US Ovintiv Swings to Profit in Q1
Denver-based Ovintiv (formerly Canadian EnCana) said May 7 – after markets had closed – it had Q1 2020 net earnings of US$421mn (C$586mn), reversing a $245mn loss in the same quarter a year ago. Pre-tax earnings swung to $534mn from a pre-tax loss of $504mn in Q1 2019.
“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,” CEO Doug Suttles said. “Our focus on cost reductions is making a huge difference today and for the future. We are confident we can deliver both $200mn in cash cost reductions and a 20% improvement in capital efficiencies. Most of these savings will carry into 2021.”
Although it has suspended all 2020 guidance estimates, Ovintiv expects cash cost reductions and improved capital efficiencies, combined with a total capital investment this year of between $1.8bn and $1.9bn, to result in a 2020 exit rate for crude and condensate production of 200,000 b/d.
“In 2021, with a total capital investment scenario of approximately $1.5bn, we are confident that we could deliver free cash flow at $35/b WTI and $2.75/mn Btu Nymex natural gas, while holding crude and condensate flat at 200,000 b/d,” Suttles said.
The company said its “strong” first quarter results were driven by higher than budgeted production and a continued focus on cost reductions. Total production for the quarter averaged 571,300 boe/d (52% liquids), while crude and condensate production averaged 215,200 boe/d and total costs were $12.17/boe.
Net earnings in the first quarter were impacted by non-cash unrealized hedging gains of $904mn, before-tax, as well as a non-cash ceiling test impairment of $277mn, also before-tax. The non-cash impairment primarily related to the decline in the 12-month average trailing prices for natural gas and natural gas liquids, which reduced the company’s proved reserves values.
For the second quarter, Ovintiv has slashed its capital investments budget by about 60%, and now expects spending in the $250-$300mn range. By mid-May, the company will have idled two-thirds of its operated rig fleet and will run just seven rigs – three in the Permian, two in the Anadarko and two in Canada’s Montney basin – and no frac spreads.
The Montney, which delivered total Q1 production of 204,700 boe/d (74% natural gas), produces 60% of Ovintiv’s total natural gas volumes, and has a significant inventory of dry gas opportunities, the company said.
In response to low oil prices, the company has also adopted what it calls a “dynamic shut-in strategy” based on variable costs and margins and price factors. Current net shut-in volumes are about 65,000 boe/d, including 35,000 b/d of crude and condensates.