Ovintiv Inc.’s OVV fourth-quarter 2019 operating earnings of 81 cents per share met the Zacks Consensus Estimate. The in-line results can be attributed to expanded production volumes in the Permian and Anadarko Basins.
However, the reported figure was lower than the year-ago bottom line of $1.60 per share due to modest commodity price realizations.
Moreover, total revenues of $1.6 billion missed the Zacks Consensus Estimate of $1.9 billion and also decreased from the year-ago level of $2.4 billion.
Recently, the company formerly known as Encana Corporation, redomiciled in the United States under the new name, Ovintiv Inc. With this transition, shares of the company are now dually traded on Toronto as well as New York stock exchanges under the ticker symbol OVV.
Production and Prices
A few years ago, natural gas accounted for around 95% of Ovintiv’s output. However, the company successfully repositioned its asset base and transitioned to the more profitable crude over a couple of years. This is evident from its natural gas output in the quarter under review, which contributed to 45.6% of the total production.
Total fourth-quarter production (Ovintiv plus Newfield combined) came in at 592,600 barrels of oil equivalent per day (BOE/d) compared with 403,400 BOE/d in the prior-year period. Natural gas production rose 28.4% year over year to 1,624 million cubic feet per day while liquids production soared 67.1% to 322,000 BOE/d. Production growth from the company’s core assets of Permian and Anadarko enabled it to deliver impressive year-over-year results.
Ovintiv's realized natural gas price was $2.25 per thousand cubic feet compared with the year-ago level of $2.64. Moreover, realized oil price edged down to $56.17 per barrel from $56.54 in the fourth quarter of 2018.
Costs, Capex and Balance Sheet
Total expenses increased to $1.6 billion from the year-ago figure of $1.02 billion. This rise is primarily attributed to higher depreciation, transportation and operating costs.
Ovintiv’s cash from operating activities in the quarter under review summed $730 million, up from the year-ago figure of $559 million. The company's capital investments were $574 million, up from $349 million in the year-ago period.
As of Dec 31, Ovintiv had cash and cash equivalents worth $190 million, and long-term debt of more than $7 billion. Its debt-to-capitalization ratio was 24.5%.
The company generated non-GAAP free cash flow of $241 million compared with the year-ago figure of $191 million.
Ovintiv anticipates its 2020 capital expenditure to be $2.7 billion of which 80% will be spent on developmental programmes in the United States.
Crude oil and condensate volumes are projected to grow 4% year over year to the range of 229-239 Mbbls/d. Full-year NGL production is expected to be 89-93 Mbbls/d, indicating 2% rise from the prior year-reported figure. Liquids (total crude oil and NGLs) are likely to account for 56% of the entire output, suggesting 2% increase from volumes reported in 2019.
Owing to better cost management, Ovintiv now expects the metric to drop year over year to the range of $12.20-$13.50 per BOE.
The company is expected to generate significant free cash flow for the third consecutive year in 2020.
Zacks Rank & Key Picks
Ovintiv has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Contango Oil & Gas Co. MCF, Noble Energy Inc. NBL and California Resources Corp. CRC, each carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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