Ovintiv Inc. - Annual Report: 2019 (Form 10-K)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2019

or

Commission file number 001-39191

Ovintiv Inc.

(Exact name of registrant as specified in its charter)

Suite 1700, 370 17^th Street, Denver, Colorado, 80202, U.S.A.

(Address of principal executive offices)

Registrant’s telephone number, including area code (303) 623-2300

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ☐ No ☒ 

Documents Incorporated by Reference

Portions of registrant’s definitive proxy statement (“Proxy Statement”) for the registrant’s 2020 annual meeting of stockholders to be held April 29, 2020 (to be filed with the Securities and Exchange Commission prior to April 29, 2020) are incorporated by reference in Part III of this Annual Report on Form 10-K.

OVINTIV INC.

FORM 10-K

TABLE OF CONTENTS

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DEFINITIONS

Unless the context otherwise requires or otherwise expressly stated, all references in this Annual Report on Form 10-K to “Ovintiv,” the “Company,” “us,” “we,” “our” and “ours,” (i) for periods until the Reorganization (as hereinafter defined), refer to Encana Corporation and its consolidated subsidiaries and (ii) for periods after the Reorganization, refer to Ovintiv Inc. and its consolidated subsidiaries. In addition, the following are other abbreviations and definitions of certain terms used within this Annual Report on Form 10-K:

“AECO” means Alberta Energy Company and is the Canadian benchmark price for natural gas.

“ASC” means Accounting Standards Codification.

“ASU” means Accounting Standards Update.

“bbl” or “bbls” means barrel or barrels.

“bbls/d” means barrels per day.

“Bcf” means billion cubic feet.

“Bcf/d” means billion cubic feet per day.

“BOE” means barrels of oil equivalent.

“BOE/d” means barrels of oil equivalent per day.

“Btu” means British thermal units, a measure of heating value.

“DD&A” means depreciation, depletion and amortization expenses.

“FASB” means Financial Accounting Standards Board.

“LIBOR” means London Interbank Offered Rate.

“Mbbls” means thousand barrels.

“Mbbls/d” means thousand barrels per day.

“MBOE” means thousand barrels of oil equivalent.

“MBOE/d” means thousand barrels of oil equivalent per day.

“Mcf” means thousand cubic feet.

“Mcf/d” means thousand cubic feet per day.

“MD&A” means Management’s Discussion and Analysis of Financial Condition and Results of Operations.

“MMbbls” means million barrels.

“MMbbls/d” means million barrels per day.

“MMBOE” means million barrels of oil equivalent.

“MMBOE/d” means million barrels of oil equivalent per day.

“MMBtu” means million Btu.

“MMcf” means million cubic feet.

“MMcf/d” means million cubic feet per day.

“NCIB” means normal course issuer bid.

“NGL” or “NGLs” means natural gas liquids.

“NYMEX” means New York Mercantile Exchange.

“NYSE” means New York Stock Exchange.

“OPEC” means Organization of the Petroleum Exporting Countries.

“SCOOP” means South Central Oklahoma Oil Province.

“SEC” means United States Securities and Exchange Commission.

“STACK” means Sooner Trend, Anadarko basin, Canadian and Kingfisher counties

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“Standardized measure” means the present value of after-tax future net revenues discounted at 10% per annum.

“S&P 500” means Standard and Poor’s 500 index.

“S&P/TSX Composite Index” means Standard and Poor’s index for Canadian equity markets.

“TSX” means Toronto Stock Exchange.

“U.S.” or “United States” or “USA” means United States of America.

“U.S. GAAP” means U.S. Generally Accepted Accounting Principles.

“WTI” means West Texas Intermediate.

CONVERSIONS

In this Annual Report on Form 10-K, a conversion of natural gas volumes to BOE is on the basis of six Mcf to one bbl.  BOE is based on a generic energy equivalency conversion method primarily applicable at the burner tip and does not represent economic value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value, particularly if used in isolation.

CONVENTIONS

Unless otherwise specified, all dollar amounts are expressed in U.S. dollars, all references to “dollars”, “$” or “US$” are to U.S. dollars and all references to “C$” are to Canadian dollars. All amounts are provided on a before tax basis, unless otherwise stated. In addition, all information provided herein is presented on an after royalties basis.

The term “liquids” is used to represent oil, NGLs and condensate. The term “liquids rich” is used to represent natural gas streams with associated liquids volumes. The term “play” is used to describe an area in which hydrocarbon accumulations or prospects of a given type occur. The Company’s focus of development is on hydrocarbon accumulations known to exist over a large areal expanse and/or thick vertical section and are developed using hydraulic fracturing. This type of development typically has a lower geological and/or commercial development risk and lower average decline rate, when compared to conventional development.

The term “core asset” refers to plays that are the focus of the Company’s current capital investment and development plan. The Company continually reviews funding for development of its plays based on strategic fit, profitability and portfolio diversity and, as such, the composition of plays identified as a core asset may change over time.

References to information contained on the Company’s website at www.ovintiv.com are not incorporated by reference into, and does not constitute a part of, this Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS AND RISK

This Annual Report on Form 10-K and documents incorporated herein by reference contain certain forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation, including the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements include: composition of the Company’s core assets, including the allocation of capital and focus of development plans; growth in long-term shareholder value; vision of being a leading North American resource play company; statements with respect to the Company’s strategic objectives including capital allocation strategy, focus of investment, focus of returning capital to shareholders through sustainable dividends, growth of high margin liquids volumes, operating and capital efficiencies and ability to preserve balance sheet strength; statements regarding the benefits of the Company’s multi-basin portfolio of assets; ability to leverage technology to reduce development risks, enhance capital and operating efficiencies and sustainably enhance margins while minimizing the Company’s environmental footprint; ability to lower costs and improve efficiencies to achieve competitive advantage, including benefits of integrated supply chain model and self-sourcing; ability to repeat and deploy successful practices across the Company’s multi-basin portfolio; balancing commodity portfolio; anticipated commodity prices; success of and benefits from technology and innovation, including cube development approach,

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precision well targeting and advanced completion designs; reduced dependence on fresh water requirements and anticipated water infrastructure; ability to accelerate activity levels; ability to optimize well and completion designs, including changes to lateral lengths drilled, stage, well spacing and stacking optimization; future well inventory; anticipated drilling, number of drilling rigs and the success thereof; anticipated drilling costs and cycle times; anticipated proceeds and future benefits from various joint venture, partnership and other agreements; expected timing for construction of facilities and costs thereof; expansion of future midstream services; estimates of reserves and resources; expected production and product types; ability to replicate successful test wells to future production; statements regarding anticipated cash flow, non-GAAP cash flow margin and leverage ratios; anticipated cash and cash equivalents; anticipated hedging and outcomes of risk management program, including ability to leverage marketing fundamentals expertise, exposure to certain commodity prices and foreign exchange, amount of hedged production, market access and physical sales locations; impact of changes in laws and regulations, including recent U.S. tax reform and potential changes to free trade agreements; compliance with environmental legislation and claims related to the purported causes and impact of climate change, and the costs therefrom; adequacy of provisions for abandonment and site reclamation costs; financial flexibility and discipline; access to cash and cash equivalents and other methods of funding; ability to meet financial obligations, manage debt and financial ratios, finance growth and compliance with financial covenants; impact to the Company as a result of changes to its credit rating; access to the Company's credit facilities; planned annualized dividend and the declaration and payment of future dividends, if any; statements regarding the Company’s financial flexibility and access to liquidity through commodity cycles; managing capital structure including adjustments to capital spending or dividends, issuing debt or equity, or repaying existing debt; adequacy of the Company's provision for taxes and legal claims; projections and expectation of meeting the targets contained in the Company's corporate guidance; ability to manage cost inflation and expected cost structures, including expected operating, transportation and processing and administrative expenses; competitiveness and pace of growth of the Company’s assets within North America and against its peers; outlook of oil and gas industry generally and impact of geopolitical environment; returns from the Company’s core assets; anticipated capital spending plans and source of funding thereof; anticipated staffing levels; expected future interest expense; the Company’s commitments and obligations and ability to satisfy the same; statements with respect to future ceiling test impairments; and the possible impact and timing of accounting pronouncements, rule changes and standards.

Readers are cautioned against unduly relying on forward-looking statements which, by their nature, involve numerous assumptions, risks and uncertainties that may cause such statements not to occur, or results to differ materially from those expressed or implied. These assumptions include: future commodity prices and differentials; foreign exchange rates; ability to access credit facilities and shelf prospectuses; assumptions contained in the Company’s corporate guidance and as specified herein; data contained in key modeling statistics; availability of attractive hedges and enforceability of risk management program; effectiveness of the Company's drive to productivity and efficiencies; results from innovations; expectation that counterparties will fulfill their obligations under the gathering, midstream and marketing agreements; access to transportation and processing facilities where the Company operates; assumed tax, royalty and regulatory regimes; and expectations and projections made in light of, and generally consistent with, the Company's historical experience and its perception of historical trends, including with respect to the pace of technological development, benefits achieved and general industry expectations.

Risks and uncertainties that may affect these outcomes include: ability to generate sufficient cash flow to meet obligations; commodity price volatility; ability to secure adequate transportation and potential pipeline curtailments; variability and discretion of the Company's board of directors (the “Board of Directors”) to declare and pay dividends, if any; timing and costs of well, facilities and pipeline construction; business interruption, property and casualty losses or unexpected technical difficulties, including impact of weather; counterparty and credit risk; ability to realize the anticipated benefits of acquisitions; ability to achieve the benefits of the Reorganization; actions of OPEC, its members and other state-controlled oil companies relating to oil price and production controls; sustained declines in commodity prices resulting in impairment of assets; impact of a downgrade in credit rating and its impact on access to sources of liquidity; fluctuations in currency and interest rates; risks associated with inflation rates; risks inherent in the Company's corporate guidance; failure to achieve cost and efficiency initiatives; risks inherent in marketing operations; risks associated with technology, including electronic, cyber and physical security breaches; changes in or interpretation of royalty, tax, environmental, greenhouse gas, carbon, accounting and other laws or regulations, including potential environmental liabilities that are not covered by an effective indemnity or insurance; risks associated with existing and potential lawsuits and regulatory actions made against the Company; impact of disputes arising with its partners, including suspension of certain obligations and inability to dispose of

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assets or interests in certain arrangements; the Company's ability to acquire or find additional reserves; imprecision of reserves estimates and estimates of recoverable quantities, including future net revenue estimates; land, legal, regulatory and ownership complexities inherent in Canada, the U.S. and other applicable jurisdictions; risks associated with past and future acquisitions or divestitures of certain assets or other transactions or receipt of amounts contemplated under the transaction agreements (such transactions may include third-party capital investments, farm-outs or partnerships, which the Company may refer to from time to time as “partnerships” or “joint ventures” and the funds received in respect thereof which the Company may refer to from time to time as “proceeds”, “deferred purchase price” and/or “carry capital”, regardless of the legal form) as a result of various conditions not being met; and other risks described in Item 1A. Risk Factors of this Annual Report on Form 10-K and risks and uncertainties impacting the Company's business as described from time to time in the Company's other periodic filings with the SEC incorporated by reference in this Annual Report on Form 10-K.

Although the Company believes the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the assumptions, risks and uncertainties referenced above and in the documents incorporated by reference herein are not exhaustive. Forward-looking statements are made as of the date of this document (or, in the case of a document incorporated by reference, the date of such document incorporated by reference) and, except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statements. The forward-looking statements contained or incorporated by reference in this Annual Report on Form 10-K are expressly qualified by these cautionary statements.

The reader should read carefully the risk factors described in Item 1A. Risk Factors of this Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.

EXPLANATORY NOTE

Pursuant to Rule 12g-3(a) under the Exchange Act, Ovintiv is the successor issuer to Encana, Ovintiv’s common stock is deemed to be registered under Section 12(b) of the Exchange Act, and Ovintiv is subject to the periodic and current reporting requirements of the Exchange Act and the rules and regulations promulgated thereunder. Therefore, financial information and results of operations presented in this Annual Report on Form 10-K relate to Ovintiv Inc. Refer to Items 1 and 2. Business and Properties under Part 1 for further information on this Form 10-K.

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PART I

Items 1 and 2. Business and Properties

GENERAL

On January 24, 2020, Encana Corporation (“Encana”) completed a corporate reorganization (the “Reorganization”), which included (i) a plan of arrangement under the Canada Business Corporations Act (the “CBCA”), pursuant to which, among other things, Encana completed a share consolidation on the basis of one post-consolidation share for each five pre-consolidation shares (the “Share Consolidation”) and Ovintiv ultimately acquired all of the issued and outstanding common shares of Encana in exchange for shares of Ovintiv on a one-for-one basis and became the parent company of Encana and its subsidiaries (collectively, the “Arrangement”) and (ii) following completion of the Arrangement, Ovintiv migrated out of Canada and became a Delaware corporation (the “U.S. Domestication”). Ovintiv and its subsidiaries continue to carry on the business previously conducted by Encana and its subsidiaries prior to the completion of the Reorganization.

Prior to the completion of the Reorganization, Encana was incorporated under the CBCA, having been formed in 2002 through the business combination of two predecessor companies.

Ovintiv is a leading North American resource play company that is focused on developing its multi-basin portfolio of top tier oil and natural gas assets located in the United States and Canada. Ovintiv's operations also include the marketing of oil, NGLs and natural gas. As at December 31, 2019, all of the Company’s reserves and production were located in North America.

Ovintiv’s principal office is located at 370 – 17^th Street, Suite 1700, Denver, Colorado 80202, U.S.A. Ovintiv’s shares of common stock are listed and posted for trading on the NYSE and the TSX under the symbol “OVV”.

Available Information

Ovintiv is subject to the informational requirements of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”) and, in accordance with the Exchange Act, it also files reports with and furnishes other information to the SEC. The public may obtain any document Ovintiv files with or furnishes to the SEC from the SEC's Electronic Document Gathering, Analysis, and Retrieval system (“EDGAR”), which can be accessed at www.sec.gov, or via the System for Electronic Document Analysis and Retrieval (“SEDAR”), which can be accessed at www.sedar.com, as well as from commercial document retrieval services.

Copies of this Annual Report on Form 10-K and the documents incorporated herein by reference may be obtained on request without charge from Ovintiv’s Corporate Secretary, 370 – 17^th Street, Suite 1700, Denver, Colorado 80202, U.S.A., telephone: (303) 623-2300. Ovintiv also provides access without charge to all of the Company’s SEC filings, including copies of this Annual Report on Form 10-K and the documents incorporated herein by reference, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after filing or furnishing, on Ovintiv’s website located at www.ovintiv.com.

STRATEGY

Ovintiv’s vision is to be a leading North American resource play company that is committed to growing long-term stockholder value through a disciplined focus on generating profitable liquids growth as well as generating cash flows in excess of capital expenditures. Objectives that support the execution of the Company’s strategy include:

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The following strengths enable Ovintiv to achieve the Company’s strategy of creating stockholder value and generating free cash flow:

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REPORTING SEGMENTS

Ovintiv’s operations are focused on the finding and development of oil, NGLs and natural gas reserves. The Company is also focused on creating and capturing additional value through its market optimization segment. The Company conducts a substantial portion of its business through subsidiaries. Ovintiv’s operating and reportable segments are: (i) USA Operations; (ii) Canadian Operations; (iii) China Operations; and (iv) Market Optimization.

For additional information regarding the reporting segments, see Note 2 of the audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

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OIL AND GAS PROPERTIES AND ACTIVITIES

The following map reflects the location of Ovintiv’s North American landholdings and assets.

The term “core asset” refers to plays that are the primary focus of Ovintiv’s capital investment and development, providing a competitive return profile and free cash flows. Other Upstream Operations comprise base assets that are not part of Ovintiv’s current strategic focus and therefore receive limited capital that is directed to high margin locations that generate cash flows and returns.

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USA Operations

Overview: In 2019, the USA Operations had total capital investment of approximately $2,134 million and drilled approximately 236 net wells predominately in Permian, Anadarko, Eagle Ford and Bakken. Production averaged approximately 162.3 Mbbls/d of oil, approximately 78.4 Mbbls/d of NGLs and approximately 547 MMcf/d of natural gas. At December 31, 2019, the USA Operations had an established land position of approximately 1.1 million net acres including approximately 207,000 net undeveloped acres. In addition, the USA Operations accounted for 71 percent of production revenues, excluding the impacts of hedging, during 2019 and 70 percent of total proved reserves as at December 31, 2019.

With the acquisition of Newfield Exploration Company (“Newfield”) on February 13, 2019 (the “Newfield acquisition”), the Company acquired new properties in the following plays: Anadarko and Arkoma in Oklahoma, Bakken in North Dakota and Uinta in Utah, as well as offshore oil assets located in China.

Upon completion of the Newfield acquisition, certain plays were re-organized to align to the Company’s current strategic development focus. As a result, Eagle Ford is presented in Other Upstream Operations. Accordingly, comparative information has been reorganized.

During 2019, the Company divested of approximately 140,000 net acres in Arkoma for proceeds of $155 million, after closing adjustments.

The following tables summarize the USA Operations landholdings, producing wells and daily production as at and for the periods indicated.

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Permian

Permian is an oil play located in west Texas in Midland, Martin, Howard, Glasscock and Upton counties. The primary focus is on the development of the Spraberry and Wolfcamp formations in the Midland basin, where Ovintiv holds a large position. At December 31, 2019, the Company controlled approximately 110,000 net acres in the play. The properties are characterized by exposure of up to 11 potential producing horizons spanning approximately 4,000 feet of stratigraphy or stacked pay, an extensive production history and developed infrastructure. In 2019, production averaged approximately 64.7 Mbbls/d of oil, approximately 22.3 Mbbls/d of NGLs and approximately 106 MMcf/d of natural gas.

During 2019, the Company continued to focus on efficiency improvements and maximizing resource recovery by accessing layers of the stacked pay simultaneously using the cube development model. This approach utilizes multi-well pads, multi-rig spreads and frac spreads running in parallel to optimize cycle times, and increase capital efficiency, while minimizing the surface footprint. The Company focused on capturing operational efficiencies through optimizing wellbore designs and maximizing usage of recycled water from its centralized water infrastructure to reduce costs. During 2019, the Company drilled 114 horizontal net wells with lateral lengths ranging from approximately 6,200 to 12,500 feet at a measured average total depth of approximately 17,800 feet with well spacing ranging from approximately 500 to 1,000 feet. As Ovintiv continues to optimize well and completion designs, lateral lengths drilled, stage and well spacing may change.

Oil and natural gas facilities include field gathering systems, storage batteries, saltwater disposal systems, separation equipment and pumping units. The majority of Ovintiv’s acreage and associated oil production is dedicated to a pipeline gathering agreement, which has a total remaining term of 14 years including optional renewal terms. In the event of pipeline capacity constraints, Ovintiv’s oil production is trucked by a third party. Natural gas is delivered by the Company to the purchaser’s meter and pipeline interconnection point in the field.

Anadarko

Anadarko is a liquids rich play located in west-central Oklahoma in Blaine, Canadian, Custer, Dewey, Grady, Kingfisher, Major and McClain counties. The majority of the Anadarko properties are located in the black oil window of the STACK which comprises the Woodford, Meramec and Osage formations spanning up to 800 feet of stratigraphy and in the SCOOP which comprises the Woodford, Sycamore, Caney and Springer formations spanning up to 1,150 feet of stratigraphy. At December 31, 2019, the Company controlled approximately 386,000 net acres in the play. The play is characterized by exposure to up to eight geologic horizons which include silt, shale and carbonate formations providing multiple potential horizontal oil and gas targets making the play ideal for long laterals and cube development. From February 14, 2019 to December 31, 2019, production averaged approximately 44.4 Mbbls/d of oil, approximately 44.3 Mbbls/d of NGLs and approximately 316 MMcf/d of natural gas.

The focus of development is on the liquids weighted portions of the basin, including the Woodford, Springer and Mississippian targets. Since acquiring the asset in February 2019, the Company has utilized its cube development model to optimize completion and well spacing, which has resulted in reducing the cycle times and drilling and

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completion costs by approximately 20 percent. In addition, the Company implemented self-sourced consumables, including sand and chemicals to improve supply reliability, reduce costs and minimize its environmental footprint.

During 2019, the Company drilled 74 horizontal net wells with lateral lengths ranging from approximately 5,000 to 10,000 feet at a measured average total depth of approximately 18,800 feet with well spacing ranging from approximately 660 to 1,300 feet. As the Company continues to optimize well and completion designs, lateral lengths drilled, stage and well spacing may change.  

The play has significant existing infrastructure and is located within close proximity to markets including Cushing, Oklahoma, the Gulf Coast and Mont Belvieu. Oil and natural gas production are gathered at various production facilities, with the majority of the oil subsequently transported to sales points by pipeline. The majority of Ovintiv’s acreage and associated production is dedicated to various long-term gathering and processing agreements with various third parties, which have remaining terms ranging from five to 12 years.

Other Upstream Operations

Eagle Ford

Eagle Ford is an oil play located in south Texas in Karnes and Atascosa counties. The focus is on the development of the thickest portion of the Eagle Ford shale in the Karnes Trough, where Ovintiv holds a largely contiguous position. At December 31, 2019, the Company controlled approximately 42,000 net acres in the play. Ovintiv is focused on developing the lower Eagle Ford, as well as optimizing targets in the upper Eagle Ford, expanding development activity in the Austin Chalk and delineation of Graben, exclusively using horizontal drilling. During 2019, the Company drilled approximately 33 net wells in the area with lateral lengths ranging from approximately 2,500 to 7,200 feet with an average measured total depth of approximately 16,600 feet. As Ovintiv continues to optimize development and apply advanced completions designs, lateral lengths drilled, cluster spacing and well spacing may change. Production averaged approximately 25.3 Mbbls/d of oil, approximately 7.2 Mbbls/d of NGLs and approximately 43 MMcf/d of natural gas during the year.

During 2019, the Company continued to focus on precision well targeting, spacing and stacking optimization and improving completions designs. Performance improvements were achieved from optimizing wellbore designs, pumping high volumes of thin fluid and proppant with tight cluster spacing of less than 20 feet, resulting in increased well productivity and optimized capital efficiency. The Company also focused on maintaining cost controls through well control automation, optimizing artificial lift systems and streamlining well interventions.

The play is located within close proximity to markets and has a well-developed infrastructure. Oil and natural gas production is gathered at various production facilities, with the majority of the oil subsequently transported to sales points by pipeline. Ovintiv has access to firm natural gas gathering capacity of up to approximately 50 MMcf/d and firm processing capacity of up to approximately 80 MMcf/d with third parties with remaining terms of less than six years, and owns oil processing capacity of 50.0 Mbbls/d. Ovintiv also utilizes interruptible capacity arrangements for excess production.

Bakken

Bakken is an oil play located in North Dakota primarily in McKenzie and Dunn counties, and in Montana in Richland county. The focus of development includes targets in the Bakken and Three Forks formations. At December 31, 2019, the Company controlled approximately 72,000 net acres in the play. During 2019, the Company drilled approximately 12 net wells in the area with lateral lengths ranging from approximately 9,500 to 10,200 feet with an average measured total depth of approximately 21,500 feet. From February 14, 2019 to December 31, 2019, production averaged approximately 14.0 Mbbls/d of oil, approximately 3.7 Mbbls/d of NGLs and approximately 23 MMcf/d of natural gas.

The majority of Ovintiv’s acreage and associated production is dedicated to various long-term gathering and processing agreements with various third parties, which have remaining terms of less than two years. Ovintiv uses a combination of pipeline and truck to transport oil to sales points. Ovintiv also utilizes interruptible capacity arrangements for excess production.

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Uinta

Uinta is an oil play located in central Utah primarily in Duchesne and Uintah counties. Uinta provides a deep inventory of stacked oil horizons including the Wasatch and Lower Green River formations which includes the Uteland Butte and Castle Peak, with approximately 4,000 feet of oil saturated reservoir rock across Ovintiv’s acreage. At December 31, 2019, the Company controlled approximately 222,000 net acres in the play. During 2019, the Company drilled approximately two net wells in the area with lateral lengths that averaged approximately 9,700 feet with an average measured total depth of approximately 19,300 feet. From February 14, 2019 to December 31, 2019, production averaged approximately 13.9 Mbbls/d of oil, approximately 0.7 Mbbls/d of NGLs and approximately 13 MMcf/d of natural gas.

All of Ovintiv’s oil production is transported by truck to sales points under crude oil minimum volume delivery commitments with two refineries in the Salt Lake City area with remaining terms expiring in 2020 and 2025.

Canadian Operations

Overview: In 2019, the Canadian Operations had total capital investment of approximately $480 million and drilled approximately 92 net wells predominately in Montney and Duvernay. Production averaged approximately 59.7 Mbbls/d of oil and NGLs and approximately 1,030 MMcf/d of natural gas. At December 31, 2019, the Canadian Operations had an established land position in Canada of approximately 1.7 million net acres including approximately 1.1 million net undeveloped acres. In addition, the Canadian Operations accounted for 28 percent of production revenues, excluding the impacts of hedging, during 2019 and 30 percent of total proved reserves as at December 31, 2019.

During 2019, Duvernay was reorganized to be included in Other Upstream Operations to align with the Company’s current strategic development focus. Accordingly, comparative information has been reorganized.

The following tables summarize the Canadian Operations landholdings, producing wells and daily production as at and for the periods indicated.

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Montney

Montney is primarily a condensate rich natural gas play located in northeast British Columbia and northwest Alberta. While Ovintiv is currently targeting the development of condensate rich locations in the Montney formation, the acreage comprising the Montney play also includes landholdings with incremental producing formations such as Cadomin and Doig. In 2019, total production from the play averaged approximately 52.1 Mbbls/d of oil and NGLs and approximately 931 MMcf/d of natural gas. As at December 31, 2019, the Company controlled approximately 789,000 net acres in the play.

During 2019, the Company continued to focus development in the Montney formation, which is characterized by up to six stacked horizons spanning over 1,000 feet of stratigraphy and is being developed exclusively with horizontal well technology. At December 31, 2019, the Company held a large position in the Montney formation of approximately 483,000 net acres, including 256,000 net undeveloped acres and during the year production averaged approximately 51.9 Mbbls/d of oil and NGLs and approximately 892 MMcf/d of natural gas.

Ovintiv utilizes the cube development approach which has provided sustained efficiencies resulting in reduced cycle times and well costs. This development approach utilizes multi-well pads, multiple drilling rigs and completions spreads simultaneously, and advances technology to optimize well spacing and completions intensity. During 2019, the Company increased frac size while maintaining drilling and completions costs per well through efficiencies, lower cycle times, maximizing use of recycled water and leveraging its integrated supply chain. In 2019, the Company drilled approximately 84 net horizontal wells with lateral lengths ranging from approximately 5,000 to 13,000 feet and inter-well spacing ranging from approximately 650 to 990 feet. As Ovintiv continues to optimize well and completion designs, lateral lengths drilled and well spacing may change.

Ovintiv has access to natural gas processing capacity of approximately 1,400 MMcf/d, of which approximately 1,200 MMcf/d is under contract with third parties under varying terms and duration and approximately 215 MMcf/d is owned by the Company. Ovintiv also has access to gathering and compression capacity of approximately 1,600 MMcf/d, of which approximately 1,500 MMcf/d is under contract with third parties under varying terms and duration and approximately 100 MMcf/d is owned by the Company. In addition, Ovintiv has access to liquids handling capacity of approximately 100 Mbbls/d of which approximately 70 Mbbls/d is contracted with third parties under varying terms and duration, and approximately 30 Mbbls/d is owned by the Company.

The Company has a partnership agreement with a subsidiary of Mitsubishi Corporation (“Mitsubishi”) to jointly develop certain lands that are predominately in the Montney formation. Under the agreement, Mitsubishi agreed to invest C$2.9 billion for a 40 percent partnership interest. During 2019, the Company received the final investment from Mitsubishi, satisfying the commitment under the agreement. 

Other Upstream Operations:

Duvernay

Duvernay is a liquids rich shale play located in west central Alberta and includes properties that are primarily located in the Duvernay formation, which extends across the Simonette, Pinto, Edson and Willesden Green properties, but also holds potential in other overlapping formations such as the Montney. As at December 31, 2019, the Company controlled approximately 245,000 net acres, including 194,000 net undeveloped acres in the play.

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Ovintiv is currently targeting the development of liquids rich locations in the Simonette area using multi-well pad horizontal drilling technology. During 2019, the Company continued to focus on efficient development to fill existing processing capacity, reducing drilling days and increasing lateral lengths drilled to maximize capital efficiency. The Company drilled approximately seven net wells during the year and production averaged approximately 7.6 Mbbls/d of oil and NGLs and approximately 57 MMcf/d of natural gas.

Ovintiv holds an approximate 50.1 percent ownership in three Simonette natural gas processing plants and the associated gathering and compression, of which Ovintiv’s share of natural gas processing capacity is approximately 103 MMcf/d with liquids production capacity of approximately 18.0 Mbbls/d.

Wheatland

Wheatland is located in southern Alberta and includes producing horizons primarily in the coals and sands of the Cretaceous Edmonton and Belly River Groups. As at December 31, 2019, the Company had approximately 430 net producing wells and controlled approximately 153,000 net acres in the play. In 2019, natural gas production averaged approximately 5 MMcf/d.

Horn River

Horn River is located in northeast British Columbia, where development was historically in the Horn River Basin shales (Muskwa, Otter Park and Evie), which are upwards of 500 feet thick. In 2019, the Company’s natural gas production averaged approximately 37 MMcf/d. As at December 31, 2019, the Company had approximately 48 net producing horizontal wells and controlled approximately 156,000 net acres in the Horn River Basin shales. Ovintiv owns an interest in natural gas compression capacity in Horn River of approximately 285 MMcf/d at various facilities in the area. Ovintiv has a take or pay commitment under the Cabin plant natural gas processing arrangement with a third party, which has a remaining term of 14 years.

Deep Panuke

Ovintiv owns and operates the Deep Panuke natural gas field located offshore Nova Scotia, which is approximately 250 kilometres southeast of Halifax on the Scotian shelf. The offshore Production Field Centre (“PFC”) utilized for operations is under a lease arrangement which has an initial term that expires in 2021.

In May 2018, the Company permanently ceased production at Deep Panuke and commenced decommissioning activities during 2019. The Company anticipates decommissioning activities for the PFC and wells to be completed in 2020.

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PROVED RESERVES AND OTHER OIL AND GAS INFORMATION

The process of estimating oil, NGLs and natural gas reserves is complex and requires significant judgment. The Company’s estimates of proved reserves and associated future net cash flows were evaluated and prepared by the Company’s internal qualified reserves evaluators (“QREs”) and are the responsibility of management. As a result, Ovintiv has developed internal policies that prescribe procedures and standards to be followed for preparing, estimating and recording reserves in compliance with SEC definitions and regulations. Ovintiv’s policies assign responsibilities for compliance in booking reserves and require that reserve estimates be made by its QREs. QRE is defined as a registered professional licensed to practice engineering, geology, geophysics and an individual who has a minimum of five years practical experience, with at least three recent years of experience in the evaluation of reserves.

Ovintiv’s Vice-President, Corporate Reserves & Chief Reservoir Engineering and eight other staff (collectively, the “Corporate Reserves Group”) under this individual’s direction, oversee the internal preparation, review and approval of the reserves estimates. The Corporate Reserves Group reports to the Executive Vice-President, Land & Exploration and is separate and independent from the preparation of reserves estimates which are within operations who report to Ovintiv’s Executive Vice-President & Chief Operating Officer. The Corporate Reserves Group maintains Ovintiv’s internal policies that prescribe procedures and standards to be followed for preparing, estimating and recording reserves, which includes updating the Company’s reserves manual, and also conducts periodic internal audits of the procedures, records and controls relating to the preparation of reserves estimates. Ovintiv’s QREs receive ongoing education on the fundamentals of SEC definitions and reserves reporting through the review of the Company’s reserves manual and internal training programs administered by the Corporate Reserves Group. The Corporate Reserves Group also oversees the engagement of independent qualified reserves evaluators (“IQREs”) or independent qualified reserves auditors (“IQRAs”), if any, retained by the Company.

As a member of the Corporate Reserves Group, the Company’s Director, Corporate Reserves reports to Ovintiv’s Vice-President, Corporate Reserves & Chief Reservoir Engineering and is primarily responsible for overseeing the preparation of proved reserves estimates. The Director, Corporate Reserves has a Bachelor of Science with a degree in Petroleum Engineering from the University of Alberta, is a member of the Association of Professional Engineers and Geoscientists of Alberta (APEGA) and the Society of Petroleum Evaluation Engineers (Calgary Chapter).

Annually, each play is reviewed in detail by the QREs, the Corporate Reserves Group, the Company’s executive officers and an internal Reserves Review Committee, as appropriate. The Corporate Reserves Group also conducts a separate review to ensure the effectiveness of the disclosure controls and that the reserves estimates are free from material misstatement. The final reserves estimates are reviewed by Ovintiv’s Reserves Committee of the Board of Directors (the “Reserves Committee”), for approval by the Board of Directors. The Reserves Committee comprises directors that are independent and familiar with estimating oil and gas reserves and disclosure requirements. The Reserves Committee provides additional oversight to the Company’s reserves process, meeting with management periodically to review the reserves process, the portfolio of properties results and related disclosures. The Reserves Committee is also responsible for reviewing the qualifications and appointment of IQREs or IQRAs, if any, retained by the Company, including recommending the selection of such IQREs or IQRAs to the Board of Directors for its approval, and will meet with such IQREs or IQRAs to review their reports.

For year-ended December 31, 2019, the Company involved IQRAs to audit the Company’s internal oil and gas reserve estimates for certain properties. In 2019, Netherland, Sewell & Associates, Inc. audited 52 percent of the Company’s estimated U.S. proved reserve volumes and McDaniel & Associates Consultants Ltd. audited 27 percent of the Company’s estimated Canadian proved reserve volumes. An audit of reserves is an examination of a company’s oil and gas reserves by an independent petroleum consultant that is conducted for the purpose of expressing an opinion as to whether such estimates, in aggregate, are reasonable and have been estimated and presented in conformity with generally accepted petroleum engineering and evaluation methods and procedures.

Proved oil and gas reserves are those quantities of oil, natural gas and NGLs which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from known reservoirs under existing economic conditions, operating methods and government regulations. To be considered proved, oil and gas reserves must be economically producible before contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. Also, the project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

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Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years.

The Company’s reserve estimates are conducted from fundamental petrophysical, geological, engineering, financial and accounting data. Reserves are estimated based on production decline analysis, analogy to producing offsets, detailed reservoir modeling, volumetric calculations or a combination of these methods, in all cases having regard to economic considerations and using technologies that have been demonstrated in the field to yield repeatable and consistent results as defined in the SEC regulations. Data used in assessments include information obtained directly from the subsurface through wellbores such as well logs, reservoir core samples, fluid samples, static and dynamic pressure information, production test data, and surveillance and performance information. In the case of producing reserves, the emphasis is on decline analysis where volumetric analysis is considered to limit forecasts to reasonable levels. Non-producing reserves are estimated by analogy to producing offsets, with consideration of volumetric estimates of in place quantities. All locations to which proved undeveloped reserves have been assigned are subject to a development plan adopted by the Company’s management. The tools used to interpret the data included proprietary and commercially available reservoir modeling and simulation software. Reservoir parameters from analogous reservoirs were used to increase the quality of and confidence in the reserves estimates when available. The method or combination of methods used to estimate the reserves of each reservoir are based on the unique circumstances of each reservoir and the dataset available at the time of the estimate.

In general, estimates of economically recoverable reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of crude oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies, and future operating costs, all of which may vary materially from actual results. For those reasons, among others, estimates of the economically recoverable crude oil and natural gas reserves attributable to any particular group of properties and estimates of future net revenues associated with reserves may vary and such variations may be material. The actual production, revenues, taxes and development, and operating expenditures with respect to the reserves associated with the Company's properties may vary from the information presented herein, and such variations could be material.

The SEC regulations require that proved reserves be estimated using existing economic conditions (constant pricing). Based on this methodology, the Company’s reserves have been calculated utilizing the 12-month average trailing historical price for each of the years presented prior to the effective date of the report. The 12-month average is calculated as an unweighted average of the first-day-of-the-month price for each month. The reserves estimates provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered.

Ovintiv does not file any estimates of total net proved reserves with any U.S. federal authority or agency other than the SEC and the Department of Energy (“DOE”). Reserve estimates filed with the SEC correspond with the estimates of the Company’s reserves contained in its reports. Reserve estimates filed with the DOE are based upon the same underlying technical and economic assumptions as the estimates of Ovintiv’s reserves that are filed with the SEC, however, the DOE requires reports to include the interests of all owners in wells that Ovintiv operates and to exclude all interests in wells that Ovintiv does not operate. Ovintiv is also required to provide reserves data prepared in accordance with Canadian securities regulatory requirements, specifically National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) which is filed concurrently on SEDAR at www.sedar.com under Ovintiv’s issuer profile. The primary differences between NI 51-101 reporting requirements and SEC requirements include the disclosure of proved and probable reserves estimated using forecast prices and costs, presentation of reserves and production before royalties and granular product type disclosures. The reserves data prepared in accordance with NI 51-101 do not form part of this Annual Report on Form 10-K.

The reserves and other oil and gas information set forth below has an effective date of December 31, 2019 and was prepared as of January 14, 2020. The audit reports prepared by the IQRAs are attached in Exhibits 99.1 and 99.2 of this Annual Report on Form 10-K.

The following table is a summary of the Company’s proved reserves and estimates of future net cash flows and discounted future net cash flows from proved reserves information relating to proved reserves which can also be found in Note 29 of Ovintiv’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

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Proved Reserves

The table below summarizes the Company’s total proved reserves by oil, NGLs and natural gas and by geographic area for the year ended December 31, 2019 and other summary operating data.

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Changes to the Company’s proved reserves during 2019 are summarized in the table below:

In 2019, the Company’s proved reserves of 2,188.8 MMBOE increased 973.1 MMBOE from 2018 primarily due to extensions and discoveries of 605.3 MMBOE from successful drilling and delineation of the Permian, Anadarko, Montney, Eagle Ford, Bakken and Duvernay. Approximately 64 percent of the 2019 extensions and discoveries were crude oil, condensate and NGLs. Revisions of previous estimates of 158.7 MMBOE included negative revisions from changes in the approved development plan of 97.5 MMBOE and lower 12-month average trailing price of 118.4 MMBOE, which was offset by positive forecast changes other than price of 57.3 MMBOE resulting from well performance and development strategy.

Purchases of 796.6 MMBOE were primarily due to the acquisition of Newfield properties. Production for 2019 was 206.2 MMBOE. Sales of 64.1 MMBOE were primarily due to the divestiture of Arkoma.

Proved reserves are estimated based on the average beginning-of-month prices during the 12-month period for the respective year. The average prices used to compute proved reserves at December 31, 2019 were WTI: $55.93 per bbl, Edmonton Condensate: C$68.80 per bbl, Henry Hub: $2.58 per MMBtu, and AECO: C$1.76 per MMBtu. Prices for natural gas, oil and NGLs are inherently volatile.

Proved Undeveloped Reserves  

Changes to the Company’s proved undeveloped reserves during 2019 are summarized in the table below:

As of December 31, 2019, there were no proved undeveloped reserves that will remain undeveloped for five years or more.

Extensions and discoveries of 551.0 MMBOE of proved undeveloped reserves were the result of successful drilling and delineation in the Permian, Anadarko, Montney, Eagle Ford, Bakken and Duvernay. Revisions of previous estimates of proved undeveloped reserves were revised down by 108.6 MMBOE primarily due to the removal of proved undeveloped locations of 97.5 MMBOE resulting from changes in the development plan related to Permian, Montney, Eagle Ford, and Duvernay, where specific locations previously planned to be drilled within five years were shifted to a later development timeframe or removed and replaced with different locations that are included in extensions and discoveries. In addition, revisions of previous estimates included a positive revision of 10.2 MMBOE

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from increased well performance and 11.7 MMBOE from infill drilling locations in the Eagle Ford. Lower average beginning-of-month prices during the 12-month period reduced the proved undeveloped reserves by 33.0 MMBOE.

Conversions of proved undeveloped reserves to proved developed status were 132.6 MMBOE, equating to 22 percent of the total prior year-end proved undeveloped reserves. Approximately 47 percent of proved undeveloped reserves conversions occurred in Canada in Montney and Duvernay and 53 percent occurred in the U.S. in Permian and Eagle Ford. The Company spent approximately $1,069 million to develop proved undeveloped reserves in 2019, of which approximately 25 percent related to the Canadian properties and 75 percent related to the U.S. properties.

Purchases of proved undeveloped reserves of 234.3 MMBOE were due to the acquisition of Newfield properties.

Sales Volumes, Prices and Production Costs  

The following table summarizes the Company’s production by final product sold, average sales price, and production cost per BOE for each of the last three years by geographic area:

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Drilling and other exploratory and development activities ^{(1, 2)}

The following tables summarize the Company’s gross participation and net interest in wells drilled for the periods indicated by geographic area.

Drilling and other exploratory and development activities ^{(1, 2)}

The following table summarizes the number of wells in the process of drilling or in active completion stages and the number of wells suspended or waiting on completion by geographic area at December 31, 2019.

Oil and gas properties, wells, operations, and acreage

The following table summarizes the number of producing wells and wells mechanically capable of production by geographic area at December 31, 2019.

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The following table summarizes the Company’s developed, undeveloped and total landholdings by geographic area as at December 31, 2019.  

Of the total 2.7 million net acres, approximately 0.6 million net acres is held by production. The table above includes acreage subject to leases that will expire over the next three years: 2020 – approximately 163,000 net acres; 2021 – approximately 161,000 net acres; and 2022 – approximately 122,000 net acres, if the Company does not establish production or take any other action to extend the terms. For acreage that the Company intends to further develop, Ovintiv will perform operational and administrative actions to continue the lease terms that are set to expire. As a result, it is not expected that a significant portion of the Company’s net acreage will expire before such actions occur.  

Title to Properties  

As is customary in the oil and natural gas industry, a preliminary review of title records, which may include opinions or reports of appropriate professionals or counsel, is made at the time Ovintiv acquires properties. The Company believes that title to all of the various interests set forth in the above table is satisfactory and consistent with the standards generally accepted in the oil and gas industry, subject only to immaterial exceptions that do not detract substantially from the value of the interests or materially interfere with their use in Ovintiv’s operations. The interests owned by Ovintiv may be subject to one or more royalty, overriding royalty, or other outstanding interests (including disputes related to such interests) customary in the industry. The interests may additionally be subject to obligations or duties under applicable laws, ordinances, rules, regulations, and orders of arbitral or governmental authorities. In addition, the interests may be subject to burdens such as production payments, net profits interests, liens incident to operating agreements and current taxes, development obligations under oil and gas leases, and other encumbrances, easements, and restrictions, none of which detract substantially from the value of the interests or materially interfere with their use in the Company’s operations.

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MARKETING ACTIVITIES

Market Optimization activities are managed by Ovintiv’s Midstream, Marketing & Fundamentals team, which is responsible for the sale of the Company’s proprietary production and enhancing the associated netback price. In marketing production, Ovintiv looks to minimize market related shut-ins, maximize realized prices and manage concentration of credit-risk exposure. Market Optimization activities include third party purchases and sales of product to provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. In conjunction with certain divestitures, the Company has also agreed to market and transport certain portions of the acquirer’s production with remaining terms of less than two years.

Ovintiv’s produced oil, NGLs and natural gas, are primarily marketed to refiners, local distributing companies, energy marketing companies and electronic exchanges. Prices received by Ovintiv are based primarily upon prevailing market index prices in the region in which it is sold. Prices are impacted by regional and global supply and demand and by competing fuels in such markets.

Ovintiv’s oil production is sold under short-term and long-term contracts that range up to six years or under dedication agreements, for which prices received by Ovintiv are based primarily upon the prevailing index prices in the relevant region where the product is sold. The Company also has firm transport contracts to deliver oil to other downstream markets. Ovintiv’s NGLs production is sold under short-term and long-term contracts that range up to nine years, or under dedication arrangements at the relevant market price at the time the product is sold. Ovintiv's natural gas production is sold under short-term and long-term delivery contracts with terms ranging up to four years in duration, at the relevant monthly or daily market price at the time the product is sold. The Company also has firm transport contracts to deliver natural gas production to other downstream markets, including Dawn.

Ovintiv also seeks to mitigate the market risk associated with future cash flows by entering into various financial derivative instruments used to manage price risk relating to produced oil, NGLs and natural gas. Details of contracts related to Ovintiv’s various financial risk management positions are found in Note 25 of Ovintiv’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

The Company enters into various contractual agreements to sell oil, NGLs and natural gas, some of which require the delivery of fixed and determinable quantities. As of December 31, 2019, the Company was committed to deliver approximately 9,000 Mbbls of oil and NGLs and approximately 195,300 MMcf of natural gas in the Canadian Operations and approximately 115,800 Mbbls of oil and approximately 395,800 MMcf of natural gas in the USA Operations with varying contract terms up to six years. During 2019, the Company incurred deficiency fees of approximately $24 million in the USA Operations, related to crude oil minimum volume sales contracts related to its Uinta production in Utah, i) one contract is for approximately 15,000 barrels of oil per day through May 2020 and ii) the second contract is for 20,000 barrels of oil per day through August 2025. Given the limited access to transportation and refining facilities resulting from the paraffin content in Uinta oil production, volatility in commodity prices and changes in capital and development plans, deficiency fees ranging from $3.50 to $6.50 per barrel may be incurred during the remaining term of the contracts commitment periods.

Certain transportation and processing commitments result in the following financial commitments:

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In general, Ovintiv expects to fulfill delivery commitments with production from proved developed reserves, with longer term delivery commitments to be filled from the Company’s proved undeveloped reserves. Where proved reserves are not sufficient to satisfy the Company’s delivery commitments, Ovintiv can and may use spot market purchases to satisfy the respective commitments. In addition, for the Company’s long-term transportation and processing agreements, Ovintiv also expects to fulfill delivery commitments from the future development of resources not yet characterized as proved reserves. Likewise, where delivery commitments are not transferred along with property divestitures, Ovintiv may market and transport certain portions of the acquirer’s production to meet the delivery requirements.

In addition, production from the Company’s reserves are not subject to any priorities or curtailments that may affect quantities delivered to its customers or any priority allocations or price limitations imposed by federal or state regulatory agencies, or any other factors beyond the Company’s control that may affect Ovintiv’s ability to meet contractual obligations other than those discussed in Item 1A. Risk Factors of this Annual Report on Form 10-K.  

MAJOR CUSTOMERS

In connection with the marketing and sale of the Company’s production and purchased oil, NGLs and natural gas for the year ended December 31, 2019, the Company had one customer, Vitol Inc., which individually accounted for more than 10 percent of the Company’s consolidated revenues (2018 – one customer, Royal Dutch Shell and 2017 – two customers, Royal Dutch Shell Group and Flint Hills Resources). Ovintiv does not believe that the loss of any single customer would have a material adverse effect on the Company’s financial condition or results of operations. Further information on Ovintiv’s major customers are found in Note 2 of Ovintiv’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

COMPETITION

The Company’s competitors include national, integrated and independent oil and gas companies, as well as oil and gas marketers and other participants in other industries supplying energy and fuel to industrial, commercial and individual consumers. All aspects of the oil and gas industry are highly competitive and Ovintiv actively competes with other companies in the industry, particularly in the following areas:

The oil and gas industry also competes with other industries focused on providing alternative forms of energy to consumers. Competitive forces can lead to cost increases or result in an oversupply of oil, NGLs or natural gas.

EMPLOYEES

At December 31, 2019, the Company employed 2,571 employees as set forth in the following table.

The Company also engages a number of contractors and service providers.

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ENVIRONMENTAL AND REGULATORY MATTERS

As Ovintiv is an owner or lessee and operator of oil and gas properties and facilities in the United States and Canada, the Company is subject to numerous federal, state, provincial, local, tribal and foreign country laws and regulations relating to pollution, protection of the environment and the handling of hazardous materials. These laws and regulations generally require Ovintiv to remove or remedy the effect of its activities on the environment at present and former operating sites, including dismantling production facilities, remediating damage caused by the use or release of specified substances, and require suspension or cessation of operations in affected areas. The following are significant areas of government control and regulation affecting Ovintiv’s operations:

Exploration and Development Activities

Our operations are subject to federal, tribal, state, provincial and local laws and regulations. These laws and regulations relate to matters that include: acquisition of seismic data; issuance of permits; location, drilling and casing of wells; well design; hydraulic fracturing; well production; use, transportation, storage and disposal of fluids and materials incidental to oil and gas operations; surface usage and the restoration of properties upon which wells have been drilled and facilities have been constructed; plugging and abandoning of wells; transportation of production; and calculation and disbursement of royalty payments and production and other taxes.

Certain of our U.S. oil and natural gas leases are granted or approved by the federal government and administered by the Bureau of Indian Affairs, the Office of Natural Resources Revenue or the Bureau of Land Management (BLM), all of which are federal agencies. BLM leases contain relatively standardized terms and require compliance with detailed regulations. Many onshore leases contain stipulations limiting activities that may be conducted on the lease. Some stipulations are unique to particular geographic areas and may limit the time during which activities on the lease may be conducted, the manner in which certain activities may be conducted or, in some cases, may ban surface activity. Under certain circumstances, the BLM may require that our operations on federal leases be suspended or terminated. Any such suspension or termination could materially and adversely affect Ovintiv’s interests.

The Company’s operations also are subject to conservation regulations, including the regulation of the size of drilling and spacing units or proration units; the number of wells that may be drilled in a unit; the rate of production allowable from oil and gas wells; and the unitization or pooling of oil and gas properties. In addition, conservation laws generally limit the venting or flaring of natural gas and impose certain requirements regarding the ratable purchase of production. These regulations limit the amounts of oil and gas that can be produced from the Company’s wells and the number of wells or the locations that can be drilled.

Environmental and Occupational Regulations

The Company is subject to many federal, state, provincial, local and tribal laws and regulations concerning occupational health and safety as well as the discharge of materials into, and the protection of, the environment. Environmental laws and regulations relate to:

Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil, and criminal penalties; the imposition of investigatory, remedial, and corrective action obligations or the incurrence of capital expenditures; the occurrence of delays in the permitting, development or expansion of projects; and the issuance of injunctions restricting or prohibiting some or all of the Company’s activities in a particular area. Although environmental requirements have a substantial impact upon the energy

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industry as a whole, Ovintiv does not believe that these requirements affect the Company differently, to any material degree, as compared to other companies in the oil and natural gas industry. For further information regarding regulations relating to environmental protection, see Item 1A. Risk Factors of this Annual Report on Form 10-K.

Operating and capital costs incurred to comply with the requirements of these laws and regulations are necessary business costs in the oil and gas industry. As a result, Ovintiv has established policies for continuing compliance with environmental laws and regulations. The Corporate Responsibility, Environment, Health and Safety Committee of the Board of Directors reviews and recommends environmental policy to the Board of Directors for approval and oversees compliance with government laws and regulations. Monitoring and reporting programs for environmental, health and safety performance in day-to-day operations, as well as inspections and assessments, are designed to provide assurance that environmental and regulatory standards are met. The Company has established operating procedures and training programs designed to limit the environmental impact of the Company’s field facilities and identify, communicate and comply with changes in existing laws and regulations. Contingency plans are in place for a timely response to an environmental event and remediation/reclamation programs are in place and utilized to restore the environment. In addition, the Board of Directors is advised of significant contraventions thereof, and receives updates on trends, issues or events which could have a significant impact on the Company.

The Company believes that it is in material compliance with existing environmental and occupational health and safety regulations. Further, the Company believes that the cost of maintaining compliance with these existing laws and regulations will not have a material adverse effect on its business, financial condition or results of operations. In addition, Ovintiv maintains insurance coverage for insurable risks against certain environmental and occupational health and safety risks that is consistent with insurance coverage held by other similarly situated industry participants, but the Company is not fully insured against all such risks. However, it is possible that developments, such as new or more stringently applied existing laws and regulations as well as claims for damages to property or persons resulting from the Company’s operations, could result in substantial costs and liabilities to the Company. As a result, Ovintiv is unable to predict with any reasonable degree of certainty future exposures concerning such matters.

EXECUTIVE OFFICERS OF THE REGISTRANT

The Company’s Executive Officers are set out in the table below:

Mr. Suttles was appointed Chief Executive Officer of the Company in June 2013. Prior to that, Mr. Suttles was an independent businessman performing consulting services in the oil and gas industry and serving on the boards of one public and one private company from 2011 until 2013. Mr. Suttles was also Chief Operating Officer at BP Exploration & Production from 2009 until 2011.

Ms. Alexander was appointed Executive Vice-President & General Counsel of the Company in January 2015. Prior to that, Ms. Alexander was Senior Vice-President, General Counsel and Corporate Secretary of Precision Drilling Corporation (a public oil and gas services company) from 2008 to 2014.

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Mr. Code was appointed Executive Vice-President & Chief Financial Officer of the Company in May 2019. Mr. Code joined one of the Company’s predecessor companies in 1999 and assumed a variety of leadership roles, including his previous position as Vice-President, Investor Relations and Strategy in 2018, Vice-President, Investor Relations in 2017, and Treasurer and Vice President, Portfolio Management in 2013.

Mr. Givens was appointed Executive Vice-President & Chief Operating Officer of the Company in September 2019. Mr. Givens joined the Company in 2018 serving as Vice-President and General Manager of Texas Operations. Prior to joining the Company, Mr. Givens was Vice-President Eagle Ford of EP Energy (a public oil and gas company) from 2012 to 2017 and worked in various technical and leadership roles from 1996 onwards for El Paso Exploration & Production Company and Sonat Exploration Company which were predecessor companies to EP Energy.

Mr. Hill was appointed Executive Vice-President, Land & Exploration of the Company in November 2013. Mr. Hill joined the Company in 2002 and assumed a variety of leadership roles, including his previous position as Vice-President, Natural Gas Economy Operations. Prior to these positions, Mr. Hill was President of TICORA Geosciences (a privately held geosciences company) from 2000 to 2002.

Mr. McAllister was appointed President of the Company in September 2019. Mr. McAllister joined one of the Company’s predecessor companies in 2000 and assumed a variety of leadership roles, including his previous positions as Executive Vice-President & Chief Operating Officer in 2013 and President & Senior Vice-President, Canadian Division in 2011. Before joining the Company, Mr. McAllister worked in various technical and leadership roles for Texaco Canada and Imperial Oil Resources (a public oil and gas company).

Mr. McCracken was appointed Executive Vice-President, Corporate Development & External Relations of the Company in September 2019. Mr. McCracken joined one of the Company’s predecessor companies in 1997 and assumed a variety of engineering, commercial and leadership roles, including his previous position as Vice-President & General Manager of Canadian Operations in 2017.

Mr. Williams was appointed Executive Vice-President, Corporate Services of the Company in March 2014. Prior to that, Mr. Williams was Executive Vice-President of Corporate Services with Tervita Corporation (a private energy services company) from 2011 to 2014 and Chief Administration Officer for TransAlta Corporation (a public power company) from 2002 to 2011.

Ms. Zemljak was appointed Executive Vice-President, Midstream, Marketing & Fundamentals of the Company in November 2009. Ms. Zemljak joined one of the Company’s predecessor companies in 2000 and assumed a variety of leadership roles, including her previous position as Vice-President of USA Marketing in 2002. Prior to joining the Company, Ms. Zemljak worked in various roles for Montana Power (formerly a public power company).

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ITEM 1A. Risk Factors

If any event arising from the risk factors set forth below occurs, Ovintiv’s business, prospects, financial condition, results of operations, cash flows or the trading prices of securities and in some cases its reputation could be materially adversely affected. When assessing the materiality of the foregoing risk factors, Ovintiv takes into account a number of qualitative and quantitative factors, including, but not limited to, financial, operational, environmental, regulatory, reputational and safety aspects of the identified risk factor.

A substantial or extended decline in oil, NGLs or natural gas prices and price differentials could have a material adverse effect on Ovintiv’s financial condition.

Ovintiv’s financial performance and condition are substantially dependent on the prevailing prices of oil, NGLs and natural gas. Low oil, NGLs and natural gas prices and significant U.S. and Canadian price differentials will have an adverse effect on the Company’s operations and financial condition and the value and amount of its reserves. Prices for oil, NGLs and natural gas fluctuate in response to changes in the supply and demand for the commodities and related products, market uncertainty and a variety of additional factors beyond the Company’s control.

Oil prices are largely determined by international and domestic supply and demand. Factors which affect oil prices include the actions of the OPEC, world economic conditions, government regulation, political stability in the Middle East and elsewhere, the foreign and domestic supply of oil, the price of foreign imports, the availability of alternate fuel sources, transportation and infrastructure constraints and weather conditions. Historically, NGLs prices have generally been correlated with oil prices, and are determined based on supply and demand in international and domestic NGLs markets. Natural gas prices realized by Ovintiv are affected primarily by North American supply and demand, weather conditions, transportation and infrastructure constraints, prices and availability of alternate sources of energy (including refined products, coal, and renewable energy initiatives) and by technological advances affecting energy consumption.

A substantial or extended decline in the price of oil, NGLs and natural gas could result in a delay or cancellation of existing or future drilling, development or construction programs or curtailment or shut-in of production at some properties or could result in unutilized long-term transportation and drilling commitments, all of which could have an adverse effect on the Company’s revenues, profitability and cash flows.

Oil and natural gas producers in North America, and particularly in Canada, currently receive discounted prices for their production relative to certain international prices due to constraints on their ability to transport and sell such production to international markets. A failure to resolve such constraints may result in continued discounted or reduced commodity prices realized by oil and natural gas producers, including Ovintiv.

On at least an annual basis, Ovintiv conducts an assessment of the carrying value of its assets in accordance with the applicable accounting standards. If oil, NGLs and natural gas prices decline further, the carrying value of Ovintiv’s assets could be subject to financial downward revisions, and the Company’s net earnings could be adversely affected.

Ovintiv’s ability to operate and complete projects is dependent on factors outside of its control which may have a material adverse effect on its business, financial condition or results of operations.

The Company’s ability to operate, generate sufficient cash flows, and complete projects depends upon numerous factors beyond the Company’s control. In addition to commodity prices and continued market demand for its products, these non-controllable factors include general business and market conditions, economic recessions and financial market turmoil, the overall state of the capital markets, including investor appetite for investments in the oil and gas industry generally and the Company’s securities in particular, the ability to secure and maintain cost effective financing for its commitments, legislative, environmental and regulatory matters, changes to free trade agreements, reliance on industry partners and service providers, unexpected cost increases, royalties, taxes, volatility in oil, NGLs and natural gas prices, the availability of drilling and other equipment, the ability to access lands, the ability to access water for hydraulic fracturing operations, physical impacts from adverse weather conditions and other natural disasters, the availability and proximity of processing and pipeline capacity, transportation interruptions and constraints, technology failures, accidents, the availability of skilled labour and reservoir quality. In addition, some of these risks may be magnified due to the concentrated nature of funding certain assets within the

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Company’s portfolio of oil and natural gas properties that are operated within limited geographic areas. As a result, a number of the Company’s assets could experience any of the same risks and conditions at the same time, resulting in a relatively greater impact on the Company’s financial condition and results of operations compared to other companies that may have a more geographically diversified portfolio of properties.

Fluctuations in oil, NGLs and natural gas prices can create fiscal challenges for the oil and gas industry. These conditions have impacted companies in the oil and gas industry and the Company’s spending and operating plans and may continue to do so in the future. There may be unexpected business impacts from market uncertainty, including volatile changes in currency exchange rates, inflation, interest rates, defaults of suppliers and general levels of investing and consuming activity, as well as a potential impact on the Company’s credit ratings, which could affect its liquidity and ability to obtain financing.

The Company undertakes a variety of projects including exploration and development projects and the construction or expansion of facilities and pipelines. Project delays may delay expected revenues and project cost overruns could make projects uneconomic.

All of Ovintiv’s operations are subject to regulation and intervention by governments that can affect or prohibit the drilling, completion and tie-in of wells, production, the construction or expansion of facilities and the operation and abandonment of fields. Contract rights can be cancelled or expropriated. Changes to government regulation could impact the Company’s existing and planned projects.

Ovintiv’s proved reserves are estimates and any material inaccuracies in our reserves estimates or assumptions underlying our reserves estimates could cause quantities and net present value of our reserves to be overstated or understated.

There are numerous uncertainties inherent in estimating quantities of oil, NGLs and natural gas reserves, including many factors beyond the Company’s control. The reserves data in this Annual Report on Form 10-K and other published reserves and resources data represents estimates only. In general, estimates of economically recoverable oil, NGLs and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as commodity prices, future operating and capital costs, availability of future capital, historical production from the properties and the assumed effects of regulation by governmental agencies, including with respect to royalty payments, all of which may vary considerably from actual results. All such estimates are to some degree uncertain, and classifications of reserves and resources are only attempts to define the degree of uncertainty involved.

For those reasons, estimates of the economically recoverable oil, NGLs and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues expected therefrom, prepared by different engineers or by the same engineers at different times, may vary substantially. Ovintiv’s actual production, revenues, taxes and development and operating expenditures with respect to its reserves may vary from such estimates, and such variances could be material. Estimates with respect to reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves, rather than upon actual production history. Estimates based on these methods generally are less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be material, in the estimated reserves.

The estimates of reserves included in this Annual Report on Form 10-K are prepared in accordance with SEC regulations and require, subject to limited exceptions, that proved undeveloped reserves may only be classified as proved reserves if the related wells are scheduled to be drilled within five years after the date of booking. Reserves to be developed and produced in the future are based upon certain expectations and assumptions, including the allocation of capital, which may be subject to change. Proved undeveloped reserves may be reclassified to unproved due to delays in the development of reserves, or projects becoming uneconomical due to increases in costs to drill such reserves, or lower future net revenues from further decreases in commodity prices.

Commodity prices used to estimate reserves included in this Annual Report on Form 10-K are calculated as the average oil and natural gas price during the 12 months ending in the current reporting period, determined as the unweighted arithmetic average of prices on the first day of each month within the 12-month period. Significant future price changes can have a material effect on the quantity and value of the Company's proved reserves. The

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standardized measure of discounted future net cash flows included in this Annual Report on Form 10-K will not represent the current market value of Ovintiv’s estimated reserves. In addition, these reserve estimates do not include any value for probable or possible reserves that may exist, nor do they include any value for unproved undeveloped acreage.

If Ovintiv fails to acquire or find additional reserves, the Company’s reserves and production will decline materially from their current levels.

Ovintiv’s future oil, NGLs and natural gas reserves and production, and therefore its cash flows, are highly dependent upon its success in developing its current reserves base and acquiring, discovering or developing additional reserves. Without reserves additions through exploration, acquisition or development activities, the Company’s reserves and production will decline over time as reserves are depleted.

The business of exploring for, developing or acquiring reserves is capital intensive. In addition, part of Ovintiv’s strategy is focused on a limited number of core assets which results in a concentration of capital and increased potential risks. To the extent that cash flows from the Company’s operations are insufficient and external sources of capital become limited, Ovintiv’s ability to make the necessary capital investments to maintain and expand its oil, NGLs and natural gas reserves and production will be impaired. In addition, there can be no certainty that Ovintiv will be able to find and develop or acquire additional reserves to replace production at acceptable costs.

In addition, Ovintiv’s operations utilize horizontal multi-pad drilling, tighter drill spacing and completions techniques that evolve over time as learnings are captured and applied. The use of this technology may increase the risk of unintentional communication with other wells and the potential for acceleration of current reserves or an increase in recovery factor from the reservoir. If drilling and completions results are less than anticipated, the production volumes may be lower than anticipated.

Ovintiv may not realize anticipated benefits or be subject to unknown risks from acquisitions.

Ovintiv has completed a number of acquisitions to strengthen its position and to create the opportunity to realize certain benefits, including, among other things, potential cost savings. Achieving the benefits of acquisitions depends in part on successfully consolidating functions and integrating operations and procedures in a timely and efficient manner, as well as being able to realize the anticipated growth opportunities and synergies from combining the acquired businesses and operations. Acquisitions could also result in difficulties in being able to hire, train or retain qualified personnel to manage and operate such properties.

Acquiring oil and natural gas properties requires the Company to assess reservoir and infrastructure characteristics, including estimated recoverable reserves, future production, commodity prices, revenues, development and operating costs and potential environmental and other liabilities. Such assessments are inexact and inherently uncertain and, as such, the acquired properties may not produce as expected, may not have the anticipated reserves and may be subject to increased costs and liabilities.

Although the acquired properties are reviewed prior to completion of an acquisition, such reviews are not capable of identifying all existing or potentially adverse conditions. This risk may be magnified where the acquired properties are in geographic areas where the Company has not historically operated. Further, the Company may not be able to obtain or realize upon contractual indemnities from the seller for liabilities created prior to an acquisition and it may be required to assume the risk of the physical condition of the properties that may not perform in accordance with its expectations.

The Company’s business is subject to environmental regulation in all jurisdictions in which it operates and any changes in such regulation could negatively affect its results of operations.

All phases of the oil, NGLs and natural gas businesses are subject to environmental regulation pursuant to a variety of U.S. and Canadian federal, and other state, provincial, territorial, tribal, and municipal laws and regulations (collectively, “environmental regulation”).

Environmental regulation imposes, among other things, restrictions, liabilities and obligations in connection with the use, generation, handling, storage, transportation, treatment and disposal of chemicals, hazardous substances and

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waste associated with the finding, production, transmission and storage of the Company’s products including the hydraulic fracturing of wells, the decommissioning of facilities and in connection with spills, releases and emissions of various substances to the environment. It also imposes restrictions, liabilities and obligations in connection with the availability and management of fresh, potable or brackish water sources that are being used, or whose use is contemplated, in connection with oil and natural gas operations.

Environmental regulation also requires that wells, facility sites and other properties associated with Ovintiv’s operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, certain types of operations, including exploration and development projects and changes to certain existing projects, may require the submission and approval of environmental impact assessments or permit applications. Compliance with environmental regulation can require significant expenditures, including expenditures for clean-up costs and damages arising out of contaminated properties and failure to comply with environmental regulation may result in the imposition of fines and penalties.

Although it is not expected that the costs of complying with environmental regulation will have a material adverse effect on Ovintiv’s financial condition or results of operations, no assurance can be made that the costs of complying with environmental regulation in the future will not have such an effect as discussed below.

Climate Change - A number of federal, provincial and state governments have announced intentions to regulate greenhouse gases and certain air pollutants. These governments are currently developing regulatory and policy frameworks to deliver on their announcements. The Canadian federal government along with certain provinces and territories, including Alberta and British Columbia, have announced a pan-Canadian climate change framework that is consistent with the outcome reached at the 21^st Conference of the Parties in Paris and which includes imposing an economy wide cost on carbon emissions in Canada by 2023. The Alberta government introduced the Technology Innovation and Emissions Reduction (TIER) system on January 1, 2020 replacing the previous Carbon Competitiveness Incentive Regulation. The TIER regulation applies to any facility that has emitted 100,000 tonnes or more of carbon dioxide equivalent (CO2e) greenhouse gases (GHGs) in 2016, or any subsequent year or is a facility emitting less than 100,000 tonnes of carbon dioxide equivalent GHG emissions per year but has opted-in to the TIER system. The TIER system provides regulated facilities with several compliance options, including on-site emission reductions, the use of emissions performance credits, the use of Alberta-based emissions offsets, and/or the payment into a compliance fund at C$30/tonne of CO2e. British Columbia has an established carbon levy of C$30 per tonne of CO₂e, increasing by C$5 per tonne of CO₂e per year starting April 1, 2018 until it reaches C$50 per tonne of CO₂e in 2021. Additionally, the Alberta and British Columbia governments remain committed to achieving a 45 percent reduction in methane gas emissions from oil and gas operations by 2025, relative to 2014 levels, to be achieved through equipment replacement and leak detection and repair regulations. The federal Greenhouse Gas Pollution Pricing Act (GGPPA) came into force in Alberta on January 1, 2020. The GGPPA imposes a federal fuel charge to all fossil fuels used in applicable jurisdictions in Canada, including those in the conventional oil and gas sector. The GGPPA includes provisions to exempt facilities that are subject to provincial requirements deemed equivalents to federal requirements; both Alberta’s and British Columbia’s upstream oil and gas greenhouse gas regulatory systems have been determined to be equivalent to the federal system and are therefore exempt from the provisions of the GGPPA. In the United States policy makers at both the federal and state levels have introduced legislation and proposed new regulations designed to quantify and limit the emission of greenhouse gases. For example, both the U.S. Environmental Protection Agency and the BLM have previously issued regulations for the control of methane emissions, which also include leak detection and repair requirements, for the oil and gas industry. Since the change in presidential administrations in 2016 however, the agencies have attempted to revise or rescind their previously issued methane standards. Litigation concerning these methane regulations and subsequent attempts to revise or rescind them is ongoing. Nevertheless, many state and local officials have stated their intent to intensify efforts to regulate greenhouse gas emissions, including methane, from the oil and gas industry. Ovintiv’s cost of complying with emerging climate and cost of carbon regulations is not currently forecast to be material to the Company, however as these and additional federal and regional programs are in their early implementation stage or under development, Ovintiv is unable to predict the total future impact of the potential regulations upon its business. Therefore, it is possible that the Company could face future increases in operating costs in order to comply with legislation governing emissions. Further, certain local governments, stakeholders and other groups have made claims against companies in the oil and gas industry, including the Company, relating to the purported causes and impact of climate change. These claims have, among other things, resulted in litigation, stockholder proposals and local ballot initiatives targeted against certain companies and the oil and gas industry generally. As these claims are in their early stages, the Company is unable to assess the impact of such claims on its business, but the defense of

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such matters may be costly and time consuming and could have a material adverse effect on the Company’s reputation.

Hydraulic Fracturing - The U.S. federal government and certain U.S. state and Canadian federal and provincial governments continue to review certain aspects of the scientific, regulatory and policy framework under which hydraulic fracturing operations are conducted. Most of these governments are primarily engaged in the collection, review and assessment of technical information regarding the hydraulic fracturing process and have not provided specific details with respect to any significant actual, proposed or contemplated changes to the hydraulic fracturing regulatory construct. However, certain environmental and other groups continue to suggest that additional federal, provincial, territorial, state and municipal laws and regulations may be needed to more closely regulate the hydraulic fracturing process and have made claims that hydraulic fracturing techniques are harmful to surface water and drinking water sources.

Further, certain governments in jurisdictions where the Company does not currently operate have considered or implemented moratoriums on hydraulic fracturing until further studies can be completed and some governments have adopted, and others have considered adopting, regulations that could impose more stringent permitting, disclosure and well construction requirements on hydraulic fracturing operations. Any new laws, regulations or permitting requirements regarding hydraulic fracturing could lead to operational delays, increased operating costs or third party or governmental claims, and could increase the Company’s cost of compliance and doing business as well as reduce the amount of oil and natural gas that the Company is ultimately able to produce from its reserves. The Company recognizes that additional hydraulic fracturing ballot initiatives and/or federal, state, provincial and/or local rule-making, including rules specific to U.S. federal lands, limiting or restricting oil and gas development activities are a possibility in the future.

As these federal and regional programs are in their early implementation stage or under development, Ovintiv is unable to predict the total impact of the potential regulations upon its business. Therefore, it is possible that the Company could face increases in operating costs or curtailment of production in order to comply with legislation governing hydraulic fracturing.

Seismic Activity – Some areas of North America are experiencing increasing localized frequency of seismic activity which has been associated with oil and gas operations. Although the occurrence and risk of seismicity in relation to oil and gas operations is generally very low, it has been linked to deep disposal of wastewater and has been correlated with hydraulic fracturing activities which has prompted legislative and regulatory initiatives intended to address these concerns. These initiatives have the potential to require additional monitoring, restrict the injection of produced water in certain disposal wells and/or modify or curtail hydraulic fracturing operations which could lead to operational delays, increase compliance costs or otherwise adversely impact the Company’s operations.

Ovintiv’s risk management activities may prevent the Company from fully benefiting from price increases and expose the Company to other risks.

The nature of the Company’s operations results in exposure to fluctuations in commodity prices and foreign currency exchange rates. The Company monitors its exposure to such fluctuations and, where the Company deems it appropriate, utilizes derivative financial instruments and physical delivery contracts to mitigate the potential impact of declines in oil, NGLs and natural gas prices and fluctuations in foreign currency exchange rates.

Under U.S. GAAP, derivative financial instruments that do not qualify or are not designated as hedges for accounting purposes are fair valued with the resulting changes recognized in current period net earnings. The utilization of derivative financial instruments may therefore introduce significant volatility into the Company’s reported net earnings.

The terms of the Company’s various risk management agreements and the amount of estimated production hedged may limit the benefit to the Company of commodity price increases. The Company may also suffer financial loss if the Company is unable to produce oil, NGLs and natural gas, or if counterparties to the Company’s risk management agreements fail to fulfill their obligations under the agreements, particularly during periods of declining commodity prices.

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Downgrades in Ovintiv’s credit ratings could increase its cost of capital and limit its access to capital, suppliers or counterparties.

Rating agencies regularly evaluate the Company, basing their ratings of long-term and short-term debt on a number of factors. This includes the Company’s financial strength as well as factors not entirely within its control, including conditions affecting the oil and gas industry generally and the wider state of the economy. One of the Company’s credit ratings is below an investment-grade credit rating. There can be no assurance that the Company’s other credit ratings will not also be downgraded, including below an investment-grade credit rating.

The Company’s borrowing costs and ability to raise funds are directly impacted by its credit ratings. A downgrade may increase the cost of borrowing under the Company’s existing credit facilities, limit access to commercial paper programs maintained by the Company and its subsidiaries, limit access to private and public markets to raise short-term and long-term debt, and negatively impact the Company’s cost of capital.

Credit ratings may also be important to suppliers or counterparties when they seek to engage in certain transactions. Downgrades in one or more of the Company’s credit ratings below investment-grade may require the Company to post collateral, letters of credit, cash or other forms of security as financial assurance of the Company’s performance under certain contractual arrangements with marketing counterparties, facility construction contracts, and pipeline and midstream service providers. Additionally, certain of these arrangements contain financial assurance language that may, under certain circumstances, permit the Company’s counterparties to request additional collateral.

In connection with certain over-the-counter derivatives contracts and other trading agreements, the Company could be required to provide additional collateral or to terminate transactions with certain counterparties based on its credit rating. The occurrence of any of the foregoing could adversely affect the Company’s ability to execute portions of its business strategy, including hedging, and could have a material adverse effect on its liquidity and capital position.  

The Company’s level of indebtedness may limit its financial flexibility.

As at December 31, 2019, the Company had long-term unsecured notes of $6,161 million, $698 million in outstanding commercial paper and no outstanding balance under its revolving credit facilities. The terms of the Company’s various financing arrangements, including but not limited to the indentures relating to its outstanding senior notes and its revolving credit facilities, impose restrictions on its ability and, in some cases, the ability of the Company’s subsidiaries, to take a number of actions that it or they may otherwise desire to take, including: (i) incurring additional debt, including guarantees of indebtedness; (ii) creating liens on the Company’s or its subsidiaries’ assets; and (iii) selling certain of the Company’s or its subsidiaries’ assets.

The Company’s level of indebtedness could affect its operations by:

The Company’s ability to meet its debt obligations and service those debt obligations depends on future performance. General economic conditions, oil, NGLs or natural gas prices, and financial, business and other factors affect the Company’s operations and future performance. Many of these factors are beyond the Company’s control. If the Company is unable to satisfy its obligations with cash on hand, the Company could attempt to refinance debt or repay debt with proceeds from a public offering of securities or selling certain assets. No assurance can be given that the Company will be able to generate sufficient cash flow to pay the interest obligations on its debt, or that funds from future borrowings, equity financings or proceeds from the sale of assets will be available to pay or refinance its debt, or on terms that will be favourable to the Company. Further, future acquisitions may decrease the Company’s liquidity by using a significant portion of its available cash or borrowing capacity to finance such acquisitions, and such acquisitions could result in a significant increase in the Company’s interest expense or financial leverage if it incurs additional debt to finance such acquisitions.

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Ovintiv’s operations are subject to the risk of business interruption, property and casualty losses. The Company’s insurance may not fully protect us against these risks and liabilities.

The Company’s business is subject to the operating risks normally associated with the exploration for, development of and production of oil, NGLs and natural gas and the operation of midstream facilities. These risks include blowouts, explosions, fire, gaseous leaks, migration of harmful substances and liquid spills, loss of well control, surface spills and uncontrolled ground releases of fluids during hydraulic fracturing or other similar activities, and acts of vandalism and terrorism, any of which could cause personal injury, result in damage to, or destruction of, oil and natural gas wells or formations or production facilities and other property, equipment and the environment, as well as interrupt operations.

In addition, all of Ovintiv’s operations will be subject to all of the risks normally incident to the transportation, processing, storing and marketing of oil, NGLs and natural gas and other related products, drilling and completion of oil and natural gas wells, and the operation and development of oil and natural gas properties, including encountering unexpected formations or pressures, premature declines of reservoir pressure or productivity, blowouts, equipment failures and other accidents, sour gas releases, uncontrollable flows of oil, natural gas or well fluids, adverse weather conditions and other natural disasters, spills and migration of hazardous chemicals, pollution and other environmental risks.

The Company maintains insurance against some, but not all, of these risks and losses. The occurrence of a significant event against which Ovintiv is not fully insured could have a material adverse effect on the Company’s financial position.

Ovintiv is dependent on partners to fund development projects conducted through joint ventures and partnerships, which if such funding is unavailable may adversely affect the Company’s operations and financial condition.

Some of Ovintiv’s projects are conducted through joint ventures, partnerships or other arrangements, where Ovintiv is dependent on its partners to fund their contractual share of the capital and operating expenditures related to such projects. If these partners do not approve or are unable to fund their contractual share of certain capital or operating expenditures, suspend or terminate such arrangements or otherwise fulfill their obligations, this may result in project delays or additional future costs to Ovintiv, all of which may affect the viability of such projects.

These partners may also have strategic plans, objectives and interests that do not coincide with and may conflict with those of Ovintiv. While certain operational decisions may be made solely at the discretion of Ovintiv in its capacity as operator of certain projects, major capital and strategic decisions affecting such projects may require agreement among the partners. While Ovintiv and its partners generally seek consensus with respect to major decisions concerning the direction and operation of the project assets, no assurance can be provided that the future demands or expectations of any party, including Ovintiv, relating to such assets will be met satisfactorily or in a timely manner. Failure to satisfactorily meet such demands or expectations may affect Ovintiv’s or its partners’ participation in the operation of such assets or the timing for undertaking various activities, which could negatively affect Ovintiv’s operations and financial results. Further, Ovintiv is involved from time to time in disputes with its partners and, as such, it may be unable to dispose of assets or interests in certain arrangements if such disputes cannot be resolved in a satisfactory or timely manner.

The Company may be unable to dispose of certain assets and may be required to retain liabilities for certain matters.

The Company may identify certain assets for disposition, which could increase capital available for other activities or reduce the Company’s existing indebtedness. Various factors could materially affect the Company’s ability to dispose of those assets or complete announced transactions, including current commodity prices, the availability of purchasers willing to purchase certain assets at prices and on terms acceptable to the Company, approval by the Board of Directors, associated asset retirement obligations, due diligence, favourable market conditions, the assignability of joint venture, partnership or other arrangements and stock exchange, regulatory and third party approvals. These factors may also reduce the proceeds or value to Ovintiv.

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The Company may also retain certain liabilities for certain matters in a sale transaction. The magnitude of any such retained liabilities or indemnification obligations may be difficult to quantify at the time of the transaction and could ultimately be material. Further, certain third parties may be unwilling to release the Company from guarantees or other credit support provided prior to the sale of the divested assets. As a result, after the sale of certain assets, the Company may remain secondarily liable for the obligations guaranteed or supported to the extent that the purchaser of the assets fails to perform its obligations.

The market price of shares of common stock of Ovintiv may be subject to volatility.

The market price of the shares of common stock of Ovintiv may be volatile. The value of an investment in the shares of common stock of Ovintiv may decrease or increase abruptly, and such volatility may bear little or no relation to Ovintiv’s performance. The price of the shares of common stock of Ovintiv may fall in response to market appraisal of the Company’s strategy or if Company’s results of operations and/or prospects are below the expectations of market analysts or stockholders. In addition, stock markets have, from time to time, experienced significant price and volume fluctuations that have affected the market price of securities, and may, in the future, experience similar fluctuations which may be unrelated to Ovintiv’s operating performance and prospects but nevertheless affect the price of the shares of common stock of Ovintiv. Broad market fluctuations, as well as economic conditions generally may adversely affect the market price of the shares of common stock of Ovintiv.

The decision to pay dividends and the amount of such dividends is subject to the discretion of the Board of Directors based on numerous factors and may vary from time to time.

Although the Company currently intends to pay quarterly cash dividends to its stockholders, these cash dividends may vary from time to time and could be increased, reduced or suspended. The amount of cash available to the Company to pay dividends, if any, can vary significantly from period to period for a number of reasons, including, among other things: Ovintiv’s operational and financial performance; fluctuations in the costs to produce oil, NGLs and natural gas; the amount of cash required or retained for debt service or repayment; amounts required to fund capital expenditures and working capital requirements; access to equity markets; foreign currency exchange rates and interest rates; and the risk factors set forth in this Annual Report on Form 10-K.

The decision whether or not to pay dividends and the amount of any such dividends are subject to the discretion of the Board of Directors, which regularly evaluates the Company’s proposed dividend payments and the requirements under the DGCL. In addition, the level of dividends per share of common stock will be affected by the number of outstanding shares of common stock and other securities that may be entitled to receive cash dividends or other payments. Dividends may be increased, reduced or suspended depending on the Company’s operational success and the performance of its assets. The market value of the shares of common stock may deteriorate if the Company is unable to meet dividend expectations in the future, and that deterioration may be material.

Changes to, or the interpretation of, regulations related to income tax laws, royalty regimes, environmental laws or other regulations could adversely affect the Company’s business, financial position, cash flows or results of operations.

Income tax laws, royalty regimes, environmental laws, free trade agreements or other laws and regulations may be interpreted in a manner that adversely affects the Company or its securityholders. Changes to existing laws and regulations or the adoption of new laws and regulations could also increase the Company’s cost of compliance and adversely affect the Company’s business, financial position, cash flows or results of operations.

Tax authorities having jurisdiction over the Company or its stockholders could change their administrative practices or may disagree with the manner in which the Company calculates its tax liabilities or structures its arrangements, to the detriment of the Company or its securityholders. There are tax matters under review for which the timing of resolution is uncertain. While Ovintiv believes that the provision for income taxes is adequate, the completion of the Reorganization may affect the timing of audit and reassessment of taxes by certain tax authorities, which reassessments may lack technical merit and may possibly be material.

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Ovintiv does not operate all of its properties and assets and has limited control over factors that could adversely affect the Company’s financial performance.

Other companies operate a portion of the assets in which Ovintiv has ownership interests. Ovintiv may have limited ability to exercise influence over operation of these assets or their associated costs. Ovintiv’s dependence on the operator and other working interest owners for these properties and assets, and its limited ability to influence operations and associated costs, could materially adversely affect the Company’s financial performance. The success and timing of Ovintiv’s activities on assets operated by others therefore will depend upon factors that are outside of the Company’s control, including timing and amount of capital expenditures, timing and amount of operating and maintenance expenditures, the operator’s expertise and financial resources, approval of other participants, selection of technology and risk management practices.

Fluctuations in exchange rates could affect expenses or result in realized and unrealized losses.

Worldwide prices for oil and natural gas are set in U.S. dollars. Following the U.S. Domestication, the functional currency of Ovintiv will be U.S. dollars therefore the financial results will be consolidated in U.S. dollars. However, the Canadian dollar will be the functional currency for Ovintiv’s Canadian subsidiaries. As Ovintiv has operations in Canada, a portion of the Company’s revenues and expenses will be denominated in Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar could impact the Company’s revenue and expenses and have an adverse effect on the Company’s financial performance and condition.

In addition, Ovintiv’s Canadian subsidiaries may hold U.S. dollar denominated assets and liabilities. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar could result in realized and unrealized losses.

The inability of our customers and other contractual counterparties to satisfy their obligations to Ovintiv may have a material adverse effect on the Company.

Ovintiv is exposed to the risks associated with counterparty performance including credit risk and performance risk. Ovintiv may experience material financial losses in the event of customer payment default for commodity sales and financial derivative transactions. Ovintiv’s liquidity may also be impacted if any lender under the Company’s existing credit facilities is unable to fund its commitment. Performance risk can impact Ovintiv’s operations by the non-delivery of contracted products or services by counterparties, which could impact project timelines or operational efficiency.

The Company is subject to claims, litigation, administrative proceedings and regulatory actions that may not be resolved in the Company’s favour.

Ovintiv may be subject to claims, litigation, administrative proceedings and regulatory actions. The outcome of these matters may be difficult to assess or quantify, and there cannot be any assurance that such matters will be resolved in the Company’s favour. If Ovintiv is unable to resolve such matters favourably, the Company or its directors, officers or employees may become involved in legal proceedings that could result in an onerous or unfavourable decision, including fines, sanctions, monetary damages or the inability to engage in certain operations or transactions. The defence of such matters may also be costly, time consuming and could divert the attention of management and key personnel from the Company’s operations. Ovintiv may also be subject to adverse publicity associated with such matters, regardless of whether such allegations are valid or whether the Company is ultimately found liable. As a result, such matters could have a material adverse effect on the Company’s reputation, financial position, results of operations or liquidity. See Item 3 of this Annual Report on Form 10-K.

Ovintiv relies on certain key personnel, and if the Company is unable to attract and retain key personnel necessary for its business, Ovintiv’s operations may be negatively impacted.

The Company relies on certain key personnel for the development of its business. The experience, knowledge and contributions of the Company’s existing management team and directors to the immediate and near-term operations and direction of the Company are likely to continue to be of central importance for the foreseeable future. As such, the unexpected loss of services from or retirement of such key personnel could have a material adverse effect on the Company. In addition, the competition for qualified personnel in the oil and gas industry means there can be no

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assurance that the Company will be able to attract and retain such personnel with the required specialized skills necessary for its business.

The Company has certain indemnification obligations to certain counterparties that could have a material adverse effect on Ovintiv.

The Company has agreed to indemnify or be indemnified by numerous counterparties for certain liabilities and obligations associated with businesses or assets retained or transferred by the Company. Specifically, in relation to a corporate reorganization to split into two independent publicly traded energy companies, Encana and Cenovus Energy Inc. (“Cenovus”) each agreed to indemnify the other for certain liabilities and obligations associated with, among other things, in the case of Encana’s indemnity, the business and assets retained by Encana, and in the case of Cenovus’s indemnity, the business and assets transferred to Cenovus. The Company also has indemnification obligations under certain acquisition and divestiture activities it has undertaken.

Ovintiv cannot determine whether it will be required to indemnify certain counterparties for any substantial obligations. Ovintiv also cannot be assured that, if a counterparty is required to indemnify Ovintiv and its affiliates for any substantial obligations, such counterparties will be able to satisfy such obligations. Any indemnification claims against Ovintiv pursuant to the provisions of the transaction agreements could have a material adverse effect on Ovintiv.

The Company could be adversely affected by security threats, including cyber-security threats and related disruptions.

The Company has become increasingly dependent upon information technology systems to conduct daily operations. The Company depends on various information technology systems to estimate reserve quantities, process and record financial and operating data, analyze seismic and drilling information, and communicate with employees and third-party partners. This growing dependence on technology is accompanied by greater sensitivity to cyber-attacks and information systems breaches. Unauthorized access to information systems by employees or third parties could lead to corruption or exposure of confidential, fiduciary or proprietary information, interruption to communications or operations or disruption to the Company’s business activities or its competitive position. In addition, the Company’s vendors, suppliers and other business partners may separately suffer disruptions as a result of such security breaches. The potential for such occurrences subjects the Company’s operations to increased risks that could have a material adverse effect on the Company’s business, financial condition and results of operations. To protect its information assets and systems, the Company applies technical and process controls, which are reviewed by the appropriate senior management with oversight from the Company’s Board of Directors. These controls are in line with industry standards and are reviewed annually with peer companies in order to guide Ovintiv’s focus on information security initiatives. However, these controls may not adequately prevent cyber-security breaches.

There is no assurance that the Company will not suffer losses associated with cyber-security breaches in the future. As cyber-attacks continue to evolve, the Company may be required to expend additional resources to investigate, mitigate and remediate any potential vulnerabilities. The Company may also be subject to regulatory investigations or litigation relating to cyber-security issues.

The Company’s operations may be affected by indigenous treaty, title and other rights.

Indigenous peoples have claimed indigenous treaty, title and other rights in respect of areas within the United States and Canada. The Company is not aware of any material claims that have been made in respect of its properties or assets; however, the legal basis of an indigenous land claim is a matter of considerable legal complexity and the impact of the assertion of such a claim, or the possible effect of a settlement of such claim, upon the Company cannot be predicted with any degree of certainty. In addition, no assurance can be given that any recognition of indigenous rights or claims whether by way of a negotiated settlement or by judicial pronouncement (or through the grant of an injunction prohibiting exploration or development activities pending resolution of any such claim) would not delay or even prevent the Company’s exploration and development activities. If a material claim were to arise and be successful, such claim could have a material and adverse effect on the Company’s business, financial condition and results of operations. In addition, the process of addressing such claim, regardless of the outcome,

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could be expensive and time consuming and could result in delays which could have a material and adverse effect on the Company’s business, financial condition and results of operations.

In addition to the foregoing, the Company may become subject to various laws and regulations that apply to operators and other parties operating within the boundaries of Native American reservations in the United States. These laws and regulations may result in the imposition of certain fees, taxes, environmental standards, lease conditions or requirements to employ specified contractors or service providers. Any one of these requirements, or any delay in obtaining the approvals or permits necessary to operate within the boundaries of Native American tribal lands, could adversely impact the Company’s operations and ability to explore and develop new properties.

Further, in Canada, the province of British Columbia enacted legislation to implement the United Nations Declaration on the Rights of Indigenous Peoples (“UNDRIP”) in the fall of 2019 and the Canadian federal government has announced its intention to do the same. In British Columbia the legislation provides a framework for recognizing the constitutional and human rights of indigenous peoples and aligning British Columbia’s laws with the internationally recognized standards of UNDRIP. As the legislation is at an early stage of implementation, Ovintiv is unable to predict the total impact of the potential regulations upon its business. Although the Company does not anticipate any near-term impacts to its business as a result of such legislation, the enactment of provincial and federal legislation to implement the standards of UNDRIP has the potential to increase permitting times and change the processes and costs associated with project development and operations.

Ovintiv may fail to realize certain benefits of the Reorganization, including as a result of the shares of common stock of Ovintiv not being included in U.S. stock market indices or sold and/or not permitted to be held by certain Canadian-focused funds.

The success of the Reorganization will depend, in part, on the ability of Ovintiv to realize the anticipated benefits associated with the Reorganization and associated reorganization of Ovintiv’s corporate structure, and Ovintiv may not be able to realize such benefits on a timely basis or at all.

If shares of common stock of Ovintiv are not included in U.S. stock market indices, or are sold by certain retail and institutional shareholders or investment funds (including Canadian-focused funds) that cannot own shares of a U.S. company under their internal guidelines, this could result in increased selling pressure and/or decreased demand for our shares that would increase stock price volatility or cause the market price of the shares of common stock of Ovintiv to fall. As a result of the foregoing, certain of these investors may be required under their internal guidelines to sell their shares at times when, or at prices for which, they would otherwise not have sold. If an investor sells its shares at a time when the market price is lower than their cost basis in the shares, the investor will suffer a loss that could be significant to such investor. Further, given that inclusion and continued inclusion in a stock market index or fund is subject to numerous factors which can be applied subjectively by the entity managing the index or fund, there are no assurances that Ovintiv will be included in any U.S. stock market indices or funds in a timely manner, or at all.

The Reorganization may result in material Canadian federal income tax (including material Canadian “emigration tax”) and/or material U.S. federal income tax for the Company.

For Canadian federal income tax purposes, based on and subject to certain assumptions and estimates of fair market value, the Company does not expect the Reorganization to give rise to material corporate-level Canadian federal income tax. However, the U.S. Domestication, which occurred as part of the Reorganization, caused Ovintiv to cease to be resident in Canada for the purpose of the Income Tax Act (Canada) and as a result Ovintiv was deemed to have a taxation year end immediately prior to the U.S. Domestication. Ovintiv was also deemed to have disposed of each of its properties immediately before its deemed taxation year end for proceeds of disposition equal to the fair market value of such properties and to have reacquired such properties immediately thereafter at a cost amount equal to fair market value. Ovintiv will be required to include in its taxable income under the Income Tax Act (Canada) any income and net taxable capital gains realized as a result of the deemed disposition of its properties. Ovintiv also will be subject to an additional “emigration tax” on the amount by which the fair market value, immediately before its deemed taxation year end resulting from the Reorganization, of all of the properties owned by Ovintiv exceeds the total of certain of its liabilities and the paid-up capital of all the issued and outstanding shares of Ovintiv immediately before the deemed taxation year end.

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While the Company expects that the deemed disposition of Ovintiv’s properties that occurred as part of the Reorganization and the computation relevant for emigration tax will not result in any material Canadian federal income tax (including material “emigration tax”) to Ovintiv at the estimates of fair market value, there is no certainty that the fair market value of the properties of Ovintiv as estimated will be accepted by Canadian federal tax authorities, which may result in additional taxes payable as a result of the Reorganization.

For U.S. federal income tax purposes, based on and subject to certain assumptions and estimates of fair market value, the Company does not expect the Reorganization to give rise to material corporate-level U.S. federal income tax. However, Ovintiv could be subject to U.S. federal income taxation in connection with the U.S. Domestication to the extent, if any, that, at the time of such U.S. Domestication (a) the aggregate fair market value of all of the outstanding shares of common stock of Ovintiv exceeds (b) the U.S. tax basis in Ovintiv’s assets (computed under U.S. federal income tax principles) less liabilities assumed by Ovintiv. There can be no assurance that the fair market value of the shares of common stock of Ovintiv as estimated and the determination of Ovintiv’s U.S. tax basis in its assets will be accepted by the IRS or that the IRS will not otherwise challenge the Company’s position that it is not subject to U.S. federal income tax in connection with the Reorganization.

Ovintiv’s effective tax rate may change in the future, including as a result of the U.S. Domestication.

As a result of the U.S. Domestication, Ovintiv may be subject to current U.S. federal income taxes on the earnings of Ovintiv’s non-U.S. subsidiaries in a manner that may adversely impact the Company’s effective tax rate. In addition, recently enacted U.S. tax reform legislation has significantly changed the U.S. federal income taxation of U.S. corporations, including by reducing the U.S. corporate income tax rate, limiting interest deductions, permitting immediate expensing of certain capital expenditures, requiring current taxation of certain “global intangible low-taxed income” of non-U.S. subsidiaries (regardless of whether any distributions are made by such subsidiaries), adopting elements of a territorial tax system, revising the rules governing net operating losses, and introducing new anti-base erosion provisions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the U.S. Treasury Department and the Internal Revenue Service, any of which could lessen or increase certain adverse impacts of the legislation.

In light of these factors, there can be no assurance that Ovintiv’s effective income tax rate will not change in future periods, including as a result of the U.S. Domestication, which could have a material adverse effect on Ovintiv’s income tax position.

The enforcement of rights against Ovintiv in Canada may be limited.

Ovintiv is incorporated in Delaware and many of the Company’s directors, officers and experts reside outside of Canada. Accordingly, it may not be possible for Ovintiv stockholders to effect service of process within Canada upon Ovintiv or many of its directors, officers or experts, or to enforce judgments obtained in Canadian courts against Ovintiv or many of its directors, officers or experts.

Item 1B. Unresolved Staff Comments

None.

Item 3. Legal Proceedings

Ovintiv is involved in various legal claims and actions arising in the normal course of the Company’s operations. Although the outcome of these claims cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on Ovintiv’s financial position, cash flows or results of operations. If an unfavourable outcome were to occur, there exists the possibility of a material impact on the Company’s consolidated net earnings or loss for the period in which the effect becomes reasonably estimable. See Item 1A. Risk Factors, “The Company is subject to claims, litigation, administrative proceedings and regulatory actions that may not be resolved in the Company’s favour.” of this Annual Report on Form 10-K.

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For additional information, see Note 27 of Ovintiv’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

MARKET INFORMATION, STOCKHOLDERS, AND DIVIDEND INFORMATION

Market Information

Ovintiv’s shares of common stock are listed and posted for trading on the NYSE and TSX under the symbol “OVV”.

Holders

The Company is authorized to issue up to 775,000,000 shares of common stock consisting of: (i) 750,000,000 shares of common stock, par value US$0.01 per share, and (ii) 25,000,000 shares of preferred stock, par value US$0.01 per share. As at February 19, 2020, there were 259,821,141 shares of common stock outstanding held by 19,983 stockholders of record, and no shares of preferred stock outstanding.

Dividend Information

In 2019, on a pre-Share Consolidation basis, the Company paid a quarterly dividend of US$0.01875 per share (2018: US$0.015 per share) and US$0.075 per share annually (2018: US$0.06 per share annually). On a post-Share Consolidation basis, the Company’s quarterly dividend payment was US$0.09375 per share (2018: US$0.075 per share) and US$0.375 per share annually (2018: US$0.30 per share annually) in 2019. On February 19, 2020 the Board of Directors declared a dividend of US$0.09375 per share of Ovintiv common stock payable on March 31, 2020.

Dividend payments are not guaranteed and the amount of cash to be distributed as dividends in the future may change. Any decision to pay dividends will be determined at the discretion of the Board of Directors after consideration of numerous factors including: (i) the earnings of the Company; (ii) financial requirements for the Company’s operations; (iii) the satisfaction by the Company of dividend requirements in the DGCL; and (iv) any agreements relating to the Company’s indebtedness that restrict the declaration and payment of dividends. See Item 1A. Risk Factors of this Annual Report on Form 10-K, “The decision to pay dividends and the amount of such dividends is subject to the discretion of the Board of Directors based on numerous factors and may vary from time to time”. The Company currently pays dividends quarterly to stockholders of record as of the 15th day (or the previous business day) of the last month of each calendar quarter, with the last business day of the same month being the corresponding payment date.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Information concerning securities authorized for issuance under equity compensation plans is set forth in the Proxy Statement relating to the Company’s 2020 annual meeting of stockholders, which is incorporated herein by reference.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS

There were no purchases of equity securities by the issuer during the three months ended December 31, 2019.

RECENT SALES OF UNREGISTERED EQUITY SECURITIES

None.

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PERFORMANCE GRAPH

The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.

The following graph compares the cumulative five-year total return to stockholders of the Company’s common shares relative to the cumulative total returns of the S&P Composite Index and a peer group of 24 comparable companies operating in the same industry as the Company on December 31 for each of the years indicated. The companies included in the peer group are: Antero Resources Corporation; Apache Corporation; Baytex Energy Corporation; Cabot Oil & Gas Corporation; Canadian Natural Resources Ltd.; Chesapeake Energy Corporation; Concho Resources Inc.; Continental Resources Inc.; Crescent Point Energy Corporation; Devon Energy Corporation; Enerplus Corporation; EOG Resources Inc.; EP Energy Corporation; Hess Corporation; Marathon Oil Corporation; Murphy Oil Corporation; Noble Energy Inc.; Obsidian Energy Ltd.; Pengrowth Energy Corporation; Pioneer Natural Resources Company; Range Resources Corporation; Southwestern Energy Company; Vermilion Energy Inc.; and Whiting Petroleum Corporation. The graph was prepared assuming $100 was invested on December 31, 2014 in the Company’s common shares, the S&P 500 and the peer groups, and dividends have been reinvested subsequent to the initial investment. The graph is included for historical comparative purposes only and should not be considered indicative of future share performance.

Comparison of 5-Year Cumulative Total Return Among

the Company, the S&P 500 and a Peer Group

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Item 6: Selected Financial Data

The following table sets forth selected financial data of the Company and its consolidated subsidiaries over the five-year period ended December 31, 2019, which has been derived from the Company’s audited Consolidated Financial Statements. The financial information below should be read in conjunction with Item 7 and Item 8 of this Annual Report on Form 10-K.

Supplemental Quarterly Financial Information (Unaudited)

See Note 30 of the Company’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10‑K.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The MD&A is intended to provide a narrative description of the Company’s business from management’s perspective. This MD&A should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes for the period ended December 31, 2019 (“Consolidated Financial Statements”), which are included in Item 8 of this Annual Report on Form 10-K.

On January 24, 2020, Encana Corporation (“Encana”) completed a corporate reorganization, which included a Share Consolidation, as described in Items 1 and 2 of this Annual Report on Form 10-K, Note 1 of the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and the Subsequent Event section of this MD&A. Subsequent to the corporate reorganization, Ovintiv Inc. and its subsidiaries (collectively, “Ovintiv”) continue to carry on the business which was previously conducted by Encana and its subsidiaries. References to the “Company” are to Encana Corporation and its subsidiaries prior to the completion of the Reorganization and to Ovintiv Inc. and its subsidiaries following the completion of the Reorganization.

Common industry terms and abbreviations are used throughout this MD&A and are defined in the Definitions, Conversions and Conventions sections of this Annual Report on Form 10-K. This MD&A includes the following sections:

Executive Overview

Strategy

By executing on its strategy as outlined in Items 1 and 2 of this Annual Report on Form 10-K, Ovintiv focuses on enhancing long-term shareholder value and generating cash flow growth from high margin, scalable, top tier assets located in some of the best plays in North America, referred to as the “Core Assets”. As at December 31, 2019, the Core Assets comprised Permian and Anadarko in the U.S., and Montney in Canada. These top tier assets form a multi-basin portfolio of oil, NGLs and natural gas producing plays enabling flexible and efficient investment of capital that support sustainable cash flow generation. The Company’s other upstream assets, including Eagle Ford, Duvernay, Bakken (previously referred to as Williston) and Uinta, continue to deliver operating cash flows for the Company.

In executing its strategy, Ovintiv focuses on its core values of One, Agile and Driven, which guide the organization to be flexible, responsive, innovative and determined. The Company is committed to excellence with a passion to drive corporate financial performance and succeed as a team.

For additional information on reporting segments and the plays in which the Company operates, refer to Items 1 and 2 of this Annual Report on Form 10-K. On February 13, 2019, the Company completed the acquisition of Newfield Exploration Company (“Newfield”); as such, the post-acquisition results of operations of Newfield are included in the Company’s consolidated results beginning February 14, 2019. For additional information on the business combination and segmented results, refer to Notes 8 and 2, respectively, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

In evaluating its operations and assessing its leverage, Ovintiv reviews performance-based measures such as Non-GAAP Cash Flow, Non-GAAP Cash Flow Margin, Total Costs and debt-based metrics such as Debt to Adjusted Capitalization and Net Debt to Adjusted EBITDA, which are non-GAAP measures and do not have any standardized meaning under U.S. GAAP. These measures may not be similar to measures presented by other issuers and should not be viewed as a substitute for measures reported under U.S. GAAP. Additional information regarding these measures, including reconciliations to the closest GAAP measure, can be found in the Non-GAAP Measures section of this MD&A.

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For the period ended December 31, 2019, the Company elected to exclude from this MD&A the discussion of the results of operations for the period ended December 31, 2017, being the earliest of the three years included in the Consolidated Financial Statements, as set forth in the SEC’s amendment to Item 303 of Regulation S-K, which was effective May 2, 2019. For additional information on the Company’s financial condition, changes in financial condition and results of operations for the period ended December 31, 2017, refer to Item 7 of the 2018 Annual Report on Form 10-K.

Highlights

During 2019, the Company met or exceeded all of the targets set in its full year 2019 guidance by executing its 2019 capital plan, generating cash from operating activities and returning capital to shareholders through dividends and share buybacks. Subsequent to the successful completion of the Newfield acquisition, the Company fully integrated the businesses and captured synergies that exceeded previously announced expectations. Higher upstream product revenues in 2019 compared to 2018 resulted from higher production volumes, partially offset by lower average realized prices, excluding the impact of risk management activities. Total production volumes increased 56 percent compared to 2018 primarily due to the Newfield acquisition and successful drilling programs. Decreases in average realized liquids and natural gas prices of 20 percent and 12 percent, respectively, were primarily due to lower benchmark prices. The Company continued to focus on optimizing realized prices from the diversification of the Company’s downstream markets.

Significant Developments

Financial Results