Canadian oil and gas shareholders can expect more lavish dividends and share buybacks, owing to the industry's relentless focus on balance sheet strength, according to Scotiabank Global Equity Research.
In a note to clients on Wednesday, analyst Jason Bouvier called for returns to rise as companies in Canada's energy patch continue to hit debt targets.
"There will be another step change in shareholder returns," Bouvier wrote. "We anticipate many companies will hit their near-term net debt target in 2023, and will shift to a higher proportion of free cash flow going to shareholders."
Most Canadian oil and gas producers have put rising dividends and stock buybacks ahead of capital spending plans this year, as geopolitical tensions in Europe drove crude prices higher. With a recession now on the horizon, Bouvier predicts those returns will remain "healthy" if U.S. benchmark crude slips to US$75 per barrel.
The price of West Texas Intermediate (CL=F) oil climbed 1.12 per cent to US$87.49 per barrel as at 12:21 p.m. ET on Wednesday, following an OPEC+ agreement to limit output by two million barrels per day.
Bouvier says Imperial Oil (IMO.TO)(IMO) will "materially" increase its shareholder returns over the next 12 months, having already achieved zero net debt and a low payout ratio. Assuming oil at US$75 per barrel, he expects Whitecap Resources (WCP.TO) to achieve its near-term debt target in the fourth quarter of this year. Baytex Energy (BTE.TO) is expected to follow suit in the second quarter of 2023, he says, followed by Vermilion Energy (VET.TO)(VET), Cenovus Energy (CVE.TO)(CVE), and Suncor Energy (SU.TO)(SU) in the third quarter of next year.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.