Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
Natural gas prices have risen by more than 80 per cent in the past four months as a result of increased demand from the artificial intelligence (AI) boom and the ongoing global shift from coal to cleaner energy sources.
Industry reports indicate that the US power system is not expanding fast enough to meet the rapidly growing electricity demand from technologies such as Generative AI, and that the surge in electricity use by AI data centers will significantly boost natural gas demand. According to analysts’ rough estimates, 60% of the future growth in AI data centre power demand will be supplied by natural gas, with 20% growth in natural gas demand by 2030.
Going forward, increased demand for AI, along with continued growth in LNG exports, will support natural gas demand. And here are two Toronto Stock Exchange (TSX) natural gas stocks that will benefit the most.
Tourmaline Oil (TSX:TOU) is Canada’s largest natural gas producer. The company is committed to full-cycle profitability and returns, and is actually one of the lowest-cost producers with strong free cash flow and dividend growth. In the first quarter of 2024, the company reported free cash flow of C$309.8 million, or C$0.87 per share, which was lower than the same period last year but still better than expected.
Thanks to higher natural gas prices, cash flow projections have been increased by C$200 million to C$500 million in each year of the company’s five-year plan. Management expects to generate C$8.6 billion in free cash flow over the next five years (about 38 per cent of the company’s current market capitalisation). Meanwhile, as natural gas prices continue to rise, following a strong first quarter report, management increased its annual dividend by 7 per cent to C$1.28 per share and also declared a special dividend of C$0.50 per share.
Peyto Exploration and Development (TSX:PEY) is Canada’s fifth-largest natural gas producer, averaging 124,000 barrels of oil equivalent per day (boepd), and is now focused on some of the most prolific oil and gas producing areas in the Deep Basin region of Alberta. The basin is characterized by high returns, high recovery rates and predictability. This has allowed Peyto to remain one of the lowest cost natural gas producers with the ability to drive continued dividend growth.
The financial results show that the company’s production increased 21 per cent in the first quarter of 2024 and working capital increased 14 per cent to C$204.6 million. The company’s history of generating cash flow and dividend growth reflects its strong operating performance. Strong profitability has supported dividend growth of 450% since 2019.
