Canada is an energy superpower, even though its citizens often tend to downplay it. Canada is the fourth-largest producer of oil and gas in the world!
It also happens to be a major player in uranium production (used in nuclear power), hydro power, and various other renewable power projects. Fortunately, the Canadian government finally seems to be taking its vast resources seriously. As a result, a surge of projects could be initiated across the country.
If I were interested in winning from Canada’s energy dominance, I would look at buying these three energy stocks today.
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Pembina Pipeline: An energy infrastructure leader
If you want a bet on Canadian energy infrastructure, Pembina Pipeline (TSX: PPL) has to be a top pick today. The company is integrated throughout the energy value chain across Western Canada. It offers 18,000 km of pipelines, midstream and fractionation facilities, storage, and export terminals.
Over 85% of Pembina’s income is contracted. While this somewhat caps the upside when energy prices are strong, it ensures a steady stream of cash in the business throughout the cycle.
Pembina is right in the mix of Canada’s energy transformation. Under development, it has an important LNG export terminal, a data centre power facility, an ethane extraction facility, several collection pipelines, and an agreement to partner with the Canadian government to potentially build a West Coast egress pipeline.
Pembina stock yields 4.2%, so you get to collect a nice income stream while you wait for all these projects to complete.
Tamarack Valley: A mid-cap on the rise
If you want exposure to strong oil prices, Tamarack Valley (TSX: TVE) is an attractive mid-cap stock to hold. It has a market cap of $6.9 billion. It currently produces over 60,000 barrels of oil equivalent (BOE) per day.
Earlier this year, Tamarack divested assets to focus on the Clearwater, a highly productive and profitable energy play in northern Alberta. To enhance its Clearwater position, Tamarack recently announced a merger with Headwater Exploration.
Combined, it will produce over 80,000 BOE/d in the region. Even after the deal, Tamarack will still be sitting with net cash on the balance sheet. The company expects to generate a substantial stream of cash, especially as its breakeven cost will decline to $37 per barrel.
Tamarack announced a 20% dividend increase with the deal. It currently yields 1.4%. However, solid industry fundamentals are likely to support further years of dividend growth ahead.
Cenovus: Canada’s integrated energy giant
If you want exposure to one of Canada’s largest energy stocks, you have to look at Cenovus Energy (TSX: CVE). It has a market cap of $82 billion.
It is becoming one of Canada’s largest integrated energy (upstream production and downstream refining) players. Last year, it acquired the oil sands assets of MEG Energy. It just announced plans to acquire Athabasca Oil, a high-quality, long-life thermal oil player with assets very close to its own plays.
These acquisitions seriously beef up Cenovus’ inventory and provide substantial opportunities for cost efficiency and synergies. Cenovus will become Canada’s second-largest energy producer with the potential for over 1 million BOE/d of upstream production.
Despite its massive step-up in scale, Cenovus still trades at a discount to other integrated peers. It yields 2% and has a great record aggressively increasing that dividend. This is a great way to play Canada’s energy boom for the next decade ahead.
