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
- Adds approximately 1,050 net well locations, including
approximately 800 premium(1) 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
1)
|
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.
Refer to Note 1 for information regarding Non-GAAP Measures
in this release.
Pro Forma Permian Position at close:
|
Ovintiv
Standalone
|
Pro
Forma
|
Change
|
Net Acres
(thousands)
|
114
|
179
|
+57 %
|
Oil & C5+
Production (Mbbls/d)
|
65
|
125
|
+92 %
|
Total Production
(MBOE/d)
|
115
|
190
|
+65 %
|
% Oil
|
55 %
|
65 %
|
+18 %
|
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 $0.30 per share of common stock payable on
June 30, 2023, to shareholders of
record as of June 15, 2023. This
represents a 20% increase in the Company's base dividend payment on
an annualized basis. This is the second increase announced by
Ovintiv in the last 12 months.
Updated 2023 Guidance:
Ovintiv has updated its 2023 full year guidance assuming a
closing date of June 30, 2023 for
both transactions.
|
Original
2023
|
Updated
2023
|
Total Production
(MBOE/d)
|
500 –
525
|
520 –
545
|
Oil &
Condensate (Mbbls/d)
|
165 –
175
|
185 –
195
|
Other Natural
Gas Liquids ("NGLs") (Mbbls/d)
|
80 –
85
|
80 –
85
|
Natural Gas
(MMcf/d)
|
1,525 –
1,575
|
1,525 –
1,575
|
Capital Investment
($ Millions)
|
$2,150 –
$2,350
|
$2,600 –
$2,900
|
2024 Outlook
The acquired acreage competes for capital immediately. Following
the closing of the Midland Basin transaction, Ovintiv plans to
moderate drilling activity in the acquired assets, moving from
seven operated rigs to two, for a total of five rigs operating
across its combined Permian acreage. Ovintiv expects to deliver
2024 total company average oil and condensate production volumes of
greater than 200 Mbbls/d with total capital investment of
$2.1 billion to $2.5 billion.
First Quarter 2023 Operational Update
Ovintiv continued to deliver strong operational performance
through the first quarter with estimated oil and condensate volumes
averaging approximately 165 Mbbls/d and estimated total production
of approximately 510 MBOE/d, both above Company guidance. Ovintiv
expects its first quarter capital to total approximately
$610 million to $620 million, toward the low end of Company
guidance. Bolt-on acquisition activity continued during the quarter
with approximately $200 million of
premium oil inventory additions.
Timing and Approvals
The effective date of the acquisition of the Midland Basin
assets and the Bakken disposition is January
1, 2023. The transactions, which are expected to close by
the end of the second quarter, are subject to the satisfaction of
customary closing conditions and customary closing adjustments.
The Company intends to rely on the exemption set forth in
Section 602.1 of the TSX Company Manual, which provides that the
Toronto Stock Exchange will not apply its standards to certain
transactions involving eligible interlisted issuers on a recognized
exchange, such as the New York Stock Exchange ("NYSE"), provided
that the transaction is completed in compliance with the
requirements of such other recognized exchange.
Advisors
Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, and
TPH&Co., the energy business of Perella Weinberg Partners are
serving as financial advisors to Ovintiv. Gibson, Dunn &
Crutcher LLP, Kirkland & Ellis LLP and Blake, Cassels &
Graydon LLP are serving as Ovintiv's legal counsel.
Jefferies LLC is serving as financial advisor to EnCap in
connection with the Northern Midland Basin transaction.
Vinson & Elkins LLP is serving as EnCap's legal counsel.
Conference Call Information
A conference call and webcast to discuss the transactions will
be held at 6:30 a.m. MT (8:30 a.m. ET) on April 3,
2023.
To join the conference call, please dial 888-664-6383 (toll-free
in North America) or 416-764-8650
(international) approximately 15 minutes prior to the call.
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.
Important information
Unless otherwise noted, Ovintiv reports in U.S. dollars and
production, sales and reserves estimates are reported on an
after-royalties basis. Unless otherwise specified or the context
otherwise requires, references to Ovintiv or to the Company
includes reference to subsidiaries of and partnership interests
held by Ovintiv Inc. and its subsidiaries.
NI 51-101 Exemption
The Canadian securities regulatory authorities have issued a
decision document (the "Decision") granting Ovintiv exemptive
relief from the requirements contained in Canada's National Instrument 51-101 Standards
of Disclosure for Oil and Gas Activities ("NI 51-101"). As a
result of the Decision, and provided that certain conditions set
out in the Decision are met on an on-going basis, Ovintiv will not
be required to comply with the Canadian requirements of NI 51-101
and the Canadian Oil and Gas Evaluation Handbook. The Decision
permits Ovintiv to provide disclosure in respect of its oil and gas
activities in the form permitted by, and in accordance with, the
legal requirements imposed by the U.S. Securities and Exchange
Commission ("SEC"), the Securities Act of 1933, the Securities and
Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and the rules
of the NYSE. The Decision also provides that Ovintiv is required to
file all such oil and gas disclosures with the Canadian securities
regulatory authorities on www.sedar.com as soon as practicable
after such disclosure is filed with the SEC.
NOTE 1: Non-GAAP Measures
Certain measures in this news release do not have any
standardized meaning as prescribed by U.S. GAAP and, therefore, are
considered non-GAAP measures. These measures may not be comparable
to similar measures presented by other companies and should not be
viewed as a substitute for measures reported under U.S. GAAP. These
measures are commonly used in the oil and gas industry and/or by
Ovintiv to provide shareholders and potential investors with
additional information regarding the Company's liquidity and its
ability to generate funds to finance its operations. For additional
information regarding non-GAAP measures, see the Company's website.
This news release contains references to non-GAAP measures as
follows:
- Non-GAAP Cash Flow is a non-GAAP measure. Non-GAAP Cash
Flow is defined as cash from (used in) operating activities
excluding net change in other assets and liabilities, and net
change in non-cash working capital. Ovintiv has not provided a
reconciliation of Non-GAAP Cash Flow to cash from operating
activities, the most comparable financial measure calculated in
accordance with GAAP. Cash from operating activities includes
certain items which may be significant and difficult to project
with a reasonable degree of accuracy. Therefore, cash from
operating activities, and a reconciliation of Non-GAAP Cash Flow to
cash from operating activities, are not available without
unreasonable effort.
- Non-GAAP Free Cash Flow and Non-GAAP Free Cash Flow
Yield are non-GAAP measures. Non-GAAP Free Cash Flow is
defined as Non-GAAP Cash Flow in excess of capital expenditures,
excluding net acquisitions and divestitures. Non-GAAP Free Cash
Flow Yield is defined as Annualized Non-GAAP Free Cash Flow
compared to the Company's market capitalization. Ovintiv has not
provided a reconciliation of Non-GAAP Free Cash Flow to cash from
operating activities or a reconciliation of Non-GAAP Free Cash Flow
Yield to annualized net cash from operating activities compared to
market capitalization, the most comparable financial measures
calculated in accordance with GAAP. Cash from operating activities
includes certain items which may be significant and difficult to
project with a reasonable degree of accuracy. Therefore, cash from
operating activities, and a reconciliation of Non-GAAP Free Cash
Flow to cash from operating activities and Non-GAAP Free Cash Flow
Yield to annualized cash from operating activities compared to
market capitalization, are not available without unreasonable
effort.
- Adjusted EBITDA is defined as trailing 12-month net
earnings (loss) before income taxes, DD&A, impairments,
accretion of asset retirement obligation, interest, unrealized
gains/losses on risk management, foreign exchange gains/losses,
gains/losses on divestitures and other gains/losses. Ovintiv has
not provided a reconciliation of Adjusted EBITDA to net income
(loss), the most comparable financial measure calculated in
accordance with GAAP. Net income (loss) includes certain items
which may be significant and difficult to project with a reasonable
degree of accuracy. Therefore, net income (loss), and a
reconciliation of Adjusted EBITDA to net income (loss), are not
available without unreasonable effort.
- Debt to Adjusted EBITDA is a non-GAAP measure
monitored by management as an indicator of the Company's overall
financial strength. Ovintiv has not provided a reconciliation
of Debt to Adjusted EBITDA to total debt to net income (loss), the
most comparable financial measure calculated in accordance with
GAAP. Total debt to net income (loss) includes certain items which
may be significant and difficult to project with a reasonable
degree of accuracy. Therefore, total debt to net income (loss), and
a reconciliation of Debt to Adjusted EBITDA to total debt to net
income (loss), are not available without unreasonable effort.
ADVISORY REGARDING OIL AND GAS INFORMATION – The
conversion of natural gas volumes to barrels of oil equivalent
("BOE") is on the basis of six thousand cubic feet to one barrel.
BOE is based on a generic energy equivalency conversion method
primarily applicable at the burner tip and does not represent
economic value equivalency at the wellhead. Readers are cautioned
that BOE may be misleading, particularly if used in isolation. The
term "liquids" is used to represent oil, NGLs and condensate. The
term "condensate" refers to plant condensate.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS – This news
release contains forward-looking statements or information
(collectively, "forward-looking statements") within the meaning of
applicable securities legislation, including Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, except
for statements of historical fact, that relate to the anticipated
future activities, plans, strategies, objectives or expectations of
the Company are forward-looking statements. When used in this news
release, the use of words and phrases including "anticipates,"
"believes," "continue," "could," "estimates," "expects," "focused
on," "forecast," "guidance," "intends," "maintain," "may,"
"opportunities," "outlook," "plans," "potential," "strategy,"
"targets," "will," "would" and other similar terminology is
intended to identify forward-looking statements, although not all
forward-looking statements contain such identifying words or
phrases. Readers are cautioned against unduly relying on
forward-looking statements, which are based on current expectations
and, by their nature, involve numerous assumptions that are subject
to both known and unknown risks and uncertainties (many of which
are beyond our control) that may cause such statements not to
occur, or actual results to differ materially and/or adversely from
those expressed or implied. These assumptions include, without
limitation: future commodity prices and basis differentials; future
foreign exchange rates; the Company's ability to consummate any
pending acquisition transactions (including the transactions
described herein); other risks and uncertainties related to the
closing of pending acquisition transactions (including the
transactions described herein); the ability of the Company to
access credit facilities and capital markets; data contained in key
modeling statistics; the availability of attractive commodity or
financial hedges and the enforceability of risk management
programs; the Company's ability to capture and maintain gains in
productivity and efficiency; benefits from technology and
innovations; expectations that counterparties will fulfill their
obligations pursuant to gathering, processing, transportation and
marketing agreements; access to adequate gathering, transportation,
processing and storage facilities; assumed tax, royalty and
regulatory regimes; expectations and projections made in light of,
and generally consistent with, the Company's historical experience
and its perception of historical industry trends, including with
respect to the pace of technological development; and the other
assumptions contained herein. Risks and uncertainties that may
affect the Company's financial or operating performance include:
market and commodity price volatility, including widening price or
basis differentials, and the associated impact to the Company's
stock price, credit rating, financial condition, oil and natural
gas reserves and access to liquidity; uncertainties, costs and
risks involved in our operations, including hazards and risks
incidental to both the drilling and completion of wells and the
production, transportation, marketing and sale of oil, condensate,
NGLs and natural gas; availability of equipment, services,
resources and personnel required to perform the Company's operating
activities; service or material cost inflation; our ability to
generate sufficient cash flow to meet our obligations and reduce
debt; the impact of a pandemic, epidemic or other widespread
outbreak of an infectious disease (such as the ongoing
COVID-19 pandemic) on commodity prices and the Company's
operations; our ability to secure adequate transportation and
storage for oil, condensate, NGLs and natural gas, as well as
access to end markets or physical sales locations; interruptions to
oil, condensate, NGLs and natural gas production, including
potential curtailments of gathering, transportation or refining
operations; variability and discretion of the Company's Board of
Directors to declare and pay dividends, if any; the timing and
costs associated with drilling and completing wells, and the
construction of well facilities and gathering and transportation
pipelines; business interruption, property and casualty losses
(including weather related losses) or unexpected technical
difficulties and the extent to which insurance covers any such
losses; counterparty and credit risk; the actions of members of
OPEC and other state-controlled oil companies with respect to oil,
condensate, NGLs and natural gas production and the resulting
impacts on oil, condensate, NGLs and natural gas prices; the impact
of changes in our credit rating and access to liquidity, including
costs thereof; changes in political or economic conditions in
the United States and Canada, including fluctuations in foreign
exchange rates, tariffs, taxes, interest rates and inflation rates;
failure to achieve or maintain our cost and efficiency initiatives;
risks associated with technology, including electronic, cyber and
physical security breaches; changes in royalty, tax, environmental,
greenhouse gas, carbon, accounting and other laws or regulations or
the interpretations thereof; our ability to timely obtain
environmental or other necessary government permits or approvals;
the Company's ability to utilize U S net operating loss
carryforwards and other tax attributes; risks associated with
existing and potential lawsuits and regulatory actions made against
the Company, including with respect to environmental liabilities
and other liabilities that are not adequately covered by an
effective indemnity or insurance; risks related to the purported
causes and impact of climate change, and the costs therefrom; the
impact of disputes arising with our partners, including suspension
of certain obligations and inability to dispose of assets or
interests in certain arrangements; the Company's ability to acquire
or find additional oil and natural gas reserves; imprecision of oil
and natural gas reserves estimates and estimates of recoverable
quantities, including the impact to future net revenue estimates;
land, legal, regulatory and ownership complexities inherent in the
U.S., Canada and other applicable
jurisdictions; risks associated with past and future acquisitions
or divestitures of oil and natural gas assets, including the
receipt of any contingent amounts contemplated in the transaction
agreements (such transactions may include third party capital
investments, farm ins, farm outs or partnerships); our ability to
repurchase the Company's outstanding shares of common stock,
including risks associated with obtaining any necessary stock
exchange approvals; the existence of alternative uses for the
Company's cash resources which may be superior to the payment of
dividends or effecting repurchases of the Company's outstanding
shares of common stock; risks associated with decommissioning
activities, including the timing and cost thereof; risks and
uncertainties described in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" sections of the Company's most recent Annual Report on
Form 10-K; and other risks and uncertainties impacting the
Company's business as described from time to time in the Company's
filings with the SEC or Canadian securities regulators. Readers are
cautioned that the assumptions, risks and uncertainties referenced
above are not exhaustive. Although the Company believes the
expectations represented by its forward-looking statements are
reasonable based on the information available to it as of the date
such statements are made, forward-looking statements are only
predictions and statements of our current beliefs and there can be
no assurance that such expectations will prove to be correct.
Unless otherwise stated herein, all statements, including forward
looking statements, contained in this news release are made as of
the date of this news release and, except as required by law, the
Company undertakes no obligation to update publicly, revise or keep
current any such statements The forward-looking statements
contained in this news release and all subsequent forward-looking
statements attributable to the Company, whether written or oral,
are expressly qualified by these cautionary statements.
Further information on Ovintiv Inc. is available on the
Company's website, www.ovintiv.com, or by contacting:
Investor
contact:
(888)
525-0304
|
Media
contact:
(403)
645-2252
|
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SOURCE Ovintiv Inc.