RBC Notes November 22, 2023
Canadian Oilfield Services Trend Tracker
WCSB rig count up 3 w/w to 196
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 increased 5.5% w/w, while WTI decreased 2% w/w
Canadian stocks under coverage decreased 5.5% w/w. The top three performers were MATR (-1.0%), CFW (-2.8%), and PSI (-2.9%). The bottom three performers were CEU (-8.2%), EFX (-8.5%), and TCW (-9.6%). Our Canadian Oilfield Services coverage group is down 10.7% YTD vs the S&P/TSX Capped Energy index up 10.6% YTD.
Rig count remains above long-term averages; 4Q23 QTD average of 198 vs. RBC of 191
The WCSB rig count increased 3 w/w to 196, and is 12 below 2022 levels and 26 above the 5-year average. PrivateCo rig counts increased 2 w/w, Junior E&Ps (<25 mboe/d) rig counts decreased 1 w/ w, Intermediate E&Ps (25-75 mboe/d) rig counts increased 1 w/w, Large E&Ps (>75 mboe/d) rig counts remained flat w/w, and International E&Ps increased 1 w/w.
Montney ↑ 2 rigs week-over-week, to 48. 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, 56% of total), Ensign (8 rigs, 17% of total), and Fox (3 rigs, 6% of total).
Duvernay ↓ 1 rig, week-over-week, to 9. The most active Duvernay operators include Crescent Point (2 rigs), Artis (1 rig), and Chevron (1 rig). The most active drillers in the Duvernay include Ensign (4 rigs, 44% of total), Savanna (2 rigs, 22% of total), and Western (1 rig, 11% of total).
Deep Basin ↓ 3 rigs week-over-week, to 15. The most active Deep Basin operators include Tourmaline (7 rigs), Peyto (4 rigs), and Cenovus (3 rigs). The most active drillers in Deep Basin include Ensign (8 rigs, 53% of total), Savanna (5 rigs, 33% of total), and Precision (2 rigs, 13% of total).
Oil Sands ↓ 3 rigs week-over-week, to 10. The most active Oil Sands operators include Cenovus (5 rigs), Suncor (2 rigs), and CNOOC (1 rig). The most active drillers in the Oil Sands include Precision (5 rigs, 50% of total), Ensign (3 rigs, 30% of total), and Akita (2 rigs, 20% of total).
Heavy Oil ↓ 1 rig, week-over-week, to 38. The most active Heavy Oil operators include Cenovus (6 rigs), Spur (5 rigs), and CNRL (4 rigs). The most active drillers in Heavy Oil include Precision (20 rigs, 53% of total), Bonanza (5 rigs, 13% of total), and Ensign (4 rigs, 11% of total).
Our Canadian E&P analysts project stocks under coverage to generate $4.1Bn/$5.5Bn of post-dividend FCF in 2023/24 at the futures strip. Estimates imply operators will reinvest 59% of cash flow in 2024 at futures pricing (52% at RBC’s price deck), below the 5-year trailing average of 72%. Current estimates imply a 7% increase in FY24e capital spending y/y, as shown in Exhibit 14.