E&P | Canada | 1Q24 Results

E&P | Canada | 1Q24 Results

Production & Capex Summary following 1Q24 Earnings Results

• Twenty (20) Canadian producers researched and analyzed, including three US-based E&Ps (COP, OVV, MUR)

• Aggregated average daily production increased from prior quarter (4Q23) by +2% as FY24 guidance has been increased or reiterated among the Canadian-based E&Ps.

• FY24 Capex has been increased a collective $250MM, or +1%, among the 20 E&Ps due to added production as well as sequencing of D&C programs to better align to corporate guidance. FY24 modeled Capex totals $31.6B, up from my March estimate of $31.3B.

• Production: The focus remains on enhancing efficiency and maximizing production capabilities, which is evident from the maintenance of production levels and operational execution such as the timely completion of phased projects and the execution of long-term agreements for LNG supply.

• Capex: Despite significant capital expenditures aimed at maintaining and expanding operations, Canadian-based E&Ps maintain robust guidance for future production and continue to invest in growth-oriented projects. This is indicative of a balanced approach to managing operational needs and shareholder expectations, ensuring long-term sustainability and growth.

• Operational Challenges: Winter conditions impacted operations though E&Ps were able to offset production hiccups with asset optimization.

• Marketing: Diversification in market sourcing and pricing mechanisms, especially in natural gas, has allowed E&Ps to secure premium pricing over regional indices, which enhances profit margins. Long-term agreements, such as LNG tolling services, signal a strategic shift to capitalize on future market opportunities and secure stable revenue streams.

• Financial: Substantial cash flow from operations and net income highlighted E&Ps efficiency in cash flow management. The Canadian-based E&Ps analyzed have a strong emphasis on shareholder value, demonstrated via capital allocations towards dividends and share repurchases. This capital allocation strategy not only enhances shareholder value but also reflects stable financial positions across the E&Ps covered and confidence in ongoing operational cash flow.

Remaining 2024 Estimated E&P Capex by Region (2Q24 - 4Q24)

Looking ahead, Canadian capital spend will continue to be concentrated in the oil sands/in situ region (~$8.4B) and Montney BC & AB regions(~$6.0B) representing 60% of the remaining $23.8B in Capex estimated for the twenty E&Ps ($18.9B of which related to Canadian upstream activity). While sustaining capital spend will comprise the bulk of oil sands-related Capex, growth and optimization projects are planned this year including:

• CNQ: two CSS pads at Primrose (onstream in 2Q25), one SAGD pad at Wolf Lake (onstream in 1Q25), one SAGD pad at Jackfish (onstream in 3Q25), drilling and pipeline development to begin in 2H24 for 25,000 bpd Pike 1 in situ project.

• CVE: Foster Creek optimization, Narrows Lake tie-back to Christina Lake and new well pads at Sunrise.

• SU: Mildred Lake Extension, U1 drum replacement, SAGD pad adds at Firebag and MacKay River.

• IMO: Strathcona Refinery Renewable Diesel Expansion (ongoing construction), pre-FEED for Pathways Alliance Carbon Capture Storage Hub (FID expected in 2025).

• MEG: two pads (first pad on-stream mid-year and the second in 4Q24). Pre-FEED Capex for carbon capture and storage facilities at Christina Lake that would capture post-combustion CO2 emissions for transportation to the proposed Pathways Alliance CO2 pipeline.

• ATH: construction completion and commissioning of 28,000 bpd expansion project at Leismer.

For upcoming 2024 D&C and infrastructure activity in the Montney (BC and AB) where ~$6.0B in Capex is forecasted for the remainder of 2024, the following D&C activity and infrastructure spend includes:

• CNQ: estimating 118 wells to be completed across CNQ’s Montney Alberta (and BC) acreage with ~$1.5B remaining for 2024.

• TOU: estimating 144 wells remain to be completed in 2024, including 105+ in TOU’s NE BC acreage, 39 in Deep Basin, 36 at Spirit River and 25 on the legacy Bonavista acreage. Remaining Capex totals ~$1.2B for 2024. No significant infrastructure facilities are expected to be constructed in 2024 as TOU focuses its non-D&C related Capex towards emissions reductions initiatives.

• ARX: estimating 53 wells to be completed for ARX’s Montney BC assets, as well as ongoing construction of its 40,000 boepd Attachie Phase 1 facility, which is expecting full operational capacity to begin in 1Q25. Remaining Montney-specific Capex totals $810MM, while ARX’s other assets in Kakwa and Ante Creek (Duvernay basin) are estimated to spend ~$500MM to complete ~40 wells.

• OVV: estimating 55 wells to be completed for OVV’s Montney BC assets with ~$460MM estimated for remaining Capex in 2024. OVV will continue a steady drilling program using 3-4 rigs and 1 frac crew.

• COP: estimating 52 wells to be completed for COP’s Montney BC assets with $378MM estimated for remaining Capex in 2024. Drilling results from its recent Inga wells indicate condensate-rich production. Given COP’s long-term ambitions are to achieve 100,000 boepd by the end of the decade, it appears COP is in the early stages of its production ramp in NE BC.

• NVA: estimating 31 wells to be completed with ~$310MM in remaining Capex for 2024.

• POU: estimating 32 Montney wells to be completed with ~$380MM in remaining Capex for 2024. POU is also constructing a new Wapiti-based compressor that is forecasted to come online in 3Q24.

• WCP: estimating 21 Montney wells to be completed with ~$460MM in remaining Capex for 2024. WCP has increased its production guidance by 2,000 boepd, while retaining its Capex guidance with a $1.1B midpoint. Additional D&C activity for its Viking-based East division include approximately 105 completions and $200MM in Capex.

• BIR: estimating 13 Montney wells to be completed with ~$125MM in remaining Capex for 2024. BIT has made guidance adjustments to reduce its completions count by two, while adding two wells to its drilling program in the later part of the year.

• TVE: estimating 10 wells at Charlie Lake/in the Montney AB region to be completed with ~$230MM in remaining Capex for 2024. Additional D&C activity is modest with <$100MM in remaining Capex estimated to be allocated to TVE’s Clearwater assets.

• VET: estimating 6 Montney wells to be completed with $56MM in remaining Capex for 2024.

• MUR: while MUR had drilling activity in early 2Q24, the E&P has completed its Montney drilling program for the year. No further wells are forecasted to be drilled or completed for the remainder of 2024.

Among the remaining E&Ps analyzed, the following updates highlight the D&C activity planned in other basins in Alberta and Saskatchewan.

• VRN: along with the formal name change from Crescent Point to Veren (TSX-VRN), the E&P intends to complete 64 wells at its Kaybob Duvernay/Montney acreage equating to ~$850MM in remaining 2024 Capex. VRN also intends to complete 53 wells across its Saskatchewan assets totaling ~$200MM.

• PEY: estimating 52 Deep Basin wells to be completed with ~$340MM in remaining Capex for 2024.

• BTE: the bulk of BTE’s remaining 2024 capital spend is allocated to the Eagle Ford (~$530MM), however, D&C activities of $100MM and $200MM are anticipated to be allocated in the Viking and Heavy Conventional regions along the AB/SK corridor. Approximately 60 wells remain for each of these regions.

• ATH: three Duvernay pads at Kaybob are expected for be drilled and completed in 2024 totaling <$50MM.

Canadian E&P Daily Production Actuals & Forecast

With 1Q24 production results recorded and the sequencing of D&C activity updated, my outlook for 2024 and beyond is noted below. Barring material production impairments due to wild fires, my FY24 production (Mboepd) forecast is anticipated to grow +10% YoY, with oil+condensate growing +9%. Note that the production forecast does account for planned oil sands-related turnarounds as publicly released.

Companies Mentioned

• Canadian Natural Resources Limited (CNQ)

• Cenovus Energy Inc. (CVE)

• ARC Resources Ltd. (ARX)

• Baytex Energy Ltd. (BTE)

• Veren Inc. (VRN)

• Peyto Exploration & Development Corp. (PEY)

• Tamarack Valley Energy Ltd. (TVE)

• Whitecap Resources (WCP)

• Paramount Resources Ltd. (POU)

• Birchcliff Energy Ltd. (BIR)

• Vermilion Energy Inc. (VET)

• NuVista Energy Ltd. (NVA)

• Suncor Energy Inc. (SU)

• MEG Energy Corp. (MEG)

• Imperial Oil Resources (IMO)

• Athabasca Oil Corporation (ATH)

• ConocoPhillips Canada Resources Corp. (COP)

• Ovintiv Canada Ulc (OVV)

• Murphy Oil Corp (MUR)

_{Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Patrick Enwright accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Patrick Enwright makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.}