I Want You To Montney: OVV Returns to Alberta In Positive A&D Move

Ovintiv’s (OVV) re-entry into the Alberta market serves as an interesting pivot to its corporate strategy as the producer appears to remain committed to a diversified, three-pronged production mix, but greater focus is being placed on streamlining operating costs with greater focus in the Permian and Montney (while still retaining its ~100Mboepd of production in the Anadarko). Last week’s acquisition announcement, acquiring Paramount Resources’ (POU) Montney Alberta assets in Wapiti, Karr and Zama, totals $2.377B USD and accounts for ~70Mboepd in liquids-rich production. In conjunction with the acquisition, OVV is also divesting its oil-weighted Uinta assets for $2B USD, accounting for ~35Mboepd. Both transactions are forecasted to close in 1Q25.

Improved Profitability Driven by Production Mix & Lower Midstream Costs in the Montney

While the two transactions suggest relatively comparable assets in valuation, the Montney AB acreage represents a clear-cut improvement in production, Opex, and inventory life.

From a production perspective, the Uinta is currently producing ~38Mboepd with a 77% oil cut, while the Montney AB assets are producing 68Mboepd with a condensate-driven oil cut of 43%. However, when assessing new well production, it is apparent why OVV was willing to do the deal. By my estimates, the initial production (IP) rate per new well is forecasted to average ~545boepd, whereas the acquired Montney AB IP rate per well is estimated at ~805boepd, a 48% improvement. That said, note that the 10-year timeframe highlights Uinta’s low decline rate advantage with cumulative production (boepd) estimated to exceed the average Montney AB well by the tenth year as noted in the chart below.

Nonetheless, the Montney AB acquisition and Uinta divestment is forecasting a net positive basin-specific free cash flow, driven by the Montney AB’s oil and condensate production. While OVV liked its Uinta play, the reality is that OVV is replacing a high cost, lower price realizations asset with a low-cost, improved price realizations asset. Added to that, OVV improves its growth story through the inventory life gains realized with the acquisition and divestment. By my assessment, OVV’s Uinta acreage represented an inventory life that was less than 5 years, whereas the Montney AB acreage is 80% undeveloped with ~900 potential well locations noted by OVV, which equates to an inventory life of 25+ years.

Estimated D&C Program, Acquired Montney AB Assets

Expectations are for OVV to spend ~$85MM in the Uinta for 4Q24 to complete its FY24 D&C program of 29 wells totaling $375MM. By comparison, I anticipate OVV to deploy a 3 rig/1 frac crew program for its Montney AB assets, resulting in approximately ~23 well drilled and completed, and totaling ~$225MM USD in FY25. This estimated program equates to D&C costs of $8.1MM per well, with $30MM for non-D&C related infrastructure Capex.

FY25 Estimated D&C Program

While OVV has not formally announced its 2025 Capex program, the producer has provided initial guidance parameters to get a sense of where the D&C activity will likely occur next year. Note that I am assuming the acquisition and divestment of assets is completed at the end of March, thereby ensuring a full quarter of D&C activity and production to be accounted for. Also note that these are my estimates and subject to further revision in the future.

Financial and Operational Summary

Companies Mentioned

• Ovintiv Canada Ulc (OVV)

• Paramount Resources Ltd. (POU)

_{Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Patrick Enwright accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Patrick Enwright makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.}