Ovintiv Inc. (OVV) Update - Apr 3

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Ovintiv Inc. (OVV) Update - Apr 3

Post by dan_s »

OVV was the top gainer today (up 11.92%) and moving a bit higher after the markets closed.

Here's why:
Ovintiv to Acquire Core Midland Basin Assets

Transaction Expands Permian Premium Inventory, Enhances Shareholder Returns
Company to Exit Bakken Position with Announced Asset Sale

Highlights:

Acquiring approximately 65,000 net acres of largely undeveloped resource in Martin and Andrews Counties, highly complementary with Ovintiv's existing Permian Basin position

Valued at approximately 2.8 times next twelve months ("NTM") Adjusted EBITDA with a 19% NTM Non-GAAP Free Cash Flow Yield at current commodity strip pricing

BIG RUNNING ROOM ADDITION: Adds approximately 1,050 net well locations, including approximately 800 premium return well locations and approximately 250 high potential upside locations

Immediately accretive to Non-GAAP Cash Flow per share, Non-GAAP Free Cash Flow per share, net asset value per share and shareholder returns at current commodity strip pricing

Increases NTM cash returns per share by more than 25% and 2024 cash returns per share by more than 40%

Agreement reached to divest entirety of Bakken assets for proceeds of approximately $825 million

At closing, the Company's leverage ratio is expected to be approximately 1.4 times Debt to Adjusted EBITDA, based on twelve month projected Adjusted EBITDA at March 30, 2023 strip prices

Ovintiv will steward towards a 1.0 times leverage ratio and $4.0 billion of total debt

Ovintiv remains committed to an investment grade balance sheet and expects the ratings agencies to affirm its investment grade rating

20% per share increase to base dividend announced, effective for the June 2023 record date

Strong first quarter production exceeds Company guidance with total volumes of approximately 510 thousand barrels of oil equivalent per day ("MBOE/d"), including approximately 165 thousand barrels per day ("Mbbls/d") of oil and condensate; expected first quarter capital of $610 to $620 million

Premium return well locations defined as generating a greater than 35% internal rate of return at $55/bbl WTI oil and $2.75/MMBtu NYMEX natural gas prices.

DENVER, April 3, 2023 /PRNewswire/ - Ovintiv Inc. (NYSE: OVV) (TSX: OVV) ("Ovintiv" or the "Company") today announced it has entered into a definitive purchase agreement to acquire substantially all leasehold interest and related assets (the "assets") of Black Swan Oil & Gas, PetroLegacy Energy and Piedra Resources ("NMB sellers"), which are portfolio companies of funds managed by EnCap Investments L.P. ("EnCap"), in a cash and stock transaction valued at approximately $4.275 billion. Upon closing, the acquisition will add approximately 1,050 net 10,000 foot well locations to Ovintiv's Permian inventory and approximately 65,000 net acres in the core of the Midland Basin, strategically located in close proximity to Ovintiv's current Permian operations. The transaction has been unanimously approved by Ovintiv's Board of Directors.

Under the terms of the agreement, the NMB sellers will receive approximately 32.6 million shares of Ovintiv common stock and $3.125 billion of cash. The cash portion of the transaction is expected to be funded through a combination of cash on hand, cash proceeds received from the Company's pending sale of its Bakken assets located in North Dakota to Grayson Mill Bakken, LLC, a portfolio company of funds managed by EnCap, totalling approximately $825 million, as well as borrowings under the Company's credit facility and/or proceeds from new debt financing. Ovintiv has received fully committed bridge financing from Goldman Sachs Bank USA and Morgan Stanley.

Ovintiv remains committed to its capital allocation framework which returns at least 50% of post base dividend Non-GAAP Free Cash Flow to shareholders through buybacks and/or variable dividends. At March 30, 2023 strip pricing, the Company expects the transactions to drive more than 25% higher cash returns per share over the next twelve months following the close of the transactions and more than 40% higher cash returns per share in 2024.

"We are acquiring a unique undeveloped asset in the Northern Midland Basin," said Ovintiv President and CEO, Brendan McCracken. "Located in some of the best rock in the Permian, these assets have demonstrated leading well performance and are a natural fit with our existing Martin County acreage. The acquisition checks all the boxes on our disciplined durable returns strategy – it will be immediately and long-term accretive across all key financial metrics, the acreage is in an area where we have a competitive operating advantage, and it significantly increases our premium Permian well inventory. This will expand free cash flow per share and enhance our ability to deliver durable returns to our shareholders. We are confident that – given our operational efficiency, culture of innovation, and expertise and scale in the Permian Basin – Ovintiv is best positioned to convert this high-quality resource into tremendous value for our shareholders."

Combined Transaction Overview:

Immediately Accretive – The combined transactions are expected to be immediately accretive across key per share operational and financial metrics including Non-GAAP Cash Flow per share, Non-GAAP Free Cash Flow per share, net asset value per share and shareholder returns. The Midland Basin transaction was attractively valued at approximately 2.8 times NTM Adjusted EBITDA and 19% NTM Non-GAAP Free Cash Flow Yield.

Extends Permian Scale and Inventory Life – The Midland Basin transaction will significantly expand Ovintiv's premium Permian inventory, adding approximately 1,050 net 10,000 foot locations, including approximately 800 premium return locations and approximately 250 high potential upside locations. Ovintiv's land position in the Permian is expected to increase to approximately 179 thousand net acres; 97% of the acquired acreage is held by production with an average operated working interest of 82%. At closing, the Company's pro forma Permian oil and condensate production is expected to nearly double to approximately 125 Mbbls/d. The Company expects to realize significant well cost savings across its combined Permian assets resulting from optimized operations and economies of scale.

Enhances Capital Efficiency and Margins – Ovintiv expects the transaction will enhance its go forward oil and condensate capital efficiency by approximately 15%. The Company also expects to achieve a three to five percent reduction in both operating expense and transportation and processing expense per BOE.

Streamlines Portfolio and Operations – Following the transactions, Ovintiv's portfolio will be focused in four premier North American basins each with more than 125,000 net acres of land.

Maintains Strong Balance Sheet – Ovintiv's leverage metrics are expected to remain strong. At closing, the Company's leverage ratio is expected to be approximately 1.4 times Debt to Adjusted EBITDA, based on twelve month projected Adjusted EBITDA at March 30, 2023 strip. Going forward, Ovintiv will steward towards a 1.0 times leverage ratio and $4.0 billion of total debt. Ovintiv remains committed to an investment grade balance sheet and expects the ratings agencies to affirm its investment grade rating.

Assumes transaction closes June 30, 2023

Bakken Disposition

Ovintiv also announced today that it has entered into a definitive agreement to sell the entirety of its Bakken assets located in the Williston Basin of North Dakota to Grayson Mill Bakken, LLC, a portfolio company of funds managed by EnCap for total cash proceeds of approximately $825 million. Ovintiv's landholdings in the play totalled 46 thousand net acres as of December 31, 2022. Estimated first quarter Bakken production is expected to average approximately 37 MBOE/d (60% oil and condensate).

McCracken added, "The sale of our Bakken asset is aligned with our track record of unlocking significant value from non-core assets while high grading our portfolio and extending inventory runway in our core areas. We are grateful for the hard work of our Bakken team and pleased to receive full value for the asset."

Base Dividend Increase

On April 2, 2023, Ovintiv's Board of Directors declared a quarterly dividend of $0.30 per share of common stock payable on June 30, 2023, to shareholders of record as of June 15, 2023. This represents a 20% increase in the Company's base dividend payment on an annualized basis. This is the second increase announced by Ovintiv in the last 12 months.
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I will update my OVV forecast/valuation model on Tuesday morning.
Dan Steffens
Energy Prospectus Group
ChuckGeb
Posts: 945
Joined: Thu Nov 21, 2013 2:46 pm

Re: Ovintiv Inc. (OVV) Update - Apr 3

Post by ChuckGeb »

Similar pops by Riley and Vital. Very nice.
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