Ovintiv (TSX:OVV) reported first-quarter financial results on Tuesday. The transcript from the company’s first-quarter earnings call has been provided below.
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View the webcast at https://app.webinar.net/eLY9xa9xBEw
Summary
Ovintiv Inc reported strong financial performance with cash flow per share at $4.62, beating consensus estimates by 6%, and free cash flow totaling $634 million.
Significant strategic moves included the successful integration of New Vista assets, the sale of Anadarko assets, and substantial debt reduction.
The company plans to return 50-100% of free cash flow to shareholders via dividends and buybacks in 2026, with a focus on reducing net debt if oil prices remain high.
Operationally, Ovintiv Inc increased its Permian and Montney drilling inventory, boasting high productivity and low-cost operations, particularly in the Midland Basin and Montney.
Management expressed confidence in maintaining strong performance and emphasized the strategic use of stacked innovation and technology to drive operational efficiency and profitability.
Full Transcript
OPERATOR
Good day ladies and gentlemen and thank you for standing by. Welcome to Eventive’s 2026 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. Members of the investment community will have the opportunity to ask questions and can join the queue at any time by pressing Star one For members of the media attending in listen only mode today, you may quote statements made by any of the Ovintiv Inc 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 Inc. I would now like to turn the conference call over to Jason Verheist from Investor Relationship. Please go ahead Mr. Verheist.
Jason Verheist (Investor Relations)
Thanks Joanna and welcome everyone to our first quarter 2026 conference call. This call is being webcast and the slides are available on our website at Ovintiv Inc’s website, ovintiv.com Please take note of the advisory regarding forward-looking statements at the beginning of our slides and in our disclosure documents filed on Edgar and SEDAR+. Following prepared remarks we will be available to take your questions. I will now turn the call over to our President and CEO Brendan McCracken.
Brendan McCracken (President and CEO)
Thanks Jason. Good morning everybody and thank you for joining us. We believe the strategic steps for an E&P company to generate differentiated value creation will be to build a portfolio with best in class assets and inventory depth, create a competitive advantage with stacked innovation and execution, demonstrate a proven track record of capital allocation to deliver superior and durable returns and combine all of that with a clean balance sheet. We are very excited to have put Ovintiv Inc into the valuable position of delivering on all fronts. Since 2023 we’ve increased our Permian and Montney drilling inventory by more than 3,200 locations. This inventory life expansion has been unmatched by our peers and leaves us with one of the most valuable inventory positions in the industry. We did it without diluting our shareholders and while increasing ROCE and substantially reducing debt. And all along our team has continued to build on their track record of operational and commercial excellence, the evidence of which is observable in public data. We make the highest productivity oil wells in the Midland Basin and in the Montney and we do that as the undisputed cost leader in the Montney and and among the top two lowest cost operators in the Midland Basin. We have also boosted profitability by strategically marketing our volumes to deliver high realized prices, lowered our cash costs and reduced our interest expense and overhead. I’m extremely proud of our team. They have shown tremendous resolve to build our business into a leading E&P. We are pleased to see the value of what we’ve built start to become become recognized in the market and we are excited because there is still a lot of room to run. We’ve had a productive start to the year with the successful integration of the recently acquired new Vista assets, the sale of our Anadarko assets and the significant deleveraging of our balance sheet. We accomplished all this while maintaining our focus on execution, excellence and delivering another strong quarter of operational and financial results. We believe stability has real value for our shareholders. We have fundamentally de risked our business and positioned ourselves to deliver durable returns for many years to come. Since the inception of our shareholder return framework in 2021, we’ve returned $3.7 billion to our shareholders through $2.4 billion of share buybacks and $1.3 billion of base dividends. In early March, we introduced the next logical progression of our framework designed to deliver substantial value to our shareholders while allowing greater flexibility. We committed to returning 50 to 100% of our free cash flow via dividends and share buybacks in 2026. We began the year planning to allocate at least 75% of our free cash flow to shareholder returns. The market has shifted dramatically since then with substantially higher oil prices than we expected. Even with our shares up strongly year to date, we continue to see a substantial gap between our share price and the intrinsic value of our business at mid cycle prices. That said, with the higher prices and higher free cash flow, we believe it makes sense to avoid over-indexing on pro cyclical buybacks. We also believe it makes sense to take the opportunity to further accelerate net debt reduction. So if oil prices continue to stay elevated, we would expect to be in the 50 to 75% range. But even then we will still allocate more absolute dollars to share buybacks than we had anticipated at the start of March. If oil prices retreat, we will have capacity to be opportunistic with incremental buybacks and we would expect to be back into the 75% or above range in that scenario. Again, regardless of price movements from here, our returns to shareholders this year are now anticipated to exceed our original plan on an absolute dollar basis. I’ll now turn the call over to Cory to discuss our financial results. Thanks Brendan.
Cory
In addition to our best in class asset portfolio, our balance sheet is now stronger than it has been in a decade. With the proceeds from the Anadarko sale, we were able to significantly reduce debt and as of April 30th our net debt was less than 3.3 billion or less than 0.8 times leverage. Our remaining long term debt profile has no maturities.
Cory
Before 2030, we expect to realize over $80 million of annualized interest savings from the debt we’ve repaid since the start of the year. This includes the repayment of the 2026 and 2028 notes as well as the balance on our credit facility. We also have significant liquidity of $4 billion, which enhances our resiliency and allows us to be flexible and opportunistic through the commodity cycle. We remain committed to our investment grade credit rating and our recent transactions were viewed positively by the rating agencies.
Cory
Our capital structure has been right sized, our leverage compares favorably to our peers and going forward we are operating from a position of strength. Our first quarter results demonstrate our continued focus on execution excellence and strong financial performance. Our cash flow per share at $4.62 beat consensus estimates by about 6% and our free cash flow totaled $634 million. We delivered volumes at the high end of our guidance ranges for each product, including oil and condensate production of approximately 225,000 barrels per day.
Cory
Our capital investment of 605 million came in at the low end of our guidance range as did our total per unit costs. We recorded a $1.2 billion after tax non cash ceiling test impairment that resulted in a loss in the quarter. The impairment was driven by weaker oil prices in the first quarter, bringing down the SEC 12 months trailing price at current strip pricing. We do not expect to incur further impairments. Maximizing capital efficiency and free cash flow generation is a top priority this year.
Cory
As Brendan noted, the impacts of recent global events have increased near term pricing. However, the impact on the fundamental supply and demand dynamics remain unclear. Our portfolio now has significant duration capability to grow production. However, we believe it is still prudent to maintain our Stay Flat program with level loaded activity in both the Permian and Montney and that higher oil prices accrete to free cash flow. We’re not currently seeing significant inflationary pressure on our 2026 capital program outside of
Cory
higher diesel costs for the rest of the year, we expect to largely offset any additional cost inflation with operational efficiencies. As such, our capital guidance remains unchanged despite the higher royalty rates resulting from higher oil and condensate prices in our Canadian operations, which Gregory will touch on more we are maintaining our full year Production guidance including 205,000 to 212,000 barrels per day of oil and condensate. Strong performance in both the Permian and Montney is expected to offset volumes lost to higher royalties in the second quarter.
Cory
We expect production to average approximately 623,000 boes per day, including about 203,000 barrels per day of oil and condensate and our capital spend is expected to come in at around 575 million. Activity cadence in both assets is expected to be fairly ratable for the rest of the year. I’ll now turn the call over to Gregory who will speak to our operational highlights.
Brendan McCracken (President and CEO)
Thanks Corey.
Gregory
I’m really proud of the efforts made by our operating teams this quarter through the integration of the New Vista assets and the sale process for the Anadarko. They never lost focus on safety and efficient execution. Our team is committed to continually improving our capital efficiency and our outstanding operational performance through the first quarter gives us confidence in what we can achieve through the rest of the year. In the Montney, our first quarter well productivity was very strong and and is tracking above our 2026 type curve. We hit our 85,000 barrel per day target in the first month after closing the acquisition and we’ve been very pleased with the results across our acreage. With the New Vista assets now fully integrated into our Montney operations, we are focused on running a load level program and offsetting the impact of higher royalty rates. The sliding scale royalty structure is a unique aspect of shale development in Canada. As the name suggests, the percentage royalty that we pay slides up and down based on the prevailing commodity prices.
Gregory
So while gross volumes are unchanged, higher royalty rates mean our reported net volumes are reduced. On slide 10, we provided a simplified illustration of the production and revenue impacts across a range of oil prices. The key takeaway here is that although higher royalties result in lower net volumes, we benefit from higher prices where it counts in revenue. This is a good problem to have. If condensate prices were to average $90 per barrel for the year, we would see a 5,000 barrel per day reduction in reported net volumes but a 40% increase in revenues. Although we don’t like losing the volumes, this is a trade off we are willing to make. It is also worth noting that condensate prices would have to reach approximately $135 per barrel before royalties would be in line with the rates paid south of the border, which are around 20 to 25% regardless of commodity prices due to royalty impacts and planned plant turnarounds Montney production in the second quarter is expected to be at the low end of our full year guidance range.
Gregory
While these turnarounds and royalty changes put pressure on our reported volumes, we continue to be very pleased with our well performance from both our legacy and the new vista assets. Our 15 of 16 increased density test continues to meet or exceed our expectations and we plan to test additional upside locations later this year. Without the larger royalty take due to higher commodity prices, our total company oil and condensate volumes would be trending toward the high end of the guidance range for the year.
Gregory
Although the economics of our Montney wells are driven by condensate, it’s important to note that our natural gas price diversification strategy continues to yield attractive results. In the first quarter our Montney gas price realization was 175% of AECO.. We continue to look for opportunities to secure both physical sales out of the basin and financial arrangements to price our gas away from AECO.. We are exposed to AECO. pricing on less than 20% of our 2026 Canadian gas volumes. We also have a JKM. linked contract for 100 million cubic feet per day that began during the quarter.
Gregory
It essentially is in the money when AECO. trades at less than 20% of JKM.. The cash flow contribution from the arrangement was minimal in the first quarter, but at current strip pricing for the remainder of the year it would be worth roughly $60 million. Overall, our Montney asset is performing very well. We are maintaining a repeatable program type curve and despite some royalty noise the program is delivering fantastic results. Our team hit the ground running on
Gregory
day one of taking ownership of the new Vista assets and they haven’t looked back. We spot our first pad on the new Vista acreage, the Wapiti 6 of 2, just two days after closing the deal and are already achieving our cost target of $1 million in per well savings. This brings the wells on the new Vista acreage in line with our existing Montney cost structure and sets us up to achieve the $100 million in annualized cost synergies that we promised with the transaction. We’re delivering faster cycle times, extending the lateral length on wells that were otherwise constrained by lease lines, savings on completions through use of Simulfrac and cheaper domestic sand, and reducing well
Gregory
site facility costs by half compared to New Vista’s design. We’ve also fully integrated the acquired producing wells with our operations control center. This allows us to remotely operate the wells and apply the same digital workflows used across our Montney operations. The result is minimized downtime and lower production cost. We also see the potential for significant future savings from things like the ability to optimize our development plans given more available processing capacity and the opportunity to further optimize our base production with more integrated infrastructure.
Gregory
I’m very proud of the team and the efforts they made to integrate the new assets into our portfolio. Our Permian team continues their track record of outperformance in the first quarter with average oil and condensate volumes of 126,000 barrels per day. Our most recent wells are exceeding the 2026. type curve. These results continue to support durable return generation across our 12 to 15 years of premium inventory. In the play.. We take great pride in our development approach and our ability to stack multiple innovations to create industry leading results which defy the broader US Shale trend of well performance degradation.
Gregory
As a result, we are consistently one of the highest productivity lowest cost operators in the Permian. Last quarter we talked about the productivity uplift we have observed from stacking innovations like surfactants in our completion designs. We pumped them in over 300 Permian wells since 2019 so our data set is robust. Compared to a similar group of non surfactant treated wells, we see a 9% improvement in oil productivity. We believe surfactants account for roughly half of the type curve improvement we’ve observed in our Permian assets since 2022 at a cost of only about $100,000 per well. These custom chemical additives are highly economic, but surfactants are only a part of the story. There are several other factors that have contributed to our improvement in well productivity, including our cube development and reoccupation approaches, stage architecture as well as the use of AI in our operations. Trained on a proprietary data set, the result has been greater than 10% improvement in our Permian oil productivity per foot since 2023.
Gregory
And this is while the broader basin is fighting a 2% annual decline. In fact, using public data from Invris, you can see that in 2025 our Midland Basin piers were delivering average well productivity in the line with our …
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