Ovintiv Inc. ((NYSE, TSX:OVV) today announced plans to immediately reduce second quarter 2020 capital investments by $300 million and full year cash costs by $100 million. This is the first step in response to the recent large drop in oil prices. The Company has no long-term service commitments to fulfill and intends to use its operational flexibility to maintain balance sheet strength. Ovintiv is fully prepared to further reduce capital investments and activity levels as market conditions dictate.
"We are moving quickly and decisively in response to these volatile and challenging times. It is imperative to take immediate action and we are dropping roughly two-thirds of our operated rigs and reducing our cash costs by $100 million," said CEO Doug Suttles. "Market conditions are changing rapidly, and we have full operational flexibility to further adjust activity to maintain our balance sheet strength."
The Company is immediately dropping 10 operated drilling rigs and plans to drop an additional six operated rigs in May 2020. Following these rig count reductions, Ovintiv will have three operated rigs in the Permian, two in the Anadarko and two in the Montney.
Beyond the immediate spending cuts announced today, Ovintiv is prepared to further reduce capital investments throughout the year to ensure free cash neutrality and balance sheet strength. The Company expects to provide an update to its 2020 guidance in conjunction with first-quarter reporting.
Strong Balance Sheet & Robust Liquidity Through Mid-2024:
- The credit facilities are fixed at $4 billion until their maturity in July 2024 and commodity prices have zero impact on availability. They have no reserve-based, cash flow or EBITDA lending covenants or minimum credit rating requirements. The facilities are based on book value only (not market capitalization) with a maximum ratio of 60% debt-to-adjusted capitalization (at year-end 2019, ratio was 28%). The capitalization calculation adjustment includes a fixed $7.7 billion add back to capitalization. Full terms of the credit facilities can be found as an exhibit to the Company's Form 10-K. In addition, a table can be found in this release.
- Current liquidity is approximately $3.5 billion, which represents the $4 billion credit facilities plus cash-on-hand, less the Company's current commercial paper balance.
- OVV is rated investment grade at BBB.
- Approximately 80% of total long-term debt is due in 2024, or beyond, with a weighted average bond maturity of approximately 10 years.
- The Company has significant flexibility to manage the late 2021 and 2022 maturities, including the use of the credit facilities.
Strong Hedging Position Protects Cash Flow:
- More than 70% of 2020 crude oil and condensate production and 2020 natural gas production is hedged at prices significantly above the current market. The Company utilizes more than a dozen "A" credit rated hedge counterparties. See hedge table in this release.
Recent U.S. Shelf Registration Filing:
- A recent U.S. shelf registration filing was made on March 6, 2020. This shelf was part of a normal course renewal and the Company has no current intentions of issuing any debt or equity under the shelf.