OVV - NYSE

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2025 Third Quarter Results Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of Ovintiv. I would now like to turn the conference call over to Jason Verhaest from Investor Relations. Please go ahead, Mr. Verhaest.

Thank you, Pam, and welcome, everyone. This call is being webcast, and the slides are available on our website at ovintiv.com. Please take note of the advisory regarding forward-looking statements at the beginning of our slides and in our disclosure documents filed on EDGAR and SEDAR+. Following the prepared remarks, we will be available to take your questions. Please limit your time to one question and one follow-up. I will now turn the call over to our President and CEO, Brendan McCracken.

Thanks, Jason. Good morning, everybody, and thank you for joining us. We're excited to talk to you today about another great quarter and some significant strategic actions we are taking to crystallize our vision to becoming the leading North American independent E&P. First, we've entered into an agreement to acquire NuVista Energy, who have built an incredible asset base in the core of the Alberta Montney oil window. This transaction is priced right and we expect it to create exceptional value for our shareholders. It is immediately accretive on all financial metrics, highlighted by a 10% boost to our go-forward free cash flow per share. It's leverage-neutral at closing, it comes with valuable spare midstream capacity and valuable downstream gas price exposure and it adds significant inventory in the high-return oil window of the Montney. Second, we plan to commence the divestiture process for the sale of our Anadarko assets. Proceeds will be used for accelerated debt reduction, and we now expect to be below our $4 billion debt target by the end of 2026. That will enable us to allocate a higher percentage of our free cash flow to shareholder returns. Third, we have continued to meaningfully add to our Permian well inventory at highly attractive prices by prosecuting our ground game strategy in the Midland Basin. Finally, we continue to deliver exceptional performance across the organization, highlighted by our strong third quarter results and positive full year 2025 guidance revisions. Collectively, these actions streamline and high-grade our portfolio help us to meet or exceed our debt target and uniquely position us with significant inventory duration in the two most valuable oil plays in North America, the Permian and the Montney. Before we get into the transaction details, Corey will give you a quick overview of our third quarter results.

Thanks, Brendan. We delivered another strong quarter, once again meeting or beating all of our guidance targets, setting us up for a strong finish to the year. We generated cash flow per share of $3.47 and free cash flow of $351 million, both beating consensus estimates. We also returned approximately $235 million to our owners through share buybacks and our base dividend and reduced net debt by $126 million. Production during the quarter was at the high end of our guidance ranges across all products. The beat was largely driven by the Montney as we continue to see strong efficiency gains from our recently acquired Karr and Wapiti assets. We came in below the midpoint on capital, and we also match or beat our guidance on all per unit cost items. Our third quarter results demonstrate the ongoing resiliency of our business and our constant pursuit of capital efficiency. Despite the more than $10 per barrel drop we've seen in WTI oil prices since the first quarter of 2024, our cash flow per share has remained relatively consistent. We've updated our full year guidance to incorporate our year-to-date results and improved Q4 outlook by increasing our production targets for all products while maintaining our capital guide. As a reminder, we lowered full year capital by $50 million last quarter to reflect our efficiency savings. For full year 2025, we now expect to deliver 10,000 BOE per day more production or $50 million less capital compared to our original plan. In the fourth quarter, we expect our total volumes to average approximately 620,000 BOEs per day including about 206,000 barrels per day of oil and condensate and capital is expected to come in at about $465 million. We've also adjusted our guidance to include an anticipated reduction in our 2025 cash tax bill of about $75 million or about 50% less than we originally expected. This reflects the impact of an internal restructuring and evolving U.S. tax guidelines. We expect these reductions to be durable for the next several years. In short, the team turned out another great quarter, and our 2025 outlook has improved once again. I'll now turn the call back to Brendan.

We've been operating in the Montney for more than 20 years and in the Permian for over a decade. Bolstering our position in these 2 basins where we have a competitive advantage means we can continue to deliver durable returns for many years to come. Today's transaction marks a culmination in our strategy in our strategic positioning of the company to create a focused, high-return deep inventory portfolio. In total, since 2023, we've increased our Permian and Montney drilling inventory by more than 3,200 locations at an average of $1.4 million per net 10,000 locations. This inventory like expansion has been unmatched by our peers and leaves us with one of the most valuable inventory positions in the industry. This portfolio, combined with our execution capability, uniquely positions our company to generate superior returns for a long time to come. The NuVista acquisition checks all the boxes. It's accretive across all key financial metrics. The combination enhances our returns, add scale and extends our future inventory runway in a core area. It boosts the quality of our oil inventory and enables us to maintain a strong balance sheet. We identified NuVista through an in-depth technical and commercial analysis of the Montney to identify the highest value undeveloped resource. That analysis highlighted the NuVista assets along with the Paramount assets we acquired earlier this year as being the most attractive and most complementary to our existing Montney position. NuVista sits in the core of the oil-rich Alberta Montney. It's directly adjacent to our existing operations in Karr, Wapiti and Pipestone. It is largely undeveloped and it comes with significant processing capacity for future oil and condensate growth optionality, along with the downstream market access portfolio, that provides valuable natural gas price diversification outside the AECO market. This is one of the highest quality undeveloped acreage positions in North America and the overlap with our existing land makes us the natural owner. While the assets are among the very best in the Montney on a stand-alone basis, the combination with our acreage is an ideal setup to unlock significant value. This transaction will add approximately 930 net 10,000-foot equivalent well locations across 140,000 net acres. Extending our Montney oil inventory to the higher end of our existing 15- to 20-year range. But this transaction does not just add inventory, it makes our overall Montney position better. Folding in NuVista will result in a 10% uplift to our average Montney oil type curve. Importantly, we are acquiring this high-quality inventory at a reasonable cost. For about $1.3 million per well location, which is very attractive compared to recent transaction metrics in the Lower 48. The acquisition provides strong financial accretion and will result in immediate and long-term expansion in our per share metrics like cash flow, free cash flow as well as increased ROCE. It will enhance our scale in the basin increasing our 2026 expected Montney oil and condensate volumes to about 85,000 barrels per day. The acquisition is expected to be leverage-neutral at close, and we will retain ample liquidity and a strong balance sheet. With this transaction, we are creating a stronger business that will be even better positioned for near- and long-term value creation. Let's dive in with some more details about the NuVista assets. The team at NuVista has done a great job building a contiguous position in the core of the Montney oil window, and we're excited to combine it with our existing assets. The acreage pairs incredibly well with their existing land base. As you can see on the map, it could not be a better fit. We acquired acreage is about 70% undeveloped with about 400 horizontal wells producing today. In 2026, we estimate the NuVista assets will deliver average volumes of about 100,000 BOEs per day, including about 25,000 barrels of oil and condensate and 400 million cubic feet a day of natural gas. The transaction also comes with significant AECO price mitigation and diversified market access, which Greg will describe in more detail later in the presentation. I should point out that as a Canadian company, NuVista reports its volumes on a net before royalties basis and uses Canadian dollars as its reporting currency. So the numbers we quote will look different than their reported numbers. I'll now turn over the call to Greg to walk through more of the details.

Thanks, Brendan. This transaction adds depth and duration to our premium inventory and further expands our leading Montney scale. The 620 premium locations assume spacing of 10 to 14 wells per section, while the 310 upside locations assume up to 16 wells per section in the most prolific areas, plus additional infill opportunities. This is consistent with the development approach taken on our legacy assets, including the Paramount assets acquired earlier this year. Next year, we expect our pro forma 2026 total Montney production to average about 400,000 BOE per day, including 85,000 barrels per day of oil and condensate and 1.75 Bcf per day of natural gas. We anticipate running an average of six rigs and one to two frac crews. We'll have further details to share on our 2026 capital program when we issue our full year guidance in February. We are confident in our ability to unlock significant value from the NuVista assets using our proven development approach to generate superior asset level returns and unmatched capital efficiency. We expect to capture about $100 million in durable annualized free cash flow synergies. About half of the synergies are from lower capital costs. We expect to achieve a savings of $1 million per well consistent with our current Montney well costs from streamlined facility design and faster cycle times. The balance of the synergies come from other non-well capital savings, lower production costs driven by enhanced scale connecting the wells to our Grand Prairie operations control center, where we use automation and in-house AI tools to optimize production and reduce downtime as well as lower overhead. We are highly confident in our ability to realize these synergies given our strong track record of asset integration, which we demonstrated most recently by achieving our synergy target within the first 6 months of owning the Paramount assets. We also see the potential for significant future savings from things like the ability to optimize our development plans, giving more available processing capacity. The ability to extend the lateral length of our wells currently are constrained by lease lines and the opportunity to further optimize our base production, thanks to more integrated infrastructure. The enhanced value of our business is both structural and durable and will support increased direct returns to shareholders and higher return on capital employed. Our confidence in the quality of the new assets is evident in the strong well results from NuVista on this acreage. When we overlay NuVista's average well productivity from 2023 and 2024, the acquired assets have delivered impressive cumulative oil rates. Integrating these assets into our Montney development plan results in a 10% oil and condensate productivity improvement for our previous program type curve. This is illustrated on Slide 13, where the dashed orange line shows our previous repeatable program and the thick orange line represents our new repeatable program with the addition of the NuVista assets. This is a powerful demonstration of the underlying rock quality we're acquiring. The returns in the Montney oil window are competitive with the best plays in North America. This is a result of the high well productivity, the low drilling and completion costs, the favorable royalty structure and the fact that Canadian condensate generally receives very close to WTI pricing. The economics are not dependent on a higher NYMEX or AECO price. Even at very modest AECO prices, these wells would still compete for capital in our portfolio. Our analysis of the pro forma assets show that at the current strip pricing, we expect the NuVista assets to generate a 55% rate of return in 2026. The transaction comes with about 400 million cubic feet per day of natural gas. NuVista's downstream firm transportation agreements and hedging arrangements will lower our exposure to AECO on a pro forma basis. Ovintiv's 2026 AECO exposure will go from about 30% of our Montney gas production free transaction down to about 25% pro forma. NuVista's approach to AECO price mitigation is very similar to ours. They have done a great job of building out a diversified portfolio of firm transportation contracts to markets across North America, for about 250 million cubic feet per day of their natural gas volumes. They've received strong realized pricing as a result. Year-to-date, as of the end of the second quarter, the pre-hedge gas price realization was approximately 180% of AECO. In addition, they have JKM link contracts for 21 million cubic feet per day starting in 2027. They also have a strong financial hedging program with a current mark-to-market value of about $120 million. NuVista's significant processing capacity unlocks future growth optionality for us. They have secured 600 million cubic feet per day of long-term raw inlet processing capacity, which when combined with our existing Montney processing will provide optionality for Ovintiv to grow our oil and condensate volumes by more than 5% for the next 3 to 5 years with no major infrastructure spending requirements. We've had good success collaborating with midstream partners to improve uptime at the facilities we inherited through the Paramount transaction, and we are confident we can continue to add value with future processing optimization efforts across the play. I'll now turn the call back to Brendan.

Thanks, Greg. Our work to build inventory depth is not restricted to the Montney. Over the past several years, we've extended our Permian oil inventory runway to nearly 15 years. It's no secret that the price of inventory has gone up dramatically since 2023 when we acquired over 1,000 drilling locations in the Midland Basin for an average cost of about $2 million per well. We were ahead of the pack and as recent transactions in the play value the inventory as much as $7 million per well. While many people think there are no opportunities left to add inventory and make a reasonable rate of return, our team has continued to focus on bolt-on blocking and tackling across our acreage position. Our Permian ground game has yielded impressive results, acquiring low-cost, high-quality inventory in the core of the play. Year-to-date, we've added 170 drilling locations, 90% of which are premium for an average cost of $1.5 million per well. These transactions do not include any producing wells. They are inventory accretive, and they're offsetting our existing acreage and compete for capital immediately. We think there are more opportunities for reasonably priced bolt-ons in the play and we will continue to take a value-driven approach to evaluating future prospects. We are funding the NuVista acquisition with a balanced mix of cash and equity. The sources of cash include cash on hand, borrowings under our credit facilities and proceeds from a term loan. We've chosen to pause our share buyback program for 2 quarters until around the time the transaction closes. This decision, coupled with our balanced financing mix should result in a leverage-neutral transaction at the time of closing. During this time, we've also caused bolt-on spending, and our base dividend is unchanged. Debt reduction remains a key priority for us and we remain committed to reaching our net debt target of $4 billion or about 1x leverage at mid-cycle prices. As such, we have chosen to accelerate our pace of debt reduction and further streamline our portfolio through an asset disposition. We remain committed to preserving our investment-grade credit profile, and we do not expect a negative impact to our investment-grade ratings because of the NuVista transaction. We plan to commence a sales process for our Anadarko assets that we expect to complete by the end of next year. The Anadarko is a highly valuable asset with a low decline rate, strong realized pricing and low LOE. It punches above its weight in free cash flow generation. In the third quarter, it produced roughly 100,000 BOEs per day, including 29,000 barrels a day of oil and condensate. Following the divestiture, we expect to be well below our net debt target enabling us to allocate a greater portion of our free cash to shareholder returns. We continue to believe our equity is undervalued and share buybacks continue to screen as a superior return on investment compared to investing in growth. We will provide more details on what a refreshed shareholder return framework could look like as we get closer to the sale of the assets. In summary, yesterday's announcement reflects years of work to build the portfolio that delivers on our durable return strategy, and we're excited to reach this milestone on behalf of our shareholders. I'd like to recognize the efforts of our team to get us here. The NuVista assets in our ground game additions strengthen and expand our position in the top 2 oil basins in North America. The NuVista transaction is strongly accretive to our financial metrics as well as our premium inventory debt. It significantly boosts free cash flow per share, provides significant oil growth optionality, valuable gas price diversification and maintains our investment-grade rated balance sheet. Our track record of asset integration and operational excellence gives us confidence in our ability to deliver on the targets we've set out today. We have one of the most valuable premium inventory positions in our industry. We have worked diligently to focus and high-grade our asset base while strengthening our balance sheet. We now have the achievement of our debt target firmly in sight, and with that, the inflection to deliver increased returns to our shareholders. Operator, we're now ready to open the line for Q&A.

[Operator Instructions] Your first question comes from Kalei Akamine with Bank of America.

Congratulations on the deal. I want to ask on the growth outlook for the NuVista asset. So NuVista was prosecuting a linear growth strategy through a decade in, and that was really enabled by their investments in gas processing capacity. And the timing of that, it's pretty imminent. So my question is, how are you thinking about balancing or optimizing those plants versus your capital discipline approach to capital spend?

Yes. Kalei, thank you very much. Appreciate the comments and the question. Yes. So we're going to fold this in and run our combined business in the same capital disciplined way that you've seen us do over the last several years. And really what that has us thinking about is a couple of items. One, what's the macro, what's the demand for growth from large E&P companies? And I think today, it's fair and reasonable to say there is not a market demanding more barrels or BTUs be produced. And so that signal calls for a maintenance level investment. And then the other signal we look closely at is can we get better cash flow per share growth from buying our shares back or from adding activity in the field. And again, that signal is telling us it's a better option for our shareholders to buy the shares back to generate that cash flow per share growth. So when we incorporate these NuVista assets, we're going to fold them into that same capital allocation strategy. And so we'll be slowing that rate of growth investment down and running the assets for free cash generation if the environment continues to be the same.

I appreciate that. For my follow-up question, I want to ask about the 900-plus locations that you're acquiring with NuVista. That includes 300 upside locations. I want to understand the plan to derisk those upside locations and whether that process is kind of already on the way, considering that you're doing some similar work on the Paramount assets that you acquired earlier this year.

Yes, Kalei, great question. I'll probably get Greg to comment here, too, because you're exactly right. This acreage sits side-by-side with both our legacy Montney acreage, but also the -- now, I guess, now legacy acreage from the Paramount acquisition. And so the ability to take the learnings on well density across into this new acreage has given us a lot of conviction. But Greg, you can kind of comment on some of the specifics on time line.

Yes. Thanks, Brendan, and thanks for the question, Kalei. You're spot on. If you look at the map, this acreage just really nicely fits in that hole between our Pipestone acreage and our Paramount acreage we acquired earlier this year. We'll take the same approach. In some areas, that's going to be two zones, up to three zones, 10 to up to 16 wells per section. We're already well on our way at delineating the Pipestone acreage to see how much of that upside we can convert to base. We'll take the exact same approach here on the NuVista acreage. They've already done a pretty good job of that, but we feel like there's some room to go. So it will just really fold right into the work we're already doing.

Your next question comes from Phillip Jungwirth with BMO Capital Markets.

On the year-end '26 time line for the Anadarko sale, is there anything you're looking to prove up ahead of the sales, such as maybe like 3-mile laterals or more optimized cube? Or do you think most of this work has been done? And then I just want to ask also if there's been any reverse inquiries received to date, recognizing you're starting to process early next year.

Yes. Thanks, Phil. Great questions. Lots of interest in the Anadarko asset. As you might imagine, there's been some precedent transactions in that basin. So our interpretation is there's a very strong buyer market in that basin for assets like ours and so I think on time line, nothing to prove up technically in the play. This is a really well understood, low decline basin with lots of certainty in it. And so I think the time line will just be about maximizing proceeds for our shareholders. So that's how we'll be thinking about the time line.

Okay. Great. And then just depending on the actual proceeds received from the sale, how much below $4 billion of net debt would you view as a floor? I think in the past, you've talked about some interest in going below that. Our model would put net debt at low 5s, call it, by year-end '26. So feel like you could be quite a bit below this $4 billion target. I'm just wondering how -- where would you view the floor as we think about go-forward capital returns?

Yes. Great question. Love the forward look there. I think the way we'll talk about that is we've got to get there and make those decisions with the facts of the moment and the macro at the time. But if you took today's lens and you looked at it, that would be a tremendous opportunity for boosting those shareholder returns as we've indicated.

Next question comes from Scott Gruber with Citigroup.

Curious about Montney maintenance CapEx over the long term. We can do the math on where that probably lands in '26. But curious kind of your ability to push that down over the next 2 to 3 years after you realize the cost savings underpinning the deal and optimizing activity without a common lease line, just some thoughts on being able to squeeze Montney maintenance CapEx down even further and where you think that could land?

Yes. Thanks, Scott. I love how you're thinking about it. We highlighted a number of longer-term synergies. We've obviously pointed to the shorter term capital and cash cost synergies, but there are some longer-term synergies here as well putting these two asset bases together, boosts our type curve, ability to drill longer laterals, things like that. But Greg might have a comment on how we'll think about continuing to add efficiencies in the play.

Yes, thanks for the question. We'll -- in the very short term, we'll work on getting the cost structure on these new assets down to our cost structure, which will be around $525 a foot. But then over time, in all of our plays, we usually are able to continue to see a 2% or 3% reduction year-over-year just due to efficiencies in our program. So we'll continue to drive that down, just organically. And then some of the really, I think, attractive opportunities of -- if you look at the map, I mean, this is just ripe for opportunities to lengthen laterals across lease lines, to share infrastructure. We've already identified some spots where it looks like some of their infrastructure will replace capital spend that we were planning on in the next year or 2. So we feel like we're going to be able to drive down our capital structure here significantly over time. If you think about -- we're not ready to give guidance for next year, but we'll probably have about 1/3 of our activity on this new acreage, 1/3 on the acreage we acquired last year and 1/3 on our legacy. So we'll have opportunities to learn and get better in all three places. So we feel like over time, we're going to continue to just drive down what's already an industry-leading capital efficiency up there.

I appreciate the color. A quick follow-up on the well productivity delta. It's a decent step above yours and looking for a nice 10% improvement on a blended basis. Is the delta there all rock quality? Are they undertaking a different style of completion? What do you attribute that Delta 2? And if it is rock quality, do you think about pivoting more activity in that direction over time?

Yes, Scott, great question. Yes, it's all oil mix. So this is really a fluid window. So where the NuVista acreage sits relative to the basket of Ovintiv acreage, it runs just a little more oily. So net-net, our oil type curve goes up on mix. So that's the driver there.

Your next question comes from Betty Jiang with Barclays.

Congrats on the acquisition. I want to ask about the processing capacity and on the midstream front, specifically for the Montney. With expanded scale, are there opportunity to optimize how you utilize the different plants, the flows, utilization of different plants and the opportunity to potentially negotiate better contract on the midstream front.

Yes, Betty, thank you for your comments and the question. Absolutely on the midstream side, it's one of the deal synergies that's sort of baked into some of the cash cost piece, but also the capital and then in the longer-term unquantified synergy bucket here, too. So there's lots to talk about here. If we focus on the midstream side, Greg just alluded to this earlier, there are several places where we can avoid some capital expenditure that we would have had for minor infrastructure projects that now could come out because these assets come with spare capacity. So that's kind of immediate. One of the big wins we've had on the Paramount integration is around run time. And so we expect an integrated asset here is going to also be able to boost run time through these midstream and processing facilities. And then the final piece is around the ability to grow into these assets over time when the macro calls for that in the future. So a lot of good wins to capture on the midstream infrastructure side here.

That's great. And then a follow-up on the gas marketing side, just given the larger position, do you see adding scale enabling more opportunities to market gas, whether on the global LNG front or other ways to mitigate your exposure to AECO.

Yes. Absolutely, Betty. So our strategy has been to minimize our exposure to AECO and we've been steadily chipping away at that over the last number of years, and in particular, since we acquired the AECO exposed gas from Paramount. And we're going to continue to do that. One of the deal features we love here as it does reduce our AECO exposure in the next several years from about 25% -- sorry, from about 30% down to 25%. So there's a built-in step change from combining these assets together. And we will continue to look for other downstream markets to diversify our AECO away from. And I know our midstream marketing team is hard at work on that today.

Your next question comes from Lloyd Byrne with Jefferies.

Congratulations on the transaction and the -- frankly, the entire portfolio transformation over the last couple of years has been really good. Can you just start with -- maybe the question that started off on potential growth going forward. We kind of think you can grow these assets on a liquids basis, if you want. And is there any infrastructure processing constraints that you have that would block that?

Yes. Thanks, Lloyd for the comment and great question. So if you think about what this transaction does, we had already built a real growth option in the Montney oil with the addition of the Paramount acreage because that came with some spare processing and midstream capacity as well. This one boosts that up. So we had previously been talking about kind of that low to mid-single-digit growth potential for oil and condensate compounded over several years. This now boosts us up to be able to do over 5% growth for up to 5 years. And so if you think about what that could mean, it could take our 85,000 barrels a day in the play up well north of 100,000 barrels a day over that period if we chose to make those investments. So again, I'll caution that is not our capital allocation plan today in this macro environment. But in the event of a stronger macro environment, this -- both the inventory depth and the processing facilities are there to be able to facilitate that growth without major infrastructure investment. And you didn't ask it, but I'll pile on a little bit here. Obviously, the addition of our ground game locations in the Permian also give us a lot of confidence in that growth option as well. And that is also a place where there is ample processing capacity available should we choose to exercise that. So really, we've got that growth option unlocked across the future portfolio here.

That's great. Brian, you beat me to my second question. I just wanted to ask you about the ground game in the Permian. And just what is it that allows you to keep adding those locations at an attractive price? And can you -- do you think you can continue that going forward?

Yes. Thanks, Lloyd. I appreciate you hearing me back there. This is a great example of how the ingenuity and approach that our team is taking is exposing our shareholders to a unique value-creation options. So really where our comparative advantage comes into play here is if you're a large mineral rights holder in the Permian, the operator of choice for you is Ovintiv. We're going to get you the best royalty stream off of these assets because of our cube development approach and because of our reoccupation strategy and how we conduct our operations in the basin. So that's allowing us to access really high-quality resource at a very attractive entry price for our shareholders, and we look forward to seeing what that can yield in future years as well.

Your next question comes from Doug Leggate with Wolfe Research.

So obviously, you've set the table for the Anadarko sale. I wonder we're coming into potentially what some would think is a softer oil outlook. Are there any conditions where if you don't get what you hope to achieve in terms of valuation that you would hang on to that asset longer? Or is it a sale regardless of the -- I mean how are you thinking about framing the conditions of sale?

Yes. It's the right question, Doug. I think, look, the one thing I'll point out, first of all, is the Anadarko, while it makes a fair amount of oil, it's about 1/3 oil, 1/3 NGLs and a third gas, so it does have good commodity exposure across the three products here. So it's not exposed to one exclusively, which is helpful in really any environment. And then this is a really high-quality asset. It's going to attract, I think, a lot of attention. And then we've given ourselves a reasonable running time here to execute. And so we'll be working through that time period to maximize the proceeds to our shareholders, but certainly cognizant of making sure we do that. .

And then I wonder if I could be predictable and ask you about the capital return strategy. You're taking a pause on the buyback. We certainly can't understand why your free cash flow yield is as high as it is. But at the same time, we look at the capital structure and I think share buybacks are glacial. They're not working in terms of forcing market recognition of value, and you've got this opportunity to pause and basically test perhaps what happens if you lower your net debt and transfer that value to equity. So I guess my question is, you seem to be messaging the $4 billion floor and then a reset potentially in the share buybacks. Why not just take the debt down and reset your capital structure altogether?

Yes. I think, Doug, that's exactly what we'll be doing with the transaction. So I think we continue to be in agreement here about where we're trying to get the business to. And so we think the prudent approach we're taking here with the pause until close allows us to be leverage neutral with where we are pre-deal. And then the transaction on Anadarko would enable us to immediately step change below that debt target, so -- and give us the flexibility from there. So yes, I think we're agreeing with you.

Your next question comes from Greta Drefke with Goldman Sachs.

I was just wondering if you could speak a bit on the drivers of the $100 million in annual capital and cost synergies outlined with the NuVista acquisition. Are these similar changes to the changes made while incorporating the Montney acreage from the Paramount acquisition at the start of the year? Or are there different opportunities you would highlight there?

Yes. Gret, I'll let Greg chime in on that.

Yes. Thanks for the question. First off, I just want to complement NuVista. They've done a really nice job with the assets to this point, which is why we were so interested in acquiring them. But our team has developed a really well-defined and refined integration playbook that we'll start. Think of it kind of in two lenses. There's the short term, that first day up to the first 6, 9 months. And then longer term, how we approach things. But just immediately after close, we'll be connecting their rigs up to our drive center where we'll use in-house algorithms and AI to further refine our drilling efficiencies as well as our cost base in learnings on things we've learned here in the U.S. We think that's going to drive several days out of drill times. On the completion side, we're going to utilize our real-time frac optimization center, which will refine pumping schedules, shorten cycle times. Our use of local sand there in the basin which should also generate some really good cost savings shortly after close. And then on the facility side, we see some significant opportunities to reduce cost of both the new facilities we're going to build, but then longer term, as we showed on Slide 15 there, our acreage position in midstream are really well aligned where they're located close to each other. So we should be able to reduce facilities costs going forward and optimize that. So on the capital side, that will make up about half of the efficiencies we're going to see. And we think that's going to happen pretty quick. I mean we're going to measure that in months, not quarters or years. But then just importantly, on the production side, we're going to reduce costs there and get more efficient. We'll do just what we did on the last transaction. We're going to connect the wells to our operations control center in Grand Prairie very quickly and inexpensively. And from there, we'll be able to optimize production using our in-house AI tools and algorithms to optimize production on all the wells with set points on artificial lift, those types of things. But also what we found to be very effective is the automation that we put in place. So we can not only shut in wells remotely, but also bring them back online in minutes. And so while we've really improved the midstream reliability, and we think we'll be able to work with the new midstream providers here to help them as well. When inevitably you do have a downtime or a turnaround, we can bring our wells back online faster than anybody else in the industry up there. And what that does is just really increases our uptime. So you'll see a production benefit there as well as a cost reduction. And then when you look longer term, as I spoke about earlier, we're going to be looking to go to longer laterals. We've got some shared acreage that actually had a shared working interest between Paramount and NuVista historically. We'll be able to make those 100% working interest wells, extend lateral lengths, develop that very efficiently. We'll be able to share up and optimize infrastructure spend. And that will also help base production as well as new wells. So just lots of different ways we're going to be able to achieve this over the coming months and even longer. So really excited team is looking forward to get to work on optimizing this asset.

Great. And then just for my second question, I was wondering if you could speak a little bit more about the decision to fund the acquisition through a combination of both equity and cash. Can you speak a little bit about why 50-50 split is the optimal split in your view?

Yes. Thanks, Greta. I think the right place to start here is with getting the total consideration right. And so that obviously was the starting point for us. And then the next is to find the right balance on the financing mix. We were very disciplined with how much equity we used in the deal. It's our view that our equity continues to be undervalued. So we wanted to be disciplined with how we use those shares. And then we also wanted to make sure we held leverage neutral, like we've described at close here. And so really, those are kind of the governing features with how we thought about mix, and we think the outcome accretion and across the board, uplifts to the business makes sense with that mix.

Your next question comes from Kevin MacCurdy with Pickering Energy Partners.

I always appreciate your view on AECO and Canadian gas prices. You made the point with this transaction that it lowers your AECO exposure and you're acquiring some really nice hedges over the next several years. But I wonder if you could update us on your long-term outlook for AECO and the Canadian gas markets and maybe what key projects would make you a little bit more constructive?

Yes, Kevin. Obviously, we've been cautious on AECO as the start-up of LNG Canada is helpful and an important milestone for Western Canadian gas producers, but also recognize the basin continues to be highly productive with a lot of growth capacity. And so we've been kind of near-term cautious. I think I would describe it as we look out into 2026, a little more constructive as that LNG Canada ramps up, but still cautious because it's not the end-all and be-all. But if you look forward to the LNG projects that are queuing up towards the end of the decade and into the early part of the 2030s, we think there's a real optimism around Western Canadian pricing. And what the additional egress could mean to the basin. And so built into our Montney business is the gas option, and we are long term excited about the value embedded in that gas option.

And just for clarification on the Permian inventory additions. Was the $250 million in spending in October, was that just from one transaction? Or was that several small deals that are -- that happen to be closing at the same time?

Yes. We bucketed together several deals into that to achieve that. So true ground game fashion there.

Your next question comes from David Deckelbaum with TD Cowen.

I wanted to just follow up on some of the allocation conversations and some of the synergies with the NuVista transaction. You guys highlighted obviously the superior well productivity. And I think you talked about kind of splitting your activity evenly between Paramount and NuVista and Ovintiv acreage up in the Montney. I guess is there a future outlook that you would be moving more of the activity to more aggressively accelerate the development? It sounds like you're not constrained from an infrastructure side. On the NuVista acreage so that would sort of increase your free cash per share metrics?

Yes. Look, we are going to allocate capital across the Montney to maximize free cash flow, but also bear in mind our reoccupation strategy, which is really a reservoir management strategy to come back and drill cubes beside cubes within 18 to 24 months. And so those will be the two things that largely govern along with processing capacity, but those would be the things that govern our capital allocation across the assets. But like Greg said, it might shift around a little bit, but I think it's pretty stable in that 1/3, 1/3, 1/3 across the three buckets of Montney acreage.

Appreciate that. And I know it's a bit early, but I share your view on the valuation for the Anadarko Basin seems like it should be approximately what you paid for NuVista just on PDP alone. So I'm kind of curious, just from a tax perspective, how you think about any tax slippage from transacting there or if you have some offsetting mechanisms?

Yes. I'll let Corey cover that.

So just on that front, we've got some existing bases on the asset and then obviously, depending on how high the price is, we should be able to cover it with other tax attributes. So we don't forecast much if any tax leakage on the sale.

Next question comes from Chris Baker with Evercore ISI.

Just a quick one. It sounds like this asset has been identified quite some time ago. I'm just curious in terms of the ultimate timing that we're seeing here. Was that at all influenced by the share sale, obviously, you mentioned in the release? Or just anything around the timing piece given the Anadarko assets there would be helpful.

Yes, Chris. Look, you're quite right. So we had identified this as 1 of the 3 assets that made a lot of sense for us as we went through this portfolio transition. And so pleased to be able to get to this point here today. I think the way to think about it is the disclosure from NuVista highlights, they began a competitive process for the asset back in August. And we acquired the shares right at the start of October. So that gives you some sense of the sequencing here.

Maybe just clarify that...

Sorry, go ahead, Corey.

I was just going to say just clarify, you've been one of the...

Yes. The Northern Midland Basin, the Paramount and then NuVista with the three, yes. Good point.

Got it. That's great. And apologies if this was covered earlier, but any sense on what run rate EBITDA looks like for the Mid-Con asset this year?

I don't have that number to hand here, Chris, yes. Sorry, I've got -- there's a lot of numbers in front of me right now, but I don't have that one. Sorry, team can follow up with you.

Your next question comes from Geoff Jay with Daniel Energy Partners.

I just had a couple if I could. First is the soft guide for 2026 pro forma. Is that inclusive of the Anadarko production or exclusive?

Yes. Geoff, yes, it's inclusive of the Anadarko production. So we'll update that once we've got clarity on the divestiture timing.

All right. Great. And then my second is on the -- going back and, I guess, maybe beating a dead horse on Slide 12. But in looking at the future synergies piece, I noticed your AI and production optimization are kind of in two buckets, near term and long term and I am wondering what the long-term, I guess, AI automation piece is and what makes it long term?

Yes. I mean we're just at the very front end of applying these technologies into our business. And as you saw, Geoff, when you joined us in the Montney this past summer, we're active in sort of three main areas. We're active in the production operations place. So it's helping us on the uptime and on the artificial lift optimization. It's helping us on the drilling times and costs, and then it's helping us on the completions, both the cost and the productivity of the wells. So -- but we're really early days in trying to figure out what this technology can do for us. And so hard to point to where it's going to go over time, but put us in the optimistic camp here of seeing the potential for this to really transform our business.

At this time, we have completed the question-and-answer session. And I'd like to turn the call back over to Mr. Verhaest. Please go ahead.

Thanks, Pam, and thank you, everyone, for joining us today. Our call is now complete.