After a sluggish 2025, several energy stocks are trading at attractive valuations right now. One such Canadian energy stock is Tourmaline Oil (TSX:TOU), with a market cap of $23 billion.
Tourmaline is a Canadian senior oil and natural gas exploration and production company operating in the Western Canadian Sedimentary Basin since 2008. Through strategic acquisitions, farm-ins, and active development, it has built an extensive undeveloped land position with significant multi-year drilling inventory and control of critical natural gas processing and transportation infrastructure across three core growth areas.
- The Alberta Deep Basin accounts for over 50% of production, and Tourmaline is the largest producer. The company owns interests in 23 natural gas plants, including 11 that are 100% owned and operated, providing over 2.5 billion cubic feet per day of processing capacity. This multi-objective tight gas sand play features up to 15 separate lower Cretaceous liquids-rich reservoirs accessed through multi-stage fracture stimulation in horizontal and vertical wells.
- The NEBC Montney Gas/Condensate area focuses on liquids-rich natural gas in the Groundbirch/Sunrise/Dawson area and the Gundy CK region. Tourmaline operates seven processing facilities with approximately one billion cubic feet per day aggregate capacity, including a 400 million cubic feet per day ethane rejection facility.
- The Peace River Triassic Oil complex at Spirit River-Mulligan-Earring produces approximately 25,000 barrels of oil equivalent daily from Charlie Lake, Montney, and Wapiti Cardium formations. The company operates two oil batteries handling 50,000 barrels per day of fluids and a 60 million cubic feet per day sour gas processing facility, maintaining a large inventory of vertical and horizontal development prospects.
A strong performance in Q3
In the third quarter (Q3), Tourmaline Oil wrestled with a weak natural gas pricing environment. It posted an average production of 634,750 barrels of oil equivalent per day, hitting the high end of guidance despite storage injections and shut-ins during the quarter.
Liquids production exceeded 147,000 barrels daily, up 4% from the prior quarter. However, the Q3 cash flow of $720 million and earnings of $190 million fell short of expectations due to extraordinary circumstances in the natural gas market.
Lower prices stemmed from major maintenance outages on both the East Gate and West Gate export pipelines, which forced Tourmaline to redirect approximately 155 million cubic feet per day of premium-priced Gulf Coast and Western U.S. volumes into depressed local spot markets.
Tourmaline maintained its production guidance of 690,000 to 710,000 barrels equivalent daily for 2026 and reaffirmed plans to reach 850,000 by 2031, representing 30% growth.
It also announced strategic initiatives, including a long-term storage agreement with AltaGas providing six billion cubic feet of capacity and new LNG (liquified natural gas) supply contracts.
In addition to an annual dividend, Tourmaline Oil pays a special dividend tied to its free cash flow. In the last 12 months, TOU stock paid cumulative dividends of $3.55 per share, translating to a yield of almost 6%.
What is the TOU stock price target?
If we account for dividend reinvestments, the TSX energy stock has returned 4,500% to shareholders since its initial public offering in 2010. Despite its stellar returns, Tourmaline stock is down 29% from all-time highs, allowing you to buy the dip.
Notably, the TSX dividend stock is forecast to expand from $521 million in 2025 to $1.8 billion in 2029. If Tourmaline stock is priced at 20 times forward FCF, it could surge 55% over the next three years. If we account for dividends, cumulative returns could be closer to 70%.
