Denver’s Ovintiv Inc., the energy company with strong activity in Oklahoma’s STACK play, reported second quarter net earnings of $1.36 billion and the highest quarterly cash flow in more than a decade.
Its cash flow was $1.22 billion while free cash flow totaled $713 million. Net earnings totaled $1.36 billion after-tax or $5.21 per diluted share.
During the quarter, Ovintiv also doubled shareholder returns from 25% to 50% and returned nearly $200 million to shareholders in the quarter by share buybacks and base dividends. The company expects to return $389 million in the third quarter.
Ovintiv reported it reduced net debt by $610 million and expects to achieve a $3 billion net debt target before the end of the year.
“In the second quarter, we delivered our highest quarterly cash flow and free cash flow in over a decade – this result reflects the value we are generating with our culture of innovation, leading capital efficiency, top tier multi-basin portfolio and disciplined capital allocation,” said Ovintiv President & CEO Brendan McCracken.
“We are resolute in our goal to unlock value for our shareholders. We expect to deliver more than $1 billion to our shareholders in 2022 and assuming current strip pricing, we expect shareholder returns to more than double in 2023.”
Second quarter total production was 500 MBOE/d, including 175 Mbbls/d of oil and condensate, 87 Mbbls/d of other NGLs and 1,426 million cubic feet per day (“MMcf/d”) of natural gas. Natural gas volumes were negatively impacted in the quarter due to higher Canadian royalty rates.
Despite the impressive net earnings and record cash flow, Ovintiv plans no changes in its full year 2022 capital guidance.
The company’s Total Cost guidance has increased slightly due to the impact of higher-than-expected natural gas prices for the remainder of the year and additional downstream capacity contracted with third parties in the Montney and Permian plays. Ovintiv’s third and fourth quarter and full year 2022 guidance is below.
During the second quarter, Ovintiv purchased for cancellation, approximately 2.8 million shares of common stock outstanding for a total consideration of approximately $135 million. As of June 30, 2022, the Company had repurchased a total of approximately 7.6 million shares of common stock at an average price of $41.80 per share, for a total of $317 million since its share buyback program was announced in September of 2021.
On August 3, 2022, Ovintiv’s Board declared a quarterly dividend of $0.25 per share of common stock payable on September 30, 2022, to shareholders of record as of September 15, 2022.
In July 2022, Ovintiv increased its returns to shareholders from 25% to 50% of the previous quarter’s Non-GAAP Free Cash Flow after base dividends through share buybacks. The remaining Non-GAAP Free Cash Flow will primarily be allocated to continued Net Debt reduction and property bolt-ons.
In the third quarter of 2022, the Company plans to deliver approximately $389 million to shareholders through its base dividend of approximately $64 million and share buybacks totalling approximately $325 million. The third quarter buyback program, at $325 million, exceeds the total dollars spent on buybacks since the Company’s new capital allocation framework was announced in September of 2021.This will bring total direct shareholder returns to approximately $900 million over the 12-month period.
Ovintiv remains committed to reducing Net Debt. At the end of the second quarter, Ovintiv’s Net Debt was approximately $3.9 billion and Net Debt to Adjusted EBITDA was 1.0 times. The company expects to meet its $3 billion Net Debt target by the end of the year.
In June, the Company redeemed its $1,000 million, 5.625 percent senior notes due July 1, 2024, using cash on hand and proceeds from short term borrowings. Ovintiv paid approximately $1,072 million in cash including accrued and unpaid interest of $25 million and a one-time make-whole payment of $47 million. The redemption will result in approximately $55 million of annualized interest expense savings.
Permian production averaged 116 MBOE/d (79% liquids) in the second quarter. The Company averaged three gross rigs, drilled 16 net wells, and had 11 net wells turned in line (TIL).
The Company plans to spend $650 to $700 million in the basin in 2022.
Anadarko production averaged 128 MBOE/d (63% liquids) in the second quarter. The Company averaged three gross rigs, drilled 18 net wells, and had 15 net wells TIL.
The Company plans to spend $350 to $400 million in the basin in 2022.
Montney production averaged 198 MBOE/d (24% liquids) in the second quarter. The Company averaged three gross rigs, drilled 16 net wells and had 12 net wells TIL.
Ovintiv recently contracted for 245 billion British thermal units (BBTU) per day of incremental transport to the Chicago market beginning November 1st, 2022, for a term greater than 10 years. This additional transportation supplements the Company’s existing market access to Eastern Canada, California, the Pacific Northwest, and the Midwest.
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