Ovintiv Inc (OVV.N) is said to be close to finalizing a deal to acquire oil exploration and production assets in the Permian Basin, which are currently under the control of private equity firm EnCap Investments. The transaction, valued at approximately $4 billion, including debt, indicates Ovintiv’s increased commitment to the lucrative Permian region.
The company has already planned to increase drilling investments in the area, surpassing expenditure in other U.S. or Canadian basins where it operates. The assets being acquired are situated in the Midland portion of the Permian Basin in Texas and are presently owned by three EnCap-controlled companies: Black Swan Oil & Gas, Piedra Resources, and PetroLegacy II.
Ovintiv is expected to pay for the acquisition in cash and utilize a portion of its stock as currency. If negotiations proceed smoothly, an official announcement could be made as early as this week. However, sources caution that the deal is not yet guaranteed. Neither Ovintiv nor EnCap have responded to requests for comment.
This potential acquisition would be Ovintiv’s first significant deal since its $5.5 billion stock purchase of Newfield Exploration in February 2019. The Newfield transaction expanded Ovintiv’s presence in the natural gas liquids market, but it also faced criticism for its timing and cost, including from activist investor Kimmeridge. Kimmeridge later challenged Ovintiv’s board but ultimately settled in early 2021.
Ovintiv has since concentrated on reducing its debt, which decreased to $3.6 billion last year from $6.6 billion at the end of 2020, partially through asset sales. The deal is expected to increase the proportion of Ovintiv’s production from oil amid low natural gas prices and provide the company with more inventory in a key basin, a rationale that has motivated other public oil and gas companies in their recent acquisition activities.
The deal emerges as EnCap is reportedly attempting to raise a new fund focused on oil and gas production investments, its first since 2017, as sources revealed to Reuters in November.