RBC Notes March 29, 2023
Canadian Oilfield Services Trend Tracker
WCSB rig count down 19 w/w to 148
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 16-17 highlight our valuation comparables, ratings, and price targets for the companies under coverage.
Canadian OFS stocks decreased 1% w/w, while WTI increased 5% w/w
Canadian stocks under coverage decreased 1.0%, while Bal23 WTI increased 5% w/w. The Bal23 Henry Hub strip decreased 9% w/w and is 50% below last year. The top three performers were STEP (+2.8%), SCL (+1.2%), and CFW (+0.2%). The bottom three performers were SES (-3.3%), CEU (-3.7%), and ESI (-4.4%). Our Canadian Oilfield Services coverage group is down 19.6% YTD vs the S&P/TSX Capped Energy index down 7.5% 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; 1Q23 average 220 vs. RBC estimate of 218
The WCSB rig count has begun its seasonal spring break-up, driving large w/w declines in the rig count. Road bans are now coming into effect as the Alberta thaw line makes its way North, as shown in Exhibit 20. The WCSB rig count decreased 19 w/w to 148. The current count sits 18 above 2022 levels and 52 above the 5-year average. PrivateCo rig counts decreased 6 w/w, Junior E&Ps (<25 mboe/d) decreased 4 rigs w/w, Intermediate E&Ps (25-75 mboe/d) decreased 3 rigs w/w, Large E&Ps (>75 mboe/d) decreased 6 rigs w/w.
Activity trends
• Montney ↓ 2 rigs week-over-week, to 53. The most active Montney operators include ARC (8 rigs), CNRL (5 rigs), and Ovintiv (5 rigs). The most active drillers in the Montney include Precision (23 rigs, 43% of total), Ensign (12 rigs, 23% of total), and Western (5 rigs, 9% of total).
• Deep Basin ↓ 3 rigs week-over-week, to 11. The most active Deep Basin operators include Tourmaline (5 rigs), Peyto (4 rigs), and Cenovus (1 rig). The most active drillers in the Deep Basin include Ensign (6 rigs, 55% of total), Savanna (3 rigs, 27% of total), and Precision (2 rigs, 18% of total).
• Heavy Oil ↓ 12 rigs week-over-week, to 14. The most active Heavy Oil operators include Tamarack (4 rigs), Headwater (2 rigs), and CNRL (1 rig). The most active drillers in Heavy Oil include Ensign (4 rigs, 29% of total), Precision (3 rigs, 21% of total), and Western (2 rigs, 14% of total).
• Cardium ↓ 4 rigs week-over-week, to 5. The most active Cardium operators include Bonterra (1 rig), CNRL (1 rig), and Tourmaline (1 rig). The most active drillers in Cardium include CWC (2 rigs, 40% of total), Excalibur (1 rig, 20% of total), and Western (1 rig, 20% of total).
Our Canadian E&P analysts project stocks under coverage to generate $2.7/2.5Bn of post-dividend FCF in 2023/24 at the futures strip. Estimates imply operators will reinvest 62% of cash flow in 2023 at futures pricing (45% at RBC’s price deck), below the 5-year trailing average of 85%. Current estimates imply a 12% increase in capital spending y/y, as shown in Exhibit 15.