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

Thank you, operator. Good afternoon, ladies and gentlemen. I'm Pentti Karkkainen, the Chair of the Board of Directors of NuVista Energy. And it's my pleasure to welcome you to NuVista's 2022 Annual and Special Meeting of Shareholders. NuVista is committed to conducting its activities in a manner that protects the health and safety of its workers and the public while minimizing the company's impact on the environment. As such, and given the evolving circumstances surrounding COVID and our uncertainty about gathering restrictions a few months ago, we plan to host this meeting on the Lumi Virtual Shareholder Meeting platform. Hopefully, this is our last virtual meeting. The Lumi platform allows registered shareholders or duly appointed proxy holders to vote and to submit questions to the moderator. If you have a question, simply click on the messaging icon and type your question in the box at the bottom of the messaging screen then click the Send button. Questions should be of interest to all shareholders and be relevant to the business of the meeting. When asking a question, please include your name and whether you're a shareholder or a registered proxy holder. I encourage you to submit your questions early. They will be put in the queue and address at the appropriate time during the meeting. 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. Following the formal portion of our meeting, Jonathan will make some brief remarks. I have asked Ross to act as Secretary of the meeting and representatives of Odyssey Trust Company 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 land 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 and 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 the indigenous people that call this land home. On behalf of the Board, I would like to express our sincere thanks to the NuVista management team, our employees and our contractors for their extraordinary efforts and performance in 2021. This past year was incredibly challenging and very active. The NuVista team rose to every challenge with a relentless focus on safety and operational excellence. The company delivered outstanding financial and operational results and did so in a manner consistent with our core values and have positioned the company to continue to grow stakeholder value. I would also like to recognize my colleagues on the Board for your stewardship and sound counsel and helping guide NuVista through what has been an ever-changing and tumultuous period. And I'd like to specifically acknowledge and thank our departing Director, Brian Shaw, for his contributions to the Board. Brian has been a Director of NuVista since 2014, and will be retiring from the Board as of close of this meeting today. Thank you, Brian. As we say goodbye to Brian, we welcome Kate Holzhauser, who was appointed to the Board earlier this winter and is standing for election as a director at today's meeting of shareholders. I and the balance of the Board look forward to working with you, Kate. On behalf of the NuVista Board and Management, I would also like to thank you, our shareholders, for your continued support and confidence in NuVista Energy. And with that, we will now move on to the formal part of the proceedings. In accordance with our bylaws, I will chair today's meeting. I now call the meeting to order. I have received a confirmation from Odyssey Trust Company 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 two 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 Secretary after the meeting. I direct that the scrutineers' report on all matters be annexed to the minutes of this meeting as of 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, fixing the number of directors to be elected, the election of directors, the appointment of auditors, the advisory vote on NuVista's approach to executive compensation and the amendment to our share award incentive plan. Let's begin with the first item of business. The consolidated financial statements of NuVista for the year ended December 31, 2021, 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 Cassidee Smith. I'm a shareholder. I move the number of directors to be elected at this meeting be fixed at 9 members.

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

Thank you, Cassidee. 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 on that motion.

Thank you, Ross. In accordance with NuVista's advance 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, K.L. Holzhauser, Pentti O. Karkkainen, Keith A. MacPhail, Ronald J. Poelzer, 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 Alberta and the bylaws of NuVista. On behalf of the company and its 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 Molenaar. 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. I'm a shareholder, and I second the motion.

Thank you, Shirley. And thank you, 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.

Thank you, Ross. 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 29 of the Information Circular of NuVista dated March 25, 2022, be approved.

Mr. Chair, I am Cassidee Smith. I am a shareholder, and I second the motion.

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

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

Thank you, Ross. The next item of business is to approve an amendment to NuVista's share award incentive plan.

Mr. Chair, I am Tanya Dickison. I'm a shareholder, and I move that the ordinary resolution to approve the amendment to the share award incentive plan on Page 30 of the Information Circular of NuVista dated March 25, 2022, be approved.

Mr. Chair, I am Shirley Molenaar. I'm a shareholder, and I second the motion.

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

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

Thank you, Ross. 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 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 Limited. 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.

Thank you, Ross. 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'm a shareholder, and I second the motion.

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

The meeting to -- 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. Ladies and gentlemen, they say, Lord, let me live in interesting times, and I think we certainly have that. I'm very happy to report that NuVista is in exceptional shape and never better. It's probably working on a short history here. Just going back a couple of years, NuVista purchased a flagship property in 2018, Pipestone. We committed to building facilities and the downstream contracts to get to market. But we had to put that on hold due to the 2020 pandemic and the drop in pricing that happened at that time. We see -- saw noncritical spending. We cut G&A. We cut salaries. And we protected the balance sheet. We always told staff, we just have to protect the company and endure the pain for now so we can survive strong to thrive on the other side. Energy is a vital business to the world. This will come back. The effect of this slowdown was that it took until late last year to be able to showcase the tremendous value in our newest area to the most skeptical in the investor world, and this area is Pipestone. This strength has now roared. NuVista has now finally come of age. Pipestone results and our other Wapiti area results have now combined to brightly show some remarkable attributes: highly repeatable and low risk; very high value; successful pads beside existing successful pads with inventory measured in decades; improving costs, albeit now offsetting inevitable inflation for the world; and we have come of age in a commodity environment that is extremely strong and looks to be durable too. That payout started at about a year, now often 3 months or better. NuVista is in the enviable and almost unique position of being able to almost double production to 90,000 BOEs per day from 2021 levels, simply by filling existing new facilities to their design capacity with new repeatable pads. The headwinds of building these through 2020 have now turned into significant tailwinds where half cycle drill bit returns are all is needed to grow. NuVista will grow approximately 30% this year, year-on-year. All this growth is happening while spending less than half of cash flow at current strip. In today's Q1 press release, which was released just a few minutes ago, we announced that we have already achieved our initial net debt target of $400 million in April post quarter. Our ultimate base net debt target of $200 million to $250 million is right in the gun sights. So we have also announced the commencement of the return of capital to shareholders, concurrent with an increase to capital to increase drilling activity by filling in the previously planned gaps in our 3-rig drilling schedule. Drilling with 3 rigs steady year-round reduces execution and supply chain risk while increasing safety through labor continuity, while still maintaining strong capital discipline through not adding any more drilling rigs. We today announced our Q1 '22 results in full in that press release that just went out. And I also encourage shareholders to check out our corporate presentation, which if it's not posted already, will be in the next short while. Including record production, beating guidance at 56,600 BOEs per day with record adjusted funds flow of $190 million in the quarter. We have bumped capital to fill in the rig program to a range of $355 million to $375 million for 2022 with the increase being allocated approximately 2/3 to the increased drilling activity and the remainder split evenly between infrastructure optimization and a 5% allowance for inflation over and above our original budgeted amount. Full year 2022 production guidance has bumped up 1,500 BOEs per day to a range of 67,000 to 69,000 BOEs per day. With the added wells being executed in the third and fourth quarters of this year, we also expect an addition of 2,000 BOEs per day to projected 2023 volumes. Our production guidance for Q2 of 2022 is 62,500 to 65,000 BOEs per day as we execute 6 planned midstream and NuVista facility maintenance outages during the quarter. Net debt to quarterly annualized cash flow has already reached 0.5x. Having already achieved our initial net debt target of $400 million, our Board has authorized the application to the TSX to commence an NCIB, a normal course issuer bid. This is subject to TSX and banking syndicate approvals, all of which we anticipate can be in place by mid-June. Subject to receiving those approvals in June, our Board has authorized that initially between 25% and 50% of our free adjusted funds flow can be directed towards the buying back of NuVista's shares. At current strip and share prices, we anticipate being able to direct closer to the 50% number with the remainder being towards continued debt reduction. This would allow us to arrive at year-end at the incredible position of having reached our base net debt target of $200 million to $250 million while already potentially fully satisfying the NCIB by year-end. As such, our Board at that time, as we approach year-end, will be considering all other potential uses of free adjusted funds flow, including continued disciplined growth beyond 90,000 BOEs per day while continuing our shareholder capital return framework, which is expected to include continued share buybacks or dividend strategies. Ladies and gentlemen, NuVista has finally come of age, as I said. And I don't think it's too dramatic to say that the timing is perfect as we are literally in the dawning of a new era in energy. For years now, we have warned on to deaf ears that ignoring the world's demand for hydrocarbons as a fundamental part of the long energy transition is a grave mistake. But now somewhat suddenly, the world is starting to realize through the 2021 European natural gas and electrical power crisis and then tragically the Russian invasion of Ukraine that hydrocarbons are still a vital part of the energy mix, that there is interplay between military security and energy security, that affordability is also a formidable issue, and that good clean Canadian natural gas can be a vital part of the energy transition displacing coal while reducing CO2 more than in half all the while adding solar, wind and nuclear to the mix around the world. And the Canadian producers like NuVista are investing to reduce our CO2 and methane emissions intensity. We can now consider what the world would look like if energy policy and greenhouse gas reduction strategies are balanced with a realistic timetable and security of supply. And we can consider what if NATO became not just a military security operation, but also on energy cooperation where the coalition of the willing Western democracies can supply hydrocarbon demand needed with reducing emissions to the coalition of the NATO countries who need it, the North American Energy Organization perhaps. I've never been more excited about the vital industry in which we work and about NuVista's bright future. I want to say a hearty thank you to all of our staff and our vendors and our advisers, some of who are present on the line today, and to our Board, our leadership team and, of course, to our shareholders. for the hard work, the support and the guidance that got us here. If any shareholders or attendees present have any questions about NuVista or our plans, please feel free to contact myself or Ross and/or Chuck, and we'll be sure to get back to you. Thank you very much.

I think that concludes the meeting.

Okay. Thank you.