Strong Third Quarter Free Cash Flow to Enhance Shareholder Returns Through Fourth Quarter Share Buyback Program
Third Quarter Highlights:
- Generated third quarter cash from operating activities of $812 million, non-GAAP cash flow of $845 million and non-GAAP free cash flow of $480 million
- Reduced net debt by $409 million to $4.8 billion; achieved 1.5 times net debt to adjusted EBITDA leverage ratio
- Fully offset inflation during the quarter with operational efficiency gains and supply chain management
- Implemented a new capital allocation framework to increase cash returns to shareholders through share buybacks and/or variable dividends; Company expects to purchase shares equivalent to $111 million during fourth quarter
- Received regulatory approval to purchase, for cancellation, up to 10% of the Company’s outstanding shares of common stock over a 12-month period beginning October 1, 2021
- On track to achieve 33% methane intensity reduction target in 2021, four years ahead of schedule
- Committed to establishing a Scope 1&2 greenhouse gas (GHG) emission intensity target tied to 2022 employee compensation
- Announced that as of September 1, 2021, the Company is fully aligned with the World Bank Zero Routine Flaring by 2030 initiative, nine years ahead of the World Bank’s target
DENVER, Nov. 2, 2021 /PRNewswire/ – Ovintiv Inc. (NYSE: OVV) (TSX: OVV) today announced its third quarter 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 November 3, 2021. Please see dial-in details within this release, as well as additional details on the Company’s website at www.ovintiv.com.
“Our third quarter results demonstrate our commitment to unlocking shareholder value by delivering on our strategic priorities”, said Ovintiv President and CEO, Brendan McCracken. “Year-to-date, we have generated nearly $1.4 billion of free cash flow, dropped our net debt by more than $2.1 billion, and increased our base dividend by about 50%. During the fourth quarter we expect to return approximately $150 million to our shareholders via our base dividend and share buybacks. Looking ahead, we are committed to debt reduction, generating superior returns on the capital we invest, returning cash to our shareholders, and driving ESG progress.”
Third Quarter 2021 Financial and Operating Results
- The Company recorded a net loss in the third quarter of $72 million, or $0.28 per diluted share of common stock. The results included the impact of net losses on risk management of $954 million, before-tax.
- Third quarter cash from operating activities was $812 million, non-GAAP cash flow was $845 million and capital investment totaled $365 million, resulting in $480 million of non-GAAP free cash flow.
- Average total production was 535 thousand barrels of oil equivalent per day (MBOE/d), including crude and condensate production of 189 thousand barrels per day (Mbbls/d), natural gas production of 1,566 million cubic feet per day (MMcf/d), and NGL production of 85 Mbbls/d.
- Total Costs for the third quarter were $13.03 per barrel of oil equivalent (BOE).
- Third quarter 2021 average realized prices, excluding losses on risk management, were $68.36 per barrel for oil and condensate (97% of WTI), $29.31 per barrel for other NGLs (C2-C4) and $3.69 per thousand cubic feet (Mcf) for natural gas (92% of NYMEX), resulting in a total average realized price of $39.57 per BOE.
- Third quarter 2021 average realized prices, including losses on risk management, were $54.97 per barrel for oil and condensate, $23.86 per barrel for other NGLs (C2-C4) and $3.02 per Mcf for natural gas, resulting in a total average realized price of $32.00 per BOE. Ovintiv reported third quarter realized commodity-based risk management losses of $372 million, before tax. The Company did not add any material new risk management positions during the quarter.
Share Buyback Program Underway
As of October 31, 2021, Ovintiv had repurchased for cancellation, approximately 791 thousand of its common shares outstanding at an average price of $37.91 per share, for a total investment of approximately $30 million. During the fourth quarter, the Company plans to buyback shares equivalent to 25% of its third quarter free cash flow less base dividend payments, or approximately $111 million.
Continued Net Debt Reduction
During the third quarter, Ovintiv reduced net debt by $409 million to $4.8 billion. The Company remains on track to reach its year-end net debt target of $4.5 billion, which will represent approximately $3 billion of net debt reduction since the second quarter of 2020.
During the quarter, the Company set a new net debt target of $3 billion, which, assuming current strip commodity prices, could be achieved as soon as year-end 2022. Assuming commodity prices of $50 per bbl WTI oil and $2.75 per MMBtu NYMEX natural gas, Ovintiv expects the net debt target to be reached by or before year-end 2023.
In August 2021, Ovintiv redeemed its $518 million, 3.90% senior notes due November 15, 2021. The Company redeemed the notes at par and paid approximately $523 million in cash including accrued and unpaid interest of $5 million. In June 2021, Ovintiv redeemed its $600 million 5.75% senior notes due January 30, 2022. The combined redemptions represent approximately $1.1 billion of debt repayments, resulting in expected annualized interest savings of over $50 million.
At the end of the third quarter, the Company had no outstanding balances under its revolving credit facilities and commercial paper programs. Ovintiv’s available liquidity totaled $4.3 billion.
Dividend Declared
On November 2, 2021, Ovintiv’s Board declared a dividend of $0.14 per share of common stock payable on December 31, 2021, to common stockholders of record as of December 15, 2021.The dividend was increased by approximately 50% in the third quarter.
ESG Performance
The Company recently announced the achievement of several key sustainability milestones related to emissions reductions, social responsibility and corporate governance. As highlighted below, Ovintiv is delivering measurable progress against its ESG initiatives. In addition, the Company launched a new sustainability website, highlighting Ovintiv’s data-driven approach to environmental, social and governance (ESG) performance matters.
Key highlights of Ovintiv’s recent sustainability achievements:
- Delivering on 33% methane intensity reduction target in 2021, four years ahead of schedule
- Expect to reduce 2021 Scope 1&2 GHG emissions intensity by more than 20% compared to 2019
- Committed to establishing a Scope 1&2 GHG emissions intensity target tied to 2022 employee compensation
- As of September 1, 2021, the Company is fully aligned with the World Bank Zero Routine Flaring by 2030 initiative, nine years ahead of the World Bank’s target
- Established emissions monitoring dashboard across all operations
- Achieved 7th consecutive safest year ever in 2020 with a Total Recordable Injury Frequency of 0.19
- Established a social commitment leadership team and published inaugural social commitment framework
- Broadened the diversity of the Company’s Board of Directors
Ovintiv’s full 2020 ESG data disclosure can be found at www.ovintiv.com/sustainability.
2021 Guidance Update
The Company reiterated its original full year 2021 capital guidance of $1.5 billion as it expects to fully offset inflationary pressures on capital costs. Ovintiv has narrowed the production ranges in its full year 2021 guidance as follows:
| 2021 Guidance | ||
| Previous | Current | |
| Capital Investment ($ Billion) | $1.5 | $1.5 |
| Oil & Condensate (Mbbls/d) | 190 – 195 | 191 – 194 |
| Other NGLs (Mbbls/d) | 80 – 85 | 82 – 83 |
| Natural Gas (MMcf/d) | 1,550 -1,575 | 1,555 – 1,570 |
| Total Costs per BOE (1) | $12.95 – $13.20 | $12.95 – $13.20 |
| (1) | Total Costs is a non-GAAP measure as defined in Note 1. |
2022 Outlook
Ovintiv views its 2021 development program as being highly repeatable in 2022 for the same amount of capital investment. With capital investment of approximately $1.5 billion in 2022, the Company expects to maintain crude and condensate production volumes consistent with the second half of 2021, at approximately 180 to 190 Mbbls/d. This range reflects a largely flat year-over-year production profile when including the impact of asset divestitures which closed during the first half of 2021. Ovintiv did not enter 2021 with a material drilled-but-uncompleted (DUC) well inventory nor does it expect to exit the year with a material number of DUC wells.
“We are confident in our ability to maintain our capital efficiency in 2022,” said McCracken. “Our teams have been relentless in finding ways to offset cost inflation and make better wells. Our Permian, Anadarko, and Montney assets are all generating superior returns on invested capital as evidenced by the fact that each asset is on track to generate between $1.0 to $1.1 billion of upstream operating free cash flow in 2021. Our multi-basin portfolio, repeatable load-leveled program, pacesetter cost performance, and rigorous supply chain management provide a strong position to continue delivering industry leading capital efficiency as we head into 2022.”
Asset Highlights
Ovintiv continued to demonstrate industry-leading capital efficiencies across its Core 3 assets during the third quarter. Despite inflationary pressures, program-leading, or “pacesetter” well cost performance was repeated in each of the three assets during the quarter.
Permian
Permian production averaged 126 MBOE/d (81% liquids) in the quarter. The Company averaged three gross rigs, drilled 17 net wells, and had 20 net wells turned in line (TIL).
Permian drilling and completion (D&C) costs have averaged $480 per foot year-to-date and are 11% lower than the 2020 program average. During the quarter, the 13 well Falcon East development in Midland County had an average lateral length of 13,500 feet, was drilled at an average rate of over 2,000 feet per day and was completed using simul-frac at a rate of over 3,300 feet per day. Completion efficiency for all 20 net TILs in the quarter averaged over 3,000 feet per day, with 95% of these wells completed using simul-frac. In addition, three of the five pads brought online during the quarter used 100% local, wet sand, generating savings of approximately $100,000 per well.
Anadarko
Anadarko production averaged 134 MBOE/d (62% liquids) in the quarter. The Company averaged two gross rigs, drilled 12 net wells, and had 10 net wells TIL.
In the STACK area, D&C costs have averaged $430 per foot year-to-date and are 10% lower than the 2020 program average. In addition to achieving best in class D&C costs, year-to-date 2021 STACK well results have demonstrated a significant uplift in performance, driven by enhanced artificial lift and optimized completion design.
The Anadarko team lowered facility costs in the quarter to approximately $300,000 per well, 27% below the 2020 program average. This cost reduction was driven by development optimization, including an increase in the number of wells drilled per pad and efficiently reoccupying older locations.
Montney
Montney production averaged 229 MBOE/d (25% liquids) in the quarter. The Company averaged four gross rigs, drilled 23 net wells and had 16 net wells TIL.
Montney year-to-date D&C costs have averaged $410 per foot and are 9% lower than the 2020 program average. During the quarter, Ovintiv drilled three of its longest laterals ever in the Montney. The longest of these was drilled at over 15,300 feet, 13% more than the previous company record. Industry wide, these wells mark three of the top five longest laterals drilled in the basin to date. About 90% of the completed wells in the quarter utilized an optimized casing design that saved approximately $120,000 per well. The 2021 Montney program is achieving better than expected well performance across all fluid windows. In the liquids-rich fairway of Pipestone, the 8 well 16-27 development has produced an average of 993 BOE/d (63% condensate) per well over the first 180 days of production.
Base Assets
Bakken production averaged 25 MBOE/d (80% liquids) in the quarter. The Company averaged one net rig, drilled four net wells and had two net wells TIL. The Bakken program is continuing to demonstrate exceptional performance through optimized completion and wellbore designs. The Kestrel 3 well development has achieved an IP120 production rate of 1,330 barrels of oil per day per well.
For additional information, please refer to the 3Q 2021 Results Presentation at https://investor.ovintiv.com/presentations-events.
Conference Call Information
A conference call and webcast to discuss the Company’s third quarter results will be held at 9:00 a.m. MT (11:00 a.m. ET) on November 3, 2021. To participate in the call, please dial 888-664-6383 (toll-free in North America) or 416-764-8650 (international) approximately 15 minutes prior to the conference call. The live audio webcast of the conference call, including slides and financial statements, will be available on Ovintiv’s website, www.ovintiv.com under Investors/Presentations and Events. The webcast will be archived for approximately 90 days.
Refer to Note 1 Non-GAAP measures and the tables in this release for reconciliation to comparable GAAP financial measures.
Capital Investment and Production
(for the three months ended September 30) |
3Q 2021 |
3Q 2020 |
Capital Expenditures (1) ($ millions) |
365 |
351 |
Oil (Mbbls/d) |
136.8 |
138.9 |
NGLs – Plant Condensate (Mbbls/d) |
51.9 |
47.2 |
Oil & Plant Condensate (Mbbls/d) |
188.7 |
186.1 |
NGLs – Other (Mbbls/d) |
84.9 |
83.8 |
Total Liquids (Mbbls/d) |
273.6 |
269.9 |
Natural gas (MMcf/d) |
1,566 |
1,442 |
Total production (MBOE/d) |
534.7 |
510.2 |
| (1) | Including capitalized directly attributable internal costs. |
Third Quarter Summary
(for the three months ended September 30) ($ millions, except as indicated) |
3Q 2021 |
3Q 2020 |
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 |
812
(10) (23) – |
493
(47) 142 – |
Non-GAAP Cash Flow (1) |
845 |
398 |
Non-GAAP Cash Flow Margin (1) ($/BOE) |
17.17 |
8.49 |
Non-GAAP Cash Flow (1) |
845 |
398 |
Less: Capital Expenditures (2) |
365 |
351 |
Non-GAAP Free Cash Flow (1) |
480 |
47 |
Net Earnings (Loss) Before Income Tax Before-tax (Addition) Deduction: Unrealized gain (loss) on risk management Impairments Restructuring charges Non-operating foreign exchange gain (loss) Gain (loss) on divestitures Gain on debt retirement |
(71)
(579) – (2) (11) – – |
(1,560)
(243) (1,336) (7) 21 – 6 |
Adjusted Net Earnings (Loss) Before Income Tax Income tax expense (recovery) |
521
130 |
(1)
7 |
Non-GAAP Operating Earnings (Loss) (1) |
391 |
(8) |
(1) |
Non-GAAP cash flow, non-GAAP cash flow margin, non-GAAP free cash flow and non-GAAP operating earnings (loss) are non-GAAP measures as defined in Note 1. |
(2) |
Including capitalized directly attributable internal costs. |
Realized Pricing Summary
(for the three months ended September 30) |
3Q 2021 |
3Q 2020 |
Liquids ($/bbl) |
||
WTI |
70.56 |
40.93 |
Realized Liquids Prices (1) |
||
Oil |
53.31 |
41.39 |
NGLs – Plant Condensate |
59.34 |
39.99 |
Oil & Plant Condensate |
54.97 |
41.04 |
NGLs – Other |
23.86 |
9.99 |
Total NGLs |
37.31 |
20.81 |
Natural Gas |
||
NYMEX ($/MMBtu) |
4.01 |
1.98 |
Realized Natural Gas Price (1) ($/Mcf) |
3.02 |
2.15 |
| (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 2021 |
3Q 2020 |
Total Operating Expenses |
1,789 |
2,696 |
Deduct (Add Back): |
||
Market optimization operating expenses |
808 |
380 |
Corporate & other operating expenses |
1 |
– |
Depreciation, depletion and amortization |
297 |
406 |
Impairments |
– |
1,336 |
Accretion of asset retirement obligation |
5 |
8 |
Long-term incentive costs |
31 |
2 |
Restructuring and legal costs |
6 |
7 |
Current expected credit losses |
– |
(1) |
Total Costs (1) |
641 |
558 |
Divided by: |
||
Production Volumes (MMBOE) |
49.2 |
46.9 |
Total Costs (1) ($/BOE) |
13.03 |
11.85 |
Drivers Included in Total Costs (1) ($/BOE) |
||
Production, mineral and other taxes |
1.57 |
0.99 |
Upstream transportation and processing |
7.17 |
6.62 |
Upstream operating, excluding long-term incentive costs |
2.85 |
2.69 |
Administrative, excluding long-term incentive costs, restructuring and legal costs, and current expected credit losses |
1.44 |
1.55 |
Total Costs (1) ($/BOE) |
13.03 |
11.85 |
| (1) | Total Costs is a non-GAAP measure as defined in Note 1. Total Costs per BOE is calculated using whole dollars and volumes. |
Debt to Adjusted Capitalization
($ millions, except as indicated) |
September 30, 2021 |
December 31, 2020 |
Long-Term Debt, including current portion |
4,791 |
6,885 |
Total Shareholders’ Equity |
3,797 |
3,837 |
Equity Adjustment for Impairments at December 31, 2011 |
7,746 |
7,746 |
Adjusted Capitalization |
16,334 |
18,468 |
Debt to Adjusted Capitalization (1) |
29% |
37% |
| (1) | Debt to Adjusted Capitalization is a non-GAAP measure as defined in Note 1. |
Hedge Volumes as of September 30, 2021
| Oil and Condensate Hedges ($/bbl) | 4Q 2021 | 2022 |
| WTI Swaps | 30 Mbbls/d | 5 Mbbls/d |
| Swap Price | $46.37 | $60.16 |
| WTI 3-Way Options | 85 Mbbls/d | 75 Mbbls/d |
| Short Call | $53.92 | $70.79 |
| Long Put | $44.66 | $60.82 |
| Short Put | $34.79 | $49.33 |
| WTI Costless Collars | 15 Mbbls/d | – |
| Short Call | $45.84 | |
| Long Put | $35.00 | |
| Natural Gas Hedges ($/Mcf) | 4Q 2021 | 2022 |
| NYMEX Swaps | 165 MMcf/d | 200 MMcf/d |
| Swap Price | $2.51 | $2.67 |
| NYMEX 3-Way Options | 980 MMcf/d | 398 MMcf/d |
| Short Call | $3.36 | $3.02 |
| Long Put | $2.89 | $2.75 |
| Short Put | $2.50 | $2.00 |
| NYMEX Costless Collars | – | 200 MMcf/d |
| Short Call | $2.85 | |
| Long Put | $2.55 | |
| NYMEX Short Call Options | – | 330 MMcf/d |
| Sold Call Strike | $2.38 | |
| NYMEX Swaption | – | 165 MMcf/d |
| Swaption Strike | $2.51 |
Price Sensitivities for WTI Oil (1) ($MM)
| WTI Oil Hedge Gains (Losses) by Quarter | ||||||
| Period | $40 | $50 | $60 | $70 | $80 | $90 |
| 4Q21 | $56 | (10) | (106) | (224) | (344) | (463) |
| Full Year 2022 | $351 | 296 | 42 | (54) | (288) | (580) |
| (1) | Hedge positions and hedge sensitivity estimates based on hedge positions as at 09/30/2021. Does not include impact of basis positions. |
Price Sensitivities for NYMEX Natural Gas (1) ($MM)
| NYMEX Natural Gas Hedge Gains (Losses) by Quarter | |||||||
| Period | $2.50 | $3.00 | $3.50 | $4.00 | $4.50 | $5.00 | $5.50 |
| 4Q21 | $35 | (7) | (28) | (81) | (133) | (186) | (239) |
| Full Year 2022 | $38 | (139) | (372) | (608) | (844) | (1,080) | (1,316) |
| (1) | Hedge positions and hedge sensitivity estimates based on hedge positions as at 09/30/2021. Does not include impact of basis positions. |
| Note: Company has additional hedges on Butane, Propane and Ethane in the fourth quarter of 2021 only, that are not included in the above tables. | |
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