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Ovintiv Inc (NYSE:OVV)
Q2 2021 Earnings Call
Jul 28, 2021, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2021 Second Quarter Results Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast, without the expressed consent of Ovintiv.

I'd now like to turn the conference call over to Jason Verhaest from Investor Relations. Please go ahead, Mr. Verhaest.

Jason Verhaest -- Investor Relations

Thank you, operator, and welcome, everyone, to our second quarter 2021 conference call. This call is being webcast and slides are available on our website at Ovintiv.com. Please take note of the advisory regarding forward-looking statements at the end of our slides and in our disclosure-documents filed on SEDAR and EDGAR. Following prepared remarks, we'll be available to take your specific questions. Please limit your time to one question and one follow-up. This allows us to get to more of your questions today.

I'll now turn the call over to our CEO, Doug Suttles.

Doug Suttles -- Chief Executive Officer

Thanks, Jason, and thanks everyone for joining us today. As you can see from our second quarter results, our business is performing very well. Simply put, we are delivering on our promises. Our very strong performance is clearly seen in our substantial and recurring free cash flow generation. With almost $900 million of free cash flow through the first half of 2021, we have proven, our business is capable of generating quality returns, significant cash flow and free cash flow. This consistent strong performance allows us to directly increase cash returns to our shareholders, while continuing to reduce our debt. We are on track to deliver our $4.5 million net debt target before yearend. A full year ahead of our original timeline. The achievement of this milestone will mark almost $3 billion of net debt reduction since the second quarter of 2020. In the same tone, we set a new debt target of $3 billion and increase shareholder returns by raising our dividend 50%. With that said, none of these tremendous financial achievements would be possible without the operational excellence delivered by our teams.

A focus on operational efficiencies and industry-leading cost management is allowing us to more than offset economywide inflation pressure and continue to deliver industry-leading capital efficiencies. This is clearly demonstrated by rising our full year production guidance with no change to our capital budget. Ultimately, it is our culture of innovation that is providing a true competitive advantage in driving performance across the business. The team's ability to innovate in real time is unmatched. We have been through a lot over the past few years and Ovintiv has persevered through it all. From a global pandemic to negative oil prices and a freak winter storm, our team has not only survived, but thrived in the face of adversity. A true testament to the culture and the strength of what we have built. Extending on our proven track-record, 2021 is expected to be our fourth consecutive year of free cash flow generation. We have generated almost $900 million of free cash flow year to date and expect to generate over $1.7 billion on a full year basis at current strip pricing.

This substantial free cash flow is driven by our operational performance and our high-quality multi-basin portfolio. As Greg will highlight later, our team's culture of innovation is continuing to achieve leading-edge efficiencies, allowing us to reaffirm our $1.5 billion dollar capital budget despite inflationary headlines across the economy, while also raising production guidance. With our reaffirmed capital budget and over $3.2 billion of estimated 2021 cash flow at strip prices, we are achieving a reinvestment ratio of less than 50%, substantially below our 75% investment framework. These outstanding results allow us to reinforce our commitment to shareholder returns as we return our efficiency gains to our investors. Yesterday, we announced a number of new actions that reflect the sustainability of our business model and the tremendous performance of our organization.

First, we are increasing our base dividend by nearly 50%. This substantial increase reflects the confidence we have in the growing cash flow capacity of our business. As a reminder, not only did we leave our dividend untouched during the recent downturn, but this raise marks the second increase since 2019. We are delivering in our commitment to return cash to our shareholders. And we see a growing base dividend as an important part of the value proposition for our owners. Second, we have set a new debt target of $3 billion to be achieved by year-end 2023. Over the last year, we have made tremendous progress deleveraging our balance sheet, and we are rapidly approaching our $4.5 billion target, which as I noted earlier, we expect to achieve before year-end, which is a full year ahead of our original plan.

Third, we published our 2020 environmental performance and safety performance metrics on our website, marking our 17th consecutive year of sustainability reporting. We made significant improvements in our ability to measure and manage our ESG metrics and our strong year-over-year performance demonstrates our focus on driving results across this evolving part of our business. We are relentlessly focused on delivering consistency, transparency and continuous improvement in our environmental and safety performance and reporting. Finally, we increased full-year crude and condensate production guidance to 190,000 to 195,000 barrels per day. This increase is entirely driven by asset outperformance and comes with no additional capital spending. As I noted earlier, our capital budget remains unchanged at $1.5 billion. As I hand the reins over to Brendan McCracken, I cannot be more confident in Brendan, our executive team, the entire organization and the future of our business. It has been an honor and an incredible privilege to lead this great team.

With that, I'll now turn the call over to our Chief Financial Officer, Corey Code.

Corey Code -- Executive Vice President and Chief Financial Officer

Thanks, Doug. Q2 was yet another quarter of strong results. We're firing on all cylinders and delivering on our promises to drive value creation. During the quarter, we reduced our net debt by $1.2 billion, resulting in a current net debt balance of $5.2 billion and bringing us within striking distance of our $4.5 billion year-end 2021 net debt target. We generated substantial total cash flow of $733 million, which was ahead of consensus. And as Doug noted, we have been generating significant free cash flow, achieving $350 million in the second quarter in almost $900 million so far in 2021. Our capital spend totaled $383 million in the quarter. As Greg will highlight later in the call, we have seen inflationary tension on certain items, but are more than offsetting these pressures with operational efficiencies, leaving our original full year capital guidance untouched.

Finally, I want to highlight our strong production performance during the quarter. We achieved 201,000 barrels a day of crude and condensate, despite closing on our Eagle Ford and Duvernay asset sales in the quarter. Additionally, I think it's worth highlighting our balanced commodity mix. We have substantial exposure to multiple revenue streams. And we've produced over 1.6 Bcf a day of natural gas and 86,000 barrels a day of NGLs during the quarter. Our multi-basin and multi-product production profile generates cash flow from multiple sources and provides us with robust market optionality. As evidenced by our new $3 billion net debt target, debt reduction remains our top priority. The combination of free cash flow and asset sale proceeds will see us drop our net debt by almost $3 billion from midyear 2020 to year-end 2021. Not only this debt reduction drive costs out of the business, it also improves our resiliency during periods of market volatility. In June, we redeemed $600 million of our 2022 senior notes, and in July we provided notice to redeem $518 million of our 2021 senior notes August 16.

The redemptions represent over $1.1 billion of long-term debt repayments and will generate more than $50 million a year of annualized interest expense savings. Soon our next debt maturity will be July of 2024. Our business is in a very strong position financially and we're committed to preserving the strength. We have an attractive balance of free cash flow generation, quality corporate returns and track record of returning cash to shareholders. This model stands to be differentiated by the market on the road ahead.

I'll now turn the call over to Greg Givens, our Chief Operating Officer, will discuss our operational results.

Greg Givens -- Executive Vice President and Chief Operating Officer

Thanks, Corey. The teams continue to deliver industry leading well cost and strong operational performance across the board. Wrapping up the first half of the year, drilling and completion costs for the core assets remain below guidance, reaffirming our confidence and hitting the $1.5 billion full year capital budget. These costs are approximately 11% lower than our 2020 program average. We achieved these costs despite a continued increase in inflationary pressure during the quarter driven by the global economic recovery and rising commodity prices. We're seeing an increase in demand for raw materials leading to higher diesel and steel costs. Also, like most other industries, we're starting to see the impact global inflation is having on the labor market. That being said, our teams are operating more efficiently than ever before. Our ability to continue setting the bar higher operationally is more than offsetting today's inflationary pressure. In addition, through strategic contract structuring, local sourcing and improved logistics, we've lowered the cost of sand and water. During the quarter, we achieved numerous new pacesetter performances. We drove six of our fastest wells to date in Montney and completed our entire STACK program using Simul-frac.

We are accomplishing new milestones across our portfolio and across all operational disciplines. These pacesetter wells are accomplished through our unique culture that fosters innovation, and cross functional learning, in fact, many of today's average cost drill times and completion efficiency metrics, or pacesetter performances less than a year ago. Slide eight is a great example of how this culture of innovation has transformed our Permian program. Compared to just two years ago, we've made significant strides in every aspect of our operations, driven by wellbore design optimization, new bottom hole assembly technology and a laser focused on flat or idle time reduction. Our second quarter rig released wells in the Permian averaged over 12,000 feet of lateral length and nearly 2,000 feet of drilling per day. This is over 30% longer and 15% faster than 2019.

On the completions front in basin wet sand has provided a reliable source for Simul-frac operations and has driven down sand cost by 40%. With faster well tie-ins and resourceful savings through equipment redeployment, our Permian facilities team has driven down cycle times and reduced facilities cost by $180,000 per well since 2019. This evolution has been powered by innovative thinking and collaboration, and as a strong competitive advantage. But we're never satisfied where performance currently stands, and are constantly pushing the envelope to get faster, more efficient, and ultimately cheaper. We also wanted to provide an update on the outstanding results from our Bakken program and the operational advancements we've made in the basin. Not only we lowered drilling and completion costs by 14% since 2019, but we are now efficiently delivering a more reliable well-work configuration capable of handling our unique high-rate high-intensity completion design.

The three wells we bought online in the second quarter, they've shown exceptionally strong early time performance, averaging 1,235 barrels of oil per day through the first 60 days of production. We are currently projecting these wells to pay out in less than six months. We combined our high quality acreage position, the basins oil leverage and today's pricing environment. We're delivering portfolio leading returns on our Bakken program. This asset will generate substantial free cash flow for us in 2021. And we plan on continuing to operate a rig in the basin for the remainder of the year. As noted earlier, we were raising our 2021 production guidance for the same $1.5 billion capital budget. Our teams relentless' work to optimize our base production profile, and unlock additional resources through a thoughtful development program have driven outstanding results. Additionally, our world class multi-basin asset portfolio is continuing to deliver advantaged operations was over 200,000 barrels of crude and condensate, 86,000 barrels per day of high value NGLs and over 1.6 Bcf of gas per day produced during the second quarter, we have exposure to multiple cash flow streams that enable us to maximize returns.

I would now like to turn the call over to Brendan McCracken, our President and incoming CEO.

Brendan McCracken -- President

Thanks, Greg. We're focused on generating free cash flow and delivering quality returns. We're powered by our unique culture of innovation, teamwork and discipline. And we relentlessly innovate to drive efficiency in every part of our business. Today's results show we have the key components to deliver differentiated return to our shareholders. We're committed to maintaining capital discipline and delivering significant free cash flow. Our 2021 capital is unchanged. And we are highly confident in our ability to more than offset cost inflation for the rest of the year. Our load-levelled program is also highly repeatable as we look ahead to 2022. We remain committed to returning cash to our shareholders. We see today 50% dividend increase as an important step in delivering what we believe will be a regular, sustainably growing return of cash to our owners.

Our stakeholders expect continuous improvement on ESG and enhanced disclosure from our sector and our company. And we're delivering on this challenge. We look for efficiency in everything we do and our entire team is relentless about innovating to make our business better. This is a key part of our culture. And it is incredibly powerful, because every person at our company plays a part. We see this as a competitive advantage. And it's a big part of the reason we are confident we can continue to deliver on our priorities. Finally, we have the size, scale and portfolio necessary to succeed on the road ahead. Our multi-basin optionality, commodity diversification and deep drilling inventory offer multiple pathways to deliver the best corporate outcomes and drive quality returns.

Before we move to the Q&A, I'd like to take this opportunity to thank Doug for his tremendous leadership over the last eight years. His leadership will have a legacy impact on our company that will serve us well for many years to come. I feel fortunate to have had eight years working very closely with one of the great leaders of our industry. And I wish him all the best in his retirement.

This concludes our prepared remarks. Operator, we're now prepared to take questions.

Questions and Answers:

Operator

[Operator Instructions] We will now begin the question-and-answer session. Your first question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning. And, Doug, congratulations. Brendan, congratulations to you as well as you take on this new role.

Brendan McCracken -- President

Thanks, Neil.

Neil Mehta -- Goldman Sachs -- Analyst

So that's probably a good place to start, Brendan, as you have had some time here to think through strategic priorities as the new CEO of the business. What do you see as the two or three most important focus areas for you? Should we view this as stay-the-course? Or are there areas of focus that you think are needed as we enter a different phase of the commodity cycle?

Doug Suttles -- Chief Executive Officer

Yeah, thanks, Neil. As you know, I've been deeply involved in setting the strategy and direction of the company for some time. And so, today, our strategy and priorities are unchanged. We're laser-focused on delivering free cash flow and quality returns. And you see that today in the new debt target and the increase of cash returns to our shareholders. Also, our business is performing very well. And we've been accelerating on those targets and adding to them. And so, we are quite confident in the direction that we're headed in and the ability for the company to perform.

Neil Mehta -- Goldman Sachs -- Analyst

Yes. And then, that's the follow-up, is how should we think about excess free cash flow deployment beyond the base dividend and the debt reduction? Specifically, any thoughts around share repurchases, given that you guys are trading at one of the highest free cash flow yields in the industry right now?

Doug Suttles -- Chief Executive Officer

Yeah, Neil, since last year, we've been laser-focused on debt reduction. And so, you've seen us outperform there and accelerate that target forward. And so, today, what we've done is reset that debt target to $3 billion, but also introduce increased cash returns to our shareholders. And so, obviously, as we accelerate toward that $3 billion target, we've got all the options on the table, and we'll be considering those as we go forward.

Operator

Your next question comes from Arun Jayaram with JPMorgan Chase. Please go ahead.

Arun Jayaram -- JPMorgan Chase -- Analyst

Good morning, Doug and Brendan. I guess, I do have a follow-up to that. You guys have outlined $1.5 billion of debt reduction from the end of the year, through the end of 2023, kind of using a $50/$2.75 deck. Now, if you assume strip, Brendan, our cumulative free cash flow in 2022 and 2023 would be $3.7 billion, which would provide $2.2 billion of incremental free cash flow beyond that $1.5 billion deleveraging target. So, again, I'd love to hear your thoughts on how you're thinking about cash return beyond the dividend, because certainly seems you could walk and chew gum here with a 20%-type free cash flow yield.

Brendan McCracken -- President

Yeah, Arun, I appreciate the confidence you're expressing there. And you're quite right, we've given that new debt target out of $50/$2.75 deck. And clearly, as the business continues to drive efficiency, and prices could be higher through that period, we would accelerate that. And that's fantastic. That's a great outcome. Like I said, options on the table as we get there, but I think you should expect our discipline on capital to continue. We've not changed our capital guidance for 2021. And we don't see the macro conditions that would change that thinking in the world today. There is still a lot of excess global capacity. And, of course, many parts of the world are still dealing with the pandemic. So we'll certainly be thinking about those options as we get closer to achieving that target.

Arun Jayaram -- JPMorgan Chase -- Analyst

Okay, fair enough. Brendan, a recent theme in the industry has been kind of the continued transfer of assets from private to public. I wanted to get your thoughts on the company's A&D strategy and how you're thinking about your current inventory depth and just broadly about kind of industry consolidation?

Brendan McCracken -- President

Yeah, Arun, we've been very deliberate about creating the portfolio that we have today. Many of the transactions that you reference, have been aimed at creating the advantages that we've already got in the company. And so, really our emphasis today is on delivering on the priorities that we've laid out, generating free cash flow and delivering quality returns. And you can see that in our actions today.

Operator

Your next question comes from Josh Silverstein with Wolfe Research. Please go ahead.

Josh Silverstein -- Wolfe Research -- Analyst

Yeah, thanks. Good morning, guys. I was going to touch on the same thing. You can certainly look at additional return of capital with the free cash flow profile. But how would you think about the use of cash in terms of acquisition purposes, just for bolt-ons and whatnot next year?

Brendan McCracken -- President

Well, I think, Josh, the answer is the same. As we get toward that, we've got options on the table. Today, what we've laid out is, is a pathway to achieve that debt target and increase our cash returns to shareholders. I think as Greg outlined, we've continued to be able to drive efficiency gains everywhere we operate. Team's had great success in coring up our acreage through cashless swaps and trades. And we really like that, increases the returns we're generating and adds premium inventory, lets us drill longer laterals. And so, I expect we'd continue to look for ways to do that going forward.

Josh Silverstein -- Wolfe Research -- Analyst

Got it. And then, there was no mention of volume growth in the forward outlook as well. But I imagine that could also be a use of proceeds from free cash flow getting redeployed. Could you just talk about how you would think about volume growth in a $65 environment relative to the $50/$2.75 environment that you've outlined here?

Brendan McCracken -- President

Yeah, Josh, I mean, certainly, that's an option as well. But today, we don't see the macro conditions that would shift our thinking. Like I said, there is still access to global capacity today, and many parts of the world is still dealing with the pandemic. So these are things we're watching closely, but you should expect us to continue to be very disciplined with capital going forward.

Operator

Your next question comes from Brian Downey with Citigroup. Please go ahead.

Brian Downey -- Citigroup -- Analyst

Good morning. Thanks for taking my questions. Maybe starting on the capex front. Could you give us an update on the efficiency versus inflation views that you had highlighted from last quarter? I'm curious any second half puts and takes this year as it seems your well-cost and pacesetter results to date seem to compare pretty favorably with guidance, how that's shaping up versus any inflationary trends you're seeing through the rest of the year and whether we should still expect ratablefend [Phonetic] for the remaining two quarters?

Brendan McCracken -- President

Yeah, Brian, I mean, like you and the rest of us, we see inflationary pressure in our everyday lives. And it's showing up in a few spots in our business. Greg highlighted really in places like the tangible goods and diesel, and starting to be there in the labor piece as well. But, really, our focus for a long time has been on driving efficiencies and to offset that inflation. And you can see that in the results where we're more than offsetting the inflation we've seen to date. And we're confident that we're going to continue to do that. Maybe I'll ask Greg to just talk on a couple of the highlights of how the team is doing that.

Greg Givens -- Executive Vice President and Chief Operating Officer

Yeah, thanks, Brendan. As we've said, we're seeing some inflation on the steel side, but our supply management team is very sophisticated and are being proactive and getting out ahead and purchasing pipe ahead of our program, which is allowing us to lock in reasonable cost. One of the other ways we're pushing back on that, as we highlighted, not only in the Permian, but in other areas of the field, steel is a major input component to our facilities. And so we're reusing a lot of our existing equipment tying in new wells to existing facilities that allows us to actually reduce our facilities costs and avoid some of that inflationary pressure.

We're also working really hard as we always have on reducing cycle times. As you know, days in this business or dollars, and so the faster we can drill and complete our wells, the fewer days we have on location the less cost we incur from our vendors. But also on the frac side, Simul-frac by completing well and half of the days, you're using quite a bit less diesel, and allows you to avoid some of the inflationary pressures. So while we're seeing the pressure, we feel very confident that we'll continue to be able to offset that and deliver on our targets in the second half.

Brendan McCracken -- President

You know, Brian, I just add that, Greg highlighted the impact that Simul-frac having on our business and how we're now in some places, all of the program, or 90%-plus of the program is using that technology for us. But I think what's important to know here is it, it's not just implementing Simul-frac and stuff there, the teams have continued to find ways to make Simul-frac itself better. And you can see we've put some incremental disclosure in our appendix deck where you see things like in the Montney, we're now delivering pump times of 22 hours a day, just by making that Simul-frac technology better as we go.

Brian Downey -- Citigroup -- Analyst

Great. And maybe just given the new debt target any updated or different thoughts on how you're approaching hedging looks like based on your hedges in place for 2022, you're further along on the natural gas side than oil, any different thoughts there as you continue to de-lever the balance sheet?

Brendan McCracken -- President

Yeah, maybe just a couple of things there, Brian, so really as a refresh, the rationale for our hedging is to ensure we can deliver on our strategic priorities and manage balance sheet risk. That's why we hedge. And so what you can see as a characteristic in our 2022 book is a focus on three way structures that can give us protection to manage those priorities and the risks of the balance sheet, but also exposure to the upside as prices improve. And maybe the last thing, I'd say there is, as we continue to reduce debt, we will adjust the amount of hedging we do in the last couple of years, we've had really robust hedge books to ensure we could deliver on those strategic priorities. And clearly as we do that, we'd look to reduce the size of that hedge book going forward.

Operator

Your next question comes from Jeoffrey Lambujon with Tudor, Pickering, Holt & Co. Please go ahead.

Jeoffrey Lambujon -- Tudor, Pickering, Holt & Co. -- Analyst

Good morning. Thanks for taking my questions. My first one is just at the asset level for the Montney. Can you remind us what the landscape looks like there in terms of access to gas capacity over the next several years? So just speak to the production profile and potential of that asset specifically. And then I've got a follow-up on some of the discussion from earlier.

Brendan McCracken -- President

Yeah, Jeoff, we're in great shape there. The infrastructure expansions that we undertook several years ago set as well up in the play. And so we've got full access to market with our production and you can see that in the performance.

Jeoffrey Lambujon -- Tudor, Pickering, Holt & Co. -- Analyst

Great. And then from my follow-up, and sorry to tap on here again, but just want to make sure, we're thinking about it appropriately as it relates to 2022, just given the increase in baseline capacity of OPEC, and the uncertainty on the demand recovery, just given things like the delta variant plus the priorities you continue to highlight on debt reduction and return of cash to shareholders, would maintenance production be a good place holder for 2022 at this point in time just based on those conditions you're seeing that you highlighted?

Brendan McCracken -- President

Well, I think, sitting here in July, it's still a bit early to set expectations for the 2022 budget. And we'll make sure we communicate that on as we go through the year. But, like I said, we'll continue to emphasize capital discipline and we've been very clear about what the strategic priorities that we have.

Operator

Your next question comes from Greg Pardy with RBC Capital Markets. Please go ahead.

Greg Pardy -- RBC Capital Markets -- Analyst

Thanks very much. Good on the last name [Indecipherable] things. So first off, Doug..

Brendan McCracken -- President

[Indecipherable] butcher, Greg.

Greg Pardy -- RBC Capital Markets -- Analyst

Anyway, we'll just let that one go. But listen, Doug, all the very best in your retirement, I can't believe eight years has gone by so fast and congrats, again, Brendan, on the new role. Look, a lot of great questions. Anything I'd kind of ask is, you've got the-the big 3, and then you've got this circuit 25,000 BOE a day sitting out there with Bakken and some of the other non-core assets. So how-I mean, today, I'm assuming that's really about harvesting free cash flow at this stage? Do they eventually move out of the portfolio? No rush, happy to have them in there. How should we sort of think about the minority in the portfolio?

Brendan McCracken -- President

Yeah, thanks, Greg. Well, like I said, we've been very deliberate about creating the portfolio that we have today. The Bakken plays an important role there. It's a great free cash generating asset, high margin, oil rich, and as Greg highlighted, some of the same efficiency gains that we've been delivering elsewhere in the portfolio, we're now bringing to bear on the Bakken, and seeing great results both on the cost reduction side, but also on the well performance side, we're seeing really strong well performance there. And so, well, it's small, it's mighty, and we like, how it fits into our strategy going forward. So I think you should expect us to continue on with the portfolio we have today.

Greg Pardy -- RBC Capital Markets -- Analyst

Okay, terrific. And then, you've kind of answered it around really driving toward sustaining capital. So in the environment we're in, you're continuing to advance efficiency gains, as you mentioned, you're offsetting inflation. So is kind of maintaining sustaining at around $1.5 billion or so. Is that what the thinking is internally? Or do you think you can actually continue to take that sustaining capital number down?

Brendan McCracken -- President

Well, I think, Greg, this is something that we work on all the time. And, the approach that we're taking today is that efficiency gains are flowing to the investor. And we like that model and that's how it will be continued run the business going forward.

Operator

Your next question comes from Nitin Kumar with Wells Fargo. Please go ahead.

Nitin Kumar -- Wells Fargo -- Analyst

Hi, good morning. And first of all, congrats, Doug on the retirement and Brendan on the new role. I'm going to take another shot at 2022 here. One thing I noticed is, your-and you mentioned this you're tracking a little bit below your planned D&C per foot numbers in Anadarko and the Montney. Does that change the thinking on returns for 2022 in capital allocation between the Permian and other basins?

Brendan McCracken -- President

Yeah, thanks, Nitin. I think really at this point, the point to put out there is we're really pleased with how the business is performing. And you just need to watch how the macro head has gained toward 2022. And with it's great to have options as we look at.

Nitin Kumar -- Wells Fargo -- Analyst

Okay. And then you noticed, you've hedged quite a bit for gas, but you're just starting to work on the oil side with some additions on as you mentioned on the callers. Should we expect the company to hedge more in line with prior years on the oil side as well as the year progresses for 2022?

Brendan McCracken -- President

We'll evaluate that, Nitin, as we go. I think my comments earlier around as the debt comes down need to hedge to deliver on those strategic priority shifts. So, I think, look to us for further guidance on that as we go through the year.

Operator

Your next question comes from Neal Dingmann with Truist Securities. Please go ahead.

Neal Dingmann -- Truist Securities -- Analyst

Morning, all. Congrats, again. My question is coming in first, I noticed, couldn't help but notice that now on the latest presentation, the Bakken, you dig into that and your Bakken is just behind your Permian on the latest slide deck. And, obviously, Greg also walk through just some of those key highlights that certainly are noticeable versus I don't think it was highlighted as nearly as much on the deck about a year ago. So I'm just wondering, you all now consider this the second highest sort of priority in the portfolio. And maybe a question for Greg, what he would consider sort of the most dramatic changes of that play in the last 12 months?

Brendan McCracken -- President

Yeah, Neal, I wouldn't read anything into the slide order there. But, I think, what you're seeing is, when we took the operational pause in 2020, we didn't have a lot of activity in the Bakken program, and so coming into this year, we've now resumed activity in that play, and just really pleased with the results that we're seeing and reporting out on that. Maybe I know, Greg, if you wanted to address on it.

Greg Givens -- Executive Vice President and Chief Operating Officer

Yeah, Neal, I think the thing to keep in mind is, we really liked the returns from all of our assets. We've been most recent times focusing on the Core 3. But we've always liked the Bakken, and we just took the pause, as Brendan noted, and really, now that we're getting back to it, we're just catching up to where we've been in our other basins using some of the same technologies. And what I think it really proves is that our operational philosophy works across multiple basins, it's not only transformed what we had in the Permian, some great things in the Anadarko, and I expect it to do good things in the Bakken as well. So it gives us confidence in our operating philosophy, and how well the teams can perform when they're given an opportunity.

Neal Dingmann -- Truist Securities -- Analyst

No. It makes total sense both of you all. And then just one follow-up. Just wondering, given it's been kind of pulled out quite a bit today, you guys even mentioned, given to me what appears to be just really the certainty of your future free cash flow. And I'd coupled out with a low cost of your recurrent debt. I guess, the natural question, why not pay out maybe more shareholder return nearer term versus continuing to pay down that debt?

Brendan McCracken -- President

Yeah, this is remembering a long-term piece that we've been working on, this is now the fourth consecutive year of free cash generation. So this is not new for us. And like Doug highlighted in his comments, the increase of shareholder returns is not new for us either. So, this is clearly something we're going to look to do going forward.

Operator

Your next question comes from Doug Leggate with Bank of America. Please go ahead.

Doug Leggate -- Bank of America -- Analyst

Hi, good morning, everyone. Thanks for getting me on. Doug, we're passing the torch here as well, so congratulations, and Brendan, look forward to chatting with you again soon. So, I guess, I want to go by one of the very first questions on free cash flow yield. And it was observed, obviously, that you've got one of the highest few customers in the sector, it seems to us as a function of market perception of portfolio sustainability. So when you talk about maintenance capital, the follow on question is, yeah, but for how long? So I just wonder if you could give us a quick refresh as to reduce the inventory depth across the four assets, including the Bakken.

Brendan McCracken -- President

Yeah, Doug, this is something we spent a lot of time thinking about. And, we've got great inventory depth across the portfolio. We have a decade of inventory across the core assets. And so, and I highlighted before how the teams continue to build on that through coring up or acreage in each of the basins we operate in.

Doug Leggate -- Bank of America -- Analyst

So specific to the Bakkens, Brendan.

Brendan McCracken -- President

Oh, yeah, in the Bakken, really the Bakken for us, of course, is a smaller asset scale relative to the core. And it doesn't have as much inventory, but still has quite a number of years of go forward inventory at the levels we're investing into it today.

Doug Leggate -- Bank of America -- Analyst

My follow-up then is, I guess, it's kind of a catch all for the debt paid on visibility, the free cash flow and so on. If you're an accountable maintenance more than a balance sheet has got pretty good trajectory. How does it impact if at all your philosophy on hedging? But you're not protecting your capital program, so to speak, and the balance sheet got better shape? What is the thinking on how you navigate hedging? And I'll leave it there. Thank you.

Brendan McCracken -- President

Yeah, Doug, we're very clear the hedging program is to manage balance sheet risk and ensure we can deliver on our strategic priorities. So to your point directionally as the balance sheet improves, the hedging program can be smaller.

Operator

Your next question comes from Paul Sankey with Sankey Research. Please go ahead.

Paul Sankey -- Sankey Research -- Analyst

Hi, good morning, everybody. And, Doug, all the best in the future. Brendan, thanks for taking the question. Can you outline the investment case for Ovintiv here, because I think one of my questions is how you think about the cost of debt, and the cost of debt relative to the cost of equity, just in so far as debt is so cheap now? I was wondering why you're not pursuing a more aggressive cash return strategy, given the amount of free cash flow you're generating. And, Brendan, could you roll that into really what is exciting about Ovintiv, if I'm trying to sell the company to a new investor? What is your competitive advantage? What's great about Ovintiv that I can go out there and say, You got to buy this stock? Thanks.

Brendan McCracken -- President

Yeah, thank you. Paul. I mean, we've been really clear about this. Our strategy is to deliver significant free cash generation and quality returns. And we're backing that up with return of cash to shareholders, highlighted by today, a 50% increase to our dividend. And so, I think that's the answer to your question.

Paul Sankey -- Sankey Research -- Analyst

The dividend is still very low, right? I mean, I can't tell people buy it with, whatever it is, 2% yield. Is it going to be the growth in the dividend, that's going to be the really exciting thing?

Brendan McCracken -- President

I think really, Paul, the piece to highlight on here is that the efficiency gains that we're delivering in the business are flowing through to our investors. And so, today's dividend increase is a step on increasing that cash return to shareholders.

Paul Sankey -- Sankey Research -- Analyst

And could you just address that issue of how you see the cost of debt versus the price of the equity? Is it really a great idea to be paying down debt, because interest rates are just so low? I figure that maybe you might be tempted to run with a higher debt level and a higher cash return?

Brendan McCracken -- President

Paul, we've been laser-focused on this debt reduction piece for over a year now. And it's had an incredible impact to our equity performance. And we see that continuing to translate going forward.

Operator

Your next question comes from Noel Parks with Tuohy Brothers. Please go ahead. I'm sorry, Noel, are you there?

Noel Parks -- Tuohy Brothers -- Analyst

Yes, I am. Hi, good morning.

Brendan McCracken -- President

Good morning.

Noel Parks -- Tuohy Brothers -- Analyst

I'm wondering if you could talk a little bit about your thoughts on the NGL market, just what you're sort of assuming the scenarios are as we're heading to the end of the year?

Brendan McCracken -- President

Well, Noel, I mean, we've seen a robust NGL market through the year here. We produce 80,000 barrels a day of NGL. So it's a significant part of our production mix, and great to have that exposure. So it's definitely helping increase cash flow and part of the reason we're on track to deliver over $1.7 billion of free cash this year.

Noel Parks -- Tuohy Brothers -- Analyst

Great. And regarding the ESG disclosures that you've updated, I was curious about the methane emissions intensity, significant year-over-year improvement there. And considering sort of the different vintage of your various plays and basins, I was just curious, do you have a particular region that is more of a focus for improvement going forward? Or is the way forward relatively similar across them?

Brendan McCracken -- President

It's happening across the portfolio, Noel. We've seen big gains as we've been enhancing our leak detection, reducing our flare and vent volumes. And so, those are having a direct effect on our results. And you've seen that in our 2020 performance. And I would just tell you that's continued across the portfolio this year.

Operator

At this time, we have completed the question-and-answer session. And we'll now turn the conference back over to Mr. Verhaest.

Jason Verhaest -- Investor Relations

Thank you, operator, and thank you, everyone, for joining us today. And for your continued interest in our company. Our conference call is now complete.

Operator

[Operator Instructions]

Duration: 44 minutes

Call participants:

Jason Verhaest -- Investor Relations

Doug Suttles -- Chief Executive Officer

Corey Code -- Executive Vice President and Chief Financial Officer

Greg Givens -- Executive Vice President and Chief Operating Officer

Brendan McCracken -- President

Neil Mehta -- Goldman Sachs -- Analyst

Arun Jayaram -- JPMorgan Chase -- Analyst

Josh Silverstein -- Wolfe Research -- Analyst

Brian Downey -- Citigroup -- Analyst

Jeoffrey Lambujon -- Tudor, Pickering, Holt & Co. -- Analyst

Greg Pardy -- RBC Capital Markets -- Analyst

Nitin Kumar -- Wells Fargo -- Analyst

Neal Dingmann -- Truist Securities -- Analyst

Doug Leggate -- Bank of America -- Analyst

Paul Sankey -- Sankey Research -- Analyst

Noel Parks -- Tuohy Brothers -- Analyst

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