Denver-based Ovintiv Inc., whose portfolio extends from Western Canada to the Permian Basin, is boosting its natural gas and oil production guidance to the end of the year after all four operating areas outperformed during the second quarter.
The multi-basin independent, which has developed onshore reserves for years, produces most of its natural gas in the Montney Shale. Most oil output is from the Permian. Operations also extend into the Anadarko and Uinta basins.
Known for pushing the limits of technology with its efficient well designs, the company has “been seeing the benefits of our culture of innovation showing up in our results for quite some time now,” CEO Brendon McCracken said during the quarterly conference call. “Innovation is more than simply applying the latest technology to our operations. It is a mindset within our organization. It influences the way we approach challenges and manage complex operational objectives.”
CFO Corey Code said total production came in “above the high end of guidance, averaging 594,000 boe/d.” That included 1.74 Bcf/d of natural gas.
“We achieved this while coming in below the midpoint on capital,” Code said. “Crude and condensate production was strong across all four assets in the quarter. Permian, Uinta, Anadarko crude and condensate levels were all above our internal expectations. And the Montney demonstrated significant outperformance of about 4,000 boe/d ahead of plan.”
Ovintiv has raised full-year production guidance to 570,000-580,000 boe/d. Natural gas should average 1.66-1.69 Bcf/d from initial guidance of 1.55-1.65 Bcf.d.
LNG Canada Impact?
Realized natural gas prices, including hedges, averaged $1.86/Mcf in the second quarter versus $1.98 in the year-ago period.
The bulk of gas exploration has been in the Montney. The formation is expected to help supply export projects underway in British Columbia (BC).
The Shell plc-led LNG Canada project, in Kitimat on the BC coast, is close to commissioning its first train. Another BC liquefied natural gas project, Cedar LNG that is sponsored by Pembina Pipeline Corp. and the Haisla Nation, was sanctioned in June.
Could feeding gas to LNG Canada positively impact AECO pricing in 2025? Code said the answer is not that simple.
Nothing is changing on the "allocation front” as far as Ovintiv’s spending or activity, the CFO told investors. “We're going to continue to allocate our capital to the condensate window” of the Montney.
“We believe strongly that the fundamentals for condensates remain a premium product in Canada and are very much intact...We see the premium pricing staying intact on the condensate side.
“And on the AECO side, we're probably in the cautious camp..."
NGI’s NOVA/AECO C daily spot natural gas price fell 0.05 cents to C73.5 cents/GJ on Thursday, remaining below a dollar since July 24. In January, however, forward fixed prices at the Canadian benchmark are seen rising to C$2.042, NGI data show.
LNG Canada is going to be a "real positive for Canada and Montney gas producers,” Code said. “But it's probably not a structural game changer” for AECO pricing relative to the New York Mercantile Exchange (Nymex).
“That's just because there's a lot of gas resource in Canada...Taking that incremental 2 Bcf/d offshore to international markets is going to be helpful, but probably not a long-term re-rating of AECO.
“And so our strategy continues to be to price diversify on the gas side and get market access to multiple downstream markets for our Canadian gas...Right now, we're in a really great position there, with substantially all or close to all of our Canadian gas priced outside of AECO. That's clearly a good thing in the current market. And we think long term, the right move there might be transient periods...But I think long term, we continue to believe in diversifying away from the Western Canadian market.”
Nearly 700 MMcf/d of Ovintiv’s long-term transport is “outside” of the AECO market.
Ovintiv’s Montney gas realized 129% of AECO and 72% of New York Mercantile Exchange prices in the second quarter.
“This is thanks to our physical transportation arrangements to markets in Eastern Canada, Chicago, California and the Pacific Northwest,” COO Greg Givens told analysts.
Permian Gains
Production in the Permian averaged 203,000 boe/d, with 40 net wells turned to sales. Anadarko production averaged 104,000 but no wells were turned in line. In the Uinta, output averaged 33,000 boe/d and seven net wells were turned to sales.
Well performance “is higher than our 2023 well results, incorporating all of the improved well productivity we achieved last year,” Givens said. “These gains are hard fought and the result of multiple stacked innovations.
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“As our industry continues to mature, we expect to see a divergence in well performance between those operators who embrace innovation and technical complexities and those who continue to pursue the status quo.”
In addition to stronger wells, Ovintiv also drilled its “fastest well in the quarter, a 10,500-foot lateral in less than six days,” Givens noted. “On completions, our fastest-in-quarter pad average was about 4,800 feet/day. To put this in perspective, that equates to pumping just over 14 million pounds of sand per day.”
To date this year, Ovintiv has completed “roughly 20% more feet per day than our 2023 program average,” Givens said. “These cycle time improvements mean that we continue to drive our well costs lower…”
Net profits totaled $340 million ($1.27/share) in the second quarter, compared with year-ago earnings of $336 million ($1.35). Revenue dipped to $2.29 billion from $2.52 billion.
Sales from U.S. operations totaled $1.42 billion, versus $1.18 billion in 2Q2023. Domestic natural gas sales declined to $55 million from $86 million. Canadian sales totaled $425 million, versus year-ago revenue of $470 million. Canada natural gas revenue totaled $150 million, compared with $223 million in 2Q2023.
