Ovintiv Inc. has announced a significant move in the Canadian oil market with its $3.8 billion acquisition of NuVista Energy Ltd. This deal highlights a trend of consolidation in the oil industry, with Ovintiv focusing more on its Canadian assets while divesting from U.S. properties.

The acquisition, which was made public this week, involves Ovintiv offering approximately $18 per share in cash and stock. This strategic shift is seen as a way for Ovintiv to concentrate on two key areas: the Permian Basin in Texas and the Montney formation in Western Canada. Michael Tims, vice-chair of Matco Investments, noted, "It’s hard to read it as anything other than a repositioning of the portfolio to put a higher weight on Canada."

This acquisition is part of a broader trend where both Canadian and U.S. companies are looking to expand their presence in the Montney and Duvernay formations, which are rich in natural resources. Eric Nuttall, a senior portfolio manager at Ninepoint Partners, remarked, "It’s yet another example of the mid-cap space being hollowed out."

Ovintiv, which was formerly known as Encana, has a long-standing history in the Montney region. CEO Brendan McCracken stated, "I was around when we drilled some of the first (Montney) horizontal wells in 2006." He emphasized the significance of the Montney and Permian basins, calling them the "top two oil basins in North America."

NuVista, established in 2003, has grown through both organic development and acquisitions. The company recently produced about 74,000 barrels of oil equivalent (boe) per day and projected reaching 100,000 boe per day by the end of the year. Ovintiv already produces over 300,000 boe per day from the Montney, contributing to its total output of 630,000 boe per day.

The Montney formation has seen a production increase of 40% since 2020, reaching 2.2 million boe per day, according to energy analytics firm Enverus. The Canadian oil and gas sector has experienced over $40 billion in mergers and acquisitions since the start of the fourth quarter last year, marking a historic wave of consolidation. Andrew Dittmar, a principal analyst at Enverus Intelligence Research, noted that Ovintiv's longstanding position in the Montney has positioned the company well to take advantage of the favorable M&A environment.

In addition to the acquisition, Ovintiv plans to sell its assets in the Anadarko basin in Oklahoma, which produced about 102,000 boe per day in the third quarter. The company aims to use the proceeds from this sale to reduce its debt. McCracken explained, "If you step back and look at the last four years, we have made a strategic move to focus our business in the Permian and the Montney."

This acquisition is part of a larger trend of consolidation among Canadian oil producers. Recent notable transactions include Veren's merger with Whitecap Resources and Cenovus Energy's $8.6 billion takeover of MEG Energy, which was approved by shareholders. Since 2011, the number of oil and gas operators listed on the Toronto Stock Exchange has decreased by nearly 70%.

Analysts suggest that Canada offers more undeveloped high-quality acreage compared to U.S. shale plays, making it an attractive target for U.S. companies. David Szybunka, a senior portfolio manager with Canoe Financial, noted, "There are producers looking to buy assets, there’s private equity looking to buy assets... there are U.S. producers... that are now looking back to Canada."

As Ovintiv continues to reshape its portfolio, the company is poised to play a significant role in the evolving landscape of the Canadian oil industry.