10:35 AM EDT, 04/11/2024 (MT Newswires) -- RBC Capital Markets outlined Thursday its top ideas in the Canadian exploration and production sector with the Q1 2024 reporting season due to kick off on April 22 with PrairieSky Royalty ( PREKF ) providing results after market close.

Among top ideas, RBC cited ARC Resources Ltd. ( AETUF ) , Obsidian Energy Ltd. ( OBE ) , Topaz Energy Corp. ( TPZEF ) and Tourmaline Oil Corp. ( TRMLF ) .

RBC said its top ideas list include names that are best positioned with respect to operational sustainability, RoC metrics and asset quality. But RBC noted that the companies on the list are not necessarily with the most "torque" to commodity prices.

With capital allocation top of mind, RBC's estimates incorporate $13.6-$14.8 billion in 2024E/25E capital spend, mapping to $8.7-$8.9 billion in FCF (9%-9% FCF yields, or 9%-12% at strip). RBC expects buybacks/dividends to remain the primary outlay for FCF beyond debt reduction, with 85%-63% of the group utilizing buybacks/dividends. It noted public filings point to material buybacks executed by NuVista (3.9mm shares, $44mm), Advantage (2.8mm shares, $24.9mm), Crescent Point (923k shares, $10mm), and ARC (750k shares, $16mm). RBC believes "meaningful capex cuts are unlikely given continued robust liquids pricing".

RBC expects the first quarter of Canadian exploration and production companies to be "largely drama-free," with key themes to watch including free cash outlook and the impact on RoC programs ("with oil and liquids-rich producers having a distinct advantage") and capex management in the context of lower natural gas prices, but higher liquids.

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