Ovintiv Inc. (OVV) Q4 Results - Feb 22

[dan_s]

Highlights:

> Ovintiv recorded a fourth quarter net loss of $6 million , which was impacted by unrealized risk management losses ("mark-to-market adj on hedges; a non-cash item).
> Non-GAAP Operating earnings were $210 million. < This compares to my forecast of $206 million net income for the quarter.
> Cash from operating activities was $730 million and non-GAAP cash flow was $815 million. < This compares to my Q4 forecast of $797 million cash flow from operations.
> Fourth quarter non-GAAP free cash flow was $241 million.
> Fourth quarter crude oil and condensate production was 226 Mbbls/d.

The Company also announced its 2020 Outlook with capital investments expected to decrease about $175 million from the prior year on a proforma basis. The outlook is expected to generate the Company's third consecutive year of significant non-GAAP free cash flow and grow crude oil and condensate production by 4%. The 2020 investment program is aligned with Ovintiv's strategy to grow long-term stockholder value through disciplined capital investments, a return of cash to stockholders and profitable liquids growth.

"We finished 2019 very strong, marking the second consecutive year of generating free cash flow while growing our crude and condensate production," said CEO Doug Suttles . "Our disciplined capital investments, combined with a relentless focus on efficiency and innovation, has transformed Ovintiv into one of the largest independent producers of crude oil and condensate and amongst the top independents in EBITDA generation."

This is a BIG COMPANY:
Year-end 2019 reserves
Under Canadian reserves protocol, proved and probable reserves were 5.1 billion BOE before royalties and 4.2 billion BOE after royalties. SEC proved reserves at year-end 2019 were 2.2 billion BOE, of which 60% were liquids and 48% were proved developed and, excluding the impact of acquisitions and dispositions, reserve replacement was more than two times 2019 production.

2020 Outlook
Ovintiv's 2020 planned capital investments are $2.7 billion . Approximately 80% of the investments are allocated to development programs in the U.S. and more than 75% are earmarked for its three core assets—Permian, Anadarko and Montney .

Crude oil and condensate volumes are expected to grow 4% proforma year-over-year to 229 – 239 Mbbls/d. Full-year NGL (C2 – C4) production is expected to be 89 – 93 Mbbls/d, up 2% proforma from the prior year. Liquids (total crude oil and NGLs) are expected to comprise 56% of total production, up 2% over 2019 proforma volumes.

Total Costs in 2020 are expected to drop again year-over-year to $12.20 – $12.50 per barrel of oil equivalent (BOE).

The 2020 Outlook is supported by Ovintiv's derivatives' positions with over 70% of 2020 crude oil, condensate and natural gas production hedged.

The 2020 program is expected to be free cash flow positive at prices lower than the current strip prices of approximately $52 /bbl WTI oil and approximately $2.15 /MMBtu NYMEX natural gas. As of December 31, 2019 , Ovintiv had 2020 benchmark hedges of approximately 165 Mbbls/d of crude oil and condensate and 1,188 MMcf/d of natural gas.
Oil hedges in U.S. dollars
> 70,000 BOPD with Swaps at $57.56
> 80,000 BOPD with WTI 3-way options with ceilings of $61.68 and floors at $53.44 (short Put at $43.44)
> 15,000 BOPD with Costless Collars that have ceilings of $68.74 and floors at $50.00

"Our 2020 Outlook balances industry competitive crude oil and condensate growth, disciplined capital allocation and highly efficient execution to generate free cash flow for the third consecutive year", said Suttles. "In 2020, our business is well positioned for the current market volatility. Our risk management programs combined with almost complete capital flexibility give us confidence that we can generate free cash flow across a wide range of commodity outcomes and continue to return cash to our stockholders."

[dan_s]

I have updated my forecast/valuation model for OVV. It will be posted to the EPG website late today (2/22).

I am lowering my valuation, but I am only doing it because I think it will take time for the Wall Street Gang to figure this one out. The name change and 1 for 5 reverse split clearly makes the First Call Revenue, EPS and operating CFPS numbers "suspect". First Call forecasts are just the averages of all the analysts' forecasts submitted to Reuters. The ranges for the First Call forecast are very wide today because they include a lot of very old forecast. Only 3 of the 30 forecasts submitted to Reuters are dated after the company released Q4 financial results and their year-end reserve report. The three most recent forecasts have price targets of $22.50, $23.75 and $32.00 (RBC Capital).

OVV's production mix in 2020 s/b approximately 44% natural gas, 40% crude oil & condensate and 16% NGLs. Condensate sells very close to the oil price. The NGL volumes in my forecast model includes condensate, which explains the high NGL prices used in 2020 and 2021.

NGL prices in Canada have been terrible, so there is significant upside to my forecast if the North American NGL prices continue to improve.

Note that of OVV's 165,000 BOPD hedged, 95,000 bpd are hedged with collars that have ceilings of $61.68 to $68.74. This means there is a lot of upside to my forecast if oil and NGL prices move up.