RBC Notes August 24, 2022
Canadian Oilfield Services Trend Tracker
WCSB rig count up 4 week-over-week to 213
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 up 8% w/w, in-line with 2022 WTI
Canadian stocks under coverage increased 7.9%, while the 2022 WTI strip increased 8%, and Henry Hub decreased 1% w/w. The top three performers were SCL (+33.5%), STEP (+16.5%), and CFW (+16.0%). The bottom three performers were PD (+0.5%), SES (+0.0%), and CEU (-0.4%). Our Canadian Oilfield Services coverage group is up 66.4% YTD vs the S&P/TSX Capped Energy index up 47.7% YTD. For additional details on North American rig activity, please see here for the latest edition of our US rig tracker.
Rig count above historical levels; 3Q22 QTD average 201 vs. RBC estimate of 195
The WCSB rig count increased 4 w/w to 213 and the current count sits 64 above 2021 levels and 49 above the 5-year average. Montney, Deep Basin and Heavy Oil regions drove the w/w increase, as noted in Exhibit 10. PrivateCo rig counts increased 2 w/w, Junior E&Ps (<25 mboe/d) remained flat w/ w, Intermediate E&Ps (25-75 mboe/d) decreased 1 rig w/w, and Large E&Ps (>75 mboe/d) increased 3 rigs w/w, as noted in Exhibit 13.
Activity trends
• Montney ↑ 1 rig, week-over-week, to 38. The most active Montney operators include ARC (7 rigs), Paramount (4 rigs), and Tourmaline (4 rigs). The most active drillers in the Montney include Precision (18 rigs, 47% of total), Ensign (9 rigs, 24% of total), and Fox (4 rigs, 11% of total).
• SE SK flat week-over-week, at 17. The most active SE SK operators include Whitecap (3 rigs), Crescent Point (2 rigs), and Tundra (2 rigs). The most active drillers in the SE SK include Stampede (6 rigs, 35% of total), Ensign (4 rigs, 24% of total), and Panther (2 rigs, 12% of total).
• Heavy Oil ↑ 1 rig, week-over-week, to 49. The most active Heavy Oil operators include CNRL (7 rigs), Baytex (6 rigs), and Cenovus (5 rigs). The most active drillers in the Heavy Oil include Precision (20 rigs, 41% of total), Ensign (8 rigs, 16% of total), and Savanna (8 rigs, 16% of total).
• Deep Basin ↑ 1 rig, week-over-week, to 18. The most active Deep Basin operators include Tourmaline (7 rigs), Peyto (5 rigs), and Cenovus (2 rigs). The most active drillers in the Deep Basin include Ensign (12 rigs, 67% of total), Savanna (3 rigs, 17% of total), and Precision (2 rigs, 11% of total).
E&Ps continue to generate excess FCF
Our Canadian E&P analysts project stocks under coverage to generate $13.6Bn of post-dividend FCF in 2022 at the futures strip. Our E&P analysts' estimates imply that operators will reinvest 38% of cash flow in 2022 at futures pricing (38% at RBC’s price deck), well below the 5-year trailing average of 95%. Current estimates imply ~127% y/y cash flow growth with capital spending increasing 71%, as shown in Exhibit 15.