RBC Notes April 5, 2023
Canadian Oilfield Services Trend Tracker
WCSB rig count down 23 w/w to 125
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 increased 3% w/w, while WTI increased 9% w/w
Canadian stocks under coverage increased 2.6%, while Bal23 WTI increased 9% w/w. The Bal23 Henry Hub strip increased 5% w/w and is 52% below last year. The top three performers were EFX (+7.2%), SES (+5.8%), and PD (+4.5%). The bottom three performers were ESI (+0.3%), CFW (-1.0%), and SCL (-1.6%). Our Canadian Oilfield Services coverage group is down 17.4% YTD vs the S&P/TSX Capped Energy index up 0.9% 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 through spring break-up
The WCSB rig count continues its seasonal spring break-up, driving large w/w declines in the rig count. Road bans are now in effect for most of the province as the Alberta thaw line makes its way north, as shown in Exhibit 20. The WCSB rig count decreased 23 w/w to 125. The current count sits 4 above 2022 levels and 38 above the 5-year average. PrivateCo rig counts decreased 9 w/w, Junior E&Ps (<25 mboe/ d) decreased 1 rig w/w, Intermediate E&Ps (25-75 mboe/d) remained flat w/w, Large E&Ps (>75 mboe/ d) decreased 11 rigs w/w.
Activity trends
• Montney flat week-over-week, at 53. The most active Montney operators include ARC (7 rigs), CNRL (7 rigs), and Ovintiv (4 rigs). The most active drillers in the Montney include Precision (22 rigs, 42% of total), Ensign (13 rigs, 25% of total), and Western (6 rigs, 11% of total).
• Deep Basin ↓ 2 rigs week-over-week, to 9. The most active Deep Basin operators include Tourmaline (4 rigs), Peyto (3 rigs), and ARC (1 rig). The most active drillers in the Deep Basin include Ensign (4 rigs, 44% of total), Precision (3 rigs, 33% of total), and Savanna (2 rigs, 22% of total).
• Oil Sands ↓ 1 rig, week-over-week, to 10. The most active Oil Sands operators include Cenovus (5 rigs), CNRL (3 rigs), and ConocoPhillips (1 rig). The most active drillers in the Oil Sands include Precision (6 rigs, 60% of total), Akita (2 rigs, 20% of total), and Ensign (2 rigs, 20% of total).
• Other ↓ 18 rigs week-over-week, to 20. The most active Other operators include Imperial (2 rigs), Tamarack (2 rigs), and Tourmaline (2 rigs). The most active drillers in the Other include Precision (7 rigs, 35% of total), Savanna (4 rigs, 20% of total), and Akita (2 rigs, 10% of total).
Our Canadian E&P analysts project stocks under coverage to generate $3.7Bn/$3.1Bn of post-dividend FCF in 2023/24 at the futures strip. Estimates imply operators will reinvest 57% of cash flow in 2023 at futures pricing (43% at RBC’s price deck), below the 5-year trailing average of 85%. Current estimates imply an 11% increase in capital spending y/y, as shown in Exhibit 15.