Canadian energy stocks continue to make up a large percentage of the TSX. Today, they are better positioned than ever to meet the energy needs of both North America and the world. This demand will translate into strong profits and shareholder value creation in 2025 and beyond.
Canadian energy companies are not what they used to be
Many years ago, it seemed like the mantra behind every energy company was to grow production and increase revenue. There was little mention of growing bottom-line results or shareholder value. But years of ultra-low energy prices meant that these companies had to change. Their very survival depended on it.
Today, Canadian energy companies are increasingly focusing on lowering costs and increasing efficiencies. This has created a sea-change in the industry, with companies that are profitable at increasingly lower oil and gas prices. And this is good for energy stocks, and of course, us as shareholders.
Oil prices
As the never-ending tug of war between demand and supply forces continues, oil prices have remained strong. In fact, they have pretty much remained above $70 for the last four years. In 2025 and beyond, many analysts expect supply to outpace demand growth. Therefore, the price of oil is forecasted to hover around $70, but decline slightly as the year progresses.
Canadian Natural Resources Ltd. (TSX: CNQ) is a top-tier Canadian oil and gas company, with annual revenue of $36 billion and a market capitalization of $94 billion. Its assets consist of a diversified portfolio of high-quality natural gas, crude oil, and upgrading assets. Importantly, these assets are long-life assets, and as such, the company’s reserves are expected to last 32 years. This ensures reliable and predictable cash flow generation from CNQ.
Despite the political uncertainty regarding U.S. tariffs, CNQ plans to increase its output by 12% in 2025. The company has had a good 2024, with adjusted funds flow per share of $4.97 in the first nine months, compared to $4.91 last year. This was a good result, especially considering that both oil and gas prices were lower.
Natural gas
Canadian natural gas prices collapsed last year, falling below the $1 mark. U.S. natural gas prices were also lower. They currently trade at $3.55 per million British thermal units (MMBtu). This is higher than five years ago, but significantly lower than 2023 levels.
However, I remain bullish on natural gas for 2025 and beyond. There are a couple of reasons for this. Firstly, the liquified natural gas, or LNG, industry is creating significant demand for North American natural gas. This has already been the case but it’s accelerating. The start-up of LNG Canada is expected in 2025. This will drive additional strong demand for natural gas in the next few years, hence driving natural gas prices higher.
Tourmaline Oil Corp. (TSX: TOU) is Canada’s largest natural gas producer. The company stands to benefit from these changing industry dynamics. Canada’s natural gas resources are cheap, abundant, secure, and increasingly accessible to the world. Tourmaline is already benefitting from increasing LNG sales and is expected to continue to do so.
Tourmaline’s track record speaks for itself. It 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 bottom line
North American oil and gas is still very much in demand. As the industry cleans itself up, and as it becomes increasingly efficient, I expect Canadian energy stocks to have a good year in 2025 and beyond.
