How Canadian and U.S. producers are navigating uncertainty

Upcoming Q2 and Q3 financial reporting will illustrate how companies are managing hedging, capital spending, shareholder returns, balance sheets, and acquisitions, in response to one-time increases in pricing and cash flow caused by geopolitical conflict.

Free cash flow: Tracking the uplift

The cash flow impact of stronger oil prices was already visible in Q1, despite price rises occurring late in the period. Geologic’s financial and operating data illustrates how increases in free cash flow* for oil and gas producers** have been widespread.

Q2 results should show many producers generating more incremental cash flow in spite of recent declines in prices per barrel.

Hedging: Protecting the cash flow uplift

Q2 results will also provide evidence of which companies used hedging to lock in longer-term pricing protection during the period of higher prices.

As prices rose, producers used new hedges to lock in stronger realized pricing for longer, as shown earlier in the quarter. With prices now declining, the focus shifts to identifying producers that added improved downside protection.

• For producers that reset hedge positions: Fixed-price swaps set at higher levels, and higher floors on collar derivatives, could become more important if prices continue to decline.
• For unhedged producers, or those that did not reset hedge positions: Q2 results may show stronger realized pricing but Q3/Q4 guidance could become more sensitive to decline in Brent or WTI.

Capital budgets: Tracking changes to 2026 plans

Q1 results came too soon after the price increase to assess for widespread change in spending behaviour for upstream producers.

The more useful evidence will come from Q2 updates and revised 2026 guidance.

Geologic’s May 2026 Guidance Report, available here via DOB Energy, shows several Canadian producers raising capital budgets or accelerating spending. Recent highlights include:

• Spartan Delta Corp. updated its 2026 capital program to C$475–C$525 million from C$410–C$470 million, with the revised plan supporting annualized production of 52,000–54,000 boe/d.
• Kelt Exploration Ltd. increased its 2026 capital expenditure program to C$375 million from C$355 million, with the increase to be focused on drilling and completions.
• Surge Energy Inc. increased its 2026 capital program to C$175 million, including additional funding for eight more wells and accelerated waterflood projects.
• Cardinal Energy Ltd. increased its 2026 budget to C$205 million from C$160 million, with plans to drill 19 conventional wells and lift planned ARO expenditures.

Q2 updates and revised 2026 guidance should provide a clearer view of whether recent budget increases continue as companies reinvest stronger cash flow, or whether recent price declines temper that momentum.

Shareholder returns and M&A: Tracking capital allocation choices

Not all producers will use incremental cash flow generated in Q1 and Q2 to increase capital budgets. They may:

• Allocate incremental cash to shareholders via buybacks or special/increased dividends.
• Use incremental cash to reduce debt or pursue acquisitions.
• Retain more cash on balance sheets.

What to watch as Q2 and Q3 results arrive

Geologic’s financial, operating, guidance, hedging and transactions data illustrate where producers are directing cash.

• Cash flow sensitivity: Geologic’s financial and operating data can show how much of the Q2 uplift came from realized prices, and the impact on cash flow.
• Hedging coverage: Hedging data can identify which producers added downside protection at higher price levels and how much exposure remains to Brent or WTI declines.
• Capital budgets: Guidance data can track whether 2026 budget increases continue as companies reinvest cash flow or if price declines slow momentum.
• Shareholder returns: Financial data can show how much cash flowed to dividends and buybacks, relative to other uses of cash.
• M&A: Transactions data can track how renewed volatility affects acquisition activity, asset sales, and any change in the buyer-seller valuation gap.

Notes

* Free cash flow refers to operating cash flow minus capital spending, showing the cash available after funding core investment activity. The data shown here excludes any impact of working capital changes.

** The illustrative company groups shown in the free cash flow chart above were formed using the following criteria:

• The Supermajors group includes BP, Chevron, ExxonMobil, Shell and TotalEnergies.
• The U.S. domestic E&Ps group comprises 58 U.S.-headquartered oil and gas producers, excluding the two U.S. supermajors, that had more than 50% of their latest quarterly production in the United States and have an accounting year-end of December 31.
• The Canadian domestic E&Ps group comprises 54 Canada-headquartered oil, gas and oilsands producers that had more than 50% of their latest quarterly production in Canada and have an accounting year-end of December 31.