Ovintiv Inc

Sources of Liquidity

The Company has the flexibility to access cash equivalents and a range of funding alternatives at competitive rates through committed revolving credit facilities as well as debt and equity capital markets. Ovintiv closely monitors the accessibility of cost-effective credit and ensures that sufficient liquidity is in place to fund capital expenditures and dividend payments. In addition, the Company may use cash and cash equivalents, cash from operating activities, or proceeds from asset divestitures to fund its operations and capital allocation framework or to manage its capital structure as discussed below.

The Company’s capital structure consists of total shareholders’ equity plus long-term debt, including any current portion. The Company’s objectives when managing its capital structure are to maintain financial flexibility to preserve Ovintiv’s access to capital markets and its ability to meet financial obligations and finance internally generated growth, as well as potential acquisitions. Ovintiv has a practice of maintaining capital discipline and strategically managing its capital structure by adjusting capital spending, adjusting dividends paid to shareholders, issuing new shares of common stock, purchasing shares of common stock for cancellation or return to treasury, issuing new debt and repaying or repurchasing existing debt.

(1)

Includes three uncommitted demand lines totaling $304 million, net of $72 million in related undrawn letters of credit (2023 - $322 million and $49 million, respectively).

(2)

These measures are defined in the Non-GAAP Measures section of this MD&A.

The Company has full access to two committed revolving U.S. dollar denominated credit facilities totaling $3.5 billion, which include a $2.2 billion revolving credit facility for Ovintiv Inc. and a $1.3 billion revolving credit facility for a Canadian subsidiary (collectively, the “Credit Facilities”). The Credit Facilities, which mature in July 2026, provide financial flexibility and allow the Company to fund its operations or capital investment program. At September 30, 2024, $100 million was outstanding under the revolving Credit Facilities.

Depending on the Company’s credit rating and market demand, the Company may issue from its two U.S. CP programs, which include a $1.5 billion program for Ovintiv Inc. and a $1.0 billion program for a Canadian subsidiary. As at September 30, 2024, the Company had $324 million of commercial paper outstanding under its U.S. CP program maturing at various dates with a weighted average interest rate of approximately 5.67 percent, which is supported by the Company’s Credit Facilities. All of Ovintiv’s credit ratings are investment grade as at September 30, 2024.

The available Credit Facilities, uncommitted demand lines, and cash and cash equivalents, net of outstanding commercial paper, provide Ovintiv with total liquidity of approximately $3.3 billion as at September 30, 2024. At September 30, 2024, Ovintiv also had approximately $72 million in undrawn letters of credit issued in the normal course of business primarily as collateral security related to sales arrangements.

Ovintiv has a U.S. shelf registration statement under which the Company may issue from time to time, debt securities, common stock, preferred stock, warrants, units, share purchase contracts and share purchase units in the U.S. The U.S. shelf registration statement expires in March 2026.

The obligations under the Company’s existing debt securities are fully and unconditionally guaranteed on a senior unsecured basis by Ovintiv Canada ULC, an indirect wholly-owned subsidiary of the Company. Additional information on the Company’s Canadian Operations segment and the Bow office lease can be found in the Results of Operations section in this MD&A and the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the MD&A and audited Consolidated Financial Statements and accompanying notes for the year ended December 31, 2023, which are included in Items 7 and 8, respectively, of the 2023 Annual Report on Form 10-K.

Ovintiv is currently in compliance with all financial covenants under the Credit Facilities. Management monitors Debt to Adjusted Capitalization, which is a non-GAAP measure defined in the Non-GAAP Measures section of this MD&A, as a proxy for Ovintiv’s financial covenant under the Credit Facilities, which requires Debt to Adjusted Capitalization to be less than 60 percent. As at September 30, 2024, the Company’s Debt to Adjusted Capitalization was 24 percent. The definitions used in the covenant under the Credit Facilities adjust capitalization for cumulative historical ceiling test impairments recorded in conjunction with the Company’s January 1, 2012 adoption of U.S. GAAP. Additional information on financial covenants can be found in Note 15 to the Consolidated Financial Statements included in Item 8 of the 2023 Annual Report on Form 10‑K.

Sources and Uses of Cash

The following table summarizes the sources and uses of the Company’s cash and cash equivalents.

Operating Activities

Net cash from operating activities in the third quarter and first nine months of 2024 was $1,022 million and $2,701 million, respectively, and was primarily a reflection of the impacts from production volumes, average realized commodity prices, realized gains/losses on risk management and changes in non‑cash working capital.

Additional detail on changes in non-cash working capital 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. Ovintiv expects it will continue to meet the payment terms of its suppliers.

Non-GAAP Cash Flow in the third quarter and first nine months of 2024 was $978 million and $3,038 million, respectively, and was primarily impacted by the items affecting cash from operating activities which are discussed below and in the Results of Operations section of this MD&A.

Net cash from operating activities increased $116 million compared to the third quarter of 2023 primarily due to:

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Changes in non-cash working capital ($217 million), higher realized gains on risk management in revenues compared to 2023 ($87 million), a decrease in current income tax expense ($35 million), lower transportation and processing expense ($25 million), higher production volumes ($21 million), and lower operating expense, excluding non-cash long-term incentive costs ($9 million);

•

Lower realized commodity prices ($302 million).

Net cash from operating activities decreased $104 million compared to the first nine months of 2023 primarily due to:

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Lower realized commodity prices ($582 million), changes in non-cash working capital ($476 million), higher operating expense, excluding non-cash long-term incentive costs ($97 million) and higher interest expense ($57 million);

•

Higher production volumes ($551 million), realized gains on risk management in revenues compared to losses in 2023 ($273 million), lower transportation and processing expense ($100 million), a decrease in current income tax expense ($96 million), and lower administrative expense, excluding non-cash long-term incentive costs ($84 million).

Investing Activities

Cash used in investing activities in the first nine months of 2024 was $1,918 million primarily due to capital expenditures and acquisitions in the USA Operations. Capital expenditures, and acquisition and divestiture activities are summarized in Notes 3 and 8, respectively, to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.

Capital expenditures decreased $333 million compared to the first nine months of 2023, primarily due to decreased completions activity in Montney, Anadarko and Permian, the sale of the Bakken assets in the second quarter of 2023, and drilling efficiencies in Uinta, partially offset by increased completions activity in Uinta.

Acquisitions in the first nine months of 2024 were $202 million, which primarily included property purchases with oil and liquids-rich potential in the USA Operations (2023 - $273 million).

Corporate acquisitions in the first nine months of 2024 includes the final cash settlements of $12 million completed in the first quarter of 2024 related to the Permian assets acquired in the second quarter of 2023. Additional information regarding the Permian Acquisition can be found in Note 9 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.

Financing Activities

Net cash from and/or used in financing activities has been impacted by Ovintiv’s strategic objective to return value to shareholders by repaying or repurchasing existing debt, purchasing shares of common stock and paying dividends.

Net cash used in financing activities in the first nine months of 2024 was $727 million compared to net cash from financing activities in 2023 of $1,921 million. The change was primarily due to the net issuance of long-term debt in 2023 of $2,278 million, increased purchases of shares of common stock in 2024 compared to 2023 ($224 million), and a decrease in the net issuance of revolving debt ($176 million).

From time to time, Ovintiv may seek to retire or purchase the Company’s outstanding debt through cash purchases and/or exchanges for other debt or equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors.

The Company’s long-term debt, including the current portion of $1,024 million, totaled $5,877 million at September 30, 2024. The Company’s long-term debt at December 31, 2023, including the current portion of $284 million, totaled $5,737 million. As at September 30, 2024, the Company has $600 million of fixed rate long-term debt due within the next year.

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 expects to continue to deliver shareholder returns through share buybacks.

For additional information on long-term debt, refer to Note 12 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Further details on the Company’s debt-based metrics can be found in the Non-GAAP measures section of this MD&A.

Dividends

The Company pays quarterly dividends to common shareholders at the discretion of the Board of Directors.

On November 7, 2024, the Board of Directors declared a dividend of $0.30 per share of common stock payable on December 31, 2024, to common shareholders of record as of December 13, 2024.

Dividends increased $13 million compared to the first nine months of 2023 as a result of Ovintiv increasing its annualized dividend to $1.20 per share of common stock in the second quarter of 2023. The dividend increase reflects the Company’s commitment to returning capital to shareholders.

Normal Course Issuer Bid

On September 26, 2024, the Company announced it had received regulatory approval for the renewal of its NCIB program, which enables the Company to purchase, for cancellation or return to treasury, up to approximately 25.9 million shares of common stock over a 12-month period from October 3, 2024 to October 2, 2025. The number of shares authorized for purchase represents 10 percent of Ovintiv’s public float as at September 20, 2024. The Company expects to continue to execute the renewed NCIB program in conjunction with its capital allocation framework.

In the third quarter and first nine months of 2024, under the previous NCIB program, which extended from October 3, 2023 to October 2, 2024, the Company purchased, for cancellation, approximately 3.7 million and 12.7 million shares of common stock, respectively, for total consideration of approximately $163 million and $597 million, respectively. For additional information on the NCIB, refer to Note 14 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Material Cash Requirements

For information on material cash requirements, refer to the Material Cash Requirements section of the MD&A included in Item 7 of the 2023 Annual Report on Form 10-K.

Commitments and Contingencies

For information on commitments and contingencies, refer to Note 21 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Estimates

There have been no significant changes to the Company’s critical accounting policies and use of estimates from the disclosures reported in the “Critical Accounting Estimates” section of the MD&A included in Item 7 of the 2023 Annual Report on Form 10-K.