Ovintiv Inc. is a key player in oil, natural gas liquids (NGLs), and natural gas, working across various areas. It has two main parts: Canadian Operations for its work in Canada and USA Operations for its work in the United States, plus efforts to optimize the market.

Strengths: Ovintiv Inc. stands out in the oil and gas market with a wide range of assets and smart operations.

Weaknesses: Even with great assets, Ovintiv deals with changing prices for oil and gas and carries a lot of debt.

Opportunities: Ovintiv has a chance to grow by using its tech innovations and strategies to make the most of the market.

Threats: New rules and worries about the environment could affect how Ovintiv works and its earnings.

What we know about Ovintiv

Ovintiv is a Canadian-based oil and natural gas exploration and production company. The company operates in North America, with a significant presence in the Permian Basin, Eagle Ford, and Montney regions.

• CEO: Brendan M. McCracken, MBA
• Number Of Employees: 1 744
• Sector: Energy Minerals
• Location: Denver, CO, US
• Ovintiv has a market capitalization of approximately $7.1 billion, as of April 2023.
• The company had proved reserves of 1.8 billion BOE (barrels of oil equivalent) as of December 31, 2021.
• In 2021, Ovintiv produced an average of 452,100 BOE per day.
• The company is committed to environmental stewardship and has reduced its greenhouse gas emissions by 30% since 2014.
• Ovintiv has a diverse portfolio of assets, with approximately 55% of its production coming from natural gas and 45% from oil.

The company, previously was known as Encana Corp, renamed itself and moved to Denver in 2020 after buying Newfield Exploration Co. for $5.5 billion in 2019. This deal shifted its focus from natural gas to mainly oil fields in the U.S.

In 2022, Ovintiv's proved reserves in the U.S. included 535.2 MMbbls of oil and 457.8 MMbbls of NGLs, alongside 2,698 Bcf of natural gas, totaling 1,442.7 MMBOE. Proved reserves were 58% developed and 42% undeveloped. The U.S. operations produced 295.5 MBOE/d, with capital investments reaching $1,493 million and a total of 3,341 net productive wells.

Over in Canada, the numbers were different: proved reserves included 0.1 MMbbls of oil, 149.0 MMbbls of NGLs, and 4,090 Bcf of natural gas. This resulted in a total of 830.8 MMBOE, with 54% proved developed and 46% proved undeveloped. Canadian operations produced an average of 214.5 MBOE/d and saw capital investments of 334 million dollars, with a total of 1,870 net productive wells. 

Another part of Ovintiv, Market Optimization, works on selling what the company produces, buying from others, and making deals to help manage the risks of changing prices.

Revenue 

In the past year leading up to September 30, 2023, Ovintiv saw its revenue decline to $10.93 billion, marking a 13.20% drop from the previous year. The revenue for the quarter ending on the same date was $2.65 billion, reflecting a 25.36% decrease compared to the same quarter last year. This contrasts with the company's 2022 annual revenue, which stood at $12.46 billion, having grown 43.96%.

For the third quarter of 2023, Ovintiv posted net earnings of $406 million. This breaks down to $1.47 per diluted common share, taking into account a pre-tax net loss from risk management activities that amounted to $282 million. The company's operations generated $906 million in cash, with a Non-GAAP Cash Flow hitting $1,112 million. After accounting for capital investments of approximately $834 million, the company reported $278 million in Non-GAAP Free Cash Flow.

Capital Investment

The capital investment for the quarter was $834 million, which was less than the expected range of $840 to $890 million.

The quarter's production was high, at around 572 MBOE/d:

• 214 Mbbls/d of oil and condensate
• 87 Mbbls/d of other NGLs
• 1,625 MMcf/d of natural gas.

Operational costs were good:

• Upstream operating expenses were $4.48 per BOE
• Transportation and processing costs were $7.40 per BOE
• Production-related taxes were $1.70 per BOE or 4.3% of upstream revenue.

The company's prices before considering hedges were:

• Oil and condensate at $78.86 per barrel
• Other NGLs at $18.39 per barrel
• Natural gas at $2.33 per Mcf
• Total average realized price was $38.95 per BOE.

Including the impact of hedges, the prices changed to:

• Oil and condensate decreased slightly to $77.94 per barrel
• Natural gas increased to $2.51 per Mcf
• Resulting in a total average realized price of $39.12 per BOE.

Looking ahead to 2024, the company plans a total capital investment between $2.1 billion and $2.5 billion. It also anticipates reaching a stabilized production profile of approximately 200 Mbbls/d by the second quarter of 2024, ahead of the initial schedule.

Through February 2024, we're taking a look back on the Deals from 2023

Ovintiv acquisition in the Permian closed in June 2023, paying approximately $3.2 billion in cash combined and issuing approximately 31.8 million shares of Ovintiv common stock valued at approximately $1.2 billion. The Ovintiv Bakken sale also closed on June 12, generating proceeds of approximately $706 million after customary closing adjustments of approximately $119 million, according to Ovintiv's filings with the U.S. Securities and Exchange Commission.

Ovintiv's expansion in the Permian Basin involves acquiring core Midland Basin assets from EnCap Investments for roughly $4.3 billion, adding 65,000 net acres of primarily undeveloped, high-margin oil opportunities to their portfolio​​​​.

In June, Civitas Resources, a 2-year-old Denver-based oil and gas producer, reached similar deals valued at $4.7 billion combined to expand outside of Colorado for the first time. Civitas agreed to acquire the operations of two companies owned by funds of Dallas-based NGP Energy Capital Management LLC, which also has an office in Houston.

In 2023, Ovintiv Oil and Gas also completed the sale of its entire Bakken assets in the Williston Basin of North Dakota to Grayson Mill Bakken. This transaction was valued at $825 million.

Production Timeline

From 2015 to 2023, Ovintiv's annual growth rate was 6.19%. While this isn't above 10% or 15%, it's still higher than the U.S. average growth rate for petroleum and other liquids, which is 4.45%.
2015-2018: the company's daily oil production, measured in thousands of barrels (mbbl), remained unchanged. However, from 2019 to 2022, the production saw a decrease from 164.4 mbbl to 131.6 mbbl, a 19.95% drop, due to a policy of disinvestment. In 2023, after purchasing assets in the Permian Basin for $4.275 billion, the company increased its oil production to 170.9 mbbl.

This trend indicates that the company has aimed to boost its oil production, despite the fluctuations over the years, showing an overall upward trajectory.

In the natural gas sector, there was a decline from 2015 to 2018. Post the acquisition of Newfield Exploration in 2019, the company's natural gas production stabilized, with an 8.77% increase recorded between 2022 and September 2023. This suggests that Ovintiv aims to keep its gas production stable, unaffected by the fluctuating prices of natural gas.

2019: Natural Gas Liquids (NGLs) production also showed significant changes. Between 2015 and 2019, NGLs Plan Condensate production surged by 157.7%. Yet, this was followed by a reduction, with production falling from 52.9 mbbl in 2019 to 43.3 mbbl by September 2023, an 18.1% decrease. This decline is attributed to Ovintiv's disinvestment in its NGLs Plant operations since 2019, despite rising prices.

Additionally, the NGLs-Other segment saw a substantial increase in 2019, with an annual growth of 115.82%, and then the production levels evened out with minor fluctuations.

2020-2023: Aside from 2020, Ovintiv consistently invested more in capital expenditures than its costs for depreciation, depletion, and amortization, with net capital expenditure topping $600 million in eight out of eleven years. 

This investment strategy led to its reserves increasing from 1930.3 million barrels of oil equivalent (MMBOE) in 2013 to 2273.6 MMBOE by December 2022. 

Its production in barrels of oil equivalent (BOE) went from 516.7 million in 2013 to 571.8 million by September 2023.

2024: Ovintiv plans to ramp up its oil production to 200 mbbl per day. However, there's no indication of a planned increase in natural gas and NGLs production. The only hint is from Ovintiv's forecast for the fourth quarter of 2023, which anticipates a decrease in gas and NGLs production.

Ovintiv's Basin Strategy

For the year 2023, Ovintiv has updated its production guidance, estimating total production to range between 520 to 545 MBOE/d, with oil & condensate expected to be between 185 to 195 Mbbls/d. 

Permian Basin

This is one of Ovintiv's primary operational areas, located in the oil-rich Midland Basin in Texas. They are focusing on the Spraberry and Wolfcamp formations, and for 2023, they plan to invest about $1.43 to $1.47 billion to activate 170 to 180 net wells. In the third quarter of 2023, production in the Permian averaged 194 MBOE/d, with a strong emphasis on liquids making up 83% of the production.

The company reported a significant increase in oil productivity per foot (>20% year-over-year) and top-ranking Midland Basin oil productivity.

Operational Metrics:

• 53 Wells: Brought online year-to-date across legacy acreage, showing uplift in cumulative oil output.
• Trimulfrac Performance: Achieved with 4 pads in 3Q23, enhancing completions speed and efficiency, yielding $125k savings per well, and achieving 4,185 completed feet per day.
• Future Plans: Include increasing Trimulfrac operations to over 50% in 2024.

Montney

Situated in western Canada, the Montney play is recognized for being one of the largest unconventional oil and gas deposits in North America. Here, Ovintiv is leveraging its sizable land position and strong market access to maximize resource value. In the third quarter of 2023, Montney production averaged 229 MBOE/d with an investment plan of about $540 to $580 million for the year to develop 75 to 80 net wells.

Nearly 90% of gas production de-linked from AECO pricing, targeting high-value oil with strong year-to-date realizations (130% of AECO and 110% of NYMEX for gas; 97% of WTI for condensate).

Uinta Basin

In northeastern Utah, the Uinta Basin offers Ovintiv a deep inventory with approximately 2,600 feet of oil-saturated reservoir rock. The company has embraced cube development to enhance capital efficiency in this region. For 2023, the production average was 24 MBOE/d, and the planned investment is in the range of $415 to $435 million for 21 to 26 net wells.

The Uinta Basin stands out for its well performance, best horizontal oil wells in North America, and a large area of undeveloped land, covering 130,000 net contiguous acres. 

Anadarko Basin

Ovintiv's assets in the Anadarko Basin, located in west-central Oklahoma, are well-placed in the SCOOP and STACK regions within the black oil window. The company has planned an investment of approximately $190 to $210 million for the year 2023 to bring 26 net wells into production. The basin's third-quarter production stood at 119 MBOE/d, with liquids being 60% of it.

In the Permian, with 5 rigs and FY23 capital of $1,430-$1,470 million, they expected 170-180 net TILs and a production peak in 4Q23. The Montney region, with 4-5 rigs and $540-$580 million capital, anticipates 75-80 net TILs. Uinta, with 2 rigs and $415-$435 million capital, projects 21-26 net TILs. Anadarko has no rigs but a $190-$210 million capital with 26 net TILs expected. Bakken has an approximate $110 million capital with 16 net TILs.

Ovintiv’s Q3 2023 Results 

• Operational Results

The company has led well performance across four basins, highlighted by acquiring 800 Premium and 250 high-potential net locations in the Permian Basin. Over the last two years, more than 750 Premium net locations were added from bolt-ons and organic assessment, with Premium locations defined as those yielding over 35% IRR at $55/bbl WTI oil and $2.75/MMBtu NYMEX.

• Guidance and Performance

The company beat all 3Q23 guidance items, with total production at 572 MBOE/d, oil & condensate production at 214 Mbbls/d, other NGLs at 87 Mbbls/d, and natural gas production at 1,625 MMcf/d. Capital expenditure was $834 million, below the guidance range of $840-$890 million.

• Financial Results 

Cash flow for 3Q23 was $1,112 million, translating to $4.02 per share, which is a ~45% increase over the previous quarter. The free cash flow was $278 million, contributing to strong shareholder returns including $127 million spent on base dividends and buybacks in 3Q23. The company maintains an investment-grade rating with a mid-cycle leverage target of 1.0x, with debt at approximately $4 billion.

• Integration and Expansion

The integration of Permian acquisitions was completed before schedule, contributing to a 4% production increase since the acquisition close. The company now operates approximately 180k net acres in the Permian, with 5 rigs and 1 frac crew currently active.

Ovintiv focuses on working smart with its assets. It has four main areas it's really good at, aims to work efficiently, deals with different types of products, and has enough resources to keep producing oil for 10-15 years and natural gas for 20 years. By carefully choosing where to spend money and making its operations run smoothly, Ovintiv plans to keep making a steady income and strong profits.

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