Ovintiv Takes Immediate and Significant Action; Reduces Second Quarter 2020 Capital Investments by $300 Million; Full-Year Cash Costs to Drop by $100 Million
March 12, 202012:00 PM CNW
Company dropping 10 operated rigs immediately and an additional six rigs in May DENVER, March 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)2019Credit Facility CovenantLong-Term Debt, including current portion$6,974Total Shareholders’ Equity9,930Equity adjustment for impairments at December 31, 20117,746Adjusted Capitalization$24,650Debt to Adjusted Capitalization28%60% Note: Please refer to the Non-GAAP Definitions and Reconciliations on the Company’s website. Debt to Adjusted Capitalization is a proxy for Ovintiv’s financial covenant under the Company’s credit facilities which require debt to adjusted capitalization to be less than 60 percent. Adjusted Capitalization includes debt, total shareholders’ equity and an equity adjustment for cumulative historical ceiling test impairments recorded as of December 31, 2011 in conjunction with the Company’s January 1, 2012 adoption of U.S. GAAP.Hedge Volumes as of December 31, 2019: Natural Gas Hedges2020Oil & Condensate Hedges2020Total Benchmark Hedges1,188 MMcf/dTotal Benchmark Hedges165 Mbbls/dBenchmark Hedges ($/Mcf)Benchmark Hedges ($/bbl)NYMEX Swaps Swap Price803 MMcf/d $2.65WTI Swaps Swap Price70 Mbbls/d $57.56NYMEX 3-Way Options Short Call Long Put Short Put330 MMcf/d $2.72 $2.60 $2.25WTI 3-Way Options Short Call Long Put Short Put80 Mbbls/d $61.68 $53.44 $43.44NYMEX Costless Collars Short Call Long Put55 MMcf/d $2.88 $2.50WTI Costless Collars Short Call Long Put15 Mbbls/d $68.71 $50.00Basis Hedges ($/Mcf)Basis Hedges ($/bbl)AECO Basis Swaps Swap Price349 MMcf/d ($0.88)WTI / Midland Swaps Swap Price8 Mbbls/d ($1.20)WAHA Basis Swaps Swap Price105 MMcf/d ($0.91)“NEW” Price Sensitivities for Oil Hedge Gains/Losses by Quarter for 2020 ($ MM): Period$20$30$40$50$601Q 202035327619873(23)2Q 202035327619873(23)3Q 202035727920174(23)4Q 202035727920174(23)2020$1,420$1,109$798294($93)“NEW” Price Sensitivities for Gas Hedge Gains/Losses by Quarter for 2020 ($ MM) Period$1.00$1.25$1.50$1.75$2.00$2.251Q 20201381191008162432Q 20201431231038363443Q 20201451251048464444Q 20201411211028263432020$566$488$409$331$252$174