January 4, 2023
Canadian Oilfield Services Trend Tracker
WCSB rig count begins the year at 196
Our view: This publication 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 magnitude and prioritization, all of which are inputs to our relative positioning and outlook for sector returns. Exhibits 16-17 highlight our valuation comparables, ratings, and price targets for the companies under coverage.
Canadian OFS stocks decreased 3% w/w, alongside WTI
Canadian stocks under coverage decreased 2.5%, while the 2023 WTI declined 3% w/w. The 2023 Henry Hub strip decreased 7% w/w and remains 8% above last year. Canadian stocks under coverage decreased 2.5% w/w. The top three performers were CFW (+2.5%), SCL (-0.6%), and ESI (-0.9%). The bottom three performers were CEU (-4.0%), PSI (-4.6%), and PD (-5.1%). Our Canadian Oilfield Services coverage group is down 4.8% YTD vs the S&P/TSX Capped Energy index down 5.8%. For additional details on North American rig activity, please see here for the latest edition of our US rig tracker.
Winter drilling season kicks-off
The rig count of 196, increased by 29 w/w. Most regions drove the w/w decrease, though slightly offset by Mannville and Heavy Oil regions, as noted in Exhibit 10.
Activity trends
• Montney ↑ 5 rigs week-over-week, to 49. The most active Montney operators include ARC (10 rigs), Ovintiv (5 rigs), and Tourmaline (4 rigs). The most active drillers in the Montney include Precision (23 rigs, 47% of total), Ensign (11 rigs, 22% of total), and Western (5 rigs, 10% of total).
• Deep Basin ↑ 7 rigs week-over-week, to 22. The most active Deep Basin operators include Tourmaline (7 rigs), CNRL (3 rigs), and Peyto (3 rigs). The most active drillers in the Deep Basin include Ensign (9 rigs, 41% of total), Precision (5 rigs, 23% of total), and Savanna (4 rigs, 18% of total).
• SE SK ↑ 5 rigs week-over-week, to 8. The most active SE SK operators include Crescent Point (2 rigs), Tundra (2 rigs), and Whitecap (2 rigs). The most active drillers in SE SK include Stampede (5 rigs, 63% of total), Ensign (2 rigs, 25% of total), and Precision (1 rig, 13% of total).
• Heavy Oil ↓ 4 rigs week-over-week, to 31. The most active Heavy Oil operators include Spur (6 rigs), Tamarack (4 rigs), and Cenovus (3 rigs). The most active drillers in Heavy Oil include Precision (14 rigs, 45% of total), Ensign (6 rigs, 19% of total), and Tempco (3 rigs, 10% of total).
E&Ps continue to generate excess FCF
Our Canadian E&P analysts project stocks under coverage to generate $5.0/3.9Bn of post-dividend FCF in 2023/24 at the futures strip. Our E&P analysts' estimates imply that operators will reinvest 54% of cash flow in 2023 at futures pricing (44% at RBC’s price deck), below the 5-year trailing average of 85%. Current estimates imply a 15% increase in capital spending y/y, as shown in Exhibit 15.