Kimmeridge’s new website, honouring the bull-in-a-china-shop illegal aquifer frac’er:
That’s a big frac’ing minus 85% for total shareholder return since June 2013.
“Despite the share price underperformance, CEO pay increased from $6.7 mm in 2014 to $12.6 mm in 2019″
Jittery Oil Market Questions Shale’s Vow to Keep Supply in Check by Gerson Freitas Jr, Sheela Tobben and Kevin Crowley, Jan 28, 2021, Bloomber
Shale producers swear this time is different.
After years of profligate spending and unchecked output helped trigger a series of oil-price crashes, U.S. explorers say they’ve learned from their mistakes. Mistakes or intentional economic devastation for investors (and invaded landowners and the environment) caused by out of control greed and superiority? They’ve pledged to keep a lid on production, even as crude rebounds amid OPEC supply cuts….
Convincing the market is another matter, however.
One longtime energy investor sees “zero value” in producers’ promises of frugality.
Explorers’ discipline won’t last as oil extends a recovery from historic lows to trade at more than $50 a barrel, a level at which many shale wells are profitable, said Charles Lemonides, the founder of Valueworks LLC, which has about $200 million in assets under management.
“Discipline will stay for a few months, maybe the next quarter or two before they start going at it again,” said Lemonides, whose firm holds shares in producers including Whiting Petroleum Corp. and Oasis Petroleum Inc. “There’s a lot of equipment and expertise ready to be put to work.”
… Past experience favors the skeptics. After the Organization of the Petroleum Exporting Countries and other major exporters cut supplies as oil prices plunged in 2016, shale producers responded by almost doubling output through 2019. …
Roughly half of the incremental cash flow from higher oil prices may end up being reinvested in production, adding an extra 310,000 barrels a day of oil by December 2021 and as many as 800,000 barrels a day by December 2022, said Artem Abramov, head of shale research at Rystad Energy. But some of the gains will be absorbed by hedging losses, paying down debt and returning money to investors, he said. Really? Returning money to investors, or happily screwing them like frac’ers screw landowners and the environment?
The moratorium announced by President Biden on Wednesday on new oil and gas leasing on federal land is unlikely to dent activity until the latter half of his term, according to Vincent Piazza, a Bloomberg Intelligence analyst. Many producers can keep drilling for several years under existing leases.
Meanwhile, the prospect of debt-fueled shale growth has returned as borrowing rates fall. Though many shale producers remain shut out of the high-yield debt market altogether, energy companies that could access it this month were able borrow at as low a rate as 5.67%, the lowest in roughly six years, according to Bloomberg Barclays index data. That could lure small-cap drillers with relatively healthy balance sheets to borrow cheaply to either refinance their existing loans or ramp up production.
Still, there are reasons to believe that shale producers have reformed. Explorers are under unprecedented pressure to cut down on spending and generate free cash flow, with Exxon Mobil Corp. and Ovintiv Inc. facing proxy battles from investors urging the companies to improve performance and return that cash to shareholders. Executive pay packages, which are often tied to boosting production, have also come under scrutiny.
Management compensation packages at companies like Apache Corp. and EOG Resources Inc. have been tweaked to reflect those priorities, according to Morgan Stanley analyst Devin McDermott, and this month, the top bosses of Devon Energy Corp., Pioneer Natural Resources Co. and Occidental Petroleum Corp. reassured investors they’re committed to capital discipline. Commitments from frac’ers are as valuable as used disposable PPE.
… “The industry is changing. Management teams are responding,” said McDermott. I think the frac’ers are only making this glorious promise because they are increasingly being refused financing, for good reason. Frac’ers survive on debt and huge handouts from the public.
Despite this year’s rally in energy stocks amid broader market gains, the sector has fallen out of favor amid the perception that the industry is a poor steward of capital. Almost 30 U.S. oil and gas producers with $45 billion in liabilities filed for bankruptcy in the past year alone, according to data compiled by Bloomberg.
“The old linkage between higher oil prices and higher U.S. oil production is largely gone,” says Tai Liu, an analyst at BloombergNEF. “Stocks are not being rewarded for production growth.”
Oil market mavens are closely monitoring the U.S. industry for signs of increased drilling and production. While the tally of oil rigs operating across the U.S. has risen about 60% to 289 since August, according to Baker Hughes data, that’s still far below pre-pandemic levels. Alex Beeker, a principal analyst at Wood Mackenzie, said the increased drilling is necessary only to keep production levels flat as older wells become unproductive. …
Ovintiv™ Reiterates Disciplined Strategy and Focus on Value Creation Press Release by Ovintiv, Jan 26, 2021, Nasdaq
DENVER, Jan. 26, 2021 /PRNewswire/ – Ovintiv Inc. (NYSE: OVV) (TSX: OVV) today issued the following statement:
Ovintiv has received Kimmeridge’s notice of its intent to nominate three director candidates to stand for election to our Board of Directors. We welcome discussions with all shareholders and have a history of open dialogue with all shareholders, including Kimmeridge. Our Corporate Responsibility and Governance Committee will carefully review the nominations.
Ovintiv’s Board and management team have a track record of taking decisive actions to drive value for shareholders and stakeholders. Our priorities today are clear: reduce debt, maintain the scale of our business, relentlessly pursue efficiencies, drive down emissions and return cash to shareholders. Our rigorous approach to capital allocation ensures free cash flow generation and the creation of value through the cycle.
We have made significant changes to our Board since 2019, including adding three new directors, appointing a new independent chairman, and realigning our committee composition to more closely align with each element of our ESG strategy. Our compensation program is dynamic and aligned with shareholder feedback, financial and operating outcomes, and equity performance and we have added emissions-related performance targets tied to the 2021 compensation program for the entirety of the organization. …
Ovintiv faces proxy challenge from investment firm Kimmeridge by Reuters, Jan 26, 2021, The Globe and Mail
Kimmeridge Energy Management Co. on Tuesday launched a proxy fight against Ovintiv Inc. to win three seats on the oil producer’s board.
The private investment firm urged Ovintiv to alter its capital spending and focus on governance and said the board had allowed Ovintiv to become an environmental laggard, trailing peers on key environmental metrics.
Speaking to Reuters, Mark Viviano, managing partner and head of public equities at Kimmeridge, said the move came after months of attempting to engage with the Denver-based producer.
Kimmeridge has nominated its founder, Ben Dell, Cambiar Investors’ Katherine Minyard and Columbia University research scholar Erin Blanton as independent directors for Ovintiv’s 12-member board.
Viviano said Kimmeridge was not currently pushing to replace Ovintiv Chief Executive Doug Suttles.
Ovintiv, responding to the Kimmeridge notice, said in a statement it would carefully review the nominations.
“We have made significant changes to our board since 2019, including adding three new directors, appointing a new independent chairman, and realigning our committee composition to more closely align with each element of our ESG (environmental, social and governance) strategy.”
Kimmeridge, one of Ovintiv’s top 10 shareholders with 2.5% of its common shares, warned earlier this month it could launch a proxy challenge if the company did not address its concerns, including high levels of executive compensation.
Management remuneration has emerged as a hot topic in U.S. shale in recent months, after the industry produced years of lackluster shareholder returns versus other sectors of the economy.
Kimmeridge wanted to see the company sell some operations to concentrate drilling in the Permian Basin of Texas, with proceeds from asset sales used to pay down debt, Viviano added.
Ovintiv had $7.1 billion of long-term debt as of Sept. 30, according to a regulatory filing. Reuters reported in November the company had put its Eagle Ford acreage in South Texas up for sale.
Private equity fund tries to shake up Ovintiv board, nominates another Denver company’s chairman by Greg Avery, Senior Reporter, Denver Business Journal, Jan 26, 2021
A private equity fund is running a trio of reformist candidates for Ovintiv’s board of directors, including one who’s the new executive chairman of another oil and gas company in the same downtown Denver skyscraper.
New York City-based Kimmeridge Energy Management Co., one of 10 largest stock owners in Ovintiv, nominated three board candidates saying they’ll push the oil and gas producer to trim debt, return more money to shareholders, improve its environmental practices, and advocate board members and Ovintiv executives own more stock in the company to align their interests better with those of shareholders.
One of the candidates Kimmeridge proposed is Ben Dell, a founder and managing partner of the oil and gas-focused fund who last week emerged as Denver-based Extraction Oil & Gas’ executive chairman following that company’s reorganization through Chapter 11 bankruptcy.
Both Extraction and Ovintiv lease space for their headquarters in Republic Plaza.
One of the other directors Kimmeridge proposed has Denver connections, too. Katherine Minyard is an investment principal and partner at Cambiar Investors, a Kansas City-based company with an office in Denver.
The third Kimmeridge Energy candidate is Erin Blanton, a researcher at Columbia University’s Center on Global Energy Policy.
Kimmeridge argues that the three board members are qualified and would bring new diversity of opinion to Ovintiv’s board.
The fund has tried to engage Ovintiv about making changes without success, said Mark Viviano, managing partners and head of public equities at Kimmeridge, in a statement.
“Given the track record of value destruction at Ovintiv, the company requires the stewardship of a strong board – a board that can restore confidence in the shareholder base and hold management accountable,” Viviano said.
Ovintiv, the largest Denver-based oil and gas producer by revenue, was formerly called Encana and was headquartered in Calgary, Canada, though its U.S. operations were that majority of its production and their operation based in Denver. The company rebranded and shifted its corporate headquarters to Denver in early 2020.
Dell became executive director of Extraction Oil & Gas in its debt-for-equity restructuring. The company’s debtholders and lenders became equity rights holders in a reorganized Extraction in exchange for forgiving $1.7 billion in debt that the company was unable to repay. The change was made public earlier this month.
Kimmeridge has frequently used activist investor strategies to push its argument that U.S. shale oil companies are too debt-heavy and not focused on making returns for investors.
And Ovintiv is not the first time it’s pushed to elect directors to a Denver oil company’s board.
In 2019, Kimmeridge tried a similar proxy election strategy with Denver-based PDC Energy, trying to gain leverage in pushing for changes at that company, including selling its Permian Basin operation in West Texas.
PDC Energy (Nasdaq: PDCE) did make some internal reforms but its shareholders ultimately rejected a slate of Kimmeridge-favored candidates.
In 2018, Kimmeridge was among shareholders in Denver-based Resolute Energy that pushed for its sale Denver-based Cimarex Energy Co. (NYSE: XEC).
Ovintiv (OVV) Under Pressure From Activist Investor Kimmeridge by Zacks, Jan 21, 2021, msn money
Ovintiv Inc. OVV is under pressure from private equity firm Kimmeridge Energy Management Company, which sees that the oil and gas producer lagging behind its fellow operators due to its reckless expenditure, expensive acquisitions and inadequate management.
… The investment firm alleged that there are inconsistency and unaccountability in Ovintiv’s accomplishments, and importantly, it fails to provide recognitions to its shareholders.
In fact, 85% of the company’s stock has given negative returns to its shareholders since 2013.
Even before the coronavirus-induced oil price slump, drilling companies were no longer supported and regarded by investors as the oil and gas drillers initiated reckless expenditure, which failed to increase investor return and left them in unsustainable debt.
Kimmeridge claimed that Ovintiv must implement a pay-for-performance compensation strategy and restructure its board for restoring investor confidence. It demonstrated an approach to meet the investor concerns by adjusting executive compensation with performance and divesting non-core assets to pay off debts.
Ovintiv’s operations are mainly focused on a limited number of basins, including the Montney formation in Canada, and the Bakken, Anadarko, Permian and Eagle Ford shale fields in the United States. In fact, it acquired the Anadarko basin assets in spite of the industry experts’ opinion that the assets were not economically competitive. Notably, Kimmeridge hopes that Ovintiv shifts its entire spending into the Permian Basin of West Texas and New Mexico, which is likely to yield better returns.
However, Ovintiv initially disagreed with Kimmeridge’s depiction of its governance and compensation programs, and upholds its strategies to reduce debt and repay shareholders. Importantly, among other measures, Kimmeridge encourages the company to reduce its greenhouse gas emissions by setting emission-reduction targets in line with the Paris Agreement on climate change.
Headquartered in Denver, Ovintiv is an independent energy producer. It engages in the exploration, development, production and marketing of natural gas, oil and natural gas liquids. …
Ovintiv Targets 33% Reduction in Methane Intensity by 2025, Ovintiv Inc recently disclosed a goal to reduce methane intensity 33% by 2025. The objective, approved this week by its board of directors, will be tied by Strategic Reseach Institute, SteelGuru Business News, Jan 21, 2021
Modern life for all? Pffft, just another frac falsehood. Illegally frac’ing community drinking water aquifers; speeding like drunk maniacs on private properties and public roads putting lives in danger and escalating stresses on communities, pets, livestock and wildlife; frac quakes damaging buildings and terrifying inhabitants; forcing families backwards into the dark ages, rationing/hauling water; being tortured 24/7 incessantly for years by industrial vibrations and noise; etc. Ya, for sure, “modern life.” But not for me, my loved ones and countless others.
Ovintiv Inc recently disclosed a goal to reduce methane intensity 33% by 2025. The objective, approved this week by its board of directors, will be tied to Ovintiv’s annual incentive compensation program for all employees beginning in 2021. The significant reduction will be benchmarked against the Company’s 2019 actual methane intensity of 0.15 metric tons CH4/thousand barrels of oil equivalent (CH4/MBOE), which was recently disclosed in its 16th annual sustainability report (https://www.ovintiv.com/sustainability/). The 33% reduction in methane intensity to 0.10 metric tons CH4/MBOE by 2025 will significantly reduce greenhouse gas emissions.
Ovintiv has been a leader and early adopter of key disclosure frameworks from the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB). A methane-focused reduction metric supports the United Nation’s Sustainable Development Goals and provides guidance to direct the Company’s approach to sustainability. Ovintiv executives also serve in leadership roles on climate-related issues within the largest industry trade associations in North America and are collaborating with industry peers to ensure the consistent disclosure of key metrics. Pfffft! Nice words, not much more.
Ovintiv is one of the largest producers of oil, condensate and natural gas and natural gas liquids in North America. The Company is committed There’s that word again to preserving its financial strength, maximizing profitability through disciplined capital investments and operational efficiencies and returning capital to shareholders. A talented team, in combination with a culture of innovation and efficiency, fuels our economic performance, increases shareholder value and strengthens our commitment FFS. to sustainability in the communities where we live and work. What is sustainable about intentionally frac’ing a community’s drinking water supply, then abandoning the residents, leaving them to pay nearly a million dollars for a new water reservoir when an accumulation of gases blew up the existing one (and seriously injuring the county water manager), after committing in writing to provide water if there are problems?
Ovintiv Commitment Reality Check, from Kimmeridge Jan 2021 Presentation:
End Ovintiv Commitment Reality Check.
Shale Daily: Ovintiv Facing Investor Ire to Improve Performance or Potential Board Upheaval by Carolyn Davis, January 15, 2021, Natural Gas Intelligence
Denver-based Ovintiv Inc., whose onshore oil and gas portfolio stretches from Canada to Texas, could face a board shakeup if performance does not improve, shareholder Kimmeridge Energy Management Co. LLC warned on Thursday.
The private equity, which has a 2.4% stake in the exploration and production (E&P) company, has launched a website and sent a detailed 18-page presentation to Ovintiv management addressing its concerns.
“As a long-standing investor in the E&P sector, I have witnessed the continued deterioration of investor sentiment toward Ovintiv,” said Kimmeridge managing partner Mark Viviano. “Given the quality of its asset base, this company should not have been one of the worst performing E&Ps over the past seven years.
“However, Ovintiv is emblematic of everything that is wrong with the U.S. shale industry, and the reasons for underperformance are clear,” as “unchecked decision-making, overseen by a board with insignificant equity ownership and inadequate expertise, is a prescription for failure.”
Kimmeridge has attempted to “engage in a constructive dialogue with the board,” Viviano said, but “we repeatedly encountered an unreceptive board that mistakenly believes it has already positioned Ovintiv as a leading E&P company, but the facts suggest otherwise. We believe shareholders deserve better and will be supportive of change.”
In response, Ovintiv CEO Doug Suttles said the board and management team are “focused on sustainable value creation for its investors. We have a clearly defined plan to reduce debt through driving efficiency gains and disciplined capital allocation to generate free cash flow.
“The company has generated significant free cash for each of the last three years and enters 2021 with strong momentum.”
For example, Suttles said, Ovintiv earlier this month pre-announced its 4Q2020 results. He noted that debt reduction was “ahead of schedule, capital investments below guidance,” and the company achieved “stronger than expected production. Ovintiv also recently completed its annual shareholder outreach program, where members of the board meet directly with its largest shareholders.”
According to Kimmeridge, the E&P sector overall needs to “embrace a new business model.” The investor said E&Ps need to focus on returning capital to shareholders and lowering reinvestment rates. It also is advising the sector to reduce absolute debt, align management compensation with shareholder interests and establish “credible” environmental targets aligned with the United Nations global climate accord.
Kimmeridge, whose investments are centered in North America’s onshore basins, said there are “three main failures” at Ovintiv regarding capital allocation, governance and environmental stewardship.
“Ovintiv management appears addicted to taking on debt, demonstrated by a history of acquiring companies at the wrong time for the wrong price,” Kimmeridge stated. “We believe their mistakes are compounded by allocating capital to the wrong areas.”
Management also “has not been held accountable. We believe the company’s compensation structure displays a troubling lack of alignment between pay and performance, compounded by the lowest insider ownership amongst U.S. peers.”
In addition, Ovintiv has “one of the highest” carbon dioxide equivalent, or CO2e, intensities in its U.S. peer group, according to the firm. With “no targets related to flaring or total emissions intensity, Ovintiv is an environmental laggard, not a leader,” it said.
“The combination of poor capital allocation, misaligned incentives and an inferior environmental strategy leaves the company unprepared for the growing risks associated with the energy transition,” Viviano said. “More concerning is the degree of complacency around the need for meaningful reform. The magnitude of shareholder value destruction demands a sense of urgency we have yet to witness from the Board and management team. Kimmeridge is prepared to help drive the change that the company desperately needs by nominating directors to the Ovintiv board at the upcoming annual meeting.”
Kimmeridge Publishes Presentation: “Ovintiv: A Track Record of Value Destruction” by Investing News Network, January 14th, 2021, Oil and Gas Investing News
Kimmeridge Energy Management Company, LLC (“Kimmeridge”), a private investment firm focused on upstream energy, with an investment philosophy underpinned by fundamental research, today published an investor presentation titled, “Ovintiv: A Track Record of Value Destruction.”
In its presentation, Kimmeridge, a top ten shareholder of Ovintiv Inc. … highlights the Company’s failures of capital allocation, governance and environmental stewardship. Kimmeridge also provides a framework for restoring confidence in Ovintiv, applying the core principles previously outlined in its white papers. Kimmeridge has argued that the E&P sector needs to embrace a new business model focused on:
- Returning capital to shareholders;
- Lowering reinvestment rates;
- Reducing absolute debt;
- Aligning management compensation with the interests of shareholders; and
- Establishing credible environmental targets aligned with the Paris Agreement.
Mark Viviano, Managing Partner and Head of Public Equities at Kimmeridge, said:
“As a long-standing investor in the E&P sector, I have witnessed the continued deterioration of investor sentiment towards Ovintiv. Given the quality of its asset base, this company should not have been one of the worst performing E&Ps over the past seven years. However, Ovintiv is emblematic of everything that is wrong with the U.S. shale industry, and the reasons for underperformance are clear; unchecked decision-making, overseen by a board with insignificant equity ownership and inadequate expertise, is a prescription for failure.
Despite Kimmeridge’s best efforts to engage in a constructive dialogue with the Board of Directors of the Company, we repeatedly encountered an unreceptive Board that mistakenly believes it has already positioned Ovintiv as a leading E&P company – but the facts suggest otherwise. We believe shareholders deserve better and will be supportive of change.”
As further detailed in the presentation, Kimmeridge has identified three main failures at Ovintiv:
1. Failure of Capital Allocation
Ovintiv management appears addicted to taking on debt, demonstrated by a history of acquiring companies at the wrong time for the wrong price. We believe their mistakes are compounded by allocating capital to the wrong areas.
2. Failure of Governance
Ovintiv management has not been held accountable. We believe the Company’s compensation structure displays a troubling lack of alignment between pay and performance, compounded by the lowest insider ownership amongst U.S. peers ii .
3. Failure of Environmental Stewardship
With one of the highest CO2e intensities in their U.S. peer group ii , and no targets related to flaring or total emissions intensity, Ovintiv is an environmental laggard, not a leader.
Mr. Viviano continued, “The combination of poor capital allocation, misaligned incentives and an inferior environmental strategy leaves the Company unprepared for the growing risks associated with the energy transition. More concerning is the degree of complacency around the need for meaningful reform. The magnitude of shareholder value destruction demands a sense of urgency we have yet to witness from the Board and management team. Kimmeridge is prepared to help drive the change that the company desperately needs by nominating directors to the Ovintiv Board at the upcoming annual meeting.”
A copy of Kimmeridge’s presentation and additional information can be found at www.FixOvintiv.com .
Founded in 2012, Kimmeridge is a private investment firm focused on unconventional oil and gas assets in the U.S. Kimmeridge is differentiated in its direct investment approach, deep technical knowledge, active portfolio management and proprietary research and data gathering. In addition to its New York headquarters, Kimmeridge maintains a fully-staffed, in-house operating and geology team in Denver , with experience across all major upstream functions and disciplines. For additional information on Kimmeridge and its proprietary research, please visit www.kimmeridge.com .
Bruce H. Goldfarb / Patrick J. McHugh
212.297.0722 / 212.297.0721
SOURCE Kimmeridge Energy
News Provided by PR Newswire via QuoteMedia
Refer also to:
Another huge win for global movement to stop flow of money to big polluters with approval of $4Billion Fossil Fuel divestment. NYC Mayor Bill de Blasio: “Fossil fuels are not only bad for our planet and our frontline communities, they are a bad investment”
2019 10 31: Encana fleeing Canada in Scheer desperation? Shares drop 9.2%! Illegal aquifer-frac’er, caprock buster, poisoning bully of families and briber/divider of communities running to USA, changing its spots to Ovintiv Inc. Erectile Dysfunction drug or cross between Ovaltine in vintage container and a vagina?
2019 11 19: Ovindictive Ovintiv! Investors not happy with your scardy cat run to the USA. Canadian investment firm Letko, Brosseau & Associates Inc. (manages about $27 Billion in assets), publicly slams Encana’s plan to flee Canada, says it’s “highly discriminatory” against Canadian investors.
2020 01 30: Poor Encana Investors: “Shares are in the ‘penalty box.’” Newly name-changed, Bull-in-the-China-Shop Ovintiv started trading in US with new symbol OVV, shares drop (another) 9% over two days.