Highlights:
Agreement reached to acquire approximately 109,000 net acres and approximately 70 thousand barrels of oil equivalent per day (“MBOE/d”) in the core of the Alberta Montney for $2.377 billion (C$3.325 billion)
Acquisition will add approximately 900 total net well locations, including approximately 600 premium(1) return well locations and approximately 300 upside locations, extending premium Montney oil and condensate inventory life to approximately 15 years
Expanded access to additional midstream and downstream infrastructure will enable future oil growth optionality
Agreement reached to divest Uinta assets for proceeds of $2.0 billion
Combined transactions are immediately and long-term accretive across all key financial metrics, 2025 Non-GAAP Free Cash Flow expected to increase by approximately $300 million(2) at current commodity strip pricing
Annual cost synergies from the combined transactions are expected to total approximately $125 million(2)
Commitment to investment grade balance sheet maintained, ratings agencies expected to affirm investment grade rating and stable outlook
Non-GAAP Net Debt of approximately $5.65 billion, as of October 31, 2024
Ovintiv Inc. announced it has entered into a definitive purchase agreement to acquire certain Montney assets (the “assets”) from Paramount Resources Ltd. (“Paramount”), in an all-cash transaction valued at approximately $2.377 billion (C$3.325 billion). Upon closing, the acquisition will add approximately 70 MBOE/d of production (approximately 25 Mbbls/d of oil and condensate), 900 net 10,000 foot equivalent well locations, and approximately 109,000 net acres (approximately 80% undeveloped), in the core of the oil-rich Alberta Montney. The assets are strategically located near the Company’s current operations and have access to midstream infrastructure with available capacity. The transaction has been unanimously approved by Ovintiv’s Board of Directors.
“We are acquiring top decile rate of return assets in the heart of the Montney oil window,” said Ovintiv President and CEO, Brendan McCracken. “This acquisition is the targeted result of our in-depth technical and commercial analysis of the basin to identify the highest value undeveloped oil resource. The acquired assets have demonstrated leading well performance and are a natural fit with our operating advantage and our existing acreage. The assets come with ample midstream capacity, unlocking optionality for mid-single digit growth in our Montney oil and condensate volumes. The Montney is the second largest undeveloped oil resource in North America, and with this acquisition, we have solidified our position as the premier operator in the play.”
Ovintiv has also entered into a definitive agreement to sell substantially all its Uinta Basin assets located in Utah, to FourPoint Resources, LLC, for total cash proceeds of approximately $2.0 billion.
The Company expects the combined transactions to increase 2025 Non-GAAP Free Cash Flow by approximately $300 million, driving 2025 Non-GAAP Free Cash Flow per share approximately 20% higher than previously expected.
“The combined transactions advance our durable returns strategy,” continued McCracken. “We are high grading our portfolio, significantly increasing free cash flow, and enhancing our resiliency, enabling us to build on our track record of strong shareholder returns.”
The Montney acquisition is expected to be funded through a combination of cash proceeds received from the pending sale of the Uinta assets, cash on hand, as well as borrowings under the Company’s credit facility and/or temporary financing. Ovintiv has received fully committed bridge financing from JPMorgan Chase Bank, N.A. and Morgan Stanley Senior Funding, Inc.
The Company has temporarily paused its share buyback program until the cash borrowed under the temporary financing, totalling approximately $377 million, has been recovered. This represents the net difference between the purchase price for the Montney assets and the expected divestiture proceeds from the Uinta assets. In the fourth quarter, approximately $181 million has been redirected to debt reduction from the buyback pause. Ovintiv estimates that share buybacks will resume in the second quarter of 2025. The Company’s bolt-on acquisition activity has effectively been paused until the share buyback program has resumed. The base dividend is expected to remain unchanged.
Combined Transaction Overview:
Immediately Accretive – The combined transactions are expected to be immediately and long-term accretive across key operational and financial metrics including Return on Capital Employed, Non-GAAP Cash Flow Per Share, and Non-GAAP Free Cash Flow Per Share.
Increases Montney Scale and Extends Inventory Life – The Montney transaction will expand Ovintiv’s premium oil and condensate inventory in the play to approximately 15 years with the addition of approximately 600 premium return locations, acquired for less than $1 million each, and approximately 300 upside locations. Ovintiv’s core land position in the Montney is expected to increase to approximately 369 thousand net acres. At closing, the Company’s pro forma Montney oil and condensate production is expected to be approximately 55 Mbbls/d.
Synergies – The combined transactions are expected to generate cost synergies of approximately $125 million annually, comprised primarily of well cost savings, overhead reductions and Canadian cash tax savings. Per well cost savings are estimated at greater than $1.5 million across the acquired assets, consistent with Ovintiv’s current Montney well costs of about $550 per foot, resulting from optimized operations and economies of scale.
Streamlines Portfolio and Operations – Following the transactions, Ovintiv’s portfolio will consist of anchor positions in the Montney and Permian, supported by the strong operating cash flows generated from its low decline, multi-product Anadarko asset. As part of the Montney transaction, ownership of Ovintiv’s Horn River asset, located in British Columbia, will be transferred to Paramount and ownership of Paramount’s Zama asset, located in Alberta, will be transferred to Ovintiv.
Maintains Strong Balance Sheet – Ovintiv’s leverage metrics are expected to remain strong. As of October 31st, the Company’s Non-GAAP Net Debt was $5.65 billion, approximately $220 million less than the end of the third quarter. Going forward, Ovintiv will continue to steward towards $4.0 billion of total debt. The Company remains committed to an investment grade balance sheet and expects the ratings agencies to affirm its investment grade rating and stable outlook.
Uinta Disposition
Ovintiv has entered into a definitive agreement to sell substantially all its Uinta Basin assets for total cash proceeds of approximately $2.0 billion. The divestiture includes approximately 126 thousand net acres of largely undeveloped land. Ovintiv’s third quarter 2024 Uinta oil and condensate production was approximately 29 Mbbls/d.
McCracken added, “The sale of our Uinta position is aligned with our track record of unlocking significant value from our assets while focusing our portfolio and extending inventory runway in our core areas. We are grateful for the hard work and dedication of our Uinta team.”
2025 Outlook(2)
Following the closing of the transactions, Ovintiv plans to run an average of three rigs across its combined Montney acreage, five rigs on its Permian acreage and one to two rigs on its Anadarko acreage. Approximately 85% to 90% of 2025 total capital is expected to be allocated to the Permian and the Montney. The Company expects to deliver 2025 total average oil and condensate production volumes of approximately 205 Mbbls/d and total volumes of approximately 620 MBOE/d, with capital investment of approximately $2.2 billion, or about $100 million less than previously expected.
Timing and Approvals
The effective date of the acquisition of the Montney assets and the Uinta disposition is October 1, 2024. The transactions, which are expected to close by the end of the first quarter of 2025, are subject to the satisfaction of customary closing conditions and customary closing adjustments.
Advisors
J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are serving as financial advisors to Ovintiv on the Montney transaction and Jefferies LLC (lead) and BofA Securities, Inc. are serving as financial advisors on the Uinta transaction. Blake, Cassels & Graydon LLP is serving as Ovintiv’s legal counsel on the Montney transaction, Kirkland & Ellis LLP is serving as Ovintiv’s legal counsel on the Uinta sale and Gibson, Dunn & Crutcher LLP is serving as Ovintiv’s legal counsel on financing matters related to the transactions.
Conference Call Information
A conference call and webcast to discuss the transactions will be held on November 14, 2024, at 6:30 a.m. MT (8:30 a.m. ET).
To join the conference call without operator assistance, you may register and enter your phone number at https://emportal.ink/3CoCWXD to receive an instant automated call back. You can also dial direct to be entered to the call by an Operator. Please dial 888-510-2154 (toll-free in North America) or 437-900-0527 (international) approximately 15 minutes prior to the call.29dk2902l
The live audio webcast of the conference call, including presentation slides, will be available on Ovintiv’s website, www.ovintiv.com under Investors/Presentations and Events. The webcast will be archived for approximately 90 days.
