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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-39191

 

img246434883_0.jpg 

Ovintiv Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

84-4427672

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

Suite 1700, 370 17th Street, Denver, Colorado, 80202, U.S.A.

(Address of principal executive offices)

Registrant’s telephone number, including area code (303) 623-2300

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares

OVV

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

    Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

    Smaller reporting company

 

 

 

 

 

    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

 

Number of registrant’s shares of common stock outstanding as of October 27, 2023

272,902,413

 

1


 

OVINTIV INC.

FORM 10-Q

TABLE OF CONTENTS

 

PART I

 

 

 

 

 

 

Item 1.

Financial Statements

 

6

 

Condensed Consolidated Statement of Earnings

 

6

 

Condensed Consolidated Statement of Comprehensive Income

 

6

 

Condensed Consolidated Balance Sheet

 

7

 

Condensed Consolidated Statement of Changes in Shareholders’ Equity

 

8

 

Condensed Consolidated Statement of Cash Flows

 

10

 

Notes to Condensed Consolidated Financial Statements

 

11

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

35

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

61

Item 4.

Controls and Procedures

 

63

 

 

 

 

 

PART II

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

64

Item 1A.

Risk Factors

 

64

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

64

Item 3.

Defaults Upon Senior Securities

 

65

Item 4.

Mine Safety Disclosures

 

65

Item 5.

Other Information

 

65

Item 6.

Exhibits

 

65

Signatures

 

 

66

 

2


 

DEFINITIONS

Unless the context otherwise requires or otherwise expressly stated, all references in this Quarterly Report on Form 10-Q to “Ovintiv,” the “Company,” “us,” “we,” “our,” and “ours” refer to Ovintiv Inc. and its consolidated subsidiaries for periods on or after January 24, 2020 and to Encana Corporation and its consolidated subsidiaries for periods before January 24, 2020. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10‑Q:

“AECO” means Alberta Energy Company and is the Canadian benchmark price for natural gas.

“ASU” means Accounting Standards Update.

“bbl” or “bbls” means barrel or barrels.

“BOE” means barrels of oil equivalent.

“Btu” means British thermal units, a measure of heating value.

“DD&A” means depreciation, depletion and amortization expenses.

“ESG” means environmental, social and governance.

“FASB” means Financial Accounting Standards Board.

“GHG” means greenhouse gas.

“Mbbls/d” means thousand barrels per day.

“MBOE/d” means thousand barrels of oil equivalent per day.

“Mcf” means thousand cubic feet.

“MD&A” means Management’s Discussion and Analysis of Financial Condition and Results of Operations.

“MMBOE” means million barrels of oil equivalent.

“MMBtu” means million Btu.

“MMcf/d” means million cubic feet per day.

“NCIB” means normal course issuer bid.

“NGL” or “NGLs” means natural gas liquids.

“NYMEX” means New York Mercantile Exchange.

“NYSE” means New York Stock Exchange.

“OPEC” means Organization of the Petroleum Exporting Countries.

“SEC” means United States Securities and Exchange Commission.

“S&P 400” means Standard and Poor’s MidCap 400 index.

“TSX” means Toronto Stock Exchange.

“U.S.”, “United States” or “USA” means United States of America.

“U.S. GAAP” means U.S. Generally Accepted Accounting Principles.

“WTI” means West Texas Intermediate.

CONVERSIONS

In this Quarterly Report on Form 10-Q, a conversion of natural gas volumes to BOE is on the basis of six Mcf to one bbl. BOE is based on a generic energy equivalency conversion method primarily applicable at the burner tip and does not represent economic value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value, particularly if used in isolation.

3


 

CONVENTIONS

Unless otherwise specified, all dollar amounts are expressed in U.S. dollars, all references to “dollars”, “$” or “US$” are to U.S. dollars and all references to “C$” are to Canadian dollars. All amounts are provided on a before tax basis, unless otherwise stated. In addition, all information provided herein is presented on an after royalties basis.

The terms “include”, “includes”, “including” and “included” are to be construed as if they were immediately followed by the words “without limitation”, except where explicitly stated otherwise.

The term “liquids” is used to represent oil, NGLs and condensate. The term “liquids rich” is used to represent natural gas streams with associated liquids volumes. The term “play” is used to describe an area in which hydrocarbon accumulations or prospects of a given type occur. Ovintiv’s focus of development is on hydrocarbon accumulations known to exist over a large areal expanse and/or thick vertical section and are developed using hydraulic fracturing. This type of development typically has a lower geological and/or commercial development risk and lower average decline rate, when compared to conventional development.

References to information contained on the Company’s website at www.ovintiv.com are not incorporated by reference into, and does not constitute a part of, this Quarterly Report on Form 10-Q.

FORWARD-LOOKING STATEMENTS AND RISK

 

This Quarterly Report on Form 10-Q, and the other documents incorporated herein by reference (if any), contain certain forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation, including Section 27A of the Securities Act of 1933 (the “Securities Act”), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, except for statements of historical fact, that relate to the anticipated future activities, plans, strategies, objectives or expectations of the Company are forward-looking statements. When used in this Quarterly Report on Form 10‑Q, and the other documents incorporated herein by reference (if any), the use of words and phrases including “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “focused on,” “forecast,” “guidance,” “intends,” “maintain,” “may,” “opportunities,” “outlook,” “plans,” “potential,” “strategy,” “targets,” “will,” “would” and other similar terminology is intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words or phrases. Without limiting the generality of the foregoing, forward-looking statements contained in this Quarterly Report on Form 10‑Q include: expectations of plans, strategies and objectives of the Company, including anticipated reserves development; the Company’s ability to consummate any future acquisition and divestiture transactions; the Company’s ability to successfully integrate any acquired assets (including the Permian Acquisition as defined in Note 8 to the Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q) into its business; drilling plans and programs, including availability of capital to complete these plans and programs; the composition of the Company’s assets and the anticipated capital returns associated with its assets; anticipated oil, NGL and natural gas prices; the anticipated success of, and benefits from, technology and innovation, including the cube development model, new or advanced drilling techniques or well completion designs; anticipated drilling and completions activity, including the number of drilling rigs and frac crews utilized; anticipated proceeds and future benefits from various joint venture, partnership and other agreements; anticipated oil, NGLs and natural gas production and commodity mix; the Company’s capital structure and ability to access credit facilities, credit markets and other sources of liquidity; the ability of the Company to timely achieve its stated ESG goals, targets and initiatives; the impact of changes in federal, state, provincial, local and tribal laws, rules and regulations; anticipated compliance with current or proposed environmental legislation; the Company’s ability to manage debt and financial ratios and comply with financial covenants; the implementation and outcomes of risk management programs, including exposure to commodity prices, interest rate and foreign exchange fluctuations and the volume of oil, NGLs and natural gas production hedged; the declaration and payment of future dividends and the anticipated repurchase of the Company’s outstanding common shares; the Company’s ability to manage cost inflation and expected cost structures, including expected operating, transportation, processing and labor expenses; and the outlook of the oil and natural gas industry generally, including impacts from changes to the geopolitical environment.

The forward-looking statements included in this Quarterly Report on Form 10-Q involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We have based these forward-looking statements on current expectations and assumptions about future events, taking into account all information currently known by us. While we consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, many of which are difficult to predict and beyond our control. The risks and

4


 

uncertainties that may affect the operations, performance and results of our business and forward-looking statements include, but are not limited to, those set forth in Item 1A. Risk Factors of the Company’s most recent Annual Report on Form 10‑K for the fiscal year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”) and the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2023; and other risks and uncertainties impacting the Company’s business as described from time to time in the Company’s other periodic filings with the SEC or Canadian securities regulators.

Although the Company believes the expectations represented by its forward-looking statements are reasonable based on the information available to it as of the date such statements are made, forward-looking statements are only predictions and statements of our current beliefs and there can be no assurance that such expectations will prove to be correct. All forward-looking statements contained in this Quarterly Report on Form 10‑Q are made as of the date of this document (or in the case of a document incorporated herein by reference, the date of such document) and, except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statements. The forward-looking statements contained or incorporated by reference in this Quarterly Report on Form 10‑Q, and all subsequent forward-looking statements attributable to the Company, whether written or oral, are expressly qualified by these cautionary statements.

 

The reader should carefully read the risk factors described in Item 1A. Risk Factors of the 2022 Annual Report on Form 10‑K and the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2023, for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.

 

 

5


 

PART I

Item 1. Financial Statements

 

Condensed Consolidated Statement of Earnings (unaudited)

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

September 30,

 

 

September 30,

 

(US$ millions, except per share amounts)

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

(Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

(Note 3)

 

$

2,913

 

 

$

3,643

 

 

$

7,857

 

 

$

11,064

 

Gains (losses) on risk management, net

 

(Note 19)

 

 

(282

)

 

 

(111

)

 

 

(193

)

 

 

(1,864

)

Sublease revenues

 

(Note 10)

 

 

18

 

 

 

17

 

 

 

53

 

 

 

52

 

Total Revenues

 

 

 

 

2,649

 

 

 

3,549

 

 

 

7,717

 

 

 

9,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

(Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

 

 

89

 

 

 

109

 

 

 

249

 

 

 

321

 

Transportation and processing

 

 

 

 

433

 

 

 

468

 

 

 

1,340

 

 

 

1,327

 

Operating

(Notes 16, 17)

 

 

243

 

 

 

228

 

 

 

624

 

 

 

596

 

Purchased product

 

 

 

 

846

 

 

 

973

 

 

 

2,239

 

 

 

3,154

 

Depreciation, depletion and amortization

 

 

 

 

486

 

 

 

291

 

 

 

1,269

 

 

 

833

 

Accretion of asset retirement obligation

 

 

 

 

5

 

 

 

4

 

 

 

14

 

 

 

14

 

Administrative

(Notes 8, 16, 17)

 

 

80

 

 

 

103

 

 

 

306

 

 

 

318

 

Total Operating Expenses

 

 

 

 

2,182

 

 

 

2,176

 

 

 

6,041

 

 

 

6,563

 

Operating Income (Loss)

 

 

 

 

467

 

 

 

1,373

 

 

 

1,676

 

 

 

2,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

(Note 4)

 

 

98

 

 

 

83

 

 

 

249

 

 

 

248

 

Foreign exchange (gain) loss, net

 

(Notes 5, 19)

 

 

(22

)

 

 

19

 

 

 

-

 

 

 

21

 

Other (gains) losses, net

(Note 17)

 

 

(2

)

 

 

(3

)

 

 

(16

)

 

 

(30

)

Total Other (Income) Expenses

 

 

 

 

74

 

 

 

99

 

 

 

233

 

 

 

239

 

Net Earnings (Loss) Before Income Tax

 

 

 

 

393

 

 

 

1,274

 

 

 

1,443

 

 

 

2,450

 

Income tax expense (recovery)

 

(Note 6)

 

 

(13

)

 

 

88

 

 

 

214

 

 

 

148

 

Net Earnings (Loss)

 

 

 

$

406

 

 

$

1,186

 

 

$

1,229

 

 

$

2,302

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss) per Share of Common Stock

 

(Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

$

1.48

 

 

$

4.70

 

 

$

4.80

 

 

$

9.00

 

Diluted

 

 

 

 

1.47

 

 

 

4.63

 

 

 

4.73

 

 

 

8.84

 

Weighted Average Shares of Common Stock Outstanding (millions)

(Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

273.7

 

 

 

252.5

 

 

 

255.8

 

 

 

255.7

 

Diluted

 

 

 

 

276.3

 

 

 

256.2

 

 

 

259.7

 

 

 

260.4

 

 

Condensed Consolidated Statement of Comprehensive Income (unaudited)

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

September 30,

 

 

September 30,

 

(US$ millions)

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss)

 

 

 

$

406

 

 

$

1,186

 

 

$

1,229

 

 

$

2,302

 

Other Comprehensive Income (Loss), Net of Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(Note 14)

 

 

(59

)

 

 

(94

)

 

 

(4

)

 

 

(125

)

Pension and other post-employment benefit plans

 

(Notes 14, 17)

 

 

(2

)

 

 

(1

)

 

 

(5

)

 

 

(4

)

Other Comprehensive Income (Loss)

 

 

 

 

(61

)

 

 

(95

)

 

 

(9

)

 

 

(129

)

Comprehensive Income (Loss)

 

 

 

$

345

 

 

$

1,091

 

 

$

1,220

 

 

$

2,173

 

 

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

6


 

Condensed Consolidated Balance Sheet (unaudited)

 

 

 

 

 

As at

 

 

As at

 

 

 

 

 

September 30,

 

 

December 31,

 

(US$ millions)

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

3

 

 

$

5

 

Accounts receivable and accrued revenues (net of allowances

 

 

 

 

 

 

 

 

     of $5 million (2022: $4 million))

 

(Note 3)

 

 

1,524

 

 

 

1,594

 

Risk management

 

(Notes 18, 19)

 

 

50

 

 

 

53

 

Income tax receivable

 

 

 

 

4

 

 

 

43

 

 

 

 

 

 

1,581

 

 

 

1,695

 

Property, Plant and Equipment, at cost:

 

(Note 9)

 

 

 

 

 

 

Oil and natural gas properties, based on full cost accounting

 

 

 

 

 

 

 

 

Proved properties

 

 

 

 

62,950

 

 

 

57,054

 

Unproved properties

 

 

 

 

1,569

 

 

 

1,172

 

Other

 

 

 

 

931

 

 

 

882

 

Property, plant and equipment

 

 

 

 

65,450

 

 

 

59,108

 

Less: Accumulated depreciation, depletion and amortization

 

 

 

 

(50,935

)

 

 

(49,640

)

Property, plant and equipment, net

 

(Note 2)

 

 

14,515

 

 

 

9,468

 

Other Assets

 

 

 

1,006

 

 

 

1,004

 

Risk Management

 

(Notes 18, 19)

 

 

14

 

 

 

34

 

Deferred Income Taxes

 

 

 

 

199

 

 

 

271

 

Goodwill

 

(Note 2)

 

 

2,585

 

 

 

2,584

 

 

 

(Note 2)

 

$

19,900

 

 

$

15,056

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

 

$

2,420

 

 

$

2,221

 

Current portion of operating lease liabilities

 

 

 

 

81

 

 

 

76

 

Income tax payable

 

 

 

 

151

 

 

 

4

 

Risk management

 

(Notes 18, 19)

 

 

182

 

 

 

86

 

Current portion of long-term debt

 

(Note 11)

 

 

709

 

 

 

393

 

 

 

 

 

 

3,543

 

 

 

2,780

 

Long-Term Debt

 

(Note 11)

 

 

5,454

 

 

 

3,177

 

Operating Lease Liabilities

 

 

 

 

813

 

 

 

814

 

Other Liabilities and Provisions

(Note 12)

 

 

124

 

 

 

131

 

Risk Management

 

(Notes 18, 19)

 

 

4

 

 

 

-

 

Asset Retirement Obligation

 

 

 

 

267

 

 

 

281

 

Deferred Income Taxes

 

 

 

 

143

 

 

 

184

 

 

 

 

 

 

10,348

 

 

 

7,367

 

Commitments and Contingencies

 

(Note 21)

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Share capital - authorized 775 million shares of stock

 

 

 

 

 

 

 

 

2023 issued and outstanding: 272.9 million shares (2022: 245.7 million shares)

 

(Note 13)

 

 

3

 

 

 

3

 

Paid in surplus

 

(Note 13)

 

 

8,644

 

 

 

7,776

 

Retained earnings (Accumulated deficit)

 

 

 

 

(77

)

 

 

(1,081

)

Accumulated other comprehensive income

 

(Note 14)

 

 

982

 

 

 

991

 

Total Shareholders’ Equity

 

 

 

 

9,552

 

 

 

7,689

 

 

 

 

 

$

19,900

 

 

$

15,056

 

 

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements

7


 

Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited)

 

Three Months Ended September 30, 2023 (US$ millions)

 

 

 

Share
Capital

 

 

Paid in
Surplus

 

Retained
Earnings
(Accumulated
Deficit)

 

Accumulated
Other
Comprehensive
Income

 

Total
Shareholders’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2023

 

 

 

$

3

 

 

$

8,671

 

 

$

(401

)

 

$

1,043

 

 

$

9,316

 

Net Earnings (Loss)

 

 

 

 

-

 

 

 

-

 

 

 

406

 

 

 

-

 

 

 

406

 

Dividends on Shares of Common Stock ($0.30 per share)

 

(Note 13)

 

 

-

 

 

 

-

 

 

 

(82

)

 

 

-

 

 

 

(82

)

Shares of Common Stock Purchased

 

(Note 13)

 

 

-

 

 

 

(45

)

 

 

-

 

 

 

-

 

 

 

(45

)

Equity-Settled Compensation Costs

 

 

 

 

-

 

 

 

18