Ovintiv Inc. Fair Value Disclosure
24. |
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 investment in marketable securities, and restricted cash and other marketable securities included in other assets approximate their carrying amounts due to the nature of the instruments held. Fair value information related to pension plan assets is included in Note 23.
Recurring fair value measurements are performed for risk management assets and liabilities and other derivative contracts, as discussed further in Note 25. These items are carried at fair value in the 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 December 31, 2025 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Fair |
|
|
Netting (1) |
|
|
Carrying |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Risk Management Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commodity Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
$ |
- |
|
|
$ |
87 |
|
|
$ |
- |
|
|
$ |
87 |
|
|
$ |
(1 |
) |
|
$ |
86 |
|
|
|
|
- |
|
|
|
3 |
|
|
|
1 |
|
|
|
4 |
|
|
|
- |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Risk Management Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commodity Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
$ |
- |
|
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
3 |
|
|
|
(1 |
) |
|
$ |
2 |
|
|
|
|
- |
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
As at December 31, 2024 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Fair |
|
|
Netting (1) |
|
|
Carrying |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Risk Management Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commodity Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
$ |
- |
|
|
$ |
116 |
|
|
$ |
- |
|
|
$ |
116 |
|
|
$ |
(6 |
) |
|
$ |
110 |
|
|
Foreign Currency Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Risk Management Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commodity Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
$ |
- |
|
|
$ |
26 |
|
|
$ |
- |
|
|
$ |
26 |
|
|
$ |
(6 |
) |
|
$ |
20 |
|
|
|
|
- |
|
|
|
21 |
|
|
|
- |
|
|
|
21 |
|
|
|
- |
|
|
|
21 |
|
|
Foreign Currency Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
- |
|
|
|
89 |
|
|
|
- |
|
|
|
89 |
|
|
|
(2 |
) |
|
|
87 |
|
|
The Company’s Level 1 and Level 2 risk management assets and liabilities include contracts with terms to 2030, consisting of commodity fixed price contracts, three-way options, basis swaps and physical forward contracts receiving a percentage of the Japan Korea Marker (“JKM”) index price. The Company uses discounted cash flow and option-pricing models for fair valuing commodity derivatives. The fair value models use inputs such as contracted notional volumes, market future prices, maturities, credit adjusted risk free rates, and market-based implied volatility factors. The fair values of these contracts 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.
The three-way options are a combination of a sold call, a bought put and a sold 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 partial downside price protection through the put options.
During 2024, the Company transferred all remaining WTI three-way options from Level 3 into Level 2 as a result of the availability of more observable inputs, such as volatility and comparable contract terms, from independent active markets.
Level 3 Fair Value Measurements
During 2025, Ovintiv entered into a ten-year physical forward contract, with terms to 2037, to deliver 100 MMcf/d of natural gas volumes with a delivery point in Alberta and will receive the Chicago city-gates (“Chicago”) index price, less deducts. Delivery of natural gas volumes is expected to commence November 1, 2027. This contract is a derivative and is required to be measured at fair value each reporting period with changes in the fair value recorded in net earnings. The fair value of this contract is based on the discounted cash flow model using observable and unobservable input such as forward prices less deducts. The data used to develop 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:
|
|
|
|
|
|
Risk Management |
|
|||||
|
|
|
|
|
|
2025 |
|
|
2024 |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Balance, Beginning of Year |
|
|
|
|
|
$ |
- |
|
|
$ |
16 |
|
|
|
|
|
|
|
1 |
|
|
|
14 |
|
|
Purchases, Sales, Issuances and Settlements: |
|
|
|
|
|
|
|
|
|
|
||
Purchases, sales and issuances |
|
|
|
|
|
|
- |
|
|
|
- |
|
Settlements |
|
|
|
|
|
|
- |
|
|
|
9 |
|
Transfers Out of Level 3 |
|
|
|
|
|
|
- |
|
|
|
(39 |
) |
Balance, End of Year |
|
|
|
|
|
$ |
1 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
||
Change in Unrealized Gains (Losses) During the |
|
|
|
|
|
|
|
|
|
|
||
Year Included in Net Earnings (Loss) |
|
|
|
|
|
$ |
1 |
|
|
$ |
23 |
|
Quantitative information about unobservable inputs used in Level 3 fair value measurements for risk management positions is presented below as at December 31, 2025:
|
|
Valuation Technique |
|
Unobservable Input |
|
Range |
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management - Physical Forward Contract |
|
Discounted Cash Flow Model |
|
Forward Prices (1) |
|
$0.65/Mcf - $2.58/Mcf |
|
$1.14/Mcf |
|
A 10 percent increase or decrease in forward price differentials between Chicago and AECO for the physical forward contract would cause an approximate corresponding $24 million (2024 - nil) increase or decrease to net risk management assets and liabilities.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.