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Ovintiv Slashes Capex Twice in a Month, Betters Oil Hedges

Zacks Equity Research

Ovintiv Inc. OVV recently decided to lower its second-quarter capital expenditure again by an additional $200 million, trimming the total capex to $500 million for preserving liquidity amid the coronavirus-induced crisis. Reduction in demand at a time of surplus supply adversely impacted crude oil prices as evident from a 61.3% plunge year to date.

Further, this energy player ensures strong cashflow generation by streamlining oil hedges. For the second quarter, Ovintiv hedged 206,000 barrels per day at an average price of $42.09 a barrel.

At present, there are hardly any positive indications about an upward revision in demand. Further, with governments worldwide resorting to complete lockdown to break the chain of coronavirus spread, demand takes a hit.

Ovintiv Inc. Price

Ovintiv Inc. Price

Ovintiv Inc. price | Ovintiv Inc. Quote

Amid such declining demand and prices, oil and gas companies are being compelled to take remedial measures to safeguard their financial interest. A few weeks back, Ovintiv had already lowered second-quarter 2020 capital investment projection by minimum $300 million. It further announced plans to control current-year cash costs by $100 million.

Management at this exploration and production player also stated that measures adopted for capex cuts will result in abandoning 10 operated drilling rigs along with an aim to suspend additional six operated rigs in May this year. Minus these rigs, Ovintiv will be left with three functional rigs in the Permian, two in the Anadarko and two in the Montney.

Notably, this Zacks Rank #3 (Hold) Ovintiv is not the only oil and gas entity that will slash its capital spending twice in recent times. Occidental Petroleum OXY, Cenovus Energy CVE and Devon Energy DVN also followed suit by simplifying their expenditure plan twice in a month to secure liquidity. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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