Ovintiv Inc. expects to nearly double its Permian basin oil and condensate production to about 125,000 b/d following closing of a deal signed to acquire substantially all leasehold interest and related assets of Black Swan Oil & Gas, PetroLegacy Energy, and Piedra Resources—all of which are portfolio companies of EnCap Investments LP—in a cash and stock deal valued at $4.275 billion.
About 97% of the acquired acreage is held by production with an average operated working interest of 82%. The deal would add some 1,050 net 10,000 ft well locations to Ovintiv’s Permian inventory and about 65,000 net acres in the Midland basin, near the company’s current Permian operations in Martin County, Ovintiv said in a release Apr. 3.
The sellers will receive $3.125 billion in cash and some 32.6 million shares of Ovintiv common stock. The remainder of the cash portion is expected to be funded through a combination of cash on hand, borrowings under the company’s credit facility and/or proceeds from new debt financing.
To help fund the cash portion of the deal and as part of a streamlining strategy, the company said, it has agreed to sell all of its Bakken assets in North Dakota’s Williston basin to Grayson Mill Bakken LLC, an EnCap company, for $825 million in cash. The company held 46,000 net acres in the play as of Dec. 31, 2022. Estimated first quarter Bakken production is expected to average 37,000 boe/d (60% oil and condensate).
Currently, first-quarter 2023 estimated oil and condensate volumes average 165,000 b/d and estimated total production of about 510,000 boe/d, both above guidance. First quarter capital spending of $610-620 million is expected.
Following the Midland basin deal’s close, Ovintiv plans to reduce drilling activity in the acquired assets to two rigs from seven, for a total of five rigs working across the operator’s combined Permian acreage.
Assuming a closing date of June 30 for both deals, the company has increased its 2023 full year production to 520,000-545,000 boe/d from 500,000-525,000 boe/d. Oil and condensate production guidance is increased to 185,000-195,000 b/d from 165,000-175,000 b/d. Full year 2023 capital guidance has increased to $2.6-2.9 billion from $2.15-2.35 billion.
With a capital investment of $2.1-2.5 billion, Ovintiv expects to deliver 2024 total company average oil and condensate production volumes over 200,000 b/d.