OVV 8-K
Ovintiv Inc. (OVV)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
(Exact Name of Registrant as Specified in its Charter)
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
| |
||||
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading |
Name of each exchange | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 1.01 | Entry into a Material Definitive Agreement |
Introductory Note
On April 26, 2021, Ovintiv Inc. (the “Corporation”) completed an internal corporate reorganization pursuant to which, among other things, Ovintiv Exploration Inc. (formerly Newfield Exploration Company) (“Exploration”) merged with and into the Corporation (the “Merger”), with the Corporation surviving the Merger.
In connection with the Merger, pursuant to the Supplemental Indenture (as defined below), (i) the Corporation assumed Exploration’s obligations under the Indenture (as defined below) and the Notes (as defined below), (ii) the Corporation succeeded to, and was substituted for, Exploration under the Indenture and (iii) Exploration was discharged of its obligations under the Indenture and the Notes.
Supplemental Indenture
On April 26, 2021, Exploration, as issuer, the Corporation, as existing guarantor and successor issuer, Ovintiv Canada ULC, as existing guarantor, and U.S. Bank National Association (as successor trustee to Wachovia Bank, National Association (formerly First Union National Bank)), as trustee (the “Trustee”), entered into the seventh supplemental indenture (the “Seventh Supplemental Indenture”) to the indenture, dated as of February 28, 2001 (as amended and supplemented, the “Indenture”).
Pursuant to the Supplemental Indenture, (i) the Corporation assumed Exploration’s obligations under the Indentures and the Notes, (ii) the Corporation succeeded to, and was substituted for, Exploration under the Indenture and (iii) Exploration was discharged of its obligations under the Indenture and the Notes.
The following series of notes are outstanding under the Indenture: (i) 53/4% senior notes due 2022 (the “2022 Notes”), issued pursuant to a second supplemental indenture, dated as of September 30, 2011, to the Indenture, (ii) 55/8% senior notes due 2024 (the “2024 Notes”), issued pursuant to a third supplemental indenture, dated as of June 26, 2012, and (iii) 53/8% senior notes due 2026 (the “2026 Notes” and together with the 2022 Notes and the 2024 Notes, the “Notes”), issued pursuant a fourth supplemental indenture, dated as of March 10, 2015, to the Indenture, which Notes constitute all of the issued and outstanding series of debt securities issued pursuant to the Indenture as of the date hereof. As of the date hereof, the Notes are outstanding in the following principal amounts: $600 million of 2022 Notes; $1 billion of 2024 Notes; and $688 million of 2026 Notes.
The Indenture provides for customary events of default. These customary events of default, which are set forth in Article 5 of the Indenture, include but are not limited to nonpayment of principal or interest, breach of covenants in the applicable Indenture and certain events of bankruptcy. Generally, if an event of default occurs, the Trustee or holders of at least 25% in aggregate principal amount of the then outstanding Notes of the affected series may declare such Notes to be immediately due and payable.
The foregoing description of the Supplemental Indenture does not purport to be complete and is qualified in its entirety by the actual Supplemental Indenture, a copy of which is filed as Exhibit 4.1 to this Current Report on Form 8-K and incorporated herein by reference.
A copy of the Indenture has been previously filed as an exhibit to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the U.S. Securities and Exchange Commission on February 18, 2021.
| Item 2.02 | Results of Operations and Financial Condition. |
On April 28, 2021, the Corporation issued a news release announcing its financial and operating results for its first quarter ended March 31, 2021. A copy of the news release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
The information under Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Exchange Act or Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.
| Item 2.03 | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information set forth under Item 1.01 above is incorporated by reference into this Item 2.03, insofar as it relates to the creation of a direct financial obligation.
| Item 3.03 | Material Modification to Rights of Security Holders. |
The information set forth under Item 1.01 above under the heading “Supplemental Indenture” is incorporated by reference into this Item 3.03.
| Item 8.01 | Other Events. |
Quarterly Dividend
In its April 28, 2021 news release, the Corporation announced that its Board of Directors had declared a quarterly dividend of $0.09375 per share on the Corporation’s outstanding common stock. The dividend is payable on June 30, 2021 to holders of record at the close of business on June 15, 2021. A copy of the news release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
Sale of Duvernay Assets
In its April 28, 2021 news release, the Corporation also announced that it has completed the previously announced sale of its Duvernay assets. A copy of the news release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
| Item 9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits |
| 4.1 | Seventh Supplemental Indenture, dated as of April 26, 2021, among Ovintiv Exploration Inc. (formerly Newfield Exploration Company), as issuer, Ovintiv Inc., as existing guarantor and successor issuer, Ovintiv Canada ULC, as existing guarantor, and U.S. Bank National Association (as successor trustee to Wachovia Bank, National Association (formerly First Union National Bank)), as trustee. | |
| 99.1 | News Release dated April 28, 2021. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
EXHIBIT INDEX
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: April 28, 2021
| OVINTIV INC. | ||
| By: | /s/ Dawna I. Gibb | |
| Name: Title: | Dawna I. Gibb Assistant Corporate Secretary | |
Exhibit 4.1
SEVENTH SUPPLEMENTAL INDENTURE
SEVENTH SUPPLEMENTAL INDENTURE (this “Seventh Supplemental Indenture”), dated as of April 26, 2021 (the “Effective Date”), to the Indenture referred to below, among Ovintiv Exploration Inc. (formerly Newfield Exploration Company), a Delaware corporation, as issuer (the “Original Issuer”), Ovintiv Inc., a Delaware corporation, as existing guarantor (the “Parent Guarantor”) and successor issuer (the “Successor Issuer”), Ovintiv Canada ULC, an unlimited liability corporation existing under the laws of British Columbia, Canada, as existing guarantor (the “Affiliate Guarantor” and together with the Parent Guarantor, the “Guarantors”), and U.S. Bank National Association (as successor trustee to Wachovia Bank, National Association (formerly First Union National Bank)), a national banking association, as trustee (the “Trustee”).
W I T N E S S E T H
WHEREAS, the Original Issuer has heretofore executed and delivered to the Trustee the senior indenture dated as of February 28, 2001 (the “Original Indenture”);
WHEREAS, the Original Issuer has heretofore executed and delivered to the Trustee the following supplemental indentures to the Original Indenture (as so supplemented, the “Indenture”) (A) providing for the establishment of the following series of securities (which constitute all of the issued and outstanding series of securities issued pursuant to the Original Indenture as of the date hereof): (i) the second supplemental indenture, dated as of September 30, 2011, providing for the issuance of 53/4% senior notes due 2022 (the “2022 Securities”), (ii) the third supplemental indenture, dated as of June 26, 2012, providing for the issuance of 55/8% senior notes due 2024 (the “2024 Securities”), and (iii) the fourth supplemental indenture, dated as of March 10, 2015, providing for the issuance of 53/8% senior notes due 2026 (the “2026 Securities” and together with the 2022 Securities and the 2024 Securities, the “Securities”), (B) the fifth supplemental indenture (the “Fifth Supplemental Indenture”), dated as of March 1, 2019, pursuant to which the Affiliate Guarantor agreed to fully and unconditionally guarantee (the “Affiliate Guarantee”) the due and punctual payment of the principal of, premium, if any, and interest on the Securities and (C) the sixth supplemental indenture (the “Sixth Supplemental Indenture”), dated as of January 27, 2020, pursuant to which the Parent Guarantor agreed to fully and unconditionally guarantee (the “Parent Guarantee”) the due and punctual payment of the principal of, premium, if any, and interest on the Securities;
WHEREAS, the Original Issuer and the Successor Issuer will effect an internal corporate reorganization pursuant to which, on the Effective Date, among other things, the Original Issuer will merge with and into the Successor Issuer as contemplated by Section 801 of the Indenture (the “Merger”), with the Successor Issuer surviving the Merger;
WHEREAS, contemporaneously with the Merger, (i) pursuant to Section 801 of the Indenture, the Successor Issuer shall assume the Original Issuer’s obligation for the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of the Indenture on the part of the Original Issuer to be performed or observed and (ii) pursuant to Section 802 of the Indenture, the Successor Issuer shall succeed to, and be substituted for, and may exercise every right and power of, the Original Issuer under the Indenture with the same effect as if the Successor Issuer had been named as the Company in the Indenture, and thereafter, the Original Issuer shall be relieved of all obligations and covenants under the Indenture and the Securities (the “Succession”);
WHEREAS, Section 901(1) of the Indenture provides that without the consent of any Holders, the Original Issuer, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental thereto to evidence the succession of another Person to the Original Issuer and the assumption by any such successor of the covenants of the Original Issuer contained in the Indenture and in the Securities;
WHEREAS, the Original Issuer has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that the Merger and this Seventh Supplemental Indenture comply with Article Eight of the Indenture and that all conditions precedent in the Indenture provided for relating to the Merger and the Succession have been complied with; and
WHEREAS, pursuant to Section 901 of the Indenture, all conditions necessary to authorize the execution and delivery of this Seventh Supplemental Indenture and to make it a valid and binding obligation of the Original Issuer, the Successor Issuer and the Guarantors have been done or performed and the Trustee is authorized to execute and deliver this Seventh Supplemental Indenture.
NOW, THEREFORE, for and in consideration of the premises contained herein, it is mutually covenanted and agreed for the benefit of all Holders of the Securities as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. ASSUMPTION OF OBLIGATIONS, SUCCESSION AND SUBSTITUTION, AND DISCHARGE. As of the Effective Date (i) the Successor Issuer shall assume the Original Issuer’s obligation for the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of the Indenture on the part of the Original Issuer to be performed or observed; (ii) the Successor Issuer shall succeed to, and be substituted for, and may exercise every right and power of, the Original Issuer under the Indenture with the same effect as if the Successor Issuer had been named as the Company in the Indenture; and (iii) the Original Issuer shall be relieved of all obligations and covenants under the Indenture and the Securities.
3. EFFECT AND OPERATION OF THIS SEVENTH SUPPLEMENTAL INDENTURE. Except as modified and amended by this Seventh Supplemental Indenture, all provisions of the Indenture shall remain in full force and effect. This Seventh Supplemental Indenture relates to each series of Securities. This Seventh Supplemental Indenture shall become effective immediately upon its execution and delivery.
4. ACKNOWLEDGMENT OF THE GUARANTORS. The Affiliate Guarantor hereby acknowledges the Fifth Supplemental Indenture, and the Affiliate Guarantee provided thereunder, the Parent Guarantor hereby acknowledges the Sixth Supplemental Indenture, and the Parent Guarantee provided thereunder, and the Affiliate Guarantor and the Parent Guarantor each hereby acknowledges that the Guarantees are joint and several obligations of the Guarantors.
5. GOVERNING LAW. THIS SEVENTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
6. COUNTERPARTS; EXECUTION. The parties may sign any number of copies of this Seventh Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Each party agrees that any electronic signature, whether digital or encrypted, of a party on the signature pages hereto shall have the same force and effect as a manual signature.
7. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.
8. SEVERABILITY. In case any provision in this Seventh Supplemental Indenture or in the Indenture as supplemented hereby shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
9. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Seventh Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Original Issuer, the Successor Issuer and the Guarantors.
10. TRUST INDENTURE ACT. If and to the extent that any provision of this Seventh Supplemental Indenture limits, qualifies or conflicts with another provision of this Seventh Supplemental Indenture or the Indenture that is required to be included by the TIA, the provision required by the TIA shall control.
11. NO PERSONAL LIABILITY. No director, manager, officer, employee, incorporator, stockholder or shareholder of the Original Issuer, the Successor Issuer or the Guarantors, as such, shall have any liability for any of the obligations of the Original Issuer, the Successor Issuer or the Guarantors under the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Securities waives and releases all such liability.
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Seventh Supplemental Indenture to be duly executed, all as of the date first above written.
| OVINTIV EXPLORATION INC., as Original Issuer | ||||
| By: | /s/ Andrew L. Rogers | |||
| Name: | Andrew L. Rogers | |||
| Title: | Vice-President | |||
[Signature Page to Seventh Supplemental Indenture]
| OVINTIV CANADA ULC, as Affiliate Guarantor | ||||
| By: | /s/ H. Jason Verhaest | |||
| Name: | H. Jason Verhaest | |||
| Title: | Vice-President, Finance | |||
| By: | /s/ Jeremy P. Frydman | |||
| Name: | Jeremy P. Frydman | |||
| Title: | Treasurer | |||
[Signature Page to Seventh Supplemental Indenture]
| OVINTIV INC., as Parent Guarantor and Successor Issuer | ||||
| By: | /s/ Corey D. Code | |||
| Name: | Corey D. Code | |||
| Title: | Executive Vice-President & Chief Financial Officer | |||
| By: | /s/ Joanne L. Cox | |||
| Name: | Joanne L. Cox | |||
| Title: | Executive Vice-President, General Counsel & Corporate Secretary | |||
[Signature Page to Seventh Supplemental Indenture]
| U. S. BANK NATIONAL ASSOCIATION, as Trustee | ||||
| By: | /s/ Alejandro Hoyos | |||
| Name: | Alejandro Hoyos | |||
| Title: | Vice President | |||
[Signature Page to Seventh Supplemental Indenture]
Exhibit 99.1
|
news release |
Ovintiv Reports First Quarter 2021 Financial and Operating Results
Strong start to 2021 accelerates debt paydown
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 |
DENVER, April 28, 2021 – Ovintiv Inc. (NYSE, TSX: OVV) today announced its first quarter 2021 financial and operating results. 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.
The Company plans to hold a conference call and webcast at 9 a.m. MT (11 a.m. ET) on April 29, 2021. Please see dial-in details within this release, as well as additional details on the Company’s website at www.ovintiv.com.
“This quarter we continued our track record of delivery” said Ovintiv CEO, Doug Suttles. “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.”
First Quarter 2021 Financial and Operating Results
Ovintiv posted strong financial results during the first quarter.
| • | 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. |
| 1. | Throughout this document, crude and condensate refers to tight oil including medium and light crude oil volumes and plant condensate. |
| Ovintiv Inc. |
1 |
| • | 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. |
Ovintiv is the “New E&P”
Ovintiv has led the industry’s transformation to a new business model and has a demonstrated track record in capital efficiency, operational and environmental excellence, generating free cash flow and returning cash to shareholders.
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.
Refer to Note 1 Non-GAAP measures and the tables in this release for reconciliation to comparable GAAP financial measures.
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
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).
| Ovintiv Inc. |
2 |
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
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
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.
Base Assets
There were two net wells drilled in the Bakken which are expected to be TIL in the second quarter.
For additional information, please refer to the 1Q 2021 Results Presentation at https://investor.ovintiv.com/presentations-events.
Dividend Declared
On April 28, 2021, Ovintiv’s Board declared a dividend of $0.09375 per share of common stock payable on June 30, 2021 to common stockholders of record as of June 15, 2021.
Conference Call Information
A conference call and webcast to discuss the Company’s first quarter results will be held at 9 a.m. MT (11 a.m. ET) on April 29, 2021. To participate in the call, please dial 888-664-6383 (toll-free in North America) or 416-764-8650 (international) approximately 15 minutes prior to the conference call. The live audio webcast of the conference call, including slides and financial statements, will be available on Ovintiv’s website, www.ovintiv.com under Investors/Presentations and Events. The webcast will be archived for approximately 90 days.
| Ovintiv Inc. |
3 |
Capital Investment and Production
| (for the three months ended March 31) |
1Q 2021 | 1Q 2020 | ||||||
| Capital Expenditures (1) ($ millions) |
350 | 790 | ||||||
|
|
|
|
|
|||||
| Oil (Mbbls/d) (2) |
146.5 | 162.5 | ||||||
| NGLs – Plant Condensate (Mbbls/d) |
51.4 | 52.7 | ||||||
| Oil & Plant Condensate (Mbbls/d) |
197.9 | 215.2 | ||||||
| NGLs – Other (Mbbls/d) |
77.7 | 94.6 | ||||||
| Total Liquids (Mbbls/d) |
275.6 | 309.8 | ||||||
| Natural gas (MMcf/d) (3) |
1,576 | 1,569 | ||||||
|
|
|
|
|
|||||
| Total production (MBOE/d) |
538.3 | 571.3 | ||||||
|
|
|
|
|
|||||
| (1) | Including capitalized overhead costs. |
| (2) | Primarily tight oil, including minimal medium and light crude oil volumes. |
| (3) | Primarily shale gas, including minimal conventional natural gas. |
First Quarter Summary
| (for the three months ended March 31) ($ millions, except as indicated) |
1Q 2021 | 1Q 2020 | ||||||
| Cash From (Used In) Operating Activities |
||||||||
| Deduct (Add Back): |
827 | 566 | ||||||
| Net change in other assets and liabilities |
(6 | ) | (52 | ) | ||||
| Net change in non-cash working capital |
(57 | ) | 83 | |||||
| Current tax on sale of assets |
— | — | ||||||
|
|
|
|
|
|||||
| Non-GAAP Cash Flow (1) |
890 | 535 | ||||||
|
|
|
|
|
|||||
| Non-GAAP Cash Flow Margin (1) ($/BOE) |
18.39 | 10.29 | ||||||
|
|
|
|
|
|||||
| Non-GAAP Cash Flow (1) |
890 | 535 | ||||||
| Less: Capital Expenditures (2) |
350 | 790 | ||||||
|
|
|
|
|
|||||
| Non-GAAP Free Cash Flow (1) |
540 | (255 | ) | |||||
|
|
|
|
|
|||||
| Net Earnings (Loss) Before Income Tax |
||||||||
| Before-tax (Addition) Deduction: |
133 | 561 | ||||||
| Unrealized gain (loss) on risk management |
(271 | ) | 904 | |||||
| Impairments |
— | (277 | ) | |||||
| Restructuring charges |
(6 | ) | — | |||||
| Non-operating foreign exchange gain (loss) |
(2 | ) | (104 | ) | ||||
| Gain (loss) on divestitures |
— | — | ||||||
| Gain on debt retirement |
— | 11 | ||||||
|
|
|
|
|
|||||
| Adjusted Net Earnings (Loss) Before Income Tax |
412 | 27 | ||||||
| Income tax expense (recovery) |
119 | — | ||||||
|
|
|
|
|
|||||
| Non-GAAP Operating Earnings (Loss) (1) |
293 | 27 | ||||||
|
|
|
|
|
|||||
| (1) | Non-GAAP cash flow, non-GAAP cash flow margin, non-GAAP free cash flow and non-GAAP operating earnings (loss) are non-GAAP measures as defined in Note 1. |
| (2) | Including capitalized overhead costs. |
| Ovintiv Inc. |
4 |
Realized Pricing Summary
| (for the three months ended March 31) |
1Q 2021 | 1Q 2020 | ||||||
| Liquids ($/bbl) |
||||||||
| WTI |
57.84 | 46.17 | ||||||
| Realized Liquids Prices (1) |
||||||||
| Oil |
47.44 | 48.99 | ||||||
| NGLs – Plant Condensate |
50.65 | 46.80 | ||||||
| Oil & Plant Condensate |
48.27 | 48.46 | ||||||
| NGLs – Other |
19.14 | 7.89 | ||||||
|
|
|
|
|
|||||
| Total NGLs |
31.69 | 21.80 | ||||||
|
|
|
|
|
|||||
| Natural Gas |
||||||||
| NYMEX ($/MMBtu) |
2.69 | 1.95 | ||||||
| Realized Natural Gas Price (1) ($/Mcf) |
3.10 | 1.97 | ||||||
| (1) | Prices include the impact of realized gain (loss) on risk management. |
Total Costs
| (for the three months ended March 31) ($ millions, except as indicated) |
1Q 2021 | 1Q 2020 | ||||||
| Total Operating Expenses |
1,643 | 1,884 | ||||||
| Deduct (add back): |
||||||||
| Market optimization operating expenses |
653 | 462 | ||||||
| Corporate & other operating expenses |
— | (2 | ) | |||||
| Depreciation, depletion and amortization |
308 | 534 | ||||||
| Impairments |
— | 277 | ||||||
| Accretion of asset retirement obligation |
6 | 9 | ||||||
| Long-term incentive costs |
42 | (35 | ) | |||||
| Restructuring costs |
6 | — | ||||||
| Current expected credit losses |
— | 5 | ||||||
|
|
|
|
|
|||||
| Total Costs (1) |
628 | 634 | ||||||
|
|
|
|
|
|||||
| Divided by: |
||||||||
| Production Volumes (MMBOE) |
48.4 | 52.0 | ||||||
|
|
|
|
|
|||||
| Total Costs (1) ($/BOE) |
12.93 | 12.17 | ||||||
|
|
|
|
|
|||||
| Drivers Included in Total Costs (1) ($/BOE) |
||||||||
| Production, mineral and other taxes |
1.23 | 1.01 | ||||||
| Upstream transportation and processing |
6.96 | 6.40 | ||||||
| Upstream operating, excluding long-term incentive costs |
3.07 | 3.34 | ||||||
| Administrative, excluding long-term incentive costs, restructuring costs and current expected credit losses |
1.67 | 1.42 | ||||||
|
|
|
|
|
|||||
| Total Costs (1) ($/BOE) |
12.93 | 12.17 | ||||||
|
|
|
|
|
|||||
| (1) | Calculated using whole dollars and volumes. Total Costs is a non-GAAP measure as defined in Note 1. |
Debt to Adjusted Capitalization
| ($ millions, except as indicated) |
March 31, 2021 | December 31, 2020 | ||||||
| Long-Term Debt, including current portion |
6,418 | 6,885 | ||||||
| Total Shareholders’ Equity |
4,134 | 3,837 | ||||||
| Equity Adjustment for Impairments at December 31, 2011 |
7,746 | 7,746 | ||||||
|
|
|
|
|
|||||
| Adjusted Capitalization |
18,298 | 18,468 | ||||||
|
|
|
|
|
|||||
| Debt to Adjusted Capitalization (1) |
35% | 37% | ||||||
|
|
|
|
|
|||||
| (1) | Debt to Adjusted Capitalization is a non-GAAP measure as defined in Note 1. |
| Ovintiv Inc. |
5 |
Hedge Volumes as of April 19, 2021
| Oil & Condensate Hedges ($/bbl) |
2Q 2021 | 3Q 2021 | 4Q 2021 | 2022 | ||||
| WTI Swaps |
40 Mbbls/d | 30 Mbbls/d | 30 Mbbls/d | — | ||||
| Swap Price |
$47.54 | $46.37 | $46.37 | |||||
| WTI 3-Way Options |
80 Mbbls/d | 85 Mbbls/d | 85 Mbbls/d | 10 Mbbls/d | ||||
| Short Call |
$51.44 | $53.92 | $53.92 | $65.00 | ||||
| Long Put |
$42.12 | $44.66 | $44.66 | $55.97 | ||||
| Short Put |
$32.90 | $34.79 | $34.79 | $45.00 | ||||
| WTI Costless Collars |
15 Mbbls/d | 15 Mbbls/d | 15 Mbbls/d | — | ||||
| Short Call |
$45.84 | $45.84 | $45.84 | |||||
| Long Put |
$35.00 | $35.00 | $35.00 | |||||
| Natural Gas Hedges ($/Mcf) |
2Q 2021 | 3Q 2021 | 4Q 2021 | 2022 | ||||
| NYMEX Swaps |
— | 165 MMcf/d |
165 MMcf/d |
100 MMcf/d | ||||
| Swap Price |
$2.51 | $2.51 | $2.60 | |||||
| NYMEX 3-Way Options |
1,090 MMcf/d | 1,030 MMcf/d | 980 MMcf/d | 100 MMcf/d | ||||
| Short Call |
$3.36 | $3.37 | $3.36 | $3.00 | ||||
| Long Put |
$2.87 | $2.87 | $2.89 | $2.54 | ||||
| Short Put |
$2.50 | $2.50 | $2.50 | $2.00 | ||||
| NYMEX Costless Collars |
— | — | — | 100 MMcf/d | ||||
| Short Call |
$2.80 | |||||||
| Long Put |
$2.50 | |||||||
Price Sensitivities for WTI Oil (1) ($ MM)
| WTI Oil Hedge Gains (Losses) by Quarter |
| |||||||||||||||
| Period |
$ | 40 | $ | 50 | $ | 60 | $ | 70 | ||||||||
| 2Q21 |
49 | (18 | ) | (127 | ) | (250 | ) | |||||||||
| 3Q21 |
56 | (10 | ) | (106 | ) | (224 | ) | |||||||||
| 4Q21 |
56 | (10 | ) | (106 | ) | (224 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 2Q21 – 4Q21 Total |
161 | (38 | ) | (339 | ) | (698 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Hedge positions and hedge sensitivity estimates based on Hedge positions as at 04/19/2021. Does not include impact of basis positions. |
| Ovintiv Inc. |
6 |
Price Sensitivities for NYMEX Natural Gas (1) ($ MM)
NYMEX Natural Gas Hedge Gains (Losses) by Quarter
| Period |
$ | 1.50 | $ | 2.00 | $ | 2.50 | $ | 3.00 | ||||||||
| 2Q21 |
38 | 38 | 38 | 1 | ||||||||||||
| 3Q21 |
51 | 43 | 35 | (7 | ) | |||||||||||
| 4Q21 |
51 | 43 | 35 | (7 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 2Q21-4Q21 Total |
140 | 124 | 108 | (13 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| (1) | Hedge positions and hedge sensitivity estimates based on Hedge positions as at 04/19/2021. Does not include impact of basis positions. |
Note: Company has additional hedges on Butane and Propane not included in the above tables.
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. The term liquids is used to represent oil and NGLs. The term liquids-rich is used to represent natural gas streams with associated liquids volumes. 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. |
| • | Non-GAAP Operating Earnings (Loss) is a non-GAAP measure defined as net earnings (loss) excluding non-recurring or non-cash items that Management believes reduces the comparability of the Company’s financial performance between periods. These items may include, but are not limited to, unrealized gains/losses on risk management, impairments, restructuring charges, non-operating foreign exchange gains/losses, gains/losses on divestitures and gains on debt retirement. Income taxes includes adjustments to normalize the effect of income taxes calculated using the estimated annual effective income tax rate. In addition, any valuation allowances are excluded in the calculation of income taxes. |
| • | Total Costs is a non-GAAP measure which includes the summation of production, mineral and other taxes, upstream transportation and processing expense, upstream operating expense and administrative expense, excluding the impact of long-term incentive costs, restructuring costs and current expected credit losses. It is calculated as total operating expenses excluding non-upstream operating costs and non-cash items which include operating expenses from the Market Optimization and Corporate and Other segments, depreciation, depletion and amortization, impairments, accretion of asset retirement obligation, long-term incentive costs, restructuring costs and current expected credit losses. When presented on a per BOE basis, Total Costs is divided by production volumes. Management believes this measure is useful to the Company and its investors as a measure of operational efficiency across periods. |
| • | Debt to Adjusted Capitalization is a non-GAAP measure which adjusts capitalization for historical ceiling test impairments that were recorded as at December 31, 2011. Management monitors Debt to Adjusted Capitalization as a proxy for the Company’s financial covenant under the Credit Facilities which require debt to adjusted capitalization to be less than 60 percent. Adjusted Capitalization incudes debt, total shareholders’ equity and an equity adjustment for cumulative historical ceiling test impairments recorded as at December 31, 2011 in conjunction with the Company’s January 1, 2012 adoption of U.S. GAAP. |
| Ovintiv Inc. |
7 |
ADVISORY REGARDING OIL AND GAS INFORMATION – The conversion of natural gas volumes to barrels of oil equivalent (BOE) is on the basis of six thousand cubic feet to one barrel. BOE is based on a generic energy equivalency conversion method primarily applicable at the burner tip and does not represent economic value equivalency at the wellhead. Readers are cautioned that BOE may be misleading, particularly if used in isolation.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS – This news release contains certain forward-looking statements or information (collectively, “FLS”) within the meaning of applicable securities legislation, including the United States Private Securities Litigation Reform Act of 1995. FLS include: anticipated cost savings, capital efficiency and sustainability thereof; operational flexibility and benefits of the Company’s multi-basin portfolio; anticipated success of and benefits from technology and innovation; expected activity and investment levels; ability to meet targets, including with respect to capital efficiency, cash flow generation, debt reduction, scale and emissions-related performance, and the timing thereof; estimated hedging revenue and sensitivity to commodity prices; timing of closing and expectation that closing conditions and regulatory approvals will be satisfied and capital investment scenarios and associated production. FLS involve assumptions, risks and uncertainties that may cause such statements not to occur or results to differ materially. These assumptions include: future commodity prices and differentials; assumptions contained herein; data contained in key modeling statistics; availability of attractive hedges and enforceability of risk management program; and expectations and projections made in light of the Company’s historical experience. Risks and uncertainties include: suspension of or changes to guidance, and associated impact to production; ability to generate sufficient cash flow to meet obligations; commodity price volatility and impact to the Company’s stock price and cash flows; ability to secure adequate transportation and potential curtailments of refinery operations, including resulting storage constraints or widening price differentials; discretion to declare and pay dividends, if any; business interruption, property and casualty losses or unexpected technical difficulties; impact of COVID-19 to the Company’s operations, including maintaining ordinary staffing levels, securing operational inputs, executing on portions of its business and cyber-security risks associated with remote work; counterparty and credit risk; impact of changes in credit rating and access to liquidity, including costs thereof; risks in marketing operations; risks associated with technology; risks associated with decommissioning activities, including timing and costs thereof; and other risks and uncertainties as described in the Company’s Annual Report on Form 10- K, Quarterly Report on Form 10-Q and as described from time to time in its other periodic filings as filed on EDGAR and SEDAR. Although the Company believes such FLS are reasonable, there can be no assurance they will prove to be correct. The above assumptions, risks and uncertainties are not exhaustive. FLS are made as of the date hereof and, except as required by law, the Company undertakes no obligation to update or revise any FLS.
Further information on Ovintiv Inc. is available on the Company’s website, www.ovintiv.com, or by contacting:
| Investor contact: (888) 525-0304 |
Media contact: (403) 645-2252 |
SOURCE: Ovintiv Inc.
| Ovintiv Inc. |
8 |