01—Abstract
Summary
Summary of the 10-K filed February 25, 2022. Cited figures are marked; the original filing is the authoritative source.
Ovintiv Inc. (NYSE/TSX: OVV) reported 2021 net earnings of $1,416 milliona, a sharp turnaround from a net loss of $6,097 million in 2020, which included $5,580 million of non-cash ceiling test impairments.
Cash from operating activities was $3,129 millionb and Non-GAAP Cash Flow was $3,209 million, exceeding capital expenditures by $1,610 million. Realized losses on commodity and FX risk management of $1,362 million offset part of the benefit from higher realized prices, where average realized natural gas and liquids prices rose 91 and 90 percent, respectively. Total upstream product revenues were $7,420 million, up from $4,044 million.
The company used excess cash to reduce long-term debt by over $2.1 billionc, ending 2021 with long-term debt of $4,786 million and Net Debt of $4,591 million. Net Debt to Adjusted EBITDA improved to 1.4 times from 3.1 times. Ovintiv targets Net Debt of $3 billion in the second half of 2022, assuming WTI of $85.00 per barrel and NYMEX gas of $4.50 per MMBtu.
Total liquidity stood at $4.5 billiond, and a credit rating was upgraded to investment grade by one agency during the fourth quarter. Capital returns increased: a new framework returns 25 percent of Non-GAAP Cash Flow in excess of capital expenditures and base dividends through buybacks and/or variable dividends. The company repurchased approximately 3.1 million shares for $111 million in 2021 under a NCIB covering up to about 26 million shares through September 30, 2022.
The quarterly dividend was raised to $0.14 per share in the third and fourth quarters of 2021, and on February 24, 2022 the board declared a $0.20 quarterly dividend. For 2022, the company plans capital spending of approximately $1.5 billion, expects liquids production of 180.0 to 190.0 Mbbls/d of oil and plant condensate and 1,450 to 1,500 MMcf/d of natural gas, and projects Total Costs of $14.75 to $15.25 per BOE.
02—Key points
Key Highlights
- Net earnings of $1,416 million in 2021 versus a net loss of $6,097 million in 2020, which included $5,580 million of ceiling test impairments; no impairments were recognized in 2021.
- Cash from operating activities of $3,129 million and Non-GAAP Cash Flow of $3,209 million; cash from operations exceeded capital expenditures by $1,610 million.
- Long-term debt reduced by over $2.1 billion in 2021 to $4,786 million; Net Debt to Adjusted EBITDA of 1.4 times, with a Net Debt target of $3 billion in the second half of 2022.
- New capital allocation framework returning 25 percent of Non-GAAP Cash Flow in excess of capital expenditures and base dividends; $111 million of shares repurchased in 2021 and quarterly dividend raised to $0.20 declared February 24, 2022.
- Divested Eagle Ford assets for approximately $764 million and Duvernay assets for approximately $238 million in 2021.
- Realized losses on risk management of $1,362 million in 2021 reduced revenues, partly offsetting higher realized prices of $53.75 per barrel for total oil and NGLs and $3.58 per Mcf for natural gas.
- Total proved reserves of 2,258.2 MMBOE at year-end 2021, 59 percent proved developed, with extensions and discoveries of 591.2 MMBOE.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 25, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $8.66B$6.09B | +42.2% |
| Operating Expenses | $7.14B$11.48B | −37.8% |
| Operating Income | $1.52B-$5.40B | +128.1% |
| Interest Expense | $340.00M$371.00M | −8.4% |
| Net Income | $1.42B-$6.10B | +123.2% |
| EPS (Basic) | $5.44$-23.47 | +123.2% |
| EPS (Diluted) | $5.32$-23.47 | +122.7% |
| Shares Outstanding (Basic) | 260.40M259.80M | +0.2% |
| Shares Outstanding (Diluted) | 266.40M259.80M | +2.5% |
05—Questions
Frequently Asked Questions
What drove the swing from a 2020 net loss to 2021 net earnings?
The 2020 net loss of $6,097 million reflected $5,580 million of non-cash ceiling test impairments in the USA Operations. In 2021 no impairments were recognized, and upstream product revenues rose to $7,420 million from $4,044 million, mainly on higher realized commodity prices. Net earnings of $1,416 million also included a current income tax recovery of $156 million, largely from resolving prior years' tax items, and realized and unrealized risk management losses totaling $1,883 million.
How much debt does Ovintiv carry and when will it reach its target?
Long-term debt including the current portion was $4,786 million at December 31, 2021, down from $6,885 million a year earlier. Net Debt was $4,591 million. The company targets Net Debt of $3.0 billion in the second half of 2022, assuming WTI of $85.00 per barrel and NYMEX natural gas of $4.50 per MMBtu. It had $4.0 billion of committed credit facilities maturing in July 2024 and no outstanding revolver balances at year-end.
How will shareholders receive capital returns going forward?
Under the capital allocation framework announced September 9, 2021 and starting in the fourth quarter of 2021, Ovintiv commits to return 25 percent of Non-GAAP Cash Flow in excess of capital expenditures and base dividends, via share buybacks and/or variable dividends at the Board's discretion. In 2021 the company elected buybacks, purchasing about 3.1 million shares for $111 million. The base quarterly dividend was $0.14 for the third and fourth quarters of 2021, and the Board declared $0.20 per share on February 24, 2022.
What is the company's 2022 outlook?
The company plans a capital investment program of approximately $1.5 billion, with most allocated to Core Assets (Permian, Anadarko and Montney). It expects oil and plant condensate production of 180.0 to 190.0 Mbbls/d, other NGLs of 78.0 to 82.0 Mbbls/d, and natural gas of 1,450 to 1,500 MMcf/d, aiming to hold liquids production flat. Total Costs are expected to rise to $14.75 to $15.25 per BOE, mainly due to higher production taxes and transportation and processing costs. As of December 31, 2021, it had hedged approximately 80.0 Mbbls/d of oil and condensate and 1,293 MMcf/d of natural gas for 2022.
What are the main risks highlighted in the filing?
The filing emphasizes commodity price volatility and regional price differentials, which could reduce cash flow and cause impairments, as well as a concentration of activity in a limited number of Core Assets. Other risks include reserve estimate uncertainty, climate-related regulation and litigation, the ongoing COVID-19 pandemic, and Canadian exposure, such as the British Columbia Blueberry River First Nation court decision that has halted new permits in northeast British Columbia pending negotiations. Ovintiv also notes that a material unfavorable outcome in the Uinta Basin Clean Air Act Notice of Violation could result in sanctions of more than $300,000.
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