On Thursday, JPMorgan (NYSE:JPM) updated its financial outlook for Ovintiv Inc. (NYSE:OVV), increasing the price target to $56 from $54 while maintaining an Overweight rating.
The firm's optimism is based on the expectation that Ovintiv's discounted valuation compared to its peers is set to narrow, thanks to the potential for sustained capital efficiency in its 2024 program and beyond.
The company's strategic moves in inventory renewal through acquisitions, divestitures, and organic enhancement have contributed to an extended inventory length.
Ovintiv's increased presence in the Permian Basin is particularly noteworthy, as the region commands higher relative multiples in the exploration and production sector due to its stacked pay potential and cost-effective position.
Ovintiv has also reported a 10% increase in well productivity in the Permian Basin, a result of its new completion design. This improvement places the company in the top quartile among its peers.
The firm's efficiency is further underscored by gains from drilling and completions, derived from its Trimul-frac development scheme, which is expected to be applied to over half of its Permian wells in 2024.
In the first quarter of 2024, Ovintiv demonstrated its operational prowess by adding 65 Tier 1 Permian locations at a capital cost of $190 million. This addition effectively replaces approximately 45% of the company's 2024 program in the basin.
Since 2021, Ovintiv has bolstered its premium location count by 1,650, including 800 from the Encap deal, and it could further increase its Permian inventory by around 250 locations through appraisal of the acquired acreage.
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