Highlights:
DENVER, Feb. 24, 2022 /PRNewswire/ – Ovintiv Inc. (NYSE: OVV) (TSX: OVV) (“Ovintiv” or the “Company”) today announced its fourth quarter and year-end 2021 financial and operating results. The Company plans to hold a conference call and webcast at 9:00 a.m. MT (11:00 a.m. ET) on February 25, 2022. Please see dial-in details within this release, as well as additional details on the Company’s website at www.ovintiv.com.
Ovintiv CEO Brendan McCracken said, “Our performance in 2021 demonstrates Ovintiv’s unique strengths – our industry leading capital efficiency, top-tier multi-basin portfolio, culture of innovation, and disciplined approach to capital allocation. Our strategy to sustainably deliver superior returns is resulting in substantial value creation for our shareholders. Today, we are increasing our base dividend and we expect to meet our $3 billion net debt target in the second half of 2022, which will unlock another significant increase in cash returns.”
Full Year and Fourth Quarter 2021 Financial and Operating Results
2022 Guidance
The Company issued the following 2022 guidance:
1Q22 | 2022 | |
Capital Investment ($ Millions) | $425 – $440 | $1,500 |
Oil & Condensate (Mbbls/d) | 174 – 178 | 180 – 190 |
Other NGLs (Mbbls/d) | 77 – 81 | 78 – 82 |
Natural Gas (MMcf/d) | 1,430 – 1,480 | 1,450 – 1,500 |
2022 Outlook
With capital investment of approximately $1.5 billion in 2022, the Company expects to maintain oil and condensate production volumes of approximately 180 to 190 Mbbls/d. This range reflects a maintenance production program relative to the second half of 2021. Ovintiv expects to preserve its 2021 capital efficiency and offset inflationary pressures on capital costs in 2022 with efficiency and productivity gains. The Company expects its capital investment to be more weighted to the first half of the year.
“Maintaining our capital efficiency in 2022 will be a differentiating factor among our peers,” said McCracken. “Despite the inflationary pressures across the economy, our teams continue to find innovative ways to offset cost inflation and improve well performance. Our industry-leading well cost and productivity performance, combined with our demonstrated operational efficiencies and culture of innovation give us confidence in the repeatability of our capital program in 2022. With more than a decade of premium drilling inventory in each of our core three assets – the Permian, Anadarko and Montney – we are well positioned to continue delivering industry-leading capital efficiencies for many years to come.”
In the first quarter, through capital investments of $425 to $440 million, Ovintiv expects to deliver oil and condensate production of 174 to 178 Mbbls/d, other NGLs production of 77 to 81 Mbbls/d and natural gas production of 1,430 to 1,480 MMcf/d.
Share Buyback Program
As of December 31, 2021, Ovintiv had purchased for cancellation, approximately 3.1 million common shares outstanding at an average price of $36.18 per share, for a total consideration of approximately $111 million. During the first quarter of 2022, the Company plans to buyback shares equivalent to 25% of its fourth quarter Non-GAAP Free Cash Flow less base dividend payments, or approximately $71 million. The first quarter buyback program is currently underway with an additional approximately 1.2 million common shares outstanding purchased as of February 18, 2022.
Continued Net Debt Reduction
During the fourth quarter, Ovintiv reduced Net Debt by $192 million. This represents approximately $2.3 billion of Net Debt reduction since year-end 2020.
At year-end, the Company had no outstanding balances under its revolving credit facilities and commercial paper programs. Ovintiv’s available liquidity totaled $4.5 billion.
The Company has a Net Debt target of $3 billion which, assuming commodity prices of $85 WTI oil and $4.50 NYMEX natural gas, it expects to meet in the second half of 2022. Once the Company reaches its Net Debt target, it plans to increase quarterly shareholder returns to at least 50% of the previous quarter’s Non-GAAP Free Cash Flow after base dividends. The remaining Non-GAAP Free Cash Flow will be allocated to further Net Debt reduction and small, low-cost property bolt-ons.
Dividend Increase
On February 24, 2022, Ovintiv’s Board declared a quarterly dividend of $0.20 per share of common stock payable on March 31, 2022, to shareholders of record as of March 15, 2022. This represents an increase of 43% from the previous level and an increase of 113% versus 1-year ago and also marks the second dividend raise in the last six months.
ESG Performance
Ovintiv continues to deliver measurable progress on its ESG initiatives. The Company is committed to advancing its ESG performance, and as such, announced today a Scope 1&2 GHG emissions intensity reduction target of 50% by 2030, using 2019 as a baseline year. This target will be tied to compensation for all Ovintiv employees.
Key highlights of the Company’s recent sustainability achievements:
Additional details can be found on Ovintiv’s Sustainability site at https://sustainability.ovintiv.com/
Asset Highlights
Ovintiv continued to demonstrate well cost reductions across its portfolio throughout 2021. Despite significant industry-wide inflationary pressures, average well costs were 11% lower than 2020 levels.
Permian
For the year, Permian production averaged 118 MBOE/d (81% liquids). The Company averaged three gross rigs, drilled 80 net wells, and had 93 net wells turned in line (“TIL”).
Permian production averaged 120 MBOE/d (79% liquids) in the fourth quarter. The Company averaged four gross rigs, drilled 20 net wells, and had 16 net wells TIL. The number of wells TIL were reduced as the company transitioned to longer laterals and set up a load-leveled completions program for 2022. Due to this transition, only three net wells were TIL from September to November 2021, with the majority of the fourth quarter wells coming on-line in December.
Permian drilling and completion (“D&C”) costs were 10% lower than the 2020 program average. The lower costs achieved in 2021 were underpinned by increased operational efficiencies including faster D&C rates and longer lateral development. Ovintiv utilized Simul-Frac on 90% of its Permian completions in 2021.
Anadarko
For the year, Anadarko production averaged 132 MBOE/d (62% liquids). The Company averaged two gross rigs, drilled 51 net wells, and had 53 net wells TIL.
Anadarko production averaged 133 MBOE/d (61% liquids) in the fourth quarter. The Company averaged two gross rigs, drilled 9 net wells, and had 14 net wells TIL.
In the STACK area, D&C costs were eight percent lower than the 2020 program average. In addition to lower costs, 2021 STACK well performance surpassed expectations as six-month normalized cumulative oil production was 10% higher compared to the 2020 program. This performance improvement was driven by optimized completion designs.
Montney
For the year, Montney production averaged 225 MBOE/d (25% liquids). The Company averaged four gross rigs, drilled 84 net wells and had 78 net wells TIL.
Montney production averaged 207 MBOE/d (25% liquids) in the fourth quarter. The Company averaged three gross rigs, drilled 17 net wells and had 14 net wells TIL.
Montney D&C costs were 11% lower than the 2020 program average. Ovintiv made a step-change in drilling performance in the Montney in 2021, drilling three of the five longest laterals in the basin with an average drilling rate of over 1,600 feet per day. In the liquids-rich Pipestone portion of the play, Ovintiv delivered a 14% year-over-year improvement in six-month, normalized condensate production. This performance improvement was driven by optimized completion designs.
Bakken
For the year, Bakken production averaged 24 MBOE/d (79% liquids). The Company averaged one net rig, drilled 11 net wells and had 10 net wells TIL.
Bakken production averaged 25 MBOE/d (79% liquids) in the fourth quarter. The Company averaged one net rig, drilled four net wells and had six net wells TIL.
Year-End 2021 Reserves
SEC proved reserves at year-end 2021 were 2.3 billion BOE, of which approximately 52% were liquids and 59% were proved developed. The strong well performance and lower costs that the Company realized through the year resulted in an SEC total proved reserve replacement of 269% of 2021 production excluding the impacts acquisitions and divestitures. Total proved reserves replacement excluding the impact of commodity prices and excluding acquisitions and divestitures was 194% of 2021 production.
NI 51-101 Exemption
The Canadian securities regulatory authorities have issued a decision document (the “Decision”) granting Ovintiv exemptive relief from the requirements contained in Canada’s National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). As a result of the Decision, and provided that certain conditions set out in the Decision are met on an on-going basis, Ovintiv will not be required to comply with the Canadian requirements of NI 51-101 and the Canadian Oil and Gas Evaluation Handbook and, accordingly, will not be required to file Form 51-101F1 Statement of Reserves Data and Other Oil and Gas Information or related forms and disclosure as part of its annual filings. In lieu of such filings, the Decision permits Ovintiv to provide disclosure in respect of its oil and gas activities in the form permitted by, and in accordance with, the legal requirements imposed by the U.S. Securities and Exchange Commission (“SEC”), the Securities Act of 1933, the Securities and Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and the rules of the New York Stock Exchange. The Decision also provides that Ovintiv is required to file all such oil and gas disclosures with the Canadian securities regulatory authorities on www.sedar.com as soon as practicable after such disclosure is filed with the SEC.
For additional information, please refer to the fourth quarter and year-end 2021 Results Presentation at https://investor.ovintiv.com/presentations-events.
Conference Call Information
A conference call and webcast to discuss the Company’s fourth quarter and year-end results will be held at 9:00 a.m. MT (11:00 a.m. ET) on February 25, 2022. To participate in the call, please dial 888-664-6383 (toll-free in North America) or 416-764-8650 (international) approximately 15 minutes prior to the conference call. The live audio webcast of the conference call, including slides and financial statements, will be available on Ovintiv’s website, www.ovintiv.com under Investors/Presentations and Events. The webcast will be archived for approximately 90 days.
Refer to Note 1 Non-GAAP measures and the tables in this release for reconciliation to comparable GAAP financial measures.
Capital Investment and Production
(for the period ended December 31) | 4Q 2021 | 4Q 2020 | 2021 | 2020 |
Capital Expenditures (1) ($ millions) | 421 | 343 | 1,519 | 1,736 |
Oil (Mbbls/d) | 129.8 | 158.0 | 140.3 | 151.5 |
NGLs – Plant Condensate (Mbbls/d) | 47.8 | 56.8 | 50.9 | 52.1 |
Oil & Plant Condensate (Mbbls/d) | 177.6 | 214.8 | 191.2 | 203.6 |
NGLs – Other (Mbbls/d) | 84.6 | 82.6 | 83.3 | 85.3 |
Total Liquids (Mbbls/d) | 262.2 | 297.4 | 274.5 | 288.9 |
Natural gas (MMcf/d) | 1,476 | 1,559 | 1,556 | 1,529 |
Total production (MBOE/d) | 508.2 | 557.2 | 533.9 | 543.8 |
(1) | Including capitalized directly attributable internal costs. |
Fourth Quarter and Year-End Summary
(for the period ended December 31) ($ millions, except as indicated) |
4Q 2021 | 4Q 2020 | 2021 | 2020 |
Cash From (Used In) Operating Activities | 740 | 719 | 3,129 | 1,895 |
Deduct (Add Back): | ||||
Net change in other assets and liabilities | (18) | (6) | (39) | (173) |
Net change in non-cash working capital | 17 | 33 | (41) | 139 |
Current tax on sale of assets | – | – | – | – |
Non-GAAP Cash Flow (1) | 741 | 692 | 3,209 | 1,929 |
Non-GAAP Cash Flow Margin (1) ($/BOE) | 15.85 | 13.50 | 16.46 | 9.69 |
Non-GAAP Cash Flow (1) | 741 | 692 | 3,209 | 1,929 |
Less: Capital Expenditures (2) | 421 | 343 | 1,519 | 1,736 |
Non-GAAP Free Cash Flow (1) | 320 | 349 | 1,690 | 193 |
Net Earnings (Loss) Before Income Tax | 1,382 | (642) | 1,239 | (5,730) |
Before-tax (Addition) Deduction: | ||||
Unrealized gain (loss) on risk management | 938 | (186) | (488) | (204) |
Impairments | – | (717) | – | (5,580) |
Restructuring charges | (1) | (2) | (14) | (90) |
Non-operating foreign exchange gain (loss) | (1) | 17 | (18) | (16) |
Gain (loss) on divestitures | – | – | – | – |
Gain on debt retirement | – | 2 | – | 30 |
Adjusted Net Earnings (Loss) Before Income Tax | 446 | 244 | 1,759 | 130 |
Income tax expense (recovery) | 115 | 61 | 454 | 39 |
Non-GAAP Operating Earnings (Loss) (1) | 331 | 183 | 1,305 | 91 |
(1) | Non-GAAP cash flow, non-GAAP cash flow margin, Non-GAAP free cash flow and non-GAAP operating earnings (loss) are non-GAAP measures as defined in Note 1. |
(2) | Including capitalized directly attributable internal costs. |
Realized Pricing Summary
(for the period ended December 31) | 4Q 2021 | 4Q 2020 | 2021 | 2020 |
Liquids ($/bbl) | ||||
WTI | 77.19 | 42.66 | 67.91 | 39.40 |
Realized Liquids Prices (1) | ||||
Oil | 53.43 | 47.75 | 51.28 | 44.68 |
NGLs – Plant Condensate | 64.04 | 44.81 | 57.33 | 40.89 |
Oil & Plant Condensate | 56.27 | 46.96 | 52.89 | 43.70 |
NGLs – Other | 26.65 | 10.94 | 22.07 | 9.41 |
Total NGLs | 40.15 | 24.73 | 35.44 | 21.35 |
Natural Gas | ||||
NYMEX ($/MMBtu) | 5.83 | 2.66 | 3.84 | 2.08 |
Realized Natural Gas Price (1) ($/Mcf) | 2.84 | 2.33 | 2.92 | 2.13 |
(1) | Prices include the impact of realized gain (loss) on risk management. |
Total Costs
(for the year ended December 31)
($ millions, except as indicated) |
2021 | 2020 |
Total Operating Expenses | 7,139 | 11,484 |
Deduct (Add Back): | ||
Market optimization operating expenses | 3,148 | 1,608 |
Corporate & other operating expenses | (1) | (2) |
Depreciation, depletion and amortization | 1,190 | 1,834 |
Impairments | – | 5,580 |
Accretion of asset retirement obligation | 22 | 29 |
Long-term incentive costs | 132 | 31 |
Restructuring and legal costs | 34 | 90 |
Current expected credit losses | 1 | 1 |
Total Costs (1) | 2,613 | 2,313 |
Divided by: | ||
Production Volumes (MMBOE) | 194.9 | 199.0 |
Total Costs (1) ($/BOE) | 13.42 | 11.60 |
Drivers Included in Total Costs (1) ($/BOE) | ||
Production, mineral and other taxes | 1.51 | 0.87 |
Upstream transportation and processing | 7.42 | 6.44 |
Upstream operating, excluding long-term incentive costs | 2.94 | 2.88 |
Administrative, excluding long-term incentive, restructuring and legal costs, and current expected credit losses | 1.55 | 1.41 |
Total Costs (1) ($/BOE) | 13.42 | 11.60 |
(1) | Total Costs is a non-GAAP measure as defined in Note 1. Total Costs per BOE is calculated using whole dollars and volumes. |
Debt to Adjusted Capitalization
($ millions, except as indicated) | December 31, 2021 | December 31, 2020 |
Long-Term Debt, including current portion | 4,786 | 6,885 |
Total Shareholders’ Equity | 5,074 | 3,837 |
Equity Adjustment for Impairments at December 31, 2011 | 7,746 | 7,746 |
Adjusted Capitalization | 17,606 | 18,468 |
Debt to Adjusted Capitalization (1) | 27% | 37% |
(1) | Debt to Adjusted Capitalization is a non-GAAP measure as defined in Note 1. |
Year-End 2021 Reserves Estimates
2021 Proved Reserves Estimates – U.S. Protocols (Net, After Royalties)(1) | ||||
Using constant prices and costs; simplified table | Oil (MMbbls) |
NGLs (MMbbls) |
Natural Gas (Bcf) |
Total (MMBOE) |
December 31, 2020 | 592.3 | 580.5 | 4,918 | 1,992.5 |
Revisions and improved recovery (2) | (78.0) | (50.3) | 363 | (67.8) |
Extensions and discoveries | 121.5 | 142.0 | 1,966 | 591.2 |
Purchase of reserves in place | 2.6 | 2.5 | 13 | 7.3 |
Sale of reserves in place | (28.6) | (21.0) | (123) | (70.2) |
Production | (51.2) | (49.0) | (568) | (194.9) |
December 31, 2021 | 558.6 | 604.7 | 6,570 | 2,258.2 |
(1) | Numbers may not add due to rounding. |
(2) | Changes in reserve estimates resulting from application of improved recovery techniques are included in revisions of previous estimates. |
Hedge Volumes as of December 31, 2021
Oil and Condensate Hedges ($/bbl) | 1Q 2022 | 2Q 2022 | 3Q 2022 | 4Q 2022 |
WTI Swaps | 5 Mbbls/d | 5 Mbbls/d | 5 Mbbls/d | 5 Mbbls/d |
Swap Price | $60.16 | $60.16 | $60.16 | $60.16 |
WTI 3-Way Options | 75 Mbbls/d | 75 Mbbls/d | 75 Mbbls/d | 75 Mbbls/d |
Short Call | $70.79 | $70.79 | $70.79 | $70.79 |
Long Put | $60.82 | $60.82 | $60.82 | $60.82 |
Short Put | $49.33 | $49.33 | $49.33 | $49.33 |
Natural Gas Hedges ($/Mcf) | 1Q 2022 | 2Q 2022 | 3Q 2022 | 4Q 2022 |
NYMEX Swaps | 365 MMcf/d | 365 MMcf/d | 365 MMcf/d | 365 MMcf/d |
Swap Price | $2.60 | $2.60 | $2.60 | $2.60 |
NYMEX 3-Way Options | 385 MMcf/d | 370 MMcf/d | 425 MMcf/d | 410 MMcf/d |
Short Call | $3.03 | $3.01 | $3.03 | $3.01 |
Long Put | $2.75 | $2.75 | $2.76 | $2.75 |
Short Put | $2.00 | $2.00 | $2.00 | $2.00 |
NYMEX Costless Collars | 200 MMcf/d | 200 MMcf/d | 200 MMcf/d | 200 MMcf/d |
Short Call | $2.85 | $2.85 | $2.85 | $2.85 |
Long Put | $2.55 | $2.55 | $2.55 | $2.55 |
NYMEX Short Call Options | 330 MMcf/d | 330 MMcf/d | 330 MMcf/d | 330 MMcf/d |
Sold Call Strike | $2.38 | $2.38 | $2.38 | $2.38 |
Price Sensitivities for WTI Oil (1) ($MM)
WTI Oil Hedge Gains (Losses) | ||||
$60 | $70 | $80 | $90 | |
Full Year 2022 | 43 | (55) | (289) | (580) |
(1) | Hedge positions and hedge sensitivity estimates based on hedge positions as at 12/31/2021. Does not include impact of basis positions. |
Price Sensitivities for NYMEX Natural Gas (1) ($MM)
NYMEX Natural Gas Hedge Gains (Losses) | |||||
$3.00 | $3.50 | $4.00 | $4.50 | $5.00 | |
Full Year 2022 | (139) | (373) | (607) | (844) | (1,080) |
(1) | Hedge positions and hedge sensitivity estimates based on hedge positions as at 12/31/2021. Does not include impact of basis positions. |
Important information
Ovintiv reports in U.S. dollars unless otherwise noted. Production, sales and reserves estimates are reported on an after-royalties basis, unless otherwise noted. Unless otherwise specified or the context otherwise requires, references to Ovintiv or to the Company includes reference to subsidiaries of and partnership interests held by Ovintiv Inc. and its subsidiaries.
NOTE 1: Non-GAAP measures
Certain measures in this news release do not have any standardized meaning as prescribed by U.S. GAAP and, therefore, are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other companies and should not be viewed as a substitute for measures reported under U.S. GAAP. These measures are commonly used in the oil and gas industry and/or by Ovintiv to provide shareholders and potential investors with additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. For additional information regarding non-GAAP measures, see the Company’s website. This news release contains references to non-GAAP measures as follows:
Non-GAAP Cash Flow is a non-GAAP measure defined as cash from (used in) operating activities excluding net change in other assets and liabilities, net change in non-cash working capital and current tax on sale of assets. Non-GAAP Cash Flow Margin is a non-GAAP measure defined as Non-GAAP Cash Flow per BOE of production. Non-GAAP Free Cash Flow is a non-GAAP measure defined as Non-GAAP Cash Flow in excess of capital expenditures, excluding net acquisitions and divestitures. Forecasted Non-GAAP free cash flow represents forecasted cash flow based on $85 WTI and $4.50 NYMEX utilizes the midpoint of production guidance. Due to their forward-looking nature, management cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as changes in operating assets and liabilities. Accordingly, Ovintiv is unable to present a quantitative reconciliation of such forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Amounts excluded from this non-GAAP measure in future periods could be significant.