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Ovintiv Inc. First Quarter 2022 Results; Capex Increased by $250MM

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   |    Tuesday,May 10,2022

Ovintiv Inc. announced its first quarter 2022 financial and operating results.

Highlights:

• Generated first quarter cash from operating activities of $685 million, Non-GAAP Cash Flow of $1,043 million and Non-GAAP Free Cash Flow of $592 million
• Announced plan to double shareholder returns from 25% to 50% of Non-GAAP Free Cash Flow after base dividends beginning in October of 2022
• Announced a 25% increase to quarterly dividend payments; increasing annualized dividends to $1.00 per share
• Planned 2022 shareholder returns now expected to total approximately $1 billion
• Returned $123 million to shareholders in the first quarter via share buybacks of $71 million and base dividends of $52 million; the Company expects to return approximately $200 million in the second quarter
• Issued notice to redeem the entire aggregate principal amount of its 2024 notes totaling approximately $1 billion on June 10, 2022; Company on track to achieve $3 billion Net Debt target in the third quarter of 2022
• Adjusted 2022 capital guidance to approximately $1.7 billion to $1.8 billion, reflecting current expectations for cost inflation and costs associated with maintaining high spec equipment and preferred crews through year-end
• Delivered first quarter total production of approximately 500 thousand barrels of oil equivalent per day ("MBOE/d"), above the midpoint of Company guidance
• Published 2022 Sustainability Report and 2021 ESG performance metrics on the Company's Sustainability website

Ovintiv CEO Brendan McCracken said: "Our culture of innovation and focus on capital discipline delivered substantial free cash flow generation in the first quarter. Despite the significant inflationary pressures impacting our industry, we continue to deliver top tier capital efficiency and generate superior returns. We are maintaining discipline in a volatile market and will not invest in growth in 2022. With our $3 billion Net Debt target in sight in the third quarter, we have once again increased our base dividend and we are set to double shareholder returns, beginning October 1st. This puts us on track to deliver $1 billion of cash returns to our shareholders this year."

First Quarter 2022 Financial and Operating Results

• The Company reported a net loss of $241 million in the first quarter. These results included net losses on risk management of $1,458 million, before tax.
• First quarter cash from operating activities was $685 million, Non-GAAP Cash Flow was $1,043 million and capital investment totaled $451 million, resulting in $592 million of Non-GAAP Free Cash Flow.
• First quarter total production was above the midpoint of guidance and at approximately 500 MBOE/d, including 173 thousand barrels per day ("Mbbls/d") of oil and condensate, 79 Mbbls/d of other NGLs and 1,487 million cubic feet per day ("MMcf/d") of natural gas. Production in the quarter was impacted by higher Canadian royalty rates, operational delays and weather disruptions.
• Total Costs were $15.48 per barrel of oil equivalent ("BOE"). Per unit costs were higher than the Company's $14.75 to $15.25 per BOE cost guidance due to higher commodity prices during the quarter directly impacting commodity linked cost items.
• Excluding the impact of risk management losses, first quarter 2022 average realized prices were $93.35 per barrel for oil and condensate (99% of WTI), $34.94 per barrel for other NGLs (C2-C4) and $4.64 per Mcf for natural gas (94% of NYMEX) resulting in a total average realized price of $51.62 per BOE.
• First quarter 2022 average realized prices, including risk management losses, were $82.08 per barrel for oil and condensate, $34.94 per barrel for other NGLs (C2-C4), and $2.60 per Mcf for natural gas, resulting in a total average realized price of $41.65 per BOE. Ovintiv's first quarter realized commodity-based risk management losses were $448 million, before-tax.

Revised 2022 Guidance

The Company revised its full year 2022 guidance and provided second quarter 2022 guidance as follows:

2022 Outlook

Ovintiv has raised its full year capital investment guidance to approximately $1.7 to $1.8 billion from $1.5 billion. The increase in capital is primarily due to incremental inflationary cost pressures given the higher commodity price environment. A modest portion of the additional capital has secured the Company's existing equipment, crews, and materials through year-end. Planned activity levels for the remainder of the year are largely unchanged compared to the original guidance. Capital investment is expected to be 55 to 60% weighted to the first half of the year.

The Company expects to deliver full year oil and condensate production volumes of approximately 180 to 185 Mbbls/d. This range reflects a slight decrease from previous guidance due to the impact of higher Canadian royalties resulting from higher commodity prices, first quarter operational delays, and adverse weather impacts in the first four months of the year. The Company's oil and condensate production in the second half of the year is expected to average approximately 190 Mbbls/d.

During the first quarter, Ovintiv purchased for cancellation, approximately 1.7 million shares of common stock outstanding at an average price of $40.57 per share, for a total consideration of approximately $71 million. As of March 31, 2022, the Company had repurchased a total of approximately 4.8 million shares of common stock at an average price of $37.77 per share since its share buyback program was announced in September of 2021.

On May 9, 2022, Ovintiv's Board declared a quarterly dividend of $0.25 per share of common stock payable on June 30, 2022, to shareholders of record as of June 15, 2022. This represents an increase of 25%, or approximately $50 million on an annualized basis, to the dividend paid in the first quarter and marks the third dividend increase in the last year.

In the second quarter of 2022, the Company plans to deliver approximately $200 million to shareholders through its newly raised base dividend of approximately $65 million and share buybacks totalling approximately $135 million. This will bring total direct shareholder returns to more than $500 million since the Company's new capital allocation framework was announced in September of 2021.

Beginning in October of 2022, Ovintiv plans to double its returns to shareholders from 25% to 50% of the previous quarter's Non-GAAP Free Cash Flow after base dividends through share buybacks and/or variable dividends. The remaining amount will primarily be allocated to continued Net Debt reduction, and small, low-cost property bolt-ons.

The Company announced that it has issued a notice to the trustee of its 5.625% notes due 2024 (the "2024 notes") to redeem the entire $1 billion aggregate principal amount. The Company expects to redeem the outstanding 2024 notes pursuant to their terms and conditions, on June 10, 2022.The redemption will result in approximately $55 million of annualized interest expense savings.

Ovintiv remains committed to reducing Net Debt. At the end of the first quarter, Ovintiv's Net Debt was approximately $4.5 billion, and the Company had no outstanding balances under its revolving credit facilities and commercial paper programs.

During the month of April, Ovintiv made significant progress toward further Net Debt reduction with an ending cash balance of approximately $680 million, taking Net Debt down by about $400 million to approximately $4.1 billion. The Company has a Net Debt target of $3 billion which it expects to meet in the third quarter of 2022.

Ovintiv's committed, unsecured credit facilities were recently renewed and extended through July 2026 for a total amount of $3.5 billion. The facilities have no reserve-based, cash flow, or EBITDA lending covenants or minimum credit rating requirements. The facilities' primary financial covenant is Debt to Adjusted Capitalization, which is not to exceed 60%. At the end of the first quarter, the Debt to Adjusted Capitalization ratio was 28%.

Ovintiv continues to deliver measurable progress on its ESG initiatives. The Company today published its 2022 Sustainability Report and full year 2021 ESG performance metrics on its sustainability website.

2022 Sustainability Report highlights include:

• Reduced 2021 Scope 1&2 greenhouse gas (GHG) emissions intensity by 24% from 2019 levels; gross annual Scope 1&2 GHG emissions reduced by more than 2 million metric tons of CO2e;
• Achieved the Company's 33% methane emissions intensity reduction target four years ahead of schedule, decreasing emissions from 0.15 metric tons CH4/MBOE in 2019 to 0.07 metric tons CH4/MBOE in 2021, or by more than 50%;
• Reduced flaring and venting intensity from 0.7% to 0.4% of gross produced gas, or 43% year-over-year;
• Reduced total recordable injury frequency for employees and contractors by 20% year-over-year to 0.15 events X 200,000/total exposure hours;
• Reduced spill intensity by 25% year-over-year;
• In full compliance with World Bank Zero Routine Flaring by 2030 initiative – nine years ahead of the World Bank's target;
• Marked 18^th consecutive year of transparent sustainability reporting; and
• Achieved the Company's 8th consecutive safest year ever in 2021

Asset Highlights

Permian production averaged 114 MBOE/d (79% liquids) in the first quarter. The Company averaged three gross rigs, drilled 13 net wells, and had 18 net wells turned in line (TIL).  

The Permian team is successfully executing on a longer lateral program in 2022, with the first quarter wells TIL averaging over 14,300 feet. This is 30% longer than the 2021 program average.

The Company plans to spend $650 to $700 million in the basin in 2022.

Anadarko production averaged 120 MBOE/d (61% liquids) in the first quarter. The Company averaged three gross rigs, drilled 13 net wells, and had 18 net wells TIL. 

During the quarter, Ovintiv completed four wells with a lateral length greater than 15,000 feet in the basin.

The Company plans to spend $350 to $400 million in the basin in 2022.

Montney production averaged 213 MBOE/d (23% liquids) in the first quarter. The Company averaged two gross rigs, drilled 16 net wells and had 19 net wells TIL.

The Company plans to spend $300 to $350 million in the basin in 2022.