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

Mr. Chair, there are no questions on the formal business of the meeting.

Then the Chair would entertain a motion to terminate the meeting.

Mr. Chair, my name is Tanya Dickison, I'm a shareholder and I move that this meeting be terminated.

Mr. Chair, my name is Leslie [indiscernible]. I am a shareholder and I second the motion.

The meeting operator is activating a poll to vote on the termination of the meeting. For those attending the first meeting in person, please signify by raising your right hand. I've received confirmation that the motion to terminate the meeting has been carried. I, therefore, declare this meeting terminated and invite our CEO, Jonathan Wright to deliver his remarks.

Thank you, Pentti. Hi, everybody. Thank you for joining us today. Certainly want to welcome all of our staff. Thank you for coming. We're going to talk about results. These are your results. You are the ones who delivered them. And it's 75 strong here in Calgary and 75 strong out in the field, just for those that don't recall, and that can deliver all these results. And then, of course, the many folks that work on the rigs and the pipeline crews that support us beyond even that, I couldn't do it without all of you. I also want to invite anyone that's still standing, so feel free to sit down if you want to. We're pretty informal around here. So whatever you'd like to do there? All right. So I want to say one more thing, too. I want to thank -- I noticed a number of our legal and audits and financial partners and supporters here today. I appreciate that. You're all very busy people. I know that and taking the time to come here today for us is very much appreciated. So I'm going to go through our corporate presentation, and certainly not every single slide, but it's worth dwelling on a couple of things because since this company is going extremely well and the results continue to be very repeatable and highly valuable. [indiscernible] okay. Here we go. Looks like it's working. Okay. So just a few minutes ago, our press release crossed the wires and put out our Q1 results. We are very pleased with those results. And obviously, you can read through them in detail. We put a little bit of a summary on this slide here, just to give you an idea. Q1 came in just over the top of our guidance range, which was 77,000 to 80,000 BOEs per day. We were just over that. And we set our Q2 guidance, as you can see here, for 80,000 to 83,000 BOEs per day. We certainly expect to be passing through and above 90,000 BOEs per day during the second half of the year on the strength of the many new wells that are coming on stream as we speak. Things are going extremely well. We continue to use -- spend less than cash flow on an annualized basis. And as a result, we have significant access to free cash flow, and we used that to buy back shares. And so far, since 2022, you'll see at the bottom of the slide there, we've already bought back over 30 million shares for approximately $360 million of cash returned to shareholders. So things continue to go really well. We're happy with the growth, and of course, our debt remains far, far below our soft debt ceiling of $350 million. I'll skip ahead here, because I think many of you know the story quite well. But it's worth just touching on our reserves. You did put these out at year-end. And -- but typically, we keep this slide in our deck and still our AGM because it is an AGM, and we think it's worth just sort of recapping the year, this is a fantastic result. I'm very proud of all the results that all of you turned in here. You can see we continue to drill anywhere from two to four benches, four in many cases now, and you can kind of see on the map there, we've got reserves, contingent resources and wells covering a large part of a land gate and yet still lots of room to continue adding wells in. And as you can see here, 25 years of development booked at this point with 1,180 locations. And you can see the breakdown there, it's about 340 in 2P reserves and then well over 800 in contingent resources. And when we get to our growth slide, we've committed to growing to 105,000 BOEs per day and beyond. And we continue to work on it beyond part because we don't even need 2/3 of these wells in order to grow to that 105,000 plants. So we continue to add to that and do the work to get the downstream contracts and all the other things in place to provide for that reliable growth beyond our current commitment of 105. And it's on the back of these reserves, which are deep and long. We always talk about going to a plateau such that at a minimum, we could keep it flat for 10 to 15 years once we get there. But as our engineers and geologists continue to find more wells to drill, that plateau has to keep going up into the future with a longer growth runway. And we notice that reserves you have to them to create value. And you can see here, this is the value slide that goes with that. Tremendous value being added, we added 14% to our PDP reserves that's beyond production reserves. And on a per share basis, because we're buying back shares, that's 20% on a per share basis. The recycle ratio, you'll know, is net back divided by S&D. So that's what's the value of these reserves refining divided by the cost to find them? And a very healthy number for a corporation is 1.5x. And you can see here in the last 3 years, we've been 2.7x to 5x, absolutely tremendous results. And that's why the cash flow continues to recycle very quickly back from the drill bit. Down to the bottom left, you can see the intrinsic value of our 1P and 2P reserves. And from a pretax point of view, you're talking approaching $30 certainly well over $20 when you talk about after tax growth numbers. So I won't draw on to needles, but it's very important that the economics those reserves shine through. And here's another way of looking at that. This is our Pipestone area. We've only just begun to scratch the surface. As you can see, drilling pads right beside known pads getting highly reliable and repeatable results with very high value. And you can see on the top right, most of the time that we've been drilling these wells. We've had $85 oil and $4 gas, and we've been returning 1.5 to 3x the cost of a pad in the first 12 months alone. So you spend $50 million on a pad, you get back $50 million to $100 million to $150 million in the first 12 months alone. And obviously, prices are down a bit now, so you can take about 3 quarters to one turn off of that, but still fantastic results. This is why we haven't changed our capital program. We continue along with $500 million of spending, and I'll talk a little bit about that later. And you can see from looking at the map, we can do this for many, many years into the future and we'll be approaching 50,000 BOEs per day in the very close future here just on the Pipestone property alone. I'll skip ahead here. So looking South of the River at our Wapiti properties where we've been drilling for actually over 13 years now. And you can see here, we're getting excellent results as well. Not quite as strong as our flagship, which is Pipestone even still tremendous results. So you can see sort of 1.25 to 2x our money back in the first 12 months. So again, a tremendous return and very soon this area is going to be pressing 50,000 BOEs per day. And of course, we continue to work on pushing beyond that highly repeatable, highly valuable results. A big part of the reverse increase and extra locations coming in has been Gold Creek, shown in blue here. And a big part of that is pushing north into the area where we never claimed any reserves prior and then also the lower Montney well, which ourselves and some of our nearby competitors, including Paramount, have been turning in some tremendous results, and we're well delineated now. And -- in fact, the best pad we've ever drilled in Gold Creek is the last one we drilled here, and you can see that green line. It's hard to get from a graph sometimes, if you look at that far right-hand side, that cumulative condensate green line is twice as good as all of the other pads. That is huge for economics. So not only the future-looking voluminous in terms of numbers and wells drilled, that's highly valuable. It's important to manage our costs, and I want to connect everybody in the room and out in the field for doing so we've done a tremendous job structurally reducing our cost, drilling faster, fracking with less water and less time, higher pumping hours per day. All the things that you do, which means that even if we have inflation, we're still either managing our costs or driving them down. And this has been a tremendous result. I won't go through the details of this, but you can see even in Gold Creek most recently here, we're down to 12 and 10 days per well drilled. And these are the things that drive the time downwards and time is money when you're working on a drilling or a frac rig. And so if you really look at bundling it up in the bottom right-hand side there, you can see that in 2024 here, we're actually still drilling our wells for less than what it cost in 2019 before all the post-pandemic inflation kicked in. And I don't think there are any companies that can say that. So it's tremendous and it's really good for the economics, I'm going to skip these figures because I've already shown the actuals, which are better. And so I'm going to go here to -- this is the growth slide I referred to. So we currently are locking and loading the capacity. The folks who are out there in the field installing the equipment right now as we speak. And we're going to be increasing our capacity as we have done many times in the prior decade, in this case, reaching 105,000 BOEs per day. Which implies a run rate of around $100,000 because you have a run rate on this thing 24/7. And so that's all happening sort of in three tranches now through the first quarter of next year. And of course, we're already working on the next tranches beyond that. It's important to have that flexibility. So the penciled thin blue line with our minimum volume commitment. You have to reserve space with midstreamers. That's what we did. The top of the grade is the space available to us and then the sort of blue bars is our plan, which not surprisingly is meant to be pushing slightly in between those two lines, allows us lots of flexibility as we continue to grow. And how are we going to pay for that? Well, we're going to pay for that with less free cash flow. So about $500 million a year is our capital budget on the right-hand side. And on the left-hand side, obviously, we've got a soft gas price year this year. But if you return to just sort of mid-cycle type pricing, which I should have on losses, but I believe that $75 oil and $3.50 gas, so probably a [indiscernible]. So that's kind of more like mid-cycle pricing. And you can see the free cash flow after spending the capital is in a sort of $250 million to $350 million per year and growing as production continues to grow as we spend less in cash flow. So I think I'll skip ahead here. I already talked about our debt [indiscernible] graphic on the left-hand side there, and it basically shows you we don't have very much of it. It's fantastic. That's by design. And we're going to continue to be very prudent with our balance sheet. And on the right-hand side, what that shows is we've got a lot of [ question ]. In other words, if we did need to borrow a lot of money we could. We're very bankable right now. And I think the bankers that are in the room, but actually, we're not a large draw at all by design. Obviously, it is to take what I said about the financial metrics for the company, there is no need to run a high debt level. So I'll just take this slide to remind all of you that 2/3 of our production is nice clean Canadian natural gas but that's only 1/3 of our cash flow and 1/3 of our production, of course, is condensate. As you all know, that's a very late form of oil and it's mixed with heavy oil in order to make it less viscous and pump it down the pipeline. So the market is in Alberta, and it's a tremendous profit center because we don't have to ship it outside of Alberta. We're making it here, and we're using it here. And so as a result, we get a premium price for it. So that's 1/3 of our production, but that's 2/3 of our cash flow, and that is the [indiscernible] business economics. So this slide is that other 2/3 of our production which is natural gas. Now even though it's 1/3 of our cash flow, we want premium price for it. And I would say for our size, we are the most diversified natural gas seller. We sell to what we call the 5 points in North America. I'll remind you -- and we're also nearing colors, but it's basically, we keep a little bit in AECO, typically less than 15% because for flexibility reasons. And also, we can have cold winters here from time to time. Also, we shipped to Malin, California, Dawn, Ontario, Chicago and the U.S. Gulf Coast. And that's why we're able to connect to the various markets. You never know who can have a cold winter or hot summer and get that premium price spike, and we benefited from that each time it happened in the various locations. And that's why we not only get a diversified price, but we tend to average far more than the AECO realized price in just about every quarter for the last -- as long as I can remember. Okay. One quick word on ESG. We've worked very hard to do practical projects reducing our emissions as we grow. And I'm very proud of the progress that our team has done here. Obviously, this is something that's in the craft a lot, but the numbers speak for themselves for NuVista, 55% reduction since 2012 on our emissions per BOE of CO2 equivalent emissions. That's a huge reduction on a per BOE basis. And then you can see the other results are shown there in writing in terms of reductions since 2020. But the other thing is zero methane pads, and zero methane pads and a lot of the other efforts we've done on methane, which is the biggest greenhouse gas contributor have shown tremendous results and were something like 57% reduction in absolute methane even as we've grown. And in fact, that means we've got about a roughly 85% reduction in intensity per BOE for methane. So these are tremendous results and we haven't had to sell the farm to do this. This is good practical engineering projects and hard work and operations for surveillance to increase efficiencies and reduce emissions. And I'm very proud of what the company's done. I'm very proud of what Canada continues to do in this area. Which brings me to this, so I want to say a few words about our industry in Canada in general. So I think I'll call this Town Hall for Energy citizens. Because I think we all need to really sit down and think about some of the rhetoric and the misguided rhetoric that's going on around us versus some of the facts that are out there. So I think a reckoning is coming. In the earliest climate change, as in life, there is a difference between aspiration, realistic action and clicking your heels together to wish for something to happen. Unfortunately, the world has been clicking their heels together when it comes to energy transition. And now reality is past starting to set in. In the 2019 period, the world reached what I heard someone recently call peak Greta. And for the short time, they were right. The COVID pandemic hit in 2020 and the world was shut down with the help of global communication and coordination, something that has never happened before in the 4.5 billion a year history of the earth. Nobody actually did need our oil and gas products for a while or as much. Oil consumption dropped about 9% on an annualized basis, but the world did not enjoy very much today. Now as we come back to normal, energy consumption and production of all forms is getting record highs, yes, record highs from each form of energy. And I'll show you a graph on that. So it's important to kind of stare at this graph for a minute. This is since 1850. And you can see back in 1850 was mostly wood products. And then on came coal, that's the next line to come up around that what is that 90 [indiscernible], and then along came oil and then long came natural gas and then came nuclear, and you can see as you go on down the list here. A couple of things, if you really stare at this graph for a minute, first of all, each new energy product took off hugely and became very popular. Secondly, it took 50 to 75 years for each new one to become a fully established product, 50 to 75 years. The third thing you should realize is, can anyone see a single line on this graph that goes down when the other energy product comes in. I don't think so. It doesn't go down, it goes up because the world continues to grow and demand more energy. And perspective is everything. So if we take a look at perspective by stacking all these graphs on top of each other as backlog [indiscernible] and many others do, these are energy experts. That's what it looks like from 1800. And I think if you look at the very tiny top there, see if I can point to it, right there the shape of my hand is exactly the amplitude I'm looking for there, okay? It amplifies when you go at a distance. But that is what renewables have been able to do with $4 trillion over the last few years, $4 trillion of investment. This isn't a speech about not going after renewables. I think it's great. The world is going after renewables and needs to continue and will. But primary energy is more than 80% supplied by fossil fuels today, not a single energy source has ever gone down in the history of man kind. And we think we're going to replace all of that by tomorrow, if you listen to the detractors of our industry, it's just not realistic at all and the physics and the economics simply do not support it. I simply will not come to pass. So, what about that? Politicians aspire to reduce greenhouse gas emissions in our energy mix. And in the absence of settled science, it is worth trying. It's the unreality of the pace of this that is ridiculous. And there is a serious lack of honesty from politicians on what it's going to cost, whether it's nuclear, which the world hasn't even embraced yet or solar and wind, which has 50x to 150x less energy density than oil and gas or spending extra money on carbon capture and sequestration for oil and gas, all forms of energy are going to cost far, far more. And in areas like the U.K., Germany, California, the extra zero on the energy bill at times will become more chronic in more countries and citizens will increasingly ask harder questions about the cost and the rotating blackouts. We are now routinely complacent about that the pumps will have gasoline for us and the light switch and the thermostat will do their thing at the flick of a finger. I talked about energy density and this is the graph. Now I still have to do a little more research. This researcher said gas is even more energy dense than nuclear. I have to think about that one. I have to think about that one. That's not intuitive for me. But certainly, the rest of it is, you can see solar, while you can't really see solar or wind compared to natural gas. So that's that energy density. When we talk about the [ diffusivity ] of energy for solar and wind, it is a real physics and economics challenge that the world is working on, but it is not going to replace oil and gas anywhere in the time frames that we've talked about. So backlog [spill] and many other facts and science-based authors have demonstrated that affordable and reliable energy isn't just helpful for economic development and lifting societies out of poverty, energy is economic development, period. Prematurely handicapping and shutting down our oil and gas industry, even as people continue to use our products every single day before the alternatives have been developed to replace it is shortsighted lunacy by people who simply have not done the math. So if we go back to the same graph. A couple of things I'll just point out here. Actually, I keep you ahead of my notes, and I'm not going to repeat myself. So, what I'd say about these numbers is those that are against our industry, I strongly implore them to find some balance. Don't let perfect be the end of your good. If you truly believe we can transition off of fossil fuels with the snap of a finger. Then I guess we advocate for all green energy and no more fossil fuel, not even natural gas. But if you're wrong, what happens? If you fail to get there, you've missed out on decades of greenhouse gas emissions reductions as showed you in NuVista's numbers versus status quo that could have taken place by growing Canadian natural gas production to back out coal, which is double greenhouse gas emissions or more compared to natural gas. Canada's LNG industry, if allowed to grow, can supply natural gas to displace the coal-burning world, while hugely building Canada's economy and reducing emissions worldwide with zero government subsidies required, private industry would and can and will fund it. 15% of Canada's GDP is from the natural resource sector, one in tens odds and half of that is from oil and gas. We have among the best governance and human rights standards in the world, and we have among best greenhouse gas and methane emissions and reductions in the world. These are [indiscernible] gas now, not [indiscernible] gas, and you can pretty much read them for yourselves. We have total conventional oil and natural gas production increased 21%, okay. And we've had a total scope 1 emissions reduction of 24% and methane emissions reducing 34%. These figures are from 2012, and these are absolute numbers, not per BOE. And here's another stop, as you can see here, the natural gas side of the industry alone. Natural gas production and up 35%, methane emissions went down 38% and Canada was already in good standing before we started against the world. You can reduce greenhouse gas emissions while supplying the energy that the world needs. And yes, Canada's GDP per person continues to fail to grow despite the riches of our natural resources, while other G7 countries, including the U.S.A. continue to outpace us. Indeed, Canada has now fallen to 56% of real GDP per person compared to the U.S.A. Foreign investment in Canada is at all-time lows. Why is this? Many reasons, including federal anti business policy and also regulations, which have made it much harder and longer to get resource and oil and gas projects built. Now, don't worry. I'm done. In 2022, oil and gas generated $997 per hour worked in Canada for the Canadian economy. As opposed to the average for all sectors, which was $61 per hour worked. Our industry count has made these great gains on emissions reductions by doing common sense and/or economic projects to get there, the low-hanging fruit. But the Ottawa proposed 2030 emissions cap is a whole other level, which makes no sense and promises to destroy Canada's economies, we must push back. And that's why I'm intriguing you to this diagram. And we have to get this story on our echo chamber in Alberta. Alberta is an echo chamber on this topic, so tell your friends and families and especially those in Ottawa with unrealistic ideals about extinguishing emissions by tomorrow, even as they drive home in their hydrocarbon fueled cars to their hydrocarbon heated homes, do we think we can risk this all the way, you should ask them. Or if oil and gas have a much longer worldwide life. Shouldn't we get it from places like Canada where we continue to reduce the emissions that come from it unlike other places. Let's give solar, wind and nuclear the many decades of time they will need to grow market share. Let's take away some of the polarization in the debate and bring balance to the conversations. This is a story of meeting all of the above, not my energy instead of yours. We have ethically sourced coffee, we should have ethically sourced natural gas and oil from Canada with a maple leaf on it. I am immensely proud of what our industry does for Canada and I'm immensely proud of what you do for NuVista. And I hope you are too. Thank you. Any questions? Comments please.

You're welcome. Could you tell me if you have side casing [indiscernible]?

Side casing, well, we happen to have Mark [indiscernible] sitting right here. Pacing side, Mark.

For a lot of our Pipestone program, we used 5.5-inch of 4.5 and mixed hybrid strain for the wells in our server Southeast, 7-inch [indiscernible] needed in the 4.5 of [indiscernible].

And part of the reason for that is we can go monobore in many of our areas, but not all of our areas.

And so fair to say that both the laterals are potentially all 4.5, Correct?

Yes.

And. That helps to reduce the cost if you're over 5.

Well, it -- just last few, but it's a bit more complicated.

[indiscernible] design, a 5.5 with condition efficiency in fracking wells faster and using less table mostly the 4.5 is ideal size for our two what was in our pressure rates, all that stuff.

Yes. One of the -- I mean, there's so many things that the teams have done to reduce costs, but one of the more recent ones is being able to do monobore drilling in more of our areas, and that saves you entire casing stream and the time associated with running it. So that's been one of the number of good developments that the team has done. Yes. Thanks for the question. Any others? I think it's awesome that we got at least one question. Here is another one.

I was wondering if [indiscernible] because you're so interested in the [indiscernible] because if you were to actually look at any of the climate models?

So the question is, have I looked at any of the climate models out of my interest here? And the answer is no, I don't look at the models themselves. They're incredibly complex, but I do try and read many books about this stuff like I can and not just books that agree with what I think, but books that don't agree with what I think. And those books are from people that spend their whole life looking at climate science and looking at climate models and the climate is incredibly -- if we thought reservoirs were difficult to model, the climate is incredibly complex and difficult to model, and the models are chronically overestimating the amount of temperature rise. That's not to deny the temperature rise isn't occurring, every day is warming and some of it that is natural [indiscernible] cost, not all of it. But there is a lot of disagreement amongst the scientists on exactly to what degree.

What I was wondering, it seems to me that specially the methane is relatively more concerned with methane and the effect it's having and it made me wonder if the climate models from 10 to 20 years ago were only remodeling like greenhouse gas and attributed it all to CO2 for the greenhouse effect. Because if they've decided now that methane is maybe 50% or 70% of the effect, maybe CO2 is really [indiscernible]. That's what I was.

Yes. So I think to try and answer it out would be going -- it'd be too hard if you need to try and pretend on the climate sciences. But the question was around maybe model 20 years ago, didn't take into account methane or didn't take it to account propelane, if so, are you taking into account CO2 properly today? I think the models are properly taking in account CO2 and methane. Methane is getting into a lot of discussion these days because, number one, it's a low-hanging fruit. And number two, it is 30x to 100x more potent as greenhouse gas. I don't think that's new science, and I don't think there's disagreement there from what I've read. But it's all of the half-life. 30 to 100 times is the half-life, which one are you going to use. So there's different numbers that get turn around. There's no question it's more potent. I think the difficulty is in climate modeling [indiscernible]. Those are [indiscernible] greenhouse. Yes, exactly water actually caused a reflector but water vapor is a greenhouse gas as well. So you can imagine that the current [indiscernible] a very, very difficult change to model. So I don't -- I think the bottom line is you're modeling something that's very, very, very difficult to model. And I think the reason it's getting a lot more airtime these days is simply because the whole climate thing has continued to ramp up. And I want to make sure everybody understands, like in no way am i denying that the world wants and needs CO2 reduction and CO2 equipment reduction. Methane is getting some focus because it is a lower-hanging fruit, and we've made some great gains administrated by focusing on it. What I'm trying to argue for hopefully came through is realism, you can wish you can solve the problem, but that isn't all of the problem. And if you avoid really good solutions like natural gas instead of coal then you can actually end up worse off. An example of that, just in the last couple of years is Germany, where they went too far into solar and wind, had a low wind quarter or actually year and didn't have the benefit of the Russian natural gas anymore. And they actually significantly increased their emissions through coal, even though they're one of the most productive countries on trying to reduce CO2. So, I don't try and get into arguments about which models right or isn't right. I just try to talk about realism on getting reductions while supplying energy that the world demands. Okay. Well, thank you, everybody. I appreciate you being here today, and we'll see you long before next year, I hope.