Like it or not, oil prices have gone through the roof again, trading above $104 as the war in Iran drags on. This has sent Canadian energy stocks soaring, with those with a higher weighting of crude oil production seeing the most gains.
But the Canadian energy stock that I think is poised for the most growth is not an oil-weighted stock, but one focused on natural gas production. Despite its name, Tourmaline Oil Corp.’s (TSX: TOU) production profile is 80% natural gas and 20% crude oil and natural gas liquids. And it’s on its way to significant growth.
Source: Getty Images
Why natural gas?
Natural gas is headed for booming times as domestic and global demand growth continue to grow. In North America and abroad, the switch from coal to natural gas continues, along with a rise in industrial natural gas consumption. Also, the liquified natural gas, or LNG, industry continues to expand and North America’s natural gas is a preference for many.
Tourmaline – the Canadian energy stock to beat
This means that Canadian natural gas producers like Tourmaline are in for a strong ride. In fact, the company is already benefitting from these trends and preparing for what’s to come. For example, an expansion of Tourmaline’s North East Montney infrastructure will provide the company with greater scale. Expect higher production, more infrastructure, lower costs, and ultimately strong shareholder value creation.
Recent well-timed expansions and additions of five major processing complexes are expected to contribute to this plan. These projects will provide Tourmaline with significant high-margin volume growth as the company continues its Montney buildout. For example, Tourmaline is nearing completion on two major facility expansions, the Aitken Creek and Groundbirch facilities. These will lower costs and support long-term production growth.
As you can see from the graph below, Tourmaline’s stock price (TOU stock on the TSX) has increased approximately 23% in the last three years. Yet, it has been somewhat range-bound since then as North American natural gas prices have been weak. This is an opportunity for investors to buy before upcoming significant growth.
The future looks bright
In Tourmaline’s latest earnings release, the company reported record production, and strong earnings and cash flow. It also reported a sharp rise in free cash flow and free cash flow forecasts. Let’s look into this in more detail.
In Tourmaline’s first quarter, average production of 666,000 barrels of oil equivalent (boe) per day was within the company’s guidance. Cash flow totaled $862 million and free cash flow was $202 million. Tourmaline’s free cash flow was 35% higher than the same period last year despite lower natural gas prices. This was due to cost reductions, hedging, and strong liquids and LNG pricing.
LNG and liquids
Strong global demand for North America’s LNG exports continues to benefit Tourmaline, as does strong liquids pricing. Natural gas liquids are chemicals that have been condensed and isolated after drilling. These valuable by-products include propane and butane, and they are also experiencing a strong demand environment both domestically and globally.
Due to strong global liquids prices and improved access to Pacific propane exports, 2026 natural gas price realizations are expected to increase by more than 30%. As a result, Tourmaline’s 2026 and 2027 cash flow and free cash flow outlooks have significantly improved. The company’s 2026 free cash flow estimate is currently approximately $900 million, 140% higher than the prior year.
The bottom line
Tourmaline stock (TOU on the TSX) is Canada’s top natural gas producer and also Canada’s lowest-cost producer. As we head into the next 10 years, this Canadian energy stock is very well-positioned to benefit from strengthening natural gas fundamentals and prices. This will likely drive Tourmaline’s stock price much higher over this time period.
