Weak natural gas prices generally scare investors away from energy stocks. I think that fear is precisely what makes Tourmaline Oil (TSX:TOU) a top stock to own right now.
In the first quarter (Q1) of 2026, the Canadian energy giant reported record production and strong earnings. Moreover, the balance sheet is in better shape than the company’s own long-term target.
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The bull case for the Canadian energy stock
Tourmaline delivered average production of 666,089 barrels of oil equivalent per day in the first quarter, landing within its original guidance range despite deferring a meaningful amount of capital spending.
It reported an operating cash flow of $862 million, while free cash flow (FCF) stood at $202 million with a net income of $658 million. It means the company allocated roughly $660 million towards capital expenditures.
These results were posted during what management called an extremely weak stretch for Western North American gas prices.
Operating costs still fell 8% from the same quarter a year earlier to $4.75 per barrel of oil equivalent, and full-year guidance of $4.50 per barrel of oil equivalent would mark a 9% drop from 2025.
Tourmaline Oil ended Q1 with a net debt of $1.5 billion, below the long-term target of $1.75 billion and equal to roughly 0.4 times cash flow.
Tourmaline’s average realized gas price in the first quarter was $3.59 per thousand cubic feet (Mcf), well above the AECO benchmark price of $2.05 per Mcf over the same period.
That gap exists because the company sells gas into multiple markets rather than relying only on the depressed local price, and because it hedges a large share of production.
Management pointed to a specific and temporary cause behind the weak local pricing. Reduced hydro generation on the West Coast, tied to dam maintenance, has cut into export demand, leaving roughly one billion cubic feet a day of gas backed up into Alberta that would normally flow west. Once summer heat returns to California and hydro output drops further, that export corridor should reopen.
President and CEO Mike Rose framed the bigger picture during the earnings call this way: “What’s really exciting for us right now is that we’re rapidly making a really good business that much better, from well productivity to improving cost, to a fortress balance sheet, to decades of booked reserves, to an unmatched high-quality drilling inventory.”
Tourmaline booked only 15% of its current drilling inventory into its year-end 2025 proved and probable reserves of 27.7 trillion cubic feet, meaning there is a long runway of low-cost production still sitting on the balance sheet without being reflected in reserve figures.
Tourmaline has displaced more than 250 million litres of diesel through its multiyear fuel switching program, saving over $245 million to date. It has set a new 10-year target of $565 million in additional savings.
On the emissions side, Tourmaline became the first Canadian company certified under the MiQ standard, covering its entire 1.6 billion cubic feet per day Northeast British Columbia production and processing base. That certification could open doors to buyers who care about verified methane intensity.
Is the TSX energy stock undervalued?
Weak gas prices have kept a lid on this Canadian energy stock, but the underlying business just posted record production, strong earnings, and a balance sheet that beats its own conservative target.
Management expects the pricing pressure to ease within months as West Coast exports recover, and the company is layering in higher-margin international pricing exposure along the way.
Analysts tracking the Canadian energy stock forecast FCF to expand from $407 million in 2025 to $2.47 billion in 2030. If TOU stock is priced at 20 times forward FCF, which is similar to the current multiple, it could more than double from current levels within the next four years.
