Energy Prospectus

First Quarter 2020 Highlights:

Financial performance driven by strong production and lower costs.
Substantial liquidity at quarter-end of approximately $3.4 billion.
Repurchased $100 million of long-term debt in the open markets at an 11% discount.
Investment grade credit rating reaffirmed by two agencies.

Ovintiv Inc. (NYSE, TSX: OVV) announced its first quarter 2020 financial and operating results and will hold a conference call and webcast at 9 a.m. MT (11 a.m. ET) on May 8, 2020. Please see dial-in details within this release, as well as additional details on the Company's website at www.ovintiv.com.

"In the first quarter, we built on our track record of industry-leading efficiency and once again significantly drove down costs and delivered strong corporate-level results," said Doug Suttles, Ovintiv CEO. "These are challenging times, but we are using the flexibility we purposely built into our business to maintain financial strength and set our Company up to thrive in whatever new environment emerges in the coming months and years. Our focus on cost reductions is making a huge difference today and for the future. We are confident we can deliver both $200 million in cash cost reductions and a 20% improvement in capital efficiencies. Most of these savings will carry into 2021."

Due to the significant drop in oil prices and unprecedented near-term demand loss, Ovintiv today suspended all previously issued 2020 guidance. However, including recent cash cost reductions and its outlook for better capital efficiencies, the Company projects that a total capital investment scenario in 2020 of $1.8 to $1.9 billion would result in a 2020 exit rate for crude and condensate of approximately 200,000 bbls/d.

"In 2021, with a total capital investment scenario of approximately $1.5 billion, we are confident that we could deliver free cash flow at $35 per barrel WTI and $2.75 per MMBtu NYMEX natural gas while holding crude and condensate flat at 200,000 bbls/d," said Suttles.

Ovintiv delivered strong first quarter results driven by higher than budgeted production and a continued focus on cost reductions.
> Total average production was 571,300 BOE/d, or three percent higher than expectations. < Compares to my Q1 forecast of 584,833 Boepd.
> Crude and condensate production averaged 215,200 BOE/d.
> Total Costs of $12.17 per BOE were below expectations.
> First quarter capital investments were $790 million, below budget and consistent with previous expectations for a front-end weighted investment profile.

Net earnings in the first quarter were $421 million and were impacted by non-cash unrealized hedging gains of $904 million, before-tax, as well as a non-cash ceiling test impairment of $277 million, before-tax. The non-cash impairment primarily related to the decline in the 12-month average trailing prices for NGLs and natural gas which reduced the Company's SEC proved reserves values.

Cash from operating activities was $566 million and non-GAAP cash flow was $535 million. < Compares to my Q1 forecast of $512 million operating cash flow.

I will update my forecast/valuation model for OVV and it should be posted to the EPG website late this afternoon.

Strong Hedge Position Protects Cash Flow
Ovintiv is fully-hedged on near-term, benchmark oil price risk. For the second quarter, 203,000 bbls/d are hedged at an average of $42.09 per barrel. Of these positions, 188,000 bbls/d are in a fixed price swap at $41.47 per barrel and 15,000 bbls/d are covered by costless collars between $50.00 and $68.71 per barrel. "Benchmark" refers to NYMEX WTI. Natural gas hedges are also in place on approximately 1.2 Bcf/d.

Based on the forward strip as of April 30, second quarter realized risk management gains on benchmark oil and natural gas are expected to total approximately $500 million, and total $1.1 billion for the balance-of-year-2020. Settlements for various other oil differential and natural gas basis positions in 2020 serve to further reduce risk. See the Hedge Volume and Hedging Price Sensitivity tables below.

Balance Sheet and Liquidity
Ovintiv's $4 billion committed, unsecured credit facilities were recently renewed and extended through July 2024. The facilities have no reserve-based, cash flow, or EBITDA lending covenants or minimum credit rating requirements. The facilities' primary financial covenant is debt to adjusted capitalization, which is not to exceed 60%. This ratio is based on book value only, not market capitalization. At March 31, 2020, the debt to adjusted capitalization ratio was 28%. The capitalization calculation adjustment includes a fixed $7.7 billion add back to capitalization. Full terms can be found as an exhibit to the Company's 2019 Annual Report on Form 10-K.

Current liquidity is approximately $3.4 billion, which represents the $4 billion credit facilities, available capacity on uncommitted demand lines and cash-on-hand, less the current commercial paper outstanding and the amount drawn on the facilities.

During the first quarter, Ovintiv repurchased $100 million of its senior notes in the open market for $89 million. These transactions included approximately $90 million in principal amount of its 5.75% senior notes due January 2022 and approximately $10 million in principal amount of its 3.9% senior notes due November 2021. The Company has significant flexibility to manage the late 2021 and 2022 maturities, including the use of its credit facilities.

Approximately 80% of the Company's total long-term debt is due in 2024 or later with a weighted average bond maturity of approximately 10 years.

Ovintive is in good shape because today they have more than 100% if their oil production hedged for the remainder of 2020; most of it with WTI Swaps at $44.95/bbl.

What this means is that I have a HIGH degree of confidence in my forecast model for 2020 since commodity price risk (except for a small percentage of their NGLs) has been eliminated.

In 2019 Ovintiv generated $11.28 operating cash flow per share on $234 million of reported net income, $0.90/share.
Just in the first quarter of 2020 Ovintiv generated $2.06 operating cash flow per share on reported Q1 net income of $421, $1.62/share. < Reported net income during periods of extremely volatile commodity prices is a meaningless number, but operating cash flow is a very meaningful number.

The company did outspend Q1 cash flow from operations, which is a "NO-NO" these days, but they have slashed spending and will live within cash flow for the rest of the year.
As posted above, Ovintiv has plenty of liquidity so it passes the test and it will "Survive 2020 to Thrive in 2021".