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Encana Corporation (NYSE:ECA)

Annual Meeting of Shareholders

April 25, 2012 4:00 pm ET

Executives

David P. O'Brien - Chairman And Chairman Of Nominating & Corporate Governance Committee

Randall K. Eresman - Chief Executive officer, President and Director

Sherri A. Brillon - Chief Financial officer and Executive Vice-President

David P. O'Brien

Good afternoon, ladies and gentlemen. I'm David O'Brien, Chairman of the Board of Encana Corporation. And it's my pleasure to welcome you to Encana's Annual Meeting of its Shareholders. Welcome, as well, to those shareholders that are participating in the audio webcast of this meeting.

To facilitate the conduct of the business of the meeting, we have a designated area for filming and taking photographs during the meeting. We would appreciate it if any media and others would remain within the designated area.

Before beginning, I'd like to introduce the head table up here with me. At the far end is Randy Eresman, who as you know, is the President and Chief Executive Officer; next to Randy is Sherri Brillon, Executive Vice President and Chief Financial Officer; and beside her is Jeff Paulson, who is Vice President, Associate General Counsel and Corporate Secretary.

I'll now call this meeting to order. In accordance with bylaw number 1 of Encana Corporation, I shall act as Chairman of the meeting and Jeff Paulson will act as Secretary of the meeting. With your consent, I will ask Jacquie Fisher and Michael Marasco, representatives of the CIBC Mellon Trust company, to act as scrutineers for the meeting.

The purpose of today's meeting is to allow shareholders to receive the consolidated financial statements and the auditors report; to elect directors; to appoint the auditor for the ensuing year and authorize the directors to fix the auditors remuneration; and fourthly, to hold a nonbinding advisory vote, approving the corporation's approach to executive compensation; and of course, to transact such other business as may be properly brought before the meeting or any adjournment thereof.

All of this, of course, was outlined in the information circular dated February 28, 2012. Copies of the information circular, annual report and the minutes of the last annual meeting of the corporation held on April 20, 2011, are available at the shareholder information tables at the back of the room.

A statutory declaration is on hand, proving that notice of the annual meeting has been mailed to all shareholders of record as at March 6, 2012, and I direct the Secretary to file the statutory declaration with the minutes of the meeting.

A preliminary scrutineers report has been provided, confirming that there are 2,115 shareholders present in person or by proxy, representing 499,184,661 shares, which represents approximately 67.8% of the outstanding common shares of the corporation.

With the notice of the meeting being given and a quorum being present, I declare the meeting properly called and constituted for the transaction of business. The current directors, other than myself and Randy Eresman, are seated in the front row. I would like to introduce them now to you, and would ask that you please hold your applause to the end. I would ask each director to please stand as I call out your name and remain standing until I've introduced all of the current directors.

Peter Dea, Denver; Claire Farley, Houston; Fred Fowler, Houston; Barry Harrison, Calgary; Suzanne Nimocks, Houston; Jane Peverett, Vancouver; Allan Sawin, Edmonton; Bruce Waterman, Calgary; and Clayton Woitas, Calgary.

Please join me in acknowledging the current Encana Board.

Thank you. Before we start the formal business of the meeting, I'd like to take this opportunity to thank one director who is retiring from the Encana Board today. I'm sure that my good friend, Barry Harrison, needs no introduction. Barry began his tenure with Encana as a Director of PanCanadian Energy Corporation in 1996. During that time, and until 2009, Barry was Chair of the Audit Committee. And since 2009, he's been Chair of the Human Resources and Compensation Committee, while remaining a member of the Audit Committee and also serving on the Nominating and Corporate Governance Committee.

In addition to his significant contributions to the community, Barry has served as either the Chairman, Director or President of several intermediate or junior oil and gas companies doing business in Canada, the United States and Russia. His dedication to Encana's Board over the past 15 years has been very significant. Barry, on behalf of Encana's Board, management and all of its shareholders, we would like to acknowledge and express our thanks for your contributions and extend our very best wishes for your continued success and good health in the years to come. Barry, please stand to be recognized as you will be sorely missed.

Also at today's meeting are 2 representatives of PricewaterhouseCoopers, representing Encana's auditors. They are Rob Holly [ph] and Ryan Landean. [ph] Please stand up. Welcome to you all.

We'll now proceed with the formal business of the meeting. Those present are reminded that only registered shareholders or duly-appointed proxy holders are entitled to participate in the formal part of the meeting. After the formal meeting, there will be an opportunity for shareholders or proxy holders to ask general questions not directly related to the formal business of the meeting, and this will happen of course during the question and answer period. And in order to accommodate as many of our shareholders' questions as possible, please refer to the rules of conduct listed on the meeting overview sheet you were given during registration. Questions from the webcast can also be submitted.

The first item of business is to receive the consolidated financial statements and the auditors report for the year ended December 31, 2011. Copies of the 2011 annual report containing these statements and the auditors report thereon were mailed to shareholders. We would be pleased to answer questions regarding the financial statements during the question and answer period.

The next item of business is the election of directors. The Board of Directors has set the number of directors to be elected at 10. Each director is to be elected to hold office until the next annual meeting of shareholders or until his or her successor is elected or appointed. The meeting is now open for the nomination of directors.

Chad Schneider

Mr. Chairman, my name is Chad Schneider and I'm a proxy holder of the corporation. I nominate the 10 persons whose names are listed under the heading Election of Directors on pages 5 to 10 of the information circular. They are Peter A. Dea, Randall K. Eresman, Claire S. Farley, Fred J. Fowler, Suzanne P. Nimocks, David P. O'Brien, Jane L. Peverett, Allan P. Sawin, Bruce G. Waterman, and Clayton H. Woitas.

David P. O'Brien

Thank you, Mr. Schneider. Are there any other nominations?

There being no further nominations, I declare nominations closed. May I have a motion on the election of directors?

Kent Ferguson

Mr. Chairman, my name is Kent Ferguson and I'm a proxy holder of the corporation. I move that the nominees presented to this meeting be elected as directors of the Corporation to hold office until the next annual meeting of shareholders or until their successors are elected or appointed.

David P. O'Brien

Thank you, Mr. Ferguson. Is there a seconder for the motion?

Unknown Attendee

Mr. Chairman, my name is Caroline Sweers [ph] and I am a proxy holder of the corporation. I second the motion.

David P. O'Brien

Thank you, Mrs. Sweers. [ph] Further to Encana's policy on directors voting procedures, a ballot will be taken on this resolution. The votes of all shareholders who have deposited proxies will be voted for or withheld as specified in the form of proxy. Proxy holders and registered shareholders who have not voted should have received a blue ballot upon registration. And if you did not, then please raise your hand and the scrutineer will provide you with one. Please vote on the blue ballot by marking an x across from each director's name for which you are voting for or withhold, as the case may be. Please sign and print your name on the lines provided and raise your completed ballots so the scrutineers can collect the ballots. We'll take a moment now for those who are voting in the room.

[Voting]

That's correct. Raise your hand when you've completed your blue ballot.

[Voting]

Are there any further blue ballots to be collected? If so, please raise your hand with the ballot. Gentleman down here, has he -- any further ballots? Please raise your hand high in the air if you have a blue ballot that you want collected. Seeing none, the scrutineers will now retire to count the ballots and report back to us later in the meeting.

The next item of business is the appointment of the auditor. May I have a motion appointing the auditor of the corporation for the current year and authorizing the directors to fix their remuneration.

David Sheridan

Mr. Chairman, my name is David Sheridan and I'm a shareholder and proxy holder of the corporation. I move that PricewaterhouseCoopers LLP, chartered accountants in Calgary, Alberta being they are hereby appointed auditor of the corporation until the close of the next annual meeting of shareholders or until their successors are duly appointed, and that the directors be and they are hereby authorized to fix their remuneration.

David P. O'Brien

Thank you, Mr. Sheridan. Is there a seconder for the motion?

Judie Parker

Mr. Chairman, my name is Judie Parker, and I'm a proxy holder of the corporation. I second the motion.

David P. O'Brien

Thank you, Ms. Parker. Any discussion on the matter? All in favor, signify by raising your right hand. Opposed, if any? The aye's have it. I declare the motion carried.

The next item of business is to hold a nonbinding advisory vote on the corporation's approach to executive compensation. As part of Encana's ongoing commitment to strong corporate governance practices, the board has included a nonbinding shareholder advisory vote approving the corporation's approach to executive compensation, also known more colloquially as "Say on Pay". The board recognizes that shareholders should be given an opportunity to fully understand the philosophy, objectives and elements used by the board in considering its executive compensation's decisions.

As this is an advisory vote, the results will not be binding on the board. However, in considering its future approach to executive compensation, the board will consider the results of the vote to better understand shareholder concerns that might have influenced the voting results. May I have a motion on the nonbinding advisory vote approving the corporation's approach to executive compensation?

Unknown Attendee

Mr. Chairman, my name is Jocelyn Salazar, [ph] and I'm a proxy holder of the corporation. I move that the following nonbinding advisory resolution be approved. Resolved that on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, the shareholders accept the approach to executive compensation as described in the statement of Executive Compensation, Compensation Discussion and Analysis sections of the information circular dated February 28, 2012, and delivered in advance of the 2012 annual meeting of shareholders.

David P. O'Brien

Thank you, Ms. Salazar. [ph] Is there a seconder for the motion?

Unknown Attendee

Mr. Chairman, my name is Cynthia Larson, [ph] and I'm a proxy holder of the Corporation. I second the motion.

David P. O'Brien

Thank you, Ms. Larson. [ph] Are there any questions or comments in respect of this motion before we take the vote?

A ballot will be taken on this motion. The votes of all shareholders who have deposited proxies will be voted for or voted against as specified in the form of proxy. Proxy holders and registered shareholders who have not voted should have received a pink ballot upon registration. If you did not receive a pink ballot for this purpose, then please raise your hand and the scrutineers will provide you with one. Please vote on the pink ballot by marking an x in the box opposite the word "For" or "Against", as the case may be. Please sign and print your name on the lines provided, and raise your completed ballot in the air so the scrutineers can collect them.

[Voting]

Any further pink ballots? If so, please raise your hand high in the air so that it can be collected. The scrutineers will now retire to count the ballots and report back to us later in the meeting.

While the scrutineers are counting the ballots on the election of directors and the approval of the corporation's approach to executive compensation, we would like to show you a brief video entitled "Redesigned with You in Mind", which takes a closer look at Encana's new website.

[Presentation]

I have now received the scrutineers' report on the ballot results regarding the election of directors and on the Corporation's approach to executive compensation.

The resolution to elect the directors to hold office until the next annual meeting of shareholders or until their successors are elected or appointed has been approved by more than 88% of the shareholders votes cast. Therefore, I adopt the scrutineers report and declare the motion carried.

I can report that the nonbinding advisory vote approving the corporation's approach to executive compensation has been approved by more than 75% of the shareholder votes cast. Therefore, I adopt the scrutineers report and declare the motion carried.

This now concludes the formal business of the meeting. Before we go to the informal part, is there any other business to be brought before the formal part of the meeting?

As there's no further business to be brought before the formal part of the meeting, I declare the meeting terminated.

Before I turn the meeting over to Randy Eresman, Encana's CEO, who will give a presentation providing an overview of Encana's business strategy and future opportunities, are there any question cards to be collected? In order to accommodate as many, please raise your hand if you have a question card to be collected and a volunteer will come and collect them.

And just to remind you, after Randy's presentation, we will entertain questions from the floor, from the webcast and the questions in writing that are being picked up. So even after Randy's address, if you have a question in writing, raise your hand and the volunteers will collect them.

I would now ask Randy Eresman, Encana's CEO, to make his presentation.

Randall K. Eresman

Thank you, David. Good afternoon, ladies and gentlemen, and thank you all for attending our AGM this afternoon. Also, thank you for providing me this opportunity to take you through our company's strategy. Since I'm going to be talking this afternoon about Encana's future, I need you to be aware of the advisory regarding the use of future-oriented information, which is found on the slides at the end of my presentation today.

Let me begin this afternoon by introducing the members of Encana's executive team. I'd like them all to stand and remain standing until they have all been introduced, and we can show -- then show them our appreciation for their contributions to Encana.

To my right is Sherri Brillon, Executive Vice President and Chief Financial Officer; now at the front of the room, we have Bob Grant, Executive Vice President, Corporate Development, Corporate Responsibility and Environmental Health and Safety, as well as he is responsible for the Reserves of the corporation. Next up, Terry Hopwood, Executive Vice President and General Counsel. Eric Marsh, from our Dallas office, is Executive Vice President and Senior Vice President of our USA division. Mike McAllister, Executive Vice President and acting President of the Canadian division. Next, we have Bill Oliver, Executive Vice President and Chief Corporate Officer. Bill Stevenson, Executive Vice President and our Chief Accounting Officer; Jeff Wojahn, from our Denver office, Executive Vice President and President of our USA division; and finally, we have Renée Zemljak, also from our Denver office. She's Executive Vice President of Midstream, Marketing and Fundamentals.

Ladies and gentlemen, this is your Encana executive team.

All right. Well, now onto my presentation. Before talking specifically about Encana, I wanted to address the macro environment that energy industry companies have been working in this past year. The energy industry has been presented with a very challenging financial environment, whether it would be wind, solar, natural gas or Canadian oil producers, they've been challenged by lower commodity prices, competing commodity supplies and higher cost structures. As an almost pure play natural gas producer, Encana has been most affected by low price of our commodity caused by the continued excess of supply. Recently, NYMEX natural gas prices fell below $2 per million BTU, a price not seen since January of 2002.

Natural gas prices have placed downward pressure on coal prices and made wind, solar and other renewable forms of power even less economic than they were before.

2012 has seen NYMEX natural gas prices well below $3 per thousand cubic feet, an unsustainably low price that reflects the prevailing supply demand imbalance in the North American natural gas marketplace.

We expect this market is going to continue to be challenged in 2012, despite a significant drop in natural gas rig counts due in part to associated gas production from both natural gas liquids drilling and from oil drilling. The surplus has been exacerbated by the lack of winter demand and resulting record high storage inventories. This winter has been 12% warmer than the 10-year average and 21% warmer than last year, thus reducing winter demand by about 3 billion cubic feet per day.

A further decrease in dry gas drilling, an initiative that we've undertaken with our 2012 capital investment plans, may be required to recalibrate the market and to improve prices. Demand growth from power generation, liquefied natural gas exports, transportation and the industrial sector are all expected to aid in future price recovery. We're starting to see signs of a price improvement and have become cautiously optimistic of a price recovery later this year or early into next.

In the meantime, my presentation today focuses on highlighting everything we're doing, both operationally and financially, to manage our way through these extraordinary times, which is really the focus on what we do best, and that's the identification and development of resource plays and the disciplined capital investment in the highest return projects within our inventory.

It's very well-known in industry that Encana has assembled amongst the largest portfolio of North American resource plays, and we're an acknowledged leader in their development. We strive to maximize the long-term value of our enormous resource potential while maintaining our financial flexibility and providing strong returns to our shareholders through dividends. Operationally, we strive to continue to reduce our overall cost structures and improve efficiencies and project returns. We're proud of our history of delivering on our commitments to our shareholders, our partners and our stakeholders. And as I said earlier, it's been a challenging year with respect to natural gas prices. And so our emphasis has been on increasing our oil and liquids rich plays within our portfolio, thereby, creating the opportunity to diversify our commodity mix.

Importantly, Encana is more than ready to meet the challenge. We're taking the appropriate steps to help ensure that Encana continues to thrive. We continue to focus on 4 key things, each of which I will discuss in detail in my presentation this afternoon.

First, and as always, we're continually looking for ways to reduce our costs and operate more efficiently. Second, over the next few years, we expect to significantly increase the proportion of liquids production in our portfolio. Ultimately, this should enable us to diversify our portfolio and increase our cash flows.

Thirdly, we have also advanced joint venture arrangements on many of our plays to help maintain momentum and capture value during this period of reduced capital expenditures. And going forward, we expect to -- joint ventures and formal arrangements to be an integral part of unlocking the value of our enormous resource and reserve base. And fourth, we're steadfastly focused on maintaining a healthy balance sheet that will afford us financial flexibility through 2012 and into 2013.

Fundamental to our strategy is that we will continue to invest in the highest return projects in our portfolio. And given the unsustainably low natural gas prices our industry has been experiencing, our focus on investing in higher return projects mean that we're investing a greater proportion of our capital program in oil and natural gas liquids opportunities. At the same time, we've been dramatically reduced investments in our dry gas places here, thereby preserving the value of our resource in the short run. Over the longer term, we're strong believers in the future of natural gas. We believe it represents a logical economic energy source in North America and globally as well.

Natural gas is well-positioned to meet current market demands and to play a significantly larger role in the areas of transportation, power generation and liquefied natural gas exports. And by directing a larger portion of our 2012 investments towards oil and natural gas liquids, we're striving to diversify our commodity mix and cash flow sources while still maintaining industry-leading cost structures, an initiative that we believe will help provide stronger return to our shareholders.

Encana's assets span across the North American continent. With about 11 million net acres of land, we're well-positioned usually in the heart of a play in every region in which we operate. And we now hold more than 2.8 million net acres that are prospective for natural gas liquids and for oil. In 2012, we plan to direct about $1.5 billion or more than 55% of our total upstream capital in liquids-rich and oil development opportunities. Our portfolio of oil and liquid-rich plays now includes large positions in the Duvernay in Canada, as well as the Tuscaloosa, Collingwood and Eaglebine in the United States just to name a few. Our goal is to advance several of these new plays to commerciality this year.

So now, I'd like to talk about cost and operating efficiencies. Our development model starts with what we call the resource play, which is highly concentrated resources within contiguous tracks of land. These underlying resources are developed using multiple long reach deviated or horizontal wells drilled from central pad sites. Drilling multiple wells from pads reduces the environmental impact of our operations, at the same time results in higher efficiencies and lower cost structures. Repeatable operations lend themselves to the ongoing optimization of equipment and processes using continuous improvement techniques and new fit-for-purpose equipment and processes designed specifically for Encana operations further drive down our unit cost. Encana's industry leadership has positioned us very well. We have a great asset base and an innovative value-driven team.

Overall, the company is investing less capital in 2012. About 37% less when we compared it to last year's budget. This has translated into high-graded set of programs and smaller amounts of capital in every quartile. While continual play optimization operating efficiencies worked to reduce our supply costs, 2 other factors, being joint ventures and increasing our oil and natural gas liquids production, also enhanced our economics and reduced our overall cost structures. The advantage of doing joint ventures is that they reduce our supply cost by leveraging third-party capital, which translates into more accretive present value metrics and lower funding development costs. Increasing our liquids production and our continuing efforts to strip more liquids from our existing gas production through deep cut processing, which I'll discuss next, have also reduced our supply cost. Our upper quartile projects have seen a significant cost reduction as more liquids are processed from production already at the plant.

So how will Encana increase its exposure to liquids? Well, we've got a twofold approach here. First, is to increase the amount of natural gas liquids extracted from our existing deep base and other production from high BTU content natural gas streams. At year-end 2011, Encana was producing about 24,000 barrels per day of liquids. And as we have reported today, we now have production capability of over 29,000 barrels per day, or roughly 20% higher than just 3 months ago. As growth in liquids production is primarily a result of the addition of deep cut processing at third-party midstream facilities in the Alberta Deep Basin.

We plan to increase our liquids production to 80,000 barrels per day by 2015 through the addition of deep cut processing at a number of third-party midstream facilities in Western Canada.

Secondly, we're investing about $400 million in the first half of this year to drill about 45 wells in order to explore and delineate each of our early life potential liquids plays. Out of this portfolio, we expect to identify multiple plays that will add liquids growth above and beyond the 80,000 barrels per day target. Earlier this month, we announced that we have initiated a competitive process to identify partnership opportunities that will help to accelerate commercialization of some of our early life plays, both in Canada and in the United States.

While it's premature to speculate on the size or the value of any potential transaction, we can say we've had a strong interest to date. Importantly, Encana plans to continue to operate and retain majority ownership in each of the plays where it is seeking partners.

Use of third-party capital improves project returns. It assists in providing greater financial flexibility and reducing risk in our capital investment programs, and it helps to lower our overall cost structures. Third-party capital also provides immediate recognition of the value inherent in our plays. In addition to large partnership arrangements that we now have in place with Mitsubishi, we expect to have between $300 million and $400 million in joint venture capital invested for our benefit this year. Part of the management of natural gas assets involve Encana in becoming more creative in how we develop these assets. This includes more joint ventures and partnership arrangements, like the deal with Mitsubishi that we announced earlier this year, as well as structuring new transactions that may include the entire value chain, right from reserves in the ground all the way to LNG export.

In February, we announced and closed our Cutbank Ridge Partnership with Mitsubishi. This deal sees Mitsubishi investing a total of $2.9 billion for a 40% interest and 409,000 net acres of undeveloped Montney lands. We received $1.45 billion as an upfront cash payment, and we will receive the remaining $1.45 billion as 50% of Encana share of capital over the next 5 years.

We retained operatorship of the asset and all existing production and infrastructure in this area has been 100% retained by Encana.

Encana's relationship with Mitsubishi is developing very positively, and we're looking forward to a long collaborative relationship supporting their West Coast LNG aspirations.

And Canada is also exploring the potential for additional joint ventures and partnership transactions beginning with an additional 10% interest in our British Columbia undeveloped Montney lands. We've also announced that we're seeking a partner or partners to help develop our early life oil and natural gas liquids plays both in Canada and in the United States.

As well, joint venture partnerships on our mature assets, such as Jonah, help us maintain capital and operating efficiencies. Similarly, the agreement we announced last week, which will see Toyota Tsusho invest approximately $600 million in a portion of our coalbed methane resource play to earn a 32.5% gross overriding royalty, will help maintain capital and operating efficiencies on one of the lowest cost, lowest risk assets in our portfolio.

It also helped to preserve our supply chain management's initiatives and retain our intellectual capital. These agreements serve as a model for other investment opportunities available across our portfolio of assets. These transactions have the potential to provide additional financial flexibility.

Strong financial stewardship is fundamental to how we manage our business. In 2011, we divested $2.1 billion in non-core assets and invested $515 million in acquiring prospective liquid-rich lands. And during the first quarter of this year, we closed about $2.5 billion in additional transactions. This has allowed us to target a year-end cash reserve of about $3 billion, a figure that significantly strengthens our balance sheet and provides a substantial financial flexibility for 2012 and 2013. We're focused on maintaining investment-grade credit rating, capital discipline and financial flexibility. In the fourth quarter of 2011, we closed a public debt offering totaling $1 billion. The offering was oversubscribed and we received very attractive coupon rates. Additionally, our liquidity is maintained by the availability of $5 billion in uncommitted revolving bank credit facilities, which we recently renewed. We also continue to evaluate hedging opportunities to support our cash flow.

We believe that our dividend is a very strong component of our total shareholder return, and that is an important part of creating discipline in our capital investment decision-making. Our current quarterly dividend of $0.20 per share represents an annualized yield of about 4% to 4.5%, which is considerably higher than most of our E&P peers. While payment of dividends is always at the discretion of the Board of Directors, we have no plans to change our dividend policy at this time.

So we spent some time here today discussing the supply side of the natural gas market and the initiatives that Encana has underway to diversify our commodity mix. Encana's also undertaking a number of initiatives to grow demand for North American natural gas. Technology breakthroughs have created a new reality for the natural gas industry, one that enables a new strategy focused on increased usage of natural gas. Natural gas is now being widely considered for expanded use in power generation, expanded industrial applications and as a transportation fuel. These initiatives are gaining momentum. Recently, the governors of Colorado, Oklahoma, Pennsylvania and Wyoming announced that they have joined together to increase the use of natural gas vehicles in their respective fleets and they issued a call to action to U.S. automobile manufacturers. Additionally, the City of Calgary recently announced that it will purchase 200 natural gas buses to replace older, less efficient diesel-fueled models. Announcements like these reinforce Encana's conviction that natural gas is a clean, affordable and abundant energy solution.

With this increased abundance, our ability to access new markets by liquefied natural gas or LNG export is an increasingly important initiative. Encana has a 30% interest in the Kitimat LNG project along with Apache, the operator at 40% and EOG at 30%. This facility is proposed initially to export capacity of 1.4 BCF per day, designed to be built over 2 700 million cubic feet per day stages.

All of the major regulatory approvals for Phase 1 have been received. The Kitimat partners are currently negotiating long-term offtake agreements, so we backstopped with Western Canadian gas. The Front End Engineering and Design study is expected to be completed by the end of the second quarter of 2012, and we expect to begin construction next year. Following the completion of the study, as well as the negotiation long-term offtake agreements, the partners will make a decision on proceeding with investing the capital to construct the project for the first phase later this year.

In our own operations, Encana's leading the way with early adoption of the use of natural gas in new markets. We now have invested in 5 compressed natural gas or CNG stations and other related infrastructure to demonstrate the business opportunity and infrastructure to distribute and retail natural gas as a transportation fuel. In a very short time, we have learned a lot about station design, and we've implemented several cost improvements along the way. We've also constructed our first fixed liquefied natural gas station, and we supply fuel to about 80 LNG trucks today. As well, at the end of 2011, we had converted 15% of our pickup fleet to run on CNG. And by the end of 2012, we should be at about 30%.

14 of our drilling rigs run on natural gas, and we've achieved significant cost savings. Based on our results, between 20% and 40% can be saved on fuel, and capital investment can be paid out in 1 to 3 years depending on the size of the rig.

Before wrapping up, we'll take a moment to discuss a few of the core values we strive to integrate into our business. Encana is dedicated to maintaining a safe and healthy workplace, operating in an environmentally responsible manner and contributing to the communities where we live and operate. We're known and recognized for maintaining very high standards in areas of corporate citizenship, environmental stewardship, sustainable practices and business ethics. Last year, Encana was again named to the Global 100 Most Sustainable Companies and we're a part of the Dow Jones North America sustainability Index. We received numerous corporate citizenship awards and we're recognized as an employer of choice.

In closing, my presentation has invited you to take a closer look at Encana. 2011 was a difficult year, and natural gas prices have remained lower, longer than we predicted. To focusing our capital on operating programs on our highest return projects, preserving the value of our natural gas assets and taking important steps to strengthen our balance sheet, management is working hard to position Encana appropriately within the current environment. We're a leading resource play company with a huge diversified and low-cost asset base in many of the most prolific basins across North America. We're fiscally responsible and we have the innovative, value-driven culture needed to thrive in this highly competitive industry.

We remain focused on unlocking the tremendous value inherent in our asset base and increasing the net asset value of every Encana share.

Thank you very much for listening to my presentation today.

David P. O'Brien

Before I begin the question-and-answer period, are there any other question cards to be collected? If so, please raise your hand and the volunteers will collect them.

And we will alternate between floor, written and webcast questions, depending on the numbers. The first question I'll take, which was a written question and was a bit of embarrassment to me. It's "why were Encana and Cenovus' AGMs on the same day at the same time?" And the answer is, it was purely coincidental. Following the split, we're 2 independent companies, and we carry on our business separately. But we should have recognized that many shareholders would, because of the split, be both shareholders of Cenovus and Encana, and we'll endeavor to consult with Cenovus going forward to make sure it doesn't happen again.

Next question, I guess will be for Randy. The price of oil is much higher than natural gas on a heat content basis, it's probably 30 or 40:1 compared to 6:1 normal BTU equivalent. To take advantage of this price difference, would it be possible to construct a processing plant that converts natural gas to a petroleum liquid? Randy?

Randall K. Eresman

We're looking at many different ways to try to take advantage I guess of the price spread that currently exists between oil and natural gas. And gas to liquids technology is one of those that our natural gas economy team is looking at. The other way is, other things we're doing to try to capture part of that spread is by reducing our cost by using natural gas instead of diesel. As I said earlier in our own existing fleets, truck fleets, but also, we're using natural gas in many of our drilling rigs today. And basically by displacing diesel with natural gas, we're getting effectively that price. The other thing that we're trying to do, and we think that's going to be very helpful for North American long-term natural gas prices, and hopefully, would allow us to get a little bit closer to the par on a BTU content, is through our efforts on liquefied natural gas export where most of the contracts that are struck today continue to be related to world oil prices rather than North American natural gas prices. So there are multiple fronts. We haven't advanced the gas to liquids very far yet. We're really trying to study and understand the technology. It may be something you hear about in the years to come.

David P. O'Brien

I have a question from the webcast. "What is Encana's view on gas price, both short and medium-term? And if prices were to stay low for a long period, say 3 to 5 years, could this impact Encana's solvency?" I think Randy's answered a fair amount of that in his presentation, but perhaps he wants to give us his crystal ball on prices?

Randall K. Eresman

What I've been saying when I've been on the road and in other meetings is that I'm cautiously optimistic about a price recovery later this year or into next. And I have a litany of reasons why I've come to that conclusion. But in the very short term, pricing could get worse than it is today, in the fact that we are continuing to be oversupplied in North America. But as we look forward, there are a number of events that have taken place that give us optimism. There's been quite a bit of fuel switching from coal-fired generation to natural gas. Historically, the last 3 years, we've been running at about 3 billion cubic feet per day of natural gas, electrical generations' been taken away from coal-fired generation. This past winter, it's been running at about 7 billion cubic feet per day. We're expecting that we could have a warmer than normal summer as warmer than normal summers usually follow warmer than normal winters, which could also cause increased electrical demand, which is generally coal-fired. We know in the West Coast of North America, there's been a reduction in snowpack, which is going to affect the ability to have hydro generation on that part of the -- of North America. And generally, that's supplied by natural gas when that -- when hydro is not there. So there's a number of things that are being done on the -- that are occurring on the demand side. And on the supply side, there are quite a few things that are happening as well. We're seeing a significant reduction in drilling rig counts that will, over the course of the year, result in a reduction in natural gas supply. So as we go into the latter part of the year and early into next, we think the supply balance will probably get a lot closer than it is today. With regards to the solvency, I'm going to turn that over to Sherri Brillon, our CFO.

Sherri A. Brillon

Sort of tough one here. Our assets have significant value, and that value is certainly larger than our debt. We don't expect that we are going to see a sustained low natural gas price for reasons that Randy mentioned. But in the event that we did see a longer period of low natural gas prices persisting, we do have a variety of financial options and operational decisions that we can make in order to improve our flexibility. So I think we're in good stead.

David P. O'Brien

Before I go to other written questions, is there any question from the floor? If not, I'll read another -- sorry, here's a gentleman over here that has a question.

Unknown Attendee

It was concerning gas frac-ing. If we intend to do anything like that, would you prefer we continue with a water-based grass frac-ing including chemicals, or something like the use of propane as promoted by gas frac energy?

Randall K. Eresman

I'm sorry I didn't quite hear the question. Could you please repeat the question? I didn't quite hear you.

Unknown Attendee

It was concerning if we did any gas frac-ing in the future on wells? Would you say we would continue using water and chemicals as part of the process? Or use a system such as gas frac energy and their propane system?

Randall K. Eresman

Well, my guess is that water-based frac-ing will probably dominate the industry for a long time. I do understand that using some hydrocarbon-based fluid systems do work in certain places and will be an economic solution. In some places such as in our coalbed methane fields, we stimulate simply using nitrogen gas. So there will be a variety of things used, but I'm pretty sure that water-based frac-ing fluids will dominate the industry.

David P. O'Brien

Another question that came in written form is, "would Encana consider a joint venture with Cenovus on Telephone Lake?" That's formerly known as Borealis. And as Randy said in his speech, the focus of Encana is on light oil, natural gas liquids and natural gas. Do you want to add anything to that, Randy?

Randall K. Eresman

I didn't even know where Telephone Lake was. There must be a new name since.

David P. O'Brien

Borealis.

Randall K. Eresman

Borealis. No, I don't think that would fit with our current strategy at all.

David P. O'Brien

Are there any other questions from the floor?

Seeing none, then I would like to thank you all for coming today, and this concludes Encana's Annual Meeting of Shareholders.

And ladies and gentlemen, on behalf of Encana's Board of Directors and executive team, thank you for attending today's meeting. Good afternoon

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