RBC Notes Our view: This report serves as an update to the sector themes we track, including commodity prices, Western Canadian Sedimentary Basin (WCSB) activity trends, and E&P free cash flow and prioritization, all of which are inputs to our relative positioning and outlook for sector returns. Exhibits 15-16 highlight our valuation comparables, ratings, and price targets for the companies under coverage.
Canadian OFS stocks decreased 0.6% w/w, while WTI increased 3% w/w
Canadian stocks under coverage increased 1.3% w/w. The top three performers were SES (+1.3%), PSI (+1.1%), and ESI (+1.1%). The bottom three performers were CFW (-4.8%), PD (-2.8%), and EFX (-1.4%). Our Canadian Oilfield Services coverage group is up 8.4% YTD vs the S&P/TSX Capped Energy index up 13.1% YTD.
Rig count above historical levels; 3Q23 QTD average of 191 vs. RBC estimate of 209
The WCSB rig count increased 5 w/w to 199, and is 13 below 2022 levels and 44 above the 5-year average. PrivateCo rig counts increased 3 w/w, Junior E&Ps (<25 mboe/d) rig counts increased 1 w/ w, Intermediate E&Ps (25-75 mboe/d) rig counts unchanged w/w, Large E&Ps (>75 mboe/d) rig counts increased 1 w/w.
Montney ↑ 1 rig, week-over-week, to 49. The most active Montney operators include ARC (7 rigs), Ovintiv (5 rigs), and Petronas (5 rigs). The most active drillers in the Montney include Precision (27 rigs, 55% of total), Ensign (9 rigs, 18% of total), and Western (4 rigs, 8% of total).
Duvernay flat week-over-week, at 9. The most active Duvernay operators include Paramount (2 rigs), Artis (1 rig), and Chevron (1 rig). The most active drillers in the Duvernay include Ensign (3 rigs, 33% of total), Fox (2 rigs, 22% of total), and Akita (1 rig, 11% of total).
SE SK ↑ 1 rig, week-over-week, to 16. The most active SE SK operators include Tundra (3 rigs), Crescent Point (2 rigs), and Aldon (1 rig). The most active drillers in SE SK include Ensign (5 rigs, 31% of total), Stampede (5 rigs, 31% of total), and Betts (3 rigs, 19% of total).
Deep Basin flat week-over-week, at 20. The most active Deep Basin operators include Tourmaline (8 rigs), Peyto (4 rigs), and Cenovus (3 rigs). The most active drillers in the Deep Basin include Ensign (9 rigs, 45% of total), Savanna (5 rigs, 25% of total), and Precision (2 rigs, 10% of total).
Oil Sands ↑ 2 rigs week-over-week, to 13. The most active Oil Sands operators include Cenovus (7 rigs), Suncor (2 rigs), and CNOOC (1 rig). The most active drillers in the Oil Sands include Precision (6 rigs, 46% of total), Akita (3 rigs, 23% of total), and Ensign (3 rigs, 23% of total).
Heavy Oil ↑ 3 rigs week-over-week, to 35. The most active Heavy Oil operators include Tamarack (6 rigs), Spur (5 rigs), and Cenovus (4 rigs). The most active drillers in Heavy Oil include Precision (19 rigs, 54% of total), Ensign (4 rigs, 11% of total), and Bonanza (3 rigs, 9% of total).
Our Canadian E&P analysts project stocks under coverage to generate $4.6Bn/$7.1Bn of post-dividend FCF in 2023/24 at the futures strip. Estimates imply operators will reinvest 57% of cash flow in 2023 at futures pricing (60% at RBC’s price deck), below the 5-year trailing average of 72%. Current estimates imply a 12% increase in capital spending y/y, as shown in Exhibit 14.