A record of destruction of value “
Ovintiv significantly underperforms its peers and the energy sector
Total shareholder return (84.8%) since the arrival of the current CEO in 2013; net debt increased by 53% and $ 12.7 billion impairments have been recorded; CEO rewarded $ 75 million in remuneration over the same period
Ovintiv CEO and Board of Directors own less than 0.2% of outstanding shares (i)
Kimmeridge Proposes Framework to Restore Confidence in Ovintiv by Addressing Gaps in Capital Allocation, Governance and Environmental Stewardship
NEW YORK, January 14, 2021 / PRNewswire / – Kimmeridge Energy Management Company, LLC (“Kimmeridge”), an upstream energy-focused private investment firm with an investment philosophy underpinned by fundamental research, today released an investor presentation titled, “Ovintiv: a balance sheet of value destruction.“
In his presentation, Kimmeridge, one of the ten main shareholders of Ovintiv Inc. (“Ovintiv” or the “Company”) (NYSE: OVV), underlines the failures of the Company in terms of capital allocation, governance and environmental stewardship. Kimmeridge also provides a framework for restoring confidence in Ovintiv, applying the fundamentals previously described in his white papers. Kimmeridge argued that the E&P sector needs to embrace a new business model focused on:
Repay capital to shareholders;
Lower reinvestment rates;
Reduce absolute debt;
Align executive compensation with the interests of shareholders; and
Establish credible environmental objectives aligned with the Paris Agreement.
Marc Viviano, Managing Partner and Head of Public Equity at Kimmeridge, said: “As a long-time investor in the E&P sector, I have witnessed the continued deterioration in investor sentiment towards Ovintiv. Given the quality of its asset base, this company does not shouldn’t have been one of the worst performing E&P of the past seven years. However, Ovintiv is emblematic of all that is wrong with the U.S. shale industry, and the reasons for the underperformance are clear: a take Uncontrolled decision-making, overseen by a board of directors with insignificant participation and inadequate expertise, is a prescription for failure.
Despite Kimmeridge’s best efforts to engage in a constructive dialogue with the company’s board of directors, we have repeatedly encountered an unresponsive board of directors who mistakenly believe that they have already positioned Ovintiv as an E&P company of foreground – but the facts suggest otherwise. We believe shareholders deserve better and will support change. “
As detailed in the presentation, Kimmeridge identified three main shortcomings at Ovintiv:
1. Failure to allocate capital
Ovintiv’s management seems addicted to debt, as evidenced by its history of acquiring businesses at the wrong time and at the wrong price. We believe their mistakes are compounded by allocating capital to the wrong areas.
2. Failure of governance
Ovintiv’s management has not been held responsible. We believe the company’s compensation structure displays a troubling lack of alignment between compensation and performance, compounded by lower insider ownership among US peers.I.
3. Failure of environmental stewardship
With one of the highest CO2e intensities of their US peer groupI, and no flaring or total emissions intensity targets, Ovintiv is an environmental laggard, not a leader.
Mr. Viviano continued, “The combination of misallocation of capital, misaligned incentives and an inferior environmental strategy leaves the company ill-prepared for the growing risks associated with the energy transition. More worrying is the degree of complacency about the need for meaningful reform. The scale of the destruction of shareholder value demands a sense of urgency that we have yet to witness from the board and management team. Kimmeridge is ready to help make the change the company desperately needs by appointing directors to Ovintiv’s board of directors at the next annual meeting.
A copy of Kimmeridge’s presentation and additional information is available at www.FixOvintiv.com.
Founded in 2012, Kimmeridge is a private investment firm focused on unconventional oil and gas assets in the United States. Kimmeridge sets itself apart with its direct investing approach, in-depth technical knowledge, active portfolio management, proprietary research and data collection. In addition to his new York head office, Kimmeridge has a fully staffed in-house operations and geology team Denver, with experience in all major upstream functions and disciplines. For more information on Kimmeridge and her exclusive research, please visit www.kimmeridge.com.
Kimmeridge Active Engagement, LLC and Kimmeridge Energy Management Company, LLC and certain of their principals and affiliates (collectively, “Kimmeridge”) and potential candidates (collectively and with Kimmeridge, the “Participants”) intend to file with the SEC a definitive proxy statement and attached proxy form to be used in connection with the solicitation of proxies from Ovintiv shareholders. All Ovintiv shareholders are advised to read the final proxy statement and other documents relating to the solicitation of proxies by Participants when they become available, as they will contain important information, including additional information relating to Participants. The definitive proxy statement and an accompanying proxy card will be provided to Ovintiv shareholders and will, along with other relevant documents, be available free of charge on the SEC website at http://www.sec.gov/.
Information about the participants and a description of their direct or indirect interests in the securities held is contained in Schedule 14A filed by the participants with the SEC on January 14, 2021. This document will be available free of charge from the source indicated above.
I Source: Bloomberg, FactSet, Public Company Financial Reports and Proxy Statements. Total shareholder return (TSR) of (84.8)% from 06/10/13 (the last trading day before Douglas suttles joined OVV) at 11/16/20 (the last trading day before the media reported that Kimmeridge was actively seeking changes). Net debt and impairments from Q2’13 to Q3’20. Compensation of the CEO since 2013 from the 2020 proxy statement. Beneficial ownership of Bloomberg from the 12/31/20 for US peers (APA, CHK, CLR, COG, CXO, DVN, EOG, HES, MRO, MUR, PXD, RRC and XEC)
I US peers (APA, CHK, CLR, COG, CXO, DVN, EOG, HES, MRO, MUR, PXD, RRC and XEC)
SOURCE Kimmeridge Energy