Ovintiv touted strong Permian Basin performance in the second quarter as the company runs a reduced rig program following the June close of a $4.275 billion Midland Basin acquisition.
Performance was driven by an optimized completions design and “stage architecture,” the company said in its earnings report.
Ovintiv President and CEO Brendan McCracken said the company exceeded all of its guidance targets for the quarter after closing an acquisition in the Midland and exiting the Bakken to simplify the company’s portfolio, increase inventory, enhance capital efficiency and expand margins.
Ovintiv posted “a beat across the board” from production to capital to per-unit cost, with the company exceeding targets delivered on efficiencies and well productivity, McCracken said during a July 28 call discussing the quarter’s earnings.
Production outperformance came from the legacy business, he said, and the new assets performed in line with expectations.
“Our oil production outperformance is the result of our completion design innovations, and our capital reductions are the result of our execution efficiency gains. As a result, we've raised our full year production guidance and lowered our full-year capital guide across the portfolio,” McCracken said.
Ovintiv highlighted an 11% quarter-over-quarter (QoQ) improvement in completion speed, “as well as 8% and 9% QoQ increases to proppant and pumping efficiency, respectively, that has helped to unlock higher well productivity and returns in its Permian operations,” Gabriele Sorbara, managing director at Siebert Williams Shank & Co. said in a July 31 report.
“Strong performance across OVV’s other operating areas and lower royalty rates in Montney led to a 1.7% increase in its total production guidance, while its capex guidance was reduced by 2.3% due to operational efficiencies and cost savings from its recent transactions.”
Ovintiv CFO Corey Code said planned third-quarter spending reflects the shift from a 10-rig program in the Permian at the time the acquisition closed to the company’s current five-rig program.
“We expect to bring online about 100 wells in the third quarter with roughly half of these from the acquired Permian assets,” he said.
The company has worked to fold in its new Midland Basin assets during the quarter.
“Our Permian team has seamlessly integrated the new assets into our existing operations,” McCracken said. “We're currently at our expected run rate activity for the rest of the year with five rigs and three completion crews in the Permian. We're also already executing our proven drilling and completion designs on our new assets, and we fully expect to have our first fully Ovintiv-designed wells online later in the fourth quarter.”
Ovintiv COO Greg Givens said the company’s year-to-date results in the Permian have been stellar, and the company plans to use its development model on the acquired acreage. The wells on the new acreage are performing in line with average 2022 Midland Basin productivity rates, he said.
“We see opportunities to increase well performance and capital efficiency as we apply our drilling and completion approach to these assets. We have already begun deploying our proven optimization techniques on completion design, artificial lift, and accelerated cycle times on the wells that were already in progress when the acquisition closed,” he said.
Givens said the company’s completion design, including stage architecture, fluid chemistry and proppant loading, are helping deliver leading well performance across the Permian acreage.
“Our enhanced completions are being executed without an increase to completed well cost,” he said.
McCracken said Ovintiv’s completion design has been a “multi-year effort by our team to zero in on the true causal factors that can drive well performance and increased recovery from shale and it's not just in the Permian. We're deploying this across the whole portfolio.”
He said he thinks of the completion design in terms of three buckets, with the first being stage architecture, which is the combination of cluster design and spacing alongside sand and water loading. The second bucket is fracture fluid chemistry to enhance oil permeability within the fracture network, he said. The third bucket is real-time fracture monitoring.
“The nut we're trying to crack with technology and telemetry” is to optimize fracturing in real time, by analyzing signals from the subsurface during pumping operations and tuning the frac design on the fly, he said.
Ovintiv by the numbers
On July 27, the company announced net earnings of $336 million, cash from operating activities of $831 million, non-GAAP cash flow of $699 million and non-GAAP free cash flow of $59 million after capital expenditures of $640 million. The company’s average total production throughout the quarter was 573,000 boe/d, including 186,000 bbl/d of oil and condensate, 97,000 bbl/d of other NGL and 1.7 Bcf/d of natural gas.
Second-quarter capital investment, resulting from capital efficiencies, was lower than the second quarter guidance range of $670 million to $710 million.
The company’s original guidance for 2023 was 521,000 boe/d to 546,000 boe/d, and that’s been updated to 535,000 boe/d to 550,000 boe/d.
The capital investment guidance remains steady at $2.68 billion on the low side. The previous high side of capital investment for 2023 was $2.98 billion, and the new guidance sets the year’s total upper expectation at $2.85 billion.
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