01—Abstract
Summary
Summary of the 10-K filed February 18, 2021. Cited figures are marked; the original filing is the authoritative source.
Ovintiv Inc. (NYSE/TSX: OVV) reported a 2020 net loss of $6,097 milliona, driven primarily by a non-cash ceiling test impairment of $5,580 million in its USA Operations.
Total revenues were $6,087 millionb, down from $6,726 million in 2019. Cash from operating activities was $1,895 million and Non-GAAP Cash Flow was $1,929 million, which exceeded capital expenditures of $1,736 million by $159 million. Production averaged 543.8 MBOE/d, with liquids at 53 percent of volumes, and total proved reserves ended the year at 1,992.5 MMBOE.
Proved reserves fell 196.3 MMBOE during 2020, reflecting negative revisions and 199.0 MMBOE of production, partly offset by 377.5 MMBOE of extensions and discoveries. Management's priorities are financial strength and debt reduction. The company committed to reducing long-term debt by at least $1.25 billionc by the end of 2021, has repaid $481 million toward that target, and ended 2020 with $3.3 billion of total liquidity.
One credit rating agency downgraded the company to below investment grade during 2020, and the filing notes that further downgrades could raise borrowing costs and collateral requirements. The 2021 plan calls for capital spending of about $1.5 billiond, flat liquids production, and Total Costs of $12.25 to $12.50 per BOE. The dividend was held at $0.09375 per quarter, and the company is 2021 Duvernay sale agreement for about $263 million is pending.
The filing also flags material risks. Management indicated that a further ceiling test impairment of less than $150 million for USA Operations could be recognized in the first quarter of 2021 under forecast prices, and that additional impairments are possible if low commodity prices persist. The company also recorded a $568 million valuation allowance in Canada and a $1.2 billion capital-loss valuation allowance tied to the Reorganization.
02—Key points
Key Highlights
- Net loss of $6,097 million for 2020, including a $5,580 million before-tax non-cash ceiling test impairment in USA Operations; revenues were $6,087 million versus $6,726 million in 2019.
- Cash from operating activities of $1,895 million and Non-GAAP Cash Flow of $1,929 million exceeded capital expenditures of $1,736 million by $159 million.
- Long-term debt reduction target of at least $1.25 billion by end of 2021, with $481 million already repaid; total liquidity was $3.3 billion at December 31, 2020.
- Net Debt to Adjusted EBITDA was 3.1 times, and one credit rating agency downgraded the company to below investment grade during 2020.
- Total proved reserves were 1,992.5 MMBOE at year-end 2020, down 196.3 MMBOE from 2019 after 199.0 MMBOE of production; 56 percent of reserves are proved developed.
- 2021 outlook: capital investment of about $1.5 billion, flat liquids production, natural gas volumes near 1,550 MMcf/d, and Total Costs of $12.25 to $12.50 per BOE.
- Quarterly dividend of US$0.09375 per share maintained; a $263 million Duvernay asset sale was agreed in February 2021 and is expected to close in the second quarter of 2021.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 18, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $6.09B$6.73B | −9.5% |
| Operating Expenses | $11.48B$6.13B | +87.4% |
| Operating Income | -$5.40B$598.00M | −1002.5% |
| Interest Expense | $371.00M$382.00M | −2.9% |
| Net Income | -$6.10B$234.00M | −2705.6% |
| EPS (Basic) | $-23.47$0.90 | −2707.8% |
| EPS (Diluted) | $-23.47$0.90 | −2707.8% |
| Shares Outstanding (Basic) | 259.80M261.20M | −0.5% |
| Shares Outstanding (Diluted) | 259.80M261.20M | −0.5% |
05—Questions
Frequently Asked Questions
Why did Ovintiv report a net loss of $6.1 billion in 2020?
The loss was driven mainly by a non-cash ceiling test impairment of $5,580 million before tax in the USA Operations, caused by lower 12-month average trailing commodity prices that reduced proved reserves. The company also recorded a $568 million valuation allowance on Canadian deferred tax assets and a $1.2 billion valuation allowance related to a capital loss from the Reorganization.
How much debt does Ovintiv have, and how is it being reduced?
Long-term debt, including the current portion, totaled $6,885 million at December 31, 2020, down from $6,974 million in 2019. The company plans to allocate all excess cash flow to debt reduction, targeting at least $1.25 billion of reduction by end of 2021, and has repaid $481 million toward that goal. It also repurchased $302 million in principal of senior notes in 2020 for about $272 million in cash.
What liquidity does Ovintiv have, and what are the credit rating risks?
At December 31, 2020, total liquidity was $3.3 billion, including $3.4 billion of available credit facilities that mature in July 2024. One credit rating agency downgraded the company to below investment grade during 2020. The filing states that further downgrades could increase borrowing costs, limit commercial paper access, and require collateral for certain contracts, and that such collateral amounts could be material.
What is the outlook for 2021 production and spending?
For 2021, the company plans capital investment of approximately $1.5 billion, mainly directed to its Core Assets (Permian, Anadarko and Montney). It expects to maintain oil and plant condensate production of about 200.0 Mbbls/d, other NGLs of about 80.0 Mbbls/d and natural gas of about 1,550 MMcf/d. Total Costs are expected to be $12.25 to $12.50 per BOE.
Are further impairments expected?
The filing estimates that, using forecast prices as of December 31, 2020, a ceiling test impairment of less than $150 million for USA Operations could be recognized in the first quarter of 2021. It also states that if low commodity prices continue, further ceiling test impairments and related deferred tax asset allowances may be recognized.
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