RBC Notes April 19, 2023
Canadian Oilfield Services Trend Tracker WCSB rig count down 5 w/w to 111
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 1% w/w, while WTI remained flat w/w
Canadian stocks under coverage increased 1.2%, while Bal23 WTI remained flat w/w. The Bal23 Henry Hub strip increased 6% w/w and is 63% below last year. The top three performers were TCW (+6.0%), STEP (+4.5%), and SES (+3.8%). The bottom three performers were ESI (-1.7%), CEU (-2.5%), and PSI (-4.3%). Our Canadian Oilfield Services coverage group is down 16.9% YTD vs the S&P/TSX Capped Energy index up 1.3% 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 through spring break-up
The WCSB rig count continues its seasonal spring break-up, driving w/w declines in the rig count. The WCSB rig count decreased 5 w/w to 111. The current count sits 7 above 2022 levels and 40 above the 5-year average. PrivateCo rig counts decreased 1 w/w, Junior E&Ps (<25 mboe/d) remained flat w/w, Intermediate E&Ps (25-75 mboe/d) remained flat w/w, Large E&Ps (>75 mboe/d) decreased 3 rigs w/w.
Montney ↓ 1 rig, week-over-week, to 50. The most active Montney operators include ARC (7 rigs), CNRL (6 rigs), and Ovintiv (4 rigs). The most active drillers in the Montney include Precision (22 rigs, 44% of total), Ensign (10 rigs, 20% of total), and Western (6 rigs, 12% of total).
Duvernay ↓ 1 rig, week-over-week, to 8. The most active Duvernay operators include Vesta (2 rigs), Artis (1 rig), and Bonavista (1 rig). The most active drillers in the Duvernay include Savanna (2 rigs, 25% of total), Ensign (2 rigs, 25% of total), and Western (1 rig, 13% of total).
Heavy Oil ↑ 1 rig, week-over-week, to 13. The most active Heavy Oil operators include Tamarack (3 rigs), Headwater (2 rigs), and CNRL (1 rig). The most active drillers in Heavy Oil include Ensign (4 rigs, 31% of total), Akita (3 rigs, 23% of total), and Precision (2 rigs, 15% of total).
Oil Sands ↓ 1 rig, week-over-week, to 10. The most active Oil Sands operators include Cenovus (6 rigs), CNRL (2 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).
Our Canadian E&P analysts project stocks under coverage to generate $4.4/4.0Bn of post-dividend FCF in 2023/24 at the futures strip. Estimates imply operators will reinvest 61% of cash flow in 2023 at futures pricing (54% 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.