basin to other sales points or we've used financial hedges, derivatives to protect ourselves from it. So on our Q1 call this morning, we talked about how that in the Q1 here in Canada, we received 96% of the AECO gas of the NYMEX gas price while AECO was averaging less than 50%. And it just shows that strategy and that plan is working. And it also shows why we put it right there in the same space as capital efficiency and execution and being in the right place. Thank you, Doug. Further questions? Thank you once again. Just on LNG exports, do you have any opinion as far as if it's ever going to happen? And if so, how long it's going to take? Yes. Now we're getting into the really tough stuff. I can't tell you that Canadian Gas should be part of LNG in developing nations around the world and in countries that are trying to move off coal or fix smog and other issues. We have a massive resource base here in Western Canada. We're very competitive. I mean, if you look at the gas plants we just built in British Columbia, I talked about the CO2 reduction there. If you combine that with maybe the Shell project, which is being talked about, which uses a lot of hydro as well, we could deliver Canadian LNG to Asia at less than half the carbon intensity of Gulf Coast, U. S. Gulf Coast LNG. So that just shows the potential. I believe it probably will happen. When it happens is much harder for the EBITDA, but I hope it's sooner than later because the world needs Canadian gas. It really does as it tries to balance growth and people moving out of poverty with concerns about the climate, the world needs Canadian gas and we need to make sure it gets to market. Thank you, Doug. I think there are further questions. Good morning. My name is John Meistek. I'm a registered shareholder. What the strong performance and everything like that as far as finances go, when does the Board and the CEO figure out on raising the dividend, which puts money into the shareholders' pocket because so far, all we've been doing is getting a slap in the face by $0.75 a share dividend. So where is all that good money going? Yes, very fair question. I so I talked we talked about how you do shareholder returns. At the moment in 2018, focused on share buybacks, but the dividend is part of our strategy. But we also believe that it has to be sustainable. And as we transform the company over the last few years and getting to where we are today, we needed to make sure that a dividend was sustainable that we wouldn't raise it and lower it and raise it and lower it. So it's one of the things the management and the Board will consider going forward. But 2018, an important year to demonstrate we have quality growth within cash flow. And in 2019, the big milestone will be generating free cash. And that's at the point it's easier to begin the discussion about the dividend. Thank you, Doug. We'll take one more question. Bob Gunn, I just had one question about the rocks that one of your legs there. Is finding rocks that don't have any H2S in them, one of your strategies for safety and also better conditions for the environment? Well, one of our developments we just recently announced here in Alberta was an area we call Pipestone. That is sour gas. So we don't stay away from it, but we actually make sure we develop it safely and in an environmental friendly way. So how we'll be developing Pipestone, for instance, to manage environmental concerns is we'll be injecting the H2S back into the ground where it's safely stored. And of course, we do have a long history of working with sour gas and doing that safely. So there's quality resource there. It does present additional challenges, you highlight, but we have a track record of being able to do that safely and in a responsible way. Thank you, Doug. Thank you, ladies and gentlemen. That concludes our question and answer period. In closing and on behalf of the Board, I'd like to take this opportunity to thank the leadership team, executive leadership team and all the Encana staff for their many achievements over the last year. I would also like to thank you, Encana shareholders, for your continued support. Thank you for your attendance today.