Ovintiv Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2024

There are 13 speakers on the call.

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Aventiv's 2024 First Quarter Results Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session.

Operator

Members of the investment community will have the opportunity to ask questions. Members of the media attending in a listen only mode today, you may quote statements made by any of the Ovintiv representatives. However, members of the media who wish to quote others who are speaking on this call today, we advise you to contact those individuals directly to obtain their consent. Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of Ovintiv. I would now like to turn the conference call over to Jason Verhaist from Investor Relations.

Operator

Please go ahead, Mr. Verhaist.

Speaker 1

Thanks, Joanna, and welcome, everyone, to our Q1 conference call. Looking statements at the beginning of our slides and in our disclosure documents filed on SEDAR, Plus and EDGAR. Following prepared remarks, we will be available to take questions. I'll now turn the call over to our President and CEO, Brendan McCracken.

Speaker 2

Good morning. Thank you for joining us. Our team has carried our momentum from last year into 2024 with every item at or ahead of our Q1 guidance midpoints. We delivered net earnings of $338,000,000 free cash flow of $444,000,000 and cash flow per share of 3 point estimates. We've raised our full year production guidance, which will see us deliver oil and condensate volumes of about 206,000 barrels per day, while leaving our capital guide unchanged at $2,300,000,000 at the midpoint.

Speaker 2

Our 2024 oil and condensate capital efficiency now reflects a 19% gain compared to our original pre acquisition 2023 guide. The combination of strong productivity across the portfolio, our leading capital efficiency and stronger oil price environment have raised our expectations for 2024 free cash flow from $1,600,000,000 to $1,900,000,000 roughly $750,000,000 more than last year with similar volumes and less capital spend. This will allow us to deliver enhanced returns to our shareholders and accelerate debt repayment. As we highlighted in February, we also added 65 premium 10,000 foot equivalent locations in the Permian through 3 bolt on transactions at an average cost less than $3,000,000 per location. These inventory additions are immediately competitive for capital and are contiguous with our existing acreage in the core of the Midland Basin.

Speaker 2

Our multiyear disciplined strategy of both organic and inorganic inventory extension has added about 16 50 premium net 10,000 foot locations to our portfolio, delivering a huge boost to our full cycle returns and the durability of our business. We believe our 2024 program is highly repeatable in 2025 and beyond, reflecting our leading capital efficiency and the depth of our premium inventory. As I mentioned, our strong execution enabled us to meet or beat all our first the quarter came in above the midpoint of guidance on all products. Oil and condensate volumes averaged 211,000 barrels per day with total volumes of 574,000 BOEs per day. We also came in below the midpoint on capital.

Speaker 2

We resolved the production disruptions we experienced during the quarter, largely due to refinery turnarounds in Salt Lake City as well as some downtime related maintenance that was largely in the Montney. We expect our oil and condensate volumes to stabilize through the second quarter with a more consistent profile in the second half of the year. I'll now turn the call over to Corey.

Speaker 3

Thanks, Brendan, and good morning. Our track record of shareholder returns continued through the quarter. We returned $328,000,000 through share buybacks of $248,000,000 and base dividends of $80,000,000 This represents a competitive cash return yield of approximately 8%. Since the inception of our buyback program in the Q3 of 2021, we have repurchased a total of 33,000,000 shares distributed approximately $700,000,000 in base dividend payments for total shareholder returns of about $2,200,000,000 In the Q2, as per our shareholder returns framework, we will buy back $182,000,000 in shares and we expect to allocate 182,000,000 dollars to the balance sheet. We remain committed to lowering the overall debt level in our capital structure and the interest costs that go with it.

Speaker 3

Our strong capital efficiency combined with higher oil prices will allow us to reach our $4,000,000,000 net debt target sooner. This bolsters the resiliency of our business and positions us to withstand market volatility over the long term. Our focus in 2024 is to generate superior returns on our invested capital and maximize our free cash flow. Assuming full year average crude prices of $80 WTI oil and NYMEX natural gas price of $2.25 we expect to generate about $1,900,000,000 of free cash flow. This is about $750,000,000 or more than 60% higher than last year with similar production volumes.

Speaker 3

2nd quarter production is set to average 560,000 to 575,000 BOEs per day with oil and condensate volumes of about 207,000 barrels per day at the midpoint. As Brendan mentioned, we expect to deliver a more consistent oil and condensate production profile for the remainder of the year. From a capital investment perspective, the Q2 will be our high point for the year. We added a 6 rig in the Permian at the start of April, and we recently commenced our Anadarko drilling program. We expect capital spending to trend down through the second half of the year, and we remain very comfortable with the midpoint of our full year capital guide at 2,300,000,000 dollars Our full year TILs are expected to be roughly evenly split between the first and second half of the year.

Speaker 3

Capital efficiency remains a primary focus for our teams as we work to efficiently convert our inventory into cash flow and generate consistent durable returns for our shareholders. As a reminder, an additional feature supporting our strong free cash flow this year is the expiry of our REX pipeline commitment here in May, which represents about $100,000,000 in savings versus 2023. Additionally, the recent resolution of a legacy legal matter will result in a one time recovery of approximately $150,000,000 that will go straight to the balance sheet to reduce debt. Between this and the REX roll off, we'll realize an additional $250,000,000 in the cleanup costs from the legacy business. I'll now turn the call over to Greg, who will speak to our operational highlights.

Speaker 4

Thanks, Corey. Across our acreage footprint, our Permian well performance continues to deliver. As planned, Q1 was a relatively lighter quarter for new wells on stream in the Permian with only 17% of our full year turn in lines. On Slide 8, the chart on the right shows our result across the last two quarters. The dash line shows all 80 of the wells we brought online over that period.

Speaker 4

These wells demonstrate the performance of our new completions design across our asset footprint. The green line is our 2024 Permian type curve, unchanged from its introduction in February. As you can see, our performance continues to match the type curve, which incorporates all of the improved well productivity we achieved last year and demonstrates how our team is continuing to innovate to drive returns. We only turned in line 21 wells in the Q1, but have already turned in line 14 wells in Q2. The performance from these 35 wells as well as our continued solid base performance gave us the confidence to increase our oil and condensate guide for the year to 206,000 barrels per day at the midpoint.

Speaker 4

Our execution across drilling and completions in the Permian continued to deliver improvements in cycle time, which will ultimately reduce the number of days on location and lower costs. On the drilling side, our average drilling speed in the Q1 was roughly 5% faster than our 2023 program. As Corey mentioned, we recently added a 6th rig in the Permian. With respect to completions, our year to date trammalfrac wells were completed 30% faster than our average speed in 2023 at an industry leading 4,200 feet per day. We expect to utilize Trimal Frac on more than half of our program this year.

Speaker 4

This approach yields a 15% savings in completions cost per foot and essentially doubles the completed feet per day versus a traditional zipper frac. We have deep experience with Triangle Frac, having completed nearly 70 wells in more than 3,400 stages since we began deploying the technique over 2 years ago. We are also seeing industry leading drilling and completion metrics in the Montney, where in the Q1 we delivered an average 17 50 feet drilled per day and over 4,100 feet completed per day. These results are in line with our Permian pacesetters and demonstrate the value of our culture of innovation and multi basin portfolio to deliver learnings and transfer learnings in real time. Despite the current weakness in gas prices, the economics on our Montney wells remain outstanding.

Speaker 4

Assuming $75 WTI and $2.50 NYMEX gas, we expect our Montney to generate a program level IRR of more than 60%. These returns are driven by our superior well productivity, low well costs and strong price realizations for both condensate, which generate which generally trades in line with WTI as well as natural gas. In fact, our Montney gas realized 103 percent of NYMEX in Q1 on an unhedged basis. This is the result of our physical transportation arrangements to markets in Eastern Canada, Chicago, California and the Pacific Northwest. Our Montney program remains robust in both BC and Alberta as we have in hand all the permits needed to execute our 2024 plan and 100% of our water needs secured.

Speaker 4

Our performance in the play continues to demonstrate the expertise of our team in maximizing value from this incredible resource. In the Uinta, our continued focus on well cost reductions makes the play highly competitive in our portfolio as it generates a margin similar to our Permian operations. Our large contiguous land base of approximately 137,000 net acres has multiple benches across 1,000 feet of collective pay. It is greater than 80% undeveloped, which translates into a significant inventory runway. As Brendan mentioned earlier, the refinery turnarounds in Salt Lake City were completed at the end of the Q1, allowing us to bring constrained production back online and return the local refining complex at our typical rates.

Speaker 4

Furthermore, our rail capacity to the Gulf Coast diversifies market exposure and supports future growth in the play. With our Q1 drilling program complete, we will continue on getting the majority of our 20 24 wells online

Speaker 5

through the Q2.

Speaker 4

Moving to the Anadarko, our 2024 drilling program commenced at the beginning of April. We are targeting the oiliest parts of our acreage to leverage the strong oil performance we saw in 2023, where the wells displayed 1st year oil cuts of more than 55% with about 85% of 1st year revenue coming from oil. We plan to run 1 rig in the play for the remainder of the year and expect to see our first wells come online in the Q3. The team has also managed our base production very effectively and we expect our 2024 Anadarko base decline rate to average an impressive 17%. I'll now turn the call back to Brendan.

Speaker 4

Thanks, Greg.

Speaker 2

Our team delivered another strong quarter, meeting or beating all our targets and delivering cash flow per share and free cash flow above consensus. Our focus remains on maximizing capital efficiency, generating significant free cash flow, reducing debt and continuing to bolster our premium return drilling capital and responsible operations. This concludes our prepared remarks. Operator, we're now ready to open the line for questions.

Operator

The question comes from Neil Mehta at Goldman Sachs. Please go ahead.

Speaker 6

Good morning, Brennan and team. Couple of questions for you. First, would love your perspective. We spent a lot of time talking about the Permian over the last couple of quarters, but on the Montney specifically and the progress you're making in the oil window. So if you could just spend some time talking about your plans for that over the course of the year and what you think that investors should be focused on from a strategic perspective there?

Speaker 2

Yes. Thanks, Neil. Really appreciate it. And where I'll start first is just with the resource itself. I think this is a place that's getting more attention from our investors.

Speaker 2

But one of the things we've been flagging for a little while now is the everybody knows the Permian is the largest remaining premium oil resource in North America. And I think what a lot of people haven't realized until recently is the 2nd largest remaining oil resource in North America is in the Montney. And it's sort of largely been thought of as more of a gas play. But where we've been focusing our capital and focusing our attention and the play has been on our acreage that's in the condensate window, which for us sells as a premium product and really prices just like our oil price in the U. S.

Speaker 2

And so that's been the strategic focus for us. And look, we're really pleased with the results. I think it's very consistent with our durable return strategy where we've built a culture and expertise that lets us lead on innovation and that's showing up in both our cost and our productivity performance in the play. And as we run the business at a maintenance level as a company, that's the role that the Montney is playing within the portfolio. So investors should expect it to run relatively flat through the year and deliver free cash flow off the back of that.

Speaker 6

Okay. That's helpful. And then just follow-up, we've got some questions this morning on 2Q Capital. It is a little bit higher than what would be implied for the full year. I'm guessing that's just lumpiness with the 6th rig coming up and the Anadarko kicking off, but just any perspective on just timing of CapEx in Q2?

Speaker 2

Yes, you got it for sure, Neil. The 6th rig is part of that. And then we highlighted the Till cadence, the turn in line cadence across the portfolio being a little lighter in 1Q and a little stronger in 2Q. And so where that will set us up is if you look at it on a first half, second half basis, as a company, we'll be almost balanced on that capital and turn in line cadence, but a little bit shaded towards Q2 relative to Q1. Yes.

Speaker 2

Thank you, Neil.

Operator

Thank you. The next question comes from Arun Jayaram at JPMorgan. Please go ahead.

Speaker 6

Yes, good morning. Corey, I wondered if

Speaker 5

you could just maybe elaborate on the $150,000,000 expected cash inflow. It looks like you resolved a previous asset sale dispute, but maybe some details on that and perhaps timing and any tax implications from that inflow?

Speaker 3

Yes. Good morning, Arun. Just based on the agreement, we're not allowed to say a whole bunch more about it other than I can confirm it's a very old transaction. We should have minimal cash tax with it. And then maybe the only other clarifying point would be not going to show up in cash flow.

Speaker 3

So the full amount of it's going to go to reduce debt in the second half of the year.

Speaker 2

Arun, the only thing I'd add to it, we're very pleased to get this one resolved. As Corey said, it's an older item, not a recent one. And I think generally what that should reflect is the relentlessness that our team has to get value for our shareholders. And when you think about the $150,000,000 from this settlement combined with the work to roll off the REX payment this year, which actually is this month is our final REX payment owing. That's almost $300,000,000 or maybe call it closer to $250,000,000 of incremental value to the shareholders and our team is just relentless about trying to unearth those opportunities and bring them all the way to the bottom line.

Speaker 5

Yes. Just to clarify, do you have a sense of timing? Is that a 2Q item? Or is that second half of the year?

Speaker 3

It will be second half. It's right around 3rd, Q4.

Speaker 5

Okay. Fair enough. My follow-up is just on the Trimofac completion scheme. Greg, I think you mentioned you've participated now in 70 completions. But one of the questions we've got from investors is if you could get us a sense of the well productivity on the Trimel frac completions versus the wells you're doing either at Simulfrac or Zipper?

Speaker 5

And is there any trade off before some of the that you're experiencing from some of the efficiency gains versus just overall performance or well productivity?

Speaker 4

Thanks for the question. And we've been very pleased that all along over the past 2 years as we've instituted these trimable fracs, we're seeing no degradation to well performance really at all. What we're seeing is lower treating pressures and the ability to pump these jobs faster, which generates cost savings, which will flow straight to the bottom line. It also allows us to execute these jobs faster, which allows us to be more capitally efficient. But the performance from these wells are very much in line with the other wells in the field.

Speaker 4

If you recall, we were doing this for a bit of time prior to even divulging that we were doing triamal frac and the results weren't showing up any differently during that time and that continues to be the case today. So we're very pleased with triamal frac. We pumped a third of our jobs last year using that technique. This year it will be a little over half and see no reason why we couldn't continue to push that up even higher in the future as we continue to use the technology.

Speaker 2

Yes. I'd just add, Arun, the rock doesn't know it's being trauma fracked. So the way we design these completions, the rate of slurry sand and water that's going through each cluster is exactly the same in either a zipper, a simul or a trimal frac. And so really this is all about an above ground efficiency gain and the reservoir feels the exact same frac it would otherwise. So that's why the result that Greg's describing on the well performance makes total sense that the wells would produce exactly the same because the completion downhole is exactly the same.

Speaker 5

Great. Thanks, Brendan.

Speaker 7

Yes.

Speaker 2

Thanks, Arun.

Operator

Thank you. The next question comes from Neal Dingmann at Truist Securities. Please go ahead.

Speaker 8

Good morning, guys. Thanks for the time. My first question is on the D and C plan specifically looking at your I guess the Q2 guide you all talked about adding that 6 Permian rig is I know you had already said suggested and starting up the Anadarko program. I'm just wondering, assuming you're maybe I don't know Brandon, a question for you or Greg, if the operational efficiencies is continue at this current pace, would you all continue with the same rigs, the 6 same rigs or which I think is about 60% of the overall program? Or would you let maybe a Permian rig or another rig go earlier than expected in the program this year?

Speaker 2

Yes. Hey, Neil, I think the way to think about that is based on what we're seeing today and in terms of supply and demand fundamentals and the service price environment that we're working in, we're biased towards keeping that low level program going with that 6th rig through the end of the year. And so that's what's reflected in the guidance that we issued today and the additional asset level guidance in the material also shows that with that 60% of the TILs in the Permian coming in the second half.

Speaker 8

Got it. Got it. Okay. And then just a quick do you have a second, Gregor?

Speaker 2

No, go ahead, Neil.

Speaker 8

Then just a quick second one just on capital allocation. Is it fair to say, I don't know, Brandon, for your quarter, just when you look at the free cash flow and we have that continuing to ramp up pretty nicely this year. Will that likely continue to consist of just continue to lean leaning into buybacks of the stocks or I'm just wondering, I guess, that versus variables or something else or if I could ask maybe one other second part of there. I mean, do you all think of the stock value is based on a mid cycle level or what would cause you to continue leaning into this as you have?

Speaker 2

Yes. Great question, Neil. The approach we've taken, I think, will continue to be consistent with. And our view there has been to stay in this fifty-fifty allocation of free cash flow where we're putting half of it to the debt reduction and then half of it to the incremental shareholder returns. And then on your question around how to do that incremental shareholder return, we continue to see buybacks as the right value choice.

Speaker 2

And the way we get to it is exactly how you implied. So we look at what we think the intrinsic value of the business is. And we look at that through a mid cycle lens. And for us that's been $55,000,000 on TI and $275,000,000 on NYMEX. And so we look at the business through that price lens, which sitting here today feels reasonably conservative on the oil side and probably balanced on the gas side.

Speaker 2

And so we like that as a discipline tactic to really manage that decision between staying in buybacks or shifting into something like a variable dividend. And so when we do that math and analysis today, we're still very comfortable that the buybacks are the right return mechanism to choose for that incremental return to our shareholders.

Speaker 8

Absolutely agree. Thanks, Brandon.

Speaker 2

Thanks, Neil.

Operator

Thank you. The next question comes from Jade Dawood at TD Cowen. Please go ahead.

Speaker 9

Hey, thank you. It's Gabe here from Cowen. Hey, guys. Thanks for taking your time. Hey, Brendan, I was hoping maybe you could just pry a little bit more on the trajectory from here.

Speaker 9

You assume you get 8 kilobytes D back in the Uinta and Permian TILs kind of accelerating from here with 60% in the back half, you're starting a rig in the Anadarko. Is Montney, I guess, declining still on the condensate basis? How do we think about that, I guess, and just some of the puts and takes at the asset level versus the corporate level guide that kind of assumes or implies maybe flattish to down in the second half on oil and condensate?

Speaker 2

Yes. I mean, I can talk a little bit about the shape within the assets there, Gabe. So remember, the kind of the biggest factor for production shape for us this year has been really finishing off the integration of that acquisition in the Permian last year. And just as a reminder, I think everybody knows this, but just as a reminder, there was quite a number of wells in progress that we inherited there as we shifted from that asset being run for growth under the prior management to being run for free cash flow under our strategy. And so really the shape that you're seeing through 2024 is just finishing off that stabilization and integration.

Speaker 2

And so what you should expect is the Permian will stabilize in the back half of the year at a little under where it was in 1Q. Montney will be fairly flat through the year. Uinta grows a little bit more and Anadarko fairly flat to slightly down through the year until we start to bring on those wells in the second half.

Speaker 9

Okay, great. Thanks Brendan. That's helpful. And then I guess as a follow-up, you did $190,000,000 or so I guess in bolt ons in 1Q. Just curious what the appetite is like for continued bolt ons and if we should expect maybe that similar level of spend the rest of the year?

Speaker 9

Or do you think the $190,000,000 is kind of it for this year?

Speaker 2

Yes. I think the thing to think about there is we've done a lot in this space over the last several years and we've updated that outcome with the 16.50 net premium inventory additions that we've made over that time. And it was a combination of the smaller bolt ons like the ones that you referenced that we did earlier in 1Q and then the larger transaction in the Permian last year and our organic efforts, right, converting non premium locations to premium on our existing acreage. And so look, I think that puts us in a spot today where we're keeping very opportunistic. We're not driven to have to transact in order to extend our inventory.

Speaker 2

We've got that in place. And so let's us be very value oriented and disciplined in the market that we're seeing today. And I think we'll stay opportunistic though. And when we see opportunities like we saw in 1Q to go grab some really high quality inventory that bolts right on to our existing acreage. We'll continue to do that, but we'll balance that with our ambitions on debt reduction and we'll be disciplined about value creation.

Speaker 2

Great.

Speaker 9

Thanks Brendan. Thanks for your time.

Speaker 2

Yes. Thanks Gabe.

Operator

Thank you. The next question comes from Scott Gruber at Citigroup. Please go ahead.

Speaker 10

Yes, good morning. Just following up on the Permian rig count question. Given the efficiency gains, I'm curious, is a Permian rig count of 6 equivalent with a modest level of growth out of the asset relative to where it's got to stabilize in the second half?

Speaker 2

Well, I think that will be a 25% question really, Scott, because today what we're doing is, like I said, integrating that higher WIP activity that we inherited. And where that's leaving us is with the guidance that you've got there for both the company and the asset. And really the question around is 5% or 6% the maintenance level, that will be a 25% question that we'll come to as we get through the year. And really what we're honoring there is the rate of change that the team's continuing to drive like as we just drill faster and complete faster. So we'll get a read on that as we get through the rest of the year and update that view for 2025 when we get there.

Speaker 10

Okay. Then just circling back on the $150,000,000 gain on the resolution, just checking, you guys will receive $150,000,000 in cash in the second half. Is that correct? And how do we think about that in terms of cash distributions or that cash going to the balance sheet?

Speaker 2

Yes, Scott, really appreciate the clarification. That is correct. So that's $150,000,000 in cash coming to us. It will not be a cash flow item. And so our intention is to put that directly to debt reduction.

Operator

Thank you. The next question comes from Greg Pardy at RBC Capital Markets. Please go ahead.

Speaker 7

Yes, thanks. Good morning. Yes, I want to maybe just build a little on the balance sheet question. So that's the $150,000,000 pay down is helpful. Corey, you had what I think a working capital headwind of $376,000,000 or so in the Q1, but do you expect some of that to unwind through the year?

Speaker 7

The bigger question is where is most of the progress made in the deleveraging getting to the $4,000,000,000 Is that really is that predominantly going to be 2025 as you look at it?

Speaker 2

Yes. I'll let Cory chime in here, Greg. But really the progress is the free cash generation from the business driving debt down. But I'll turn it

Speaker 3

to Corey. Yes, Greg, we'll start to see progress even as we get through the Q1 because we put that net debt bridge in the appendix just to help people see some of these one time items in the Q1. So those included the bolt ons here that were previously mentioned, plus the actual cash payment of the 2023 tax bill for us. So our business will generate more free cash flow really starting in April after the Q1 and the debt starts to come down and obviously accelerates as oil is 80 plus. So we'll start to see progress this year.

Speaker 3

We don't have to wait until 2025 to see that.

Speaker 7

Okay. And then thanks for that. And then maybe just related, how are you thinking about your hedging program, particularly as the balance sheet continues to deleverages? Is hedging something that you could see really moving away from? Or that's something you'd want to stay involved with no matter what?

Speaker 2

Yes, I think so the maybe I'll just talk about the current state and then talk about the future. So really what we've been doing with our hedging program is protecting the business against a long period of very low prices. And so what that has resulted in is us hedging on a quarterly basis about a year out in time and hedging around a quarter of production on both the gas and oil fronts. And what that will let us do is withstand a period of pricing as low as $40,000,000 on the oil and $2,000,000 on the gas and still be free cash flow neutral or better after the base dividend. That's been kind of the principle of what we've been doing.

Speaker 2

And so as the debt comes down, I think there's kind of 2 things that happen. 1, the interest expense comes down and so that balancing point on free cash flow neutrality is enhanced. And then the other is kind of your question, which is, do you even feel the need to hedge at all? And I think that's something that we'll just continue to address as we work towards that debt reduction. But the direction of travel is as you suggested, which is as the business delevers, the need to hedge goes down.

Speaker 7

Okay. Thanks very much, Brendan.

Speaker 2

Yes. Thanks, Greg.

Operator

Thank you. The next question comes from Roger Read at Wells Fargo. Please go ahead.

Speaker 11

Yes, thanks. Good morning. Just really wanted to follow-up on, I guess, kind of thinking about it in the portfolio side. You've got a nice collection of assets here. You've obviously done some modest acquisitions.

Speaker 11

Is there anything at this point that it makes more sense to kind of put on the back burner potentially monetize as a way to accelerate debt repayment?

Speaker 2

Yes, Roger, no, appreciate the question. Look, what we've done is built a portfolio that can be competitive for capital in every asset that we have. And so you can see from the capital allocation across the portfolio, the 2 biggest places where we're allocating capital are our 2 biggest assets, which is kind of no surprise, the Permian and the Montney. But our returns that we're generating in the other two assets, the Uinta and the Anadarko are very competitive for capital. And so we could move a rig around the portfolio and not have a change in corporate return.

Speaker 2

And that's been how we've designed and sort of trimmed the portfolio over the years is to have exactly that multi basin portfolio where everything is competitive for capital. So I think that's what you should continue to expect. I think we're excited about each of the assets in the portfolio and what our teams are doing to generate free cash flow and capital efficiency gains in each of them. Okay.

Speaker 11

Well, that's my only question. Appreciate it. Thank you.

Speaker 2

Yes. Thanks, Roger.

Operator

Thank you. And the next question comes from Jeff Jay at Daniel Energy Partners. Please go ahead.

Speaker 2

Go ahead, Jeff, if you're there. I think we might have lost him, operator.

Speaker 1

Hi. Can you hear me? Sorry

Speaker 9

about that.

Speaker 2

There we go. There we go.

Speaker 5

Yes. Sorry about that.

Speaker 12

My question is really about the multiyear outlook for the Montney. I guess given the Trans Mountain expansion, obviously, Condi is tight right now. And I wonder kind of how you sort of think about the incremental pool for Condensate going forward and what the opportunity set is for you to either grow that asset or at least get maybe even better pricing up there?

Speaker 2

Yes, Jeff, appreciate the question. And this has been a dynamic that our teams followed very closely for quite a number of years. And our view has always been that the Montney condensate will stay a premium product. And that view is really just informed by how the marginal pricing is being set. So today, the Canadian market is about 50% domestic short on condensate.

Speaker 2

So around half of the demand is actually being imported into the basin and that's the price setting mechanism that creates the premium pricing that you're referring to. And so as the oil sands producers expand brownfield projects and get more market access that just exacerbates that net shortage of domestic condensate supply. And so we see the fundamentals continuing to be strong there for years years to come. And that's been the strategy of how we've deployed capital into the play is to chase that premium priced barrel. So and then to your question on growth, really our Montney plan as it stands is maintenance level because as a company we're maintenance level.

Speaker 2

And so that's the role that that asset has been fulfilling in the portfolio. But as we've highlighted over the recent years, we have the ability to modestly grow that if there is a market call for that growth.

Speaker 12

That's super helpful. That's all for me. Thanks guys.

Speaker 9

Yes. Thanks, Jeff.

Operator

Thank you. At this time, we have completed the question and answer session. I will turn the call back over to Mr. Verhais.

Speaker 1

Thanks, Joanna, and thanks, everyone, for joining us on our call today. This call is now complete.

Operator

Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.

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Key Takeaways

  • Strong Q1 performance: net earnings of $338 m, free cash flow of $444 m and cash flow per share above consensus, with all production and capital metrics at or ahead of midpoint guidance.
  • Raised 2024 guidance: oil and condensate volumes now expected at ~206,000 bbl/d with capital spending held at $2.3 bn, reflecting a 19% improvement in capital efficiency versus 2023.
  • Enhanced free cash flow outlook: full-year forecast increased by $300 m to $1.9 bn—about 60% higher than last year—enabling accelerated debt reduction and more shareholder returns.
  • Robust shareholder returns: returned $328 m in Q1 (share buybacks $248 m, dividends $80 m) for an ~8% cash yield, with $182 m of buybacks planned in Q2 under a 50/50 free-cash-flow allocation framework.
  • Premium inventory growth: added 65 high-value Permian locations in Q1 at < $3 m each, bringing total premium inventory additions to 1,650 locations and strengthening long-cycle returns.
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Earnings Conference Call
Ovintiv Q1 2024
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