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Industry AnalysisDoug Shittles3 min read

EP 1: OVV Investor Relations

Hello, I’m Doug Shittles and I would like to review Ovintiv’s latest slide deck for you. This is how you *should* build an E&P IR deck.

Pretty pictures, high projected confidence and excessive patting on the back. Let’s dig in, shall we?

Ovintiv title slide, 2Q20 Results Conference Call, set over an aerial photo of a drilling rig in dense boreal forest.

Slide 1:

The best part about the Montney is the views… if the wells don’t have economic type curves then we can at least show you trees.

Ovintiv slide 2, Today's Key Takeaways: high confidence in 2020 and 2021 scenarios, 4Q20 average oil and C5+ raised to 200 Mbbls/d, 2020 capex of $1.8B now at the low end of the previous range, tripled passive ownership since the change in domicile, and excess cash flow going to debt reduction over the next six quarters.

Slide 2:

There’s a lot to unpack here.

  • If there isn’t high confidence in 2021 then I don’t want it!!
  • Too bad that the tripling in ownership led to new investors being down 50+% YTD
  • 2020 capex at the low end of the range? Look at us! The only thing we spend $$ on is our exec comp packages!
Ovintiv slide 3, 2Q Results Enhance the Next Six Quarters: operational and financial confidence bullets beside a 2020 scenario box holding oil at 200 Mbbls/d and capex at $1.8B, and a 2021 stay-flat scenario showing positive free cash flow, about 200 Mbbls/d, and $1.4 to $1.6B of capex.

Slide 3:

  • Why are the “Next Six Quarters” in quotes? That’s OVV’s shot clock until bankruptcy.
  • See bullet point #1 on slide 2 – if we don’t have confidence then we don’t have anything but underperforming cube developments.
  • How do we know that OVV’s base decline is low? They told us that 30% YOY decline is low! And we wouldn’t know that material production and cash flow is influenced otherwise.
Ovintiv slide 4, Priorities for The Next Six Quarters: four icons for maintaining financial strength and reducing debt, maintaining scale, leading cost structure and capital efficiency, and protecting health and safety. The first icon is a line chart that dips and then rises.

Slide 4:

Top left figure looks a bit familiar…

A WeWork slide headed Hypothetical Illustration of EBITDA, showing a jagged line falling well below zero and then curving steeply upward beside the words Aim to achieve Turnaround.
Ovintiv slide 5, Strong 2Q20 Operating Performance: a capex bar showing $252 million actual against $250 to $300 million of guidance, and production bars of 537 MBOE/d actual with 32 shut in, and 198 Mbbls/d of oil and condensate with 18 shut in.

Slide 5:

You’re damn right that OVVs production management is dynamic… that’s how you know you’re a proven world-class operator™. Also dynamic is our BOE conversion –  gotta adjust for ripping past the bubble point in all of our cubes.

Ovintiv slide 6, 2Q20 Effectively Managing Volatility: six tiles reporting free cash flow delivered at $28 WTI, cash flow of $304 million or $1.17 a share, $3.0B of liquidity, operated rigs down from 23 to 7, total costs of $11.23 per BOE, and over $200 million of savings.

Slide 6:

When three of the six bullet points have an asterisk at the end to remind you about Non-GAAP advisories, you’ve really got a company you can trust. Buy OVV.

Ovintiv slide 7, Flexibility Continues in 2H20: FY20 capex on track for $1.8B, a 25 percent 2Q20 workforce reduction, and a production chart falling from 215 to about 180 Mbbls/d before returning to a flat 200 through 2021.

Slide 7:

Firing people saves us money and makes the remaining employees more miserable! That’s how you know you’re resilient. And saying confidence for the third time in the slide deck.

Ovintiv slide 8, over $200 million of cash cost savings in 2020, with a bar chart adding durable and legacy savings to reach $300 million in 2021.

Slide 8:

Nearly half of the estimated annual savings achieved at the end of month 7. We’re already behind! In other news, OVV is now optimizing midstream because there aren’t any more cubes to optimize. Also, how is cash cost savings not durable?

Ovintiv slide 9, Track Record of Efficiency Improvements: capital efficiency of 9 percent in 1Q, 15 percent in 2Q and 20 percent over the next six quarters, a go-forward well cost table for the Permian, STACK and Montney, and drilling and completion cost bars per thousand feet with a pacesetter diamond marked on each play.

Slide 9:

The ‘sustainable’ part of the OVV business story, lower D+C costs and increased efficiencies. Also, shout out to the one pacesetter well in every basin that makes life hell for the drilling managers trying to drop costs for the next three years.

Ovintiv slide 10, Capital Efficiency More Important Than Ever: Permian, Anadarko, Montney and total company bullets beside two line charts, drilling feet per day and completion lateral length per day, both rising from 2018 through the first half of 2020.

Slide 10:

Just a reminder that OVV actually completed 14 STACK wells in Q2, if you’re wondering where the Q1 2021 impairment charges are coming from.

Ovintiv slide 11, OVV Well Positioned vs Industry Narratives, six claims set over a photo of a pumpjack silhouetted against a red sunset.

Slide 11:

The narratives match the background photo. During a time when many view the sun is setting on the industry, it’s actually setting just on OVV.

Ovintiv slide 12, Defining the Successful E&P of the Future: seven icon bullets running from quality multi-basin portfolio to proven team of talented and committed professionals.

Slide 12:

Ah, the grand finale. OVV reminding you that they’re:

  • Multi basin
  • Poorly responding to getting punched in the face by Covid-19
  • Have industry-leading efficiency in incinerating capital (you’ll note “cube” isn’t in the deck)
  • Size and scale includes a photo of Doug’s bicep
  • Unique combination of capital flexibility still completing STACK wells in a poor pricing environment
  • The corporate culture is “one” because that’s how many employees care
  • And finally: a team of talented and committed industry professionals until they all get laid off.

That’s it for today’s analysis of OVV’s IR decks, please stay tuned for future observations from other #premier oil and gas companies.

Take care and stay fresh,

~Doug

From the road

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