Energy Prospectus

Ovintiv Strengthens Portfolio with Core Oil-Rich Montney Asset Acquisition

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 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 (See note below)

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 at current commodity strip pricing

Annual cost synergies from the combined transactions are expected to total approximately $125 million

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

DENVER, Nov. 14, 2024 /CNW/ - Ovintiv Inc. (NYSE: OVV) (TSX: OVV) ("Ovintiv" or the "Company") today 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.
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Also announced today:
FourPoint Resources, LLC (“FourPoint”), together with their partners Quantum Capital Group (“Quantum”) and Kayne Anderson, announced today the signing of a purchase and sale agreement to acquire Ovintiv Inc.’s (NYSE, TSX: OVV) Uinta Basin assets for a purchase price of $2.0 billion in cash. The asset includes 126,000 net acres and production of 29,000 Boepd.

Analysis below is from Zacks Equity Research 11-18-2024

Ovintiv Inc. OVV has announced two major deals on Nov. 14, 2024 — one for the acquisition of premium Montney assets from Paramount Resources Ltd. for about $2.4 billion and the other for the sale of almost all its Uinta Basin assets to FourPoint Resources, LLC, for about $2.0 billion.

An Insight Into OVV’s Purchase Agreement
OVV, per the terms of the purchase agreement, will acquire 109,000 net acres, 70,000 barrels of oil equivalent per day and 900 total net well locations in the oil-rich Alberta Montney.

The $2.4-billion deal, which is expected to be closed by the first quarter of 2025, will be funded through cash and the ownership transfer of certain properties in the Horn River Basin, British Columbia, to Paramount Resources.

The acquired assets have been identified as the undeveloped oil resource that can deliver the highest value and returns. The acquired assets also display leading well performance, which can lead to high volume growth and solidify the company’s position as the premier operator in the oil and gas sector.

OVV’s Sale Agreement for Uinta Basin Assets
As part of its strategic move, OVV has also decided to sell 126,000 net acres of the Uinta Basin in Utah to FourPoint Resources for a consideration of about $2.0 billion in cash. The said divestiture supports Ovintiv’s strategy to streamline its portfolio, wherein the company can focus on its core operations in the high-valued Montney and Permian basins.

Impact of Combined Transaction on OVV
The combined buy and sell transactions are expected to be accretive across all key financial metrics and expand the company’s premium oil inventory to around 15 years. The combined transactions are also likely to generate cost synergies of around $125 million per year. The transactions should enable OVV to maintain a strong investment-grade balance sheet by decreasing its debt. Therefore, the company can expect a high rating from the investment firms.

Financial Gains and Outlook
The transactions should boost OVV’s cash flow by approximately $300 million in 2025. After the transactions, the company will allocate around 85-90% of its 2025 capital to its core Permian and Montney basins. OVV's average oil production is expected to reach 205,000 barrels per day. The deal is also expected to provide strong financial returns, growth in production volumes and long-term shareholder value. < Post-Closing I think OVV's crude oil + plant condensate (sells for ~$6/bbl less than their crude oil price) should be close to 225,000 bpd.

The Wall Street Gang likes what Ovintiv announced.

At the time of this post OVV was trading at $44.95.

TipRanks: Since the two transactions were announced on November 14th ten analysts have submitted new price targets that range from $48 to $70 with an average price target of $58.33.

My current valuation of OVV is $69.00, which is just 4.5 X annualized operating cash flow per share.
> Q3 2024 production was 592,600 Boepd < 27.8% crude oil, 7.5% plant condensate, 15.7% NGLs and 49.0% natural gas.
> Post-closing of the two transactions, Q2 2025 production should be approximately 630,000 Boepd, close to the mix above with 1% to 2% more oil.