Ovintiv Inc. announced a new capital allocation framework, which supports the Company's goal of unlocking shareholder value by delivering on its strategic priorities of financial strength, increasing cash returns to shareholders, generating superior returns on capital investment, and driving ESG progress.
"We are committed to unlocking shareholder value by delivering on our strategic priorities," said Ovintiv President and CEO, Brendan McCracken. "We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation. Over the next 10 years, our business is set to generate about $15 billion of free cash flow(1) at $55 per barrel WTI flat oil pricing and would generate about $21 billion at $65 per barrel. Our capital allocation framework sets out our commitment to financial strength, generating superior returns on the capital we invest, returning cash to our shareholders, and driving ESG progress."
Key highlights of the capital allocation framework include:
Increasing Cash Returns to Shareholders
Beginning in the fourth quarter of 2021, and until Ovintiv reaches its $3 billion net debt(2) target, the company plans to return 25% of the previous quarter's free cash flow after base dividends to its shareholders through share buybacks and/or variable dividends. The remaining 75% will primarily be allocated to net debt reduction, with a modest amount allocated to small, low-cost property bolt-ons.
In 2022, using commodity price assumptions of $60 per bbl for WTI oil and $3.00 per Mcf for NYMEX natural gas, the Company anticipates that it will deliver approximately $550 million of direct shareholder returns through its $150 million base dividend and an additional $400 million in share buybacks or variable dividends. This cash return would represent a cash yield of more than seven percent.
Once the Company reaches its net debt target of $3 billion, it plans to increase quarterly shareholder returns to at least 50% of the previous quarter's free cash flow after base dividends.
Maintaining Reinvestment Rate of Less Than 75%
Ovintiv reaffirmed its long-term commitment to reinvest less than 75% of non-GAAP cash flow at mid-cycle prices. In 2021, the Company's expected capital investment of $1.5 billion represents a cash flow reinvestment rate of less than 50%.
Sustainable Base Dividend
Providing shareholders with a sustainable base dividend which grows over time is a key focus for the Company. In July of 2021, Ovintiv increased its quarterly dividend payment by approximately 50% to $0.14 per share, payable on September 30, 2021, to common stockholders of record as of September 15, 2021. This was the second time the dividend was increased since 2019.
Continued Focus on Net Debt Reduction
Ovintiv remains committed to reducing net debt. By year-end 2021, the Company expects net debt to be below $4.5 billion, marking approximately $3 billion of net debt reduction since the second quarter of 2020.
The Company previously set a net debt target of $3 billion, which it expects to achieve by or before year-end 2023, assuming $50 per bbl WTI oil and $2.75 per Mcf NYMEX natural gas prices.
Highly Repeatable Capital Program
With more than a decade of premium drilling inventory in each of its core three assets – the Permian, Anadarko and Montney - Ovintiv is well positioned to continue delivering industry-leading capital efficiencies for many years to come.
The Company views the capital efficiency of its 2021 program as being highly repeatable and it is committed to not grow production into an oversupplied market.