UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-39191

Ovintiv Inc.

(Exact name of registrant as specified in its charter)

Delaware		84-4427672
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

(Address of principal executive offices)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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

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

Yes ☐ No ☒

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares	OVV	New York Stock Exchange


Number of registrant’s shares of common stock outstanding as of October ~~23, 2020~~29, 2021			~~259,860,778~~261,084,425

OVINTIV INC.

FORM 10-Q

TABLE OF CONTENTS

	PART I

Item 1.	Financial Statements	67
	Condensed Consolidated Statement of Earnings	67
	Condensed Consolidated Statement of Comprehensive Income	67
	Condensed Consolidated Balance Sheet	78
	Condensed Consolidated Statement of Changes in Shareholders’ Equity	89
	Condensed Consolidated Statement of Cash Flows	1011
	Notes to Condensed Consolidated Financial Statements	1112

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3936
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6964
Item 4.	Controls and Procedures	7166

	PART II

Item 1.	Legal Proceedings	7267
Item 1A.	Risk Factors	7267
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7367
Item 3.	Defaults Upon Senior Securities	7367
Item 4.	Mine Safety Disclosures	7367
Item 5.	Other Information	7367
Item 6.	Exhibits	7367
Signatures		7469

DEFINITIONS

Unless the context otherwise indicates, references to ~~“Ovintiv,” the “Company,”~~ “us,” “we,” “our,” “ours,” ~~(i)~~“Ovintiv,” and the “Company,” refer to Ovintiv Inc. and its consolidated subsidiaries for periods ~~until the Reorganization (as hereinafter defined), refer~~after January 24, 2020 and to Encana Corporation and its consolidated subsidiaries ~~and (ii)~~ for periods ~~after the Reorganization, refer to Ovintiv Inc. and its consolidated subsidiaries.~~before January 24, 2020. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:

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

“ASU” means Accounting Standards Update.

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

“BOE” means barrels of oil equivalent.

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

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

“ESG” means environmental, social and governance.

“FASB” means Financial Accounting Standards Board.

“GHG” means greenhouse gas.

“Mbbls/d” means thousand barrels per day.

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

“Mcf” means thousand cubic feet.

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

“MMBOE” means million barrels of oil equivalent.

“MMBtu” means million Btu.

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

“NCIB” means normal course issuer bid.

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

“NYMEX” means New York Mercantile Exchange.

“NYSE” means New York Stock Exchange.

“OPEC” means Organization of the Petroleum Exporting Countries.

“SEC” means United States Securities and Exchange Commission.

“SIB” means substantial issuer bid.

“TSX” means Toronto Stock Exchange.

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

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

“WTI” means West Texas Intermediate.

CONVERSIONS

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

CONVENTIONS

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

The terms “include”, “includes”, “including” and “included” are to be construed as if they were immediately followed by the words “without limitation”, except where explicitly stated otherwise.

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

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

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

FORWARD-LOOKING STATEMENTS AND RISK

This Quarterly Report on Form 10-Q contains certain forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation, including Section 27A of the ~~United States Private~~ Securities ~~Litigation Reform~~ Act of ~~1995.~~1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, except for statements of historical fact, that relate to the anticipated future activities, plans, strategies, objectives or expectations of the Company are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the use of words and phrases including “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “focused on,” “forecast,” “guidance,” “intends,” “maintain,” “may,” “opportunities,” “outlook,” “plans,” “potential,” “strategy,” “targets,” “will,” “would” and other similar terminology is intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words or phrases. Forward-looking statements ~~include:~~include statements regarding: expectations of plans, strategies and objectives of the Company, including anticipated activity and investment levels; composition of the Company’s core assets, including allocation of capital and focus of development plans; the Company’s capital allocation strategy, focus of investment, growth in long-term shareholder value; vision of being a leading North American energy producer; statements with respect to the Company’s strategic objectives, including capital allocation strategy, shut-in strategy, focus of investment,value, return of capital to ~~stockholders,~~shareholders through dividends and/or share buybacks, growth of high margin liquids volumes, operating and capital efficiencies and ability to preserve balance sheet strength; ~~statements regarding~~ the benefits of the Company’s multi-basin ~~portfolio; statements regarding~~portfolio, including operational flexibility and the ability to repeat and deploy successful operational learnings; the Company’s ~~updated capital plan; statements regarding~~ability to maximize cash flows and the ~~Company’s~~ application of excess cash flows to reduce long-term debt; the ability of the Company to ~~maximize~~timely meet and maintain certain targets contained in the Company’s corporate guidance, including with respect to capital efficiency, hydrocarbon production, cash ~~flow through a disciplined capital allocation strategy;~~flows generation, debt reduction, GHG emissions and ESG performance, and cash returns to shareholders; anticipated cost savings, capital efficiency and sustainability thereof; ~~ability to repeat~~anticipated oil, NGL and ~~deploy successful practices across the Company’s multi-basin portfolio; anticipated commodity~~natural gas prices; anticipated success of, and benefits from, technology and innovation, including the cube development approach, Simul-Frac techniques and other new or advanced drilling or well completion designs; ~~ability to optimize well and completion designs; future well inventory;~~ anticipated drilling activity, including the number of drilling rigs utilized and ~~the~~ success thereof; anticipated well inventory, drilling costs and cycle times; anticipated proceeds and future benefits from various joint venture, partnership and other agreements; ~~potential impacts of an extended period of low commodity prices and responses of the Company thereto;~~ estimates of oil and natural gas reserves and ~~resources and potential for negative price related reserve revisions;~~recoverable quantities; expected production and product types; ~~anticipated~~expected future interest expense; the Company’s ability to access ~~to cash, cash equivalents~~credit facilities and other methods of ~~funding; anticipated hedging~~funding, meet financial obligations, manage debt and financial ratios, finance growth and comply with financial covenants; the implementation and outcomes of risk management ~~program,~~programs, including exposure to certain commodity prices and foreign exchange fluctuations, ~~amount~~the volume of production hedged, ~~production, market access~~ and the markets or physical sales ~~locations;~~locations hedged; the impact of changes in laws and regulations; anticipated compliance with environmental ~~legislation and claims related to the purported causes and impact of climate change, and the costs therefrom;~~legislation; adequacy of provisions for abandonment and site reclamation costs; ~~statements regarding~~ the Company’s operational and financial flexibility, discipline and ability to respond to evolving market conditions; ~~ability to meet financial obligations, manage debt and financial ratios, finance growth and comply with financial covenants; impact~~impacts to the Company as a result of a reduction of its credit rating; ~~access to the Company’s credit facilities; planned dividend and~~ the declaration and payment of future dividends, if any; expectations with respect to the Company’s restructuring initiative, including anticipated transition and severance costs and the timing thereof; adequacy of the Company’s provision

for taxes and legal claims; ~~projections and statements in respect of funding;~~the Company’s ability to manage cost inflation and expected cost structures, including expected operating, transportation, ~~and~~ processing and administrative expenses; competitiveness ~~and pace of growth~~ of the ~~Company’s assets within North America and~~Company against its ~~peers;~~peers, including with respect to capital, materials, people, assets and production; global oil, NGL and natural gas inventories and global demand for oil, NGL and natural gas; the outlook of the oil and gas industry generally, ~~and impact of~~including impacts from changes to the geopolitical environment; ~~expected future interest expense;~~ the Company’s commitments and contingencies and anticipated payments thereunder; and the possible impact of accounting pronouncements, rule changes and standards.

Readers are cautioned against unduly relying on forward-looking statements which, by their nature, involve numerous assumptions and are subject to both known and unknown risks and uncertainties (many of which are beyond our control) that may cause such statements not to occur, or actual results to differ materially and/or adversely from those expressed or implied. These assumptions include: future commodity prices and basis differentials; future foreign exchange rates; the ability of the Company to access credit facilities and shelf prospectuses; data contained in key modeling statistics; the availability of attractive commodity or financial hedges and the enforceability of risk management ~~program; effectiveness of~~programs; the Company’s ~~drive~~ability to capture and maintain gains in productivity and ~~efficiencies; results~~efficiency; benefits from technology and innovations; ~~expectation~~expectations that counterparties will fulfill their obligations ~~under the~~pursuant to gathering, ~~midstream~~processing, transportation and marketing agreements; access to adequate gathering, transportation, processing and ~~processing facilities where Ovintiv operates;~~storage facilities; assumed tax, royalty and regulatory regimes; ~~assumptions contained herein and~~ expectations and projections made in light of, and generally consistent with,

~~Ovintiv’s~~ the Company’s historical experience and its perception of historical industry trends, including with respect to the pace of technological ~~development, benefits achieved~~development; and ~~general industry expectations.~~the other assumptions contained herein.

Risks and uncertainties that may affect ~~these business outcomes~~the Company’s financial or operating performance include: ~~suspension of or changes to guidance, and associated impact to production; ability to generate sufficient cash flow to meet obligations;~~ market and commodity price volatility, including widening price or basis differentials, and the associated impact to the Company’s stock price, credit rating, financial condition, oil and natural gas reserves and access to liquidity; uncertainties, costs and risks involved in our operations, including hazards and risks incidental to both the drilling and completion of wells and the production, transportation, marketing and sale of oil, NGL and natural gas; availability of equipment, services, resources and personnel required to perform the Company’s operating activities; suspension of or changes to corporate guidance, and associated impacts to production and cash flows; our ability to generate sufficient cash flows to meet our obligations and reduce debt; the impact of COVID-19 (or other future pandemics) on commodity prices and to the Company’s operations, including maintaining ~~ordinary~~adequate staffing levels, securing operational inputs, executing ~~on portions~~all or a portion of ~~its~~our business plan and managing cyber-security risks associated with remote work; our ability to secure adequate ~~transportation;~~transportation and storage for oil, NGL and natural gas, as well as access to end markets or physical sales locations; interruptions to oil, NGL and natural gas production, including potential curtailments of ~~refinery operations, including resulting storage constraints~~gathering, transportation or ~~widening price differentials;~~refining operations; variability and discretion of ~~Ovintiv’s~~the Company’s board of directors (the “Board of Directors”) to declare and pay dividends, if any; the timing and costs associated with drilling and completing wells, and the construction of well facilities and ~~pipeline construction;~~gathering and transportation pipelines; business interruption, property and casualty losses (including weather related losses) or unexpected technical difficulties ~~including impact of weather;~~and the extent to which insurance covers any such losses; risks associated with decommissioning activities, including timing and costs thereof; counterparty and credit risk; the impact of changes in our credit rating and access to liquidity, including costs thereof; changes in political or economic conditions in the U.S. and Canada, including fluctuations in ~~currency~~foreign exchange rates, interest rates and ~~interest~~inflation rates; failure to achieve or maintain our cost and efficiency initiatives; ~~risks inherent in marketing operations;~~ risks associated with technology, including electronic, cyber and physical security breaches; changes in ~~or interpretation of~~ royalty, tax, environmental, ~~greenhouse gas,~~GHG, carbon, accounting and other laws or ~~regulations;~~regulations or the interpretations thereof; our ability to timely obtain environmental or other necessary government permits or approvals; the Company’s ability to utilize U.S. net operating loss carryforwards and other tax attributes; risks associated with existing and potential lawsuits and regulatory actions made against the Company; risks related to the purported causes and impact of climate change, and the costs therefrom; the impact of disputes arising with ~~its~~our partners, including suspension of certain obligations and inability to dispose of assets or interests in certain arrangements; the Company’s ability to acquire or find additional oil and natural gas reserves; imprecision of oil and natural gas reserves estimates and estimates of recoverable quantities, including the impact to future net revenue estimates; risks associated with past and future acquisitions or divestitures of ~~certain~~oil and natural gas assets, ~~or other transactions or~~including the receipt of any contingent amounts contemplated ~~under~~in the transaction agreements (such transactions may include third-party capital investments, farm-ins, farm-outs or partnerships, which ~~Ovintiv~~the Company may refer to from time to time as “partnerships” or “joint ventures” and the funds received in respect thereof which ~~Ovintiv~~the Company may refer to from time to time as “proceeds”, “deferred purchase price” and/or “carry capital”, regardless of the legal form) ~~as a result~~; our ability to repurchase the Company’s outstanding common shares, including risks associated with obtaining any necessary stock exchange approvals; the existence of ~~various conditions not being met;~~alternative uses for the Company’s cash resources which may be superior to the payment of dividends or effecting repurchases of the Company’s outstanding common shares; risks and ~~other risks~~uncertainties described in Item 1A. Risk Factors of the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Annual Report

on Form 10-K”) and in this Quarterly Report on Form ~~10-Q,~~10-Q; and other risks and uncertainties impacting ~~Ovintiv’s~~the Company’s business as described from time to time in the Company’s other periodic filings with the ~~SEC.~~SEC or Canadian securities regulators.

~~Although the Company believes the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.~~ Readers are cautioned that the assumptions, risks and uncertainties referenced above are not exhaustive. ~~Forward-looking~~Although the Company believes the expectations represented by its forward-looking statements are reasonable based on the information available to it as of the date such statements are made, forward-looking statements are only predictions and statements of our current beliefs and there can be no assurance that such expectations will prove to be correct. All forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this document and, except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q and all subsequent forward-looking statements attributable to the Company, whether written or oral, are expressly qualified by these cautionary statements.

The reader should read carefully the risk factors described in Item 1A. Risk Factors of the ~~2019~~2020 Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.

PART I

Item 1. Financial Statements

Condensed Consolidated Statement of Earnings (unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

(US$ millions, except per share amounts)

2020

2019

2020

2019

Revenues

(Note 3)

Product and service revenues

(Note 4)

$
1,326

$
1,771

$
3,919

$
5,191

Gains (losses) on risk management, net

(Note 22)

(154
)

81

587

(84
)
Sublease revenues

(Note 11)

18

19

53

54

Total Revenues

1,190

1,871

4,559

5,161

Operating Expenses

(Note 3)

Production, mineral and other taxes

47

66

126

187

Transportation and processing

365

398

1,129

1,148

Operating
(Notes 19, 20)

133

193

452

545

Purchased product

322

264

1,039

784

Depreciation, depletion and amortization

406

545

1,433

1,454

Impairments

(Note 10)

1,336

0

4,863

0

Accretion of asset retirement obligation

(Note 14)

8

9

26

28

Administrative
(Notes 18, 19, 20)

79

81

297

389

Total Operating Expenses

2,696

1,556

9,365

4,535

Operating Income (Loss)

(1,506
)

315

(4,806
)

626

Other (Income) Expenses

Interest

(Note 5)

97

99

279

285

Foreign exchange (gain) loss, net

(Notes 6, 22)

(25
)

30

51

(62
)
(Gain) loss on divestitures, net

0

(5
)

0

(4
)
Other (gains) losses, net

(Notes 8, 12, 20)

(18
)

(1
)

(48
)

24

Total Other (Income) Expenses

54

123

282

243

Net Earnings (Loss) Before Income Tax

(1,560
)

192

(5,088
)

383

Income tax expense (recovery)

(Note 7)

(39
)

43

395

143

Net Earnings (Loss)

$
(1,521
)

$
149

$
(5,483
)

$
240

Net Earnings (Loss) per Share of Common Stock ⁽¹⁾

Basic & Diluted

(Note 15)

$
(5.85
)

$
0.56

$
(21.10
)

$
0.92

Weighted Average Shares of Common Stock Outstanding (millions) ⁽¹⁾

Basic & Diluted

(Note 15)

259.8

264.6

259.8

261.7

~~(1)~~

Net earnings (loss) per share of common stock and weighted average shares of common stock outstanding reflect the Share Consolidation as described in Note 1. Accordingly, the comparative periods have been restated.

				Three Months Ended						Nine Months Ended
				September 30,						September 30,
(US$ millions, except per share amounts)				2021			2020			2021			2020

Revenues		(Note 2)
Product and service revenues		(Note 3)		$	2,720		$	1,326		$	7,440		$	3,919
Gains (losses) on risk management, net		(Note 19)			(950	)		(154	)		(2,176	)		587
Sublease revenues		(Note 9)			19			18			55			53
Total Revenues					1,789			1,190			5,319			4,559

Operating Expenses		(Note 2)
Production, mineral and other taxes					77			47			210			126
Transportation and processing					397			365			1,194			1,129
Operating	(Notes 16, 17)				153			133			466			452
Purchased product					759			322			2,096			1,039
Depreciation, depletion and amortization					297			406			916			1,433
Impairments		(Note 8)			0			1,336			0			4,863
Accretion of asset retirement obligation					5			8			17			26
Administrative	(Notes 15, 16, 17)				101			79			346			297
Total Operating Expenses					1,789			2,696			5,245			9,365
Operating Income (Loss)					0			(1,506	)		74			(4,806	)

Other (Income) Expenses
Interest		(Notes 4, 10)			77			97			263			279
Foreign exchange (gain) loss, net		(Notes 5, 19)			0			(25	)		(15	)		51
Other (gains) losses, net		(Notes 6, 10, 17)			(6	)		(18	)		(31	)		(48	)
Total Other (Income) Expenses					71			54			217			282
Net Earnings (Loss) Before Income Tax					(71	)		(1,560	)		(143	)		(5,088	)
Income tax expense (recovery)		(Note 6)			1			(39	)		(175	)		395
Net Earnings (Loss)				$	(72	)	$	(1,521	)	$	32		$	(5,483	)

Net Earnings (Loss) per Share of Common Stock		(Note 12)
Basic				$	(0.28	)	$	(5.85	)	$	0.12		$	(21.10	)
Diluted					(0.28	)		(5.85	)		0.12			(21.10	)
Weighted Average Shares of Common Stock Outstanding (millions)			(Note 12)
Basic					261.1			259.8			260.7			259.8
Diluted					261.1			259.8			265.3			259.8

Condensed Consolidated Statement of Comprehensive Income (unaudited)

		Three Months Ended						Nine Months Ended							Three Months Ended						Nine Months Ended
		September 30,						September 30,							September 30,						September 30,
(US$ millions)		2020			2019			2020			2019				2021			2020			2021			2020

Net Earnings (Loss)		$	(1,521	)	$	149		$	(5,483	)	$	240			$	(72	)	$	(1,521	)	$	32		$	(5,483	)
Other Comprehensive Income (Loss), Net of Tax
Foreign currency translation adjustment	(Note 16)		26			(6	)		(21	)		32		(Note 13)		(48	)		26			(4	)		(21	)
Pension and other post-employment benefit plans	(Notes 16, 20)		(2	)		0			(1	)		(24	)	(Notes 13, 17)		(1	)		(2	)		(4	)		(1	)
Other Comprehensive Income (Loss)			24			(6	)		(22	)		8				(49	)		24			(8	)		(22	)
Comprehensive Income (Loss)		$	(1,497	)	$	143		$	(5,505	)	$	248			$	(121	)	$	(1,497	)	$	24		$	(5,505	)

~~See accompanying Notes to Condensed Consolidated Financial Statements~~

~~Condensed Consolidated Balance Sheet~~ ~~(unaudited)~~

As at

As at

September 30,

December 31,

(US$ millions)

2020

2019

Assets

Current Assets

Cash and cash equivalents

$
32

$
190

Accounts receivable and accrued revenues (net of allowances
of $4 million (2019: $3 million))

766

1,235

Risk management

(Notes 21, 22)

170

148

Income tax receivable

251

296

1,219

1,869

Property, Plant and Equipment, at cost:

(Note 10)

Oil and natural gas properties, based on full cost accounting

Proved properties

52,653

51,210

Unproved properties

3,168

3,714

Other

887

904

Property, plant and equipment

56,708

55,828

Less: Accumulated depreciation, depletion and amortization

(46,485
)

(40,637
)
Property, plant and equipment, net

(Note 3)

10,223

15,191

Other Assets

1,113

1,213

Risk Management

(Notes 21, 22)

8

2

Deferred Income Taxes

(Note 7)

0

601

Goodwill

(Notes 3, 8)

2,594

2,611

(Note 3)

$
15,157

$
21,487

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable and accrued liabilities

$
1,615

$
2,239

Current portion of operating lease liabilities

66

78

Income tax payable

3

1

Risk management

(Notes 21, 22)

65

114

1,749

2,432

Long-Term Debt

(Note 12)

7,142

6,974

Operating Lease Liabilities

912

977

Other Liabilities and Provisions
(Note 13)

377

464

Risk Management

(Notes 21, 22)

154

68

Asset Retirement Obligation

(Note 14)

446

425

Deferred Income Taxes

25

217

10,805

11,557

Commitments and Contingencies

(Note 24)

Shareholders’ Equity

Share capital - authorized 775 million shares of common stock

2020 issued and outstanding: 259.8 million shares (2019: 259.8 million shares)

(Note 15)

3

7,061

Paid in surplus

(Note 15)

8,460

1,402

Retained earnings (Accumulated deficit)

(5,135
)

421

Accumulated other comprehensive income

(Note 16)

1,024

1,046

Total Shareholders’ Equity

4,352

9,930

$
15,157

$
21,487

See accompanying Notes to Condensed Consolidated Financial Statements

Condensed Consolidated ~~Statement of Changes in Shareholders’ Equity~~Balance Sheet (unaudited)

Three Months Ended September 30, 2020 (US$ millions)

Share
Capital

Paid in
Surplus

Retained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity

Balance, June 30, 2020

$
3

$
8,460

$
(3,590
)

$
1,000

$
5,873

Net Earnings (Loss)

0

0

(1,521
)

0

(1,521
)
Dividends on Shares of Common Stock ($0.09375 per share)

(Note 15)

0

0

(24
)

0

(24
)
Other Comprehensive Income (Loss)

(Note 16)

0

0

0

24

24

Balance, September 30, 2020

$
3

$
8,460

$
(5,135
)

$
1,024

$
4,352

			As at			As at
			September 30,			December 31,
(US$ millions)			2021			2020

Assets
Current Assets
Cash and cash equivalents			$	8		$	10
Accounts receivable and accrued revenues (net of allowances of $3 million (2020: $4 million))		(Note 3)		1,221			928
Risk management		(Notes 18, 19)		1			37
Income tax receivable		(Note 6)		98			272
				1,328			1,247
Property, Plant and Equipment, at cost:		(Note 8)
Oil and natural gas properties, based on full cost accounting
Proved properties				54,684			53,883
Unproved properties				2,217			2,962
Other				897			911
Property, plant and equipment				57,798			57,756
Less: Accumulated depreciation, depletion and amortization				(49,208	)		(48,306	)
Property, plant and equipment, net		(Note 2)		8,590			9,450
Other Assets				1,094			1,143
Risk Management		(Notes 18, 19)		0			4
Goodwill		(Note 2)		2,624			2,625
		(Note 2)	$	13,636		$	14,469

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities			$	1,866		$	1,704
Current portion of operating lease liabilities				63			68
Income tax payable				4			3
Risk management		(Notes 18, 19)		1,418			130
Current portion of long-term debt		(Note 10)		-			518
				3,351			2,423
Long-Term Debt		(Note 10)		4,791			6,367
Operating Lease Liabilities				900			938
Other Liabilities and Provisions	(Note 11)			215			358
Risk Management		(Notes 18, 19)		246			125
Asset Retirement Obligation				336			401
Deferred Income Taxes				0			20
				9,839			10,632
Commitments and Contingencies		(Note 21)
Shareholders’ Equity
Share capital - authorized 775 million shares of stock
2021 issued and outstanding: 261.1 million shares (2020: 259.8 million shares)		(Note 12)		3			3
Paid in surplus		(Note 12)		8,553			8,531
Retained earnings (Accumulated deficit)				(5,827	)		(5,773	)
Accumulated other comprehensive income		(Note 13)		1,068			1,076
Total Shareholders’ Equity				3,797			3,837
			$	13,636		$	14,469

Three Months Ended September 30, 2019 (US$ millions)

Share
Capital

Paid in
Surplus

Retained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity

Balance, June 30, 2019

$
7,318

$
1,358

$
327

$
1,012

$
10,015

Net Earnings (Loss)

0

0

149

0

149

Dividends on Common Shares ($0.09375 per share ⁽¹⁾)

(Note 15)

0

0

(24
)

0

(24
)
Common Shares Purchased under Substantial Issuer Bid

(Note 15)

(257
)

44

-

-

(213
)
Other Comprehensive Income (Loss)

(Note 16)

0

0

0

(6
)

(6
)
Balance, September 30, 2019

$
7,061

$
1,402

$
452

$
1,006

$
9,921

~~(1)~~

~~Dividends per share reflect the Share Consolidation as described in Note 1. Accordingly, the comparative period has been restated.~~

See accompanying Notes to Condensed Consolidated Financial Statements

Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited)

Nine Months Ended September 30, 2020 (US$ millions)

Share
Capital

Paid in
Surplus

Retained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity

Balance, December 31, 2019

$
7,061

$
1,402

$
421

$
1,046

$
9,930

Net Earnings (Loss)

0

0

(5,483
)

0

(5,483
)
Dividends on Shares of Common Stock ($0.28125 per share)

(Note 15)

0

0

(73
)

0

(73
)
Other Comprehensive Income (Loss)

(Note 16)

0

0

0

(22
)

(22
)
Reclassification of Share Capital due to the Reorganization

(Note 15)

(7,058
)

7,058

0

0

0

Balance, September 30, 2020

$
3

$
8,460

$
(5,135
)

$
1,024

$
4,352

Three Months Ended September 30, 2021 (US$ millions)		Share Capital		Paid in Surplus		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income			Total Shareholders’ Equity

Balance, June 30, 2021		$	3	$	8,532	$	(5,718	)	$	1,117		$	3,934
Net Earnings (Loss)			0		0		(72	)		0			(72	)
Dividends on Shares of Common Stock ($0.14 per share)	(Note 12)		-		-		(37	)		-			(37	)
Equity-Settled Compensation Costs			0		21		0			0			21
Other Comprehensive Income (Loss)	(Note 13)		0		0		0			(49	)		(49	)
Balance, September 30, 2021		$	3	$	8,553	$	(5,827	)	$	1,068		$	3,797

Nine Months Ended September 30, 2019 (US$ millions)

Share
Capital

Paid in
Surplus

Retained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity

Balance, December 31, 2018

$
4,656

$
1,358

$
435

$
998

$
7,447

Net Earnings (Loss)

0

0

240

0

240

Dividends on Common Shares ($0.28125 per share ⁽¹⁾)

(Note 15)

0

0

(77
)

0

(77
)
Common Shares Purchased under Substantial Issuer Bid

(Note 15)

(257
)

44

0

0

(213
)
Common Shares Purchased under Normal
Course Issuer Bid

(Note 15)

(816
)

0

(221
)

0

(1,037
)
Common Shares Issued

(Notes 8, 15)

3,478

0

0

0

3,478

Other Comprehensive Income (Loss)

(Note 16)

0

0

0

8

8

Impact of Adoption of Topic 842, Leases

0

0

75

0

75

Balance, September 30, 2019

$
7,061

$
1,402

$
452

$
1,006

$
9,921

Three Months Ended September 30, 2020 (US$ millions)		Share Capital		Paid in Surplus		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income		Total Shareholders’ Equity

Balance, June 30, 2020		$	3	$	8,460	$	(3,590	)	$	1,000	$	5,873
Net Earnings (Loss)			0		0		(1,521	)		0		(1,521	)
Dividends on Shares of Common Stock ($0.09375 per share)	(Note 12)		0		0		(24	)		0		(24	)
Other Comprehensive Income (Loss)	(Note 13)		0		0		0			24		24
Balance, September 30, 2020		$	3	$	8,460	$	(5,135	)	$	1,024	$	4,352

See accompanying Notes to Condensed Consolidated Financial Statements

~~(1)~~

~~Dividends per share reflect the Share Consolidation as described in Note 1. Accordingly, the comparative period has been restated.~~9

Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited)

Nine Months Ended September 30, 2021 (US$ millions)		Share Capital		Paid in Surplus		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income			Total Shareholders’ Equity

Balance, December 31, 2020		$	3	$	8,531	$	(5,773	)	$	1,076		$	3,837
Net Earnings (Loss)			0		0		32			0			32
Dividends on Shares of Common Stock ($0.3275 per share)	(Note 12)		0		0		(86	)		0			(86	)
Equity-Settled Compensation Costs			0		22		0			0			22
Other Comprehensive Income (Loss)	(Note 13)		0		0		0			(8	)		(8	)
Balance, September 30, 2021		$	3	$	8,553	$	(5,827	)	$	1,068		$	3,797

Nine Months Ended September 30, 2020 (US$ millions)		Share Capital			Paid in Surplus		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income			Total Shareholders’ Equity

Balance, December 31, 2019		$	7,061		$	1,402	$	421		$	1,046		$	9,930
Net Earnings (Loss)			0			0		(5,483	)		0			(5,483	)
Dividends on Shares of Common Stock ($0.28125 per share)	(Note 12)		0			0		(73	)		0			(73	)
Other Comprehensive Income (Loss)	(Note 13)		0			0		0			(22	)		(22	)
Reclassification of Share Capital	(Note 12)		(7,058	)		7,058		0			0			0
Balance, September 30, 2020		$	3		$	8,460	$	(5,135	)	$	1,024		$	4,352

See accompanying Notes to Condensed Consolidated Financial Statements

910

Condensed Consolidated Statement of Cash Flows (unaudited)

			Three Months Ended						Nine Months Ended								Three Months Ended						Nine Months Ended
			September 30,						September 30,								September 30,						September 30,
(US$ millions)			2020			2019			2020			2019					2021			2020			2021			2020

Operating Activities
Net earnings (loss)			$	(1,521	)	$	149		$	(5,483	)	$	240				$	(72	)	$	(1,521	)	$	32		$	(5,483	)
Depreciation, depletion and amortization				406			545			1,433			1,454					297			406			916			1,433
Impairments		(Note 10)		1,336			0			4,863			0			(Note 8)		0			1,336			0			4,863
Accretion of asset retirement obligation		(Note 14)		8			9			26			28					5			8			17			26
Deferred income taxes		(Note 7)		(42	)		44			393			140			(Note 6)		1			(42	)		(19	)		393
Unrealized (gain) loss on risk management		(Note 22)		243			41			18			385			(Note 19)		579			243			1,426			18
Unrealized foreign exchange (gain) loss		(Note 6)		(21	)		49			30			(11	)		(Note 5)		14			(21	)		20			30
Foreign exchange on settlements		(Note 6)		(2	)		(18	)		18			(53	)		(Note 5)		(3	)		(2	)		(12	)		18
(Gain) loss on divestitures, net				0			(5	)		0			(4	)
Other				(9	)		3			(61	)		(63	)				24			(9	)		88			(61	)
Net change in other assets and liabilities				(47	)		(29	)		(167	)		(55	)				(10	)		(47	)		(21	)		(167	)
Net change in non-cash working capital		(Note 23)		142			(32	)		106			130			(Note 20)		(23	)		142			(58	)		106
Cash From (Used in) Operating Activities				493			756			1,176			2,191					812			493			2,389			1,176
Investing Activities
Capital expenditures		(Note 3)		(351	)		(566	)		(1,393	)		(2,052	)		(Note 2)		(365	)		(351	)		(1,098	)		(1,393	)
Acquisitions		(Note 9)		(1	)		(25	)		(19	)		(66	)		(Note 7)		0			(1	)		(3	)		(19	)
Corporate acquisition, net of cash and restricted cash acquired		(Note 8)		0			0			0			94
Proceeds from divestitures		(Note 9)		39			171			69			177			(Note 7)		(8	)		39			1,017			69
Net change in investments and other				68			(142	)		(74	)		(118	)				6			68			(36	)		(74	)
Cash From (Used in) Investing Activities				(245	)		(562	)		(1,417	)		(1,965	)				(367	)		(245	)		(120	)		(1,417	)
Financing Activities
Net issuance (repayment) of revolving long-term debt		(Note 12)		(100	)		(21	)		452			740			(Note 10)		0			(100	)		(950	)		452
Repayment of long-term debt		(Note 12)		(109	)		0			(224	)		(500	)		(Note 10)		(518	)		(109	)		(1,137	)		(224	)
Purchase of shares of common stock		(Note 15)		0			(213	)		0			(1,250	)
Dividends on shares of common stock		(Note 15)		(24	)		(24	)		(73	)		(77	)		(Note 12)		(37	)		(24	)		(86	)		(73	)
Finance lease payments and other financing arrangements				(23	)		(22	)		(67	)		(63	)
Finance lease payments and other																		(2	)		(23	)		(98	)		(67	)
Cash From (Used in) Financing Activities				(256	)		(280	)		88			(1,150	)				(557	)		(256	)		(2,271	)		88
Foreign Exchange Gain (Loss) on Cash, Cash Equivalents
and Restricted Cash Held in Foreign Currency				1			0			(5	)		4					(2	)		1			0			(5	)
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash			(7	)		(86	)		(158	)		(920	)	Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash			(114	)		(7	)		(2	)		(158	)
Cash, Cash Equivalents and Restricted Cash, Beginning of Period	Cash, Cash Equivalents and Restricted Cash, Beginning of Period			39			224			190			1,058		Cash, Cash Equivalents and Restricted Cash, Beginning of Period			122			39			10			190
Cash, Cash Equivalents and Restricted Cash, End of Period			$	32		$	138		$	32		$	138				$	8		$	32		$	8		$	32
Cash, End of Period			$	22		$	44		$	22		$	44				$	7		$	22		$	7		$	22
Cash Equivalents, End of Period				10			94			10			94					1			10			1			10
Restricted Cash, End of Period				0			0			0			0					0			0			0			0
Cash, Cash Equivalents and Restricted Cash, End of Period			$	32		$	138		$	32		$	138				$	8		$	32		$	8		$	32

Supplementary Cash Flow Information																(Note 20)

See accompanying Notes to Condensed Consolidated Financial Statements

1011

1.	Basis of Presentation and Principles of Consolidation

On January 24, 2020, Encana Corporation (“Encana”) completed a corporate reorganization, which included a plan of arrangement (the “Arrangement”) that involved, among other things, a share consolidation by Encana on the basis of one post-consolidation share for each ~~five~~ ~~pre-consolidation shares (the “Share Consolidation”), and~~ Ovintiv ~~Inc. ultimately acquired all of the issued and outstanding common shares of Encana~~is in exchange for shares of common stock of Ovintiv Inc. on a 1-for-one basis. Following completion of the Arrangement, Ovintiv Inc. migrated from Canada and became a Delaware corporation, domiciled in the U.S. (the “U.S. Domestication”). The Arrangement and the U.S. Domestication together are referred to as the “Reorganization”. Ovintiv Inc. and its subsidiaries (collectively, “Ovintiv”) continue to carry on the business of the exploration for, the development of, and the production and marketing of oil, NGLs and natural gas, which was previously conducted by Encana and its subsidiaries prior to the completion of the Reorganization. References to the “Company” are to Encana Corporation and its subsidiaries prior to the completion of the Reorganization and to Ovintiv Inc. and its subsidiaries following the completion of the Reorganization.

The Arrangement, as described above, was accounted for as a reorganization of entities under common control. Accordingly, the resulting transactions were recognized using historical carrying amounts. On January 24, 2020, Ovintiv became the reporting entity upon completion of the Reorganization.

In accordance with the Share Consolidation, all common shares and per-share amounts disclosed herein reflect the post-Share Consolidation shares unless otherwise specified; comparative periods have been restated accordingly. References to shares of common stock refer to the shares of common stock of Ovintiv Inc. for any periods after the completion of the Arrangement, and to the common shares of Encana Corporation for any periods before January 24, 2020.

Following the U.S. Domestication, on January 24, 2020, the functional currency of Ovintiv Inc. became U.S. dollars, and accordingly, the financial results herein are consolidated and reported in U.S. dollars.gas.

The interim Condensed Consolidated Financial Statements include the accounts of Ovintiv and entities in which it holds a controlling interest. All intercompany balances and transactions are eliminated on consolidation. Undivided interests in oil and natural gas exploration and production joint ventures and partnerships are consolidated on a proportionate basis. Investments in non-controlled entities over which the Company has the ability to exercise significant influence are accounted for using the equity method.

The interim Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP and the rules and regulations of the SEC. Pursuant to these rules and regulations, certain information and disclosures normally required under U.S. GAAP have been condensed or have been disclosed on an annual basis only. Accordingly, the interim Condensed Consolidated Financial Statements should be read in conjunction with the annual audited Consolidated Financial Statements and the notes thereto for the year ended December 31, ~~2019,~~2020, which are included in Item 8 of Ovintiv’s ~~2019~~2020 Annual Report on Form 10-K.

The interim Condensed Consolidated Financial Statements have been prepared following the same accounting policies and methods of computation as the annual audited Consolidated Financial Statements for the year ended December 31, ~~2019, except as noted below in Note 2. The disclosures provided below are incremental to those included with the annual audited Consolidated Financial Statements.~~2020.

These unaudited interim Condensed Consolidated Financial Statements reflect, in the opinion of Management, all normal and recurring adjustments necessary to present fairly the financial position and results of the Company as at and for the periods presented. Interim condensed consolidated financial results are not necessarily indicative of consolidated financial results expected for the fiscal year.

2.	~~Recent Accounting Pronouncements~~

~~Changes in Accounting Policies and Practices~~

~~On January 1, 2020, Ovintiv adopted the following ASUs issued by the FASB, which have not had a material impact on the interim Condensed Consolidated Financial Statements:~~

•

ASU 2017-04, “Simplifying the Test for Goodwill Impairment”. The amendment eliminates the second step of the goodwill impairment test which requires the Company to measure the impairment based on the excess amount of the carrying value of the reporting unit’s goodwill over the implied fair value of its goodwill. Under this amendment, the goodwill impairment will be measured based on the excess amount of the reporting unit’s carrying value over its respective fair value. The amendment has been applied prospectively.

•

ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” under Topic 326. The standard amends the impairment model which requires utilizing a forward-looking expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables. The standard requires entities to consider a broader range of information to estimate expected credit losses, resulting in earlier recognition of credit losses. The standard has been applied using the modified retrospective approach.

3.	Segmented Information

Ovintiv’s reportable segments are determined based on the following operations and geographic locations:

•	USA Operations includes the exploration for, development of, and production of oil, NGLs and natural gas and other related activities within the U.S. cost center.

•	Canadian Operations includes the exploration for, development of, and production of oil, NGLs and natural gas and other related activities within the Canadian cost center.

•	~~China Operations~~ included the production of oil and other related activities within the China cost center. Effective July 31, 2019, the production sharing contract with China National Offshore Oil Corporation (“CNOOC”) was terminated and the Company exited its China Operations.

•

Market Optimization is primarily responsible for the sale of the Company’s proprietary production. These results are reported in the USA and Canadian Operations. Market optimization activities include third-party purchases and sales of product to provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. These activities are reflected in the Market Optimization segment. Market Optimization sells substantially all of the Company’s upstream production to third-party customers. Transactions between segments are based on market values and are eliminated on consolidation.

Corporate and Other mainly includes unrealized gains or losses recorded on derivative financial instruments. Once the instruments are settled, the realized gains and losses are recorded in the reporting segment to which the derivative instruments relate. Corporate and Other also includes amounts related to sublease rentals.

Results of Operations (For the three months ended September 30)

Segment and Geographic Information

	USA Operations					Canadian Operations				China Operations ⁽¹⁾					USA Operations						Canadian Operations					Market Optimization
	2020			2019		2020		2019		2020		2019			2021			2020			2021			2020		2021			2020

Revenues
Product and service revenues	$	670		$	1,097	$	310	$	377	$	0	$	3		$	1,286		$	670		$	663		$	310	$	771		$	346
Gains (losses) on risk management, net		38			35		49		87		0		0			(265	)		38			(107	)		49		1			2
Sublease revenues		0			0		0		0		0		0			0			0			0			0		0			0
Total Revenues		708			1,132		359		464		0		3			1,021			708			556			359		772			348

Operating Expenses
Production, mineral and other taxes		43			63		4		3		0		0			75			43			2			4		0			0
Transportation and processing		109			125		203		211		0		0			122			109			231			203		44			53
Operating		104			151		24		32		0		4			122			104			25			24		5			5
Purchased product																0			0			0			0		759			322
Depreciation, depletion and amortization		299			438		99		100		0		0			207			299			83			99		0			0
Impairments		1,336			0		0		0		0		0			0			1,336			0			0		0			0
Total Operating Expenses		1,891			777		330		346		0		4			526			1,891			341			330		808			380
Operating Income (Loss)	$	(1,183	)	$	355	$	29	$	118	$	0	$	(1	)	$	495		$	(1,183	)	$	215		$	29	$	(36	)	$	(32	)

	Market Optimization						Corporate & Other						Consolidated						Corporate & Other						Consolidated
	2020			2019			2020			2019			2020			2019			2021			2020			2021			2020

Revenues
Product and service revenues	$	346		$	294		$	0		$	0		$	1,326		$	1,771		$	0		$	0		$	2,720		$	1,326
Gains (losses) on risk management, net		2			0			(243	)		(41	)		(154	)		81			(579	)		(243	)		(950	)		(154	)
Sublease revenues		0			0			18			19			18			19			19			18			19			18
Total Revenues		348			294			(225	)		(22	)		1,190			1,871			(560	)		(225	)		1,789			1,190

Operating Expenses
Production, mineral and other taxes		0			0			0			0			47			66			0			0			77			47
Transportation and processing		53			62			0			0			365			398			0			0			397			365
Operating		5			6			0			0			133			193			1			0			153			133
Purchased product		322			264			0			0			322			264			0			0			759			322
Depreciation, depletion and amortization		0			0			8			7			406			545			7			8			297			406
Impairments		0			0			0			0			1,336			0			0			0			0			1,336
Accretion of asset retirement obligation		0			0			8			9			8			9			5			8			5			8
Administrative		0			0			79			81			79			81			101			79			101			79
Total Operating Expenses		380			332			95			97			2,696			1,556			114			95			1,789			2,696
Operating Income (Loss)	$	(32	)	$	(38	)	$	(320	)	$	(119	)		(1,506	)		315		$	(674	)	$	(320	)		0			(1,506	)

Other (Income) Expenses
Interest														97			99									77			97
Foreign exchange (gain) loss, net														(25	)		30									0			(25	)
(Gain) loss on divestitures, net														0			(5	)
Other (gains) losses, net														(18	)		(1	)								(6	)		(18	)
Total Other (Income) Expenses														54			123									71			54
Net Earnings (Loss) Before Income Tax														(1,560	)		192									(71	)		(1,560	)
Income tax expense (recovery)														(39	)		43									1			(39	)
Net Earnings (Loss)													$	(1,521	)	$	149								$	(72	)	$	(1,521	)

~~(1)~~

~~The Company terminated its production sharing contract with CNOOC and exited its China Operations effective July 31, 2019.~~

Results of Operations (For the nine months ended September 30)

Segment and Geographic Information

	USA Operations					Canadian Operations				China Operations ⁽¹⁾				USA Operations						Canadian Operations					Market Optimization
	2020			2019		2020		2019		2020		2019		2021			2020			2021			2020		2021			2020

Revenues
Product and service revenues	$	1,900		$	3,062	$	906	$	1,222	$	0	$	37	$	3,459		$	1,900		$	1,810		$	906	$	2,171		$	1,113
Gains (losses) on risk management, net		412			128		188		174		0		0		(589	)		412			(164	)		188		3			5
Sublease revenues		0			0		0		0		0		0		0			0			0			0		0			0
Total Revenues		2,312			3,190		1,094		1,396		0		37		2,870			2,312			1,646			1,094		2,174			1,118

Operating Expenses
Production, mineral and other taxes		115			176		11		11		0		0		199			115			11			11		0			0
Transportation and processing		345			340		614		640		0		0		361			345			703			614		130			170
Operating		364			414		75		96		0		16		368			364			78			75		19			15
Purchased product															0			0			0			0		2,096			1,039
Depreciation, depletion and amortization		1,092			1,141		319		287		0		0		635			1,092			265			319		0			0
Impairments		4,863			0		0		0		0		0		0			4,863			0			0		0			0
Total Operating Expenses		6,779			2,071		1,019		1,034		0		16		1,563			6,779			1,057			1,019		2,245			1,224
Operating Income (Loss)	$	(4,467	)	$	1,119	$	75	$	362	$	0	$	21	$	1,307		$	(4,467	)	$	589		$	75	$	(71	)	$	(106	)

	Market Optimization						Corporate & Other						Consolidated						Corporate & Other						Consolidated
	2020			2019			2020			2019			2020			2019			2021			2020			2021			2020

Revenues
Product and service revenues	$	1,113		$	870		$	0		$	0		$	3,919		$	5,191		$	0		$	0		$	7,440		$	3,919
Gains (losses) on risk management, net		5			(1	)		(18	)		(385	)		587			(84	)		(1,426	)		(18	)		(2,176	)		587
Sublease revenues		0			0			53			54			53			54			55			53			55			53
Total Revenues		1,118			869			35			(331	)		4,559			5,161			(1,371	)		35			5,319			4,559

Operating Expenses
Production, mineral and other taxes		0			0			0			0			126			187			0			0			210			126
Transportation and processing		170			168			0			0			1,129			1,148			0			0			1,194			1,129
Operating		15			21			(2	)		(2	)		452			545			1			(2	)		466			452
Purchased product		1,039			784			0			0			1,039			784			0			0			2,096			1,039
Depreciation, depletion and amortization		0			0			22			26			1,433			1,454			16			22			916			1,433
Impairments		0			0			0			0			4,863			0			0			0			0			4,863
Accretion of asset retirement obligation		0			0			26			28			26			28			17			26			17			26
Administrative		0			0			297			389			297			389			346			297			346			297
Total Operating Expenses		1,224			973			343			441			9,365			4,535			380			343			5,245			9,365
Operating Income (Loss)	$	(106	)	$	(104	)	$	(308	)	$	(772	)		(4,806	)		626		$	(1,751	)	$	(308	)		74			(4,806	)

Other (Income) Expenses
Interest														279			285									263			279
Foreign exchange (gain) loss, net														51			(62	)								(15	)		51
(Gain) loss on divestitures, net														0			(4	)
Other (gains) losses, net														(48	)		24									(31	)		(48	)
Total Other (Income) Expenses														282			243									217			282
Net Earnings (Loss) Before Income Tax														(5,088	)		383									(143	)		(5,088	)
Income tax expense (recovery)														395			143									(175	)		395
Net Earnings (Loss)													$	(5,483	)	$	240								$	32		$	(5,483	)

~~(1)~~

~~The Company terminated its production sharing contract with CNOOC and exited its China Operations effective July 31, 2019.~~

Intersegment Information

							Market Optimization																		Market Optimization
	Marketing Sales						Upstream Eliminations						Total						Marketing Sales						Upstream Eliminations						Total
For the three months ended September 30,	2020			2019			2020			2019			2020			2019			2021			2020			2021			2020			2021			2020

Revenues	$	1,445		$	2,088		$	(1,097	)	$	(1,794	)	$	348		$	294		$	2,705		$	1,445		$	(1,933	)	$	(1,097	)	$	772		$	348

Operating Expenses
Transportation and processing		148			173			(95	)		(111	)		53			62			141			148			(97	)		(95	)		44			53
Operating		5			6			0			0			5			6			5			5			0			0			5			5
Purchased product		1,324			1,947			(1,002	)		(1,683	)		322			264			2,596			1,324			(1,837	)		(1,002	)		759			322
Operating Income (Loss)	$	(32	)	$	(38	)	$	0		$	0		$	(32	)	$	(38	)	$	(37	)	$	(32	)	$	1		$	0		$	(36	)	$	(32	)

	Market Optimization																		Market Optimization
	Marketing Sales						Upstream Eliminations						Total						Marketing Sales						Upstream Eliminations						Total
For the nine months ended September 30,	2020			2019			2020			2019			2020			2019			2021			2020			2021			2020			2021			2020

Revenues	$	4,587		$	5,459		$	(3,469	)	$	(4,590	)	$	1,118		$	869		$	7,486		$	4,587		$	(5,312	)	$	(3,469	)	$	2,174		$	1,118

Operating Expenses
Transportation and processing		468			465			(298	)		(297	)		170			168			427			468			(297	)		(298	)		130			170
Operating		15			21			0			0			15			21			19			15			0			0			19			15
Purchased product		4,210			5,078			(3,171	)		(4,294	)		1,039			784			7,111			4,210			(5,015	)		(3,171	)		2,096			1,039
Operating Income (Loss)	$	(106	)	$	(105	)	$	0		$	1		$	(106	)	$	(104	)	$	(71	)	$	(106	)	$	0		$	0		$	(71	)	$	(106	)

Capital Expenditures

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	244	$	464	$	1,090	$	1,682	$	265	$	244	$	805	$	1,090
Canadian Operations		106		99		300		364		99		106		291		300
Market Optimization		0		2		0		2
Corporate & Other		1		1		3		4		1		1		2		3
	$	351	$	566	$	1,393	$	2,052	$	365	$	351	$	1,098	$	1,393

~~Costs Incurred~~Goodwill, Property, Plant and Equipment and Total Assets by Segment

For the year ended December 31, 2019

United States

Canada

Total

Acquisition Costs ⁽¹⁾

Unproved

$
843

$
0

$
843

Proved

5,963

0

5,963

Total Acquisition Costs

6,806

0

6,806

Exploration Costs

5

0

5

Development Costs

2,129

480

2,609

$
8,940

$
480

$
9,420

	Goodwill					Property, Plant and Equipment					Total Assets
	As at					As at					As at
	September 30,		December 31,			September 30,		December 31,			September 30,		December 31,
	2021			2020		2021			2020		2021			2020

USA Operations	$	1,938		$	1,938	$	7,479		$	8,103	$	10,185		$	10,646
Canadian Operations		686			687		920			1,142		1,861			2,031
Market Optimization		0			0		0			2		293			233
Corporate & Other		0			0		191			203		1,297			1,559
	$	2,624		$	2,625	$	8,590		$	9,450	$	13,636		$	14,469

~~(1)~~

Acquisition costs were restated and include the non-cash acquisition of the proved and unproved properties of Newfield Exploration Company in conjunction with the business combination described in Note 8.

~~Goodwill, Property, Plant and Equipment and Total Assets by Segment~~

Goodwill

Property, Plant and Equipment

Total Assets

As at

As at

As at

September 30,

December 31,

September 30,

December 31,

September 30,

December 31,

2020

2019

2020

2019

2020

2019

USA Operations

$
1,938

$
1,938

$
8,857

$
13,757

$
11,287

$
16,613

Canadian Operations

656

673

1,162

1,205

1,966

2,122

Market Optimization

0

0

2

2

231

253

Corporate & Other

0

0

202

227

1,673

2,499

$
2,594

$
2,611

$
10,223

$
15,191

$
15,157

$
21,487

4.3.	Revenues from Contracts with Customers

The following tables summarize ~~the Company’s~~Ovintiv’s revenues from contracts with customers.

Revenues (For the three months ended September 30)

	USA Operations					Canadian Operations				China Operations ⁽¹⁾				USA Operations				Canadian Operations				Market Optimization
	2020		2019			2020		2019		2020		2019		2021		2020		2021		2020		2021		2020

Revenues from Customers
Product revenues ⁽²⁾⁽¹⁾
Oil	$	504	$	905		$	1	$	3	$	0	$	3	$	866	$	504	$	1	$	1	$	609	$	131
NGLs		98		99			139		225		0		0		250		98		303		139		8		0
Natural gas		71		95			172		150		0		0		172		71		360		172		150		210
Service revenues
Gathering and processing		0		(1	)		0		2		0		0		0		0		1		0		0		0
Product and Service Revenues	$	673	$	1,098		$	312	$	380	$	0	$	3	$	1,288	$	673	$	665	$	312	$	767	$	341

	Market Optimization				Corporate & Other				Consolidated				Corporate & Other				Consolidated
	2020		2019		2020		2019		2020		2019		2021		2020		2021		2020

Revenues from Customers
Product revenues ⁽²⁾⁽¹⁾
Oil	$	131	$	107	$	0	$	0	$	636	$	1,018	$	0	$	0	$	1,476	$	636
NGLs		0		2		0		0		237		326		0		0		561		237
Natural gas		210		181		0		0		453		426		0		0		682		453
Service revenues
Gathering and processing		0		0		0		0		0		1		0		0		1		0
Product and Service Revenues	$	341	$	290	$	0	$	0	$	1,326	$	1,771	$	0	$	0	$	2,720	$	1,326

(1)	~~The Company terminated its~~Includes revenues from production ~~sharing contract with CNOOC~~ and ~~exited its China Operations effective July 31, 2019.~~revenues of product purchased from third parties, but excludes intercompany marketing fees transacted between the Company’s operating segments.

Revenues (For the nine months ended September 30)

	USA Operations				Canadian Operations				Market Optimization
	2021		2020		2021		2020		2021		2020

Revenues from Customers
Product revenues ⁽¹⁾
Oil	$	2,468	$	1,453	$	7	$	5	$	1,596	$	500
NGLs		587		244		844		406		34		4
Natural gas		413		208		963		501		519		596
Service revenues
Gathering and processing		0		1		4		1		5		0
Product and Service Revenues	$	3,468	$	1,906	$	1,818	$	913	$	2,154	$	1,100

	Corporate & Other				Consolidated
	2021		2020		2021		2020

Revenues from Customers
Product revenues ⁽¹⁾
Oil	$	0	$	0	$	4,071	$	1,958
NGLs		0		0		1,465		654
Natural gas		0		0		1,895		1,305
Service revenues
Gathering and processing		0		0		9		2
Product and Service Revenues	$	0	$	0	$	7,440	$	3,919

~~(2)~~(1)

Includes revenues from production and revenues of product purchased from third parties, but excludes intercompany marketing fees transacted between the Company’s operating segments.

~~Revenues (For the nine months ended September 30)~~

USA Operations

Canadian Operations

China Operations ⁽¹⁾

2020

2019

2020

2019

2020

2019

Revenues from Customers

Product revenues ⁽²⁾

Oil

$
1,453

$
2,461

$
5

$
6

$
0

$
37

NGLs

244

332

406

659

0

0

Natural gas

208

276

501

563

0

0

Service revenues

Gathering and processing

1

2

1

4

0

0

Product and Service Revenues

$
1,906

$
3,071

$
913

$
1,232

$
0

$
37

Market Optimization

Corporate & Other

Consolidated

2020

2019

2020

2019

2020

2019

Revenues from Customers

Product revenues ⁽²⁾

Oil

$
500

$
205

$
0

$
0

$
1,958

$
2,709

NGLs

4

6

0

0

654

997

Natural gas

596

640

0

0

1,305

1,479

Service revenues

Gathering and processing

0

0

0

0

2

6

Product and Service Revenues

$
1,100

$
851

$
0

$
0

$
3,919

$
5,191

~~(1)~~

~~The Company terminated its production sharing contract with CNOOC and exited its China Operations effective July 31, 2019.~~

~~(2)~~

~~Includes revenues from production and revenues of product purchased from third parties, but excludes intercompany marketing fees transacted between the Company’s operating segments.~~

The Company’s revenues from contracts with customers consists of product sales including oil, NGLs and natural gas, as well as the provision of gathering and processing services to third parties. ~~The Company~~Ovintiv had 0 contract asset or liability balances during the periods presented. As at September 30, ~~2020,~~2021, receivables and accrued revenues from contracts with customers were ~~$628~~$1,110 million ($~~1,095~~814 million as at December 31, ~~2019)~~2020).

~~Product~~Ovintiv’s product sales are sold under short-term contracts with terms that are less than one year at either fixed or market index prices or under long-term contracts exceeding one year at market index prices.

The Company’s gathering and processing services are provided on an interruptible basis with transaction prices that are for fixed prices and/or variable consideration. Variable consideration received is related to recovery of plant operating costs or escalation of the fixed price based on a consumer price index. As the service contracts are interruptible, with service provided on an “as available” basis, there are 0 unsatisfied performance obligations remaining at September 30, ~~2020.~~2021.

As at September 30, ~~2020,~~2021, all remaining performance obligations are priced at market index prices or are variable volume delivery contracts. As such, the variable consideration is allocated entirely to the wholly unsatisfied performance obligation or promise to deliver units of production, and revenue is recognized at the amount for which the Company has the right to invoice the product delivered. As the period between when the product sales are transferred and Ovintiv receives payments is generally 30 to 60 days, there is no financing element associated with customer contracts. In addition, Ovintiv does not disclose unsatisfied performance obligations for customer contracts with terms less than 12 months or for variable consideration related to unsatisfied performance obligations.

Interest

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

Interest Expense on:
Debt	$	74	$	91	$	251	$	262
Finance leases		1		2		3		7
Other		2		4		9		10
	$	77	$	97	$	263	$	279

Interest expense on debt for the nine months ended September 30, 2021 includes a one-time make-whole interest payment of $19 million resulting from the June 2021 early redemption of the Company’s $600 million, 5.75 percent senior notes due January 30, 2022 as discussed in Note 10.

5.	~~Interest~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Interest Expense on:

Debt

$
91

$
93

$
262

$
268

Finance leases

2

3

7

10

Other

4

3

10

7

$
97

$
99

$
279

$
285

6.5.	Foreign Exchange (Gain) Loss, Net

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2020			2019			2020			2019			2021			2020			2021			2020

Unrealized Foreign Exchange (Gain) Loss on:
Translation of U.S. dollar financing debt issued from Canada	$	(6	)	$	68		$	56		$	(117	)	$	0		$	(6	)	$	1		$	56
Translation of U.S. dollar risk management contracts issued from Canada		(15	)		5			1			(13	)		14			(15	)		19			1
Translation of intercompany notes		0			(24	)		(27	)		119			0			0			0			(27	)
		(21	)		49			30			(11	)		14			(21	)		20			30
Foreign Exchange on Settlements of:
Foreign Exchange (Gain) Loss on Settlements of:
U.S. dollar financing debt issued from Canada		(2	)		(10	)		15			(22	)		0			(2	)		(9	)		15
U.S. dollar risk management contracts issued from Canada		(2	)		(2	)		7			(1	)		(7	)		(2	)		(25	)		7
Intercompany notes		0			(8	)		3			(31	)		(3	)		0			(3	)		3
Other Monetary Revaluations		0			1			(4	)		3			(4	)		0			2			(4	)
	$	(25	)	$	30		$	51		$	(62	)	$	0		$	(25	)	$	(15	)	$	51

Following the completion of the ~~Reorganization, including the~~corporate reorganization and U.S. ~~Domestication, on January 24,~~domestication in 2020, ~~as described in Note 1,~~ the U.S. dollar denominated unsecured notes issued by Encana Corporation from Canada were assumed by Ovintiv Inc., a company incorporated in Delaware with a U.S. dollar functional currency. Accordingly, these U.S. dollar denominated unsecured notes, along with certain intercompany notes, no longer attract foreign exchange translation gains or losses.

7.6.	Income Taxes

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2020			2019			2020			2019			2021			2020			2021			2020

Current Tax
United States	$	4		$	1		$	3		$	3		$	0		$	4		$	-		$	3
Canada		(1	)		(2	)		(1	)		0			0			(1	)		(156	)		(1	)
Total Current Tax Expense (Recovery)		3			(1	)		2			3			0			3			(156	)		2

Deferred Tax
United States		(41	)		56			(180	)		117			1			(41	)		1			(180	)
Canada		0			(12	)		573			22			0			-			(20	)		573
Other Countries		(1	)		0			0			1			0			(1	)		0			-
Total Deferred Tax Expense (Recovery)		(42	)		44			393			140			1			(42	)		(19	)		393
Income Tax Expense (Recovery)	$	(39	)	$	43		$	395		$	143		$	1		$	(39	)	$	(175	)	$	395
Effective Tax Rate		2.5	%		22.4	%		(7.8	%)		37.3	%		(1.4	%)		2.5	%		122.4	%		(7.8	%)

Ovintiv’s interim income tax expense is determined using the estimated annual effective income tax rate applied to year-to-date net earnings before income tax plus the effect of legislative changes and amounts in respect of prior periods. The estimated annual effective income tax rate is impacted by expected annual earnings, changes in valuation allowances, ~~related to current year losses,~~ income tax related to foreign operations, state tax, the effect of legislative changes, non-taxable capital gains and losses, and tax differences on divestitures and transactions, which can produce interim effective tax rate fluctuations.

~~Deferred~~During the nine months ended September 30, 2021, the current income tax ~~assets are routinely assessed for realizability.~~recovery was primarily due to the resolution of prior year tax items. The resolution, along with other items, resulted in a $222 million reduction of unrecognized tax benefits, offset by a $66 million reduction in valuation allowance. The Company also recognized related interest income of $12 million in other (gains) losses, net. During the nine months ended September 30, 2021, the deferred tax recovery was primarily due to the change in valuation allowances recorded relating to the current year net loss before tax and from the resolution of prior year tax items. During the nine months ended September 30, 2020, the ~~Company determined, after weighing both positive and negative evidence, that~~deferred tax expense was primarily due to the recognition of a valuation allowance ~~should be recorded~~ to reduce the associated deferred tax assets in the United States and in Canada. The Company continues to be in a cumulative three-year loss position as of September 30, 2020 and is expected to be in a cumulative three-year loss position by the end of the current fiscal year in both the United States and Canada. The cumulative three-year losses, as well as increased uncertainty in the timing as to when the realization of deferred tax assets will occur, is significant negative evidence to overcome, and consequently, it is more likely than not that the deferred tax assets will not be realizable. If it is determined that the deferred tax assets are realizable in the future, a reduction in the valuation allowance will be recorded.

As part of the U.S. Domestication, Ovintiv also recognized a capital loss and recorded a deferred income tax benefit in the amount of $1.2 billion for Canadian income tax purposes due to the decline in the Company’s share value compared to the historical tax basis of its properties that were transferred as part of the Reorganization. Ovintiv assessed the realizability of these capital losses against capital gains and concluded that it is more likely than not that the deferred tax asset will not be realizable. Therefore, Ovintiv has recorded a corresponding valuation allowance against the deferred tax asset. If it is determined the capital loss can be utilized at a future date, a reduction in the valuation allowance will be recorded.

~~Following the U.S. Domestication as described in Note 1, the applicable statutory rate became the U.S. federal income tax rate.~~ The effective tax rate of 122.4 percent for the nine months ended September 30, 2021 is higher than the U.S. federal statutory tax rate of 21 percent primarily due to the resolution of certain tax items relating to prior taxation years and the change in

valuation allowances recorded relating to the current year net loss before tax. The effective tax rate of (7.8) percent for the nine months ended September 30, 2020 iswas lower than the U.S. federal statutory tax rate of 21 percent primarily due to valuation allowances recorded due to ~~current year~~net losses arising from ceiling test impairments and an increase in the valuation allowance of $568 million in Canada related to prior years’ deferred tax assets which was recorded as a discrete item. See Note 108 for further discussion related to the ceiling test impairments.

The effective tax rate of 37.3 percent for the nine months ended September 30, 2019, was higher than the Canadian statutory tax rate of 26.6 percent primarily due to the re-measurement of the Company’s deferred tax position resulting from the Alberta tax rate reduction. On June 28, 2019, Alberta Bill 3, the Job Creation Tax Cut (Alberta Corporate Tax Amendment) Act, was signed into law resulting in a reduction of the Alberta corporate tax rate from 12 percent to 11 percent effective July 1, 2019, with further 1 percent rate reductions to take effect every year on January 1 until the general corporate tax rate is 8 percent on January 1, 2022. During the nine months ended September 30, 2019, the deferred tax expense of $140 million included an adjustment of $55 million resulting from the re-measurement of the Company’s deferred tax position due to the Alberta tax rate reduction.

On June 29, 2020, Alberta announced the previously scheduled rate reduction would be accelerated with the Alberta rate reducing to 8 percent effective July 1, 2020. This legislation is not yet enacted and the impact resulting from this announcement is not expected to be material for the Company’s tax position.

8.	~~Business Combination~~

~~Newfield Exploration Company Acquisition~~

On February 13, 2019, the business combination with Newfield Exploration Company, a Delaware corporation (“Newfield”) was completed pursuant to an Agreement and Plan of Merger with Newfield (the “Merger”). As a result of the Merger, Newfield stockholders received 2.6719 Encana common shares, on a pre-Share Consolidation basis, for each share of Newfield common stock that was issued and outstanding immediately prior to the effective date of the Merger. The Company issued approximately 543.4 million Encana common shares, on a pre-Share Consolidation basis, representing a value of $3.5 billion and paid approximately $5 million in cash in respect of Newfield’s cash-settled incentive awards. Following the acquisition, Newfield’s senior notes totaling $2.45 billion were outstanding. For the nine months ended September 30, 2019, transaction costs of approximately $33 million were included in other (gains) losses, net.

Newfield’s operations focused on the exploration and development of oil and gas properties located in Anadarko and Arkoma in Oklahoma, Bakken in North Dakota and Uinta in Utah, as well as offshore oil assets located in China. The results of Newfield’s operations have been included in the Condensed Consolidated Financial Statements as of February 14, 2019.

~~Purchase Price Allocation~~

The transaction was accounted for under the acquisition method, which requires that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date, with any excess of the purchase price over the estimated fair value of identified net assets acquired recorded as goodwill. The purchase price allocation represents the consideration paid and the fair values of the assets acquired, and liabilities assumed as of the acquisition date.

Purchase Price Allocation

Consideration:

Fair value of Encana's common shares issued ⁽¹⁾

$
3,478

Fair value of Newfield liability awards paid in cash ⁽²⁾

5

Total Consideration

$
3,483

Assets Acquired:

Cash and cash equivalents

$
46

Accounts receivable and accrued revenues

486

Other current assets

50

Proved properties

5,903

Unproved properties

838

Other property, plant and equipment

22

Restricted cash

53

Other assets

105

Goodwill ⁽³⁾

25

Liabilities Assumed:

Accounts payable and accrued liabilities ^{(3) (4)}

(795
)
Long-term debt

(2,603
)
Operating lease liabilities

(76
)
Other long-term liabilities ⁽³⁾

(65
)
Asset retirement obligation

(184
)
Deferred income taxes ⁽³⁾

(322
)
Total Purchase Price

$
3,483

~~(1)~~

~~The fair value was based on the NYSE closing price of the pre-Share Consolidation Encana common shares of $6.40 on February 13, 2019.~~

~~(2)~~

The fair value was based on a price of $6.50 per notional unit which was determined using a volume-weighted average of the trading price of pre-Share Consolidation Encana common shares on the NYSE on each of the five consecutive trading days ending on the trading day that was three trading days prior to February 13, 2019.

~~(3)~~

Since the completion of the business combination on February 13, 2019, additional information related to pre-acquisition liabilities and contingencies was obtained resulting in a measurement period adjustment. Changes in the fair value estimates comprised an increase in other liabilities of $16 million, of which approximately $11 million is presented in accounts payable and accrued liabilities and $5 million is presented in other long-term liabilities, a decrease in deferred tax liabilities of $4 million and a corresponding increase in goodwill of $12 million.

~~(4)~~

In conjunction with the acquisition, various legal claims and actions arising in the normal course of Newfield’s operations were assumed by the Company. On March 29, 2019, Newfield and its wholly-owned subsidiary entered into an Agreement and Mutual Release with Sapura Energy Berhad, formerly known as SapuraKencana Petroleum Berhad, and Sapura Exploration and Production Inc., formerly known as SapuraKencana Energy Inc. (collectively, “Sapura”), and agreed to settle arbitration claims in the amount of $22.5 million arising from Sapura’s purchase of Newfield’s Malaysian business in February 2014. The settlement amount including legal fees was included in the purchase price allocation as part of the current liabilities assumed at the acquisition date. Although the outcome of any remaining legal claims and actions assumed following the acquisition of Newfield cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on the Company’s financial position, cash flows or results of operations.

The income approach valuation technique was used for the fair value of assets acquired and liabilities assumed. The carrying amounts of cash and cash equivalents, accounts receivable and accrued revenues, restricted cash, other current assets, and accounts payable and accrued liabilities approximate their fair values due to their nature and/or the short-term maturity of the instruments. The fair values of long-term debt, right-of-use (“ROU”) assets and operating lease liabilities were categorized within Level 2 of the fair value hierarchy and were determined using quoted prices and rates from an available pricing source. The fair values of the proved and unproved properties, other property, plant and equipment, other assets, other long-term liabilities and asset retirement obligation were categorized within Level 3 and were determined using relevant market assumptions, including discount rates, future commodity prices and costs, timing of development activities, projections of oil and gas reserves, and estimates for abandonment and reclamation.

Goodwill arose from the Newfield acquisition primarily from the requirement to recognize deferred taxes on the difference between the fair value of the assets acquired and liabilities assumed and the respective carry-over tax basis. Goodwill is not amortized and is not deductible for tax purposes.

~~Unaudited Pro Forma Financial Information~~

The following unaudited pro forma financial information combines the historical financial results of the Company with Newfield and has been prepared as though the acquisition had occurred on January 1, 2019. The pro forma information is not intended to reflect the actual results of operations that would have occurred if the business combination had been completed at the date indicated. In addition, the pro forma information is not intended to be a projection of the Company’s results of operations for any future period.

Additionally, pro forma earnings were adjusted to exclude transaction-related costs incurred of approximately $71 million and severance payments made to employees which totaled $134 million for the nine months ended September 30, 2019. The pro forma financial information does not include any cost savings or other synergies from the Merger or any estimated costs that have been incurred to integrate the assets. Ovintiv’s consolidated results for the three and nine months ended September 30, 2020 include the results from Newfield.

For the nine months ended September 30 (US$ millions, except per share amounts)

2019

Revenues

$
5,440

Net Earnings (Loss)

$
376

Net Earnings (Loss) per Share ⁽¹⁾

Basic & Diluted

$
1.44

~~(1)~~

~~Net earnings (loss) per share reflect the Share Consolidation as described in Note 1. Accordingly, the comparative period has been restated.~~

9.7.	Acquisitions and Divestitures

	Three Months Ended						Nine Months Ended						Three Months Ended					Nine Months Ended
	September 30,						September 30,						September 30,					September 30,
	2020			2019			2020			2019			2021		2020			2021			2020

Acquisitions
USA Operations	$	1		$	25		$	19		$	66		$	0	$	1		$	3		$	19
Total Acquisitions		1			25			19			66			0		1			3			19

Divestitures
USA Operations		(36	)		(171	)		(63	)		(177	)		7		(36	)		(767	)		(63	)
Canadian Operations		(3	)		0			(6	)		0			1		(3	)		(250	)		(6	)
Total Divestitures		(39	)		(171	)		(69	)		(177	)		8		(39	)		(1,017	)		(69	)
Net Acquisitions & (Divestitures)	$	(38	)	$	(146	)	$	(50	)	$	(111	)	$	8	$	(38	)	$	(1,014	)	$	(50	)

Acquisitions

For the nine months ended September 30, 2020, acquisitions in the USA Operations were $19 million, which primarily included property purchases with oil and liquids rich potential.

Divestitures

For the nine months ended September 30, ~~2019, acquisitions~~2021, divestitures in the USA Operations were ~~$66~~$767 million, which primarily included ~~seismic purchases, water rights~~the sale of the Eagle Ford assets located in south Texas for proceeds of approximately $762 million, after closing and ~~purchases with oil and liquids rich potential.~~

~~Divestitures~~

other adjustments. For the nine months ended September 30, 2020, divestitures in the USA ~~and Canadian~~ Operations were $63 million, ~~and $6 million, respectively,~~ which primarily included the sale of certain properties that did not complement Ovintiv’s existing portfolio of assets.

For the ~~three and~~ nine months ended September 30, ~~2019,~~2021, divestitures in the ~~USA~~Canadian Operations were ~~$171~~$250 million, ~~and $177 million, respectively,~~ which primarily included the sale of the ~~Company’s Arkoma natural gas assets.~~Duvernay assets located in west central Alberta for proceeds of approximately $238 million, after closing and other adjustments.

Amounts received from the Company’s divestiture transactions have been deducted from the respective U.S. and Canadian full cost pools.

As part of the Duvernay asset divestiture, the Company agreed to a contingent consideration arrangement, which is payable to Ovintiv in the amount of C$5 million at the end of 2021 and an additional C$10 million at the end of 2022, if the annual average of the WTI reference price for each calendar year is greater than $56 per barrel and $62 per barrel, respectively. The contingent consideration was determined to be an embedded derivative and accordingly, the Company recorded the contingent consideration at its fair value of $6 million on the closing date. Subsequent changes in the fair value of the contingent consideration are recognized as a gain or loss and presented in gains (losses) on risk management, net in the Condensed Consolidated Statement of Earnings. The fair value is presented in accounts receivable and accrued revenues, and other assets in the Condensed Consolidated Balance Sheet. See Notes 18 and 19 for further information on the contingent consideration.

~~10.~~8.

Property, Plant and Equipment, Net

	As at September 30, 2020							As at December 31, 2019							As at September 30, 2021								As at December 31, 2020
			Accumulated							Accumulated								Accumulated							Accumulated
	Cost		DD&A			Net		Cost		DD&A			Net		Cost			DD&A			Net		Cost		DD&A			Net

USA Operations
Proved properties	$	37,426	$	(31,581	)	$	5,845	$	35,870	$	(25,623	)	$	10,247	$	38,530	��	$	(33,217	)	$	5,313	$	37,875	$	(32,581	)	$	5,294
Unproved properties		2,980		0			2,980		3,491		0			3,491		2,153			0			2,153		2,785		0			2,785
Other		32		0			32		19		0			19		13			0			13		24		0			24
		40,438		(31,581	)		8,857		39,380		(25,623	)		13,757		40,696			(33,217	)		7,479		40,684		(32,581	)		8,103

Canadian Operations
Proved properties		15,227		(14,266	)		961		15,284		(14,320	)		964		16,154			(15,307	)		847		16,008		(15,056	)		952
Unproved properties		188		0			188		223		0			223		64			0			64		177		0			177
Other		13		0			13		18		0			18		9			0			9		13		0			13
		15,428		(14,266	)		1,162		15,525		(14,320	)		1,205		16,227			(15,307	)		920		16,198		(15,056	)		1,142

Market Optimization		9		(7	)		2		9		(7	)		2		7			(7	)		0		9		(7	)		2
Corporate & Other		833		(631	)		202		914		(687	)		227		868			(677	)		191		865		(662	)		203
	$	56,708	$	(46,485	)	$	10,223	$	55,828	$	(40,637	)	$	15,191	$	57,798		$	(49,208	)	$	8,590	$	57,756	$	(48,306	)	$	9,450

USA and Canadian ~~Operations~~Operations’ property, plant and equipment include internal costs directly related to exploration, development and construction activities of ~~$133~~$124 million, which have been capitalized during the nine months ended September 30, ~~2020 (2019~~2021 (2020 - ~~$171~~$133 million).

For the three and nine months ended September 30, ~~2020, the Company recognized before-tax non-cash~~2021, Ovintiv did 0t recognize ceiling test impairments in the USA Operations of(2020 - $1,336 million and $4,863 million ~~respectively (2019~~before tax, respectively) or Canadian Operations (2020 - nil,, respectively). The non-cash ceiling test impairments recognized in the USA Operations in 2020 are included with accumulated DD&A in the table above and 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 presented below. The benchmark prices were adjusted for basis differentials to determine local reference prices, transportation costs and tariffs, heat content and quality.

	Oil & NGLs				Natural Gas				Oil & NGLs				Natural Gas
	WTI		Edmonton Condensate		Henry Hub		AECO		WTI		Edmonton Condensate		Henry Hub		AECO
	($/bbl)		(C$/bbl)		($/MMBtu)		(C$/MMBtu)		($/bbl)		(C$/bbl)		($/MMBtu)		(C$/MMBtu)
12-Month Average Trailing Reserves Pricing ⁽¹⁾
September 30, 2021									$	57.69	$	72.45	$	2.94	$	2.79
December 31, 2020										39.62		49.77		1.98		2.13
September 30, 2020	$	43.69	$	53.93	$	1.97	$	2.01		43.69		53.93		1.97		2.01
December 31, 2019		55.93		68.80		2.58		1.76
September 30, 2019		57.76		67.81		2.87		1.52

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

~~Finance Lease Arrangements~~

The Company has 2 lease arrangements that are accounted for as finance leases, which include an office building and an offshore production platform. As at September 30, 2020, the total carrying value of assets under finance lease was $34 million ($37 million as at December 31, 2019), net of accumulated amortization of $669 million ($677 million as at December 31, 2019). Long-term liabilities for the finance lease arrangements are included in other liabilities and provisions in the Condensed Consolidated Balance Sheet and are disclosed in Note 13.

~~11.~~9.

Leases

The following table outlines ~~the Company’s~~Ovintiv’s estimated future sublease income as at September 30, ~~2020.~~2021. All subleases are classified as operating leases.

(undiscounted)	2020		2021		2022		2023		2024		Thereafter		Total		2021		2022		2023		2024		2025		Thereafter		Total

Sublease Income	$	12	$	50	$	46	$	44	$	44	$	543	$	739	$	13	$	48	$	46	$	46	$	46	$	521	$	720

For the three and nine months ended September 30, ~~2020,~~2021, operating lease income was $15 million and $42 million, respectively (2020 - $14 million and $40 ~~million, respectively (2019 - $15 million and $41~~ million, respectively), and variable lease income was $4 million and $13 million, respectively ~~(2019~~(2020 - $4 million and $13 million, respectively).

~~12.~~10.

Long-Term Debt

	As at			As at			As at			As at
	September 30,			December 31,			September 30,			December 31,
	2020			2019			2021			2020

U.S. Dollar Denominated Debt
Revolving credit and term loan borrowings	$	1,150		$	698		$	0		$	950
U.S. Unsecured Notes:
3.90% due November 15, 2021		554			600			0			518
5.75% due January 30, 2022		605			750			0			600
5.625% due July 1, 2024		1,000			1,000			1,000			1,000
5.375% due January 1, 2026		688			700			688			688
8.125% due September 15, 2030		300			300			300			300
7.20% due November 1, 2031		350			350			350			350
7.375% due November 1, 2031		500			500			500			500
6.50% due August 15, 2034		750			750			750			750
6.625% due August 15, 2037		462			462			462			462
6.50% due February 1, 2038		488			505			488			488
5.15% due November 15, 2041		212			244			203			203
Total Principal		7,059			6,859			4,741			6,809

Increase in Value of Debt Acquired		119			149			82			111
Unamortized Debt Discounts and Issuance Costs		(36	)		(34	)		(32	)		(35	)
Total Long-Term Debt	$	7,142		$	6,974		$	4,791		$	6,885

Current Portion	$	0		$	0		$	0		$	518
Long-Term Portion		7,142			6,974			4,791			6,367
	$	7,142		$	6,974		$	4,791		$	6,885

~~During the nine months ended September 30, 2020,~~On June 18, 2021, the Company ~~repurchased approximately $252 million in principal amount~~completed the redemption of its ~~senior notes in the open market, which included approximately $46~~$600 million, ~~in principal amount of its 3.9 percent senior notes due in November 2021, approximately $145 million in principal amount of its~~ 5.75 percent senior notes due in January ~~2022,~~30, 2022. Ovintiv paid approximately ~~$12~~$632 million in ~~principal amount~~cash including accrued and unpaid interest of $13 million and a one-time make-whole payment of $19 million, which is included in interest expense as discussed in Note 4.

On August 16, 2021, the Company completed the redemption of its ~~5.375~~$518 million, 3.90 percent senior notes due ~~in January 2026,~~November 15, 2021. The Company redeemed the notes at par and paid approximately ~~$17~~$523 million in ~~principal amount~~cash including accrued and unpaid interest of ~~its 6.5 percent senior notes due in February 2038 and approximately $32 million in principal amount of its 5.15 percent senior notes due in November 2041.~~$5 million.

~~For~~The Company used the net proceeds from its Eagle Ford and Duvernay asset sales, as discussed in Note 7, and cash on hand to complete the senior note redemptions.

During the three and nine months ended September 30, 2020, the Company repurchased in the open market approximately $115 million and $252 million, respectively, in principal amount of its senior notes. The aggregate cash payments related to the note repurchases were $109 million and $224 million, respectively, plus accrued interest, and net gains of approximately $6 million and $28 million, respectively, were recognized in other (gains) losses, net onin the Condensed Consolidated Statement of Earnings.

As at September 30, 2020, the Company had outstanding commercial paper of $140 million maturing at various dates with a weighted average interest rate of approximately 0.87 percent. These amounts are supported, and Management expects that they will continue to be supported by revolving credit facilities that have no repayment requirements within the next year and

~~which expire in 2024. As at September 30, 2020, the Company also had $1,010 million drawn on its revolving credit facilities.~~

~~As at September 30, 2020,~~2021, total long-term debt had a carrying value of ~~$7,142~~$4,791 million and a fair value of ~~$6,804~~$5,989 million (as at December 31, ~~2019~~2020 - carrying value of ~~$6,974~~$6,885 million and a fair value of ~~$7,657~~$7,379 million). The estimated fair value of long-term borrowings is categorized within Level 2 of the fair value hierarchy and has been determined based on market information of long-term debt with similar terms and maturity, or by discounting future payments of interest and principal at interest rates expected to be available to the Company at period end.

~~13.~~11.

Other Liabilities and Provisions

	As at		As at		As at		As at
	September 30,		December 31,		September 30,		December 31,
	2020		2019		2021		2020

Finance Lease Obligations	$	51	$	121	$	35	$	39
Unrecognized Tax Benefits		155		159
Unrecognized Tax Benefits (See Note 6)						0		158
Pensions and Other Post-Employment Benefits		123		119		129		129
Long-Term Incentive Costs (See Note 19)		23		38
Other Derivative Contracts (See Notes 21, 22)		9		7
Long-Term Incentive Costs (See Note 16)						31		9
Other Derivative Contracts (See Notes 18, 19)						5		7
Other		16		20		15		16
	$	377	$	464	$	215	$	358

~~14.~~

~~Asset Retirement Obligation~~

As at

As at

September 30,

December 31,

2020

2019

Asset Retirement Obligation, Beginning of Year

$
614

$
455

Liabilities Incurred

11

15

Liabilities Acquired (See Note 8)

0

184

Liabilities Settled and Divested

(157
)

(141
)
Change in Estimated Future Cash Outflows

12

47

Accretion Expense

26

37

Foreign Currency Translation

(11
)

17

Asset Retirement Obligation, End of Period

$
495

$
614

Current Portion

$
49

$
189

Long-Term Portion

446

425

$
495

$
614

~~15.~~12.

Share Capital

Authorized

~~As of January 24, 2020, following the completion of the Reorganization,~~ Ovintiv is authorized to issue ~~775~~750 million shares of common stock, par value $0.01 per share, and 25 million shares of preferred stock, par value $0.01 per share. No shares of preferred stock are outstanding.

Issued and Outstanding

As at
September 30, 2020

As at
December 31, 2019

Number
(millions)

Amount

Number
(millions)

Amount

Shares of Common Stock Outstanding, Beginning of Year

259.8

$
7,061

190.5

$
4,656

Shares of Common Stock Purchased

0

0

(39.4
)

(1,073
)
Shares of Common Stock Issued

0

0

108.7

3,478

Reclassification of Share Capital due to the Reorganization (See Note 1)

-

(7,058
)

-

0

Shares of Common Stock Outstanding, End of Period

259.8

$
3

259.8

$
7,061

	As at September 30, 2021				As at December 31, 2020
	Number (millions)		Amount		Number (millions)		Amount

Shares of Common Stock Outstanding, Beginning of Year		259.8	$	3		259.8	$	7,061
Shares of Common Stock Issued (See Note 16)		1.3		0		0		0
Reclassification of Share Capital		-		0		-		(7,058	)
Shares of Common Stock Outstanding, End of Period		261.1	$	3		259.8	$	3

In conjunction with the ~~Reorganization as described~~corporate reorganization and U.S. domestication completed in ~~Note 1,~~2020, the amount recognized in share capital in excess of Ovintiv’s established par value of $0.01 per share was reclassified to paid in surplus. Accordingly, approximately $7,058 million was reclassified.

On February 13, 2019, the Company completed the acquisition of all the issued and outstanding shares of common stock of Newfield whereby Encana issued approximately 543.4 million common shares, on a pre-Share Consolidation basis, to Newfield shareholders (approximately 108.7 million post-Share Consolidation shares), representing a pre-Share Consolidation exchange ratio of 2.6719 Encana common shares for each share of Newfield common stock held. See Note 8 for further information on the business combination.

~~Substantial Issuer Bid~~

~~On June 10, 2019,~~September 28, 2021, the Company announced ~~its intention~~it had received regulatory approval to purchase, for cancellation, up to ~~$213~~approximately 26.0 million shares of common shares through a substantial issuer bid (“SIB”) which commenced on July 8, 2019. On August 29, 2019, the Company purchased the equivalent of approximately 9.5 million post-Share Consolidation shares at a converted price of $22.50 per share, for an aggregate purchase price of approximately $213 million, of which $257 million was charged to share capital and $44 million was credited to paid in surplus.

The purchase was made in accordance with the terms and conditions of the SIB, with consideration allocated to share capital equivalent to the average carrying amount of the shares, with the excess of the carrying amount over the purchase consideration credited to paid in surplus.

~~Normal Course Issuer Bid~~

On February 27, 2019, the Company announced that the TSX accepted the Company’s notice of intention to purchase, for cancellation, the equivalent of up to approximately 29.9 million post-Share Consolidation Encana common shares,stock, pursuant to a NCIB over a 12-month period from ~~March 4, 2019~~October 1, 2021 to ~~March 3, 2020.~~

~~For the nine months ended~~ September 30, 2019 and the twelve months ended December 31, 2019, the Company purchased the equivalent of approximately 29.9 million post-Share Consolidation shares under the NCIB for total consideration of approximately $1,037 million. Of the amount paid, $816 million was charged to share capital and $221 million was charged to retained earnings.2022.

All purchases were made in accordance with the NCIB at prevailing market prices plus brokerage fees, with consideration allocated to share capital up to the average carrying amount of the shares, with any excess allocated to retained earnings.

Dividends

During the three months ended September 30, ~~2020,~~2021, the Company declared and paid dividends of $0.14 per share of Ovintiv common stock totaling $37 million (2020 - $0.09375 per share of Ovintiv common stock totaling $24 ~~million. For the three months ended September 30, 2019, the Company declared and paid dividends of $0.09375 per common share on a post-Share Consolidation basis totaling $24 million.~~million).

During the nine months ended September 30, ~~2020,~~2021, the Company declared and paid dividends of $0.3275 per share of Ovintiv common stock totaling $86 million (2020 - $0.28125 per share of Ovintiv common stock totaling $73 ~~million. For the nine months ended September 30, 2019, the Company declared and paid dividends of $0.28125 per common share on a post-Share Consolidation basis totaling $77 million.~~million).

On ~~October 28, 2020,~~November 2, 2021, the Board of Directors declared a dividend of ~~$0.09375~~$0.14 per share of Ovintiv common stock payable on December 31, ~~2020~~2021 to stockholders of record as of December 15, ~~2020.~~2021.

Earnings Per Share of Common Stock

The following table presents the computation of net earnings (loss) per share of common stock:

	Three Months Ended					Nine Months Ended					Three Months Ended						Nine Months Ended
	September 30,					September 30,					September 30,						September 30,
(US$ millions, except per share amounts)	2020			2019		2020			2019		2021			2020			2021		2020

Net Earnings (Loss)	$	(1,521	)	$	149	$	(5,483	)	$	240	$	(72	)	$	(1,521	)	$	32	$	(5,483	)

Number of Shares of Common Stock ⁽¹⁾:
Number of Shares of Common Stock:
Weighted average shares of common stock outstanding - Basic		259.8			264.6		259.8			261.7		261.1			259.8			260.7		259.8
Effect of dilutive securities		0			0		0			0
Effect of dilutive securities ^{(1) (2)}												0			0			4.6		0
Weighted Average Shares of Common Stock Outstanding - Diluted		259.8			264.6		259.8			261.7		261.1			259.8			265.3		259.8

Net Earnings (Loss) per Share of Common Stock ⁽¹⁾
Basic & Diluted	$	(5.85	)	$	0.56	$	(21.10	)	$	0.92
Basic											$	(0.28	)	$	(5.85	)	$	0.12	$	(21.10	)
Diluted ^{(1) (2)}												(0.28	)		(5.85	)		0.12		(21.10	)

(1)

~~Net~~During the fourth quarter of 2020, Ovintiv’s Board of Directors resolved to settle certain Performance Share Units (“PSUs”) and Restricted Share Units (“RSUs”) with the issuance of the Company’s common stock. As a result, the stock-based compensation awards were modified and reclassified as equity-settled awards.

(2)

For the three months ended September 30, 2021, all of Ovintiv’s equity-settled awards were determined to be antidilutive and therefore are excluded from the calculation of fully diluted net earnings (loss) per share of common ~~stock and weighted average shares of common stock outstanding reflect the Share Consolidation as described in Note 1. Accordingly, the comparative periods have been restated.~~stock.

~~Ovintiv Stock Options~~

~~Ovintiv has share-based~~Shares issued as a result of awards granted from stock-based compensation plans ~~that~~are generally funded out of the common stock authorized for issuance as approved by the Company’s shareholders.

Stock-Based Compensation Plans

Ovintiv’s PSU and RSU stock-based compensation plans allow ~~employees~~the Company to settle the awards either in cash or in the Company’s common stock. The PSUs and RSUs are classified as equity-settled if the Company has sufficient common stock held in reserve for issuance. These awards are included in the computation of diluted net earnings (loss) per share of common stock if dilutive.

Ovintiv’s stock options with associated Tandem Stock Appreciation Rights (“TSARs”) give the employee the right to purchase shares of common stock of the Company. Option exercise prices are not less than the market value of the shares of common stock on the date the options are granted. All options outstanding as at September 30, 2020 have associated Tandem Stock Appreciation Rights (“TSARs”) attached. In lieu of exercising the option, the associated TSARs give the option holder the right toCompany or receive ~~a cash payment equal to the excess of the market price of Ovintiv’s shares of common stock at the time of the exercise over the original grant price.~~cash. Historically, most holders of options ~~with TSARs~~ have elected to exercise their ~~stock options as a Stock Appreciation Right (“SAR”)~~TSARs in exchange for a cash payment. As a result, outstanding ~~TSARs~~options are not considered potentially dilutive securities.

~~Ovintiv Restricted Share Units~~

Ovintiv has a share-based compensation plan whereby eligible employees and Directors are granted Restricted Share Units (“RSUs”). An RSU is a conditional grant to receive the equivalent of a share of common stock upon vesting of the RSUs and in accordance with the terms and conditions of the compensation plan and grant agreements. The Company currently settles vested RSUs in cash. As a result, RSUs are currently not considered potentially dilutive securities.

2623

~~16.~~13.

Accumulated Other Comprehensive Income

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2020			2019			2020			2019			2021			2020			2021			2020

Foreign Currency Translation Adjustment
Balance, Beginning of Period	$	957		$	1,014		$	1,004		$	976		$	1,086		$	957		$	1,042		$	1,004
Change in Foreign Currency Translation Adjustment		26			(6	)		(21	)		32			(48	)		26			(4	)		(21	)
Balance, End of Period	$	983		$	1,008		$	983		$	1,008		$	1,038		$	983		$	1,038		$	983

Pension and Other Post-Employment Benefit Plans
Balance, Beginning of Period	$	43		$	(2	)	$	42		$	22		$	31		$	43		$	34		$	42

Other Comprehensive Income Before Reclassifications:
Net prior service costs from plan amendment (See Note 20)		0			0			0			(29	)
Amounts Reclassified from Other Comprehensive Income:
Reclassification of net actuarial (gains) and losses to net earnings (See Note 17)														(1	)		(2	)		(5	)		(6	)
Income taxes		0			0			0			6			0			0			1			1

Amounts Reclassified from Other Comprehensive Income:
Reclassification of net actuarial (gains) and losses to net earnings (See Note 20)		(2	)		0			(6	)		(1	)
Curtailment in net defined periodic benefit cost (See Note 17)														0			0			0			5
Income taxes		0			0			1			0			0			0			0			(1	)
Curtailment in net defined periodic benefit cost (See Note 20)		0			0			5			0
Income taxes		0			0			(1	)		0

Balance, End of Period	$	41		$	(2	)	$	41		$	(2	)	$	30		$	41		$	30		$	41
Total Accumulated Other Comprehensive Income	$	1,024		$	1,006		$	1,024		$	1,006		$	1,068		$	1,024		$	1,068		$	1,024

During the nine months ended September 30, 2019, the Company amended the other post-employment benefits arrangements in conjunction with the integration of the Newfield business acquired. The plan amendment resulted in an increase to pension liabilities with a corresponding loss recognized in other comprehensive income.

~~17.~~14.

Variable Interest Entities

Veresen Midstream Limited Partnership

Veresen Midstream Limited Partnership (“VMLP”) provides gathering, compression and processing services under various agreements related to the Company’s development of liquids and natural gas production in the Montney play. As at September 30, ~~2020,~~2021, VMLP provides approximately ~~1,213~~1,167 MMcf/d of natural gas gathering and compression and ~~932~~925 MMcf/d of natural gas processing under long-term service agreements with remaining terms ranging from 1110 to 2524 years and have various renewal terms providing up to a potential maximum of 10 years.

Ovintiv has determined that VMLP is a VIE and that Ovintiv holds variable interests in VMLP. Ovintiv is not the primary beneficiary as the Company does not have the power to direct the activities that most significantly impact VMLP’s economic performance. These key activities relate to the construction, operation, maintenance and marketing of the assets owned by VMLP. The variable interests arise from certain terms under the various long-term service agreements and include: i) a take or pay for volumes in certain agreements; ii) an operating fee of which a portion can be converted into a fixed fee once VMLP assumes operatorship of certain assets; and iii) a potential payout of minimum costs in certain agreements. The potential payout of minimum costs will be assessed in the eighth year of the assets’ service period and is based on whether there is an overall shortfall of total system cash flows from natural gas gathered and compressed under certain agreements. The potential payout amount can be reduced in the event VMLP markets unutilized capacity to ~~third party~~third-party users. Ovintiv is not required to provide any financial support or guarantees to VMLP.

As a result of Ovintiv’s involvement with VMLP, the maximum total exposure ~~which represents~~to loss related to the ~~potential exposure to Ovintiv in the event the assets~~commitments under the agreements ~~are deemed worthless,~~ is estimated to be ~~$1,858~~$1,782 million as at September 30, ~~2020.~~2021. The estimate comprises the take or pay volume commitments and the potential payout of minimum costs. The take or pay volume commitments associated with certain gathering and processing assets are included in Note 2421 under Transportation and Processing. The potential payout requirement is highly uncertain as the amount is contingent on

future production estimates, pace of development and the amount of capacity contracted to third parties. As at September 30, ~~2020,~~2021, accounts payable and accrued liabilities included ~~$0.6~~$0.5 million related to the take or pay commitment.

~~18.~~15.

Restructuring Charges

In February 2019, in conjunction with the Newfield business combination as described in Note 8, the Company announced workforce reductions to better align staffing levels and organizational structure with the Company’s strategy. During 2019, the Company incurred total restructuring charges of $138 million, before tax, primarily related to severance costs.

In June 2020, Ovintiv undertook a plan to reduce its workforce by approximately 25 percent as part of a company-wide reorganization in response to ~~better align staffing levels~~the low commodity price environment resulting from the global pandemic and ~~organizational structure with~~ the Company’s planned ~~activity levels.~~reductions in capital spending. During the three and nine months ended September 30, ~~2020,~~2021, the Company incurred ~~total~~ restructuring charges of $2 million and $13 million, respectively (2020 - $7 million and $88 million, ~~respectively,~~respectively), before tax, primarily related to severance ~~costs, of which $14~~costs. Of the $103 million in restructuring charges incurred to date, $3 million remains accrued as at September 30, ~~2020.~~2021 ($14 million as at December 31, 2020). The majority of the remaining amounts accrued are expected to be paid in 2021 and total transition and severance costs are expected to be approximately ~~$93~~$104 million, before tax.

Restructuring charges are included in administrative expense presented in the Corporate and Other segment in the Condensed Consolidated Statement of Earnings.

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2020		2019		2020		2019		2021		2020		2021		2020

Severance and Benefits	$	6	$	4	$	86	$	132	$	2	$	6	$	13	$	86
Outplacement, Moving and Other Expenses		1		0		2		2		0		1		0		2
Restructuring Expenses	$	7	$	4	$	88	$	134	$	2	$	7	$	13	$	88

	As at			As at			As at			As at
	September 30,			December 31,			September 30,			December 31,
	2020			2019			2021			2020

Outstanding Restructuring Accrual, Beginning of Year	$	8		$	0		$	14		$	8
Restructuring Expenses Incurred		88			138			13			90
Restructuring Costs Paid		(82	)		(130	)		(24	)		(84	)
Outstanding Restructuring Accrual, End of Period ⁽¹⁾	$	14		$	8		$	3		$	14

(1)	Included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheet.

~~19.~~16.

Compensation Plans

Ovintiv has a number of compensation arrangements under which the Company awards various types of long-term incentive grants to eligible employees and Directors. They may include TSARs, ~~SARs, Performance Share Units~~Stock Appreciation Rights (“~~PSUs”~~SARs”), PSUs, Deferred Share Units (“DSUs”) and RSUs. ~~These compensation arrangements are share-based.~~

Ovintiv accounts for ~~TSARs, SARs,~~ PSUs and RSUs as ~~cash-settled share-based~~equity-settled stock-based payment transactions provided there is sufficient common stock held in reserve for issuance. TSARs, SARs and ~~accordingly,~~DSUs are accounted for as cash-settled stock-based payment transactions. The Company accrues compensation costs over the vesting period based on the fair value of the rights determined using the Black-Scholes-Merton ~~and~~or other appropriate fair value models.

During the fourth quarter of 2020, Ovintiv’s Board of Directors resolved to settle certain PSU awards and RSU awards with the issuance of the Company’s common stock. Historically, the Company settled PSU and RSU awards in cash. As a result, the respective awards were modified and reclassified as equity-settled share-based payment transactions at the modification date. The modified awards accrue compensation expense using the modification date fair value of the awards over the remaining vesting period. Common stock used to settle the PSU and RSU awards will be issued from Ovintiv’s common stock authorized and held in reserve for issuance under the Company’s stock-based compensation plans.

2825

The following weighted average assumptions were used to determine the fair value of ~~the share~~TSAR and SAR units outstanding:

As at September 30, 2020

As at September 30, 2019

As at September 30, 2021

As at September 30, 2020

US$ Share

Units

C$ Share

Units

US$ Share

Units

C$ Share

Units

US$ SAR

Share Units

C$ TSAR

Share Units

US$ SAR

Share Units

C$ TSAR

Share Units

Risk Free Interest Rate

0.22%

1.58%

0.49%

0.22%

Dividend Yield

4.60%

4.66%

1.63%

1.64%

1.70%

1.68%

4.60%

4.66%

Expected Volatility Rate ⁽¹⁾

102.43%

101.65%

44.14%

42.77%

106.19%

105.03%

102.43%

101.65%

Expected Term

2.5 yrs

2.0 yrs

2.9 yrs

2.6 yrs

1.5 yrs

2.5 yrs

2.0 yrs

Market Share Price ⁽²⁾

US$8.16

C$10.89

US$23.00

C$30.35

US$32.88

C$41.62

US$8.16

C$10.89

Weighted Average Grant Date Fair Value

US$37.63

C$50.46

US$38.11

C$48.28

(1)	Volatility was estimated using historical rates.

~~(2)~~

~~Market share price reflects the Share Consolidation as described in Note 1. Accordingly, the comparative period has been restated.~~

The Company has recognized the following share-based compensation costs:

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2020			2019			2020			2019			2021			2020			2021			2020

Total Compensation Costs of Transactions Classified as Cash-Settled	$	4		$	2		$	(12	)	$	46		$	33		$	4		$	115		$	(12	)
Total Compensation Costs of Transactions Classified as Equity-Settled														7			0			25			0
Less: Total Share-Based Compensation Costs Capitalized		(2	)		(1	)		3			(16	)		(7	)		(2	)		(23	)		3
Total Share-Based Compensation Expense (Recovery)	$	2		$	1		$	(9	)	$	30		$	33		$	2		$	117		$	(9	)

Recognized on the Condensed Consolidated Statement of Earnings in:
Recognized in the Condensed Consolidated Statement of Earnings in:
Operating	$	1		$	0		$	(3	)	$	12		$	8		$	1		$	26		$	(3	)
Administrative		1			1			(6	)		18			25			1			91			(6	)
	$	2		$	1		$	(9	)	$	30		$	33		$	2		$	117		$	(9	)

As at September 30, ~~2020,~~2021, the liability for cash-settled share-based payment transactions totaled ~~$47~~$109 million ($7834 million as at December 31, ~~2019)~~2020), of which ~~$24~~$78 million ($4025 million as at December 31, ~~2019)~~2020) is recognized in accounts payable and accrued liabilities and ~~$23~~$31 million ($389 million as at December 31, ~~2019)~~2020) is recognized in other liabilities and provisions in the Condensed Consolidated Balance Sheet.

As at
September 30,
2020

As at
December 31,
2019

Liability for Cash-Settled Share-Based Payment Transactions:

Unvested

$
42

$
65

Vested

5

13

$
47

$
78

The following units were granted primarily in conjunction with the Company’s annual grant of long-term incentive awards. The PSUs and RSUs were granted at the volume-weighted average trading price of shares of Ovintiv common stock for the five days prior to the grant date. ~~The RSUs issued in 2020 vest at~~ ~~one-third~~ ~~of the number granted in each of the years following the grant date, for three years.~~

Nine Months Ended September 30, ~~2020~~2021 (thousands of units)

RSUs			~~6,698~~2,748
PSUs			~~2,293~~934
DSUs			6514

2926

~~20.~~17.

Pension and Other Post-Employment Benefits

The Company has recognized total benefit plans expense which includes pension benefits and other post-employment benefits (“OPEB”) for the nine months ended September 30 as follows:

	Pension Benefits				OPEB				Total				Pension Benefits				OPEB					Total
	2020		2019		2020		2019		2020		2019		2021		2020		2021			2020		2021			2020

Net Defined Periodic Benefit Cost	$	0	$	1	$	2	$	13	$	2	$	14	$	0	$	0	$	(2	)	$	2	$	(2	)	$	2
Defined Contribution Plan Expense		24		18		0		0		24		18		19		24		0			0		19			24
Total Benefit Plans Expense	$	24	$	19	$	2	$	13	$	26	$	32	$	19	$	24	$	(2	)	$	2	$	17		$	26

Of the total benefit plans expense, ~~$22~~$18 million ~~(2019~~(2020 - ~~$20~~$22 million) was included in operating expense and $5$4 million ~~(2019~~(2020 - $6$5 million) was included in administrative expense. Excluding service costs, net defined periodic benefit gains of $1$5 million ~~(2019~~(2020 - ~~losses of $6~~$1 million) were recorded in other (gains) losses, net.

The net defined periodic benefit cost for the nine months ended September 30 is as follows:

	Defined Benefits						OPEB						Total						Defined Benefits						OPEB						Total
	2020			2019			2020			2019			2020			2019			2021			2020			2021			2020			2021			2020

Service Cost	$	0		$	1		$	3		$	7		$	3		$	8		$	0		$	0		$	3		$	3		$	3		$	3
Interest Cost		4			5			2			3			6			8			3			4			1			2			4			6
Expected Return on Plan Assets		(5	)		(5	)		0			0			(5	)		(5	)		(4	)		(5	)		0			0			(4	)		(5	)
Amounts Reclassified from Accumulated Other Comprehensive Income:
Amortization of net actuarial (gains) and losses		1			0			(7	)		(1	)		(6	)		(1	)		1			1			(6	)		(7	)		(5	)		(6	)
Curtailment from net prior service costs		0			0			5			0			5			0			0			0			0			5			0			5
Curtailment		0			0			(1	)		4			(1	)		4			0			0			0			(1	)		0			(1	)
Total Net Defined Periodic Benefit Cost ⁽¹⁾	$	0		$	1		$	2		$	13		$	2		$	14		$	0		$	0		$	(2	)	$	2		$	(2	)	$	2

(1)	The components of total net defined periodic benefit cost, excluding the service cost component, are included in other (gains) losses, net.

3027

~~21.~~18.

Fair Value Measurements

The fair values of cash and cash equivalents, accounts receivable and accrued revenues, and accounts payable and accrued liabilities approximate their carrying amounts due to the short-term maturity of those instruments. The fair values of restricted cash and marketable securities included in other assets approximate their carrying amounts due to the nature of the instruments held.

Recurring fair value measurements are performed for risk management assets and liabilities and other derivative contracts, as discussed further in Note ~~22.~~19. These items are carried at fair value in the Condensed Consolidated Balance Sheet and are classified within the three levels of the fair value hierarchy in the following tables.

Fair value changes and settlements for amounts related to risk management assets and liabilities are recognized in revenues and foreign exchange gains and losses according to their purpose.

As at September 30, 2020	Level 1 Quoted Prices in Active Markets		Level 2 Other Observable Inputs		Level 3 Significant Unobservable Inputs		Total Fair Value		Netting ⁽¹⁾			Carrying Amount
As at September 30, 2021														Level 1 Quoted Prices in Active Markets		Level 2 Other Observable Inputs		Level 3 Significant Unobservable Inputs		Total Fair Value		Netting ⁽¹⁾			Carrying Amount

Risk Management Assets
Commodity Derivatives:
Current assets	$	0	$	143	$	86	$	229	$	(69	)	$	160	$	0	$	41	$	0	$	41	$	(41	)	$	0
Long-term assets		0		14		0		14		(8	)		6		0		2		0		2		(2	)		0
Foreign Currency Derivatives:
Current assets		0		10		0		10		0			10		0		7		0		7		(6	)		1
Long-term assets		0		2		0		2		0			2

Risk Management Liabilities
Commodity Derivatives:
Current liabilities	$	2	$	129	$	3	$	134	$	(69	)	$	65	$	4	$	1,163	$	298	$	1,465	$	(41	)	$	1,424
Long-term liabilities		0		158		4		162		(8	)		154		0		211		37		248		(2	)		246
Foreign Currency Derivatives:
Current liabilities															0		0		0		0		(6	)		(6	)

Other Derivative Contracts
Other Derivative Contracts ⁽²⁾
Current in accounts receivable and accrued revenues														$	0	$	0	$	4	$	4	$	-		$	4
Long-term in other assets															0		0		5		5		-			5
Current in accounts payable and accrued liabilities	$	0	$	2	$	0	$	2	$	-		$	2		0		1		0		1		-			1
Long-term in other liabilities and provisions		0		9		0		9		-			9		0		5		0		5		-			5

As at December 31, 2019	Level 1 Quoted Prices in Active Markets		Level 2 Other Observable Inputs		Level 3 Significant Unobservable Inputs		Total Fair Value		Netting ⁽¹⁾			Carrying Amount
As at December 31, 2020														Level 1 Quoted Prices in Active Markets		Level 2 Other Observable Inputs		Level 3 Significant Unobservable Inputs		Total Fair Value		Netting ⁽¹⁾			Carrying Amount

Risk Management Assets
Commodity Derivatives:
Current assets	$	0	$	202	$	0	$	202	$	(67	)	$	135	$	0	$	70	$	0	$	70	$	(59	)	$	11
Long-term assets		0		6		0		6		(4	)		2		0		7		0		7		(3	)		4
Foreign Currency Derivatives:
Current assets		0		13		0		13		0			13		0		26		0		26		0			26

Risk Management Liabilities
Commodity Derivatives:
Current liabilities	$	1	$	139	$	41	$	181	$	(67	)	$	114	$	1	$	114	$	74	$	189	$	(59	)	$	130
Long-term liabilities		0		61		11		72		(4	)		68		0		128		0		128		(3	)		125

Other Derivative Contracts(2)
Current in accounts payable and accrued liabilities	$	0	$	2	$	0	$	2	$	-		$	2	$	0	$	1	$	0	$	1	$	-		$	1
Long-term in other liabilities and provisions		0		7		0		7		-			7		0		7		0		7		-			7

(1)	Netting to offset derivative assets and liabilities where the legal right and intention to offset exists, or where counterparty master netting arrangements contain provisions for net settlement.

(2)	Includes credit derivatives and contingent consideration associated with certain previous and current year divestitures, respectively.

3128

The Company’s Level 1 and Level 2 risk management assets and liabilities consist of commodity fixed price contracts, NYMEX fixed price swaptions, NYMEX three-way options, NYMEX costless collars, NYMEX call options, foreign currency swaps and basis swaps with terms to 2025. Level 2 also includes financial guarantee contracts as discussed in Note ~~22.~~19. The fair values of these contracts ~~are based on a market approach and~~ are estimated using inputs which are either directly or indirectly observable from active markets, such as exchange and other published prices, broker quotes and observable trading activity throughout the term of the instruments.

Level 3 Fair Value Measurements

As at September 30, ~~2020,~~2021, the Company’s Level 3 risk management assets and liabilities consist of WTI three-way options, WTI costless collars and contingent consideration derivative contracts tied to WTI ~~sold payer swaptions~~ with terms to ~~2021.~~2022. The WTI three-way options are a combination of a sold call, bought put and a sold put. The WTI costless collars are a combination of a sold call and a bought put. These contracts allow the Company to participate in the upside of commodity prices to the ceiling of the call option and provide the Company with complete (collars) or partial (three-way) downside price protection through the put options. The ~~sold payer swaptions give the counterparty the right to extend to 2021 certain 2020 WTI fixed price swaps. The~~ fair values of these contracts are ~~based on the income approach and are modelled~~determined using an option pricing model using observable and unobservable inputs such as implied volatility. The unobservable inputs are obtained from third parties whenever possible and reviewed by the Company for reasonableness.

A summary of changes in Level 3 fair value measurements for risk management positions is presented below:

	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2021			2020

Balance, Beginning of Year	$	(52	)	$	139		$	(74	)	$	(52	)
Total Gains (Losses)		214			24			(637	)		214
Purchases, Sales, Issuances and Settlements:
Purchases, sales and issuances(1)		0			0			6			0
Settlements		(83	)		(49	)		379			(83	)
Transfers Out of Level 3		0			0			0			0
Balance, End of Period	$	79		$	114		$	(326	)	$	79
Change in Unrealized Gains (Losses) During the Period Included in Net Earnings (Loss)	$	131		$	(25	)	$	(258	)	$	131

(1)	Relates to the contingent consideration associated with the Duvernay divestiture discussed in Note 7.

Quantitative information about unobservable inputs used in Level 3 fair value measurements is presented below as at September 30, ~~2020:~~2021:

	Valuation Technique	Unobservable Input	Range	Weighted Average ⁽¹⁾

Risk Management - WTI Options	Option Model	Implied Volatility	~~33%~~34% - ~~62%~~138%	~~42%~~48%

(1)	Unobservable inputs were weighted by the relative fair value of the instruments.

A 10 percent increase or decrease in implied volatility for the WTI options would cause an approximate corresponding $5$17 million ($86 million as at December 31, ~~2019)~~2020) increase or decrease to net risk management assets and liabilities.

3229

~~22.~~19.

Financial Instruments and Risk Management

A) Financial Instruments

Ovintiv’s financial assets and liabilities are recognized in cash and cash equivalents, accounts receivable and accrued revenues, other assets, accounts payable and accrued liabilities, risk management assets and liabilities, long-term debt, and other liabilities and provisions.

B) Risk Management Activities

Ovintiv uses derivative financial instruments to manage its exposure to cash flow variability from commodity prices and fluctuating foreign currency exchange rates. The Company does not apply hedge accounting to any of its derivative financial instruments. As a result, gains and losses from changes in the fair value are recognized in net ~~earnings.~~earnings (loss).

Commodity Price Risk

Commodity price risk arises from the effect that fluctuations in future commodity prices may have on future cash flows. To partially mitigate exposure to commodity price risk, the Company has entered into various derivative financial instruments. The use of these derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors.

Crude Oil and NGLs - To partially mitigate crude oil and NGL commodity price risk, the Company uses ~~WTI-based~~WTI- and NGL-based contracts such as fixed price contracts, ~~fixed price swaptions,~~ options and costless collars. ~~The Company~~Ovintiv has also entered into basis swaps to manage against widening price differentials between various production areas, products and ~~benchmark~~ price points.

Natural Gas - To partially mitigate natural gas commodity price risk, the Company uses NYMEX-based contracts such as fixed price contracts, fixed price swaptions, options and costless collars. ~~The Company~~Ovintiv has also entered into basis swaps to manage against widening price differentials between various production areas and benchmark price points.

Foreign Exchange Risk

Foreign exchange risk arises from changes in foreign currency exchange rates that may affect the fair value or future cash flows of the Company’s financial assets or liabilities. To partially mitigate the effect of foreign exchange fluctuations on future commodity revenues and expenses, the Company may enter into foreign currency derivative contracts. As at September 30, ~~2020,~~2021, the Company has entered into ~~$215~~$88 million notional U.S. dollar denominated currency swaps at an average exchange rate of ~~US$0.7451~~C$1.3720 to C$US$1, which mature monthly through the remainder of ~~2020~~2021 and ~~$350~~$100 million notional U.S. dollar denominated currency swaps at an average exchange rate of ~~US$0.7289~~C$1.2820 to C$US$1, which mature monthly throughout ~~2021.~~2022.

3330

Risk Management Positions as at September 30, ~~2020~~2021

	Notional Volumes	Term	Average Price		Fair Value			Notional Volumes	Term	Average Price		Fair Value

Crude Oil and NGL Contracts			US$/bbl							US$/bbl
Fixed Price Contracts
WTI Fixed Price	89.0 Mbbls/d	2020		52.95	$	101		30.0 Mbbls/d	2021		46.37	$	(77	)
WTI Fixed Price	20.0 Mbbls/d	2021		44.08		12		5.0 Mbbls/d	2022		60.16		(18	)
Ethane Fixed Price								8.0 Mbbls/d	2021		11.05		(5	)
Propane Fixed Price	20.0 Mbbls/d	2020		17.94		(6	)	12.0 Mbbls/d	2021		25.78		(38	)
Butane Fixed Price	8.0 Mbbls/d	2020		23.54		(1	)	5.0 Mbbls/d	2021		24.83		(19	)
Iso-Butane Fixed Price	3.3 Mbbls/d	2020		24.36		(1	)
Ethane Fixed Price	1.0 Mbbls/d	2020		5.25		0

WTI Fixed Price Swaptions ⁽¹⁾	10.0 Mbbls/d	2021		58.00		0

WTI Three-Way Options
Sold call / bought put / sold put	76.0 Mbbls/d	2020	61.46 / 53.36 / 43.36			62		85.0 Mbbls/d	2021	53.92 / 44.66 / 34.79			(136	)
Sold call / bought put / sold put	37.0 Mbbls/d	2021	50.27 / 39.61 / 29.39			8		75.0 Mbbls/d	2022	70.79 / 60.82 / 49.33			(164	)

WTI Costless Collars
Sold call / bought put	15.0 Mbbls/d	2020	68.71 / 50.00			14		15.0 Mbbls/d	2021	45.84 / 35.00			(35	)
Sold call / bought put	15.0 Mbbls/d	2021	45.84 / 35.00			(5	)

Basis Contracts ⁽²⁾		2020				(20	)
Basis Contracts ⁽¹⁾									2021				(4	)
		2021				(1	)		2022				(1	)

Other Crude Financial Positions						(3	)						0
Crude Oil and NGLs Fair Value Position						160							(497	)

Natural Gas Contracts			US$/Mcf							US$/Mcf
Fixed Price Contracts
NYMEX Fixed Price	793 MMcf/d	2020		2.65		6		165 MMcf/d	2021		2.51		(52	)
NYMEX Fixed Price	165 MMcf/d	2021		2.51		(24	)	200 MMcf/d	2022		2.67		(125	)

Fixed Price Swaptions ⁽³⁾
NYMEX Fixed Price Swaptions	165 MMcf/d	2022		2.51		(20	)
NYMEX Fixed Price Swaptions⁽²⁾								165 MMcf/d	2022		2.51		(113	)

NYMEX Three-Way Options
Sold call / bought put / sold put	330 MMcf/d	2020	2.72 / 2.60 / 2.25			(1	)	980 MMcf/d	2021	3.36 / 2.89 / 2.50			(230	)
Sold call / bought put / sold put	730 MMcf/d	2021	3.35 / 2.87 / 2.49			(17	)	398 MMcf/d	2022	3.02 / 2.75 / 2.00			(205	)

NYMEX Costless Collars
Sold call / bought put	55 MMcf/d	2020	2.88 / 2.50			0		200 MMcf/d	2022	2.85 / 2.55			(116	)

NYMEX Call Options
Sold call	230 MMcf/d	2020		3.25		0		330 MMcf/d	2022		2.38		(244	)
Sold call	330 MMcf/d	2022		2.38		(54	)

Basis Contracts ⁽⁴⁾		2020				(13	)
Basis Contracts ⁽³⁾									2021				(9	)
		2021				(33	)		2022				(29	)
		2022 - 2025				(56	)		2023 - 2025				(34	)

Other Financial Positions						1							(16	)
Natural Gas Fair Value Position						(211	)						(1,173	)

Net Premiums Received on Unexpired Options						(2	)

Other Derivative Contracts
Fair Value Position						(11	)
Fair Value Position ⁽⁴⁾													3

Foreign Currency Contracts
Fair Value Position ⁽⁵⁾		2020 - 2021				12			2021 - 2022				7
Total Fair Value Position and Net Premiums Received					$	(52	)
Total Fair Value Position												$	(1,660	)

(1)	~~WTI Fixed Price Swaptions give the counterparty the option to extend certain 2020 Fixed Price swaps to 2021.~~

~~(2)~~

Ovintiv has entered into crude and NGL differential swaps associated with Canadian condensate ~~Midland, Magellan East Houston, Brent, Mt. Belvieu, Conway~~ and WTI.

~~(3)~~(2)

NYMEX Fixed Price Swaptions give the counterparty the option to extend certain 2021 Fixed Price swaps to 2022.

~~(4)~~(3)

Ovintiv has entered into natural gas basis swaps associated with AECO, Dawn, ~~Chicago,~~ Malin, Waha, Houston Ship Channel and NYMEX.

(4)	Includes credit derivatives and contingent consideration associated with certain previous and current year divestitures, respectively.

(5)	Ovintiv has entered into U.S. dollar denominated fixed-for-floating average currency swaps to protect against fluctuations between the Canadian and U.S. dollars.

3431

Earnings Impact of Realized and Unrealized Gains (Losses) on Risk Management Positions

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2020			2019			2020			2019			2021			2020			2021			2020

Realized Gains (Losses) on Risk Management
Commodity and Other Derivatives:
Revenues ⁽¹⁾	$	89		$	122		$	605		$	301		$	(371	)	$	89		$	(750	)	$	605
Foreign Currency Derivatives:
Foreign exchange		2			2			(7	)		1			7			2			25			(7	)
	$	91		$	124		$	598		$	302		$	(364	)	$	91		$	(725	)	$	598

Unrealized Gains (Losses) on Risk Management
Commodity and Other Derivatives:
Revenues ⁽²⁾	$	(243	)	$	(41	)	$	(18	)	$	(385	)	$	(579	)	$	(243	)	$	(1,426	)	$	(18	)
Foreign Currency Derivatives:
Foreign exchange		15			(11	)		(1	)		26			(11	)		15			(19	)		(1	)
	$	(228	)	$	(52	)	$	(19	)	$	(359	)	$	(590	)	$	(228	)	$	(1,445	)	$	(19	)

Total Realized and Unrealized Gains (Losses) on Risk Management, net
Commodity and Other Derivatives:
Revenues ^{(1) (2)}	$	(154	)	$	81		$	587		$	(84	)	$	(950	)	$	(154	)	$	(2,176	)	$	587
Foreign Currency Derivatives:
Foreign exchange		17			(9	)		(8	)		27			(4	)		17			6			(8	)
	$	(137	)	$	72		$	579		$	(57	)	$	(954	)	$	(137	)	$	(2,170	)	$	579

(1)	Includes realized gains of nil and $2$1 million for the three and nine months ended September 30, ~~2020,~~2021, respectively ~~(2019~~(2020 - gains of ~~$2 million~~nil and $5$2 million, respectively), related to other derivative contracts.

(2)	Includes unrealized ~~losses~~gains of ~~nil~~$1 million and $4 million for the three and nine months ended September 30, ~~2020,~~2021, respectively ~~(2019~~(2020 - losses of nil and $1$4 million, respectively), related to other derivative contracts.

Reconciliation of Unrealized Risk Management Positions from January 1 to September 30

	2020						2019			2021						2020
	Fair Value			Total Unrealized Gain (Loss)			Total Unrealized Gain (Loss)			Fair Value			Total Unrealized Gain (Loss)			Total Unrealized Gain (Loss)

Fair Value of Contracts, Beginning of Year	$	(41	)							$	(222	)
Change in Fair Value of Contracts in Place at Beginning of Year and Contracts Entered into During the Period		579		$	579		$	(57	)		(2,170	)	$	(2,170	)	$	579
Settlement of Other Derivative Contracts		2									1
Amortization of Option Premiums During the Period		6
Fair Value of Other Derivative Contract Assets Entered into During the Period (See Note 7)											6
Fair Value of Contracts Realized During the Period		(598	)		(598	)		(302	)		725			725			(598	)
Fair Value of Contracts and Net Premiums Received, End of Period	$	(52	)	$	(19	)	$	(359	)
Fair Value of Contracts, End of Period										$	(1,660	)	$	(1,445	)	$	(19	)

Risk management assets and liabilities arise from the use of derivative financial instruments and are measured at fair value. See Note 2118 for a discussion of fair value measurements.

3532

Unrealized Risk Management Positions

	As at			As at			As at			As at
	September 30,			December 31,			September 30,			December 31,
	2020			2019			2021			2020

Risk Management Assets
Current	$	170		$	148		$	1		$	37
Long-term		8			2			0			4
		178			150			1			41

Risk Management Liabilities
Current		65			114			1,418			130
Long-term		154			68			246			125
		219			182			1,664			255

Other Derivative Contracts
Other Derivative Contract Assets
Current in accounts receivable and accrued revenues								4			0
Long-term in other assets								5			0
								9			0

Other Derivative Contract Liabilities
Current in accounts payable and accrued liabilities		2			2			1			1
Long-term in other liabilities and provisions		9			7			5			7
								6			8
Net Risk Management Assets (Liabilities) and Other Derivative Contracts	$	(52	)	$	(41	)	$	(1,660	)	$	(222	)

C) Credit Risk

Credit risk arises from the potential that the Company may incur a loss if a counterparty to a financial instrument fails to meet its obligation in accordance with agreed terms. While exchange-traded contracts are subject to nominal credit risk due to the financial safeguards established by the NYSE and the TSX, over-the-counter traded contracts expose Ovintiv to counterparty credit risk. Counterparties to the Company’s derivative financial instruments consist primarily of major financial institutions and companies within the energy industry. This credit risk exposure is mitigated through the use of credit policies approved by the Board of Directors governing the Company’s credit portfolio including credit practices that limit transactions according to counterparties’ credit quality. Mitigation strategies may include master netting arrangements, requesting collateral, purchasing credit insurance and/or transacting credit derivatives. The Company executes commodity derivative financial instruments under master agreements that have netting provisions that provide for offsetting payables against receivables. Ovintiv actively evaluates the creditworthiness of its counterparties, assigns appropriate credit limits and monitors credit exposures against those assigned limits. As ~~a result of netting provisions, the Company’s~~at September 30, 2021, Ovintiv’s maximum exposure toof loss ~~under derivative financial instruments~~ due to credit risk ~~is limited to the~~from derivative financial instrument assets on a gross and net ~~amounts due from the counterparties under the derivative contracts,~~fair value basis was $59 million and $10 million, respectively, as disclosed in Note ~~21. As at September 30, 2020, the~~18. The Company had 0 significant credit derivatives in place and held 0 ~~collateral.~~collateral at September 30, 2021.

As at September 30, ~~2020,~~2021, cash equivalents include high-grade, short-term securities, placed primarily with financial institutions ~~and companies~~ with strong investment grade ratings. Any foreign currency agreements entered into are with major financial institutions that have investment grade credit ratings.

A substantial portion of the Company’s accounts receivable are with customers and working interest owners in the oil and gas industry and are subject to normal industry credit risks. As at September 30, ~~2020,~~2021, approximately 9791 percent ~~(95~~(89 percent as at December 31, ~~2019)~~2020) of Ovintiv’s accounts receivable and financial derivative credit exposures were with investment grade counterparties.

As at September 30, 2020, Ovintiv had 4 counterparties whose net settlement position individually accounted for more than 10 percent of the fair value of the outstanding in-the-money net risk management contracts by counterparty. These counterparties accounted for 23 percent, 15 percent, 12 percent and 12 percent of the fair value of the outstanding in-the-money net risk management contracts. As at December 31, 2019, the Company had 6 counterparties whose net settlement position accounted for 26 percent, 13 percent, 12 percent, 12 percent, 11 percent and 11 percent of the fair value of the outstanding in-the-money net risk management contracts.

During 2015 and 2017, the Company entered into agreements resulting from divestitures, which may require ~~the Company~~Ovintiv to fulfill certain payment obligations on the take or pay volume commitments assumed by the purchasers. The circumstances that would require ~~the Company~~Ovintiv to perform under the agreements include events where a purchaser fails to make payment to the guaranteed party and/or a purchaser is subject to an insolvency event. The agreements have remaining terms ~~from one to four~~of less than three years with a fair value recognized of ~~$11~~$6 million as at September 30, ~~2020~~2021 ($98 million as at December 31, ~~2019)~~2020). The

maximum potential amount of undiscounted future payments is ~~$95~~$63 million as at September 30, ~~2020,~~2021, and is considered unlikely.

~~23.~~20.

Supplementary Information

Supplemental disclosures to the Condensed Consolidated Statement of Cash Flows are presented below:

A)	Net Change in Non-Cash Working Capital

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2020			2019			2020			2019			2021			2020			2021			2020

Operating Activities
Accounts receivable and accrued revenues	$	78		$	61		$	289		$	178		$	(25	)	$	78		$	(287	)	$	289
Accounts payable and accrued liabilities		42			(82	)		(212	)		(66	)		13			42			211			(212	)
Current portion of operating lease liabilities		(4	)		(9	)		(10	)		52			(9	)		(4	)		(5	)		(10	)
Income tax receivable and payable		26			(2	)		39			(34	)		(2	)		26			23			39
	$	142		$	(32	)	$	106		$	130		$	(23	)	$	142		$	(58	)	$	106

B)	Non-Cash Activities

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Non-Cash Investing Activities

Asset retirement obligation incurred (See Note 14)

$
2

$
2

$
11

$
13

Asset retirement obligation change in estimated future cash
outflows (See Note 14)

(10
)

0

12

0

Property, plant and equipment accruals

68

(80
)

(62
)

(33
)
Capitalized long-term incentives

2

1

(7
)

(31
)
Property additions/dispositions (swaps)

212

63

229

66

New ROU operating lease assets and liabilities

(5
)

(1
)

(6
)

(11
)
Non-Cash Financing Activities

Common shares issued in conjunction with the Newfield business
combination (See Note 8)

$
0

$
0

$
0

$
(3,478
)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020

Non-Cash Operating Activities
ROU operating lease assets and liabilities	$	(4	)	$	(5	)	$	(22	)	$	(6	)
Non-Cash Investing Activities
Asset retirement obligation incurred	$	0		$	2		$	0		$	11
Asset retirement obligation change in estimated future cash outflows		0			(10	)		0			12
Property, plant and equipment accruals		4			68			(33	)		(62	)
Capitalized long-term incentives		5			2			12			(7	)
Property additions/dispositions (swaps)		18			212			24			229
Contingent consideration (See Note 7)		0			0			6			0

On September 1, 2020, Ovintiv closed an agreement with PetroChina Canada Ltd. (“PCC”) to terminate its joint venture with PCC and transfer the ownership and operation of certain Duvernay shale assets in west-central Alberta. Ovintiv and PCC have agreed to partition the Duvernay acreage and associated infrastructure as each company will independently own and operate their respective interests in the future. For the three and nine months ended September 30, 2020, property additions/dispositions (swaps) includes a $203 million non-cash swap related to the Duvernay partition.

~~24.~~21.

Commitments and Contingencies

Commitments

The following table outlines the Company’s commitments as at September 30, ~~2020:~~2021:

	Expected Future Payments														Expected Future Payments
(undiscounted)	2020		2021		2022		2023		2024		Thereafter		Total		2021		2022		2023		2024		2025		Thereafter		Total

Transportation and Processing	$	173	$	675	$	644	$	541	$	433	$	2,305	$	4,771	$	181	$	745	$	689	$	493	$	429	$	2,334	$	4,871
Drilling and Field Services		37		12		1		0		0		1		51		32		44		24		24		24		0		148
Building Leases		3		14		11		7		6		8		49		3		10		6		6		6		2		33
Total	$	213	$	701	$	656	$	548	$	439	$	2,314	$	4,871	$	216	$	799	$	719	$	523	$	459	$	2,336	$	5,052

3734

Operating leases with terms greater than one year are not included in the commitments table above. The table above includes short-term leases with contract terms less than 12 months, such as drilling rigs and field office leases, as well as non-lease operating cost components associated with building leases.

Included within transportation and processing in the table above are certain commitments associated with midstream service agreements with VMLP as described in Note ~~17.~~14. Divestiture transactions can reduce certain commitments disclosed above.

Contingencies

Ovintiv is involved in various legal claims and actions arising in the normal course of the Company’s operations. Although the outcome of these claims cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on Ovintiv’s financial position, cash flows or results of operations. Management’s assessment of these matters may change in the future as certain of these matters are in early stages or are subject to a number of uncertainties. For material matters that the Company believes an unfavorable outcome is reasonably possible, the Company discloses the nature and a range of potential exposures. If an unfavorable outcome were to occur, there exists the possibility of a material impact on the Company’s consolidated net earnings or loss for the period in which the effect becomes reasonably estimable. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. Such accruals are based on the Company’s information known about the matters, estimates of the outcomes of such matters and experience in handling similar matters.

3835

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The MD&A is intended to provide a narrative description of the Company’s business from management’s perspective. This MD&A should be read in conjunction with the unaudited interim Condensed Consolidated Financial Statements and accompanying notes for the period ended September 30, ~~2020~~2021 (“Consolidated Financial Statements”), which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements and accompanying notes and MD&A for the year ended December 31, ~~2019,~~2020, which are included in Items 8 and 7, respectively, of the ~~2019~~2020 Annual Report on Form 10‑K.

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

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

•

Executive Overview

•

Results of Operations

•

Liquidity and Capital Resources

•

Non-GAAP Measures

Executive Overview

Strategy

Ovintiv is a leading North American energy producer that is focused on developing its multi-basin portfolio of oil, NGLs and natural gas producing plays. Ovintiv is committed to growing long-term ~~stockholder~~shareholder value ~~through a combination of profitable growth~~by delivering on its strategic priorities and ~~generating cash flows. The Company is~~ pursuing the key business objectives of preserving ~~balance sheet~~financial strength, maintaining disciplined capital allocation and maximizing profitability through ~~operational~~execution excellence, commercial acumen, and ~~capital efficiencies, returning capital~~risk management, while driving environmental, social and governance progress.

In support of the Company’s commitment to ~~stockholders through sustainable dividends, and driving cash flow through~~growing shareholder value, Ovintiv announced a ~~disciplined~~ capital allocation ~~strategy by investing~~framework that outlines increasing returns to shareholders as well as continuing the Company’s progress on debt reduction.

Ovintiv is delivering results in a ~~limited number of core~~socially and environmentally responsible manner. Thoughtfully developed best practices are deployed across its assets, ~~with high margin liquids. In conjunction with Ovintiv’s focus on preserving balance sheet strength,~~allowing the Company ~~plans~~ to ~~allocate all excess cash flows~~capitalize on operational efficiencies and decrease emissions intensity. The Company’s sustainability reporting, which outlines its key metrics and progress achieved relating to ~~reduce long-term debt over~~ESG practices can be found on the ~~next five quarters.~~Company’s website.

In executing its strategy, Ovintiv focuses on its core values of One, Agile, Innovative and Driven, which guide the organization to be flexible, responsive ~~innovative~~ and determined. The Company is committed to excellence with a passion to drive corporate financial performance and succeed as a team. ~~Ovintiv rapidly deploys successful ideas and practices across its assets, becoming more efficient as innovative and sustainable improvements are implemented.~~

Ovintiv continually reviews and evaluates its strategy and changing market ~~conditions. In 2020, Ovintiv continues~~conditions in order to ~~focus on maximizing~~maximize cash flow generation from ~~high margin, scalable,~~its top tier assets located in some of the best plays in North America, referred to as the “Core Assets”. As at September 30, ~~2020,~~2021, the Core Assets comprised Permian and Anadarko in the U.S., and Montney in Canada. These Core Assets form a multi-basin portfolio of oil, NGLs and natural gas producing plays enabling flexible and efficient investment of capital that support the Company’s strategy.

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 the ~~2019~~2020 Annual Report on Form 10-K.

In evaluating its operations and assessing its leverage, Ovintiv reviews performance-based measures such as Non‑GAAP Cash Flow, Non-GAAP Cash Flow Margin, Total Costs and debt-based metrics such as Debt to Adjusted Capitalization, Net Debt and Net Debt to Adjusted EBITDA, which are non-GAAP measures and do not have any standardized meaning under U.S. GAAP. These measures may not be similar to measures presented by other issuers and should not be viewed as a substitute

for measures reported under U.S. GAAP. Additional information regarding these measures, including reconciliations to the closest GAAP measure, can be found in the Non-GAAP Measures section of this MD&A.

~~Highlights~~

In early 2020, the Company revised its capital program for the remainder of the year to focus on production from the Core Assets generating the highest returns and/or with the lowest costs in response to the low commodity price environment resulting from the global coronavirus (“COVID-19”) pandemic, coupled with excess oil production from Saudi Arabia and Russia.Highlights

During the first nine months of ~~2020,~~2021, the Company focused on executing its ~~reduced 2020~~2021 capital plan ~~generating cash from operating activities and~~aimed at maximizing profitability through operational and capital ~~efficiencies. Lower~~efficiencies, delivering cash from operating activities and using excess cash flows to reduce total long-term debt. Higher upstream product revenues in the first nine months of ~~2020~~2021 compared to ~~2019~~2020 resulted from ~~lower~~higher average realized prices, excluding the impact of risk management ~~activities, and lower total production volumes. Decreases~~activities. Increases in average realized liquids and natural gas prices of 3891 percent and 1288 percent, respectively, were primarily due to ~~lower WTI and NYMEX~~higher benchmark prices. ~~Total production volumes decreased by three percent compared to the first nine months of 2019 primarily due to natural declines, reduced capital investment and curtailed production.~~ Ovintiv continues to focus on optimizing realized prices from the diversification of the Company’s downstream markets.

The Company continued to deliver significant cash from operating activities while reducing its total long-term debt balance. Cash from operating activities of $2,389 million included a net realized loss of $725 million on settlement of risk management positions and a current income tax recovery of $156 million primarily due to the resolution of certain tax items relating to prior taxation years. The Company used excess cash flows to reduce its total long-term debt balance by $2,094 million in the first nine months of 2021.

Significant Developments

•

On April 28, 2021, the Company closed the sale of its previously announced Duvernay assets and received proceeds of approximately $238 million, after closing and other adjustments. The transaction had an effective date of January 24, 2020, Encana completed a corporate reorganization, which included a plan of arrangement (the “Arrangement”) that involved, among other things, a share consolidation by Encana on the basis of one post-consolidation share for each five pre-consolidation shares (the “Share Consolidation”), and Ovintiv Inc. ultimately acquired all of the issued and outstanding common shares of Encana in exchange for shares of common stock of Ovintiv Inc. on a one-for-one basis. Following completion of the Arrangement, Ovintiv Inc. migrated from Canada and became a Delaware corporation, domiciled in the U.S. (the “U.S. Domestication”). The Arrangement and the U.S. Domestication together are referred to as the “Reorganization”. Additional information on the Reorganization can be found in Note 1, ~~of the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.~~2021.

•

~~In June 2020, Ovintiv undertook a plan~~On May 19, 2021, the Company closed the sale of its previously announced Eagle Ford assets and received proceeds of approximately $762 million, after closing and other adjustments. The transaction had an effective date of January 1, 2021.

•

On May 19, 2021, the Company announced its intention to ~~reduce its workforce by approximately 25 percent as part of a company-wide reorganization to better align staffing levels and organizational structure with~~redeem the Company’s ~~planned activity levels.~~$600 million, 5.75 percent senior notes due January 30, 2022, and its $518 million, 3.90 percent senior notes due November 15, 2021. The ~~Company incurred restructuring charges~~senior notes were redeemed on June 18, 2021 and August 16, 2021, respectively. The combined debt redemptions are expected to result in annualized interest savings of ~~$88 million and expects total restructuring charges to be approximately $93~~over $50 million.

•

On ~~September 1, 2020,~~July 27, 2021, Ovintiv ~~closed~~announced an ~~agreement with PetroChina Canada Ltd. (“PCC”)~~increase of about 50 percent to ~~terminate~~ its ~~joint venture with PCC and transfer~~quarterly dividend payment representing an annualized dividend of $0.56 per share of common stock as part of the ~~ownership and operation of certain Duvernay shale assets in west-central Alberta. Ovintiv and PCC have agreed~~Company’s commitment to partition the Duvernay acreage and associated infrastructure as each company will independently own and operate their respective interests in the future. There were no penalties or fees associated with the transaction.returning capital to shareholders.

•

On ~~October 13, 2020,~~September 9, 2021, Ovintiv announced ~~the start-up of the Pipestone processing facility,~~ a natural gas processing and liquids stabilization plant owned by Keyera Partnership. Under a “fee-for-service” midstream agreement, the facility will provide Ovintiv with additional net processing capacitynew capital allocation framework to support the Company’s ~~condensate-rich Montney development.~~strategy of increasing shareholder returns as well as reducing Net Debt.

•

On September 28, 2021, Ovintiv announced it received regulatory approval to commence a NCIB that enables the Company to purchase, for cancellation, up to approximately 26 million shares of common stock over a 12-month period from October 1, 2021 to September 30, 2022. The number of shares authorized for purchase represents approximately 10 percent of Ovintiv’s issued and outstanding shares of common stock as at September 20, 2021. The Company plans to fund the NCIB through its new capital allocation framework.

•

On October 6, 2021, Ovintiv launched its sustainability website, which highlights the Company’s progress on ESG metrics and initiatives, and announced several sustainability milestones related to emission reductions, social responsibility, and corporate governance. The Company announced it expects to achieve a 33 percent reduction in methane emissions intensity in 2021, four years ahead of schedule, and set a target to reduce Ovintiv’s GHG emissions intensity by greater than 20 percent compared to 2019 levels by the end of 2021.

4037

Financial Results

Three months ended September 30, ~~2020~~2021

•

Reported net loss of ~~$1,521~~$72 million, including ~~a non-cash ceiling test impairment of $1,336 million, before tax, and~~ net losses on risk management in revenues of ~~$154~~$950 million, before tax.

•

Generated cash from operating activities of ~~$493~~$812 million, Non-GAAP Cash Flow of ~~$398~~$845 million and Non‑GAAP Cash Flow Margin of ~~$8.49~~$17.17 per BOE.

•

Paid dividends of ~~$0.09375~~$0.14 per share of common ~~share~~stock totaling ~~$24~~$37 million.

•

~~Repurchased in the open market $115 million in principal amount of the Company’s senior notes resulting in gains of $6~~Reduced total long-term debt by $523 million.

Nine months ended September 30, ~~2020~~2021

•

Reported net ~~loss~~earnings of ~~$5,483~~$32 million, including ~~a non-cash ceiling test impairment of $4,863 million, before tax,~~ net ~~gains~~losses on risk management in revenues of ~~$587~~$2,176 million, before tax ~~restructuring costs of $88 million, before tax, as well as~~and a ~~deferred~~current income tax ~~valuation allowance~~recovery of ~~$568~~$156 million.

•

Generated cash from operating activities of ~~$1,176~~$2,389 million, Non-GAAP Cash Flow of ~~$1,237~~$2,468 million and Non‑GAAP Cash Flow Margin of ~~$8.37~~$16.66 per BOE.

•

Paid dividends of ~~$0.28125~~$0.3275 per share of common ~~share~~stock totaling ~~$73~~$86 million.

•

~~Repurchased~~Had $4.3 billion in ~~the open market $252~~total liquidity as at September 30, 2021, which included available credit facilities of $4.0 billion, available uncommitted demand lines of $278 million, ~~in principal amount~~and cash and cash equivalents of ~~the Company’s senior notes resulting in gains of $28~~$8 million.

•

~~Had $3.1 billion in~~Reduced total liquidity as at September 30, 2020, which included available credit facilities of $3.0 billion, available uncommitted demand lines of $186 million, and cash and cash equivalents of $32 million, net of outstanding commercial paper of $140long-term debt by $2,094 million.

•

Reported Net Debt to Adjusted EBITDA of ~~2.9~~1.5 times.

Capital Investment

•

~~Invested $351~~Continued to execute the Company’s 2021 capital plan with expenditures totaling $1,098 million inof which $1,012 million, or 92 percent, was directed to the ~~third quarter of 2020 and $1,393 million during the first nine months of 2020.~~Core Assets.

•

~~Directed $293 million, or 83 percent, of total capital spending to the Core Assets in the third quarter of 2020 and $1,138 million, or 82 percent, during the first nine months of 2020.~~

•

Focused on highly efficient capital activity and short-cycle high margin and/or ~~low cost~~low-cost projects providing flexibility to respond to fluctuations in commodity prices.

Production

Three months ended September 30, ~~2020~~2021

•

Produced average liquids volumes of 273.6 Mbbls/d, which accounted for 51 percent of total production volumes. Average oil and plant condensate volumes of ~~186.1~~188.7 Mbbls/d, ~~which accounted for~~represented 69 percent of total liquids ~~production volumes. Average liquids volumes of 269.9 Mbbls/d were 53 percent of total~~ production volumes.

•

Produced average natural gas volumes of ~~1,442~~1,566 MMcf/d, which accounted for 4749 percent of total production volumes.

Nine months ended September 30, 2021

•

Produced average liquids volumes of 278.7 Mbbls/d, which accounted for 51 percent of total production volumes. Average oil and plant condensate volumes of 195.8 Mbbls/d, represented 70 percent of total liquids production volumes.

•

Produced average natural gas volumes of 1,583 MMcf/d, which accounted for 49 percent of total production volumes.

4138

~~Nine months ended September 30, 2020~~Operating Expenses

•

~~Produced average oil and plant condensate volumes of 199.8 Mbbls/d, which accounted for 70 percent of total liquids production volumes.Average liquids volumes of 286.0 Mbbls/d were 53 percent of total production volumes.~~

•

~~Produced average natural gas volumes of 1,520 MMcf/d, which accounted for 47 percent of total production volumes.~~

~~Revenues and Operating Expenses~~

•

Incurred Total Costs in the first nine months of ~~2020~~2021 of ~~$1,740~~$1,918 million, or ~~$11.77~~$12.97 per BOE, ~~a decrease~~an increase of ~~$181~~$178 million ~~or $0.89~~and an increase of $1.20 per BOE compared to the first nine months of ~~2019.~~2020. Total Costs is defined in the Non-GAAP Measures section of this MD&A. Significant items in the first nine months of 2021 compared to 2020 impacting Total Costs include:

~~Lower~~Higher upstream ~~operating~~transportation and processing expenses ~~excluding long-term incentive costs, in the first nine months~~ of ~~2020 compared to 2019 of $76~~$105 million, primarily due to ~~lower activity as~~higher production volumes in Montney and a ~~result of the economic downturn and cost saving initiatives including workforce reductions, as well as operating efficiencies achieved in 2020;~~higher U.S./Canadian dollar exchange rate;

~~Lower~~Higher production, mineral and other taxes ~~in the first nine months~~ of ~~2020 compared to 2019 of $61~~$84 million, primarily due to ~~lower~~higher commodity prices;

Lower administrative expenses, excluding long-term incentive costs, restructuring costs and current expected credit losses, in the first nine months of 2020 compared to 2019 of $23 million, primarily due to cost saving initiatives including the 2020 workforce reduction and synergies achieved in 2020; and

Lower upstream ~~transportation and processing~~operating expenses, ~~in the first nine months~~excluding long-term incentive costs, of ~~2020 compared to 2019 of $21~~$16 million primarily due to ~~the sale of the Arkoma natural gas assets.~~durable cost savings including workforce reductions in 2020.

•

Total Operating Expenses in the first nine months of ~~2020~~2021 of ~~$9,365~~$5,245 million ~~increased~~decreased by ~~$4,830~~$4,120 million, primarily due to the non-cash ceiling test ~~impairments~~impairment of $4,863 ~~million.~~million recognized in the first nine months of 2020.

~~Further detailed analysis~~Additional information on Total Costs items and Total Operating Expenses above can be found in the Results of Operations section of this MD&A.

~~2020~~2021 Outlook

Industry Outlook

Oil Markets

The oil and gas industry is cyclical and commodity prices are inherently volatile. Oil prices ~~during the remainder of 2020 are expected to~~ reflect global supply and demand dynamics as well as the geopolitical and macroeconomic environment. ~~In March 2020,~~

Oil prices during 2021 will continue to be impacted by the ~~midst~~global containment of the ~~global~~coronavirus (“COVID-19”), pace of economic recovery, OPEC+ production levels, and the potential for higher U.S. production. The distribution of COVID-19 ~~pandemic, Saudi Arabia~~vaccines continues to drive optimism and ~~Russia failed to reach an agreement~~oil demand as countries reopen their economies. Upward pressures on ~~production cuts, resulting in a price war which intensified~~oil prices and the oversupply of oil and contributed to a dramatic decline in oil prices. In April 2020, OPEC and a group of 10 non-OPEC member nations (collectively, “OPEC+”) agreed to cut oil production through April 2022 to address the existing imbalancetightening of global ~~supply and demand, with the deepest cuts in May and June 2020. The production cuts, along with the gradual increases in demand from the reopening of global economies and the steady draw down of excess~~oil inventories ~~accumulated~~ during the first ~~half~~nine months of ~~the year, generally supported stable oil prices in the third quarter of 2020.~~ 2021 were mainly caused by OPEC+ production cuts and increasing global demand for oil.

In July, OPEC+ ~~agreed~~announced monthly production increases starting from August until December 2021, and in October, reconfirmed production adjustments for November. OPEC+ plans to ~~extend the production cuts through to~~assess market developments in December ~~2020~~ and ~~plans~~continues to meet regularly to ~~discuss~~review the state of global oil supply, demand and inventory levels.

In early 2020, governments worldwide took action to contain the effects of the COVID-19 pandemic by partially closing economies. As a result, global crude oil demand fell significantly while product storage facilities filled up at unprecedented rates with supply materially exceeding demand. As the gap between supply and demand in oilOil markets grew increasingly pronounced, the oil and gas industry responded by reducing capital spending and implementing market-based supply shut-ins. As global restrictions began to ease in the latter half of the second quarter, demand for oil steadily increased, supporting a modest recovery of oil prices. The modest price recovery has led to a steady increase in oil production over the summer

~~months as operators brought wells back online. However, overall production is~~are expected to remain ~~relatively flat for the remainder of 2020,~~volatile as ~~crude oil demand is not expected to return to pre-pandemic levels by the end of the year. Certain~~ economic ~~sectors are still restricted and concerns of further lockdowns due to a resurgence of COVID-19 in some countries are impacting oil demand, resulting in a slow recovery.~~

~~The re-balancing of global supply and demand, and the commodity price environment is highly dependent~~recovery centers on the ~~global containment of the virus, pace of economic recovery, as well as changes to~~COVID-19 vaccine rollouts and OPEC+ production ~~levels. As a result,~~cuts. COVID-19 variants may threaten the reopening of economies in certain countries while the gradual easing of OPEC+ oil ~~prices~~production cuts, the potential for ~~the remainder of 2020 are expected~~higher U.S. oil production, and macroeconomic risks could contribute to ~~fluctuate.~~commodity market uncertainty.

Natural Gas Markets

Natural gas prices are primarily affected by structural changes in ~~both~~ supply and demand as well as deviations from seasonally normal weather. In combination, these factors contributed to increased drawdowns of natural gas inventory and ~~the effects of seasonal weather. Higher-than-average inventory levels from oversupply in early 2020 and warmer than normal temperatures during the winter months continued to put downward pressure on~~generally supported natural gas prices ~~which remain volatile~~ in ~~both Canada and~~ the first nine months of 2021. Limited supply growth from U.S. ~~from demand concerns stemming from~~producers combined with supportive weather conditions has contributed to a significant increase in natural gas prices during the ~~COVID-19 pandemic.~~third quarter of 2021. Natural gas prices for the remainder of ~~2020~~2021 are expected to be impacted by ~~lower associated natural~~the interplay between gas production ~~resulting~~and associated gas from ~~declines in North American~~ oil production, ~~due to low oil prices,~~ as well as ~~a slow~~changes in demand ~~recovery~~from the power generation sector, changes in export levels of liquified natural gas and impacts from seasonal ~~fluctuations.~~weather.

Company Outlook

Despite the low commodity price environment experienced in the first half of the year and modest third quarter recovery, Ovintiv is well positioned to deliver on its updated full year capital plan while generating positive cash flows. In response to the rapid decline in crude oil prices witnessed in early 2020, the Company took action to reduce its full year 2020 capital investments by $500 million and suspended its previously issued 2020 guidance. By the end of the second quarter, the Company had ceased operating 16 drilling rigs, and had shut in total production of 32 MBOE/d, which further reduced the Company’s expected 2020 capital investment profile. As of September 30, 2020, the majority of the previously shut-in and curtailed production is now back on-line.

~~During June 2020, Ovintiv undertook a plan to reduce its workforce to better align staffing levels and organizational structure with the Company’s planned activity levels.~~ The Company continues to exercise discretion and ~~disciplined~~discipline to optimize capital allocation ~~in adjusting its capital spending beyond~~throughout 2021 as oil demand recovers and the ~~fourth quarter as the current demand and~~commodity price environment evolves.

~~The Company enters into derivative financial instruments which mitigate price volatility~~ Ovintiv pursues innovative ways to reduce upstream operating and ~~help sustain revenues, particularly during periods of lower prices. As at October 16, 2020, the Company has hedged approximately 180.0 Mbbls/d, or 87 percent, of expected crude oil~~administrative expenses and ~~condensate production~~expects to benefit from durable cost savings and ~~1,178 MMcf/d, or 70 percent, of expected natural gas production for the remainder of the year. Additional information on Ovintiv’s hedging program can be found in Note 22~~efficiencies to ~~the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.~~maximize cash flows.

Markets for crude oil and natural gas are exposed to different price risks and are inherently volatile. While the market price for crude oil tends to move in the same direction as the global market, regional differentials may develop. Natural gas prices may vary between geographic regions depending on local supply and demand conditions. To mitigate price volatility and help sustain revenues, particularly during periods of low commodity prices, the Company enters into derivative financial instruments. As at September 30, 2021, the Company has hedged approximately 130.0 Mbbls/d of expected crude oil and condensate production and 1,145 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. Through a combination of derivative financial instruments~~market and ~~transportation capacity, Ovintiv attempts to limit exposure to~~ regional pricing.

~~In conjunction with~~Additional information on Ovintiv’s hedging program can be found in Note 19 to the ~~reduction~~Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Capital Investment

The Company is on track to meet its $1.5 billion 2021 capital investment ~~noted above, Ovintiv also announced its plans to reduce costs by $200 million which have been substantially achieved to date.~~

~~Capital Investment~~

~~During~~program, the ~~first nine months of 2020, the Company spent $1,393 million,~~majority of which $484 million was directed to Permian, $362 million was directed to Anadarko and $292 million was directed to Montney. Ovintiv reduced its second quarter 2020 capital investment by $500 million and expects capital spending to be primarilyis allocated to the Core Assets with a focus on maximizing returns from high margin liquids ~~while suspending capital programs in Eagle Ford, Bakken, Uinta~~to optimize cash flows. During the first nine months of 2021, the Company invested $1,098 million, of which $475 million was directed to Permian, $289 million was directed to Montney, $248 million was directed to Anadarko and ~~Duvernay. Ovintiv expects full year 2020 capital investment to be approximately $1.8 billion and plans to fund~~ the remainder ~~of its 2020 capital program using cash from operations. As the Company monitors the global economic environment,~~was primarily directed to other upstream assets. Ovintiv will continue to evaluate its capital investment ~~plans.~~plans as the global economic environment evolves.

Ovintiv continually strives to improve well performance and lower costs through innovative techniques. Initiatives such as applying Simul-Frac techniques, a process of fracking pairs of wells at the same time instead of a single well, increases operational efficiencies and contributes to well cost savings. Ovintiv's large-scale cube development model utilizes multi-well pads and advanced completion designs to maximize returns and resource recovery from its reservoirs. The impact of Ovintiv’s disciplined capital program and continuous innovation create flexibility to allocate capital in changing commodity markets and to maximize cash flows while preserving the long-term value of the Company’s multi-basin portfolio.

Production

Ovintiv is strategically positioned in the current environment to maintain a flat liquids production profile while generating significant cash flows in excess of capital expenditures. During the first nine months 2021, average liquids production volumes were 278.7 Mbbls/d, or 51 percent of ~~2020,~~total production volumes, and average oil and plant condensate production volumes were ~~199.8~~195.8 Mbbls/d, or 70 percent of total liquids production volumes.Average ~~liquids production volumes were 286.0 Mbbls/d, or 53 percent of total production volumes, and average~~ natural gas production volumes were ~~1,520~~1,583 MMcf/d, or 4749 percent of total production volumes. ~~For~~During the ~~fourth~~second quarter of ~~2020,~~2021, the Company ~~expects to maintain average~~updated its full year 2021 guidance for oil and plant condensate production volumes ofto approximately ~~200~~190.0 Mbbls/~~d. Full year~~d to 195.0 Mbbls/d, other NGLs production volumes ~~are expected~~ to ~~reflect~~approximately 80.0 Mbbls/d to 85.0 Mbbls/d and natural gas production volumes to approximately 1,550 MMcf/d to 1,575 MMcf/d. The updated guidance reflects the ~~Company’s reduced capital investment plans, which are highly dependent on market conditions.~~divestitures completed in the second quarter of 2021. During the third quarter of 2021, the Company narrowed its updated guidance range for oil and plant condensate production volumes to approximately 191.0 Mbbs/d to 194.0 Mbbs/d, other NGLs production volumes to approximately 82.0 Mbbls/d to 83.0 Mbbls/d and natural gas production volumes to approximately 1,555 MMcf/d to 1,570 MMcf/d. The Company expects to meet or exceed all of its production targets.

Operating Expenses

~~In the first quarter of 2020, Ovintiv announced its commitment~~The Company will continue to ~~reducing full year 2020 costs by $200 million in response to the low commodity price environment. These~~benefit from cost savings ~~primarily include~~measures implemented in 2020 which included workforce reductions and operating efficiencies. Ovintiv continues to operating expenses reflected in Total Costs, as well as a reduction to other expenses discussed below. With lower staffing levels as a result of the workforce reduction completed in June 2020 and other Company initiatives, Ovintiv expects to achieve more than $200 million in cost savings.

In the first nine months of 2020, Total Costs was $11.77 per BOE, and is expected to remain relatively flat for the balance of the year as activity levels normalize and cost saving measures continue. Upstream transportation and processing expense was $6.48 per BOE, while upstream operating expense and administrative expense, excluding long-term incentive costs, restructuring costs and current expected credit losses, were $2.98 per BOE and $1.46 per BOE, respectively. Ovintiv expects to continue pursuingpursue innovative ways to reduce upstream operating and administrative ~~expenses~~expenses. With rising activity in the oil and ~~expects~~gas industry and the recovery of commodity prices, service and supply costs are expected to increase. The Company strives to minimize any inflationary pressures with efficiency improvements and effective supply chain ~~management~~management.

In the second quarter of 2021, Ovintiv revised its expectation of Total Costs to ~~maximize cash flows.~~

~~Other Expenses~~approximately $12.95 per BOE to $13.20 per BOE to reflect higher than expected changes in foreign exchange rates and ~~Impairments~~

~~The remaining full year cost savings~~increased production taxes resulting from higher than expected commodity prices. Total Costs were $12.97 per BOE in the first nine months of 2021 and are expected to ~~include reductions to cash outflows and other expenses, such as interest expense. Following~~remain well within the ~~open market repurchases~~guidance range. Total Costs is defined in the Non-GAAP Measures section of $252 million in principal amount of Ovintiv’s fixed rate senior notes, the Company expects to incur lower interest expense of approximately $10 million on an annualized basis on the reduced fixed long-term debt balances.this MD&A.

~~In conjunction with Ovintiv’s focus~~Long-term Debt Reduction

Ovintiv remains focused on strengthening its ~~liquidity position,~~balance sheet. Since the second quarter of 2020, the Company ~~plans to allocate all~~has allocated $2,575 million in excess cash flows to reduce its total long-term debt balance, which included proceeds from the Duvernay and Eagle Ford asset divestitures. The Company is targeting a Net Debt balance of approximately $3.0 billion by the end of 2023.

In June 2021, the Company redeemed its $600 million, 5.75 percent senior notes due January 30, 2022, and in August 2021, redeemed its $518 million, 3.90 percent senior notes due November 15, 2021. The combined debt redemptions are expected to result in annualized interest savings of over $50 million.

As at September 30, 2021, the ~~next five quarters.~~ Company had no outstanding balances under its revolving credit facilities and U.S. dollar commercial paper programs.

Additional information on Ovintiv’s long-term debt and liquidity position can be found in Note 1210 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Liquidity and Capital Resources section of this MD&A, respectively.

~~If the low oil price environment persists for an extended period of time, Ovintiv may be subject to additional impairments of its oil and natural gas properties and other long-term assets.~~ Additional information on Ovintiv’s 2021 Corporate Guidance can be accessed on the Company’s ~~ceiling test impairment~~website at www.ovintiv.com.

Environmental, Social and Governance

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

By the end of 2021, the Company is expected to deliver on its targeted 33 percent reduction in methane emissions intensity four years ahead of schedule and expects to achieve a greater than 20 percent reduction in GHG emissions intensity compared to 2019 levels. In 2022, the Company plans to set further GHG emissions reduction targets, which will be tied to its annual compensation program for all employees.

As of September 1, 2021, the Company is in full alignment with the World Bank Zero Routine Flaring initiative, which requires participants to end routine flaring by 2030. Ovintiv does not engage in routine flaring by ensuring natural gas gathering infrastructure is in place for all of its producing wells.

Ovintiv maintains a commitment on protecting the health and safety of its workforce. Despite the challenges presented by COVID-19, the Company reported its seventh consecutive safest year in 2020 and is on track to report its eighth consecutive safest year for 2021.

Ovintiv is committed to diversity, equity and inclusion. In 2021, the Company developed a new social commitment framework, which is rooted in the Company’s foundational values of Trust, Respect, Integrity, Safety and Sustainability. The framework focuses on respecting stakeholders, strengthening communities and fostering a culture of inclusion.

Additional information on Ovintiv’s ESG practices can be found inon the ~~Results of Operations section of this MD&A.~~Company’s sustainability website at https://sustainability.ovintiv.com.

4441

Results of Operations

Selected Financial Information

	Three months ended September 30,						Nine months ended September 30,							Three months ended September 30,							Nine months ended September 30,
($ millions)		2020			2019 ⁽¹⁾			2020			2019 ⁽¹⁾				2021			2020				2021			2020

Product and Service Revenues
Upstream product revenues		$	980		$	1,476		$	2,804		$	4,315			$	1,948		$	980			$	5,265		$	2,804
Market optimization			346		294				1,113			870				771			346				2,171			1,113
Service revenues(1)			-		1				2			6				1			-				4			2
Total Product and Service Revenues			1,326			1,771			3,919			5,191				2,720			1,326				7,440			3,919

Gains (Losses) on Risk Management, Net			(154	)		81			587			(84	)			(950	)		(154	)			(2,176	)		587
Sublease Revenues			18			19			53			54				19			18				55			53
Total Revenues			1,190			1,871			4,559			5,161				1,789			1,190				5,319			4,559

Total Operating Expenses⁽²⁾			2,696			1,556			9,365			4,535				1,789			2,696				5,245			9,365
Operating Income (Loss)			(1,506	)		315			(4,806	)		626				-			(1,506	)			74			(4,806	)
Total Other (Income) Expenses			54			123			282			243				71			54				217			282
Net Earnings (Loss) Before Income Tax			(1,560	)		192			(5,088	)		383				(71	)		(1,560	)			(143	)		(5,088	)
Income Tax Expense (Recovery)			(39	)		43			395			143				1			(39	)			(175	)		395

Net Earnings (Loss)		$	(1,521	)	$	149		$	(5,483	)	$	240			$	(72	)	$	(1,521	)		$	32		$	(5,483	)

(1)	~~Subsequent~~Service revenues include amounts related to the completion of the Newfield acquisition on February 13, 2019, the post-acquisition results of the operations of Newfield are included in the Company’s interim consolidated results beginning February 14, 2019.USA and Canadian Operations.

(2)	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 USA Operations realized prices generally reflect WTI and NYMEX benchmark prices, as well as other downstream oil benchmarks, including Houston. The Canadian Operations realized prices are linked to Edmonton Condensate and AECO, as well as other downstream natural gas benchmarks, including Dawn. The other downstream benchmarks reflect the diversification of the Company’s markets. Recent trends in benchmark prices relevant to the Company are shown in the table below.

Benchmark Prices

	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
(average for the period)	2020		2019		2020		2019		2021		2020		2021		2020

Oil & NGLs
WTI ($/bbl)	$	40.93	$	56.45	$	38.32	$	57.06	$	70.56	$	40.93	$	64.82	$	38.32
Houston ($/bbl)		41.89		61.14		40.27		62.84		71.01		41.89		65.80		40.27
Edmonton Condensate (C$/bbl)		50.00		68.70		47.48		70.21		87.26		50.00		80.75		47.48

Natural Gas
NYMEX ($/MMBtu)	$	1.98	$	2.23	$	1.88	$	2.67	$	4.01	$	1.98	$	3.18	$	1.88
AECO (C$/Mcf)		2.15		1.04		2.07		1.39		3.54		2.15		3.11		2.07
Dawn (C$/MMBtu)		2.42		2.81		2.35		3.26		5.13		2.42		4.18		2.35

4542

Production Volumes and Realized Prices

	Three months ended September 30,										Nine months ended September 30,										Three months ended September 30,										Nine months ended September 30,
	Production Volumes ⁽¹⁾					Realized Prices ⁽²⁾					Production Volumes ⁽¹⁾					Realized Prices ⁽²⁾					Production Volumes ⁽¹⁾					Realized Prices ⁽²⁾					Production Volumes ⁽¹⁾						Realized Prices ⁽²⁾
	2020			2019			2020		2019		2020			2019			2020		2019		2021		2020				2021		2020		2021			2020				2021		2020

Oil (Mbbls/d, $/bbl)
USA Operations		138.5			177.6		$	39.41	$	55.26		148.7			159.0		$	35.51	$	56.47		136.7		138.5			$	68.69	$	39.41		143.5			148.7			$	62.82	$	35.51
Canadian Operations		0.4			0.7			34.38		58.24		0.6			0.5			29.79		51.55		0.1		0.4				64.95		34.38		0.4			0.6				55.51		29.79
China Operations ⁽³⁾		-			0.5			-		60.35		-			2.0			-		66.37
Total		138.9			178.8			39.40		55.29		149.3			161.5			35.49		56.58		136.8		138.9				68.69		39.40		143.9			149.3				62.80		35.49

NGLs – Plant Condensate (Mbbls/d, $/bbl)
USA Operations		11.4			12.6			27.98		41.70		11.1			10.0			25.05		43.93		11.3		11.4				62.84		27.98		10.5			11.1				56.84		25.05
Canadian Operations		35.8			45.9			36.71		50.73		39.4			42.9			33.69		51.74		40.6		35.8				68.78		36.71		41.4			39.4				63.62		33.69
Total		47.2			58.5			34.60		48.78		50.5			52.9			31.79		50.26		51.9		47.2				67.49		34.60		51.9			50.5				62.25		31.79

NGLs – Other (Mbbls/d, $/bbl)
USA Operations		70.2			74.9			10.47		7.48		71.7			64.5			8.52		12.01		69.4		70.2				28.77		10.47		66.6			71.7				23.29		8.52
Canadian Operations		13.6			17.0			13.16		5.39		14.5			16.3			9.68		10.66		15.5		13.6				31.73		13.16		16.3			14.5				27.38		9.68
Total		83.8			91.9			10.91		7.09		86.2			80.8			8.72		11.74		84.9		83.8				29.31		10.91		82.9			86.2				24.09		8.72

Total Oil & NGLs (Mbbls/d, $/bbl)
USA Operations		220.1			265.1			29.59		41.12		231.5			233.5			26.66		43.65		217.4		220.1				55.63		29.59		220.6			231.5				50.59		26.66
Canadian Operations		49.8			63.6			30.27		38.65		54.5			59.7			27.24		40.52		56.2		49.8				58.57		30.27		58.1			54.5				53.41		27.24
China Operations ⁽³⁾		-			0.5			-		60.35		-			2.0			-		66.37
Total		269.9			329.2			29.72		40.67		286.0			295.2			26.77		43.18		273.6		269.9				56.23		29.72		278.7			286.0				51.18		26.77

Natural Gas (MMcf/d, $/Mcf)
USA Operations		507			617			1.52		1.67		537			535			1.42		1.89		495		507				3.80		1.52		484			537				3.13		1.42
Canadian Operations		935			1,038			1.96		1.54		983			1,027			1.83		1.95		1,071		935				3.63		1.96		1,099			983				3.18		1.83
Total		1,442			1,655			1.81		1.59		1,520			1,562			1.69		1.93		1,566		1,442				3.69		1.81		1,583			1,520				3.17		1.69

Total Production (MBOE/d, $/BOE)
USA Operations		304.6			367.9			23.91		32.43		320.9			322.8			21.60		34.72		300.0		304.6				46.59		23.91		301.2			320.9				42.08		21.60
Canadian Operations		205.6			236.7			16.22		17.12		218.4			230.8			15.05		19.14		234.7		205.6				30.61		16.22		241.3			218.4				27.38		15.05
China Operations ⁽³⁾		-			0.5			-		60.35		-			2.0			-		66.37
Total		510.2			605.1			20.81		26.46		539.3			555.6			18.94		28.36		534.7		510.2				39.57		20.81		542.5			539.3				35.54		18.94

Production Mix (%)
Oil & Plant Condensate		37			39							37			39							35		37								36			37
NGLs – Other		16			15							16			14							16		16								15			16
Total Oil & NGLs		53			54							53			53							51		53								51			53
Natural Gas		47			46							47			47							49		47								49			47

Production Change
Year Over Year (%) ⁽⁴⁾
Year Over Year (%) ⁽³⁾
Total Oil & NGLs		(18	)		84							(3	)		85							1		(18	)							(3	)		(3	)
Natural Gas		(13	)		38							(3	)		39							9		(13	)							4			(3	)
Total Production		(16	)		60							(3	)		60							5		(16	)							1			(3	)

Core Assets Production
Oil (Mbbls/d)		99.4			118.2							106.2			106.9							112.2		99.4								109.9			106.2
NGLs – Plant Condensate (Mbbls/d)		41.5			48.6							44.5			44.7							50.8		41.5								49.5			44.5
NGLs – Other (Mbbls/d)		75.0			80.2							76.8			70.5							78.8		75.0								75.6			76.8
Total Oil & NGLs (Mbbls/d)		215.9			247.0							227.5			222.1							241.8		215.9								235.0			227.5
Natural Gas (MMcf/d)		1,291			1,416							1,362			1,325							1,487		1,291								1,473			1,362
Total Production (MBOE/d)		431.1			482.8							454.6			442.9							489.6		431.1								480.5			454.6
% of Total Production		84			80							84			80							92		84								89			84

(1)	Average daily.

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

(3)	The Company terminated its production sharing contract with China National Offshore Oil Corporation (“CNOOC”) and exited its China Operations effective July 31, 2019. Production from China Operations is presented for the period from February 14, 2019 through July 31, 2019.

~~(4)~~

Includes production impacts from acquisitions and divestitures.

4643

Upstream Product Revenues

	Three months ended September 30,															Three months ended September 30,

($ millions)	Oil			NGLs - Plant Condensate			NGLs - Other			Natural Gas			Total			Oil			NGLs - Plant Condensate		NGLs - Other			Natural Gas		Total

2019 Upstream Product Revenues⁽¹⁾	$	909		$	262		$	60		$	243		$	1,474
2020 Upstream Product Revenues⁽¹⁾																$	503		$	151	$	84		$	241	$	979
Increase (decrease) due to:
Sales prices		(203	)		(59	)		29			29			(204	)		369			155		144			268		936
Production volumes		(203	)		(52	)		(5	)		(31	)		(291	)		(7	)		16		2			21		32
2020 Upstream Product Revenues	$	503		$	151		$	84		$	241		$	979
2021 Upstream Product Revenues																$	865		$	322	$	230		$	530	$	1,947

	Nine months ended September 30,															Nine months ended September 30,

($ millions)	Oil			NGLs - Plant Condensate			NGLs - Other			Natural Gas			Total			Oil			NGLs - Plant Condensate		NGLs - Other			Natural Gas		Total

2019 Upstream Product Revenues⁽¹⁾	$	2,495		$	726		$	258		$	824		$	4,303
2020 Upstream Product Revenues⁽¹⁾																$	1,452		$	441	$	205		$	705	$	2,803
Increase (decrease) due to:
Sales prices		(850	)		(251	)		(72	)		(99	)		(1,272	)		1,072			428		348			631		2,479
Production volumes		(193	)		(34	)		19			(20	)		(228	)		(57	)		12		(8	)		32		(21	)
2020 Upstream Product Revenues	$	1,452		$	441		$	205		$	705		$	2,803
2021 Upstream Product Revenues																$	2,467		$	881	$	545		$	1,368	$	5,261

(1)

Revenues for the third quarter and ~~the~~ first nine months of ~~2020~~2021 exclude certain other revenue and royalty adjustments with no associated production volumes of $1 million and $4 million, respectively (2020 - $1 million ~~respectively (2019 - $2 million~~ and ~~$12~~$1 million, respectively).

Oil Revenues

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Oil revenues ~~decreased $406~~increased $362 million compared to the third quarter of ~~2019~~2020 primarily due to:

•

~~Lower~~Higher average realized oil prices of ~~$15.89~~$29.29 per bbl, or 2974 percent, ~~decreased~~increased revenues by ~~$203~~$369 million. The ~~decrease~~increase reflected ~~lower~~higher WTI and Houston ~~and WTI~~ benchmark prices which were ~~down 31~~up 72 percent and 2770 percent, respectively, and ~~weakening~~the strengthening of regional pricing relative to the WTI benchmark price in the USA Operations; and

•

Lower average oil production volumes of ~~39.9~~2.1 Mbbls/d decreased revenues by ~~$203~~$7 million. Lower volumes were primarily due to ~~natural declines~~the sale of the Eagle Ford assets in ~~USA Operations, reduced~~the second quarter of 2021 (13.7 Mbbls/d), partially offset by successful drilling ~~operations~~ in ~~Core Assets and suspended capital spending in Other Upstream Operations (37.2~~Permian (11.4 Mbbls/d).

Nine months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Oil revenues ~~decreased $1,043~~increased $1,015 million compared to the first nine months of ~~2019~~2020 primarily due to:

•

~~Lower~~Higher average realized oil prices of ~~$21.09~~$27.31 per bbl, or 3777 percent, ~~decreased~~increased revenues by ~~$850~~$1,072 million. The ~~decrease~~increase reflected ~~lower~~higher WTI and Houston ~~and WTI~~ benchmark prices which were ~~down 36~~up 69 percent and 3363 percent, respectively, and ~~weakening~~the strengthening of regional pricing relative to the WTI benchmark price in the USA Operations; and

•

Lower average oil production volumes of ~~12.2~~5.4 Mbbls/d decreased revenues by ~~$193~~$57 million. Lower volumes were primarily due to natural declines surpassing incremental production in Anadarko, Eagle Ford ~~Anadarko~~ and ~~Uinta (17.5~~Bakken (8.9 Mbbls/d) and the sale of the Eagle Ford assets in the second quarter of 2021 (6.8 Mbbls/d), partially offset by successful drilling in Permian (7.6 Mbbls/d) and production shut-ins due to the economic downturn ~~(3.7 Mbbls/d) and the termination of the Company’s production sharing contract~~ in ~~its China Operations in the third quarter of 2019 (2.0 Mbbls/d), partially offset by the Newfield acquisition in 2019 (11.6~~2020 (3.6 Mbbls/d).

4744

NGL Revenues

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

NGL revenues ~~decreased $87~~increased $317 million compared to the third quarter of ~~2019~~2020 primarily due to:

•

~~Lower~~Higher average realized plant condensate prices of ~~$14.18~~$32.89 per bbl, or 2995 percent, ~~decreased~~increased revenues by ~~$59~~$155 million. The ~~decrease~~increase reflected ~~lower WTI and~~higher Edmonton Condensate and WTI benchmark prices which were ~~both down 27 percent;~~up 75 percent and 72 percent, respectively, as well as higher regional pricing relative to the WTI benchmark price;

•

~~Lower~~Higher average ~~plant condensate production volumes~~realized other NGL prices of ~~11.3 Mbbls/d decreased~~$18.40 per bbl, or 169 percent, increased revenues by ~~$52 million. Lower volumes were primarily due to natural declines in the Canadian Operations~~$144 million reflecting higher other NGL benchmark prices and ~~Anadarko (9.7 Mbbls/d)~~higher regional pricing; and ~~third-party plant downtime in Montney (1.4 Mbbls/d);~~

•

Higher average plant condensate production volumes of 4.7 Mbbls/d increased revenues by $16 million. Higher volumes were primarily due to successful drilling in Montney (7.7 Mbbls/d), partially offset by the sales of the Duvernay and Eagle Ford assets in the second quarter of 2021 (3.5 Mbbls/d).

Nine months ended September 30, 2021 versus September 30, 2020

NGL revenues increased $780 million compared to the first nine months of 2020 primarily due to:

•

Higher average realized plant condensate prices of $30.46 per bbl, or 96 percent, increased revenues by $428 million. The increase reflected higher Edmonton Condensate and WTI benchmark prices which were up 70 percent and 69 percent, respectively, as well as higher regional pricing relative to the WTI benchmark price;

•

Higher average realized other NGL prices of $15.37 per bbl, or 176 percent, increased revenues by $348 million reflecting higher other NGL benchmark prices and higher regional pricing;

•

Higher average plant condensate production volumes of 1.4 Mbbls/d increased revenues by $12 million. Higher volumes were primarily due to successful drilling in Montney (4.4 Mbbls/d), partially offset by natural declines in Duvernay (1.9 Mbbls/d), and the sales of the Duvernay and Eagle Ford assets in the second quarter of 2021 (1.9 Mbbls/d); and

•

Lower average other NGL production volumes of ~~8.1~~3.3 Mbbls/d decreased revenues by $5$8 million. Lower volumes were primarily due to natural declines in Anadarko ~~Montney,~~(5.2 Mbbls/d) and the sale of the Eagle Ford ~~and Duvernay (9.2 Mbbls/d); and~~

•

~~Higher average realized other NGL prices of $3.82 per bbl, or 54 percent, increased revenues by $29 million reflecting higher other NGL benchmark prices primarily~~assets in the ~~USA Operations~~second quarter of 2021 (1.8 Mbbls/d), partially offset by successful drilling in Montney and ~~higher regional pricing.~~

~~Nine months ended September 30, 2020 versus September 30, 2019~~

~~NGL revenues decreased $338 million compared to the first nine months of 2019 primarily due to:~~

•

Lower average realized plant condensate prices of $18.47 per bbl, or 37 percent, decreased revenues by $251 million. The decrease reflected lower WTI and Edmonton Condensate benchmark prices which were down 33 percent and 32 percent, respectively, as well as declines in regional pricing relative to the WTI and Edmonton Condensate benchmark prices;

•

Lower average realized other NGL prices of $3.02 per bbl, or 26 percent, decreased revenues by $72 million reflecting lower other NGL benchmark prices primarily in the USA Operations and lower regional pricing;

•

~~Lower average plant condensate production volumes of 2.4 Mbbls/d decreased revenues by $34 million. Lower volumes were primarily due to natural declines in the Canadian Operations (2.8 Mbbls/d); and~~

•

~~Higher average other NGL production volumes of 5.4 Mbbls/d increased revenues by $19 million. Higher volumes were primarily due to the Newfield acquisition in 2019 (5.7~~Permian (4.2 Mbbls/d).

Natural Gas Revenues

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Natural gas revenues ~~decreased $2~~increased $289 million compared to the third quarter of ~~2019~~2020 primarily due to:

•

~~Lower~~Higher average realized natural gas ~~production volumes~~prices of ~~213 MMcf/d decreased~~$1.88 per Mcf, or 104 percent, increased revenues by ~~$31 million primarily due to natural declines in Montney, Anadarko, Duvernay~~$268 million. The increase reflected higher Dawn, NYMEX and ~~Eagle Ford (135 MMcf/d), the sale of the Arkoma natural gas assets in the third quarter of 2019 (48 MMcf/d)~~AECO benchmark prices which were up 112 percent, 103 percent and ~~third-party plant downtime in Montney (38 MMcf/d);~~65 percent, respectively, and higher regional pricing; and

•

Higher average natural gas production volumes of 124 MMcf/d increased revenues by $21 million primarily due to successful drilling in Montney (155 MMcf/d) and decreased third-party plant down-time in Montney (36 MMcf/d), partially offset by the sales of the Duvernay and Eagle Ford assets in the second quarter of 2021 (56 MMcf/d).

Nine months ended September 30, 2021 versus September 30, 2020

Natural gas revenues increased $663 million compared to the first nine months of 2020 primarily due to:

•

Higher average realized natural gas prices of ~~$0.22~~$1.48 per Mcf, or 1488 percent, increased revenues by ~~$29~~$631 million. The increase reflected a higher ~~AECO benchmark price which was up 107 percent, partially offset by lower~~ Dawn, NYMEX and ~~NYMEX~~AECO benchmark prices which were ~~down 14~~up 78 percent, 69 percent and 1150 percent, ~~respectively.~~respectively, and higher regional pricing; and

4845

~~Nine months ended September 30, 2020 versus September 30, 2019~~

~~Natural gas revenues decreased $119 million compared to the first nine months of 2019 primarily due to:~~

•

Lower average realized natural gas prices of $0.24 per Mcf, or 12 percent, decreased revenues by $99 million. The decrease reflected lower NYMEX and Dawn benchmark prices which were down 30 percent and 28 percent, respectively, partially offset by a higher AECO benchmark price which was up 49 percent; and

•

~~Lower~~Higher average natural gas production volumes of 4263 MMcf/d ~~decreased~~increased revenues by ~~$20~~$32 million primarily due to ~~natural declines~~successful drilling in Montney ~~Duvernay and Eagle Ford (56 MMcf/d), the sale of the Arkoma natural gas assets in the third quarter of 2019 (47 MMcf/d), increased third-party plant downtime in Montney (11~~(154 MMcf/d) and production shut-ins due to the economic downturn in 2020 (11 MMcf/d), partially offset by natural declines in Anadarko and Duvernay (58 MMcf/d) and the ~~Newfield acquisition~~sales of the Duvernay and Eagle Ford assets in ~~2019 (60 MMcf/d), and a successful drilling program in Permian (22~~the second quarter of 2021 (30 MMcf/d).

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, NGL and natural gas production volumes. The Company’s commodity price mitigation program reduces volatility and helps sustain revenues during periods of lower prices. Additional information on the Company’s commodity price positions as at September 30, ~~2020~~2021 can be found in Note 2219 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following tables provide the effects of the Company’s risk management activities on revenues.

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
($ millions)	2020			2019			2020			2019			2021			2020			2021			2020

Realized Gains (Losses) on Risk Management
Commodity Price ⁽¹⁾
Oil	$	26		$	10		$	331		$	56		$	(194	)	$	26		$	(478	)	$	331
NGLs - Plant Condensate		23			9			105			24			(39	)		23			(99	)		105
NGLs - Other		(7	)		28			5			61			(42	)		(7	)		(81	)		5
Natural Gas		45			73			157			156			(97	)		45			(96	)		157
Other ⁽²⁾		2			2			7			4			1			2			4			7
Total		89			122			605			301			(371	)		89			(750	)		605

Unrealized Gains (Losses) on Risk Management		(243	)		(41	)		(18	)		(385	)		(579	)		(243	)		(1,426	)		(18	)
Total Gains (Losses) on Risk Management, Net	$	(154	)	$	81		$	587		$	(84	)	$	(950	)	$	(154	)	$	(2,176	)	$	587

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
(Per-unit)	2020			2019			2020			2019			2021			2020			2021			2020

Realized Gains (Losses) on Risk Management
Commodity Price ⁽¹⁾
Oil ($/bbl)	$	1.99		$	0.63		$	8.09		$	1.27		$	(15.38	)	$	1.99		$	(12.16	)	$	8.09
NGLs - Plant Condensate ($/bbl)	$	5.39		$	1.77		$	7.62		$	1.66		$	(8.15	)	$	5.39		$	(7.01	)	$	7.62
NGLs - Other ($/bbl)	$	(0.92	)	$	3.28		$	0.20		$	2.76		$	(5.45	)	$	(0.92	)	$	(3.59	)	$	0.20
Natural Gas ($/Mcf)	$	0.34		$	0.48		$	0.38		$	0.37		$	(0.67	)	$	0.34		$	(0.22	)	$	0.38
Total ($/BOE)	$	1.85		$	2.17		$	4.04		$	1.96		$	(7.57	)	$	1.85		$	(5.09	)	$	4.04

(1)	Includes realized gains and losses related to the USA and Canadian Operations.

(2)	Other primarily includes realized gains or losses from Market Optimization and 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 Operations, Canadian Operations and Market Optimization 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.

4946

Market Optimization Revenues

Market Optimization product revenues relate to activities that provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. ~~The Company~~Ovintiv also purchases and sells third-party volumes under ~~long-term~~ marketing arrangements associated with the Company’s previous divestitures.

	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($ millions)	2020		2019		2020		2019		2021		2020		2021		2020

Market Optimization	$	346	$	294	$	1,113	$	870	$	771	$	346	$	2,171	$	1,113

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Market Optimization product revenues increased ~~$52~~$425 million compared to the third quarter of ~~2019~~2020 primarily due to:

•

Higher oil and natural gas benchmark prices ($350 million) and higher sales of third-party purchased ~~liquid~~liquids volumes primarily relating to price optimization activities in the USA Operations ($~~45 million) and higher sales of third-party purchased natural gas volumes primarily relating to long-term marketing arrangements for assets divested in prior years ($38~~204 million);

partially offset by:

•

Lower ~~oil and NYMEX benchmark prices, as well as lower regional~~sales of third-party purchased natural gas ~~pricing~~volumes primarily relating to marketing arrangements for assets divested in prior years ($31129 million).

Nine months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Market Optimization product revenues increased ~~$243~~$1,058 million compared to the first nine months of ~~2019~~2020 primarily due to:

•

Higher oil and natural gas benchmark prices ($1,041 million) and higher sales of third-party purchased ~~liquid~~liquids volumes primarily relating to price optimization activities in the USA Operations ($~~600 million) and higher sales of third-party purchased natural gas volumes primarily relating to long-term marketing arrangements for assets divested in prior years ($96~~354 million);

partially offset by:

•

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 119 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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.

	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($ millions)	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	43	$	63	$	115	$	176	$	75	$	43	$	199	$	115
Canadian Operations		4		3		11		11		2		4		11		11
Total	$	47	$	66	$	126	$	187	$	77	$	47	$	210	$	126

	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($/BOE)	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	1.54	$	1.85	$	1.31	$	1.99	$	2.71	$	1.54	$	2.42	$	1.31
Canadian Operations	$	0.18	$	0.15	$	0.18	$	0.18	$	0.13	$	0.18	$	0.17	$	0.18
Production, Mineral and Other Taxes	$	0.99	$	1.18	$	0.85	$	1.23	$	1.57	$	0.99	$	1.42	$	0.85

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Production, mineral and other taxes ~~decreased $19~~increased $30 million compared to the third quarter of ~~2019~~2020 primarily due to:

•

~~Lower~~Higher production tax in USA Operations due to ~~lower~~higher commodity prices ~~and oil production volumes~~ ($2038 million), partially offset by the sale of the Eagle Ford assets in the second quarter of 2021 ($7 million).

Nine months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Production, mineral and other taxes ~~decreased $61~~increased $84 million compared to the first nine months of ~~2019~~2020 primarily due to:

•

~~Lower~~Higher production tax in USA Operations due to ~~lower~~higher commodity prices ($5899 million), ~~as well as~~partially offset by the sale of the ~~Arkoma natural gas~~Eagle Ford assets ~~and the termination of the Company’s production sharing contract in its China Operations~~ in the ~~third~~second quarter of ~~2019~~2021 ($210 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.

	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($ millions)	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	109	$	125	$	345	$	340	$	122	$	109	$	361	$	345
Canadian Operations		203		211		614		640		231		203		703		614
Upstream Transportation and Processing		312		336		959		980		353		312		1,064		959

Market Optimization		53		62		170		168		44		53		130		170
Total	$	365	$	398	$	1,129	$	1,148	$	397	$	365	$	1,194	$	1,129

	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($/BOE)	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	3.85	$	3.72	$	3.92	$	3.86	$	4.43	$	3.85	$	4.40	$	3.92
Canadian Operations	$	10.71	$	9.68	$	10.24	$	10.15	$	10.68	$	10.71	$	10.68	$	10.24
Upstream Transportation and Processing	$	6.62	$	6.05	$	6.48	$	6.46	$	7.17	$	6.62	$	7.19	$	6.48

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Transportation and processing expense ~~decreased $33~~increased $32 million compared to the third quarter of ~~2019~~2020 primarily due to:

•

~~Lower production~~Higher volumes ~~the sale of the Arkoma~~in Montney ($29 million), higher variable rates in Permian due to higher natural gas ~~assets in the third quarter of 2019, the expiration of certain transportation contracts relating to decommissioned and previously divested assets, and lower U.S/~~prices ($13 million), a higher U.S./Canadian dollar exchange ~~rate;~~rate ($11 million), and higher costs relating to the diversification of the Company’s downstream markets ($6 million);

partially offset by:

•

The sales of the Eagle Ford and Duvernay assets in the second quarter of 2021 ($14 million), expired contracts relating to previously divested assets ($9 million) and the decommissioning of Deep Panuke ($8 million).

Nine months ended September 30, 2021 versus September 30, 2020

Transportation and processing expense increased $65 million compared to the first nine months of 2020 primarily due to:

•

Higher volumes in Montney ($78 million), a higher U.S./Canadian dollar exchange rate ($49 million), higher variable rates in Permian and Anadarko due to higher natural gas prices ($31 million) and higher costs relating to the diversification of the Company’s downstream ~~markets.~~

~~Nine months ended September 30, 2020 versus September 30, 2019~~

~~Transportation and processing expense decreased $19 million compared to the first nine months of 2019 primarily due to:~~

•

The sale of the Arkoma natural gas assets in the third quarter of 2019, the expiration of certain transportation contracts relating to decommissioned and previously divested assets, lower U.S/Canadian dollar exchange rate and lower flow-through operating costs due to a third-party plant turnaround in Montney in 2019;markets ($11 million);

partially offset by:

•

~~Higher costs from increased production volumes relating to the Newfield acquisition in 2019, rate escalation in~~The expiration of certain transportation contracts ~~due~~in the USA Operations as well as expired contracts relating to previously divested assets ~~higher costs relating to~~($41 million), the ~~diversification~~sales of the ~~Company’s downstream markets~~Eagle Ford and ~~higher downstream~~Duvernay assets in the second quarter of 2021 ($27 million), the decommissioning of Deep Panuke ($23 million), lower natural gas volumes in Anadarko ($16 million) and recoveries of amounts related to certain transportation ~~costs in Montney due to third-party adjustments.~~contracts ($8 million).

Operating

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

	Three months ended September 30,				Nine months ended September 30,						Three months ended September 30,				Nine months ended September 30,
($ millions)	2020		2019		2020			2019			2021		2020		2021		2020

USA Operations	$	104	$	151	$	364		$	414		$	122	$	104	$	368	$	364
Canadian Operations		24		32		75			96			25		24		78		75
China Operations ⁽¹⁾		-		4		-			16
Upstream Operating Expense		128		187		439			526			147		128		446		439

Market Optimization		5		6		15			21			5		5		19		15
Corporate & Other		-		-		(2	)		(2	)		1		-		1		(2	)
Total	$	133	$	193	$	452		$	545		$	153	$	133	$	466	$	452

	Three months ended September 30,				Nine months ended September 30,						Three months ended September 30,				Nine months ended September 30,
($/BOE)	2020		2019		2020			2019			2021		2020		2021		2020

USA Operations	$	3.73	$	4.48	$	4.14		$	4.70		$	4.38	$	3.73	$	4.47	$	4.14
Canadian Operations	$	1.22	$	1.45	$	1.23		$	1.51		$	1.20	$	1.22	$	1.17	$	1.23
China Operations ⁽¹⁾	$	-	$	66.11	$	-		$	27.53
Upstream Operating Expense ⁽²⁾	$	2.72	$	3.35	$	2.96		$	3.46
Upstream Operating Expense ⁽¹⁾											$	2.98	$	2.72	$	3.00	$	2.96

(1)	The Company terminated its production sharing contract with CNOOC and exited its China Operations effective July 31, 2019. Upstream Operating Expense from China Operations is presented for the period from February 14, 2019 through July 31, 2019.

~~(2)~~

Upstream Operating Expense per BOE for the third quarter and first nine months of ~~2020 includes~~2021 include long-term incentive costs of $0.13/BOE and $0.14/BOE, respectively (2020 - long-term incentive costs of $0.03/BOE and a recovery of long-term incentive costs of $0.02/BOE, ~~respectively (2019 –~~respectively).

Three months ended September 30, 2021 versus September 30, 2020

Operating expense increased $20 million compared to the third quarter of 2020 primarily due to:

•

Increased activity resulting from higher production in Permian and improved commodity prices ($17 million), higher long-term incentive costs resulting from an increase in the Company’s share price in the third quarter of ~~$0.01/BOE~~2021 compared to 2020 ($7 million) and ~~$0.06/BOE, respectively).~~lower capitalization of directly attributable internal costs ($7 million);

5249

~~Three~~partially offset by:

•

The sales of the Eagle Ford and Duvernay assets in the second quarter of 2021 ($16 million).

Nine months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Operating expense ~~decreased $60~~increased $14 million compared to the ~~third quarter~~first nine months of ~~2019~~2020 primarily due to:

•

~~Decreased activity mainly as a result~~Lower capitalization of ~~the economic downturn and cost saving initiatives~~directly attributable internal costs ($4638 million), ~~lower salaries and benefits due to decreased headcount ($18 million), as well as the sale of the Arkoma natural gas assets and the termination of~~higher long-term incentive costs resulting from an increase in the Company’s ~~production sharing contract in its China Operations~~share price in the ~~third quarter~~first nine months of ~~2019~~2021 compared to a decrease in 2020 ($729 million) and increased activity resulting from higher production in Permian and improved commodity prices ($18 million);

partially offset by:

•

~~Lower capitalization of overhead costs ($19 million).~~

~~Nine months ended September 30, 2020 versus September 30, 2019~~

~~Operating expense decreased $93 million compared to the first nine months of 2019 primarily due to:~~

•

Decreased activity mainly as a result of the economic downturn and cost saving initiatives ($80 million), the sale of the Arkoma natural gas assets and the termination of the Company’s production sharing contract in its China Operations in the third quarter of 2019 ($27 million), lowerLower salaries and benefits due to decreased headcount ~~($18 million), as well as a recovery of long-term incentive costs~~ resulting from ~~a decrease~~workforce reductions in the ~~Company’s share price in the first nine months~~second quarter of 2020 ~~compared to long-term incentive costs resulting from an increase in the share price in the first nine months of 2019~~ ($~~15 million);~~

~~partially offset by:~~

•

~~Lower capitalization of overhead costs ($40~~47 million) and the ~~Newfield acquisition~~sales of the Eagle Ford and Duvernay assets in ~~2019~~the second quarter of 2021 ($1126 million).

Additional information on the Company’s long-term incentives can be found in Note 1916 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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. The Company also purchases and sells third-party volumes under ~~long-term~~ marketing arrangements associated with the Company’s previous divestitures.

	Three months ended September 30,					Nine months ended September 30,				Three months ended September 30,					Nine months ended September 30,
($ millions)		2020		2019		2020		2019			2021		2020		2021		2020

Market Optimization		$	322	$	264	$	1,039	$	784		$	759	$	322	$	2,096	$	1,039

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Purchased product expense increased ~~$58~~$437 million compared to the third quarter of ~~2019~~2020 primarily due to:

•

Higher oil and natural gas benchmark prices ($349 million) and higher third-party purchased ~~liquid~~liquids volumes primarily relating to price optimization activities in the USA Operations ($~~45 million) and higher third-party purchased natural gas volumes primarily relating to long-term marketing arrangements for assets divested in prior years ($32~~206 million);

partially offset by:

•

Lower ~~oil and NYMEX benchmark prices, as well as lower regional~~third-party purchased natural gas ~~pricing~~volumes primarily relating to marketing arrangements for assets divested in prior years ($19118 million).

Nine months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Purchased product expense increased ~~$255~~$1,057 million compared to the first nine months of ~~2019~~2020 primarily due to:

•

Higher oil and natural gas benchmark prices ($1,005 million) and higher third-party purchased ~~liquid~~liquids volumes primarily relating to price optimization activities in the USA Operations ($~~600 million) and higher third-party purchased natural gas volumes primarily relating to long-term marketing arrangements for assets divested in prior years ($86~~356 million);

partially offset by:

•

Depreciation, Depletion & Amortization

Proved properties within each country cost centre 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 the ~~2019~~2020 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 the MD&A included in Item 7 of the ~~2019~~2020 Annual Report on Form 10-K.

	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($ millions)	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	299	$	438	$	1,092	$	1,141	$	207	$	299	$	635	$	1,092
Canadian Operations		99		100		319		287		83		99		265		319
Upstream DD&A		398		538		1,411		1,428		290		398		900		1,411

Corporate & Other		8		7		22		26		7		8		16		22
Total	$	406	$	545	$	1,433	$	1,454	$	297	$	406	$	916	$	1,433

	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($/BOE)	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	10.66	$	12.93	$	12.42	$	12.95	$	7.52	$	10.66	$	7.73	$	12.42
Canadian Operations	$	5.23	$	4.61	$	5.31	$	4.56	$	3.82	$	5.23	$	4.02	$	5.31
Upstream DD&A	$	8.47	$	9.67	$	9.54	$	9.45	$	5.90	$	8.47	$	6.08	$	9.54

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

DD&A decreased ~~$139~~$109 million compared to the third quarter of ~~2019~~2020 primarily due to:

•

Lower ~~production volumes and~~ depletion rates in the USA and Canadian Operations ($7587 million and ~~$64~~$37 million, respectively) and lower production volumes in ~~the Canadian~~USA Operations ($135 million), partially offset by higher ~~depletion rates~~production volumes in the Canadian Operations ($1314 million) and a higher U.S./Canadian dollar exchange rate ($6 million).

The depletion rate in the USA Operations decreased ~~$2.27~~$3.14 per BOE compared to the third quarter of ~~2019~~2020 primarily due to the ceiling test impairments recognized in 2020 and the sale of the Eagle Ford assets in the second quarter of ~~2020.~~2021. The depletion rate in the Canadian Operations ~~increased $0.62~~decreased $1.41 per BOE compared to the third quarter of ~~2019~~2020 primarily due to a ~~higher~~lower depletable ~~base.~~base and the sale of the Duvernay assets in the second quarter of 2021.

Nine months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

DD&A decreased ~~$21~~$517 million compared to the first nine months of ~~2019~~2020 primarily due to:

•

Lower depletion rates in the USA and Canadian Operations ($46386 million and $114 million, respectively) and lower production volumes in USA Operations ($71 million), ~~lower~~partially offset by higher production volumes in the Canadian Operations ($1434 million), and ~~lower U.S/~~a higher U.S./Canadian dollar exchange rate ($~~5 million), partially offset by higher depletion rates in the Canadian Operations ($51~~29 million).

The depletion rate in the USA Operations decreased ~~$0.53~~$4.69 per BOE compared to the first nine months of ~~2019~~2020 primarily due to the ceiling test impairments recognized in 2020 and the sale of the Eagle Ford assets in the second quarter of ~~2020.~~2021. The depletion rate in the Canadian Operations ~~increased $0.75~~decreased $1.29 per BOE compared to ~~2019~~the first nine months of 2020 primarily due to a ~~higher~~lower depletable ~~base.~~base and the sale of the Duvernay assets in the second quarter of 2021.

Impairments

Under full cost accounting, the carrying amount of Ovintiv’s oil and natural gas properties within each country cost centre 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 the third quarter and first nine months of ~~2020,~~2021, the Company ~~recognized a before-tax non-cash~~did not recognize ceiling test ~~impairment of~~impairments (2020 - $1,336 million before tax, and $4,863 million before tax, respectively, in the USA ~~Operations.~~Operations). The non-cash ceiling test impairments in 2020 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.

	Oil & NGLs				Natural Gas				Oil & NGLs				Natural Gas
	WTI ($/bbl)		Edmonton Condensate (C$/bbl)		Henry Hub ($/MMBtu)		AECO (C$/MMBtu)		WTI ($/bbl)		Edmonton Condensate (C$/bbl)		Henry Hub ($/MMBtu)		AECO (C$/MMBtu)

12-Month Average Trailing Reserves Pricing ⁽¹⁾
September 30, 2021										57.69		72.45		2.94		2.79
December 31, 2020										39.62		49.77		1.98		2.13
September 30, 2020		43.69		53.93		1.97		2.01		43.69		53.93		1.97		2.01
December 31, 2019		55.93		68.80		2.58		1.76
September 30, 2019		57.76		67.81		2.87		1.52

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

Due to the low commodity price environment, further declines in the 12-month average trailing prices are expected and could reduce proved reserves volumes and values and result in the recognition of future ceiling test impairments. However, future ceiling test impairments are difficult to reasonably predict and depend on commodity prices, as well as changes to reserves estimates, future development costs, capitalized costs, unproved property costs transferred to the depletable base of the full cost pool, as well as proceeds received from upstream divestitures which are generally deducted from the Company’s capitalized costs and can reduce the likelihood of ceiling test impairments.

The Company has calculated the estimated effects that certain price changes would have had on its ceiling test impairment for the nine months ended September 30, 2020. Using commodity futures prices as at September 30, 2020, for the three months ending December 31, 2020, the estimated 12-month average trailing prices for the period ended September 30, 2020 would have been $39.55 per bbl for WTI, C$49.02 per bbl for Edmonton Condensate, $1.91 per MMBtu for Henry Hub and C$2.05 per MMBtu for AECO. Based on these estimated prices, while holding all other inputs and assumptions constant, an additional before-tax ceiling test impairment of approximately $1.3 billion for the USA Operations would have been recognized for the nine months ended September 30, 2020. If a low commodity price environment is sustained during the remainder of 2020, further ceiling test impairments and related allowances on deferred tax assets may be recognized.

The additional estimated before-tax ceiling test impairment is partly a result of an eight percent decrease in proved undeveloped reserves for the USA Operations as certain locations would not be economic at these revised estimated prices. This estimate strictly isolates the potential impact of commodity prices on the Company’s proved reserves volumes and values. If the low commodity price environment continues, further negative price related reserve revisions during the remainder of 2020 and in 2021 may occur, the magnitude of which could be significant.

Due to uncertainties in estimating proved reserves, the additional before-tax ceiling test impairment described 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 108 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Administrative

Administrative expense represents costs associated with corporate functions provided by Ovintiv staff. Costs primarily include salaries and benefits, ~~general~~operating lease, office, information technology, restructuring and long-term incentive costs.

Three months ended September 30,

Nine months ended September 30,

($ millions)

2020

2019

2020

2019

Administrative, excluding Long-Term Incentive Costs,

Restructuring Costs and Current Expected Credit Losses

$
72

$
76

$
214

$
237

Long-term incentive costs

1

1

(6
)

18

Restructuring costs

7

4

88

134

Current expected credit losses⁽¹⁾

(1
)

-

1

-

Total Administrative

$
79

$
81

$
297

$
389

Three months ended September 30,

Nine months ended September 30,

($/BOE)

2020

2019

2020

2019

��

Administrative, excluding Long-Term Incentive Costs,

Restructuring Costs and Current Expected Credit Losses

$
1.55

$
1.38

$
1.46

$
1.57

Long-term incentive costs

0.02

0.01

(0.04
)

0.12

Restructuring costs

0.14

0.07

0.59

0.88

Current expected credit losses⁽¹⁾

(0.03
)

-

-

-

Total Administrative

$
1.68

$
1.46

$
2.01

$
2.57

	Three months ended September 30,					Nine months ended September 30,
($ millions)	2021		2020			2021			2020

Administrative, excluding Long-Term Incentive,
Restructuring and Legal Costs, and Current
Expected Credit Losses⁽¹⁾	$	70	$	72		$	219		$	214
Long-term incentive costs		25		1			91			(6	)
Restructuring and legal costs		6		7			37			88
Current expected credit losses		-		(1	)		(1	)		1
Total Administrative⁽²⁾	$	101	$	79		$	346		$	297

	Three months ended September 30,					Nine months ended September 30,
($/BOE)	2021		2020			2021			2020

Administrative, excluding Long-Term Incentive,
Restructuring and Legal Costs, and Current
Expected Credit Losses⁽¹⁾	$	1.44	$	1.55		$	1.50		$	1.46
Long-term incentive costs		0.51		0.02			0.61			(0.04	)
Restructuring and legal costs		0.11		0.14			0.24			0.59
Current expected credit losses		-		(0.03	)		(0.01	)		-
Total Administrative	$	2.06	$	1.68		$	2.34		$	2.01

(1)

~~On January 1, 2020, Ovintiv adopted ASU 2016-13, “Financial Instruments~~The third quarter and first nine months of 2021 include costs related to The Bow office lease of $30 million and $88 million, respectively, (2020 - ~~Credit Losses: Measurement~~$28 million and $82 million, respectively), half of ~~Credit Losses on Financial Instruments” under Topic 326. Further details on the adoption~~which is recovered from sublease revenues.

(2)	The third quarter and first nine months of ~~ASU 2016-13 can be found in Note 2 to the Consolidated Financial Statements included in Part I, Item 1~~2021 reflect a higher U.S./Canadian dollar exchange rate of ~~this Quarterly Report on Form 10-Q.~~$3 million and $13 million, respectively.

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Administrative expense ~~in the third quarter of 2020 decreased $2~~increased $22 million compared to the third quarter of ~~2019~~2020 primarily due to lower salaries and benefits due to decreased headcount ($2 million) and lower non-recurring administrative expenses related to the Newfield acquisition in 2019 ($2 million), partially offset by higher restructuring costs incurred in 2020 ($3 million).

to:

56•

Higher long-term incentive costs resulting from an increase in the Company’s share price in the third quarter of 2021 compared to 2020 ($24 million);

partially offset by:

•

A decrease in restructuring costs related to workforce reductions in 2020 ($5 million).

Nine months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Administrative expense ~~in the first nine months of 2020 decreased $92~~increased $49 million compared to the first nine months of ~~2019~~2020 primarily due to lower restructuring costs incurred in 2020 ($46 million) and a recovery of long-term incentive costs resulting from a decrease in the Company’s share price in the first nine months of 2020 compared to long-term incentive costs resulting from an increase in the share price in the first nine months of 2019 ($24 million), lower non-recurring integration and administrative expenses relating to the Newfield acquisition in 2019 ($10 million) and lower salaries and benefits ($8 million).to:

•

Higher long-term incentive costs resulting from an increase in the Company’s share price in the first nine months of 2021 compared to a decrease in 2020 ($97 million) and higher legal and consulting costs ($31 million);

partially offset by:

•

A decrease in restructuring costs, and lower salaries and benefits related to workforce reductions in 2020 ($75 million and $9 million, respectively).

During ~~2019, the Company completed workforce reductions in conjunction with the Newfield acquisition to better align staffing levels and the organizational structure. In June~~ 2020, the Company completed ~~further~~ workforce reductions as part of a company-wide reorganization in response to ~~better align with~~the low commodity price environment resulting from the global pandemic and the Company’s planned ~~activity levels.~~reductions in capital spending. Additional information on restructuring charges can be found in Note 1815 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other (Income) Expenses

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
($ millions)	2020			2019			2020			2019			2021			2020			2021			2020

Interest	$	97		$	99		$	279		$	285		$	77		$	97		$	263		$	279
Foreign exchange (gain) loss, net		(25	)		30			51			(62	)		-			(25	)		(15	)		51
(Gain) loss on divestitures, net		-			(5	)		-			(4	)
Other (gains) losses, net		(18	)		(1	)		(48	)		24			(6	)		(18	)		(31	)		(48	)
Total Other (Income) Expenses	$	54		$	123		$	282		$	243		$	71		$	54		$	217		$	282

Interest

Interest expense primarily includes interest on Ovintiv’s long-term debt. Additional information on changes in interest can be found in Note 54 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Interest expense decreased $2$20 million compared to the third quarter of ~~2019~~2020 primarily due ~~to:~~to the redemption of the Company’s 2021 and 2022 senior notes ($12 million), and open market repurchases of long-term debt completed in 2020 and decreased amounts drawn from the Company’s credit facilities ($5 million).

•

~~Interest savings related to open market repurchases in 2020 ($3 million).~~

Nine months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Interest expense decreased $6$16 million compared to the first nine months of ~~2019~~2020 primarily due ~~to:~~

•

Lower interest expense resulting from the repayment of the Company’s $500 million senior note in the second quarter of 2019 ($13 million) and interest savings related to open market repurchases in 2020 ($9 million);

to open market repurchases of long-term debt completed in 2020 and decreased amounts drawn from the Company’s credit facilities ($16 million), and the redemption of the Company’s 2021 and 2022 senior notes ($14 million), partially offset ~~by:~~

•

Higher interest expense on long-term debt primarily relating to the assumption of Newfield’s outstanding senior notes, interest expense relating to amounts drawn on the Company’s credit facilities and issuances under the Company’s U.S. commercial paper (“U.S. CP”) program ($16 million).

by a one-time make-whole interest payment of $19 million resulting from the June 2021 early redemption of the Company’s $600 million, 5.75 percent senior notes due January 30, 2022.

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 Note 65 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Following the completion of the ~~Reorganization, including the~~corporate reorganization and U.S. ~~Domestication, on January 24, 2020, as described~~domestication in the ~~Highlights section~~first quarter of ~~this MD&A,~~2020, the U.S. dollar denominated unsecured notes issued by Encana Corporation from Canada were assumed by Ovintiv Inc., a company incorporated in Delaware with a U.S. dollar functional currency. Accordingly, these U.S. dollar denominated unsecured notes, along with certain intercompany notes, no longer attract foreign exchange translation gains or losses.

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Net foreign exchange ~~gain of $25 million~~was nil compared to a ~~loss~~gain of ~~$30~~$25 million in the third quarter of ~~2019~~2020 primarily due to:

•

Unrealized foreign exchange ~~gains~~losses on the translation of U.S. dollar ~~financing debt issued and~~ risk management contracts and financing debt issued from Canada compared to ~~losses~~gains in ~~2019~~2020 ($7429 million and ~~$20~~$6 million, respectively);

partially offset by:

•

Higher realized foreign exchange gains on the settlement of U.S. dollar risk management contracts issued from Canada compared to 2020 ($5 million).

Nine months ended September 30, 2021 versus September 30, 2020

Net foreign exchange gain was $15 million compared to a loss of $51 million in the first nine months of 2020 primarily due to:

•

Lower unrealized foreign exchange losses on the translation of U.S. dollar financing debt issued from Canada ($55 million) and realized foreign exchange gains on the settlement of U.S. dollar risk management contracts and financing debt issued from Canada compared to losses in 2020 ($32 million and $24 million, respectively);

partially offset by:

•

Lower unrealized foreign exchange gains on the translation of intercompany notes ($2427 million) and ~~realized~~higher unrealized foreign exchange losses on ~~the settlement of~~ U.S. dollar ~~financing debt issued from Canada and intercompany notes compared to 2019 ($8 million and $8 million, respectively).~~

~~Nine months ended September 30, 2020 versus September 30, 2019~~

~~Net foreign exchange loss of $51 million compared to a gain of $62 million in the first nine months of 2019 was primarily due to:~~

•

~~Unrealized foreign exchange losses on the translation of U.S. dollar financing debt and~~ risk ~~management~~managements contracts issued from Canada ~~compared to gains in 2019~~ ($173 million and $14 million, respectively) and realized foreign exchange losses on the settlement of U.S. dollar financing debt issued from Canada and intercompany notes compared to gains in 2019 ($37 million and $34 million, respectively);

~~partially offset by:~~

•

~~Unrealized foreign exchange gains on the translation of intercompany notes compared to losses in 2019 ($146~~18 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, interest received from tax authorities, transaction costs relating to acquisitions, reclamation charges relating to decommissioned assets, gains on debt repurchases, government stimulus programs and adjustments related to other assets.

Other gains in the first nine months of 2021 includes interest income of $13 million primarily associated with the resolution of prior year tax items.

Other gains in the third quarter and first nine months of 2020 primarily ~~includes gains~~included a gain of $6 million and $28 million, respectively, relating to the repurchase of the Company’s fixed long-term debt on the open ~~market as discussed in the Liquidity and Capital Resources section of this MD&A.~~market.

Other losses in the first nine months of 2019 primarily included legal fees and transaction costs related to the Newfield acquisition of $33 million, partially offset by interest income on short-term investments of $9 million.

Income Tax

	Three months ended September 30,						Nine months ended September 30,				Three months ended September 30,					Nine months ended September 30,
($ millions)	2020			2019			2020		2019		2021		2020			2021			2020

Current Income Tax Expense (Recovery)	$	3		$	(1	)	$	2	$	3	$	-	$	3		$	(156	)	$	2
Deferred Income Tax Expense (Recovery)		(42	)		44			393		140		1		(42	)		(19	)		393
Income Tax Expense (Recovery)	$	(39	)	$	43		$	395	$	143	$	1	$	(39	)	$	(175	)	$	395

Effective Tax Rate	2.5%			22.4%			(7.8%)		37.3%		(1.4%)		2.5%			122.4%			(7.8%)

Income Tax Expense (Recovery)

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

In the third quarter of 2021, Ovintiv recorded an income tax expense of $1 million compared to an income tax recovery of $39 million in 2020, primarily due to the change in valuation allowances.

Nine months ended September 30, 2021 versus September 30, 2020

In the first nine months of 2021, Ovintiv recorded an income tax recovery of ~~$39~~$175 million compared to an income tax expense of ~~$43~~$395 million in ~~2019,~~2020, primarily due to the resolution of certain tax ~~benefit resulting from current year losses arising from non-cash ceiling test impairments and a lower effective tax rate due to the related valuation allowance discussed below.~~

~~Nine months ended September 30, 2020 versus September 30, 2019~~

~~In the first nine months of 2020, income tax expense increased $252 million compared to 2019, which included an increase in the valuation allowance of $568 million in Canada related~~items relating to prior ~~years’ deferred tax assets, which was recorded as a discrete item~~taxation years and the change in ~~the second quarter of 2020, partially offset by the tax benefit resulting from current year losses arising from non-cash ceiling test impairments and a lower effective tax rate due to the current year~~ valuation ~~allowance discussed below.~~

Deferred income tax assets are routinely assessed for realizability. During the nine months ended September 30, 2020, the Company determined, after weighing both positive and negative evidence, that a valuation allowance should be recorded to reduce the associated deferred tax assets in the United States and in Canada. The Company continues to be in a cumulative three-year loss position as of September 30, 2020 and is expected be in a cumulative three-year loss position by the end of the current fiscal year in both the United States and Canada. The cumulative losses, as well as increased uncertainty in the timing as to when the realization of deferred tax assets will occur, is significant negative evidence to overcome, and consequently, it is more likely than not that the deferred tax assets will not be realizable. If it is determined that the deferred tax assets are realizable in the future, a reduction in the valuation allowance will be recorded. Additional information on the determination of the valuation allowance can be found in Note 7 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As part of the U.S. Domestication, Ovintiv recognized a capital loss and recorded a deferred income tax benefit in the amount of $1.2 billion for Canadian income tax purposes due to the decline in the Company’s share value compared to the historical tax basis of its properties that were transferred as part of the U.S. Domestication. Ovintiv assessed the realizability of these capital losses against capital gains and concluded that it is more likely than not that the deferred tax asset will not be realizable. Therefore, Ovintiv has recorded a corresponding valuation allowance against the deferred tax asset. If it is determined the capital loss can be utilized at a future date, a reduction in the valuation allowance will be recorded.allowances.

Effective Tax Rate

Ovintiv’s interim income tax expense is determined using the estimated annual effective income tax rate applied to year‑to‑date net earnings before income tax plus the effect of legislative changes and amounts in respect of prior periods. The estimated annual effective income tax rate is impacted by expected annual earnings, changes in valuation allowances, ~~related to current year losses,~~state taxes, income tax related to foreign operations, ~~state tax,~~ the effect of legislative changes, non-taxable capital gains and losses, and tax differences on divestitures and transactions, which can produce interim effective tax rate fluctuations.

~~Following~~The Company’s effective tax rate was (1.4) percent for the ~~U.S. Domestication as described in the Highlights section~~third quarter of ~~this MD&A, the applicable statutory rate became~~2021, which is lower than the U.S. federal ~~income~~statutory tax ~~rate.~~ rate of 21 percent primarily due to the change in valuation allowances recorded relating to the current year net loss before tax.

The Company’s effective tax rate was 122.4 percent for the first nine months of 2021, which is higher than the U.S. federal statutory tax rate of 21 percent primarily due to the resolution of certain tax items relating to prior taxation years and the change in valuation allowances recorded relating to the current year net loss before tax.

The Company’s effective tax rate was 2.5 percent for the third quarter and (7.8) percent for the first nine months of 2020, which ~~are~~were lower than the U.S. ~~federal~~ statutory tax rate of 21 percent primarily due to valuation allowances recorded due to ~~current year~~net losses arising from ceiling test impairments, and an increase in the valuation allowance of $568 million in Canada related to prior ~~years’~~year’s deferred tax assets, which was recorded as a discrete item.

The effective tax rate of 37.3 percent for the nine months ended September 30, 2019, was higher than the Canadian statutory tax rate of 26.6 percent primarily due to the re-measurement of the Company’s deferred tax position resulting from the Alberta tax rate reduction. On June 28, 2019, Alberta Bill 3, the Job Creation Tax Cut (Alberta Corporate Tax Amendment) Act, was signed into law resulting in a reduction of the Alberta corporate tax rate from 12 percent to 11 percent effective July 1, 2019, with further one percent rate reductions to take effect every year on January 1 until the general corporate tax rate is eight percent on January 1, 2022. During the nine months ended September 30, 2019, the deferred tax expense of $140 million included an adjustment of $55 million resulting from the re-measurement of the Company’s deferred tax position due to the Alberta tax rate reduction.

On June 29, 2020, Alberta announced the previously scheduled rate reduction will be accelerated with the Alberta rate reducing to eight percent effective July 1, 2020. This legislation is not yet enacted and the impact is not expected to be material for the Company’s tax position.

The Company continues to evaluate the various stimulus and fiscal measures announced in the U.S. and Canada in response to the COVID-19 pandemic. The tax impact of these measures is reflected in the Company’s tax and financial position.

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 taxation 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.

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 or to manage its capital structure as discussed below. At September 30, 2020, $19 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.~~execute its strategy. 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, issuing new debt and repaying or repurchasing existing debt.

	As at September 30,						As at September 30,
($ millions, except as indicated)	2020			2019			2021		2020

Cash and Cash Equivalents	$	32		$	138		$	8	$	32
Available Credit Facilities ⁽¹⁾		2,990			4,000			4,000		2,990
Available Uncommitted Demand Lines ⁽²⁾		186			174			278		186
Issuance of U.S. Commercial Paper		(140	)		(740	)		-		(140	)
Total Liquidity	$	3,068		$	3,572		$	4,286	$	3,068

Long-Term Debt, including current portion⁽³⁾	$	7,142		$	7,024		$	4,791	$	7,142
Total Shareholders’ Equity⁽⁴⁾	$	4,352		$	9,921		$	3,797	$	4,352

Debt to Capitalization (%) ⁽⁵⁾⁽³⁾		62			41			56		62
Debt to Adjusted Capitalization (%) ⁽⁶⁾⁽⁴⁾		37			28			29		37

(1)	Includes available credit facilities of ~~$1.77~~$2.5 billion ~~(2019~~(2020 - ~~$1.5~~$1.77 billion) in the U.S. and ~~$1.22~~$1.5 billion ~~(2019~~(2020 - ~~$2.5~~$1.22 billion) in Canada as at September 30, ~~2020~~2021 (collectively, the “Credit Facilities”).

(2)	Includes three uncommitted demand lines totaling ~~$325~~$335 million, net of ~~$139~~$57 million in related undrawn letters of credit ~~(2019~~(2020 - ~~$327~~$325 million and ~~$153~~$139 million, respectively).

(3)	~~Long-Term Debt as at September 30, 2020, includes outstanding U.S. CP totaling $140 million and $1.01 billion drawn on the Credit Facilities.~~

~~(4)~~

~~Shareholders’ Equity reflects the common shares purchased, for cancellation, under the Company’s 2019 NCIB and substantial issuer bid programs.~~

~~(5)~~

Calculated as long-term debt, including the current portion, divided by shareholders’ equity plus long-term debt, including the current portion.

~~(6)~~(4)

A non-GAAP measure which is defined in the Non-GAAP Measures section of this MD&A.

The Company has access to two committed revolving U.S. dollar denominated credit facilities totaling $4.0 billion, which include a $2.5 billion revolving credit facility for Ovintiv Inc. and a $1.5 billion revolving credit facility for a Canadian subsidiary, both maturing in July 2024. The Credit Facilities provide financial flexibility and allow the Company to fund its operations or capital program. At September 30, ~~2020, $730 million and $280 million~~2021, there were no outstanding amounts under the revolving credit facility for Ovintiv Inc. and for the Canadian ~~subsidiary, respectively.~~subsidiary.

During the first nine months of 2020, Ovintiv’s credit rating was downgraded to below investment grade by one of its credit rating agencies following updates to commodity price assumptions used by the rating agency. As a result of the downgrade, the cost of short-term borrowing on the revolving credit facility for Ovintiv Inc. has increased marginally. Ovintiv continues to have full access to its Credit Facilities and the credit rating downgrade has not impacted the Company’s ability to fund its operations or capital program. While Ovintiv currently has both investment and non-investment grade credit ratings ~~further reductions in the Company’s credit ratings could increase the cost of short-term borrowings on the existing~~and has full access to its Credit Facilities ~~or other sources of liquidity~~ and ~~limit access to the Company’s~~U.S. commercial paper ~~program. A prolonged period of low commodity prices and the global impact of the COVID-19 pandemic could affect the Company’s credit ratings in the future.~~(“U.S. CP”) programs.

Depending on the Company’s credit rating and market demand, the Company may issue from its two U.S. CP programs, which include a $1.5 billion program for Ovintiv Inc. and a $1.0 billion program for a Canadian subsidiary. As at September

30, ~~2020,~~2021, the Company had ~~approximately $140 million of~~no commercial paper outstanding under its U.S. CP programs with an average remaining term of approximately 29 days and a weighted average interest rate of approximately 0.87 percent, which is supported by the Company’s Credit Facilities. As a result of the Company’s recent credit rating downgrade, the Company’s access to commercial paper is limited. If future access to the U.S. CP programs is unavailable when the outstanding commercial paper comes due, the Company intends to repay any maturing balances using advances from the Company’s Credit Facilities or available cash on hand. programs.

The Credit Facilities, uncommitted demand lines, and cash and cash equivalents provide Ovintiv with total liquidity of approximately ~~$3.1~~$4.3 billion. At September 30, ~~2020,~~2021, Ovintiv also had approximately ~~$140~~$57 million in undrawn letters of credit issued in the normal course of business primarily as collateral security, related to transportation arrangements and to support future abandonment liabilities. ~~Further downgrades in the Company’s credit ratings could trigger additional collateral requirements to support existing agreements and such amounts could be material.~~

~~In the first nine months of 2020,~~ Ovintiv ~~filed~~has a U.S. shelf registration statement and a Canadian shelf prospectus, 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. and/or Canada. At September 30, ~~2020,~~2021, $6.0 billion remained accessible under the Canadian shelf prospectus. The ability to issue securities under the U.S. shelf registration statement or Canadian shelf prospectus is dependent upon market conditions and securities law requirements.

Ovintiv is currently in compliance with, and expects that it will continue to be 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 September 30, ~~2020,~~2021, the Company’s Debt to Adjusted Capitalization was 3729 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. Ovintiv does not expect the current COVID-19 pandemic to impact the Company’s ability to remain in compliance with its financial covenants under the Credit Facilities. Additional information on financial covenants can be found in Note 15 to the Consolidated Financial Statements included in Item 8 of the ~~2019~~2020 Annual Report on Form 10‑K.

Sources and Uses of Cash

In the third quarter and first nine months of ~~2020,~~2021, Ovintiv primarily generated cash through operating ~~activities.~~activities and divestitures. The following table summarizes the sources and uses of the Company’s cash and cash equivalents.

		Three months ended September 30,						Nine months ended September 30,							Three months ended September 30,						Nine months ended September 30,
($ millions)	Activity Type	2020			2019			2020			2019			Activity Type	2021			2020			2021			2020

Sources of Cash, Cash Equivalents and Restricted Cash
Cash from operating activities	Operating	$	493		$	756		$	1,176		$	2,191		Operating	$	812		$	493		$	2,389		$	1,176
Proceeds from divestitures	Investing		39			171			69			177		Investing		(8	)		39			1,017			69
Corporate acquisition, net of cash and restricted cash acquired	Investing		-			-			-			94
Net issuance of revolving long-term debt	Financing		-			-			452			740		Financing		-			-			-			452
Other	Investing		68			-			-			-		Investing		6			68			-			-
			600			927			1,697			3,202				810			600			3,406			1,697

Uses of Cash and Cash Equivalents
Capital expenditures	Investing		351			566			1,393			2,052		Investing		365			351			1,098			1,393
Acquisitions	Investing		1			25			19			66		Investing		-			1			3			19
Net repayment of revolving long-term debt	Financing		100			21			-			-		Financing		-			100			950			-
Repayment of long-term debt ⁽¹⁾	Financing		109			-			224			500		Financing		518			109			1,137			224
Purchase of shares of common stock	Financing		-			213			-			1,250
Dividends on shares of common stock	Financing		24			24			73			77		Financing		37			24			86			73
Other	Investing/Financing		23			164			141			181		Financing/Investing		2			23			134			141
			608			1,013			1,850			4,126				922			608			3,408			1,850
Foreign Exchange Gain (Loss) on Cash, Cash Equivalents and Restricted Cash Held in Foreign Currency	Foreign Exchange Gain (Loss) on Cash, Cash Equivalents and Restricted Cash Held in Foreign Currency		1			-			(5	)		4		Foreign Exchange Gain (Loss) on Cash, Cash Equivalents and Restricted Cash Held in Foreign Currency		(2	)		1			-			(5	)
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	$	(7	)	$	(86	)	$	(158	)	$	(920	)	Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	$	(114	)	$	(7	)	$	(2	)	$	(158	)

(1)	Includes open market ~~repurchases.~~repurchases in 2020.

Operating Activities

~~Cash~~Net cash from operating activities in the third quarter and first nine months of ~~2020~~2021 was ~~$493~~$812 million and ~~$1,176~~$2,389 million, respectively, and was primarily a reflection of the impacts from ~~lower~~higher average realized commodity prices, partially offset by ~~the Newfield acquisition in 2019,~~ the effects of the commodity price mitigation program and changes in non‑cash working capital.

Additional detail on changes in non-cash working capital can be found in Note 2320 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Ovintiv expects it will continue to meet the payment terms of its suppliers.

Non-GAAP Cash Flow in the third quarter and first nine months of ~~2020~~2021 was ~~$398~~$845 million and ~~$1,237~~$2,468 million, respectively, 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.

Three months ended September 30, ~~2020~~2021 versus September 30, ~~2019~~2020

Net cash from operating activities ~~decreased $263~~increased $319 million compared to the third quarter of ~~2019~~2020 primarily due to:

•

~~Lower production volumes ($291 million), lower~~Higher realized commodity prices ($~~204~~936 million), lower ~~realized gains on risk management in revenues ($33 million) and higher~~ decommissioning payments primarily related to Deep Panuke ($2537 million) and higher production volumes ($32 million);

partially offset by:

•

~~Changes~~Realized losses on risk management in revenues compared to gains in 2020 ($460 million), changes in non-cash working capital ($~~174~~165 million), higher transportation and processing expense ($32 million), higher production, mineral and other taxes ($30 million) and higher operating expense, excluding non-cash long-term incentive costs ($13 million).

Nine months ended September 30, 2021 versus September 30, 2020

Net cash from operating activities increased $1,213million compared to the first nine months of 2020 primarily due to:

•

Higher realized commodity prices ($2,479 million), a current income tax recovery mainly due to the resolution of certain tax items relating to prior taxation years ($156 million), lower decommissioning payments primarily related to Deep Panuke ($134 million), lower administrative expenses, excluding non-cash long-term incentive costs and current expected credit losses ($38 million), lower operating expense, excluding non-cash long-term incentive costs ($~~60 million), lower transportation and processing expense ($33 million), and lower production, mineral and other taxes ($19 million).~~

~~Nine months ended September 30, 2020 versus September 30, 2019~~

~~Net cash from operating activities decreased $1,015million compared to the first nine months of 2019 primarily due to:~~

•

~~Lower realized commodity prices ($1,272 million), lower production volumes ($228 million), higher decommissioning payments primarily related to Deep Panuke ($105~~15 million) and ~~changes in non-cash working capital~~higher interest income ($249 million);

partially offset by:

•

~~Higher realized gains~~Realized losses on risk management in revenues compared to gains in 2020 ($~~304~~1,355 million), ~~lower administrative expense, excluding~~changes in non-cash ~~long-term incentive costs and current expected credit losses~~working capital ($~~127~~164 million), ~~which includes restructuring costs of $46 million, lower operating expenses, excluding non-cash long-term incentive costs ($108 million), lower~~higher production, mineral and other taxes ($6184 million), higher transportation and ~~acquisition costs incurred in 2019~~processing expense ($3365 million) and lower production volumes ($21 million).

Investing Activities

Cash used in investing activities in the first nine months of ~~2020~~2021 was ~~$1,417~~$120 million primarily due to capital ~~expenditures.~~expenditures, partially offset by proceeds from divestitures. Capital expenditures decreased ~~$659~~$295 million compared to the first nine months of ~~2019~~2020 due to the Company’s reduced capital program in response to the volatile market conditions ~~in 2020, as discussed in~~that commenced at the ~~2020 Outlook section~~end of ~~this MD&A.~~

~~Corporate acquisition in~~ the first ~~nine months~~quarter of ~~2019 was $94 million, which reflected the net cash acquired upon the Newfield business combination.~~2020.

Acquisitions in the first nine months of ~~2020~~2021 were $3 million (2020 - $19 ~~million,~~million), which primarily included property purchases ~~with oil and liquids rich potential. Acquisitions in the first nine months of 2019 were $66 million, which primarily included seismic purchases, water rights and purchase~~ with oil and liquids rich potential.

Divestitures in the first nine months of ~~2020~~2021 were $1,017 million (2020 - $69 ~~million,~~million), which primarily included the sale of the Eagle Ford assets in south Texas and Duvernay assets in west central Alberta, totaling approximately $1.0 billion, after closing and other adjustments, as well as certain properties that did not complement Ovintiv’s existing portfolio of ~~assets. Divestitures in the first nine months of 2019 were $177 million, which primarily included the sale of the Company’s Arkoma natural gas~~ assets.

Capital expenditures and acquisition and divestiture activity are summarized in Notes ~~3, 8~~2 and 97 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Financing Activities

Net cash used in financing activities has been impacted by the Company’s strategy to enhance liquidity, ~~and~~ strengthen its balance sheet by repaying or repurchasing existing debt, and returning value to ~~stockholders through the purchase of shares of common stock and~~shareholders by paying dividends.

Net cash ~~from~~used in financing activities in the first nine months of ~~2020~~2021 was ~~$88~~$2,271 million compared to net cash ~~used~~from financing activities of ~~$1,150~~$88 million in ~~2019.~~2020. The change was primarily due to ~~the purchase of common shares under~~ a ~~NCIB in 2019 ($1,037 million) as discussed in more detail below,~~net repayment ~~of long-term debt in 2019 ($500 million) and purchase of common shares under a substantial issuer bid ($213 million), partially offset by a decrease in net issuance~~ of revolving long-term debt in 2021 of $950 million compared to a net issuance in 2020 ~~($288 million)~~of $452 million and ~~the open market repurchases~~higher repayment of long-term debt ~~in 2020~~ ($~~224~~913 million) associated with the early redemption of the Company’s senior notes as discussed below.

From time to time, Ovintiv may seek to retire or purchase the Company’s outstanding debt through cash purchases and/or exchanges for other debt or equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, ~~our~~the Company’s liquidity requirements, contractual restrictions and other factors. In the first nine months of 2020, the Company repurchased $252 million in principal amount of its senior notes in the open market for an aggregate cash payment of approximately $224 million, plus accrued interest, and recognized gains of approximately $28 million. Ovintiv utilized funds available from the Company’s credit facilities, cash on hand and cash from implementing cost savings initiatives to complete these open market repurchases. For additional information on the open market repurchases, refer to Note 12 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q

The Company’s long-term debt totaled ~~$7,142~~$4,791 million at September 30, ~~2020 and $6,974 million at December 31, 2019.~~2021. There was no current portion outstanding at September 30, ~~2020 or~~2021. The Company’s long-term debt at December 31, ~~2019. Ovintiv has no long-term~~2020 totaled $6,885 million, which included the current portion of $518 million. In June 2021, the Company redeemed its $600 million, 5.75 percent senior notes due January 30, 2022, and in August 2021, redeemed its $518 million, 3.90 percent senior notes due November 15, 2021. The combined debt ~~maturities until November 2021 and, as~~redemptions are expected to result in annualized interest savings of over $50 million. As at September 30, ~~2020, over 80 percent of~~2021, the ~~Company’s~~Company has no fixed rate long-term debt ~~is not~~ due until 2024 and beyond.

Since the second quarter of 2020, the Company has allocated $2,575 million in excess cash flows to reduce its total long-term debt balance, which includes proceeds from the Duvernay and Eagle Ford asset divestitures. The Company is targeting a Net Debt balance of approximately $3.0 billion by the end of 2023.

In support of the Company’s commitment to growing shareholder value, Ovintiv announced a new capital allocation framework in the third quarter that outlines increasing returns to shareholders as well as continuing the Company’s progress on debt reduction.

For additional information on long-term debt, refer to Note ~~12 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.~~

~~Dividends~~

~~Ovintiv pays quarterly dividends to stockholders at the discretion of the Board of Directors.~~

Three months ended September 30,

Nine months ended September 30,

($ millions, except as indicated)

2020

2019

2020

2019

Dividend Payments

$
24

$
24

$
73

$
77

Dividend Payments ($/share) ⁽¹⁾

$
0.09375

$
0.09375

$
0.28125

$
0.28125

~~(1)~~

~~Dividend payments per share reflect the Share Consolidation. Accordingly, the comparative period has been restated.~~

~~On October 28, 2020, the Board of Directors declared a dividend of $0.09375 per share of Ovintiv common stock payable on December 31, 2020 to stockholders of record as of December 15, 2020.~~

~~Substantial Issuer Bid~~

In the third quarter of 2019, the Company used cash on hand and issued commercial paper to purchase, for cancellation, approximately 47.3 million of its outstanding common shares, on a pre-Share Consolidation basis, or approximately 9.5 million common shares, on a post-Share Consolidation basis for total consideration of approximately $213 million under its previously announced substantial issuer bid. For additional information on the substantial issuer bid, refer to Note 1510 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Dividends

Ovintiv pays quarterly dividends to common stockholders at the discretion of the Board of Directors.

	Three months ended September 30,					Nine months ended September 30,
($ millions, except as indicated)		2021		2020		2021		2020

Dividend Payments		$	37	$	24	$	86	$	73
Dividend Payments ($/share)		$	0.14	$	0.09375	$	0.3275	$	0.28125

On November 2, 2021, the Board of Directors declared a dividend of $0.14 per share of common stock payable on December 31, 2021 to common stockholders of record as of December 15, 2021.

Normal Course Issuer Bid

~~In the first nine months of 2019,~~On September 28, 2021, Ovintiv announced it received regulatory approval to commence a NCIB that enables the Company ~~used cash on hand~~ to purchase, for cancellation, up to approximately ~~149.4~~26 million shares of common stock over a 12-month period from October 1, 2021 to September 30, 2022. The number of shares ~~on a pre-Share Consolidation basis or~~authorized for purchase represent approximately ~~29.9 million~~10 percent of Ovintiv’s issued and outstanding shares of common ~~shares, on a post-Share Consolidation basis, for total consideration of approximately $1,037 million under its previous NCIB program. For additional information on~~stock as at September 20, 2021. The Company plans to fund the NCIB ~~refer to Note 15 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.~~through its new capital allocation framework as discussed above.

Off-Balance Sheet Arrangements

For information on off-balance sheet arrangements and transactions, refer to the Off-Balance Sheet Arrangements section of the MD&A included in Item 7 of the ~~2019~~2020 Annual Report on Form 10-K.

Commitments and Contingencies

For information on commitments and contingencies, refer to ~~Notes 8 and 24~~Note 21 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

6560

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, Non-GAAP Cash Flow Margin, Total Costs, Debt to Adjusted Capitalization, Net Debt and Net Debt to Adjusted EBITDA. Management’s use of these measures is discussed further below.

Non-GAAP Cash Flow and Non-GAAP Cash Flow Margin

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, net change in non-cash working capital and current tax on sale of assets.

Non-GAAP Cash Flow Margin is a non-GAAP measure defined as Non-GAAP Cash Flow per BOE of production.

Management believes these measures are 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 are an indication of the Company’s ability to generate cash to finance capital programs, to service debt and to meet other financial obligations. These measures are used, along with other measures, in the calculation of certain performance targets for the Company’s management and employees.

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
($ millions, except as indicated)	2020			2019			2020			2019			2021			2020			2021			2020

Cash From (Used in) Operating Activities	$	493		$	756		$	1,176		$	2,191		$	812		$	493		$	2,389		$	1,176
(Add back) deduct:
Net change in other assets and liabilities		(47	)		(29	)		(167	)		(55	)		(10	)		(47	)		(21	)		(167	)
Net change in non-cash working capital		142			(32	)		106			130			(23	)		142			(58	)		106
Current tax on sale of assets		-			-			-			-			-			-			-			-
Non-GAAP Cash Flow ⁽¹⁾	$	398		$	817		$	1,237		$	2,116		$	845		$	398		$	2,468		$	1,237
Divided by:
Production Volumes (MMBOE)		46.9			55.7			147.8			151.7			49.2			46.9			148.1			147.8
Non-GAAP Cash Flow Margin ($/BOE)	$	8.49		$	14.67		$	8.37		$	13.95		$	17.17		$	8.49		$	16.66		$	8.37

(1)

The third quarter and first nine months of ~~2020~~2021 include restructuring costs of $2 million and $13 million, respectively (2020 - $7 million and $88 million, ~~respectively. The third quarter and first nine months of 2019 include restructuring costs of $4 million and $134 million, respectively, and acquisition costs of nil and $33 million, respectively.~~respectively).

6661

Total Costs

Total Costs is a non-GAAP measure which includes the summation of production, mineral and other taxes, upstream transportation and processing expense, upstream operating expense and administrative expense, excluding the impact of long-term incentive, ~~costs,~~ restructuring and legal costs, and current expected credit losses. It is calculated as total operating expenses excluding non-upstream operating costs and non-cash items which include operating expenses from the Market Optimization and Corporate and Other segments, depreciation, depletion and amortization, impairments, accretion of asset retirement obligation, long-term incentive, ~~costs,~~ restructuring and legal costs, and current expected credit losses. When presented on a per BOE basis, Total Costs is divided by production volumes. Management believes this measure is useful to the Company and its investors as a measure of operational efficiency across periods.

	Three months ended September 30,					Nine months ended September 30,						Three months ended September 30,					Nine months ended September 30,
($ millions, except as indicated)	2020			2019		2020			2019			2021		2020			2021			2020

Total Operating Expenses	$	2,696		$	1,556	$	9,365		$	4,535		$	1,789	$	2,696		$	5,245		$	9,365
Deduct (add back):
Market optimization operating expenses		380			332		1,224			973			808		380			2,245			1,224
Corporate & other operating expenses		-			-		(2	)		(2	)		1		-			1			(2	)
Depreciation, depletion and amortization		406			545		1,433			1,454			297		406			916			1,433
Impairments		1,336			-		4,863			-			-		1,336			-			4,863
Accretion of asset retirement obligation		8			9		26			28			5		8			17			26
Long-term incentive costs		2			1		(8	)		27			31		2			112			(8	)
Restructuring costs		7			4		88			134
Restructuring and legal costs													6		7			37			88
Current expected credit losses		(1	)		-		1			-			-		(1	)		(1	)		1
Total Costs	$	558		$	665	$	1,740		$	1,921		$	641	$	558		$	1,918		$	1,740
Divided by:
Production Volumes (MMBOE)		46.9			55.7		147.8			151.7			49.2		46.9			148.1			147.8
Total Costs ($/BOE) ⁽¹⁾	$	11.85		$	11.95	$	11.77		$	12.66		$	13.03	$	11.85		$	12.97		$	11.77

(1)	Calculated using whole dollars and volumes.

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.

($ millions, except as indicated)	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020

Long-Term Debt, including current portion	$	7,142	$	6,974	$	4,791	$	6,885
Total Shareholders’ Equity		4,352		9,930		3,797		3,837
Equity Adjustment for Impairments at December 31, 2011		7,746		7,746		7,746		7,746
Adjusted Capitalization	$	19,240	$	24,650	$	16,334	$	18,468
Debt to Adjusted Capitalization	37%		28%		29%		37%

6762

Net Debt and Net Debt to Adjusted EBITDA

Net Debt and Net Debt to Adjusted EBITDA ~~is a~~are non-GAAP ~~measure~~measures whereby Net Debt is defined as long-term debt, including the current portion, less cash and cash equivalents and Adjusted EBITDA is defined as trailing 12-month net earnings (loss) before income taxes, ~~DD&A,~~depreciation, depletion and amortization, impairments, accretion of asset retirement obligation, interest, unrealized gains/losses on risk management, foreign exchange gains/losses, gains/losses on divestitures and other gains/losses.

Management believes this measure is 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. This measure is used, along with other measures, in the calculation of certain financial performance targets for the Company’s management and employees.

($ millions, except as indicated)	September 30, 2020			December 31, 2019			September 30, 2021			December 31, 2020

Long-Term Debt, including current portion	$	7,142		$	6,974		$	4,791		$	6,885
Less:
Cash and cash equivalents		32			190			8			10
Net Debt		7,110			6,784			4,783			6,875

Net Earnings (Loss)		(5,489	)		234			(582	)		(6,097	)
Add back (deduct):
Depreciation, depletion and amortization		1,994			2,015			1,317			1,834
Impairments		4,863			-			717			5,580
Accretion of asset retirement obligation		35			37			20			29
Interest		376			382			355			371
Unrealized (gains) losses on risk management		363			730			1,612			204
Foreign exchange (gain) loss, net		(6	)		(119	)		(49	)		17
(Gain) loss on divestitures, net		1			(3	)		-			-
Other (gains) losses, net		(49	)		23			(38	)		(55	)
Income tax expense (recovery)		333			81			(203	)		367
Adjusted EBITDA (trailing 12-month)⁽¹⁾	$	2,421		$	3,380
Adjusted EBITDA (trailing 12-month)							$	3,149		$	2,250
Net Debt to Adjusted EBITDA (times)		2.9			2.0			1.5			3.1

~~(1)~~

~~Adjusted EBITDA for 2019 only includes Newfield’s results of operations for the post-acquisition period from February 14, 2019 to December 31, 2019.~~

6863

Item 3: Quantitative and Qualitative Disclosures About Market Risk

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about ~~Ovitniv’s~~Ovintiv’s potential exposure to market risks. The term “market risk” refers to the Company’s risk of loss arising from adverse changes in oil, NGL and natural gas prices, foreign currency exchange rates and interest rates. The following disclosures are not meant to be precise indicators of expected future losses but rather indicators of reasonably possible losses. The forward-looking information provides indicators of how the Company views and manages ongoing market risk exposures.

COMMODITY PRICE RISK

Commodity price risk arises from the effect fluctuations in future commodity prices, including oil, NGLs and natural gas, may have on future revenues, expenses and cash flows. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable to the Company’s natural gas production. Pricing for oil, NGLs and natural gas production is volatile and unpredictable as discussed in Part 1, Item 2 of this Quarterly Report on Form 10-Q in the Executive Overview section in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Item 1A. “Risk Factors” of the ~~2019~~2020 Annual Report on Form 10-K. To partially mitigate exposure to commodity price risk, the Company may enter into various derivative financial instruments including futures, forwards, swaps, options and costless collars. The use of these derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors and may vary from time to time. Both exchange traded and over-the-counter traded derivative instruments may be subject to margin-deposit requirements, and the Company may be required from time to time to deposit cash or provide letters of credit with exchange brokers or counterparties to satisfy these margin requirements. For additional information relating to the Company’s derivative and financial instruments, see Note 2219 under Part I, Item 1 of this Quarterly Report on Form 10-Q.

The table below summarizes the sensitivity of the fair value of the Company’s risk management positions to fluctuations in commodity prices, with all other variables held constant. The Company has used a 10 percent variability to assess the potential impact of commodity price changes. Fluctuations in commodity prices could have resulted in unrealized gains (losses) impacting pre-tax net earnings as follows:

	September 30, 2020					September 30, 2021
(US$ millions)	10% Price Increase			10% Price Decrease		10% Price Increase			10% Price Decrease

Crude oil price	$	(130	)	$	120	$	(241	)	$	221
NGL price		(7	)		7		(12	)		12
Natural gas price		(114	)		99		(260	)		256

FOREIGN EXCHANGE RISK

Foreign exchange risk arises from changes in foreign exchange rates that may affect the fair value or future cash flows of the Company’s financial assets or liabilities. As Ovintiv operates primarily in the United States and Canada, fluctuations in the exchange rate between the U.S. and Canadian dollars can have a significant effect on the Company’s reported results.

The table below summarizes selected foreign exchange impacts on ~~the Company’s~~Ovintiv’s financial results when compared to the same periods in ~~2019.~~2020.

													Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,						$ millions		$/BOE		$ millions		$/BOE
	$ millions			$/BOE			$ millions			$/BOE
Increase (Decrease) in:
Capital Investment	$	(1	)				$	(8	)				$	5			$	19
Transportation and Processing Expense ⁽¹⁾		(1	)	$	(0.02	)		(10	)	$	(0.07	)		11	$	0.22		49	$	0.33
Operating Expense ⁽¹⁾		-			-			(2	)		(0.01	)		1		0.03		6		0.04
Administrative Expense		-			-			(3	)		(0.02	)		3		0.06		13		0.09
Depreciation, Depletion and Amortization ⁽¹⁾		(1	)		(0.02	)		(5	)		(0.03	)		6		0.12		27		0.18

(1)	Reflects upstream operations.

6964

Foreign exchange gains and losses also arise when monetary assets and monetary liabilities denominated in foreign currencies are translated and settled, and primarily include:

•

U.S. dollar denominated financing debt issued from Canada

•

U.S. dollar denominated risk management assets and liabilities held in Canada

•

U.S. dollar denominated cash and short-term investments held in Canada

•

Foreign denominated intercompany loans

To partially mitigate the effect of foreign exchange fluctuations on future commodity revenues and expenses, the Company may enter into foreign currency derivative contracts. As at September 30, ~~2020,~~2021, Ovintiv has entered into ~~$215~~$88 million notional U.S. dollar denominated currency swaps at an average exchange rate of ~~US$0.7451~~C$1.3720 to C$US$1, which mature monthly through the remainder of ~~2020~~2021 and ~~$350~~$100 million notional U.S. dollar denominated currency swaps at an average exchange rate of ~~US$0.7289~~C$1.2820 to C$US$1, which mature monthly throughout ~~2021.~~2022.

As at September 30, ~~2020,~~2021, Ovintiv ~~had $280 million in~~did not have any U.S. dollar denominated long-term debt ~~and $98 million in U.S. dollar~~or finance lease obligations issued from Canada that were subject to foreign exchange exposure.

The table below summarizes the sensitivity to foreign exchange rate fluctuations, with all other variables held constant. The Company has used a 10 percent variability to assess the potential impact from Canadian to U.S. foreign currency exchange rate changes. Fluctuations in foreign currency exchange rates could have resulted in unrealized gains (losses) impacting pre-tax net earnings as follows:

	September 30, 2020					September 30, 2021
(US$ millions)	10% Rate Increase			10% Rate Decrease		10% Rate Increase			10% Rate Decrease

Foreign currency exchange	$	(45	)	$	55	$	(83	)	$	102

INTEREST RATE RISK

Interest rate risk arises from changes in market interest rates that may affect the fair value or future cash flows from the Company’s financial assets or liabilities. The Company may partially mitigate its exposure to interest rate changes by holding a mix of both fixed and floating rate debt and may also enter into interest rate derivatives to partially mitigate effects of fluctuations in market interest rates.

As at September 30, ~~2020,~~2021, the Company had no floating rate ~~revolving credit~~debt and ~~term loan borrowings of $1,150 million. Accordingly, on a before-tax basis, the sensitivity for each one percent change in~~there were no interest ~~rates on floating~~ rate ~~revolving credit and term loan borrowings was $11 million.~~derivatives outstanding.

7065

Item 4: Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

Ovintiv’s Chief Executive Officer and Chief Financial Officer performed an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, ~~2020.~~2021.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in Ovintiv’s internal control over financial reporting during the third quarter of ~~2020~~2021 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

7166

PART II

Item 1. Legal Proceedings

In July 2020, the Company received a Notice of Violation (“NOV”) from the U.S. Environmental Protection Agency (“EPA”) and the Utah Department of Environmental Quality, Division of Air Quality (“UDAQ”). The NOV alleges violations under the federal Clean Air Act, the State of Utah’s State Implementation Plan, and the State of Utah’s air quality regulations for the oil and gas industry, at certain of the Company facilities located in the Uinta Basin. The Company has exchanged information with the EPA and UDAQ and is engaged in discussions aimed at resolving the allegations. The Company is unable to predict the financial impact of the NOV or the timing of its resolution at this time. Resolution of the matter may result in monetary sanctions of more than $100,000.

Please ~~also~~ refer to Item 3 of the ~~2019~~2020 Annual Report on Form 10-K and Note 2421 of Ovintiv’s Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

~~In addition to~~There have been no material changes from the ~~other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the~~risk factors ~~discussed~~disclosed in Item 1A. Risk Factors of the 2019 Annual Report on Form 10-K. These risks, which could materially affect our business, financial condition and/or operating results, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition and/or operating results. The risk factors set forth below should be read together with the risk factors described in the ~~2019~~2020 Annual Report on Form 10-K.

~~A pandemic, epidemic or other widespread outbreak of an infectious disease, such as the ongoing outbreak of COVID-19, could affect the operation of our business.~~

On March 11, 2020, the World Health Organization escalated the status of the COVID-19 outbreak from epidemic to pandemic. In an effort to mitigate the spread of COVID-19, governmental authorities in the United States, Canada and around the world have implemented, among other measures, limitations on cross-border travel, restrictions on mass gatherings, stay-at-home orders and mandatory closures of non-essential businesses. In the event such restrictions remain in place for an extended period of time, the Company’s ability to maintain ordinary staffing levels, secure operational inputs, and execute on portions of its business could be impacted. Although the Company has contingency plans in place to manage the potential workplace impacts of global outbreaks, including COVID-19, restrictions implemented by governments in jurisdictions in which the Company operates could prevent employees, contractors or suppliers from accessing the Company’s properties or performing critical services, or negatively impact the availability of the Company’s key personnel. In addition, as a significant subset of the Company’s employees has and may continue to work remotely, the Company may experience a higher rate of cyber-attacks and exposure to vulnerabilities related to digital technologies.

Concerns over the prolonged negative effects of the COVID-19 pandemic on economic and business prospects across the world have contributed to increased market and oil price volatility and diminished expectations for the performance of the global economy. The COVID-19 pandemic has resulted in, and may continue to result in, significant market uncertainty, including substantial fluctuations in currency exchange rates, inflation, interest rates, counterparty credit and performance risk, and general levels of investing and consumption. An extended period of decreased global demand and/or oversupply of production may result in refiners curtailing operations or refinery utilization rates, which could contribute to storage constraints or a widening of price differentials in jurisdictions in which the Company operates. Further, low commodity prices could impact the value and amount of the Company’s reserves and result in the recognition of future ceiling test impairments.

The full impact of the COVID-19 pandemic is uncertain and will depend on a number of factors, including the location and severity of the virus's spread and the effectiveness of mitigation actions taken by governmental authorities. Ongoing market uncertainty and an extended period of low commodity prices could result in changes to the Company's spending and operating plans, substantial fluctuations in the Company’s stock price and credit ratings, and affect the Company's financial condition, operations and access to liquidity.

~~The Company’s ability to use net operating losses and certain other tax attributes to offset future taxable income may be limited.~~

The Company currently has substantial U.S. federal net operating loss (“NOL”) carryforwards with various expiration dates and other tax attributes. Our ability to use these tax attributes to reduce our future U.S. federal and state income tax obligations depends on many factors, including our future taxable income, the timing of which is uncertain. In addition, our ability to use NOL carryforwards and other tax attributes may be subject to significant limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).

Under Section 382 of the Code and corresponding provisions of state law, if a corporation undergoes an ownership change, which is generally defined as a greater than 50% change in its equity ownership over a three-year period, the company’s ability to utilize U.S. NOL carryforwards and other tax attributes, may be limited. Determining the limitation under Section 382 of the Code is highly complex and the Company believes its U.S. NOL carryforwards and other tax attributes, other than tax attributes related to prior stock acquisitions, are not currently subject to a limitation as a result of an ownership change. However, it is possible that an ownership change may occur in the future which may materially impact the Company’s ability to use the U.S. NOL carryforwards and other tax attributes to reduce U.S. federal and state taxable income. Such a limitation could adversely affect the Company’s net income and cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On November 1, 2021, Ovintiv entered into that certain Change in Control Agreement (effective August 1, 2021) with Brendan M. McCracken, President and Chief Executive Officer. A copy of the Change in Control Agreement is attached as an exhibit hereto and incorporated herein by reference.

On November 1, 2021, Ovintiv entered into an amendment to Section 4 of the previously filed Change in Control Agreement with each of the following executives:

Corey D. Code, Executive Vice President and Chief Financial Officer

ii.

Gregory D. Givens, Executive Vice President and Chief Operating Officer

iii.

Joanne L. Cox, Executive Vice President, General Counsel and Corporate Secretary

iv.

Rachel M. Moore, Executive Vice President, Corporate Services

Renee E. Zemljak, Executive Vice President, Midstream, Marketing and Fundamentals

~~None.~~Each amendment, among other things, modifies the calculation of the lump sum bonus payment entitled to each executive, as applicable, following a change in control eventat the Corporation. Copies of each amendment are attached as exhibits hereto and incorporated herein by reference.

Item 6. Exhibits

Exhibit No		Description
10.1*		Change in Control Agreement between Ovintiv Inc. and Brendan M. McCracken effective August 1, 2021.
10.2*		First Amendment to Change in Control Agreement between Ovintiv Inc. and Corey D. Code effective November 1, 2021.
10.3*		First Amendment to Change in Control Agreement between Ovintiv Inc. and Gregory D. Givens effective November 1, 2021.
10.4*		First Amendment to Change in Control Agreement between Ovintiv Inc. and Joanne L. Cox effective November 1, 2021.
10.5*		First Amendment to Change in Control Agreement between Ovintiv Inc. and Rachel M. Moore effective November 1, 2021.
10.6*		First Amendment to Change in Control Agreement between Ovintiv Inc. and Renee E. Zemljak effective November 1, 2021.
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Schema Document.
101.CAL		Inline XBRL Calculation Linkbase Document.
101.DEF		Inline XBRL Definition Linkbase Document.
101.LAB		Inline XBRL Label Linkbase Document.
101.PRE		Inline XBRL Presentation Linkbase Document.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2020,~~2021, has been formatted in Inline XBRL.

* Management contract or compensatory arrangement

7368

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Ovintiv Inc.

By:	/s/ Corey D. Code

	Name:	Corey D. Code
	Title:	Executive Vice-President & Chief Financial Officer

Dated: ~~October 30, 2020~~November 4, 2021

7469

For the year ended December 31, 2019	United States		Canada		Total

Acquisition Costs ⁽¹⁾
Unproved	$	843	$	0	$	843
Proved		5,963		0		5,963
Total Acquisition Costs		6,806		0		6,806
Exploration Costs		5		0		5
Development Costs		2,129		480		2,609
	$	8,940	$	480	$	9,420

Purchase Price Allocation

Consideration:
Fair value of Encana's common shares issued ⁽¹⁾	$	3,478
Fair value of Newfield liability awards paid in cash ⁽²⁾		5
Total Consideration	$	3,483

Assets Acquired:
Cash and cash equivalents	$	46
Accounts receivable and accrued revenues		486
Other current assets		50
Proved properties		5,903
Unproved properties		838
Other property, plant and equipment		22
Restricted cash		53
Other assets		105
Goodwill ⁽³⁾		25

Liabilities Assumed:
Accounts payable and accrued liabilities ^{(3) (4)}		(795	)
Long-term debt		(2,603	)
Operating lease liabilities		(76	)
Other long-term liabilities ⁽³⁾		(65	)
Asset retirement obligation		(184	)
Deferred income taxes ⁽³⁾		(322	)
Total Purchase Price	$	3,483

	As at September 30, 2020					As at December 31, 2019
	Number (millions)		Amount			Number (millions)			Amount

Shares of Common Stock Outstanding, Beginning of Year		259.8	$	7,061			190.5		$	4,656
Shares of Common Stock Purchased		0		0			(39.4	)		(1,073	)
Shares of Common Stock Issued		0		0			108.7			3,478
Reclassification of Share Capital due to the Reorganization (See Note 1)		-		(7,058	)		-			0
Shares of Common Stock Outstanding, End of Period		259.8	$	3			259.8		$	7,061

	As at September 30, 2020			As at December 31, 2019

Liability for Cash-Settled Share-Based Payment Transactions:
Unvested		$	42		$	65
Vested			5			13
		$	47		$	78