The Denver-based energy company Ovintiv Inc. on Monday announced a nearly $4.3 billion deal for 65,000 acres of largely undeveloped resources and 1,050 well locations in the prolific Permian Basin in Texas.
The deal was announced just a day after Saudi Arabia and other major oil producers said they will cut output by more than a million barrels a day. Oil prices shot up Monday and predictions were rampant of a return to $100 a barrel for oil.
Ovintiv, formerly called Encana, said in a statement that the cash and stock transaction, unanimously approved by the company’s board of directors, is for assets held by Black Swan Oil and Gas, PetroLegacy Energy and Piedra Resources, which are all managed by the private-equity firm EnCap Investments.
The 65,000 acres are in the core of the Midland Basin, close to Ovintiv’s existing operations in the Permian oil field, the company said. The land is in “some of the best rock in the Permian” and is an area where the company has a competitive operating advantage, said Ovintiv President and CEO Brendan McCracken.
The company also said it has an agreement to sell all its assets in the Bakken oil shale field in North Dakota to EnCap for about $825 million.
Ovintiv was formerly Encana Corp., which reorganized under the new name in 2020. The company moved its headquarters from Calgary, Alberta, in Canada to Denver.
Encana had extensive oil and gas operations in Colorado for a while. Ovintiv doesn’t currently have sites in the state, according to its website.
The $4.275 billion purchase materially boosts Ovintiv’s “corporate inventory life,” said Andrew Dittmar, director at Enverus Intelligence Research.
“That addresses one of the most significant concerns with Ovintiv, which was the relatively short runway of core locations in its portfolio,” Dittmar said in an email. “The three EnCap companies have around 700 net locations on their 65,000 net acres in the Midland Basin, adding several years of additional core drilling inventory to the company’s profile at its planned drilling pace.”
Dittmar said investors are closely scrutinizing the life of the inventory when valuing companies focused on oil production. He said there’s “a bit of luck in the timing” of Ovintiv’s announcement, coming a day after OPEC+, a trading bloc that includes Russia, said it will slash output by more than a million barrels a day.
News of the cut sent crude prices up about 6% Monday, rising above $80 a barrel and driving speculation of further surges. Dittmar said prices will likely reach $100 by summer.
Ovintiv generated net earnings of $3.6 billion in 2022 and returned $958 million to shareholders through the combination of base dividend payments and share buybacks, according to the company’s year-end financial report.
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