NuVista Energy Ltd. (NVA) Earnings Call Transcript & Summary

Hello and welcome to the Annual Meeting of Stockholders of NuVista Energy Ltd. Annual Meeting 2021. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Pentti Karkkainen, Chair of the Board of Directors of NuVista Energy Ltd. Sir, the floor is yours.

Thank you, operator. Good afternoon, ladies and gentlemen. I'm Pentti Karkkainen, Chair of the Board of Directors of NuVista Energy Ltd. And it's my pleasure to welcome you to NuVista Energy's 2021 Annual Meeting of Shareholders. NuVista is committed to conducting its activities in a manner that protects the health and safety of its employees, their families and the communities in which we operate. And while minimizing the company's impact on the environment, hosting our meeting virtually as opposed to in person is the best way for us to protect each other from the spread of the COVID-19 virus. As such, the meeting is being hosted on the Lumi Virtual Shareholder Meeting platform. The Lumi platform allows registered shareholders or duly appointed proxy holders to vote and to submit questions to the moderator. [Operator Instructions] We look forward to getting your feedback and answering your questions, and thank you for participating at today's meeting and your support of NuVista Energy. With me on the webcast today are Jonathan Wright, President and Chief Executive Officer; and Ross Andreachuk, Vice President and Chief Financial Officer. Besides myself and Jonathan, the other members of the Board are also joining us remotely. Following the formal portion of our meeting, Jonathan will make some brief remarks. After his remarks, he will address any additional questions. I have asked Ross to act as secretary of the meeting and representatives of Computershare Trust Company of Canada to act as scrutineers. For meeting efficiency, I have also asked certain shareholders to move and second motions proposed at this meeting. This is not intended to limit discussion or to suggest that other shareholders and proxy holders are not able to move or second motions. Before beginning the meeting, I would like to acknowledge the indigenous peoples of all the lands that we are on today. While we meet today on a virtual platform, I would like to acknowledge the importance of the lands which we each call home. We do this to reaffirm our commitment and responsibility in improving relationships with Canada's indigenous people and to improving our own understanding of local indigenous peoples and their cultures. From coast to coast to coast, we acknowledge the ancestral and unceded territory of all indigenous peoples that call this land home. In accordance with our bylaws, I will chair today's meeting. In the unlikely event we experience any technical difficulty or disruption, I hereby appoint Jonathan Wright to chair the meeting in my absence so the meeting may continue as planned. I now call the meeting to order. I have received a confirmation from Computershare Trust Company of Canada as to the mailing of the meeting materials. I direct that this confirmation, together with copies of the documents mailed to the shareholders, be kept by the secretary with the minutes of this meeting. Business may be transacted at this meeting if 2 or more persons are present holding or representing by proxy not less than 25% of the shares entitled to vote at the meeting. The scrutineers' report has now been received, and it shows that there is a quorum of shareholders present at the meeting. I now declare that the meeting is regularly called and properly constituted for the transaction of business. We will conduct each vote by way of a vote cast on the Lumi platform and those submitted by proxy. I understand that the scrutineers have tabulated all the votes received prior to voting cutoff. Thank you to our shareholders who have voted in advance. If you have previously voted, you do not need to vote again when prompted. By voting again, you will revoke any previous vote made prior to voting cutoff. We will now open the voting for all of the resolutions. Each person entitled to vote should see voting choices displayed on their screen. Particulars of the votes cast on all matters may be obtained from the scrutineers after the meeting. I direct that the scrutineers report on all matters be annexed to the minutes of this meeting as a schedule. We will now commence with the business of the meeting. The agenda is as set forth in the notice of meeting being the presentation of financial statements, the election of directors, the appointment of auditors and the advisory vote on NuVista's approach to executive compensation. Let's begin with the first item of business, the consolidated financial statements of NuVista for the year ended December 31, 2020. Management's discussion and analysis and the auditor's report thereon have been provided to shareholders. They are available on our website, on NuVista's SEDAR page and on the Lumi dashboard page. No action is required by shareholders on this item. The next item of business is to fix the number of directors.

Mr. Chair, my name is Dave Hammer. I am a shareholder. I move the number of directors to be elected at this meeting to be fixed at 9 members.

Mr. Chair, my name is Ivan Condic. I am a shareholder, and I second the motion.

Thank you, Dave. Thank you, Ivan. Ross, is there any discussion or questions submitted from any registered shareholder or proxy holder on that motion?

Mr. Chair, there are no questions at this point.

In accordance with NuVista's advanced notice bylaw, the only individuals entitled to be nominated as directors at this meeting are the persons named as nominees in NuVista's information circular. Therefore, as directed by the Board and in accordance with the information circular, Ronald J. Eckhardt, Pentti O. Karkkainen, Keith A. MacPhail, Ronald J. Poelzer, Brian G. Shaw, Sheldon B. Steeves, Deborah S. Stein, Jonathan A. Wright, Grant A. Zawalsky are nominated as directors of NuVista to hold office until the next annual election of Directors or until their successors are elected or appointed, subject to the provisions of the Business Corporations Act of Alberta, and bylaws of NuVista. On behalf of the company and the shareholders, I'd like to thank all the directors for their commitment to NuVista. The next item of business is the appointment of auditors.

Mr. Chair, I am [ Shirley Molinar ]. I am a shareholder, and I move that KPMG LLP be appointed auditors of NuVista until the next annual meeting or until their successor is appointed and that their remuneration, as such, be fixed by the Board of Directors.

Mr. Chair, I am Tanya Dickison, and I'm a shareholder, and I second the motion.

Thank you, Shirley and Tanya. Ross, is there any discussion or questions submitted from any registered shareholder or proxy holder on that motion?

Mr. Chair, there are no questions on that motion.

The next item of business is to approve a nonbinding advisory resolution concerning NuVista's approach to executive compensation.

Mr. Chair, I am Ivan Condic. I am a shareholder, and I move that the nonbinding advisory resolution on Page 28 of the information circular of NuVista dated March 26, 2021, be approved.

Mr. Chair, I am Dave Hammer, and I am a shareholder, and I second the motion.

Thank you, Ivan. Thank you, Dave. Ross, is there any discussion or questions submitted from any registered shareholder or proxy holder?

Mr. Chair, there are no questions on that motion.

As voting has been enabled for all previous motions, if a shareholder has not voted yet, please do so now. I will pause briefly to allow final voting. [Voting]

Voting is now closed. I will now pause for a further 30 seconds to receive voting confirmation from the scrutineers. I have been advised by the scrutineers that all resolutions have been approved by more than the requisite majority and that those nominated have been duly elected as the directors of NuVista Energy Ltd. I declare the motions carried and the nominees for the Board of Directors elected. Final voting results will be published on SEDAR following the meeting. Ross, are there any additional questions submitted on the formal business of the meeting?

Mr. Chair, there are no questions on the formal business of the meeting. Any questions received for management will be posted and addressed with the President and Chief Executive Officer's remarks.

Thank you, Ross. The Chair would now entertain a motion to terminate the meeting.

Mr. Chair, I am Ivan Condic. I am a shareholder, and I move that this meeting be terminated.

Mr. Chair, I am Tanya Dickison. I am a shareholder, and I second the motion.

Thank you, both. The meeting operator is activating a poll to vote on the termination of the meeting. [Voting]

The motion to terminate the meeting has been carried. I therefore declare this meeting terminated and invite our President and Chief Executive Officer, Jonathan Wright, to deliver his remarks.

Thank you, Pentti. Welcome, ladies and gentlemen. Thank you for joining us. Just a couple of housekeeping items upfront here. You'll have noticed on your Lumi platform, it's a self advance, so you can advance the slides yourself, and I'll kind of name them as we go, so you can follow along. [Operator Instructions] So I'll just make a few remarks upfront before I get into the slides. First of all, it has to be said, what a year, 2020. I think if any oil and gas company says it wasn't a stressful year, they're telling stories. We're glad it's behind us. We had to be nimble and we had to navigate very carefully, and that is exactly what we did. And so in the course of doing so, I'm not going to spend much time on that because we reported at length last year on it. But really, it was all about cutting CapEx, cutting G&A, cutting operating expenditures, renegotiating our midstream commitments and really gearing the company so we could pivot to the front foot when things got better. And of course, things are much better now. So it was a very, very active year. And now we really want to look forward. And it's very exciting as we do look forward. So I just want to say a quick few thank yous here. First of all, a big thank you to the Board. Enormous amount of support and advice through a very tricky period for all oil and gas companies. And I'm really, really pleased and appreciative of the support that we always do get. I also want to put a big shout out to the leadership team. My colleagues, very fortunate to have great colleagues, and we pulled together very much as a team, did a lot of hard work last year as did all of our staff, and I want to thank our staff out in the field and here in Calgary as well for being very flexible and managing through a difficult year. I also want to welcome Tanya Dickison to our leadership team as our newest member, as our Manager of HR. She's been with us a few years now and fully promoted now to the leadership team. And we're very pleased to be working with her even more closely. I also want to thank the shareholders here and that aren't here today for the patience through this last year. It's not been an easy year for anyone in the industry, and we know that's true for shareholders, too. But we're extremely excited about what I'm going to be telling you about today and about the future. Also a quick shout to our vendors, our service providers, our bankers and our midstreamers, all of whom have provided support. I always say it takes a village to raise a company, and we've had a lot of support through the past year, and we very much appreciate it. So now on to the future. Let's first do a quick review of our press release, which either has just gone out or will very shortly be going out over the wires. So just a couple of comments on the quarter highlights, and then I'll get into the slides. It was a very good quarter for us. We knew production was going to be reduced from last year, of course, because we didn't spend for 9 months. But we did exceed expectations. So our production came in at 45,850 BOEs per day. That was above consensus and of course, on the back of the strength of 16 newly completed wells during the quarter and an additional 6 wells, which were completed and tested subsequent to the quarter, FYI, for a total of 22 new wells. We provided cash flow of $33.3 million or $0.15 a share and enjoyed some strengthening pricing through the quarter there. We did execute that capital program right on track at $81 million. And that overall cost is actually for the wells, the 16 wells that were fully completed within the quarter. They came in at an average of 20% less than our 2020 average costs continuing our great track record there. And I've got some slides I'll show you on this. We also, as previously announced, closed the noncore Charlie Lake and Cretaceous Unit asset sale and the selected water infrastructure sale in the Wembley/Pipestone area, bringing in total proceeds of $94 million, which went straight to the bank line and reduced our net debt significantly, in fact, ending the quarter with drawings under $300 million at $299.7 million to be exact, very pleased to be creating that kind of liquidity after a very difficult period. We were able to reaffirm the capacity of our bank line at $440 million, and we very much appreciate the support of our banking syndicate for that. So we do have significant liquidity to execute the plans that I'm going to try and brag to you a little bit about today. Just a couple of other things to mention. As part of that capital program, we did start up the Pipestone North infrastructure project, including our compressor station and the Veresen pipeline and Hythe gas plant expansion, of course, done by Veresen. And that all went very successfully, came in on track. And in fact, our cost came in 15% of -- under the capital budget for that project, which I was extremely pleased with. This actually marks the final major infrastructure project that NuVista has needed to spend in order to create the infrastructure to grow to our 90,000 BOE per day goal. So now it [ passed cycle ] spending and pads. And it's very exciting to be at this place for the next several years to get to that 90,000 goal. So we did complete a new 12-well horizontal pad, and I'll talk about that more during the slides. And Pipestone area -- Pipestone North area production has already, as a result of that, grown from 5,000 to 16,000 BOEs per day. So the facilities are performing very well at about 40% condensate on that pad. In Pipestone South, production has actually been very stable, and this is where we added a new 6-well pad. Now it's just finished drilling, completing and has been tested for just over a week. I think we're into about the 10th day now with all wells exhibiting over 12 million a day of raw gas or greater per well with average condensate gas ratios of approximately 125 barrels per million. Now of course, these are unrestricted test rates, so they're very high. We expect that. That's way above type curve. But of course, once we run tubing in and tie into permanent facilities, then just like Pipestone North, we would expect that production to be restricted at high pressure, which means it doesn't decline very quickly and of course, goes through our permanent facilities. And we're just doing that now, of course. Our average drilling and completion costs for these 18 wells in Pipestone were 25% below our 2020 average on a horizontal length and tonnage basis. So I just want to say, before I get into the slides here, that for 2021, our capital spending guidance is unchanged at $230 million to $250 million. We're reaffirming that. And we're reaffirming our full year 2021 production guidance at 50,000 to 52,000 BOEs per day. Now this is a time where we are actually experiencing tremendous benefits from the pipeline interconnects that we have created and the midstreamers have created between our facilities and theirs and between different midstreamers, such that during periods of downtime, we can still continue with good flow rates. So right now, we have actually the Energy Transfer Canada, Wapiti and K3 plants under a planned turnaround. That happens about once every 5 years. And that could affect 40% of our production. But in fact, we're only seeing a reduction in Q2 of 2,000 BOEs per day as a result of these interconnects and continuing to flow most of our production. In addition to that, we have had 2,000 BOEs per day of quarterly unplanned downtime as a result of some midstream issues up in the Pipestone North area that are almost resolved now. And again, because of those pipeline interconnects, the impact is only a further 2,000 on top of the planned 2,000. So as a result, our production guidance for Q2 is 50,000 to 52,000 BOEs per day. And the reason that this blip is not causing a reduction to our annual guidance is, as I've shown already, our capital program so far, we're having outperformance on our wells, and we're having -- we're ahead of schedule. And so we've been able to gain a bit of ground prior to Q2 there. So I'm going to just quickly say then also that currently at strip prices being well above our planned original levels of $55, it's tremendous what it does for our balance sheet and our cash flows. We're looking at the potential for cash flows to be 2.5, maybe even getting close to 2.8x the Q1 cash flow by the time we get to Q4, which would bring us to a current quarterly annualized debt to cash -- net debt to cash flow ratio of around 1.5x, and that's using strip prices -- so towards the end of the year. So with that, I'm going to jump into some slides here and bring it to life for you. So hopefully, you're on Slide 5 on the Lumi platform there. And just a couple of things to comment on there. As we grow here, we are providing free cash flow in every year in our plan and through to '24 and '25. And then, of course, the cash flow -- the free cash flow net of capital grows significantly more as a result of flattening out in that 80,000 to 90,000 BOE per day range. And as you can see in the bottom left-hand side of this slide, our new debt target -- net debt to cash flow ratio is 1x. And the big thing here is as we provide that free cash flow and fill up our facilities, our fixed costs don't grow, and therefore, our cost per BOE -- total cash cost dropped significantly by 25%. And I'm going to show you a slide on that. Also just want to point out on this slide that our total credit capacity at $480 million, that includes the $440 million bank lines and the $40 million letter of credit capacity that we have. And I'll show you a liquidity slide related to that. On Slide 6, if you're advancing along, you'll see we have our forward-looking advisory there. We are going to be talking today about forward-looking statements, and I've already been doing that. So please do take note of the advisories. Now you'll see on Slide 7 here, these are the key 4 pillars to our value-add and growth program. We know we have some of the best assets in North America, and therefore, I would argue, the world. And the linchpin is 30% condensate. About 1/3 of it is condensate in production terms, but that's 2/3 of your cash flow, and that's massive for your returns. The optimal growth profile. I'm going to show you some slides to underpin why we think we have just the right sweet spot on growth rate there. Financial strength, I've talked about the fact we've got more than ample liquidity to execute our plans. And of course, we're very committed to sustainability. We always have been. And we have online roughly 35-page ESG report, but we tried to summarize that on a single slide, which I will get to. On Slide 8 here, we don't spend a lot of time talking about inventory. I think most of you would know our area, understand we have more than ample inventory to underpin that. I'll just say the gray parts of the donut is our 2P reserves and that's 350 locations. And then, of course, if you add in the contingent resource, you get another 850 for a total of 1,200. So if you're drilling 40 wells a year as we are now with our increased capital programs, I think you can count in decades in terms of inventory. So inventory is not the problem at all. And in fact, we're going to be able to always select the best of the best for many, many years to come. I would argue you probably never want to drill the last 10% of your wells, maybe if commodity prices are higher than even they are now. In Slide 9, we zero in now a little bit on the activity areas. You can see north of the river there where all the radio buttons are, that's Pipestone North and South. That's our growth area and the lion's share of our capital and all of our growth capital is going there. And then south of that river, in between the 2 rivers, that's our Wapiti area, that's Bilbo, Elmworth and Gold Creek. And of course, we're just basically maintaining, staying flat there and spinning off copious amounts of cash flow in order to provide the growth up at Pipestone, which is our highest return area, and I'll show you that. Incidentally, it's an interesting stat that at current strip prices and spending only about $60 million of capital to stay flattish in the Wapiti area there, we actually spent off about $130 million of free cash flow in the Wapiti area there, net of capital at strip prices this year. And of course, that goes towards the growth and towards debt repayment, the growth being up at Pipestone North. So this is an enormous impact on our future for heading into Q4 and particularly 2022. You can see the 22 wells, that's the 18 and the 4 on this Slide 9, and then you can see our activity plan for the rest of the year. And when you add that up, it's about 43 wells, which increases our well count by 25% and doing so in our highest return area. That's going to have a big impact, as you'll see. On Slide 10, you can see some results coming through here. So of course, this Pipestone North 12-well pad has only been on production for a short time, as you can see, about a month now. And you can see the cume production there shown on the graph in the blue line. So we're very pleased. We're running ahead of type curve in the early days. Of course, we expect that, but very pleased in continuing to monitor there. You can see radio button 1 where that pad is, and I guess you can see the not so subliminal message on this slide is that at radio button 1 on the graph, you can see that production is already online now and what's coming next in Pipestone North for the second half of the year for growth is radio buttons 2 and 3, a couple more pads right next door. And so the message here, again, not very subliminal, is we think it's high reliability and low risk, the plans that we have going forward on the back of already some great success. On Slide 11, we always want to demonstrate our cost reductions, and we have done that in Q1 here with the wells that we drilled, and I've just gone through those. We're having continued success on driving our costs down. We've been doing that for years. You can see we planned for '21 to be less expensive on a drilling on the left side and completions on the right side basis. And in fact, we've even beat our 2021 estimates for Q1. And you can see the numbers there. They speak for themselves. Q1 being 25% at pipe zone below what we did for our 2020 average on the D&C basis. And then, of course, that kind of puts a step for about 15% below 2020 for our full year 2021 estimates when we look forward because we obviously don't assume perfect execution going forward, although we certainly strive for it as we pretty much had in Q1. Cycle times on Slide 12 are extremely important, and this is a new slide. Just really wanted to show. I mean in the early days in Pipestone, things are going pretty slow. We're doing big pads and building infrastructure in the area and so on. Now we're down to closing in on a 100-day cycle time for these wells. And a big part of that is we're kind of optimizing with a 6-well pad size. You can see the items on the right-hand side. We keep doing it for less days drilling and more pumping hours per day, which means less pumping days overall, I guess, is the best way to summarize that. And therefore, you're paying for less frac cost per well. And real consistent execution. We've smoothed out our plan, and a big part is, of course, Sim-Ops, where we're equipping while drilling and completing. And we are running 2 rigs per pad, which really accelerates. And that has a big impact on the IRRs for these wells. On Slide 13, this is a very important slide. First of all, on the left-hand side, you can see what I said is really going forward, it's pretty much all half-cycle spending. All the facilities are built. We just need to fill them up now to 90,000 BOEs a day, and that means half-cycle spending is full cycle spending at this point, very, very good for returns. And you can see that on the left-hand side, 85% to the drill bit. And the rest is maintenance capital, keeping the lights on, et cetera. On the right-hand side, this is the dramatic effect that you have. When you have brand-new facilities, of course, in Q1 here, we've got our start-up costs and the facilities are empty for most of the quarter because we just started them. So as you fill those facilities up, your fixed costs, of course, don't grow, only your variable ones do. And so you're dividing them into a lot more BOEs, and you rapidly drive down that cost per BOE. In terms of total cash costs, you can see a 25% improvement there. And if prices were ever flat in this business, at flat pricing, that means you're actually doubling the netback from Q1 through to 2023. Very, very important. And of course, we have seen rising prices as well. So that has a tremendous effect, a reduction of approximately $6 per BOE in cash cost, which means $6 better on netback in a flat environment. Now Slide 14, we've shown before, and it really hasn't changed. We're very pleased with these results that are coming in and matching or exceeding what we have here for type curves. Just a reminder how to read this slide, the light colors, like in the green, the light green is $50 West Texas, the dark green is $55. Same thing for the blue, blue being Pipestone. So you can see at Wapiti area, you can see why we're drilling to stay flat. We're getting very good returns there, and we're pleased with that and the free cash flow that comes with it. But the Pipestone area just can't be beat in terms of the IRRs we're getting. A big part of that is we get tremendous results there as well, but we do it for a lot less cost, as you can see in the middle line of the table there. And as I've just demonstrated, we're actually coming in under these projected costs even at Pipestone. So very, very pleased with these returns and 8- to 12-month type payouts are tremendous for moving the needle. Go to Slide 15, you can see our capacity profile. So really, the sweet spot, the top of the blue shaded area is our available capacity from the midstreamers and our own facilities. And then the pencil thin blue line is the minimum take-or-pay commitments, minimum volume commitments that we have agreed to in order to have the midstreamers build those facilities and built our own as well for ourselves. So sweet spot is really to be nicely cushioned in between those lines, and that is exactly what our plan does, maybe erring a little bit towards the upper side. Lots of cushion in case there's a year where prices fall and we need to cut back. And you can see the answer to the question, so why would you grow in this environment? Some ask that question, some don't. You can see, we've built the facility that it only makes sense to fill them. We are maximizing free cash flow. We are actually paying down debt as we grow. So we've chosen a prudent rate to make sure rate of growth so we can make sure we can be reducing debt at the same time as increasing production and cash flow. And then, of course, this line of sight to a 25% reduction in cash costs, which improves your returns, your netbacks over and above that slide of returns per well that I showed you is a tremendous driver. And of course, the money that we are spending is getting very high IRRs, well over 100% in Pipestone area there and payouts that are well under a year. So you're rapidly recycling that money from the drill bit back into the bank. On Slide 16, you can see here, this is the linchpin slide. If there's one slide you want to [ tattoo ] on your bathroom wall, I would say this might be the one. And so you can see some pretty impressive stats here. This is the power of Pipestone and our Wapiti area coming through here now. So we showed a low and a high CapEx case. First of all, this entire slide was done at $55 West Texas. And so -- and the rest of the prices are all shown in the fine print there for your benefit. But it's all at $55 West Texas. We did a high and low CapEx case really to kind of demonstrate. And when you look at this slide, most people say, well, why would you ever do a low CapEx case? And that is exactly our [indiscernible]. So you can see on the top left there, of course, if we spend more, we grow more quickly. That makes sense. That's the blue bars on top of the gray. On the top right, it's a little bit of a surprise where you say, okay, if you're spending more, why does the free cash flow not drop very much in 2022? And the reason is because in '21 here, the increase of the capital spend that we made, we decided that during spring breakup. And so that spend really starts here in the mid-summer and has some impact on this year's volumes, but not a lot. It really moves our '22 needle forward. And then for our '22 capital spending, of course, you're hitting the ground running. Before January 1 even starts, you're already into the spend mode for the whole year. So with 8- to 12-month payouts, you're getting that money back very quickly. So you'll see in the top right-hand side there, this is free cash flow net of capital spent. And in the higher spend case, it's only marginally less than the low spend case. And then, of course, in the out years, the higher spend case dwarfs the low spend case in terms of much, much more free cash flow. And you can see in the table, that's because we're only spending between 65% and about 85% of cash flow and returning the rest to reducing debt. So when you're doing that and you're growing at the same time, your debt to cash flow -- net debt to cash flow is dropping triply fast because your production's going up, prices are up and your debt is going down. So you can see 2.5x there for 2021 guidance for net debt to cash flow. But of course, that's at $55. If we're seeing strip prices, we expect that could be as low as 1.5x. And -- but anyway, let's use the $55 price on this slide. And you can see that we will be crashing down through our new target of 1x debt to cash flow or less by 2023, perhaps even 2022 if we see strip prices prevailing. Very exciting slide. And of course, $450 million of free cash flow over the 4-year period, obviously, a tremendous number versus any of our metrics. So on Slide 17, you can see our debt sort of layout here, really just demonstrating that bank line, which I talked about earlier, $440 million plus $40 million on the LCs and a significant amount of liquidity available and of course, growing over time as we pay down debt. On the right-hand side, our senior notes, of course, are termed out for almost 2 more years. And of course, we're already starting to explore refinancing opportunities there because we obviously wouldn't wait until March of 2023. So a very favorable situation there. Quick one on Slide 18, this is the condensate slide. And it's really just to show that this is finally the one product where in Alberta and Canada, we are at the correct end of the pipe. We're not exporting. It's actually being imported, which means our American friends actually have to pay that price to ship. And it's usually the opposite for Canadian gas and Canadian oil. And as a result, we actually get the premium. We're making it in Alberta, we're using it in Alberta And that's why we tend to get even a premium to West Texas here in the province. We're very pleased with that. The slide on the -- the graph on the right-hand side really is just to demonstrate that oil sands are growing again, but very slowly, and that's the demand for condensate as a diluent. So the demand is growing, which is great. That's a favorable outlook but not growing really quickly. The big story is that condensate production used to be growing in the province, about 23%, 24% per year with Seven Generations and Ovintiv and others spending large, large amounts on growth. Of course, most people have cut back their capital programs and flattened out. And as a result, condensate is only growing in the province as per the blue bars, which is sort of 5% or 7% or 8% per year. So really strong supply/demand scenario for condensate, our primary product, 2/3 of our cash flow into the long term, and we're very pleased about that. On Slide 19, of course, we couldn't enter the year naked of hedges. So we do have some hedges in Q1 and Q2. But I think the key thing I want to draw your eye to, first of all, let's say, on the top set of slides -- top set of graphs, that's really just to show that we -- although natural gas is only 1/3 of our cash flow, we still want to get the best price for it. And so we do sell to the 5 points of North America as we call it, and they're all listed there from California to Dawn to Chicago to U.S. Gulf Coast and AECO. And I guess the main story here is we're not very hedged on gas on the left. On the right-hand side, you can see for oil, we do have about 53% hedges in place for 2021. But the key thing is, in a high-price environment, you want to see what we have here, which is the hedge volumes, which are the bars, they're falling away quickly as you head towards Q3 and Q4 and into next year and the actual price is growing rapidly. If you look at the colors we have in place between the blue and the green lines there, that relates to almost CAD 80 or $62 to $64 West Texas as a price ceiling on those 3-way colors that we have. And so obviously, the message there is with [indiscernible] being strong, for the same production, cash flow is rising rapidly as we head into Q3 and Q4 with the hedges falling away in volume and increasing significantly in price. The final slide I'll just touch on here is our ESG slide. Again, we have a fulsome update of our 35-page report, which will be coming in mid-summer here, so we're leaving most of the firepower to that. But we did make some comments in our MD&A at more length and in our -- a little bit in our press release. And on this slide, hard to get everything on one slide. You've probably seen this before, so I won't dwell on it. But we are very proud of our GHG reduction of 50% over the last number of years shown there. And a couple of additions to this slide this time around is we're just emphasizing our zero methane pads, no routine methane emissions at the Pipestone pads because we're putting in centralized instrument air. And in the southern areas in Wapiti where we can't do that economically, we're testing out e-PODs solar-powered instrument air compression. So -- and then also just a point that we have already previously directly linked executive compensation to not only business but also ESG performance in the top right there. So lots of good things happening at NuVista Energy. I really appreciate your time and your continued support. And I guess we can close it there, and I'll just ask Ross if there are any questions that have been coming in.

There's no questions right now, Jonathan. I'll just pause for a few minutes just to see if anybody has a question on that -- our presentation.

That sounds great, Ross. Thanks. It gives me a chance for a drink of water.

Exactly. It doesn't appear there's any questions, Jonathan, so we can proceed.

Okay. Well, I think if there are no questions coming through then, I will just say one more time, thanks so much for your support, whether you be shareholders or vendors or other partners of different kinds. We really do appreciate it. And it's been a tough year in 2020. We have turned the page, and we're extremely excited going forward. There's a lot of enthusiasm in everyone's steps down the hallways. Although right now, they are continuing to be virtual hallways from a COVID point of view, but we look forward to getting through that as well. So I wish everyone a successful year, and I look forward to reporting on some great results as we go through. Thank you very much.

This concludes the meeting. You may now disconnect.