Ovintiv's Montney Acquisition: A Strategic Move for Growth and Value

Ovintiv Inc. (NYSE, TSX: OVV), formerly known as Encana Corp., has announced the closing of its acquisition of certain Montney assets from Paramount Resources Ltd. (TSX: POU) in an all-cash transaction valued at approximately $2.377 billion (C$3.325 billion). This strategic move is expected to significantly expand Ovintiv's premium oil inventory and extend its inventory life, solidifying its position as the premier operator in the play.

The acquisition adds approximately 70 thousand barrels of oil equivalent per day ("MBOE/d") of production, including 25 Mbbls/d of oil and condensate, to Ovintiv's portfolio. Additionally, the transaction includes approximately 900 net well locations, with 600 premium return well locations and 300 upside locations, extending Ovintiv's premium Montney oil and condensate inventory life to approximately 15 years. The assets are strategically located near Ovintiv's current operations and have access to midstream infrastructure with available capacity, unlocking optionality for mid-single digit growth in its Montney oil and condensate volumes.

Ovintiv President and CEO, Brendan McCracken, stated, "We are acquiring top decile rate of return assets in the heart of the Montney oil window. 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."

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. Ovintiv 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 acquisition is also expected to generate annual cost synergies of approximately $125 million, primarily from well cost savings and overhead reductions.

Ovintiv 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. 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.

In conclusion, Ovintiv's acquisition of Montney assets from Paramount Resources Ltd. is a strategic move that aligns with the company's long-term growth strategy. The transaction significantly expands Ovintiv's premium oil inventory and extends its inventory life, solidifying its position as the premier operator in the play. The combined transactions are expected to be immediately and long-term accretive across key operational and financial metrics, driving significant increases in free cash flow and cost synergies. Ovintiv's commitment to maintaining an investment-grade balance sheet and its expectation that ratings agencies will affirm its investment-grade rating and stable outlook suggest that the company is well-positioned to manage the risks associated with the acquisition and capitalize on the potential rewards.