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Ovintiv Takes Immediate and Significant Action; Reduces Second Quarter 2020 Capital Investments by $300 Million; Full-Year Cash Costs to Drop by $100 Million


Company dropping 10 operated rigs immediately and an additional six rigs in May

DENVERMarch 12, 2020 /CNW/ – Ovintiv Inc. (NYSE, TSX: OVV) today announced plans to immediately reduce second quarter 2020 capital investments by $300 million and full year cash costs by $100 million. This is the first step in response to the recent large drop in oil prices. The Company has no long-term service commitments to fulfill and intends to use its operational flexibility to maintain balance sheet strength. Ovintiv is fully prepared to further reduce capital investments and activity levels as market conditions dictate.

“We are moving quickly and decisively in response to these volatile and challenging times. It is imperative to take immediate action and we are dropping roughly two-thirds of our operated rigs and reducing our cash costs by $100 million,” said CEO Doug Suttles. “Market conditions are changing rapidly, and we have full operational flexibility to further adjust activity to maintain our balance sheet strength.”

The Company is immediately dropping 10 operated drilling rigs and plans to drop an additional six operated rigs in May 2020. Following these rig count reductions, Ovintiv will have three operated rigs in the Permian, two in the Anadarko and two in the Montney.

Beyond the immediate spending cuts announced today, Ovintiv is prepared to further reduce capital investments throughout the year to ensure free cash neutrality and balance sheet strength. The Company expects to provide an update to its 2020 guidance in conjunction with first-quarter reporting.

Strong Balance Sheet & Robust Liquidity Through Mid-2024:

  • The credit facilities are fixed at $4 billion until their maturity in July 2024 and commodity prices have zero impact on availability. They have no reserve-based, cash flow or EBITDA lending covenants or minimum credit rating requirements. The facilities are based on book value only (not market capitalization) with a maximum ratio of 60% debt-to-adjusted capitalization (at year-end 2019, ratio was 28%). The capitalization calculation adjustment includes a fixed $7.7 billion add back to capitalization. Full terms of the credit facilities can be found as an exhibit to the Company’s Form 10-K. In addition, a table can be found in this release.
  • Current liquidity is approximately $3.5 billion, which represents the $4 billion credit facilities plus cash-on-hand, less the Company’s current commercial paper balance.
  • OVV is rated investment grade at BBB.
  • Approximately 80% of total long-term debt is due in 2024, or beyond, with a weighted average bond maturity of approximately 10 years.
  • The Company has significant flexibility to manage the late 2021 and 2022 maturities, including the use of the credit facilities.

Strong Hedging Position Protects Cash Flow:

  • More than 70% of 2020 crude oil and condensate production and 2020 natural gas production is hedged at prices significantly above the current market. The Company utilizes more than a dozen “A” credit rated hedge counterparties. See hedge table in this release.

Recent U.S. Shelf Registration Filing:

  • A recent U.S. shelf registration filing was made on March 6, 2020. This shelf was part of a normal course renewal and the Company has no current intentions of issuing any debt or equity under the shelf.

Debt to Adjusted Capitalization at December 31, 2019:

($ MM)

2019

Credit Facility
Covenant

Long-Term Debt, including current portion

$6,974

Total Shareholders’ Equity

9,930

Equity adjustment for impairments at December 31, 2011

7,746

Adjusted Capitalization

$24,650

Debt to Adjusted Capitalization

28%

60%

 

Note: Please refer to the Non-GAAP Definitions and Reconciliations on the Company’s website. Debt to Adjusted Capitalization is a proxy for Ovintiv’s financial covenant under the Company’s credit facilities which require debt to adjusted capitalization to be less than 60 percent. Adjusted Capitalization includes debt, total shareholders’ equity and an equity adjustment for cumulative historical ceiling test impairments recorded as of December 31, 2011 in conjunction with the Company’s January 1, 2012 adoption of U.S. GAAP.

Hedge Volumes as of December 31, 2019:

Natural Gas Hedges

2020

Oil & Condensate Hedges

2020

Total Benchmark Hedges

1,188 MMcf/d

Total Benchmark Hedges

165 Mbbls/d

Benchmark Hedges ($/Mcf)

Benchmark Hedges ($/bbl)

NYMEX Swaps
Swap Price

803 MMcf/d
$2.65

WTI Swaps
Swap Price

70 Mbbls/d
$57.56

NYMEX 3-Way Options
Short Call
Long Put
Short Put

330 MMcf/d
$2.72
$2.60
$2.25

WTI 3-Way Options
Short Call
Long Put
Short Put

80 Mbbls/d
$61.68
$53.44
$43.44

NYMEX Costless Collars
Short Call
Long Put

55 MMcf/d
$2.88
$2.50

WTI Costless Collars
Short Call
Long Put

15 Mbbls/d
$68.71
$50.00

Basis Hedges ($/Mcf)

Basis Hedges ($/bbl)

AECO Basis Swaps
Swap Price

349 MMcf/d
($0.88)

WTI / Midland Swaps
Swap Price

8 Mbbls/d
($1.20)

WAHA Basis Swaps
Swap Price

105 MMcf/d
($0.91)

“NEW” Price Sensitivities for Oil Hedge Gains/Losses by Quarter for 2020 ($ MM):

Period

$20

$30

$40

$50

$60

1Q 2020

353

276

198

73

(23)

2Q 2020

353

276

198

73

(23)

3Q 2020

357

279

201

74

(23)

4Q 2020

357

279

201

74

(23)

2020

$1,420

$1,109

$798

294

($93)

“NEW” Price Sensitivities for Gas Hedge Gains/Losses by Quarter for 2020 ($ MM)

Period

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

1Q 2020

138

119

100

81

62

43

2Q 2020

143

123

103

83

63

44

3Q 2020

145

125

104

84

64

44

4Q 2020

141

121

102

82

63

43

2020

$566

$488

$409

$331

$252

$174

 

Note: Sensitivities do not include gains or losses related to differential hedges.

Note: Company has additional hedges on Butane and Propane not included. 



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