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 SeptemberJune 30, 20202021

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 OctoberJuly 23, 20202021

  

 

259,860,778261,084,425

  

 


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

 

3935

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

6962

Item 4.

Controls and Procedures

 

7164

 

 

 

 

 

PART II

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

7265

Item 1A.

Risk Factors

 

7265

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

7365

Item 3.

Defaults Upon Senior Securities

 

7365

Item 4.

Mine Safety Disclosures

 

7365

Item 5.

Other Information

 

7365

Item 6.

Exhibits

 

7365

Signatures

 

 

7466

 


DEFINITIONS

Unless the context otherwise indicates, references to “Ovintiv,” the “Company,” “us,” “we,” “our,” “ours,” (i)“Ovintiv,” and the “Company,” refer to Ovintiv Inc. and its consolidated subsidiaries for periods until the Reorganization (as hereinafter defined), referafter January 24, 2020 and to Encana Corporation and its consolidated subsidiaries and (ii) for periods after the Reorganization, refer to Ovintiv Inc. and its consolidated subsidiaries.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.


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, shut-in 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 updated 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; potential impacts of an extended period of low commodity prices and responses of the Company thereto; 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,


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, 20192020 (the “2019“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 20192020 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.

 

 

 

 


PART I

Item 1. Financial Statements

 

Condensed Consolidated Statement of Earnings (unaudited)

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

September 30,

 

 

September 30,

 

(US$ millions, except per share amounts)

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

(Note 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

(Note 4)

 

$

1,326

 

 

$

1,771

 

 

$

3,919

 

 

$

5,191

 

Gains (losses) on risk management, net

 

(Note 22)

 

 

(154

)

 

 

81

 

 

 

587

 

 

 

(84

)

Sublease revenues

 

(Note 11)

 

 

18

 

 

 

19

 

 

 

53

 

 

 

54

 

Total Revenues

 

 

 

 

1,190

 

 

 

1,871

 

 

 

4,559

 

 

 

5,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

(Note 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

 

 

47

 

 

 

66

 

 

 

126

 

 

 

187

 

Transportation and processing

 

 

 

 

365

 

 

 

398

 

 

 

1,129

 

 

 

1,148

 

Operating

(Notes 19, 20)

 

 

133

 

 

 

193

 

 

 

452

 

 

 

545

 

Purchased product

 

 

 

 

322

 

 

 

264

 

 

 

1,039

 

 

 

784

 

Depreciation, depletion and amortization

 

 

 

 

406

 

 

 

545

 

 

 

1,433

 

 

 

1,454

 

Impairments

 

(Note 10)

 

 

1,336

 

 

 

0

 

 

 

4,863

 

 

 

0

 

Accretion of asset retirement obligation

 

(Note 14)

 

 

8

 

 

 

9

 

 

 

26

 

 

 

28

 

Administrative

(Notes 18, 19, 20)

 

 

79

 

 

 

81

 

 

 

297

 

 

 

389

 

Total Operating Expenses

 

 

 

 

2,696

 

 

 

1,556

 

 

 

9,365

 

 

 

4,535

 

Operating Income (Loss)

 

 

 

 

(1,506

)

 

 

315

 

 

 

(4,806

)

 

 

626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

(Note 5)

 

 

97

 

 

 

99

 

 

 

279

 

 

 

285

 

Foreign exchange (gain) loss, net

 

(Notes 6, 22)

 

 

(25

)

 

 

30

 

 

 

51

 

 

 

(62

)

(Gain) loss on divestitures, net

 

 

 

 

0

 

 

 

(5

)

 

 

0

 

 

 

(4

)

Other (gains) losses, net

 

(Notes 8, 12, 20)

 

 

(18

)

 

 

(1

)

 

 

(48

)

 

 

24

 

Total Other (Income) Expenses

 

 

 

 

54

 

 

 

123

 

 

 

282

 

 

 

243

 

Net Earnings (Loss) Before Income Tax

 

 

 

 

(1,560

)

 

 

192

 

 

 

(5,088

)

 

 

383

 

Income tax expense (recovery)

 

(Note 7)

 

 

(39

)

 

 

43

 

 

 

395

 

 

 

143

 

Net Earnings (Loss)

 

 

 

$

(1,521

)

 

$

149

 

 

$

(5,483

)

 

$

240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss) per Share of Common Stock (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic & Diluted

 

(Note 15)

 

$

(5.85

)

 

$

0.56

 

 

$

(21.10

)

 

$

0.92

 

Weighted Average Shares of Common Stock Outstanding (millions) (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic & Diluted

 

(Note 15)

 

 

259.8

 

 

 

264.6

 

 

 

259.8

 

 

 

261.7

 

(1)

Net earnings (loss) per share of common stock and weighted average shares of common stock outstanding reflect the Share Consolidation as described in Note 1. Accordingly, the comparative periods have been restated.

 

 

 

 

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)

 

 

0

 

 

 

3,250

 

 

 

0

 

 

 

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)

 

 

0

 

 

 

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

 

 

Nine Months Ended

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

June 30,

 

 

June 30,

 

(US$ millions)

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss)

 

 

 

$

(1,521

)

 

$

149

 

 

$

(5,483

)

 

$

240

 

 

 

 

$

(205

)

 

$

(4,383

)

 

$

104

 

 

$

(3,962

)

Other Comprehensive Income (Loss), Net of Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(Note 16)

 

 

26

 

 

 

(6

)

 

 

(21

)

 

 

32

 

 

(Note 13)

 

 

25

 

 

 

87

 

 

 

44

 

 

 

(47

)

Pension and other post-employment benefit plans

 

(Notes 16, 20)

 

 

(2

)

 

 

0

 

 

 

(1

)

 

 

(24

)

 

(Notes 13, 17)

 

 

(2

)

 

 

3

 

 

 

(3

)

 

 

1

 

Other Comprehensive Income (Loss)

 

 

 

 

24

 

 

 

(6

)

 

 

(22

)

 

 

8

 

 

 

 

 

23

 

 

 

90

 

 

 

41

 

 

 

(46

)

Comprehensive Income (Loss)

 

 

 

$

(1,497

)

 

$

143

 

 

$

(5,505

)

 

$

248

 

 

 

 

$

(182

)

 

$

(4,293

)

 

$

145

 

 

$

(4,008

)

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

6

 

 


 

Condensed Consolidated Balance Sheet (unaudited)

 

 

 

 

As at

 

 

As at

 

 

 

 

As at

 

 

As at

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

June 30,

 

 

December 31,

 

(US$ millions)

 

 

 

2020

 

 

2019

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

32

 

 

$

190

 

 

 

 

$

122

 

 

$

10

 

Accounts receivable and accrued revenues (net of allowances

of $4 million (2019: $3 million))

 

 

 

 

766

 

 

 

1,235

 

Accounts receivable and accrued revenues (net of allowances

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

 

(Note 3)

 

 

1,222

 

 

 

928

 

Risk management

 

(Notes 21, 22)

 

 

170

 

 

 

148

 

 

(Notes 18, 19)

 

 

3

 

 

 

37

 

Income tax receivable

 

 

 

 

251

 

 

 

296

 

 

(Note 6)

 

 

96

 

 

 

272

 

 

 

 

 

1,219

 

 

 

1,869

 

 

 

 

 

1,443

 

 

 

1,247

 

Property, Plant and Equipment, at cost:

 

(Note 10)

 

 

 

 

 

 

 

 

 

(Note 8)

 

 

 

 

 

 

 

 

Oil and natural gas properties, based on full cost accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proved properties

 

 

 

 

52,653

 

 

 

51,210

 

 

 

 

 

54,525

 

 

 

53,883

 

Unproved properties

 

 

 

 

3,168

 

 

 

3,714

 

 

 

 

 

2,444

 

 

 

2,962

 

Other

 

 

 

 

887

 

 

 

904

 

 

 

 

 

918

 

 

 

911

 

Property, plant and equipment

 

 

 

 

56,708

 

 

 

55,828

 

 

 

 

 

57,887

 

 

 

57,756

 

Less: Accumulated depreciation, depletion and amortization

 

 

 

 

(46,485

)

 

 

(40,637

)

 

 

 

 

(49,352

)

 

 

(48,306

)

Property, plant and equipment, net

 

(Note 3)

 

 

10,223

 

 

 

15,191

 

 

(Note 2)

 

 

8,535

 

 

 

9,450

 

Other Assets

 

 

 

1,113

 

 

 

1,213

 

 

 

 

1,146

 

 

 

1,143

 

Risk Management

 

(Notes 21, 22)

 

 

8

 

 

 

2

 

 

(Notes 18, 19)

 

 

0

 

 

 

4

 

Deferred Income Taxes

 

(Note 7)

 

 

0

 

 

 

601

 

Goodwill

 

(Notes 3, 8)

 

 

2,594

 

 

 

2,611

 

 

(Note 2)

 

 

2,643

 

 

 

2,625

 

 

(Note 3)

 

$

15,157

 

 

$

21,487

 

 

(Note 2)

 

$

13,767

 

 

$

14,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

 

$

1,615

 

 

$

2,239

 

 

 

 

$

1,880

 

 

$

1,704

 

Current portion of operating lease liabilities

 

 

 

 

66

 

 

 

78

 

 

 

 

 

74

 

 

 

68

 

Income tax payable

 

 

 

 

3

 

 

 

1

 

 

 

 

 

2

 

 

 

3

 

Risk management

 

(Notes 21, 22)

 

 

65

 

 

 

114

 

 

(Notes 18, 19)

 

 

892

 

 

 

130

 

Current portion of long-term debt

 

(Note 10)

 

 

518

 

 

 

518

 

 

 

 

 

1,749

 

 

 

2,432

 

 

 

 

 

3,366

 

 

 

2,423

 

Long-Term Debt

 

(Note 12)

 

 

7,142

 

 

 

6,974

 

 

(Note 10)

 

 

4,796

 

 

 

6,367

 

Operating Lease Liabilities

 

 

 

 

912

 

 

 

977

 

 

 

 

 

938

 

 

 

938

 

Other Liabilities and Provisions

(Note 13)

 

 

377

 

 

 

464

 

(Note 11)

 

 

206

 

 

 

358

 

Risk Management

 

(Notes 21, 22)

 

 

154

 

 

 

68

 

 

(Notes 18, 19)

 

 

183

 

 

 

125

 

Asset Retirement Obligation

 

(Note 14)

 

 

446

 

 

 

425

 

 

 

 

 

344

 

 

 

401

 

Deferred Income Taxes

 

 

 

 

25

 

 

 

217

 

 

 

 

 

0

 

 

 

20

 

 

 

 

 

10,805

 

 

 

11,557

 

 

 

 

 

9,833

 

 

 

10,632

 

Commitments and Contingencies

 

(Note 24)

 

 

 

 

 

 

 

 

 

(Note 21)

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share capital - authorized 775 million shares of common stock

 

 

 

 

 

 

 

 

 

 

2020 issued and outstanding: 259.8 million shares (2019: 259.8 million shares)

 

(Note 15)

 

 

3

 

 

 

7,061

 

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 15)

 

 

8,460

 

 

 

1,402

 

 

(Note 12)

 

 

8,532

 

 

 

8,531

 

Retained earnings (Accumulated deficit)

 

 

 

 

(5,135

)

 

 

421

 

 

 

 

 

(5,718

)

 

 

(5,773

)

Accumulated other comprehensive income

 

(Note 16)

 

 

1,024

 

 

 

1,046

 

 

(Note 13)

 

 

1,117

 

 

 

1,076

 

Total Shareholders’ Equity

 

 

 

 

4,352

 

 

 

9,930

 

 

 

 

 

3,934

 

 

 

3,837

 

 

 

 

$

15,157

 

 

$

21,487

 

 

 

 

$

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 September 30, 2020 (US$ millions)

 

 

 

Share

Capital

 

 

Paid in

Surplus

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Shareholders’

Equity

 

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, June 30, 2020

 

 

 

$

3

 

 

$

8,460

 

 

$

(3,590

)

 

$

1,000

 

 

$

5,873

 

Balance, March 31, 2021

 

 

 

$

3

 

 

$

8,525

 

 

$

(5,488

)

 

$

1,094

 

 

$

4,134

 

Net Earnings (Loss)

 

 

 

 

0

 

 

 

0

 

 

 

(1,521

)

 

 

0

 

 

 

(1,521

)

 

 

 

 

0

 

 

 

0

 

 

 

(205

)

 

 

0

 

 

 

(205

)

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

 

(Note 15)

 

 

0

 

 

 

0

 

 

 

(24

)

 

 

0

 

 

 

(24

)

 

(Note 12)

 

 

0

 

 

 

0

 

 

 

(25

)

 

 

0

 

 

 

(25

)

Equity-Settled Compensation Costs

 

 

 

 

0

 

 

 

7

 

 

 

0

 

 

 

0

 

 

 

7

 

Other Comprehensive Income (Loss)

 

(Note 16)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

24

 

 

 

24

 

 

(Note 13)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

23

 

 

 

23

 

Balance, September 30, 2020

 

 

 

$

3

 

 

$

8,460

 

 

$

(5,135

)

 

$

1,024

 

 

$

4,352

 

Balance, June 30, 2021

 

 

 

$

3

 

 

$

8,532

 

 

$

(5,718

)

 

$

1,117

 

 

$

3,934

 

 

Three Months Ended September 30, 2019 (US$ millions)

 

 

 

Share

Capital

 

 

Paid in

Surplus

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Shareholders’

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

 

 

 

$

7,318

 

 

$

1,358

 

 

$

327

 

 

$

1,012

 

 

$

10,015

 

Net Earnings (Loss)

 

 

 

 

0

 

 

 

0

 

 

 

149

 

 

 

0

 

 

 

149

 

Dividends on Common Shares ($0.09375 per share (1))

 

(Note 15)

 

 

0

 

 

 

0

 

 

 

(24

)

 

 

0

 

 

 

(24

)

Common Shares Purchased under Substantial Issuer Bid

 

(Note 15)

 

 

(257

)

 

 

44

 

 

 

-

 

 

 

-

 

 

 

(213

)

Other Comprehensive Income (Loss)

 

(Note 16)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(6

)

 

 

(6

)

Balance, September 30, 2019

 

 

 

$

7,061

 

 

$

1,402

 

 

$

452

 

 

$

1,006

 

 

$

9,921

 

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)

 

 

 

 

0

 

 

 

0

 

 

 

(4,383

)

 

 

0

 

 

 

(4,383

)

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

 

(Note 12)

 

 

0

 

 

 

0

 

 

 

(25

)

 

 

0

 

 

 

(25

)

Other Comprehensive Income (Loss)

 

(Note 13)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

90

 

 

 

90

 

Balance, June 30, 2020

 

 

 

$

3

 

 

$

8,460

 

 

$

(3,590

)

 

$

1,000

 

 

$

5,873

 

 

(1)

Dividends per share reflect the Share Consolidation as described in Note 1. Accordingly, the comparative period has been restated.

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

8

 

 


 

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

 

Nine Months Ended September 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)

 

 

 

 

0

 

 

 

0

 

 

 

(5,483

)

 

 

0

 

 

 

(5,483

)

Dividends on Shares of Common Stock ($0.28125 per share)

 

(Note 15)

 

 

0

 

 

 

0

 

 

 

(73

)

 

 

0

 

 

 

(73

)

Other Comprehensive Income (Loss)

 

(Note 16)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(22

)

 

 

(22

)

Reclassification of Share Capital due to the Reorganization

 

(Note 15)

 

 

(7,058

)

 

 

7,058

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance, September 30, 2020

 

 

 

$

3

 

 

$

8,460

 

 

$

(5,135

)

 

$

1,024

 

 

$

4,352

 

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)

 

 

 

 

0

 

 

 

0

 

 

 

104

 

 

 

0

 

 

 

104

 

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

 

(Note 12)

 

 

0

 

 

 

0

 

 

 

(49

)

 

 

0

 

 

 

(49

)

Equity-Settled Compensation Costs

 

 

 

 

0

 

 

 

1

 

 

 

0

 

 

 

0

 

 

 

1

 

Other Comprehensive Income (Loss)

 

(Note 13)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

41

 

 

 

41

 

Balance, June 30, 2021

 

 

 

$

3

 

 

$

8,532

 

 

$

(5,718

)

 

$

1,117

 

 

$

3,934

 

 

Nine Months Ended September 30, 2019 (US$ millions)

 

 

 

Share

Capital

 

 

Paid in

Surplus

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Shareholders’

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

 

$

4,656

 

 

$

1,358

 

 

$

435

 

 

$

998

 

 

$

7,447

 

Net Earnings (Loss)

 

 

 

 

0

 

 

 

0

 

 

 

240

 

 

 

0

 

 

 

240

 

Dividends on Common Shares ($0.28125 per share (1))

 

(Note 15)

 

 

0

 

 

 

0

 

 

 

(77

)

 

 

0

 

 

 

(77

)

Common Shares Purchased under Substantial Issuer Bid

 

(Note 15)

 

 

(257

)

 

 

44

 

 

 

0

 

 

 

0

 

 

 

(213

)

Common Shares Purchased under Normal

    Course Issuer Bid

 

(Note 15)

 

 

(816

)

 

 

0

 

 

 

(221

)

 

 

0

 

 

 

(1,037

)

Common Shares Issued

 

(Notes 8, 15)

 

 

3,478

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,478

 

Other Comprehensive Income (Loss)

 

(Note 16)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

8

 

 

 

8

 

Impact of Adoption of Topic 842, Leases

 

 

 

 

0

 

 

 

0

 

 

 

75

 

 

 

0

 

 

 

75

 

Balance, September 30, 2019

 

 

 

$

7,061

 

 

$

1,402

 

 

$

452

 

 

$

1,006

 

 

$

9,921

 

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)

 

 

 

 

0

 

 

 

0

 

 

 

(3,962

)

 

 

0

 

 

 

(3,962

)

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

 

(Note 12)

 

 

0

 

 

 

0

 

 

 

(49

)

 

 

0

 

 

 

(49

)

Other Comprehensive Income (Loss)

 

(Note 13)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(46

)

 

 

(46

)

Reclassification of Share Capital

 

(Note 12)

 

 

(7,058

)

 

 

7,058

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance, June 30, 2020

 

 

 

$

3

 

 

$

8,460

 

 

$

(3,590

)

 

$

1,000

 

 

$

5,873

 

 

(1)

Dividends per share reflect the Share Consolidation as described in Note 1. Accordingly, the comparative period has been restated.

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

9

 

 


 

Condensed Consolidated Statement of Cash Flows (unaudited)

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

June 30,

 

 

June 30,

 

(US$ millions)

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

 

 

$

(1,521

)

 

$

149

 

 

$

(5,483

)

 

$

240

 

 

 

 

$

(205

)

 

$

(4,383

)

 

$

104

 

 

$

(3,962

)

Depreciation, depletion and amortization

 

 

 

 

406

 

 

 

545

 

 

 

1,433

 

 

 

1,454

 

 

 

 

 

311

 

 

 

493

 

 

 

619

 

 

 

1,027

 

Impairments

 

(Note 10)

 

 

1,336

 

 

 

0

 

 

 

4,863

 

 

 

0

 

 

(Note 8)

 

 

0

 

 

 

3,250

 

 

 

0

 

 

 

3,527

 

Accretion of asset retirement obligation

 

(Note 14)

 

 

8

 

 

 

9

 

 

 

26

 

 

 

28

 

 

 

 

 

6

 

 

 

9

 

 

 

12

 

 

 

18

 

Deferred income taxes

 

(Note 7)

 

 

(42

)

 

 

44

 

 

 

393

 

 

 

140

 

 

(Note 6)

 

 

0

 

 

 

295

 

 

 

(20

)

 

 

435

 

Unrealized (gain) loss on risk management

 

(Note 22)

 

 

243

 

 

 

41

 

 

 

18

 

 

 

385

 

 

(Note 19)

 

 

576

 

 

 

679

 

 

 

847

 

 

 

(225

)

Unrealized foreign exchange (gain) loss

 

(Note 6)

 

 

(21

)

 

 

49

 

 

 

30

 

 

 

(11

)

 

(Note 5)

 

 

4

 

 

 

(50

)

 

 

6

 

 

 

51

 

Foreign exchange on settlements

 

(Note 6)

 

 

(2

)

 

 

(18

)

 

 

18

 

 

 

(53

)

 

(Note 5)

 

 

(3

)

 

 

0

 

 

 

(9

)

 

 

20

 

(Gain) loss on divestitures, net

 

 

 

 

0

 

 

 

(5

)

 

 

0

 

 

 

(4

)

Other

 

 

 

 

(9

)

 

 

3

 

 

 

(61

)

 

 

(63

)

 

 

 

 

44

 

 

 

11

 

 

 

64

 

 

 

(52

)

Net change in other assets and liabilities

 

 

 

 

(47

)

 

 

(29

)

 

 

(167

)

 

 

(55

)

 

 

 

 

(5

)

 

 

(68

)

 

 

(11

)

 

 

(120

)

Net change in non-cash working capital

 

(Note 23)

 

 

142

 

 

 

(32

)

 

 

106

 

 

 

130

 

 

(Note 20)

 

 

22

 

 

 

(119

)

 

 

(35

)

 

 

(36

)

Cash From (Used in) Operating Activities

 

 

 

 

493

 

 

 

756

 

 

 

1,176

 

 

 

2,191

 

 

 

 

 

750

 

 

 

117

 

 

 

1,577

 

 

 

683

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(Note 3)

 

 

(351

)

 

 

(566

)

 

 

(1,393

)

 

 

(2,052

)

 

(Note 2)

 

 

(383

)

 

 

(252

)

 

 

(733

)

 

 

(1,042

)

Acquisitions

 

(Note 9)

 

 

(1

)

 

 

(25

)

 

 

(19

)

 

 

(66

)

 

(Note 7)

 

 

(2

)

 

 

(1

)

 

 

(3

)

 

 

(18

)

Corporate acquisition, net of cash and restricted cash acquired

 

(Note 8)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

94

 

Proceeds from divestitures

 

(Note 9)

 

 

39

 

 

 

171

 

 

 

69

 

 

 

177

 

 

(Note 7)

 

 

1,023

 

 

 

8

 

 

 

1,025

 

 

 

30

 

Net change in investments and other

 

 

 

 

68

 

 

 

(142

)

 

 

(74

)

 

 

(118

)

 

 

 

 

(70

)

 

 

(272

)

 

 

(42

)

 

 

(142

)

Cash From (Used in) Investing Activities

 

 

 

 

(245

)

 

 

(562

)

 

 

(1,417

)

 

 

(1,965

)

 

 

 

 

568

 

 

 

(517

)

 

 

247

 

 

 

(1,172

)

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance (repayment) of revolving long-term debt

 

(Note 12)

 

 

(100

)

 

 

(21

)

 

 

452

 

 

 

740

 

 

(Note 10)

 

 

(490

)

 

 

408

 

 

 

(950

)

 

 

552

 

Repayment of long-term debt

 

(Note 12)

 

 

(109

)

 

 

0

 

 

 

(224

)

 

 

(500

)

 

(Note 10)

 

 

(619

)

 

 

(26

)

 

 

(619

)

 

 

(115

)

Purchase of shares of common stock

 

(Note 15)

 

 

0

 

 

 

(213

)

 

 

0

 

 

 

(1,250

)

Dividends on shares of common stock

 

(Note 15)

 

 

(24

)

 

 

(24

)

 

 

(73

)

 

 

(77

)

 

(Note 12)

 

 

(25

)

 

 

(25

)

 

 

(49

)

 

 

(49

)

Finance lease payments and other financing arrangements

 

 

 

 

(23

)

 

 

(22

)

 

 

(67

)

 

 

(63

)

Finance lease payments and other

 

 

 

 

(73

)

 

 

(22

)

 

 

(96

)

 

 

(44

)

Cash From (Used in) Financing Activities

 

 

 

 

(256

)

 

 

(280

)

 

 

88

 

 

 

(1,150

)

 

 

 

 

(1,207

)

 

 

335

 

 

 

(1,714

)

 

 

344

 

Foreign Exchange Gain (Loss) on Cash, Cash Equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Restricted Cash Held in Foreign Currency

 

 

 

 

1

 

 

 

0

 

 

 

(5

)

 

 

4

 

 

 

 

 

2

 

 

 

1

 

 

 

2

 

 

 

(6

)

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

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

 

 

(7

)

 

 

(86

)

 

 

(158

)

 

 

(920

)

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

 

 

113

 

 

 

(64

)

 

 

112

 

 

 

(151

)

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

 

 

39

 

 

 

224

 

 

 

190

 

 

 

1,058

 

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

 

 

9

 

 

 

103

 

 

 

10

 

 

 

190

 

Cash, Cash Equivalents and Restricted Cash, End of Period

 

 

 

$

32

 

 

$

138

 

 

$

32

 

 

$

138

 

 

 

 

$

122

 

 

$

39

 

 

$

122

 

 

$

39

 

Cash, End of Period

 

 

 

$

22

 

 

$

44

 

 

$

22

 

 

$

44

 

 

 

 

$

67

 

 

$

29

 

 

$

67

 

 

$

29

 

Cash Equivalents, End of Period

 

 

 

 

10

 

 

 

94

 

 

 

10

 

 

 

94

 

 

 

 

 

55

 

 

 

10

 

 

 

55

 

 

 

10

 

Restricted Cash, End of Period

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Cash, Cash Equivalents and Restricted Cash, End of Period

 

 

 

$

32

 

 

$

138

 

 

$

32

 

 

$

138

 

 

 

 

$

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

On January 24, 2020, Encana Corporation (“Encana”) completed a corporate reorganization, which included a plan of arrangement (the “Arrangement”) that involved, among other things, a share consolidation by Encana on the basis of one post-consolidation share for each five pre-consolidation shares (the “Share Consolidation”), and Ovintiv Inc. ultimately acquired all of the issued and outstanding common shares of Encanais in exchange for shares of common stock of Ovintiv Inc. on a 1-for-one basis. Following completion of the Arrangement, Ovintiv Inc. migrated from Canada and became a Delaware corporation, domiciled in the U.S. (the “U.S. Domestication”). The Arrangement and the U.S. Domestication together are referred to as the “Reorganization”. Ovintiv Inc. and its subsidiaries (collectively, “Ovintiv”) continue to carry on the business of the exploration for, the development of, and the production and marketing of oil, NGLs and natural gas, which was previously conducted by Encana and its subsidiaries prior to the completion of the Reorganization. References to the “Company” are to Encana Corporation and its subsidiaries prior to the completion of the Reorganization and to Ovintiv Inc. and its subsidiaries following the completion of the Reorganization.

The Arrangement, as described above, was accounted for as a reorganization of entities under common control. Accordingly, the resulting transactions were recognized using historical carrying amounts. On January 24, 2020, Ovintiv became the reporting entity upon completion of the Reorganization.

In accordance with the Share Consolidation, all common shares and per-share amounts disclosed herein reflect the post-Share Consolidation shares unless otherwise specified; comparative periods have been restated accordingly. References to shares of common stock refer to the shares of common stock of Ovintiv Inc. for any periods after the completion of the Arrangement, and to the common shares of Encana Corporation for any periods before January 24, 2020.

Following the U.S. Domestication, on January 24, 2020, the functional currency of Ovintiv Inc. became U.S. dollars, and accordingly, the financial results herein are consolidated and reported in U.S. dollars.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, 2019,2020, which are included in Item 8 of Ovintiv’s 20192020 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, 2019, except as noted below in Note 2. The disclosures provided below are incremental to those included with the annual audited Consolidated Financial Statements.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.

 

11


2.

Recent Accounting Pronouncements

Changes in Accounting Policies and Practices

On January 1, 2020, Ovintiv adopted the following ASUs issued by the FASB, which have not had a material impact on the interim Condensed Consolidated Financial Statements:

ASU 2017-04, “Simplifying the Test for Goodwill Impairment”. The amendment eliminates the second step of the goodwill impairment test which requires the Company to measure the impairment based on the excess amount of the carrying value of the reporting unit’s goodwill over the implied fair value of its goodwill. Under this amendment, the goodwill impairment will be measured based on the excess amount of the reporting unit’s carrying value over its respective fair value. The amendment has been applied prospectively.

ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” under Topic 326. The standard amends the impairment model which requires utilizing a forward-looking expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables. The standard requires entities to consider a broader range of information to estimate expected credit losses, resulting in earlier recognition of credit losses. The standard has been applied using the modified retrospective approach.

3.

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.

China Operations included the production of oil and other related activities within the China cost center. Effective July 31, 2019, the production sharing contract with China National Offshore Oil Corporation (“CNOOC”) was terminated and the Company exited its China Operations.

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.

 

 

1211

 

 


 

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

Segment and Geographic Information

 

 

USA Operations

 

 

Canadian Operations

 

 

China Operations (1)

 

 

USA Operations

 

 

Canadian Operations

 

 

Market Optimization

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

$

670

 

 

$

1,097

 

 

$

310

 

 

$

377

 

 

$

0

 

 

$

3

 

 

$

1,155

 

 

$

430

 

 

$

570

 

 

$

245

 

 

$

748

 

 

$

348

 

Gains (losses) on risk management, net

 

 

38

 

 

 

35

 

 

 

49

 

 

 

87

 

 

 

0

 

 

 

0

 

 

 

(188

)

 

 

260

 

 

 

(35

)

 

 

103

 

 

 

0

 

 

 

2

 

Sublease revenues

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Total Revenues

 

 

708

 

 

 

1,132

 

 

 

359

 

 

 

464

 

 

 

0

 

 

 

3

 

 

 

967

 

 

 

690

 

 

 

535

 

 

 

348

 

 

 

748

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

43

 

 

 

63

 

 

 

4

 

 

 

3

 

 

 

0

 

 

 

0

 

 

 

69

 

 

 

24

 

 

 

4

 

 

 

3

 

 

 

0

 

 

 

0

 

Transportation and processing

 

 

109

 

 

 

125

 

 

 

203

 

 

 

211

 

 

 

0

 

 

 

0

 

 

 

126

 

 

 

115

 

 

 

248

 

 

 

198

 

 

 

44

 

 

 

55

 

Operating

 

 

104

 

 

 

151

 

 

 

24

 

 

 

32

 

 

 

0

 

 

 

4

 

 

 

117

 

 

 

121

 

 

 

25

 

 

 

25

 

 

 

7

 

 

 

8

 

Purchased product

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

733

 

 

 

319

 

Depreciation, depletion and amortization

 

 

299

 

 

 

438

 

 

 

99

 

 

 

100

 

 

 

0

 

 

 

0

 

 

 

220

 

 

 

375

 

 

 

89

 

 

 

111

 

 

 

0

 

 

 

0

 

Impairments

 

 

1,336

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,250

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Total Operating Expenses

 

 

1,891

 

 

 

777

 

 

 

330

 

 

 

346

 

 

 

0

 

 

 

4

 

 

 

532

 

 

 

3,885

 

 

 

366

 

 

 

337

 

 

 

784

 

 

 

382

 

Operating Income (Loss)

 

$

(1,183

)

 

$

355

 

 

$

29

 

 

$

118

 

 

$

0

 

 

$

(1

)

 

$

435

 

 

$

(3,195

)

 

$

169

 

 

$

11

 

 

$

(36

)

 

$

(32

)

 

 

Market Optimization

 

 

Corporate & Other

 

 

Consolidated

 

 

 

 

Corporate & Other

 

 

Consolidated

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

$

346

 

 

$

294

 

 

$

0

 

 

$

0

 

 

$

1,326

 

 

$

1,771

 

 

 

 

 

 

$

0

 

 

$

0

 

 

$

2,473

 

 

$

1,023

 

Gains (losses) on risk management, net

 

 

2

 

 

 

0

 

 

 

(243

)

 

 

(41

)

 

 

(154

)

 

 

81

 

 

 

 

 

 

 

(576

)

 

 

(679

)

 

 

(799

)

 

 

(314

)

Sublease revenues

 

 

0

 

 

 

0

 

 

 

18

 

 

 

19

 

 

 

18

 

 

 

19

 

 

 

 

 

 

 

18

 

 

 

17

 

 

 

18

 

 

 

17

 

Total Revenues

 

 

348

 

 

 

294

 

 

 

(225

)

 

 

(22

)

 

 

1,190

 

 

 

1,871

 

 

 

 

 

 

 

(558

)

 

 

(662

)

 

 

1,692

 

 

 

726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

47

 

 

 

66

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

73

 

 

 

27

 

Transportation and processing

 

 

53

 

 

 

62

 

 

 

0

 

 

 

0

 

 

 

365

 

 

 

398

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

418

 

 

 

368

 

Operating

 

 

5

 

 

 

6

 

 

 

0

 

 

 

0

 

 

 

133

 

 

 

193

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

149

 

 

 

154

 

Purchased product

 

 

322

 

 

 

264

 

 

 

0

 

 

 

0

 

 

 

322

 

 

 

264

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

733

 

 

 

319

 

Depreciation, depletion and amortization

 

 

0

 

 

 

0

 

 

 

8

 

 

 

7

 

 

 

406

 

 

 

545

 

 

 

 

 

 

 

2

 

 

 

7

 

 

 

311

 

 

 

493

 

Impairments

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,336

 

 

 

0

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,250

 

Accretion of asset retirement obligation

 

 

0

 

 

 

0

 

 

 

8

 

 

 

9

 

 

 

8

 

 

 

9

 

 

 

 

 

 

 

6

 

 

 

9

 

 

 

6

 

 

 

9

 

Administrative

 

 

0

 

 

 

0

 

 

 

79

 

 

 

81

 

 

 

79

 

 

 

81

 

 

 

 

 

 

 

123

 

 

 

165

 

 

 

123

 

 

 

165

 

Total Operating Expenses

 

 

380

 

 

 

332

 

 

 

95

 

 

 

97

 

 

 

2,696

 

 

 

1,556

 

 

 

 

 

 

 

131

 

 

 

181

 

 

 

1,813

 

 

 

4,785

 

Operating Income (Loss)

 

$

(32

)

 

$

(38

)

 

$

(320

)

 

$

(119

)

 

 

(1,506

)

 

 

315

 

 

 

 

 

 

$

(689

)

 

$

(843

)

 

 

(121

)

 

 

(4,059

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97

 

 

 

99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

99

 

 

 

86

 

Foreign exchange (gain) loss, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

(40

)

(Gain) loss on divestitures, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

(5

)

Other (gains) losses, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(16

)

Total Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84

 

 

 

30

 

Net Earnings (Loss) Before Income Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,560

)

 

 

192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(205

)

 

 

(4,089

)

Income tax expense (recovery)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(39

)

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

294

 

Net Earnings (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(1,521

)

 

$

149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(205

)

 

$

(4,383

)

(1)

The Company terminated its production sharing contract with CNOOC and exited its China Operations effective July 31, 2019.12


Results of Operations (For the six 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

 

$

2,173

 

 

$

1,230

 

 

$

1,147

 

 

$

596

 

 

$

1,400

 

 

$

767

 

Gains (losses) on risk management, net

 

 

(324

)

 

 

374

 

 

 

(57

)

 

 

139

 

 

 

2

 

 

 

3

 

Sublease revenues

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Total Revenues

 

 

1,849

 

 

 

1,604

 

 

 

1,090

 

 

 

735

 

 

 

1,402

 

 

 

770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

124

 

 

 

72

 

 

 

9

 

 

 

7

 

 

 

0

 

 

 

0

 

Transportation and processing

 

 

239

 

 

 

236

 

 

 

472

 

 

 

411

 

 

 

86

 

 

 

117

 

Operating

 

 

246

 

 

 

260

 

 

 

53

 

 

 

51

 

 

 

14

 

 

 

10

 

Purchased product

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,337

 

 

 

717

 

Depreciation, depletion and amortization

 

 

428

 

 

 

793

 

 

 

182

 

 

 

220

 

 

 

0

 

 

 

0

 

Impairments

 

 

0

 

 

 

3,527

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Total Operating Expenses

 

 

1,037

 

 

 

4,888

 

 

 

716

 

 

 

689

 

 

 

1,437

 

 

 

844

 

Operating Income (Loss)

 

$

812

 

 

$

(3,284

)

 

$

374

 

 

$

46

 

 

$

(35

)

 

$

(74

)

 

 

 

 

Corporate & Other

 

 

Consolidated

 

 

 

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

 

 

 

 

$

0

 

 

$

0

 

 

$

4,720

 

 

$

2,593

 

Gains (losses) on risk management, net

 

 

 

 

 

 

(847

)

 

 

225

 

 

 

(1,226

)

 

 

741

 

Sublease revenues

 

 

 

 

 

 

36

 

 

 

35

 

 

 

36

 

 

 

35

 

Total Revenues

 

 

 

 

 

 

(811

)

 

 

260

 

 

 

3,530

 

 

 

3,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

 

 

 

 

0

 

 

 

0

 

 

 

133

 

 

 

79

 

Transportation and processing

 

 

 

 

 

 

0

 

 

 

0

 

 

 

797

 

 

 

764

 

Operating

 

 

 

 

 

 

0

 

 

 

(2

)

 

 

313

 

 

 

319

 

Purchased product

 

 

 

 

 

 

0

 

 

 

0

 

 

 

1,337

 

 

 

717

 

Depreciation, depletion and amortization

 

 

 

 

 

 

9

 

 

 

14

 

 

 

619

 

 

 

1,027

 

Impairments

 

 

 

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,527

 

Accretion of asset retirement obligation

 

 

 

 

 

 

12

 

 

 

18

 

 

 

12

 

 

 

18

 

Administrative

 

 

 

 

 

 

245

 

 

 

218

 

 

 

245

 

 

 

218

 

Total Operating Expenses

 

 

 

 

 

 

266

 

 

 

248

 

 

 

3,456

 

 

 

6,669

 

Operating Income (Loss)

 

 

 

 

 

$

(1,077

)

 

$

12

 

 

 

74

 

 

 

(3,300

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

186

 

 

 

182

 

Foreign exchange (gain) loss, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15

)

 

 

76

 

Other (gains) losses, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

 

 

(30

)

Total Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

146

 

 

 

228

 

Net Earnings (Loss) Before Income Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(72

)

 

 

(3,528

)

Income tax expense (recovery)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(176

)

 

 

434

 

Net Earnings (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

104

 

 

$

(3,962

)

 

 

13

 

 


 

Results of Operations (For the nine months ended September 30)

Segment and GeographicIntersegment Information

 

 

 

USA Operations

 

 

Canadian Operations

 

 

China Operations (1)

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

$

1,900

 

 

$

3,062

 

 

$

906

 

 

$

1,222

 

 

$

0

 

 

$

37

 

Gains (losses) on risk management, net

 

 

412

 

 

 

128

 

 

 

188

 

 

 

174

 

 

 

0

 

 

 

0

 

Sublease revenues

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Total Revenues

 

 

2,312

 

 

 

3,190

 

 

 

1,094

 

 

 

1,396

 

 

 

0

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

115

 

 

 

176

 

 

 

11

 

 

 

11

 

 

 

0

 

 

 

0

 

Transportation and processing

 

 

345

 

 

 

340

 

 

 

614

 

 

 

640

 

 

 

0

 

 

 

0

 

Operating

 

 

364

 

 

 

414

 

 

 

75

 

 

 

96

 

 

 

0

 

 

 

16

 

Depreciation, depletion and amortization

 

 

1,092

 

 

 

1,141

 

 

 

319

 

 

 

287

 

 

 

0

 

 

 

0

 

Impairments

 

 

4,863

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Total Operating Expenses

 

 

6,779

 

 

 

2,071

 

 

 

1,019

 

 

 

1,034

 

 

 

0

 

 

 

16

 

Operating Income (Loss)

 

$

(4,467

)

 

$

1,119

 

 

$

75

 

 

$

362

 

 

$

0

 

 

$

21

 

 

 

 

 

 

 

 

 

 

 

Market Optimization

 

 

 

 

 

 

 

 

 

 

 

Marketing Sales

 

 

Upstream Eliminations

 

 

Total

 

For the three months ended June 30,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,613

 

 

$

1,047

 

 

$

(1,865

)

 

$

(697

)

 

$

748

 

 

$

350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation and processing

 

 

149

 

 

 

152

 

 

 

(105

)

 

 

(97

)

 

 

44

 

 

 

55

 

Operating

 

 

7

 

 

 

8

 

 

 

0

 

 

 

0

 

 

 

7

 

 

 

8

 

Purchased product

 

 

2,492

 

 

 

919

 

 

 

(1,759

)

 

 

(600

)

 

 

733

 

 

 

319

 

Operating Income (Loss)

 

$

(35

)

 

$

(32

)

 

$

(1

)

 

$

0

 

 

$

(36

)

 

$

(32

)

 

 

 

Market Optimization

 

 

Corporate & Other

 

 

Consolidated

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and service revenues

 

$

1,113

 

 

$

870

 

 

$

0

 

 

$

0

 

 

$

3,919

 

 

$

5,191

 

Gains (losses) on risk management, net

 

 

5

 

 

 

(1

)

 

 

(18

)

 

 

(385

)

 

 

587

 

 

 

(84

)

Sublease revenues

 

 

0

 

 

 

0

 

 

 

53

 

 

 

54

 

 

 

53

 

 

 

54

 

Total Revenues

 

 

1,118

 

 

 

869

 

 

 

35

 

 

 

(331

)

 

 

4,559

 

 

 

5,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production, mineral and other taxes

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

126

 

 

 

187

 

Transportation and processing

 

 

170

 

 

 

168

 

 

 

0

 

 

 

0

 

 

 

1,129

 

 

 

1,148

 

Operating

 

 

15

 

 

 

21

 

 

 

(2

)

 

 

(2

)

 

 

452

 

 

 

545

 

Purchased product

 

 

1,039

 

 

 

784

 

 

 

0

 

 

 

0

 

 

 

1,039

 

 

 

784

 

Depreciation, depletion and amortization

 

 

0

 

 

 

0

 

 

 

22

 

 

 

26

 

 

 

1,433

 

 

 

1,454

 

Impairments

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,863

 

 

 

0

 

Accretion of asset retirement obligation

 

 

0

 

 

 

0

 

 

 

26

 

 

 

28

 

 

 

26

 

 

 

28

 

Administrative

 

 

0

 

 

 

0

 

 

 

297

 

 

 

389

 

 

 

297

 

 

 

389

 

Total Operating Expenses

 

 

1,224

 

 

 

973

 

 

 

343

 

 

 

441

 

 

 

9,365

 

 

 

4,535

 

Operating Income (Loss)

 

$

(106

)

 

$

(104

)

 

$

(308

)

 

$

(772

)

 

 

(4,806

)

 

 

626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

279

 

 

 

285

 

Foreign exchange (gain) loss, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

(62

)

(Gain) loss on divestitures, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

(4

)

Other (gains) losses, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48

)

 

 

24

 

Total Other (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

282

 

 

 

243

 

Net Earnings (Loss) Before Income Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,088

)

 

 

383

 

Income tax expense (recovery)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

395

 

 

 

143

 

Net Earnings (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(5,483

)

 

$

240

 

 

 

Market Optimization

 

 

 

Marketing Sales

 

 

Upstream Eliminations

 

 

Total

 

For the six months ended June 30,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

4,781

 

 

$

3,142

 

 

$

(3,379

)

 

$

(2,372

)

 

$

1,402

 

 

$

770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation and processing

 

 

286

 

 

 

320

 

 

 

(200

)

 

 

(203

)

 

 

86

 

 

 

117

 

Operating

 

 

14

 

 

 

10

 

 

 

0

 

 

 

0

 

 

 

14

 

 

 

10

 

Purchased product

 

 

4,515

 

 

 

2,886

 

 

 

(3,178

)

 

 

(2,169

)

 

 

1,337

 

 

 

717

 

Operating Income (Loss)

 

$

(34

)

 

$

(74

)

 

$

(1

)

 

$

0

 

 

$

(35

)

 

$

(74

)

Capital Expenditures

(1)

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

 

 

 

 

$

279

 

 

$

218

 

 

$

540

 

 

$

846

 

Canadian Operations

 

 

 

 

 

 

103

 

 

 

33

 

 

 

192

 

 

 

194

 

Corporate & Other

 

 

 

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

2

 

 

 

 

 

 

 

$

383

 

 

$

252

 

 

$

733

 

 

$

1,042

 

Goodwill, Property, Plant and Equipment and Total Assets by Segment

 

 

Goodwill

 

 

Property, Plant and Equipment

 

 

Total Assets

 

 

 

As at

 

 

As at

 

 

As at

 

 

 

June 30,

 

December 31,

 

 

June 30,

 

December 31,

 

 

June 30,

 

December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

1,938

 

 

$

1,938

 

 

$

7,408

 

 

$

8,103

 

 

$

10,066

 

 

$

10,646

 

Canadian Operations

 

 

705

 

 

 

687

 

 

 

927

 

 

 

1,142

 

 

 

1,911

 

 

 

2,031

 

Market Optimization

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2

 

 

 

336

 

 

 

233

 

Corporate & Other

 

 

0

 

 

 

0

 

 

 

200

 

 

 

203

 

 

 

1,454

 

 

 

1,559

 

 

 

$

2,643

 

 

$

2,625

 

 

$

8,535

 

 

$

9,450

 

 

$

13,767

 

 

$

14,469

 

The Company terminated its production sharing contract with CNOOC and exited its China Operations effective July 31, 2019.

 

 

14

 

 


 

Intersegment Information

 

 

 

 

 

 

 

 

 

 

Market Optimization

 

 

 

 

 

 

 

 

 

 

 

Marketing Sales

 

 

Upstream Eliminations

 

 

Total

 

For the three months ended September 30,

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,445

 

 

$

2,088

 

 

$

(1,097

)

 

$

(1,794

)

 

$

348

 

 

$

294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation and processing

 

 

148

 

 

 

173

 

 

 

(95

)

 

 

(111

)

 

 

53

 

 

 

62

 

Operating

 

 

5

 

 

 

6

 

 

 

0

 

 

 

0

 

 

 

5

 

 

 

6

 

Purchased product

 

 

1,324

 

 

 

1,947

 

 

 

(1,002

)

 

 

(1,683

)

 

 

322

 

 

 

264

 

Operating Income (Loss)

 

$

(32

)

 

$

(38

)

 

$

0

 

 

$

0

 

 

$

(32

)

 

$

(38

)

 

 

Market Optimization

 

 

 

Marketing Sales

 

 

Upstream Eliminations

 

 

Total

 

For the nine months ended September 30,

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

4,587

 

 

$

5,459

 

 

$

(3,469

)

 

$

(4,590

)

 

$

1,118

 

 

$

869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation and processing

 

 

468

 

 

 

465

 

 

 

(298

)

 

 

(297

)

 

 

170

 

 

 

168

 

Operating

 

 

15

 

 

 

21

 

 

 

0

 

 

 

0

 

 

 

15

 

 

 

21

 

Purchased product

 

 

4,210

 

 

 

5,078

 

 

 

(3,171

)

 

 

(4,294

)

 

 

1,039

 

 

 

784

 

Operating Income (Loss)

 

$

(106

)

 

$

(105

)

 

$

0

 

 

$

1

 

 

$

(106

)

 

$

(104

)

Capital Expenditures

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

 

 

 

 

$

244

 

 

$

464

 

 

$

1,090

 

 

$

1,682

 

Canadian Operations

 

 

 

 

 

 

106

 

 

 

99

 

 

 

300

 

 

 

364

 

Market Optimization

 

 

 

 

 

 

0

 

 

 

2

 

 

 

0

 

 

 

2

 

Corporate & Other

 

 

 

 

 

 

1

 

 

 

1

 

 

 

3

 

 

 

4

 

 

 

 

 

 

 

$

351

 

 

$

566

 

 

$

1,393

 

 

$

2,052

 

Costs Incurred

For the year ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

Canada

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition Costs (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unproved

 

 

 

 

 

 

 

 

 

 

 

 

 

$

843

 

 

$

0

 

 

$

843

 

Proved

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,963

 

 

 

0

 

 

 

5,963

 

Total Acquisition Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,806

 

 

 

0

 

 

 

6,806

 

Exploration Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

0

 

 

 

5

 

Development Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,129

 

 

 

480

 

 

 

2,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

8,940

 

 

$

480

 

 

$

9,420

 

 

(1)

Acquisition costs were restated and include the non-cash acquisition of the proved and unproved properties of Newfield Exploration Company in conjunction with the business combination described in Note 8.

15


Goodwill, Property, Plant and Equipment and Total Assets by Segment

 

 

Goodwill

 

 

Property, Plant and Equipment

 

 

Total Assets

 

 

 

As at

 

 

As at

 

 

As at

 

 

 

September 30,

 

December 31,

 

 

September 30,

 

December 31,

 

 

September 30,

 

December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

1,938

 

 

$

1,938

 

 

$

8,857

 

 

$

13,757

 

 

$

11,287

 

 

$

16,613

 

Canadian Operations

 

 

656

 

 

 

673

 

 

 

1,162

 

 

 

1,205

 

 

 

1,966

 

 

 

2,122

 

Market Optimization

 

 

0

 

 

 

0

 

 

 

2

 

 

 

2

 

 

 

231

 

 

 

253

 

Corporate & Other

 

 

0

 

 

 

0

 

 

 

202

 

 

 

227

 

 

 

1,673

 

 

 

2,499

 

 

 

$

2,594

 

 

$

2,611

 

 

$

10,223

 

 

$

15,191

 

 

$

15,157

 

 

$

21,487

 

4.3.

Revenues from Contracts with Customers

The following tables summarize the Company’sOvintiv’s revenues from contracts with customers.

Revenues (For the three months ended SeptemberJune 30)

 

 

USA Operations

 

 

Canadian Operations

 

 

China Operations (1)

 

 

USA Operations

 

 

Canadian Operations

 

 

Market Optimization

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from Customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues (2)(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

$

504

 

 

$

905

 

 

$

1

 

 

$

3

 

 

$

0

 

 

$

3

 

 

$

861

 

 

$

307

 

 

$

1

 

 

$

2

 

 

$

602

 

 

$

159

 

NGLs

 

 

98

 

 

 

99

 

 

 

139

 

 

 

225

 

 

 

0

 

 

 

0

 

 

 

179

 

 

 

60

 

 

 

285

 

 

 

88

 

 

 

11

 

 

 

2

 

Natural gas

 

 

71

 

 

 

95

 

 

 

172

 

 

 

150

 

 

 

0

 

 

 

0

 

 

 

118

 

 

 

65

 

 

 

286

 

 

 

157

 

 

 

128

 

 

 

181

 

Service revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering and processing

 

 

0

 

 

 

(1

)

 

 

0

 

 

 

2

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1

 

 

 

2

 

 

 

1

 

 

 

0

 

 

 

0

 

Product and Service Revenues

 

$

673

 

 

$

1,098

 

 

$

312

 

 

$

380

 

 

$

0

 

 

$

3

 

 

$

1,158

 

 

$

433

 

 

$

574

 

 

$

248

 

 

$

741

 

 

$

342

 

 

 

Market Optimization

 

 

Corporate & Other

 

 

Consolidated

 

 

 

 

Corporate & Other

 

 

Consolidated

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from Customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues (2)(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

$

131

 

 

$

107

 

 

$

0

 

 

$

0

 

 

$

636

 

 

$

1,018

 

 

 

 

 

 

$

0

 

 

$

0

 

 

$

1,464

 

 

$

468

 

NGLs

 

 

0

 

 

 

2

 

 

 

0

 

 

 

0

 

 

 

237

 

 

 

326

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

475

 

 

 

150

 

Natural gas

 

 

210

 

 

 

181

 

 

 

0

 

 

 

0

 

 

 

453

 

 

 

426

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

532

 

 

 

403

 

Service revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering and processing

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1

 

 

 

 

 

 

 

0

 

 

 

0

 

 

 

2

 

 

 

2

 

Product and Service Revenues

 

$

341

 

 

$

290

 

 

$

0

 

 

$

0

 

 

$

1,326

 

 

$

1,771

 

 

 

 

 

 

$

0

 

 

$

0

 

 

$

2,473

 

 

$

1,023

 

 

(1)

The Company terminated itsIncludes revenues from production sharing contract with CNOOC and exited its China Operations effective July 31, 2019.revenues of product purchased from third parties, but excludes intercompany marketing fees transacted between the Company’s operating segments.

Revenues (For the six months ended June 30)

 

 

USA Operations

 

 

Canadian Operations

 

 

Market Optimization

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from Customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

$

1,602

 

 

$

949

 

 

$

6

 

 

$

4

 

 

$

987

 

 

$

369

 

NGLs

 

 

337

 

 

 

146

 

 

 

541

 

 

 

267

 

 

 

26

 

 

 

4

 

Natural gas

 

 

241

 

 

 

137

 

 

 

603

 

 

 

329

 

 

 

369

 

 

 

386

 

Service revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering and processing

 

 

0

 

 

 

1

 

 

 

3

 

 

 

1

 

 

 

5

 

 

 

0

 

Product and Service Revenues

 

$

2,180

 

 

$

1,233

 

 

$

1,153

 

 

$

601

 

 

$

1,387

 

 

$

759

 

 

 

 

 

Corporate & Other

 

 

Consolidated

 

 

 

 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from Customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

 

 

 

$

0

 

 

$

0

 

 

$

2,595

 

 

$

1,322

 

NGLs

 

 

 

 

 

 

0

 

 

 

0

 

 

 

904

 

 

 

417

 

Natural gas

 

 

 

 

 

 

0

 

 

 

0

 

 

 

1,213

 

 

 

852

 

Service revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering and processing

 

 

 

 

 

 

0

 

 

 

0

 

 

 

8

 

 

 

2

 

Product and Service Revenues

 

 

 

 

 

$

0

 

 

$

0

 

 

$

4,720

 

 

$

2,593

 

(2)(1)

Includes revenues from production and revenues of product purchased from third parties, but excludes intercompany marketing fees transacted between the Company’s operating segments.

 

 

1615

 

 


 

Revenues (For the nine months ended September 30)

 

 

USA Operations

 

 

Canadian Operations

 

 

China Operations (1)

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from Customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

$

1,453

 

 

$

2,461

 

 

$

5

 

 

$

6

 

 

$

0

 

 

$

37

 

NGLs

 

 

244

 

 

 

332

 

 

 

406

 

 

 

659

 

 

 

0

 

 

 

0

 

Natural gas

 

 

208

 

 

 

276

 

 

 

501

 

 

 

563

 

 

 

0

 

 

 

0

 

Service revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering and processing

 

 

1

 

 

 

2

 

 

 

1

 

 

 

4

 

 

 

0

 

 

 

0

 

Product and Service Revenues

 

$

1,906

 

 

$

3,071

 

 

$

913

 

 

$

1,232

 

 

$

0

 

 

$

37

 

 

 

Market Optimization

 

 

Corporate & Other

 

 

Consolidated

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from Customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

$

500

 

 

$

205

 

 

$

0

 

 

$

0

 

 

$

1,958

 

 

$

2,709

 

NGLs

 

 

4

 

 

 

6

 

 

 

0

 

 

 

0

 

 

 

654

 

 

 

997

 

Natural gas

 

 

596

 

 

 

640

 

 

 

0

 

 

 

0

 

 

 

1,305

 

 

 

1,479

 

Service revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering and processing

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2

 

 

 

6

 

Product and Service Revenues

 

$

1,100

 

 

$

851

 

 

$

0

 

 

$

0

 

 

$

3,919

 

 

$

5,191

 

(1)

The Company terminated its production sharing contract with CNOOC and exited its China Operations effective July 31, 2019.

(2)

Includes revenues from production and revenues of product purchased from third parties, but excludes intercompany marketing fees transacted between the Company’s operating segments.

The Company’s revenues from contracts with customers consists of product sales including oil, NGLs and natural gas, as well as the provision of gathering and processing services to third parties. The CompanyOvintiv had 0 contract asset or liability balances during the periods presented. As at SeptemberJune 30, 2020,2021, receivables and accrued revenues from contracts with customers were $628$1,105 million ($1,095814 million as at December 31, 2019)2020).

ProductOvintiv’s product sales are sold under short-term contracts with terms that are less than one year at either fixed or market index prices or under long-term contracts exceeding one year at market index prices.

The Company’s gathering and processing services are provided on an interruptible basis with transaction prices that are for fixed prices and/or variable consideration. Variable consideration received is related to recovery of plant operating costs or escalation of the fixed price based on a consumer price index. As the service contracts are interruptible, with service provided on an “as available” basis, there are 0 unsatisfied performance obligations remaining at SeptemberJune 30, 2020.2021.

As at SeptemberJune 30, 2020,2021, all remaining performance obligations are priced at market index prices or are variable volume delivery contracts. As such, the variable consideration is allocated entirely to the wholly unsatisfied performance obligation or promise to deliver units of production, and revenue is recognized at the amount for which the Company has the right to invoice the product delivered. As the period between when the product sales are transferred and Ovintiv receives payments is generally 30 to 60 days, there is no financing element associated with customer contracts. In addition, Ovintiv does not disclose unsatisfied performance obligations for customer contracts with terms less than 12 months or for variable consideration related to unsatisfied performance obligations.

 

4.

Interest

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense on:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt

 

$

93

 

 

$

82

 

 

$

177

 

 

$

171

 

Finance leases

 

 

0

 

 

 

2

 

 

 

2

 

 

 

5

 

Other

 

 

6

 

 

 

2

 

 

 

7

 

 

 

6

 

 

 

$

99

 

 

$

86

 

 

$

186

 

 

$

182

 

Interest expense on debt for the three and six months ended June 30, 2021 includes a one-time make-whole interest payment of $19 million resulting from the June 2021 early redemption of the Company’s $600 million, 5.75 percent senior notes due January 30, 2022 as discussed in Note 10.

 

 

1716

 

 


 

5.

Interest

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense on:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt

 

$

91

 

 

$

93

 

 

$

262

 

 

$

268

 

Finance leases

 

 

2

 

 

 

3

 

 

 

7

 

 

 

10

 

Other

 

 

4

 

 

 

3

 

 

 

10

 

 

 

7

 

 

 

$

97

 

 

$

99

 

 

$

279

 

 

$

285

 

 

6.5.

Foreign Exchange (Gain) Loss, Net

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Foreign Exchange (Gain) Loss on:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation of U.S. dollar financing debt issued from Canada

 

$

(6

)

 

$

68

 

 

$

56

 

 

$

(117

)

 

$

0

 

 

$

(14

)

 

$

1

 

 

$

62

 

Translation of U.S. dollar risk management contracts issued from Canada

 

 

(15

)

 

 

5

 

 

 

1

 

 

 

(13

)

 

 

4

 

 

 

(36

)

 

 

5

 

 

 

16

 

Translation of intercompany notes

 

 

0

 

 

 

(24

)

 

 

(27

)

 

 

119

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(27

)

 

 

(21

)

 

 

49

 

 

 

30

 

 

 

(11

)

 

 

4

 

 

 

(50

)

 

 

6

 

 

 

51

 

Foreign Exchange on Settlements of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange (Gain) Loss on Settlements of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. dollar financing debt issued from Canada

 

 

(2

)

 

 

(10

)

 

 

15

 

 

 

(22

)

 

 

(3

)

 

 

0

 

 

 

(9

)

 

 

17

 

U.S. dollar risk management contracts issued from Canada

 

 

(2

)

 

 

(2

)

 

 

7

 

 

 

(1

)

 

 

(11

)

 

 

6

 

 

 

(18

)

 

 

9

 

Intercompany notes

 

 

0

 

 

 

(8

)

 

 

3

 

 

 

(31

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3

 

Other Monetary Revaluations

 

 

0

 

 

 

1

 

 

 

(4

)

 

 

3

 

 

 

2

 

 

 

4

 

 

 

6

 

 

 

(4

)

 

$

(25

)

 

$

30

 

 

$

51

 

 

$

(62

)

 

$

(8

)

 

$

(40

)

 

$

(15

)

 

$

76

 

 

Following the completion of the Reorganization, including thecorporate reorganization and U.S. Domestication, on January 24,domestication in 2020, as described in Note 1, the U.S. dollar denominated unsecured notes issued by Encana Corporation from Canada were assumed by Ovintiv Inc., a company incorporated in Delaware with a U.S. dollar functional currency. Accordingly, these U.S. dollar denominated unsecured notes, along with certain intercompany notes, no longer attract foreign exchange translation gains or losses.

7.6.

Income Taxes

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

4

 

 

$

1

 

 

$

3

 

 

$

3

 

 

$

0

 

 

$

(1

)

 

$

0

 

 

$

(1

)

Canada

 

 

(1

)

 

 

(2

)

 

 

(1

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(156

)

 

 

0

 

Total Current Tax Expense (Recovery)

 

 

3

 

 

 

(1

)

 

 

2

 

 

 

3

 

 

 

0

 

 

 

(1

)

 

 

(156

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

(41

)

 

 

56

 

 

 

(180

)

 

 

117

 

 

 

0

 

 

 

(267

)

 

 

0

 

 

 

(139

)

Canada

 

 

0

 

 

 

(12

)

 

 

573

 

 

 

22

 

 

 

0

 

 

 

563

 

 

 

(20

)

 

 

573

 

Other Countries

 

 

(1

)

 

 

0

 

 

 

0

 

 

 

1

 

 

 

0

 

 

 

(1

)

 

 

0

 

 

 

1

 

Total Deferred Tax Expense (Recovery)

 

 

(42

)

 

 

44

 

 

 

393

 

 

 

140

 

 

 

0

 

 

 

295

 

 

 

(20

)

 

 

435

 

Income Tax Expense (Recovery)

 

$

(39

)

 

$

43

 

 

$

395

 

 

$

143

 

 

$

0

 

 

$

294

 

 

$

(176

)

 

$

434

 

Effective Tax Rate

 

 

2.5

%

 

 

22.4

%

 

 

(7.8

%)

 

 

37.3

%

 

 

0.0

%

 

 

(7.2

%)

 

 

244.4

%

 

 

(12.3

%)

 

18


Ovintiv’s interim income tax expense is determined using the estimated annual effective income tax rate applied to year-to-date net earnings before income tax plus the effect of legislative changes and amounts in respect of prior periods. The estimated annual effective income tax rate is impacted by expected annual earnings, changes in valuation allowances, related to current year losses, income tax related to foreign operations, state tax, the effect of legislative changes, non-taxable capital gains and losses, and tax differences on divestitures and transactions, which can produce interim effective tax rate fluctuations.

 

DeferredDuring the six months ended June 30, 2021, the current income tax assets are routinely assessed for realizability.recovery was primarily due to the resolution of prior year tax items. The resolution, along with other items, resulted in a $222 million reduction of unrecognized tax benefits, offset by a $66 million reduction in valuation allowance. The Company also recognized related interest income of $12 million in other (gains) losses, net. During the ninesix months ended SeptemberJune 30, 2021, the deferred tax recovery was primarily due to the change in valuation allowances recorded relating to the current year net loss before tax and from the resolution of prior year tax items. During the six months ended June 30, 2020, the Company determined, after weighing both positive and negative evidence, thatdeferred tax expense was primarily due to the recognition of a valuation allowance should be recorded to reduce the associated deferred tax assets in the United States and in Canada. The Company continues to be in a cumulative three-year loss position as of September 30, 2020 and is expected to be in a cumulative three-year loss position by the end of the current fiscal year in both the United States and Canada. The cumulative three-year losses, as well as increased uncertainty in the timing as to when the realization of deferred tax assets will occur, is significant negative evidence to overcome, and consequently, it is more likely than not that the deferred tax assets will not be realizable. If it is determined that the deferred tax assets are realizable in the future, a reduction in the valuation allowance will be recorded.

 

As part of the U.S. Domestication, Ovintiv also recognized a capital loss and recorded a deferred income tax benefit in the amount of $1.2 billion for Canadian income tax purposes due to the decline in the Company’s share value compared to the historical tax basis of its properties that were transferred as part of the Reorganization. Ovintiv assessed the realizability of these capital losses against capital gains and concluded that it is more likely than not that the deferred tax asset will not be realizable. Therefore, Ovintiv has recorded a corresponding valuation allowance against the deferred tax asset. If it is determined the capital loss can be utilized at a future date, a reduction in the valuation allowance will be recorded.

Following the U.S. Domestication as described in Note 1, the applicable statutory rate became the U.S. federal income tax rate. The effective tax rate of (7.8)244.4 percent for the ninesix months ended SeptemberJune 30, 2021 is higher than the U.S. federal statutory tax rate of 21 percent primarily due to the resolution of certain tax items relating to prior taxation years and the change in

17


valuation allowances recorded relating to the current year net loss before tax. The effective tax rate of (12.3) percent for the six months ended June 30, 2020 iswas lower than the U.S. federal statutory tax rate of 21 percent primarily due to valuation allowances recorded due to current yearnet losses arising from ceiling test impairments and an increase in the valuation allowance of $568 million in Canada related to prior years’ deferred tax assets which was recorded as a discrete item. See Note 108 for further discussion related to the ceiling test impairments.

The effective tax rate of 37.3 percent for the nine months ended September 30, 2019, was higher than the Canadian statutory tax rate of 26.6 percent primarily due to the re-measurement of the Company’s deferred tax position resulting from the Alberta tax rate reduction.  On June 28, 2019, Alberta Bill 3, the Job Creation Tax Cut (Alberta Corporate Tax Amendment) Act, was signed into law resulting in a reduction of the Alberta corporate tax rate from 12 percent to 11 percent effective July 1, 2019, with further 1 percent rate reductions to take effect every year on January 1 until the general corporate tax rate is 8 percent on January 1, 2022. During the nine months ended September 30, 2019, the deferred tax expense of $140 million included an adjustment of $55 million resulting from the re-measurement of the Company’s deferred tax position due to the Alberta tax rate reduction.

On June 29, 2020, Alberta announced the previously scheduled rate reduction would be accelerated with the Alberta rate reducing to 8 percent effective July 1, 2020. This legislation is not yet enacted and the impact resulting from this announcement is not expected to be material for the Company’s tax position.

 

 

8.

Business Combination

Newfield Exploration Company Acquisition

On February 13, 2019, the business combination with Newfield Exploration Company, a Delaware corporation (“Newfield”) was completed pursuant to an Agreement and Plan of Merger with Newfield (the “Merger”). As a result of the Merger, Newfield stockholders received 2.6719 Encana common shares, on a pre-Share Consolidation basis, for each share of Newfield common stock that was issued and outstanding immediately prior to the effective date of the Merger. The Company issued approximately 543.4 million Encana common shares, on a pre-Share Consolidation basis, representing a value of $3.5 billion and paid approximately $5 million in cash in respect of Newfield’s cash-settled incentive awards. Following the acquisition, Newfield’s senior notes totaling $2.45 billion were outstanding. For the nine months ended September 30, 2019, transaction costs of approximately $33 million were included in other (gains) losses, net.

19


Newfield’s operations focused on the exploration and development of oil and gas properties located in Anadarko and Arkoma in Oklahoma, Bakken in North Dakota and Uinta in Utah, as well as offshore oil assets located in China. The results of Newfield’s operations have been included in the Condensed Consolidated Financial Statements as of February 14, 2019.

Purchase Price Allocation

The transaction was accounted for under the acquisition method, which requires that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date, with any excess of the purchase price over the estimated fair value of identified net assets acquired recorded as goodwill. The purchase price allocation represents the consideration paid and the fair values of the assets acquired, and liabilities assumed as of the acquisition date.

Purchase Price Allocation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consideration:

 

 

 

 

 

 

 

 

 

Fair value of Encana's common shares issued (1)

 

 

 

 

 

 

$

3,478

 

Fair value of Newfield liability awards paid in cash (2)

 

 

 

 

 

 

 

5

 

Total Consideration

 

 

 

 

 

 

$

3,483

 

 

 

 

 

 

 

 

 

 

 

Assets Acquired:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

$

46

 

Accounts receivable and accrued revenues

 

 

 

 

 

 

 

486

 

Other current assets

 

 

 

 

 

 

 

50

 

Proved properties

 

 

 

 

 

 

 

5,903

 

Unproved properties

 

 

 

 

 

 

 

838

 

Other property, plant and equipment

 

 

 

 

 

 

 

22

 

Restricted cash

 

 

 

 

 

 

 

53

 

Other assets

 

 

 

 

 

 

 

105

 

Goodwill (3)

 

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

Liabilities Assumed:

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities (3) (4)

 

 

 

 

 

 

 

(795

)

Long-term debt

 

 

 

 

 

 

 

(2,603

)

Operating lease liabilities

 

 

 

 

 

 

 

(76

)

Other long-term liabilities (3)

 

 

 

 

 

 

 

(65

)

Asset retirement obligation

 

 

 

 

 

 

 

(184

)

Deferred income taxes (3)

 

 

 

 

 

 

 

(322

)

Total Purchase Price

 

 

 

 

 

 

$

3,483

 

(1)

The fair value was based on the NYSE closing price of the pre-Share Consolidation Encana common shares of $6.40 on February 13, 2019.

(2)

The fair value was based on a price of $6.50 per notional unit which was determined using a volume-weighted average of the trading price of pre-Share Consolidation Encana common shares on the NYSE on each of the five consecutive trading days ending on the trading day that was three trading days prior to February 13, 2019.

(3)

Since the completion of the business combination on February 13, 2019, additional information related to pre-acquisition liabilities and contingencies was obtained resulting in a measurement period adjustment. Changes in the fair value estimates comprised an increase in other liabilities of $16 million, of which approximately $11 million is presented in accounts payable and accrued liabilities and $5 million is presented in other long-term liabilities, a decrease in deferred tax liabilities of $4 million and a corresponding increase in goodwill of $12 million.

(4)

In conjunction with the acquisition, various legal claims and actions arising in the normal course of Newfield’s operations were assumed by the Company. On March 29, 2019, Newfield and its wholly-owned subsidiary entered into an Agreement and Mutual Release with Sapura Energy Berhad, formerly known as SapuraKencana Petroleum Berhad, and Sapura Exploration and Production Inc., formerly known as SapuraKencana Energy Inc. (collectively, “Sapura”), and agreed to settle arbitration claims in the amount of $22.5 million arising from Sapura’s purchase of Newfield’s Malaysian business in February 2014. The settlement amount including legal fees was included in the purchase price allocation as part of the current liabilities assumed at the acquisition date. Although the outcome of any remaining legal claims and actions assumed following the acquisition of Newfield cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on the Company’s financial position, cash flows or results of operations.

The income approach valuation technique was used for the fair value of assets acquired and liabilities assumed. The carrying amounts of cash and cash equivalents, accounts receivable and accrued revenues, restricted cash, other current assets, and accounts payable and accrued liabilities approximate their fair values due to their nature and/or the short-term maturity of the instruments. The fair values of long-term debt, right-of-use (“ROU”) assets and operating lease liabilities were categorized within Level 2 of the fair value hierarchy and were determined using quoted prices and rates from an available pricing source. The fair values of the proved and unproved properties, other property, plant and equipment, other assets, other long-term liabilities and asset retirement obligation were categorized within Level 3 and were determined using relevant market assumptions, including discount rates, future commodity prices and costs, timing of development activities, projections of oil and gas reserves, and estimates for abandonment and reclamation.

20


Goodwill arose from the Newfield acquisition primarily from the requirement to recognize deferred taxes on the difference between the fair value of the assets acquired and liabilities assumed and the respective carry-over tax basis. Goodwill is not amortized and is not deductible for tax purposes.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information combines the historical financial results of the Company with Newfield and has been prepared as though the acquisition had occurred on January 1, 2019. The pro forma information is not intended to reflect the actual results of operations that would have occurred if the business combination had been completed at the date indicated. In addition, the pro forma information is not intended to be a projection of the Company’s results of operations for any future period.

Additionally, pro forma earnings were adjusted to exclude transaction-related costs incurred of approximately $71 million and severance payments made to employees which totaled $134 million for the nine months ended September 30, 2019. The pro forma financial information does not include any cost savings or other synergies from the Merger or any estimated costs that have been incurred to integrate the assets. Ovintiv’s consolidated results for the three and nine months ended September 30, 2020 include the results from Newfield.

For the nine months ended September 30 (US$ millions, except per share amounts)

 

 

 

2019

 

 

 

 

 

 

 

 

Revenues

 

 

 

$

5,440

 

Net Earnings (Loss)

 

 

 

$

376

 

 

 

 

 

 

 

 

Net Earnings (Loss) per Share (1)

 

 

 

 

 

 

Basic & Diluted

 

 

 

$

1.44

 

(1)

Net earnings (loss) per share reflect the Share Consolidation as described in Note 1. Accordingly, the comparative period has been restated.

9.7.

Acquisitions and Divestitures

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

1

 

 

$

25

 

 

$

19

 

 

$

66

 

 

$

2

 

 

$

1

 

 

$

3

 

 

$

18

 

Total Acquisitions

 

 

1

 

 

 

25

 

 

 

19

 

 

 

66

 

 

 

2

 

 

 

1

 

 

 

3

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Divestitures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

 

(36

)

 

 

(171

)

 

 

(63

)

 

 

(177

)

 

 

(773

)

 

 

(6

)

 

 

(774

)

 

 

(27

)

Canadian Operations

 

 

(3

)

 

 

0

 

 

 

(6

)

 

 

0

 

 

 

(250

)

 

 

(2

)

 

 

(251

)

 

 

(3

)

Total Divestitures

 

 

(39

)

 

 

(171

)

 

 

(69

)

 

 

(177

)

 

 

(1,023

)

 

 

(8

)

 

 

(1,025

)

 

 

(30

)

Net Acquisitions & (Divestitures)

 

$

(38

)

 

$

(146

)

 

$

(50

)

 

$

(111

)

 

$

(1,021

)

 

$

(7

)

 

$

(1,022

)

 

$

(12

)

Acquisitions

For the ninesix months ended SeptemberJune 30, 2020, acquisitions in the USA Operations were $19$18 million, which primarily included property purchases with oil and liquids rich potential. For the nine months ended September 30, 2019, acquisitions in the USA Operations were $66 million which primarily included seismic purchases, water rights and purchases with oil and liquids rich potential.

Divestitures

 

For the ninethree and six months ended SeptemberJune 30, 2021, divestitures in the USA Operations were $773 million and $774 million, respectively, which primarily included the sale of the Eagle Ford assets located in south Texas for proceeds of approximately $771 million, after closing and other adjustments. For the six months ended June 30, 2020, divestitures in the USA and Canadian Operations were $63$27 million, and $6 million, respectively, which primarily included the sale of certain properties that did not complement Ovintiv’s existing portfolio of assets.

For the three and ninesix months ended SeptemberJune 30, 2019,2021, divestitures in the USACanadian Operations were $171$250 million and $177$251 million, respectively, which primarily included the sale of the Company’s Arkoma natural gas assets.Duvernay assets located in west central Alberta for proceeds of approximately $239 million, after closing and other adjustments.

21


Amounts received from the Company’s divestiture transactions have been deducted from the respective U.S. and Canadian full cost pools.

As part of the Duvernay asset divestiture, the Company agreed to a contingent consideration arrangement, which is payable to Ovintiv in the amount of C$5 million at the end of 2021 and an additional C$10 million at the end of 2022, if the annual average of the WTI reference price for each calendar year is greater than $56 per barrel and $62 per barrel, respectively. The contingent consideration was determined to be an embedded derivative and accordingly, the Company recorded the contingent consideration at its fair value of $6 million on the closing date. Subsequent changes in the fair value of the contingent consideration are recognized as a gain or loss and presented in gains (losses) on risk management, net in the Condensed Consolidated Statement of Earnings. The fair value is presented in accounts receivable and accrued revenues, and other assets in the Condensed Consolidated Balance Sheet. See Notes 18 and 19 for further information on the contingent consideration.

18


10.8.

Property, Plant and Equipment, Net

 

 

As at September 30, 2020

 

 

As at December 31, 2019

 

 

As at June 30, 2021

 

 

As at December 31, 2020

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Cost

 

 

DD&A

 

 

Net

 

 

Cost

 

 

DD&A

 

 

Net

 

 

Cost

 

 

DD&A

 

 

Net

 

 

Cost

 

 

DD&A

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proved properties

 

$

37,426

 

 

$

(31,581

)

 

$

5,845

 

 

$

35,870

 

 

$

(25,623

)

 

$

10,247

 

 

$

38,029

 

 

$

(33,010

)

 

$

5,019

 

 

$

37,875

 

 

$

(32,581

)

 

$

5,294

 

Unproved properties

 

 

2,980

 

 

 

0

 

 

 

2,980

 

 

 

3,491

 

 

 

0

 

 

 

3,491

 

 

 

2,374

 

 

 

0

 

 

 

2,374

 

 

 

2,785

 

 

 

0

 

 

 

2,785

 

Other

 

 

32

 

 

 

0

 

 

 

32

 

 

 

19

 

 

 

0

 

 

 

19

 

 

 

15

 

 

 

0

 

 

 

15

 

 

 

24

 

 

 

0

 

 

 

24

 

 

 

40,438

 

 

 

(31,581

)

 

 

8,857

 

 

 

39,380

 

 

 

(25,623

)

 

 

13,757

 

 

 

40,418

 

 

 

(33,010

)

 

 

7,408

 

 

 

40,684

 

 

 

(32,581

)

 

 

8,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canadian Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proved properties

 

 

15,227

 

 

 

(14,266

)

 

 

961

 

 

 

15,284

 

 

 

(14,320

)

 

 

964

 

 

 

16,496

 

 

 

(15,650

)

 

 

846

 

 

 

16,008

 

 

 

(15,056

)

 

 

952

 

Unproved properties

 

 

188

 

 

 

0

 

 

 

188

 

 

 

223

 

 

 

0

 

 

 

223

 

 

 

70

 

 

 

0

 

 

 

70

 

 

 

177

 

 

 

0

 

 

 

177

 

Other

 

 

13

 

 

 

0

 

 

 

13

 

 

 

18

 

 

 

0

 

 

 

18

 

 

 

11

 

 

 

0

 

 

 

11

 

 

 

13

 

 

 

0

 

 

 

13

 

 

 

15,428

 

 

 

(14,266

)

 

 

1,162

 

 

 

15,525

 

 

 

(14,320

)

 

 

1,205

 

 

 

16,577

 

 

 

(15,650

)

 

 

927

 

 

 

16,198

 

 

 

(15,056

)

 

 

1,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Optimization

 

 

9

 

 

 

(7

)

 

 

2

 

 

 

9

 

 

 

(7

)

 

 

2

 

 

 

7

 

 

 

(7

)

 

 

0

 

 

 

9

 

 

 

(7

)

 

 

2

 

Corporate & Other

 

 

833

 

 

 

(631

)

 

 

202

 

 

 

914

 

 

 

(687

)

 

 

227

 

 

 

885

 

 

 

(685

)

 

 

200

 

 

 

865

 

 

 

(662

)

 

 

203

 

 

$

56,708

 

 

$

(46,485

)

 

$

10,223

 

 

$

55,828

 

 

$

(40,637

)

 

$

15,191

 

 

$

57,887

 

 

$

(49,352

)

 

$

8,535

 

 

$

57,756

 

 

$

(48,306

)

 

$

9,450

 

 

USA and Canadian OperationsOperations’ property, plant and equipment include internal costs directly related to exploration, development and construction activities of $133$82 million, which have been capitalized during the ninesix months ended SeptemberJune 30, 2020 (20192021 (2020 - $171$96 million).

For the three and ninesix months ended SeptemberJune 30, 2020, the Company recognized before-tax non-cash2021, Ovintiv did 0t recognize ceiling test impairments in the USA Operations of $1,336(2020 - $3,250 million and $4,863$3,527 million respectively (2019before tax, respectively) or Canadian Operations (2020 - nil,, respectively). The non-cash ceiling test impairments recognized in the USA Operations in 2020 are included with accumulated DD&A in the table above and primarily resulted from the decline in the 12-month average trailing prices, which reduced proved reserves.

The 12-month average trailing prices used in the ceiling test calculations were based on the benchmark prices presented below. The benchmark prices were adjusted for basis differentials to determine local reference prices, transportation costs and tariffs, heat content and quality.

 

 

 

Oil & NGLs

 

 

Natural Gas

 

 

 

WTI

 

 

Edmonton

Condensate

 

 

Henry Hub

 

 

AECO

 

 

 

($/bbl)

 

 

(C$/bbl)

 

 

($/MMBtu)

 

 

(C$/MMBtu)

 

12-Month Average Trailing Reserves Pricing (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

$

43.69

 

 

$

53.93

 

 

$

1.97

 

 

$

2.01

 

December 31, 2019

 

 

55.93

 

 

 

68.80

 

 

 

2.58

 

 

 

1.76

 

September 30, 2019

 

 

57.76

 

 

 

67.81

 

 

 

2.87

 

 

 

1.52

 

 

 

Oil & NGLs

 

 

Natural Gas

 

 

 

WTI

 

 

Edmonton

Condensate

 

 

Henry Hub

 

 

AECO

 

 

 

($/bbl)

 

 

(C$/bbl)

 

 

($/MMBtu)

 

 

(C$/MMBtu)

 

12-Month Average Trailing Reserves Pricing (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

$

49.78

 

 

$

62.73

 

 

$

2.43

 

 

$

2.60

 

December 31, 2020

 

 

39.62

 

 

 

49.77

 

 

 

1.98

 

 

 

2.13

 

June 30, 2020

 

 

47.47

 

 

 

58.46

 

 

 

2.07

 

 

 

1.70

 

(1)

All prices were held constant in all future years when estimating net revenues and reserves.

Finance Lease Arrangements

The Company has 2 lease arrangements that are accounted for as finance leases, which include an office building and an offshore production platform. As at September 30, 2020, the total carrying value of assets under finance lease was $34 million ($37 million as at December 31, 2019), net of accumulated amortization of $669 million ($677 million as at December 31, 2019). Long-term liabilities for the finance lease arrangements are included in other liabilities and provisions in the Condensed Consolidated Balance Sheet and are disclosed in Note 13.

 

22


11.9.

Leases

The following table outlines the Company’sOvintiv’s estimated future sublease income as at SeptemberJune 30, 2020.2021. All subleases are classified as operating leases.

 

(undiscounted)

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

Thereafter

 

 

Total

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sublease Income

 

$

12

 

 

$

50

 

 

$

46

 

 

$

44

 

 

$

44

 

 

$

543

 

 

$

739

 

 

$

27

 

 

$

49

 

 

$

47

 

 

$

47

 

 

$

47

 

 

$

535

 

 

$

752

 

 

For the three and ninesix months ended SeptemberJune 30, 2020,2021, operating lease income was $14 million and $40$27 million, respectively (2019(2020 - $15$13 million and $41$26 million, respectively), and variable lease income was $4 million and $13$9 million, respectively (2019(2020 - $4 million and $13$9 million, respectively).

 

 

19


12.10.

Long-Term Debt

 

 

 

 

As at

 

 

As at

 

 

 

 

As at

 

 

As at

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

June 30,

 

 

December 31,

 

 

 

 

2020

 

 

2019

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Dollar Denominated Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit and term loan borrowings

 

 

 

$

1,150

 

 

$

698

 

 

 

 

$

0

 

 

$

950

 

U.S. Unsecured Notes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.90% due November 15, 2021

 

 

 

 

554

 

 

 

600

 

 

 

 

 

518

 

 

 

518

 

5.75% due January 30, 2022

 

 

 

 

605

 

 

 

750

 

 

 

 

 

0

 

 

 

600

 

5.625% due July 1, 2024

 

 

 

 

1,000

 

 

 

1,000

 

 

 

 

 

1,000

 

 

 

1,000

 

5.375% due January 1, 2026

 

 

 

 

688

 

 

 

700

 

 

 

 

 

688

 

 

 

688

 

8.125% due September 15, 2030

 

 

 

 

300

 

 

 

300

 

 

 

 

 

300

 

 

 

300

 

7.20% due November 1, 2031

 

 

 

 

350

 

 

 

350

 

 

 

 

 

350

 

 

 

350

 

7.375% due November 1, 2031

 

 

 

 

500

 

 

 

500

 

 

 

 

 

500

 

 

 

500

 

6.50% due August 15, 2034

 

 

 

 

750

 

 

 

750

 

 

 

 

 

750

 

 

 

750

 

6.625% due August 15, 2037

 

 

 

 

462

 

 

 

462

 

 

 

 

 

462

 

 

 

462

 

6.50% due February 1, 2038

 

 

 

 

488

 

 

 

505

 

 

 

 

 

488

 

 

 

488

 

5.15% due November 15, 2041

 

 

 

 

212

 

 

 

244

 

 

 

 

 

203

 

 

 

203

 

Total Principal

 

 

 

 

7,059

 

 

 

6,859

 

 

 

 

 

5,259

 

 

 

6,809

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in Value of Debt Acquired

 

 

 

 

119

 

 

 

149

 

 

 

 

 

88

 

 

 

111

 

Unamortized Debt Discounts and Issuance Costs

 

 

 

 

(36

)

 

 

(34

)

 

 

 

 

(33

)

 

 

(35

)

Total Long-Term Debt

 

 

 

$

7,142

 

 

$

6,974

 

 

 

 

$

5,314

 

 

$

6,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Portion

 

 

 

$

0

 

 

$

0

 

 

 

 

$

518

 

 

$

518

 

Long-Term Portion

 

 

 

 

7,142

 

 

 

6,974

 

 

 

 

 

4,796

 

 

 

6,367

 

 

 

 

$

7,142

 

 

$

6,974

 

 

 

 

$

5,314

 

 

$

6,885

 

 

On May 19, 2021, Ovintiv announced its intention to redeem the Company’s $600 million, 5.75 percent senior notes due January 30, 2022. On June 18, 2021, the Company used a portion of the net proceeds from its Eagle Ford and Duvernay asset sales, as discussed in Note 7, to complete the senior note redemptions. Ovintiv paid approximately $632 million in cash including accrued and unpaid interest of $13 million and a one-time make-whole payment of $19 million, which is included in interest expense as discussed in Note 4.

During the ninethree and six months ended SeptemberJune 30, 2020, the Company repurchased in the open market approximately $252$37 million and $137 million, respectively, in principal amount of its senior notes in the open market, which included approximately $46 million in principal amount of its 3.9 percent senior notes due in November 2021, approximately $145 million in principal amount of its 5.75 percent senior notes due in January 2022, approximately $12 million in principal amount of its 5.375 percent senior notes due in January 2026, approximately $17 million in principal amount of its 6.5 percent senior notes due in February 2038 and approximately $32 million in principal amount of its 5.15 percent senior notes due in November 2041.

For the three and nine months ended September 30, 2020, thenotes. The aggregate cash payments related to the note repurchases were $109$26 million and $224$115 million, respectively, plus accrued interest, and net gains of approximately $6$11 million and $28$22 million, respectively, were recognized in other (gains) losses, net onin the Condensed Consolidated Statement of Earnings.

As at SeptemberJune 30, 2020, the Company had outstanding commercial paper of $140 million maturing at various dates with a weighted average interest rate of approximately 0.87 percent. These amounts are supported, and Management expects that they will continue to be supported by revolving credit facilities that have no repayment requirements within the next year and

23


which expire in 2024. As at September 30, 2020, the Company also had $1,010 million drawn on its revolving credit facilities.

As at September 30, 2020,2021, total long-term debt had a carrying value of $7,142$5,314 million and a fair value of $6,804$6,409 million (as at December 31, 20192020 - carrying value of $6,974$6,885 million and a fair value of $7,657$7,379 million). The estimated fair value of long-term borrowings is categorized within Level 2 of the fair value hierarchy and has been determined based on market information of long-term debt with similar terms and maturity, or by discounting future payments of interest and principal at interest rates expected to be available to the Company at period end.

20


13.11.

Other Liabilities and Provisions

 

 

As at

 

 

As at

 

 

As at

 

 

As at

 

 

September 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance Lease Obligations

 

$

51

 

 

$

121

 

 

$

36

 

 

$

39

 

Unrecognized Tax Benefits

 

 

155

 

 

 

159

 

Unrecognized Tax Benefits (See Note 6)

 

 

0

 

 

 

158

 

Pensions and Other Post-Employment Benefits

 

 

123

 

 

 

119

 

 

 

128

 

 

 

129

 

Long-Term Incentive Costs (See Note 19)

 

 

23

 

 

 

38

 

Other Derivative Contracts (See Notes 21, 22)

 

 

9

 

 

 

7

 

Long-Term Incentive Costs (See Note 16)

 

 

21

 

 

 

9

 

Other Derivative Contracts (See Notes 18, 19)

 

 

5

 

 

 

7

 

Other

 

 

16

 

 

 

20

 

 

 

16

 

 

 

16

 

 

$

377

 

 

$

464

 

 

$

206

 

 

$

358

 

 

 

14.

Asset Retirement Obligation

 

 

As at

 

 

As at

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

Asset Retirement Obligation, Beginning of Year

 

$

614

 

 

$

455

 

Liabilities Incurred

 

 

11

 

 

 

15

 

Liabilities Acquired (See Note 8)

 

 

0

 

 

 

184

 

Liabilities Settled and Divested

 

 

(157

)

 

 

(141

)

Change in Estimated Future Cash Outflows

 

 

12

 

 

 

47

 

Accretion Expense

 

 

26

 

 

 

37

 

Foreign Currency Translation

 

 

(11

)

 

 

17

 

Asset Retirement Obligation, End of Period

 

$

495

 

 

$

614

 

 

 

 

 

 

 

 

 

 

Current Portion

 

$

49

 

 

$

189

 

Long-Term Portion

 

 

446

 

 

 

425

 

 

 

$

495

 

 

$

614

 

15.12.

Share Capital

Authorized

As of January 24, 2020, following the completion of the Reorganization, Ovintiv is authorized to issue 775750 million shares of common stock, par value $0.01 per share, and 25 million shares of preferred stock, par value $0.01 per share. No shares of preferred stock are outstanding.

 

24


Issued and Outstanding

 

 

 

As at

September 30, 2020

 

 

As at

December 31, 2019

 

 

 

Number

(millions)

 

 

Amount

 

 

Number

(millions)

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of Common Stock Outstanding, Beginning of Year

 

 

259.8

 

 

$

7,061

 

 

 

190.5

 

 

$

4,656

 

Shares of Common Stock Purchased

 

 

0

 

 

 

0

 

 

 

(39.4

)

 

 

(1,073

)

Shares of Common Stock Issued

 

 

0

 

 

 

0

 

 

 

108.7

 

 

 

3,478

 

Reclassification of Share Capital due to the Reorganization (See Note 1)

 

 

-

 

 

 

(7,058

)

 

 

-

 

 

 

0

 

Shares of Common Stock Outstanding, End of Period

 

 

259.8

 

 

$

3

 

 

 

259.8

 

 

$

7,061

 

 

 

As at

June 30, 2021

 

 

As at

December 31, 2020

 

 

 

Number

(millions)

 

 

Amount

 

 

Number

(millions)

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of Common Stock Outstanding, Beginning of Year

 

 

259.8

 

 

$

3

 

 

 

259.8

 

 

$

7,061

 

Shares of Common Stock Issued (See Note 16)

 

 

1.3

 

 

 

0

 

 

 

0

 

 

 

0

 

Reclassification of Share Capital

 

 

-

 

 

 

0

 

 

 

-

 

 

 

(7,058

)

Shares of Common Stock Outstanding, End of Period

 

 

261.1

 

 

$

3

 

 

 

259.8

 

 

$

3

 

 

In conjunction with the Reorganization as describedcorporate reorganization and U.S. domestication completed in Note 1,2020, the amount recognized in share capital in excess of Ovintiv’s established par value of $0.01 per share was reclassified to paid in surplus. Accordingly, approximately $7,058 million was reclassified.

On February 13, 2019, the Company completed the acquisition of all the issued and outstanding shares of common stock of Newfield whereby Encana issued approximately 543.4 million common shares, on a pre-Share Consolidation basis, to Newfield shareholders (approximately 108.7 million post-Share Consolidation shares), representing a pre-Share Consolidation exchange ratio of 2.6719 Encana common shares for each share of Newfield common stock held. See Note 8 for further information on the business combination.

Substantial Issuer Bid

On June 10, 2019, the Company announced its intention to purchase, for cancellation, up to $213 million of common shares through a substantial issuer bid (“SIB”) which commenced on July 8, 2019. On August 29, 2019, the Company purchased the equivalent of approximately 9.5 million post-Share Consolidation shares at a converted price of $22.50 per share, for an aggregate purchase price of approximately $213 million, of which $257 million was charged to share capital and $44 million was credited to paid in surplus.

The purchase was made in accordance with the terms and conditions of the SIB, with consideration allocated to share capital equivalent to the average carrying amount of the shares, with the excess of the carrying amount over the purchase consideration credited to paid in surplus.

Normal Course Issuer Bid

On February 27, 2019, the Company announced that the TSX accepted the Company’s notice of intention to purchase, for cancellation, the equivalent of up to approximately 29.9 million post-Share Consolidation Encana common shares, pursuant to a NCIB over a 12-month period from March 4, 2019 to March 3, 2020.

For the nine months ended September 30, 2019 and the twelve months ended December 31, 2019, the Company purchased the equivalent of approximately 29.9 million post-Share Consolidation shares under the NCIB for total consideration of approximately $1,037 million. Of the amount paid, $816 million was charged to share capital and $221 million was charged to retained earnings.

All purchases were made in accordance with the NCIB at prevailing market prices plus brokerage fees, with consideration allocated to share capital up to the average carrying amount of the shares, with any excess allocated to retained earnings.

25


Dividends

During the three months ended SeptemberJune 30, 2020,2021, the Company declared and paid dividends of $0.09375 per share of Ovintiv common stock totaling $24 million. For$25 million (2020 - $0.09375 per share of Ovintiv common stock totaling $25 million).

During the threesix months ended SeptemberJune 30, 2019,2021, the Company declared and paid dividends of $0.09375 per common share on a post-Share Consolidation basis totaling $24 million.

During the nine months ended September 30, 2020, the Company declared and paid dividends of $0.28125$0.1875 per share of Ovintiv common stock totaling $73 million. For the nine months ended September 30, 2019, the Company declared and paid dividends$49 million (2020 - $0.1875 per share of $0.28125 perOvintiv common share on a post-Share Consolidation basisstock totaling $77 million.$49 million).

On October 28, 2020,July 27, 2021, the Board of Directors declared a dividend of $0.09375$0.14 per share of Ovintiv common stock payable on December 31, 2020September 30, 2021 to stockholders of record as of DecemberSeptember 15, 2020.2021.

 

21


Earnings Per Share of Common Stock

The following table presents the computation of net earnings (loss) per share of common stock:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

June 30,

 

 

June 30,

 

(US$ millions, except per share amounts)

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss)

 

 

$

(1,521

)

 

$

149

 

 

$

(5,483

)

 

$

240

 

 

 

$

(205

)

 

$

(4,383

)

 

$

104

 

 

$

(3,962

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares of Common Stock (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares of Common Stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding - Basic

 

 

 

259.8

 

 

 

264.6

 

 

 

259.8

 

 

 

261.7

 

 

 

 

261.1

 

 

 

259.8

 

 

 

260.6

 

 

 

259.8

 

Effect of dilutive securities

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Effect of dilutive securities (1) (2)

 

 

 

0

 

 

 

0

 

 

 

5.3

 

 

 

0

 

Weighted Average Shares of Common Stock Outstanding - Diluted

 

 

 

259.8

 

 

 

264.6

 

 

 

259.8

 

 

 

261.7

 

 

 

 

261.1

 

 

 

259.8

 

 

 

265.9

 

 

 

259.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss) per Share of Common Stock (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic & Diluted

 

 

$

(5.85

)

 

$

0.56

 

 

$

(21.10

)

 

$

0.92

 

Basic

 

 

$

(0.79

)

 

$

(16.87

)

 

$

0.40

 

 

$

(15.25

)

Diluted (1) (2)

 

 

 

(0.79

)

 

 

(16.87

)

 

 

0.39

 

 

 

(15.25

)

 

(1)

NetDuring the fourth quarter of 2020, Ovintiv’s Board of Directors resolved to settle certain Performance Share Units (“PSUs”) and Restricted Share Units (“RSUs”) with the issuance of the Company’s common stock. As a result, the stock-based compensation awards were modified and reclassified as equity-settled awards.

(2)

For the three months ended June 30, 2021, all of Ovintiv’s equity-settled awards were determined to be antidilutive and therefore are excluded from the calculation of fully diluted net earnings (loss) per share of common stock and weighted average shares of common stock outstanding reflect the Share Consolidation as described in Note 1. Accordingly, the comparative periods have been restated.stock.

 

Ovintiv Stock Options

Ovintiv has share-basedShares issued as a result of awards granted from stock-based compensation plans thatare generally funded out of the common stock authorized for issuance as approved by the Company’s shareholders.

Stock-Based Compensation Plans

Ovintiv’s PSU and RSU stock-based compensation plans allow employeesthe Company to settle the awards either in cash or in the Company’s common stock. The PSUs and RSUs are classified as equity-settled if the Company has sufficient common stock held in reserve for issuance. These awards are included in the computation of diluted net earnings (loss) per share of common stock if dilutive.

Ovintiv’s stock options with associated Tandem Stock Appreciation Rights (“TSARs”) give the employee the right to purchase shares of common stock of the Company. Option exercise prices are not less than the market value of the shares of common stock on the date the options are granted. All options outstanding as at September 30, 2020 have associated Tandem Stock Appreciation Rights (“TSARs”) attached. In lieu of exercising the option, the associated TSARs give the option holder the right toCompany or receive a cash payment equal to the excess of the market price of Ovintiv’s shares of common stock at the time of the exercise over the original grant price.cash. Historically, most holders of options with TSARs have elected to exercise their stock options as a Stock Appreciation Right (“SAR”)TSARs in exchange for a cash payment. As a result, outstanding TSARsoptions are not considered potentially dilutive securities.

Ovintiv Restricted Share Units

Ovintiv has a share-based compensation plan whereby eligible employees and Directors are granted Restricted Share Units (“RSUs”). An RSU is a conditional grant to receive the equivalent of a share of common stock upon vesting of the RSUs and in accordance with the terms and conditions of the compensation plan and grant agreements. The Company currently settles vested RSUs in cash. As a result, RSUs are currently not considered potentially dilutive securities.  

26


16.13.

Accumulated Other Comprehensive Income

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency Translation Adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, Beginning of Period

 

$

957

 

 

$

1,014

 

 

$

1,004

 

 

$

976

 

 

$

1,061

 

 

$

870

 

 

$

1,042

 

 

$

1,004

 

Change in Foreign Currency Translation Adjustment

 

 

26

 

 

 

(6

)

 

 

(21

)

 

 

32

 

 

 

25

 

 

 

87

 

 

 

44

 

 

 

(47

)

Balance, End of Period

 

$

983

 

 

$

1,008

 

 

$

983

 

 

$

1,008

 

 

$

1,086

 

 

$

957

 

 

$

1,086

 

 

$

957

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and Other Post-Employment Benefit Plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, Beginning of Period

 

$

43

 

 

$

(2

)

 

$

42

 

 

$

22

 

 

$

33

 

 

$

40

 

 

$

34

 

 

$

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income Before Reclassifications:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net prior service costs from plan amendment (See Note 20)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(29

)

Amounts Reclassified from Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of net actuarial (gains) and losses to net earnings (See Note 17)

 

 

(3

)

 

 

(2

)

 

 

(4

)

 

 

(4

)

Income taxes

 

 

0

 

 

 

0

 

 

 

0

 

 

 

6

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts Reclassified from Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of net actuarial (gains) and losses to net earnings (See Note 20)

 

 

(2

)

 

 

0

 

 

 

(6

)

 

 

(1

)

Curtailment in net defined periodic benefit cost (See Note 17)

 

 

0

 

 

 

5

 

 

 

0

 

 

 

5

 

Income taxes

 

 

0

 

 

 

0

 

 

 

1

 

 

 

0

 

 

 

0

 

 

 

(1

)

 

 

0

 

 

 

(1

)

Curtailment in net defined periodic benefit cost (See Note 20)

 

 

0

 

 

 

0

 

 

 

5

 

 

 

0

 

Income taxes

 

 

0

 

 

 

0

 

 

 

(1

)

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, End of Period

 

$

41

 

 

$

(2

)

 

$

41

 

 

$

(2

)

 

$

31

 

 

$

43

 

 

$

31

 

 

$

43

 

Total Accumulated Other Comprehensive Income

 

$

1,024

 

 

$

1,006

 

 

$

1,024

 

 

$

1,006

 

 

$

1,117

 

 

$

1,000

 

 

$

1,117

 

 

$

1,000

 

 

22

During the nine months ended September 30, 2019, the Company amended the other post-employment benefits arrangements in conjunction with the integration of the Newfield business acquired. The plan amendment resulted in an increase to pension liabilities with a corresponding loss recognized in other comprehensive income.


 

 

17.14.

Variable Interest Entities

Veresen Midstream Limited Partnership

Veresen Midstream Limited Partnership (“VMLP”) provides gathering, compression and processing services under various agreements related to the Company’s development of liquids and natural gas production in the Montney play. As at SeptemberJune 30, 2020,2021, VMLP provides approximately 1,2131,167 MMcf/d of natural gas gathering and compression and 932925 MMcf/d of natural gas processing under long-term service agreements with remaining terms ranging from 1110 to 2524 years and have various renewal terms providing up to a potential maximum of 10 years.

Ovintiv has determined that VMLP is a VIE and that Ovintiv holds variable interests in VMLP. Ovintiv is not the primary beneficiary as the Company does not have the power to direct the activities that most significantly impact VMLP’s economic performance. These key activities relate to the construction, operation, maintenance and marketing of the assets owned by VMLP. The variable interests arise from certain terms under the various long-term service agreements and include: i) a take or pay for volumes in certain agreements; ii) an operating fee of which a portion can be converted into a fixed fee once VMLP assumes operatorship of certain assets; and iii) a potential payout of minimum costs in certain agreements. The potential payout of minimum costs will be assessed in the eighth year of the assets’ service period and is based on whether there is an overall shortfall of total system cash flows from natural gas gathered and compressed under certain agreements. The potential payout amount can be reduced in the event VMLP markets unutilized capacity to third partythird-party users. Ovintiv is not required to provide any financial support or guarantees to VMLP.

 

As a result of Ovintiv’s involvement with VMLP, the maximum total exposure which representsto loss related to the potential exposure to Ovintiv in the event the assetscommitments under the agreements are deemed worthless, is estimated to be $1,858$1,883 million as at SeptemberJune 30, 2020.2021. The estimate comprises the take or pay volume commitments and the potential payout of minimum costs. The take or pay volume commitments associated with certain gathering and processing assets are included in Note 2421 under Transportation and Processing. The potential payout requirement is highly uncertain as the amount is contingent on

27


future production estimates, pace of development and the amount of capacity contracted to third parties. As at SeptemberJune 30, 2020,2021, accounts payable and accrued liabilities included $0.6$0.1 million related to the take or pay commitment.

 

 

23


18.15.

Restructuring Charges

In February 2019, in conjunction with the Newfield business combination as described in Note 8, the Company announced workforce reductions to better align staffing levels and organizational structure with the Company’s strategy. During 2019, the Company incurred total restructuring charges of $138 million, before tax, primarily related to severance costs.

 

In June 2020, Ovintiv undertook a plan to reduce its workforce by approximately 25 percent as part of a company-wide reorganization in response to better align staffing levelsthe low commodity price environment resulting from the global pandemic and organizational structure with the Company’s planned activity levels.reductions in capital spending. During the three and ninesix months ended SeptemberJune 30, 2020,2021, the Company incurred total restructuring charges of $7$5 million and $88$11 million, respectively (2020 - $81 million, respectively), before tax, primarily related to severance costs, of which $14costs. Of the $101 million in restructuring charges incurred to date, $5 million remains accrued as at SeptemberJune 30, 2020.2021 ($14 million as at December 31, 2020). The majority of the remaining amounts accrued are expected to be paid in 2021 and total transition and severance costs are expected to be approximately $93$104 million, before tax.

 

Restructuring charges are included in administrative expense presented in the Corporate and Other segment in the Condensed Consolidated Statement of Earnings.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and Benefits

 

$

6

 

 

$

4

 

 

$

86

 

 

$

132

 

 

$

5

 

 

$

80

 

 

$

11

 

 

$

80

 

Outplacement, Moving and Other Expenses

 

 

1

 

 

 

0

 

 

 

2

 

 

 

2

 

 

 

0

 

 

 

1

 

 

 

0

 

 

 

1

 

Restructuring Expenses

 

$

7

 

 

$

4

 

 

$

88

 

 

$

134

 

 

$

5

 

 

$

81

 

 

$

11

 

 

$

81

 

 

 

 

 

As at

 

 

As at

 

 

 

 

 

 

As at

 

 

As at

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding Restructuring Accrual, Beginning of Year

 

 

 

$

8

 

 

$

0

 

��

 

 

 

 

$

14

 

 

$

8

 

Restructuring Expenses Incurred

 

 

 

 

88

 

 

 

138

 

 

 

 

 

 

 

11

 

 

 

90

 

Restructuring Costs Paid

 

 

 

 

(82

)

 

 

(130

)

 

 

 

 

 

 

(20

)

 

 

(84

)

Outstanding Restructuring Accrual, End of Period (1)

 

 

 

$

14

 

 

$

8

 

 

 

 

 

 

$

5

 

 

$

14

 

(1)

Included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheet.

 

 

19.16.

Compensation Plans

Ovintiv has a number of compensation arrangements under which the Company awards various types of long-term incentive grants to eligible employees and Directors. They may include TSARs, SARs, Performance Share UnitsStock Appreciation Rights (“PSUs”SARs”), PSUs, Deferred Share Units (“DSUs”) and RSUs. These compensation arrangements are share-based.  

Ovintiv accounts for TSARs, SARs, PSUs and RSUs as cash-settled share-basedequity-settled stock-based payment transactions provided there is sufficient common stock held in reserve for issuance. TSARs, SARs and accordingly,DSUs are accounted for as cash-settled stock-based payment transactions. The Company accrues compensation costs over the vesting period based on the fair value of the rights determined using the Black-Scholes-Merton andor other appropriate fair value models.

During the fourth quarter of 2020, Ovintiv’s Board of Directors resolved to settle certain PSU awards and RSU awards with the issuance of the Company’s common stock. Historically, the Company settled PSU and RSU awards in cash. As a result, the respective awards were modified and reclassified as equity-settled share-based payment transactions at the modification date. The modified awards accrue compensation expense using the modification date fair value of the awards over the remaining vesting period. Common stock used to settle the PSU and RSU awards will be issued from Ovintiv’s common stock authorized and held in reserve for issuance under the Company’s stock-based compensation plans.

 

 

2824

 

 


 

The following weighted average assumptions were used to determine the fair value of the shareTSAR and SAR units outstanding:  

 

 

As at September 30, 2020

 

 

As at September 30, 2019

 

 

As at June 30, 2021

 

 

As at June 30, 2020

 

 

US$ Share

Units

 

C$ Share

Units

 

 

US$ Share

Units

 

C$ Share

Units

 

 

US$ SAR

Share Units

 

C$ TSAR

Share Units

 

 

US$ SAR

Share Units

 

C$ TSAR

Share Units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Free Interest Rate

 

0.22%

 

0.22%

 

 

1.58%

 

1.58%

 

 

0.44%

 

0.44%

 

 

0.25%

 

0.25%

 

Dividend Yield

 

4.60%

 

4.66%

 

 

1.63%

 

1.64%

 

 

1.19%

 

1.20%

 

 

3.93%

 

3.97%

 

Expected Volatility Rate (1)

 

102.43%

 

101.65%

 

 

44.14%

 

42.77%

 

 

105.96%

 

104.94%

 

 

100.88%

 

100.34%

 

Expected Term

 

2.5 yrs

 

2.0 yrs

 

 

2.9 yrs

 

2.6 yrs

 

 

1.7 yrs

 

1.7 yrs

 

 

2.8 yrs

 

2.3 yrs

 

Market Share Price (2)

 

US$8.16

 

C$10.89

 

 

US$23.00

 

C$30.35

 

 

US$31.47

 

C$39.07

 

 

US$9.55

 

C$12.91

 

Weighted Average Grant Date Fair Value

 

US$36.98

 

C$50.16

 

 

US$38.11

 

C$48.28

 

(1)

Volatility was estimated using historical rates.

(2)

Market share price reflects the Share Consolidation as described in Note 1. Accordingly, the comparative period has been restated.

The Company has recognized the following share-based compensation costs:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Compensation Costs of Transactions Classified as Cash-Settled

 

$

4

 

 

$

2

 

 

$

(12

)

 

$

46

 

 

$

42

 

 

$

35

 

 

$

82

 

 

$

(16

)

Total Compensation Costs of Transactions Classified as Equity-Settled

 

 

7

 

 

 

0

 

 

 

18

 

 

 

0

 

Less: Total Share-Based Compensation Costs Capitalized

 

 

(2

)

 

 

(1

)

 

 

3

 

 

 

(16

)

 

 

(9

)

 

 

(8

)

 

 

(16

)

 

 

5

 

Total Share-Based Compensation Expense (Recovery)

 

$

2

 

 

$

1

 

 

$

(9

)

 

$

30

 

 

$

40

 

 

$

27

 

 

$

84

 

 

$

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognized on the Condensed Consolidated Statement of Earnings in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognized in the Condensed Consolidated Statement of Earnings in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

$

1

 

 

$

0

 

 

$

(3

)

 

$

12

 

 

$

9

 

 

$

8

 

 

$

18

 

 

$

(4

)

Administrative

 

 

1

 

 

 

1

 

 

 

(6

)

 

 

18

 

 

 

31

 

 

 

19

 

 

 

66

 

 

 

(7

)

 

$

2

 

 

$

1

 

 

$

(9

)

 

$

30

 

 

$

40

 

 

$

27

 

 

$

84

 

 

$

(11

)

 

As at SeptemberJune 30, 2020,2021, the liability for cash-settled share-based payment transactions totaled $47$91 million ($7834 million as at December 31, 2019)2020), of which $24$70 million ($4025 million as at December 31, 2019)2020) is recognized in accounts payable and accrued liabilities and $23$21 million ($389 million as at December 31, 2019)2020) is recognized in other liabilities and provisions in the Condensed Consolidated Balance Sheet.

 

 

 

 

 

As at

September 30,

2020

 

As at

December 31,

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for Cash-Settled Share-Based Payment Transactions:

 

 

 

 

 

 

 

 

 

 

 

 

Unvested

 

 

 

 

 

$

42

 

 

$

65

 

Vested

 

 

 

 

 

 

5

 

 

 

13

 

 

 

 

 

 

 

$

47

 

 

$

78

 

The following units were granted primarily in conjunction with the Company’s annual grant of long-term incentive awards. The PSUs and RSUs were granted at the volume-weighted average trading price of shares of Ovintiv common stock for the five days prior to the grant date. The RSUs issued in 2020 vest at one-third of the number granted in each of the years following the grant date, for three years.

 

NineSix Months Ended SeptemberJune 30, 20202021 (thousands of units)

 

 

 

 

 

 

 

 

 

RSUs

 

 

6,6982,642

 

PSUs

 

 

2,293855

 

DSUs

 

 

6511

 

 

 

 

 

2925

 

 


 

20.17.

Pension and Other Post-Employment Benefits

The Company has recognized total benefit plans expense which includes pension benefits and other post-employment benefits (“OPEB”) for the ninesix months ended SeptemberJune 30 as follows:

 

 

Pension Benefits

 

 

OPEB

 

 

Total

 

 

Pension Benefits

 

 

OPEB

 

 

Total

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Defined Periodic Benefit Cost

 

$

0

 

 

$

1

 

 

$

2

 

 

$

13

 

 

$

2

 

 

$

14

 

 

$

0

 

 

$

0

 

 

$

(1

)

 

$

3

 

 

$

(1

)

 

$

3

 

Defined Contribution Plan Expense

 

 

24

 

 

 

18

 

 

 

0

 

 

 

0

 

 

 

24

 

 

 

18

 

 

 

13

 

 

 

16

 

 

 

0

 

 

 

0

 

 

 

13

 

 

 

16

 

Total Benefit Plans Expense

 

$

24

 

 

$

19

 

 

$

2

 

 

$

13

 

 

$

26

 

 

$

32

 

 

$

13

 

 

$

16

 

 

$

(1

)

 

$

3

 

 

$

12

 

 

$

19

 

 

Of the total benefit plans expense, $22$12 million (2019(2020 - $20$15 million) was included in operating expense and $5$3 million (2019(2020 - $6$3 million) was included in administrative expense. Excluding service costs, net defined periodic benefit gains of $1$3 million (2019(2020 - lossescosts of $6$1 million) were recorded in other (gains) losses, net.

The net defined periodic benefit cost for the ninesix months ended SeptemberJune 30 is as follows:

 

 

Defined Benefits

 

 

OPEB

 

 

Total

 

 

Defined Benefits

 

 

OPEB

 

 

Total

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service Cost

 

$

0

 

 

$

1

 

 

$

3

 

 

$

7

 

 

$

3

 

 

$

8

 

 

$

0

 

 

$

0

 

 

$

2

 

 

$

2

 

 

$

2

 

 

$

2

 

Interest Cost

 

 

4

 

 

 

5

 

 

 

2

 

 

 

3

 

 

 

6

 

 

 

8

 

 

 

3

 

 

 

3

 

 

 

1

 

 

 

1

 

 

 

4

 

 

 

4

 

Expected Return on Plan Assets

 

 

(5

)

 

 

(5

)

 

 

0

 

 

 

0

 

 

 

(5

)

 

 

(5

)

 

 

(3

)

 

 

(3

)

 

 

0

 

 

 

0

 

 

 

(3

)

 

 

(3

)

Amounts Reclassified from Accumulated Other

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial (gains) and losses

 

 

1

 

 

 

0

 

 

 

(7

)

 

 

(1

)

 

 

(6

)

 

 

(1

)

 

 

0

 

 

 

0

 

 

 

(4

)

 

 

(4

)

 

 

(4

)

 

 

(4

)

Curtailment from net prior service costs

 

 

0

 

 

 

0

 

 

 

5

 

 

 

0

 

 

 

5

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

5

 

 

 

0

 

 

 

5

 

Curtailment

 

 

0

 

 

 

0

 

 

 

(1

)

 

 

4

 

 

 

(1

)

 

 

4

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1

)

 

 

0

 

 

 

(1

)

Total Net Defined Periodic Benefit Cost (1)

 

$

0

 

 

$

1

 

 

$

2

 

 

$

13

 

 

$

2

 

 

$

14

 

 

$

0

 

 

$

0

 

 

$

(1

)

 

$

3

 

 

$

(1

)

 

$

3

 

 

(1)

The components of total net defined periodic benefit cost, excluding the service cost component, are included in other (gains) losses, net.

 

 

 

3026

 

 


 

21.18.

Fair Value Measurements

The fair values of cash and cash equivalents, accounts receivable and accrued revenues, and accounts payable and accrued liabilities approximate their carrying amounts due to the short-term maturity of those instruments. The fair values of restricted cash and marketable securities included in other assets approximate their carrying amounts due to the nature of the instruments held.

Recurring fair value measurements are performed for risk management assets and liabilities and other derivative contracts, as discussed further in Note 22.19. These items are carried at fair value in the Condensed Consolidated Balance Sheet and are classified within the three levels of the fair value hierarchy in the following tables.

Fair value changes and settlements for amounts related to risk management assets and liabilities are recognized in revenues and foreign exchange gains and losses according to their purpose.

 

As at September 30, 2020

 

Level 1

Quoted

Prices in

Active

Markets

 

 

Level 2

Other

Observable

Inputs

 

 

Level 3

Significant

Unobservable

Inputs

 

 

Total Fair

Value

 

 

Netting (1)

 

 

Carrying

Amount

 

As at June 30, 2021

 

Level 1

Quoted

Prices in

Active

Markets

 

 

Level 2

Other

Observable

Inputs

 

 

Level 3

Significant

Unobservable

Inputs

 

 

Total Fair

Value

 

 

Netting (1)

 

 

Carrying

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Management Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

0

 

 

$

143

 

 

$

86

 

 

$

229

 

 

$

(69

)

 

$

160

 

 

$

0

 

 

$

12

 

 

$

0

 

 

$

12

 

 

$

(12

)

 

$

0

 

Long-term assets

 

 

0

 

 

 

14

 

 

 

0

 

 

 

14

 

 

 

(8

)

 

 

6

 

 

 

0

 

 

 

3

 

 

 

0

 

 

 

3

 

 

 

(3

)

 

 

0

 

Foreign Currency Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

0

 

 

 

10

 

 

 

0

 

 

 

10

 

 

 

0

 

 

 

10

 

 

 

0

 

 

 

18

 

 

 

0

 

 

 

18

 

 

 

(15

)

 

 

3

 

Long-term assets

 

 

0

 

 

 

2

 

 

 

0

 

 

 

2

 

 

 

0

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Management Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

2

 

 

$

129

 

 

$

3

 

 

$

134

 

 

$

(69

)

 

$

65

 

 

$

0

 

 

$

519

 

 

$

400

 

 

$

919

 

 

$

(12

)

 

$

907

 

Long-term liabilities

 

 

0

 

 

 

158

 

 

 

4

 

 

 

162

 

 

 

(8

)

 

 

154

 

 

 

0

 

 

 

156

 

 

 

30

 

 

 

186

 

 

 

(3

)

 

 

183

 

Foreign Currency Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(15

)

 

 

(15

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Derivative Contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Derivative Contracts (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current in accounts receivable and accrued revenues

 

$

0

 

 

$

0

 

 

$

3

 

 

$

3

 

 

$

-

 

 

$

3

 

Long-term in other assets

 

 

0

 

 

 

0

 

 

 

5

 

 

 

5

 

 

 

-

 

 

 

5

 

Current in accounts payable and accrued liabilities

 

$

0

 

 

$

2

 

 

$

0

 

 

$

2

 

 

$

-

 

 

$

2

 

 

 

0

 

 

 

1

 

 

 

0

 

 

 

1

 

 

 

-

 

 

 

1

 

Long-term in other liabilities and provisions

 

 

0

 

 

 

9

 

 

 

0

 

 

 

9

 

 

 

-

 

 

 

9

 

 

 

0

 

 

 

5

 

 

 

0

 

 

 

5

 

 

 

-

 

 

 

5

 

 

As at December 31, 2019

 

Level 1

Quoted

Prices in

Active

Markets

 

 

Level 2

Other

Observable

Inputs

 

 

Level 3

Significant

Unobservable

Inputs

 

 

Total Fair

Value

 

 

Netting (1)

 

 

Carrying

Amount

 

As at December 31, 2020

 

Level 1

Quoted

Prices in

Active

Markets

 

 

Level 2

Other

Observable

Inputs

 

 

Level 3

Significant

Unobservable

Inputs

 

 

Total Fair

Value

 

 

Netting (1)

 

 

Carrying

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Management Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

0

 

 

$

202

 

 

$

0

 

 

$

202

 

 

$

(67

)

 

$

135

 

 

$

0

 

 

$

70

 

 

$

0

 

 

$

70

 

 

$

(59

)

 

$

11

 

Long-term assets

 

 

0

 

 

 

6

 

 

 

0

 

 

 

6

 

 

 

(4

)

 

 

2

 

 

 

0

 

 

 

7

 

 

 

0

 

 

 

7

 

 

 

(3

)

 

 

4

 

Foreign Currency Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

0

 

 

 

13

 

 

 

0

 

 

 

13

 

 

 

0

 

 

 

13

 

 

 

0

 

 

 

26

 

 

 

0

 

 

 

26

 

 

 

0

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Management Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

1

 

 

$

139

 

 

$

41

 

 

$

181

 

 

$

(67

)

 

$

114

 

 

$

1

 

 

$

114

 

 

$

74

 

 

$

189

 

 

$

(59

)

 

$

130

 

Long-term liabilities

 

 

0

 

 

 

61

 

 

 

11

 

 

 

72

 

 

 

(4

)

 

 

68

 

 

 

0

 

 

 

128

 

 

 

0

 

 

 

128

 

 

 

(3

)

 

 

125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Derivative Contracts(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current in accounts payable and accrued liabilities

 

$

0

 

 

$

2

 

 

$

0

 

 

$

2

 

 

$

-

 

 

$

2

 

 

$

0

 

 

$

1

 

 

$

0

 

 

$

1

 

 

$

-

 

 

$

1

 

Long-term in other liabilities and provisions

 

 

0

 

 

 

7

 

 

 

0

 

 

 

7

 

 

 

-

 

 

 

7

 

 

 

0

 

 

 

7

 

 

 

0

 

 

 

7

 

 

 

-

 

 

 

7

 

(1)

Netting to offset derivative assets and liabilities where the legal right and intention to offset exists, or where counterparty master netting arrangements contain provisions for net settlement.

(2)

Includes credit derivatives and contingent consideration associated with certain previous and current year divestitures, respectively.

 

 

3127

 

 


 

The Company’s Level 1 and Level 2 risk management assets and liabilities consist of commodity fixed price contracts, NYMEX fixed price swaptions, NYMEX three-way options, NYMEX costless collars, NYMEX call options, foreign currency swaps and basis swaps with terms to 2025. Level 2 also includes financial guarantee contracts as discussed in Note 22.19. The fair values of these contracts are based on a market approach and are estimated using inputs which are either directly or indirectly observable from active markets, such as exchange and other published prices, broker quotes and observable trading activity throughout the term of the instruments.

Level 3 Fair Value Measurements

As at SeptemberJune 30, 2020,2021, the Company’s Level 3 risk management assets and liabilities consist of WTI three-way options, WTI costless collars and contingent consideration derivative contracts tied to WTI sold payer swaptions with terms to 2021.2022. The WTI three-way options are a combination of a sold call, bought put and a sold put. The WTI costless collars are a combination of a sold call and a bought put. These contracts allow the Company to participate in the upside of commodity prices to the ceiling of the call option and provide the Company with complete (collars) or partial (three-way) downside price protection through the put options. The sold payer swaptions give the counterparty the right to extend to 2021 certain 2020 WTI fixed price swaps. The fair values of these contracts are based on the income approach and are modelleddetermined using an option pricing model using observable and unobservable inputs such as implied volatility. The unobservable inputs are obtained from third parties whenever possible and reviewed by the Company for reasonableness.

A summary of changes in Level 3 fair value measurements for risk management positions is presented below:

 

 

Nine Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, Beginning of Year

 

$

(52

)

 

$

139

 

 

$

(74

)

 

$

(52

)

Total Gains (Losses)

 

 

214

 

 

 

24

 

 

 

(569

)

 

 

204

 

Purchases, Sales, Issuances and Settlements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases, sales and issuances(1)

 

 

0

 

 

 

0

 

 

 

6

 

 

 

0

 

Settlements

 

 

(83

)

 

 

(49

)

 

 

215

 

 

 

(71

)

Transfers Out of Level 3

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance, End of Period

 

$

79

 

 

$

114

 

 

$

(422

)

 

$

81

 

Change in Unrealized Gains (Losses) During the

Period Included in Net Earnings (Loss)

 

$

131

 

 

$

(25

)

 

$

(354

)

 

$

133

 

(1)

Relates to the contingent consideration associated with the Duvernay divestiture discussed in Note 7.

 

Quantitative information about unobservable inputs used in Level 3 fair value measurements is presented below as at SeptemberJune 30, 2020:2021:

 

 

 

Valuation Technique

 

Unobservable Input

 

Range

 

Weighted Average (1)

 

 

 

 

 

 

 

 

 

 

 

Risk Management - WTI Options

 

Option Model

 

Implied Volatility

 

33%28% - 62%106%

 

42%46%

 

 

(1)

Unobservable inputs were weighted by the relative fair value of the instruments.

 

A 10 percent increase or decrease in implied volatility for the WTI options would cause an approximate corresponding $5$16 million ($86 million as at December 31, 2019)2020) increase or decrease to net risk management assets and liabilities.

 

 

3228

 

 


 

22.19.

Financial Instruments and Risk Management

A)  Financial Instruments

Ovintiv’s financial assets and liabilities are recognized in cash and cash equivalents, accounts receivable and accrued revenues, other assets, accounts payable and accrued liabilities, risk management assets and liabilities, long-term debt, and other liabilities and provisions.

B)  Risk Management Activities

Ovintiv uses derivative financial instruments to manage its exposure to cash flow variability from commodity prices and fluctuating foreign currency exchange rates. The Company does not apply hedge accounting to any of its derivative financial instruments. As a result, gains and losses from changes in the fair value are recognized in net earnings.earnings (loss).

Commodity Price Risk

Commodity price risk arises from the effect that fluctuations in future commodity prices may have on future cash flows. To partially mitigate exposure to commodity price risk, the Company has entered into various derivative financial instruments.  The use of these derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors.

Crude Oil and NGLs - To partially mitigate crude oil and NGL commodity price risk, the Company uses WTI-basedWTI- and NGL-based contracts such as fixed price contracts, fixed price swaptions, options and costless collars. The CompanyOvintiv has also entered into basis swaps to manage against widening price differentials between various production areas, products and benchmark price points.

Natural Gas - To partially mitigate natural gas commodity price risk, the Company uses NYMEX-based contracts such as fixed price contracts, fixed price swaptions, options and costless collars. The CompanyOvintiv has also entered into basis swaps to manage against widening price differentials between various production areas and benchmark price points.

Foreign Exchange Risk

Foreign exchange risk arises from changes in foreign currency exchange rates that may affect the fair value or future cash flows of the Company’s financial assets or liabilities. To partially mitigate the effect of foreign exchange fluctuations on future commodity revenues and expenses, the Company may enter into foreign currency derivative contracts. As at SeptemberJune 30, 2020,2021, the Company has entered into $215$175 million notional U.S. dollar denominated currency swaps at an average exchange rate of US$0.7451C$1.3720 to C$US$1, which mature monthly through the remainder of 2020 and $350 million notional U.S. dollar denominated currency swaps at an average exchange rate of US$0.7289 to C$1, which mature monthly throughout 2021.

 

 

3329

 

 


 

Risk Management Positions as at SeptemberJune 30, 20202021

 

 

Notional Volumes

 

Term

 

Average Price

 

 

Fair Value

 

 

Notional Volumes

 

Term

 

Average Price

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil and NGL Contracts

 

 

 

 

 

US$/bbl

 

 

 

 

 

 

 

 

 

 

US$/bbl

 

 

 

 

 

Fixed Price Contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WTI Fixed Price

 

89.0 Mbbls/d

 

2020

 

 

52.95

 

 

$

101

 

 

30.0 Mbbls/d

 

2021

 

 

46.37

 

 

$

(136

)

WTI Fixed Price

 

20.0 Mbbls/d

 

2021

 

 

44.08

 

 

 

12

 

 

5.0 Mbbls/d

 

2022

 

 

60.16

 

 

 

(10

)

Ethane Fixed Price

 

8.0 Mbbls/d

 

2021

 

 

10.38

 

 

 

(2

)

Propane Fixed Price

 

20.0 Mbbls/d

 

2020

 

 

17.94

 

 

 

(6

)

 

12.0 Mbbls/d

 

2021

 

 

25.78

 

 

 

(43

)

Butane Fixed Price

 

8.0 Mbbls/d

 

2020

 

 

23.54

 

 

 

(1

)

 

5.0 Mbbls/d

 

2021

 

 

24.83

 

 

 

(25

)

Iso-Butane Fixed Price

 

3.3 Mbbls/d

 

2020

 

 

24.36

 

 

 

(1

)

Ethane Fixed Price

 

1.0 Mbbls/d

 

2020

 

 

5.25

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

WTI Fixed Price Swaptions (1)

 

10.0 Mbbls/d

 

2021

 

 

58.00

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WTI Three-Way Options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sold call / bought put / sold put

 

76.0 Mbbls/d

 

2020

 

61.46 / 53.36 / 43.36

 

 

 

62

 

 

85.0 Mbbls/d

 

2021

 

53.92 / 44.66 / 34.79

 

 

 

(283

)

Sold call / bought put / sold put

 

37.0 Mbbls/d

 

2021

 

50.27 / 39.61 / 29.39

 

 

 

8

 

 

65.0 Mbbls/d

 

2022

 

70.10 / 60.17 / 48.46

 

 

 

(76

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WTI Costless Collars

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sold call / bought put

 

15.0 Mbbls/d

 

2020

 

68.71 / 50.00

 

 

 

14

 

 

15.0 Mbbls/d

 

2021

 

45.84 / 35.00

 

 

 

(71

)

Sold call / bought put

 

15.0 Mbbls/d

 

2021

 

45.84 / 35.00

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basis Contracts (2)

 

 

 

2020

 

 

 

 

 

 

(20

)

 

 

 

2021

 

 

 

 

 

 

(1

)

Basis Contracts (1)

 

 

 

2021

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Crude Financial Positions

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

0

 

Crude Oil and NGLs Fair Value Position

 

 

 

 

 

 

 

 

 

 

160

 

 

 

 

 

 

 

 

 

 

 

(649

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas Contracts

 

 

 

 

 

US$/Mcf

 

 

 

 

 

 

 

 

 

 

US$/Mcf

 

 

 

 

 

Fixed Price Contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NYMEX Fixed Price

 

793 MMcf/d

 

2020

 

 

2.65

 

 

 

6

 

 

165 MMcf/d

 

2021

 

 

2.51

 

 

 

(34

)

NYMEX Fixed Price

 

165 MMcf/d

 

2021

 

 

2.51

 

 

 

(24

)

 

200 MMcf/d

 

2022

 

 

2.67

 

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Price Swaptions (3)

 

 

 

 

 

 

 

 

 

 

 

 

NYMEX Fixed Price Swaptions

 

165 MMcf/d

 

2022

 

 

2.51

 

 

 

(20

)

NYMEX Fixed Price Swaptions (2)

 

165 MMcf/d

 

2022

 

 

2.51

 

 

 

(41

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NYMEX Three-Way Options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sold call / bought put / sold put

 

330 MMcf/d

 

2020

 

2.72 / 2.60 / 2.25

 

 

 

(1

)

 

1,005 MMcf/d

 

2021

 

3.36 / 2.88 / 2.50

 

 

 

(72

)

Sold call / bought put / sold put

 

730 MMcf/d

 

2021

 

3.35 / 2.87 / 2.49

 

 

 

(17

)

 

398 MMcf/d

 

2022

 

3.02 / 2.75 / 2.00

 

 

 

(39

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NYMEX Costless Collars

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sold call / bought put

 

55 MMcf/d

 

2020

 

2.88 / 2.50

 

 

 

0

 

 

200 MMcf/d

 

2022

 

2.85 / 2.55

 

 

 

(30

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NYMEX Call Options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sold call

 

230 MMcf/d

 

2020

 

 

3.25

 

 

 

0

 

 

330 MMcf/d

 

2022

 

 

2.38

 

 

 

(101

)

Sold call

 

330 MMcf/d

 

2022

 

 

2.38

 

 

 

(54

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basis Contracts (4)

 

 

 

2020

 

 

 

 

 

 

(13

)

Basis Contracts (3)

 

 

 

2021

 

 

 

 

 

 

(22

)

 

 

 

2021

 

 

 

 

 

 

(33

)

 

 

 

2022

 

 

 

 

 

 

(30

)

 

 

 

2022 - 2025

 

 

 

 

 

 

(56

)

 

 

 

2023 - 2025

 

 

 

 

 

 

(37

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Financial Positions

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

1

 

Natural Gas Fair Value Position

 

 

 

 

 

 

 

 

 

 

(211

)

 

 

 

 

 

 

 

 

 

 

(441

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Premiums Received on Unexpired Options

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

Other Derivative Contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Position

 

 

 

 

 

 

 

 

 

 

(11

)

Fair Value Position (4)

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency Contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Position (5)

 

 

 

2020 - 2021

 

 

 

 

 

 

12

 

 

 

 

2021

 

 

 

 

 

 

18

 

Total Fair Value Position and Net Premiums Received

 

 

 

 

 

 

 

 

 

$

(52

)

Total Fair Value Position

 

 

 

 

 

 

 

 

 

$

(1,070

)

 

(1)

WTI Fixed Price Swaptions give the counterparty the option to extend certain 2020 Fixed Price swaps to 2021.

(2)

Ovintiv has entered into crude and NGL differential swaps associated with Canadian condensate Midland, Magellan East Houston, Brent, Mt. Belvieu, Conway and WTI.

(3)(2)

NYMEX Fixed Price Swaptions give the counterparty the option to extend certain 2021 Fixed Price swaps to 2022.

(4)(3)

Ovintiv has entered into natural gas basis swaps associated with AECO, Dawn, Chicago, Malin, Waha, Houston Ship Channel and NYMEX.

(4)

Includes credit derivatives and contingent consideration associated with certain previous and current year divestitures, respectively.

(5)

Ovintiv has entered into U.S. dollar denominated fixed-for-floating average currency swaps to protect against fluctuations between the Canadian and U.S. dollars.

 

 

3430

 

 


 

Earnings Impact of Realized and Unrealized Gains (Losses) on Risk Management Positions

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized Gains (Losses) on Risk Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity and Other Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues (1)

 

$

89

 

 

$

122

 

 

$

605

 

 

$

301

 

 

$

(223

)

 

$

365

 

 

$

(379

)

 

$

516

 

Foreign Currency Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange

 

 

2

 

 

 

2

 

 

 

(7

)

 

 

1

 

 

 

11

 

 

 

(6

)

 

 

18

 

 

 

(9

)

 

$

91

 

 

$

124

 

 

$

598

 

 

$

302

 

 

$

(212

)

 

$

359

 

 

$

(361

)

 

$

507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains (Losses) on Risk Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity and Other Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues (2)

 

$

(243

)

 

$

(41

)

 

$

(18

)

 

$

(385

)

 

$

(576

)

 

$

(679

)

 

$

(847

)

 

$

225

 

Foreign Currency Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange

 

 

15

 

 

 

(11

)

 

 

(1

)

 

 

26

 

 

 

(6

)

 

 

36

 

 

 

(8

)

 

 

(16

)

 

$

(228

)

 

$

(52

)

 

$

(19

)

 

$

(359

)

 

$

(582

)

 

$

(643

)

 

$

(855

)

 

$

209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Realized and Unrealized Gains (Losses) on Risk Management, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity and Other Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues (1) (2)

 

$

(154

)

 

$

81

 

 

$

587

 

 

$

(84

)

 

$

(799

)

 

$

(314

)

 

$

(1,226

)

 

$

741

 

Foreign Currency Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange

 

 

17

 

 

 

(9

)

 

 

(8

)

 

 

27

 

 

 

5

 

 

 

30

 

 

 

10

 

 

 

(25

)

 

$

(137

)

 

$

72

 

 

$

579

 

 

$

(57

)

 

$

(794

)

 

$

(284

)

 

$

(1,216

)

 

$

716

 

 

(1)

Includes realized gains of nil and $2$1 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively (2019(2020 - gains of $2$1 million and $5$2 million, respectively), related to other derivative contracts.

(2)

Includes unrealized lossesgains of nil$1 million and $4$3 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively (2019(2020 - lossesgain of nil$13 million and $1loss of $4 million, respectively), related to other derivative contracts.

Reconciliation of Unrealized Risk Management Positions from January 1 to SeptemberJune 30

 

 

 

 

2020

 

 

2019

 

 

 

 

2021

 

 

2020

 

 

 

 

Fair Value

 

 

Total

Unrealized

Gain (Loss)

 

 

Total

Unrealized

Gain (Loss)

 

 

 

 

Fair Value

 

 

Total

Unrealized

Gain (Loss)

 

 

Total

Unrealized

Gain (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value of Contracts, Beginning of Year

 

 

 

$

(41

)

 

 

 

 

 

 

 

 

 

 

 

$

(222

)

 

 

 

 

 

 

 

 

Change in Fair Value of Contracts in Place at Beginning of Year

and Contracts Entered into During the Period

 

 

 

 

579

 

 

$

579

 

 

$

(57

)

 

 

 

 

(1,216

)

 

$

(1,216

)

 

$

716

 

Settlement of Other Derivative Contracts

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

Amortization of Option Premiums During the Period

 

 

 

 

6

 

 

 

 

 

 

 

 

 

Fair Value of Other Derivative Contract Assets Entered into

During the Period (See Note 7)

 

 

 

 

6

 

 

 

 

 

 

 

 

 

Fair Value of Contracts Realized During the Period

 

 

 

 

(598

)

 

 

(598

)

 

 

(302

)

 

 

 

 

361

 

 

 

361

 

 

 

(507

)

Fair Value of Contracts and Net Premiums Received, End of Period

 

 

 

$

(52

)

 

$

(19

)

 

$

(359

)

Fair Value of Contracts, End of Period

 

 

 

$

(1,070

)

 

$

(855

)

 

$

209

 

 

Risk management assets and liabilities arise from the use of derivative financial instruments and are measured at fair value.  See Note 2118 for a discussion of fair value measurements.

 

 

3531

 

 


 

Unrealized Risk Management Positions

 

 

As at

 

 

As at

 

 

As at

 

 

As at

 

 

September 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Management Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

170

 

 

$

148

 

 

$

3

 

 

$

37

 

Long-term

 

 

8

 

 

 

2

 

 

 

0

 

 

 

4

 

 

 

178

 

 

 

150

 

 

 

3

 

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Management Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

65

 

 

 

114

 

 

 

892

 

 

 

130

 

Long-term

 

 

154

 

 

 

68

 

 

 

183

 

 

 

125

 

 

 

219

 

 

 

182

 

 

 

1,075

 

 

 

255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Derivative Contracts

 

 

 

 

 

 

 

 

Other Derivative Contract Assets

 

 

 

 

 

 

 

 

Current in accounts receivable and accrued revenues

 

 

3

 

 

 

0

 

Long-term in other assets

 

 

5

 

 

 

0

 

 

 

8

 

 

 

0

 

 

 

 

 

 

 

 

 

Other Derivative Contract Liabilities

 

 

 

 

 

 

 

 

Current in accounts payable and accrued liabilities

 

 

2

 

 

 

2

 

 

 

1

 

 

 

1

 

Long-term in other liabilities and provisions

 

 

9

 

 

 

7

 

 

 

5

 

 

 

7

 

 

 

6

 

 

 

8

 

Net Risk Management Assets (Liabilities) and Other Derivative Contracts

 

$

(52

)

 

$

(41

)

 

$

(1,070

)

 

$

(222

)

 

C)  Credit Risk

Credit risk arises from the potential that the Company may incur a loss if a counterparty to a financial instrument fails to meet its obligation in accordance with agreed terms. While exchange-traded contracts are subject to nominal credit risk due to the financial safeguards established by the NYSE and the TSX, over-the-counter traded contracts expose Ovintiv to counterparty credit risk. Counterparties to the Company’s derivative financial instruments consist primarily of major financial institutions and companies within the energy industry. This credit risk exposure is mitigated through the use of credit policies approved by the Board of Directors governing the Company’s credit portfolio including credit practices that limit transactions according to counterparties’ credit quality. Mitigation strategies may include master netting arrangements, requesting collateral, purchasing credit insurance and/or transacting credit derivatives. The Company executes commodity derivative financial instruments under master agreements that have netting provisions that provide for offsetting payables against receivables. Ovintiv actively evaluates the creditworthiness of its counterparties, assigns appropriate credit limits and monitors credit exposures against those assigned limits. As a result of netting provisions, the Company’sat June 30, 2021, Ovintiv’s maximum exposure toof loss under derivative financial instruments due to credit risk is limited to thefrom derivative financial instrument assets on a gross and net amounts due from the counterparties under the derivative contracts,fair value basis was $41 million and $11 million, respectively, as disclosed in Note 21. As at September 30, 2020, the18. The Company had 0 significant credit derivatives in place and held 0 collateral.collateral at June 30, 2021.

As at SeptemberJune 30, 2020,2021, cash equivalents include high-grade, short-term securities, placed primarily with financial institutions and companies with strong investment grade ratings. Any foreign currency agreements entered into are with major financial institutions that have investment grade credit ratings.  

A substantial portion of the Company’s accounts receivable are with customers and working interest owners in the oil and gas industry and are subject to normal industry credit risks. As at SeptemberJune 30, 2020,2021, approximately 9790 percent (95(89 percent as at December 31, 2019)2020) of Ovintiv’s accounts receivable and financial derivative credit exposures were with investment grade counterparties.

As at September 30, 2020, Ovintiv had 4 counterparties whose net settlement position individually accounted for more than 10 percent of the fair value of the outstanding in-the-money net risk management contracts by counterparty. These counterparties accounted for 23 percent, 15 percent, 12 percent and 12 percent of the fair value of the outstanding in-the-money net risk management contracts. As at December 31, 2019, the Company had 6 counterparties whose net settlement position accounted for 26 percent, 13 percent, 12 percent, 12 percent, 11 percent and 11 percent of the fair value of the outstanding in-the-money net risk management contracts.

32


 

During 2015 and 2017, the Company entered into agreements resulting from divestitures, which may require the CompanyOvintiv to fulfill certain payment obligations on the take or pay volume commitments assumed by the purchasers. The circumstances that would require the CompanyOvintiv to perform under the agreements include events where a purchaser fails to make payment to the guaranteed party and/or a purchaser is subject to an insolvency event. The agreements have remaining terms from oneof up to fourthree years with a fair value recognized of $11$6 million as at SeptemberJune 30, 20202021 ($98 million as at December 31, 2019)2020). The

36


maximum potential amount of undiscounted future payments is $95$69 million as at SeptemberJune 30, 2020,2021, and is considered unlikely.

23.20.

Supplementary Information

Supplemental disclosures to the Condensed Consolidated Statement of Cash Flows are presented below:

 

A)

Net Change in Non-Cash Working Capital

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable and accrued revenues

 

$

78

 

 

$

61

 

 

$

289

 

 

$

178

 

 

$

(96

)

 

$

90

 

 

$

(262

)

 

$

211

 

Accounts payable and accrued liabilities

 

 

42

 

 

 

(82

)

 

 

(212

)

 

 

(66

)

 

 

76

 

 

 

(223

)

 

 

198

 

 

 

(254

)

Current portion of operating lease liabilities

 

 

(4

)

 

 

(9

)

 

 

(10

)

 

 

52

 

 

 

(1

)

 

 

(5

)

 

 

4

 

 

 

(6

)

Income tax receivable and payable

 

 

26

 

 

 

(2

)

 

 

39

 

 

 

(34

)

 

 

43

 

 

 

19

 

 

 

25

 

 

 

13

 

 

$

142

 

 

$

(32

)

 

$

106

 

 

$

130

 

 

$

22

 

 

$

(119

)

 

$

(35

)

 

$

(36

)

 

B)

Non-Cash Activities

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset retirement obligation incurred (See Note 14)

 

$

2

 

 

$

2

 

 

$

11

 

 

$

13

 

Asset retirement obligation change in estimated future cash

   outflows (See Note 14)

 

 

(10

)

 

 

0

 

 

 

12

 

 

 

0

 

Property, plant and equipment accruals

 

 

68

 

 

 

(80

)

 

 

(62

)

 

 

(33

)

Capitalized long-term incentives

 

 

2

 

 

 

1

 

 

 

(7

)

 

 

(31

)

Property additions/dispositions (swaps)

 

 

212

 

 

 

63

 

 

 

229

 

 

 

66

 

New ROU operating lease assets and liabilities

 

 

(5

)

 

 

(1

)

 

 

(6

)

 

 

(11

)

Non-Cash Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued in conjunction with the Newfield business

   combination (See Note 8)

 

$

0

 

 

$

0

 

 

$

0

 

 

$

(3,478

)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ROU operating lease assets and liabilities

 

$

(5

)

 

$

0

 

 

$

(18

)

 

$

(1

)

Non-Cash Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset retirement obligation incurred

 

$

0

 

 

$

2

 

 

$

0

 

 

$

9

 

Asset retirement obligation change in estimated future cash

   outflows

 

 

0

 

 

 

0

 

 

 

0

 

 

 

22

 

Property, plant and equipment accruals

 

 

(67

)

 

 

(280

)

 

 

(37

)

 

 

(130

)

Capitalized long-term incentives

 

 

7

 

 

 

8

 

 

 

7

 

 

 

(9

)

Property additions/dispositions (swaps)

 

 

2

 

 

 

13

 

 

 

6

 

 

 

17

 

Contingent consideration (See Note 7)

 

 

6

 

 

 

0

 

 

 

6

 

 

 

0

 

On September 1, 2020, Ovintiv closed an agreement with PetroChina Canada Ltd. (“PCC”) to terminate its joint venture with PCC and transfer the ownership and operation of certain Duvernay shale assets in west-central Alberta. Ovintiv and PCC have agreed to partition the Duvernay acreage and associated infrastructure as each company will independently own and operate their respective interests in the future. For the three and nine months ended September 30, 2020, property additions/dispositions (swaps) includes a $203 million non-cash swap related to the Duvernay partition.

 

 

24.21.

Commitments and Contingencies

Commitments

The following table outlines the Company’s commitments as at SeptemberJune 30, 2020:2021:

 

 

Expected Future Payments

 

 

Expected Future Payments

 

(undiscounted)

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

Thereafter

 

 

Total

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation and Processing

 

$

173

 

 

$

675

 

 

$

644

 

 

$

541

 

 

$

433

 

 

$

2,305

 

 

$

4,771

 

 

$

367

 

 

$

753

 

 

$

693

 

 

$

497

 

 

$

435

 

 

$

2,384

 

 

$

5,129

 

Drilling and Field Services

 

 

37

 

 

 

12

 

 

 

1

 

 

 

0

 

 

 

0

 

 

 

1

 

 

 

51

 

 

 

52

 

 

 

1

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

53

 

Building Leases

 

 

3

 

 

 

14

 

 

 

11

 

 

 

7

 

 

 

6

 

 

 

8

 

 

 

49

 

 

 

6

 

 

 

10

 

 

 

6

 

 

 

6

 

 

 

6

 

 

 

2

 

 

 

36

 

Total

 

$

213

 

 

$

701

 

 

$

656

 

 

$

548

 

 

$

439

 

 

$

2,314

 

 

$

4,871

 

 

$

425

 

 

$

764

 

 

$

699

 

 

$

503

 

 

$

441

 

 

$

2,386

 

 

$

5,218

 

 

 

 

3733

 

 


 

Operating leases with terms greater than one year are not included in the commitments table above. The table above includes short-term leases with contract terms less than 12 months, such as drilling rigs and field office leases, as well as non-lease operating cost components associated with building leases.

 

Included within transportation and processing in the table above are certain commitments associated with midstream service agreements with VMLP as described in Note 17.14. Divestiture transactions can reduce certain commitments disclosed above.

Contingencies

Ovintiv is involved in various legal claims and actions arising in the normal course of the Company’s operations. Although the outcome of these claims cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on Ovintiv’s financial position, cash flows or results of operations. Management’s assessment of these matters may change in the future as certain of these matters are in early stages or are subject to a number of uncertainties. For material matters that the Company believes an unfavorable outcome is reasonably possible, the Company discloses the nature and a range of potential exposures. If an unfavorable outcome were to occur, there exists the possibility of a material impact on the Company’s consolidated net earnings or loss for the period in which the effect becomes reasonably estimable. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. Such accruals are based on the Company’s information known about the matters, estimates of the outcomes of such matters and experience in handling similar matters.

 

 

 

3834

 

 


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The MD&A is intended to provide a narrative description of the Company’s business from management’s perspective. This MD&A should be read in conjunction with the unaudited interim Condensed Consolidated Financial Statements and accompanying notes for the period ended SeptemberJune 30, 20202021 (“Consolidated Financial Statements”), which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements and accompanying notes and MD&A for the year ended December 31, 2019,2020, which are included in Items 8 and 7, respectively, of the 20192020 Annual Report on Form 10‑K.

On January 24, 2020, Encana Corporation (“Encana”) completed a corporate reorganization, which included a Share Consolidation, as described in Note 1 of the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Highlights section of this MD&A. Subsequent to the corporate reorganization, Ovintiv Inc. and its subsidiaries (collectively, “Ovintiv”) continue to carry on the business which was previously conducted by Encana and its subsidiaries. References to the “Company” are to Encana Corporation and its subsidiaries prior to the completion of the Reorganization and to Ovintiv Inc. and its subsidiaries following the completion of the Reorganization.

Common industry terms and abbreviations are used throughout this MD&A and are defined in the Definitions, Conversions and Conventions sections of this Quarterly Report on Form 10-Q. This MD&A includes the following sections:

 

 

Executive Overview

 

Results of Operations

 

Liquidity and Capital Resources

 

Non-GAAP Measures


Executive Overview

Strategy

Ovintiv is a leading North American energy producer that is focused on developing its multi-basin portfolio of oil, NGLs and natural gas producing plays. Ovintiv is committed to growing long-term stockholder value through a combination of profitable growth and generating cash flows. The Company is pursuing the key business objectives of preserving balance sheetfinancial strength, maximizing profitability through operational and capital efficiencies, returning capital to stockholders throughpaying sustainable dividends, and drivinggenerating cash flowflows through a disciplined capital allocation strategy by investing in a limited number of core assets with high margin liquids. To support the Company’s business objectives, Ovintiv actively monitors and manages market volatility through the diversification of price risks, and market access risks to enhance returns and maintain a consistent cash flow stream. In conjunction with Ovintiv’s focus on preserving balance sheetfinancial strength, the Company plans to allocate all excess cash flows to reduceis targeting a long-term debt overbalance, less cash and cash equivalents held, of approximately $3.0 billion by the next five quarters.end of 2023.

Ovintiv is also committed to delivering results in a socially and environmentally responsible manner. Thoughtfully developed best practices are deployed across its assets, allowing the Company to capitalize on operational efficiencies and decreasing emissions intensity. The Company’s annual Sustainability Report outlining its key metrics and progress achieved relating to environmental, social and governance (“ESG”) practices can be found on the Company’s website.

In executing its strategy, Ovintiv focuses on its core values of One, Agile and Driven, which guide the organization to be flexible, responsive, innovative and determined. The Company is committed to excellence with a passion to drive corporate financial performance and succeed as a team. Ovintiv rapidly deploys successful ideas and practices across its assets, becoming more efficient as innovative and sustainable improvements are implemented.

Ovintiv continually reviews and evaluates its strategy and changing market conditions. In 2020, Ovintiv continuesconditions in order to focus on maximizingmaximize cash flow generation from high margin, scalable,its top tier assets located in some of the best plays in North America, referred to as the “Core Assets”. As at SeptemberJune 30, 2020,2021, the Core Assets comprised Permian and Anadarko in the U.S., and Montney in Canada. These Core Assets form a multi-basin portfolio of oil, NGLs and natural gas producing plays enabling flexible and efficient investment of capital that support the Company’s strategy.

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 20192020 Annual Report on Form 10-K.

35


In evaluating its operations and assessing its leverage, Ovintiv reviews performance-based measures such as Non‑GAAP Cash Flow, Non-GAAP Cash Flow Margin, Total Costs and debt-based metrics such as Debt to Adjusted Capitalization and Net 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

39


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

In early 2020, the Company revised its capital program for the remainder of the year to focus on production from the Core Assets generating the highest returns and/or with the lowest costs in response to the low commodity price environment resulting from the global coronavirus (“COVID-19”) pandemic, coupled with excess oil production from Saudi Arabia and Russia.

During the first ninesix months of 2020,2021, the Company focused on executing its reduced 20202021 capital plan generating cash from operating activities andaimed at maximizing profitability through operational and capital efficiencies. Lowerefficiencies, delivering cash from operating activities and using excess cash flows to reduce total long-term debt. Higher upstream product revenues in the first ninesix months of 20202021 compared to 20192020 resulted from lowerhigher average realized prices, excluding the impact of risk management activities, and lower total production volumes. Decreasesactivities. Increases in average realized liquids and natural gas prices of 3892 percent and 1279 percent, respectively, were primarily due to lower WTI and NYMEXhigher benchmark prices. Total production volumes decreased by three percent compared to the first nine months of 2019 primarily due to natural declines, reduced capital investment and curtailed production. Ovintiv continues to focus on optimizing realized prices from the diversification of the Company’s downstream markets.

The Company continued to deliver significant cash from operating activities while reducing its total long-term debt balance. Cash from operating activities of $1,577 million included a net realized loss of $379 million on settlement of risk management positions and a current income tax recovery of $156 million primarily due to the resolution of certain tax items relating to prior taxation years. The Company used excess cash flows to reduce its total long-term debt balance by $1,571 million in the first six months of 2021.

Significant Developments

 

On April 28, 2021, the Company closed the sale of its previously announced Duvernay assets and recognized proceeds of approximately $239 million, after closing and other adjustments. The transaction had an effective date of January 24, 2020, Encana completed a corporate reorganization, which included a plan of arrangement (the “Arrangement”) that involved, among other things, a share consolidation by Encana on the basis of one post-consolidation share for each five pre-consolidation shares (the “Share Consolidation”), and Ovintiv Inc. ultimately acquired all of the issued and outstanding common shares of Encana in exchange for shares of common stock of Ovintiv Inc. on a one-for-one basis. Following completion of the Arrangement, Ovintiv Inc. migrated from Canada and became a Delaware corporation, domiciled in the U.S. (the “U.S. Domestication”). The Arrangement and the U.S. Domestication together are referred to as the “Reorganization”. Additional information on the Reorganization can be found in Note 1, of the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.2021.

 

In June 2020, Ovintiv undertook a planOn May 19, 2021, the Company closed the sale of its previously announced Eagle Ford assets and received proceeds of approximately $771 million, after closing and other adjustments. The transaction had an effective date of January 1, 2021.

On May 19, 2021, the Company announced its intention to reduce its workforce by approximately 25 percent as part of a company-wide reorganization to better align staffing levels and organizational structure withredeem the Company’s planned activity levels.$600 million, 5.75 percent senior notes due January 30, 2022, and its $518 million, 3.90 percent senior notes due November 15, 2021. The 2022 senior notes were redeemed on June 18, 2021. On July 15, 2021, the Company incurred restructuring chargesannounced it expects to redeem the 2021 senior notes on August 16, 2021. The combined redemptions represent approximately $1.1 billion of $88 million and expects total restructuring charges to be approximately $93debt repayments, resulting in expected annualized interest savings of over $50 million.

 

On September 1, 2020, Ovintiv closed an agreement with PetroChina Canada Ltd. (“PCC”) to terminate its joint venture with PCC and transfer the ownership and operation of certain Duvernay shale assets in west-central Alberta. Ovintiv and PCC have agreed to partition the Duvernay acreage and associated infrastructure as each company will independently own and operate their respective interests in the future. There were no penalties or fees associated with the transaction.

On October 13, 2020,July 27, 2021, Ovintiv announced the start-upan increase of about 50 percent to its quarterly dividend payment representing an annualized dividend of $0.56 per share of common stock as part of the Pipestone processing facility, a natural gas processing and liquids stabilization plant owned by Keyera Partnership. Under a “fee-for-service” midstream agreement, the facility will provide Ovintiv with additional net processing capacityCompany’s commitment to support the Company’s condensate-rich Montney development.returning capital to shareholders.

40


Financial Results

Three months ended SeptemberJune 30, 20202021

 

Reported net loss of $1,521$205 million, including a non-cash ceiling test impairment of $1,336 million, before tax, and net losses on risk management in revenues of $154$799 million, before tax.

 

Generated cash from operating activities of $493$750 million, Non-GAAP Cash Flow of $398$733 million and Non‑GAAP Cash Flow Margin of $8.49$14.51 per BOE.

 

Paid dividends of $0.09375 per share of common sharestock totaling $24$25 million.

 

Repurchased in the open market $115 million in principal amount of the Company’s senior notes resulting in gains of $6Reduced total long-term debt by $1,104 million.

Nine

36


Six months ended SeptemberJune 30, 20202021

 

Reported net lossearnings of $5,483$104 million, including a non-cash ceiling test impairment of $4,863 million, before tax, net gainslosses on risk management in revenues of $587$1,226 million, before tax restructuring costs of $88 million, before tax, as well asand a deferredcurrent income tax valuation allowancerecovery of $568$156 million.

 

Generated cash from operating activities of $1,176$1,577 million, Non-GAAP Cash Flow of $1,237$1,623 million and Non‑GAAP Cash Flow Margin of $8.37$16.41 per BOE.

 

Paid dividends of $0.28125$0.1875 per share of common sharestock totaling $73$49 million.

 

RepurchasedHad $4.4 billion in the open market $252total liquidity as at June 30, 2021, which included available credit facilities of $4.0 billion, available uncommitted demand lines of $281 million, in principal amountand cash and cash equivalents of the Company’s senior notes resulting in gains of $28$122 million.

 

Had $3.1 billion inReduced total liquidity as at September 30, 2020, which included available credit facilities of $3.0 billion, available uncommitted demand lines of $186 million, and cash and cash equivalents of $32 million, net of outstanding commercial paper of $140long-term debt by $1,571 million.

 

Reported Net Debt to Adjusted EBITDA of 2.91.9 times.

Capital Investment

 

Invested $351Continued to execute the Company’s 2021 capital plan with expenditures totaling $733 million inof which $690 million, or 94 percent, was directed to the third quarter of 2020 and $1,393 million during the first nine months of 2020.Core Assets.

 

Directed $293 million, or 83 percent, of total capital spending to the Core Assets in the third quarter of 2020 and $1,138 million, or 82 percent, during the first nine months of 2020.

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

Production

Three months ended SeptemberJune 30, 20202021

 

Produced average liquids volumes of 286.7 Mbbls/d, which accounted for 52 percent of total production volumes. Average oil and plant condensate volumes of 186.1200.8 Mbbls/d, which accounted for 69represented 70 percent of total liquids production volumes. Average liquids volumes of 269.9 Mbbls/d were 53 percent of total production volumes.

 

Produced average natural gas volumes of 1,4421,607 MMcf/d, which accounted for 4748 percent of total production volumes.

41


NineSix months ended SeptemberJune 30, 20202021

 

Produced average liquids volumes of 281.2 Mbbls/d, which accounted for 51 percent of total production volumes. Average oil and plant condensate volumes of 199.8199.4 Mbbls/d, which accounted for 70represented 71 percent of total liquids production volumes.Average liquids volumes of 286.0 Mbbls/d were 53 percent of total production volumes.

 

Produced average natural gas volumes of 1,5201,591 MMcf/d, which accounted for 4749 percent of total production volumes.

Revenues and Operating Expenses

 

Incurred Total Costs in the first ninesix months of 20202021 of $1,740$1,277 million, or $11.77$12.92 per BOE, a decreasean increase of $181$95 million or $0.89and an increase of $1.20 per BOE compared to the first ninesix months of 2019.2020. Total Costs is defined in the Non-GAAP Measures section of this MD&A. Significant items in the first ninesix months of 2021 compared to 2020 impacting Total Costs include:

 

o

LowerHigher upstream operatingtransportation and processing expenses excluding long-term incentive costs, in the first nine months of 2020 compared to 2019 of $76$64 million, primarily due to lower activity ashigher production volumes in Montney and a result of the economic downturn and cost saving initiatives including workforce reductions, as well as operating efficiencies achieved in 2020;higher U.S./Canadian dollar exchange rate;

 

o

LowerHigher production, mineral and other taxes in the first nine months of 2020 compared to 2019 of $61$54 million, primarily due to lowerhigher commodity prices;

 

o

LowerHigher administrative expenses, excluding long-term incentive, costs, restructuring and legal costs, and current expected credit losses in the first nine months of 2020 compared to 2019 of $23$7 million, primarily due to cost saving initiatives including the 2020 workforce reduction and synergies achieved in 2020;higher consulting costs; and

 

o

Lower upstream transportation and processingoperating expenses, in the first nine monthsexcluding long-term incentive costs of 2020 compared to 2019 of $21$30 million, primarily due to the sale of the Arkoma natural gas assets.durable cost savings including workforce reductions in 2020.

37


 

Total Operating Expenses in the first ninesix months of 20202021 of $9,365$3,456 million increaseddecreased by $4,830$3,213 million, primarily due to the non-cash ceiling test impairmentsimpairment of $4,863 million.$3,527 million recognized in the first six months of 2020.

Further detailed analysisAdditional information on Total Costs items and Total Operating Expenses above can be found in the Results of Operations section of this MD&A.

20202021 Outlook

Industry Outlook

Oil Markets

The oil and gas industry is cyclical and commodity prices are inherently volatile. Oil prices during the remainder of 2020 are expected to reflect global supply and demand dynamics as well as the geopolitical and macroeconomic environment. In March 2020,

Oil prices during 2021 will continue to be impacted by the global containment of the coronavirus (“COVID-19”), pace of economic recovery, OPEC+ production levels, and the potential for higher U.S. production.  The accelerating distribution of COVID-19 vaccines continues to drive optimism and oil demand as countries reopen their economies. Upward pressures on oil prices and the tightening of global oil inventories during the midstfirst six months of the global COVID-19 pandemic, Saudi Arabia and Russia failed to reach an agreement on2021 were mainly caused by ongoing OPEC+ production cuts resultingand increased global demand for oil.

As announced in a price war which intensified the oversupply of oil and contributed to a dramatic decline in oil prices. InOPEC+ April 2020, OPEC and a group of 10 non-OPEC member nations (collectively, “OPEC+”) agreed to cut oil production through April 2022 to address the existing imbalance of global supply and demand, with the deepest cuts in2021 meeting, May and June 2020. The production cuts, along with thelevels were adjusted, allowing for gradual increases in demand from the reopening of global economiesproduction output and the steady draw down of excess inventories accumulated during the first half of the year, generally supported stable oil prices in the third quarter of 2020.June, OPEC+ reaffirmed commitments to adjust July production levels for similar increases. In July, OPEC+ agreed to extend theannounced monthly production cuts through toincreases starting from August until December 20202021. OPEC+ will assess market developments in December and planscontinue to meet regularly to discussreview the state of global oil supply, demand and inventory levels.

In early 2020, governments worldwide took action to contain the effects of the COVID-19 pandemic by partially closing economies. As a result, global crude oil demand fell significantly while product storage facilities filled up at unprecedented rates with supply materially exceeding demand. As the gap between supply and demand in oil markets grew increasingly pronounced, the oil and gas industry responded by reducing capital spending and implementing market-based supply shut-ins. As global restrictions began to ease in the latter half of the second quarter, demand for oil steadily increased, supporting a modest recovery of oil prices. The modest price recovery has led to a steady increase in oil production over the summer

42


months as operators brought wells back online. However, overall production is expected to remain relatively flat for the remainder of 2020, as crude oil demand is not expected to return to pre-pandemic levels by the end of the year. Certain economic sectors are still restricted and concerns of further lockdowns due to a resurgence of COVID-19 in some countries are impacting oil demand, resulting in a slow recovery.

The re-balancing of global supply and demand, and the commodity price environment is highly dependent on the global containment of the virus, ​paceDespite signs of economic recovery as well as changes tocentered on the COVID-19 vaccine rollouts and OPEC+ production levels. As a result,cuts, oil pricesmarkets remain volatile. The emergence of COVID-19 variants may threaten the reopening of economies in certain countries while the gradual easing of OPEC+ oil production cuts and the potential for the remainder of 2020 are expectedhigher U.S. oil production could contribute to fluctuate.commodity market uncertainty.

Natural Gas Markets

Natural gas prices are primarily affected by structural changes in both supply and demand as well as deviations from seasonally normal weather. In combination, these factors contributed to increased drawdowns of natural gas inventory and the effects of seasonal weather. Higher-than-average inventory levels from oversupply in early 2020 and warmer than normal temperatures during the winter months continued to put downward pressure ongenerally supported natural gas prices which remain volatile in both Canada and the U.S. from demand concerns stemming from the COVID-19 pandemic.first six months of 2021. Natural gas prices for the remainder of 20202021 are expected to be impacted by lower associated naturalthe interplay between gas production resultingand associated gas from declines in North American oil production, due to low oil prices, as well as a slowchanges in demand recoveryfrom the power generation sector and seasonal fluctuations.changes in export levels of liquified natural gas.

Company Outlook

Despite the low commodity price environment experienced in the first half of the year and modest third quarter recovery, Ovintiv is well positioned to deliver on its updated full year capital plan while generating positive cash flows. In response to the rapid decline in crude oil prices witnessed in early 2020, the Company took action to reduce its full year 2020 capital investments by $500 million and suspended its previously issued 2020 guidance. By the end of the second quarter, the Company had ceased operating 16 drilling rigs, and had shut in total production of 32 MBOE/d, which further reduced the Company’s expected 2020 capital investment profile. As of September 30, 2020, the majority of the previously shut-in and curtailed production is now back on-line.

During June 2020, Ovintiv undertook a plan to reduce its workforce to better align staffing levels and organizational structure with the Company’s planned activity levels. The Company continues to exercise discretion and disciplineddiscipline to optimize capital allocation in adjusting its capital spending beyondthroughout 2021 as oil demand recovers and the fourth quarter as the current demand andcommodity price environment evolves.

The Company enters into derivative financial instruments which mitigate price volatility Ovintiv pursues innovative ways to reduce upstream operating and help sustain revenues, particularly during periods of lower prices. As at October 16, 2020, the Company has hedged approximately 180.0 Mbbls/d, or 87 percent, of expected crude oiladministrative expenses and condensate productionexpects to benefit from durable cost savings and 1,178 MMcf/d, or 70 percent, of expected natural gas production for the remainder of the year. Additional information on Ovintiv’s hedging program can be found in Note 22efficiencies to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.maximize cash flows.

Markets for crude oil and natural gas are exposed to different price risks and are inherently volatile. While the market price for crude oil tends to move in the same direction as the global market, regional differentials may develop. Natural gas prices may vary between geographic regions depending on local supply and demand conditions. To mitigate price volatility and help sustain revenues, particularly during periods of low commodity prices, the Company enters into derivative financial instruments. As at July 15, 2021, the Company has hedged approximately 130.0 Mbbls/d of expected crude oil and condensate production and 1,170 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. Through a combination of derivative financial instrumentsmarket and transportation capacity, Ovintiv attempts to limit exposure to regional pricing.

In conjunction withAdditional information on Ovintiv’s hedging program can be found in Note 19 to the reductionConsolidated Financial Statements included in capital investment noted above, Ovintiv also announced its plans to reduce costs by $200 million which have been substantially achieved to date.Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

 

4338

 

 


 

Capital Investment

DuringThe Company continues to execute its $1.5 billion 2021 capital investment program, the first nine months of 2020, the Company spent $1,393 million,majority of which $484 million was directed to Permian, $362 million was directed to Anadarko and $292 million was directed to Montney. Ovintiv reduced its second quarter 2020 capital investment by $500 million and expects capital spending to be primarilyis allocated to the Core Assets with a focus on maximizing returns from high margin liquids while suspending capital programs in Eagle Ford, Bakken, Uintato optimize cash flows. During the first six months of 2021, the Company spent $733 million, of which $344 million was directed to Permian, $193 million was directed to Montney, $153 million was directed to Anadarko and Duvernay. Ovintiv expects full year 2020 capital investment to be approximately $1.8 billion and plans to fund the remainder of its 2020 capital program using cash from operations. As the Company monitors the global economic environment,was primarily directed to other upstream assets. Ovintiv will continue to evaluate its capital investment plans.plans as the global economic environment evolves.

Ovintiv continually strives to improve well performance and lower costs through innovative techniques. Initiatives such as applying Simul-Frac techniques, a process of fracking pairs of wells at the same time instead of a single well, increases operational efficiencies and contributes to well cost savings. 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 impact of Ovintiv’s disciplined capital program and continuous innovation create flexibility to allocate capital in changing commodity markets and to maximize cash flows while preserving the long-term value of the Company’s multi-basin portfolio.

Production

Ovintiv is strategically positioned in the current environment to maintain a flat liquids production profile while generating significant cash flows in excess of capital expenditures. During the first ninesix months 2021, average liquids production volumes were 281.2 Mbbls/d, or 51 percent of 2020,total production volumes, and average oil and plant condensate production volumes were 199.8199.4 Mbbls/d, or 7071 percent of total liquids production volumes.Average liquids production volumes were 286.0 Mbbls/d, or 53 percent of total production volumes, and average natural gas production volumes were 1,5201,591 MMcf/d, or 4749 percent of total production volumes. ForDuring the fourthsecond quarter of 2020,2021, the Company expects to maintain averageupdated its full year 2021 guidance for oil and plant condensate production volumes ofto approximately 200190.0 Mbbls/d. Full yeard to 195.0 Mbbls/d, other NGLs production volumes are expected to reflectapproximately 80.0 Mbbls/d to 85.0 Mbbls/d and natural gas production volumes to approximately 1,550 MMcf/d to 1,575 MMcf/d. The updated guidance reflects the Company’s reduced capital investment plans, which are highly dependent on market conditions.recently completed divestitures.

Operating Expenses

In the first quarter of 2020, Ovintiv announced its commitmentThe Company will continue to reducing full year 2020 costs by $200 million in response to the low commodity price environment. Thesebenefit from cost savings primarily includemeasures implemented in 2020 which included workforce reductions and operating efficiencies. Ovintiv continues to operating expenses reflected in Total Costs, as well as a reduction to other expenses discussed below. With lower staffing levels as a result of the workforce reduction completed in June 2020 and other Company initiatives, Ovintiv expects to achieve more than $200 million in cost savings.

In the first nine months of 2020, Total Costs was $11.77 per BOE, and is expected to remain relatively flat for the balance of the year as activity levels normalize and cost saving measures continue. Upstream transportation and processing expense was $6.48 per BOE, while upstream operating expense and administrative expense, excluding long-term incentive costs, restructuring costs and current expected credit losses, were $2.98 per BOE and $1.46 per BOE, respectively. Ovintiv expects to continue pursuingpursue innovative ways to reduce upstream operating and administrative expensesexpenses. With rising activity in the oil and expectsgas industry and the recovery of commodity prices, service and supply costs are expected to increase. The Company strives to minimize any inflationary pressures with efficiency improvements and effective supply chain managementmanagement.

For 2021, Ovintiv has revised its expectation of Total Costs to maximize cash flows.approximately $12.95 per BOE to $13.20 per BOE to reflect higher than expected changes in foreign exchange rates and increased production taxes resulting from higher than expected commodity prices. Total Costs were $12.92 per BOE in the first six months of 2021. Total Costs is defined in the Non-GAAP Measures section of this MD&A.

Other Expenses and ImpairmentsLong-Term Debt Reduction

The remaining full year cost savings are expected to include reductions to cash outflows and other expenses, such as interest expense. Following the open market repurchases of $252 million in principal amount of Ovintiv’s fixed rate senior notes, the Company expects to incur lower interest expense of approximately $10 million on an annualized basis on the reduced fixed long-term debt balances.

In conjunction with Ovintiv’s focusOvintiv remains focused on strengthening its liquidity position,balance sheet. Since the second quarter of 2020, the Company plans to allocate allhas allocated $2,052 million in excess cash flows to reduce its total long-term debt balance, which included proceeds from the Duvernay and Eagle Ford asset divestitures. The Company is targeting a long-term debt balance, less cash and cash equivalents held, of approximately $3.0 billion by the end of 2023. The Company expects lower interest expense as it reaches its debt reduction target.

In June 2021, the Company redeemed its $600 million, 5.75 percent senior notes due January 30, 2022. The Company also expects to redeem its $518 million, 3.90 percent senior notes due November 15, 2021 in mid-August. The combined redemptions represent approximately $1.1 billion of debt repayments, resulting in expected annualized interest savings of over $50 million.

As at June 30, 2021, the next five quarters. Company had no outstanding balances under its revolving credit facilities and U.S. dollar commercial paper programs.

39


Additional information on Ovintiv’s long-term debt and liquidity position can be found in Note 1210 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Liquidity and Capital Resources section of this MD&A, respectively.

If the low oil price environment persists for an extended period of time, Ovintiv may be subject to additional impairments of its oil and natural gas properties and other long-term assets. Additional information on Ovintiv’s 2021 Corporate Guidance can be accessed on the Company’s ceiling test impairmentwebsite at www.ovintiv.com.

Environmental, Social and Governance

Ovintiv recognizes the importance of reducing its environmental footprint and voluntarily participates in emission reduction programs. The Company has targeted a 33 percent reduction in methane intensity which has been tied to its annual incentive compensation program for all employees beginning in 2021. Ovintiv is on track to meet the reduction target by the end of 2021.

Additional information on Ovintiv’s ESG practices can be found in Ovintiv’s annual Sustainability Report on the Results of Operations section of this MD&A.Company’s website.

 

 

4440

 

 


 

Results of Operations

Selected Financial Information

Three months ended September 30,

 

 

Nine months ended September 30,

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

 

2020

 

 

2019 (1)

 

 

 

2020

 

 

2019 (1)

 

 

2021

 

 

2020

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and Service Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream product revenues

 

$

980

 

 

$

1,476

 

 

 

$

2,804

 

 

$

4,315

 

 

$

1,723

 

 

$

673

 

 

 

 

$

3,317

 

 

$

1,824

 

Market optimization

 

 

346

 

 

294

 

 

 

 

1,113

 

 

 

870

 

 

 

748

 

 

 

348

 

 

 

 

 

1,400

 

 

 

767

 

Service revenues(1)

 

 

-

 

 

1

 

 

 

 

 

2

 

 

 

6

 

 

 

2

 

 

 

2

 

 

 

 

 

3

 

 

 

2

 

Total Product and Service Revenues

 

 

1,326

 

 

 

1,771

 

 

 

 

3,919

 

 

 

5,191

 

 

 

2,473

 

 

 

1,023

 

 

 

 

 

4,720

 

 

 

2,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (Losses) on Risk Management, Net

 

 

(154

)

 

 

81

 

 

 

 

587

 

 

 

(84

)

 

 

(799

)

 

 

(314

)

 

 

 

 

(1,226

)

 

 

741

 

Sublease Revenues

 

 

18

 

 

 

19

 

 

 

 

53

 

 

 

54

 

 

 

18

 

 

 

17

 

 

 

 

 

36

 

 

 

35

 

Total Revenues

 

 

1,190

 

 

 

1,871

 

 

 

 

4,559

 

 

 

5,161

 

 

 

1,692

 

 

 

726

 

 

 

 

 

3,530

 

 

 

3,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses (2)

 

 

2,696

 

 

 

1,556

 

 

 

 

9,365

 

 

 

4,535

 

 

 

1,813

 

 

 

4,785

 

 

 

 

 

3,456

 

 

 

6,669

 

Operating Income (Loss)

 

 

(1,506

)

 

 

315

 

 

 

 

(4,806

)

 

 

626

 

 

 

(121

)

 

 

(4,059

)

 

 

 

 

74

 

 

 

(3,300

)

Total Other (Income) Expenses

 

 

54

 

 

 

123

 

 

 

 

282

 

 

 

243

 

 

 

84

 

 

 

30

 

 

 

 

 

146

 

 

 

228

 

Net Earnings (Loss) Before Income Tax

 

 

(1,560

)

 

 

192

 

 

 

 

(5,088

)

 

 

383

 

 

 

(205

)

 

 

(4,089

)

 

 

 

 

(72

)

 

 

(3,528

)

Income Tax Expense (Recovery)

 

 

(39

)

 

 

43

 

 

 

 

395

 

 

 

143

 

 

 

-

 

 

 

294

 

 

 

 

 

(176

)

 

 

434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss)

 

$

(1,521

)

 

$

149

 

 

 

$

(5,483

)

 

$

240

 

 

$

(205

)

 

$

(4,383

)

 

 

 

$

104

 

 

$

(3,962

)

(1)

SubsequentService revenues include amounts related to the completion of the Newfield acquisition on February 13, 2019, the post-acquisition results of the operations of Newfield are included in the Company’s interim consolidated results beginning February 14, 2019.USA and Canadian Operations.

(2)

Total Operating Expenses include non-cash items such as DD&A, impairments, accretion of asset retirement obligations and long-term incentive costs.

Revenues

Ovintiv’s revenues are substantially derived from sales of oil, NGLs and natural gas production. Increases or decreases in Ovintiv’s revenue, profitability and future production are highly dependent on the commodity prices the Company receives. Prices are market driven and fluctuate due to factors beyond the Company’s control, such as supply and demand, seasonality and geopolitical and economic factors. The USA Operations realized prices generally reflect WTI and NYMEX benchmark prices, as well as other downstream oil benchmarks, including Houston. The Canadian Operations realized prices are linked to Edmonton Condensate and AECO, as well as other downstream natural gas benchmarks, including Dawn. The other downstream benchmarks reflect the diversification of the Company’s markets. Recent trends in benchmark prices relevant to the Company are shown in the table below.

Benchmark Prices

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

(average for the period)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil & NGLs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WTI ($/bbl)

 

$

40.93

 

 

$

56.45

 

 

 

$

38.32

 

 

$

57.06

 

 

$

66.07

 

 

$

27.85

 

 

 

$

61.96

 

 

$

37.01

 

Houston ($/bbl)

 

 

41.89

 

 

 

61.14

 

 

 

 

40.27

 

 

 

62.84

 

 

 

67.02

 

 

 

29.43

 

 

 

 

63.19

 

 

 

39.46

 

Edmonton Condensate (C$/bbl)

 

 

50.00

 

 

 

68.70

 

 

 

 

47.48

 

 

 

70.21

 

 

 

81.52

 

 

 

30.71

 

 

 

 

77.50

 

 

 

46.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

$

1.98

 

 

$

2.23

 

 

 

$

1.88

 

 

$

2.67

 

 

$

2.83

 

 

$

1.72

 

 

 

$

2.76

 

 

$

1.83

 

AECO (C$/Mcf)

 

 

2.15

 

 

 

1.04

 

 

 

 

2.07

 

 

 

1.39

 

 

 

2.85

 

 

 

1.91

 

 

 

 

2.89

 

 

 

2.03

 

Dawn (C$/MMBtu)

 

 

2.42

 

 

 

2.81

 

 

 

 

2.35

 

 

 

3.26

 

 

 

3.42

 

 

 

2.25

 

 

 

 

3.70

 

 

 

2.32

 

 

 

4541

 

 


 

Production Volumes and Realized Prices

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

Production Volumes (1)

 

 

Realized Prices (2)

 

 

 

Production Volumes (1)

 

 

Realized Prices (2)

 

Production Volumes (1)

 

 

Realized Prices (2)

 

 

 

Production Volumes (1)

 

 

Realized Prices (2)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil (Mbbls/d, $/bbl)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

138.5

 

 

 

177.6

 

 

 

$

39.41

 

 

$

55.26

 

 

 

 

148.7

 

 

 

159.0

 

 

 

$

35.51

 

 

$

56.47

 

 

148.2

 

 

 

146.0

 

 

 

$

63.65

 

 

$

22.95

 

 

 

 

146.9

 

 

 

153.9

 

 

 

$

60.04

 

 

$

33.74

 

Canadian Operations

 

0.4

 

 

 

0.7

 

 

 

 

34.38

 

 

 

58.24

 

 

 

 

0.6

 

 

 

0.5

 

 

 

 

29.79

 

 

 

51.55

 

 

0.3

 

 

 

0.5

 

 

 

 

60.68

 

 

 

11.90

 

 

 

 

0.6

 

 

 

0.6

 

 

 

 

54.58

 

 

 

28.38

 

China Operations (3)

 

-

 

 

 

0.5

 

 

 

 

-

 

 

 

60.35

 

 

 

 

-

 

 

 

2.0

 

 

 

 

-

 

 

 

66.37

 

Total

 

138.9

 

 

 

178.8

 

 

 

 

39.40

 

 

 

55.29

 

 

 

 

149.3

 

 

 

161.5

 

 

 

 

35.49

 

 

 

56.58

 

 

148.5

 

 

 

146.5

 

 

 

 

63.65

 

 

 

22.91

 

 

 

 

147.5

 

 

 

154.5

 

 

 

 

60.02

 

 

 

33.72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NGLs – Plant Condensate (Mbbls/d, $/bbl)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

11.4

 

 

 

12.6

 

 

 

 

27.98

 

 

 

41.70

 

 

 

 

11.1

 

 

 

10.0

 

 

 

 

25.05

 

 

 

43.93

 

 

10.5

 

 

 

11.0

 

 

 

 

55.54

 

 

 

12.47

 

 

 

 

10.1

 

 

 

10.9

 

 

 

 

53.44

 

 

 

23.51

 

Canadian Operations

 

35.8

 

 

 

45.9

 

 

 

 

36.71

 

 

 

50.73

 

 

 

 

39.4

 

 

 

42.9

 

 

 

 

33.69

 

 

 

51.74

 

 

41.8

 

 

 

40.8

 

 

 

 

64.85

 

 

 

20.48

 

 

 

 

41.8

 

 

 

41.3

 

 

 

 

61.07

 

 

 

32.36

 

Total

 

47.2

 

 

 

58.5

 

 

 

 

34.60

 

 

 

48.78

 

 

 

 

50.5

 

 

 

52.9

 

 

 

 

31.79

 

 

 

50.26

 

 

52.3

 

 

 

51.8

 

 

 

 

62.98

 

 

 

18.79

 

 

 

 

51.9

 

 

 

52.2

 

 

 

 

59.58

 

 

 

30.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NGLs – Other (Mbbls/d, $/bbl)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

70.2

 

 

 

74.9

 

 

 

 

10.47

 

 

 

7.48

 

 

 

 

71.7

 

 

 

64.5

 

 

 

 

8.52

 

 

 

12.01

 

 

69.2

 

 

 

67.2

 

 

 

 

20.10

 

 

 

7.83

 

 

 

 

65.2

 

 

 

72.4

 

 

 

 

20.31

 

 

 

7.56

 

Canadian Operations

 

13.6

 

 

 

17.0

 

 

 

 

13.16

 

 

 

5.39

 

 

 

 

14.5

 

 

 

16.3

 

 

 

 

9.68

 

 

 

10.66

 

 

16.7

 

 

 

12.9

 

 

 

 

23.88

 

 

 

9.56

 

 

 

 

16.6

 

 

 

15.0

 

 

 

 

25.33

 

 

 

8.08

 

Total

 

83.8

 

 

 

91.9

 

 

 

 

10.91

 

 

 

7.09

 

 

 

 

86.2

 

 

 

80.8

 

 

 

 

8.72

 

 

 

11.74

 

 

85.9

 

 

 

80.1

 

 

 

 

20.83

 

 

 

8.11

 

 

 

 

81.8

 

 

 

87.4

 

 

 

 

21.34

 

 

 

7.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Oil & NGLs (Mbbls/d, $/bbl)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

220.1

 

 

 

265.1

 

 

 

 

29.59

 

 

 

41.12

 

 

 

 

231.5

 

 

 

233.5

 

 

 

 

26.66

 

 

 

43.65

 

 

227.9

 

 

 

224.2

 

 

 

 

50.05

 

 

 

17.91

 

 

 

 

222.2

 

 

 

237.2

 

 

 

 

48.09

 

 

 

25.28

 

Canadian Operations

 

49.8

 

 

 

63.6

 

 

 

 

30.27

 

 

 

38.65

 

 

 

 

54.5

 

 

 

59.7

 

 

 

 

27.24

 

 

 

40.52

 

 

58.8

 

 

 

54.2

 

 

 

 

53.19

 

 

 

17.79

 

 

 

 

59.0

 

 

 

56.9

 

 

 

 

50.91

 

 

 

25.91

 

China Operations (3)

 

-

 

 

 

0.5

 

 

 

 

-

 

 

 

60.35

 

 

 

 

-

 

 

 

2.0

 

 

 

 

-

 

 

 

66.37

 

Total

 

269.9

 

 

 

329.2

 

 

 

 

29.72

 

 

 

40.67

 

 

 

 

286.0

 

 

 

295.2

 

 

 

 

26.77

 

 

 

43.18

 

 

286.7

 

 

 

278.4

 

 

 

 

50.70

 

 

 

17.88

 

 

 

 

281.2

 

 

 

294.1

 

 

 

 

48.68

 

 

 

25.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas (MMcf/d, $/Mcf)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

507

 

 

 

617

 

 

 

 

1.52

 

 

 

1.67

 

 

 

 

537

 

 

 

535

 

 

 

 

1.42

 

 

 

1.89

 

 

497

 

 

 

536

 

 

 

 

2.60

 

 

 

1.33

 

 

 

 

478

 

 

 

552

 

 

 

 

2.78

 

 

 

1.37

 

Canadian Operations

 

935

 

 

 

1,038

 

 

 

 

1.96

 

 

 

1.54

 

 

 

 

983

 

 

 

1,027

 

 

 

 

1.83

 

 

 

1.95

 

 

1,110

 

 

 

1,014

 

 

 

 

2.81

 

 

 

1.69

 

 

 

 

1,113

 

 

 

1,007

 

 

 

 

2.96

 

 

 

1.78

 

Total

 

1,442

 

 

 

1,655

 

 

 

 

1.81

 

 

 

1.59

 

 

 

 

1,520

 

 

 

1,562

 

 

 

 

1.69

 

 

 

1.93

 

 

1,607

 

 

 

1,550

 

 

 

 

2.75

 

 

 

1.57

 

 

 

 

1,591

 

 

 

1,559

 

 

 

 

2.91

 

 

 

1.63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Production (MBOE/d, $/BOE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

304.6

 

 

 

367.9

 

 

 

 

23.91

 

 

 

32.43

 

 

 

 

320.9

 

 

 

322.8

 

 

 

 

21.60

 

 

 

34.72

 

 

310.8

 

 

 

313.4

 

 

 

 

40.87

 

 

 

15.09

 

 

 

 

301.8

 

 

 

329.2

 

 

 

 

39.80

 

 

 

20.52

 

Canadian Operations

 

205.6

 

 

 

236.7

 

 

 

 

16.22

 

 

 

17.12

 

 

 

 

218.4

 

 

 

230.8

 

 

 

 

15.05

 

 

 

19.14

 

 

243.8

 

 

 

223.2

 

 

 

 

25.67

 

 

 

11.99

 

 

 

 

244.7

 

 

 

224.8

 

 

 

 

25.79

 

 

 

14.50

 

China Operations (3)

 

-

 

 

 

0.5

 

 

 

 

-

 

 

 

60.35

 

 

 

 

-

 

 

 

2.0

 

 

 

 

-

 

 

 

66.37

 

Total

 

510.2

 

 

 

605.1

 

 

 

 

20.81

 

 

 

26.46

 

 

 

 

539.3

 

 

 

555.6

 

 

 

 

18.94

 

 

 

28.36

 

 

554.6

 

 

 

536.6

 

 

 

 

34.20

 

 

 

13.80

 

 

 

 

546.5

 

 

 

554.0

 

 

 

 

33.54

 

 

 

18.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production Mix (%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil & Plant Condensate

 

37

 

 

 

39

 

 

 

 

 

 

 

 

 

 

 

 

 

37

 

 

 

39

 

 

 

 

 

 

 

 

 

 

 

36

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

36

 

 

 

37

 

 

 

 

 

 

 

 

 

 

NGLs – Other

 

16

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

16

 

 

 

 

 

 

 

 

 

 

Total Oil & NGLs

 

53

 

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

53

 

 

 

53

 

 

 

 

 

 

 

 

 

 

 

52

 

 

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

53

 

 

 

 

 

 

 

 

 

 

Natural Gas

 

47

 

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

47

 

 

 

47

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

48

 

 

 

 

 

 

 

 

 

 

 

 

 

49

 

 

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Over Year (%) (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Over Year (%) (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Oil & NGLs

 

(18

)

 

 

84

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

85

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

6

 

 

 

 

 

 

 

 

 

 

Natural Gas

 

(13

)

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

39

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

3

 

 

 

 

 

 

 

 

 

 

Total Production

 

(16

)

 

 

60

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

60

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core Assets Production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil (Mbbls/d)

 

99.4

 

 

 

118.2

 

 

 

 

 

 

 

 

 

 

 

 

 

106.2

 

 

 

106.9

 

 

 

 

 

 

 

 

 

 

 

115.9

 

 

 

107.9

 

 

 

 

 

 

 

 

 

 

 

 

 

108.8

 

 

 

109.6

 

 

 

 

 

 

 

 

 

 

NGLs – Plant Condensate (Mbbls/d)

 

41.5

 

 

 

48.6

 

 

 

 

 

 

 

 

 

 

 

 

 

44.5

 

 

 

44.7

 

 

 

 

 

 

 

 

 

 

 

50.1

 

 

 

45.9

 

 

 

 

 

 

 

 

 

 

 

 

 

48.9

 

 

 

46.0

 

 

 

 

 

 

 

 

 

 

NGLs – Other (Mbbls/d)

 

75.0

 

 

 

80.2

 

 

 

 

 

 

 

 

 

 

 

 

 

76.8

 

 

 

70.5

 

 

 

 

 

 

 

 

 

 

 

78.5

 

 

 

71.8

 

 

 

 

 

 

 

 

 

 

 

 

 

73.8

 

 

 

77.7

 

 

 

 

 

 

 

 

 

 

Total Oil & NGLs (Mbbls/d)

 

215.9

 

 

 

247.0

 

 

 

 

 

 

 

 

 

 

 

 

 

227.5

 

 

 

222.1

 

 

 

 

 

 

 

 

 

 

 

244.5

 

 

 

225.6

 

 

 

 

 

 

 

 

 

 

 

 

 

231.5

 

 

 

233.3

 

 

 

 

 

 

 

 

 

 

Natural Gas (MMcf/d)

 

1,291

 

 

 

1,416

 

 

 

 

 

 

 

 

 

 

 

 

 

1,362

 

 

 

1,325

 

 

 

 

 

 

 

 

 

 

 

1,500

 

 

 

1,392

 

 

 

 

 

 

 

 

 

 

 

 

 

1,467

 

 

 

1,399

 

 

 

 

 

 

 

 

 

 

Total Production (MBOE/d)

 

431.1

 

 

 

482.8

 

 

 

 

 

 

 

 

 

 

 

 

 

454.6

 

 

 

442.9

 

 

 

 

 

 

 

 

 

 

 

494.5

 

 

 

457.6

 

 

 

 

 

 

 

 

 

 

 

 

 

475.9

 

 

 

466.4

 

 

 

 

 

 

 

 

 

 

% of Total Production

 

84

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

84

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

89

 

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

87

 

 

 

84

 

 

 

 

 

 

 

 

 

 

(1)

Average daily.

(2)

Average per-unit prices, excluding the impact of risk management activities.

(3)

The Company terminated its production sharing contract with China National Offshore Oil Corporation (“CNOOC”) and exited its China Operations effective July 31, 2019. Production from China Operations is presented for the period from February 14, 2019 through July 31, 2019.

(4)

Includes production impacts from acquisitions and divestitures.

 

 

4642

 

 


 

Upstream Product Revenues

Three months ended September 30,

 

Three months ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ millions)

Oil

 

 

NGLs - Plant Condensate

 

 

NGLs - Other

 

 

Natural

Gas

 

 

Total

 

Oil

 

 

NGLs - Plant Condensate

 

 

NGLs - Other

 

 

Natural

Gas

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019 Upstream Product Revenues (1)

$

909

 

 

$

262

 

 

$

60

 

 

$

243

 

 

$

1,474

 

2020 Upstream Product Revenues (1)

$

306

 

 

$

89

 

 

$

58

 

 

$

220

 

 

$

673

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales prices

 

(203

)

 

 

(59

)

 

 

29

 

 

 

29

 

 

 

(204

)

 

549

 

 

 

210

 

 

 

99

 

 

 

172

 

 

 

1,030

 

Production volumes

 

(203

)

 

 

(52

)

 

 

(5

)

 

 

(31

)

 

 

(291

)

 

4

 

 

 

1

 

 

 

5

 

 

 

9

 

 

 

19

 

2020 Upstream Product Revenues

$

503

 

 

$

151

 

 

$

84

 

 

$

241

 

 

$

979

 

2021 Upstream Product Revenues

$

859

 

 

$

300

 

 

$

162

 

 

$

401

 

 

$

1,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

Six months ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ millions)

Oil

 

 

NGLs - Plant Condensate

 

 

NGLs - Other

 

 

Natural

Gas

 

 

Total

 

Oil

 

 

NGLs - Plant Condensate

 

 

NGLs - Other

 

 

Natural

Gas

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019 Upstream Product Revenues (1)

$

2,495

 

 

$

726

 

 

$

258

 

 

$

824

 

 

$

4,303

 

2020 Upstream Product Revenues (1)

$

949

 

 

$

290

 

 

$

121

 

 

$

464

 

 

$

1,824

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales prices

 

(850

)

 

 

(251

)

 

 

(72

)

 

 

(99

)

 

 

(1,272

)

 

701

 

 

 

271

 

 

 

202

 

 

 

363

 

 

 

1,537

 

Production volumes

 

(193

)

 

 

(34

)

 

 

19

 

 

 

(20

)

 

 

(228

)

 

(48

)

 

 

(2

)

 

 

(8

)

 

 

11

 

 

 

(47

)

2020 Upstream Product Revenues

$

1,452

 

 

$

441

 

 

$

205

 

 

$

705

 

 

$

2,803

 

2021 Upstream Product Revenues

$

1,602

 

 

$

559

 

 

$

315

 

 

$

838

 

 

$

3,314

 

(1)

Revenues for the thirdsecond quarter and the first ninesix months of 20202021 exclude certain other revenue and royalty adjustments with no associated production volumes of $1 million and $1$3 million, respectively (2019 - $2 million and $12 million, respectively).respectively.

Oil Revenues

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Oil revenues decreased $406increased $553 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

LowerHigher average realized oil prices of $15.89$40.74 per bbl, or 29178 percent, decreasedincreased revenues by $203$549 million. The decreaseincrease reflected lowerhigher WTI and Houston and WTI benchmark prices which were down 31up 137 percent and 27128 percent, respectively, and weakeningthe strengthening of regional pricing relative to the WTI benchmark price in the USA Operations; and

 

LowerHigher average oil production volumes of 39.92.0 Mbbls/d decreasedincreased revenues by $203$4 million. LowerHigher volumes were primarily due to successful drilling in Permian (9.9 Mbbls/d), production shut-ins due to the economic downturn in 2020 (9.0 Mbbls/d) and third-party gathering capacity constraints in 2020 (3.3 Mbbls/d), partially offset by natural declines surpassing incremental production in USA Operations, reduced drilling operationsAnadarko, Eagle Ford and Bakken (13.9 Mbbls/d), and the sale of the Eagle Ford assets in Core Assets and suspended capital spending in Other Upstream Operations (37.2the second quarter of 2021 (6.6 Mbbls/d).

NineSix months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Oil revenues decreased $1,043increased $653 million compared to the first ninesix months of 20192020 primarily due to:

 

LowerHigher average realized oil prices of $21.09$26.30 per bbl, or 3778 percent, decreasedincreased revenues by $850$701 million. The decreaseincrease reflected lowerhigher WTI and Houston and WTI benchmark prices which were down 36up 67 percent and 3360 percent, respectively, and weakeningthe strengthening of regional pricing relative to the WTI benchmark price in the USA Operations; and

 

Lower average oil production volumes of 12.27.0 Mbbls/d decreased revenues by $193$48 million. Lower volumes were primarily due to natural declines surpassing incremental production in Anadarko, Bakken and Eagle Ford (12.7 Mbbls/d), severe winter weather conditions in Permian and Anadarko (3.4 Mbbls/d) and Uinta (17.5the sale of the Eagle Ford assets in the second quarter of 2021 (3.3 Mbbls/d), partially offset by successful drilling in Permian (5.7 Mbbls/d), production shut-ins due to the economic downturn (3.7in 2020 (4.4 Mbbls/d) and the termination of the Company’s production sharing contract in its China Operations in the third quarter of 2019 (2.0 Mbbls/d), partially offset by the Newfield acquisition in 2019 (11.6third-party gathering capacity constraints (1.7 Mbbls/d).

 

 

4743

 

 


 

NGL Revenues

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

NGL revenues decreased $87increased $315 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

LowerHigher average realized plant condensate prices of $14.18$44.19 per bbl, or 29235 percent, decreasedincreased revenues by $59$210 million. The decreaseincrease reflected lower WTI andhigher Edmonton Condensate and WTI benchmark prices which were both down 27 percent;up 165 percent and 137 percent, respectively, as well as higher regional pricing relative to the WTI benchmark price in the Canadian Operations;

 

LowerHigher average plant condensate production volumesrealized other NGL prices of 11.3 Mbbls/d decreased$12.72 per bbl, or 157 percent, increased revenues by $52 million. Lower volumes were primarily due to natural declines in the Canadian Operations$99 million reflecting higher other NGL benchmark prices and Anadarko (9.7 Mbbls/d) and third-party plant downtime in Montney (1.4 Mbbls/d);higher regional pricing;

 

Higher average other NGL production volumes of 5.8 Mbbls/d increased revenues by $5 million. Higher volumes were primarily due to successful drilling in Montney, Permian and Bakken (8.5 Mbbls/d) and production shut-ins due to the economic downturn in 2020 (3.1 Mbbls/d), partially offset by natural declines in Anadarko, Eagle Ford and Duvernay (4.5 Mbbls/d), and the sale of the Eagle Ford assets in the second quarter of 2021 (1.7 Mbbls/d); and

Higher average plant condensate production volumes of 0.5 Mbbls/d increased revenues by $1 million. Higher volumes were primarily due to production shut-ins due to the economic downturn in 2020 (2.8 Mbbls/d) and successful drilling in Montney (2.6 Mbbls/d), partially offset by natural declines in Duvernay and Anadarko (2.9 Mbbls/d), and the sale of the Duvernay assets in the second quarter of 2021 (1.8 Mbbls/d).

Six months ended June 30, 2021 versus June 30, 2020

NGL revenues increased $463 million compared to the first six months of 2020 primarily due to:

Higher average realized plant condensate prices of $29.07 per bbl, or 95 percent, increased revenues by $271 million. The increase reflected higher Edmonton Condensate and WTI benchmark prices which were up 68 percent and 67 percent, respectively, as well as higher regional pricing relative to the WTI benchmark price;

Higher average realized other NGL prices of $13.69 per bbl, or 179 percent, increased revenues by $202 million reflecting higher other NGL benchmark prices and higher regional pricing;

Lower average other NGL production volumes of 8.15.6 Mbbls/d decreased revenues by $5$8 million. Lower volumes were primarily due to natural declines in Anadarko, Montney, Eagle Ford and Duvernay (9.2(8.5 Mbbls/d), severe winter weather conditions in Anadarko and Permian (2.3 Mbbls/d) and the sale of the Eagle Ford assets in the second quarter of 2021 (0.9 Mbbls/d), partially offset by successful drilling in Montney and Bakken (3.6 Mbbls/d); and

 

Higher average realized other NGL prices of $3.82 per bbl, or 54 percent, increased revenues by $29 million reflecting higher other NGL benchmark prices primarily in the USA Operations and higher regional pricing.

Nine months ended September 30, 2020 versus September 30, 2019

NGL revenues decreased $338 million compared to the first nine months of 2019 primarily due to:

Lower average realized plant condensate prices of $18.47 per bbl, or 37 percent, decreased revenues by $251 million. The decrease reflected lower WTI and Edmonton Condensate benchmark prices which were down 33 percent and 32 percent, respectively, as well as declines in regional pricing relative to the WTI and Edmonton Condensate benchmark prices;

Lower average realized other NGL prices of $3.02 per bbl, or 26 percent, decreased revenues by $72 million reflecting lower other NGL benchmark prices primarily in the USA Operations and lower regional pricing;

Lower average plant condensate production volumes of 2.40.3 Mbbls/d decreased revenues by $34$2 million. Lower volumes were primarily due to natural declines in Duvernay and Anadarko (3.0 Mbbls/d), and the Canadian Operations (2.8sale of the Duvernay assets in the second quarter of 2021 (0.9 Mbbls/d); and

Higher average other NGL production volumes of 5.4 Mbbls/d increased revenues, partially offset by $19 million. Higher volumes were primarily due to the Newfield acquisitionsuccessful drilling in 2019 (5.7Montney (2.7 Mbbls/d).

Natural Gas Revenues

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Natural gas revenues decreased $2increased $181 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

LowerHigher average realized natural gas production volumesprices of 213 MMcf/d decreased$1.18 per Mcf, or 75 percent, increased revenues by $31 million primarily due to natural declines in Montney, Anadarko, Duvernay$172 million. The increase reflected higher NYMEX, Dawn and Eagle Ford (135 MMcf/d), the sale of the Arkoma natural gas assets in the third quarter of 2019 (48 MMcf/d)AECO benchmark prices which were up 65 percent, 52 percent and third-party plant downtime in Montney (38 MMcf/d);49 percent, respectively, and higher regional pricing; and

 

Higher average realized natural gas pricesproduction volumes of $0.22 per Mcf, or 14 percent,57 MMcf/d increased revenues by $29 million. The increase reflected a higher AECO benchmark price which was up 107 percent,$9 million primarily due to successful drilling in Montney (151 MMcf/d) and production shut-ins due to the economic downturn in 2020 (27 MMcf/d), partially offset by lower Dawnnatural declines in Anadarko and NYMEX benchmark prices which were down 14 percentDuvernay (72 MMcf/d), the sales of the Duvernay and 11 percent, respectively.Eagle Ford assets in the second quarter of 2021 (34 MMcf/d), and third-party plant issues in Montney (14 MMcf/d).

 

 

4844

 

 


 

NineSix months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Natural gas revenues decreased $119increased $374 million compared to the first ninesix months of 20192020 primarily due to:

 

LowerHigher average realized natural gas prices of $0.24$1.28 per Mcf, or 1279 percent, decreasedincreased revenues by $99$363 million. The decreaseincrease reflected lowerhigher Dawn, NYMEX and DawnAECO benchmark prices which were down 30up 59 percent, 51 percent and 2842 percent, respectively, partially offset by aand higher AECO benchmark price which was up 49 percent;regional pricing; and

 

LowerHigher average natural gas production volumes of 4232 MMcf/d decreasedincreased revenues by $20$11 million primarily due to natural declinessuccessful drilling in Montney Duvernay and Eagle Ford (56 MMcf/d), the sale of the Arkoma natural gas assets in the third quarter of 2019 (47 MMcf/d), increased third-party plant downtime in Montney (11(154 MMcf/d) and production shut-ins due to the economic downturn (11in 2020 (14 MMcf/d), partially offset by natural declines in Anadarko, Duvernay and Eagle Ford (85 MMcf/d), the Newfield acquisitionsales of the Duvernay and Eagle Ford assets in 2019 (60the second quarter of 2021 (17 MMcf/d), severe winter weather conditions in Anadarko and Permian (15 MMcf/d), and a successful drilling programthird-party plant issues in Permian (22Montney (14 MMcf/d).

Gains (Losses) on Risk Management, Net

As a means of managing commodity price volatility, Ovintiv enters into commodity derivative financial instruments on a portion of its expected oil, NGL and natural gas production volumes. The Company’s commodity price mitigation program reduces volatility and helps sustain revenues during periods of lower prices. Additional information on the Company’s commodity price positions as at SeptemberJune 30, 20202021 can be found in Note 2219 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following tables provide the effects of the Company’s risk management activities on revenues.

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

 

($ millions)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized Gains (Losses) on Risk Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Price (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

$

26

 

 

$

10

 

 

 

$

331

 

 

$

56

 

 

 

$

(167

)

 

$

223

 

 

 

$

(284

)

 

$

305

 

 

NGLs - Plant Condensate

 

 

23

 

 

 

9

 

 

 

 

105

 

 

 

24

 

 

 

 

(35

)

 

 

59

 

 

 

 

(60

)

 

 

82

 

 

NGLs - Other

 

 

(7

)

 

 

28

 

 

 

 

5

 

 

 

61

 

 

 

 

(20

)

 

 

7

 

 

 

 

(39

)

 

 

12

 

 

Natural Gas

 

 

45

 

 

 

73

 

 

 

 

157

 

 

 

156

 

 

 

 

(2

)

 

 

73

 

 

 

 

1

 

 

 

112

 

 

Other (2)

 

 

2

 

 

 

2

 

 

 

 

7

 

 

 

4

 

 

 

 

1

 

 

 

3

 

 

 

 

3

 

 

 

5

 

 

Total

 

 

89

 

 

 

122

 

 

 

 

605

 

 

 

301

 

 

 

 

(223

)

 

 

365

 

 

 

 

(379

)

 

 

516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains (Losses) on Risk Management

 

 

(243

)

 

 

(41

)

 

 

 

(18

)

 

 

(385

)

 

 

 

(576

)

 

 

(679

)

 

 

 

(847

)

 

 

225

 

 

Total Gains (Losses) on Risk Management, Net

 

$

(154

)

 

$

81

 

 

 

$

587

 

 

$

(84

)

 

 

$

(799

)

 

$

(314

)

 

 

$

(1,226

)

 

$

741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

 

(Per-unit)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized Gains (Losses) on Risk Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Price (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil ($/bbl)

 

$

1.99

 

 

$

0.63

 

 

 

$

8.09

 

 

$

1.27

 

 

 

$

(12.38

)

 

$

16.79

 

 

 

$

(10.64

)

 

$

10.86

 

 

NGLs - Plant Condensate ($/bbl)

 

$

5.39

 

 

$

1.77

 

 

 

$

7.62

 

 

$

1.66

 

 

 

$

(7.39

)

 

$

12.58

 

 

 

$

(6.43

)

 

$

8.65

 

 

NGLs - Other ($/bbl)

 

$

(0.92

)

 

$

3.28

 

 

 

$

0.20

 

 

$

2.76

 

 

 

$

(2.46

)

 

$

0.90

 

 

 

$

(2.60

)

 

$

0.75

 

 

Natural Gas ($/Mcf)

 

$

0.34

 

 

$

0.48

 

 

 

$

0.38

 

 

$

0.37

 

 

 

$

(0.01

)

 

$

0.52

 

 

 

$

-

 

 

$

0.39

 

 

Total ($/BOE)

 

$

1.85

 

 

$

2.17

 

 

 

$

4.04

 

 

$

1.96

 

 

 

$

(4.44

)

 

$

7.41

 

 

 

$

(3.86

)

 

$

5.07

 

 

(1)

Includes realized gains and losses related to the USA and Canadian Operations.

(2)

Other primarily includes realized gains or losses from Market Optimization and other derivative contracts with no associated production volumes.

Ovintiv recognizes fair value changes from its risk management activities each reporting period. The changes in fair value result from new positions and settlements that occur during each period, as well as the relationship between contract prices and the associated forward curves. Realized gains or losses on risk management activities related to commodity price mitigation are included in the USA Operations, Canadian Operations and Market Optimization revenues as the contracts are cash settled. Unrealized gains or losses on fair value changes of unsettled contracts are included in the Corporate and Other segment.

 

 

4945

 

 


 

Market Optimization Revenues

Market Optimization product revenues relate to activities that provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. The CompanyOvintiv also purchases and sells third-party volumes under long-term marketing arrangements associated with the Company’s previous divestitures.

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Optimization

 

$

346

 

 

$

294

 

 

 

$

1,113

 

 

$

870

 

 

$

748

 

 

$

348

 

 

 

$

1,400

 

 

$

767

 

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Market Optimization product revenues increased $52$400 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

Higher oil and natural gas benchmark prices ($449 million) and higher sales of third-party purchased liquidliquids volumes primarily relating to price optimization activities in the USA Operations ($45 million) and higher sales of third-party purchased natural gas volumes primarily relating to long-term marketing arrangements for assets divested in prior years ($3855 million);

partially offset by:

 

Lower oil and NYMEX benchmark prices, as well as lower regionalsales of third-party purchased natural gas pricingvolumes primarily relating to marketing arrangements for assets divested in prior years ($31104 million).

NineSix months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Market Optimization product revenues increased $243$633 million compared to the first ninesix months of 20192020 primarily due to:

 

Higher oil and natural gas benchmark prices ($691 million) and higher sales of third-party purchased liquidliquids volumes primarily relating to price optimization activities in the USA Operations ($600 million) and higher sales of third-party purchased natural gas volumes primarily relating to long-term marketing arrangements for assets divested in prior years ($96150 million);

partially offset by:

 

Lower oil and NYMEX benchmark prices, as well as lower regionalsales of third-party purchased natural gas pricingvolumes primarily relating to marketing arrangements for assets divested in prior years ($453208 million).

Sublease Revenues

Sublease revenues primarily include amounts related to the sublease of office space in The Bow office building recorded in the Corporate and Other segment. Additional information on office sublease income can be found in Note 119 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Operating Expenses

Production, Mineral and Other Taxes

Production, mineral and other taxes include production and property taxes. Production taxes are generally assessed as a percentage of oil, NGLs and natural gas production revenues. Property taxes are generally assessed based on the value of the underlying assets.

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

43

 

 

$

63

 

 

 

$

115

 

 

$

176

 

 

$

69

 

 

$

24

 

 

 

$

124

 

 

$

72

 

Canadian Operations

 

 

4

 

 

 

3

 

 

 

 

11

 

 

 

11

 

 

 

4

 

 

 

3

 

 

 

 

9

 

 

 

7

 

Total

 

$

47

 

 

$

66

 

 

 

$

126

 

 

$

187

 

 

$

73

 

 

$

27

 

 

 

$

133

 

 

$

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($/BOE)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

1.54

 

 

$

1.85

 

 

 

$

1.31

 

 

$

1.99

 

 

$

2.43

 

 

$

0.82

 

 

 

$

2.27

 

 

$

1.20

 

Canadian Operations

 

$

0.18

 

 

$

0.15

 

 

 

$

0.18

 

 

$

0.18

 

 

$

0.17

 

 

$

0.17

 

 

 

$

0.19

 

 

$

0.18

 

Production, Mineral and Other Taxes

 

$

0.99

 

 

$

1.18

 

 

 

$

0.85

 

 

$

1.23

 

 

$

1.44

 

 

$

0.55

 

 

 

$

1.34

 

 

$

0.79

 

 

 

5046

 

 


 

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Production, mineral and other taxes decreased $19increased $46 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

LowerHigher production tax in USA Operations due to lowerhigher commodity prices and oil production volumes ($2044 million).

NineSix months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Production, mineral and other taxes decreased $61increased $54 million compared to the first ninesix months of 20192020 primarily due to:

 

LowerHigher production tax in USA Operations due to lowerhigher commodity prices ($58 million), as well as the sale of the Arkoma natural gas assets and the termination of the Company’s production sharing contract in its China Operations in the third quarter of 2019 ($259 million).

Transportation and Processing

Transportation and processing expense includes transportation costs incurred to move product from production points to sales points including gathering, compression, pipeline tariffs, trucking and storage costs. Ovintiv also incurs costs related to processing provided by third parties or through ownership interests in processing facilities.

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

109

 

 

$

125

 

 

 

$

345

 

 

$

340

 

 

$

126

 

 

$

115

 

 

 

$

239

 

 

$

236

 

Canadian Operations

 

 

203

 

 

 

211

 

 

 

 

614

 

 

 

640

 

 

 

248

 

 

 

198

 

 

 

 

472

 

 

 

411

 

Upstream Transportation and Processing

 

 

312

 

 

 

336

 

 

 

 

959

 

 

 

980

 

 

 

374

 

 

 

313

 

 

 

 

711

 

 

 

647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Optimization

 

 

53

 

 

 

62

 

 

 

 

170

 

 

 

168

 

 

 

44

 

 

 

55

 

 

 

 

86

 

 

 

117

 

Total

 

$

365

 

 

$

398

 

 

 

$

1,129

 

 

$

1,148

 

 

$

418

 

 

$

368

 

 

 

$

797

 

 

$

764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($/BOE)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

3.85

 

 

$

3.72

 

 

 

$

3.92

 

 

$

3.86

 

 

$

4.44

 

 

$

4.07

 

 

 

$

4.38

 

 

$

3.95

 

Canadian Operations

 

$

10.71

 

 

$

9.68

 

 

 

$

10.24

 

 

$

10.15

 

 

$

11.24

 

 

$

9.75

 

 

 

$

10.68

 

 

$

10.02

 

Upstream Transportation and Processing

 

$

6.62

 

 

$

6.05

 

 

 

$

6.48

 

 

$

6.46

 

 

$

7.42

 

 

$

6.44

 

 

 

$

7.20

 

 

$

6.42

 

47


Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Transportation and processing expense decreased $33increased $50 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

Lower productionHigher volumes the sale of the Arkoma natural gas assets in the third quarter of 2019, the expiration of certain transportation contracts relating to decommissioned and previously divested assets, and lower U.S/Montney ($29 million), a higher U.S./Canadian dollar exchange rate;rate ($26 million) and higher natural gas rates in Permian, Anadarko and Uinta ($10 million);

partially offset by:

 

Expired contracts relating to previously divested assets and the decommissioning of Deep Panuke ($22 million).

Six months ended June 30, 2021 versus June 30, 2020

Transportation and processing expense increased $33 million compared to the first six months of 2020 primarily due to:

Higher volumes in Montney ($48 million), a higher U.S./Canadian dollar exchange rate ($38 million), higher natural gas rates in Permian ($11 million) and higher costs relating to the diversification of the Company’s downstream markets.

Nine months ended September 30, 2020 versus September 30, 2019

Transportation and processing expense decreased $19 million compared to the first nine months of 2019 primarily due to:

The sale of the Arkoma natural gas assets in the third quarter of 2019, the expiration of certain transportation contracts relating to decommissioned and previously divested assets, lower U.S/Canadian dollar exchange rate and lower flow-through operating costs due to a third-party plant turnaround in Montney in 2019;markets ($11 million);

partially offset by:

 

Higher costs from increased production volumes relating to the Newfield acquisition in 2019, rate escalation inThe expiration of certain transportation contracts duein the USA Operations as well as expired contracts relating to previously divested assets higher costs relating($42 million), the decommissioning of Deep Panuke ($15 million), lower natural gas volumes in Anadarko ($11 million) and recoveries of amounts related to the diversification of the Company’s downstream markets and higher downstreamcertain transportation costs in Montney due to third-party adjustments.contracts ($7 million).

51


Operating

Operating expense includes costs paid by the Company, net of amounts capitalized, on oil and natural gas properties in which the Company has a working interest. These costs primarily include labor, service contract fees, chemicals, fuel, water hauling, electricity and workovers.

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

104

 

 

$

151

 

 

 

$

364

 

 

$

414

 

 

$

117

 

 

$

121

 

 

 

$

246

 

 

$

260

 

Canadian Operations

 

 

24

 

 

 

32

 

 

 

 

75

 

 

 

96

 

 

 

25

 

 

 

25

 

 

 

 

53

 

 

 

51

 

China Operations (1)

 

 

-

 

 

 

4

 

 

 

 

-

 

 

 

16

 

Upstream Operating Expense

 

 

128

 

 

 

187

 

 

 

 

439

 

 

 

526

 

 

 

142

 

 

 

146

 

 

 

 

299

 

 

 

311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Optimization

 

 

5

 

 

 

6

 

 

 

 

15

 

 

 

21

 

 

 

7

 

 

 

8

 

 

 

 

14

 

 

 

10

 

Corporate & Other

 

 

-

 

 

 

-

 

 

 

 

(2

)

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

(2

)

Total

 

$

133

 

 

$

193

 

 

 

$

452

 

 

$

545

 

 

$

149

 

 

$

154

 

 

 

$

313

 

 

$

319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($/BOE)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

3.73

 

 

$

4.48

 

 

 

$

4.14

 

 

$

4.70

 

 

$

4.16

 

 

$

4.22

 

 

 

$

4.51

 

 

$

4.33

 

Canadian Operations

 

$

1.22

 

 

$

1.45

 

 

 

$

1.23

 

 

$

1.51

 

 

$

1.11

 

 

$

1.20

 

 

 

$

1.17

 

 

$

1.23

 

China Operations (1)

 

$

-

 

 

$

66.11

 

 

 

$

-

 

 

$

27.53

 

Upstream Operating Expense (2)

 

$

2.72

 

 

$

3.35

 

 

 

$

2.96

 

 

$

3.46

 

Upstream Operating Expense (1)

 

$

2.82

 

 

$

2.97

 

 

 

$

3.02

 

 

$

3.07

 

(1)

The Company terminated its production sharing contract with CNOOC and exited its China Operations effective July 31, 2019. Upstream Operating Expense from China Operations is presented for the period from February 14, 2019 through July 31, 2019.

(2)

Upstream Operating Expense per BOE for the thirdsecond quarter and first ninesix months of 2020 includes2021 include long-term incentive costs of $0.03/$0.14/BOE and $0.15/BOE, respectively (2020 - long-term incentive costs of $0.11/BOE and a recovery of long-term incentive costs of $0.02/BOE, respectively (2019 – long-term incentive costs of $0.01/BOE and $0.06/$0.03/BOE, respectively).

52


Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Operating expense decreased $60$5 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

Decreased activity mainly as a result of the economic downturn and cost saving initiatives ($46 million), lowerLower salaries and benefits due to decreased headcount resulting from workforce reductions in the second quarter of 2020 ($1816 million), as well asand the salesales of the Arkoma natural gasEagle Ford and Duvernay assets and the termination of the Company’s production sharing contract in its China Operations in the thirdsecond quarter of 20192021 ($78 million);

partially offset by:

 

LowerIncreased activity resulting from improved commodity prices ($10 million) and lower capitalization of overhead costs ($1910 million).

Nine

48


Six months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Operating expense decreased $93$6 million compared to the first ninesix months of 20192020 primarily due to:

 

Decreased activity mainly as a result of the economic downturn and cost saving initiatives ($80 million), the sale of the Arkoma natural gas assets and the termination of the Company’s production sharing contract in its China Operations in the third quarter of 2019 ($27 million), lowerLower salaries and benefits due to decreased headcount resulting from workforce reductions in the second quarter of 2020 ($1841 million), as well as a recoverycost saving initiatives implemented at the end of long-term incentive costs resulting from a decreasethe first quarter of 2020 ($13 million) and the sales of the Eagle Ford and Duvernay assets in the Company’s share price in the first nine monthssecond quarter of 2020 compared to long-term incentive costs resulting from an increase in the share price in the first nine months of 20192021 ($158 million);

partially offset by:

 

Lower capitalization of overhead costs ($4031 million) and higher long-term incentive costs resulting from an increase in the Newfield acquisitionCompany’s share price in 2019the first six months of 2021 compared to a decrease in 2020 ($1122 million).

Additional information on the Company’s long-term incentives can be found in Note 1916 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Purchased Product

Purchased product expense includes purchases of oil, NGLs and natural gas from third parties that are used to provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. The Company also purchases and sells third-party volumes under long-term marketing arrangements associated with the Company’s previous divestitures.

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Optimization

 

$

322

 

 

$

264

 

 

 

$

1,039

 

 

$

784

 

 

$

733

 

 

$

319

 

 

 

$

1,337

 

 

$

717

 

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Purchased product expense increased $58$414 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

Higher oil and natural gas benchmark prices ($453 million) and higher third-party purchased liquidliquids volumes primarily relating to price optimization activities in the USA Operations ($45 million) and higher third-party purchased natural gas volumes primarily relating to long-term marketing arrangements for assets divested in prior years ($3253 million);

partially offset by:

 

Lower oil and NYMEX benchmark prices, as well as lower regionalthird-party purchased natural gas pricingvolumes primarily relating to marketing arrangements for assets divested in prior years ($1992 million).

53


NineSix months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Purchased product expense increased $255$620 million compared to the first ninesix months of 20192020 primarily due to:

 

Higher oil and natural gas benchmark prices ($656 million) and higher third-party purchased liquidliquids volumes primarily relating to price optimization activities in the USA Operations ($600 million) and higher third-party purchased natural gas volumes primarily relating to long-term marketing arrangements for assets divested in prior years ($86150 million);

partially offset by:

 

Lower oil and NYMEX benchmark prices, as well as lower regionalthird-party purchased natural gas pricingvolumes primarily relating to marketing arrangements for assets divested in prior years ($431186 million).

49


Depreciation, Depletion & Amortization

Proved properties within each country cost centre are depleted using the unit-of-production method based on proved reserves as discussed in Note 1 to the Consolidated Financial Statements included in Item 8 of the 20192020 Annual Report on Form 10-K. Depletion rates are impacted by impairments, acquisitions, divestitures and foreign exchange rates, as well as fluctuations in 12-month average trailing prices which affect proved reserves volumes. Corporate assets are carried at cost and depreciated on a straight-line basis over the estimated service lives of the assets.

Additional information can be found under Upstream Assets and Reserve Estimates in the Critical Accounting Estimates section of the MD&A included in Item 7 of the 20192020 Annual Report on Form 10-K.

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

299

 

 

$

438

 

 

 

$

1,092

 

 

$

1,141

 

 

$

220

 

 

$

375

 

 

 

$

428

 

 

$

793

 

Canadian Operations

 

 

99

 

 

 

100

 

 

 

 

319

 

 

 

287

 

 

 

89

 

 

 

111

 

 

 

 

182

 

 

 

220

 

Upstream DD&A

 

 

398

 

 

 

538

 

 

 

 

1,411

 

 

 

1,428

 

 

 

309

 

 

 

486

 

 

 

 

610

 

 

 

1,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate & Other

 

 

8

 

 

 

7

 

 

 

 

22

 

 

 

26

 

 

 

2

 

 

 

7

 

 

 

 

9

 

 

 

14

 

Total

 

$

406

 

 

$

545

 

 

 

$

1,433

 

 

$

1,454

 

 

$

311

 

 

$

493

 

 

 

$

619

 

 

$

1,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($/BOE)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Operations

 

$

10.66

 

 

$

12.93

 

 

 

$

12.42

 

 

$

12.95

 

 

$

7.79

 

 

$

13.18

 

 

 

$

7.84

 

 

$

13.24

 

Canadian Operations

 

$

5.23

 

 

$

4.61

 

 

 

$

5.31

 

 

$

4.56

 

 

$

4.01

 

 

$

5.41

 

 

 

$

4.12

 

 

$

5.35

 

Upstream DD&A

 

$

8.47

 

 

$

9.67

 

 

 

$

9.54

 

 

$

9.45

 

 

$

6.13

 

 

$

9.94

 

 

 

$

6.17

 

 

$

10.03

 

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

DD&A decreased $139$182 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

Lower production volumes and depletion rates in the USA and Canadian Operations ($75152 million and $64$46 million, respectively), partially offset by a higher U.S./Canadian dollar exchange rate ($14 million) and lowerhigher production volumes in the Canadian Operations ($13 million), partially offset by higher depletion rates in the Canadian Operations ($1311 million).

The depletion rate in the USA Operations decreased $2.27$5.39 per BOE compared to the thirdsecond quarter of 20192020 primarily due to the ceiling test impairments recognized in the second quarter of 2020. The depletion rate in the Canadian Operations increased $0.62decreased $1.40 per BOE compared to the thirdsecond quarter of 20192020 primarily due to a higherlower depletable base.

54


NineSix months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

DD&A decreased $21$408 million compared to the first ninesix months of 20192020 primarily due to:

 

Lower depletion rates and production volumes in the USA Operations ($295 million and $70 million, respectively) and lower depletion rates in the USACanadian Operations ($4676 million), lowerpartially offset by a higher U.S./Canadian dollar exchange rate ($21 million) and higher production volumes in the Canadian Operations ($14 million), and lower U.S/Canadian dollar exchange rate ($5 million), partially offset by higher depletion rates in the Canadian Operations ($5118 million).

The depletion rate in the USA Operations decreased $0.53$5.40 per BOE compared to the first ninesix months of 20192020 primarily due to the ceiling test impairments recognized in the second quarter of 2020. The depletion rate in the Canadian Operations increased $0.75decreased $1.23 per BOE compared to 2019the first six months of 2020 primarily due to a higherlower depletable base.

50


Impairments

Under full cost accounting, the carrying amount of Ovintiv’s oil and natural gas properties within each country cost centre is subject to a ceiling test performed quarterly. Ceiling test impairments are recognized when the capitalized costs, net of accumulated depletion and the related deferred income taxes, exceed the sum of the estimated after-tax future net cash flows from proved reserves as calculated under SEC requirements using the 12‑month average trailing prices and discounted at 10 percent. The 12-month average trailing price is calculated as the average of the price on the first day of each month within the trailing 12-month period.

In the thirdsecond quarter and first ninesix months of 2020,2021, the Company recognized a before-tax non-cashdid not recognize ceiling test impairment of $1,336impairments (2020 - $3,250 million before tax, and $4,863$3,527 million before tax, respectively, in the USA Operations.Operations). The non-cash ceiling test impairments in 2020 primarily resulted from the decline in the 12-month average trailing prices, which reduced proved reserves.

The 12-month average trailing prices used in the ceiling test calculations were based on the benchmark prices below. The benchmark prices were adjusted for basis differentials to determine local reference prices, transportation costs and tariffs, heat content and quality.

 

 

Oil & NGLs

 

 

Natural Gas

 

 

 

 

WTI

($/bbl)

 

 

Edmonton

Condensate

(C$/bbl)

 

 

Henry Hub

($/MMBtu)

 

 

AECO

(C$/MMBtu)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12-Month Average Trailing Reserves Pricing (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

43.69

 

 

 

53.93

 

 

 

1.97

 

 

 

2.01

 

 

December 31, 2019

 

 

55.93

 

 

 

68.80

 

 

 

2.58

 

 

 

1.76

 

 

September 30, 2019

 

 

57.76

 

 

 

67.81

 

 

 

2.87

 

 

 

1.52

 

 

 

 

Oil & NGLs

 

 

Natural Gas

 

 

 

 

WTI

($/bbl)

 

 

Edmonton

Condensate

(C$/bbl)

 

 

Henry Hub

($/MMBtu)

 

 

AECO

(C$/MMBtu)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12-Month Average Trailing Reserves Pricing (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

49.78

 

 

 

62.73

 

 

 

2.43

 

 

 

2.60

 

 

December 31, 2020

 

 

39.62

 

 

 

49.77

 

 

 

1.98

 

 

 

2.13

 

 

June 30, 2020

 

 

47.47

 

 

 

58.46

 

 

 

2.07

 

 

 

1.70

 

 

(1)

All prices were held constant in all future years when estimating net revenues and reserves.

Due to the low commodity price environment, further declines in the 12-month average trailing prices are expected and could reduce proved reserves volumes and values and result in the recognition of future ceiling test impairments. However, future ceiling test impairments are difficult to reasonably predict and depend on commodity prices, as well as changes to reserves estimates, future development costs, capitalized costs, unproved property costs transferred to the depletable base of the full cost pool, as well as proceeds received from upstream divestitures which are generally deducted from the Company’s capitalized costs and can reduce the likelihood of ceiling test impairments.

The Company has calculated the estimated effects that certain price changes would have had on its ceiling test impairment for the nine months ended September 30, 2020. Using commodity futures prices as at September 30, 2020, for the three months ending December 31, 2020, the estimated 12-month average trailing prices for the period ended September 30, 2020 would have been $39.55 per bbl for WTI, C$49.02 per bbl for Edmonton Condensate, $1.91 per MMBtu for Henry Hub and C$2.05 per MMBtu for AECO. Based on these estimated prices, while holding all other inputs and assumptions constant, an additional before-tax ceiling test impairment of approximately $1.3 billion for the USA Operations would have been recognized for the nine months ended September 30, 2020. If a low commodity price environment is sustained during the remainder of 2020, further ceiling test impairments and related allowances on deferred tax assets may be recognized.

55


The additional estimated before-tax ceiling test impairment is partly a result of an eight percent decrease in proved undeveloped reserves for the USA Operations as certain locations would not be economic at these revised estimated prices. This estimate strictly isolates the potential impact of commodity prices on the Company’s proved reserves volumes and values. If the low commodity price environment continues, further negative price related reserve revisions during the remainder of 2020 and in 2021 may occur, the magnitude of which could be significant.

Due to uncertainties in estimating proved reserves, the additional before-tax ceiling test impairment described and resulting implications may not be indicative of Ovintiv’s future development plans, operating or financial results.

The Company believes that the discounted after-tax future net cash flows from proved reserves required to be used in the ceiling test calculation are not indicative of the fair market value of Ovintiv’s oil and natural gas properties or the future net cash flows expected to be generated from such properties. The discounted after-tax future net cash flows do not consider the fair market value of unamortized unproved properties, or probable or possible liquids and natural gas reserves. In addition, there is no consideration given to the effect of future changes in commodity prices. Ovintiv manages its business using estimates of reserves and resources based on forecast prices and costs. Additional information on the ceiling test calculation can be found in Note 108 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

51


Administrative

Administrative expense represents costs associated with corporate functions provided by Ovintiv staff. Costs primarily include salaries and benefits, generaloperating lease, office, information technology, restructuring and long-term incentive costs.

 

 

Three months ended September 30,

 

 

 

 

Nine months ended September 30,

 

($ millions)

 

2020

 

 

2019

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative, excluding Long-Term Incentive Costs,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring Costs and Current Expected Credit Losses

 

$

72

 

 

$

76

 

 

 

 

$

214

 

 

$

237

 

Long-term incentive costs

 

 

1

 

 

 

1

 

 

 

 

 

(6

)

 

 

18

 

Restructuring costs

 

 

7

 

 

 

4

 

 

 

 

 

88

 

 

 

134

 

Current expected credit losses (1)

 

 

(1

)

 

 

-

 

 

 

 

 

1

 

 

 

-

 

Total Administrative

 

$

79

 

 

$

81

 

 

 

 

$

297

 

 

$

389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

Nine months ended September 30,

 

($/BOE)

 

2020

 

 

2019

 

 

 

 

2020

 

 

2019

 

��

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative, excluding Long-Term Incentive Costs,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring Costs and Current Expected Credit Losses

 

$

1.55

 

 

$

1.38

 

 

 

 

$

1.46

 

 

$

1.57

 

Long-term incentive costs

 

 

0.02

 

 

 

0.01

 

 

 

 

 

(0.04

)

 

 

0.12

 

Restructuring costs

 

 

0.14

 

 

 

0.07

 

 

 

 

 

0.59

 

 

 

0.88

 

Current expected credit losses (1)

 

 

(0.03

)

 

 

-

 

 

 

 

 

-

 

 

 

-

 

Total Administrative

 

$

1.68

 

 

$

1.46

 

 

 

 

$

2.01

 

 

$

2.57

 

 

 

Three months ended June 30,

 

 

 

 

Six months ended June 30,

 

($ millions)

 

2021

 

 

2020

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative, excluding Long-Term Incentive,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and Legal Costs, and Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected Credit Losses (1)

 

$

68

 

 

$

68

 

 

 

 

$

149

 

 

$

142

 

Long-term incentive costs

 

 

31

 

 

 

19

 

 

 

 

 

66

 

 

 

(7

)

Restructuring and legal costs

 

 

25

 

 

 

81

 

 

 

 

 

31

 

 

 

81

 

Current expected credit losses

 

 

(1

)

 

 

(3

)

 

 

 

 

(1

)

 

 

2

 

Total Administrative (2)

 

$

123

 

 

$

165

 

 

 

 

$

245

 

 

$

218

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

 

 

Six months ended June 30,

 

($/BOE)

 

2021

 

 

2020

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative, excluding Long-Term Incentive,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and Legal Costs, and Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected Credit Losses (1)

 

$

1.36

 

 

$

1.38

 

 

 

 

$

1.51

 

 

$

1.41

 

Long-term incentive costs

 

 

0.61

 

 

 

0.40

 

 

 

 

 

0.67

 

 

 

(0.07

)

Restructuring and legal costs

 

 

0.48

 

 

 

1.66

 

 

 

 

 

0.31

 

 

 

0.80

 

Current expected credit losses

 

 

(0.01

)

 

 

(0.06

)

 

 

 

 

(0.01

)

 

 

0.02

 

Total Administrative

 

$

2.44

 

 

$

3.38

 

 

 

 

$

2.48

 

 

$

2.16

 

(1)

On January 1, 2020, Ovintiv adopted ASU 2016-13, “Financial InstrumentsThe second quarter and first six months of 2021 include costs related to The Bow office lease of $29 million and $58 million, respectively, (2020 - Credit Losses: Measurement$26 million and $54 million, respectively), half of Credit Losses on Financial Instruments” under Topic 326. Further details on the adoptionwhich is recovered from sublease revenues.

(2)

The second quarter and first six months of ASU 2016-13 can be found in Note 2 to the Consolidated Financial Statements included in Part I, Item 12021 reflect a higher U.S./Canadian dollar exchange rate of this Quarterly Report on Form 10-Q.$8 million and $10 million, respectively.

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Administrative expense in the thirdsecond quarter of 20202021 decreased $2$42 million compared to the thirdsecond quarter of 20192020 primarily due to lower salaries and benefits due to decreased headcount ($2 million) and lower non-recurring administrative expensesa decrease in restructuring costs related to the Newfield acquisitionworkforce reductions in 20192020 ($276 million), partially offset by higher restructuringlegal costs incurred in 2020 ($3 million).

56


Nine months ended September 30, 2020 versus September 30, 2019

Administrative expense in the first nine months of 2020 decreased $92 million compared to the first nine months of 2019 primarily due to lower restructuring costs incurred in 2020 ($4620 million) and a recovery of long-term incentive costs resulting from a decrease in the Company’s share price in the first nine months of 2020 compared tohigher long-term incentive costs resulting from an increase in the Company’s share price in the second quarter of 2021 compared to 2020 ($12 million).

Six months ended June 30, 2021 versus June 30, 2020

Administrative expense in the first six months of 2021 increased $27 million compared to the first six months of 2020 primarily due to higher long-term incentive costs resulting from an increase in the Company’s share price in the first ninesix months of 20192021 compared to a decrease in 2020 ($2473 million), lower non-recurring integrationhigher legal and administrative expenses relating to the Newfield acquisitionconsulting costs ($31 million), partially offset by a decrease in 2019 ($10 million)restructuring costs and lower salaries and benefits ($8 million).

During 2019, the Company completedrelated to workforce reductions in conjunction with the Newfield acquisition to better align staffing levels2020 ($70 million and the organizational structure. In June$5 million, respectively).

During 2020, the Company completed further workforce reductions as part of a company-wide reorganization in response to better align withthe low commodity price environment resulting from the global pandemic and the Company’s planned activity levels.reductions in capital spending. Additional information on restructuring charges can be found in Note 1815 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other (Income) Expenses

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

97

 

 

$

99

 

 

 

$

279

 

 

$

285

 

 

$

99

 

 

$

86

 

 

 

$

186

 

 

$

182

 

Foreign exchange (gain) loss, net

 

 

(25

)

 

 

30

 

 

 

 

51

 

 

 

(62

)

 

 

(8

)

 

 

(40

)

 

 

 

(15

)

 

 

76

 

(Gain) loss on divestitures, net

 

 

-

 

 

 

(5

)

 

 

 

-

 

 

 

(4

)

Other (gains) losses, net

 

 

(18

)

 

 

(1

)

 

 

 

(48

)

 

 

24

 

 

 

(7

)

 

 

(16

)

 

 

 

(25

)

 

 

(30

)

Total Other (Income) Expenses

 

$

54

 

 

$

123

 

 

 

$

282

 

 

$

243

 

 

$

84

 

 

$

30

 

 

 

$

146

 

 

$

228

 

52


Interest

Interest expense primarily includes interest on Ovintiv’s long-term debt. Additional information on changes in interest can be found in Note 54 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Interest expense decreased $2increased $13 million compared to the thirdsecond quarter of 20192020 primarily due to:to a one-time make-whole interest payment of $19 million resulting from the June 2021 early redemption of the Company’s $600 million, 5.75 percent senior notes due January 30, 2022, partially offset by open market repurchases of long-term debt completed in 2020 and decreased amounts drawn from the Company’s credit facilities ($8 million).

Interest savings related to open market repurchases in 2020 ($3 million).

NineSix months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Interest expense decreased $6increased $4 million compared to the first ninesix months of 20192020 primarily due to:

Lower interest expense resulting from the repayment of the Company’s $500 million senior note in the second quarter of 2019 ($13 million) and interest savings related to open market repurchases in 2020 ($9 million);

to a one-time make-whole interest payment of $19 million resulting from the June 2021 early redemption of the Company’s $600 million, 5.75 percent senior notes due January 30, 2022, partially offset by:

Higher interest expense on long-term debt primarily relating to the assumption of Newfield’s outstanding senior notes, interest expense relating to amounts drawn on the Company’s credit facilities and issuances under the Company’s U.S. commercial paper (“U.S. CP”) program ($16by open market repurchases of long-term debt completed in 2020 and decreased amounts drawn from the Company’s credit facilities ($13 million).

57


Foreign Exchange (Gain) Loss, Net

Foreign exchange gains and losses primarily result from the impact of fluctuations in the Canadian to U.S. dollar exchange rate. Additional information on changes in foreign exchange gains or losses can be found in Note 65 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Following the completion of the Reorganization, including thecorporate reorganization and U.S. Domestication, on January 24, 2020, as describeddomestication in the Highlights sectionfirst quarter of this MD&A,2020, the U.S. dollar denominated unsecured notes issued by Encana Corporation from Canada were assumed by Ovintiv Inc., a company incorporated in Delaware with a U.S. dollar functional currency. Accordingly, these U.S. dollar denominated unsecured notes, along with certain intercompany notes, no longer attract foreign exchange translation gains or losses.

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Net foreign exchange gain of $25decreased $32 million compared to a loss of $30 million in the thirdsecond quarter of 20192020 primarily due to:

 

Unrealized foreign exchange gainslosses on the translation of U.S. dollar financing debt issued and risk management contracts and financing debt issued from Canada compared to lossesgains in 20192020 ($7440 million and $20$14 million, respectively);

partially offset by:

 

Lower unrealizedRealized foreign exchange gains on the translation of intercompany notes ($24 million) and realized foreign exchange losses on the settlement of U.S. dollar financing debtrisk management contracts issued from Canada and intercompany notes compared to 2019losses in 2020 ($8 million and $8 million, respectively)17 million).

NineSix months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Net foreign exchange lossgain of $51$15 million compared to a gainloss of $62$76 million in the first ninesix months of 2019 was2020 primarily due to:

 

UnrealizedLower unrealized foreign exchange losses on the translation of U.S. dollar financing debt and risk management contracts issued from Canada compared to gains in 20192020 ($17361 million and $14$11 million, respectively) and realized foreign exchange lossesgains on the settlement of U.S. dollar risk management contracts and financing debt issued from Canada and intercompany notes compared to gainslosses in 20192020 ($3727 million and $34$26 million, respectively);

partially offset by:

 

UnrealizedLower unrealized foreign exchange gains on the translation of intercompany notes compared to losses in 2019 ($14627 million).

53


Other (Gains) Losses, Net

Other (gains) losses, net, primarily includes other non-recurring revenues or expenses and may also include items such as interest income, interest received from tax authorities, transaction costs relating to acquisitions, reclamation charges relating to decommissioned assets, gains on debt repurchases, government stimulus programs and adjustments related to other assets.

Other gains in the thirdfirst six months of 2021 includes interest income of $13 million primarily associated with the resolution of prior year tax items.

Other gains in the second quarter and first ninesix months of 2020 primarily includes gainsincluded a gain of $6$11 million and $28$22 million, respectively, relating to the repurchase of the Company’s fixed long-term debt on the open market as discussed in the Liquidity and Capital Resources section of this MD&A.market.

Other losses in the first nine months of 2019 primarily included legal fees and transaction costs related to the Newfield acquisition of $33 million, partially offset by interest income on short-term investments of $9 million.

58


Income Tax

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Income Tax Expense (Recovery)

 

$

3

 

 

$

(1

)

 

 

$

2

 

 

$

3

 

 

$

-

 

 

$

(1

)

 

 

$

(156

)

 

$

(1

)

Deferred Income Tax Expense (Recovery)

 

 

(42

)

 

 

44

 

 

 

 

393

 

 

 

140

 

 

 

-

 

 

 

295

 

 

 

 

(20

)

 

 

435

 

Income Tax Expense (Recovery)

 

$

(39

)

 

$

43

 

 

 

$

395

 

 

$

143

 

 

$

-

 

 

$

294

 

 

 

$

(176

)

 

$

434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

2.5%

 

 

22.4%

 

 

 

(7.8%)

 

 

37.3%

 

 

0.0%

 

 

(7.2%)

 

 

 

244.4%

 

 

(12.3%)

 

Income Tax Expense (Recovery)

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

In the thirdsecond quarter of 2021, Ovintiv recorded an income tax expense of nil compared to an income tax expense of $294 million in 2020, primarily due to the change in valuation allowances.

Six months ended June 30, 2021 versus June 30, 2020

In the first six months of 2021, Ovintiv recorded an income tax recovery of $39$176 million compared to an income tax expense of $43$434 million in 2019,2020, primarily due to the resolution of certain tax benefit resulting from current year losses arising from non-cash ceiling test impairments and a lower effective tax rate due to the related valuation allowance discussed below.

Nine months ended September 30, 2020 versus September 30, 2019

In the first nine months of 2020, income tax expense increased $252 million compared to 2019, which included an increase in the valuation allowance of $568 million in Canada relateditems relating to prior years’ deferred tax assets, which was recorded as a discrete itemtaxation years and the change in the second quarter of 2020, partially offset by the tax benefit resulting from current year losses arising from non-cash ceiling test impairments and a lower effective tax rate due to the current year valuation allowance discussed below.

Deferred income tax assets are routinely assessed for realizability. During the nine months ended September 30, 2020, the Company determined, after weighing both positive and negative evidence, that a valuation allowance should be recorded to reduce the associated deferred tax assets in the United States and in Canada. The Company continues to be in a cumulative three-year loss position as of September 30, 2020 and is expected be in a cumulative three-year loss position by the end of the current fiscal year in both the United States and Canada. The cumulative losses, as well as increased uncertainty in the timing as to when the realization of deferred tax assets will occur, is significant negative evidence to overcome, and consequently, it is more likely than not that the deferred tax assets will not be realizable. If it is determined that the deferred tax assets are realizable in the future, a reduction in the valuation allowance will be recorded. Additional information on the determination of the valuation allowance can be found in Note 7 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As part of the U.S. Domestication, Ovintiv recognized a capital loss and recorded a deferred income tax benefit in the amount of $1.2 billion for Canadian income tax purposes due to the decline in the Company’s share value compared to the historical tax basis of its properties that were transferred as part of the U.S. Domestication. Ovintiv assessed the realizability of these capital losses against capital gains and concluded that it is more likely than not that the deferred tax asset will not be realizable. Therefore, Ovintiv has recorded a corresponding valuation allowance against the deferred tax asset.  If it is determined the capital loss can be utilized at a future date, a reduction in the valuation allowance will be recorded.allowances.

Effective Tax Rate

Ovintiv’s interim income tax expense is determined using the estimated annual effective income tax rate applied to year‑to‑date net earnings before income tax plus the effect of legislative changes and amounts in respect of prior periods. The estimated annual effective income tax rate is impacted by expected annual earnings, changes in valuation allowances, related to current year losses,state taxes, income tax related to foreign operations, state tax, the effect of legislative changes, non-taxable capital gains and losses, and tax differences on divestitures and transactions, which can produce interim effective tax rate fluctuations.

Following the U.S. Domestication as described in the Highlights section of this MD&A, the applicable statutory rate became the U.S. federal income tax rate. The Company’s effective tax rate was 2.5zero percent for the thirdsecond quarter and (7.8) percent for the first nine months of 2020,2021, which areis lower than the U.S. federal statutory tax rate of 21 percent primarily due to the change in valuation allowances recorded relating to the current year net loss before tax.

The Company’s effective tax rate was 244.4 percent for the first six months of 2021, which is higher than the U.S. federal statutory tax rate of 21 percent primarily due to the resolution of certain tax items relating to prior taxation years and the change in valuation allowances recorded relating to the current year net loss before tax.

The Company’s effective tax rate was (7.2) percent for the second quarter and (12.3) percent for the first six months of 2020, which were lower than the U.S. statutory tax rate of 21 percent primarily due to valuation allowances recorded due to current yearnet losses arising from ceiling test impairments and an increase in the valuation allowance of $568 million in Canada related to prior years’year’s deferred tax assets, which was recorded as a discrete item.

 

 

5954

 

 


 

The effective tax rate of 37.3 percent for the nine months ended September 30, 2019, was higher than the Canadian statutory tax rate of 26.6 percent primarily due to the re-measurement of the Company’s deferred tax position resulting from the Alberta tax rate reduction.  On June 28, 2019, Alberta Bill 3, the Job Creation Tax Cut (Alberta Corporate Tax Amendment) Act, was signed into law resulting in a reduction of the Alberta corporate tax rate from 12 percent to 11 percent effective July 1, 2019, with further one percent rate reductions to take effect every year on January 1 until the general corporate tax rate is eight percent on January 1, 2022. During the nine months ended September 30, 2019, the deferred tax expense of $140 million included an adjustment of $55 million resulting from the re-measurement of the Company’s deferred tax position due to the Alberta tax rate reduction.

On June 29, 2020, Alberta announced the previously scheduled rate reduction will be accelerated with the Alberta rate reducing to eight percent effective July 1, 2020. This legislation is not yet enacted and the impact is not expected to be material for the Company’s tax position.

The Company continues to evaluate the various stimulus and fiscal measures announced in the U.S. and Canada in response to the COVID-19 pandemic. The tax impact of these measures is reflected in the Company’s tax and financial position.

The determination of income and other tax liabilities of the Company and its subsidiaries requires interpretation of complex domestic and foreign tax laws and regulations, that are subject to change. The Company’s interpretation of taxation laws may differ from the interpretation of the tax authorities. As a result, there are tax matters under review for which the timing of resolution is uncertain. The Company believes that the provision for income taxes is adequate.

60


Liquidity and Capital Resources

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 or to manage its capital structure as discussed below. At SeptemberJune 30, 2020, $192021, $117 million in cash and cash equivalents was held by Canadian subsidiaries. The cash held by Canadian subsidiaries is accessible and may be subject to additional U.S. income taxes and Canadian withholding taxes if repatriated.

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.execute its strategy. Ovintiv has a practice of maintaining capital discipline and strategically managing its capital structure by adjusting capital spending, adjusting dividends paid to shareholders,stockholders, issuing new shares of common stock, purchasing shares of common stock for cancellation, issuing new debt and repaying or repurchasing existing debt.

 

As at September 30,

 

 

As at June 30,

 

($ millions, except as indicated)

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

32

 

 

$

138

 

 

$

122

 

 

$

39

 

Available Credit Facilities (1)

 

 

2,990

 

 

 

4,000

 

 

 

4,000

 

 

 

2,750

 

Available Uncommitted Demand Lines (2)

 

 

186

 

 

 

174

 

 

 

281

 

 

 

183

 

Issuance of U.S. Commercial Paper

 

 

(140

)

 

 

(740

)

Total Liquidity

 

$

3,068

 

 

$

3,572

 

 

$

4,403

 

 

$

2,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Debt, including current portion (3)

 

$

7,142

 

 

$

7,024

 

Total Shareholders’ Equity (4)

 

$

4,352

 

 

$

9,921

 

Long-Term Debt, including current portion

 

$

5,314

 

 

$

7,366

 

Total Shareholders’ Equity

 

$

3,934

 

 

$

5,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt to Capitalization (%) (5)

 

 

62

 

 

 

41

 

Debt to Adjusted Capitalization (%) (6)

 

 

37

 

 

 

28

 

Debt to Capitalization (%) (3)

 

 

57

 

 

 

56

 

Debt to Adjusted Capitalization (%) (4)

 

 

31

 

 

 

35

 

(1)

Includes available credit facilities of $1.77$2.5 billion (2019(2020 - $1.5$1.505 billion) in the U.S. and $1.22$1.5 billion (2019(2020 - $2.5$1.245 billion) in Canada as at SeptemberJune 30, 20202021 (collectively, the “Credit Facilities”).

(2)

Includes three uncommitted demand lines totaling $325$342 million, net of $139$61 million in related undrawn letters of credit (2019(2020 - $327$320 million and $153$137 million, respectively).

(3)

Long-Term Debt as at September 30, 2020, includes outstanding U.S. CP totaling $140 million and $1.01 billion drawn on the Credit Facilities.

(4)

Shareholders’ Equity reflects the common shares purchased, for cancellation, under the Company’s 2019 NCIB and substantial issuer bid programs.

(5)

Calculated as long-term debt, including the current portion, divided by shareholders’ equity plus long-term debt, including the current portion.

(6)(4)

A non-GAAP measure which is defined in the Non-GAAP Measures section of this MD&A.

The Company has access to two committed revolving U.S. dollar denominated credit facilities totaling $4.0 billion, which include a $2.5 billion revolving credit facility for Ovintiv Inc. and a $1.5 billion revolving credit facility for a Canadian subsidiary, both maturing in July 2024. The Credit Facilities provide financial flexibility and allow the Company to fund its operations or capital program. At SeptemberJune 30, 2020, $730 million and $280 million2021, there were no outstanding amounts under the revolving credit facility for Ovintiv Inc. and for the Canadian subsidiary, respectively.subsidiary.

During the first nine months of 2020, Ovintiv’s credit rating was downgraded to below investment grade by one of its credit rating agencies following updates to commodity price assumptions used by the rating agency. As a result of the downgrade, the cost of short-term borrowing on the revolving credit facility for Ovintiv Inc. has increased marginally. Ovintiv continues to have full access to its Credit Facilities and the credit rating downgrade has not impacted the Company’s ability to fund its operations or capital program. While Ovintiv currently has both investment and non-investment grade credit ratings further reductionsand has full access to its Credit Facilities and U.S. commercial paper (“U.S. CP”) programs. Reductions in the Company’s credit ratings could increase the cost of short-term borrowings on the existing Credit Facilities or other sources of liquidity and limit access to the Company’s commercial paper program. A prolonged period of low commodity prices and the global impact of the COVID-19 pandemic could affect the Company’s credit ratings in the future.

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 SeptemberJune 30, 2021, the Company had no commercial paper outstanding under its U.S. CP programs.

 

 

6155

 

 


 

30, 2020, the Company had approximately $140 million of commercial paper outstanding under its U.S. CP programs with an average remaining term of approximately 29 days and a weighted average interest rate of approximately 0.87 percent, which is supported by the Company’s Credit Facilities. As a result of the Company’s recent credit rating downgrade, the Company’s access to commercial paper is limited. If future access to the U.S. CP programs is unavailable when the outstanding commercial paper comes due, the Company intends to repay any maturing balances using advances from the Company’s Credit Facilities or available cash on hand.  

The Credit Facilities, uncommitted demand lines, and cash and cash equivalents provide Ovintiv with total liquidity of approximately $3.1$4.4 billion. At SeptemberJune 30, 2020,2021, Ovintiv also had approximately $140$62 million in undrawn letters of credit issued in the normal course of business primarily as collateral security, related to transportation arrangements and to support future abandonment liabilities. Further downgradesReductions in the Company’s credit ratings could trigger additional collateral requirements to support existing agreements and such amounts could be material.

In the first nine months of 2020, Ovintiv filedhas a U.S. shelf registration statement and a Canadian shelf prospectus, 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. and/or Canada. At SeptemberJune 30, 2020,2021, $6.0 billion remained accessible under the Canadian shelf prospectus. The ability to issue securities under the U.S. shelf registration statement or Canadian shelf prospectus is dependent upon market conditions and securities law requirements.

Ovintiv is currently in compliance with, and expects that it will continue to be 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 SeptemberJune 30, 2020,2021, the Company’s Debt to Adjusted Capitalization was 3731 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. Ovintiv does not expect the current COVID-19 pandemic to impact the Company’s ability to remain in compliance with its financial covenants under the Credit Facilities. Additional information on financial covenants can be found in Note 15 to the Consolidated Financial Statements included in Item 8 of the 20192020 Annual Report on Form 10‑K.

 

62


Sources and Uses of Cash

In the thirdsecond quarter and first ninesix months of 2020,2021, Ovintiv primarily generated cash through operating activities.activities and divestitures. The following table summarizes the sources and uses of the Company’s cash and cash equivalents.

 

 

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions)

Activity Type

 

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

Activity Type

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sources of Cash, Cash Equivalents and Restricted Cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash from operating activities

Operating

 

 

$

493

 

 

$

756

 

 

 

$

1,176

 

 

$

2,191

 

Operating

 

 

$

750

 

 

$

117

 

 

 

$

1,577

 

 

$

683

 

Proceeds from divestitures

Investing

 

 

 

39

 

 

 

171

 

 

 

 

69

 

 

 

177

 

Investing

 

 

 

1,023

 

 

 

8

 

 

 

 

1,025

 

 

 

30

 

Corporate acquisition, net of cash and restricted cash acquired

Investing

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

94

 

Net issuance of revolving long-term debt

Financing

 

 

 

-

 

 

 

-

 

 

 

 

452

 

 

 

740

 

Financing

 

 

 

-

 

 

 

408

 

 

 

 

-

 

 

 

552

 

Other

Investing

 

 

 

68

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

 

600

 

 

 

927

 

 

 

 

1,697

 

 

 

3,202

 

 

 

 

 

1,773

 

 

 

533

 

 

 

 

2,602

 

 

 

1,265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uses of Cash and Cash Equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

Investing

 

 

 

351

 

 

 

566

 

 

 

 

1,393

 

 

 

2,052

 

Investing

 

 

 

383

 

 

 

252

 

 

 

 

733

 

 

 

1,042

 

Acquisitions

Investing

 

 

 

1

 

 

 

25

 

 

 

 

19

 

 

 

66

 

Investing

 

 

 

2

 

 

 

1

 

 

 

 

3

 

 

 

18

 

Net repayment of revolving long-term debt

Financing

 

 

 

100

 

 

 

21

 

 

 

 

-

 

 

 

-

 

Financing

 

 

 

490

 

 

 

-

 

 

 

 

950

 

 

 

-

 

Repayment of long-term debt (1)

Financing

 

 

 

109

 

 

 

-

 

 

 

 

224

 

 

 

500

 

Financing

 

 

 

619

 

 

 

26

 

 

 

 

619

 

 

 

115

 

Purchase of shares of common stock

Financing

 

 

 

-

 

 

 

213

 

 

 

 

-

 

 

 

1,250

 

Dividends on shares of common stock

Financing

 

 

 

24

 

 

 

24

 

 

 

 

73

 

 

 

77

 

Financing

 

 

 

25

 

 

 

25

 

 

 

 

49

 

 

 

49

 

Other

Investing/Financing

 

 

 

23

 

 

 

164

 

 

 

 

141

 

 

 

181

 

Financing/Investing

 

 

 

143

 

 

 

294

 

 

 

 

138

 

 

 

186

 

 

 

 

 

608

 

 

 

1,013

 

 

 

 

1,850

 

 

 

4,126

 

 

 

 

 

1,662

 

 

 

598

 

 

 

 

2,492

 

 

 

1,410

 

Foreign Exchange Gain (Loss) on Cash, Cash Equivalents

and Restricted Cash Held in Foreign Currency

Foreign Exchange Gain (Loss) on Cash, Cash Equivalents

and Restricted Cash Held in Foreign Currency

 

 

 

1

 

 

 

-

 

 

 

 

 

(5

)

 

 

4

 

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

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

 

 

$

(7

)

 

$

(86

)

 

 

$

(158

)

 

$

(920

)

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

 

 

$

113

 

 

$

(64

)

 

 

$

112

 

 

$

(151

)

(1)

Includes open market repurchases.repurchases in 2020.

Operating Activities

CashNet cash from operating activities in the thirdsecond quarter and first ninesix months of 20202021 was $493$750 million and $1,176$1,577 million, respectively, and was primarily a reflection of the impacts from lowerhigher average realized commodity prices, partially offset by the Newfield acquisition in 2019, the effects of the commodity price mitigation program and changes in non‑cash working capital.

56


Additional detail on changes in non-cash working capital can be found in Note 2320 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 thirdsecond quarter and first ninesix months of 20202021 was $398$733 million and $1,237$1,623 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.

Three months ended SeptemberJune 30, 20202021 versus SeptemberJune 30, 20192020

Net cash from operating activities decreased $263increased $633 million compared to the thirdsecond quarter of 20192020 primarily due to:

 

Lower production volumes ($291 million), lowerHigher realized commodity prices ($2041,030 million), lower realized gains on risk managementchanges in revenuesnon-cash working capital ($33141 million) and higher, lower decommissioning payments primarily related to Deep Panuke ($2559 million), lower administrative expenses, excluding non-cash long-term incentive costs and current expected credit losses ($55 million), higher production volumes ($19 million), and lower operating expense, excluding non-cash long-term incentive costs ($7 million);

partially offset by:

 

ChangesRealized losses on risk management in revenues compared to gains in 2020 ($588 million), higher transportation and processing expense ($50 million) and higher production, mineral and other taxes ($46 million).

Six months ended June 30, 2021 versus June 30, 2020

Net cash from operating activities increased $894million compared to the first six months of 2020 primarily due to:

Higher realized commodity prices ($1,537 million), a current income tax recovery mainly due to the resolution of certain tax items relating to prior taxation years ($156 million), lower decommissioning payments primarily related to Deep Panuke ($97 million), lower administrative expenses, excluding non-cash working capitallong-term incentive costs and current expected credit losses ($17435 million), lower operating expense, excluding non-cash long-term incentive costs ($60 million), lower transportation and processing expense ($33 million), and lower production, mineral and other taxes ($19 million).

63


Nine months ended September 30, 2020 versus September 30, 2019

Net cash from operating activities decreased $1,015million compared to the first nine months of 2019 primarily due to:

Lower realized commodity prices ($1,272 million), lower production volumes ($228 million), higher decommissioning payments primarily related to Deep Panuke ($10528 million) and changes in non-cash working capitalhigher interest income ($249 million);

partially offset by:

 

Higher realized gainsRealized losses on risk management in revenues compared to gains in 2020 ($304895 million), lower administrative expense, excluding non-cash long-term incentive costs and current expected credit losses ($127 million), which includes restructuring costs of $46 million, lower operating expenses, excluding non-cash long-term incentive costs ($108 million), lowerhigher production, mineral and other taxes ($6154 million), lower production volumes ($47 million) and acquisition costs incurred in 2019higher transportation and processing expense ($33 million).

Investing Activities

Cash used infrom investing activities in the first ninesix months of 20202021 was $1,417$247 million primarily due to proceeds from divestitures, partially offset by capital expenditures. Capital expenditures decreased $659$309 million compared to the first ninesix months of 20192020 due to the Company’s reduced capital program in response to the volatile market conditions in 2020, as discussed in the 2020 Outlook section of this MD&A.

Corporate acquisition in the first nine months of 2019 was $94 million, which reflected the net cash acquired upon the Newfield business combination.2020.

Acquisitions in the first ninesix months of 20202021 were $19$3 million (2020 - $18 million), which primarily included property purchases with oil and liquids rich potential. Acquisitions in the first nine months of 2019 were $66 million, which primarily included seismic purchases, water rights and purchase with oil and liquids rich potential.

Divestitures in the first ninesix months of 20202021 were $69$1,025 million (2020 - $30 million), which primarily included the sale of the Eagle Ford assets in south Texas and Duvernay assets in west central Alberta, as well as certain properties that did not complement Ovintiv’s existing portfolio of assets. Divestitures in the first nine months of 2019 were $177 million, which primarily included the sale of the Company’s Arkoma natural gas assets.

Capital expenditures and acquisition and divestiture activity are summarized in Notes 3, 82 and 97 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

57


Financing Activities

Net cash used in financing activities has been impacted by the Company’s strategy to enhance liquidity, and strengthen its balance sheet by repaying or repurchasing existing debt, and returning value to stockholders through the purchase of shares of common stock andby paying dividends.

Net cash fromused in financing activities in the first ninesix months of 20202021 was $88$1,714 million compared to net cash usedfrom financing activities of $1,150$344 million in 2019.2020. The change was primarily due to the purchase of common shares under a NCIB in 2019 ($1,037 million) as discussed in more detail below,net repayment of long-term debt in 2019 ($500 million) and purchase of common shares under a substantial issuer bid ($213 million), partially offset by a decrease in net issuance of revolving long-term debt in 2021 of $950 million compared to a net issuance in 2020 ($288 million)of $552 million and the open market repurchaseshigher repayment of long-term debt in 2020 ($224504 million) associated with the early redemption of the Company’s 2022 senior notes as discussed below.

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, ourthe Company’s liquidity requirements, contractual restrictions and other factors. In the first nine months of 2020, the Company repurchased $252 million in principal amount of its senior notes in the open market for an aggregate cash payment of approximately $224 million, plus accrued interest, and recognized gains of approximately $28 million. Ovintiv utilized funds available from the Company’s credit facilities, cash on hand and cash from implementing cost savings initiatives to complete these open market repurchases. For additional information on the open market repurchases, refer to Note 12 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q

64


The Company’s long-term debt, including the current portion of $518 million, totaled $7,142$5,314 million at SeptemberJune 30, 2020 and $6,974 million2021. The Company’s long-term debt at December 31, 2019. There was no2020 totaled $6,885 million, which included the current portion outstandingof $518 million. As at SeptemberJune 30, 2020 or December 31, 2019. Ovintiv has no long-term debt maturities until November 2021, and, as at September 30, 2020, over 8090 percent of the Company’s fixed rate long-term debt is not due until 2024 and beyond. Since the second quarter of 2020, the Company has allocated $2,052 million in excess cash flows to reduce its total long-term debt balances, which included proceeds from the Duvernay and Eagle Ford asset divestitures. The Company is targeting a long-term debt balance, less cash and cash equivalents held, of approximately $3.0 billion by the end of 2023.

In June 2021, the Company redeemed its $600 million, 5.75 percent senior notes due January 30, 2022. The Company also expects to redeem its $518 million, 3.90 percent senior notes due November 15, 2021 in mid-August. The combined redemptions represent approximately $1.1 billion of debt repayments, resulting in expected annualized interest savings of over $50 million.

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.

Dividends

Ovintiv pays quarterly dividends to stockholders at the discretion of the Board of Directors.

 

Three months ended September 30,

 

 

 

 

Nine months ended September 30,

 

($ millions, except as indicated)

 

2020

 

 

2019

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend Payments

 

$

24

 

 

$

24

 

 

 

 

$

73

 

 

$

77

 

Dividend Payments ($/share) (1)

 

$

0.09375

 

 

$

0.09375

 

 

 

 

$

0.28125

 

 

$

0.28125

 

(1)

Dividend payments per share reflect the Share Consolidation. Accordingly, the comparative period has been restated.

On October 28, 2020, the Board of Directors declared a dividend of $0.09375 per share of Ovintiv common stock payable on December 31, 2020 to stockholders of record as of December 15, 2020.

Substantial Issuer Bid

In the third quarter of 2019, the Company used cash on hand and issued commercial paper to purchase, for cancellation, approximately 47.3 million of its outstanding common shares, on a pre-Share Consolidation basis, or approximately 9.5 million common shares, on a post-Share Consolidation basis for total consideration of approximately $213 million under its previously announced substantial issuer bid. For additional information on the substantial issuer bid, refer to Note 1510 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Normal Course Issuer BidDividends

InOvintiv pays quarterly dividends to common stockholders at the first nine monthsdiscretion of 2019, the Company used cashBoard of Directors.

 

Three months ended June 30,

 

 

 

 

Six months ended June 30,

 

($ millions, except as indicated)

 

2021

 

 

2020

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend Payments

 

$

25

 

 

$

25

 

 

 

 

$

49

 

 

$

49

 

Dividend Payments ($/share)

 

$

0.09375

 

 

$

0.09375

 

 

 

 

$

0.1875

 

 

$

0.1875

 

On July 27, 2021, the Board of Directors declared a dividend of $0.14 per share of common stock payable on handSeptember 30, 2021 to purchase, for cancellation, approximately 149.4 million common shares, on a pre-Share Consolidation basis or approximately 29.9 million common shares, on a post-Share Consolidation basis, for total considerationstockholders of approximately $1,037 million under its previous NCIB program. For additional information on the NCIB, refer to Noterecord as of September 15, 2021. This represents an increase of about 50 percent to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.annualized dividend payment.

Off-Balance Sheet Arrangements

For information on off-balance sheet arrangements and transactions, refer to the Off-Balance Sheet Arrangements section of the MD&A included in Item 7 of the 20192020 Annual Report on Form 10-K.

Commitments and Contingencies

For information on commitments and contingencies, refer to Notes 8 and 24Note 21 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

 

6558

 

 


 

Non-GAAP Measures

Certain measures in this document do not have any standardized meaning as prescribed by U.S. GAAP and, therefore, are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers and should not be viewed as a substitute for measures reported under U.S. GAAP. These measures are commonly used in the oil and gas industry and by Ovintiv to provide shareholders and potential investors with additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. Non-GAAP measures include: Non-GAAP Cash Flow, Non-GAAP Cash Flow Margin, Total Costs, Debt to Adjusted Capitalization and Net Debt to Adjusted EBITDA. Management’s use of these measures is discussed further below.

Non-GAAP Cash Flow and Non-GAAP Cash Flow Margin

Non-GAAP Cash Flow is a non-GAAP measure defined as cash from (used in) operating activities excluding net change in other assets and liabilities, net change in non-cash working capital and current tax on sale of assets.

Non-GAAP Cash Flow Margin is a non-GAAP measure defined as Non-GAAP Cash Flow per BOE of production.

Management believes these measures are useful to the Company and its investors as a measure of operating and financial performance across periods and against other companies in the industry, and are an indication of the Company’s ability to generate cash to finance capital programs, to service debt and to meet other financial obligations. These measures are used, along with other measures, in the calculation of certain performance targets for the Company’s management and employees.

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions, except as indicated)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash From (Used in) Operating Activities

 

$

493

 

 

$

756

 

 

 

$

1,176

 

 

$

2,191

 

 

$

750

 

 

$

117

 

 

 

$

1,577

 

 

$

683

 

(Add back) deduct:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in other assets and liabilities

 

 

(47

)

 

 

(29

)

 

 

 

(167

)

 

 

(55

)

 

 

(5

)

 

 

(68

)

 

 

 

(11

)

 

 

(120

)

Net change in non-cash working capital

 

 

142

 

 

 

(32

)

 

 

 

106

 

 

 

130

 

 

 

22

 

 

 

(119

)

 

 

 

(35

)

 

 

(36

)

Current tax on sale of assets

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

Non-GAAP Cash Flow (1)

 

$

398

 

 

$

817

 

 

 

$

1,237

 

 

$

2,116

 

 

$

733

 

 

$

304

 

 

 

$

1,623

 

 

$

839

 

Divided by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production Volumes (MMBOE)

 

 

46.9

 

 

 

55.7

 

 

 

 

147.8

 

 

 

151.7

 

 

 

50.5

 

 

 

48.8

 

 

 

 

98.9

 

 

 

100.8

 

Non-GAAP Cash Flow Margin ($/BOE)

 

$

8.49

 

 

$

14.67

 

 

 

$

8.37

 

 

$

13.95

 

 

$

14.51

 

 

$

6.23

 

 

 

$

16.41

 

 

$

8.32

 

(1)

The thirdsecond quarter and first ninesix months of 20202021 include restructuring costs of $7$5 million and $88$11 million, respectively. The third quarter and first nine months of 2019 include restructuring costs of $4respectively (2020 - $81 million and $134$81 million, respectively, and acquisition costs of nil and $33 million, respectively.respectively).

 

 

6659

 

 


 

Total Costs

Total Costs is a non-GAAP measure which includes the summation of production, mineral and other taxes, upstream transportation and processing expense, upstream operating expense and administrative expense, excluding the impact of long-term incentive, costs, restructuring and legal costs, and current expected credit losses. It is calculated as total operating expenses excluding non-upstream operating costs and non-cash items which include operating expenses from the Market Optimization and Corporate and Other segments, depreciation, depletion and amortization, impairments, accretion of asset retirement obligation, long-term incentive, costs, restructuring and legal costs, and current expected credit losses. When presented on a per BOE basis, Total Costs is divided by production volumes. Management believes this measure is useful to the Company and its investors as a measure of operational efficiency across periods.

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Three months ended June 30,

 

 

 

Six months ended June 30,

 

($ millions, except as indicated)

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

$

2,696

 

 

$

1,556

 

 

 

$

9,365

 

 

$

4,535

 

 

$

1,813

 

 

$

4,785

 

 

 

$

3,456

 

 

$

6,669

 

Deduct (add back):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market optimization operating expenses

 

 

380

 

 

 

332

 

 

 

 

1,224

 

 

 

973

 

 

 

784

 

 

 

382

 

 

 

 

1,437

 

 

 

844

 

Corporate & other operating expenses

 

 

-

 

 

 

-

 

 

 

 

(2

)

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

(2

)

Depreciation, depletion and amortization

 

 

406

 

 

 

545

 

 

 

 

1,433

 

 

 

1,454

 

 

 

311

 

 

 

493

 

 

 

 

619

 

 

 

1,027

 

Impairments

 

 

1,336

 

 

 

-

 

 

 

 

4,863

 

 

 

-

 

 

 

-

 

 

 

3,250

 

 

 

 

-

 

 

 

3,527

 

Accretion of asset retirement obligation

 

 

8

 

 

 

9

 

 

 

 

26

 

 

 

28

 

 

 

6

 

 

 

9

 

 

 

 

12

 

 

 

18

 

Long-term incentive costs

 

 

2

 

 

 

1

 

 

 

 

(8

)

 

 

27

 

 

 

39

 

 

 

25

 

 

 

 

81

 

 

 

(10

)

Restructuring costs

 

 

7

 

 

 

4

 

 

 

 

88

 

 

 

134

 

Restructuring and legal costs

 

 

25

 

 

 

81

 

 

 

 

31

 

 

 

81

 

Current expected credit losses

 

 

(1

)

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

(1

)

 

 

(3

)

 

 

 

(1

)

 

 

2

 

Total Costs

 

$

558

 

 

$

665

 

 

 

$

1,740

 

 

$

1,921

 

 

$

649

 

 

$

548

 

 

 

$

1,277

 

 

$

1,182

 

Divided by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production Volumes (MMBOE)

 

 

46.9

 

 

 

55.7

 

 

 

 

147.8

 

 

 

151.7

 

 

 

50.5

 

 

 

48.8

 

 

 

 

98.9

 

 

 

100.8

 

Total Costs ($/BOE) (1)

 

$

11.85

 

 

$

11.95

 

 

 

$

11.77

 

 

$

12.66

 

 

$

12.90

 

 

$

11.23

 

 

 

$

12.92

 

 

$

11.72

 

(1)

Calculated using whole dollars and volumes.

Debt to Adjusted Capitalization

Debt to Adjusted Capitalization is a non-GAAP measure which adjusts capitalization for historical ceiling test impairments that were recorded as at December 31, 2011. Management monitors Debt to Adjusted Capitalization as a proxy for the Company’s financial covenant under the Credit Facilities which require debt to adjusted capitalization to be less than 60 percent. Adjusted Capitalization includes debt, total shareholders’ equity and an equity adjustment for cumulative historical ceiling test impairments recorded as at December 31, 2011 in conjunction with the Company’s January 1, 2012 adoption of U.S. GAAP.

($ millions, except as indicated)

 

September 30, 2020

 

 

December 31, 2019

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Debt, including current portion

 

$

7,142

 

 

$

6,974

 

 

$

5,314

 

 

$

6,885

 

Total Shareholders’ Equity

 

 

4,352

 

 

 

9,930

 

 

 

3,934

 

 

 

3,837

 

Equity Adjustment for Impairments at December 31, 2011

 

 

7,746

 

 

 

7,746

 

 

 

7,746

 

 

 

7,746

 

Adjusted Capitalization

 

$

19,240

 

 

$

24,650

 

 

$

16,994

 

 

$

18,468

 

Debt to Adjusted Capitalization

 

37%

 

 

28%

 

 

31%

 

 

37%

 

 

 

6760

 

 


 

Net Debt to Adjusted EBITDA

Net Debt to Adjusted EBITDA is a non-GAAP measure whereby Net Debt is defined as long-term debt, including the current portion, less cash and cash equivalents and Adjusted EBITDA is defined as trailing 12-month net earnings (loss) before income taxes, DD&A,depreciation, depletion and amortization, impairments, accretion of asset retirement obligation, interest, unrealized gains/losses on risk management, foreign exchange gains/losses, gains/losses on divestitures and other gains/losses.

Management believes this measure is useful to the Company and its investors as a measure of financial leverage and the Company’s ability to service its debt and other financial obligations. This measure is used, along with other measures, in the calculation of certain financial performance targets for the Company’s management and employees.

($ millions, except as indicated)

 

September 30, 2020

 

 

December 31, 2019

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Debt, including current portion

 

$

7,142

 

 

$

6,974

 

 

$

5,314

 

 

$

6,885

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

32

 

 

 

190

 

 

 

122

 

 

 

10

 

Net Debt

 

 

7,110

 

 

 

6,784

 

 

 

5,192

 

 

 

6,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss)

 

 

(5,489

)

 

 

234

 

 

 

(2,031

)

 

 

(6,097

)

Add back (deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

1,994

 

 

 

2,015

 

 

 

1,426

 

 

 

1,834

 

Impairments

 

 

4,863

 

 

 

-

 

 

 

2,053

 

 

 

5,580

 

Accretion of asset retirement obligation

 

 

35

 

 

 

37

 

 

 

23

 

 

 

29

 

Interest

 

 

376

 

 

 

382

 

 

 

375

 

 

 

371

 

Unrealized (gains) losses on risk management

 

 

363

 

 

 

730

 

 

 

1,276

 

 

 

204

 

Foreign exchange (gain) loss, net

 

 

(6

)

 

 

(119

)

 

 

(74

)

 

 

17

 

(Gain) loss on divestitures, net

 

 

1

 

 

 

(3

)

 

 

-

 

 

 

-

 

Other (gains) losses, net

 

 

(49

)

 

 

23

 

 

 

(50

)

 

 

(55

)

Income tax expense (recovery)

 

 

333

 

 

 

81

 

 

 

(243

)

 

 

367

 

Adjusted EBITDA (trailing 12-month) (1)

 

$

2,421

 

 

$

3,380

 

Adjusted EBITDA (trailing 12-month)

 

$

2,755

 

 

$

2,250

 

Net Debt to Adjusted EBITDA (times)

 

 

2.9

 

 

 

2.0

 

 

 

1.9

 

 

 

3.1

 

(1)

Adjusted EBITDA for 2019 only includes Newfield’s results of operations for the post-acquisition period from February 14, 2019 to December 31, 2019.

 

 

6861

 

 


 

Item 3: Quantitative and Qualitative Disclosures About Market Risk

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about Ovitniv’sOvintiv’s potential exposure to market risks. The term “market risk” refers to the Company’s risk of loss arising from adverse changes in oil, NGL and natural gas prices, foreign currency exchange rates and interest rates. The following disclosures are not meant to be precise indicators of expected future losses but rather indicators of reasonably possible losses. The forward-looking information provides indicators of how the Company views and manages ongoing market risk exposures.

COMMODITY PRICE RISK

Commodity price risk arises from the effect fluctuations in future commodity prices, including oil, NGLs and natural gas, may have on future revenues, expenses and cash flows. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable to the Company’s natural gas production. Pricing for oil, NGLs and natural gas production is volatile and unpredictable as discussed in Part 1, Item 2 of this Quarterly Report on Form 10-Q in the Executive Overview section in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Item 1A. “Risk Factors” of the 20192020 Annual Report on Form 10-K. To partially mitigate exposure to commodity price risk, the Company may enter into various derivative financial instruments including futures, forwards, swaps, options and costless collars. The use of these derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors and may vary from time to time. Both exchange traded and over-the-counter traded derivative instruments may be subject to margin-deposit requirements, and the Company may be required from time to time to deposit cash or provide letters of credit with exchange brokers or counterparties to satisfy these margin requirements. For additional information relating to the Company’s derivative and financial instruments, see Note 2219 under Part I, Item 1 of this Quarterly Report on Form 10-Q.

The table below summarizes the sensitivity of the fair value of the Company’s risk management positions to fluctuations in commodity prices, with all other variables held constant. The Company has used a 10 percent variability to assess the potential impact of commodity price changes. Fluctuations in commodity prices could have resulted in unrealized gains (losses) impacting pre-tax net earnings as follows:

 

 

September 30, 2020

 

 

June 30, 2021

 

(US$ millions)

 

10% Price

Increase

 

 

10% Price

Decrease

 

 

10% Price

Increase

 

 

10% Price

Decrease

 

 

 

 

 

 

 

 

 

Crude oil price

 

$

(130

)

 

$

120

 

 

$

(288

)

 

$

269

 

NGL price

 

 

(7

)

 

 

7

 

 

 

(16

)

 

 

16

 

Natural gas price

 

 

(114

)

 

 

99

 

 

 

(195

)

 

 

176

 

 

FOREIGN EXCHANGE RISK

Foreign exchange risk arises from changes in foreign exchange rates that may affect the fair value or future cash flows of the Company’s financial assets or liabilities. As Ovintiv operates primarily in the United States and Canada, fluctuations in the exchange rate between the U.S. and Canadian dollars can have a significant effect on the Company’s reported results.

The table below summarizes selected foreign exchange impacts on the Company’sOvintiv’s financial results when compared to the same periods in 2019.2020.

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

$ millions

 

 

$/BOE

 

 

$ millions

 

 

$/BOE

 

 

$ millions

 

 

$/BOE

 

 

$ millions

 

 

$/BOE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Investment

 

$

(1

)

 

 

 

 

 

$

(8

)

 

 

 

 

 

$

5

 

 

 

 

 

 

$

14

 

 

 

 

 

Transportation and Processing Expense (1)

 

 

(1

)

 

$

(0.02

)

 

 

(10

)

 

$

(0.07

)

 

 

26

 

 

$

0.52

 

 

 

38

 

 

$

0.39

 

Operating Expense (1)

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

(0.01

)

 

 

4

 

 

 

0.06

 

 

 

5

 

 

 

0.05

 

Administrative Expense

 

 

-

 

 

 

-

 

 

 

(3

)

 

 

(0.02

)

 

 

8

 

 

 

0.17

 

 

 

10

 

 

 

0.10

 

Depreciation, Depletion and Amortization (1)

 

 

(1

)

 

 

(0.02

)

 

 

(5

)

 

 

(0.03

)

 

 

14

 

 

 

0.28

 

 

 

21

 

 

 

0.21

 

 

(1)

Reflects upstream operations.

 

 

6962

 

 


 

Foreign exchange gains and losses also arise when monetary assets and monetary liabilities denominated in foreign currencies are translated and settled, and primarily include:

 

U.S. dollar denominated financing debt issued from Canada

 

U.S. dollar denominated risk management assets and liabilities held in Canada

 

U.S. dollar denominated cash and short-term investments held in Canada

 

Foreign denominated intercompany loans

To partially mitigate the effect of foreign exchange fluctuations on future commodity revenues and expenses, the Company may enter into foreign currency derivative contracts. As at SeptemberJune 30, 2020,2021, Ovintiv has entered into $215$175 million notional U.S. dollar denominated currency swaps at an average exchange rate of US$0.7451C$1.3720 to C$US$1, which mature monthly through the remainder of 2020 and $350 million notional2021.

As at June 30, 2021, Ovintiv did not have any U.S. dollar denominated currency swaps at an average exchange rate of US$0.7289 to C$1, which mature monthly throughout 2021.

As at September 30, 2020, Ovintiv had $280 million in U.S. dollar long-term debt and $98 million in U.S. dollaror finance lease obligations issued from Canada that were subject to foreign exchange exposure.

The table below summarizes the sensitivity to foreign exchange rate fluctuations, with all other variables held constant. The Company has used a 10 percent variability to assess the potential impact from Canadian to U.S. foreign currency exchange rate changes. Fluctuations in foreign currency exchange rates could have resulted in unrealized gains (losses) impacting pre-tax net earnings as follows:

 

 

September 30, 2020

 

 

June 30, 2021

 

(US$ millions)

 

10% Rate

Increase

 

 

10% Rate

Decrease

 

 

10% Rate

Increase

 

 

10% Rate

Decrease

 

 

 

 

 

 

 

 

 

Foreign currency exchange

 

$

(45

)

 

$

55

 

 

$

(30

)

 

$

37

 

 

INTEREST RATE RISK

Interest rate risk arises from changes in market interest rates that may affect the fair value or future cash flows from the Company’s financial assets or liabilities. The Company may partially mitigate its exposure to interest rate changes by holding a mix of both fixed and floating rate debt and may also enter into interest rate derivatives to partially mitigate effects of fluctuations in market interest rates.

As at SeptemberJune 30, 2020,2021, the Company had no floating rate revolving creditdebt and term loan borrowings of $1,150 million. Accordingly, on a before-tax basis, the sensitivity for each one percent change inthere were no interest rates on floating rate revolving credit and term loan borrowings was $11 million.derivatives outstanding.

 

 

7063

 

 


 

Item 4: Controls and Procedures

 

DISCLOSURE CONTROLS AND PROCEDURES

 

Ovintiv’s Chief Executive Officer and Chief Financial Officer performed an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of SeptemberJune 30, 2020.2021.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

There were no changes in Ovintiv’s internal control over financial reporting during the thirdsecond quarter of 20202021 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

 

 

7164

 

 


 

PART II

 

In July 2020, the Company received a Notice of Violation (“NOV”) from the U.S. Environmental Protection Agency (“EPA”) and the Utah Department of Environmental Quality, Division of Air Quality (“UDAQ”). The NOV alleges violations under the federal Clean Air Act, the State of Utah’s State Implementation Plan, and the State of Utah’s air quality regulations for the oil and gas industry, at certain of the Company facilities located in the Uinta Basin. The Company has exchanged information with the EPA and UDAQ and is engaged in discussions aimed at resolving the allegations. The Company is unable to predict the financial impact of the NOV or the timing of its resolution at this time. Resolution of the matter may result in monetary sanctions of more than $100,000.

Please also refer to Item 3 of the 20192020 Annual Report on Form 10-K and Note 2421 of Ovintiv’s Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Item 1A. Risk Factors

 

In addition toThere have been no material changes from the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider therisk factors discusseddisclosed in Item 1A. Risk Factors of the 2019 Annual Report on Form 10-K. These risks, which could materially affect our business, financial condition and/or operating results, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition and/or operating results. The risk factors set forth below should be read together with the risk factors described in the 20192020 Annual Report on Form 10-K.

 

A pandemic, epidemic or other widespread outbreak of an infectious disease, such as the ongoing outbreak of COVID-19, could affect the operation of our business.

On March 11, 2020, the World Health Organization escalated the status of the COVID-19 outbreak from epidemic to pandemic. In an effort to mitigate the spread of COVID-19, governmental authorities in the United States, Canada and around the world have implemented, among other measures, limitations on cross-border travel, restrictions on mass gatherings, stay-at-home orders and mandatory closures of non-essential businesses. In the event such restrictions remain in place for an extended period of time, the Company’s ability to maintain ordinary staffing levels, secure operational inputs, and execute on portions of its business could be impacted. Although the Company has contingency plans in place to manage the potential workplace impacts of global outbreaks, including COVID-19, restrictions implemented by governments in jurisdictions in which the Company operates could prevent employees, contractors or suppliers from accessing the Company’s properties or performing critical services, or negatively impact the availability of the Company’s key personnel. In addition, as a significant subset of the Company’s employees has and may continue to work remotely, the Company may experience a higher rate of cyber-attacks and exposure to vulnerabilities related to digital technologies.

Concerns over the prolonged negative effects of the COVID-19 pandemic on economic and business prospects across the world have contributed to increased market and oil price volatility and diminished expectations for the performance of the global economy. The COVID-19 pandemic has resulted in, and may continue to result in, significant market uncertainty, including substantial fluctuations in currency exchange rates, inflation, interest rates, counterparty credit and performance risk, and general levels of investing and consumption. An extended period of decreased global demand and/or oversupply of production may result in refiners curtailing operations or refinery utilization rates, which could contribute to storage constraints or a widening of price differentials in jurisdictions in which the Company operates. Further, low commodity prices could impact the value and amount of the Company’s reserves and result in the recognition of future ceiling test impairments.

The full impact of the COVID-19 pandemic is uncertain and will depend on a number of factors, including the location and severity of the virus's spread and the effectiveness of mitigation actions taken by governmental authorities. Ongoing market uncertainty and an extended period of low commodity prices could result in changes to the Company's spending and operating plans, substantial fluctuations in the Company’s stock price and credit ratings, and affect the Company's financial condition, operations and access to liquidity.

72


The Company’s ability to use net operating losses and certain other tax attributes to offset future taxable income may be limited.

The Company currently has substantial U.S. federal net operating loss (“NOL”) carryforwards with various expiration dates and other tax attributes.  Our ability to use these tax attributes to reduce our future U.S. federal and state income tax obligations depends on many factors, including our future taxable income, the timing of which is uncertain. In addition, our ability to use NOL carryforwards and other tax attributes may be subject to significant limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).

Under Section 382 of the Code and corresponding provisions of state law, if a corporation undergoes an ownership change, which is generally defined as a greater than 50% change in its equity ownership over a  three-year period, the company’s ability to utilize U.S. NOL carryforwards and other tax attributes, may be limited.  Determining the limitation under Section 382 of the Code is highly complex and the Company believes its U.S. NOL carryforwards and other tax attributes, other than tax attributes related to prior stock acquisitions, are not currently subject to a limitation as a result of an ownership change. However, it is possible that an ownership change may occur in the future which may materially impact the Company’s ability to use the U.S. NOL carryforwards and other tax attributes to reduce U.S. federal and state taxable income. Such a limitation could adversely affect the Company’s net income and cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit No

 

Description

10.1*

Letter Agreement between Ovintiv Inc. and Brendan M. McCracken dated June 8, 2021 (incorporated by reference to Exhibit 10.1 to Ovintiv’s Current Report on Form 8-K filed on June 11, 2021, SEC File No. 001-39191).

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

101.INS

 

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

 

Inline XBRL Taxonomy Schema Document.

101.CAL

 

Inline XBRL Calculation Linkbase Document.

101.DEF

 

Inline XBRL Definition Linkbase Document.

101.LAB

 

Inline XBRL Label Linkbase Document.

101.PRE

 

Inline XBRL Presentation Linkbase Document.

104

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2020,2021, has been formatted in Inline XBRL.

 

* Management contract or compensatory arrangement

 

 

7365

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Ovintiv Inc.

 

By:

/s/ Corey D. Code

 

 

Name:

 

Corey D. Code

 

Title:

 

Executive Vice-President &

Chief Financial Officer

 

Dated: October 30, 2020July 29, 2021

 

 

7466