Ovintiv Inc is nearing a deal to acquire oil exploration and production assets in the Permian Basin that are controlled by private equity firm EnCap Investments for about $4 billion including debt, people familiar with the matter said on Sunday.
The deal represents a doubling down by Ovintiv on the Permian, where exploration in many areas still promises lucrative returns. The company was already planning to spend more money drilling in the region this year than in any other U.S. or Canadian basin where it operates.
The assets being bought are located in the Midland portion of the Permian in Texas and are currently owned by three companies controlled by EnCap: Black Swan Oil & Gas, Piedra Resources and PetroLegacy II.
Ovintiv will pay cash and also use some of its stock as currency for the deal, the sources said.
If the negotiations conclude successfully, a deal could be announced as early as this week, the sources said, cautioning that no deal is certain.
Ovintiv and EnCap did not immediately respond to requests for comment.
The transaction would be Ovintiv’s first major acquisition since it bought Newfield Exploration in February 2019 for $5.5 billion in stock. The Newfield transaction gave Ovintiv greater presence in the natural gas liquids market but drew criticism for its timing and cost, including from activist investor Kimmeridge. Kimmeridge later challenged Ovintiv’s board but then settled in early 2021.
Since then, Ovintiv has been focused on reducing its debt pile, which dropped to $3.6 billion last year from $6.6 billion at the end of 2020, including through selling assets.
The deal will boost the percentage of Ovintiv’s production coming from oil, at a time of low natural gas prices. It also gives the company more inventory in a key basin, rationale which has inspired other public oil and gas companies in their acquisition activity in recent months.
Black Swan was backed by $500 million of equity capital from EnCap and its management, according to Black Swan’s website.
PetroLegacy II controls around 25,000 net acres in Martin County, much of which was acquired from Pioneer Natural Resources in 2017.
EnCap has backed Robert Beecherl and Chip Smith, the executives behind Piedra Resources, on numerous ventures.
The deal comes as EnCap is attempting to raise a new fund focused on investments in oil and gas production, its first since 2017, sources told Reuters in November.
Reuters