- 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.
Ovintiv has entered into a definitive purchase agreement to acquire substantially all leasehold interest and related assets of Black Swan Oil & Gas, PetroLegacy Energy and Piedra Resources ('NMB sellers'), which are portfolio companies of funds managed by EnCap Investments, in a cash and stock transaction valued at approx. $4.275 billion. Upon closing, the acquisition will add approx. 1,050 net 10,000 foot well locations to Ovintiv's Permian inventory and approx. 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 approx. 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 approx. $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.'
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Source: Ovintiv
