If a private equity fund is successful in its bid to shake up Ovintiv Inc., the last major oil and gas company currently active in Kingfisher County could take its investments elsewhere.

Kimmeridge Energy Management Co., an activist investment fund that purchased holdings in Ovintiv and two other energy companies in 2020, is threatening a proxy fight to gain management control.

In an announcement last Thursday, Kimmeridge said it will nominate a slate of directors to Ovintiv’s board at the upcoming annual meeting in order to address alleged management failures at the company.

Two of Ovintiv’s actions Kimmeridge specifically criticized include the company’s 2019 purchase of Newfield Exploration at what Kimmeridge said was “the wrong price at the wrong time,” and its continued investment in the STACK and SCOOP plays in Oklahoma’s Anadarko Basin.

But an Ovintiv spokesperson told the Times ScFree Press Tuesday that the company is still enthusiastic about its investment in Oklahoma’s SCOOP and STACK oil plays.

“Our wells both in the STACK and the SCOOP are performing extremely well - both from a cost and production standpoint,” Ovintiv communication director Cindy Hassler said.

Ovintiv’s Local History

Ovintiv is the energy exploration and production company formerly known as Encana, one of Canada’s oldest and largest oil companies, which rebranded and relocated from Calgary to Denver about a year ago.

In Kingfisher County, the more familiar name is Newfield, the Houston-based oil company that was one of the first to identify and stake a claim in the STACK oil play several years ago.

Some of Newfield’s multimillion-dollar investments in energy infrastructure in and around the county included a water recycling plant, an Okarche field office and a network of pipelines.

Additionally, Newfield established itself as a solid corporate citizen through contributions to local private and governmental projects.

The largest of these was a half-million-dollar gift to Kingfisher Trails Inc. as seed money for Newfield Community Park, a major open air recreation area and festival grounds currently under construction west of downtown.

As Encana and now as Ovintiv, the company has maintained both a business and philanthropic presence in the county, albeit on a smaller scale.

Last year delivered a vicious one-two punch to the oil industry - the Arab-Russia petroleum price war which drove oil prices into the negatives, followed almost immediately by an equally drastic drop in demand causedby the pandemic.

In the fallout, every other major player abandoned the STACK and SCOOP plays, instituting the usual draconian cutbacks triggered by a bust cycle and moving any remaining capital to the Permian Basin in Texas.

Ovintiv made its own course corrections, laying off personnel at its corporate offices in Denver, The Woodlands, Texas, and Calgary, as well as in the field, and cutting capital spending.

But Ovintiv did not abandon the STACK and SCOOP entirely.

The company has 360,000 net acres held by production in the Anadarko Basin, primarily in the SCOOP and STACK, and completed 84 wells in the state last year, 54 of which were in Kingfisher County, Hassler said.

Ovintiv’s website identifies the Anadarko Basin as one of its three core assets, along with the Permian and Montney in Canada, and calls it “one of the top liquids-rich resource plays in North America.”

Although the staff is smaller, the company still maintains its Okarche field office and continued to make donations to various local causes in 2020.

Point of Contention

But Ovintiv’s capital commitment here is under challenge by Kimmeridge, which characterized the company’s $5.9 billion purchase of Newfield and its continued investment in the Anadarko Basin as “value-destructive” decisions.

New York and Denver based Kimmeridge’s 2020 investments in Ovintiv and two other energy companies are through an activist fund the private equity firm created last year.

The goal of the fund was to target three to five energy exploration and production companies and “drive initiatives aimed at returning capital to investors,” according to a July 16, 2020, article published on Buyoutslnsider.com.

Other goals cited specifically for Ovintiv in Kimmeridge’s announcement last week include “lowering reinvestment rates; reducing absolute debt; aligning management compensation with the interests of shareholders; and establishing credible environmental targets aligned with the Paris Agreement.”

The Proxy Fight Threat

A proxy fight is a term used to describe a battle between shareholders and senior management for control of the company.

If Kimmeridge follows through with its threatened proxy fight, it will be soliciting the support of other shareholders to vote in its slate of officers at Ovintiv’s annual meeting, which will be conducted virtually on April 28.

In a statement emailed to the Times Sc. Free Press this week, Ovintiv CEO Doug Suttles said he and the rest of the company’s board and management team are “focused on value creation for its investors.”

“We a fined plan to reduce debt through driving efficiency gains and disciplined capital allocation to generate free cash flow.”

Suttles said the company has “generated significant free cash for each of the last three years and enters 2021 with strong momentum.”

In its fourth quarter 2020 results announced last week, the company showed “debt reduction ahead of schedule, capital investments below guidance and stronger than expected production,” according to Suttles’ emailed statement.

Ovintiv also has added some new directors to its board in the last couple of months and adopted a plan in December to reduce methane intensity 33 % by 2025 through an employee incentive compensation program, according to company news releases.

“We are proud of our track record on environmental performance but know we need to do more,” Suttles said in a Dec. 16 news release. “By setting this ambitious target and linking it to every employee’s compensation we are sending a clear signal.

“Based on our team’s track record of innovation and efficient delivery, I’m confident we’ll meet this target and strive to exceed it” Ovintiv CEO Doug Suttles said.

Ovintiv’s board of directors also has been meeting directly with the company’s largest shareholders as part of an annual outreach program, Suttles said in his emailed statement.

All of those actions signal an intent by Ovintiv to fend off Kimmeridge’s fight for management control.

Coming soon: An interview with Matt Vezza, vice president and general manager for Ovintiv’s Anadarko and Rockies operations, discussing the company’s current activities in and around Kingfisher County.