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Business Combination
 12 Months Ended
Dec. 31, 2025
Business Combination [Abstract]  
Business Combination

9.

Business Combination

 

Acquisition of Midland Basin Assets (“Permian Acquisition”)

On June 12, 2023, Ovintiv completed a business combination to purchase all of the outstanding equity interests in seven Delaware limited liability companies (“Permian LLCs”) pursuant to the purchase agreement with Black Swan Oil & Gas, LLC, PetroLegacy II Holdings, LLC, Piedra Energy III Holdings, LLC and Piedra Energy IV Holdings, LLC, which were portfolio companies of funds managed by EnCap Investments L.P (“EnCap”). The Company paid aggregate cash consideration of approximately $3.2 billion and issued approximately 31.8 million shares of Ovintiv common stock, representing a value of approximately $1.2 billion. The cash portion of the consideration was funded through a combination of net proceeds from the Company’s May 2023 senior notes offering (see Note 15), net proceeds from the sale of Bakken during the second quarter of 2023 (see Note 8), cash on hand and proceeds from short-term borrowings. During the period from June 12, 2023, to December 31, 2023, transaction costs of approximately $76 million were included in administrative expense.

The acquisition was strategically located in close proximity to Ovintiv’s current Permian operations and added approximately 1,050 net well locations to Ovintiv’s Permian inventory and approximately 65,000 net acres. The results of operations from the acquired Permian assets have been included in Ovintiv’s consolidated financial statements since June 12, 2023.

Purchase Price Allocation

The Permian LLCs have been accounted for under the acquisition method and as a single transaction because the purchase agreement was entered into at the same time with EnCap and in contemplation of one another to achieve an overall economic effect. The purchase price allocations represent the consideration paid and the fair values of the assets acquired, and liabilities assumed as of the acquisition date. The purchase price allocation was finalized during the first quarter of 2024.

 

Purchase Price Allocation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consideration:

 

 

 

 

 

 

 

 

Fair value of shares of Ovintiv common stock issued (1)

 

 

 

 

 

 

$

1,169

 

Consideration paid in cash (2)

 

 

 

 

 

 

 

3,229

 

Total Consideration

 

 

 

 

 

 

$

4,398

 

 

 

 

 

 

 

 

 

 

Assets Acquired:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

$

16

 

Accounts receivable and accrued revenues (3)

 

 

 

 

 

 

 

202

 

Proved properties (3)

 

 

 

 

 

 

 

3,727

 

Unproved properties (3)

 

 

 

 

 

 

 

914

 

Other property, plant and equipment (3)

 

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

 

Liabilities Assumed:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities (3)

 

 

 

 

 

 

 

(446

)

Asset retirement obligation

 

 

 

 

 

 

 

(28

)

Other liabilities and provisions (3)

 

 

 

 

 

 

 

(4

)

Total Purchase Price

 

 

 

 

 

 

$

4,398

 
(1)
The fair value was based on the issuance of 31.8 million shares of common stock using the NYSE price of $36.78 on June 12, 2023.
(2)
Cash consideration paid includes final cash settlements of $12 million which were completed during the first quarter of 2024.
(3)
Since the completion of the business combination on June 12, 2023, additional information related to pre-acquisition assets and liabilities was obtained resulting in measurement period adjustments. Changes in the fair value estimates comprised an increase in accounts receivable and accrued revenues of $22 million, an increase in proved properties of $134 million, a decrease in unproved properties of $227 million, a decrease in other property, plant and equipment of $16 million, a decrease in accounts payable and accrued liabilities of $73 million and a decrease in other liabilities and provisions of $2 million.

The Company used the income approach valuation technique for the fair value of assets acquired and liabilities assumed. The carrying amounts of cash, accounts receivable and accounts payable approximate their fair values due to their nature and/or short-term maturity of the instruments. The fair value of tubular inventory in other property, plant and equipment was based on the fair value approach, which utilized subsequent sales of inventory, asset listings and cost records with consideration for the relative age, condition, utilization and economic support of the inventory. The fair values of the proved properties, unproved properties and asset retirement obligation were categorized within Level 3 and were determined using relevant market assumptions, including discount rates, future commodity prices

and costs, timing of development activities, projections of oil and gas reserves, and estimates to abandon and reclaim producing wells. Level 3 inputs require significant judgment and estimates to be made.

For income tax purposes, the Permian Acquisition was treated as an asset purchase, and as a result, the tax basis in the assets and liabilities reflect their allocated fair value.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information combines the historical financial results of Ovintiv with the Permian LLCs and has been prepared as though the acquisition and the associated debt issuance described in Note 15 had occurred on January 1, 2023. The pro forma information is not intended to reflect the actual results of operations that would have occurred if the Permian Acquisition had been completed at the date indicated. In addition, the pro forma information is not intended to be a projection of Ovintiv’s results of operations for any future period.

Additionally, pro forma earnings were adjusted to exclude acquisition-related costs incurred of approximately $76 million for the year ended December 31, 2023. The pro forma financial information does not include any cost savings or other synergies that may result from the acquisition or any estimated costs that have been incurred to integrate the assets. The pro forma financial data does not include the results of operations for any other acquisitions made during the period presented, as they were primarily acreage acquisitions, and their results were not deemed material. Ovintiv’s consolidated results for the years ended December 31, 2025, and 2024, include the results from the Permian LLCs.

 

For the year ended December 31 (US$ millions, except per share amounts)

 

2023

 

 

 

 

 

Revenues

 

$

11,485

 

Net Earnings (Loss)

 

$

2,315

 

 

 

 

 

Net Earnings (Loss) per Share

 

 

 

Basic

 

$

8.43

 

Diluted

 

 

8.31