Canadian Oil and Gas Stocks to Watch for 2025

Natural gas producer Tourmaline stands to benefit from a rise in natural gas prices as LNG Canada begins operation.

| More on:
oil pump jack under night sky

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As Canadian investors, we sure have our work cut out for us. Because oil and gas stocks are still a big part of the Canadian market – and they’re not easy to figure out and predict. Though they do have significant potential for shareholder value creation. That is why this lucrative business cannot be ignored, despite its cyclicality, which can be a scary thing for investors.

Today, oil is hovering at just above US$74 per barrel – high by historical standards. And natural gas is trading just shy of $3.80 per million British thermal units (MMBtu) – on the low end historically. But what does this mean? And how can we invest in Canadian oil and gas stocks in order to gain exposure to this age-old industry that is actually a better investment today than it was many years ago?

Tourmaline: The largest natural gas producer in Canada

I’d like to start with Tourmaline Oil Corp. (TSX:TOU). This is because of my view that natural gas prices will be strengthening significantly over the next year. My thesis is simple.

Analysts expect natural gas demand to strengthen significantly as the liquified natural gas (LNG) market heats up with the start-up of LNG Canada. This demand boost will come as Asia continues its quest for cleaner fuel than coal, which is also on the low-cost side. This is where North America’s liquified natural gas comes in. Natural gas is much cleaner than coal and much less expensive than renewable energy, and North America’s natural gas is very affordable.

Tourmaline is a top natural gas company that has been very successful in the last few years. I like it because Tourmaline makes money even in times of low natural gas prices. This is not a natural gas company of the past, when commodity price weakness would wreak havoc. Tourmaline is dedicated to full cycle profitability and returns.

Created with Highcharts 11.4.3Tourmaline Oil PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

All of this can be seen in the company’s results. Tourmaline has grown its cash flow per share by a 26% compound annual growth rate (CAGR) since its 2010 IPO, and by 30% in the last five years. In fact, the company’s free cash flow break-even is achieved at the low natural gas price of $1.50.

The cash flows that Tourmaline can generate in times of natural gas price strength are just as impressive. This has resulted in regular dividend increases and special dividend payments from Tourmaline. I expect more lucrative dividend payments to come from Tourmaline as a strengthening natural gas market will prop up its already successful business.

Peyto: A low-cost producer

Similar to Tourmaline, Peyto Exploration and Development Corp. (TSX:PEY) is also a natural gas producer that has been very successful even at low natural gas prices. In fact, Peyto is actually one of the lowest-cost natural gas producers in Canada.

This is because the company has top-quality assets, which can be found in one of Canada’s most prolific basins, the Alberta Deep Basin. It’s a basin that’s characterized by a high return production profile, with high recoveries and predictability. This has enabled Peyto to remain one of the lowest-cost natural gas producers, with a consistent, growing dividend.

Created with Highcharts 11.4.3Peyto Exploration & Development PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Today Peyto is unjustifiably cheap, in my view. It trades at a mere 5 times cash flow, with a very generous dividend yield of 7.6%. Similar to Tourmaline, if natural gas prices strengthen this year, as I expect they will, Peyto will benefit greatly. This is what makes Peyto a Canadian oil and gas stock to watch in 2025.

The bottom line

The natural gas industry is about to experience a very welcomed boost in demand. As LNG demand continues to come from around the globe, the two Canadian oil and gas stocks discussed in this article will, in turn, see a boost in demand for their stocks. This is the thesis that I have set up my portfolio on.

Should you invest $1,000 in Brookfield Asset Management right now?

Before you buy stock in Brookfield Asset Management, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Brookfield Asset Management wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has positions in Peyto and Tourmaline Oil. The Motley Fool recommends Tourmaline Oil. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

golden sunset in crude oil refinery with pipeline system
Energy Stocks

Is Enbridge Stock (TSX:ENB) a Buy for its 5.9% Dividend Yield?

This solid dividend payer has the potential to help investors generate reliable passive income for decades.

Read more »

nugget gold
Dividend Stocks

Recession Stocks Are Back: Consider Buying the Dip This April

Recession stocks are back, and this one could be a solid winner.

Read more »

Person holds banknotes of Canadian dollars
Energy Stocks

Best Stock to Buy Right Now: Suncor vs Cenovus?

Suncor stock's 4.2% dividend yield vs Cenovus Energy's growth potential: Tariff-proof safety or growth gamble?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Earn $500/Month in Tax-Free Income With Your TFSA

Canadians can earn $500 or a desired tax-free income every month by saving and investing through the TFSA.

Read more »

how to save money
Energy Stocks

1 Canadian Stock Ready to Surge in 2025 and Beyond

This Canadian stock has seen significant growth, but more could come for 2025 and beyond.

Read more »

oil and natural gas
Energy Stocks

Here’s How Many Shares of Enbridge You Should Own to Get $2,000 in Yearly Dividends

Solid dividend stocks like Enbridge could help you generate reliable passive income for decades.

Read more »

Pumpjack in Alberta Canada
Energy Stocks

3 Canadian Oil and Gas Stocks to Watch for in 2025

Oil companies like Suncor Energy (TSX:SU) are doing well this year.

Read more »

Aerial view of a wind farm
Energy Stocks

The Best Renewable Energy Stocks to Buy Before They Take Off

Here are two of the best Canadian renewable energy stocks you can buy today and hold for the long term…

Read more »