Oil, Gas Companies Boost Resilience Amid Focus on Capital Discipline, National Bank of Canada Says

06:11 AM EDT, 09/25/2025 (MT Newswires) -- Oil and gas prices have remained relatively range bound since early 2024, but resilience across covered companies continues to show signs of improvement, driven by a recent paradigm shift in capital discipline, National Bank of Canada said in a Wednesday note.

This can be seen in stronger corporate-level returns, improved payout ratios, healthier leverage metrics and, consequently, attractive and sustainable return of capital profiles, the bank noted.

National Bank forecasts a total payout ratio of 70% in 2026, even as the sector had historically spent more than cash flow, relying on the balance sheet to fund capital programs and dividends.

Free cash flow was largely directed toward reducing debt levels, resulting in leverage ratios that are lower than in previous cycles. The sector historically managed leverage around 2.0x debt/cash flow, but the bank's 2026 forecast reflects an average of 0.6x.

Cash margins have not materially improved from historical levels, averaging around 50%, but recent trends have been positive, with a forecast of 52% in 2026, up from 46% in 2024.

More importantly, there has been a shift in return on invested capital, which averaged low-single digits between 2015 and 2019, compared to a 2022-2026E average of almost 20%, National Bank said. This underscores the sector's demonstrated shift in capital discipline over the past five years.

Despite oil prices falling 8% since January 2024, the energy index has averaged 30% over the same period, the bank noted. National Bank views this as a reflection of the sector's resilience and renewed focus on return on capital.

As the sector improves operating efficiencies and maintains capital discipline, it is an attractive opportunity for exposure to offset possible inflationary pressures and keep exposure to global expansion potential, the bank said.

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