Tourmaline Oil (TSX:TOU) is down roughly 28% from its all-time highs, allowing investors to buy a quality stock at a lower multiple.
Tourmaline is one of the largest and lowest-cost natural gas producers in Canada, and right now the market is punishing it almost entirely due to weak local gas prices. That is a temporary problem, given that the underlying business is getting stronger by the quarter.
Here is the full case.
Source: Getty Images
Tourmaline is a natural gas powerhouse
Tourmaline is Canada’s largest natural gas producer. It operates across two massive resource plays: the Alberta Deep Basin and the Northeast British Columbia Montney. Both are derisked through more than 2,640 wells drilled, with full processing and pipeline infrastructure in place.
- The company has spent 17 years building what is now six billion barrels of oil equivalent in proven and probable reserves.
- Last year, Tourmaline drilled 320 gross wells and led the entire Canadian industry with 1.7 million metres drilled.
- Well performance in the BC Montney was the best in six years, running 22% above the previous five-year average.
- Q4 liquids production hit a record 152,673 barrels per day.
- January 2026 production averaged over 685,000 barrels of oil equivalent per day.
A low-cost production benefit
Tourmaline launched a cost-reduction initiative in mid 2025, and the early results are striking. Operating costs dropped from $5.14 per barrel in the first half of 2025 to $4.66 in Q4. The company now guides for $4.50 per barrel in 2026.
Management has raised its aggregate cost-reduction target to $1.50 per barrel by 2031, up from the original $1.00 target, and says roughly $0.70 of that has already been achieved.
By 2031, Tourmaline expects up to $500 million per year in structural cost savings relative to its first-half 2025 cost base. That number is independent of commodity prices and flows straight to the bottom line regardless of where gas trades.
In February 2026, Tourmaline sold its Peace River High asset, its most mature and highest-cost production asset, to a Canadian senior producer for $765 million. It is using $500 million of that to permanently reduce long-term debt and the remaining $265 million to fund infrastructure expansion.
Net debt dropped from $2.3 billion in Q3 of 2025 to $1.5 billion by year-end, allowing the Canadian energy stock to reduce leverage to 0.5 times free cash flow.
The TSX dividend stock is down largely because spot gas prices have been unusually weak this winter. California had almost no cold weather, and excess hydro power from dam maintenance flooded the local power market, cutting gas demand.
As CEO Mike Rose noted on the Q4 earnings call, for every $0.10 per thousand cubic feet that prices improve, annual cash flow rises by $45 million. And separately, every $1 move in international LNG benchmarks adds $50 million to 2026 cash flow and $70 million to 2027.
The company has also entered a long-term natural gas storage agreement that provides it with six billion cubic feet of storage capacity starting in April 2026, rising to ten billion cubic feet by mid-2027. That flexibility allows Tourmaline to time injections and withdrawals to maximize price realizations across seasons.
A focus on dividend growth
Tourmaline pays a quarterly base dividend of $0.50 per share. If we include special dividends, the company paid $3.30 per share over the past 12 months, which translates to an almost 5.5% yield.
Management has been direct: special dividends will return when free cash flow warrants it. Given the company’s cost trajectory, its growing LNG exposure to premium global markets, and a balance sheet near its long-term net debt target of $1.75 billion, the setup for shareholder returns over the next two to three years is attractive.
The oil stock is down due to short-term weakness in gas prices. The business is structurally improving, and the gap between price and value is what long-term investors look for.
