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Income Taxes | 12 Months Ended
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Dec. 31, 2025
Income Tax Disclosure [Abstract] |
Income Taxes |
6. | Income Taxes
The provision for income taxes is as follows:
For the years ended December 31 |  | 2025 |  |  | 2024 |  |  | 2023 |
Current Tax |  |  |  |  |  |  |  |  |
United States |  | $ | (6 | ) |  | $ | 8 |  |  | $ | 12 |
Canada |  |  | 48 |  |  |  | 74 |  |  |  | 269 |
Total Current Tax Expense (Recovery) |  |  | 42 |  |  |  | 82 |  |  |  | 281 |
Deferred Tax |  |  |  |  |  |  |  |  |
United States |  |  | 202 |  |  |  | 228 |  |  |  | 248 |
Canada |  |  | (716 | ) |  |  | (84 | ) |  |  | (104 | )
Total Deferred Tax Expense (Recovery) |  |  | (514 | ) |  |  | 144 |  |  |  | 144 |
Income Tax Expense (Recovery) |  | $ | (472 | ) |  | $ | 226 |  |  | $ | 425 |
During the year ended December 31, 2025, the current income tax expense was primarily due to the Canadian earnings subject to current tax. During the year ended December 31, 2024, the current income tax expense was primarily due to the Canadian earnings subject to current tax and the impact of the corporate alternative minimum tax (“CAMT”) in the U.S. During the year ended December 31, 2023, the current income tax expense was primarily due to the full utilization of Ovintiv’s operating losses in Canada and recognition of prior year deferred income, resulting in current tax in 2023. During the year ended December 31, 2025, the deferred tax recovery was primarily due to the impact of the commercial restructure in Canada described below and ceiling test impairments in Canada, partially offset by taxes on U.S. earnings. During the year ended December 31, 2024, the deferred tax expense was primarily due to taxes on U.S. earnings, partially offset by deferred tax recovery in Canada due to ceiling test impairments. During the year ended December 31, 2023, the deferred tax expense was primarily due to taxes on U.S. earnings, offset by the recognition of U.S. research and development credits of $136 million. In addition, the deferred tax recovery in Canada was primarily from the recognition of prior year deferred income as discussed above. The following disclosures reflect the Company’s prospective adoption of ASU 2023-09 (see Note 1). The components of net earnings (loss) before income tax for 2025 consist of:
For the year ended December 31 |  |  |  |  |  | 2025 |
Net Earnings (Loss) Before Income Tax: |  |  |  |  |  |  |
United States |  |  |  |  |  | $ | 1,215 |
Canada |  |  |  |  |  |  | (445 | )
|  |  |  |  |  | $ | 770 |
The following table is the rate reconciliation between income tax expense (recovery) compared to statutory expectations.
For the year ended December 31 |  |  |  | 2025 |
|  |  |  |  |  | Amount |  |  | Percent |
Net Earnings (Loss) Before Income Tax |  |  |  |  |  | $ | 770 |  |  |  |
Expected Income Tax Expense (Recovery) and United States Federal Statutory Tax Rate |  |  |  |  | 162 |  |  |  | 21.0 | %
State and Local Income Tax, net of Federal Income Tax Effect (1) |  |  |  |  |  |  | (27 | ) |  |  | (3.5 | %)
Foreign Tax Effect from Canada: |  |  |  |  |  |  |  |  |  |
Statutory tax rate difference between Canada and United States |  |  |  |  |  |  | 28 |  |  |  | 3.6 | %
Provincial income tax (2) (3) |  |  |  |  |  |  | (47 | ) |  |  | (6.1 | %)
Non-taxable and non-deductible items: |  |  |  |  |  |  |  |  |  |
Commercial restructure (3) (4) |  |  |  |  |  |  | (559 | ) |  |  | (72.6 | %)
Other |  |  |  |  |  |  | 3 |  |  |  | 0.4 | %
Effect of Cross-Border Tax Law: |  |  |  |  |  |  |  |  |  |
Global intangible low-taxed income |  |  |  |  |  |  | 9 |  |  |  | 1.2 | %
Subpart F |  |  |  |  |  |  | (15 | ) |  |  | (1.9 | %)
Unremitted earnings |  |  |  |  |  |  | (11 | ) |  |  | (1.4 | %)
Base erosion and anti-abuse tax |  |  |  |  |  |  | (16 | ) |  |  | (2.1 | %)
Foreign tax credits |  |  |  |  |  |  | (22 | ) |  |  | (2.9 | %)
Tax Credits: |  |  |  |  |  |  |  |  |  |
Research & development credits |  |  |  |  |  |  | (59 | ) |  |  | (7.7 | %)
Changes in Valuation Allowance (4) |  |  |  |  |  |  | 22 |  |  |  | 2.9 | %
Changes in Unrecognized Tax Benefits |  |  |  |  |  |  | 54 |  |  |  | 7.0 | %
Other |  |  |  |  |  |  | 6 |  |  |  | 0.8 | %
Income Tax Expense (Recovery) and Effective Tax Rate |  |  |  |  |  | $ | (472 | ) |  |  | (61.3 | %)
(1) Texas represents the majority (greater than 50 percent) of the tax effect. (2) Alberta represents the majority (greater than 50 percent) of the tax effect. (3) The commercial restructure in Canada resulted in a capital loss utilization with a corresponding reduction of the valuation allowance and the recognition of a net deferred tax asset. In conjunction with the restructure, the Company recognized provincial income tax and a valuation allowance reversal of $520 million ($330 million federal and $190 million provincial). (4) The worldwide valuation allowance reversal of $498 million primarily resulted from the commercial restructure in Canada. During the year ended December 31, 2025, Ovintiv restructured its existing arrangement with a subsidiary of Mitsubishi Corporation for ownership and development of the Cutbank Ridge lands within the Montney area of British Columbia. This commercial restructure is designed to enhance alignment between the two companies and streamline administrative processes. The tax impact of the restructure is reflected in the table above. The effective tax rate of (61.3) percent for the year ended December 31, 2025, is lower than the U.S. federal statutory tax rate of 21 percent primarily due to the recognition of a net deferred tax asset resulting from the commercial restructure discussed above. The income taxes paid (recovered) by the Company are as follows:
For the year ended December 31 |  |  |  |  |  | 2025 |
Income Taxes Paid (Recovered), net: |  |  |  |  |  |  |
United States - Federal |  |  |  |  |  | $ | 17 |
United States - State (1) |  |  |  |  |  |  | (3 | )
Foreign - Canada Federal |  |  |  |  |  |  | 36 |
Foreign - Canada Provincial (2) |  |  |  |  |  |  | 12 |
|  |  |  |  |  | $ | 62 |
(1) Primarily includes taxes paid to (recovered from) Texas. (2) Primarily includes taxes paid to (recovered from) Alberta. The following table reconciles income taxes calculated at the applicable statutory rate with the actual income taxes, prior to the prospective adoption of ASU 2023-09.
For the years ended December 31 |  | 2024 |  |  | 2023 |
Net Earnings (Loss) Before Income Tax |  | $ | 1,351 |  |  | $ | 2,510 |
United States Federal Statutory Tax Rate |  |  | 21.0 | % |  |  | 21.0 | %
Expected Income Tax Expense (Recovery) |  |  | 284 |  |  |  | 527 |
Effect on Taxes Resulting From: |  |  |  |  |  |
State income tax |  |  | 15 |  |  |  | 23 |
Income tax related to foreign operations |  |  | (14 | ) |  |  | 20 |
Research & development credits |  |  | (67 | ) |  |  | (128 | )
Non-taxable items |  |  | (5 | ) |  |  | 10 |
Amounts in respect of prior periods |  |  | 5 |  |  |  | (19 | )
U.S. international tax |  |  | 40 |  |  |  | 8 |
Change in valuation allowance |  |  | (45 | ) |  |  | (18 | )
Other |  |  | 13 |  |  |  | 2 |
|  | $ | 226 |  |  | $ | 425 |
Effective Tax Rate |  |  | 16.7 | % |  |  | 16.9 | %
During the year ended December 31, 2024, a valuation allowance of $45 million was reversed primarily related to utilization of Canadian net capital losses. During the year ended December 31, 2023, a valuation allowance of $18 million was reversed primarily related to operating losses and utilization of Canadian net capital losses. The effective tax rate of 16.7 percent for the year ended December 31, 2024, is lower than the U.S. federal statutory tax rate of 21 percent primarily due to the recognition of U.S. research and development credits. The effective tax rate of 16.9 percent for the year ended December 31, 2023, is lower than the U.S. federal statutory tax rate of 21 percent primarily due to the recognition of U.S. research and development credits as described above. The net deferred income tax asset (liability) consists of:
As at December 31 |  |  |  | 2025 |  |  | 2024 |
Deferred Income Tax Assets |  |  |  |  |  |  |  |
Property, plant and equipment |  |  |  | $ | 732 |  |  | $ | 27 |
Risk management |  |  |  |  | - |  |  |  | 6 |
Interest and other deferred deductions |  |  |  |  | 2 |  |  |  | 40 |
Net operating and net capital losses carried forward |  |  |  |  | 888 |  |  |  | 1,665 |
General business credits |  |  |  |  | 271 |  |  |  | 200 |
Foreign tax credits |  |  |  |  | 22 |  |  |  | - |
CAMT credits |  |  |  |  | 2 |  |  |  | 40 |
Compensation plans |  |  |  |  | 46 |  |  |  | 45 |
Other |  |  |  |  | 5 |  |  |  | - |
Less: valuation allowance |  |  |  |  | (765 | ) |  |  | (1,204 | )
Deferred Income Tax Liabilities |  |  |  |  |  |  |  |
Property, plant and equipment |  |  |  |  | (844 | ) |  |  | (971 | )
Risk management |  |  |  |  | (17 | ) |  |  | (17 | )
Other |  |  |  |  | - |  |  |  | (23 | )
Net Deferred Income Tax Asset (Liability) |  |  |  | $ | 342 |  |  | $ | (192 | )
As at December 31, 2025, Ovintiv has a valuation allowance against certain U.S. state losses in the amount of $29 million (2024 - $29 million), foreign tax credits of $22 million (2024 - nil) and Canadian net capital losses in the amount of $714 million (2024 - $1,175 million) as it is more likely than not that these benefits will not be realized based on expected future taxable earnings as determined in accordance with the Company’s accounting policies. The net deferred income tax asset (liability) for the following jurisdictions is reflected in the Consolidated Balance Sheet as follows:
As at December 31 |  |  |  | 2025 |  |  | 2024 |
Deferred Income Tax Assets |  |  |  |  |  |  |  |
United States |  |  |  | $ | - |  |  | $ | - |
Canada |  |  |  |  | 744 |  |  |  | 10 |
|  |  |  |  | 744 |  |  |  | 10 |
Deferred Income Tax Liabilities |  |  |  |  |  |  |  |
United States |  |  |  | $ | (402 | ) |  | $ | (202 | )
Canada |  |  |  |  | - |  |  |  | - |
|  |  |  |  | (402 | ) |  |  | (202 | )
Net Deferred Income Tax Asset (Liability) |  |  |  | $ | 342 |  |  | $ | (192 | )
Loss carryforwards and credits available are as follows:
As at December 31 |  |  |  | 2025 |  | Expiration Date |
United States |  |  |  |  |  |  |  |
Net operating losses (federal) |  |  |  | $ | 629 |  |  | Indefinite |
General business credits |  |  |  |  | 271 |  |  | 2032 - 2045 |
Foreign tax credits |  |  |  |  | 22 |  |  | 2035 |
CAMT credits |  |  |  |  | 2 |  |  | Indefinite |
Canada |  |  |  |  |  |  |  |
Net capital losses |  |  |  | $ | 3,005 |  |  | Indefinite |
As at December 31, 2025, the Company has recorded a deferred income tax liability of nil (2024 - $11 million) on the undistributed earnings from its foreign investments. As at December 31, 2025, the Company had a taxable temporary difference of approximately $261 million (2024 ‑ $137 million) in respect of unremitted earnings that continue to be permanently reinvested for which a deferred income tax liability of $13 million (2024 - $7 million) has not been recognized and becomes subject to taxation upon the remittance of dividends. The deferred tax liability considers U.S. federal, state and foreign withholding tax implications. The following table presents changes in the balance of Ovintiv’s unrecognized tax benefits excluding interest:
For the years ended December 31 |  |  |  | 2025 |  |  | 2024 |
Balance, Beginning of Year |  |  |  | $ | (246 | ) |  | $ | (187 | )
Additions for tax positions taken in the current year |  |  |  |  | (23 | ) |  |  | (39 | )
Additions for tax positions of prior years |  |  |  |  | (32 | ) |  |  | (24 | )
Reductions for tax positions of prior years |  |  |  |  | 1 |  |  |  | 4 |
Balance, End of Year |  |  |  | $ | (300 | ) |  | $ | (246 | )
The unrecognized tax benefit is reflected in the Consolidated Balance Sheet as follows:
As at December 31 |  |  |  | 2025 |  |  | 2024 |
Income Tax Payable |  |  |  | $ | (15 | ) |  | $ | (2 | )
Other Liabilities and Provisions |  |  |  |  | (15 | ) |  |  | (12 | )
Deferred Income Tax Liability |  |  |  |  | (270 | ) |  |  | (232 | )
Balance, End of Year |  |  |  | $ | (300 | ) |  | $ | (246 | )
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not the tax position will be sustained upon audit by the taxing authorities. During the year ended December 31, 2025, the Company recorded unrecognized tax benefits of $54 million (2024 - $59 million). If recognized, all of Ovintiv’s unrecognized tax benefits as at December 31, 2025, would affect Ovintiv’s effective income tax rate. The nature of the unrecognized tax benefits is highly uncertain. Ovintiv may recognize interest accrued in respect of unrecognized tax benefits in interest expense. During 2025, Ovintiv recognized an expense of $1 million (2024 - $1 million; 2023 - nil) in interest expense. As at December 31, 2025, Ovintiv had a liability of $1 million (2024 - $1 million) for interest accrued in respect of unrecognized tax benefits. Included below is a summary of the tax years, by jurisdiction, that remain statutorily open for examination by the taxing authorities.
Jurisdiction |  |  |  |  |  | Taxation Year |
United States - Federal |  |  |  |  |  | 2021 - 2025 |
United States - State |  |  |  |  |  | 2019 - 2025 |
Canada - Federal |  |  |  |  |  | 2017 - 2025 |
Canada - Provincial |  |  |  |  |  | 2017 - 2025 |
Ovintiv and its subsidiaries file income tax returns in the U.S. and Canada. Issues in dispute for audited years and audits for subsequent years are ongoing and in various stages of completion.

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