Ovintiv (OVV) Q2 Results - July 30

[dan_s]

Beat my forecast.

Highlights:

Generated net earnings of $340 million, cash from operating activities of $1,020 million, Non-GAAP Cash Flow of $1,025 million and Non-GAAP Free Cash Flow of $403 million after capital expenditures of $622 million

Second quarter production was at the high-end or above the guidance range on every product with average total production volumes of 594 thousand barrels of oil equivalent per day ("MBOE/d"), including 212 thousand barrels per day ("Mbbls/d") of oil and condensate, 92 Mbbls/d of other NGLs (C2 to C4) and 1,740 million cubic feet per day ("MMcf/d") of natural gas

Returned $262 million to shareholders through the combination of base dividend payments and share buybacks

Raised full year production guidance range to 570 MBOE/d to 580 MBOE/d, including oil and condensate of 207 Mbbls/d to 209 Mbbls/d and natural gas of 1,660 MMcf/d to 1,690 MMcf/d

Full year capital guidance range narrowed to $2.25 billion to $2.35 billion, midpoint unchanged at $2.3 billion

[Petroleum economist]

Summary
Ovintiv reported solid Q2 results, slightly above expectations. Production is growing. The balance sheet is sound, and the long-term debt is reducing. Profitability is good and increasing over time. PE is low. Shareholder returns are high.

Production
• Q2 production (594 K BoE/d) was well above the outlook (565-575 K BoE/d), This was no surprise. Ovintiv is always very conservative in their outlook and has beaten their outlook in five out of the last six quarters.
• Production consisted of slightly more gas and less oil than Q1 (delta 1%)
• I expect for Q3 a production of 585 K BoE/d. Q3 outlook is 570-580 K BoE/d.
• For 2024 I expect a production of 583 K BoE/d. The Ovintiv outlook increased from 560-575 K BoE/d to 570-580 K BoE/d.
• For 2025 I expect a production of 585-590 K BoE/d

Balance sheet
• The balance sheet is solid.
• Solvency increased from 51.9% (late 2023) to 52.1% (Q2 2024).
• Long term debt reduced $ 600 M from $5,453 M (late 2023) to $ 4,853 M.
• The 2024 debt/EBITDA ratio is sound and should be <1.0.
• The balance sheet allows shareholder returns.

Profitability
• Operational costs were in line with expectations
• 2024-unit costs are heading for $ 27.80/BoE, corrected for fluid composition in line with industry average.
• Q2 net profit was $ 340 M (eps 1.28).
• For 2024 with WTI = $ 75-80/bbl I expect a net profit (excluding non-cash hedging) of $ 1,607-1,753 M (eps-$ 6.02-6.57, PE=7.0-76).
• With increasing production and higher gas prices eps can increase to $ 6.48-7.58- (2025) and $ 7.52-6.86 (2028).
• Ovintiv is very profitable

Shareholder returns
• Ovintiv pays a quarterly dividend of $ 0.30.
• In Q2 Ovintiv bought back share for $ 184 M. ($ 248 M in Q1)
• I expect total share buybacks in 2024 to equal $ 790 M.
• Dividends and share buybacks combined 2024 yield is a high 9.1%
• Returns in 2025 and beyond can stay at 9.1% or even increase further.

Conclusions
Ovintiv reported solid Q2 results, slightly above expectations. Production is growing. The balance sheet is sound, and the long-term debt is reducing. Profitability is good and increasing over time. PE is low. Shareholder returns are high.

Ovintiv ranks a high 11th (out of 81) in my oil and gas company ranking and looks like a good investment.
I will explain oil and gas company ranking at the upcoming webinar with Dan on Friday.

[dan_s]

My pre-release valuation of OVV was $70/share. It will be going up. It should get a lot of upgrades from the Wall Street Gang today.