Stifel Pointing to “a surging crude oil price environment and an attractive natural gas price futures outlook,” Stifel analysts Cody Kwong and Michael Dunn thinks the landscape for Canadian energy exploration and production should “continue to screen as attractive versus other sectors given the production/cash flow growth, unfettered balance sheets, exciting new play extensions/technical applications and elevated return of capital to shareholders.”
In a research report released Monday previewing third-quarter earnings season, the analysts sees tailwinds for both oil and gas prices, and they do not expect any significant changes to 2023 guidance “aside from possible 2024 capex acceleration into 2023.”
“In general, our channel checks did not prompt us to make any meaningful changes to our overall 2023 production view, however cash flow did move approximately 1 per cent lower as we dialed in our cost/realized pricing assumptions ahead of the 3Q23 earnings season,” they said. “As for capital expenditures, most companies have migrated to the high-end of the guidance ranges, with more than a few names expected to accelerate some 2024 activity into the remaining months of 2023, which should be partially covered by higher than previously anticipated 2H23 cash flow.
“Catalysts and rate of change continues to be expected to drive stock outperformance. We expect a host of operational and financial catalysts to unfold between now and the end of the year. Those we expect to have news on the subject of return of capital includes names like: CNQ, VET, BNE, HWX, HHRS, and TVE. The companies we are expecting meaningful drilling results or operational step changes include: POU, HWX, HHRS, KEL, RBY, and LGN.”
Mr. Dunn downgraded Arc Resources Ltd. to “hold” from “buy,” saying " the stock has been a significant outperformer this year, leaving diminished returns to our unchanged target, while our cash flow forecast moves lower.”
His target for Arc shares remains $23. The average on the Street is $24.53.
The analysts’ target changes for large and intermediate cap E&P companies are:
- Canadian Natural Resources Ltd. ( “buy”) to $99 from $97. The average on the Street is $95.95.
- Paramount Resources Ltd. ( “buy”) to $41 from $39. Average: $39.
- PrairieSky Royalty Ltd. ( “buy”) to $27.50 from $27.25. Average: $25.63.
- Parex Resources Inc. (, “buy”) to US$37.50 from US$39. Average: $36.08 (Canadian).
- Tourmaline Oil Corp. ( “buy”) to $78 from $77. Average: $81.53.
- Topaz Energy Corp. ( “buy”) to $25.25 from $24.75. Average: $27.52.
- Vermilion Energy Inc. ( “buy”) to $27 from $28. Average: $25.25.