Company Reports

We are initiating coverage on Ovintiv, an exploration & production firm focused on the Permian and Montney shale plays. Over the last few years, it has divested from noncore positions, completing the process earlier this year with the sale of its Anadarko assets.

Ovintiv is an independent oil and gas producer focused on Canada’s Montney and the US’ Permian basins. The company seeks a maintenance program across its portfolio, boosting output from efficiency gains and pushing down the required capital spending to hold production flat.

We are dropping coverage of ARC Resources, Canadian Natural Resources, Cenovus Energy, Crescent Point Energy, Gran Tierra Energy, Imperial Oil, MEG Energy, Ovintiv, Peyto Exploration & Development, Suncor Energy, and Tourmaline Oil. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We are putting Ovintiv under review while we evaluate our upstream oil and gas coverage universe. We aim to provide insight into over 1,500 companies globally.

Ovintiv delivered total production of 538 thousand barrels of oil equivalent per day in the first quarter, which was 3% lower sequentially and 6% lower year over year. Crude and condensate volumes were 198 mbbls/d, at the midpoint of guidance issued near the end of the quarter (following the announcement of the firm’s Eagle Ford divestiture). This already incorporated the effects of Winter Storm Uri, which forced widespread shut-ins across several of the regions that Ovintiv operates in. The firm’s financial results were better than expected, with adjusted earnings per share coming in at $1.10 (FactSet consensus was $0.82). Non-GAAP free cash flow was $540 million, which was primarily deployed for debt reduction.

Ovintiv is engaged in the development, exploration, production, and marketing of hydrocarbons in Canada and the U.S. The company’s core assets include prime real estate in the Permian, Eagle Ford, Montney, and Duvernay resource plays. These are among the most cost-advantaged shales in North America, with substantial opportunities for profitable drilling at current commodity prices. The company has around 20,000 total drilling locations in its inventory, which could take decades to work through. Half of these locations are designated as "premium" and are expected to yield wells that meet or exceed current type curves. Therefore, management doesn't have to worry about running out of high-graded inventory anytime soon.

Ovintiv is engaged in the development, exploration, production, and marketing of hydrocarbons in Canada and the U.S. The company’s core assets include prime real estate in the Permian, Eagle Ford, Montney, and Duvernay resource plays. These are among the most cost-advantaged shales in North America, with substantial opportunities for profitable drilling at current commodity prices. The company has around 20,000 total drilling locations in its inventory, which could take decades to work through. Half of these locations are designated as "premium" and are expected to yield wells that meet or exceed current type curves. Therefore, management doesn't have to worry about running out of high-graded inventory anytime soon.

Brent crude retreated after initially jumping above $70 per barrel on March 8 following the news that Saudi Arabian oil facilities were attacked in a drone strike organized by Houthi militants. This parallels an earlier attack on Saudi oil infrastructure at Abqaiq in September 2019. The Houthi movement in Yemen claimed responsibility for that event as well, which knocked out approximately 1 million barrels per day for the month (roughly 1% of global supply).

With oil prices surging, we are increasing our medium-term production forecast for no-moat Ovintiv. We also incorporated our increased outlook for near-term commodity prices into our model, and as a result, we are increasing our fair value estimate to $22 (CAD 28) from $16 (CAD 20). Despite the bump in fair value, we see the stock as fairly valued. However, we are lowering our uncertainty rating to very high from extreme, as now expect less variation across our bull and bear scenarios due to more stable commodity prices.

Ovintiv is engaged in the development, exploration, production, and marketing of hydrocarbons in Canada and the U.S. The company’s core assets include prime real estate in the Permian, Eagle Ford, Montney, and Duvernay resource plays. These are among the most cost-advantaged shales in North America, with substantial opportunities for profitable drilling at current commodity prices. The company has around 20,000 total drilling locations in its inventory, which could take decades to work through. Half of these locations are designated as "premium" and are expected to yield wells that meet or exceed current type curves. Therefore, management doesn't have to worry about running out of high-graded inventory anytime soon.

No-moat Ovintiv, formerly Encana, reported fourth-quarter results that exceeded our expectations for the second consecutive quarter. The company generated adjusted cash flow from operations of $692 million, a substantial increase from $398 million in the third quarter due to higher commodity prices, increased production levels, and lower cash costs. The company’s fourth-quarter production averaged 557 thousand barrels of oil equivalent per day with 215 mboe/d from crude oil and plant condensate. Production increased sequentially from 510 mboe/d due to management’s plan to restore previously shut-in production as commodity prices increased. Cash costs decreased to $11.60 a barrel from $11.77 in the third quarter.

Ovintiv is engaged in the development, exploration, production, and marketing of hydrocarbons in Canada and the U.S. The company’s core assets include prime real estate in the Permian, Eagle Ford, Montney, and Duvernay resource plays. These are among the most cost-advantaged shales in North America, with substantial opportunities for profitable drilling at current commodity prices. The company has around 20,000 total drilling locations in its inventory, which could take decades to work through. Half of these locations are designated as "premium" and are expected to yield wells that meet or exceed current type curves. Therefore, management doesn't have to worry about running out of high-graded inventory anytime soon.

After incorporating Ovintiv’s third-quarter results into our models, we are increasing our fair value estimate to $16 (CAD 20) driven by our increased forecast for price realizations on the company’s gas and oil production. Despite the increased fair value estimate, we still suggest that investors remain on the sidelines and look elsewhere for investment opportunities as Ovintiv's extreme uncertainty limits its upside. Furthermore, we are maintaining our no-moat rating.

Energy stocks surged on Nov. 9 following Pfizer's announcement of favorable phase 3 data on its COVID-19 vaccine. The broader U.S. Market Index was up 1% on the day, but the energy sector led the way up 14%. Oil prices (West Texas Intermediate) were also up about 8%. Despite the rally, the energy sector is still down around 45% year-to-date. We think the sell-off has been overdone, and as such energy stocks continue to look undervalued overall. Our median covered energy stock trades at a 37% discount to our fair value. Within energy, oilfield services look cheapest overall, trading at a median 52% discount to fair value. E&Ps are also at a 45% median discount to fair value.

No-moat Ovintiv, formerly Encana, reported third-quarter results that exceeded our expectations. The company generated adjusted cash flow from operations of $398 million, a substantial increase from $304 million in the second quarter due to higher commodity prices. The outperformance in cash flow was driven by better-than-expected oil and gas pricing, which was partially offset by higher-than-expected cash costs and lower-than-expected production levels. Cash costs increased sequentially to $11.77 a barrel from $11.23 in the second quarter. The company’s third-quarter production averaged 510 thousand barrels of oil equivalent per day with 186 mboe/d from crude oil and plant condensate. Production decreased sequentially from 536.6 mboe/d due to voluntary shut-ins.

No-moat Ovintiv, formerly Encana, reported second-quarter results that exceeded our expectations. The company generated adjusted cash flow from operations of $304 million, which fell substantially from $566 million in the first quarter due to lower commodity prices. The outperformance in cash flow was driven by better-than-expected oil pricing and lower-than-expected cash costs. Cash costs declined sequentially to $11.23/bbl from $12.17/bbl in the first quarter. The company’s second-quarter production averaged 536.6 thousand barrels of oil equivalent per day with 198.3 mboe.d from crude oil and plant condensate. Production decreased sequentially from 571.3 mboe/d due to voluntary shut-ins.

Ovintiv is engaged in the development, exploration, production, and marketing of hydrocarbons in Canada and the U.S. The company’s core assets include prime real estate in the Permian, Eagle Ford, Montney, and Duvernay resource plays. These are among the most cost-advantaged shales in North America, with substantial opportunities for profitable drilling at current commodity prices. The company has around 20,000 total drilling locations in its inventory, which could take decades to work through. Half of these locations are designated as "premium" and are expected to yield wells that meet or exceed current type curves. Therefore, management doesn't have to worry about running out of high-graded inventory anytime soon.

After taking a fresh look at no-moat Ovintiv’s first-quarter results, we are increasing our fair value estimate to $7 (CAD 10) from $6 (CAD 8) as we expect higher long-term netbacks on the company’s production. Despite the increased fair value, we still suggest that investors remain on the sidelines and look elsewhere for investment opportunities. Furthermore, we are maintaining our no-moat rating.

Ovintiv is engaged in the development, exploration, production, and marketing of hydrocarbons in Canada and the U.S. The company’s core assets include prime real estate in the Permian, Eagle Ford, Montney, and Duvernay resource plays. These are among the most cost-advantaged shales in North America, with substantial opportunities for profitable drilling at current commodity prices. The company has around 20,000 total drilling locations in its inventory, which could take decades to work through. Half of these locations are designated as "premium" and are expected to yield wells that meet or exceed current type curves. Therefore, management doesn't have to worry about running out of high-graded inventory anytime soon.

No-moat Ovintiv, formerly Encana, reported first-quarter results that fell short of our expectations. The company generated adjusted cash flow from operations of $566 million, which fell substantially from $815 million in the fourth quarter due to lower commodity prices. Lower production levels were the main culprit for the lower-than-expected cash flow. The company’s production averaged 571.3 thousand barrels of oil equivalent per day with 215.2 mboe/d from crude oil and plant condensate. Production decreased sequentially from 592.6 mboe/d. Lower production levels were partially offset by higher-than-expected realized pricing and lower-than-expected cash costs. Cash costs declined to $12.17/bbl from $13.44/bbl in the year-ago quarter and slightly below our $12.60/bbl forecasts.