Ovintiv Inc., rebranded in January by Encana Corp., plans to cut capital spending this year and lean on its scale across North America to drive up liquids production and maintain free cash flow (FCF).

The independent, which early this year earned shareholder approval to rebrand and move its headquarters to Denver from Calgary, has a capital expenditure (capex) budget of $2.7 billion for 2020, or $175 million less than last year. The bulk of this year’s capital spending is to be allocated to three core assets in the Anadarko and Permian basins, and the Montney formation in British Columbia. Eighty percent of capex is to be directed to the Lower 48.

“Our liquids mix will continue to increase in 2020, which increases our margins,” CEO Doug Suttles told analysts on Thursday during a quarterly conference call. “Our outlook has liquids making up 56% of our total estimated production...At our size this represents the addition of about 4 million bbl of liquids produced in calendar 2020.”

Crude oil and condensate volumes are expected to grow 4% pro forma over 2019 after accounting for asset sales last year in the Arkoma Basin and China, as well as the acquisition of Newfield Exploration Co. that gave it a leading position in the Anadarko Basin.

“This is meaningful, as it translates to more than $120 million of incremental cash flow,” Suttles said of the liquids growth. This year, he said, would be the third straight for FCF generation.

This year’s program is supported by a derivatives position that has more than 70% of crude, condensate and natural gas production hedged. The program is expected to be FCF positive at prices lower than the current strip of $52.00/bbl West Texas Intermediate and $2.15/MMBtu Henry Hub.

Ovintiv’s scale, which also includes assets in the Williston and Uinta basins, as well as the Duvernay and Eagle Ford shales, should better insulate it from ongoing commodity volatility, Suttles said.

In all, crude and condensate production for 2020 is forecast at 229,000-239,000 b/d, while natural gas liquids production is expected to come in at 89,000-93,000 b/d. Natural gas volumes are expected to decline by 2% to 1.52-1.58 Bcf/d with the shift to liquids.

In 2019, production averaged 578,600 boe/d, excluding divested assets, or 9% more than in 2018. During 4Q2019, the company produced 592,600 boe/d, up from 403,400 boe/d in the year-ago period.

In its core assets, Ovintiv produced 158,300 boe/d last year in the Anadarko Basin, which generated $263 million of operating FCF, making the assets the primary cash engine, said COO Greg Givens.

“We rapidly cut well costs in the Anadarko and demonstrated our ability to implement proven practices from other areas into a new region,” CFO Corey Code said of the entry into the basin, where it primarily operates in the South Central Oklahoma Oil Province (SCOOP) and the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties (STACK).

In the Permian, the company produced 104,800 boe/d in 2019, a 14% year/year increase. Ovintiv is currently running five rigs and continues to focus development in West Texas within the Martin, Midland and Upton counties, Givens said. One-third of 2020 development in the play is also taking place in Howard County.

In the Montney, year/year liquids production grew by 25% in 2019 to 52,100 b/d.

Ovintiv reported a fourth quarter net loss of $6 million (minus 2 cents), compared with net income of $1 billion ($1.08) in the year-ago period. The 4Q2019 loss was driven primarily by a $264 million hedging loss.

For the full year, net earnings were $234 million (90 cents), compared with $1.1 billion ($1.11) in 2018.

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