Ovintiv is a North American shale oil and gas exploration and production company. It has diversified operations across the Permian, Anadarko (both in the US) and Montney (in Canada) basins.

The company has spent the last few years focusing on improving operating and capital efficiency. Numerous non-core assets have been disposed of.

The company operates with a disciplined capex and capital allocation framework. Ovintiv has taken advantage of currently high oil and gas prices to significantly reduce the debt on their balance sheet. The company’s capital allocation priorities are presently focused on returning cash to shareholders rather than growing production given significant supply chain constraints and the relative attractiveness of buying back their own stock. Ovintiv recently started returning 50% of free cash flow to shareholders via a modest dividend and a substantial share buyback. Free cash returns should see a step up next year as significant hedges roll off.

The stock (as of mid-September 2022) trades on four times our forecast of FY23 earnings and about five times our assessment of normal earnings. The FY23 free cash flow yield is 24%. The company will return over 40% of its market capitalisation to shareholders in cash over the next five years.

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