Latest News and Analysis
Deals and Transactions
Track Drilling (Rigs by operator) | Completions (Frac Spreads)

Quarterly / Earnings Reports | Second Quarter (2Q) Update | Financial Results | Capital Markets | Drilling Activity

Ovintiv/Encana Second Quarter 2020 Results

emailEmail    |    printPrint    |    bookmarkBookmark
   |    Wednesday,July 29,2020

Ovintiv Inc. reported its Q2 2020 results.

Highlights:

  • New 2020 Capex program, $1.8 billion vs $1.850 billion.
  • Second quarter average drilled and completed (D&C) well costs were approximately 15% lower than 2019 average results, and three-quarters of the way to the Company's estimated 20% reduction in 2021.
  • Recent strong results increase confidence in 2021 "stay-flat" crude and condensate scenario with $1.4 - $1.6 billion in capital investments.
  • Total company production equivalent +16% y/y (536.6 Mboe/d) , down -6% sequentially
  • Total company oil production up +16% Y/Y, down -9% sequentially
  • Capital spending for the quarter was $252 million (company took a frac holiday) vs $790 million in Q1 (down - 72%)
  • Liquidity of $3 billion.
  • non-cash impairment of $3.2 billion.
  • Second quarter capital investments were $252 million and nearly 70% below first quarter 2020 investment levels. The Company moved rapidly from its March 2020 operated rig count of 23 rigs to seven rigs by mid-May. Completion activities were halted across the business during the quarter.

Reduced Well Cost


Q2 2020 Financial and Operating Results

The Company recorded a net loss in the second quarter of $4.4 billion, or $16.87 per share of common stock. Results were impacted by the following items:

  • A non-cash ceiling test impairment of $3,250 million, before-tax, primarily related to the decline in 12-month average trailing commodity prices which reduced SEC proved reserves.
  • A non-cash charge of $568 million related to a deferred tax asset valuation allowance.
  • A non-cash unrealized loss on risk management of $679 million, before-tax, related to the mark-to-market value of derivative positions.
  • A restructuring charge of $81 million, before-tax, related to a 25% reduction in Ovintiv's workforce as staffing levels were balanced with planned activity levels.

Excluding these and other items, the Company reported a non-GAAP operating loss of $111 million. Cash from operating activities was $117 million and non-GAAP cash flow was $304 million. Cash flow was impacted by the $81 million restructuring charge mentioned above.

Ovintiv delivered higher than expected production during the quarter and continued to show significant reductions in costs. Capital investment levels were below the mid-point of the Company's previous guidance.

  • Total average production for the second quarter was nearly 537 thousand barrels of oil equivalent per day (MBOE/d). Crude and condensate production averaged 198 Mbbls/d. In response to low oil prices, the Company voluntarily shut-in, delayed or curtailed approximately 32 MBOE/d, or 18 Mbbls/d of crude and condensate during the quarter. Substantially all shut-in volumes are now back on-line.

  • Total Costs of $11.23 per BOE were nearly 8% lower when compared to the first quarter of 2020.

2020 and 2021 Scenario

Recent operating results have helped confirm key financial and operating assumptions behind the future "scenarios" the Company outlined in May 2020.

  • 2020-the Company today reduced its outlook for 2020 investments to approximately $1.8 billion (previously $1.8 - $1.9 billion). Expectations for fourth quarter crude and condensate production were raised with the Company changing its previous 200 Mbbls/d 2020 "exit rate" to a fourth quarter 2020 average. During the second quarter, Ovintiv increased its original full-year cash cost savings estimate to more than $200 million, of which approximately half has been achieved through mid-year. Ovintiv plans to resume well completions in the third quarter on more than 100 drilled but uncompleted wells (DUCs). As a result of the second quarter completion holiday, third quarter crude and condensate production is expected to be the trough for the year and average approximately 180 Mbbls/d. The majority of the DUCs are expected to commence production by year-end 2020 and a typical level of DUCs will be carried into 2021.

  • 2021-the 2020 cost reductions are durable into 2021 and an additional $100 million of reduced legacy costs will enhance cash flow. Assuming benchmark prices of $35 per barrel WTI and $2.75 per MMBtu NYMEX natural gas, Ovintiv could invest approximately $1.4 - $1.6 billion and balance capital expenditures with non-GAAP free cash flow and fund its annual dividend to shareholders. This level of investment would hold crude and condensate volumes flat throughout the year at approximately 200 Mbbls/d.

Strong Hedge Position Protects Cash Flow

Ovintiv is substantially hedged on near-term, benchmark oil price risk. For the third quarter, 175 Mbbls/d are hedged at an average price of $45.06 per barrel. Of these positions, 160 Mbbls/d are in fixed price swaps at $44.60 per barrel and 15 Mbbls/d are covered by costless collars between $50.00 and $68.71 per barrel. "Benchmark" refers to NYMEX WTI. Natural gas hedges are also in place on approximately 1.4 billion cubic feet per day of production hedged at an average price of $2.53 per thousand cubic feet (Mcf).

  • Second quarter 2020 average realized prices including hedge of $39.70 per barrel for oil, $17.78 per barrel for NGLs and $2.09 per thousand cubic feet (Mcf) for natural gas, resulted in a total equivalent price of $21.21 per BOE. Ovintiv realized second quarter total hedging gains of $365 million, before-tax.

  • Second quarter 2020 average realized prices excluding hedge of $22.91 per barrel for oil, $12.30 per barrel for NGLs and $1.57 per Mcf for natural gas resulted in a total equivalent price of $13.80 per BOE.

Based on the forward strip as of June 30, third quarter realized risk management gains on benchmark oil and natural gas are expected to total approximately $180 million, and total $406 million for the balance-of-year-2020. Settlements for various other oil differential and natural gas basis positions in 2020 serve to further reduce risk. 

Balance Sheet and Liquidity

Current liquidity is approximately $3.0 billion, which represents the Company's $4 billion committed, unsecured credit facilities, available capacity on uncommitted demand lines and cash-on-hand, less the amount drawn on the credit facilities.

During the first half of the year, Ovintiv repurchased approximately $137 million in principal amount of its senior notes in the open market for an aggregate cash payment of approximately $115 million, plus accrued interest. The Company has significant flexibility to manage the late 2021 and 2022 maturities, including the use of its credit facilities.

Approximately 80% of the Company's total fixed-rate long-term debt is due in 2024 or later and has an aggregate weighted average bond maturity of approximately nine years.

Asset Highlights

The Company set new, record-low well drilling and completion costs in each of its Core 3 asset areas during the second quarter. A chart comparing previous well costs by area to current estimates is included in today's accompanying presentation on the website.

Permian

Permian production averaged 111 MBOE/d (81% liquids) in the quarter. The Company averaged four rigs, down from five in the first quarter of 2020. During the quarter, 23 net wells were drilled, and 13 net wells were turned in line (TIL). Ovintiv is currently running three rigs in the play.

The Company continues to advance Simul-Frac learnings in the Permian, leading to increased completion rates and lower cycle times over the quarter. These increased efficiencies resulted in a 19% improvement in the second quarter D&C well costs compared to 2019 average well costs.

Anadarko

Anadarko production averaged 144 MBOE/d (61% liquids) in the quarter. The Company averaged three rigs, down from six in the first quarter of 2020. During the second quarter, 13 net wells were drilled, and 17 net wells were TIL. Ovintiv is currently running two rigs in the play.

14 STACK wells in 2020 have been drilled and completed for less than $5 million. The pacesetter D&C well cost is now $4.4 million representing a 30% reduction from 2019 average results.

Montney

Second quarter Montney liquids production averaged 49 Mbbls/d. Total production in the play averaged 203 MBOE/d (24% liquids). During the quarter, the Company averaged two rigs, down from five in the first quarter of 2020. During the quarter, 12 net wells were drilled, and eight net wells were TIL. Ovintiv is currently running two rigs in the play.

The Company achieved a record completion rate on a recent four-well pad in Pipestone of 3,450 feet per day, a 45% improvement compared to the 2019 average. First half 2020 D&C well costs averaged $480 per foot in Pipestone, representing a 14% improvement over 2019 average costs.

Base Assets

Base assets in the portfolio include the Eagle Ford, Bakken, Uinta and Duvernay. There were no wells TIL in these areas during the second quarter.


US Frac Crews Tracking

ad

Related Categories :

Second Quarter (2Q) Update   

More    Second Quarter (2Q) Update News

Canada News >>>


Gulf Coast News >>>