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Ovintiv Inc. Second Quarter 2022 Results

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   |    Friday,August 05,2022

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

Ovintiv President & CEO Brendan McCracken said: "In the second quarter, we delivered our highest quarterly cash flow and free cash flow in over a decade - this result reflects the value we are generating with our culture of innovation, leading capital efficiency, top tier multi-basin portfolio and disciplined capital allocation. We are resolute in our goal to unlock value for our shareholders. We expect to deliver more than $1 billion to our shareholders in 2022 and assuming current strip pricing, we expect shareholder returns to more than double in 2023."

2Q Financial and Operating Results:

• The Company reported net earnings of $1.36 billion after-tax, or $5.21 per diluted share in the second quarter.
• Second quarter cash from operating activities was $1.34 billion, Non-GAAP Cash Flow was $1.22 billion and capital investment totaled $511 million, resulting in $713 million of Non-GAAP Free Cash Flow.
• Second quarter total production was 500 MBOE/d, including 175 Mbbls/d of oil and condensate, 87 Mbbls/d of other NGLs and 1,426 million cubic feet per day ("MMcf/d") of natural gas. Natural gas volumes were negatively impacted in the quarter due to higher Canadian royalty rates.
• Total Costs were $16.71 per barrel of oil equivalent ("BOE"). Per unit costs were higher in the quarter due to stronger commodity prices directly impacting commodity linked cost items.
• Excluding the impact of risk management losses, second quarter 2022 average realized prices were $107.16 per barrel for oil and condensate (99% of WTI), $37.03 per barrel for other NGLs (C2-C4) and $6.78 per thousand cubic feet ("Mcf") for natural gas (95% of NYMEX) resulting in a total average realized price of $63.36 per BOE.

2022 Guidance
Ovintiv's full year 2022 capital guidance is unchanged. Full year production volumes have been adjusted to include the impact of non-core asset sales which were announced in July, the impact of higher-than-expected Canadian royalty rates which reduce reported volumes and the impact of recent higher line pressures in third party midstream facilities in the Anadarko. The Company's Total Cost guidance has increased slightly due to the impact of higher-than-expected natural gas prices for the remainder of the year and additional downstream capacity contracted with third parties in the Montney and Permian plays. Ovintiv's third and fourth quarter and full year 2022 guidance is below. The guidance assumes commodity prices of $100/bbl for WTI oil and $8/Mcf for NYMEX natural gas for the remainder of the year.

Share Buyback Program

During the second quarter, Ovintiv purchased for cancellation, approximately 2.8 million shares of common stock outstanding for a total consideration of approximately $135 million. As of June 30, 2022, the Company had repurchased a total of approximately 7.6 million shares of common stock at an average price of $41.80 per share, for a total of $317 million since its share buyback program was announced in September of 2021.

On August 3, 2022, Ovintiv's Board declared a quarterly dividend of $0.25 per share of common stock payable on September 30, 2022, to shareholders of record as of September 15, 2022.

In July 2022, Ovintiv increased its returns to shareholders from 25% to 50% of the previous quarter's Non-GAAP Free Cash Flow after base dividends through share buybacks. The remaining Non-GAAP Free Cash Flow will primarily be allocated to continued Net Debt reduction and property bolt-ons.

In the third quarter of 2022, the Company plans to deliver approximately $389 million to shareholders through its base dividend of approximately $64 million and share buybacks totalling approximately $325 million. The third quarter buyback program, at $325 million, exceeds the total dollars spent on buybacks since the Company's new capital allocation framework was announced in September of 2021.This will bring total direct shareholder returns to approximately $900 million over the 12-month period.

Balance Sheet Strength and Debt Reduction

Ovintiv remains committed to reducing Net Debt. At the end of the second quarter, Ovintiv's Net Debt was approximately $3.9 billion and Net Debt to Adjusted EBITDA was 1.0 times. The Company expects to meet its $3 billion Net Debt target by the end of the year.

In June, the Company redeemed its $1,000 million, 5.625 percent senior notes due July 1, 2024, using cash on hand and proceeds from short term borrowings. Ovintiv paid approximately $1,072 million in cash including accrued and unpaid interest of $25 million and a one-time make-whole payment of $47 million. The redemption will result in approximately $55 million of annualized interest expense savings.

In addition, the Company repurchased a portion of its 6.5 percent senior notes due August 2034, its 6.5 percent senior notes due February 2038 and its 5.15 percent senior notes due in November 2041 in the open market. As of June 30, 2022, the aggregate cash payments related to the note repurchases were approximately $60 million, plus accrued interest.

As of June 30, 2022, the Company had $215 million of commercial paper outstanding and no outstanding balances under its revolving credit facilities.

Non-Core Asset Sales

In July 2022, Ovintiv announced it had reached agreements with two counterparties to sell portions of its assets located in the Uinta and Bakken basins for total proceeds of approximately $250 million before closing adjustments. As of April 2022, the combined volumes from the divested assets totaled approximately 5.0 MBOE/d, including 4.9 Mbbls/d of oil and condensate.

Asset Highlights

Permian

Permian production averaged 116 MBOE/d (79% liquids) in the second quarter. The Company averaged three gross rigs, drilled 16 net wells, and had 11 net wells turned in line (TIL).

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

Anadarko production averaged 128 MBOE/d (63% liquids) in the second quarter. The Company averaged three gross rigs, drilled 18 net wells, and had 15 net wells TIL.

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

Montney production averaged 198 MBOE/d (24% liquids) in the second quarter. The Company averaged three gross rigs, drilled 16 net wells and had 12 net wells TIL.

Ovintiv recently contracted for 245 billion British thermal units (BBTU) per day of incremental transport to the Chicago market beginning November 1st, 2022, for a term greater than 10 years. This additional transportation supplements the Company's existing market access to Eastern Canada, California, the Pacific Northwest, and the Midwest. Assuming production levels flat with the first half of 2022, the combination of market access arrangements and AECO basis hedges will result in approximately 80% to 85% of Ovintiv's Montney natural gas production to price outside the AECO market for the 2023 to 2025 period.

2024 Development Plan

Category	2023	2024 Est. Initial	Updated 2024 Guidance	%Difference (2023 vs 2024)
Total Capital Expenditure($mm)

Production Oil(bbls/d)

 Click here for More Planned 2024 Activity