MULTI-SECTOR
POTENTIAL DIVVY BUMPS COMING;
WILDFIRES / WATER IN FOCUS; BUDGETS LIKELY INTACT
THE TD COWEN INSIGHT
Key Themes We Will Be Looking For With Q1/24 Results:
Freeze-offs Impacted Volumes: Extreme cold weather resulted in field freeze-offs mid- January. This was a temporary headwind for volumes and, to some extent, activity as well. On average, we expect Q1 volumes for the conventional E&Ps to have declined ~1% q/q.
Gas-Focused Producers Likely Hold The Line on Spending...For Now: Although natural gas prices remained below $2/mcf, we anticipate gas-focused producers will hold the line on capital spending. The most gas-sensitive producers tweaked budgets with Q4 results and the larger, more NGL-focused producers are benefiting from oil-linked pricing tailwinds. If weak gas prices persist, budgets may be reviewed in the summer, in our view.
Potential Dividend Bumps For Certain Operators: Among the conventional producers, we see ARC Resources (ARX-T) potentially modestly increasing the dividend with Q1 results by approximately the amount of shares repurchased last year (like in 2023). We also believe CVE and IMO could hike their base dividends which would be a repeat of Q1/2023.
Environmental Risks to Become Increasingly Topical: Due to the dry winter, two related environmental issues are likely to be addressed with more clarity: 1) water availability for fraccing (i.e., storage, licenses, etc.), and 2) wildfires impacting activity (and/or triggering downtime). We highlight that there are already 12 wildfires burning in Alberta.