Ovintiv(OVV) - 2024 Q2 - Quarterly Report

General Information Registrant Information Ovintiv Inc. is a Delaware-incorporated large accelerated filer, with its common shares traded on the New York Stock Exchange under the symbol OVV - Ovintiv Inc. is a Delaware-incorporated large accelerated filer[87][109] - Common shares are traded on the New York Stock Exchange under the symbol OVV[87] Common Stock Outstanding | Date | Number of Shares Outstanding | | :------------- | :--------------------------- | | July 19, 2024 | 263,608,160 | Definitions, Conversions, and Conventions This section provides definitions for key industry terms and abbreviations, outlines conversion methods for natural gas volumes to barrels of oil equivalent (BOE), and specifies conventions for dollar amounts and royalty basis - The report defines key industry terms and abbreviations such as AECO, BOE, DD&A, MD&A, NCIB, NGL, NYMEX, NYSE, OPEC, SEC, S&P 400, TSX, U.S. GAAP, and WTI[91] - Natural gas volumes are converted to BOE on a 6 Mcf to 1 bbl basis, with a cautionary note that this energy equivalency does not represent economic value equivalency at the wellhead[92] - All dollar amounts are expressed in U.S. dollars, and all information is presented on an after royalties basis[93] Forward-Looking Statements and Risk Factors This section highlights that the report contains forward-looking statements regarding future activities, plans, strategies, and expectations, which are subject to significant business, economic, competitive, regulatory, and other risks and uncertainties - The report contains forward-looking statements about anticipated future activities, plans, strategies, objectives, and expectations, identified by words like 'anticipates,' 'expects,' 'plans,' 'will,' and 'would'[96] - Forward-looking statements are subject to significant business, economic, competitive, regulatory, and other risks and uncertainties, many of which are difficult to predict and beyond the company's control[118] - The company undertakes no obligation to update or revise any forward-looking statements, and investors should refer to the risk factors in the 2023 Annual Report on Form 10-K[98][120] PART I: Financial Information Item 1. Financial Statements This section presents Ovintiv Inc.'s unaudited interim condensed consolidated financial statements, including the statements of earnings, comprehensive income, balance sheet, changes in shareholders' equity, and cash flows, along with accompanying notes - The interim Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP and SEC rules, with certain information condensed or disclosed annually[157] - The statements reflect all normal and recurring adjustments necessary to present fairly the financial position and results[131] Condensed Consolidated Statement of Earnings Presents the company's net earnings, basic and diluted EPS, total revenues, and operating expenses for the reported periods Net Earnings (Loss) and EPS | Metric | Three Months Ended June 30, 2024 (US$ millions) | Three Months Ended June 30, 2023 (US$ millions) | Six Months Ended June 30, 2024 (US$ millions) | Six Months Ended June 30, 2023 (US$ millions) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net Earnings (Loss) | 340 | 336 | 678 | 823 | | Basic EPS | 1.28 | 1.35 | 2.53 | 3.33 | | Diluted EPS | 1.27 | 1.34 | 2.51 | 3.28 | Total Revenues and Operating Expenses | Metric | Three Months Ended June 30, 2024 (US$ millions) | Three Months Ended June 30, 2023 (US$ millions) | Six Months Ended June 30, 2024 (US$ millions) | Six Months Ended June 30, 2023 (US$ millions) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total Revenues | 2,288 | 2,517 | 4,640 | 5,068 | | Total Operating Expenses | 1,732 | 1,986 | 3,590 | 3,859 | | Operating Income (Loss) | 556 | 531 | 1,050 | 1,209 | Condensed Consolidated Statement of Comprehensive Income Details the company's comprehensive income, including net earnings and other comprehensive income or loss components Comprehensive Income (Loss) | Metric | Three Months Ended June 30, 2024 (US$ millions) | Three Months Ended June 30, 2023 (US$ millions) | Six Months Ended June 30, 2024 (US$ millions) | Six Months Ended June 30, 2023 (US$ millions) | | :---------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net Earnings (Loss) | 340 | 336 | 678 | 823 | | Other Comprehensive Income (Loss) | (33) | 52 | (110) | 52 | | Comprehensive Income (Loss) | 307 | 388 | 568 | 875 | - Other Comprehensive Income (Loss) for the six months ended June 30, 2024, was primarily impacted by a foreign currency translation adjustment of $(107) million[123] Condensed Consolidated Balance Sheet Provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific reporting dates Balance Sheet Highlights | Metric | As at June 30, 2024 (US$ millions) | As at December 31, 2023 (US$ millions) | | :---------------------------------------- | :--------------------------------- | :------------------------------------- | | Total Assets | 19,809 | 19,987 | | Current Assets | 1,400 | 1,676 | | Property, Plant and Equipment, net | 14,844 | 14,640 | | Total Liabilities | 9,481 | 9,617 | | Current Liabilities | 3,200 | 2,812 | | Long-Term Debt | 4,853 | 5,453 | | Total Shareholders' Equity | 10,328 | 10,370 | - Current portion of long-term debt significantly increased from $284 million at December 31, 2023, to $1,234 million at June 30, 2024[101] Condensed Consolidated Statement of Changes in Shareholders' Equity Outlines the changes in share capital, paid-in surplus, retained earnings, and accumulated other comprehensive income over the reporting periods Changes in Shareholders' Equity (Six Months Ended June 30, 2024) | Item | Share Capital (US$ millions) | Paid in Surplus (US$ millions) | Retained Earnings (US$ millions) | Accumulated Other Comprehensive Income (US$ millions) | Total Shareholders' Equity (US$ millions) | | :------------------------------------- | :--------------------------- | :----------------------------- | :------------------------------- | :---------------------------------------------------- | :---------------------------------------- | | Balance, December 31, 2023 | 3 | 8,620 | 697 | 1,050 | 10,370 | | Net Earnings (Loss) | - | - | 678 | - | 678 | | Dividends on Shares of Common Stock | - | - | (160) | - | (160) | | Shares of Common Stock Purchased | - | (434) | - | - | (434) | | Equity-Settled Compensation Costs | - | (16) | - | - | (16) | | Other Comprehensive Income (Loss) | - | - | - | (110) | (110) | | Balance, June 30, 2024 | 3 | 8,170 | 1,215 | 940 | 10,328 | Changes in Shareholders' Equity (Six Months Ended June 30, 2023) | Item | Share Capital (US$ millions) | Paid in Surplus (US$ millions) | Retained Earnings (US$ millions) | Accumulated Other Comprehensive Income (US$ millions) | Total Shareholders' Equity (US$ millions) | | :------------------------------------- | :--------------------------- | :----------------------------- | :------------------------------- | :---------------------------------------------------- | :---------------------------------------- | | Balance, December 31, 2022 | 3 | 7,776 | (1,081) | 991 | 7,689 | | Net Earnings (Loss) | - | - | 823 | - | 823 | | Dividends on Shares of Common Stock | - | - | (143) | - | (143) | | Shares of Common Stock Purchased | - | (328) | - | - | (328) | | Shares of Common Stock Issued | - | 1,169 | - | - | 1,169 | | Equity-Settled Compensation Costs | - | 54 | - | - | 54 | | Other Comprehensive Income (Loss) | - | - | - | 52 | 52 | | Balance, June 30, 2023 | 3 | 8,671 | (401) | 1,043 | 9,316 | Condensed Consolidated Statement of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the reported periods Cash Flow Summary | Activity Type | Three Months Ended June 30, 2024 (US$ millions) | Three Months Ended June 30, 2023 (US$ millions) | Six Months Ended June 30, 2024 (US$ millions) | Six Months Ended June 30, 2023 (US$ millions) | | :--------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating Activities | 1,020 | 831 | 1,679 | 1,899 | | Investing Activities | (641) | (3,008) | (1,402) | (3,871) | | Financing Activities | (376) | 2,206 | (274) | 2,022 | | Net Change in Cash | 3 | 26 | 5 | 47 | - Net cash from operating activities increased by $189 million in Q2 2024 compared to Q2 2023, but decreased by $220 million for the first six months of 2024 compared to the same period in 2023[12] - Cash used in investing activities for the first six months of 2024 was $1,402 million, primarily due to capital expenditures and acquisitions in USA Operations[12] - Net cash used in financing activities for the first six months of 2024 was $274 million, a significant change from net cash from financing activities of $2,022 million in 2023, mainly due to net issuance of long-term debt in 2023 and increased share repurchases in 2024[14] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the condensed consolidated financial statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This MD&A provides management's perspective on Ovintiv's business, including an overview of its condensed consolidated results for the three and six months ended June 30, 2024 - Ovintiv aims to be a leading North American energy producer, focused on developing its high-quality multi-basin portfolio of oil and natural gas producing plays[232] - The company's strategy includes delivering quality returns from capital investment, generating significant cash flows, and providing durable cash returns to shareholders[232] - Ovintiv is committed to driving progress in environmental, social, and governance (ESG) areas, aligning with corporate responsibility[232] Executive Overview Presents a high-level summary of the company's strategic priorities, operational philosophy, and key performance drivers - Ovintiv's strategy is underpinned by core values of one, agile, innovative, and driven, guiding the organization to be collaborative, responsive, flexible, and determined[234] - The company uses non-GAAP measures like Non-GAAP Cash Flow, Debt to Adjusted Capitalization, Debt to EBITDA, and Debt to Adjusted EBITDA to evaluate operations and leverage[235] Highlights Summarizes key financial and operational achievements for the reporting period, including earnings, share repurchases, and production volumes Financial Highlights (Six Months Ended June 30, 2024) | Metric | Value (US$ millions) | | :-------------------------------------- | :------------------- | | Net Earnings | 678 | | Net Gains on Risk Management (pre-tax) | 23 | | Shares Purchased for Cancellation | 9.0 million shares | | Total Consideration for Share Purchases | 434 | | Dividends Paid | 160 | | Total Liquidity (as of June 30, 2024) | 3,085 | | Debt to EBITDA | 1.2 times | | Non-GAAP Debt to Adjusted EBITDA | 1.2 times | | Capital Plan Expenditures | 1,213 | - Average total production volumes for the six months ended June 30, 2024, were 583.8 MBOE/d, with liquids accounting for 52% and natural gas for 48%[290] 2024 Outlook Discusses expected trends and factors influencing commodity prices and the company's hedging strategies for the remainder of 2024 - Oil prices for the remainder of 2024 are expected to be impacted by global economic growth, OPEC+ production restraint, and geopolitical events[267] - Natural gas prices are expected to be influenced by production levels, demand from power generation, U.S. LNG exports, seasonal weather, and supply chain disruptions[268] - Ovintiv has hedged approximately 50.0 Mbbls/d of expected oil production and 800 MMcf/d of expected natural gas production for the remainder of 2024 to mitigate price volatility[269] Company Outlook Provides updated guidance on capital investment and total production volumes for 2024, along with operational efficiency initiatives - The company narrowed its full year 2024 capital investment guidance range to $2,250 million to $2,350 million[295] - Full year 2024 total production guidance range was updated to 570.0 MBOE/d to 580.0 MBOE/d[297] - Ovintiv continues to improve well performance and lower costs through innovative techniques like the large-scale cube development model and Trimulfrac technology[272] Environmental, Social and Governance Details the company's commitment to ESG principles, including GHG emissions reduction targets and initiatives for diversity, equity, and inclusion - Ovintiv published its 2023 Sustainability Report, highlighting a greater than 40% reduction in Scope 1&2 GHG emissions intensity from 2019 levels, on track to meet its 50% reduction target by 2030[276] - The GHG emissions reduction target is tied to the annual compensation program for all employees[276] - The company is committed to diversity, equity, and inclusion (DEI) and protecting the health and safety of its workforce, with safety performance goals incorporated into the annual compensation program[277][303] Results of Operations Analyzes the company's financial performance, including revenues, expenses, and net earnings, for the reported periods Liquidity and Capital Resources Examines the company's ability to meet its short-term and long-term financial obligations and fund its operations Non-GAAP Measures Provides reconciliations and explanations for non-GAAP financial measures used by management to assess performance and financial position - Non-GAAP measures are used to provide additional information on liquidity and ability to finance operations, including Non-GAAP Cash Flow, Debt to Adjusted Capitalization, Debt to EBITDA, and Debt to Adjusted EBITDA[393] Non-GAAP Cash Flow | Metric | Three Months Ended June 30, 2024 (US$ millions) | Three Months Ended June 30, 2023 (US$ millions) | Six Months Ended June 30, 2024 (US$ millions) | Six Months Ended June 30, 2023 (US$ millions) | | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cash From (Used in) Operating Activities | 1,020 | 831 | 1,679 | 1,899 | | Net change in other assets and liabilities | (42) | (12) | (54) | (17) | | Net change in non-cash working capital | 37 | 144 | (327) | 366 | | Non-GAAP Cash Flow | 1,025 | 699 | 2,060 | 1,550 | Debt to Capitalization Ratios | Metric | June 30, 2024 | December 31, 2023 | | :---------------------------- | :------------ | :---------------- | | Debt to Capitalization | 37% | 36% | | Debt to Adjusted Capitalization | 25% | 24% | Debt to EBITDA Ratios | Metric | June 30, 2024 | December 31, 2023 | | :---------------------- | :------------ | :---------------- | | Debt to EBITDA (times) | 1.2 | 1.2 | | Debt to Adjusted EBITDA (times) | 1.2 | 1.3 | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section provides forward-looking quantitative and qualitative information on Ovintiv's exposure to market risks, specifically commodity price risk, foreign exchange risk, and interest rate risk - Market risk refers to the company's risk of loss from adverse changes in oil, NGL, natural gas prices, foreign currency exchange rates, and interest rates[396] - Ovintiv uses derivative financial instruments, including futures, forwards, swaps, options, and costless collars, to partially mitigate commodity price risk[22] Commodity Price Risk Analyzes the company's exposure to fluctuations in oil, NGL, and natural gas prices and the impact on revenues and cash flows - Commodity price risk arises from fluctuations in future oil, NGLs, and natural gas prices affecting revenues, expenses, and cash flows[22] Sensitivity to Commodity Price Fluctuations (June 30, 2024) | (US$ millions) | 10% Price Increase | 10% Price Decrease | | :------------------ | :----------------- | :----------------- | | Oil price | (64) | 46 | | NGL price | (1) | 1 | | Natural gas price | (44) | 43 | Foreign Exchange Risk Discusses the impact of foreign currency exchange rate changes, particularly between the U.S. and Canadian dollars, on financial assets and liabilities - Foreign exchange risk arises from changes in foreign currency exchange rates, particularly between the U.S. and Canadian dollars, impacting financial assets and liabilities[439] - The company may enter into foreign currency derivative contracts to mitigate the effect of foreign exchange fluctuations on future commodity revenues and expenses[24] Sensitivity to Foreign Exchange Rate Fluctuations (June 30, 2024) | (US$ millions) | 10% Rate Increase | 10% Rate Decrease | | :-------------------------- | :---------------- | :---------------- | | Foreign currency exchange | 122 | (149) | Interest Rate Risk Examines the company's exposure to changes in market interest rates and their potential effect on the fair value or cash flows of financial instruments - Interest rate risk arises from changes in market interest rates affecting the fair value or future cash flows of financial assets or liabilities[440] - As of June 30, 2024, Ovintiv had $634 million in floating rate revolving credit and term loan borrowings, with a 1% change in interest rates impacting sensitivity by $6 million[25] Item 4. Controls and Procedures Ovintiv's CEO and CFO evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2024, concluding they were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[26] - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required by the Exchange Act[26] - There were no material changes in the company's internal controls over financial reporting during the second quarter of 2024[48] PART II: Other Information Item 1. Legal Proceedings This section states that there have been no material changes to the legal proceedings previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes to the risk factors previously disclosed in Item 1A., 'Risk Factors' of the Annual Report on Form 10-K for the year ended December 31, 2023[429] Item 1A. Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes to the risk factors previously disclosed in Item 1A., 'Risk Factors' of the Annual Report on Form 10-K for the year ended December 31, 2023[429] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2024, Ovintiv purchased approximately 3.6 million shares of common stock for cancellation under its Normal Course Issuer Bid (NCIB) program, totaling $182 million at a weighted average price of $49.96 per share - During the three months ended June 30, 2024, the company purchased approximately 3.6 million shares of common stock for approximately $182 million, excluding excise tax[444] - The weighted average price paid per share was $49.96[444] Common Shares Purchased (April 1 - June 30, 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs | | :------------------------ | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | April 1 to April 30, 2024 | 837,417 | $53.22 | 837,417 | 19,317,730 | | May 1 to May 31, 2024 | 1,249,583 | $49.96 | 1,249,583 | 18,068,147 | | June 1 to June 30, 2024 | 1,555,636 | $48.21 | 1,555,636 | 16,512,511 | | Total | 3,642,636 | $49.96 | 3,642,636 | 16,512,511 | - The NCIB program allows Ovintiv to purchase up to 10% of its public float on U.S. Markets, exceeding the 5% limit under Canadian securities law due to an exemption order[431] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - No defaults upon senior securities are applicable[30][432] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - No mine safety disclosures are applicable[446] Item 5. Other Information This section reports that there is no other information to disclose - No other information is applicable[432] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including a First Amending Agreement to the Credit Agreement, certifications of the Chief Executive Officer and Chief Financial Officer, and Inline XBRL documents List of Exhibits | Exhibit No | Description | | :--------- | :---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | 10.1 | First Amending Agreement, dated as of June 26, 2024, to the Amended and Restated Credit Agreement, dated as of April 1, 2022 | | 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 | | 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 | | 32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | | 32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | | 101.INS | Inline XBRL Instance Document | | 101.SCH | Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document | | 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, has been formatted in Inline XBRL | - Certifications on Exhibits 32.1 and 32.2 are not deemed 'filed' for purposes of Section 18 of the Exchange Act and are not subject to its liability[447] Signatures The report is duly signed on behalf of Ovintiv Inc. by Corey D. Code, Executive Vice-President & Chief Financial Officer, as of July 30, 2024 - The report was signed by Corey D. Code, Executive Vice-President & Chief Financial Officer, on July 30, 2024[34][449]