Energy Services 2026 Outlook

Oil Headwinds, Gas Tailwinds, and Productivity Gains on Deck for 2026
We believe the macro-outlook for the North American energy services sector in 2026 is defined by a divergence between oil and gas activity, and rising drilling and completions efficiency. Crude markets face a tenuous outlook with WTI crude prices trending toward US$55/bbl and a consensus view of increasing global oversupply in 2026.

Conversely, we believe the outlook for natural gas remains robust, supported by demand from growing North American LNG export capacity and AI data centres, and improved natural gas pricing across major North American benchmarks. We believe the outlook for North American oil production, crude pricing and oil basin activity levels will be dictated meaningfully by the pace of drilling and completions productivity increases relative to the pace of Permian basin resource degradation (see page 14) which our analysis suggests have largely offset over recent years.

Overall, we forecast the North American rig count to decline 2.5% y/y on average in 2026e, as modest downside in oil basins is largely offset by activity growth in gas basins. Consequently, we believe the most compelling macro backdrops lie with companies that have 1) high leverage to natural gas production growth, 2) differential leverage to gas vs oil drilling and completions activity, and 3) positive exposure to rising drilling and completions productivity. Geographically, we believe Canada offers a more resilient outlook for activity in 2026 than the US, while we forecast stronger medium-term growth in the US.

Where to Focus in 2026
In 2026, we believe outperformance will accrue to energy services companies that are able to deliver a healthy combination of above average EBITDA and FCF growth, strong and/or inflecting return to shareholder profiles, and that trade at compelling valuations. Furthermore, we believe robust return to shareholder profiles, and rising FCF conversion ratios, will serve as potential catalysts for multiple expansion.

Top Picks – EFX, PD, TOT
Our top picks for 2026 are Enerflex Ltd. (EFX-T, OP, $26.00 PT), Precision Drilling Corp. (PD-T, OP, $120.00 PT), and Total Energy Services Ltd. (TOT-T, OP, $20.00 PT). Our top picks are focused on companies that we believe have limited exposure to US oil basin drilling and completion (D&C) activity, have healthy balance sheets, generate sufficient FCF to fund substantial returns to shareholders alongside high-return reinvestment opportunities, have significant exposure to gas production and/or gas D&C activity, and trade at compelling valuations.

Changes to Estimates, Price Targets, and Ratings
Alongside moderately lower North American rig activity estimates given oil market headwinds, offset to some degree by lower CAD/USD FX assumptions in 2027, we reduce estimates for many D&C levered companies, while we increase estimates for those with more advantages market positions and/or higher USD exposure in 2027. We also introduce our 2028 estimates across our coverage. We reduce our price target for ACX to $6.50 from $6.75, for AKT to $2.25 from $2.50, for ESI to $3.00 from $3.25, for WRG to $2.50 from $2.75, and TOT to $20.00 from $20.50. We increase our price target for CEU to $14.50 from $14.00 and for EFX to $26.00 from $25.00. We make no changes to ratings. See Full Report: Pages 19-21.

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