Ovintiv Inc. will acquire oil and gas assets in the Permian Basin from private equity firm EnCap Investments for about $4.3 billion, expanding its reach in the most productive US shale fields.
(Bloomberg) — Ovintiv Inc. will acquire oil and gas assets in the Permian Basin from private equity firm EnCap Investments for about $4.3 billion, expanding its reach in the most productive US shale fields.
The drillers will pay $3.1 billion cash and provide 32.6 million shares for leasehold interest and assets held by three EnCap portfolio companies, according to a statement Monday. Bloomberg News reported the talks on Sunday.
Shares of Ovintiv surged as much as 9.9%, the most since October.
“This transaction makes us materially more capital efficient, lowers our operating cost, sees us generating more free cash flow per share and increases our returns to shareholder per share pretty meaningfully,” Ovintiv Chief Executive Officer Brendan McCracken said in an interview. “As shale hits the middle innings here, high-return drilling inventory locations are going to be more valuable than ever.”
The agreement comes as US shale output growth slows as drillers run out of top-tier acreage, stoking concern they won’t be able to fill the void created by OPEC production cuts and sanctions on Russian supply. While the OPEC cuts have led to surging oil prices, McCracken said the commodity price tailwind is helpful but that Ovintiv did not evaluate the deal with today’s oil price, instead “taking a very disciplined approach.”
Ovintiv boosted its overall 2023 output guidance in light of the EnCap deal, saying the pact will expand its premium inventory in the Permian. The company will cut the number of drilling rigs EnCap has been running on the newly acquired acreage from seven rigs down to two. The move will generate more free cash flow and higher returns for Ovintiv, McCracken said.
The deal for the assets held by EnCap’s Black Swan Oil & Gas, PetroLegacy Energy and Piedra Resources will add about 1,000 well locations to Ovintiv’s operations in the Permian, which covers part of West Texas and New Mexico, and about 65,000 acres in the Permian’s Midland Basin. Ovintiv’s board has already approved the sale.
Also See: Ovintiv Is Said to Near Deal to Acquire EnCap’s Midland Assets
–With assistance from David Wethe.
(Update includes quote from CEO in fourth paragraph, deal details in fifth and sixth paragraphs)
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