Shell, Ovinitv Sell Out of Canada’s Duvernay Shale Play

Royal Dutch Shell Plc and Ovintiv Inc. agreed to sell their positions in the Duvernay play in Canada's Alberta province in separate, multimillion-dollar transactions announced Feb. 17.

For Shell, the transaction marks the latest divestiture in the North American country by the European oil major as it transitions its businesses away from fossil fuel reliance. Meanwhile, Ovintiv’s sale of its Duvernay assets comes roughly a month after an activist investor launched a proxy fight for three seats on the Denver-based producer’s board.

Crescent Point Energy Corp. agreed to acquire Shell’s position in the Kaybob Duvernay play for CA$900 million (US$709 million), the Calgary, Alberta-based company said in a Feb. 17 release.

The acquisition marks a strategic entry for Crescent Point into the Kaybob Duvernay, an established liquids-rich play with over 10 years of high-return, low-risk drilling inventory expected to boost this year’s free cash flow, according to Craig Bryksa, president and CEO of Crescent Point.

“We are excited to add the Kaybob Duvernay asset as a strategic core area to our portfolio, as its significant inventory of high-return locations and free cash flow profile provide an attractive and return enhancing opportunity for our shareholders,” Bryksa said in a statement.

“The acquisition is aligned with our core principles to focus on strategic initiatives that enhance our balance sheet strength and sustainability,” he continued. “It is expected to enhance our free cash flow generation, leverage ratios and ESG profile. The depth of high-return drilling inventory also provides optionality within our capital allocation framework. We view the Kaybob assets as low-risk given that they have been delineated over the past decade and key infrastructure and market access are already in place.”

The transaction includes production of approximately 30,000 boe/d comprising 57% condensate, 8% NGL and 35% shale gas plus an inventory of about 200 net internally identified drilling locations. Additionally, Shell plans to bring a number of DUCs on stream, according to the Crescent Point release, prior to the expected closing of the transaction in April.

The total consideration consists of CA$700 million in cash and 50 million common shares of Crescent Point. Upon closing, Shell will own roughly 8.6% of the outstanding Crescent Point common shares.

Separately, Ovintiv said it reached an agreement to sell its Duvernay assets for $263 million including $12 million of contingent payments based on future commodity prices.

Additionally, Ovintiv set a goal on Feb. 17 to reduce absolute debt to $4.5 billion by year-end 2022, a 35% reduction from year-end 2020, adding reducing debt was the company’s number one priority.

“Today’s announcement of the sale of our Duvernay asset combined with our strong fourth quarter and 2021 guide clearly demonstrate our commitment to debt reduction and puts us squarely on track to achieve our $4.5 billion year-end 2022 goal,” Ovintiv CEO Doug Suttles said in a statement.

Distinction Energy Corp., formerly Delphi Energy, committed to participate as to 50% in the acquisition of Ovinitv’s Duvernay assets entered into by Kiwetinohk Resources Corp., a majority shareholder of Distinction’s issued and outstanding common shares, the Calgary-based company said in a Feb. 17 release.

Ovintiv said Duvernay production averaged approximately 10,000 boe/d (43% liquids) in fourth-quarter 2020. The company will update its guidance once the transaction has closed, expected in the second quarter.

In January, Kimmeridge Energy Management Co. LLC launched a proxy fight against Ovintiv urging the company to alter its capital spending and focus on governance. The investment firm and one of Ovintiv’s top shareholders also accused Ovintiv of becoming an environmental laggard, trailing peers on key environmental metrics.

In a separate release on Feb. 17, Ovintiv also announced it had modified its executive compensation program, by adding debt reduction to short-term incentive structure. The company also linked pay for all its employees to new emissions reduction targets.

One of the largest independent producers in North America, Ovintiv operates a multibasin portfolio anchored by large, contiguous positions in the heart of the Permian and Anadarko basins, and Canada’s Montney Shale. The company also has Eagle Ford acreage in South Texas, but Reuters reported in November the assets had been put up for sale.

Ovintiv set a target in the fourth quarter of 2020 to reduce its methane intensity by 33% to 0.10 metric tons CH4/thousand barrels of oil equivalent by 2025.

“We believe we have industry-leading practices across several ESG facets, but we recognize this is a journey and the board challenges itself and the Ovintiv management team to continuously improve,” Ovintiv’s independent Board Chair Peter Dea said in a statement. “Today’s enhancements ensure we incentivize value-creation at every level of the organization through rigorous goal-setting and compensation actions to drive lasting value.”

Reuters contributed to this article. This story was updated at 10:28 a.m. Feb. 18.