Energy Prospectus

Earlier this week BofA's Equity Research Team met with the CFO of Ovintiv. Below are their notes. I have underlined a few sentences that support my move to add OVV to our Sweet 16.
OVV opened at $25.57 this morning. My current valuation is $57.00.

Ovintiv (OVV)
Corey Code, Executive Vice President and CFO

We were fortunate to be joined by Corey Code, Executive Vice President and CFO of
Ovintiv. Having recently initiated coverage, we continue to see OVV as among the most
undervalued E&Ps given a free cash flow outlook that should allow it to meet its debt
objectives while incrementally improve its cost of capital, which is the highest amongst
peers at approximately 8%. Highlights from our recent meeting can be summarized as
follows.

• Balance sheet and return of capital to shareholders. OVV’s new debt target of
achieving $3bn by 2023 seems conservative with risk that it could be there a year
earlier based on strip pricing. We see this as a positive as it should help to lower
the company’s beta and improve its cost of capital which should help lift its
valuation. With regards to potentially returning cash to shareholders. While no final
decision has been made, this could include increasing its fixed dividend, a variable
dividend as well as potential buybacks.

• Inventory and maintenance capex. OVV still sees at least a decade of inventory
across its main exposures (the Permian, the Anadarko and the Montney). With that
said, areas such as the Bakken could still potentially attract additional capital next
year. The only reason it does not fall into a “core” area is that it does not have the
depth of running room. With regards to maintenance spending, management sees
this as probably slightly less than $1.5bn as it has sold off some assets (Eagle Ford
and Duvernay) this year and that it should improve further overtime given that it is
not pursuing growth. The average oil breakeven for OVV is probably in the low
$40’s as it does have a higher mix of gas.

• Thoughts on growth. The near-term focus remains on generating free cash flow
and working on the balance sheet. With that said, if it were to return to growth
sometime down the road, the most it would grow would likely be in the low to single
digits. It retains a 75% reinvestment rate of operating cash flow, which is below
this year in the 50% range.

• M&A. OVV continues to appear not to be in the market for large-scale M&A.
Anything that it would possibly acquire would have to compete on a full-cycle return
basis.
MY TAKE: Based on its current share price (just 2X operating cash flow) and extensive inventory of low-risk / high-return drilling inventory, I would rate OVV as one of the Top Takeover Targets in the Sweet 16.

Goldman Sachs on Tuesday reiterated its buy rating on the shares of Ovintiv ( OVV
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) , with a US$34.00 target price

"In our view, OVV shares underperformed with 2Q results despite a favorable operational update in part due to a lack of clarity around capital returns," the investment bank said in a report. "We believe the company is on track to achieve its $4.5 bn net debt target by year-end, which can allow for combination of capital returns (likely share repurchase given the shares trade at a deep-discount on FCF yield) while progressing towards the long-term net debt target of $3 bn. Specifically, as of 2Q21 about 25% of OVV's production was NGLs, 38% of which was C5+ condensate, which receives closer to WTI-linked pricing. We note that NGLs pricing has been favorable recently, which can allow for shares to rerate higher."

Ovintiv is a new name for EnCana, a very good large-cap that has been around for decades. It hold some very valuable assets.

Which gassers have the least amount of NG hedged at low prices? Sweet 16 and Small Cap?

Hedges are shown at the bottom of each forecast/valuation model. AR has the most dry gas hedged but a lot of unhedged NGLs. CLR and EOG have a lot of unhedged gas.

05:34 PM EDT, 09/09/2021 (MT Newswires) -- Ovintiv ( OVV
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) edged down in after-hours New York trading after the company on Thursday said it is changing its capital-allocation strategy to increase returns to shareholders.

The oil and gas producer said that beginning in the fourth quarter it will return 25% of its prior-quarter free cash flow after dividends to shareholders through buybacks or variable dividends. It will continue with the cash-back strategy until it reaches its goal of cutting debt to US$3 billion.

Ovintiv ( OVV
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) said that it expects the program will return about US$550 million to shareholders in 2022, including US$150 million from its base dividend and US$400 million in buybacks or variable dividends. Once it reaches its US$3-billion debt target, distributions will be raised to 50% of prior-quarter free cash flow

It is forecasting debt to be under US$4.5 billion by the end of 2021 and expects to reach its US$3 billion target before the end of 2023.

"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 ... 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," chief executive Brendan McCracken said in a release.

https://filecache.investorroom.com/mr5i ... 021_vF.pdf

webcast friday 10:20 AM | Ovintiv Inc


https://kvgo.com/ceo-energy-power/ovintiv-inc-sept-2021

Up sharply after hours, people apparently like dividends

it seems that O&G stocks are going to have a shareholder return profile similar to tobacco stocks now

Yes, the Wall Street Gang wants FCF to be paid out to shareholders. Several of the Sweet 16 have announced "Fixed + Variable Dividends" are on the way. Based on my forecast PXD could be tripling their dividends in 2022.