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Ovintiv Inc. First Quarter 2021 Results

Share Print Bookmark    |    Thursday,April 29,2021

Ovintiv Inc. announced its first quarter 2021 financial and operating results.

Highlights:

• First quarter 2021 net earnings of $309 million ($1.16 per share diluted), cash from operating activities of $827 million and non-GAAP cash flow of $890 million
• Generated $540 million of non-GAAP free cash flow in the quarter and reduced total debt by $467 million to $6.4 billion
• Exceeded divestiture target with more than $1.1 billion in announced asset sales; well ahead of year-end 2022 target; previously announced Duvernay asset sale closed today
• Leveraged dynamic operational execution, multi-basin optionality and strong realized prices for products across the portfolio to offset the production and cash flow impacts of winter storm Uri
• Continued to deliver leading well cost efficiencies through the application of innovation and technology
• Accelerated expected achievement of $4.5 billion total debt target to the first half of 2022 and updated year-end 2021 total debt target to be less than $5 billion at $50 WTI oil and $2.75 NYMEX natural gas prices
• Reiterated $1.5 billion full-year 2021 capital guidance and updated full-year crude and condensate⁽¹⁾ guidance to 190 Mbbls/d to reflect asset sales

In addition, the Company accelerated its $4.5 billion total debt target timeline to the first half of 2022 and forecasts its year-end 2021 total debt to be less than $5 billion, assuming $50 WTI oil and $2.75 NYMEX natural gas prices.

CEO Doug Suttles said: "This quarter we continued our track record of delivery. Our strong start to 2021 demonstrates our industry-leading operational capability, our focus on maximizing free cash generation, and our ability to manage risk. During winter storm Uri, our operating team kept production online longer and brought it back sooner than many of our peers. In addition, our multi-basin portfolio minimized impacts. Our marketing team also delivered another quarter of strong realized prices. Our continued application of innovation and technology to maximize efficiency led to another quarter of industry leading well cost performance. We delivered significant free cash flow, which along with the proceeds from recent divestitures has allowed us to materially accelerate our debt reduction target."

Q1 2021 Financial and Operating Results

• The Company recorded net earnings in the first quarter of $309 million, or $1.16 per diluted share of common stock. These results include a $156 million current income tax recovery ($0.59 per share diluted).
• First quarter cash from operating activities was $827 million, non-GAAP cash flow was $890 million and capital investment totaled $350 million, resulting in $540 million of non-GAAP free cash flow.

Ovintiv's operational performance and multi-basin portfolio mitigated the impact of severe winter weather on the Company's production and financial results during the first quarter.

• Average total production was 538 thousand barrels of oil equivalent per day (MBOE/d) and crude and condensate production averaged 198 Mbbls/d.
• Total Costs for the first quarter were $12.93 per barrel of oil equivalent (BOE) and were negatively impacted by an elevated foreign exchange ratio of approximately 0.79 US$/C$ (vs. guidance of 0.75 US$/C$), as well as higher production mineral and other taxes due to higher commodity prices.
• Administrative expense in the quarter, excluding long-term incentive costs, was $87 million. Costs in the quarter were higher than guidance ($70 - $74 million) primarily due to $13 million in consulting and restructuring costs associated with announced dispositions.

The Company delivered strong realized prices in the quarter.

• First quarter 2021 average realized prices including hedge of $48.27 per barrel for oil and condensate, $19.14 per barrel for other NGLs (C2-C4) and $3.10 per thousand cubic feet (Mcf) for natural gas, resulted in a total average realized price of $29.58 per BOE. Ovintiv realized first quarter total hedging losses of $156 million, before-tax.
• First quarter 2021 average realized prices excluding hedge of $56.24 per barrel for oil and condensate (97% of WTI), $21.90 per barrel for other NGLs (C2-C4) and $3.08 per Mcf for natural gas (114% of NYMEX) resulted in a total average realized price of $32.85 per BOE.

Suttles said, "We are focused on generating free cash flow and delivering quality returns. Our priorities today are clear - reduce debt, maintain scale, drive efficiencies, and return cash to shareholders. Our progress is evident across the business but highlighted by the fact we've reduced total debt by almost $1 billion in the last three quarters. 2021 is expected to be our fourth consecutive year of free cash flow generation."

Debt Target - During the first quarter, Ovintiv accelerated its $4.5 billion total debt target to the first half of 2022 due to underlying business strength and expected proceeds from asset sales. The Company expects its year-end 2021 total debt balance to be less than $5 billion at $50 WTI oil and $2.75 NYMEX natural gas prices.

Ongoing focus on ESG - Ovintiv is targeting a 33% methane intensity reduction by 2025. This target is linked to the compensation for all Ovintiv employees. Ovintiv has been a leader in sustainability disclosure, and multiple Ovintiv executives are engaged in emissions-related leadership roles in the industry's largest trade associations. Flared and vented gas was less than 0.40% of total sales volumes during the first quarter. This is down from approximately 0.5% in the fourth quarter of 2020.

Duvernay Asset Sale Closed

Today, the Company closed on the previously announced sale of its Duvernay assets in Western Alberta. Proceeds from the sale will be used for debt reduction. Ovintiv expects the previously announced sale of its Eagle Ford assets will close before the end of the second quarter.

Asset Highlights

The Company continued to demonstrate industry-leading capital efficiencies across its Core 3 asset areas during the first quarter. Operational efficiency gains and supply chain management successfully neutralized cost inflation, building on the Company's already industry leading cost performance with leading pacesetter well costs. The team's dynamic response to winter storm Uri meant production in Texas and Oklahoma stayed online longer at the start of the storm and was back up sooner, resulting in a minimal impact to production and no change to full-year expectations resulting from the storm.

Permian production averaged 101 MBOE/d (82% liquids) in the quarter. The Company averaged three gross rigs, drilled 22 net wells, and had 24 net wells turned in line (TIL).

In the Permian, drilling and completion (D&C) costs averaged $480 per foot year-to-date. Drilling efficiency gains and Simul-Frac completions continued to drive Permian operational outperformance during the first quarter, including a new 6.9-day spud-to-rig release pacesetter.

Ovintiv also began sourcing wet sand from a local mine in Howard County which is expected to supply sand for more than 65% of remaining 2021 operations, leading to cost savings of more than $100,000 per well.

Anadarko production averaged 126 MBOE/d (63% liquids) in the quarter. The Company averaged two gross rigs, drilled 14 net wells, and had seven net wells TIL.

In STACK, D&C costs averaged $440 per foot year-to-date, 4% lower than the previously released 2021 guidance and 8% lower than the 2020 average. The team also achieved a record operational quarter with a nine-day spud-to-rig-release average and a 6.2-day pacesetter well.

In SCOOP, five Springer wells were brought on-line in the quarter with an average D&C cost of $5.2 million with oil performance exceeding expectations.

Montney production averaged 231 MBOE/d (24% liquids) in the quarter. The Company averaged four gross rigs, drilled 26 net wells and had 18 net wells TIL.

Year-to-date Montney D&C well costs averaged $380 per foot, or 16% below the 2020 program average. Approximately 80% of wells in the play were completed using Simul-Frac technology. Facilities costs per well in the Montney averaged less $200 thousand in the quarter, or 17% lower than the 2020 average.

There were two net wells drilled in the Bakken which are expected to be TIL in the second quarter.