Ovintiv Inc. (OVV) FY 2024 MD&A

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, which includes an overview of Ovintiv’s consolidated 2024 results and year-over-year comparisons between 2024 and 2023 results. This MD&A should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes for the year ended December 31, 2024 (“Consolidated Financial Statements”), which are included in Item 8 of this Annual Report on Form 10-K. Discussion and analysis of 2022 results and year-over-year comparisons between 2023 and 2022 results that are not included in this Form 10-K, can be found in Item 7 of the 2023 Annual Report on Form 10-K.

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

•
Results of Operations

•
Liquidity and Capital Resources

•
Accounting Policies and Estimates

•
Non-GAAP Measures

Executive Overview

Strategy

Ovintiv aims to be a leading North American energy producer and is focused on developing its high-quality multi-basin portfolio of oil and natural gas producing plays as part of its strategy outlined in Items 1 and 2 of this Annual Report on Form 10-K.

Ovintiv is committed to delivering quality returns from its capital investment, generating significant cash flows and providing durable cash returns to its shareholders through the commodity price cycle. The Company aims to achieve its strategic priorities through execution excellence, disciplined capital allocation, and commercial acumen and risk management. In addition, the Company is dedicated to driving progress in areas of environmental, social, and governance, aligning with its commitment to corporate responsibility.

In support of the Company’s commitment to enhancing shareholder value, Ovintiv utilizes its capital allocation framework to provide competitive returns to shareholders while strengthening its balance sheet.

Ovintiv continually monitors and evaluates changing market conditions to maximize cash flows, mitigate risks and renew its premium well inventory. The Company’s high-quality assets, located in the United States and Canada, form a multi-basin, multi-product portfolio which enables flexible and efficient investment of capital that supports the Company’s strategy.

Ovintiv seeks to deliver results in a socially and environmentally responsible manner. Best practices are deployed across its assets, allowing the Company to capitalize on operational efficiencies and decrease emissions intensity. The Company’s sustainability reporting, which outlines its key metrics, targets and relative progress achieved, can be found in the Company Outlook section of this MD&A and on the Company’s sustainability website.

Underpinning Ovintiv’s strategy are core values of one, agile, innovative and driven, which guide the organization to be collaborative, responsive, flexible and determined. The Company is committed to excellence with a passion to drive corporate financial performance and shareholder value.

For additional information on Ovintiv’s strategy, its reporting segments and the plays in which the Company operates, refer to Items 1 and 2 of this Annual Report on Form 10-K. For additional information on the segmented results, refer to Note 2 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10‑K.

53

In evaluating its operations and assessing its leverage, Ovintiv reviews performance-based measures such as Non‑GAAP Cash Flow and debt-based metrics such as Debt to Adjusted Capitalization, Debt to EBITDA and 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.

Highlights

During 2024, the Company focused on executing its capital investment plan aimed at maximizing profitability through operational and capital efficiencies, and delivering cash from operating activities.

The Company had lower upstream product revenues in 2024 compared to 2023, which primarily resulted from lower average realized natural gas prices, excluding the impact of risk management activities, partially offset by higher total production volumes. Decreases in average realized natural gas prices of 38 percent, were primarily due to lower benchmark prices. Ovintiv continues to focus on optimizing realized prices from the diversification of the Company’s downstream markets.

Significant Developments and Subsequent Events

•
On January 31, 2025, the Company closed its previously announced acquisition of certain Montney assets from Paramount Resources Ltd. (“Paramount”), in an all-cash transaction of approximately $2.307 billion (C$3.325 billion) before closing adjustments (“Montney Acquisition”). The acquisition will add approximately 109,000 net acres in the core of the liquids-rich Alberta Montney. The transaction had an effective date of October 1, 2024.

•
On January 22, 2025, the Company closed its previously announced divestiture of substantially all of its Uinta assets, comprising approximately 126,000 net acres in the Uinta Basin of Utah, to FourPoint Resources, LLC, for approximately $2.0 billion before closing adjustments. The transaction had an effective date of October 1, 2024.

•
On September 26, 2024, the Company announced it had received regulatory approval for the renewal of its NCIB program, which enables the Company to purchase, for cancellation or return to treasury, up to approximately 25.9 million shares of common stock over a 12-month period from October 3, 2024 to October 2, 2025. The number of shares authorized for purchase represents 10 percent of Ovintiv’s public float as at September 20, 2024. In conjunction with the announced transactions discussed above, the Company has temporarily paused its share buyback program, starting in October 2024, and expects to resume the buybacks in the second quarter of 2025.

Financial Results

•
Reported net earnings of $1,125 million, or $4.21 per share diluted, including a non-cash ceiling test impairment of $350 million, after tax, or $1.31 per share diluted, and net gains of $156 million, or $0.58 per share diluted, from net settlement proceeds related to previous dispositions of certain legacy assets.

•
Recognized net gains on risk management in revenues of $135 million, before tax.

•
Generated cash from operating activities of $3,721 million and Non-GAAP Cash Flow of $4,042 million. Cash from operating activities exceeded capital expenditures by $1,418 million.

•
Purchased for cancellation, approximately 12.7 million shares of common stock for total consideration of approximately $597 million.

•
Paid dividends of $1.20 per share of common stock totaling $316 million.

•
Had approximately $3.6 billion in total liquidity as at December 31, 2024, which included available credit facilities of $3.5 billion, available uncommitted demand lines of $91 million, and cash and cash equivalents of $42 million.

•
Reported Debt to EBITDA of 1.3 times and Non-GAAP Debt to Adjusted EBITDA of 1.2 times.

54

Capital Investment

•
Reported total capital spending of $2,303 million, which was within the full year 2024 investment guidance range of approximately $2,275 million to $2,325 million.

•
Focused on highly efficient capital activity to benefit from short-cycle high margin and/or low-cost projects which provide flexibility to respond to fluctuations in commodity prices, as discussed in the Company Outlook section of this MD&A.

Production

•
Produced average liquids volumes of 302.0 Mbbls/d, which accounted for 52 percent of total production volumes. Average oil and plant condensate volumes of 211.2 Mbbls/d, or 70 percent of total liquids production volumes, exceeded full year 2024 guidance range of 209.0 Mbbls/d to 211.0 Mbbls/d.

•
Produced average natural gas volumes of 1,698 MMcf/d, which accounted for 48 percent of total production volumes. Average natural gas volumes were slightly below the full year 2024 guidance range of 1,700 MMcf/d to 1,715 MMcf/d.

•
Produced average total volumes of 585.0 MBOE/d, which was within full year 2024 guidance range of 583.0 MBOE/d to 587.0 MBOE/d.

Operating Expenses

•
Incurred upstream transportation and processing expenses of $1,553 million or $7.25 per BOE, a decrease of $50 million compared to 2023, primarily due to the impact of new downstream contracts in Uinta, the sale of the Bakken assets in the second quarter of 2023, lower flow-through rates in Montney and lower production volumes in Anadarko. The decrease was partially offset by higher production volumes in Permian, Uinta and Montney, and increased minimum volume commitments associated with certain gathering and processing assets in Montney. Upstream transportation and processing expenses of $7.25 per BOE was below the full year 2024 guidance range of $7.50 per BOE to $8.00 per BOE primarily due to lower than expected natural gas commodity prices. The full year 2024 guidance range was based on commodity price assumptions of $75.00 per barrel for WTI oil and $2.50 per MMBtu for NYMEX natural gas.

•
Incurred upstream operating expenses of $908 million or $4.24 per BOE, an increase of $77 million compared to 2023, primarily due to the Permian Acquisition in the second quarter of 2023, partially offset by the sale of the Bakken assets in the second quarter of 2023. Upstream operating expenses of $4.24 per BOE was slightly below the full year 2024 guidance range of $4.25 per BOE to $4.75 per BOE.

•
Incurred total production, mineral and other taxes of $333 million. This represents approximately 4.5 percent of upstream product revenues which was within the full year 2024 guidance range of four percent to five percent of upstream product revenues. Total production, mineral and other taxes decreased by $9 million compared to 2023, primarily due to the sale of the Bakken assets in the second quarter of 2023, lower production volumes in Anadarko and lower natural gas commodity prices, partially offset by higher production volumes in Permian and Uinta.

Additional information on the items above and other expenses can be found in the Results of Operations section of this MD&A.

During the year ended December 31, 2024, Ovintiv reassessed its reportable segments and reclassified its Market Optimization segment to present the Company’s market optimization activities in their respective USA and Canadian operating segments, which they support (“Segment Reclassification”). Additional information on the Segment Reclassification can be found in Note 2 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

55

2025 Outlook

Industry Outlook

Oil and Natural Gas Markets

The oil and gas industry is cyclical and commodity prices are inherently volatile. Oil prices reflect global supply and demand dynamics as well as the geopolitical and macroeconomic environment.

Oil prices for 2025 are expected to be impacted by the interplay between the pace of global economic growth and demand for oil, OPEC+ and non-OPEC+ production levels and continued supply uncertainties resulting from geopolitical events. Supply and the accumulation of global oil inventories are expected to be impacted by changes in OPEC+ and non-OPEC+ production levels, consumer demand behavior and geopolitical volatility.

Natural gas prices are primarily impacted by structural changes in supply and demand, deviations from seasonally normal weather, as well as volatility in regional markets.

Natural gas prices for 2025 are expected to be impacted by the interplay between natural gas production and associated natural gas from oil production, changes in demand from the power generation sector, changes in export levels of U.S. liquefied natural gas, impacts from seasonal weather, as well as supply chain constraints or other disruptions resulting from geopolitical events.

U.S. sanctions and tariffs on certain products could impact supply and demand within global markets and are likely to contribute to commodity price volatility as markets continue to evaluate and respond to these impacts.

Company Outlook

The Company will continue to exercise discretion and discipline, and intends to optimize capital allocation throughout 2025 as the commodity price environment evolves. Ovintiv pursues innovative ways to maximize cash flows, and to reduce operating and administrative expenses.

Markets for oil and natural gas are exposed to different price risks and are inherently volatile. The Company enters into derivative financial instruments to mitigate price volatility and provide more certainty around cash flows. As at December 31, 2024, in conjunction with the Company’s Uinta disposition, Ovintiv hedged, on behalf of the purchaser, approximately 11.6 Mbbls/d to 17.6 Mbbls/d of expected oil and condensate production and 14 MMcf/d to 19 MMcf/d of expected natural gas production over three years with terms extending to 2027. Upon closing of the Uinta disposition on January 22, 2025, these risk management contracts were novated to the purchaser.

As at February 14, 2025, the Company has hedged approximately 50.0 Mbbls/d of expected oil and condensate production and 500 MMcf/d of expected natural gas production for the remainder of the year. In addition, Ovintiv proactively utilizes transportation contracts to diversify the Company’s sales markets, thereby reducing significant exposure to any given market and regional pricing.

Additional information on Ovintiv’s hedging program can be found in Note 25 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Capital Investment

The Company plans to spend approximately $2,150 million to $2,250 million on its full year 2025 capital investment program, focusing on maximizing returns from high-margin oil and condensate. In 2025, the Company expects to generate cash flows in excess of capital expenditures.

Ovintiv continually strives to improve well performance and lower costs through innovative techniques. Ovintiv’s large-scale cube development model utilizes multi-well pads and advanced completion designs to maximize returns and resource recovery from its reservoirs. Ovintiv’s disciplined capital program and continuous innovation create flexibility to allocate capital in changing commodity markets to maximize cash flows while preserving the long-term value of the Company’s multi-basin portfolio.

56

Production

In 2025, the Company expects full year average total production volumes of approximately 595 MBOE/d to 615 MBOE/d, including oil and plant condensate production volumes of approximately 202.0 Mbbls/d to 208.0 Mbbls/d, other NGLs production volumes of approximately 87.0 Mbbls/d to 92.0 Mbbls/d and natural gas production volumes of approximately 1,825 MMcf/d to 1,875 MMcf/d.

Operating Expenses

Ovintiv promotes a collaborative culture that values knowledge exchange, open communication, continuous improvement and learning. This culture stimulates innovation and fosters the creation of best practices resulting in efficiency improvements and enhanced operational performance for the Company.

In 2025, the Company expects to incur full year upstream transportation and processing costs of approximately $7.50 per BOE to $8.00 per BOE, upstream operating expenses of approximately $3.75 per BOE to $4.25 per BOE, and total production, mineral and other taxes of approximately 3.75 to 4.50 percent of upstream revenues.

Additional information on Ovintiv’s 2025 Corporate Guidance can be accessed on the Company’s website at www.ovintiv.com.

Environmental, Social and Governance

Ovintiv recognizes the importance of implementing and maintaining sustainable practices to reduce its environmental footprint. The Company voluntarily participates in emission reduction programs and has adopted a range of strategies to help reduce emissions from its operations. These strategies include incorporating new and proven technologies, optimizing processes in its operations and working closely with third-party providers to develop best practices. The Company continues to look for innovative techniques and efficiencies in support of its commitment to emission reductions.

In May 2024, Ovintiv published its 2023 Sustainability Report. The report highlights the Company’s 2023 environmental, social and governance results, and its progress in emissions intensity reductions with the goal to meet its Scope 1&2 GHG emissions target by 2030. As at the end of 2024, the Company had achieved a greater than 45 percent reduction in the Scope 1&2 GHG emissions intensity from 2019 levels and is on track to meet its emissions intensity reduction target of 50 percent by 2030 measured against the 2019 baseline. Ovintiv remains committed to its GHG emissions reduction target and has tied the target to the Company’s annual compensation program for all employees. In addition, Ovintiv continues to work towards eliminating routine flaring in its operations.

In conjunction with the Company’s strategy, Ovintiv may acquire assets to strengthen its multi-basin portfolio. All acquisitions are thoroughly assessed and evaluated for environmental impacts and alignment with the Company’s GHG emissions target. Ovintiv works to integrate sustainable practices within the acquired operations to support company-wide sustainability objectives.

The Company’s social commitment framework, which is rooted in the Company’s foundational values of integrity, safety, sustainability, trust and respect, reflects Ovintiv’s positive contributions to the communities where it operates and highlights the Company’s approach to enabling an inclusive culture that embraces diversity of thought, background and experience.

Ovintiv remains committed to protecting the health and safety of its workforce. Safety is a foundational value at Ovintiv and plays a critical role in the Company’s belief that a safe workplace is a strong indicator of a well-managed business. This safety-oriented mindset enables the Company to quickly respond to emergencies and minimize any impacts to employees and business continuity. Safety performance goals are incorporated into the Company’s annual compensation program. Additional information on talent management and employee safety can be found in the Human Capital section of Items 1 and 2 of this Annual Report on Form 10-K.

Further information on Ovintiv’s sustainable business practices are outlined in Items 1 and 2 of this Annual Report on Form 10-K, and on the Company’s sustainability website at sustainability.ovintiv.com.

57

Results of Operations

Selected Financial Information

(1)
In conjunction with the Segment Reclassification as discussed in the Highlights section of this MD&A, prior period results have been reclassified for comparative purposes.

(2)
Service revenues comprise third-party gathering and processing fees.

(3)
Total Operating Expenses include non-cash items such as DD&A, impairments, accretion of asset retirement obligations and long-term incentive costs.

Revenues

Ovintiv’s revenues are substantially derived from sales of oil, NGLs and natural gas production. Increases or decreases in Ovintiv’s revenue, profitability and future production are highly dependent on the commodity prices the Company receives. Prices are market driven and fluctuate due to factors beyond the Company’s control, such as supply and demand, seasonality and geopolitical and economic factors. The Company’s realized prices generally reflect WTI, NYMEX, Edmonton Condensate and AECO benchmark prices, as well as other downstream benchmarks, including Houston and Dawn. The Company proactively mitigates price risk and optimizes margins by entering into firm transportation contracts to diversify market access to different sales points. Realized prices, excluding the impact of risk management activities, may differ from the benchmarks for many reasons, including quality, location, or production being sold at different market hubs.

Benchmark prices relevant to the Company are shown in the table below.

Benchmark Prices

58

Production Volumes and Realized Prices

(1)
Average daily.

(2)
Average per-unit prices, excluding the impact of risk management activities.

(3)
Includes production impacts of acquisitions and divestitures. See Notes 8 and 9 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

59

Upstream Product Revenues, Excluding Realized Gains (Losses) on Risk Management

(1)
Revenues for 2023 exclude certain other revenue and royalty adjustments with no associated production volumes of $1 million.

(2)
In conjunction with the Segment Reclassification as discussed in the Highlights section of this MD&A, prior period results have been reclassified for comparative purposes.

Oil Revenues

2024 versus 2023

Oil revenues were higher by $112 million compared to 2023 primarily due to:

•
Higher average oil production volumes of 9.4 Mbbls/d increased revenues by $279 million. Higher volumes were primarily due to the Permian assets acquired in the second quarter of 2023 (21.1 Mbbls/d) and successful drilling in Uinta (7.5 Mbbls/d), partially offset by the sale of the Bakken assets in the second quarter of 2023 (9.3 Mbbls/d) and natural declines in Anadarko (8.7 Mbbls/d); and

•
A decrease of $2.56 per bbl, or three percent, in the average realized oil prices which decreased revenues by $167 million. The decrease reflected lower WTI and Houston benchmark prices which were both down two percent and the lower regional pricing relative to benchmark prices.

NGL Revenues

2024 versus 2023

NGL revenues were higher by $24 million compared to 2023 primarily due to:

•
An increase of $1.48 per bbl, or eight percent, in the average realized other NGL prices which increased revenues by $51 million. The increase reflected higher other NGL benchmark prices and higher regional pricing; and

•
A decrease of $2.18 per bbl, or three percent, in the average realized plant condensate prices which decreased revenues by $31 million. The decrease reflected the lower Edmonton Condensate benchmark price which was down three percent.

Natural Gas Revenues

2024 versus 2023

Natural gas revenues were lower by $590 million compared to 2023 primarily due to:

•
A decrease of $1.04 per Mcf, or 38 percent, in the average realized natural gas prices which decreased revenues by $650 million. The decrease reflected lower AECO, NYMEX and Dawn benchmark prices which were down 51 percent, 17 percent and 11 percent, respectively, and lower regional pricing relative to benchmark prices in the USA Operations; and

•
Higher average natural gas production volumes of 56 MMcf/d increased revenues by $60 million. Higher volumes were primarily due to successful drilling in Permian and Montney (73 MMcf/d), lower effective royalty rates resulting from lower commodity prices in Montney (46 MMcf/d), and the Permian assets acquired in the second quarter of 2023 (12 MMcf/d). The higher production volumes were partially offset by the sale of the Bakken assets in the second quarter of 2023 (23 MMcf/d), the shut-in of production in Other Canadian Operations in 2024 due to low commodity prices (20 MMcf/d), natural declines in Anadarko (17 MMcf/d), and third-party plant outages in Montney and Permian (15 MMcf/d).

60

Gains (Losses) on Risk Management, Net

As a means of managing commodity price volatility, Ovintiv enters into commodity derivative financial instruments on a portion of its expected oil, NGLs and natural gas production volumes. Additional information on the Company’s commodity price positions as at December 31, 2024 can be found in Note 25 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

The following table provides the effects of the Company’s risk management activities on revenues.

(1)
Other primarily includes realized gains or losses from other derivative contracts with no associated production volumes.

Ovintiv recognizes fair value changes from its risk management activities each reporting period. The changes in fair value result from new positions and settlements that occur during each period, as well as the relationship between contract prices and the associated forward curves. Realized gains or losses on risk management activities related to commodity price mitigation are included in the USA and Canadian Operations’ revenues as the contracts are cash settled. Unrealized gains or losses on fair value changes of unsettled contracts are included in the Corporate and Other segment. Additional information on fair value changes can be found in Note 24 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Sales of Purchased Product

Revenues from the sale of purchased product relate to activities that provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification within the USA and Canadian Operations segments.

(1)
In conjunction with the Segment Reclassification as discussed in the Highlights section in this MD&A, prior period results have been reclassified for comparative purposes.

2024 versus 2023

Sales of purchased product decreased $1,264 million compared to 2023 primarily due to:

•
Lower sales of third-party purchased volumes in the USA Operations ($1,170 million) and lower natural gas benchmark prices ($114 million);

partially offset by:

•
Higher realized third-party prices on sales of purchased oil volumes ($20 million).

Sublease Revenues

Sublease revenues primarily include amounts related to the sublease of office space in The Bow office building recorded in the Corporate and Other segment. Additional information on office sublease income can be found in Note 14 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

61

Operating Expenses

Production, Mineral and Other Taxes

Production, mineral and other taxes include production and property taxes. Production taxes are generally assessed as a percentage of oil, NGLs and natural gas production revenues. Property taxes are generally assessed based on the value of the underlying assets.

2024 versus 2023

Production, mineral and other taxes decreased $9 million compared to 2023 primarily due to:

•
The sale of the Bakken assets in the second quarter of 2023 ($26 million), lower production volumes in Anadarko ($18 million), lower production tax rates ($9 million) and lower natural gas commodity prices ($6 million);

partially offset by:

•
Higher volumes in Permian and Uinta ($42 million) and higher property taxes in Permian primarily due to the assets acquired in the second quarter of 2023 ($11 million).

Transportation and Processing

Transportation and processing expense includes transportation costs incurred to move product from production points to sales points including gathering, compression, pipeline tariffs, trucking and storage costs. Ovintiv also incurs costs related to processing provided by third parties or through ownership interests in processing facilities.

(1)
Other includes pipeline transportation fees associated with previously divested assets in the USA Operations of approximately $50 million (2023 - $136 million) and other third-party transportation and processing fees in the Canadian Operations of approximately $36 million (2023 - $27 million).

2024 versus 2023

Transportation and processing expense decreased $127 million compared to 2023 primarily due to:

•
An expired pipeline transportation contract ($86 million), the impact of new downstream contracts in Uinta ($53 million), the sale of the Bakken assets in the second quarter of 2023 ($46 million), lower flow-through rates in Montney ($20 million), lower production volumes in Anadarko ($18 million), a higher U.S./Canadian dollar exchange rate ($17 million), the shut-in of production in Other Canadian Operations in 2024 due to low commodity prices ($11 million) and lower variable contract rates in Permian ($4 million);

partially offset by:

•
Higher volumes in Permian, Uinta and Montney ($87 million), increased minimum volume commitments associated with certain gathering and processing assets in Montney ($20 million) and higher downstream transportation costs in Montney ($12 million).

62

Operating

Operating expense includes costs paid by the Company, net of amounts capitalized, on oil and natural gas properties in which Ovintiv has a working interest. These costs primarily include labor, service contract fees, chemicals, fuel, water hauling, electricity and workovers.

(1)
Other includes indirect internal costs of $11 million and $12 million in the USA and Canadian Operations, respectively (2023 - $14 million and $14 million, respectively).

2024 versus 2023

Operating expense increased $72 million compared to 2023 primarily due to:

•
Higher activity in Permian primarily related to the assets acquired in the second quarter of 2023 ($98 million), updates to operating contract terms, including a recovery of prior years’ costs in 2023 ($31 million), increased activity in Uinta primarily due to workovers ($10 million) and lower capitalization of directly attributable internal costs in Montney ($8 million);

partially offset by:

•
The sale of the Bakken assets in the second quarter of 2023 ($41 million) and decreased activity in Anadarko ($24 million).

Purchased Product

Purchased product expense includes purchases of oil, NGLs and natural gas from third parties that are used to provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification within the USA and Canadian Operations segments.

2024 versus 2023

Purchased product expense decreased $1,269 million compared to 2023 primarily due to:

•
Lower third-party purchased volumes in the USA Operations ($1,169 million) and lower natural gas benchmark prices ($119 million);

partially offset by:

•
Higher purchase prices on third-party oil volumes ($19 million).

63

Depreciation, Depletion & Amortization

Proved properties within each country cost center are depleted using the unit-of-production method based on proved reserves as discussed in Note 1 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Depletion rates are impacted by impairments, acquisitions, divestitures and foreign exchange rates, as well as fluctuations in 12-month average trailing prices which affect proved reserves volumes. Corporate assets are carried at cost and depreciated on a straight-line basis over the estimated service lives of the assets.

Additional information can be found under Upstream Assets and Reserve Estimates in the Critical Accounting Estimates section of this MD&A.

2024 versus 2023

DD&A increased $465 million compared to 2023 primarily due to:

•
Higher depletion rates and production volumes in the USA Operations ($384 million and $68 million, respectively).

The depletion rate in the USA Operations increased $3.04 per BOE compared to 2023 primarily due to a higher depletable base.

Ceiling Test Impairment

Under full cost accounting, the carrying amount of Ovintiv’s oil and natural gas properties within each country cost center is subject to a ceiling test performed quarterly. Ceiling test impairments are recognized when the capitalized costs, net of accumulated depletion and the related deferred income taxes, exceed the sum of the estimated after-tax future net cash flows from proved reserves as calculated under SEC requirements using the 12-month average trailing prices and discounted at 10 percent. The 12‑month average trailing price is calculated as the average of the price on the first day of each month within the trailing 12‑month period.

In 2024, the Company recognized a before-tax non-cash ceiling test impairment of $450 million in the Canadian Operations. The non-cash ceiling test impairment primarily resulted from the decline in the 12-month average trailing prices, which reduced proved reserves.

The 12-month average trailing prices used in the ceiling test calculations were based on the benchmark prices below. The benchmark prices were adjusted for basis differentials to determine local reference prices, transportation costs and tariffs, heat content and quality.

(1)
All prices were held constant in all future years when estimating net revenues and reserves.

Further declines in the 12‑month average trailing commodity prices could further reduce proved reserves values and result in the recognition of future ceiling test impairments. Future ceiling test impairments can also result from changes to reserves estimates, future development costs, capitalized costs and unproved property costs. Moreover, acquisitions

64

of oil and natural gas assets are transacted at market prices, which may be higher than the SEC average trailing prices at the reporting date and could result in the recognition of a ceiling test impairment. Proceeds received from oil and natural gas divestitures are typically deducted from the Company’s capitalized costs and can reduce the risk of ceiling test impairments.

On January 31, 2025, the Company closed its previously announced Montney Acquisition, as discussed in the Significant Developments and Subsequent Events section of this MD&A. The acquisition was recognized at its purchased value using market prices. On March 31, 2025, when Ovintiv performs its required ceiling test for the Canadian cost center, the Company expects the 12-month average trailing prices used in the ceiling test calculation to be lower than the market prices used in the valuation of the Montney Acquisition. Accordingly, the Company expects to recognize an after-tax impairment in the Canadian cost center between approximately $400 million to $600 million for the three months ended March 31, 2025. No impairment is expected in the U.S. cost center.

The additional estimated after-tax ceiling test impairment is not expected to impact proved undeveloped reserves for the Canadian Operations. Due to uncertainties in estimating proved reserves, the additional after-tax ceiling test impairment described above and resulting implications may not be indicative of Ovintiv’s future development plans, operating or financial results.

The Company believes that the discounted after-tax future net cash flows from proved reserves required to be used in the ceiling test calculation are not indicative of the fair market value of Ovintiv’s oil and natural gas properties or the future net cash flows expected to be generated from such properties. The discounted after-tax future net cash flows do not consider the fair market value of unamortized unproved properties, or probable or possible liquids and natural gas reserves. In addition, there is no consideration given to the effect of future changes in commodity prices. Ovintiv manages its business using estimates of reserves and resources based on forecast prices and costs. Additional information on the ceiling test calculation can be found in Note 10 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Administrative

Administrative expense represents costs associated with corporate functions provided by Ovintiv staff. These expenses primarily include salaries and benefits, operating leases, office, information technology, transaction, restructuring and long-term incentive costs.

(1)
Includes costs related to The Bow office lease of $116 million (2023 - $114 million), half of which is recovered from sublease revenues.

2024 versus 2023

Administrative expense decreased $28 million compared to 2023 primarily due to:

•
Transaction costs incurred mainly related to the Permian assets acquired in the second quarter of 2023 ($83 million);

partially offset by:

•
Restructuring costs incurred in 2024 ($27 million), higher long-term incentive costs resulting from changes in the Company’s share price in 2023 ($18 million), and increases in travel and legal costs ($9 million).

In October 2024, Ovintiv undertook a plan to reduce its workforce by approximately 10 percent as part of a corporate reorganization. Additional information on restructuring charges and long-term incentive costs can be found in Notes 21 and 22 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

65

Other (Income) Expenses

Interest

Interest expense primarily includes interest on Ovintiv’s short-term and long-term debt. Additional information on changes in interest can be found in Note 4 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

2024 versus 2023

Interest expense increased $57 million compared to 2023 primarily due to:

•
Interest expense related to the senior unsecured notes issued in May 2023 ($57 million) and bridge loan financing fees related to the Montney Acquisition as discussed in the Highlights section in this MD&A ($12 million);

partially offset by:

•
Decreased amounts drawn from the Company’s short-term borrowings ($9 million).

Foreign Exchange (Gain) Loss, Net

Foreign exchange gains and losses primarily result from the impact of fluctuations in the Canadian to U.S. dollar exchange rate. Additional information on changes in foreign exchange gains or losses can be found in Notes 5 and 25 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Additional information on foreign exchange rates and the effects of foreign exchange rate changes can be found in Item 7A of this Annual Report on Form 10-K.

2024 versus 2023

Net foreign exchange gain of $19 million compared to a loss of $19 million in 2023 primarily due to:

•
Unrealized foreign exchange gains on the translation of intercompany notes compared to losses in 2023 ($71 million), realized foreign exchange gains on the settlement of intercompany notes compared to losses in 2023 ($49 million) and gains on other monetary revaluations compared to losses in 2023 ($26 million);

partially offset by:

•
Unrealized foreign exchange losses on the translation of U.S. dollar risk management contracts issued from Canada compared to gains in 2023 ($112 million).

Other (Gains) Losses, Net

Other (gains) losses, net, primarily includes other non-recurring revenues or expenses and may also include items such as interest income, reclamation charges related to decommissioned assets, proceeds related to previously divested assets and adjustments related to other assets.

During 2024, the Company received settlement proceeds of approximately $156 million related to the previous dispositions of certain legacy assets. Accordingly, the Company recognized total net proceeds of $156 million as a gain within Other (gains) losses, net. Additional information on the net settlement proceeds can be found in Note 8 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Other gains in 2024 also includes interest income of $7 million primarily generated from short-term investments (2023 ‑ $11 million).

66

Income Tax

In 2024, current income tax expense in the U.S. of $8 million is lower than 2023 primarily due to the impact of the corporate alternative minimum tax and lower state income tax expense. In Canada, the current income tax expense in 2024 of $74 million is lower than 2023 primarily due to the recognition of prior year deferred income in 2023.

The determination of income and other tax liabilities of the Company and its subsidiaries requires interpretation of complex domestic and foreign tax laws and regulations, that are subject to change. The Company’s interpretation of tax laws may differ from the interpretation of the tax authorities. As a result, there are tax matters under review for which the timing of resolution is uncertain. The Company believes that the provision for income taxes is adequate.

On June 20, 2024, Canada enacted its Global Minimum Tax Act (“GMTA”), which implements the Organization for Economic Cooperation and Development Pillar II framework, providing a global minimum tax rate of 15 percent. The GMTA did not have a material impact to the Company’s Consolidated Financial Statements in 2024.

Additional information on income taxes can be found in Note 6 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Liquidity and Capital Resources

Sources of Liquidity

The Company has the flexibility to access cash equivalents and a range of funding alternatives at competitive rates through committed revolving credit facilities as well as debt and equity capital markets. Ovintiv closely monitors the accessibility of cost-effective credit and ensures that sufficient liquidity is in place to fund capital expenditures and dividend payments. In addition, the Company may use cash and cash equivalents, cash from operating activities, or proceeds from asset divestitures to fund its operations and capital allocation framework or to manage its capital structure as discussed below. At December 31, 2024, $38 million in cash and cash equivalents was held by Canadian subsidiaries. The cash held by Canadian subsidiaries is accessible and may be subject to additional U.S. income taxes and Canadian withholding taxes if repatriated.

The Company’s capital structure consists of total shareholders’ equity plus long-term debt, including any current portion. The Company’s objectives when managing its capital structure are to maintain financial flexibility to preserve Ovintiv’s access to capital markets and its ability to meet financial obligations and finance internally generated growth, as well as potential acquisitions. Ovintiv has a practice of maintaining capital discipline and strategically managing its capital structure by adjusting capital spending, adjusting dividends paid to shareholders, issuing new shares of common stock, purchasing shares of common stock for cancellation or return to treasury, issuing new debt and repaying or repurchasing existing debt.

(1)
Includes three uncommitted demand lines totaling $295 million, net of $204 million in related undrawn letters of credit (2023 - $289 million and $55 million, respectively).

(2)
These measures are defined in the Non-GAAP Measures section of this MD&A.

67

In December 2024, the Company renewed its committed revolving credit facilities, extending the maturity dates to December 2029. The Company continues to have full access to two committed revolving U.S. dollar denominated credit facilities totaling $3.5 billion, which include a $2.2 billion revolving credit facility for Ovintiv Inc. and a $1.3 billion revolving credit facility for a Canadian subsidiary (collectively, the “Credit Facilities”). The Credit Facilities provide financial flexibility and allow the Company to fund its operations or capital investment program. At December 31, 2024, there were no outstanding amounts under the revolving Credit Facilities.

Depending on the Company’s credit rating and market demand, the Company may issue from its two U.S. commercial paper (“CP”) programs, which include a $1.5 billion program for Ovintiv Inc. and a $1.0 billion program for a Canadian subsidiary. As at December 31, 2024, the Company had no balance outstanding under its U.S. CP program. All of Ovintiv’s credit ratings are investment grade as at December 31, 2024 and were reaffirmed following the announcement of the Montney Acquisition.

As at December 31, 2024, the available Credit Facilities, uncommitted demand lines, and cash and cash equivalents provide Ovintiv with total liquidity of approximately $3.6 billion. Ovintiv also had approximately $204 million in undrawn letters of credit issued in the normal course of business as collateral security, primarily related to sales arrangements.

On December 10, 2024, to facilitate its previously announced Montney Acquisition, the Company entered into two term facilities which consist of a $1.5 billion 364-day Asset Sale Term Facility and a $1.0 billion 2-year Term Facility. As at December 31, 2024, the Company had no outstanding borrowings under the two term facilities.

On January 22, 2025, the Company closed its previously announced Uinta divestiture and received net proceeds of approximately $2.0 billion which was used to fund the majority of the Montney Acquisition as discussed above. In conjunction with the closing of the Uinta divestiture, the 364-day Asset Sale Term Facility was terminated.

On January 31, 2025, the Company closed its Montney Acquisition. Ovintiv funded the Montney Acquisition through a combination of cash proceeds received from the sale of the Uinta assets, cash on hand, as well as short-term borrowings. Following the closing of the Montney Acquisition, the 2-year Term Facility was terminated.

Additional information on the term facilities, and the Uinta divestiture and Montney Acquisition can be found in Notes 15 and 28, respectively, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Ovintiv has a U.S. shelf registration statement under which the Company may issue from time to time, debt securities, common stock, preferred stock, warrants, units, share purchase contracts and share purchase units in the U.S. The U.S. shelf registration statement expires in March 2026.

The obligations under the Company’s existing debt securities are fully and unconditionally guaranteed on a senior unsecured basis by Ovintiv Canada ULC, an indirect wholly-owned subsidiary of the Company. Additional information on the Company’s Canadian Operations segment and the Bow office lease can be found in the Results of Operations section in this MD&A and in the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Ovintiv is currently in compliance with all financial covenants under the Credit Facilities. Management monitors Debt to Adjusted Capitalization, which is a non-GAAP measure defined in the Non-GAAP Measures section of this MD&A, as a proxy for Ovintiv’s financial covenant under the Credit Facilities, which requires Debt to Adjusted Capitalization to be less than 60 percent. As at December 31, 2024, the Company’s Debt to Adjusted Capitalization was 23 percent. The definitions used in the covenant under the Credit Facilities adjust capitalization for cumulative historical ceiling test impairments recorded in conjunction with the Company’s January 1, 2012 adoption of U.S. GAAP. Additional information on financial covenants can be found in Note 15 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

68

Sources and Uses of Cash

The following table summarizes the sources and uses of the Company’s cash and cash equivalents.

Operating Activities

Net cash from operating activities in 2024 was $3,721 million and was primarily a reflection of the impacts from average realized commodity prices, production volumes, changes in non‑cash working capital and realized gains/losses on risk management.

Additional detail on changes in non-cash working capital can be found in Note 26 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Ovintiv expects it will continue to meet the payment terms of its suppliers.

Non-GAAP Cash Flow in 2024 was $4,042 million and was primarily impacted by the items affecting cash from operating activities which are discussed below and in the Results of Operations section of this MD&A.

2024 versus 2023

Net cash from operating activities decreased $446 million compared to 2023 primarily due to:

•
Lower realized commodity prices ($797 million), changes in non-cash working capital ($577 million), higher operating expense, excluding non-cash long-term incentive costs ($80 million) and higher interest expense ($56 million);

partially offset by:

•
Higher production volumes ($343 million), realized gains on risk management in revenues compared to losses in 2023 ($314 million), a decrease in current income tax expense ($199 million), lower transportation and processing expense ($127 million), and lower administrative expense, excluding non-cash long-term incentive costs ($58 million).

Investing Activities

The Company’s primary investing activities are capital expenditures, acquisitions and proceeds from divestitures, which are summarized in Notes 2 and 8 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10‑K.

69

2024 and 2023

Net cash used in investing activities in 2024 was $2,457 million primarily due to capital expenditures and acquisitions in the USA Operations. Capital expenditures decreased $441 million compared to 2023 primarily due to decreased completions activity in Montney, Anadarko and Permian, drilling efficiencies in Uinta, and the sale of the Bakken assets in the second quarter of 2023, partially offset by increased capital inventory.

Acquisitions in 2024 were $205 million, which primarily included property purchases with oil and liquids-rich potential in the USA Operations (2023 - $277 million).

Corporate acquisitions in 2024 included the final cash settlements of $12 million related to the Permian Acquisition in the second quarter of 2023. Corporate acquisitions in 2023 were $3,225 million, which related to the Permian Acquisition. Additional information regarding the Permian Acquisition can be found in Note 9 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Proceeds from divestitures in 2024 were $7 million, which included certain properties that did not complement Ovintiv’s existing portfolio of assets. Proceeds from divestitures also included total net settlement proceeds of approximately $156 million related to the previous dispositions of certain legacy assets. Divestitures in 2023 were $772 million, which primarily included the sale of the Bakken assets in North Dakota and certain properties that did not complement Ovintiv’s existing portfolio of assets.

Financing Activities

Net cash from and/or used in financing activities has been impacted by Ovintiv’s strategic objective to return value to shareholders by repaying existing debt, purchasing shares of common stock and paying dividends.

2024 versus 2023

Net cash used in financing activities in 2024 was $1,231 million compared to net cash from financing activities of $1,359 million in 2023. The change was primarily due to the net issuance of long-term debt in 2023 of $2,278 million, increased net repayment of revolving debt ($175 million) and increased purchases of shares of common stock in 2024 compared to 2023 ($171 million).

The Company’s long-term debt, including the current portion of $600 million, totaled $5,453 million at December 31, 2024. The Company has $600 million of fixed rate long-term debt due in May 2025 and expects to have a total long-term debt balance of less than $5.0 billion by the end of 2025. The Company’s long-term debt at December 31, 2023 totaled $5,737 million, including the current portion of $284 million.

In support of the Company’s commitment to enhancing shareholder value, Ovintiv utilizes its capital allocation framework to provide competitive returns to shareholders while strengthening its balance sheet. In conjunction with the announced transactions as discussed in the Significant Developments and Subsequent Events section of this MD&A, the Company has temporarily paused its share buyback program, starting in October 2024, and expects to resume the buybacks in the second quarter of 2025. Dividends declared and paid by the Company are expected to remain unchanged.

For additional information on long-term debt, refer to Note 15 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Dividends

The Company pays quarterly dividends to common shareholders at the discretion of the Board of Directors.

On February 26, 2025, the Board of Directors declared a dividend of $0.30 per share of common stock payable on March 31, 2025 to common shareholders of record as of March 14, 2025.

70

Dividends increased $9 million compared to 2023 as a result of Ovintiv increasing its annualized dividend to $1.20 per share of common stock in the second quarter of 2023. The dividend increase reflects the Company’s commitment to returning capital to shareholders.

Normal Course Issuer Bid

On September 26, 2024, the Company announced it had received regulatory approval for the renewal of its NCIB program, which enables the Company to purchase, for cancellation or return to treasury, up to approximately 25.9 million shares of common stock over a 12-month period from October 3, 2024 to October 2, 2025. The number of shares authorized for purchase represents 10 percent of Ovintiv’s public float as at September 20, 2024. The Company expects to execute the renewed NCIB program in conjunction with its capital allocation framework in the second quarter of 2025.

During 2024, the Company purchased for cancellation, approximately 12.7 million shares of common stock for total consideration of approximately $597 million.

For additional information on the NCIB, refer to Note 18 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Material Cash Requirements

Ovintiv’s material cash requirements include various contractual obligations arising from long-term debt, operating leases, risk management liabilities and asset retirement obligations which are recognized in the Company’s Consolidated Balance Sheet. The Company expects to fund long-term material cash requirements primarily with cash from operating activities.

Interest payments include scheduled cash payments on finance leases, long-term debt, and other obligations. Additional information can be found in Notes 14 and 15 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Operating leases include drilling rigs, compressors, office and buildings, certain land easements and various equipment utilized in the development and production of oil, NGLs and natural gas, as well as The Bow building. As at December 31, 2024, the Company subleased approximately 50 percent of The Bow office space under the lease agreement. Additional information on leases can be found in Note 14 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Risk management liabilities represent Ovintiv’s net liability positions with counterparties. Additional information can be found in Note 25 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10‑K.

Contractual commitments relating to transportation and processing commitments, and drilling and field services can be found in Note 27 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10‑K.

Further to the commitments discussed above, Ovintiv also has various obligations that become payable if certain future events occur relating to take or pay arrangements and payout of minimum costs as described in Notes 20 and 27 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

In addition, the Company has obligations to fund the disposal of long-lived assets upon their abandonment as well as its obligations to fund its defined benefit pension and other post-employment benefit plans as described in Notes 17 and 23, respectively, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10‑K.

Other than the items discussed above, there are no other transactions, arrangements, or relationships with unconsolidated entities or persons that are reasonably likely to materially affect the Company’s liquidity or the availability of, or requirements for, capital resources.

Contingencies

For information on contingencies, refer to Note 27 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

71

Accounting Policies and Estimates

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. For a discussion of the Company’s significant accounting policies refer to Note 1 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates. Management considers the following to be its most critical accounting estimates that involve judgment. The following discussion outlines the accounting policies and practices involving the use of estimates that are critical to determining Ovintiv’s financial results. Changes in the estimates and assumptions discussed below could materially affect the amount or timing of the financial results of the Company.

72

73

74

75

Non-GAAP Measures

Certain measures in this document do not have any standardized meaning as prescribed by U.S. GAAP and, therefore, are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers and should not be viewed as a substitute for measures reported under U.S. GAAP. These measures are commonly used in the oil and gas industry and by Ovintiv to provide shareholders and potential investors with additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. Non-GAAP measures include: Non-GAAP Cash Flow, Debt to Adjusted Capitalization, Debt to EBITDA and Debt to Adjusted EBITDA. Management’s use of these measures is discussed further below.

Cash from Operating Activities and Non-GAAP Cash Flow

Non-GAAP Cash Flow is a non-GAAP measure defined as cash from (used in) operating activities excluding net change in other assets and liabilities, and net change in non-cash working capital.

Management believes this measure is useful to the Company and its investors as a measure of operating and financial performance across periods and against other companies in the industry, and is an indication of the Company’s ability to generate cash to finance capital investment programs, to service debt and to meet other financial obligations. This measure is used, along with other measures, in the calculation of certain performance targets for the Company’s management and employees.

Debt to Capitalization and Debt to Adjusted Capitalization

Debt to Adjusted Capitalization is a non-GAAP measure which adjusts capitalization for historical ceiling test impairments that were recorded as at December 31, 2011. Management monitors Debt to Adjusted Capitalization as a proxy for the Company’s financial covenant under the Credit Facilities which require Debt to Adjusted Capitalization to be less than 60 percent. Adjusted Capitalization includes debt, total shareholders’ equity and an equity adjustment for cumulative historical ceiling test impairments recorded as at December 31, 2011 in conjunction with the Company’s January 1, 2012 adoption of U.S. GAAP.

76

Debt to EBITDA and Debt to Adjusted EBITDA

Debt to EBITDA and Debt to Adjusted EBITDA are non-GAAP measures. EBITDA is defined as trailing 12‑month net earnings (loss) before income taxes, depreciation, depletion and amortization, and interest. Adjusted EBITDA is EBITDA adjusted for impairments, accretion of asset retirement obligation, unrealized gains/losses on risk management, foreign exchange gains/losses, gains/losses on divestitures and other gains/losses.

Management believes these measures are useful to the Company and its investors as a measure of financial leverage and the Company’s ability to service its debt and other financial obligations. These measures are used, along with other measures, in the calculation of certain financial performance targets for the Company’s management and employees.

77