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.

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).

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.

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

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.

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 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.

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 the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements include: composition of the Company’s core assets, including allocation of capital and focus of development plans; 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, return of capital to stockholders, 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 the Company’s capital plan; statements regarding the Company’s application of excess cash flows to reduce long-term debt; ability to ~~deliver free~~maximize cash flow through a disciplined capital allocation strategy; anticipated cost savings, capital efficiency and sustainability thereof; ability to repeat and deploy successful practices across the Company’s multi-basin portfolio; anticipated commodity prices; anticipated success of and benefits from technology and innovation, including cube development approach and advanced completion designs; ability to optimize well and completion designs; future well inventory; anticipated drilling, number of drilling rigs and the success thereof; anticipated 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 reserves and resources and potential for negative price related reserve revisions; expected production and product types; ~~statements regarding anticipated cash flow, non-GAAP cash flow margin and leverage ratios;~~ anticipated access to cash, cash equivalents and other methods of funding; anticipated hedging and outcomes of risk management program, including exposure to certain commodity prices and foreign exchange fluctuations, amount of hedged production, market access and physical sales locations; impact of changes in laws and regulations; compliance with environmental legislation and claims related to the purported causes and impact of climate change, and the costs therefrom; 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 to the Company as a result of ~~changes to~~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; 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 against its peers; outlook of oil and gas industry generally and impact of geopolitical environment; expected future interest expense; the Company’s commitments and ~~obligations~~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, risks and uncertainties that may cause such statements not to occur, or results to differ materially from those expressed or implied. These assumptions include: future commodity prices and differentials; foreign exchange rates; ability to access credit facilities and shelf prospectuses; data contained in key modeling statistics; availability of attractive hedges and enforceability of risk management program; effectiveness of the Company’s drive to productivity and efficiencies; results from innovations; expectation that counterparties will fulfill their obligations under the gathering, midstream and marketing agreements; access to transportation and processing facilities where Ovintiv operates; assumed tax, royalty and regulatory regimes; assumptions contained herein and expectations and projections made in light of, and generally consistent with,

Ovintiv’s historical experience and its perception of historical trends, including with respect to the pace of technological development, benefits achieved and general industry expectations.

Risks and uncertainties that may affect these business outcomes 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 and associated impact to the Company’s stock price, credit rating, financial condition, reserves and access to liquidity; the impact of COVID-19 to the Company’s operations, including maintaining ordinary staffing levels, securing operational inputs, executing on portions of its business and managing cyber-security risks associated with remote work; ability to secure adequate transportation; potential curtailments of refinery operations, including resulting storage constraints or widening price differentials; variability and discretion of Ovintiv’s board of directors (the “Board of Directors”) to declare and pay dividends, if any; timing and costs of well, facilities and pipeline construction; business interruption, property and casualty losses or unexpected technical difficulties, including impact of weather; risks associated with decommissioning activities, including timing and costs thereof; ~~the Company’s ability to achieve the anticipated benefits of the Reorganization (as defined below);~~ counterparty and credit risk; impact of changes in credit rating and access to liquidity, including costs thereof; fluctuations in currency and interest rates; failure to achieve 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, carbon, accounting and other laws or regulations; 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; impact of disputes arising with its 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 reserves; imprecision of reserves estimates and estimates of recoverable quantities, including future net revenue estimates; risks associated with past and future acquisitions or divestitures of certain assets or other transactions or receipt of amounts contemplated under the transaction agreements (such transactions may include third-party capital investments, farm-outs or partnerships, which Ovintiv may refer to from time to time as “partnerships” or “joint ventures” and the funds received in respect thereof which Ovintiv may refer to from time to time as “proceeds”, “deferred purchase price” and/or “carry capital”, regardless of the legal form) as a result of various conditions not being met; and other risks described in Item 1A. Risk Factors of the 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, and risks and uncertainties impacting Ovintiv’s business as described from time to time in the Company’s other periodic filings with the SEC.

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 statements 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 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.

Three Months Ended

March 31,

(US$ millions, except per share amounts)

2020

2019

Revenues

(Note 3)

Product and service revenues

(Note 4)

$
1,570

$
1,572

Gains (losses) on risk management, net

(Note 22)

1,055

(355
)
Sublease revenues

(Note 11)

18

18

Total Revenues

2,643

1,235

Operating Expenses

(Note 3)

Production, mineral and other taxes

52

48

Transportation and processing

396

338

Operating
(Notes 19, 20)

165

165

Purchased product

398

298

Depreciation, depletion and amortization

534

377

Impairments

(Note 10)

277

-

Accretion of asset retirement obligation

(Note 14)

9

9

Administrative
(Notes 18, 19, 20)

53

227

Total Operating Expenses

1,884

1,462

Operating Income (Loss)

759

(227
)

Other (Income) Expenses

Interest

(Note 5)

96

87

Foreign exchange (gain) loss, net

(Notes 6, 22)

116

(37
)
(Gain) loss on divestitures, net

-

1

Other (gains) losses, net

(Notes 8, 12, 20)

(14
)

28

Total Other (Income) Expenses

198

79

Net Earnings (Loss) Before Income Tax

561

(306
)
Income tax expense (recovery)

(Note 7)

140

(61
)
Net Earnings (Loss)

$
421

$
(245
)

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

Basic & Diluted

(Note 15)

$
1.62

$
(1.00
)
Weighted Average Shares of Common Stock Outstanding (millions) ⁽¹⁾

Basic & Diluted

(Note 15)

259.8

244.3

~~(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 period has been restated.

			Three Months Ended
			March 31,
(US$ millions, except per share amounts)			2021			2020

Revenues		(Note 2)
Product and service revenues		(Note 3)	$	2,247		$	1,570
Gains (losses) on risk management, net		(Note 19)		(427	)		1,055
Sublease revenues		(Note 9)		18			18
Total Revenues				1,838			2,643

Operating Expenses		(Note 2)
Production, mineral and other taxes				60			52
Transportation and processing				379			396
Operating	(Notes 16, 17)			164			165
Purchased product				604			398
Depreciation, depletion and amortization				308			534
Impairments		(Note 8)		0			277
Accretion of asset retirement obligation				6			9
Administrative	(Notes 15, 16, 17)			122			53
Total Operating Expenses				1,643			1,884
Operating Income (Loss)				195			759

Other (Income) Expenses
Interest		(Note 4)		87			96
Foreign exchange (gain) loss, net		(Notes 5, 19)		(7	)		116
Other (gains) losses, net		(Notes 6, 10, 17)		(18	)		(14	)
Total Other (Income) Expenses				62			198
Net Earnings (Loss) Before Income Tax				133			561
Income tax expense (recovery)		(Note 6)		(176	)		140
Net Earnings (Loss)			$	309		$	421

Net Earnings (Loss) per Share of Common Stock		(Note 12)
Basic			$	1.19		$	1.62
Diluted				1.16			1.62
Weighted Average Shares of Common Stock Outstanding (millions)		(Note 12)
Basic				260.1			259.8
Diluted				266.0			259.8

		Three Months Ended							Three Months Ended
		March 31,							March 31,
(US$ millions)		2020			2019				2021			2020

Net Earnings (Loss)		$	421		$	(245	)		$	309		$	421
Other Comprehensive Income (Loss), Net of Tax
Foreign currency translation adjustment	(Note 16)		(134	)		34		(Note 13)		19			(134	)
Pension and other post-employment benefit plans	(Notes 16, 20)		(2	)		(1	)	(Notes 13, 17)		(1	)		(2	)
Other Comprehensive Income (Loss)			(136	)		33				18			(136	)
Comprehensive Income (Loss)		$	285		$	(212	)		$	327		$	285

			As at			As at					As at			As at
			March 31,			December 31,					March 31,			December 31,
(US$ millions)			2020			2019					2021			2020

Assets
Current Assets
Cash and cash equivalents			$	82		$	190				$	9		$	10
Accounts receivable and accrued revenues (net of allowances of $11 million (2019: $3 million)				918			1,235
Accounts receivable and accrued revenues (net of allowances of $4 million (2020: $4 million))												1,089			928
Risk management		(Notes 21, 22)		958			148			(Notes 18, 19)		11			37
Income tax receivable				283			296			(Note 6)		130			272
				2,241			1,869					1,239			1,247
Property, Plant and Equipment, at cost:		(Note 10)								(Note 8)
Oil and natural gas properties, based on full cost accounting
Proved properties				50,952			51,210					54,603			53,883
Unproved properties				3,460			3,714					2,807			2,962
Other				852			904					915			911
Property, plant and equipment				55,264			55,828					58,325			57,756
Less: Accumulated depreciation, depletion and amortization				(40,184	)		(40,637	)				(48,811	)		(48,306	)
Property, plant and equipment, net		(Note 3)		15,080			15,191			(Note 2)		9,514			9,450
Other Assets	(Note 3)			1,088			1,213					1,143			1,143
Risk Management		(Notes 21, 22)		1			2			(Notes 18, 19)		5			4
Deferred Income Taxes				540			601
Goodwill		(Notes 3, 8)		2,555			2,611			(Note 2)		2,633			2,625
		(Note 3)	$	21,505		$	21,487			(Note 2)	$	14,534		$	14,469

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities			$	2,049		$	2,239				$	1,868		$	1,704
Current portion of operating lease liabilities				70			78					74			68
Income tax payable				1			1					2			3
Risk management		(Notes 21, 22)		40			114			(Notes 18, 19)		399			130
Current portion of long-term debt										(Note 10)		1,118			518
				2,160			2,432					3,461			2,423
Long-Term Debt		(Note 12)		7,006			6,974			(Note 10)		5,300			6,367
Operating Lease Liabilities				883			977					939			938
Other Liabilities and Provisions	(Note 13)			402			464		(Note 11)			196			358
Risk Management		(Notes 21, 22)		81			68			(Notes 18, 19)		106			125
Asset Retirement Obligation		(Note 14)		438			425					398			401
Deferred Income Taxes				344			217					0			20
				11,314			11,557					10,400			10,632
Commitments and Contingencies		(Note 24)								(Note 21)
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
Share capital - authorized 775 million shares of stock
2021 issued and outstanding: 261.0 million shares (2020: 259.8 million shares)										(Note 12)		3			3
Paid in surplus		(Note 15)		8,460			1,402			(Note 12)		8,525			8,531
Retained earnings				818			421
Retained earnings (Accumulated deficit)												(5,488	)		(5,773	)
Accumulated other comprehensive income		(Note 16)		910			1,046			(Note 13)		1,094			1,076
Total Shareholders’ Equity				10,191			9,930					4,134			3,837
			$	21,505		$	21,487				$	14,534		$	14,469

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

Three Months Ended March 31, 2020 (US$ millions)

Share
Capital

Paid in
Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity

Balance, December 31, 2019

$
7,061

$
1,402

$
421

$
1,046

$
9,930

Net Earnings (Loss)

-

-

421

-

421

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

(Note 15)

-

-

(24
)

-

(24
)
Other Comprehensive Income (Loss)

(Note 16)

-

-

-

(136
)

(136
)
Reclassification of Share Capital due to the Reorganization

(Note 15)

(7,058
)

7,058

-

-

-

Balance, March 31, 2020

$
3

$
8,460

$
818

$
910

$
10,191

Three Months Ended March 31, 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			309			0		309
Dividends on Shares of Common Stock ($0.09375 per share)	(Note 12)		0		0			(24	)		0		(24	)
Equity-Settled Compensation Costs	(Note 16)		0		(6	)		0			0		(6	)
Other Comprehensive Income (Loss)	(Note 13)		0		0			0			18		18
Balance, March 31, 2021		$	3	$	8,525		$	(5,488	)	$	1,094	$	4,134

Three Months Ended March 31, 2019 (US$ millions)

Share
Capital

Paid in
Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Shareholders’
Equity

Balance, December 31, 2018

$
4,656

$
1,358

$
435

$
998

$
7,447

Net Earnings (Loss)

-

-

(245
)

-

(245
)
Dividends on Common Shares ($0.09375 per share ⁽¹⁾)

(Note 15)

-

-

(28
)

-

(28
)
Common Shares Purchased under Normal
Course Issuer Bid

(Note 15)

(307
)

-

(93
)

-

(400
)
Common Shares Issued

(Notes 8, 15)

3,478

-

-

-

3,478

Other Comprehensive Income (Loss)

(Note 16)

-

-

-

33

33

Impact of Adoption of Topic 842, Leases

-

-

75

-

75

Balance, March 31, 2019

$
7,827

$
1,358

$
144

$
1,031

$
10,360

Three Months Ended March 31, 2020 (US$ millions)		Share Capital			Paid in Surplus		Retained Earnings			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		421			0			421
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			(136	)		(136	)
Reclassification of Share Capital	(Note 12)		(7,058	)		7,058		0			0			0
Balance, March 31, 2020		$	3		$	8,460	$	818		$	910		$	10,191

			Three Months Ended								Three Months Ended
			March 31,								March 31,
(US$ millions)			2020			2019					2021			2020

Operating Activities
Net earnings (loss)			$	421		$	(245	)			$	309		$	421
Depreciation, depletion and amortization				534			377					308			534
Impairments		(Note 10)		277			-			(Note 8)		0			277
Accretion of asset retirement obligation		(Note 14)		9			9					6			9
Deferred income taxes		(Note 7)		140			(62	)		(Note 6)		(20	)		140
Unrealized (gain) loss on risk management		(Note 22)		(904	)		427			(Note 19)		271			(904	)
Unrealized foreign exchange (gain) loss		(Note 6)		101			(25	)		(Note 5)		2			101
Foreign exchange on settlements		(Note 6)		20			(13	)		(Note 5)		(6	)		20
(Gain) loss on divestitures, net				-			1
Other				(63	)		(47	)				20			(63	)
Net change in other assets and liabilities				(52	)		(11	)				(6	)		(52	)
Net change in non-cash working capital		(Note 23)		83			118			(Note 20)		(57	)		83
Cash From (Used in) Operating Activities				566			529					827			566
Investing Activities
Capital expenditures		(Note 3)		(790	)		(736	)		(Note 2)		(350	)		(790	)
Acquisitions		(Note 9)		(17	)		(22	)		(Note 7)		(1	)		(17	)
Corporate acquisition, net of cash and restricted cash acquired		(Note 8)		-			94
Proceeds from divestitures		(Note 9)		22			2			(Note 7)		2			22
Net change in investments and other				130			54					28			130
Cash From (Used in) Investing Activities				(655	)		(608	)				(321	)		(655	)
Financing Activities
Net issuance (repayment) of revolving long-term debt		(Note 12)		144			-			(Note 10)		(460	)		144
Repayment of long-term debt		(Note 12)		(89	)		-			(Note 10)		0			(89	)
Purchase of shares of common stock		(Note 15)		-			(400	)
Dividends on shares of common stock		(Note 15)		(24	)		(28	)		(Note 12)		(24	)		(24	)
Finance lease payments and other financing arrangements				(22	)		(20	)
Finance lease payments												(23	)		(22	)
Cash From (Used in) Financing Activities				9			(448	)				(507	)		9
Foreign Exchange Gain (Loss) on Cash, Cash Equivalents
and Restricted Cash Held in Foreign Currency				(7	)		3					0			(7	)
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash			(87	)		(524	)	Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash			(1	)		(87	)
Cash, Cash Equivalents and Restricted Cash, Beginning of Year				190			1,058		Cash, Cash Equivalents and Restricted Cash, Beginning of Year			10			190
Cash, Cash Equivalents and Restricted Cash, End of Period			$	103		$	534				$	9		$	103
Cash, End of Period			$	35		$	66				$	8		$	35
Cash Equivalents, End of Period				47			413					1			47
Restricted Cash, End of Period ⁽¹⁾				21			55
Restricted Cash, End of Period												0			21
Cash, Cash Equivalents and Restricted Cash, End of Period			$	103		$	534				$	9		$	103

Supplementary Cash Flow Information										(Note 20)

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.

~~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:~~

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

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.

	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	$	800		$	777	$	351	$	456	$	-	$	13	$	1,018		$	800		$	577		$	351	$	652	$	419
Gains (losses) on risk management, net		114			52		36		20		-		-		(136	)		114			(22	)		36		2		1
Sublease revenues		-			-		-		-		-		-		0			0			0			0		0		0
Total Revenues		914			829		387		476		-		13		882			914			555			387		654		420

Operating Expenses
Production, mineral and other taxes		48			44		4		4		-		-		55			48			5			4		0		0
Transportation and processing		121			79		213		212		-		-		113			121			224			213		42		62
Operating		139			115		26		37		-		4		129			139			28			26		7		2
Purchased product															0			0			0			0		604		398
Depreciation, depletion and amortization		418			274		109		92		-		-		208			418			93			109		0		0
Impairments		277			-		-		-		-		-		0			277			0			0		0		0
Total Operating Expenses		1,003			512		352		345		-		4		505			1,003			350			352		653		462
Operating Income (Loss)	$	(89	)	$	317	$	35	$	131	$	-	$	9	$	377		$	(89	)	$	205		$	35	$	1	$	(42	)

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

Revenues
Product and service revenues	$	419		$	326		$	-		$	-		$	1,570		$	1,572		$	0		$	0		$	2,247		$	1,570
Gains (losses) on risk management, net		1			-			904			(427	)		1,055			(355	)		(271	)		904			(427	)		1,055
Sublease revenues		-			-			18			18			18			18			18			18			18			18
Total Revenues		420			326			922			(409	)		2,643			1,235			(253	)		922			1,838			2,643

Operating Expenses
Production, mineral and other taxes		-			-			-			-			52			48			0			0			60			52
Transportation and processing		62			47			-			-			396			338			0			0			379			396
Operating		2			10			(2	)		(1	)		165			165			0			(2	)		164			165
Purchased product		398			298			-			-			398			298			0			0			604			398
Depreciation, depletion and amortization		-			-			7			11			534			377			7			7			308			534
Impairments		-			-			-			-			277			-			0			0			0			277
Accretion of asset retirement obligation		-			-			9			9			9			9			6			9			6			9
Administrative		-			-			53			227			53			227			122			53			122			53
Total Operating Expenses		462			355			67			246			1,884			1,462			135			67			1,643			1,884
Operating Income (Loss)	$	(42	)	$	(29	)	$	855		$	(655	)		759			(227	)	$	(388	)	$	855			195			759

Other (Income) Expenses
Interest														96			87									87			96
Foreign exchange (gain) loss, net														116			(37	)								(7	)		116
(Gain) loss on divestitures, net														-			1
Other (gains) losses, net														(14	)		28									(18	)		(14	)
Total Other (Income) Expenses														198			79									62			198
Net Earnings (Loss) Before Income Tax														561			(306	)								133			561
Income tax expense (recovery)														140			(61	)								(176	)		140
Net Earnings (Loss)													$	421		$	(245	)							$	309		$	421

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

	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	$	642	$	609	$	2	$	1	$	-	$	13	$	741	$	642	$	5	$	2	$	385	$	210
NGLs		86		97		179		204		-		-		158		86		256		179		15		2
Natural gas		72		76		172		255		-		-		123		72		317		172		241		205
Service revenues
Gathering and processing		-		1		-		-		-		-		0		0		1		0		5		0
Product and Service Revenues	$	800	$	783	$	353	$	460	$	-	$	13	$	1,022	$	800	$	579	$	353	$	646	$	417

	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	$	210	$	60	$	-	$	-	$	854	$	683	$	0	$	0	$	1,131	$	854
NGLs		2		3		-		-		267		304		0		0		429		267
Natural gas		205		253		-		-		449		584		0		0		681		449
Service revenues
Gathering and processing		-		-		-		-		-		1		0		0		6		0
Product and Service Revenues	$	417	$	316	$	-	$	-	$	1,570	$	1,572	$	0	$	0	$	2,247	$	1,570

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 March 31, ~~2020,~~2021, receivables and accrued revenues from contracts with customers were ~~$693~~$997 million ($~~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 March 31, ~~2020.~~2021.

As at March 31, ~~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, ~~Ovitniv~~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.

	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2020		2019		2021		2020

Interest Expense on:
Debt	$	89	$	82	$	84	$	89
Finance leases		3		3		2		3
Other		4		2		1		4
	$	96	$	87	$	87	$	96

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020

Unrealized Foreign Exchange (Gain) Loss on:
Translation of U.S. dollar financing debt issued from Canada	$	76		$	(93	)	$	1		$	76
Translation of U.S. dollar risk management contracts issued from Canada		52			(11	)		1			52
Translation of intercompany notes		(27	)		79			0			(27	)
		101			(25	)		2			101
Foreign Exchange on Settlements of:
U.S. dollar financing debt issued from Canada		17			(1	)		(6	)		17
U.S. dollar risk management contracts issued from Canada		3			-			(7	)		3
Intercompany notes		3			(12	)		0			3
Other Monetary Revaluations		(8	)		1			4			(8	)
	$	116		$	(37	)	$	(7	)	$	116

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.

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020

Current Tax
United States	$	-		$	1
Canada		-			-		$	(156	)	$	0
Other Countries		-			-
Total Current Tax Expense (Recovery)		-			1			(156	)		0

Deferred Tax
United States		128			(24	)		0			128
Canada		10			(38	)		(20	)		10
Other Countries		2			-			0			2
Total Deferred Tax Expense (Recovery)		140			(62	)		(20	)		140
Income Tax Expense (Recovery)	$	140		$	(61	)	$	(176	)	$	140
Effective Tax Rate		25.0	%		19.9	%		(132.3	%)		25.0	%

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, 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.~~transactions, which can produce interim effective tax rate fluctuations.

During the three months ended March 31, 2021, the current income tax 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, and recognition of $12 million in interest income in other (gains) losses. During the three months ended March 31, 2021, the deferred tax recovery was primarily due to the reduction in valuation allowances recorded relating to current year net earnings before tax and from the resolution of prior year tax items. During the three months ended March 31, 2020, the deferred tax expense was primarily due to net earnings before income tax in the period. ~~During~~

The effective tax rate of (132.3) percent for the three months ended March 31, ~~2019,~~2021 is lower than the ~~deferred~~U.S. federal statutory tax ~~recovery was~~rate of 21 percent primarily due to athe resolution of certain tax items relating to prior taxation years and the reduction in valuation allowances recorded relating to current year earnings net ~~loss~~earnings before ~~income tax in the period.~~

~~Following the U.S. Domestication as described in Note 1, the applicable statutory rate became the U.S. federal income tax rate.~~tax. The effective tax rate of 25.0 percent for the three months ended March 31, 2020 iswas higher than the U.S. federal statutory tax rate of 21 percent primarily due to state taxes and foreign jurisdictional tax rates relative to the U.S. federal statutory tax rate applied to jurisdictional earnings.

The effective tax rate of 19.9 percent for the three months ended March 31, 2019, was lower than the Canadian statutory tax rate of 27 percent primarily due to the impact of the foreign jurisdictional tax rates relative to the Canadian statutory tax rate applied to jurisdictional earnings and partnership tax allocations in excess of funding.

~~During the three months ended March 31, 2020 and 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 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.

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 was outstanding. For the three months ended March 31, 2019, transaction costs of approximately $31 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.

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.

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.

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 $69 million and severance payments made to employees which totaled $113 million for the three months ended March 31, 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 months ended March 31, 2020 include the results from Newfield.

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020

Acquisitions
USA Operations	$	17		$	22		$	1		$	17
Total Acquisitions		17			22			1			17

Divestitures
USA Operations		(21	)		(3	)		(1	)		(21	)
Canadian Operations		(1	)		1			(1	)		(1	)
Total Divestitures		(22	)		(2	)		(2	)		(22	)
Net Acquisitions & (Divestitures)	$	(5	)	$	20		$	(1	)	$	(5	)

For the three months ended March 31, 2020, acquisitions in the USA Operations were $17 million, which primarily included property purchases with oil and liquids rich potential. ~~For the three months ended March 31, 2019, acquisitions in the USA Operations were $22 million which primarily included seismic purchases.~~

For the three months ended March 31, 2020, divestitures in the USA ~~and Canadian~~ Operations were $21 million, ~~and $1 million, respectively,~~ which primarily included the sale of certain properties that did not complement Ovintiv’s existing portfolio of assets.

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

	As at March 31, 2020							As at December 31, 2019							As at March 31, 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	$	36,731	$	(26,320	)	$	10,411	$	35,870	$	(25,623	)	$	10,247	$	38,287	$	(32,789	)	$	5,498	$	37,875	$	(32,581	)	$	5,294
Unproved properties		3,260		-			3,260		3,491		-			3,491		2,642		0			2,642		2,785		0			2,785
Other		25		-			25		19		-			19		24		0			24		24		0			24
		40,016		(26,320	)		13,696		39,380		(25,623	)		13,757		40,953		(32,789	)		8,164		40,684		(32,581	)		8,103

Canadian Operations
Proved properties		14,172		(13,215	)		957		15,284		(14,320	)		964		16,316		(15,339	)		977		16,008		(15,056	)		952
Unproved properties		200		-			200		223		-			223		165		0			165		177		0			177
Other		16		-			16		18		-			18		10		0			10		13		0			13
		14,388		(13,215	)		1,173		15,525		(14,320	)		1,205		16,491		(15,339	)		1,152		16,198		(15,056	)		1,142

Market Optimization		8		(6	)		2		9		(7	)		2		7		(7	)		0		9		(7	)		2
Corporate & Other		852		(643	)		209		914		(687	)		227		874		(676	)		198		865		(662	)		203
	$	55,264	$	(40,184	)	$	15,080	$	55,828	$	(40,637	)	$	15,191	$	58,325	$	(48,811	)	$	9,514	$	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 ~~$47~~$40 million, which have been capitalized during the three months ended March 31, ~~2020 (2019~~2021 (2020 - ~~$79~~$47 million).

For the three months ended March 31, ~~2020, the Company recognized before-tax non-cash~~2021, Ovintiv did 0t recognize a ceiling test ~~impairments of $277 million (2019 - nil)~~impairment in the USA ~~Operations.~~Operations (2020 - $277 million before tax) or Canadian Operations (2020 - nil). The non-cash ceiling test impairment recognized in the USA Operations in 2020 is included with accumulated DD&A in the table above and primarily resulted from the decline in the 12-month average trailing prices related to NGLs and natural gas, which reduced proved reserves values.

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⁾
March 31, 2021									$	40.01	$	49.68	$	2.16	$	2.36
December 31, 2020										39.62		49.77		1.98		2.13
March 31, 2020	$	56.06	$	70.32	$	2.30	$	1.48		56.06		70.32		2.30		1.48
December 31, 2019		55.93		68.80		2.58		1.76
March 31, 2019		62.99		75.86		3.07		1.69

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 March 31, 2020, the total carrying value of assets under finance lease was $36 million ($37 million as at December 31, 2019), net of accumulated amortization of $639 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.

The following table outlines ~~the Company’s~~Ovintiv’s estimated future sublease income as at March 31, ~~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	$	35	$	48	$	43	$	42	$	42	$	511	$	721	$	39	$	48	$	47	$	46	$	47	$	528	$	755

For the three months ended March 31, ~~2020,~~2021, operating lease income was $13 million ~~(2019~~(2020 - $13 million), and variable lease income was $5 million ~~(2019~~(2020 - $3$5 million).

	As at			As at			As at			As at
	March 31,			December 31,			March 31,			December 31,
	2020			2019			2021			2020

U.S. Dollar Denominated Debt
Revolving credit and term loan borrowings	$	842		$	698		$	490		$	950
U.S. Unsecured Notes:
3.90% due November 15, 2021		590			600			518			518
5.75% due January 30, 2022		660			750			600			600
5.625% due July 1, 2024		1,000			1,000			1,000			1,000
5.375% due January 1, 2026		700			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		505			505			488			488
5.15% due November 15, 2041		244			244			203			203
Total Principal		6,903			6,859			6,349			6,809

Increase in Value of Debt Acquired		140			149			103			111
Unamortized Debt Discounts and Issuance Costs		(37	)		(34	)		(34	)		(35	)
Total Long-Term Debt	$	7,006		$	6,974		$	6,418		$	6,885

Current Portion	$	-		$	-		$	1,118		$	518
Long-Term Portion		7,006			6,974			5,300			6,367
	$	7,006		$	6,974		$	6,418		$	6,885

During the three months ended March 31, 2020, the Company repurchased in the open market approximately $10 million in principal amount of its 3.9 percent senior notes due in November 2021 and approximately $90 million in principal amount of its 5.75 percent senior notes due in January 2022 for an aggregate cash payment of $89 million, plus accrued interest, and recognized a net gain of approximately $11 million which was included in other (gains) losses, net on the Condensed Consolidated Statement of Earnings.

As at March 31, ~~2020,~~2021, the Company had outstanding commercial paper of ~~$357~~$490 million maturing at various dates with a weighted average interest rate of approximately ~~2.00~~1.03 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 March 31, 2020, the Company also had $485 million drawn on its revolving credit facilities.~~

As at March 31, ~~2020,~~2021, total long-term debt had a carrying value of ~~$7,006~~$6,418 million and a fair value of ~~$4,005~~$7,206 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.

During the three months ended March 31, 2020, the Company repurchased in the open market approximately $100 million in principal amount of its senior notes. The aggregate cash payments related to the note repurchases were $89 million, plus accrued interest, and net gains of approximately $11 million, were recognized in other (gains) losses, net on the Condensed Consolidated Statement of Earnings.

	As at		As at		As at		As at
	March 31,		December 31,		March 31,		December 31,
	2020		2019		2021		2020

Finance Lease Obligations	$	99	$	121	$	38	$	39
Unrecognized Tax Benefits		146		159
Unrecognized Tax Benefits (Note 6)						0		158
Pensions and Other Post-Employment Benefits		118		119		126		129
Long-Term Incentive Costs (See Note 19)		4		38
Other Derivative Contracts (See Notes 21, 22)		19		7
Long-Term Incentive Costs (See Note 16)						11		9
Other Derivative Contracts (See Notes 18, 19)						5		7
Other		16		20		16		16
	$	402	$	464	$	196	$	358

~~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.

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.

On June 10, 2019, the Company announced its intention to purchase, for cancellation, up to $213 million 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.

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, pursuant to a NCIB over a 12-month period from March 4, 2019 to March 3, 2020.

During the three months ended March 31, 2019, the Company purchased the equivalent of approximately 11.2 million post-Share Consolidation shares under the NCIB for total consideration of approximately $400 million. Of the amount paid, $307 million was charged to share capital and $93 million was charged to retained earnings.

For 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.

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.

During the three months ended March 31, ~~2020,~~2021, the Company declared and paid dividends of $0.09375 per share of Ovintiv common stock totaling $24 ~~million. For the three months ended March 31, 2019, the Company declared and paid dividends of~~million (2020 - $0.09375 per share of Ovintiv common ~~share on a post-Share Consolidation basis~~stock totaling ~~$28 million.~~$24 million).

On ~~May 7, 2020,~~April 28, 2021, the Board of Directors declared a dividend of $0.09375 per share of Ovintiv common stock payable on June 30, ~~2020~~2021 to stockholders of record as of June 15, ~~2020.~~2021.

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

	Three Months Ended					Three Months Ended
	March 31,					March 31,
(US$ millions, except per share amounts)	2020		2019			2021		2020

Net Earnings (Loss)	$	421	$	(245	)	$	309	$	421

Number of Shares of Common Stock ⁽¹⁾:
Number of Shares of Common Stock:
Weighted average shares of common stock outstanding - Basic		259.8		244.3			260.1		259.8
Effect of dilutive securities(1)		-		-			5.9		0
Weighted Average Shares of Common Stock Outstanding - Diluted		259.8		244.3			266.0		259.8

Net Earnings (Loss) per Share of Common Stock ⁽¹⁾
Basic & Diluted	$	1.62	$	(1.00	)
Basic						$	1.19	$	1.62
Diluted ⁽¹⁾							1.16		1.62

~~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.

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 reserved for issuance. These awards are included in the computation of diluted net earnings (loss) per share 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 March 31, 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 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.

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020

Foreign Currency Translation Adjustment
Balance, Beginning of Year	$	1,004		$	976		$	1,042		$	1,004
Change in Foreign Currency Translation Adjustment		(134	)		34			19			(134	)
Balance, End of Period	$	870		$	1,010		$	1,061		$	870

Pension and Other Post-Employment Benefit Plans
Balance, Beginning of Year	$	42		$	22		$	34		$	42

Amounts Reclassified from Other Comprehensive Income:
Reclassification of net actuarial (gains) and losses to net earnings (See Note 20)		(2	)		(1	)
Reclassification of net actuarial (gains) and losses to net earnings (See Note 17)								(1	)		(2	)
Income taxes		-			-			0			0
Balance, End of Period	$	40		$	21		$	33		$	40
Total Accumulated Other Comprehensive Income	$	910		$	1,031		$	1,094		$	910

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 March 31, ~~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 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 ~~$1,929~~$1,894 million as at March 31, ~~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 March 31, ~~2020,~~2021, accounts payable and accrued liabilities included ~~$0.4~~$0.3 million related to the take or pay commitment.

In ~~February 2019,~~June 2020, Ovintiv undertook a plan to reduce its workforce by approximately 25 percent as part of a company-wide reorganization in ~~conjunction with~~response to the ~~Newfield business combination as described in Note 8,~~low commodity price environment resulting from the ~~Company announced workforce reductions to better align staffing levels~~global pandemic and the ~~organizational structure with~~Company’s planned reductions in capital spending. During the ~~Company’s strategy. During 2019,~~three months ended March 31, 2021, the Company incurred ~~total~~ restructuring charges of ~~$138~~$6 million, before tax, ~~primarily~~ related to severance costs. AsOf the $96 million in restructuring charges incurred to date, $4 million remains accrued as at March 31, ~~2020, $2~~2021 ($14 million ~~remains~~as at December 31, 2020). The majority of the remaining amounts accrued ~~and is~~are expected to be paid in ~~2020.~~2021 and total transition and severance costs are expected to be approximately $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.

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.

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

As at March 31, 2020

As at March 31, 2019

As at March 31, 2021

As at March 31, 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

0.47%

1.49%

0.23%

0.47%

Dividend Yield

13.89%

13.07%

1.04%

1.03%

1.57%

1.58%

13.89%

13.07%

Expected Volatility Rate ⁽¹⁾

93.81%

93.42%

43.95%

41.92%

105.41%

104.44%

93.81%

93.42%

Expected Term

2.8 yrs

2.3 yrs

3.0 yrs

2.6 yrs

1.8 yrs

2.8 yrs

2.3 yrs

Market Share Price ⁽²⁾

US$2.70

C$3.86

US$36.20

C$48.40

US$23.82

C$29.97

US$2.70

C$3.86

Weighted Average Grant Date Fair Value

US$36.72

C$49.93

US$38.13

C$48.28

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020

Total Compensation Costs of Transactions Classified as Cash-Settled	$	(51	)	$	64		$	40		$	(51	)
Total Compensation Costs of Transactions Classified as Equity-Settled								11			0
Less: Total Share-Based Compensation Costs Capitalized		13			(18	)		(7	)		13
Total Share-Based Compensation Expense (Recovery)	$	(38	)	$	46		$	44		$	(38	)

Recognized on the Condensed Consolidated Statement of Earnings in:
Operating	$	(12	)	$	14		$	9		$	(12	)
Administrative		(26	)		32			35			(26	)
	$	(38	)	$	46		$	44		$	(38	)

As at March 31, ~~2020,~~2021, the liability for cash-settled share-based payment transactions totaled $8$51 million ($7834 million as at December 31, ~~2019)~~2020), of which $4$40 million ($4025 million as at December 31, ~~2019)~~2020) is recognized in accounts payable and accrued liabilities and $4$11 million ($389 million as at December 31, ~~2019)~~2020) is recognized in other liabilities and provisions in the Condensed Consolidated Balance Sheet.Additionally, paid in surplus includes $65 million ($71 million as at December 31, 2020) related to equity-settled share-based compensation plans.

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.~~

The Company has recognized total benefit plans expense which includes pension benefits and other post-employment benefits (“OPEB”) for the three months ended March 31 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	$	-	$	-	$	(1	)	$	6	$	(1	)	$	6	$	0	$	0	$	0	$	(1	)	$	0	$	(1	)
Defined Contribution Plan Expense		8		6		-			-		8			6		6		8		0		0			6		8
Total Benefit Plans Expense	$	8	$	6	$	(1	)	$	6	$	7		$	12	$	6	$	8	$	0	$	(1	)	$	6	$	7

Of the total benefit plans expense, $7$6 million ~~(2019~~(2020 - $6$7 million) was included in operating expense and $2$1 million ~~(2019~~(2020 - $2 million) was included in administrative expense. Excluding service costs, net defined periodic benefit gains of $2$1 million ~~(2019~~(2020 - ~~losses~~gains of $4$2 million) were recorded in other (gains) losses, net.

The net defined periodic benefit cost for the three months ended March 31 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	$	-		$	-		$	1		$	2		$	1		$	2		$	0		$	0		$	1		$	1		$	1		$	1
Interest Cost		2			2			-			1			2			3			1			2			0			0			1			2
Expected Return on Plan Assets		(2	)		(2	)		-			-			(2	)		(2	)		(1	)		(2	)		0			0			(1	)		(2	)
Amounts Reclassified from Accumulated Other Comprehensive Income:
Amortization of net actuarial (gains) and losses		-			-			(2	)		(1	)		(2	)		(1	)		0			0			(1	)		(2	)		(1	)		(2	)
Curtailment		-			-			-			4			-			4
Total Net Defined Periodic Benefit Cost ⁽¹⁾	$	-		$	-		$	(1	)	$	6		$	(1	)	$	6		$	0		$	0		$	0		$	(1	)	$	0		$	(1	)

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 March 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
As at March 31, 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	$	9	$	928	$	151	$	1,088	$	(130	)	$	958	$	0	$	62	$	0	$	62	$	(58	)	$	4
Long-term assets		-		5		-		5		(5	)		-		0		10		0		10		(5	)		5
Foreign Currency Derivatives:
Long-term assets		-		1		-		1		-			1
Current assets															0		24		0		24		(17	)		7

Risk Management Liabilities
Commodity Derivatives:
Current liabilities	$	-	$	137	$	-	$	137	$	(130	)	$	7	$	3	$	241	$	230	$	474	$	(58	)	$	416
Long-term liabilities		-		77		1		78		(5	)		73		0		111		0		111		(5	)		106
Foreign Currency Derivatives:
Current liabilities		-		33		-		33		-			33		0		0		0		0		(17	)		(17	)
Long-term liabilities		-		8		-		8		-			8

Other Derivative Contracts
Current in accounts payable and accrued liabilities	$	-	$	6	$	-	$	6	$	-		$	6	$	0	$	1	$	0	$	1	$	-		$	1
Long-term in other liabilities and provisions		-		19		-		19		-			19		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	$	-	$	202	$	-	$	202	$	(67	)	$	135	$	0	$	70	$	0	$	70	$	(59	)	$	11
Long-term assets		-		6		-		6		(4	)		2		0		7		0		7		(3	)		4
Foreign Currency Derivatives:
Current assets		-		13		-		13		-			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		-		61		11		72		(4	)		68		0		128		0		128		(3	)		125

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

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.

As at March 31, ~~2020,~~2021, the Company’s Level 3 risk management assets and liabilities consist of WTI three-way options and WTI costless collars ~~and WTI sold payer swaptions~~ with terms to 2021. 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 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:

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020

Balance, Beginning of Year	$	(52	)	$	139		$	(74	)	$	(52	)
Total Gains (Losses)		242			(100	)		(237	)		242
Purchases, Sales, Issuances and Settlements:
Purchases, sales and issuances		-			-			0			0
Settlements		(40	)		(20	)		81			(40	)
Transfers Out of Level 3		-			-			0			0
Balance, End of Period	$	150		$	19		$	(230	)	$	150
Change in Unrealized Gains (Losses) Related to Assets and Liabilities Held at End of Period	$	189		$	(80	)
Change in Unrealized Gains (Losses) During the Period Included in Net Earnings (Loss)							$	(156	)	$	202

Quantitative information about unobservable inputs used in Level 3 fair value measurements is presented below as at March 31, ~~2020:~~2021:

A 10 percent increase or decrease in implied volatility for the WTI options would cause an approximate corresponding $3$8 million ($86 million as at December 31, ~~2019)~~2020) increase or decrease to net risk management assets and liabilities.

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.

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.

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 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.

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 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 March 31, ~~2020,~~2021, the Company has entered into ~~$644~~$263 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 and $350 million notional U.S. dollar denominated currency swaps at an average exchange rate of US$0.7289 to C$1, which mature monthly throughout~~ 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	140.2 Mbbls/d	2020		45.36	$	625		33.3 Mbbls/d	2021		46.83	$	(102	)
Propane Fixed Price	12.0 Mbbls/d	2020		21.34		26		12.0 Mbbls/d	2021		25.78		(26	)
Butane Fixed Price	8.0 Mbbls/d	2020		23.54		18		5.0 Mbbls/d	2021		24.83		(17	)
Iso-Butane Fixed Price	3.5 Mbbls/d	2020		24.36		7

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

WTI Three-Way Options
Sold call / bought put / sold put	26.8 Mbbls/d	2020	61.68 / 53.44 / 43.44			60		83.4 Mbbls/d	2021	53.13 / 43.85 / 34.19			(175	)

WTI Costless Collars
Sold call / bought put	15.0 Mbbls/d	2020	68.71 / 50.00			91		15.0 Mbbls/d	2021	45.84 / 35.00			(55	)

Basis Contracts ⁽²⁾		2020				(32	)
Basis Contracts ⁽¹⁾									2021				(4	)

Other Crude Financial Positions						3							0
Crude Oil and NGLs Fair Value Position						797							(379	)

Natural Gas Contracts			US$/Mcf							US$/Mcf
Fixed Price Contracts
NYMEX Fixed Price	811 MMcf/d	2020		2.65		147		110 MMcf/d	2021		2.51		(8	)
NYMEX Fixed Price	165 MMcf/d	2021		2.51		1		100 MMcf/d	2022		2.60		(1	)

Fixed Price Swaptions ⁽³⁾
NYMEX Fixed Price Swaptions	330 MMcf/d	2021		2.56		(22	)
NYMEX Fixed Price Swaptions	165 MMcf/d	2022		2.51		(11	)
NYMEX Fixed Price Swaptions⁽²⁾								165 MMcf/d	2022		2.51		(18	)

NYMEX Three-Way Options
Sold call / bought put / sold put	330 MMcf/d	2020	2.72 / 2.60 / 2.25			19		1,033 MMcf/d	2021	3.36 / 2.88 / 2.50			42

NYMEX Costless Collars
Sold call / bought put	55 MMcf/d	2020	2.88 / 2.50			8		100 MMcf/d	2022	2.80 / 2.50			0

NYMEX Call Options
Sold call	230 MMcf/d	2020		3.25		4		330 MMcf/d	2022		2.38		(53	)

Basis Contracts ⁽⁴⁾		2020				(10	)
Basis Contracts ⁽³⁾									2021				(30	)
		2021				(18	)		2022				(31	)
		2022 - 2025				(33	)		2023 - 2025				(37	)

Other Financial Positions						3							2
Natural Gas Fair Value Position						88							(134	)

Net Premiums Received on Unexpired Options						(7	)

Other Derivative Contracts
Fair Value Position						(25	)						(6	)

Foreign Currency Contracts
Fair Value Position ⁽⁵⁾		2020 - 2021				(40	)
Total Fair Value Position and Net Premiums Received					$	813
Fair Value Position ⁽⁴⁾									2021				24
Total Fair Value Position												$	(495	)

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

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020

Realized Gains (Losses) on Risk Management
Commodity and Other Derivatives:
Revenues ⁽¹⁾	$	151		$	72		$	(156	)	$	151
Foreign Currency Derivatives:
Foreign exchange		(3	)		-			7			(3	)
	$	148		$	72		$	(149	)	$	148

Unrealized Gains (Losses) on Risk Management
Commodity and Other Derivatives:
Revenues ⁽²⁾	$	904		$	(427	)	$	(271	)	$	904
Foreign Currency Derivatives:
Foreign exchange		(52	)		20			(2	)		(52	)
	$	852		$	(407	)	$	(273	)	$	852

Total Realized and Unrealized Gains (Losses) on Risk Management, net
Commodity and Other Derivatives:
Revenues ^{(1) (2)}	$	1,055		$	(355	)	$	(427	)	$	1,055
Foreign Currency Derivatives:
Foreign exchange		(55	)		20			5			(55	)
	$	1,000		$	(335	)	$	(422	)	$	1,000

Reconciliation of Unrealized Risk Management Positions from January 1 to March 31

	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		1,000		$	1,000		$	(335	)		(422	)	$	(422	)	$	1,000
Settlement of Other Derivative Contracts		1									0
Amortization of Option Premiums During the Period		1
Fair Value of Contracts Realized During the Period		(148	)		(148	)		(72	)		149			149			(148	)
Fair Value of Contracts and Net Premiums Received, End of Period	$	813		$	852		$	(407	)
Fair Value of Contracts, End of Period										$	(495	)	$	(273	)	$	852

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.

	As at		As at			As at			As at
	March 31,		December 31,			March 31,			December 31,
	2020		2019			2021			2020

Risk Management Assets
Current	$	958	$	148		$	11		$	37
Long-term		1		2			5			4
		959		150			16			41

Risk Management Liabilities
Current		40		114			399			130
Long-term		81		68			106			125
		121		182			505			255

Other Derivative Contracts
Current in accounts payable and accrued liabilities		6		2			1			1
Long-term in other liabilities and provisions		19		7			5			7
Net Risk Management Assets (Liabilities) and Other Derivative Contracts	$	813	$	(41	)	$	(495	)	$	(222	)

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 March 31, 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 $96 million and $16 million, respectively, as disclosed in Note ~~21. As at March 31, 2020, the~~18. The Company had 0 significant credit derivatives in place and held 0 ~~collateral.~~collateral at March 31, 2021.

As at March 31, ~~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 March 31, ~~2020,~~2021, approximately 9792 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 March 31, 2020, Ovintiv had 2 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 21 percent and 17 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~~of less than four years with a fair value recognized of ~~$25~~$6 million as at March 31, ~~2020~~2021 ($98 million as at December 31, ~~2019)~~2020). The maximum potential amount of undiscounted future payments is $76 million as at March 31, 2021, and is considered unlikely.

~~maximum potential amount of undiscounted future payments is $118 million as at March 31, 2020, and is considered unlikely.~~

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

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020

Operating Activities
Accounts receivable and accrued revenues	$	121		$	174		$	(166	)	$	121
Accounts payable and accrued liabilities		(31	)		(88	)		122			(31	)
Current portion of operating lease liabilities		(1	)		67			5			(1	)
Income tax receivable and payable		(6	)		(35	)		(18	)		(6	)
	$	83		$	118		$	(57	)	$	83

The following table outlines the Company’s commitments as at March 31, ~~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	$	518	$	653	$	612	$	507	$	399	$	2,022	$	4,711	$	562	$	769	$	723	$	516	$	450	$	2,310	$	5,330
Drilling and Field Services		71		6		1		-		-		1		79		39		0		0		0		0		0		39
Building Leases		10		14		11		7		6		8		56		9		10		6		6		6		2		39
Total	$	599	$	673	$	624	$	514	$	405	$	2,031	$	4,846	$	610	$	779	$	729	$	522	$	456	$	2,312	$	5,408

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.

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.

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 March 31, ~~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:

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 value through a combination of profitable growth and generating cash flows. The Company is pursuing the key business objectives of preserving ~~balance sheet~~financial strength, maximizing profitability through operational and capital efficiencies, ~~returning capital to stockholders through~~paying sustainable dividends, and ~~driving~~generating cash ~~flow~~flows through a disciplined capital allocation strategy by investing in a limited number of core assets with high margin liquids. To support the Company’s business objectives, Ovintiv actively monitors and manages market volatility through the diversification of price risks, and market access risks to enhance returns and maintain a consistent cash flow stream. In conjunction with Ovintiv’s focus on preserving financial strength, the Company plans to allocate all excess cash flows to reduce its total long-term debt balance to $4.5 billion by the first half of 2022.

Ovintiv is also committed to delivering results in a socially and environmentally responsible manner. Thoughtfully developed best practices are deployed across its assets, allowing the Company to capitalize on operational efficiencies and decreasing emissions intensity. The Company’s annual Sustainability Report outlining its key metrics and progress achieved relating to environmental, social and governance practices can be found on the Company’s website.

In executing its strategy, Ovintiv focuses on its core values of One, Agile 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 sustainable~~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”. In response to the current low commodity price environment resulting predominantly from the global coronavirus (“COVID-19”) pandemic, coupled with excess oil production from Saudi Arabia and Russia, the Company has revised its capital program for the remainder of 2020 to focus on production from the Core Assets generating the highest returns and/or with the lowest costs, while choosing to cease operating rigs and shut-in production in certain areas. As at March 31, ~~2020,~~2021, the Core Assets comprised Permian and Anadarko in the U.S., and Montney in Canada. These ~~top tier assets~~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 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.

During the first quarter of ~~2020,~~2021, the Company focused on executing its ~~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 quarter of ~~2020~~2021 compared to ~~2019~~2020 resulted from ~~lower~~higher average realized prices, excluding the impact of risk management activities, partially offset by ~~higher~~lower total liquids production volumes. ~~Decreases~~Increases in average realized ~~liquids and~~ natural gas and liquids prices of 2781 percent and 3345 percent, respectively, were primarily due to ~~lower~~higher benchmark prices. Total liquids production volumes ~~increased~~decreased by 2211 percent compared to the first quarter of ~~2019~~2020 primarily due to lower activity resulting from the ~~Newfield acquisition,~~impacts of the pandemic which ~~was completed on February 13, 2019,~~commenced at the end of the first quarter of 2020 and impacts from ~~successful drilling programs.~~severe winter weather conditions in the USA Operations. Ovintiv continues to focus on optimizing realized prices from the diversification of the Company’s downstream markets.

The Company delivered significant cash from operating activities while reducing its total long-term debt balance. Cash from operating activities of $827 million included a net realized loss of $156 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 $467 million in the first quarter of 2021.

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

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

Oil prices during the midst of the global COVID-19 pandemic, Saudi Arabia and Russia failed to reach an agreement on production cuts, which intensified the oversupply of oil and contributed to a dramatic decline in oil prices. In April 2020, OPEC and a group of twenty nations (collectively, “OPEC+”) agreed to cut oil production to address the existing imbalance of global supply and demand. OPEC+ is expected to meet again in June to discuss additional measures that may need2021 will continue to be ~~taken to rebalance~~impacted by the ~~global oil market.~~

Global crude oil demand fell significantly as governments worldwide took action to contain the effects of the COVID-19 pandemic. Oil and product storage facilities are filling up at an unprecedented rate as supply materially exceeds demand. As the gap between supply and demand in oil markets has grown increasingly pronounced, the oil and gas industry has responded by reducing capital spending and implementing both coordinated and market-based supply shut-ins, leading to increased price volatility. The re-balancing of global supply and demand and the industry’s return to a more stable commodity price environment is highly dependent on the successful global containment of the ~~virus~~coronavirus (“COVID-19”), pace of economic recovery, OPEC+ production levels, and the ~~pace~~potential for higher U.S. production. The distribution of COVID-19 vaccines continues to drive economic ~~recovery.~~

~~With significant uncertainty amid a highly volatile market environment,~~optimism and oil demand as countries cautiously reopen their economies. Upward pressures on oil prices ~~for~~and the ~~remainder~~tightening of ~~2020 are expected to fluctuate depending on changes to~~global oil inventories during the first quarter were mainly caused by ongoing OPEC+ production cuts, ~~amongst OPEC+,~~ as well as severe winter weather conditions in Texas and Oklahoma in February, causing power outages and halting supply chains which impacted production volumes and natural gas prices. In March 2021, OPEC+ agreed to substantially extend current production cut levels to the end of April. In April, OPEC+ decided to adjust production levels for the months of May, June and July, allowing for gradual increases in production output. OPEC+ continues to meet regularly to review the state of global oil supply, demand and inventory levels.

Despite signs of economic recovery centered on the COVID-19 ~~pandemic response efforts~~vaccine rollouts and ~~actions taken~~OPEC+ production cuts, oil markets remain volatile. The emergence of COVID-19 variants, changes in consumption behavior and the gradual easing of OPEC+ oil production cuts are contributing to ~~stimulate the global economy.~~commodity market uncertainty.

Natural gas prices ~~in 2020 will be~~are primarily affected by structural changes in ~~both~~ supply and demand as well as deviations from seasonally normal weather. As a result of severe winter weather impacts in the U.S., demand increased while supply decreased in the first quarter of 2021. In combination, these factors contributed to increased drawdowns of natural gas inventory and ~~the effects of seasonal weather. Higher-than-average inventory levels and warmer than normal temperatures during the winter months continued to put downward pressure on U.S.~~generally supported natural gas prices ~~which remains volatile~~ in ~~Canada and~~ the ~~U.S. from additional demand concerns stemming from the COVID-19 pandemic.~~first quarter of 2021. Natural gas prices ~~could experience a modest recovery by the end of the second quarter of 2020 due to declines in North American oil production resulting from low oil prices and lower associated natural gas production.~~

Despite the current low commodity price environment, Ovintiv is well positioned to deliver on its updated capital plan while generating positive cash flows. In response to the rapid decline in crude oil prices witnessed in early March, the Company took immediate action to reduce its second quarter 2020 capital investments by $300 million. As the effects of the COVID-19 pandemic expanded globally and oil prices continued to decline through the latter half of March, the Company responded by reducing its second quarter capital plans by an additional $200 million, bringing total capital spending reductions to $500 million. Ovintiv has ceased operating ten drilling rigs and intends to cut an additional six rigs in May 2020. The Company will exercise discretion and disciplined capital allocation to adjust its capital spending beyond the second quarter as the current price environment evolves. As the Company expects the current price environment to remain dynamic and volatile in the near-term, the Company will also assess the option to shut-in low-margin production in certain resource plays in response to a prolonged period of low prices. Due to ongoing uncertainty and continued market volatility, the Company has suspended its previously issued 2020 guidance.

The Company enters into derivative financial instruments which mitigate price volatility and help sustain revenues, particularly during periods of lower prices. Accordingly, Ovintiv restructured its remaining 2020 crude oil hedges to provide additional downside price protection. As at April 30, 2020, the Company has hedged approximately 185.0 Mbbls/d, or 94 percent, of expected crude oil and condensate production and 1,196 MMcf/d, or 75 percent, of expected natural gas production for the remainder of 2021 are expected to be impacted by the ~~year. Additional information on Ovintiv’s hedging program can be found~~interplay between gas production and associated gas from oil production, as well as changes in ~~Note 22~~demand from the power generation sector and changes in exports levels of liquified natural gas.

The Company continues to exercise discretion and discipline to optimize capital allocation throughout 2021 as oil demand recovers and the ~~Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.~~commodity price environment evolves. Ovintiv pursues innovative ways to reduce upstream operating and administrative expense and expects to benefit from durable cost savings and efficiencies to 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 April 19, 2021, the Company has hedged approximately 131.7 Mbbls/d of expected crude oil and condensate production and 1,143 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~~market and regional pricing.

Additional information on Ovintiv’s hedging program can be found in Note 19 to the Consolidated Financial Statements included in Part I, Item 1 of ~~derivative financial instruments and transportation capacity, Ovintiv attempts to limit exposure to regional pricing.~~

In conjunction with the $500 million reduction in capital investment noted above, Ovintiv also announced its plans to reduce costs by $200 million, an increase over the previously announced $100 million in cost savings. The Company expects that operating costs will be reduced by approximately $115 million and approximately $85 million will come from other cost savings.this Quarterly Report on Form 10-Q.

~~During~~The Company has commenced its $1.5 billion 2021 capital investment program, the ~~first quarter of 2020, the Company spent $790 million,~~majority of which $242 million was directed to Permian with 32 net wells drilled, $235 million was directed to Anadarko with 37 net wells drilled and $155 million was directed to Montney with 28 net wells drilled. 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 quarter of 2021, the Company spent $350 million, of which $179 million was directed to Permian, $64 million was directed to Anadarko, $89 million was directed to Montney and ~~Duvernay. Ovintiv plans to fund~~ the remainder ~~of its 2020 capital investment using cash from operations, cash on hand and funds available from the Company’s credit facilities. As the Company monitors the global economic environment,~~was directed to other upstream assets. Ovintiv will continue to evaluate its capital ~~investment plans.~~investments 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 ~~maintain~~maximize cash flows while preserving the long-term value of the Company’s multi-basin portfolio.

Ovintiv is strategically positioned in the current economic environment to maintain a flat liquids production profile while generating cash flows in excess of capital expenditures. During the first quarter of ~~2020,~~2021, average liquids production volumes were ~~309.8~~275.6 Mbbls/d, or 5451 percent of total production volumes, and average oil and plant condensate production volumes were 197.9 Mbbls/d, or 72 percent of total liquids production volumes.Average natural gas production volumes were ~~1,569~~1,576 MMcf/d, or 4649 percent of total production volumes. ~~Full~~As a result of the recently announced divestitures, the Company updated its full year 2021 guidance for oil and plant condensate production volumes ~~are expected~~ to ~~reflect~~approximately 190.0 Mbbls/d from the ~~Company’s reduced capital investment plans~~original guidance of 200.0 Mbbls/d. The Company is on track to maintaining average other NGLs production volumes of approximately 80.0 Mbbls/d and ~~shut-in strategy, which are highly dependent on market conditions.~~natural gas production volumes of approximately 1,550 MMcf/d throughout 2021.

~~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.~~

In the first quarter of 2020, Total Costs was $12.17 per BOE and is expected to trend downward as activity levels decrease and significant cost saving measures are realized through operational flexibility in response to the low commodity price environment. Total Costs includes 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 costs and current expected credit losses. Upstream transportation and processing expense was $6.40 per BOE, while upstream operating expense and administrative expense, excluding long-term incentive costs, restructuring costs and current expected credit losses, were $3.34 per BOE and $1.42 per BOE, respectively. Ovintiv expects to continue pursuingpursue innovative ways to reduce upstream operating and administrative expenses and expects efficiency improvements and effective supply chain management to maximize cash flows.

For 2021, Ovintiv expects Total Costs of approximately $12.25 per BOE to $12.50 per BOE. Total Costs was $12.93 per BOE in the first quarter of 2021 which was higher than 2021 guidance, primarily due to a higher than expected change in the foreign exchange rates and higher production taxes resulting from higher than expected commodity prices. The Company expects Total Costs to trend downward for the remainder of the year. Total Costs is defined in the Non-GAAP Measures section of this MD&A.

~~The remaining full year cost savings are expected to include reductions to cash outflows and other expenses, such as interest expense. Following~~liquidity position. Since the ~~open market repurchase~~second quarter of ~~$100~~2020, the Company has allocated $948 million in ~~principal of Ovintiv’s fixed rate senior notes,~~excess cash flows to reduce its total long-term debt balance. The proceeds from the recently announced divestitures will also be allocated towards its total long-term debt reduction target. The Company expects its total long-term debt balance to ~~incur~~be $4.5 billion by the first half of 2022. The Company expects lower interest expense ~~of approximately $3 million on an annualized basis~~ as ~~a result of reduced~~it reaches its total long-term debt ~~balances and approximately $13 million resulting from lower expected average interest rates on the Company’s Credit Facilities.~~

reduction target. 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 current 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, such as deferred income tax assets. Additional information on Ovintiv’s 2021 Corporate Guidance can be accessed on the Company’s ~~ceiling test impairment~~website at www.ovintiv.com.

Ovintiv recognizes the importance of reducing its environmental footprint and voluntarily participates in emission reduction programs. The Company has targeted a 33 percent reduction in methane intensity to be achieved by the end of 2025 and this target has been tied to its annual incentive compensation program for all employees beginning in 2021.

On February 17, 2021, the Company announced enhanced corporate governance, compensation and environmental initiatives to further align with its corporate approach on delivering strong business outcomes and shareholder returns. The initiatives incentivize continuous improvement and value-creation throughout the Company. Reflecting its commitment to diversity and inclusion, the Board adopted a Diversity in Board Recruitment Policy, which requires that diverse candidates be identified and included in the Board’s director search processes. The 2021 executive compensation program incorporates updated debt reduction targets and peer group metrics related to long-term incentives and performance programs. In addition, a methane emissions intensity target was added as noted above.

Additional information on Ovintiv’s environmental, social and governance practices can be found in Ovintiv’s annual Sustainability Report on the ~~Results of Operations section of this MD&A.~~Company’s website.

	Three months ended March 31,						Three months ended March 31,
($ millions)		2020		2019 ⁽¹⁾				2021			2020

Product and Service Revenues
Upstream product revenues		$	1,151	$	1,245			$	1,594		$	1,151
Market optimization			419	326					652			419
Service revenues(1)			-	1					1			-
Total Product and Service Revenues			1,570		1,572				2,247			1,570

Gains (Losses) on Risk Management, Net			1,055		(355	)			(427	)		1,055
Sublease Revenues			18		18				18			18
Total Revenues			2,643		1,235				1,838			2,643

Total Operating Expenses⁽²⁾			1,884		1,462				1,643			1,884
Operating Income (Loss)			759		(227	)			195			759
Total Other (Income) Expenses			198		79				62			198
Net Earnings (Loss) Before Income Tax			561		(306	)			133			561
Income Tax Expense (Recovery)			140		(61	)			(176	)		140

Net Earnings (Loss)		$	421	$	(245	)		$	309		$	421

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.

	Three months ended March 31,				Three months ended March 31,
(average for the period)	2020		2019		2021		2020

Oil & NGLs
WTI ($/bbl)	$	46.17	$	54.90	$	57.84	$	46.17
Houston ($/bbl)		49.48		60.82		59.36		49.48
Edmonton Condensate (C$/bbl)		61.73		67.21		73.48		61.73

Natural Gas
NYMEX ($/MMBtu)	$	1.95	$	3.15	$	2.69	$	1.95
AECO (C$/Mcf)		2.14		1.94		2.93		2.14
Dawn (C$/MMBtu)		2.39		3.85		3.98		2.39

	Three months ended March 31,									Three months ended March 31,
	Production Volumes ⁽¹⁾				Realized Prices ⁽²⁾					Production Volumes ⁽¹⁾					Realized Prices ⁽²⁾
	2020		2019			2020		2019		2021			2020			2021		2020

Oil (Mbbls/d, $/bbl)
USA Operations		161.7		123.2		$	43.49	$	54.42		145.6			161.7		$	56.32	$	43.49
Canadian Operations		0.8		0.3			38.95		37.31		0.9			0.8			52.84		38.95
China Operations ⁽³⁾		-		2.3			-		65.62
Total		162.5		125.8			43.47		54.57		146.5			162.5			56.30		43.47

NGLs – Plant Condensate (Mbbls/d, $/bbl)
USA Operations		11.0		6.2			34.54		43.62		9.7			11.0			51.14		34.54
Canadian Operations		41.7		38.7			43.99		49.61		41.7			41.7			57.24		43.99
Total		52.7		44.9			42.02		48.79		51.4			52.7			56.09		42.02

NGLs – Other (Mbbls/d, $/bbl)
USA Operations		77.5		44.6			7.33		17.81		61.0			77.5			20.56		7.33
Canadian Operations		17.1		16.1			6.97		20.11		16.7			17.1			26.79		6.97
Total		94.6		60.7			7.27		18.41		77.7			94.6			21.90		7.27

Total Oil & NGLs (Mbbls/d, $/bbl)
USA Operations		250.2		174.0			31.90		44.64		216.3			250.2			45.99		31.90
Canadian Operations		59.6		55.1			33.29		40.95		59.3			59.6			48.62		33.29
China Operations ⁽³⁾		-		2.3			-		65.62
Total		309.8		231.4			32.16		43.97		275.6			309.8			46.56		32.16

Natural Gas (MMcf/d, $/Mcf)
USA Operations		568		367			1.41		2.31		459			568			2.98		1.41
Canadian Operations		1,001		1,054			1.86		2.60		1,117			1,001			3.12		1.86
Total		1,569		1,421			1.70		2.53		1,576			1,569			3.08		1.70

Total Production (MBOE/d, $/BOE)
USA Operations		344.8		235.2			25.46		36.63		292.8			344.8			38.66		25.46
Canadian Operations		226.5		230.7			16.98		21.67		245.5			226.5			25.92		16.98
China Operations ⁽³⁾		-		2.3			-		65.62
Total		571.3		468.2			22.10		29.39		538.3			571.3			32.85		22.10

Production Mix (%)
Oil & Plant Condensate		38		36							37			38
NGLs – Other		16		13							14			16
Total Oil & NGLs		54		49							51			54
Natural Gas		46		51							49			46

Production Growth – Year Over Year (%) ⁽⁴⁾
Production Change
Year Over Year (%) ⁽³⁾
Total Oil & NGLs		34		59							(11	)		34
Natural Gas		10		32							-			10
Total Production		22		44							(6	)		22

Core Assets Production
Oil (Mbbls/d)		111.2		83.2							101.6			111.2
NGLs – Plant Condensate (Mbbls/d)		46.2		37.9							47.6			46.2
NGLs – Other (Mbbls/d)		83.6		51.7							69.2			83.6
Total Oil & NGLs (Mbbls/d)		241.0		172.8							218.4			241.0
Natural Gas (MMcf/d)		1,405		1,210							1,433			1,405
Total Production (MBOE/d)		475.3		374.4							457.2			475.3
% of Total Production		83		80							85			83

	Three months ended March 31,															Three months ended March 31,

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

2019 Upstream Product Revenues ⁽¹⁾	$	618		$	198		$	100		$	323		$	1,239
2020 Upstream Product Revenues⁽¹⁾																$	643		$	201		$	63		$	244	$	1,151
Increase (decrease) due to:
Sales prices		(155	)		(33	)		(96	)		(116	)		(400	)		171			64			101			191		527
Production volumes		180			36			59			37			312			(71	)		(6	)		(11	)		2		(86	)
2020 Upstream Product Revenues	$	643		$	201		$	63		$	244		$	1,151
2021 Upstream Product Revenues																$	743		$	259		$	153		$	437	$	1,592

Oil revenues increased ~~$25~~$100 million compared to the first quarter of ~~2019~~2020 primarily due to:

NGL revenues increased $148 million compared to the first quarter of 2020 primarily due to:

~~NGL revenues decreased $34 million compared to the first quarter of 2019 primarily due to:~~

Natural gas revenues ~~decreased $79~~increased $193 million compared to the first quarter of ~~2019~~2020 primarily due to:

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 March 31, ~~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 March 31,					Three months ended March 31,
($ millions)	2020		2019			2021			2020

Realized Gains (Losses) on Risk Management
Commodity Price ⁽¹⁾
Oil	$	82	$	31		$	(117	)	$	82
NGLs - Plant Condensate		23		12			(25	)		23
NGLs - Other		5		11			(19	)		5
Natural Gas		39		16			3			39
Other ⁽²⁾		2		2			2			2
Total		151		72			(156	)		151

Unrealized Gains (Losses) on Risk Management		904		(427	)		(271	)		904
Total Gains (Losses) on Risk Management, Net	$	1,055	$	(355	)	$	(427	)	$	1,055

	Three months ended March 31,					Three months ended March 31,
(Per-unit)	2020		2019			2021			2020

Realized Gains (Losses) on Risk Management
Commodity Price ⁽¹⁾
Oil ($/bbl)	$	5.52	$	2.77		$	(8.86	)	$	5.52
NGLs - Plant Condensate ($/bbl)	$	4.78	$	2.92		$	(5.44	)	$	4.78
NGLs - Other ($/bbl)	$	0.62	$	2.12		$	(2.76	)	$	0.62
Natural Gas ($/Mcf)	$	0.27	$	0.13		$	0.02		$	0.27
Total ($/BOE)	$	2.86	$	1.68		$	(3.27	)	$	2.86

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.

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 March 31,				Three months ended March 31,
($ millions)	2020		2019		2021		2020

Market Optimization	$	419	$	326	$	652	$	419

Market Optimization product revenues increased ~~$93~~$233 million compared to the first quarter of ~~2019~~2020 primarily due to:

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.

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.

	$ millions				$/BOE				$ millions				$/BOE
Three months ended March 31,	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	48	$	44	$	1.55	$	2.08	$	55	$	48	$	2.09	$	1.55
Canadian Operations		4		4	$	0.19	$	0.18		5		4	$	0.21	$	0.19
Total	$	52	$	48	$	1.01	$	1.14	$	60	$	52	$	1.23	$	1.01

Production, mineral and other taxes increased $4$8 million compared to the first quarter of ~~2019~~2020 primarily due to:

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.

	$ millions				$/BOE				$ millions				$/BOE
Three months ended March 31,	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	121	$	79	$	3.84	$	3.74	$	113	$	121	$	4.31	$	3.84
Canadian Operations		213		212	$	10.29	$	10.20		224		213	$	10.12	$	10.29
Upstream Transportation and Processing		334		291	$	6.40	$	6.90		337		334	$	6.96	$	6.40

Market Optimization		62		47						42		62
Total	$	396	$	338					$	379	$	396

Transportation and processing expense ~~increased $58~~decreased $17 million compared to the first quarter of ~~2019~~2020 primarily due to:

Upstream transportation and processing decreased $0.50 per BOE compared to the first quarter of 2019 primarily due to a higher proportion of total production volumes in the USA Operations resulting from the Newfield acquisition, which benefit from lower than average per BOE transportation and processing costs.

Operating expense includes costs paid by the Company, net of amounts capitalized, ~~to operate~~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.

	$ millions							$/BOE				$ millions					$/BOE
Three months ended March 31,	2020			2019			2020			2019		2021		2020			2021		2020

USA Operations	$	139		$	115		$		4.42	$	5.44	$	129	$	139		$	4.89	$	4.42
Canadian Operations		26			37		$		1.26	$	1.80		28		26		$	1.23	$	1.26
China Operations ⁽¹⁾		-			4		$		-	$	17.93
Upstream Operating Expense ⁽²⁾		165			156		$		3.17	$	3.70
Upstream Operating Expense ⁽¹⁾													157		165		$	3.22	$	3.17

Market Optimization		2			10								7		2
Corporate & Other		(2	)		(1	)							-		(2	)
Total	$	165		$	165							$	164	$	165

Operating expense ~~was unchanged~~decreased $1 million compared to the first quarter of ~~2019. Impacts to operating expense in the first quarter of~~ 2020 ~~compared to 2019 include:~~primarily due to:

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 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 March 31,					Three months ended March 31,
($ millions)		2020		2019			2021		2020

Market Optimization		$	398	$	298		$	604	$	398

Purchased product expense increased ~~$100~~$206 million compared to the first quarter of ~~2019~~2020 primarily due to:

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.

	$ millions				$/BOE				$ millions				$/BOE
Three months ended March 31,	2020		2019		2020		2019		2021		2020		2021		2020

USA Operations	$	418	$	274	$	13.30	$	12.96	$	208	$	418	$	7.88	$	13.30
Canadian Operations		109		92	$	5.28	$	4.42		93		109	$	4.23	$	5.28
Upstream DD&A		527		366	$	10.12	$	8.73		301		527	$	6.22	$	10.12

Corporate & Other		7		11						7		7
Total	$	534	$	377					$	308	$	534

DD&A ~~increased $157~~decreased $226 million compared to the first quarter of ~~2019~~2020 primarily due to:

The depletion rate in the ~~Canadian and~~ USA Operations ~~increased $0.86~~decreased $5.42 per BOE, ~~and $0.34 per BOE, respectively,~~ compared to the first quarter of ~~2019~~2020 primarily due to ~~higher capital spending~~the ceiling test impairments recognized in ~~Anadarko and Montney, and higher transfers~~2020, resulting in a lower depletable base. The depletion rate in the Canadian Operations decreased $1.05 per BOE, compared to the first quarter of ~~unproved property costs, partially offset by higher reserves volumes.~~2020 primarily due to a lower depletable base.

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 first quarter of ~~2020,~~2021, the Company ~~recognized a before-tax non-cash~~did not recognize ceiling test ~~impairment of~~impairments (2020 - $277 million, before tax, in the USA ~~Operations.~~Operations). The non-cash ceiling test ~~impairment~~impairments in 2020 primarily resulted from the decline in the 12-month average trailing prices, ~~related to NGLs and natural gas,~~ which reduced proved ~~reserves values.~~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⁾
March 31, 2021										40.01		49.68		2.16		2.36
December 31, 2020										39.62		49.77		1.98		2.13
March 31, 2020		56.06		70.32		2.30		1.48		56.06		70.32		2.30		1.48
December 31, 2019		55.93		68.80		2.58		1.76
March 31, 2019		62.99		75.86		3.07		1.69

Due to the recent 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 three months ended March 31, 2020. Using commodity futures prices as at March 31, 2020 for the three months ending June 30, 2020, the estimated 12-month average trailing prices for the period ended March 31, 2020 would have been $47.36

per bbl for WTI, C$58.15 per bbl for Edmonton Condensate, $2.08 per MMBtu for Henry Hub and C$1.64 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 $3.7 billion for the USA Operations would have been recognized for the three months ended March 31, 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 a 13 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 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 ~~10 to the Consolidated Financial Statements included in~~ ~~Part I, Item 1 of this Quarterly Report on Form 10-Q~~.

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

Administrative expense in the first quarter of 2020 decreased $174 million compared to the first quarter of 2019 primarily due to restructuring costs incurred in 2019 ($113 million) and a recovery of long-term incentive costs resulting from a decrease in the Company’s share price in the first quarter of 2020 compared to long-term incentive costs resulting from an increase in the share price in the first quarter of 2019 ($58 million).

During 2019, the Company completed workforce reductions in conjunction with the Newfield acquisition to better align staffing levels and the organizational structure. Additional information on restructuring charges can be found in Note 188 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

Administrative expense in the first quarter of 2021 increased $69 million compared to the first quarter of 2020 primarily due to higher long-term incentive costs resulting from an increase in Ovintiv’s share price in the first quarter of 2021 compared to a decrease in 2020 ($61 million), higher consulting costs ($7 million), and restructuring costs related to workforce reductions ($6 million).

During 2020, the Company completed workforce reductions as part of a company-wide reorganization in response to the low commodity price environment resulting from the global pandemic and the Company’s planned reductions in capital spending. Additional information on restructuring charges can be found in Note 15 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

	Three months ended March 31,						Three months ended March 31,
($ millions)	2020			2019			2021			2020

Interest	$	96		$	87		$	87		$	96
Foreign exchange (gain) loss, net		116			(37	)		(7	)		116
(Gain) loss on divestitures, net		-			1
Other (gains) losses, net		(14	)		28			(18	)		(14	)
Total Other (Income) Expenses	$	198		$	79		$	62		$	198

Interest expense primarily includes interest on Ovintiv’s long-term ~~debt arising from U.S. dollar denominated unsecured notes.~~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.

Interest expense ~~increased~~decreased $9 million compared to the first quarter of ~~2019~~2020 primarily due ~~to:~~to interest savings related to open market repurchases of long-term debt completed in 2020 ($5 million).

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.

InNet foreign exchange gain of $7 million compared to a loss of $116 million in the first quarter of 2020 ~~Ovintiv recorded a net foreign exchange loss of $116 million compared to a gain in 2019 of $37 million~~ primarily due to:

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 quarter of 2021 primarily includes interest income of $12 million associated with the resolution of prior year tax items.

Other gains in the first quarter of 2020 primarily includes a gain of $11 million 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 quarter of 2019 primarily included legal fees and transaction costs related to the Newfield acquisition of $31 million, partially offset by interest income on short-term investments of $6 million.

	Three months ended March 31,					Three months ended March 31,
($ millions)	2020		2019			2021			2020

Current Income Tax Expense (Recovery)	$	-	$	1		$	(156	)	$	-
Deferred Income Tax Expense (Recovery)		140		(62	)		(20	)		140
Income Tax Expense (Recovery)	$	140	$	(61	)	$	(176	)	$	140

Effective Tax Rate	25.0%		19.9%			(132.3%		)	25.0%

In the first quarter of ~~2020,~~2021, Ovintiv recorded an income tax recovery of $176 million compared to an income tax expense of $140 million ~~compared to an income tax recovery of $61 million~~ in ~~2019,~~2020, primarily due to the resolution of certain tax items relating to prior taxation years and the reduction in valuation allowances resulting from current year net earnings ~~of $561 million~~ before ~~income tax in the first quarter of 2020, compared to a net loss before income tax of $306 million in 2019.~~tax.

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 ~~primarily~~ impacted by expected annual earnings, changes in valuation allowances, 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.~~transactions, which can produce interim effective tax rate fluctuations.

~~Following the U.S. Domestication as described~~The Company’s effective tax rate was (132.3) percent in the ~~Highlights section~~first 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 resolution of certain tax items relating to prior taxation years and the reduction in valuation allowances recorded relating to current year net earnings before tax.

The Company’s effective tax rate of 25 percent in the first quarter of 2020, is higher than the U.S. ~~federal~~ statutory tax rate of 21 percent primarily due to state taxes and foreign jurisdictional tax rates relative to the U.S. federal statutory tax rate applied to jurisdictional earnings.

During the three months ended March 31, 2020 and 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 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 that the capital loss can be utilized at a future date, a reduction in the valuation allowance will be recorded.

Ovintiv is evaluating the various stimulus and fiscal measures announced in the U.S. and Canada in response to the COVID-19 pandemic, including the U.S. Coronavirus Aid, Relief and Economic Security (CARES) Act and the Canada Emergency Wage Subsidy (CEWS) legislation. The tax impacts from these measures are currently not expected to be material on the Company’s tax or 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.

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 March 31, 2020, $65 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. Ovintiv has a practice of maintaining capital discipline and strategically managing its capital structure by adjusting capital spending, adjusting dividends paid to ~~shareholders,~~stockholders, issuing new shares of common stock, purchasing shares of common stock for cancellation, issuing new debt and repaying or repurchasing existing debt.

	As at March 31,					As at March 31,
($ millions, except as indicated)	2020			2019		2021			2020

Cash and Cash Equivalents	$	82		$	479	$	9		$	82
Available Credit Facilities ⁽¹⁾		3,515			4,000		4,000			3,515
Available Uncommitted Demand Lines ⁽²⁾		190			183		279			190
Issuance of U.S. Commercial Paper		(357	)		-		(490	)		(357	)
Total Liquidity	$	3,430		$	4,662	$	3,798		$	3,430

Long-Term Debt, including current portion⁽³⁾	$	7,006		$	6,799	$	6,418		$	7,006
Total Shareholders’ Equity⁽⁴⁾	$	10,191		$	10,360	$	4,134		$	10,191

Debt to Capitalization (%) ⁽⁵⁾⁽⁴⁾		41			40		61			41
Debt to Adjusted Capitalization (%) ⁽⁶⁾⁽⁵⁾		28			27		35			28

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. These facilities mature~~subsidiary, both maturing in July ~~2024, and are fully revolving up to maturity.~~2024. The Credit Facilities provide financial flexibility and allow the Company to fund its operations ~~development activities~~ or capital ~~programs.~~program. At March 31, ~~2020, $335 million and $150 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 quarter of 2020, as a result of the recent economic downturn from the COVID-19 pandemic~~Ovintiv currently has both investment and ~~falling oil prices, Ovintiv received updates to its~~non-investment grade credit ~~ratings. Ovintiv remains investment grade which reflects the Company’s strong liquidity position within a volatile~~ratings and ~~low commodity price environment. Ovintiv~~ has full access to its Credit Facilities and the credit rating updates have not impacted the Company’s ability to fund its operations, development activities or its reduced capital program. While Ovintiv currently maintains an investment grade credit rating, further reductionsU.S. CP programs. Reductions in the Company’s credit ratings could increase the cost of short-term borrowings on the existing Credit Facilities or other sources of ~~liquidity. A~~

~~prolonged period of low commodity prices~~liquidity and ~~the global impact of the COVID-19 pandemic, could impact~~limit access to the Company’s ~~credit ratings in the future.~~

~~As at March 31, 2020, the Company had $357 million of~~ commercial paper outstanding under its U.S. CP programs with an average remaining term of approximately 11 days and a weighted average interest rate of approximately 2.00 percent, which is supported by the Company’s Credit Facilities. Ovintiv’s access to its U.S. CP programs is market-driven and in the current low commodity price environment, market access is not available. As the Company’s outstanding commercial paper comes due in the second quarter of 2020, it is expected to be repaid using advances from the Company’s Credit Facilities. program.

Depending on the Company’s credit rating and market demand, the Company may ~~regain access to~~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 March 31, 2021, the Company had approximately $490 million of commercial paper outstanding under its U.S. CP programs with an average remaining term of approximately 45 days and a weighted average interest rate of approximately 1.03 percent, which is supported by the Company’s Credit Facilities.

The Credit Facilities, ~~and~~ uncommitted demand lines, ~~together with~~and cash and cash equivalents ~~less any outstanding commercial paper,~~ provide Ovintiv with total liquidity of ~~$3.4~~approximately $3.8 billion. At March 31, ~~2020,~~2021, Ovintiv also had approximately ~~$123~~$61 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~~Reductions in the Company’s credit ratings could trigger additional collateral requirements to support existing agreements and such amounts could be material.

~~In the first quarter 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 March 31, ~~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 March 31, ~~2020,~~2021, the Company’s Debt to Adjusted Capitalization was 2835 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.

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

		Three months ended March 31,							Three months ended March 31,
($ millions)	Activity Type	2020			2019			Activity Type	2021			2020

Sources of Cash, Cash Equivalents and Restricted Cash
Cash from operating activities	Operating	$	566		$	529		Operating	$	827		$	566
Proceeds from divestitures	Investing		22			2		Investing		2			22
Corporate acquisition, net of cash and restricted cash acquired	Investing		-			94
Net issuance of revolving long-term debt	Financing		144			-		Financing		-			144
Other	Investing		130			54		Investing		28			130
			862			679				857			862

Uses of Cash and Cash Equivalents
Capital expenditures	Investing		790			736		Investing		350			790
Acquisitions	Investing		17			22		Investing		1			17
Net repayment of revolving long-term debt								Financing		460			-
Repayment of long-term debt ⁽¹⁾	Financing		89			-		Financing		-			89
Purchase of shares of common stock	Financing		-			400
Dividends on shares of common stock	Financing		24			28		Financing		24			24
Other	Financing		22			20		Financing		23			22
			942			1,206				858			942
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		(7	)		3		Foreign Exchange Gain (Loss) on Cash, Cash Equivalents and Restricted Cash Held in Foreign Currency		-			(7	)
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	$	(87	)	$	(524	)	Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	$	(1	)	$	(87	)

~~Cash~~Net cash from operating activities in the first quarter of ~~2020~~2021 was ~~$566~~$827 million and was primarily a reflection of the impacts from ~~lower~~higher average realized commodity prices, partially offset by ~~increases in production volumes, the Newfield acquisition,~~ 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 first quarter of ~~2020~~2021 was ~~$535~~$890 million 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.

Net cash from operating activities increased ~~$37~~$261 million compared to the first quarter of ~~2019~~2020 primarily due to:

Cash used in investing activities in the first quarter of ~~2020~~2021 was ~~$655~~$321 million primarily due to capital expenditures. Capital expenditures ~~increased $54~~decreased $440 million compared to the first quarter of ~~2019~~2020 due to the ~~timing of the~~ Company’s reduced capital program ~~including higher capital expenditures relating~~in response to the ~~Anadarko asset acquired~~volatile market conditions in ~~the Newfield acquisition ($88 million).~~

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

Acquisitions in the first quarter of ~~2020~~2021 were $1 million (2020 - $17 ~~million,~~million), which primarily included property purchases with ~~liquids-rich~~oil and liquids rich potential. ~~Acquisitions in the first quarter of 2019 were $22 million which primarily included seismic purchases.~~

Divestitures in the first quarter of ~~2020 and 2019~~2021 were ~~$22 million and~~ $2 million ~~respectively,~~(2020 - $22 million), which primarily included the sale of certain properties that did not complement Ovintiv’s existing portfolio of 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.

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

Net cash ~~from~~used in financing activities in the first quarter of ~~2020~~2021 was $9$507 million compared to net cash ~~used~~from financing activities of ~~$448~~$9 million in ~~2019.~~2020. The change was primarily due to ~~the purchase of common shares under~~ a ~~NCIB ($400 million) in the first quarter of 2019 as discussed in more detail below and the~~ net ~~issuance~~repayment of revolving long-term debt in ~~the first quarter of~~2021 ($460 million) compared to a net issuance in 2020 ($144 million), partially offset by ~~the~~ open market ~~repurchase~~repurchases of long-term debt in ~~the first quarter of~~ 2020 ($89 million) 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 quarter of 2020, the Company repurchased, in the open market, approximately $90 million in principal amount of its 5.75 percent senior notes due January 2022 and approximately $10 million in principal amount of its 3.90 percent senior notes due in November 2021 for an aggregate cash payment of $89 million, plus accrued interest, and recognized a net gain of approximately $11 million. The Company utilized cash on hand and cash from implementing cost savings initiatives to complete these open market repurchases.

The Company’s long-term debt, including the current portion of $1,118 million, totaled ~~$7,006~~$6,418 million at March 31, ~~2020 and $6,974 million~~2021. The Company’s long-term debt at December 31, ~~2019. There was no~~2020 totaled $6,885 million, which included the current portion ~~outstanding~~of $518 million. As at March 31, ~~2020 or December 31, 2019. Ovintiv has no long-term debt maturities until November~~ 2021, ~~and, as at March 31, 2020,~~ over 80 percent of the Company’s fixed rate long-term debt is not due until 2024 and beyond. Since the second quarter of 2020, the Company has allocated $948 million in excess cash flows to reduce its total long-term debt balance. The proceeds from the recently announced divestitures will also be allocated towards its total long-term debt reduction target. The Company expects its total long-term debt balance to be $4.5 billion by the first half of 2022. Total long-term debt includes revolving credit facilities and commercial paper balances. For additional information on long-term debt, refer to Note 1210 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

Dividends paid in the first quarter of 2020 decreased $4 million compared to the first quarter of 2019 due to common shares purchased, for cancellation, under the Company’s substantial issuer bid and NCIB programs.

On ~~May 7, 2020,~~April 28, 2021, the Board of Directors declared a dividend of $0.09375 per share of ~~Ovintiv~~ common stock payable on June 30, ~~2020~~2021 to common stockholders of record as of June 15, ~~2020.~~2021.

In the first quarter of 2019, the Company used cash on hand of approximately $400 million to purchase, for cancellation, approximately 55.9 million common shares, on a pre-Share Consolidation basis or approximately 11.2 million common shares on a post-Share Consolidation basis. For additional information on 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.

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.

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.

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 and Net Debt to Adjusted EBITDA. Management’s use of these measures is discussed further below.

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 March 31,						Three months ended March 31,
($ millions, except as indicated)	2020			2019			2021			2020

Cash From (Used in) Operating Activities	$	566		$	529		$	827		$	566
(Add back) deduct:
Net change in other assets and liabilities		(52	)		(11	)		(6	)		(52	)
Net change in non-cash working capital		83			118			(57	)		83
Current tax on sale of assets		-			-			-			-
Non-GAAP Cash Flow ⁽¹⁾	$	535		$	422		$	890		$	535
Divided by:
Production Volumes (MMBOE)		52.0			42.1			48.4			52.0
Non-GAAP Cash Flow Margin ($/BOE)	$	10.29		$	10.02		$	18.39		$	10.29

Total Costs is a non-GAAP measure ~~defined as~~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~~long-term incentive costs, restructuring 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 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 March 31,					Three months ended March 31,
($ millions, except as indicated)	2020			2019		2021		2020

Production, Mineral and Other Taxes	$	52		$	48
Upstream Transportation and Processing		334			291
Upstream Operating		165			156
Administrative		53			227
Total Operating Expenses						$	1,643	$	1,884
Deduct (add back):
Market optimization operating expenses							653		462
Corporate & other operating expenses							-		(2	)
Depreciation, depletion and amortization							308		534
Impairments							-		277
Accretion of asset retirement obligation							6		9
Long-term incentive costs		(35	)		41		42		(35	)
Restructuring costs		-			113		6		-
Current expected credit losses		5			-		-		5
Total Costs	$	634		$	568	$	628	$	634
Divided by:
Production Volumes (MMBOE)		52.0			42.1		48.4		52.0
Total Costs ($/BOE) ⁽¹⁾	$	12.17		$	13.44	$	12.93	$	12.17

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)	March 31, 2020		December 31, 2019		March 31, 2021		December 31, 2020

Long-Term Debt, including current portion	$	7,006	$	6,974	$	6,418	$	6,885
Total Shareholders’ Equity		10,191		9,930		4,134		3,837
Equity Adjustment for Impairments at December 31, 2011		7,746		7,746		7,746		7,746
Adjusted Capitalization	$	24,943	$	24,650	$	18,298	$	18,468
Debt to Adjusted Capitalization	28%		28%		35%		37%

Net Debt to Adjusted EBITDA is a non-GAAP measure 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)	March 31, 2020			December 31, 2019			March 31, 2021			December 31, 2020

Long-Term Debt, including current portion	$	7,006		$	6,974		$	6,418		$	6,885
Less:
Cash and cash equivalents		82			190			9			10
Net Debt		6,924			6,784			6,409			6,875

Net Earnings		900			234
Net Earnings (Loss)								(6,209	)		(6,097	)
Add back (deduct):
Depreciation, depletion and amortization		2,172			2,015			1,608			1,834
Impairments		277			-			5,303			5,580
Accretion of asset retirement obligation		37			37			26			29
Interest		391			382			362			371
Unrealized (gains) losses on risk management		(601	)		730			1,379			204
Foreign exchange (gain) loss, net		34			(119	)		(106	)		17
(Gain) loss on divestitures, net		(4	)		(3	)		-			-
Other (gains) losses, net		(19	)		23			(59	)		(55	)
Income tax expense (recovery)		282			81			51			367
Adjusted EBITDA (trailing 12-month) ⁽¹⁾	$	3,469		$	3,380		$	2,355		$	2,250
Net Debt to Adjusted EBITDA (times)		2.0			2.0			2.7			3.1

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 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:

	March 31, 2020					March 31, 2021
(US$ millions)	10% Price Increase			10% Price Decrease		10% Price Increase			10% Price Decrease
Crude oil price	$	(131	)	$	128	$	(188	)	$	174
NGL price		(9	)		9		(16	)		16
Natural gas price		(68	)		58		(94	)		77

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~~period in ~~2019.~~2020.

	$ millions			$/BOE			$ millions		$/BOE
Increase (Decrease) in:
Capital Investment	$	(2	)				$	9
Transportation and Processing Expense ⁽¹⁾		(2	)	$	(0.04	)		12	$	0.26
Operating Expense ⁽¹⁾		(1	)		(0.01	)		1		0.03
Administrative Expense		(2	)		(0.03	)		2		0.03
Depreciation, Depletion and Amortization ⁽¹⁾		(1	)		(0.02	)		7		0.14

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

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 March 31, ~~2020,~~2021, Ovintiv has entered into ~~$644~~$263 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 and $350 million notional U.S. dollar denominated currency swaps at an average exchange rate of US$0.7289 to C$1, which mature monthly throughout~~ 2021.

As at March 31, ~~2020,~~2021, Ovintiv had ~~$225 million in U.S. dollar long-term debt and $140~~$55 million in U.S. dollar 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:

March 31, 2020

March 31, 2021

(US$ millions)

10% Rate

Increase

10% Rate

Decrease

10% Rate

Increase

10% Rate

Decrease

Foreign currency exchange

(18

)

(18

)

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 March 31, ~~2020, the Company~~2021, Ovintiv had floating rate revolving credit and term loan borrowings of ~~$842~~$490 million. Accordingly, on a before-tax basis, the sensitivity ~~in net earnings~~ for each one percent change in interest rates on floating rate revolving credit and term loan borrowings was $7$5 million.

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 March 31, ~~2020.~~2021.

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

Please 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.

~~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 factor 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, along with actions taken by members of OPEC and other oil exporting nations in response, 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.

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.

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


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

	PART I

Item 1.	Financial Statements	6
	Condensed Consolidated Statement of Earnings	6
	Condensed Consolidated Statement of Comprehensive Income	6
	Condensed Consolidated Balance Sheet	7
	Condensed Consolidated Statement of Changes in Shareholders’ Equity	8
	Condensed Consolidated Statement of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3532
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5955
Item 4.	Controls and Procedures	6157

	PART II

Item 1.	Legal Proceedings	6258
Item 1A.	Risk Factors	6258
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6358
Item 3.	Defaults Upon Senior Securities	6358
Item 4.	Mine Safety Disclosures	6358
Item 5.	Other Information	6358
Item 6.	Exhibits	6358
Signatures		6459

For the year ended December 31, 2019	United States		Canada		Total

Acquisition Costs ⁽¹⁾
Unproved	$	843	$	-	$	843
Proved		5,963		-		5,963
Total Acquisition Costs		6,806		-		6,806
Exploration Costs		5		-		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


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


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

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐


Number of registrant’s shares of common stock outstanding as of ~~May 1, 2020~~April 23, 2021			~~259,821,141~~261,043,793

						Market Optimization
	Marketing Sales					Upstream Eliminations						Total
For the three months ended March 31,	2021		2020			2021			2020			2021		2020

Revenues	$	2,168	$	2,095		$	(1,514	)	$	(1,675	)	$	654	$	420

Operating Expenses
Transportation and processing		137		168			(95	)		(106	)		42		62
Operating		7		2			0			0			7		2
Purchased product		2,023		1,967			(1,419	)		(1,569	)		604		398
Operating Income (Loss)	$	1	$	(42	)	$	0		$	0		$	1	$	(42	)

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

USA Operations	$	1,938		$	1,938	$	8,164		$	8,103	$	10,808		$	10,646
Canadian Operations		695			687		1,152			1,142		2,123			2,031
Market Optimization		0			0		0			2		223			233
Corporate & Other		0			0		198			203		1,380			1,559
	$	2,633		$	2,625	$	9,514		$	9,450	$	14,534		$	14,469

For the three months ended March 31 (US$ millions, except per share amounts)	2019

Revenues	$	1,515
Net Earnings (Loss)	$	(117	)

Net Earnings (Loss) per Share ⁽¹⁾
Basic & Diluted	$	(0.48	)

	As at March 31, 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		-		-			(39.4	)		(1,073	)
Shares of Common Stock Issued		-		-			108.7			3,478
Reclassification of Share Capital due to the Reorganization (See Note 1)		-		(7,058	)		-			-
Shares of Common Stock Outstanding, End of Period		259.8	$	3			259.8		$	7,061

	As at March 31, 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)		1.2		0		0		0
Reclassification of Share Capital		-		0		-		(7,058	)
Shares of Common Stock Outstanding, End of Period		261.0	$	3		259.8	$	3

	As at March 31, 2020			As at December 31, 2019

Liability for Cash-Settled Share-Based Payment Transactions:
Unvested		$	7		$	65
Vested			1			13
		$	8		$	78

Three Months Ended March 31, ~~2020~~2021 (thousands of units)

RSUs			~~6,350~~2,614
PSUs			~~2,166~~844
DSUs			428

	Valuation Technique	Unobservable Input	Range	Weighted Average ⁽¹⁾

Risk Management - WTI Options	Option Model	Implied Volatility	~~35%~~36% - ~~86%~~87%	~~63%~~47%

Exhibit No		Description
10.1*4.1		~~First Amendment to the Encana (USA) Deferred Compensation Plan amended and restated effective April 1, 2018,~~Seventh Supplemental Indenture, dated as of ~~January 24, 2020.~~
10.2*		April 26, 2021, among Ovintiv Exploration Inc. (formerly Newfield Exploration Company), as issuer, Ovintiv Inc., as existing guarantor and successor issuer, Ovintiv Canada ULC, as existing guarantor, and U.S. ~~Retirement Plan amended and restated effective January 27, 2020.~~
10.3*		~~Offer of employment dated June 10, 2013.~~Bank National Association (as successor trustee to Wachovia Bank, National Association (Formerly First Union National Bank)), as trustee (incorporated by reference to Exhibit 4.1 to Ovintiv’s Current Report on Form 8-K filed on April 28, 2021, SEC File No. 001-39191).
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 March 31, ~~2020,~~2021, has been formatted in Inline XBRL.

Ovintiv Inc.

By:	/s/ Corey D. Code

	Name:	Corey D. Code
	Title:	Executive Vice-President & Chief Financial Officer