Ovintiv Inc. Q2 FY2025 earnings call

• Team delivered strong results across portfolio, meeting/beating guidance targets. • Well performance strong due to completions innovations and cube development. • Successfully integrated Montney assets, meeting well cost reduction target and making progress on debt reduction. • Have valuable premium inventory positions in Permian, Montney, and Anadarko with long inventory lives. • Culture and expertise led to reputation as leading operator, using AI technology across portfolio for cost savings and faster cycle times. • Focus on capital efficiency, saving ~$50 million this year, with flexibility to adjust activity based on market conditions. • Cash flow per share grew ~25% from 2021-2024, not driven by commodity prices but by portfolio high-grading, buybacks, and profitability.

The company has three main asset segments. The Permian has nearly 15 years of premium inventory, with oil type curves improving 10% over the last 3 years. The Montney has close to 20 years of premium oil inventory, and 6 months after acquiring the assets, they are already delivering $1.5 million of per well cost savings, with $1 million from drilling, $300,000 from completions, and $200,000 from facilities. The Anadarko Basin is a low decline, high free cash flow generating asset with over a decade of inventory.

• Increased full-year production guidance while cutting CapEx and OpEx, resulting in 10% increase in expected full-year free cash flow. • Originally expected ~$2.1 billion free cash flow with $70 WTI and $4 NYMEX, revised to $60 WTI and $3.75 NYMEX, now expecting $1.65 billion free cash flow, a 10% improvement. • Expect to be below $5 billion in debt by end of year, having repaid $555 million since Montney acquisition. • Aim to allocate at least 50% of post base dividend free cash flow to buybacks and 50% to balance sheet. • Reduce full-year capital spend by $50 million, increase oil and condensate guide by 2,000 bbl/day to average 207,000 bbl/day, and reduce full-year operating expense by about 3%.

• Market conditions and commodity price fluctuations could impact financial results. • Service cost inflation or deflation could affect operating costs. • Oversupply in gas markets, especially in Canada before LNG Canada ramp-up, could impact gas pricing and netbacks.

Q: After participating in the Montney tour, thoughts on being a natural consolidator?

A: The strategy and operating model are working, having built a valuable premium inventory position, so any M&A would need to be better than existing portfolio.

Q: Thoughts on return of capital and 16% free cash flow yield?

A: The value proposition is clear, shares are priced below intrinsic value at $55 oil, so buybacks and debt reduction are good capital allocation.

Q: On Montney gas marketing and new disclosures?

A: New deals include JKM, Chicago, and enhanced AECO deals, diversifying gas prices.

Q: Capital efficiency in Montney and impact on 2026?

A: $1.5 million per well cost savings are baked into guidance, with similar cost improvement to legacy programs.

Q: Why not pay down debt with windfall oil prices?

A: Both debt reduction and buybacks are attractive, with cash flow per share growth and good free cash flow yield making buybacks appealing.