Encana : Consolidated Financial Statements for the period ended March 31, 2020

PART I

Item 1. Financial Statements

Condensed Consolidated Statement of Earnings (unaudited)

			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.

Condensed Consolidated Statement of Comprehensive Income (unaudited)

			Three Months Ended
			March 31,
(US$ millions)			2020			2019
Net Earnings (Loss)		$	421		$	(245 )
Other Comprehensive Income (Loss), Net of Tax
Foreign currency translation adjustment	(Note 16)		(134	)		34
Pension and other post-employment benefit plans	(Notes 16, 20)		(2	)		(1 )
Other Comprehensive Income (Loss)			(136	)		33
Comprehensive Income (Loss)		$	285		$	(212 )

See accompanying Notes to Condensed Consolidated Financial Statements

1

Condensed Consolidated Balance Sheet (unaudited)

			As at		As at
			March 31,		December 31,
(US$ millions)			2020			2019
Assets
Current Assets
Cash and cash equivalents		$	82		$	190
Accounts receivable and accrued revenues (net of allowances
of $11 million (2019: $3 million)			918			1,235
Risk management	(Notes 21, 22)		958			148
Income tax receivable			283			296
			2,241			1,869
Property, Plant and Equipment, at cost:	(Note 10)
Oil and natural gas properties, based on full cost accounting
Proved properties			50,952			51,210
Unproved properties			3,460			3,714
Other			852			904
Property, plant and equipment			55,264			55,828
Less: Accumulated depreciation, depletion and amortization			(40,184	)		(40,637 )
Property, plant and equipment, net	(Note 3)		15,080			15,191
Other Assets	(Note 3)		1,088			1,213
Risk Management	(Notes 21, 22)		1			2
Deferred Income Taxes			540			601
Goodwill	(Notes 3, 8)		2,555			2,611
	(Note 3)	$	21,505		$	21,487

Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities	$	2,049	$	2,239
Current portion of operating lease liabilities		70		78
Income tax payable		1		1
Risk management	(Notes 21, 22)	40		114
		2,160		2,432
Long-Term Debt	(Note 12)	7,006		6,974
Operating Lease Liabilities		883		977
Other Liabilities and Provisions	(Note 13)	402		464

Risk Management	(Notes 21, 22)			81		68
Asset Retirement Obligation	(Note 14)			438		425
Deferred Income Taxes				344		217
				11,314		11,557
Commitments and Contingencies	(Note 24)
Shareholders' Equity
Share capital - authorized 775 million shares of common stock
2020 issued and outstanding: 259.8 million shares (2019: 259.8 million shares)	(Note 15)			3		7,061
Paid in surplus	(Note 15)			8,460		1,402
Retained earnings				818		421
Accumulated other comprehensive income	(Note 16)			910		1,046
Total Shareholders' Equity				10,191		9,930
			$	21,505	$	21,487

See accompanying Notes to Condensed Consolidated Financial Statements

2

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

															Accumulated
															Other			Total
				Share			Paid in			Retained		Comprehensive		Shareholders'
Three Months Ended March 31, 2020 (US$ millions)				Capital			Surplus			Earnings			Income			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
															Accumulated
															Other			Total
				Share			Paid in			Retained		Comprehensive		Shareholders'
Three Months Ended March 31, 2019 (US$ millions)				Capital			Surplus			Earnings			Income			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

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

See accompanying Notes to Condensed Consolidated Financial Statements

3

Condensed Consolidated Statement of Cash Flows (unaudited)

			Three Months Ended
			March 31,
(US$ millions)			2020			2019
Operating Activities
Net earnings (loss)		$	421		$	(245 )
Depreciation, depletion and amortization			534			377
Impairments	(Note 10)		277			-
Accretion of asset retirement obligation	(Note 14)		9			9
Deferred income taxes	(Note 7)		140			(62 )
Unrealized (gain) loss on risk management	(Note 22)		(904	)		427
Unrealized foreign exchange (gain) loss	(Note 6)		101			(25 )
Foreign exchange on settlements	(Note 6)		20			(13 )
(Gain) loss on divestitures, net			-			1
Other			(63	)		(47 )
Net change in other assets and liabilities			(52	)		(11 )
Net change in non-cash working capital	(Note 23)		83			118
Cash From (Used in) Operating Activities			566			529
Investing Activities
Capital expenditures	(Note 3)		(790	)		(736 )
Acquisitions	(Note 9)		(17	)		(22 )
Corporate acquisition, net of cash and restricted cash acquired	(Note 8)		-			94
Proceeds from divestitures	(Note 9)		22			2
Net change in investments and other			130			54
Cash From (Used in) Investing Activities			(655	)		(608 )
Financing Activities
Net issuance (repayment) of revolving long-term debt	(Note 12)		144			-
Repayment of long-term debt	(Note 12)		(89	)		-
Purchase of shares of common stock	(Note 15)		-			(400 )
Dividends on shares of common stock	(Note 15)		(24	)		(28 )
Finance lease payments and other financing arrangements			(22	)		(20 )
Cash From (Used in) Financing Activities			9			(448 )
Foreign Exchange Gain (Loss) on Cash, Cash Equivalents
and Restricted Cash Held in Foreign Currency			(7	)		3
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash			(87	)		(524 )
Cash, Cash Equivalents and Restricted Cash, Beginning of Year			190			1,058
Cash, Cash Equivalents and Restricted Cash, End of Period		$	103		$	534
Cash, End of Period		$	35		$	66
Cash Equivalents, End of Period			47			413
Restricted Cash, End of Period (1)			21			55
Cash, Cash Equivalents and Restricted Cash, End of Period		$	103		$	534

1. Restricted cash of $21 million is included in accounts receivable and accrued revenues on the Condensed Consolidated Balance Sheet as at March 31, 2020. The amount, currently held in escrow, relates to accrued and unpaid interest on certain senior notes and will be paid to bondholders on scheduled interest payment dates during the three months ended June 30, 2020.

See accompanying Notes to Condensed Consolidated Financial Statements

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1. Basis of Presentation and Principles of Consolidation

On January 24, 2020, Encana Corporation ("Encana") completed a corporate reorganization, which included a plan of arrangement (the "Arrangement") that involved, among other things, a share consolidation by Encana on the basis of one post- consolidation share for each five pre-consolidation shares (the "Share Consolidation"), and Ovintiv Inc. ultimately acquired all of the issued and outstanding common shares of Encana in exchange for shares of common stock of Ovintiv Inc. on a one-for- one basis. Following completion of the Arrangement, Ovintiv Inc. migrated from Canada and became a Delaware corporation, domiciled in the U.S. (the "U.S. Domestication"). The Arrangement and the U.S. Domestication together are referred to as the "Reorganization". 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.

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, which are included in Item 8 of Ovintiv's 2019 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.

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.

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2. Recent Accounting Pronouncements

Changes in Accounting Policies and Practices

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

• ASU2017-04, "Simplifying the Test for Goodwill Impairment". The amendment eliminates the second step of the goodwill impairment test which requires the Company to measure the impairment based on the excess amount of the carrying value of the reporting unit's goodwill over the implied fair value of its goodwill. Under this amendment, the goodwill impairment will be measured based on the excess amount of the reporting unit's carrying value over its respective fair value. The amendment has been applied prospectively.
• ASU2016-13, "Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments" under
  Topic 326. The standard amends the impairment model which requires utilizing a forward-looking expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables. The standard requires entities to consider a broader range of information to estimate expected credit losses, resulting in earlier recognition of credit losses. The standard has been applied using the modified retrospective approach.

3. Segmented Information

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

• USA Operationsincludes the exploration for, development of, and production of oil, NGLs and natural gas and other related activities within the U.S. cost center.
• Canadian Operationsincludes the exploration for, development of, and production of oil, NGLs and natural gas and other related activities within the Canadian cost center.
• China Operationsincluded the exploration for, development of, and production of oil and other related activities within the China cost center. Effective July 31, 2019, the production sharing contract with China National Offshore Oil Corporation ("CNOOC") was terminated and the Company exited its China Operations.
• Market Optimizationis primarily responsible for the sale of the Company's proprietary production. These results are reported in the USA and Canadian Operations. Market optimization activities include third-party purchases and sales of product to provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. These activities are reflected in the Market Optimization segment. Market Optimization sells substantially all of the Company's upstream production to third-party customers. Transactions between segments are based on market values and are eliminated on consolidation.

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

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Results of Operations (For the three months ended March 31)

Segment and Geographic Information

		USA Operations			Canadian Operations		China Operations (1)
		2020			2019		2020			2019		2020			2019
Revenues
Product and service revenues	$	800		$	777	$	351		$	456	$	-		$	13
Gains (losses) on risk management, net		114			52		36			20		-			-
Sublease revenues		-			-		-			-		-			-
Total Revenues		914			829		387			476		-			13
Operating Expenses
Production, mineral and other taxes		48			44		4			4		-			-
Transportation and processing		121			79		213			212		-			-
Operating		139			115		26			37		-			4
Depreciation, depletion and amortization		418			274		109			92		-			-
Impairments		277			-		-			-		-			-
Total Operating Expenses		1,003			512		352			345		-			4
Operating Income (Loss)	$	(89	)	$	317	$	35		$	131	$	-		$	9
		Market Optimization		Corporate & Other		Consolidated
		2020			2019		2020			2019		2020			2019
Revenues
Product and service revenues	$	419		$	326	$	-		$	-	$	1,570		$	1,572
Gains (losses) on risk management, net		1			-		904			(427 )		1,055			(355 )
Sublease revenues		-			-		18			18		18			18
Total Revenues		420			326		922			(409 )		2,643			1,235
Operating Expenses
Production, mineral and other taxes		-			-		-			-		52			48
Transportation and processing		62			47		-			-		396			338
Operating		2			10		(2	)		(1 )		165			165
Purchased product		398			298		-			-		398			298
Depreciation, depletion and amortization		-			-		7			11		534			377
Impairments		-			-		-			-		277			-
Accretion of asset retirement obligation		-			-		9			9		9			9
Administrative		-			-		53			227		53			227
Total Operating Expenses		462			355		67			246		1,884			1,462
Operating Income (Loss)	$	(42	)	$	(29 )	$	855		$	(655 )		759			(227 )
Other (Income) Expenses
Interest												96			87
Foreign exchange (gain) loss, net												116			(37 )
(Gain) loss on divestitures, net												-			1
Other (gains) losses, net												(14	)		28
Total Other (Income) Expenses												198			79
Net Earnings (Loss) Before Income Tax												561			(306 )
Income tax expense (recovery)												140			(61 )
Net Earnings (Loss)											$	421		$	(245 )

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

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Intersegment Information

							Market Optimization
		Marketing Sales			Upstream Eliminations		Total
For the three months ended March 31,		2020			2019		2020			2019		2020			2019
Revenues	$	2,095		$	1,236	$	(1,675	)	$	(910 )	$	420		$	326
Operating Expenses
Transportation and processing		168			139		(106	)		(92 )		62			47
Operating		2			10		-			-		2			10
Purchased product		1,967			1,116		(1,569	)		(818 )		398			298
Operating Income (Loss)	$	(42	)	$	(29 )	$	-		$	-	$	(42	)	$	(29 )

Capital Expenditures

		Three Months Ended
		March 31,
		2020		2019
USA Operations	$	628	$	577
Canadian Operations		161		157
Corporate & Other		1		2
	$	790	$	736

Costs Incurred

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

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

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

		Goodwill		Property, Plant and Equipment		Total Assets
		As at			As at			As at
		March 31,	December 31,		March 31,	December 31,		March 31,	December 31,
		2020			2019		2020			2019		2020			2019
USA Operations	$	1,938		$	1,938	$	13,696		$	13,757	$	16,229		$	16,613
Canadian Operations		617			673		1,173			1,205		1,949			2,122
Market Optimization		-			-		2			2		272			253
Corporate & Other		-			-		209			227		3,055			2,499
	$	2,555		$	2,611	$	15,080		$	15,191	$	21,505		$	21,487

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4. Revenues from Contracts with Customers

The following tables summarize the Company's revenues from contracts with customers.

Revenues (For the three months ended March 31)

		USA Operations			Canadian Operations		China Operations (1)
		2020		2019		2020		2019		2020		2019
Revenues from Customers
Product revenues (2)
Oil	$	642	$	609	$	2	$	1	$	-	$	13
NGLs		86		97		179		204		-		-
Natural gas		72		76		172		255		-		-
Service revenues
Gathering and processing		-		1		-		-		-		-
Product and Service Revenues	$	800	$	783	$	353	$	460	$	-	$	13
		Market Optimization		Corporate & Other		Consolidated
		2020		2019		2020		2019		2020		2019
Revenues from Customers
Product revenues (2)
Oil	$	210	$	60	$	-	$	-	$	854	$	683
NGLs		2		3		-		-		267		304
Natural gas		205		253		-		-		449		584
Service revenues
Gathering and processing		-		-		-		-		-		1
Product and Service Revenues	$	417	$	316	$	-	$	-	$	1,570	$	1,572

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

The Company's revenues from contracts with customers consists of product sales including oil, NGLs and natural gas, as well as the provision of gathering and processing services to third parties. The Company had no contract asset or liability balances during the periods presented. As at March 31, 2020, receivables and accrued revenues from contracts with customers were $693 million ($1,095 million as at December 31, 2019).

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 no unsatisfied performance obligations remaining at March 31, 2020.

As at March 31, 2020, 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 does not disclose unsatisfied performance obligations for customer contracts with terms less than 12 months or for variable consideration related to unsatisfied performance obligations.

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5. Interest

		Three Months Ended
		March 31,
		2020		2019
Interest Expense on:
Debt	$	89	$	82
Finance leases		3		3
Other		4		2
	$	96	$	87

6.	Foreign Exchange (Gain) Loss, Net
				Three Months Ended
				March 31,
				2020			2019
	Unrealized Foreign Exchange (Gain) Loss on:
		Translation of U.S. dollar financing debt issued from Canada	$	76		$	(93 )
		Translation of U.S. dollar risk management contracts issued from Canada		52			(11 )
		Translation of intercompany notes		(27	)		79
				101			(25 )
	Foreign Exchange on Settlements of:
		U.S. dollar financing debt issued from Canada		17			(1 )
		U.S. dollar risk management contracts issued from Canada		3			-
		Intercompany notes		3			(12 )
	Other Monetary Revaluations		(8	)		1
			$	116		$	(37 )

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

7.	Income Taxes
				Three Months Ended
				March 31,
				2020			2019
	Current Tax
		United States	$	-		$	1
		Canada		-			-
		Other Countries		-			-
	Total Current Tax Expense (Recovery)		-			1
	Deferred Tax
		United States		128			(24 )
		Canada		10			(38 )
		Other Countries		2			-
	Total Deferred Tax Expense (Recovery)		140			(62 )
	Income Tax Expense (Recovery)	$	140		$	(61 )
	Effective Tax Rate		25.0	%		19.9 %

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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, 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.

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 three months ended March 31, 2019, the deferred tax recovery was primarily due to a net loss 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. The effective tax rate of 25.0 percent for the three months ended March 31, 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.

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.

8. Business Combination

Newfield Exploration Company Acquisition

On February 13, 2019, the business combination with Newfield Exploration Company, a Delaware corporation ("Newfield") was completed pursuant to an Agreement and Plan of Merger with Newfield (the "Merger"). As a result of the Merger, Newfield stockholders received 2.6719 Encana common shares, on a pre-Share Consolidation basis, for each share of Newfield common stock that was issued and outstanding immediately prior to the effective date of the Merger. The Company issued approximately

543.4 million Encana common shares, on a pre-Share Consolidation basis, representing a value of $3.5 billion and paid approximately $5 million in cash in respect of Newfield's cash-settled incentive awards. Following the acquisition,

Newfield's senior notes totaling $2.45 billion 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.

11

Purchase Price Allocation

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

Purchase Price Allocation

Consideration:
Fair value of Encana's common shares issued (1)	$	3,478
Fair value of Newfield liability awards paid in cash (2)		5
Total Consideration	$	3,483
Assets Acquired:
Cash and cash equivalents	$	46
Accounts receivable and accrued revenues		486
Other current assets		50
Proved properties		5,903
Unproved properties		838
Other property, plant and equipment		22
Restricted cash		53
Other assets		105
Goodwill (3)		25
Liabilities Assumed:
Accounts payable and accrued liabilities (3) (4)		(795 )
Long-term debt		(2,603 )
Operating lease liabilities		(76 )
Other long-term liabilities (3)		(65 )
Asset retirement obligation		(184 )
Deferred income taxes (3)		(322 )
Total Purchase Price	$	3,483

1. The fair value was based on the NYSE closing price of thepre-Share Consolidation Encana common shares of $6.40 on February 13, 2019.
2. The fair value was based on a price of $6.50 per notional unit which was determined using avolume-weighted average of the trading price of pre-Share Consolidation Encana common shares on the NYSE on each of the five consecutive trading days ending on the trading day that was three trading days prior to February 13, 2019.
3. Since the completion of the business combination on February 13, 2019, additional information related topre-acquisition liabilities and contingencies was obtained resulting in a measurement period adjustment. Changes in the fair value estimates comprised an increase in other liabilities of $16 million, of which approximately $11 million is presented in accounts payable and accrued liabilities and $5 million is presented in other long-term liabilities, a decrease in deferred tax liabilities of $4 million and a corresponding increase in goodwill of $12 million.
4. In conjunction with the acquisition, various legal claims and actions arising in the normal course of Newfield's operations were assumed by the Company. On March 29, 2019, Newfield and itswholly-owned subsidiary entered into an Agreement and Mutual Release with Sapura Energy Berhad, formerly known as SapuraKencana Petroleum Berhad, and Sapura Exploration and Production Inc., formerly known as SapuraKencana Energy Inc. (collectively,
   "Sapura"), and agreed to settle arbitration claims in the amount of $22.5 million arising from Sapura's purchase of Newfield's Malaysian business in
   February 2014. The settlement amount including legal fees was included in the purchase price allocation as part of the current liabilities assumed at the acquisition date. Although the outcome of any remaining legal claims and actions assumed following the acquisition of Newfield cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on the Company's financial position, cash flows or results of operations.

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

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

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Unaudited Pro Forma Financial Information

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

Additionally, pro forma earnings were adjusted to exclude transaction-related costs incurred of approximately $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.

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 )

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

9. Acquisitions and Divestitures

		Three Months Ended
		March 31,
		2020			2019
Acquisitions
USA Operations	$	17		$	22
Total Acquisitions		17			22
Divestitures
USA Operations		(21	)		(3 )
Canadian Operations		(1	)		1
Total Divestitures		(22	)		(2 )
Net Acquisitions & (Divestitures)	$	(5	)	$	20

Acquisitions

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.

Divestitures

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.

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10. Property, Plant and Equipment, Net

		As at March 31, 2020			As at December 31, 2019
			Accumulated					Accumulated
		Cost		DD&A		Net		Cost		DD&A		Net
USA Operations
Proved properties	$	36,731	$	(26,320	)	$	10,411	$	35,870	$	(25,623 )	$	10,247
Unproved properties		3,260		-			3,260		3,491		-		3,491
Other		25		-			25		19		-		19
		40,016		(26,320	)		13,696		39,380		(25,623 )		13,757
Canadian Operations
Proved properties		14,172		(13,215	)		957		15,284		(14,320 )		964
Unproved properties		200		-			200		223		-		223
Other		16		-			16		18		-		18
		14,388		(13,215	)		1,173		15,525		(14,320 )		1,205
Market Optimization		8		(6	)		2		9		(7 )		2
Corporate & Other		852		(643	)		209		914		(687 )		227
	$	55,264	$	(40,184	)	$	15,080	$	55,828	$	(40,637 )	$	15,191

USA and Canadian Operations property, plant and equipment include internal costs directly related to exploration, development and construction activities of $47 million, which have been capitalized during the three months ended March 31, 2020 (2019 - $79 million).

For the three months ended March 31, 2020, the Company recognized before-taxnon-cash ceiling test impairments of $277 million (2019 - nil) in the USA Operations. The non-cash ceiling test impairment 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
				Edmonton
		WTI		Condensate		Henry Hub		AECO
		($/bbl)		(C$/bbl)		($/MMBtu)		(C$/MMBtu)
12-Month Average Trailing Reserves Pricing (1)
March 31, 2020	$	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

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

Finance Lease Arrangements

The Company has two 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.

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11. Leases

The following table outlines the Company's estimated future sublease income as at March 31, 2020. All subleases are classified as operating leases.

(undiscounted)		2020		2021		2022		2023		2024		Thereafter		Total
Sublease Income	$	35	$	48	$	43	$	42	$	42	$	511	$	721

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

12. Long-Term Debt

		As at		As at
		March 31,		December 31,
		2020			2019
U.S. Dollar Denominated Debt
Revolving credit and term loan borrowings	$	842		$	698
U.S. Unsecured Notes:
3.90% due November 15, 2021		590			600
5.75% due January 30, 2022		660			750
5.625% due July 1, 2024		1,000			1,000
5.375% due January 1, 2026		700			700
8.125% due September 15, 2030		300			300
7.20% due November 1, 2031		350			350
7.375% due November 1, 2031		500			500
6.50% due August 15, 2034		750			750
6.625% due August 15, 2037		462			462
6.50% due February 1, 2038		505			505
5.15% due November 15, 2041		244			244
Total Principal		6,903			6,859
Increase in Value of Debt Acquired		140			149
Unamortized Debt Discounts and Issuance Costs		(37	)		(34 )
Total Long-Term Debt	$	7,006		$	6,974
Current Portion	$	-		$	-
Long-Term Portion		7,006			6,974
	$	7,006		$	6,974

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, the Company had outstanding commercial paper of $357 million maturing at various dates with a weighted average interest rate of approximately 2.00 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, total long-term debt had a carrying value of $7,006 million and a fair value of $4,005 million (as at December 31, 2019 - carrying value of $6,974 million and a fair value of $7,657 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.

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13. Other Liabilities and Provisions

		As at		As at
		March 31,		December 31,
		2020		2019
Finance Lease Obligations	$	99	$	121
Unrecognized Tax Benefits		146		159
Pensions and Other Post-Employment Benefits		118		119
Long-Term Incentive Costs (See Note 19)		4		38
Other Derivative Contracts (See Notes 21, 22)		19		7
Other		16		20
	$	402	$	464

14. Asset Retirement Obligation

		As at		As at
		March 31,		December 31,
		2020			2019
Asset Retirement Obligation, Beginning of Year	$	614		$	455
Liabilities Incurred		7			15
Liabilities Acquired (See Note 8)		-			184
Liabilities Settled and Divested		(42	)		(141 )
Change in Estimated Future Cash Outflows		22			47
Accretion Expense		9			37
Foreign Currency Translation		(29	)		17
Asset Retirement Obligation, End of Period	$	581		$	614
Current Portion	$	143		$	189
Long-Term Portion		438			425
	$	581		$	614

15. Share Capital

Authorized

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

Issued and Outstanding

	As at			As at
	March 31, 2020			December 31, 2019
	Number				Number
	(millions)		Amount	(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

In conjunction with the Reorganization as described in Note 1, 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.

16

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

Substantial Issuer Bid

On June 10, 2019, 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.

Normal Course Issuer Bid

On February 27, 2019, the Company announced that the TSX accepted the Company's notice of intention to purchase, for cancellation, the equivalent of up to approximately 29.9 million post-Share Consolidation Encana common shares, 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.

Dividends

During the three months ended March 31, 2020, 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 $0.09375 per common share on a post-Share Consolidation basis totaling $28 million.

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

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Earnings Per Share of Common Stock
The following table presents the computation of net earnings (loss) per share of common stock:
		Three Months Ended
		March 31,
(US$ millions, except per share amounts)		2020		2019
Net Earnings (Loss)	$	421	$	(245 )
Number of Shares of Common Stock (1):
Weighted average shares of common stock outstanding - Basic		259.8		244.3
Effect of dilutive securities		-		-
Weighted Average Shares of Common Stock Outstanding - Diluted		259.8		244.3
Net Earnings (Loss) per Share of Common Stock (1)
Basic & Diluted	$	1.62	$	(1.00 )

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.

Ovintiv Stock Options

Ovintiv has share-based compensation plans that allow employees 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 to 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. Historically, most holders of options with TSARs have elected to exercise their stock options as a Stock Appreciation Right ("SAR") in exchange for a cash payment. As a result, outstanding TSARs are not considered potentially dilutive securities.

Ovintiv Restricted Share Units

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

16. Accumulated Other Comprehensive Income

			Three Months Ended
			March 31,
			2020			2019
Foreign Currency Translation Adjustment
Balance, Beginning of Year		$	1,004		$	976
Change in Foreign Currency Translation Adjustment			(134	)		34
Balance, End of Period		$	870		$	1,010
Pension and Other Post-Employment Benefit Plans
Balance, Beginning of Year		$	42		$	22
Amounts Reclassified from Other Comprehensive Income:
Reclassification of net actuarial (gains) and losses to net earnings (See Note 20)			(2	)		(1 )
Income taxes			-			-
Balance, End of Period		$	40		$	21
Total Accumulated Other Comprehensive Income		$	910		$	1,031

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17. Variable Interest Entities

Veresen Midstream Limited Partnership

Veresen Midstream Limited Partnership ("VMLP") provides gathering, compression and processing services under various agreements related to the Company's development of liquids and natural gas production in the Montney play. As at March 31, 2020, VMLP provides approximately 1,213 MMcf/d of natural gas gathering and compression and 932 MMcf/d of natural gas processing under long-term service agreements with remaining terms ranging from 11 to 25 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 the potential exposure to Ovintiv in the event the assets under the agreements are deemed worthless, is estimated to be $1,929 million as at March 31, 2020. 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 24 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, accounts payable and accrued liabilities included $0.4 million related to the take or pay commitment.

18. Restructuring Charges

In February 2019, in conjunction with the Newfield business combination as described in Note 8, the Company announced workforce reductions to better align staffing levels and the organizational structure with the Company's strategy. During 2019, the Company incurred total restructuring charges of $138 million, before tax, primarily related to severance costs. As at March 31, 2020, $2 million remains accrued and is expected to be paid in 2020.

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

			As at		As at
			March 31,		December 31,
			2020			2019
Outstanding Restructuring Accrual, Beginning of Year		$	8		$	-
Restructuring Expenses Incurred			-			138
Restructuring Costs Paid			(6	)		(130 )
Outstanding Restructuring Accrual, End of Period (1)		$	2		$	8

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

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19. Compensation Plans

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

Ovintiv accounts for TSARs, SARs, PSUs and RSUs as cash-settledshare-based payment transactions and, accordingly, accrues compensation costs over the vesting period based on the fair value of the rights determined using the Black-Scholes- Merton and other fair value models.

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

	As at March 31, 2020	As at March 31, 2019
	US$ Share	C$ Share	US$ Share	C$ Share
	Units	Units	Units	Units
Risk Free Interest Rate	0.47%	0.47%	1.49%	1.49%
Dividend Yield	13.89%	13.07%	1.04%	1.03%
Expected Volatility Rate (1)	93.81%	93.42%	43.95%	41.92%
Expected Term	2.8 yrs	2.3 yrs	3.0 yrs	2.6 yrs
Market Share Price (2)	US$2.70	C$3.86	US$36.20	C$48.40

1. Volatility was estimated using historical rates.
2. Market share price reflects the Share Consolidation as described in Note 1. Accordingly, the comparative period has been restated.

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

		Three Months Ended
		March 31,
		2020			2019
Total Compensation Costs of Transactions Classified as Cash-Settled	$	(51	)	$	64
Less: Total Share-Based Compensation Costs Capitalized		13			(18 )
Total Share-Based Compensation Expense (Recovery)	$	(38	)	$	46
Recognized on the Condensed Consolidated Statement of Earnings in:
Operating	$	(12	)	$	14
Administrative		(26	)		32
	$	(38	)	$	46

As at March 31, 2020, the liability for share-based payment transactions totaled $8 million ($78 million as at December 31, 2019), of which $4 million ($40 million as at December 31, 2019) is recognized in accounts payable and accrued liabilities and $4 million ($38 million as at December 31, 2019) is recognized in other liabilities and provisions in the Condensed Consolidated Balance Sheet.

		As at		As at
		March 31,		December 31,
		2020		2019
Liability for Cash-SettledShare-Based Payment Transactions:
Unvested	$	7	$	65
Vested		1		13
	$	8	$	78

20

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.

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

RSUs	6,350
PSUs	2,166
DSUs	42

20. Pension and Other Post-Employment Benefits

The Company has recognized total benefit plans expense which includes pension benefits and other post-employment benefits ("OPEB") for the three months ended March 31 as follows:

		Pension Benefits			OPEB			Total
		2020		2019		2020			2019		2020			2019
Net Defined Periodic Benefit Cost	$	-	$	-	$	(1	)	$	6	$	(1	)	$	6
Defined Contribution Plan Expense		8		6		-			-		8			6
Total Benefit Plans Expense	$	8	$	6	$	(1	)	$	6	$	7		$	12

Of the total benefit plans expense, $7 million (2019 - $6 million) was included in operating expense and $2 million (2019 - $2 million) was included in administrative expense. Excluding service costs, net defined periodic benefit gains of $2 million (2019 - losses of $4 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
		2020			2019		2020			2019		2020			2019
Service Cost	$	-		$	-	$	1		$	2	$	1		$	2
Interest Cost		2			2		-			1		2			3
Expected Return on Plan Assets		(2	)		(2 )		-			-		(2	)		(2 )
Amounts Reclassified from Accumulated Other
Comprehensive Income:
Amortization of net actuarial (gains) and losses		-			-		(2	)		(1 )		(2	)		(1 )
Curtailment		-			-		-			4		-			4
Total Net Defined Periodic Benefit Cost (1)	$	-		$	-	$	(1	)	$	6	$	(1	)	$	6

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

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21. Fair Value Measurements

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

Recurring fair value measurements are performed for risk management assets and liabilities and other derivative contracts, as discussed further in Note 22. 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.

		Level 1
		Quoted		Level 2		Level 3
		Prices in		Other		Significant
		Active	Observable	Unobservable		Total Fair				Carrying
As at March 31, 2020		Markets		Inputs		Inputs		Value		Netting (1)		Amount
Risk Management Assets
Commodity Derivatives:
Current assets	$	9	$	928	$	151	$	1,088	$	(130)	$	958
Long-term assets		-		5		-		5		(5 )		-
Foreign Currency Derivatives:
Long-term assets		-		1		-		1		-		1
Risk Management Liabilities
Commodity Derivatives:
Current liabilities	$	-	$	137	$	-	$	137	$	(130)	$	7
Long-term liabilities		-		77		1		78		(5 )		73
Foreign Currency Derivatives:
Current liabilities		-		33		-		33		-		33
Long-term liabilities		-		8		-		8		-		8
Other Derivative Contracts
Current in accounts payable and accrued liabilities	$	-	$	6	$	-	$	6	$	-	$	6
Long-term in other liabilities and provisions		-		19		-		19		-		19

		Level 1
		Quoted		Level 2		Level 3
		Prices in		Other		Significant
		Active	Observable	Unobservable		Total Fair				Carrying
As at December 31, 2019		Markets		Inputs		Inputs		Value		Netting (1)		Amount
Risk Management Assets
Commodity Derivatives:
Current assets	$	-	$	202	$	-	$	202	$	(67 )	$	135
Long-term assets		-		6		-		6		(4 )		2
Foreign Currency Derivatives:
Current assets		-		13		-		13		-		13
Risk Management Liabilities
Commodity Derivatives:
Current liabilities	$	1	$	139	$	41	$	181	$	(67 )	$	114
Long-term liabilities		-		61		11		72		(4 )		68
Other Derivative Contracts
Current in accounts payable and accrued liabilities	$	-	$	2	$	-	$	2	$	-	$	2
Long-term in other liabilities and provisions		-		7		-		7		-		7

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

22

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. The fair values of these contracts are based on a market approach and are estimated using inputs which are either directly or indirectly observable from active markets, such as exchange and other published prices, broker quotes and observable trading activity throughout the term of the instruments.

Level 3 Fair Value Measurements

As at March 31, 2020, the Company's Level 3 risk management assets and liabilities consist of WTI three-way options, 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
		March 31,
		2020			2019
Balance, Beginning of Year	$	(52	)	$	139
Total Gains (Losses)		242			(100 )
Purchases, Sales, Issuances and Settlements:
Purchases, sales and issuances		-			-
Settlements		(40	)		(20 )
Transfers Out of Level 3		-			-
Balance, End of Period	$	150		$	19
Change in Unrealized Gains (Losses) Related to
Assets and Liabilities Held at End of Period	$	189		$	(80 )

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

	Valuation Technique	Unobservable Input	Range	Weighted Average (1)
Risk Management - WTI Options	Option Model	Implied Volatility	35% - 86%	63%

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

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

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22. Financial Instruments and Risk Management

A) Financial Instruments

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

B) Risk Management Activities

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

Commodity Price Risk

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

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

Foreign Exchange Risk

Foreign exchange risk arises from changes in foreign currency exchange rates that may affect the fair value or future cash flows of the Company's financial assets or liabilities. To partially mitigate the effect of foreign exchange fluctuations on future commodity revenues and expenses, the Company may enter into foreign currency derivative contracts. As at March 31, 2020, the Company has entered into $644 million notional U.S. dollar denominated currency swaps at an average exchange rate of US$0.7451 to C$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.

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Risk Management Positions as at March 31, 2020

	Notional Volumes	Term	Average Price		Fair Value
Crude Oil and NGL Contracts			US$/bbl
Fixed Price Contracts
WTI Fixed Price	140.2 Mbbls/d	2020	45.36	$	625
Propane Fixed Price	12.0 Mbbls/d	2020	21.34		26
Butane Fixed Price	8.0 Mbbls/d	2020	23.54		18
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
WTI Costless Collars
Sold call / bought put	15.0 Mbbls/d	2020	68.71 / 50.00		91
Basis Contracts (2)		2020			(32	)
Other Crude Financial Positions					3
Crude Oil and NGLs Fair Value Position					797
Natural Gas Contracts			US$/Mcf
Fixed Price Contracts
NYMEX Fixed Price	811 MMcf/d	2020	2.65		147
NYMEX Fixed Price	165 MMcf/d	2021	2.51		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 Three-Way Options
Sold call / bought put / sold put	330 MMcf/d	2020	2.72 / 2.60 / 2.25		19
NYMEX Costless Collars
Sold call / bought put	55 MMcf/d	2020	2.88 / 2.50		8
NYMEX Call Options
Sold call	230 MMcf/d	2020	3.25		4
Basis Contracts (4)		2020			(10	)
		2021			(18	)
		2022 - 2025			(33	)
Other Financial Positions					3
Natural Gas Fair Value Position					88
Net Premiums Received on Unexpired Options					(7	)
Other Derivative Contracts
Fair Value Position					(25	)
Foreign Currency Contracts
Fair Value Position (5)		2020 - 2021			(40	)
Total Fair Value Position and Net Premiums Received				$	813

1. WTI Fixed Price Swaptions give the counterparty the option to extend certain 2020 Fixed Price swaps to 2021.
2. Ovintiv has entered into crude and NGL differential swaps associated with Midland, Magellan East Houston, Belvieu, Conway, Brent and WTI.
3. NYMEX Fixed Price Swaptions give the counterparty the option to extend certain 2020 and 2021 Fixed Price swaps to 2021 and 2022, respectively.
4. Ovintiv has entered into natural gas basis swaps associated with AECO, Dawn, Chicago, Malin, Waha, Houston Ship Channel and NYMEX.
5. Ovintiv has entered into U.S. dollar denominatedfixed-for-floating average currency swaps to protect against fluctuations between the Canadian and U.S. dollars.

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

		Three Months Ended
		March 31,
		2020			2019
Realized Gains (Losses) on Risk Management
Commodity and Other Derivatives:
Revenues (1)	$	151		$	72
Foreign Currency Derivatives:
Foreign exchange		(3	)		-
	$	148		$	72
Unrealized Gains (Losses) on Risk Management
Commodity and Other Derivatives:
Revenues (2)	$	904		$	(427 )
Foreign Currency Derivatives:
Foreign exchange		(52	)		20
	$	852		$	(407 )
Total Realized and Unrealized Gains (Losses) on Risk Management, net
Commodity and Other Derivatives:
Revenues (1) (2)	$	1,055		$	(355 )
Foreign Currency Derivatives:
Foreign exchange		(55	)		20
	$	1,000		$	(335 )

1. Includes a realized gain of $1 million (2019 - gain of $2 million) related to other derivative contracts.
2. Includes an unrealized loss of $17 million (2019 - loss of nil) related to other derivative contracts.

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

		2020				2019
					Total		Total
					Unrealized		Unrealized
		Fair Value		Gain (Loss)		Gain (Loss)
Fair Value of Contracts, Beginning of Year	$	(41	)
Change in Fair Value of Contracts in Place at Beginning of Year
and Contracts Entered into During the Period		1,000		$	1,000		$	(335 )
Settlement of Other Derivative Contracts		1
Amortization of Option Premiums During the Period		1
Fair Value of Contracts Realized During the Period		(148	)		(148	)		(72 )
Fair Value of Contracts and Net Premiums Received, End of Period	$	813		$	852		$	(407 )

Risk management assets and liabilities arise from the use of derivative financial instruments and are measured at fair value. See Note 21 for a discussion of fair value measurements.

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Unrealized Risk Management Positions

		As at		As at
		March 31,		December 31,
		2020		2019
Risk Management Assets
Current	$	958	$	148
Long-term		1		2
		959		150
Risk Management Liabilities
Current		40		114
Long-term		81		68
		121		182
Other Derivative Contracts
Current in accounts payable and accrued liabilities		6		2
Long-term in other liabilities and provisions		19		7
Net Risk Management Assets (Liabilities) and Other Derivative Contracts	$	813	$	(41 )

C) Credit Risk

Credit risk arises from the potential that the Company may incur a loss if a counterparty to a financial instrument fails to meet its obligation in accordance with agreed terms. While exchange-traded contracts are subject to nominal credit risk due to the financial safeguards established by the NYSE and the TSX, over-the-counter traded contracts expose Ovintiv to counterparty credit risk. 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. As a result of netting provisions, the Company's maximum exposure to loss under derivative financial instruments due to credit risk is limited to the net amounts due from the counterparties under the derivative contracts, as disclosed in Note 21. As at March 31, 2020, the Company had no significant credit derivatives in place and held no collateral.

As at March 31, 2020, 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, approximately 97 percent (95 percent as at December 31, 2019) of Ovintiv's accounts receivable and financial derivative credit exposures were with investment grade counterparties.

As at March 31, 2020, Ovintiv had two 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 six 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 to fulfill certain payment obligations on the take or pay volume commitments assumed by the purchasers. The circumstances that would require the Company to perform under the agreements include events where a purchaser fails to make payment to the guaranteed party and/or a purchaser is subject to an insolvency event. The agreements have remaining terms from one to four

27

years with a fair value recognized of $25 million as at March 31, 2020 ($9 million as at December 31, 2019). The maximum potential amount of undiscounted future payments is $118 million as at March 31, 2020, and is considered unlikely.

23. Supplementary Information

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

A) Net Change in Non-Cash Working Capital

		Three Months Ended
		March 31,
		2020			2019
Operating Activities
Accounts receivable and accrued revenues	$	121		$	174
Accounts payable and accrued liabilities		(31	)		(88 )
Current portion of operating lease liabilities		(1	)		67
Income tax receivable and payable		(6	)		(35 )
	$	83		$	118

B) Non-Cash Activities

		Three Months Ended
		March 31,
		2020		2019
Non-Cash Investing Activities
Asset retirement obligation incurred (See Note 14)	$	7	$	3
Asset retirement obligation change in estimated future cash outflows (See Note 14)		22		-
Property, plant and equipment accruals		150		82
Capitalized long-term incentives		(17)		(29 )
Property additions/dispositions (swaps)		4		2
New ROU operating lease assets and liabilities		(1 )		(1 )
Non-Cash Financing Activities
Common shares issued in conjunction with the Newfield business
combination (See Note 8)	$	-	$	(3,478 )

24. Commitments and Contingencies

Commitments

The following table outlines the Company's commitments as at March 31, 2020:

						Expected Future Payments
(undiscounted)		2020		2021		2022		2023		2024		Thereafter		Total
Transportation and Processing	$	518	$	653	$	612	$	507	$	399	$	2,022	$	4,711
Drilling and Field Services		71		6		1		-		-		1		79
Building Leases		10		14		11		7		6		8		56
Total	$	599	$	673	$	624	$	514	$	405	$	2,031	$	4,846

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. Divestiture transactions can reduce certain commitments disclosed above.

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Contingencies

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

29