DENVER – Ovintiv Inc. (NYSE: OVV) (TSX: OVV) (“Ovintiv” or the “Company”) today announced its third quarter 2022 financial and operating results. The Company plans to hold a conference call and webcast at 8:00 a.m. MT (10:00 a.m. ET) on November 9, 2022. Please see dial-in details within this release, as well as additional details on the Company’s website at www.ovintiv.com.
“Our strong results in the third quarter highlight our continued execution across the business and demonstrate that our strategy continues to generate superior returns and substantial free cash flow,” said Ovintiv President and CEO, Brendan McCracken. “We have now bought back more than 5% of our shares outstanding and the combination of our strong portfolio, leading capital efficiency, and disciplined capital allocation is set to see us deliver durable cash returns that are higher than our E&P peers and the broader S&P 500.”
Third Quarter 2022 Financial and Operating Results
2022 Guidance
Ovintiv’s full year capital investment is expected to total approximately $1.8 billion, at the high end of the previous capital guidance range. Total BOE volumes have increased to 505 to 515 MBOE/d, reflecting strong new well production performance from the Montney. Fourth quarter and full year 2022 oil and condensate production volumes have been adjusted to include the expected impact of production clean-up on returning oil volumes following the resolution of line pressure issues in the Anadarko and the decision to delay the completion of certain wells across the U.S. assets to preserve capital discipline. Full year total cost guidance remains unchanged. The guidance assumes commodity prices of $80/bbl for WTI oil and $7/Mcf for NYMEX natural gas for the fourth quarter.
4Q 2022 |
FY 2022 |
|
Capital Investment ($ Millions) |
$300 – $350 |
~$1,800 |
Total Production (MBOE/d) |
515 – 525 |
505 – 515 |
Oil & Condensate (Mbbls/d) |
172 – 175 |
174 – 176 |
Other NGLs (Mbbls/d) |
87 – 89 |
84 – 86 |
Natural Gas (MMcf/d) |
1,525 – 1,575 |
1,480 – 1,510 |
Total Costs (1) ($/MBOE) |
$16.00 – $16.50 |
$16.35 – $16.60 |
1) |
Total Costs is a non-GAAP measure as defined in Note 1. Total Costs per BOE is calculated using whole dollars and volumes. |
Returns to Shareholders
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.
In the third quarter of 2022, the Company delivered approximately $387 million to shareholders through its base dividend of approximately $62 million and share buybacks totaling approximately $325 million. Fourth quarter shareholder returns are expected to total approximately $250 million, consisting of share buybacks of approximately $188 million and base dividend payments of approximately $62 million, bringing total direct shareholder returns since the third quarter of 2021 to approximately $1.14 billion.
Share Buyback Program
During the third quarter, Ovintiv purchased for cancellation, approximately 6.7 million shares of common stock outstanding for a total consideration of approximately $325 million. As of September 30, 2022, the Company’s 2022 share repurchases totaled approximately 11.2 million shares of common stock at an average price of $47.55 per share, for a total of $531 million. Ovintiv has allocated approximately $188 million, or 50% of third quarter non-GAAP Free Cash Flow after base dividends, to share repurchases in the fourth quarter.
In September, the Company received regulatory approval for the renewal of its NCIB share repurchase program. This enables the Company to purchase, for cancellation or return to treasury, up to approximately 25 million shares of common stock (10% of common shares outstanding) until October 2, 2023. Using a November 4, 2022, closing price of $53.41, and assuming the repurchase of 25 million shares, the 2023 NCIB program would have a cash outlay of approximately $1.3 billion. In the event the Company meets its share repurchase limitation under the NCIB, it has the option to pursue alternative methods to repurchase additional shares.
Dividend Declared
On November 8, 2022, Ovintiv’s Board declared a quarterly dividend of $0.25 per share of common stock payable on December 30, 2022, to shareholders of record as of December 15, 2022.
Continued Focus on Balance Sheet Strength and Debt Reduction
Ovintiv remains committed to reducing Net Debt. At the end of the third quarter, Ovintiv’s Net Debt was approximately $3.6 billion, down $991 million since the start of the year, and Net Debt to Adjusted EBITDA was 0.9 times.
During the nine months ended September 30, 2022, the Company repurchased approximately $565 million in principal amount of its senior notes in the open market, which included approximately $229 million in principal amount of its 5.375 percent senior notes due in January 2026, approximately $151 million in principal amount of its 6.5 percent senior notes due in August 2034, approximately $72 million in principal amount of its 6.625 percent senior notes due in August 2037, approximately $58 million in principal amount of its 6.5 percent senior notes due in February 2038 and approximately $55 million in principal amount of its 5.15 percent senior notes due in November 2041.
As of September 30, 2022, the Company had $3.4 billion in total liquidity which included available credit facilities of $3.5 billion, available uncommitted demand lines of $296 million, and cash and cash equivalents of $18 million, net of outstanding commercial paper of $440 million.
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. Both transactions closed during the third quarter. 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 third quarter. The Company averaged three gross rigs, drilled 18 net wells, and had 21 net wells turned in line (TIL).
The Company plans to spend $650 to $700 million in the basin in 2022.
Anadarko
Anadarko production averaged 129 MBOE/d (63% liquids) in the third quarter. The Company averaged two gross rigs, drilled 13 net wells, and had 16 net wells TIL.
The Company plans to spend $350 to $400 million in the basin in 2022.
Montney
Montney production averaged 210 MBOE/d (23% liquids) in the third quarter. The Company averaged two gross rigs, drilled 12 net wells, and had 21 net wells TIL.
The Company plans to spend $300 to $350 million in the basin in 2022.
For additional information, please refer to the third quarter 2022 Results Presentation at: https://investor.ovintiv.com/presentations-events.
Conference Call Information
A conference call and webcast to discuss the Company’s third quarter results will be held at 8:00 a.m. MT (10:00 a.m. ET) on November 9, 2022. To participate in the call, please dial 888-664-6383 (toll-free in North America) or 416-764-8650 (international) approximately 15 minutes prior to the conference call. The live audio webcast of the conference call, including slides, supplemental information and financial statements, will be available on Ovintiv’s website, www.ovintiv.com under Investors/Presentations and Events. The webcast will be archived for approximately 90 days.
Refer to Note 1 Non-GAAP measures and the tables in this release for reconciliation to comparable GAAP financial measures.
Capital Investment and Production
(for the three months ended September 30) |
3Q 2022 |
3Q 2021 |
Capital Expenditures (1) ($ millions) |
511 |
365 |
Oil (Mbbls/d) |
133.4 |
136.8 |
NGLs – Plant Condensate (Mbbls/d) |
46.0 |
51.9 |
Oil & Plant Condensate (Mbbls/d) |
179.4 |
188.7 |
NGLs – Other (Mbbls/d) |
86.9 |
84.9 |
Total Liquids (Mbbls/d) |
266.3 |
273.6 |
Natural Gas (MMcf/d) |
1,500 |
1,566 |
Total Production (MBOE/d) |
516.3 |
534.7 |
(1) Including capitalized directly attributable internal costs. |
Third Quarter 2022 Summary
(for the three months ended September 30) ($ millions, except as indicated) |
3Q 2022 |
3Q 2021 |
Cash From (Used In) Operating Activities Deduct (Add Back): Net change in other assets and liabilities Net change in non-cash working capital Current tax on sale of assets |
962
(17) 31 – |
812 (10) (23) – |
Non-GAAP Cash Flow (1) |
948 |
845 |
Non-GAAP Cash Flow Margin (1) ($/BOE) |
19.96 |
17.17 |
Non-GAAP Cash Flow (1) |
948 |
845 |
Less: Capital Expenditures (2) |
511 |
365 |
Non-GAAP Free Cash Flow (1) |
437 |
480 |
Net Earnings (Loss) Before Income Tax Before-tax (Addition) Deduction: Unrealized gain (loss) on risk management Restructuring charges Non-operating foreign exchange gain (loss) Gain (loss) on debt retirement |
1,274
710 – (20) (21) |
(71) (579) (2) (11) – |
Adjusted Net Earnings (Loss) Before Income Tax Income tax expense (recovery) |
605 236 |
521 130 |
Non-GAAP Operating Earnings (1) |
369 |
391 |
(1) |
Non-GAAP Cash Flow, Non-GAAP Cash Flow Margin, Non-GAAP Free Cash Flow and Non-GAAP Operating Earnings are non-GAAP measures as defined in Note 1. |
(2) |
Including capitalized directly attributable internal costs. |
Realized Pricing Summary
(for the three months ended September 30) |
3Q 2022 |
3Q 2021 |
Liquids ($/bbl) |
||
WTI |
91.55 |
70.56 |
Realized Liquids Prices (1) |
||
Oil |
81.74 |
53.31 |
NGLs – Plant Condensate |
75.73 |
59.34 |
Oil & Plant Condensate |
80.20 |
54.97 |
NGLs – Other |
31.49 |
23.86 |
Total NGLs |
46.81 |
37.31 |
Natural Gas |
||
NYMEX ($/MMBtu) |
8.20 |
4.01 |
Realized Natural Gas Price (1) ($/Mcf) |
1.85 |
3.02 |
(1) Prices include the impact of realized gain (loss) on risk management. |
Total Costs
(for the three months ended September 30) ($ millions, except as indicated) |
3Q 2022 |
3Q 2021 |
Total Operating Expenses |
2,176 |
1,789 |
Deduct (Add Back): |
||
Market optimization operating expenses |
1,021 |
808 |
Corporate & other operating expenses |
– |
1 |
Depreciation, depletion and amortization |
291 |
297 |
Accretion of asset retirement obligation |
4 |
5 |
Long-term incentive costs |
44 |
31 |
Restructuring and legal costs |
– |
6 |
Current expected credit losses |
– |
– |
Total Costs (1) |
816 |
641 |
Divided by: |
||
Production Volumes (MMBOE) |
47.5 |
49.2 |
Total Costs (1) ($/BOE) |
17.16 |
13.03 |
Drivers Included in Total Costs (1) ($/BOE) |
||
Production, mineral and other taxes |
2.29 |
1.57 |
Upstream transportation and processing |
8.99 |
7.17 |
Upstream operating, excluding long-term incentive costs |
4.49 |
2.85 |
Administrative, excluding long-term incentive, restructuring |
1.39 |
1.44 |
Total Costs (1) ($/BOE) |
17.16 |
13.03 |
(1) |
Total Costs is a non-GAAP measure as defined in Note 1. Total Costs per BOE is calculated using whole dollars and volumes. |
Debt to Adjusted Capitalization
($ millions, except as indicated) |
September 30, 2022 |
December 31, 2021 |
Long-Term Debt, including current portion |
3,618 |
4,786 |
Total Shareholders’ Equity |
6,550 |
5,074 |
Equity Adjustment for Impairments at December 31, 2011 |
7,746 |
7,746 |
Adjusted Capitalization |
17,914 |
17,606 |
Debt to Adjusted Capitalization (1) |
20 % |
27 % |
(1) |
Debt to Adjusted Capitalization is a non-GAAP measure as defined in Note 1. |
Hedge Volumes (1) as of September 30, 2022
Oil and Condensate Hedges ($/bbl) |
4Q 2022 |
1Q 2023 |
2Q 2023 |
3Q 2023 |
4Q 2023 |
WTI Swaps Swap Price |
5 Mbbls/d |
– |
– |
– |
– |
WTI 3-Way Options Long Put Short Put |
75 Mbbls/d $70.79 $60.82 $49.33 |
40 Mbbls/d $114.74 $65.00 $50.00 |
40 Mbbls/d $112.95 $65.00 $50.00 |
29 Mbbls/d $123.47 $66.72 $50.00 |
–
|
Natural Gas Hedges ($/Mcf) |
4Q 2022 |
1Q 2023 |
2Q 2023 |
3Q 2023 |
4Q 2023 |
NYMEX Swaps Swap Price |
365 MMcf/d |
– |
– |
– |
– |
NYMEX 3-Way Options Long Put Short Put |
410 MMcf/d $3.01 $2.75 $2.00 |
400 MMcf/d $10.46 $3.88 $2.75 |
400 MMcf/d $4.86 $3.13 $2.25 |
390 MMcf/d $7.72 $3.71 $2.51 |
100 MMcf/d $12.19 $4.00 $3.00 |
NYMEX Costless Collars Long Put |
200 MMcf/d $2.85 $2.55 |
–
|
– |
– |
– |
NYMEX Short Call Options Sold Call Strike |
330 MMcf/d $2.38 |
– |
– |
– |
– |
Waha Basis Swaps Swap Price |
30 MMcf/d (0.67) |
30 MMcf/d (0.61) |
30 MMcf/d (0.61) |
30 MMcf/d (0.61) |
30 MMcf/d (0.61) |
AECO Basis Swaps Swap Price |
– |
260 MMcf/d ($1.07) |
260 MMcf/d ($1.07) |
260 MMcf/d ($1.07) |
260 MMcf/d ($1.07) |
AECO % NYMEX Swaps |
200 MMcf/d 63% |
50 MMcf/d 71% |
50 MMcf/d 71% |
50 MMcf/d 71% |
50 MMcf/d 71% |
1) |
Ovintiv also manages other key market basis differential risks for gas, oil, and condensate |
Price Sensitivities for WTI Oil (1) ($MM)
WTI Oil Hedge Gains (Losses) |
|||||||||
$40 |
$50 |
$60 |
$70 |
$80 |
$90 |
$100 |
$110 |
$120 |
|
4Q 2022 |
$89 |
$75 |
$11 |
($14) |
($73) |
($146) |
($220) |
($293) |
($367) |
2023 |
$153 |
$153 |
$54 |
$0 |
$0 |
$0 |
$0 |
($29) |
($86) |
(1) |
Hedge sensitivity estimates based on hedge positions as at 09/30/2022. Does not include impact of other hedge contract positions. |
Price Sensitivities for NYMEX Natural Gas (1) ($MM)
NYMEX Natural Gas Hedge Gains (Losses) |
|||||||||
$2.00 |
$3.00 |
$4.00 |
$5.00 |
$6.00 |
$7.00 |
$8.00 |
$9.00 |
$10.00 |
|
4Q 2022 |
$59 |
($35) |
($155) |
($275) |
($395) |
($515) |
($635) |
($755) |
($875) |
2023 |
$125 |
$71 |
($1) |
($21) |
($50) |
($88) |
($141) |
($208) |
($279) |
(1) |
Hedge sensitivity estimates based on hedge positions as at 09/30/2022. Does not include impact of other hedge contract positions. |
Important information
Unless otherwise noted, Ovintiv reports in U.S. dollars and production, sales and reserves estimates are reported on an after-royalties basis. 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: