Ovintiv Takes an ‘Encouraged but Measured Approach’ to 2023 Drilling, M&A

Following a year of expansion, multi-basin E&P Ovintiv Inc. is taking a measured approach in 2023 with plans to capitalize on its existing portfolio, and with M&A, a mix of bolt-ons and organic leasing, the company said in its fourth quarter earnings call on Feb. 28.

In 2022, Ovintiv expanded its drilling inventory with approximately 450 new locations through low-cost bolt-on transactions and inventory appraisal, primarily in the Permian Basin. The additional inventory was twice the number of net wells drilled in 2022 for $286 million of acquisition capital.

Ovintiv plans to bring fourth-quarter 2022 DUCs online in 2023. The company’s guidance for its U.S. and Canadian plays includes bringing online:

• 70 to 80 net wells in the Permian;
• 70 to 80 net wells in the Montney Shale;
• 40 to 50 net wells in the Uinta and Bakken; and
• 25 to 30 net wells in the Anadarko.

“One of the keys to generating durable returns is having a deep premium inventory,” said Brendan McCracken, Ovintiv president and CEO, in the earnings call. “We drill a little over 200 wells a year as our ‘23 plan. So, we need to be replacing that as we go is our view. And our strategy is to do that with a combination of both the organic effort to get more locations on the acres we already control, but also the bolt-on approach that you've seen us following.”

Despite 2022 portfolio renewals and plans for continued growth, Ovintiv said in its earnings call that 2023’s less-than-stellar outlook for natural gas and NGL prices pushed the company to allocate capital to oil condensate rich parts of its portfolio.

The Uinta matched the Permian for the highest operating margin in 2022, and in the Bakken, the 10-well Cramer pad exceeded expectations with 2 MMbbl of oil in 200 days. Ovintiv is focused on takeaway capacity and getting barrels to market for optimal results, said Greg Givens, Ovintiv COO.

“So [an] encouraged but measured approach,” said Givens.

If economic factors dictate, Ovintiv is positioned to shift capital to other parts of its portfolio “in response to lower commodity or lower service costs to one basin versus another,” he said.

Debt down, dividend up

In 2022, total long-term debt was reduced by approximately $1.2 billion, and the company reported returning almost $1 billion to shareholders through base dividend and share buybacks.

On Feb. 27, Ovintiv announced a quarterly dividend of $0.25 per share of common stock payable on March 31 to shareholders on record as of March 15.

“In 2022, we delivered tremendous profitability, increased direct returns to our shareholders, bolstered our financial strength, extended our future inventory runway and continued our strong social and emissions performance,” McCracken said. “I'm confident our team will continue to deliver leading capital efficiency and durable returns for our shareholders in 2023 and beyond.”