Such deals give producers more drilling locations, often in areas where hydrocarbon-rich land is harder to come by, so they can take advantage of elevated commodity prices.
"As shale hits its middle innings, we believe high-return drilling inventory locations are going to be more valuable than ever," Ovintiv Chief Executive Brendan McCracken told Reuters.
He said adding such acreage was key to maintaining higher free-cash-flow generation and shareholder returns for years to come.
Ovintiv will offer about 32.6 million common shares and pay $3.13 billion in cash to EnCap. The cash portion of the deal will be funded by existing cash, proceeds from borrowing, as well as $825 million from a separate sale of Ovintiv's Bakken acreage to EnCap-affiliated Grayson Mill Bakken.
Ovintiv's stock was up 8.9% in midday trading, as investors welcomed the news of the deal. The announcement confirmed a Reuters story from Sunday saying Ovintiv was in advanced talks for the transaction.
The assets being bought are located in the Midland portion of the Permian Basin in Texas and are currently owned by three companies controlled by EnCap - Black Swan Oil & Gas, Piedra Resources and PetroLegacy II. "(The deal) addresses one of the most significant concerns with Ovintiv, which was the relatively short runway of core locations," said Andrew Dittmar, director at Enverus Intelligence Research. He added the quality of the new land would rank on par with Ovintiv's existing core Permian positions.
This is Ovintiv's largest purchase since it bought Newfield Exploration for $5.5 billion in February 2019, and its first major acquisition since McCracken became CEO in August 2021. Adding to its Permian position also provides greater balance to the company's overall production, McCracken told Reuters, noting the oily Permian complemented natural gas from Canada's Montney formation and natural gas liquids from the Anadarko basin in Oklahoma. (Reporting by David French in New York and Shariq Khan and Mrinalika Roy in Bengaluru; Editing by Rashmi Aich, Anil D'Silva and Deepa Babington)
