A group of five large Canadian oilsands companies are expected to generate about $60 billion in net cash flow over the next two years and spend only half of it on dividends and capital expenditures, leaving the rest for debt repayment and sharing with shareholders.
In a report, analyst William Lacey of ATB Capital Markets says the companies are expected to duplicate their sterling financial performance of the first quarter of 2021 for the rest of this year and in 2022, provided that benchmark West Texas Intermediate oil prices remain near US$60 per barrel.
The five companies, Canadian Natural Resources Ltd., Suncor Energy Inc., Imperial Oil Ltd., Cenovus Energy Inc. and MEG Energy Corp., are expected to bring in $59 billion more in cash than they spend on operations, from which about $23.2 billion will go to capital budgets and about $9 billion to dividends.
The report says that will leave about $26.8 billion to pay down debt, buy back shares for cancellation and use to increase dividends.
Lacey says the five companies have been consistent in setting debt and shareholder return targets for all near-term cash flow rather than spending on growing output organically or through buying other companies or assets.
The report says the Canadian firms are attractive for investors in comparison with American rivals because they are more heavily weighted toward oil production.
"Assuming that WTI prices remain in the realm of US$60 per barrel, we believe that the combination of material free cash flow yields and exceptionally low (stock) valuations will be too attractive for generalist investors to look past, especially in light of ongoing inflationary pressures and the resultant rotation towards tangible assets,'' the report concludes.