RBC Notes December 7, 2022
Canadian Oilfield Services Trend Tracker
WCSB rig count up 12 w/w to 218
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 down 4%, while WTI down 3% w/w
Canadian stocks under coverage decreased 4.2%, while the 2023 WTI strip decreased 3% w/w. The 2023 Henry Hub strip decreased 15% w/w and remains 34% above last year. The top three performers were SCL (+3.3%), PSI (-3.0%), and EFX (-3.5%). The bottom three performers were CFW (-4.8%), STEP (-7.9%), and ESI (-9.3%). Our Canadian Oilfield Services coverage group is up 83.6% YTD vs the S&P/TSX Capped Energy index up 57.3% YTD. For additional details on North American rig activity, please see here for the latest edition of our US rig tracker.
Rig count remains above historical levels; 4Q22 average 213 vs. RBC estimate of 210
The rig count increased 12 w/w, and sits 24 above 2021 levels and 36 above the 5-year average. Viking and Cardium regions drove the w/w increase, as noted in Exhibit 10. PrivateCo rig counts increased 9 w/w, Junior E&Ps (<25 mboe/d) increased 1 rig w/w, Intermediate E&Ps (25-75 mboe/d) decreased 2 rigs w/w, Large E&Ps (>75 mboe/d) decreased 1 rig w/w, and International (Supermajor, NOC, US E&P) increased 2 rigs w/w.
Activity trends
• Montney ↑ 2 rigs week-over-week, to 44. The most active Montney operators include ARC (10 rigs), Ovintiv (4 rigs), and NuVista (3 rigs). The most active drillers in the Montney include Precision (23 rigs, 52% of total), Ensign (10 rigs, 23% of total), and Western (3 rigs, 7% of total).
• SE SK ↑ 2 rigs week-over-week, to 14. The most active SE SK operators include Tundra (3 rigs), Crescent Point (2 rigs), and BCEI (1 rig). The most active drillers in SE SK include Stampede (7 rigs, 50% of total), Ensign (4 rigs, 29% of total), and Betts (2 rigs, 14% of total).
• Deep Basin ↑ 1 rig, week-over-week, to 18. The most active Deep Basin operators include Tourmaline (6 rigs), Cenovus (3 rigs), and Peyto (3 rigs). The most active drillers in the Deep Basin include Ensign (11 rigs, 61% of total), Precision (3 rigs, 17% of total), and Savanna (3 rigs, 17% of total).
• Heavy Oil flat week-over-week, at 47. The most active Heavy Oil operators include Cenovus (6 rigs), Spur (5 rigs), and Baytex (4 rigs). The most active drillers in Heavy Oil include Precision (23 rigs, 49% of total), Ensign (6 rigs, 13% of total), and Akita (4 rigs, 9% of total).
E&Ps continue to generate excess FCF
Our Canadian E&P analysts project stocks under coverage to generate $8.6/7.2Bn of post-dividend FCF in 2023/24 at the futures strip. Our E&P analysts' estimates imply that operators will reinvest 41% of cash flow in 2023 at futures pricing (46% at RBC’s price deck), well below the 5-year trailing average of 85%. Current estimates imply flat y/y cash flow growth with capital spending increasing 13%, as shown in Exhibit 15.