As oil prices have declined in 2025, the Toronto Stock Exchange (TSX) energy sector has come under recent pressure. However, this also provides investors with an opportunity to buy into high-quality energy companies at lower valuations. Canadian Natural Resources (TSX:CNQ) and Tourmaline Oil (TSX:TOU), with their strong operational performance and high dividend yields, are expected to deliver excess returns for investors over the next 12 months.
Canadian Natural Resources, a leading TSX energy giant, has seen its share price fall by 22% from its historical high, and its dividend yield has reached nearly 5%.
Despite a challenging market environment, the company posted a record production average of 1.582 million barrels of oil equivalent (BoE) per day in the first quarter, with liquids production at 1.174 million barrels per day and natural gas production at 2.451 billion cubic feet per day. Its oil sands business stood out, delivering a 34% year-over-year increase in daily synthetic crude oil (SCO) output to 595,000 barrels, with operating costs at CA$21.88 per barrel—CA$7-10 lower than peers, resulting in substantial free cash flow.
The recently acquired Duvernay assets have an even lower average operating cost of just CA$9.52 per BoE, and drilling costs are expected to fall by 14% compared to 2024. The company has improved efficiency and reduced its 2025 capital budget by CA$100 million to CA$6.05 billion without sacrificing production targets.
In the first quarter, it reported CA$4.5 billion in adjusted funds flow and net profit of CA$2.4 billion, with CA$1.2 billion paid out in dividends and CA$500 million in share repurchases. The board has approved a 4% increase in the quarterly dividend to CA$0.5875 per share, continuing a 25-year streak of dividend increases, with an annual compound growth rate of 21% over that period.
Tourmaline Oil, Canada’s natural gas producer, posted an 8% year-over-year increase in first-quarter 2025 daily production to 638,000 Boe, exceeding its own guidance. With capital expenditures of CA$825 million, the company generated CA$150 million in free cash flow.
Its strategy of asset acquisitions also drew market attention, as it issued 13 million shares to complete two major acquisitions in British Columbia’s Montney region, adding 20,000 Boe per day in new production capacity, 363 million Boe in reserves, and 410 additional drilling locations. Management stressed that the scarcity of quality North American resources was core to the logic of these acquisitions.
In May, Tourmaline announced a special dividend of CA$0.35 per share and a regular quarterly dividend of CA$0.50 per share for June. While second-quarter production is expected to dip slightly to 620,000 Boe per day, the company is maintaining its full-year midpoint target at 645,000 Boe per day. Thanks to its marketing strategies, Tourmaline’s average realized natural gas price in the first quarter reached CA$4.30 per thousand cubic feet, significantly higher than the peer average of CA$2.19. The company expects daily production to climb to 850,000 Boe by 2030.
Analysts indicate that both companies’ strong cost control, strategic asset optimization, and commitment to shareholder returns during industry volatility lay a foundation for future revaluation as the cycle recovers. As market sentiment improves, investors who position themselves early could potentially benefit from both a valuation recovery and dividends, particularly in the context of the global energy transition.
