- Year-end 2020 debt reduced nearly $500 million from mid-year 2020
- 2021 debt reduction target increased 25% to $1.25 billion including second half 2020
- Multi-year debt target issued: $4.5 billion of total debt by year-end 2022
- Company signs agreement to sell its Duvernay asset for $263 million
- Company generated significant non-GAAP Free Cash Flow for third consecutive year
- Strong well performance and realized prices combined with lower cash costs drive cash flow beat with lower-than-expected capital investments
- 2021 capital investment plan of $1.5 billion expected to generate ~$1 billion of non-GAAP Free Cash Flow
Ovintiv Inc. announced its fourth quarter and full-year 2020 financial and operating results, announced an agreement to sell its Duvernay assets, disclosed its year-end 2020 proved reserves and provided a strong 2021 Outlook. In addition, the Company issued a new target of reducing total debt to $4.5 billion by year-end 2022.
- Fourth quarter and full-year financial and operating results exceeded targets and consensus expectations.
- Full-year cash from operating activities was approximately $1.9 billion, equal to non-GAAP Cash Flow; 2020 non-GAAP Free Cash Flow was $193 million (inclusive of $90 million of one-time restructuring costs), with strong fourth quarter momentum of nearly $350 million in non-GAAP Free Cash Flow.
- Reduced total long-term debt, including current portion, by $257 million in the fourth quarter, representing a $481 million reduction since mid-year 2020.
- Delivered strong well performance, driving fourth quarter crude and condensate(1) production of 215 thousand barrels per day (Mbbls/d), above guidance of 200 Mbbls/d; Fourth quarter total production averaged 557 thousand barrels of oil equivalent per day (MBOE/d).
- Full-year 2020 production averaged 544 MBOE/d.
- Maintained disciplined capital investments with full year spending of $1.74 billion, well under the $1.8 billion guide.
- Further capital efficiency gains achieved with fourth quarter average completed well costs at least 25% lower than full-year 2019 averages; new pacesetter well costs attained in each of the three core plays.
- Achieved seventh consecutive "safest-year-ever".
- Flared and vented natural gas volumes in the fourth quarter of 2020 accounted for less than 0.5% of total natural gas production, down significantly from 1.2% in 2019.
- Reached an agreement to sell its Duvernay assets for $263 million including $12 million of contingent payments.
- Established total debt target of $4.5 billion by year-end 2022, a 35% reduction when compared to year-end 2020, inclusive of $1 billion in divestment proceeds.
Ovintiv CEO Doug Suttles said, "We achieved outstanding financial, operating and environmental results in 2020. Through this combination, we 'beat our beat' in the fourth quarter with lower capital investments and very strong cash flows. The strengths of our company - a high-quality portfolio, industry-leading efficiencies, sophisticated risk management and a culture of innovation - were crucial to our success during a challenging time for the industry. For the third consecutive year, we delivered meaningful free cash flow, and we estimate $1 billion in free cash flow in 2021. We've made significant progress on debt reduction and today increased our year-end 2021 debt reduction target by 25% to $1.25 billion and set a year-end 2022 total debt target of $4.5 billion. The critical intersection of financial and operating results with environmental progress was evident through our industry-leading total flare and vent volumes of less than half-of-one percent in the fourth quarter."
Multi-Year Debt Reduction Target
Reducing debt is Ovintiv's number one priority. The Company today set a year-end 2022 goal to reduce absolute debt to $4.5 billion, a 35% reduction from year-end 2020. This target includes $1 billion in divestment proceeds and maintaining crude and condensate production of approximately 200 Mbbls/d. The Company's previously announced leverage target of 1.5 times net-debt-to adjusted EBITDA and its long-term reinvestment framework of less than 75% of annual non-GAAP Cash Flow were reaffirmed.
Sale of Duvernay Assets
The Company through a wholly owned subsidiary, has agreed to sell its Duvernay assets for approximately $263 million including approximately $12 million in contingency payments based on future commodity prices. The agreement is subject to ordinary closing conditions, regulatory approvals and other adjustments and is expected to close in the second quarter of 2021. Duvernay production averaged approximately 10 MBOE/d (43% liquids) in the fourth quarter of 2020. Ovintiv will update its guidance once the transaction has closed.
"Today's announcement of the sale of our Duvernay asset combined with our strong fourth quarter and 2021 guide clearly demonstrate our commitment to debt reduction and puts us squarely on track to achieve our $4.5 billion dollar year-end 2022 goal," said Suttles.
Full Year and Fourth Quarter 2020 Financial and Operating Results
For 2020, the Company recorded a net loss of $6.1 billion, or ($23.47) per share of common stock, driven primarily by a non-cash ceiling test impairment of $5,580 million, before-tax, related to the decline in 12-month average trailing commodity prices which reduced SEC proved reserves (see proved reserves table within this release). Non-GAAP operating earnings were $91 million, or $0.35 per share of common stock.
The Company recorded a net loss in the fourth quarter of $614 million, or ($2.36) per share of common stock. Cash from operating activities for the fourth quarter was $719 million and non-GAAP Cash Flow was $692 million.
Production Summary and Asset Highlights
Ovintiv's significantly higher than expected fourth quarter production was largely driven by strong well results across the portfolio. The Company's cube development approach and innovative completion designs continued to deliver industry-leading capital efficiencies. Fourth quarter crude oil and condensate volumes were 215 Mbbls/d. Fourth quarter liquids production averaged 297 Mbbls/d and total Company production was 557 MBOE/d.
For the year, total production averaged 544 MBOE/d including liquids production of 289 Mbbls/d.
In the fourth quarter, Ovintiv set new, record-low well costs in each of its Core 3 assets. The Company exceeded its stated goal of reducing 2020 well costs by 20% when compared to 2019 averages by delivering cost reductions of 25% or greater during the quarter.
"Ovintiv has demonstrated industry-leading capital efficiencies across our portfolio," said Suttles. "The efforts of our teams to consistently find innovative ways to reduce costs have led to sustainable capital savings that will be durable even as commodity prices improve. More importantly, they never lost their focus on safety and 2020 marks our 'safest year ever' for the seventh consecutive year."
Permian production averaged 110 MBOE/d (81% liquids) in the fourth quarter. The Company averaged three rigs, drilled 22 net wells, and had 29 net wells turned in line (TIL).
Fourth quarter drilling and completion (D&C) costs per lateral foot was $470, down more than 30% compared to 2019 average D&C cost.
Full year production in the play averaged 109 MBOE/d (81% liquids).
Anadarko production averaged 134 MBOE/d (62% liquids) in the fourth quarter. The Company averaged two rigs, drilled 11 net wells, and had 28 net wells TIL.
Fourth quarter D&C costs per lateral foot was $440, down over 30% compared to 2019 average D&C cost.
Full year production in the play averaged 144 MBOE/d (62% liquids).
Montney production averaged 222 MBOE/d (26% liquids) in the fourth quarter. The Company averaged four rigs, drilled 22 net wells and had 28 net wells TIL.
Fourth quarter D&C costs per lateral foot was $380, down approximately 25% compared to 2019 average D&C cost.
Full year production in the play averaged 204 MBOE/d (25% liquids).
There were 23 net wells TIL in the base assets during the fourth quarter. All fourth quarter TILs were drilled in the first half of the year.
Year-End 2020 Reserves
Under Canadian reserves protocol, proved and probable reserves were 4.2 billion BOE before royalties and 3.5 billion BOE after royalties. SEC proved reserves at year-end 2020 were 2.0 billion BOE, of which approximately 60% were liquids and 56% were proved developed. The significant gains in capital efficiency that the Company realized through the year resulted in an SEC total proved reserve replacement of 90% of 2020 production excluding price and net of acquisitions and divestitures.
Balance Sheet and Liquidity
Ovintiv's total liquidity at year end was approximately $3.3 billion, which represents the Company's $4 billion committed, unsecured credit facilities, available capacity on uncommitted demand lines and cash-on-hand, net of the amount drawn on the credit facilities and commercial paper outstanding.
Throughout 2020 Ovintiv took steps to capitalize on market dislocations, purchasing its notes at a discount in the open market, resulting in a $30 million gain as well as go-forward interest savings. During 2020, Ovintiv repurchased approximately $302 million in principal of its senior notes for a cash payment of approximately $272 million, plus accrued interest. The Company expects to incur lower interest expense of approximately $10 million on an annualized basis on the reduced fixed long-term debt balances. The Company has significant flexibility to manage its late 2021 and early 2022 maturities, including available cash on hand or the use of its credit facilities.
More than 80% of the Company's total fixed-rate long-term debt is due in 2024 or later and has an aggregate weighted average bond maturity of approximately nine years.
Regarding the Company's 2021 Outlook, Suttles said, "Our strong performance in 2020 sets us up well to deliver once again in 2021. We expect this will be our fourth consecutive year of generating significant free cash flow and we are confident in our ability to meaningfully reduce our debt over the next two years. Longer-term, our ongoing capital discipline and reinvestment rate commitment ensure that we will be able to return cash to shareholders – all critical components of the 'new E&P' company."
Ovintiv's 2021 planned capital investments are approximately $1.5 billion and are expected to generate non-GAAP Free Cash Flow of approximately $1 billion, assuming commodity prices of $50 WTI and $2.75 NYMEX. The capital program represents a cash flow reinvestment rate of about 60%, significantly lower than the Company's framework of less than 75%.
Over 90% of total capital investment is earmarked for Ovintiv's Core 3 assets—Permian, Anadarko and Montney. The Company plans to execute a load-levelled program with consistent quarterly levels of activity and capital spending.
Crude oil and condensate volumes are expected to be relatively flat through the year, averaging approximately 200 Mbbls/d. Full-year NGL (C2 – C4) production is expected to be approximately 80 Mbbls/d and natural gas is expected to average approximately 1.55 billion cubic feet per day (Bcf/d). Total costs in 2021 are expected to average approximately $12.25 to $12.50 per barrel of oil equivalent (BOE).
Ovintiv has strong risk management positions in place with about 65% of 2021 crude oil and condensate and natural gas production hedged. The majority of the hedges are in three-way structures that provide exposure to higher oil prices. Hedge tables can be found below.