Ovintiv Inc

Strategy

Ovintiv aims to be a leading North American energy producer and is focused on developing its high-quality multi-basin portfolio of oil and natural gas producing plays. Ovintiv is committed to delivering quality returns from its capital investment, generating significant cash flows and providing durable cash returns to its shareholders through the commodity price cycle. The Company aims to achieve its strategic priorities through execution excellence, disciplined capital allocation, and commercial acumen and risk management. In addition, the Company is dedicated to driving progress in areas of environmental, social, and governance, aligning with its commitment to corporate responsibility.

In support of the Company’s commitment to enhancing shareholder value, Ovintiv utilizes its capital allocation framework to provide competitive returns to shareholders while strengthening its balance sheet.

Ovintiv continually monitors and evaluates changing market conditions to maximize cash flows, mitigate risks and renew its premium well inventory. The Company’s assets, located in some of the most prolific plays in North America, form a multi-basin, multi-product portfolio which enables flexible and efficient investment of capital that supports the Company’s strategy.

Ovintiv seeks to deliver results in a socially and environmentally responsible manner. Best practices are deployed across its assets, allowing the Company to capitalize on operational efficiencies and decrease emissions intensity. The Company’s sustainability reporting, which outlines its key metrics, targets and relative progress achieved, can be found in the Company Outlook section of this MD&A and on the Company’s sustainability website.

Underpinning Ovintiv’s strategy are core values of one, agile, innovative and driven, which guide the organization to be collaborative, responsive, flexible and determined. The Company is committed to excellence with a passion to drive corporate financial performance and shareholder value.

For additional information on Ovintiv’s strategy, its reporting segments and the plays in which the Company operates, refer to Items 1 and 2 of the 2023 Annual Report on Form 10-K.

In evaluating its operations and assessing its leverage, Ovintiv reviews performance-based measures such as Non‑GAAP Cash Flow and debt-based metrics such as Debt to Adjusted Capitalization, Debt to EBITDA and Debt to Adjusted EBITDA, which are non-GAAP measures and do not have any standardized meaning under U.S. GAAP. These measures may not be similar to measures presented by other issuers and should not be viewed as a substitute for measures reported under U.S. GAAP. Additional information regarding these measures, including reconciliations to the closest GAAP measure, can be found in the Non-GAAP Measures section of this MD&A.

Highlights

During the first quarter of 2024, the Company focused on commencing its 2024 capital investment plan aimed at maximizing profitability through operational and capital efficiencies and delivering cash from operating activities. Higher upstream product revenues in the first quarter of 2024 compared to 2023, primarily resulted from higher production volumes, partially offset by lower average realized natural gas prices, excluding the impact of risk management activities. Production volumes increased 12 percent compared to the first quarter of 2023 primarily due to the addition of the Permian assets acquired in the second quarter of 2023. Decreases in average realized natural gas prices of 49 percent were primarily due to lower benchmark prices. Ovintiv continues to focus on optimizing realized prices from the diversification of the Company’s downstream markets.

Financial Results

Three months ended March 31, 2024

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Reported net earnings of $338 million, including net losses on risk management in revenues of $54 million, before tax.

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Generated cash from operating activities of $659 million and Non-GAAP Cash Flow of $1,035 million.

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Purchased for cancellation, approximately 5.4 million shares of common stock for total consideration of approximately $250 million.

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Paid dividends of $0.30 per share of common stock totaling $80 million.

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Had approximately $3.0 billion in total liquidity as at March 31, 2024, which included available credit facilities of $3,250 million, available uncommitted demand lines of $237 million, and cash and cash equivalents of $5 million, net of outstanding commercial paper of $495 million.

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Reported Debt to EBITDA of 1.3 times and Non-GAAP Debt to Adjusted EBITDA of 1.3 times.

Capital Investment

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Commenced the Company’s 2024 capital plan with expenditures totaling $591 million.

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Focused on highly efficient capital activity to benefit from short-cycle high margin and/or low-cost projects which provide flexibility to respond to fluctuations in commodity prices.

Production

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Produced average liquids volumes of 299.3 Mbbls/d, which accounted for 52 percent of total production volumes. Average oil and plant condensate volumes of 210.9 Mbbls/d, represented 70 percent of total liquids production volumes.

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Produced average natural gas volumes of 1,648 MMcf/d, which accounted for 48 percent of total production volumes.

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Produced average total volumes of 573.8 MBOE/d.

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Incurred total upstream transportation and processing expenses of $378 million or $7.25 per BOE, a decrease of $36 million compared to 2023, primarily due to lower variable contract rates in Permian, the sale of the Bakken assets in the second quarter of 2023, and the impact of a new downstream contract in Uinta, partially offset by higher production volumes in Permian and Uinta.

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Incurred total upstream operating expenses of $236 million or $4.52 per BOE, an increase of $37 million compared to 2023, primarily due to the Permian assets acquired in the second quarter of 2023, partially offset by the sale of the Bakken assets in the second quarter of 2023.

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Incurred total production, mineral and other taxes of $83 million, which represents approximately 4.3 percent of upstream product revenues. Total production, mineral and other taxes were flat compared to the first quarter of 2023.

The Company’s upstream operations refers to the summation of the USA and Canadian operating segments. Additional information on the items above and other expenses can be found in the Results of Operations section of this MD&A.

Subsequent Event

Subsequent to the quarter end, Ovintiv resolved a dispute related to the previous disposition of certain legacy assets. The Company expects to receive proceeds later in the year, at which time, the Company will recognize a gain within Other (gains) losses in its Consolidated Statement of Earnings. The Company estimates that the aggregate gain will be approximately $150 million.

2024 Outlook

Industry Outlook

Oil Markets

The oil and gas industry is cyclical and commodity prices are inherently volatile. Oil prices reflect global supply and demand dynamics as well as the geopolitical and macroeconomic environment.

Oil prices for the remainder of 2024 are expected to be impacted by the interplay between the pace of global economic growth and demand for oil, continued OPEC+ production restraint and continued supply uncertainties resulting from geopolitical events. Recessionary concerns continue to have an impact on global demand as central banks evaluate and recalibrate their strategies in response to the prevailing economic environment. Supply and the accumulation of global oil inventories are expected to be impacted by changes in OPEC+ production levels, consumer demand behavior and geopolitical volatility.

Natural Gas Markets

Natural gas prices are primarily impacted by structural changes in supply and demand as well as deviations from seasonally normal weather.

Natural gas prices for the remainder of 2024 are expected to be impacted by the interplay between natural gas production and associated natural gas from oil production, changes in demand from the power generation sector, changes in export levels of U.S. liquefied natural gas, impacts from seasonal weather, as well as supply chain constraints or other disruptions resulting from geopolitical events.

Company Outlook

The Company will continue to exercise discretion and discipline, and intends to optimize capital allocation through the remainder of 2024 as the commodity price environment evolves. Ovintiv pursues innovative ways to maximize cash flows and to reduce upstream operating and administrative expenses.

Markets for oil and natural gas are exposed to different price risks and are inherently volatile. To mitigate price volatility and provide more certainty around cash flows, the Company enters into derivative financial instruments. As at March 31, 2024, the Company has hedged approximately 66.6 Mbbls/d of expected oil production and 800 MMcf/d of expected natural gas production for the remainder of the year. In addition, Ovintiv proactively utilizes transportation contracts to diversify the Company’s sales markets, thereby reducing significant exposure to any given market and regional pricing.

Additional information on Ovintiv’s hedging program can be found in Note 20 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Capital Investment

The Company has commenced its 2024 capital investment program, focusing on maximizing returns from high-margin oil and condensate, and generating cash flows in excess of capital expenditures.

During the first quarter of 2024, the Company invested $591 million, which was in line with the first quarter guidance range of $580 million to $620 million. The Company expects to meet its full year 2024 capital investment guidance range of $2,200 million to $2,400 million.

Ovintiv continually strives to improve well performance and lower costs through innovative techniques. Ovintiv’s large-scale cube development model utilizes multi-well pads and advanced completion designs to maximize returns and resource recovery from its reservoirs. The Company continues to enhance its multi-frac technology by shifting, where possible, from simultaneously fracing two wells (“Simulfrac”) to fracing three wells (“Trimulfrac”) at the same time. Ovintiv’s disciplined capital program and continuous innovation create flexibility to allocate capital in changing commodity markets to maximize cash flows while preserving the long-term value of the Company’s multi-basin portfolio.

Production

During the first quarter of 2024, total average production volumes were 573.8 MBOE/d, which was in line with the first quarter guidance range of 560.0 MBOE/d to 575.0 MBOE/d. Average oil and plant condensate production volumes were 210.9 Mbbls/d and average other NGL production volumes were 88.4 Mbbls/d, which were in line with first quarter guidance ranges of 208.0 Mbbls/d to 212.0 Mbbls/d and 86.0 Mbbls/d to 89.0 Mbbls/d, respectively. Average natural gas production volumes were 1,648 MMcf/d, which exceeded the first quarter guidance range of 1,575 MMcf/d to 1,625 MMcf/d.

The Company expects to meet its updated full year 2024 total production guidance range of 560.0 MBOE/d to 575.0 MBOE/d, including oil and plant condensate production volumes of approximately 204.0 Mbbls/d to 208.0 Mbbls/d, other NGLs production volumes of approximately 88.0 Mbbls/d to 92.0 Mbbls/d and natural gas production volumes of approximately 1,600 MMcf/d to 1,650 MMcf/d.

Ovintiv promotes a collaborative culture that values knowledge exchange, open communication, continuous improvement and learning. This culture stimulates innovation and fosters the creation of best practices resulting in efficiency improvements and enhanced operational performance for the Company.

The Company is on track to achieve full year upstream transportation and processing costs of approximately $7.50 per BOE to $8.00 per BOE, operating expenses of approximately $4.25 per BOE to $4.75 per BOE, and total production, mineral and other taxes of approximately four to five percent of upstream product revenues. The Company’s upstream operations refers to the summation of the USA and Canadian operating segments.

Additional information on Ovintiv’s second quarter and updated full year 2024 Corporate Guidance can be accessed on the Company’s website atwww.ovintiv.com.

Environmental, Social and Governance

Ovintiv recognizes climate change as a global concern and the importance of reducing its environmental footprint as part of the solution. The Company voluntarily participates in emission reduction programs and has adopted a range of strategies to help reduce emissions from its operations. These strategies include incorporating new and proven technologies, optimizing processes in its operations and working closely with third-party providers to develop best practices. The Company continues to look for innovative techniques and efficiencies in support of its commitment to emission reductions.

Ovintiv expects to publish its 2023 Sustainability Report in May. The report will highlight the Company’s 2023 environmental, social and governance results, and its progress in emissions intensity reductions with the goal to meet its Scope 1&2 GHG emissions target by 2030. As at the end of 2023, the Company had achieved a greater than 40 percent reduction in the Scope 1&2 GHG emissions intensity and is on track to meet its emissions intensity reduction target of 50 percent by 2030. The GHG emissions reduction target is tied to the annual compensation program for all employees.

During the second quarter of 2023, the Company acquired assets in Permian which increased both oil production volumes and net premium well inventory. Ovintiv is undergoing an integration period to align the emissions profile of the acquired inventory with the World Bank Zero Routine Flaring initiative. Ovintiv remains committed to its emissions reduction targets.

Ovintiv is committed to diversity, equity and inclusion (“DEI”). The Company’s social commitment framework, which is rooted in the Company’s foundational values of integrity, safety, sustainability, trust and respect, reflects Ovintiv’s positive contributions to the communities where it operates and highlights the Company’s approach to enabling an inclusive culture that embraces diversity of thought, background and experience.

Ovintiv remains committed to protecting the health and safety of its workforce. Safety is a foundational value at Ovintiv and plays a critical role in the Company’s belief that a safe workplace is a strong indicator of a well-managed business. This safety-oriented mindset enables the Company to quickly respond to emergencies and minimize any impacts to employees and business continuity. Safety performance goals are incorporated into the Company’s annual compensation program. Additional information on DEI and employee safety can be found in the Human Capital section of Items 1 and 2 of the 2023 Annual Report on Form 10-K.

Additional information on Ovintiv’s sustainable business practices are included in its most recent Sustainability Report on the Company’s sustainability website athttps://sustainability.ovintiv.com.