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Ovintiv Inc. - Quarter Report: 2021 June (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-39191

 

Ovintiv Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

84-4427672

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

Suite 1700, 370 17th Street, Denver, Colorado, 80202, U.S.A.

(Address of principal executive offices)

Registrant’s telephone number, including area code (303) 623-2300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

    Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

    Smaller reporting company

 

 

 

 

 

 

 

 

    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes     No  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares

OVV

New York Stock Exchange

 

 

 

 

 

 

Number of registrant’s shares of common stock outstanding as of July 23, 2021

  

 

261,084,425

  

 

1


 

 

OVINTIV INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

PART I

 

 

 

 

 

 

Item 1.

Financial Statements

 

6

 

Condensed Consolidated Statement of Earnings

 

6

 

Condensed Consolidated Statement of Comprehensive Income

 

6

 

Condensed Consolidated Balance Sheet

 

7

 

Condensed Consolidated Statement of Changes in Shareholders’ Equity

 

8

 

Condensed Consolidated Statement of Cash Flows

 

10

 

Notes to Condensed Consolidated Financial Statements

 

11

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

35

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

62

Item 4.

Controls and Procedures

 

64

 

 

 

 

 

PART II

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

65

Item 1A.

Risk Factors

 

65

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

65

Item 3.

Defaults Upon Senior Securities

 

65

Item 4.

Mine Safety Disclosures

 

65

Item 5.

Other Information

 

65

Item 6.

Exhibits

 

65

Signatures

 

 

66

 

2


 

 

DEFINITIONS

Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Ovintiv,” and the “Company,” refer to Ovintiv Inc. and its consolidated subsidiaries for periods after January 24, 2020 and to Encana Corporation and its consolidated subsidiaries for periods before January 24, 2020. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:

“AECO” means Alberta Energy Company and is the Canadian benchmark price for natural gas.

“ASU” means Accounting Standards Update.

“bbl” or “bbls” means barrel or barrels.

“BOE” means barrels of oil equivalent.

“Btu” means British thermal units, a measure of heating value.

“DD&A” means depreciation, depletion and amortization expenses.

“FASB” means Financial Accounting Standards Board.

“Mbbls/d” means thousand barrels per day.

“MBOE/d” means thousand barrels of oil equivalent per day.

“Mcf” means thousand cubic feet.

“MD&A” means Management’s Discussion and Analysis of Financial Condition and Results of Operations.

“MMBOE” means million barrels of oil equivalent.

“MMBtu” means million Btu.

“MMcf/d” means million cubic feet per day.

“NCIB” means normal course issuer bid.

“NGL” or “NGLs” means natural gas liquids.

“NYMEX” means New York Mercantile Exchange.

“NYSE” means New York Stock Exchange.

“OPEC” means Organization of the Petroleum Exporting Countries.

“SEC” means United States Securities and Exchange Commission.

“SIB” means substantial issuer bid.

“TSX” means Toronto Stock Exchange.

“U.S.”, “United States” or “USA” means United States of America.

“U.S. GAAP” means U.S. Generally Accepted Accounting Principles.

“WTI” means West Texas Intermediate.

CONVERSIONS

In this Quarterly Report on Form 10-Q, a conversion of natural gas volumes to BOE is on the basis of six Mcf to one bbl.  BOE is based on a generic energy equivalency conversion method primarily applicable at the burner tip and does not represent economic value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value, particularly if used in isolation.

CONVENTIONS

Unless otherwise specified, all dollar amounts are expressed in U.S. dollars, all references to “dollars”, “$” or “US$” are to U.S. dollars and all references to “C$” are to Canadian dollars. All amounts are provided on a before tax basis, unless otherwise stated. In addition, all information provided herein is presented on an after royalties basis.

3


 

The term “liquids” is used to represent oil, NGLs and condensate. The term “liquids rich” is used to represent natural gas streams with associated liquids volumes. The term “play” is used to describe an area in which hydrocarbon accumulations or prospects of a given type occur. Ovintiv’s focus of development is on hydrocarbon accumulations known to exist over a large areal expanse and/or thick vertical section and are developed using hydraulic fracturing. This type of development typically has a lower geological and/or commercial development risk and lower average decline rate, when compared to conventional development.

The term “core asset” refers to plays that are the focus of the Company’s current capital investment and development plan. The Company continually reviews funding for development of its plays based on strategic fit, profitability and portfolio diversity and, as such, the composition of plays identified as a core asset may change over time.

References to information contained on the Company’s website at www.ovintiv.com are not incorporated by reference into, and does not constitute a part of, this Quarterly Report on Form 10-Q.

 

FORWARD-LOOKING STATEMENTS AND RISK

This Quarterly Report on Form 10-Q contains certain forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation, including the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements include: composition of the Company’s core assets, including allocation of capital and focus of development plans; growth in long-term shareholder value; vision of being a leading North American energy producer; statements with respect to the Company’s strategic objectives, including capital allocation strategy, focus of investment, return of capital to stockholders, growth of high margin liquids volumes, operating and capital efficiencies and ability to preserve balance sheet strength; statements regarding the benefits of the Company’s multi-basin portfolio; statements regarding the Company’s capital plan; statements regarding the Company’s application of excess cash flows to reduce long-term debt; ability to maximize cash flow through a disciplined capital allocation strategy; anticipated cost savings, capital efficiency and sustainability thereof; ability to repeat and deploy successful practices across the Company’s multi-basin portfolio; anticipated commodity prices; anticipated success of and benefits from technology and innovation, including cube development approach and advanced completion designs; ability to optimize well and completion designs; future well inventory; anticipated drilling, number of drilling rigs and the success thereof; anticipated drilling costs and cycle times; anticipated proceeds and future benefits from various joint venture, partnership and other agreements; estimates of reserves and resources and potential for negative price related reserve revisions; expected production and product types; anticipated access to cash, cash equivalents and other methods of funding; anticipated hedging and outcomes of risk management program, including exposure to certain commodity prices and foreign exchange fluctuations, amount of hedged production, market access and physical sales locations; impact of changes in laws and regulations; compliance with environmental legislation and claims related to the purported causes and impact of climate change, and the costs therefrom; adequacy of provisions for abandonment and site reclamation costs; statements regarding the Company’s operational and financial flexibility, discipline and ability  to respond to evolving market conditions; ability to meet financial obligations, manage debt and financial ratios, finance growth and comply with financial covenants; impact to the Company as a result of a reduction of its credit rating; access to the Company’s credit facilities; planned dividend and the declaration and payment of future dividends, if any; planned redemption of outstanding senior notes; expectations with respect to the Company’s restructuring initiative, including anticipated transition and severance costs and the timing thereof; adequacy of the Company’s provision for taxes and legal claims; projections and statements in respect of funding; ability to manage cost inflation and expected cost structures, including expected operating, transportation and processing and administrative expenses; competitiveness and pace of growth of the Company’s assets within North America and against its peers; global oil inventories and global demand for oil; outlook of oil and gas industry generally and impact of geopolitical environment; expected future interest expense; the Company’s commitments and contingencies and anticipated payments thereunder; and the possible impact of accounting pronouncements, rule changes and standards.

Readers are cautioned against unduly relying on forward-looking statements which, by their nature, involve numerous assumptions, risks and uncertainties that may cause such statements not to occur, or results to differ materially from those expressed or implied. These assumptions include: future commodity prices and differentials; foreign exchange rates; ability to access credit facilities and shelf prospectuses; data contained in key modeling statistics; availability of attractive hedges and enforceability of risk management program; effectiveness of the Company’s drive to productivity and efficiencies; results from innovations; expectation that counterparties will fulfill their obligations under the gathering, midstream and marketing agreements; access to transportation and processing facilities where Ovintiv operates; assumed tax, royalty and regulatory regimes; assumptions contained herein and expectations and projections made in light of, and generally consistent with,

4


 

Ovintiv’s historical experience and its perception of historical trends, including with respect to the pace of technological development, benefits achieved and general industry expectations.

Risks and uncertainties that may affect these business outcomes include: suspension of or changes to guidance, and associated impact to production; ability to generate sufficient cash flow to meet obligations; market and commodity price volatility and associated impact to the Company’s stock price, credit rating, financial condition, reserves and access to liquidity; the impact of COVID-19 on oil prices and to the Company’s operations, including maintaining ordinary staffing levels, securing operational inputs, executing on portions of its business and managing cyber-security risks associated with remote work; ability to secure adequate transportation; potential curtailments of refinery operations, including resulting storage constraints or widening price differentials; variability and discretion of Ovintiv’s board of directors (the “Board of Directors”) to declare and pay dividends, if any; timing and costs of well, facilities and pipeline construction; business interruption, property and casualty losses or unexpected technical difficulties, including impact of weather; risks associated with decommissioning activities, including timing and costs thereof; counterparty and credit risk; impact of changes in credit rating and access to liquidity, including costs thereof; fluctuations in currency and interest rates; failure to achieve cost and efficiency initiatives; risks inherent in marketing operations; risks associated with technology, including electronic, cyber and physical security breaches; changes in or interpretation of royalty, tax, environmental, greenhouse gas, carbon, accounting and other laws or regulations; the Company’s ability to utilize U.S. net operating loss carryforwards and other tax attributes; risks associated with existing and potential lawsuits and regulatory actions made against the Company; impact of disputes arising with its partners, including suspension of certain obligations and inability to dispose of assets or interests in certain arrangements; the Company’s ability to acquire or find additional reserves; imprecision of reserves estimates and estimates of recoverable quantities, including future net revenue estimates; risks associated with past and future acquisitions or divestitures of certain assets or other transactions or receipt of amounts contemplated under the transaction agreements (such transactions may include third-party capital investments, farm-outs or partnerships, which Ovintiv may refer to from time to time as “partnerships” or “joint ventures” and the funds received in respect thereof which Ovintiv may refer to from time to time as “proceeds”, “deferred purchase price” and/or “carry capital”, regardless of the legal form) as a result of various conditions not being met; and other risks described in Item 1A. Risk Factors of the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Annual Report on Form 10-K”) and in this Quarterly Report on Form 10-Q, and risks and uncertainties impacting Ovintiv’s business as described from time to time in the Company’s other periodic filings with the SEC.

Although the Company believes the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the assumptions, risks and uncertainties referenced above are not exhaustive. Forward-looking statements are made as of the date of this document and, except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are expressly qualified by these cautionary statements.

The reader should read carefully the risk factors described in Item 1A. Risk Factors of the 2020 Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.

 

 

 

 

5


 

 

PART I

Item 1. Financial Statements

 

Condensed Consolidated Statement of Earnings (unaudited)

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

 

June 30,

 

(US$ millions, except per share amounts)

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

(Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

(Note 3)

 

$

2,473

 

 

$

1,023

 

 

$

4,720

 

 

$

2,593

 

Gains (losses) on risk management, net

 

(Note 19)

 

 

(799

)

 

 

(314

)

 

 

(1,226

)

 

 

741

 

Sublease revenues

 

(Note 9)

 

 

18

 

 

 

17

 

 

 

36

 

 

 

35

 

Total Revenues

 

 

 

 

1,692

 

 

 

726

 

 

 

3,530

 

 

 

3,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

(Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

 

 

73

 

 

 

27

 

 

 

133

 

 

 

79

 

Transportation and processing

 

 

 

 

418

 

 

 

368

 

 

 

797

 

 

 

764

 

Operating

(Notes 16, 17)

 

 

149

 

 

 

154

 

 

 

313

 

 

 

319

 

Purchased product

 

 

 

 

733

 

 

 

319

 

 

 

1,337

 

 

 

717

 

Depreciation, depletion and amortization

 

 

 

 

311

 

 

 

493

 

 

 

619

 

 

 

1,027

 

Impairments

 

(Note 8)

 

 

-

 

 

 

3,250

 

 

 

-

 

 

 

3,527

 

Accretion of asset retirement obligation

 

 

 

 

6

 

 

 

9

 

 

 

12

 

 

 

18

 

Administrative

(Notes 15, 16, 17)

 

 

123

 

 

 

165

 

 

 

245

 

 

 

218

 

Total Operating Expenses

 

 

 

 

1,813

 

 

 

4,785

 

 

 

3,456

 

 

 

6,669

 

Operating Income (Loss)

 

 

 

 

(121

)

 

 

(4,059

)

 

 

74

 

 

 

(3,300

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

(Notes 4, 10)

 

 

99

 

 

 

86

 

 

 

186

 

 

 

182

 

Foreign exchange (gain) loss, net

 

(Notes 5, 19)

 

 

(8

)

 

 

(40

)

 

 

(15

)

 

 

76

 

Other (gains) losses, net

 

(Notes 6, 10, 17)

 

 

(7

)

 

 

(16

)

 

 

(25

)

 

 

(30

)

Total Other (Income) Expenses

 

 

 

 

84

 

 

 

30

 

 

 

146

 

 

 

228

 

Net Earnings (Loss) Before Income Tax

 

 

 

 

(205

)

 

 

(4,089

)

 

 

(72

)

 

 

(3,528

)

Income tax expense (recovery)

 

(Note 6)

 

 

-

 

 

 

294

 

 

 

(176

)

 

 

434

 

Net Earnings (Loss)

 

 

 

$

(205

)

 

$

(4,383

)

 

$

104

 

 

$

(3,962

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss) per Share of Common Stock

 

(Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

$

(0.79

)

 

$

(16.87

)

 

$

0.40

 

 

$

(15.25

)

Diluted

 

 

 

 

(0.79

)

 

 

(16.87

)

 

 

0.39

 

 

 

(15.25

)

Weighted Average Shares of Common Stock Outstanding (millions)

(Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

261.1

 

 

 

259.8

 

 

 

260.6

 

 

 

259.8

 

Diluted

 

 

 

 

261.1

 

 

 

259.8

 

 

 

265.9

 

 

 

259.8

 

 

Condensed Consolidated Statement of Comprehensive Income (unaudited)

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

 

June 30,

 

(US$ millions)

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss)

 

 

 

$

(205

)

 

$

(4,383

)

 

$

104

 

 

$

(3,962

)

Other Comprehensive Income (Loss), Net of Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(Note 13)

 

 

25

 

 

 

87

 

 

 

44

 

 

 

(47

)

Pension and other post-employment benefit plans

 

(Notes 13, 17)

 

 

(2

)

 

 

3

 

 

 

(3

)

 

 

1

 

Other Comprehensive Income (Loss)

 

 

 

 

23

 

 

 

90

 

 

 

41

 

 

 

(46

)

Comprehensive Income (Loss)

 

 

 

$

(182

)

 

$

(4,293

)

 

$

145

 

 

$

(4,008

)

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

6

 

 


 

Condensed Consolidated Balance Sheet (unaudited)

 

 

 

 

 

As at

 

 

As at

 

 

 

 

 

June 30,

 

 

December 31,

 

(US$ millions)

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

122

 

 

$

10

 

Accounts receivable and accrued revenues (net of allowances

     of $3 million (2020: $4 million))

 

(Note 3)

 

 

1,222

 

 

 

928

 

Risk management

 

(Notes 18, 19)

 

 

3

 

 

 

37

 

Income tax receivable

 

(Note 6)

 

 

96

 

 

 

272

 

 

 

 

 

 

1,443

 

 

 

1,247

 

Property, Plant and Equipment, at cost:

 

(Note 8)

 

 

 

 

 

 

 

 

Oil and natural gas properties, based on full cost accounting

 

 

 

 

 

 

 

 

 

 

Proved properties

 

 

 

 

54,525

 

 

 

53,883

 

Unproved properties

 

 

 

 

2,444

 

 

 

2,962

 

Other

 

 

 

 

918

 

 

 

911

 

Property, plant and equipment

 

 

 

 

57,887

 

 

 

57,756

 

Less: Accumulated depreciation, depletion and amortization

 

 

 

 

(49,352

)

 

 

(48,306

)

Property, plant and equipment, net

 

(Note 2)

 

 

8,535

 

 

 

9,450

 

Other Assets

 

 

 

1,146

 

 

 

1,143

 

Risk Management

 

(Notes 18, 19)

 

 

-

 

 

 

4

 

Goodwill

 

(Note 2)

 

 

2,643

 

 

 

2,625

 

 

 

(Note 2)

 

$

13,767

 

 

$

14,469

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

 

$

1,880

 

 

$

1,704

 

Current portion of operating lease liabilities

 

 

 

 

74

 

 

 

68

 

Income tax payable

 

 

 

 

2

 

 

 

3

 

Risk management

 

(Notes 18, 19)

 

 

892

 

 

 

130

 

Current portion of long-term debt

 

(Note 10)

 

 

518

 

 

 

518

 

 

 

 

 

 

3,366

 

 

 

2,423

 

Long-Term Debt

 

(Note 10)

 

 

4,796

 

 

 

6,367

 

Operating Lease Liabilities

 

 

 

 

938

 

 

 

938

 

Other Liabilities and Provisions

(Note 11)

 

 

206

 

 

 

358

 

Risk Management

 

(Notes 18, 19)

 

 

183

 

 

 

125

 

Asset Retirement Obligation

 

 

 

 

344

 

 

 

401

 

Deferred Income Taxes

 

 

 

 

-

 

 

 

20

 

 

 

 

 

 

9,833

 

 

 

10,632

 

Commitments and Contingencies

 

(Note 21)

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

Share capital - authorized 775 million shares of stock

 

 

 

 

 

 

 

 

 

 

2021 issued and outstanding: 261.1 million shares (2020: 259.8 million shares)

 

(Note 12)

 

 

3

 

 

 

3

 

Paid in surplus

 

(Note 12)

 

 

8,532

 

 

 

8,531

 

Retained earnings (Accumulated deficit)

 

 

 

 

(5,718

)

 

 

(5,773

)

Accumulated other comprehensive income

 

(Note 13)

 

 

1,117

 

 

 

1,076

 

Total Shareholders’ Equity

 

 

 

 

3,934

 

 

 

3,837

 

 

 

 

 

$

13,767

 

 

$

14,469

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

7

 

 


 

Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited)

 

Three Months Ended June 30, 2021 (US$ millions)

 

 

 

Share

Capital

 

 

Paid in

Surplus

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Shareholders’

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

 

 

$

3

 

 

$

8,525

 

 

$

(5,488

)

 

$

1,094

 

 

$

4,134

 

Net Earnings (Loss)

 

 

 

 

-

 

 

 

-

 

 

 

(205

)

 

 

-

 

 

 

(205

)

Dividends on Shares of Common Stock ($0.09375 per share)

 

(Note 12)

 

 

-

 

 

 

-

 

 

 

(25

)

 

 

-

 

 

 

(25

)

Equity-Settled Compensation Costs

 

 

 

 

-

 

 

 

7

 

 

 

-

 

 

 

-

 

 

 

7

 

Other Comprehensive Income (Loss)

 

(Note 13)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23

 

 

 

23

 

Balance, June 30, 2021

 

 

 

$

3

 

 

$

8,532

 

 

$

(5,718

)

 

$

1,117

 

 

$

3,934

 

 

Three Months Ended June 30, 2020 (US$ millions)

 

 

 

Share

Capital

 

 

Paid in

Surplus

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Shareholders’

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2020

 

 

 

$

3

 

 

$

8,460

 

 

$

818

 

 

$

910

 

 

$

10,191

 

Net Earnings (Loss)

 

 

 

 

-

 

 

 

-

 

 

 

(4,383

)

 

 

-

 

 

 

(4,383

)

Dividends on Shares of Common Stock ($0.09375 per share)

 

(Note 12)

 

 

-

 

 

 

-

 

 

 

(25

)

 

 

-

 

 

 

(25

)

Other Comprehensive Income (Loss)

 

(Note 13)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

90

 

 

 

90

 

Balance, June 30, 2020

 

 

 

$

3

 

 

$

8,460

 

 

$

(3,590

)

 

$

1,000

 

 

$

5,873

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

8

 

 


 

 

Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited)

 

Six Months Ended June 30, 2021 (US$ millions)

 

 

 

Share

Capital

 

 

Paid in

Surplus

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Shareholders’

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

 

$

3

 

 

$

8,531

 

 

$

(5,773

)

 

$

1,076

 

 

$

3,837

 

Net Earnings (Loss)

 

 

 

 

-

 

 

 

-

 

 

 

104

 

 

 

-

 

 

 

104

 

Dividends on Shares of Common Stock ($0.1875 per share)

 

(Note 12)

 

 

-

 

 

 

-

 

 

 

(49

)

 

 

-

 

 

 

(49

)

Equity-Settled Compensation Costs

 

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

Other Comprehensive Income (Loss)

 

(Note 13)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41

 

 

 

41

 

Balance, June 30, 2021

 

 

 

$

3

 

 

$

8,532

 

 

$

(5,718

)

 

$

1,117

 

 

$

3,934

 

 

Six Months Ended June 30, 2020 (US$ millions)

 

 

 

Share

Capital

 

 

Paid in

Surplus

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Shareholders’

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

 

$

7,061

 

 

$

1,402

 

 

$

421

 

 

$

1,046

 

 

$

9,930

 

Net Earnings (Loss)

 

 

 

 

-

 

 

 

-

 

 

 

(3,962

)

 

 

-

 

 

 

(3,962

)

Dividends on Shares of Common Stock ($0.1875 per share)

 

(Note 12)

 

 

-

 

 

 

-

 

 

 

(49

)

 

 

-

 

 

 

(49

)

Other Comprehensive Income (Loss)

 

(Note 13)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46

)

 

 

(46

)

Reclassification of Share Capital

 

(Note 12)

 

 

(7,058

)

 

 

7,058

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance, June 30, 2020

 

 

 

$

3

 

 

$

8,460

 

 

$

(3,590

)

 

$

1,000

 

 

$

5,873

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

9

 

 


 

Condensed Consolidated Statement of Cash Flows (unaudited)

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

 

June 30,

 

(US$ millions)

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

 

 

$

(205

)

 

$

(4,383

)

 

$

104

 

 

$

(3,962

)

Depreciation, depletion and amortization

 

 

 

 

311

 

 

 

493

 

 

 

619

 

 

 

1,027

 

Impairments

 

(Note 8)

 

 

-

 

 

 

3,250

 

 

 

-

 

 

 

3,527

 

Accretion of asset retirement obligation

 

 

 

 

6

 

 

 

9

 

 

 

12

 

 

 

18

 

Deferred income taxes

 

(Note 6)

 

 

-

 

 

 

295

 

 

 

(20

)

 

 

435

 

Unrealized (gain) loss on risk management

 

(Note 19)

 

 

576

 

 

 

679

 

 

 

847

 

 

 

(225

)

Unrealized foreign exchange (gain) loss

 

(Note 5)

 

 

4

 

 

 

(50

)

 

 

6

 

 

 

51

 

Foreign exchange on settlements

 

(Note 5)

 

 

(3

)

 

 

-

 

 

 

(9

)

 

 

20

 

Other

 

 

 

 

44

 

 

 

11

 

 

 

64

 

 

 

(52

)

Net change in other assets and liabilities

 

 

 

 

(5

)

 

 

(68

)

 

 

(11

)

 

 

(120

)

Net change in non-cash working capital

 

(Note 20)

 

 

22

 

 

 

(119

)

 

 

(35

)

 

 

(36

)

Cash From (Used in) Operating Activities

 

 

 

 

750

 

 

 

117

 

 

 

1,577

 

 

 

683

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(Note 2)

 

 

(383

)

 

 

(252

)

 

 

(733

)

 

 

(1,042

)

Acquisitions

 

(Note 7)

 

 

(2

)

 

 

(1

)

 

 

(3

)

 

 

(18

)

Proceeds from divestitures

 

(Note 7)

 

 

1,023

 

 

 

8

 

 

 

1,025

 

 

 

30

 

Net change in investments and other

 

 

 

 

(70

)

 

 

(272

)

 

 

(42

)

 

 

(142

)

Cash From (Used in) Investing Activities

 

 

 

 

568

 

 

 

(517

)

 

 

247

 

 

 

(1,172

)

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance (repayment) of revolving long-term debt

 

(Note 10)

 

 

(490

)

 

 

408

 

 

 

(950

)

 

 

552

 

Repayment of long-term debt

 

(Note 10)

 

 

(619

)

 

 

(26

)

 

 

(619

)

 

 

(115

)

Dividends on shares of common stock

 

(Note 12)

 

 

(25

)

 

 

(25

)

 

 

(49

)

 

 

(49

)

Finance lease payments and other

 

 

 

 

(73

)

 

 

(22

)

 

 

(96

)

 

 

(44

)

Cash From (Used in) Financing Activities

 

 

 

 

(1,207

)

 

 

335

 

 

 

(1,714

)

 

 

344

 

Foreign Exchange Gain (Loss) on Cash, Cash Equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Restricted Cash Held in Foreign Currency

 

 

 

 

2

 

 

 

1

 

 

 

2

 

 

 

(6

)

Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash

 

 

113

 

 

 

(64

)

 

 

112

 

 

 

(151

)

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

 

 

9

 

 

 

103

 

 

 

10

 

 

 

190

 

Cash, Cash Equivalents and Restricted Cash, End of Period

 

 

 

$

122

 

 

$

39

 

 

$

122

 

 

$

39

 

Cash, End of Period

 

 

 

$

67

 

 

$

29

 

 

$

67

 

 

$

29

 

Cash Equivalents, End of Period

 

 

 

 

55

 

 

 

10

 

 

 

55

 

 

 

10

 

Restricted Cash, End of Period

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Cash, Cash Equivalents and Restricted Cash, End of Period

 

 

 

$

122

 

 

$

39

 

 

$

122

 

 

$

39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplementary Cash Flow Information

 

(Note 20)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

 

10

 

 


 

 

1.

Basis of Presentation and Principles of Consolidation

Ovintiv is in the business of the exploration for, the development of, and the production and marketing of oil, NGLs and natural gas.

The interim Condensed Consolidated Financial Statements include the accounts of Ovintiv and entities in which it holds a controlling interest. All intercompany balances and transactions are eliminated on consolidation. Undivided interests in oil and natural gas exploration and production joint ventures and partnerships are consolidated on a proportionate basis. Investments in non-controlled entities over which the Company has the ability to exercise significant influence are accounted for using the equity method.  

The interim Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP and the rules and regulations of the SEC. Pursuant to these rules and regulations, certain information and disclosures normally required under U.S. GAAP have been condensed or have been disclosed on an annual basis only. Accordingly, the interim Condensed Consolidated Financial Statements should be read in conjunction with the annual audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2020, which are included in Item 8 of Ovintiv’s 2020 Annual Report on Form 10-K.

The interim Condensed Consolidated Financial Statements have been prepared following the same accounting policies and methods of computation as the annual audited Consolidated Financial Statements for the year ended December 31, 2020.

These unaudited interim Condensed Consolidated Financial Statements reflect, in the opinion of Management, all normal and recurring adjustments necessary to present fairly the financial position and results of the Company as at and for the periods presented. Interim condensed consolidated financial results are not necessarily indicative of consolidated financial results expected for the fiscal year.

 

2.

Segmented Information

Ovintiv’s reportable segments are determined based on the following operations and geographic locations:

USA Operations includes the exploration for, development of, and production of oil, NGLs and natural gas and other related activities within the U.S. cost center.

Canadian Operations includes the exploration for, development of, and production of oil, NGLs and natural gas and other related activities within the Canadian cost center.

Market Optimization is primarily responsible for the sale of the Company’s proprietary production. These results are reported in the USA and Canadian Operations. Market optimization activities include third-party purchases and sales of product to provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. These activities are reflected in the Market Optimization segment. Market Optimization sells substantially all of the Company’s upstream production to third-party customers. Transactions between segments are based on market values and are eliminated on consolidation.

Corporate and Other mainly includes unrealized gains or losses recorded on derivative financial instruments. Once the instruments are settled, the realized gains and losses are recorded in the reporting segment to which the derivative instruments relate. Corporate and Other also includes amounts related to sublease rentals.

 

 

11

 

 


 

Results of Operations (For the three months ended June 30)

Segment and Geographic Information

 

 

 

USA Operations

 

 

Canadian Operations

 

 

Market Optimization

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

$

1,155

 

 

$

430

 

 

$

570

 

 

$

245

 

 

$

748

 

 

$

348

 

Gains (losses) on risk management, net

 

 

(188

)

 

 

260

 

 

 

(35

)

 

 

103

 

 

 

-

 

 

 

2

 

Sublease revenues

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total Revenues

 

 

967

 

 

 

690

 

 

 

535

 

 

 

348

 

 

 

748

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

69

 

 

 

24

 

 

 

4

 

 

 

3

 

 

 

-

 

 

 

-

 

Transportation and processing

 

 

126

 

 

 

115

 

 

 

248

 

 

 

198

 

 

 

44

 

 

 

55

 

Operating

 

 

117

 

 

 

121

 

 

 

25

 

 

 

25

 

 

 

7

 

 

 

8

 

Purchased product

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

733

 

 

 

319

 

Depreciation, depletion and amortization

 

 

220

 

 

 

375

 

 

 

89

 

 

 

111

 

 

 

-

 

 

 

-

 

Impairments

 

 

-

 

 

 

3,250

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total Operating Expenses

 

 

532

 

 

 

3,885

 

 

 

366

 

 

 

337

 

 

 

784

 

 

 

382

 

Operating Income (Loss)

 

$

435

 

 

$

(3,195

)

 

$

169

 

 

$

11

 

 

$

(36

)

 

$

(32

)

 

 

 

 

 

Corporate & Other

 

 

Consolidated

 

 

 

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

 

 

 

 

$

-

 

 

$

-

 

 

$

2,473

 

 

$

1,023

 

Gains (losses) on risk management, net

 

 

 

 

 

 

(576

)

 

 

(679

)

 

 

(799

)

 

 

(314

)

Sublease revenues

 

 

 

 

 

 

18

 

 

 

17

 

 

 

18

 

 

 

17

 

Total Revenues

 

 

 

 

 

 

(558

)

 

 

(662

)

 

 

1,692

 

 

 

726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

 

 

 

 

-

 

 

 

-

 

 

 

73

 

 

 

27

 

Transportation and processing

 

 

 

 

 

 

-

 

 

 

-

 

 

 

418

 

 

 

368

 

Operating

 

 

 

 

 

 

-

 

 

 

-

 

 

 

149

 

 

 

154

 

Purchased product

 

 

 

 

 

 

-

 

 

 

-

 

 

 

733

 

 

 

319

 

Depreciation, depletion and amortization

 

 

 

 

 

 

2

 

 

 

7

 

 

 

311

 

 

 

493

 

Impairments

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,250

 

Accretion of asset retirement obligation

 

 

 

 

 

 

6

 

 

 

9

 

 

 

6

 

 

 

9

 

Administrative

 

 

 

 

 

 

123

 

 

 

165

 

 

 

123

 

 

 

165

 

Total Operating Expenses

 

 

 

 

 

 

131

 

 

 

181

 

 

 

1,813

 

 

 

4,785

 

Operating Income (Loss)

 

 

 

 

 

$

(689

)

 

$

(843

)

 

 

(121

)

 

 

(4,059

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

99

 

 

 

86

 

Foreign exchange (gain) loss, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

(40

)

Other (gains) losses, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(16

)

Total Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84

 

 

 

30

 

Net Earnings (Loss) Before Income Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(205

)

 

 

(4,089

)

Income tax expense (recovery)