Ovintiv Inc. (OVV) Update - Oct 19

[dan_s]

I have updated my forecast/valuation model for OVV and it will be posted to the EPG website later today.

Ovintiv, former known as EnCana, should generate close to $3 Billion of cash flow from operations during the 18-months 7/1/2020 to 12/31/2021. Free Cash Flow (FCF) should be over $500 million, which the company says will be used to pay down debt.

Outside of the Sweet-16's three almost pure "gassers" (CRK, EQT and RRC), OVV and Cimarex Energy (XEC) are the two companies that will benefit the most from higher natural gas and NGL prices in Q4 and 2021. My forecast models now assume that HH natural gas prices will average $3.00/MMBtu in 2021, which is lower than EIA's latest gas price forecast of $3.13 for 2021.

OVV is trading at $9.51 at the time of this post. Since mid-Sept, TipRanks shows three fresh analysts reports with price targets of $12, $14 and $15.50.

I have increased my valuation by $1.50 to $18.50, primarily because I've increased my price assumptions for both natural gas and NGLs.
On a BOE basis, Ovintiv's production mix is approximately 47.4% natural gas, 25.0% NGLs & Condensate and 27.6% crude oil.

OVV's production will be down from 536,600 Boepd in Q2 to ~520,000 Boepd in Q3 and then it should ramp up to a 2020 exit rate of ~550,000 Boepd.