Ovintiv unloads $880 million of Eagle Ford assets in effort to reduce debt

Ovintiv continues its series of sizable divestitures as it plans to sell its Eagle Ford assets for $880 million to a nascent Denver-based oil and gas firm, as it moves to reduce debt.

The sale, which is expected to close in the second quarter, brings Ovintiv's total divestitures in 2021 to $1.143 billion. Earlier this year, Ovintiv announced the divestiture of its Duvernay assets in Alberta, Canada. Ovintiv's production from the Duvernay averaged around 10,000 boe/d, 43% of it liquids, in Q4 2020.

Ovintiv is selling the Eagle Ford assets to Validus Energy, a newly formed company headed by Skye Callantine, the previous CEO of Felix Energy.

Expectation on debt

Ovintiv now anticipates year-end 2021 debt to be below $5 billion using its 2021 planning price deck of $50 WTI oil and $2.75 NYMEX gas.

Ovintiv CEO Doug Suttles said the Eagle Ford announcement "continues our track record of unlocking value from non-core assets. Proceeds will significantly accelerate the achievement of our debt reduction target and allow us to pay off near-term debt maturities with cash on hand. Our 2021 outlook is strong, and we expect to generate significant free cash flow for the fourth consecutive year."

Full year 2021 volumes from the Eagle Ford were expected to average about 21,000 boe/d, including 14,000 b/d of crude and condensate. The volumes make up a small share of Ovintiv's production stemming from its Permian and SCOOP/STACK assets, which are expected to average 205,000 b/d in March. Ovintiv holds 437 producing wells on 42,000 acres in the Eagle Ford, according to the company's filings to the US Securities and Exchange Commission.

Diverse basin

The Eagle Ford shale provides operators with optionality in terms of production. It is a diverse basin with varying windows for oil-directed drilling and then some dry windows with gas percentages in the production mix near what is found in the Haynesville, according to S&P Global Platts Analytics.

The Eagle Ford also posted the most robust active rig count recovery following last spring's commodity price collapse. After diving from 80 rigs at the start of 2020 to only nine by July, it hit a 10-month high of 37 as of March 24, according to the latest data by Platts Analytics. In comparison, the Bakken, SCOOP/STACK and Denver-Julesburg rigs counts total 16, 19 and 14 rigs, respectively.

Although rigs have rebounded to almost half of the pre-pandemic total, production in the Eagle Ford has been slow to rebound. In March, crude averaged 1.63 million b/d and natural gas average 5.6 Bcf/d. It currently averages 1.09 million b/d and 5.06 Bcf/d, according to Platts Analytics.

Merger and acquisition activity in North America in 2020 lagged well behind other years. It totaled $40.3 billion, which was the lowest amount reported since 2015, according to Platts Analytics.