Ovintiv(OVV) - 2024 Q3 - Quarterly Report

PART I Item 1. Financial Statements Ovintiv Inc.'s unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2024, detail earnings, balance sheet, cash flows, and notes Condensed Consolidated Statement of Earnings This statement details the company's financial performance for Q3 and nine months ended September 30, 2024, highlighting revenues, expenses, net earnings, and EPS Consolidated Statement of Earnings Highlights (US$ millions, except per share amounts) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Product and service revenues | $2,178 | $2,913 | $6,758 | $7,857 | | Gains (losses) on risk management, net | $128 | $(282) | $151 | $(193) | | Total Revenues | $2,324 | $2,649 | $6,964 | $7,717 | | Total Operating Expenses | $1,797 | $2,182 | $5,387 | $6,041 | | Operating Income (Loss) | $527 | $467 | $1,577 | $1,676 | | Net Earnings (Loss) | $507 | $406 | $1,185 | $1,229 | | Basic EPS | $1.93 | $1.48 | $4.45 | $4.80 | | Diluted EPS | $1.92 | $1.47 | $4.41 | $4.73 | Condensed Consolidated Statement of Comprehensive Income This statement details comprehensive income components, including net earnings, foreign currency translation, and pension plan changes Consolidated Statement of Comprehensive Income Highlights (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net Earnings (Loss) | $507 | $406 | $1,185 | $1,229 | | Foreign currency translation adjustment | $44 | $(59) | $(63) | $(4) | | Pension and other post-employment benefit | $(1) | $(2) | $(4) | $(5) | | Other Comprehensive Income (Loss) | $43 | $(61) | $(67) | $(9) | | Comprehensive Income (Loss) | $550 | $345 | $1,118 | $1,220 | Condensed Consolidated Balance Sheet The balance sheet provides a snapshot of assets, liabilities, and shareholders' equity as of September 30, 2024, compared to December 31, 2023 Consolidated Balance Sheet Highlights (US$ millions) | Metric | As at Sep 30, 2024 | As at Dec 31, 2023 | |:-----------------------------------------|:-------------------|:-------------------| | Cash and cash equivalents | $9 | $3 | | Accounts receivable and accrued revenues | $1,290 | $1,442 | | Total Current Assets | $1,507 | $1,676 | | Property, plant and equipment, net | $14,817 | $14,640 | | Goodwill | $2,586 | $2,599 | | Total Assets | $19,859 | $19,987 | | Accounts payable and accrued liabilities | $1,777 | $2,209 | | Current portion of long-term debt | $1,024 | $284 | | Total Current Liabilities | $2,892 | $2,812 | | Long-Term Debt | $4,853 | $5,453 | | Total Liabilities | $9,204 | $9,617 | | Total Shareholders' Equity | $10,655 | $10,370 | Condensed Consolidated Statement of Changes in Shareholders' Equity This statement outlines changes in shareholders' equity for Q3 and nine months ended September 30, 2024 and 2023, including net earnings, dividends, and share repurchases Changes in Shareholders' Equity (US$ millions) - Nine Months Ended September 30, 2024 | Metric | Balance, Dec 31, 2023 | Net Earnings | Dividends | Shares Purchased | Equity-Settled Compensation Costs | Other Comprehensive Income | Balance, Sep 30, 2024 | |:-------------------------------------|:----------------------|:-------------|:----------|:-----------------|:----------------------------------|:---------------------------|:----------------------| | Share Capital | $3 | - | - | - | - | - | $3 | | Paid in Surplus | $8,620 | - | - | $(597) | $2 | - | $8,025 | | Retained Earnings | $697 | $1,185 | $(238) | - | - | - | $1,644 | | Accumulated Other Comprehensive Income | $1,050 | - | - | - | - | $(67) | $983 | | Total Shareholders' Equity | $10,370 | $1,185 | $(238) | $(597) | $2 | $(67) | $10,655 | Changes in Shareholders' Equity (US$ millions) - Three Months Ended September 30, 2024 | Metric | Balance, Jun 30, 2024 | Net Earnings | Dividends | Shares Purchased | Equity-Settled Compensation Costs | Other Comprehensive Income | Balance, Sep 30, 2024 | |:-------------------------------------|:----------------------|:-------------|:----------|:-----------------|:----------------------------------|:---------------------------|:----------------------|\ | Share Capital | $3 | - | - | - | - | - | $3 | | Paid in Surplus | $8,170 | - | - | $(163) | $18 | - | $8,025 | | Retained Earnings | $1,215 | $507 | $(78) | - | - | - | $1,644 | | Accumulated Other Comprehensive Income | $940 | - | - | - | - | $43 | $983 | | Total Shareholders' Equity | $10,328 | $507 | $(78) | $(163) | $18 | $43 | $10,655 | Condensed Consolidated Statement of Cash Flows This statement presents cash inflows and outflows from operating, investing, and financing activities for Q3 and nine months ended September 30, 2024 and 2023 Consolidated Statement of Cash Flows Highlights (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Cash From (Used in) Operating Activities | $1,022 | $906 | $2,701 | $2,805 | | Cash From (Used in) Investing Activities | $(516) | $(854) | $(1,918) | $(4,725) | | Cash From (Used in) Financing Activities | $(453) | $(101) | $(727) | $1,921 | | Increase (Decrease) in Cash | $51 | $(49) | $56 | $(2) | | Cash, End of Period | $9 | $3 | $9 | $3 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations supporting the financial statements, covering accounting policies, segment performance, revenue, debt, equity, and risk management 1. Basis of Presentation and Principles of Consolidation Ovintiv Inc. explores, develops, produces, and markets oil, NGLs, and natural gas, with interim financials prepared under U.S. GAAP and SEC regulations - Ovintiv's core business is the exploration, development, production, and marketing of oil, NGLs, and natural gas[23] - The interim Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP and SEC rules, consolidating controlled entities and eliminating intercompany balances[24][25] 2. Recent Accounting Pronouncements Ovintiv adopted ASU 2023-07 for segment disclosures and will adopt ASU 2023-09 for income tax, with no material financial impact expected - Ovintiv adopted ASU 2023-07 'Improvements to Reportable Segment Disclosures' on January 1, 2024, enhancing annual disclosure requirements for significant segment expenses[28] - Ovintiv will adopt ASU 2023-09 'Improvements to Income Tax Disclosures' on January 1, 2025, requiring disaggregated information on effective tax rate reconciliation and income taxes paid[29] - Neither ASU 2023-07 nor ASU 2023-09 is expected to have a material impact on the Company's Consolidated Financial Statements[28][29] 3. Segmented Information Ovintiv operates through USA, Canadian, and Market Optimization segments, with USA Operations being the largest contributor to operating income and capital expenditures - Ovintiv's reportable segments are USA Operations, Canadian Operations, and Market Optimization. Corporate and Other includes unrealized derivative gains/losses and sublease rentals[30][31] Operating Income by Segment (US$ millions) - Three Months Ended September 30 | Segment | 2024 | 2023 | |:--------------------|:------|:------| | USA Operations | $501 | $717 | | Canadian Operations | $59 | $148 | | Market Optimization | $1 | $(34) | | Corporate & Other | $(34) | $(364)| | Consolidated | $527 | $467 | Capital Expenditures by Segment (US$ millions) - Nine Months Ended September 30 | Segment | 2024 | 2023 | |:--------------------|:--------|:--------| | USA Operations | $1,418 | $1,750 | | Canadian Operations | $330 | $331 | | Corporate & Other | $3 | $3 | | Total | $1,751 | $2,084 | 4. Revenues from Contracts with Customers Revenues are primarily from product sales (oil, NGLs, natural gas) and gathering/processing services, with customer receivables decreasing to $817 million Product and Service Revenues (US$ millions) - Three Months Ended September 30 | Revenue Type | 2024 | 2023 | |:-------------------------|:--------|:--------|\ | Oil | $1,523 | $2,072 | | NGLs | $434 | $435 | | Natural gas | $218 | $405 | | Gathering and processing | $3 | $1 | | Total | $2,178 | $2,913 | Product and Service Revenues (US$ millions) - Nine Months Ended September 30 | Revenue Type | 2024 | 2023 | |:-------------------------|:--------|:--------| | Oil | $4,611 | $5,123 | | NGLs | $1,314 | $1,276 | | Natural gas | $827 | $1,453 | | Gathering and processing | $6 | $5 | | Total | $6,758 | $7,857 | - Receivables and accrued revenues from contracts with customers were $817 million as at September 30, 2024, down from $1,070 million at December 31, 2023[43] 5. Interest Interest expense, primarily debt-related, increased for both Q3 and nine months ended September 30, 2024, compared to prior year Interest Expense (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Interest Expense | $103 | $98 | $306 | $249 | 6. Foreign Exchange (Gain) Loss, Net The company reported a net foreign exchange loss for Q3 2024 due to unrealized losses, but a net gain for the nine months from realized settlements Foreign Exchange (Gain) Loss, Net (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Unrealized Foreign Exchange (Gain) Loss | $16 | $(19) | $(12) | $(14) | | Foreign Exchange (Gain) Loss on Settlements | $(2) | $2 | $(9) | $5 | | Other Monetary Revaluations | $3 | $(5) | $(1) | - | | Total | $17 | $(22) | $(21) | - | 7. Income Taxes Income tax expense increased for Q3 and nine months ended September 30, 2024, with a lower effective tax rate due to prior year adjustments Income Tax Expense (Recovery) (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Current Tax - United States | $16 | $3 | $40 | $11 | | Current Tax - Canada | $14 | $62 | $45 | $170 | | Total Current Tax Expense (Recovery) | $30 | $65 | $85 | $181 | | Deferred Tax - United States | $(11) | $(56) | $124 | $81 | | Deferred Tax - Canada | $32 | $(22) | $58 | $(48) | | Total Deferred Tax Expense (Recovery) | $21 | $(78) | $182 | $33 | | Income Tax Expense (Recovery) | $51 | $(13) | $267 | $214 | | Effective Tax Rate | 9.1% | (3.3%) | 18.4% | 14.8% | - The effective tax rate for the three and nine months ended September 30, 2024 (9.1% and 18.4% respectively), was lower than the U.S. federal statutory rate of 21% primarily due to changes related to prior year's tax filings[50] 8. Acquisitions and Divestitures Acquisitions in 2024 focused on Permian properties, while divestitures included non-complementary assets and a significant Bakken sale in 2023 Acquisitions and Divestitures (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Total Acquisitions | $7 | $59 | $202 | $273 | | Total Divestitures | $(3) | $(12) | $(7) | $(741) | | Net Acquisitions & (Divestitures) | $4 | $47 | $195 | $(468) | - Acquisitions in USA Operations for the nine months ended September 30, 2024, were $197 million, primarily for Permian properties with oil and liquids-rich potential[52] - Divestitures in USA Operations for the nine months ended September 30, 2024, were $7 million, mainly from selling properties not complementing Ovintiv's portfolio. In 2023, divestitures included the sale of Bakken assets for approximately $717 million[53] 9. Business Combination Ovintiv completed the Permian Acquisition on June 12, 2023, for $3.2 billion cash and 31.8 million shares, adding 1,050 net well locations and 65,000 net acres to its inventory - Ovintiv completed the Permian Acquisition on June 12, 2023, for approximately $3.2 billion in cash and 31.8 million shares of common stock (valued at $1.2 billion)[55] - The acquisition added approximately 1,050 net well locations and 65,000 net acres to Ovintiv's Permian inventory[55] Permian Acquisition Purchase Price Allocation (US$ millions) | Item | Amount | |:-----------------------------------------|:-------| | Fair value of shares of common stock issued | $1,169 |\ | Consideration paid in cash | $3,229 |\ | Total Consideration | $4,398 |\ | Assets Acquired (net of liabilities assumed) | $4,398 | 10. Property, Plant and Equipment, Net Net property, plant, and equipment increased slightly, driven by USA Operations, with proved properties forming the largest portion Property, Plant and Equipment, Net (US$ millions) | Segment | As at Sep 30, 2024 | As at Dec 31, 2023 | |:--------------------|:-------------------|:-------------------| | USA Operations | $13,232 | $13,129 | | Canadian Operations | $1,446 | $1,357 | | Corporate & Other | $139 | $154 | | Total | $14,817 | $14,640 | - USA Operations' proved properties were $49,585 million at cost, with a net value of $12,283 million as of September 30, 2024[61] - Internal costs directly related to exploration, development, and construction activities capitalized for USA and Canadian Operations were $141 million for the nine months ended September 30, 2024, up from $118 million in 2023[61] 11. Leases Ovintiv's estimated future sublease income totals $573 million, with operating and variable lease income reported for Q3 and nine months ended September 30, 2024 Estimated Future Sublease Income (US$ millions, undiscounted) | Year | Sublease Income | |:-----------|:----------------| | 2024 | $13 | | 2025 | $51 | | 2026 | $51 | | 2027 | $47 | | 2028 | $41 | | Thereafter | $370 | | Total | $573 | - Operating lease income was $13 million for the three months and $39 million for the nine months ended September 30, 2024. Variable lease income was $5 million and $16 million for the respective periods[62] 12. Long-Term Debt Total long-term debt increased to $5,877 million due to credit borrowings, with significant liquidity maintained through credit facilities and commercial paper programs Long-Term Debt (US$ millions) | Metric | As at Sep 30, 2024 | As at Dec 31, 2023 | |:----------------------------------------|:-------------------|:-------------------| | Revolving credit and term loan borrowings | $424 | $284 | | U.S. Unsecured Notes (Total Principal) | $5,900 | $5,760 | | Total Long-Term Debt | $5,877 | $5,737 | | Current Portion | $1,024 | $284 | | Long-Term Portion | $4,853 | $5,453 | - As of September 30, 2024, Ovintiv had $324 million in outstanding commercial paper with a weighted average interest rate of approximately 5.67% interest rate, and $100 million drawn on its revolving credit facilities[65] - The fair value of total long-term debt was $6,259 million as of September 30, 2024, compared to a carrying value of $5,877 million[66] 13. Other Liabilities and Provisions Other liabilities and provisions increased to $156 million due to higher unrecognized tax benefits and pension obligations Other Liabilities and Provisions (US$ millions) | Metric | As at Sep 30, 2024 | As at Dec 31, 2023 | |:----------------------------------|:-------------------|:-------------------| | Finance Lease Obligations | $14 | $20 | | Unrecognized Tax Benefits | $51 | $16 | | Pensions and Other Post-Employment Benefits | $79 | $74 | | Other | $12 | $22 | | Total | $156 | $132 | 14. Share Capital Common shares outstanding decreased to 260.4 million due to NCIB repurchases, with quarterly dividends of $0.30 per share declared and paid Shares of Common Stock Outstanding (millions) | Metric | As at Sep 30, 2024 | As at Dec 31, 2023 | |:-------------------------------------|:-------------------|:-------------------| | Shares of Common Stock Outstanding | 260.4 | 271.7 | - Ovintiv received regulatory approval for the renewal of its NCIB program on September 26, 2024, allowing the purchase of up to approximately 25.9 million shares (10% of public float) from October 3, 2024, to October 2, 2025[71] Share Repurchases and Dividends (US$ millions, except per share amounts) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Shares of Common Stock Purchased | $163 | $45 | $597 | $373 | | Dividends on Shares of Common Stock | $78 | $82 | $238 | $225 | | Dividends per Share | $0.30 | $0.30 | $0.90 | $0.85 | Net Earnings (Loss) per Share of Common Stock | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Basic EPS | $1.93 | $1.48 | $4.45 | $4.80 | | Diluted EPS | $1.92 | $1.47 | $4.41 | $4.73 | 15. Accumulated Other Comprehensive Income Accumulated Other Comprehensive Income remained stable at $983 million, reflecting foreign currency translation and pension plan adjustments Accumulated Other Comprehensive Income (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Foreign Currency Translation Adjustment | $937 | $933 | $937 | $933 | | Pension and Other Post-Employment Benefit Plans | $46 | $49 | $46 | $49 | | Total Accumulated Other Comprehensive Income | $983 | $982 | $983 | $982 | 16. Variable Interest Entities Ovintiv has variable interests in VMLP for midstream services, with a maximum exposure to loss of $1,063 million from commitments - Ovintiv holds variable interests in Veresen Midstream Limited Partnership (VMLP), which provides natural gas gathering, compression, and processing services under long-term agreements[80][81] - Ovintiv is not the primary beneficiary of VMLP as it does not direct the most significant economic activities[81] - The maximum total exposure to loss related to VMLP commitments is estimated at $1,063 million as of September 30, 2024, arising from take-or-pay volume commitments and potential minimum cost payouts[82] 17. Compensation Plans Total share-based compensation expense was $12 million for Q3 and $48 million for the nine months ended September 30, 2024, with key fair value assumptions outlined Total Share-Based Compensation Expense (Recovery) (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Total Share-Based Compensation Expense (Recovery) | $12 | $18 | $48 | $26 | Weighted Average Assumptions for SAR and TSAR Units (As at September 30, 2024) | Assumption | US$ SAR Share Units | C$ TSAR Share Units | |:----------------------|:--------------------|:--------------------| | Risk Free Interest Rate | 3.01% | 3.01% | | Dividend Yield | 3.13% | 3.15% | | Expected Volatility Rate | 47.74% | 44.43% | | Expected Term | 1.1 yrs | 1.1 yrs | | Market Share Price | US$38.31 | C$51.84 | | Weighted Average Grant Date Fair Value | US$40.91 | C$54.84 | 18. Fair Value Measurements Ovintiv performs recurring fair value measurements for commodity and foreign currency derivatives, with WTI three-way options transferred from Level 3 to Level 2 in Q3 2024 Risk Management Assets and Liabilities Fair Value (US$ millions) - As at September 30, 2024 | Category | Level 1 | Level 2 | Level 3 | Total Fair Value | |:--------------------------|:--------|:--------|:--------|:-----------------| | Commodity Derivatives (Current Assets) | - | $142 | - | $142 | | Commodity Derivatives (Long-term Assets) | - | $9 | - | $9 | | Foreign Currency Derivatives (Current Assets) | - | $2 | - | $2 | | Commodity Derivatives (Current Liabilities) | $1 | - | - | $1 | | Commodity Derivatives (Long-term Liabilities) | - | $6 | - | $6 | - During the three months ended September 30, 2024, all remaining WTI three-way options were transferred from Level 3 to Level 2 due to the availability of more observable inputs[93] Changes in Level 3 Fair Value Measurements for Risk Management Positions (US$ millions) | Metric | September 30, 2024 | September 30, 2023 | |:--------------------------------------|:-------------------|:-------------------| | Balance, Beginning of Year | $16 | $12 | | Total Gains (Losses) | $14 | $(122) | | Settlements | $9 | $2 | | Transfers Out of Level 3 | $(39) | - | | Balance, End of Period | - | $(108) | 19. Financial Instruments and Risk Management Ovintiv uses derivative financial instruments to manage commodity price and foreign currency risk, with net risk management assets of $146 million - Ovintiv uses derivative financial instruments (fixed price contracts, options, costless collars, basis swaps) to manage commodity price risk for oil, NGLs, and natural gas, and foreign currency swaps for foreign exchange risk[98][99][100][101][102] Risk Management Positions Fair Value (US$ millions) - As at September 30, 2024 | Contract Type | Fair Value | |:-----------------------|:-----------| | Oil and NGL Contracts | $38 | | Natural Gas Contracts | $106 | | Foreign Currency Contracts | $2 | | Total Fair Value Position | $146 | Total Realized and Unrealized Gains (Losses) on Risk Management, Net (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Commodity and Other Derivatives: Revenues | $128 | $(282) | $151 | $(193) | | Foreign Currency Derivatives: Foreign exchange | $1 | $(6) | $(10) | $2 | | Interest Rate Derivatives: Interest Rate | - | - | - | $1 | | Total | $129 | $(288) | $141 | $(190) | - Ovintiv's credit risk exposure from derivative financial instrument assets on a gross and net fair value basis was $153 million and $150 million, respectively, as of September 30, 2024. Approximately 93% of accounts receivable and financial derivative credit exposures were with investment grade counterparties[108][110] 20. Supplementary Information This section provides supplemental disclosures to the cash flow statement, detailing net changes in non-cash working capital and non-cash investing/financing activities Net Change in Non-Cash Working Capital (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Accounts receivable and accrued revenues | $68 | $(251) | $303 | $268 | | Accounts payable and accrued liabilities | $(64) | $2 | $(365) | $(288) | | Current portion of operating lease liabilities | $2 | $(5) | $(1) | $4 | | Income tax receivable and payable | $19 | $62 | $(239) | $190 | | Total | $25 | $(192) | $(302) | $174 | Non-Cash Activities (US$ millions) | Activity Type | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | ROU operating lease assets and liabilities | $(7) | $(4) | $(40) | $(73) | | Property, plant and equipment accruals | $(23) | $93 | $(25) | $185 | | Capitalized long-term incentives | - | - | $(7) | $(2) | | Property additions/dispositions, including swaps | $5 | $3 | $36 | $25 | | Common shares issued (Permian Acquisition) | - | - | - | $(1,169) | 21. Commitments and Contingencies Ovintiv has $4,936 million in contractual commitments, primarily for transportation and processing, and recognized a $150 million gain from a legacy asset dispute resolution Contractual Commitments (US$ millions, undiscounted) - As at September 30, 2024 | Commitment Type | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | |:----------------------------|:-----|:-----|:-----|:-----|:-----|:-----------|:------| | Transportation and Processing | $170 | $679 | $606 | $506 | $451 | $2,176 | $4,588 | | Drilling and Field Services | $87 | $201 | $9 | - | - | - | $297 | | Building Leases & Other Commitments | $4 | $13 | $7 | $6 | $6 | $15 | $51 | | Total | $261 | $893 | $622 | $512 | $457 | $2,191 | $4,936 | - During Q2 2024, Ovintiv resolved a dispute related to previous asset dispositions for approximately $150 million, recognizing this as a gain in Other (gains) losses, net. $50 million of the settlement proceeds were received in escrow as restricted cash by September 30, 2024[117] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion covers Ovintiv's financial condition and results for Q3 and nine months ended September 30, 2024, including strategy, highlights, and non-GAAP measures Executive Overview Ovintiv focuses on its multi-basin portfolio, disciplined capital, and shareholder returns, reporting strong net earnings, cash flow, and share repurchases for the first nine months of 2024 - Ovintiv's strategy focuses on developing its high-quality multi-basin portfolio, generating significant cash flows, and providing durable cash returns to shareholders through execution excellence, disciplined capital allocation, and risk management[120] - For the nine months ended September 30, 2024, Ovintiv reported net earnings of $1,185 million ($4.41 diluted EPS), generated $2,701 million in cash from operating activities, and $3,038 million in Non-GAAP Cash Flow[129] - The company purchased approximately 12.7 million shares for $597 million and paid $238 million in dividends ($0.90 per share) during the first nine months of 2024. A renewed NCIB program was approved on September 26, 2024, allowing repurchase of up to 25.9 million shares[128][129] - Capital expenditures totaled $1,751 million for the nine months ended September 30, 2024, with full-year guidance narrowed to $2,275 million to $2,325 million. Average total production volumes were 586.7 MBOE/d, exceeding guidance for Q3 2024[131][142][144] - Ovintiv achieved a greater than 40% reduction in Scope 1&2 GHG emissions intensity from 2019 levels by the end of 2023, on track to meet its 50% reduction target by 2030[149] Results of Operations This section analyzes Ovintiv's revenues and operating expenses, highlighting commodity prices, production, and risk management impact on financial performance for Q3 and nine months ended September 30, 2024 Selected Financial Information (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Upstream product revenues | $1,767 | $2,049 | $5,538 | $5,570 | | Market optimization | $408 | $863 | $1,214 | $2,282 | | Total Product and Service Revenues | $2,178 | $2,913 | $6,758 | $7,857 | | Gains (Losses) on Risk Management, Net | $128 | $(282) | $151 | $(193) | | Total Operating Expenses | $1,797 | $2,182 | $5,387 | $6,041 | | Net Earnings (Loss) | $507 | $406 | $1,185 | $1,229 | Average Production Volumes and Realized Prices (Nine Months Ended September 30) | Product Type | 2024 Volumes (Mbbls/d or MMcf/d) | 2023 Volumes (Mbbls/d or MMcf/d) | 2024 Realized Prices ($/bbl or $/Mcf) | 2023 Realized Prices ($/bbl or $/Mcf) | |:-------------------------|:---------------------------------|:---------------------------------|:--------------------------------------|:--------------------------------------| | Oil | 168.7 | 147.1 | $75.85 | $76.26 | | NGLs - Plant Condensate | 43.0 | 41.9 | $69.05 | $70.49 | | NGLs - Other | 91.0 | 89.9 | $19.14 | $17.83 | | Natural Gas | 1,704 | 1,641 | $1.59 | $2.82 | | Total Production (MBOE/d) | 586.7 | 552.3 | $34.45 | $36.94 | - Oil revenues for the nine months ended September 30, 2024, increased by $446 million, primarily due to higher average oil production volumes (up 21.6 Mbbls/d increase) from the Permian acquisition and successful drilling, partially offset by asset divestitures and natural declines[163] - Natural gas revenues for the nine months ended September 30, 2024, decreased by $524 million, mainly due to a 44% decrease in average realized natural gas prices ($1.23 per Mcf), despite higher production volumes[167] Operating Expenses (US$ millions) - Nine Months Ended September 30 | Expense Type | 2024 | 2023 | |:----------------------------------|:--------|:--------| | Production, mineral and other taxes | $258 | $249 | | Transportation and processing | $1,240 | $1,340 | | Operating | $715 | $624 | | Purchased product | $1,165 | $2,239 | | Depreciation, depletion and amortization | $1,745 | $1,269 | | Administrative | $250 | $306 | | Total Operating Expenses | $5,387 | $6,041 | - Other (gains) losses, net, included a $150 million gain in Q3 2024 from the resolution of a dispute related to previous asset dispositions[209] Liquidity and Capital Resources Ovintiv maintains financial flexibility with $3.3 billion total liquidity, managing capital structure through spending, dividends, share repurchases, and debt, with Debt to Adjusted Capitalization at 24% - Ovintiv's capital structure consists of total shareholders' equity plus long-term debt, managed to maintain financial flexibility and access to capital markets[215] Total Liquidity and Capital Structure (US$ millions, except as indicated) | Metric | As at Sep 30, 2024 | As at Sep 30, 2023 | |:-------------------------------------|:-------------------|:-------------------| | Cash and Cash Equivalents | $9 | $3 | | Available Credit Facilities | $3,400 | $3,150 | | Available Uncommitted Demand Lines | $232 | $273 | | Issuance of U.S. Commercial Paper | $(324) | $(359) | | Total Liquidity | $3,317 | $3,067 | | Long-Term Debt, including current portion | $5,877 | $6,163 | | Total Shareholders' Equity | $10,655 | $9,552 | | Debt to Capitalization (%) | 36% | 39% | | Debt to Adjusted Capitalization (%) | 24% | 26% | - Net cash from operating activities increased by $116 million in Q3 2024 compared to Q3 2023, primarily due to changes in non-cash working capital and higher realized gains on risk management, despite lower realized commodity prices[229] - Net cash used in financing activities for the first nine months of 2024 was $727 million, a significant change from $1,921 million cash from financing activities in 2023, mainly due to the net issuance of long-term debt in 2023 and increased share repurchases in 2024[236] - Dividends increased by $13 million for the first nine months of 2024 due to an annualized dividend increase to $1.20 per share in Q2 2023, reflecting commitment to capital returns[242] Non-GAAP Measures This section defines and reconciles Ovintiv's non-GAAP financial measures, used by management to assess liquidity, financial leverage, and operational performance - Non-GAAP Cash Flow is defined as cash from operating activities excluding net change in other assets and liabilities, and net change in non-cash working capital[247] Non-GAAP Cash Flow Reconciliation (US$ millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Cash From (Used in) Operating Activities | $1,022 | $906 | $2,701 | $2,805 | | Net change in other assets and liabilities | $19 | $(14) | $(35) | $(31) | | Net change in non-cash working capital | $25 | $(192) | $(302) | $174 | | Non-GAAP Cash Flow | $978 | $1,112 | $3,038 | $2,662 | - Debt to Adjusted Capitalization was 24% as of September 30, 2024, well below the 60% financial covenant under the Credit Facilities[251][223] Debt to EBITDA and Debt to Adjusted EBITDA (US$ millions, except as indicated) | Metric | Sep 30, 2024 | Dec 31, 2023 | |:-------------------------------------|:-------------|:-------------| | Debt | $5,877 | $5,737 | | EBITDA | $5,232 | $4,690 | | Debt to EBITDA (times) | 1.1 | 1.2 | | Adjusted EBITDA | $4,820 | $4,514 | | Debt to Adjusted EBITDA (times) | 1.2 | 1.3 | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details Ovintiv's exposure to market risks, including commodity price, foreign exchange, and interest rate risks, and outlines mitigation strategies - Ovintiv's market risk exposure includes fluctuations in oil, NGL, and natural gas prices, foreign currency exchange rates, and interest rates[255] Sensitivity of Risk Management Positions to Commodity Price Fluctuations (US$ millions) - As at September 30, 2024 | Metric | 10% Price Increase | 10% Price Decrease | |:--------------------|:-------------------|:-------------------| | Oil price | $(47) | $53 | | NGL price | - | - | | Natural gas price | $(28) | $28 | - Ovintiv uses foreign currency derivative contracts to partially mitigate the effect of foreign exchange fluctuations on future commodity revenues and expenses. As of September 30, 2024, the company had $118 million notional U.S. dollar denominated currency swaps maturing through 2024 and $25 million maturing in H1 2025[260] Sensitivity to Foreign Currency Exchange Rate Fluctuations (US$ millions) - As at September 30, 2024 | Metric | 10% Rate Increase | 10% Rate Decrease | |:------------------------|:------------------|:------------------| | Foreign currency exchange | $126 | $(153) | - As of September 30, 2024, Ovintiv had $424 million in floating rate revolving credit and term loan borrowings. A 1% change in interest rates would result in a $4 million sensitivity on a before-tax basis[264] Item 4. Controls and Procedures Ovintiv's disclosure controls and procedures were effective as of September 30, 2024, with no material changes in internal control over financial reporting during Q3 2024 - Ovintiv's disclosure controls and procedures were effective as of September 30, 2024, as evaluated by the CEO and CFO[265] - There were no material changes in the company's internal controls over financial reporting during the third quarter of 2024[266] PART II Item 1. Legal Proceedings This section refers to previous disclosures on legal proceedings in the 2023 Annual Report on Form 10-K and Note 21 of this report - For information on legal proceedings, refer to Item 3 of the 2023 Annual Report on Form 10-K and Note 21 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report[267] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the 2023 Annual Report on Form 10-K - No material changes to the risk factors previously disclosed in Item 1A of the 2023 Annual Report on Form 10-K[268] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Ovintiv renewed its NCIB program on September 26, 2024, authorizing purchase of up to 25.9 million shares, having bought 3.7 million shares for $162 million in Q3 2024 - Ovintiv renewed its NCIB program on September 26, 2024, allowing the purchase of up to approximately 25.9 million shares (10% of public float) from October 3, 2024, to October 2, 2025[270] Common Shares Purchased During Three Months Ended September 30, 2024 | Period | Total Number of Shares Purchased | Average Price Paid per Share | |:----------------------------|:---------------------------------|:-----------------------------| | July 1 to July 31, 2024 | 1,010,083 | $47.05 | | August 1 to August 31, 2024 | 2,018,875 | $42.68 | | September 1 to September 30, 2024 | 700,764 | $40.40 | | Total | 3,729,722 | $43.43 | - The NCIB Exemption allows Ovintiv to purchase up to 10% of its public float on U.S. Markets, exceeding the 5% limit under Canadian securities law without the exemption[273] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[274] Item 4. Mine Safety Disclosures This item is not applicable to Ovintiv Inc - Mine Safety Disclosures are not applicable[274] Item 5. Other Information No other information to report - No other information to report[274] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and XBRL documents List of Exhibits | Exhibit No. | Description | |:------------|:-----------------------------------------------------------------------------------------------------------------------------------------------------------------------| | 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 September 30, 2024, has been formatted. | Signatures The report was signed by Corey D. Code, Executive Vice-President & Chief Financial Officer, on November 7, 2024 - The report was signed by Corey D. Code, Executive Vice-President & Chief Financial Officer, on November 7, 2024[277][278]