Ovintiv – Solid Q3 results
Posted: Fri Nov 08, 2024 8:12 am
Ovintiv reported solid Q3 results. Production was above expectation. The balance sheet is sound. Profit was as expected. PE is medium/low. Shareholder returns are high.
Production
• Q3 production (592.6 K BoE/d) was well above the outlook (570-580 K BoE/d).
• This was no surprise. Ovintiv is always very conservative in their outlook and has beaten their outlook in six out of the last seven quarters.
• I had expected a Q3 production of 585 K BoE/d. Q2 production was 594 K BoE/d.
• Ovintiv Q4 outlook is 575-595 BoE/d).
• Ovintiv 2024 outlook was raised from 570-580 K BoE/d to 583-587 K BoE/d
• For 2024 I expect a production of 587 K BoE/d.
• After 2024, Production in 2025 will stay around 585-590 K BoE/d, potentially growing with 2%/year to 620 K BoE/d in 2028.
Balance sheet
• The equity ratio (= equity/balance sheet total) increased from 52.1% (Q2) to 53.7% (Q3)
• The equity ratio should increase to a good 54.2% late 2024.
• Long term debt in Q3 was $4,853 M , flat to Q2
• The 2024 debt/EBITDA ratio should be an acceptable 1.1, gradually falling to well below 1.0 in 2026.
• The balance sheet allows shareholder returns.
Profitability
• Q3 net eps was $ 1.92 due to a $ 150 M legal dispute which was won. Taking this out the eps was $ 1.29, similar to Q2 (eps $ 1.28).
• Realized oil, NGL and gas process and operational costs were better than expected.
• For 2024 with WTI = $ 71.77/bbl, I expect a net eps (excluding non-cash hedging) of eps $ 5.65, PE=7.4).
• With higher production and higher gas prices, the eps can gradually increase to $ 6.50 in 2028 (PE=6.4).
• Ovintiv is very profitable.
Shareholder returns
• Ovintiv has indicated it want to return > 50% of the FCF to shareholders.
• Ovintiv paid a fixed quarterly dividend of $ 0.30 in Q1 - Q3.
• I expect the fixed dividend of $ 0.30 to continue in Q4.
• In Q3 Ovintiv bought back share for $ 162 M. This on top of $ 248 (Q1) and $ 184 M (Q2).
• Ovintiv has plans for Q4 share buybacks of $ 181 M.
• buybacks in 2024 thus should reach $ 773 M.
• Dividends and share buybacks combine in a 2024 yield of 6.1%.
• With increasing profits, returns in 2025 and beyond can increase to 7.5-9.5%.
Conclusions
Ovintiv reported solid Q3 results. Production was above expectation. The balance sheet is sound. Profit was as expected. PE is medium/low. Shareholder returns are high.
Ovintiv ranks a high 18th (out of 82) in my oil and gas company ranking, well in the top 25.
Production
• Q3 production (592.6 K BoE/d) was well above the outlook (570-580 K BoE/d).
• This was no surprise. Ovintiv is always very conservative in their outlook and has beaten their outlook in six out of the last seven quarters.
• I had expected a Q3 production of 585 K BoE/d. Q2 production was 594 K BoE/d.
• Ovintiv Q4 outlook is 575-595 BoE/d).
• Ovintiv 2024 outlook was raised from 570-580 K BoE/d to 583-587 K BoE/d
• For 2024 I expect a production of 587 K BoE/d.
• After 2024, Production in 2025 will stay around 585-590 K BoE/d, potentially growing with 2%/year to 620 K BoE/d in 2028.
Balance sheet
• The equity ratio (= equity/balance sheet total) increased from 52.1% (Q2) to 53.7% (Q3)
• The equity ratio should increase to a good 54.2% late 2024.
• Long term debt in Q3 was $4,853 M , flat to Q2
• The 2024 debt/EBITDA ratio should be an acceptable 1.1, gradually falling to well below 1.0 in 2026.
• The balance sheet allows shareholder returns.
Profitability
• Q3 net eps was $ 1.92 due to a $ 150 M legal dispute which was won. Taking this out the eps was $ 1.29, similar to Q2 (eps $ 1.28).
• Realized oil, NGL and gas process and operational costs were better than expected.
• For 2024 with WTI = $ 71.77/bbl, I expect a net eps (excluding non-cash hedging) of eps $ 5.65, PE=7.4).
• With higher production and higher gas prices, the eps can gradually increase to $ 6.50 in 2028 (PE=6.4).
• Ovintiv is very profitable.
Shareholder returns
• Ovintiv has indicated it want to return > 50% of the FCF to shareholders.
• Ovintiv paid a fixed quarterly dividend of $ 0.30 in Q1 - Q3.
• I expect the fixed dividend of $ 0.30 to continue in Q4.
• In Q3 Ovintiv bought back share for $ 162 M. This on top of $ 248 (Q1) and $ 184 M (Q2).
• Ovintiv has plans for Q4 share buybacks of $ 181 M.
• buybacks in 2024 thus should reach $ 773 M.
• Dividends and share buybacks combine in a 2024 yield of 6.1%.
• With increasing profits, returns in 2025 and beyond can increase to 7.5-9.5%.
Conclusions
Ovintiv reported solid Q3 results. Production was above expectation. The balance sheet is sound. Profit was as expected. PE is medium/low. Shareholder returns are high.
Ovintiv ranks a high 18th (out of 82) in my oil and gas company ranking, well in the top 25.