DBRS Morningstar Comments on Ovintiv’s Asset Sales and Updated Debt Reduction Target

DBRS Limited (DBRS Morningstar) notes Ovintiv Inc.’s (Ovintiv or the Company; rated BBB (low) with a Negative trend by DBRS Morningstar) announcement that it has signed an agreement to sell its Eagle Ford assets to Validus Energy for $880 million. DBRS Morningstar also notes that in February 2021, the Company announced that it had signed an agreement to sell its Duvernay assets (together with the sale of the Eagle Ford assets, the Asset Sales) for proceeds of $263 million (including approximately $12 million in contingency payments based on commodity prices). The Asset Sales are subject to customary closing conditions and are expected to close in Q2 2021. In addition, the Company also announced that it received approximately $150 million in current tax recoveries, which, along with the proceeds of the Asset Sales, has been earmarked for reducing debt. Ovintiv expects debt at YE2021 to be under $5 billion (FY2019: $6.9 billion) and expects to achieve its debt target of $4.5 billion in H1 2022 assuming a West Texas Intermediate crude oil price of $50 per barrel and New York Mercantile Exchange natural gas price of $2.75 per million British thermal units.

DBRS Morningstar views the Asset Sales as credit positive as they have minimal impact on production (approximately 6% of FY2019 production) and per barrel operating costs while resulting in a material reduction in debt. DBRS Morningstar also notes that the outlook for crude oil and natural gas prices has improved since Ovintiv’s ratings were downgraded with a Negative trend in June 2020. Consequently, DBRS Morningstar’s base case commodity price assumptions have been revised upwards and are consistent with Company’s commodity price assumptions noted above (see the commentary titled “DBRS Morningstar Updates Oil and Natural Gas Price Forecasts: Coronavirus Vaccinations and OPEC+ Production Cuts Underpin Speedy Oil Price Recovery” dated February 23, 2021). At the time of the rating downgrade, DBRS Morningstar expected the Company’s key credit metrics to remain weak in 2021 before improving in 2022. The proceeds from the Asset Sales and improved commodity prices will likely accelerate the expected recovery in key credit metrics to 2021. DBRS Morningstar will review the Company’s updated production guidance and debt reduction targets under its revised commodity price assumptions with a view to resolving the Negative trend over the next few weeks.

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