The Zacks Oil and Gas - Exploration and Production - Canadian industry is entering a phase of renewed strength, supported by key market shifts and infrastructure advancements. Energy exports to the United States surged in late 2024, driving the trade surplus to C$11.3 billion. Crude oil shipments jumped 11.8% in Q4, aided by a weaker Canadian dollar and preemptive stockpiling. With three-fourths of Canada’s exports flowing south, this demand adds resilience to the sector. A major breakthrough came with the Trans Mountain Pipeline Expansion (TMX), which began transporting oil in 2024.
This expansion increases capacity and unlocks better international pricing, strengthening Canada’s position in the global markets. Meanwhile, severe cold weather has driven a surge in natural gas demand, further tightening supply. The impact of U.S. tariffs is also proving less disruptive than expected, providing stability. With a strong growth trajectory, stocks like Tourmaline Oil, Ovintiv and Arc Resources stand out as compelling opportunities.
About the Industry
The Zacks Oil and Gas - Canadian E&P industry consists of companies primarily based in Canada, focused on the exploration and production (E&P) of oil and natural gas. These firms find hydrocarbon reservoirs, drill oil and gas wells, and produce and sell these materials to be refined later into products such as gasoline, fuel oil, distillate, etc.
The economics of oil and gas supply and demand is the fundamental driver of this industry. In particular, a producer’s cash flow is primarily determined by the realized commodity prices. In fact, all E&P companies' results are vulnerable to historically volatile prices in the energy markets. A change in realizations affects their returns and causes them to alter their production growth rates. The E&P operators are also exposed to exploration risks where drilling results are comparatively uncertain.
4 Key Investing Trends to Watch in the Oil and Gas - Canadian E&P Industry
Strengthened Trade Surplus with the U.S.: Canada’s energy exports to the United States surged in late 2024, pushing the trade surplus to C$11.3 billion in December, up from C$8.2 billion. Crude oil exports jumped 11.8% in the fourth quarter, fueled by a weaker Canadian dollar and preemptive stockpiling ahead of potential tariffs. With three-fourths of Canada’s exports heading to the United States, the increased demand provides stability for Canadian oil producers.
Canada’s Oil Transport Breakthrough: The Trans Mountain Pipeline Expansion (TMX) officially began transporting oil in 2024, marking a major step forward for Canada’s energy network. First constructed in 1953, this enhanced pipeline significantly boosts capacity, easing previous transportation constraints. By facilitating better access to international markets, TMX allows Canadian oil producers to expand their reach and achieve stronger pricing. This development strengthens the nation’s oil sector and contributes positively to the broader economy.
Cold Weather Sparks Gas Demand Surge: Frigid weather sweeping across North America has been a key driver of this price surge. Forecasts indicate sustained low temperatures, with temperatures dropping to as low as -20°F. Heating demand has surged, particularly in regions where natural gas is the primary source of energy for millions of homes. Analysts project continued tightness in the supply-demand balance as these cold conditions persist through the next few weeks.
Mitigated Impact of U.S. Tariffs: The 10% tariff on Canadian oil imports to the United States is far lower than the feared 25% rate, limiting disruption. Analysts believe that some shipments may be exempt, particularly oil transiting through the United States to global markets. Additionally, the expanded Trans Mountain Pipeline allows Canada to divert 180,000 barrels per day to alternative buyers, reducing reliance on U.S. refiners and providing pricing leverage.
Zacks Industry Rank Indicates Positive Outlook
The Zacks Oil and Gas - Canadian E&P is an 11-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #57, which places it in the top 23% of 249 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates fairly strong near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Given the encouraging dynamics of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 & Sector
The Zacks Oil and Gas - Canadian E&P industry has fared worse than the Zacks S&P 500 composite as well as the broader Zacks Oil – Energy sector over the past year.
The industry has moved up 7.8% over this period compared with the broader sector’s increase of 12.7% and the S&P 500’s rise of 24.2%.
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.
On the basis of the trailing 12-month EV/EBITDA ratio, the industry is currently trading at 4.74, significantly lower than the S&P 500’s 18.93. It is, however, above the sector’s trailing 12-month EV/EBITDA of 4.42X.
Over the past five years, the industry has traded as high as 14.49X, as low as 2.91X, with a median of 5.07X.
3 Stocks to Focus On
Arc Resources: It is Canada’s largest pure-play Montney producer and the country’s third-largest natural gas producer. With a strong track record of operational and financial performance, ARC efficiently develops its high-quality, resource-rich assets. Backed by an investment-grade credit rating, the company focuses on cost leadership, LNG expansion, and organic condensate growth. Its large, concentrated asset base enables long-term production sustainability, with a clear strategy to triple free funds flow per share by 2028 while driving efficiency and profitability.
Notably, the Zacks Consensus Estimate for AETUF’s 2025 earnings per share indicates 69.8% year-over-year growth. It has a trailing four-quarter earnings surprise of roughly 2.1%, on average. Arc Resources shares have gained 15.1% in a year. The stock carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ovintiv: Ovintiv is an independent E&P operator with an attractive oil and gas production portfolio in three major North American unconventional basins: Montney, Anadarko and the Permian. Following the Newfield acquisition in 2019, the company has achieved a higher liquids focus, greater scale and cost synergies. Ovintiv has done a commendable job of cutting its expenses in a disciplined manner, which should boost free cash flow generation. Ovintiv’s cash flows will also receive downside protection from attractive oil and gas hedges.
Ovintiv beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 25.4%, on average. The Zacks Rank #2 (Buy) company’s Value and Momentum Score of A each, respectively, help it to round out with a VGM Score of A. With a market capitalization of around $11.3 billion, OVV has increased 4.1% in a year.
Tourmaline Oil: It is Canada’s largest natural gas producer, operating across Alberta’s Deep Basin, NEBC Montney, and Peace River Triassic Oil plays. The company drives long-term growth through strategic acquisitions, cost efficiencies and disciplined capital management. As the fourth-largest Canadian gas processing midstream operator, Tourmaline delivers peer-leading cash flow growth and strong free cash flow generation. With an investment-grade BBB rating, it offers investors a unique combination of scale, profitability, and efficiency in Canada’s top-tier gas assets.
TRMLF has a market capitalization of $17.4 billion. The company’s expected EPS growth rate for three to five years is currently 13%, which compares favorably with the industry's growth rate of 10.6%. Tourmaline Oil, carrying a Zacks Rank #3 (Hold), has seen its stock go up 14% in a year.
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